Wednesday, November 17, 2021
ISOS Acquisition Corp: Bowlero: Hits the Mark
Michael Kupinski, Director of Research, Noble Capital Markets, Inc.
Patrick McCann, Research Associate, Noble Capital Markets, Inc.
Refer to end of report for Analyst Certification & Disclosures
Strong quarterly results. Bowlero reported strong Q1 2022 results with total bowling center revenue of $176 million, making it the 4th highest grossing quarter in Bowlero’s history. Revenue topped the company’s target revenue of $167 million by 5%, a good start towards its FY 2022 revenue target of $817 million. Impressively, margins improved, with adj. EBITDA margin of 33.4% versus 17% in fiscal Q1 2020 (pre-pandemic). It is noteworthy that the 33.4% EBITDA margin meets the company’s Fiscal Year 2022 EBITDA margin goal of 33%.
Moving beyond the pandemic. Bowlero’s latest quarterly revenue topped Q1 fiscal 2020 (pre-pandemic) revenue by 22%. The revenue growth, coupled with improving margins, lead to adj. EBITDA growth of 140% compared with Q1 2020. In absolute terms, adj. EBITDA was $59 million in Q1 2022 versus $25 million in Q1 2020.
Roll-up continuation. In the quarter, Bowlero completed its acquisition of Bowl America, for roughly $44 million. By doing so, Bowlero added 17 bowling centers in the eastern United States. Additionally, the company added 5 other bowling centers in the quarter. The total outlay required for acquisitions in Q1 was roughly $79 million.
Right down the alley. The company beat its revenue expectations for the quarter across all three primary segments, Bowling & Shoe, Food & Beverage, and Amusement. Notably, the strong performance was in spite of historically soft seasonal lull. Moreover, the additions of nearly two dozen centers in the quarter sets up the company for attractive revenue growth for the balance of the year.
Compelling stock valuation. The implied post-merger EV/2022E EBITDA multiple for Bowlero is near 10.5x, near current levels. By comparison to a broad peer group comprised of industries such as Live Events, Leisure, Amusement, and Experiential, Bowlero shares may offer as much as 40%-60% upside. The average EV/2022E EBITDA multiple for the broad peer group is 14.1x, suggesting a $14 price target for Bowlero shares. On the other hand, when excluding the Amusement industry peer group (due to its lower growth rate compared to Bowlero), the blended multiple is 15.7x EV/2022E EBITDA, implying a $16 price target. Therefore, in taking into account both implied target multiples, a $15 price target appears reasonable.
Investment Summary
Bowlero, which plans to go public through the merger with ISOS Acquisition Corp., announced favorable fiscal first quarter results. Q1 2022 total bowling center revenue was $176 million, making it the 4th highest grossing quarter in Bowlero’s history. Notably, this is seasonally one of the weakest quarters for the company, indicating that the fiscal year is off to a strong start. Revenue topped the company’s target revenue of $167 million by 5%, solid progress towards its FY 2022 revenue target of $817 million. Impressively, margins improved, with adj. EBITDA margin of 33.4% versus 17% in fiscal Q1 2020 (pre-pandemic). It is noteworthy that the 33.4% EBITDA margin meets the company’s Fiscal Year 2022 EBITDA margin goal of 33%. Figure #1 Fiscal Q1 illustrates the company’s strong performance with the year earlier quarter.
Highlighting that the Covid pandemic appears largely behind the company, Bowlero’s latest quarterly revenue topped Q1 fiscal 2020 (pre-pandemic) revenue by 22%. The revenue growth, coupled with improving margins, lead to adj. EBITDA growth of 140% compared with Q1 2020. In absolute terms, adj. EBITDA was $59 million in Q1 2022 versus $25 million in Q1 2020.
Importantly, the company appears to be operating on all cylinders, beating revenue expectations across all three primary segments, Bowling & Shoe, Food & Beverage, and Amusement. Notably, the strong performance was in spite of historically soft seasonal lull. Moreover, the additions of nearly two dozen centers in the quarter sets up the company for attractive revenue growth for the balance of the year. In the quarter, Bowlero completed its acquisition of Bowl America, for roughly $44 million. By doing so, Bowlero added 17 bowling centers in the eastern United States. Additionally, the company added 5 other bowling centers in the quarter. The total outlay required for acquisitions in Q1 was roughly $79 million.
In spite of the strong fundamentals, the ISOS shares have not reacted to the positive results. The implied post-merger EV/2022E EBITDA multiple for Bowlero is near 10.5x. As illustrated in Figure #2 Comparables, the ISOS shares trade at a steep discount to its peer gorup. By comparison to a broad peer group comprised of industries such as Live Events, Leisure, Amusement, and Experiential, Bowlero shares may offer as much as 40%-60% upside. The average EV/2022E EBITDA multiple for the broad peer group is 14.1x, suggesting a $14 price target for Bowlero shares. On the other hand, when excluding the Amusement industry peer group (due to its lower growth rate compared to Bowlero), the blended multiple is 15.7x EV/2022E EBITDA, implying a $16 price target. Therefore, in taking into account both implied target multiples, a $15 price target appears reasonable.
Figure #1 Fiscal Q1
Figure #2 Comparables
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Director of Research. Senior Equity Analyst specializing in Media & Entertainment. 34 years of experience as an analyst. Member of the National Cable Television Society Foundation and the National Association of Broadcasters. BS in Management Science, Computer Science Certificate and MBA specializing in Finance from St. Louis University.
Named WSJ ‘Best on the Street’ Analyst six times.
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Report ID: 24264