Q4 2020 Drive Shack Inc Earnings Call

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Yeah.

Good morning, My name is Maria and I'll be your conference operator today.

At this time I would like to welcome everyone to drive Shack fourth quarter and full year 2020 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the prepared remarks, we will have a question and answer session.

Instructions will be given at that time.

Today's call is being recorded.

At this time I would like to hand, the call over to Kelly Buckhorn head of Investor Relations. Mr. Buckland you may begin.

Thank you and good morning, everyone, we'd like to welcome each of our fourth quarter and full year 2020 earnings call. Joining me on the call today is president and Chief Executive Officer, Hannah Corey and Chief Financial Officer, Mike Nickel.

We have posted the investor supplement on our Investor Relations website, and we encourage you to download it now if you've not done so already.

And I'd like to point out that certain remarks made today will include forward looking statements.

Actual results may differ materially from those considered by these statements.

We encourage you to review the disclaimers in our press release and Investor supplement and to review the risk factors contained in our annual and quarterly reports filed with the SEC with that I would like to now turn the call over to Hana.

Hi, everyone. Thank you for joining our Q4 and 2020 year and conference call and you'll know 2020 was a historic and challenging year faced by many throughout the industry.

As we look back almost exactly one year later is even more clear that the quick actions taken by our team across the entire organization to adapt to the new environment and reached stabilized the business positioned us to advance our growth priorities throughout the year.

The last year, while incredibly challenging has been very successful for us we have fully restored and adjusted operations and all of our venues and courses we began our new venture pottery and we completed the sale of branches San Joaquin and successfully raise capital through a common stock offering in February which will allow us the ability to successfully complete the development of our first <unk>.

And then put or even yes to.

To say that I'm incredibly proud of our team and their relentless commitment to the continued success from our business would be a massive understatement.

And we're actually the reason we saw such great success during such an uncertain and D stabilizing time.

Despite all the challenges of Covid and we also achieved positive total company adjusted EBITDA in Q4, and $5 3 million, which is an increase of $7 4 million versus Q4 of 2019 and Q4. Our total company revenue was $60 million down only 16% versus Q4 of 2019.

Our full year total company revenue was 220 million down only around 19% versus prior year and these are incredible results given the circumstances of Covid.

Last quarter I told you that we had a goal to open Orlando and December which we did on December 18th. We also put forward and initiative to rollout reservations before the end of 2020, which we also did and have seen tremendous success, we're working really hard to find new ways to drive revenue and enhance our guest as competitive and social experiences when they come to visit drive shack.

As part of this initiative, we rolled out our first drive Shack tournament, and Q4, which allowed players and all they need to compete against one another and teams for both local and national price for best scores.

This was actually so popular and met with such enthusiasm by our guests that we have a second drive shack opened tournament coming on March 15th.

The team has also been working really hard on a new competitive experience called the Monster Hunt challenge, which I'll discuss in greater detail and just a few minutes.

Our focus on patrie growth and expansion continues and we are still expecting both day needs to open in the summer of this year and Q4, and we also announced a strategic partnership on pedigree with worry Mcelroy, which we're extremely excited about.

Before we get started on the deck and I'm pleased to announce that Tim Morris recently joined the drive Shack leadership team as our Chief Technology Officer, Kim of lead our information systems team and furthering our technology development initiatives. Kim is a seasoned executive recently, serving as Chief information Officer for home and and has held other senior leadership positions and companies across <unk>.

<unk> industries, including Gamestop, we're really happy to have come here and I mean, and I shall just add such extensive knowledge and experience to our team.

So I want to turn to the deck now on page five for summary, and timeline view of our courses and venues.

Across nine states. We currently hold one owned course from the American golf side of the business along with 34 leased and 25 managed courses our drive Shack Entertainment Golf portfolio. Currently consists of four venues and Orlando Raleigh, Richmond, and West Com, all of which are open and operating and various capacities due to COVID-19.

We're additionally committed to venues and New Orleans, and Manhattan and plan to open our Manhattan venue and 2022 on.

On the battery side of our business. We're currently committed to venues and Dallas, Texas, and Charlotte North Carolina with plans to open both of those the summer.

And behind those we have a robust pipeline and 24 prioritized markets across the U S that we're exploring for future pottery, then yes, I'll go into more detail on our plan for this shortly.

If you turn to page six and as I mentioned earlier, we recently announced a strategic partnership between Rory Mcilroy, and our new Entertainment golf experienced pottery we're.

And we're excited to partner with worry as we near the launch of our first pet or even you and Dallas This summer.

And he is a highly regarded member of both the European and PGA tours and he's a two time Fedex Cup winner with P. J as 2019 player of the year and have spent 106 weeks as the number one and the official world golf ranking.

Raise remain really highly engaged and committed to investing in the future expansion and success of <unk>. Since our first meeting is experienced and viewpoint that he'll bring to pottery will be invaluable and really help further fuel our success as we grow and expand we know he'll be a great partner and we really can't think of anyone else, we'd rather collaborate with for this project.

Turning them to and update on our operations on page eight on the entertainment golf side of the business are four drive shack venues generated $7 2 million of total revenue in Q4, adjusted decrease of $5 7 million compared to Q4 of last year.

And then revenue drove around $4 million of this decline, which continues to be impacted by COVID-19 limitations on capacity restrictions and group sizes and our vignettes.

And as I mentioned earlier Orlando opened very late in the quarter on December 18th as such our three Gen. Two venues in Raleigh, Richmond, and West Palm generated the majority of our total drive shack revenue that you're seeing here and in Q4 at $7 million.

Total Gen to revenue in Q4 average 78 per cent of Q1 revenue levels with walk and revenue, making up most of this total averaging about 90 per cent of Q1 revenue levels.

We remain focused on creating innovative ways to drive traffic and generate revenue and our venues, which I'll spend some more time talking about now.

On page nine and I'm really pleased with the recent debut of our single day online reservation, which we launched in late December across all four of our drive shack venues.

Approximately 8500 total reservations were booked online over the first eight week period. After we launched which has generated total revenue of over $625000. We've.

We've been averaging over 1000 reservations per week at around $75, a reservation and just to be clear and these reservations are only for the game of golf and do not include additional F&B sales once our guests are and the venue.

Prior to launching online reservations advanced bookings were really only offered as part of event packages on a call ahead basis and with a two day minimum.

Those were successful, but we did see and our guests want a single day reservation platform, which which we did roll out successfully.

Today. This platform allows for bookings were up to six guests and a single day and as you can see by the example, screenshot of our actual online reservation page our guest can seamlessly and make a reservation for any day and time of their choosing within a seven day window as long as there is availability.

If you turn to page 10, and as part of our ongoing initiatives to create ways to drive revenue. During Covid, We launched a two day package and mid September to cater to groups of 10 or less and that really wanted to play and experience. The package includes a two day reservation at $200 food and beverage credit in two hours of play for 400 to 500.

And depending on the venue and the time of day.

Since launching our event revenue has increased significantly and these venues and is up nearly four times versus prelaunch.

And I briefly discussed earlier the success, we saw in December with our first ever drive Shack opened and I'm on page 11, now the idea behind the drive shack opened with to really find ways to generate revenue during our less popular times, while also giving our guests and new challenge and a safe way to compete and socialize during COVID-19.

We saw success with the launch of this event with revenue up over 100% the Monday night of the tournament versus and.

The revenue on Mondays prior.

The openness geared towards the more competitive avid golfer who is looking for a challenge teams of four airplane 18 hole best ball.

On one of our virtual professional golf courses for both local and national prizes. The cost per team is 225 and does not include food and beverage.

We're also looking forward to launching the first ever Monster Hunt Challenge, we spoke a little bit about this last quarter as well the goal of the monster and challenges to increase engagement and spend per visit while giving the guests more diversified experiences that encourage competition.

The game is built for quick competition with guests across our four venues competing for the highest score to win a cash prize at the end of the tournament.

Cash will be asked to opt and for $5 per entry and their unlimited entries were expecting to roll that out and Q2.

So switching gears now to the traditional golf arm of our business on page 12, we continue to see strong demand and momentum with our American golf business Agc's outstanding results continue to highlight the unwavering demand for traditional golf and comparison to Q4 of 2019 and Q4 of 2020, our public courses saw revenue from Green and cart fees up four.

<unk>, 4%, despite a reduction and available Tee times, well daily fee rounds were up 27 per cent.

On the private side member sales were up 20% and total private rounds were up 22%.

And moving again to get back to pottery and this has been one of our largest initiatives and focuses across the business page 14 has a couple of our illustrative renderings of the building facade and and interior of course that you can reference.

So Putney is our version of modern mini golf, It's tech forward and will use innovative auto scoring technology. It's an adult focused high energy atmosphere, where we care deeply about making sure our guests have and incredible time. We're also very focused on not only the gaming experience, but also on the food and beverage experience.

We're excited to debut our first to put or even use and Dallas and Charlotte. This summer and we expect another five been used to be opened or near completion by the end of the year.

Despite the disruption and uncertainty COVID-19 caused earlier this year. We've remained earlier last year I'm sorry, we remained extremely focused on advancing the critical path items to keep the pedigree venues on track.

Construction is progressing nicely here and the colony and is on schedule with the heavier construction, such as framing HVAC and electrical well underway.

The Charlotte and your permits have been approved and we expect the construction process to begin in the coming days.

We believe that powder is about past best path forward for near term growth. It's this is illustrated on page 15 here, we've laid out a side by side comparison on the unit economics that we expect for drive shack venue versus the pottery venue.

Drive shack venues to take around 18 to 24 months to become operational cost around 25 to 40 million to build and generate EBIT of around $4 million to $6 million.

And this generates a development yield of around 10% to 20%. These are really great numbers and comparison, we expect to put every venue will take six to nine months to become operational costs $7 million to $11 million growth and generated EBITDA return of $2 million to $3 million developing yields here, 25% to 40% and we believe those could be even higher with learn deficient.

These over time and given the generous ti packages that landlords and the retail space or are giving right now.

So you know while the figures for drive Shack, a great pedigree numbers are even more compelling pottery generates faster and higher returns with less capital risk for all of these reasons and many others. We believe cutter. He is a real path to growth for us and this business by the end of 2020. Two we expect to operate 22 venues five large format drive shack venues and 17th.

Mall format pet or even years.

Page 16 lays out our development plan through the end of 2020, two and again, we plan on being near completion of seven pottery venues by the end of 2021 or fully open for which we have secured funds for both through the previous sale of branches as well as through the common stock offering we completed in February.

And 2022, we plan on opening our Randalls Island location and 10 additional pet or even use the development cost to complete our 2022 goals is about 110 million, which we expect to fund primarily by accessing the debt capital market.

By the end of 2022 and.

When you look at our portfolio, we expect to have a total of 17 put or even use and five drive shack venues.

So with that I will now hand, it off to Mike to go through the financial results for both the fourth quarter and the full year.

Thanks, Anna and good morning, everyone for those following our presentation.

Start off on page 18, and.

All agency courses and Gen. Two drive shack venues were open for the entire fourth quarter and as Hana mentioned earlier, we opened our Orlando venue and mid December on a total company basis, we generated revenue of $60 three.

<unk> 3 million for the quarter. This represents an $11 5 million decrease or 16% reduction compared to Q4 2019. The revenue decline was driven primarily by Covid related restrictions at both drive Shack and American golf, resulting in reduced event and F&B revenue. However, total company adjusted EBITDA came in at $5 3 million, which.

Was up $7 4 million versus Q4 2019, the results and strong expense control efforts across our operations.

At the business unit level, our entertainment golf segment generated $7 2 million of revenue, including Orlando revenue was down 44% or $5 7 million versus Q4, 2019, driven largely by reduced event and F&B revenue as a result of COVID-19 related restrictions are.

Our Gen. Two venues generated revenue of approximately $7 million with work and revenue averaging roughly 90% of Q1 2020 levels. However, Gen. Two total revenue averaged approximately 78 per cent of Q1 levels highlighting the impact of reduced event revenue.

As a reminder, our gen. Two revenue our Gen. Two venues were not open for the full quarter. During 2019. So we do not have the same venue results versus prior year to report.

On the traditional golf side, we generated $53 1 million of revenue, including managed course reimbursements of $13 3 million, which is down $5 8 million or 10% compared to Q4 2019.

This was driven largely by the 96% or $9 5 million dollar decrease and event revenue compared to Q4 2019 again, primarily as a result of reduced event and F&B revenue due to COVID-19 related restrictions.

This was partially offset by a surge and golf demand, which saw green and court fee revenue increased $3 9 million compared to Q4 2019.

For the full year total company revenue was $220 million down, 19% or $52 1 million against 2019 total company adjusted EBITDA generated a loss of $3 1 million, which wasn't $8 8 million or 74% improvement over 2019 again. This improvement is the result.

Our focus on expense control efforts across our operations.

Full year results at the business flow.

Unit level.

So entertainment golf revenue of $25 2 million up 27% versus 2019, the figures are not directly comparable given the gen. Two.

Venues, where not all open until partway through Q4 2019.

For traditional golf full year revenue was $194 $8 million, including managed course reimbursements with $50 3 million down 23% against 2019.

While private member sales and rounds were up and public Green and card fees were up year over year. They were offset by course closures from March to June and and 86% or $34 million decline and event revenue as a result of large group restrictions due to COVID-19.

Also want to briefly address liquidity to preserve our cash during the pandemic shutdown and we significantly reduced spending and continued our efforts to sell our remaining traditional golf course assets.

We reported $44 million of unrestricted cash and October 2020, and at the end of February we had $86 million of unrestricted cash the increase and cash on hand was primarily the result of approximately $54 million of net proceeds from our follow on common stock offering but settled in February.

This cash provides the capital we need to execute our 2021 growth plans for the recovery.

Finally, I am pleased to announce the drive Shack board declared dividends on the company's preferred stock for the quarterly period ending April 32021, the dividends are payable on April 30th 2020 one to holders of record on April one 2021.

With that I'll turn it back to Hana for closing remarks. Thanks, Mike You know 2020 was truly a landmark year for our company I want to again, thank all of our hardworking employees across our businesses that really fueled our success. Thank you all for joining us today and I'd like to now turn the call back to the operator to open the line for questions.

Thank you. The floor is now opened for questions. If you wish to ask a question at this time simply press Star then the number one on your telephone keypad a gun that star one if your question husband and answered and you wish to remove yourself from the queue press the pound key.

Our first question comes from the line of Peter slate of BTG.

Alright, Thank you and congrats on a great quarter, given the overall environment.

And I wanted to ask or maybe on the on the cost controls I mean, it seems like your operating expenses down pretty significantly year over year and.

And as well okay.

Give us a sense on how much of that.

Of those two buckets of costs or maybe permanent cuts versus how much do you think is and I have to come back.

The economy reopens.

That contract.

Peter I don't know that I have a percentage.

Breakdown, but a substantial portion of them or permanent cuts.

In the field and and on the SG&A side and that is really a wholesale review of our staffing levels and.

And really ensuring that we are operating from a optimal streamline standpoint with regard to how much debt we have in the field and at the corporate level. So we really really taken a close look at that.

I can certainly.

Come back to you later on and perhaps percentage numbers, but I don't have those at the moment, but it's really.

A good portion of that is permanent some of this is.

On the operating expense side is a reduction in F&B cost of sales. Some of it is a reduction of cost of Vince.

Vince expenses, such as tank rental or tables, and banquet support things like that that will come back along with the revenue associated with it.

And COVID-19 restrictions ease and things ramp up, but but again a good chunk of this is permanent.

Okay and just following up on that do you feel like.

And the cuts the expense cuts and G&A cuts are completed or do you feel like there was more.

Reductions and overall cost that can still come out of the business.

Hey, Peter antenna and you know I think I'll, just kind of follow up with what Mike said.

Are the cuts that we made were obviously very strategic in nature and as a result of Covid and just it was a necessity and that what Covid has forced us to do over the last year I can't believe it's been here is and really kind of helped us look at our business and a different way.

And and really helped us streamline some of our operations processes and even some of our corporate processes. So.

And I do think that some of the G&A will come back and not a lot, but obviously as we grow the business, we will definitely need additional support to ensure that we're able to execute.

Execute on these development plans that we're putting in front of you guys and and we want to do that really well and I don't anticipate any further reductions being made.

And at this time and I, just I think that's a great thing because it feels like we're starting to come out of this a bit out of the COVID-19 environment, a bit and as events come back and on both the agency side and the drive shack side will have to add some of that labor back versus cut.

Great very helpful.

And then just shifting to the pottery and for a second.

And I discussed.

And then Charlotte and shortly thereafter.

The remaining five.

And we're discussing our seven by the end of the share maybe early next year can you give us a sense maybe.

And maybe.

And what cities.

And for the country.

At this point.

Yeah, we've kept our cards pretty close to our chest on this one and.

But and I think we'll continue to do that we will issue press releases as we sign leases and I can tell you we are very close and on a couple and.

We're just kind of wrapping up some final comments and hope to be able to issue releases in the coming few days I can tell you that we are looking at.

Very strategically at where we're going next and so as an example, and I'll give you like the L. A market and any place on the West Coast is.

Is a great market and it's a market that we will go into but we likely won't look at that for our first year because of timing and we've kind of want to make it as easy on ourselves as possible to get these things open and operational and the timeline that we've set forward. So we're trying to cluster and and group them.

So that we don't have people flying and criss crossing all across the country and.

And we're trying to be smart and that way that said if we if we had an opportunity come up this year that was just fantastic and it was you know west coast or or somewhere we might not have originally been thinking of we would certainly entertain it and be open to it.

Alright, Thank you very much and of course.

Yeah.

And.

At this time I'm showing no further questions I would like to turn the call back over to Kelly for closing remarks.

Thank you and again, we'd like to thank everybody for dialing in and joining us on our call today, and we look forward to catching up with you next quarter. If not before then thanks again have a great day.

Yeah.

And thank you everyone discuss conclude today's conference call you may now disconnect.

Okay.

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