Establishes Another Lane For Growth

Rolled Another Solid Quarter

A Valuable Lesson On Pricing

Significant Cash Haul; Unrecognized Real Estate Portfolio

Communication Services

Media - Diversified

Bowlero Corp. Class A

Investment Appraisal
FY Q3 revenue came in at $337.7 million, which was in-line with our estimate of $337.0 million,&nbsp; Adj. EBITDA for the quarter was $122.8 million, below our estimate of $132.5 million by 7.3% as illustrated in Figure #1 Results. The quarter was adversely impacted by poor weather during the first three weeks of January, its highest month of profitability in the quarter. In spite of the impact from inclement weather, adj. EBITDA margin was a healthy 37% in Q3.&nbsp;Notably, event revenue continues to be a source of strength for the company, up 27% from the prior year period, and bowling league revenue was up 9% year over year.&nbsp; 
 
The company added 23 new locations so far in FY 2024, 2 of which came in the latest fiscal Q3, including the Lucky Strike Miami location. Additionally, the company has 4 new builds opening in the next nine months. Management indicated that same store event sales comps remain positive in the low to mid single digits, with April ending up over 15%. We believe there is favorable same store revenue momentum, combined with the new locations and a recent acquisition, supports our favorable view in fiscal 2025. 
Looking forward toward fiscal Q4 and the fiscal full year, management indicated that the results are expected to be at the low end of its previous guidance range. Given that we tend to be conservative in our estimates, the adj. EBITDA guidance for the year implies that the fourth quarter adj. EBITDA will be above our estimates. For FY Q4, we are raising our adj. EBITDA forecast from $77.5 million to $86.5 million,&nbsp; but lowering our FY Q4 revenue forecast from $275 million to $270 million as illustrated in Figure #2 Revisions. Notably, our improved adj. EBITDA forecast for Q4 reflects lower payroll expenses in the quarter and the absence of litigation costs, estimated to be several million. On April 12, the EEOC issued closure notices for approximately 73 individual age discrimination charges that were filed against the company, dismissing the charges and indicating that it will not bring suit against the company in the individual cases. On May 3, the EEOC issued an additional closure notice which effectively closed its investigation.&nbsp;
Additionally, we are taking a conservative approach with respect to our Q4 revenue forecast. After flowing through the recent fiscal third quarter results, our FY 2024 revenue and adj. EBITDA forecasts fall near the low end of management issued guidance of $1.14 billion to $1.19 billion in revenue and $365 million to $405 million in adj. EBITDA. Our revisions put our estimates in line with management&#8217;s guidance for the fiscal year to be at the low end of its previous estimates. We are maintaining our 2025 revenue and adj. EBITDA, which we believe will be supported by the acquisition of Raging Waves and the opening of the Lucky Strike Miami location.&nbsp;
Separately, the company recently purchased the largest water park in Illinois, called Raging Waves, for an undisclosed amount. We do not believe that the acquisition signals a lack of acquisition opportunities in bowling centers, but provides another lane of potential growth in the out of home entertainment space. The 53 acre park is cash flow positive and will be operated by a partner experienced in the space. Notably, the company believes that there is opportunity for revenue and cash flow growth at the park and highlighted the prospect to increase beverage and food revenue. It concurrently applied for a liquor license as it closed on the acquisition.&nbsp;We estimate Raging Waves could contribute as much as $12.0 million in revenue for FY 2025.
In our view, the company is well positioned to continue its favorable track record of completing conversions, new builds, making accretive acquisitions and returning capital to shareholders. It has a healthy balance sheet and generates significant free cash flow. As of March 31, the company had $212.4 million in cash and cash equivalents and $1.1 billion in long term debt (a reasonable 2.4 times cash flow based on the bank credit facility). Notably, the companyâ€™s Board of Directors declared a quarterly cash dividend of $0.055 per share of common stock, equating to an annualized dividend yield of approximately 2.0%. The record date for the quarterly cash dividend is May 24, and is payable on June 7. Additionally, the company repurchased 1.1 million shares of common stock for roughly $13.0 million from January 1 through May 6, with roughly $180.0 million left under the repurchase authorization. In our view, the company is well positioned to return capital to shareholders, pursue strategic growth initiatives, accretive acquisitions and share buy backs.
We believe that the company&#8217;s guidance to be at the low end of its previous range, the lower margin fiscal Q3 results and the water park acquisition may give some investors a pause for concern. In our view, the guidance at the lower end of the range were mostly a function of the lower margin in Q3, a unique circumstance of weather incidents in its most profitable month, January. In our view, Q4 should put the company back on track. In terms of the water park acquisition, we believe that the relatively small acquisition provides the company with a potential roll up strategy, similar to the bowling centers. As such, we view potential weakness in the shares related to the above mentioned concerns as a more aggressive investment opportunity.
Near current levels, the BOWL shares trade at a compelling 9.1 times enterprise value to our 2024 adj. EBITDA forecast, below what we anticipate to be the company&#8217;s double digit adj. EBITDA growth rate. Our price target of $17.50 reflects a target multiple of 12.5 times EV/2024 adj. EBITDA, more in line with our double-digit long term adj. EBITDA growth rate. We believe that the shares offer an attractive risk reward relationship near current levels and. The shares are rated Outperform.
&#8212;&#8212;&#8212;- page break &#8212;&#8212;&#8212;- 
Figure #1 Results
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/bowl-q3-results-5-6-24-1.png" style="width: 432px;height: 640px" />
&#8212;&#8212;&#8212;- page break &#8212;&#8212;&#8212;- 
Figure #2 Revisions&nbsp;
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/bowl-q4-2024-revisions-5-6-24.png" style="width: 434px;height: 520px" />

Bowlero Corp. Class A (BOWL)

Establishes Another Lane For Growth

Fundamental Analysis:

Rating: Log in to view

Establishes Another Lane For Growth (BOWL)

Rolled Another Solid Quarter (BOWL)

A Valuable Lesson On Pricing (BOWL)

Significant Cash Haul; Unrecognized Real Estate Portfolio (BOWL)