We estimate that the net proceeds to us from our sale of 7,692,308 shares of
our common stock in this offering will be approximately $90.4 million, after
deducting underwriting discounts and commissions and estimated expenses payable
by us in connection with this offering. This assumes a public offering price of
$13.00 per share, which is the midpoint of the price range set forth on the
cover of this prospectus. We intend to use (i) $88.8 million of the net
proceeds to redeem $80.0 million principal amount of the existing senior notes
at a redemption price of 111% of the principal amount redeemed and (ii)
approximately $1.6 million for general corporate purposes. The existing senior
notes being repaid were issued in connection with the Acquisition and accrue
interest at the rate of 11% per annum and mature on June 1, 2018. Should the
underwriters exercise their option to purchase additional shares from us, we
intend to use the net proceeds to redeem the maximum principal amount of
existing discount notes that may be redeemed for such amount of net proceeds
at a redemption price of 112.25% of the then accreted amount of existing
discount notes redeemed. The existing discount notes being repaid accrete at
the rate of 12.25% per annum and mature on February 15, 2016.
Our ability to redeem up to $30.0 million principal amount of the existing
senior notes as described above is subject to a prior right of lenders under
our senior secured credit facility to receive an offer to have term loans in
the same principal amount repaid without any prepayment premium. In the event
we make such an offer and lenders exercise the right to have term loans repaid,
and we do not otherwise seek to acquire such existing senior notes by means
other than a redemption (whether by open market purchases, negotiated
transactions, tender offer or otherwise), the principal amount of existing
senior notes called for redemption will be reduced on a dollar-for-dollar
basis. The term loans under our senior secured credit facility were issued in
connection with the Acquisition and currently bear interest at the rate of
5.5%.
A $1.00 increase (decrease) in the assumed initial public offering price of
$13.00 per share (the midpoint of the price range set forth on the cover page
of this prospectus) would increase (decrease) the net proceeds to us from this
offering by $7.2 million, assuming the number of shares offered by us, as set
forth on the cover page of this prospectus, remains the same and after
deducting underwriting discounts and commissions and estimated expenses payable
by us.
The out-of-home entertainment market is highly competitive. We compete for
guests’ discretionary entertainment dollars with theme parks, as well as with
providers of out-of-home entertainment, including localized attraction
facilities such as movie theatres, sporting events, bowling alleys, nightclubs
and restaurants. We also face competition from local establishments that offer
entertainment experiences similar to ours and restaurants that are highly
competitive with respect to price, quality of service, location, ambience and
type and quality of food. Some of these establishments may exist in multiple
locations, and we may also face competition on a national basis in the future
from other concepts that are similar to ours. We also face competition from
increasingly sophisticated home-based forms of entertainment, such as internet
and video gaming and home movie delivery.
the largest
national chain offering a full menu of casual dining food items and a full
selection of non-alcoholic and alcoholic beverage items together with an
extensive assortment of entertainment attractions, including skill and sports-
oriented redemption games, video games, interactive simulators and other
traditional games. Unlike the strategy of many restaurants of shortening visit
times by focusing on turning tables faster, we aim to increase the length of
stay in our locations to generate incremental revenues and improve the guest’s
experience. While our guests are primarily a balanced mix of men and women aged
21 to 39, we believe we are also an attractive venue for families with
children and teenagers. As of September 4, 2012, we owned and operated 59
stores in 25 states and Canada. In addition, there is one franchised store
operating in Canada. The formats of our stores are flexible, which we believe
allows us to size each store appropriately for each market in which we compete.
Our stores average approximately 47,000 square feet, range in size between
16,000 and 66,000 square feet and are open seven days a week. For the twelve
months ended July 29, 2012, we generated total revenues, Adjusted EBITDA and
net income of $575.7 million, $111.5 million and $0.3 million, respectively.
For the twenty-six weeks ended July 29, 2012 and the twenty-six weeks ended
July 31, 2011, we generated total revenues of $311.4 million and $277.3
million, respectively, Adjusted EBITDA of $66.4 million and $53.3 million,
respectively, and net income (loss) of $7.3 million and $(0.02) million,
respectively. For fiscal 2011 and fiscal 2010 (combined), we generated total
revenues of $541.5 million and $521.5 million, respectively, Adjusted EBITDA of
$98.4 million and $86.3 million, respectively, and net income (loss) of $(7.0)
million and $(7.3) million, respectively.
We believe we have an attractive store economic model that enables us to
generate what we believe to be high average store revenues and Store-level
EBITDA. For comparable stores in fiscal 2011, our average revenues per store
were $9.8 million, average Store-level EBITDA was $2.3 million and average
Store-level EBITDA margin was 24%. Furthermore, for that same period, all 52
of our Dave & Buster’s comparable stores had positive Store-level EBITDA, with
over 85% of our stores generating more than $1.0 million of Store-level EBITDA
each. After allocating corporate general and administrative expenses, our
Adjusted EBITDA margin was 18.2% for fiscal 2011. Store-level and Adjusted
EBITDA exclude a number of significant items, including our interest expense
and depreciation and amortization expense. A key feature of our business model
is that approximately 50% of our total revenues for fiscal 2011 were from our
entertainment offerings, which have a relatively low variable cost component
(consisting primarily of “Winner’s Circle” redemption items) and contributed a
gross margin of 85% for the period.
Since being taken private in 2006 when our current management team joined the
Company, we have implemented a series of operating and strategic initiatives
that we believe have streamlined our operations and reduced costs. The
operating initiatives undertaken by our management team include, among others,
the implementation of new ordering technology and labor scheduling to drive
productivity, the introduction of automated kiosks and related pricing
strategies to reduce labor costs and increase revenues on each Power Card sold
and centralization or restructuring of certain functions resulting in an
overall reduction in staffing levels. We believe that the lower variable costs
(such as the cost of products associated with our entertainment revenues) in
our business model, effective management of our corporate cost structure and
national marketing expenditures create operating leverage in our business,
which we believe will allow us to increase revenues within our existing
operations without a proportional increase in costs. As a result, we believe
we have the potential to improve margins and deliver increased earnings from
any growth in comparable store sales, although there can be no guarantee that
we will do so and we have experienced net losses in the fiscal 2011, 2010 and
2009 periods. While we have implemented initiatives focused on our cost
structure, we have simultaneously increased our guest satisfaction in both food
and entertainment, based on the results of our periodic Guest Satisfaction
Survey.
Our management team has also refined our large store format and developed a new
small store format, which we believe will allow us to increase the number of
markets in which we can grow. Both of our new store formats are smaller and
less expensive to build, which we believe will help us to achieve our targeted
cash-on-cash returns. With respect to stores we expect to open in the near
term, we are targeting a year one cash-on-cash return of 25% to 35% for both
our large format and small format store openings, and, since the beginning of
2008, our nine store openings (that have been open for more than 12 months)
have generated average year one cash-on-cash returns of 38.4%.
Eat Drink Play —The Core of Our National Concept
When our founders opened our first location in Dallas, Texas in 1982, they
sought to create a dining concept with a fun, upbeat atmosphere providing
interactive entertainment options for adults and families, while serving high-
quality food and beverages. Since then we have followed the same principle for
each new store, and in doing so we believe we have developed a distinctive
brand based on our guest value proposition: Eat Drink Play. The interplay
between entertainment, dining and full-service bar areas is the defining
feature of the Dave & Buster’s guest experience, and the layout of each store
is designed to promote crossover between these activities. We believe this
combination creates an experience that cannot be easily replicated at home or
elsewhere without having to visit multiple destinations. Our locations are also
designed to accommodate private parties, business functions and other corporate
sponsored events.
We seek to distinguish our food menu from other casual dining concepts. Our
recently reengineered menu includes items that we believe reinforce the fun of
the Dave & Buster’s brand. Recent additions to the menu have become top sellers
within their categories. We believe we offer high-quality meals, including
gourmet pastas, choice-grade steaks, premium sandwiches, decadent desserts and
health-conscious entrée options that compare favorably to those of other higher
end casual dining operators. Each of our locations also offers full bar service
including a variety of beers, signature cocktails, premium spirits and
nonalcoholic beverages. Food and beverage accounted for approximately 50% of
our total revenues during fiscal 2011.
The “Midway” in each of our stores is an area where we offer a wide array of
amusements and entertainment options, with typically over 150 redemption and
simulation games. We believe the entertainment options in our Midway are a core
differentiating feature of our brand, and our amusement and other revenues
accounted for approximately 50% of our total revenues during fiscal 2011.
Redemption games, which represented 79% of our amusement and other revenues in
fiscal 2011, offer our guests the opportunity to win tickets that are
redeemable at our “Winner’s Circle” for prizes ranging from branded novelty
items to high-end home electronics. We believe this “opportunity to win”
creates a fun and highly energized social experience that is an important
aspect of the Dave & Buster’s in-store experience and cannot be replicated at
home. Our video and simulation games, many of which can be played by multiple
guests simultaneously and which include some of the latest high-tech games
commercially available, represented 18% of our amusement and other revenues in
fiscal 2011. Traditional amusements, which include billiards, bowling and
shuffleboard tables, represented the remainder of our amusement and other
revenues. Each of our stores also contains multiple large screen televisions
and high quality audio systems providing guests with a venue for watching live
sports and other televised events.
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Our corporate headquarters is located at 2481 Mañana Drive, Dallas, Texas, and
our telephone number is (214) 357-9588. Our website is www.daveandbusters.com.