Dave & Buster's Entertainment, Inc.: Form 10-Q for the period ended Jul 30, 2023

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 28, 2023. Amounts included in the following discussion, except for operating weeks and per share amounts, are rounded in millions.

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 28, 2023. 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, such results or developments may not be indicative of results or developments in subsequent periods.

Quarterly Financial Highlights

• Record second quarter revenue of $542.1 million increased 15.7% from the second quarter of 2022.
• Pro forma combined comparable store sales (including Main Event branded stores) decreased 6.3% compared with the same period in 2022 and increased 5.8% compared with the same period in 2019.
• Net income totaled $25.9 million, or $0.60 per diluted share, compared with net income of $29.1 million, or $0.59 per diluted share in the second quarter of 2022.
• Record Adjusted EBITDA of $140.3 million in the quarter increased 21.3% from the second quarter of 2022.
• Ended the second quarter with $568.8 million of liquidity, which included $82.6 million in cash and $490.2 million available under its $500 million revolving credit facility.
• The Company purchased 2.1 million shares at a total cost of $74.5 million in the second quarter. Total share repurchases to date in fiscal 2023 are 5.7 million shares totaling $200.0 million and representing 11.8% of the Company's outstanding shares as of the end of fiscal 2022.
• The Company opportunistically amended its credit agreement, reducing the interest rate margin applicable to term loans and revolving loans outstanding under the credit agreement by 1.25%.
• The Company opened two new Dave & Buster's stores in Lubbock, TX and Queen Creek, AZ and one new Main Event store in Greenville, SC in the second quarter. Subsequent to the end of the quarter, the Company opened one new Dave & Buster's store in Des Moines, IA and one new Main Event store in Fayetteville, NC.

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 “Dave & Buster’s” and “Main Event” brands. The core of our concept is to offer our customers quality dining and various forms of entertainment 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.

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 open for a full 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 the thirteen and twenty-six weeks ended July 30, 2023.

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. For the twenty-six weeks ended July 30, 2023, we opened seven new stores (three Dave & Buster's branded stores and four Main Event branded stores).

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 (benefit) for income taxes, depreciation and amortization expense, loss on asset disposal, 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 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.

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, (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.

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, 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

We operate on a 52-week 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 second quarter of 2023 relate to the 13-week period ended July 30, 2023. All references to the second quarter of 2022 relate to the 13-week period ended July 31, 2022. Fiscal 2023 consists of 53 weeks and fiscal 2022 consists of 52 weeks. All dollar amounts are presented in millions, unless otherwise noted, except 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 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 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 historically have fluctuated due to seasonal factors. Typically, we have higher revenues associated with the 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 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. 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.

Thirteen Weeks Ended July 30, 2023 Compared to Thirteen Weeks Ended July 31, 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 unaudited consolidated statements of comprehensive income.

Reconciliations of Non-GAAP Financial Measures

Adjusted EBITDA

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

Store Operating Income Before Depreciation and Amortization

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

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”).

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Results of Operations

Revenues

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

Revenue mix by category, as a percentage of total revenues, for the periods indicated was as follows:

Total revenues increased $73.7 million, or 15.7%, to $542.1 million in the second quarter of 2023 compared to $468.4 million in the second quarter of 2022. The increase in revenue is primarily attributable to $82.3 million of increased revenue from our Main Event stores, which were acquired on June 29, 2022, and $18.7 million in incremental revenue from new, noncomparable, Dave & Buster's stores, partially offset by a 7.1% 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 the second quarter of 2023 decreased by $21.7 million, or 8.2%, to $241.5 million from $263.2 million in the second quarter of 2022. Food sales at comparable stores decreased by $6.9 million, or 7.3%, to $87.7 million in the second quarter of 2023 from $94.6 million in the second quarter of 2022. Beverage sales at comparable stores increased by $0.2 million, or 0.5%, to $41.4 million in the second quarter of 2023 from $41.2 million in the second quarter of 2022.

Cost of products

The total cost of products was $83.6 million for the second quarter of 2023 compared to $75.6 million for the second quarter of 2022. The total cost of products as a percentage of total revenues decreased to 15.4% for the second quarter of 2023 compared to 16.1% for the second quarter of 2022.

Cost of entertainment was $34.4 million in the second quarter of 2023 compared to $29.1 million in the second quarter of 2022. The cost of entertainment, as a percentage of entertainment revenues, increased to 9.5% for the second quarter of 2023 from 9.3% in the second quarter of 2022.

Cost of food and beverage products was $49.2 million for the second quarter of 2023 compared to $46.5 million for the second quarter of 2022. Cost of food and beverage products, as a percentage of food and beverage revenues, decreased to 27.1% for the second quarter of 2023 from 29.6% for the second quarter of 2022. The decrease was primarily attributable to food and beverage menu price increases and the mix of products sold.

Operating payroll and benefits

Total operating payroll and benefits was $127.0 million in the second quarter of 2023 compared to $113.6 million in the second quarter of 2022. The total cost of operating payroll and benefits as a percentage of total revenues was 23.4% in the second quarter of 2023 compared to 24.3% in the second quarter of 2022. This decrease is primarily due to labor management efficiencies, partially offset by hourly wage rate and manager salary increases.

Other store operating expenses

Other store operating expenses was $169.1 million in the second quarter of 2023 compared to $142.5 million in the second quarter of 2022. The increase is primarily due to the additional store operating hours related to our Main Event stores, the impact of Dave & Buster’s new store openings, and higher occupancy costs, utilities, maintenance, security, cleaning services and marketing costs. Other store operating expense as a percentage of total revenues increased to 29.8% in the second quarter of 2023 compared to 29.0% in the second quarter of 2022. This increase in basis points was due primarily to increased occupancy costs, security, cleaning services, and marketing costs.

General and administrative expenses

General and administrative expenses decreased to $32.2 million in the second quarter of 2023 compared to $37.7 million in the second quarter of 2022. The decrease in general and administrative expenses was driven primarily by synergies subsequent to the Main Event acquisition, partially offset by higher stock based compensation expense and system implementation costs. General and administrative expenses as a percentage of total revenues decreased to 5.9% in the second quarter of 2023 compared to 8.0% in the second quarter of 2022 due primarily to sales leverage.

Depreciation and amortization expense

Depreciation and amortization expense increased to $49.1 million in the second quarter of 2023 compared to $38.6 million in the second quarter of 2022, primarily due to the addition of Main Event.

Pre-opening costs

Pre-opening costs increased to $4.0 million in the second quarter of 2023 compared to $3.9 million in the second quarter of 2022 primarily due to pre-opening costs related to Main Event stores, partially offset by a decrease in costs related to the timing of Dave & Buster's store openings in 2023.

Interest expense, net

Interest expense, net increased to $32.9 million in the second quarter of 2023 compared to $17.1 million in the second quarter of 2022 due primarily to an increase in average outstanding debt. See further discussion of the Company's debt activity at Note 6 to the consolidated financial statements.

Loss on debt refinancing

Loss on debt refinancing increased to $11.2 million in the second quarter of 2023 compared to $1.5 million in the second quarter of 2022 due primarily to debt refinancing in June of 2023 and June of 2022, respectively. See further discussion of the Company's debt activity at Note 6 to the consolidated financial statements.

Provision for income taxes

The effective tax rate for the second quarter of 2023 was 21.5%, compared to 23.2% for the second quarter of 2022. The second quarter of 2023 includes a favorable state apportionment impact resulting from the acquisition of Main Event and legal entity restructuring as well as lower permanent differences, primarily non-deductible transaction costs as compared to the prior year.

Twenty-Six Weeks Ended July 30, 2023 Compared to Twenty-Six Weeks Ended July 31, 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 unaudited consolidated statements of comprehensive income.

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Reconciliations of Non-GAAP Financial Measures

Adjusted EBITDA

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

Store Operating Income Before Depreciation and Amortization

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

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”).

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Results of Operations

Revenues

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

Revenue mix by category, as a percentage of total revenues, for the periods indicated was as follows:

Total revenues increased $219.9 million, or 23.9%, to $1,139.4 in the twenty-six weeks ended July 30, 2023 compared to $919.5 million in the twenty-six weeks ended July 31, 2022. The increase in revenue is primarily attributable to $220.6 million of increased revenue from our Main Event stores, which were acquired on June 29, 2022, and $44.6 million in revenue from new, noncomparable, Dave & Buster's stores, partially offset by a 5.5% 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 the twenty-six weeks ended July 30, 2023 decreased by $42.4 million, or 7.6%, to $518.5 million from $560.9 million in the twenty-six weeks ended July 31, 2022. Food sales at comparable stores decreased by $5.9 million, or 3.1%, to $187.3 million in the twenty-six weeks ended July 30, 2023 from $193.2 million in the twenty-six weeks ended July 31, 2022. Beverage sales at comparable stores increased by $1.6 million, or 1.8%, to $92.1 million in the twenty-six weeks ended July 30, 2023 from $90.5 million in the twenty-six weeks ended July 31, 2022.

Cost of products

The total cost of products was $173.9 million for the twenty-six weeks ended July 30, 2023 and $145.6 million for the twenty-six weeks ended July 31, 2022. The total cost of products as a percentage of total revenues decreased to 15.3% for the twenty-six weeks ended July 30, 2023 compared to 15.8% for the twenty-six weeks ended July 31, 2022.

Cost of entertainment increased to $68.7 million in the twenty-six weeks ended July 30, 2023 compared to $55.9 million in the twenty-six weeks ended July 31, 2022. The cost of entertainment, as a percentage of entertainment revenues, decreased to 9.1% for the twenty-six weeks ended July 30, 2023 from 9.2% in the twenty-six weeks ended July 31, 2022.

Cost of food and beverage products increased to $105.2 million for the twenty-six weeks ended July 30, 2023 compared to $89.7 million for the twenty-six weeks ended July 31, 2022. Cost of food and beverage products, as a percentage of food and beverage revenues, decreased to 27.3% for the twenty-six weeks ended July 30, 2023 from 29.0% for the twenty-six weeks ended July 31, 2022. The decrease was primarily attributable food and beverage menu price increases and product mix.

Operating payroll and benefits

Total operating payroll and benefits increased to $257.6 million in the twenty-six weeks ended July 30, 2023 compared to $207.0 million in the twenty-six weeks ended July 31, 2022. The total cost of operating payroll and benefits as a percentage of total revenues was 22.6% in the twenty-six weeks ended July 30, 2023 compared to 22.5% in the twenty-six weeks ended July 31, 2022. This increase is primarily due to hourly wage rate and manager salary increases, partially offset by labor management efficiencies.

Other store operating expenses

Other store operating expenses increased to $339.1 million in the twenty-six weeks ended July 30, 2023 compared to $266.9 million in the twenty-six weeks ended July 31, 2022. The increase is primarily due to the additional store operating hours related to our Main Event stores, the impact of Dave & Buster’s new store openings, and higher occupancy costs, utilities, maintenance, security, cleaning services and marketing costs. Other store operating expense as a percentage of total revenues increased to 29.8% in the twenty-six weeks ended July 30, 2023 compared to 29.0% in the twenty-six weeks ended July 31, 2022. This increase in basis points was due primarily to increased security, cleaning services, and marketing costs.

General and administrative expenses

General and administrative expenses decreased to $63.6 million in the twenty-six weeks ended July 30, 2023 compared to $66.0 million in the twenty-six weeks ended July 31, 2022. The decrease in general and administrative expenses was driven primarily by $18.3 million of transaction and integration costs during the prior year period, partially offset by higher stock based compensation expense and system implementation costs. General and administrative expenses as a percentage of total revenues decreased to 5.6% in the twenty-six weeks ended July 30, 2023 compared to 7.2% in the twenty-six weeks ended July 31, 2022 due primarily to the reasons noted above.

Depreciation and amortization expense

Depreciation and amortization expense increased to $98.0 million in the twenty-six weeks ended July 30, 2023 compared to $71.9 million in the twenty-six weeks ended July 31, 2022, primarily due to the acquired Main Event stores.

Pre-opening costs

Pre-opening costs increased to $8.7 million in the twenty-six weeks ended July 30, 2023 compared to $6.9 million in the twenty-six weeks ended July 31, 2022 primarily related to growth in the pipeline of new store openings in the twenty-six weeks ended July 30, 2023 compared to the twenty-six weeks ended July 31, 2022.

Interest expense, net

Interest expense, net increased to $63.6 million in the twenty-six weeks ended July 30, 2023 compared to $28.5 million in the twenty-six weeks ended July 31, 2022 due primarily to an increase in average outstanding debt. See further discussion of the Company's debt activity at Note 6 to the consolidated financial statements.

Loss on debt refinancing

Loss on debt refinancing increased to $11.2 million in the twenty-six weeks ended July 30, 2023 compared to $1.5 million in the twenty-six weeks ended July 31, 2022 due to the debt refinancing in June of 2023 and June of 2022, respectively. See further discussion of the Company's debt activity at Note 6 to the consolidated financial statements.

Provision for income taxes

The effective tax rate for the twenty-six weeks ended July 30, 2023 was 22.4%, compared to 23.3% for the twenty-six weeks ended July 31, 2022. The current year tax provision includes a favorable state apportionment impact resulting from the acquisition of Main Event and legal entity restructuring as well as lower permanent differences, primarily non-deductible transaction costs as compared to the prior year.

Liquidity and Capital Resources

Debt

In connection with the closing of the Main Event Acquisition on June 29, 2022, D&B Inc 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 Acquisition. The revolving credit facility can expire before the stated maturity date if the aggregate outstanding principal amount of the 7.625% senior secured notes (described below) exceeds $100.0 million 91 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.

On June 30, 2023, D&B Inc entered into the Amendment with its banking syndicate, which amended the Credit Facility. The Amendment provides for a new tranche of term loans in an aggregate principal amount of $900.0 (the “2023 Term B Loans”) which consist of $843.6 of 2023 refinancing Term B Loans which refinanced in full the term loans outstanding immediately prior to the Amendment effective date and $56.4 of 2023 additional Term B Loans, which will be used for general corporate and working capital purposes. The 2023 Term B Loans 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 Agreement 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 may be prepaid at any time, without premium or penalty, but are 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 is made at any time during the first six months after the Amendment effective date.

The 2023 Term B Loans will bear interest at Term SOFR (plus an additional credit spread adjustment of 0.10%) or ABR (each, as defined in the amended Credit Agreement) 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 will continue to bear interest subject to a pricing grid based on the Borrower’s 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%.

As of July 30, 2023, we had letters of credit outstanding of $9.8 million and an unused commitment balance of $490.2 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, plus additional amounts subject to compliance with applicable leverage ratio and/or interest coverage ratio requirements. The Credit Facility is unconditionally guaranteed by D&B Holdings and certain of D&B Inc’s existing and future wholly owned material domestic subsidiaries.

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 2022, the Company redeemed a total of $110.0 million outstanding principal amount of the Notes. Beginning October 27, 2022, 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.

The Company’s weighted average effective interest rate on our total debt facilities was 10.3% and 10.1% for the twenty-six weeks ended July 30, 2023 and July 31, 2022, respectively.

Our debt agreements 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. The Credit Facility also requires the Company to maintain a maximum net total leverage ratio, as defined, as of the end of each fiscal quarter, beginning with the Company’s first full fiscal quarter after the Closing Date. We were in compliance with our covenants and the terms of our debt agreements as of July 30, 2023.

Credit Adjusted EBITDA and Net Total Leverage Ratio.

The following table reconciles Net income to Credit Adjusted EBITDA, as defined in our Credit Facility for the periods indicated:

The following table calculates Net Total Leverage Ratio, as defined in our Credit Facility, as of and for the period indicated:

(1) Amount equals the face amount of debt outstanding less unamortized debt issuance costs and debt discount.

Dividends and Share Repurchases

On March 27, 2023, our Board of Directors approved a share repurchase program with an authorization limit of $100.0. During the twenty-six weeks ended July 30, 2023, the Company repurchased the full $100.0 authorized amount. On April 19, 2023, our Board of Directors approved an increase to the authorization limit of $200.0 for a total of $300.0 authorized under the program. During the twenty-six weeks ended July 30, 2023, the Company repurchased 5.70 million shares at an average of $35.12 per share. The remaining dollar value of shares that may be repurchased under the program is $100.0 as of July 30, 2023. The repurchase program expires at the end of fiscal 2023.

There were no dividends declared or paid during the thirteen and twenty-six weeks ended July 30, 2023. Future decisions to pay cash dividends or repurchase shares continue to be at the discretion of the Board of Directors and will be dependent on our operating performance, financial condition, capital expenditure requirements, compliance with debt agreements and other factors that the Board of Directors considers relevant.

Cash and Cash Equivalents

As of July 30, 2023, the Company had cash and cash equivalents of $82.6 million. 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.

Cash Flow Activity

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 $196.2 million for the twenty-six weeks ended July 30, 2023 compared to $233.1 million for the twenty-six weeks ended July 31, 2022 driven primarily by the receipt of a federal tax refund in the amount of approximately $33.2 million during the twenty-six weeks ended July 31, 2022 and the timing of changes in working capital.

Investing Activities — Cash flow used in investing decreased to $133.4 million for the twenty-six weeks ended July 30, 2023 from $922.2 million for the twenty-six weeks ended July 31, 2022 primarily due to the $822.7 net cash paid for the acquisition of Main Event in the twenty-six weeks ended July 31, 2022, partially offset by an increase in capital expenditures.

Financing Activities — Cash flow used in financing was $161.8 million in the twenty-six weeks ended July 30, 2023 compared to cash flow provided by financing activities of $763.6 million in the twenty-six weeks ended July 31, 2022.

The net cash outflow for the twenty-six weeks ended July 30, 2023 primarily consisted of:

• $200.0 million of share repurchases and associated commissions,
• $44.3 million of payments on outstanding debt and revolver balances and
• $3.1 million of debt issuance costs incurred,
• partially offset by $87.4 million of net debt proceeds.

The net cash inflow for the twenty-six weeks ended July 31, 2022 primarily consisted of:

• $821.5 million of net debt proceeds,
• $5.6 million of proceeds related to exercises of stock options,
• partially offset by $25.0 million of share repurchases,
• $14.0 million payments on revolver balances and $17.7 million of debt issuance costs incurred.

Contractual Obligations and Commitments

Other than the activity discussed at Debt above, there have been no material changes outside the ordinary course of business to our contractual obligations since January 29, 2023, as reported on Form 10-K filed with the SEC on March 28, 2023.

Accounting policies and estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. These estimates and assumptions affect amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the consolidated financial statements. Our current estimates are subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on an ongoing basis, and we adjust our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates we used in preparing the accompanying consolidated financial statements. A complete description of our critical accounting policies and estimates is included in our annual consolidated financial statements and the related notes in our Annual Report on Form 10-K for the fiscal year ended January 29, 2023.

Recent accounting pronouncements

Refer to Note 1 to the Unaudited Consolidated Financial Statements for information regarding new accounting pronouncements.

Commodity Price Risk

We are exposed to market price fluctuation in food, beverage, supplies and other costs such as energy. Given the historical volatility of certain of our food product prices, including proteins, seafood, produce, dairy products, and cooking oil, these fluctuations can materially impact our food costs. While our purchasing commitments partially mitigate the risk of such fluctuations, there is no assurance that supply and demand factors such as disease or inclement weather will not cause the prices of the commodities used in our restaurant operations to fluctuate. Additionally, the cost of purchased materials may be influenced by tariffs and other trade regulations which are outside of our control. To the extent that we do not pass along cost increases to our customers, our results of operations may be adversely affected.

Interest Rate Risk

In the second quarter of fiscal 2022, the Company elected SOFR as the alternative base rate for outstanding borrowings on the Credit Facility, which is based on variable rates. As of July 30, 2023, the Company had no balance outstanding on our revolving facility and an outstanding balance of $900.0 million on the term loan facility. The impact on our annual results of operations of a hypothetical one percentage point interest rate change on the outstanding balance of the credit facility as of July 30, 2023 would be approximately $9.0 million.

Inflation

Severe increases in inflation could affect the United States or global economies and have an adverse impact on our business, financial condition and results of operation. If several of the various costs in our business experience inflation at the same time, such as commodity price increases beyond our ability to control and increased labor costs, we may not be able to adjust prices to sufficiently offset the effect of the various cost increases without negatively impacting consumer demand.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting practices or processes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during our second quarter ended July 30, 2023. The Main Event Acquisition had a material impact on internal control over financial reporting. The Company will include Main Event in our evaluation of internal control over financial reporting for the fiscal year ending February 4, 2024.

See discussion in “Risk Factors” in Item 1A of the Company's Annual Report on Form 10-K for the year ended January 29, 2023.