Q1 2021 Drive Shack Inc Earnings Call
Good morning, My name is Pasha, and I will be your conference operator today at this time I would like to welcome everyone to drive Shack first quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, we will have a question at the answer.
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 Buck Horne head of Investor Relations. Mr. Buckley you may begin.
Thank you Pasha and good morning, everyone I'd like to welcome you to our first quarter 2020 one earnings call and joining me today is president and Chief Executive Officer, Hannah Corey and Chief Financial Officer, Mike Nichols.
We've posted the Investor supplement on our Investor Relations website at IR Dot drive Shack Dot com and we encourage you to download it now if you have not done so already.
I'd like to point out that certain remarks made today will include forward looking statements. Our 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 and with that I'd like to now turn the call of.
And of Hana.
Everyone and thank you for joining our Q1 quarterly conference call.
2021 is off to a great start for the year, but the strength and performance from both our drive Shack and American golf businesses this quarter.
Coming off of very historic and challenging year in 2020, we believe our Q1 results validate our team's ability to remain focused and adapt to the constant and ever changing challenges we faced due to COVID-19, while at the same time delivering on the wants and needs of our guest.
This is a testament to the drive passion and dedication from all of our associates across the entire organization.
For the quarter, we generated total company revenue of 61 million. This was flat to last year's Q1 levels. These results are incredible, especially given the ongoing impact of COVID-19 has had on our events business.
I'm, especially pleased that we delivered our third consecutive quarter of positive total company adjusted EBITA, which was $2 7 million. This quarter, an increase of $7 4 million versus Q1 of last year.
We were able to accomplish this by continuing our ongoing expense control.
With over 81 million of unrestricted cash on hand, we remain centered on our strategic priorities to drive to drive growth and profitability in 2021 and beyond with the large focus on the successful launch and expansion of pottery.
We're excited to introduce our first few been used in Dallas and Charlotte This summer and are on track with development and construction timelines in both locations.
In March we announced our third part of relocation in Washington D. C. S pen quarter, which will open later this year. We're also actively engaged with landlords in brokerage in multiple markets across the U S and look forward to sharing more details with you as we finalize leases in those locations.
On previous calls we discussed the we've been creating ways to generate revenue during her the less popular times, while providing guests the weighted safely compete and socialize during COVID-19 along with their drive shack opened tournaments and our soon to debut Monster Hunt Challenge. We also relaunched our popular social leaks, if last Monday, which was received with great demand from our guests.
I will share more details on all of this in just a few moments and now I want to turn to the deck on page five for a summary, and timeline view of our courses and videos on the American golf side of our business withheld 60 courses across nine states in Q1 with one on 34 leased and 25 managed of course is.
With our drive Shack Entertainment golf business. We currently have four venues in Orlando, Raleigh, Richmond, and West Palm all of which were fully opened in Q1 were additionally committed to leases in New Orleans in Manhattan.
On the pet or east side of our business. We're currently committed to venues in Dallas, and Charlotte and as I mentioned in 10 quarter, which is D C as Premier Entertainment Zone Baja.
Behind these three locations, we have a robust pipeline of future pet of relocations were actively pursuing and prioritized markets across the U S. For 2021 of the beyond I'll go into more detail on our plan for pedigree shortly.
Turning now to an update on our operations, which starts on page seven.
Total revenue for the quarter averaged 81% of last year's Q1 level of total walk in revenue averaged 96% of last year's Q1 levels, even with the various COVID-19 restrictions still in place. This was the highest average level we've seen since the onset of the pandemic.
It's important to note that our drive shack the news while open to the public we're operating under various restrictions throughout Q1 dependent on the location.
Raleigh, and Richmond were permitted to operate at around 60% of their bay capacity this quarter, while our Florida. The news, we're able to operate at 100% I'm happy to report that all of our venues are now able to operate at 100% big capacity and that was effective April 19th.
Additionally, our events business was impacted by the limitations on venue capacity in group sizes during the quarter. Fortunately as of Q2, Raleigh and Richmond venues are now able to host up to 100 people in a single party outdoors, which we expect will create a positive growth trajectory for our events business. We're.
We're excited to be able to welcome more guests back into the spend us with enhanced safety protocols still in place.
Yeah.
In order to help facilitate events, while maintaining COVID-19 protocols, we launched the two bay package last fall as an initiative to help drive an increase of event revenue. We created this package to allow guests to book small group reservations for those who wanted to planned experience and a safe environment. This package includes a two day of reservation of food and beverage credit and two hours of gameplay for set price depending.
On the venue and on the time of day.
On page eight of the deck, you'll find the table of the results from this this package remains strong and since launching our total event revenue has increased significantly in these four venues and it's up nearly four times versus prelaunch.
Given the strong response from the lack of ongoing restrictions in Raleigh, and West Com, we've elected to re imagine the two day package in these markets going into Q3. This is going to allow our guests to have the experience they want while still driving additional revenue as.
As we along with our guests where to adapt to the ongoing challenges in this current environment, Richmond, and Orlando will continue to offer the two day packages alongside reservations.
Guests and anything you can book any of our standard of it packages and remained intact since our opening.
In conjunction with the re imagining events. We also launched our single Bay online reservations late December across all four of our drive Shack the news and the response of our guests has been incredible price.
Prior to launching online reservations advanced bookings are only offered as part of in the bid package on a call of head basis, and with the too big of minimum.
Now with our single day online reservations are platform allows bookings were up to six guests and the single day.
Our guests can seamlessly make reservation for any day and time of their choosing within a seven day window, where there is availability.
As you can see on page nine over 20000 total reservations have been booked online generating total revenue of over $1 5 million since the beginning of this year through the end of April and remember this is only for the game of golf and does not include additional F&B sales once our guests are in our venues.
So turning now to page 10, we continue to have success with our drive Shack opened tournaments as I discussed earlier as a reminder, we created the tournament at the end of last year is the way to generate revenue during her less popular times, while also giving our guests the new challenge and of Safeway to compete and socialize during COVID-19. The open is geared towards the more competitive avid golfer who's looking.
For a challenge.
We debuted our first drive Shack open tournament last December in Raleigh, Richmond, and West Palm and the response was great. Following its success. We held the second tournament on March 15th this time across all four venues, including Orlando, We increased the available Bay counts and teams in the second tournament was just as successful as the first with both new and repeat players and teams.
Our F&B revenue was up over 50% the.
One day night of the tournament compared to the two Monday night average prior to the event.
We're also excited to launch the first ever Monster Hunt Challenge, which is expected to debut this quarter. We created the Monster Hunt challenge with the goal to increase engagement and spend per visit while giving our 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 the cash price guests will be asked to opt in for $5 per entry with unlimited entries.
Finally, we relaunched our social leagues earlier this week on Monday across all four of our drive shack venues are social leagues are designed for a less competitive players who want to participate in league play and of casual and social environment.
These are comprised of four to six players and run on Mondays for eight weeks total offering a variety of F&B specials theme nights prizes and weekly contests to enhance social interaction.
So shifting now to the traditional golf arm of our business on page 11, we continue to see the unwavering and strong demand for traditional golf with the American golf business and this quarter has been no exception when compared to Q1 last year, our public courses, so revenue from green and cart fees up 46% this quarter, while daily fever.
<unk> were up 33% on the private side member sales were up 30% and total private rounds were up 29%.
These are astounding numbers I, just want to pause a moment to recognize the team at American golf and the tremendous job that they've done not only for this quarter, but for the last year as they were faced with impossible circumstances as we all work throughout COVID-19 day.
However, faced a really unique challenge, while most businesses slow down they just got busier with an increased demand for traditional golf and they had to operate with less resources and tighter expense control I'm very proud of the team as they not only managed to perform great, but they really thrived in this environment and I. Thank them for their continued dedication and commitment to this business.
Switching gears quickly to the buttery page 13 gives the great view of both of our drive shack and part of redevelopment pipeline as you can see on the map of the U S. We have marked our Dallas Charlotte and D. C locations, along with a robust pipeline of pet of relocations. We are pursuing they are prioritized by market, we hope to be able to share any lease updates with you very soon.
Soon.
The entire organization remains focused on our 2021 strategic priorities to drive growth and profitability with one of the primary objectives being to successfully launch and expand pottery.
Page 14 has a couple of illustrative renderings of our Dallas building facade and an interior of course that you can reference.
Peter is our version of modern day of 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 of guests have an incredible time.
We're very focused on not only the gaming experience, but also on the F&B experience.
We're excited and look forward to opening our first two pet or even use in Dallas and Charlotte This summer.
In March we announced the third location in Washington D C and as I mentioned earlier, we're also actively engaged landlords of brokers and several prospective markets and we expect an additional four venues to open or be near completion by the end of this year.
Throughout COVID-19, we have remained extremely focused on advancing the critical path items to keep our Dallas and Charlotte pedigree that news on track.
Our new D. C location will be highly complementary to a very strong lineup of existing dining and entertainment options and pin quarter. The design process for D. C is currently underway and we look forward to providing development updates as we make progress on this new site.
As we've said in the past, we really believe that putter. He is the best path forward for our near term growth. We've illustrated the math on economics on page 15, you can see here of the side by side comparison on the unit economics, we expect for drive shack venue versus the pet or even your one of the drive shack numbers are compelling it's clear that <unk> are even more compelling.
It's just to go through this quickly or drive shack venues have a longer development timeline. It around 18 to 24 months to become fully operational the development cost is 25 to 40 million to build with EBITDA of around $4 million to $6 million H. This generates the development yields of around 10% to 20%. This is great but in comparison with pottery, we expect.
The shorter development timelines at around six to nine months to become fully operational the development cost is estimated to be between 7% to 11 million growth that's before Ti.
We're pleased to say that even with our first location being on the large side at 20000 square feet for courses in two stories. This is the one in Dallas, we are still projecting that the development costs will fall within the given the range.
For pottery EBITDA returns are expected to be between $2 million to $3 million each development yields here, 25% to 40% and we believe those could be even higher with learned efficiencies over time and the generous ti packages at landlords in the retail space of giving right now.
As you can see put any numbers of compelling generating faster and higher returns with less capital risk.
We're focused in 2021 to grow and expand our pud rebrand and believe that this is going to be of real path for growth for us in this business.
We're very excited about the potential of the entertainment side of our business and by the end of 2022, we expect to operate 22 entertainment venues.
The drive shack venues and 17th buttery venues with that I will now hand, it off to Mike to go through the financial results for the quarter.
Thanks, Anna and good morning, everyone for those following our presentation I'll start off on page 17, All agency courses on our four drive shack venues were open for the entire first quarter. This year on a total company basis, we generated revenue of $61 1 million for the quarter, which was flat compared to the first quarter of 2020, while our total company revenue was four.
That AGC total revenue was up $1 9 million and drive Shack total revenue was down $1 9 million, both AGC and drive Shack continued to experience reduced event in F&B revenue, primarily due to COVID-19 related restrictions in both businesses total company adjusted EBITDA came in at $2 7 million, which was up $7 4 million versus Q1.
2020. The result of continued strong expense control efforts across all of our operations.
At the business unit level, our entertainment golf segment generated $8 2 million of revenue with all four venues opened for the entire quarter as I. Just mentioned revenue was down $1 9 million or 19% versus Q1, 2020, driven largely by reduced the event revenue of approximately $1 $6 million, resulting from COVID-19 related restrictions our walk in revenue as.
Roughly 96% of Q1 2020 levels. However, total revenue averaged approximately <unk>, 81% of Q1 levels highlighting the impact of reduced event revenue.
As a reminder, our drive shack venues were not open for the full quarter. During 2020 closing on March 17th in March 19th due to the onset of the pandemic. So we do not have same venue comps to report.
On the traditional golf side, AGC generated $52 9 million of revenue, including manage course reimbursements of $13 8 million, which is up $1 9 million or 4% compared to Q1 2020. This was driven largely by of $5 million increase in revenue related to golf operations, primarily due to our courses being one.
For the full first quarter this year compared to Q1 last year, when we had to close our of courses in mid March due to COVID-19.
This increase was partly offset by an approximate 50% or $3 $1 million decline in the event revenue compared to Q1, 2020, and again, primarily due to COVID-19 related restrictions on large group gatherings.
For the quarter, we reported an operating loss of $7 9 million of $7 million of 47% improvement compared to the $14 8 million of operating loss in Q1 last year. The improvement was primarily the result of continued expense control discipline throughout the entire company.
I also want to note that the Q1 operating loss includes a $3 million impairment charge for on New York Office lease after the company of relocated its headquarters to Dallas at the beginning of the first quarter.
Net loss applicable to common shareholders was $12 3 million or <unk> 15 per share compared to a net loss applicable to common shareholders of $18 8 million of or 28 cents per share last year. There was an approximate <unk> <unk> benefit in Q1 this year, resulting from the roughly 24 million additional shares issued earlier this year subsequent to the.
Follow on common equity offering of its subtle in February.
Briefly addressing liquidity as of the end of April 2021, we had approximately $82 million of unrestricted cash down slightly from the 86 million of unrestricted cash we reported at the end of February 2021, the slight decrease in cash on hand was primarily due to capital spend for 2021 pottery venues and the preferred dividend payment.
That we made at the end of April.
As a reminder, we received approximately $54 million of net proceeds from our follow on common stock offering that subtle in February. This cash provides the capital we need to execute our 2021 growth plans for pottery.
Finally, I am pleased to announce the drive Shack board declared dividends on the company's preferred stock for the quarterly period, ending July 31 2021.
The dividends are payable on July 32021 to holders of record on July one 2021.
With that I'll turn it back the Hannah for closing remarks, thanks, Mike.
With the strong start to 2021, we are extremely encouraged with what the remainder of the year holds for US our entire organization is focused on key strategic priorities designed to work together to deliver growth and profitability to our business and I want to thank our employees for their hard work and continued commitment to drive results. Thank you all for joining us today I would like to now.
Ill turn the call back to the operator to open the line for questions.
Thank you, ladies and gentlemen in order to ask a question.
You will need to press star followed by the number one on your telephone keypad.
The press Star one.
If you'd like to withdraw your question of course, the pankey. Please standby of I'll be compile the Q&A roster.
And your first question is from the line of Peter <unk> with BTG.
Great Thanks, and good morning.
I wanted to ask real quick on it seems like Raleigh and Richmond.
You were operating on 60% of capacity and that seems to be.
Lifted now which seems like it could be on a go to.
Unlock for the the businesses.
Are there any visibility on the <unk>.
You guys can see on the event revenue.
Those two locations.
Any way to forecast what you expect the event revenue to be in the.
Coming months ahead.
Yeah.
Hey, Peter of nice to hear from you, yes, great question. So.
We see we have seen since we lifted again I believe it was April 19th and the the restrictions in Richmond, and Raleigh, where we're released allowing up to 100 people 100 guests outside we have seen an increase in inquiries coming in for events.
Really for the end of Q2, but mostly for Q3 and Q4, we're noticing an influx of inquiries also from the corporate side of our business. So corporate event business has been picking up we expect them to be able to generate in Q2.
We expect to be able to kind of give you guys of better understanding of what we what we are projecting an event revenue for the remainder of the year.
Because it's all just happened and we're fielding a lot of inquiries right now I think we get a couple of hundred of day, which is it is great and we're ready for it.
I think we're already to get back to normal there.
Excellent alright, that's.
That's helpful.
Is there any way you could give us the sense of on.
On the you know maybe Orlando venue.
I recognize it's the only really been open again for maybe another full quarter sort of generated about a million dollars. So any way to give us the sense on where the breakeven revenue is for for the venue.
From a from a quarterly standpoint.
Okay.
Anyway, you want on frame it is fine.
Yeah, well I think given the cost controls that we've put in place if we can get back to our early 2020 performance.
The roughly in the the 1.1, the $1 $2 million per quarter revenue range will be very close to breakeven Peter.
Peter I'll say also that we are.
On budget right now and on track to breakeven given Q1's results Q2, I guess quarter to date results and we were well on our way and obviously keeping a very close eye on it moving into Q3 and Q4 because of the budget is slightly more aggressive in those quarters for all of our.
The news given.
Given the COVID-19 restrictions easing.
Understood Okay, maybe.
From one or two more on my on.
I know several months ago on maybe a quarter ago, you guys announced the partnership with the.
Rory Mcilroy for the for the pottery any more details you guys care I can share at this point in terms of the relationship and how deep that runs and.
Maybe some of the operational.
How involved the he will be with operations and just getting the concept up to up the speed.
Yeah. So am I think last quarter I had expected to be able to share something prior to this call and we are actively working on it there are no issues with the agreement. It's just taken a little bit longer than we had initially anticipated or than I had initially anticipated.
Roy and his team are actively engaged with us.
On the first few putter even years, they're excited about it they remain excited about it.
And I wish I could say more and give you more but I I hope to be able to do that in the next few weeks, where we're at the very kind of end of our process them with that with final I think some of the the agreement.
With them.
Great.
Last question on mine and I think you mentioned that the Dallas.
Location is on also on track with the.
Within the cost range.
How are you thinking about Charlotte in terms of development costs. They're now we continue to hear the construction costs are up and labor costs are up.
Is that something you guys are concerned about or do you anticipate that it will fall within the range. Thank you.
Yeah, a great question, obviously something that we are keeping a very close eye on and I still anticipate that we will that our venues will fall within the range that we've provided in the deck in it we've kind of been saying this for the last you know year or so the 7% to $11 million gross cost to build we see.
So expect to fall within that range.
To answer your question. We are we are watching the costs very closely we've seen a modest increase in the cost of raw material things like steel on lumber. However, most of our build cost is wrapped up in the holes themselves.
The tech and thematic design, all of which we handled locally and we're working very closely with our suppliers to make sure that we can we can manage that as far as the cost of labor goes yes. It will have an impact on.
It would be.
Silly to think that it would and.
But we still expect to be within the range.
Alright, Thank you very much on I'll pass it along.
Thanks Peter.
Your next question comes from the line of Alex <unk> with Craig Hallum Capital Group.
Great. Thanks, very much for taking my question I was wondering if you could give us a sense of.
How far along in the construction process.
Louis and Charlotte are and then as you start to get closer to the big opening the of these venues in the summer months at what point are you going to start.
Engaging with clients about larger reservations for events and things like that in the summer months.
Hey, Alex nice to hear from you and great questions.
As far as Dallas goes we are.
In the process of installing some of our courses there, we theyre running cabling and other things right now so that will be ready for of tech in stock.
We are.
Definitely on track and in Dallas to open in the summer Charlotte I think on the last call I said Charlotte was just naturally a couple of months behind Dallas. There was there were tenant improvements that needed to take place on other things, but they have started construction there.
And I believe they're in the running of electrical phase of that build them.
And then I think that you asked about.
The others in the in the summer and the events, we're going to start selling events in about 30 days out and we are working on at least for our first one we're working with our marketing agency to to compile renderings and index and other things so that we have.
On something too to show folks when they're when we're selling to them and we're also planning on doing.
Event showcases and other things prior to our opening to invite those folks and that are you know corporate businesses and others that want to book events, primarily at this point for Q4 looking at the holiday holiday parties of that kind of traffic.
Great. Thanks, that's really helpful and.
And then can you talk about the decision to resume paying preferred dividends you obviously have a lot of.
Citing investment opportunities in front of the company over the next year.
Do you feel that there's just a good enough handle on your budget for this year that that gives you that confidence would love to just hear about kind of the thought process that went into that reinstatement.
Yeah, I'll say I'll say, a little bit on this and then I'll turn it over to Mike but for US paying these dividends is really important we suspended them during COVID-19 because as you can imagine there was so much uncertainty both with our liquidity as well as just with the environment.
That that COVID-19 kind of created.
For the hospitality industry, we're pleased that we're able to to reinstate these and we're pleased that we're able to start paying them again, we have a lot of faith in our at our current balance sheet and our liquidity position, we are still exercising expense control as of.
We will continue to do.
But I have every faith in the world debt.
Our venues and our golf courses are going to continue to perform well and throughout the year.
And so it was it was really important to us. So I don't know Mike If you have anything to add there certainly was it was part of our budget plan. This year to reinstate those preferred dividends and obviously, it's always at the discretion of the board who evaluates our performance.
Vis vis the budget, we've put in place and particularly given the fact that we have been able to turn on our adjusted EBITDA numbers over the last several quarters.
Certainly gives the board the confidence to the continue to declare those dividends as we as we performed according to our budget plans.
Great. That's really helpful. Thank you both.
Yeah.
Okay.
Okay.
Ladies and gentlemen at this time.
Showing there are no further questions I would like to turn the call back over to Kelly Buckhorn for closing remarks.
Thank you very much and we'd like to thank everybody for joining us again on the call today, we look forward to catching up with you next quarter, if not before reach out anytime if you have any additional questions have a great day.
Thank you ladies and gentlemen. This concludes today's conference call. We now ex that you. Please disconnect your lines.
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