Dave & Buster's Entertainment, Inc. (PLAY) FY 2023 MD&A

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 thousands, unless otherwise noted, except share and per share amounts.

The following discussion and analysis should be read in conjunction with the financial statements and accompanying notes included in this report. Discussion regarding our financial condition and results of operations for fiscal 2021 compared with fiscal 2020 is included in Item 7 of our fiscal 2021 Annual Report on Form 10-K filed March 29, 2022. In the Financial Highlights section below, we discuss certain fiscal 2022 results in comparison to fiscal 2019 as that was the last full fiscal year of results that were not impacted by the COVID-19 pandemic.

Recent Events

On June 29, 2022, the Company completed its acquisition (the “Main Event Acquisition” or “the Acquisition”) including 49 family entertainment centers under the Main Event brand and 3 family entertainment centers under the name The Summit (collectively referred to as “Main Event”), operating in 17 states. Refer to Note 2, Business Combinations, to the Consolidated Financial Statements for further details.

Financial Highlights

•Revenue of $1,964,427 increased 50.6% compared with $1,304,056 in fiscal 2021 and increased 45.0% compared with fiscal 2019. Main Event branded stores contributed $288,778 of revenue during fiscal 2022.

•Comparable sales at Dave & Buster’s branded stores increased 24.8% compared with fiscal 2021 and 11.6% compared with fiscal 2019.

•Net income totaled $137,135, or $2.79 per diluted share, compared with net income of $108,640, or $2.21 per diluted share in fiscal 2021. Net income for fiscal 2022 was impacted by $25,257 of incremental acquisition and integration costs related to the Main Event Acquisition.

•Adjusted EBITDA totaled $480,367, or 24.5% of revenues, compared with Adjusted EBITDA of $343,575, or 26.3% of revenues, in fiscal 2021 and $289,251, or 22.8% of revenues, in fiscal 2019. 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 Company ended the year with $672,686 million of liquidity, which included $181,591 in cash and $491,095 available under its $500 million revolving credit facility.

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 amusement all in one location. Our amusement offerings provide an extensive assortment of entertainment 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 four key components, including offering the latest entertainment to enjoy together, novel food & drink to bring people together, creating an aligned team and integrated experience, and driving customer engagement. For further information about our strategy, refer to “Item 1. Strategy”.

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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. Due to the limitations of store operations during the COVID-19 pandemic, the comparable store base for fiscal 2021 and fiscal 2022 is defined as stores open for a full 18 months before the beginning of fiscal 2020 and excludes two stores that the Company elected not to reopen after they were closed in March 2020 due to local operating limitations and one store in Cary, North Carolina that was closed and relocated during the fourth quarter of fiscal 2021. Our comparable store base consisted of 113 stores as of the end of fiscal 2022 and 2021.

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. During fiscal 2022, we opened seven new Dave & Buster's stores, added 52 stores as a result of the Main Event Acquisition on June 29, 2022, and opened one Main Event store since they were acquired. We currently plan to open sixteen stores in fiscal 2023.

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 vary from period to period and do not directly relate to the ongoing operations of the currently underlying business of our stores and therefore complicate comparison of 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 extinguishment/refinance, 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 (defined at Liquidity and Capital Resources below). Other adjustments include (i) amusement 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

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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 extinguishment/refinance 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. Each quarterly period has 13 weeks, except in a 53-week year when the fourth quarter has 14 weeks. Fiscal 2022, 2021 and 2020, which ended on January 29, 2023, January 30, 2022, and January 31, 2021, respectively, each contained 52 weeks. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.

Store-Level Variability, Quarterly Fluctuations, Seasonality and Inflation

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

Our new stores 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. Furthermore, rents in our new stores are typically higher than our comparable store base.

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. During fiscal 2020 and fiscal 2021, results also fluctuated due to the timing and frequency of temporary closures and operating restrictions due to state and local guidelines imposed due to the COVID-19 pandemic.

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.

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Fiscal 2022 Compared to Fiscal 2021

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

(1)We opened eight new stores and acquired 52 stores as a result of the Main Event Acquisition (see Note 2, Business Combinations, to the Consolidated Financial Statements) during fiscal 2022. Our total and comparable store counts as of the end of fiscal 2021 exclude a store in Cary, North Carolina, which was closed on January 2, 2022, and relocated prior to the end of our fiscal year. We opened five new stores during fiscal 2021, including our relocated Cary, North Carolina store.

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Reconciliations of Non-GAAP Financial Measures

Adjusted EBITDA

The following table reconciles Net income to Adjusted EBITDA for the periods indicated:

(1)Fiscal 2021 includes a $3,230 severance obligation to the Company’s former Chief Executive Officer, who terminated his service in this position effective September 30, 2021.

(2)We have historically added back store pre-opening costs to calculated Adjusted EBITDA. To more closely align our reported Adjusted EBITDA with recurring operating cash flows, we excluded pre-opening costs from Adjusted EBITDA beginning fiscal 2022. Adjusted EBITDA for fiscal 2021 has been adjusted to reflect a comparable presentation.

Store Operating Income Before Depreciation and Amortization

The following table reconciles Operating income to Store Operating Income Before Depreciation and Amortization for the periods indicated:

Capital Additions

The following table reflects accrual-based capital additions. Capital additions do not include any reductions for accrual-based tenant improvement allowances or proceeds from sale-leaseback transactions (collectively, “Payments from landlords”).

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Results of Operations

Revenues - Selected revenue and store data for the periods indicated are as follows:

(1)     Noncomparable store revenues and operating weeks includes all of the acquired Main Event stores as they were owned less than 18 months during fiscal 2022. See further discussion of the definition of comparable and noncomparable stores at Key Measures of Our Performance above.

Total revenues increased $660,371, or 50.6%, to $1,964,427 in fiscal 2022 compared to $1,304,056 in fiscal 2021. The increase in revenue is primarily attributable to $288,778 in revenue from our Main Event stores, and a 24.8% increase in comparable store sales. Comparable store revenue increased due primarily to increased special event incidence, increases in food and beverage prices in the third quarter of fiscal 2021 and in fiscal 2022, and a 3.7% increase in comparable store operating weeks. Noncomparable store revenue increased $394,515 in fiscal 2022 compared to fiscal 2021 primarily due to the acquisition 52 stores as a result of the Main Event Acquisition and new store openings during the year.

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

The shift in mix from amusement sales to food and beverage sales is due, in part, to increased special events, and food price increases effective midway through the third quarter of fiscal 2021. Food sales at comparable stores increased by $76,377, or 31.7%, to $317,503 in fiscal 2022 from $241,127 in fiscal 2021. Beverage sales at comparable stores increased by $35,663, or 30.5%, to $152,670 in fiscal 2022 from $117,006 in fiscal 2021. Comparable store amusement and other revenues in fiscal 2022 increased by $152,762, or 21.6%, to $860,714 in fiscal 2022 from $707,952 in fiscal 2021.

Cost of products - The total cost of products was $308,864 for fiscal 2022 and $204,971 for fiscal 2021. The total cost of products as a percentage of total revenues was consistent at 15.7% for fiscal 2022 and fiscal 2021.

Cost of food and beverage products increased to $193,742 compared to $119,123 for fiscal 2021. Cost of food and beverage products, as a percentage of food and beverage revenues, increased 130 basis points to 28.6% for fiscal 2022 from 27.3% for fiscal 2021. The increase was due to unfavorable impacts of commodity cost increases, primarily in meat and dairy products, during fiscal 2022, and were partially offset by food price increases.

Cost of amusement and other increased to $115,122 in fiscal 2022 compared to $85,848 in fiscal 2021. The costs of amusement and other, as a percentage of amusement and other revenues, decreased 90 basis points to 9.0% for fiscal 2022 from 9.9% for fiscal 2021. This decrease was driven primarily by a change in prices at the game level implemented late in fiscal 2021 and in fiscal 2022.

Operating payroll and benefits - Total operating payroll and benefits increased to $470,729 in fiscal 2022 compared to $287,263 in fiscal 2021. The total cost of operating payroll and benefits as a percentage of total revenues was 24.0% in fiscal 2022 compared to 22.0% in fiscal 2021. This increase is primarily due to hourly wage rate increases and an increase

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in labor hours worked and management salaries as open positions were filled, partially offset by lower incentive compensation costs as fiscal 2021 included referral and retention incentives.

Other store operating expenses - Other store operating expenses increased to $600,568 in fiscal 2022 compared to $402,661 in fiscal 2021. The increase is primarily due to higher utilities, supplies, maintenance, marketing, and other services as well as $88,532 of costs related to Main Event. Other store operating expense as a percentage of total revenues decreased to 30.6% in fiscal 2022 compared to 30.9% in fiscal 2021. This decrease was due primarily to favorable sales leverage.

General and administrative expenses - General and administrative expenses increased to $137,837 in fiscal 2022 compared to $75,501 in fiscal 2021. The increase in general and administrative expenses was driven by $25,257 of transaction and integration costs related to the Main Event Acquisition, $1,841 impairment of the existing Main Event corporate office right-of-use operating lease asset, higher payroll and incentive compensation, and higher stock-based compensation expense. General and administrative expenses, as a percentage of total revenues increased to 7.0% in fiscal 2022 compared to 5.8% in fiscal 2021 due to the reasons noted above.

Depreciation and amortization expense - Depreciation and amortization expense increased to $169,302 in fiscal 2022 compared to $138,329 in fiscal 2021. The increase was due to incremental depreciation related to the Main Event acquisition of $33,798, partially offset by a net decrease in depreciation expense at Dave & Buster’s branded stores. The impact of assets reaching the end of their depreciable lives exceeded expense increases due to recent capital expenditures for new stores, operating initiatives, games, and maintenance capital.

Pre-opening costs - Pre-opening costs increased to $14,620 compared to $8,150 in fiscal 2021 primarily due to opening eight new stores in fiscal 2022 compared to five in fiscal 2021.

Interest expense, net and Loss on debt extinguishment / refinance - Interest expense, net increased to $87,364 in fiscal 2022 compared to $53,910 in fiscal 2021 primarily due to incremental acquisition-related debt of $850,000. Additionally, in connection with the June 29, 2022 debt refinancing, the Company recorded a loss of $1,479 in fiscal 2022, which is explained in Note 7 to the Consolidated Financial Statements. The Company recorded a loss on extinguishment of $5,617 during fiscal 2021 in connection with the early extinguishment of a portion of the Notes then outstanding.

Provision for income taxes - The effective tax rate for fiscal 2022 was 21.0%, compared to 14.9% in fiscal 2021. The previous year tax provision includes higher excess tax benefits associated with share-based compensation and credits associated with the reversal of certain tax valuation allowances.

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Liquidity and Capital Resources

Debt

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 $500,000 existing revolving facility, extended the maturity date to June 29, 2027, and added a new term loan facility in the aggregate principal amount of $850,000, with a maturity date of June 29, 2029 (“Credit Facility”). The proceeds of the term loan, net of an original issue discount of $42,500, 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 Notes exceeds $100,000 ninety-one days prior to November 1, 2025. A portion of the revolving facility not to exceed $35,000 is available for the issuance of letters of credit. At the end of fiscal 2022, we had letters of credit outstanding of $8,905 and an unused commitment balance of $491,095 under the revolving facility. The Credit Facility may be increased through incremental facilities, by an amount equal to the greater of (i) $400,000 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. Because there were no borrowings outstanding under the revolving facility, the Company was not subject to the leverage ratio and/or interest coverage ratio requirements as of January 29, 2023. 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’s") existing and future wholly owned material domestic subsidiaries.

The interest rates per annum applicable to Secured Overnight Financing Rate ("SOFR") term loans are 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 interest rates per annum applicable to SOFR revolving loans are based on the term loan SOFR rate, 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 SOFR revolving loans are subject to a pricing grid based on net total leverage, ranging from 4.25% to 4.75%, and commitment fees are subject to a pricing grid based on net total leverage, ranging from 0.30% to 0.50%.

During fiscal 2020, the Company issued $550,000 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 $110,000 outstanding principal amount of the Notes, and paid prepayment premiums of $3,300, plus accrued and unpaid interest to the date of redemptions. The early redemptions of the Notes resulted in a loss on extinguishment of approximately $2,300 related to a proportional amount of unamortized issuance costs. 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.

For fiscal 2022 and fiscal 2021, the Company’s weighted average interest rate on outstanding borrowings was 9.6% and 10.3%, respectively.

Amortization of debt issuance costs and original issue discount was $8,466, $4,244 and $2,184 for fiscal 2022, fiscal 2021 and fiscal 2020, respectively, and is included in “Interest expense, net” in the Consolidated Statements of Comprehensive Income (Loss). During the second quarter of fiscal 2022, the Company recognized a loss of $1,479, related to the write off of unamortized debt issuance costs associated with exiting creditors of the refinanced revolving facility.

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 of 3.5:1, as defined, as of the end of each fiscal quarter, beginning with the first full fiscal quarter after the Closing Date. We believe we were in compliance with the covenants and terms of our debt agreements as of January 29, 2023.

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Credit Adjusted EBITDA and Net Total Leverage Ratio

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

(1)     Total adjustment amount for Main Event for periods prior to the Company's ownership during the trailing four quarter Test Period, as defined on a Pro Forma Basis in our Credit Facility.

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Dividends and Share Repurchases

On December 6, 2021, our Board of Directors approved a share repurchase program with an authorization limit of $100,000, which expired during fiscal 2022. During fiscal 2022, we repurchased 764,988 shares under this program at an average cost per share of $32.70 for a total cost of $25,015. There were no repurchases of our common stock during fiscal 2021.

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 and other factors that the Board of Directors considers relevant. There were no dividends declared in either fiscal 2022 or fiscal 2021.

Cash Flow Summary

The Company ended the year with $672,686 million of liquidity, which included $181,591 in cash and $491,095 available under its $500 million revolving credit facility.

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 increased to $444,468 in fiscal 2022 compared to $283,128 in fiscal 2021 driven primarily by the 52 stores added as a result of the Main Event Acquisition, the opening of eight new stores, the additional 210 operating weeks for our comparable stores in fiscal 2022 and the receipt of a federal tax refund in the amount of approximately $44,200. These increases in cash flow from operating activities were offset by the payment of acquisition and integration costs of $25,257.

Investing Activities — Cash flow from investing activities historically reflects primarily capital expenditures. In fiscal 2022, the Company spent $234,224 for new store construction and operating improvement initiatives, game refreshment and maintenance capital. In fiscal 2021, the Company spent $92,197 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 June 2022 for $818,666. See further discussion at Note 2 to the Consolidated Financial Statements.

Financing Activities — Cash flow from financing activities in fiscal 2022 primarily reflected net term loan proceeds from debt of $807,500 as a result of entering into a new credit facility agreement in June 2022. The proceeds were used to pay for the Main Event Acquisition, including $17,748 of debt issuance costs associated with the refinancing. Additionally, the Company received $8,719 of proceeds related to the exercise of stock options by employees of the Company, repurchased shares at a cost of $25,015 under a share repurchase program and repurchased $8,525 of shares that were withheld for tax purposes on behalf of employees of the Company.

In fiscal 2021, the Company had net repayments of $60,000 of its revolving credit facility and a repayment related to the early extinguishment of $110,000 principal of the Notes. The Company received $5,124 of proceeds related to the exercise of stock options by employees of the Company. The Company also repurchased $9,465 related to shares withheld for tax purposes on behalf of employees of the Company.

Contractual and Other Commitments

The Company had the following obligations as of January 29, 2023:

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

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

•Software as a service subscription commitments of approximately $10,000 to be paid in annual installments of approximately $2,000 through fiscal 2028

•Approximately $9,100 of minimum food purchase commitments through the end of fiscal 2023

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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 amusement operations. Amusement 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 amusement revenues for the estimated unfulfilled performance obligations based on an estimated rate of future use by customers of unused game play credits and the material right provided to customers to redeem tickets in the future for prizes. 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. We assess the recoverability of goodwill 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 January 29, 2023 was $744,480, of which $272,642 related to the Dave & Buster's operating segment and $471,838 related to the goodwill added as a result of the Main Event Acquisition. We performed our annual impairment test in the fourth quarter of fiscal 2022 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 was less than their carrying values.

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 (“ROU”) 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

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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 of Notes to the Consolidated Financial Statements for information regarding new accounting pronouncements.