Q2 2021 Drive Shack Inc Earnings Call
Good morning, My name is Ashley and I will be your conference operator today at this time I would like to welcome everyone to the drive.
For 2021 earnings conference call.
Currently all lines have been placed on mute to prevent any background noise.
After the prepared remarks, we will have a question and answer session and instructions will be given at that time.
Today's call is being recorded if you should need any operator assistance. Please press star zero at this time I would like to hand, the call over to Kelly Buck Horne head of Investor Relations Ms. The corn you may begin.
Thanks, Ashley and good morning, everyone I'd like to welcome you to our second quarter earnings call. Joining me today is president and Chief Executive Officer of Hana, Corey and our Chief Financial Officer, Mike Nichols we.
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've not done so already.
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 the statement. 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.
The Hannah Hi, good morning, everyone and thank you for joining our second quarter Conference call Q2 was a fantastic quarter for us and I'll go through the highlights now on page 5 of the supplement first and foremost obviously as earnings we generated 74 million and total company revenue and just over 1 million and positive operating income.
Which was the first time, we've reported operating income in 3 years. We also delivered $7.7 million and total company adjusted EBITA, our fourth consecutive quarter of positive adjusted EBITDA on a trailing 12 month basis. We have delivered total company adjusted EBITDA of just over $19 million, which is incredible.
Check venues also surpassed the pre pandemic EBITA performance with the Orlando breaking even for the first time since 2019.
Golf also continues to perform well with revenue of around 62 million for the quarter.
Next we've made massive progress on pottery and I'm looking forward to opening our first when you just outside of Dallas in the coming weeks followed closely thereafter by your second part of reason you in Charlotte North Carolina, we.
We have 5 part of you been used in development right now those are in Dallas, Charlotte D C Miami and most recently Houston and.
An additional 2 sides of our currently in or nearing lease execution with several others actively working in the pipeline. We also executed our formal partnership agreement with worry Mcelroy and his partner groups Symphony ventures, where they've committed to invest at least $10 million in pattern through 2023.
We ended the quarter with 81 million of unrestricted cash on hand, and have ample liquidity to fund the development of our first 7 pottery barn, yes.
So before we go further into where we are today, let's just take a step back to talk about how we got here on page 6.
Over the past few years drive shack has undergone a significant transformation from a traditional golf business to an entertainment operating company. During this time, we sold the majority of our owned of course portfolio to fund the growth of our entertainment golf business, namely building the for drive Shack. The news we operate today in April 2018, we opened our first drive shack venue in Orlando.
<unk>, which served as our beta site. We then opened 3 generation 2 point of venues in August September and October of 2019, and Raleigh, Richmond, and West Palm Beach, respectively.
These venues opened strong significantly outperforming our 2019 expectations and beating our internal plans by 14%.
Today, our portfolio consists of traditional golf course's drive shack locations and put of relocations, which is on page 7.
On the American golf side of our business, we held just under 60 courses across 9 states in Q2.
We currently have for drive shack venues located in Orlando, Raleigh, Richmond, and West Palm and we are additionally committed to leases in New Orleans in Manhattan.
With pottery as I just mentioned we are currently committed to venues in Dallas, Charlotte, Washington D. C. Miami and most recently Houston, we have a robust pipeline of future of Pud relocations, we are actively pursuing and prioritized markets across the U S for 2021, and beyond and I'll speak more towards the near term pottery plans and time line in a few moments.
We spoke about drive shack, the new performance exceeding pre pandemic levels, which is what we'll talk about now on page 9 combined drive shack, the new level EBITDA was at a record $4.6 million for the quarter with revenue coming in just slightly below pre pandemic levels at around 12 million drive shack venues have largely returned to pre COVID-19 levels with the with the exception.
Of the bench.
Keep in mind that we should have been used down due to COVID-19 in March of last year because of that we've also provided Q4 here as the reference which was the first operating quarter for all for venues together.
On the next page page 10, we've broken down the revenue performance by venue.
The strong results, we are seeing out of the venues is in part due to record walk in revenue levels at our Oh for locations you can see by the chart on page 10, how incredibly strong the performance was for all of our entertainment venues. This quarter total revenue was $11.6 million led by just over $10 million and walking.
Our walk in business has returned to normalized pre COVID-19 levels and our venues delivered all time highs for walk in revenue this quarter.
In fact total walking revenue was up 26% this quarter compared to pre COVID-19 levels in Q4.2019 of $8 million.
We're seeing strong momentum coming out of Covid lockdown across all 4 of venues our venues have performed better than expected through the first half of 2021 with all for exceeding the revenue goals for the first half of the year I do want to point out that we conservatively planned for the first 6 months of 2021, particularly with events given the uncertainty with COVID-19 at the start of the year.
We did plan for events to start ramping back up in the back half of the year with more emphasis on Q4 during the holidays. So.
So as we've outlined on page 11, we're beginning to see that demand on the rise while events totaled $1.5 million or 13% of total revenue revenue in Q2, the sequentially increased 85 per cent compared to the point 8 million event revenue last quarter, which is Q1.
Near term event bookings are trending above our internal expectations and we expect this momentum to continue as we head into the back half of 2021.
In anticipation of our events business, returning we restructured our sales and events team in Q2 to facilitate the increased event demand we are already experiencing.
We continue to innovate initiatives to drive revenue and our vignettes, you'll see a couple of examples on page 12 of the deck, we relaunched our popular Monday night socially ex this quarter, which ran for 8 weeks starting on may 3rd with over 100 teams participating across 4 of our videos.
Similar to our drive Shack opened tournament social leagues are great way to get guests in our door and off peak week day night to increase food and beverage spend on an otherwise flow of day as well as encourage return visits after the league and our next social League is planned to commence later in Q3.
We also brought back our popular unlimited day play pass in both Orlando and Richmond passes sold for 175 and were capped at 200 per venue.
And the passage of in Orlando sold out quickly and the response enrichment with also strong.
Again, we are trying to create ways to get gas into our venues on off peak days to drive increased F&B revenue.
And to encourage repeat visits.
So I'll turn of the AGC now our American golf, which is the traditional golf arm of our business on page 13 the.
The demand for traditional golf remains very strong as I mentioned earlier, AGC delivered 62 million and total company.
Sorry in total revenue for this quarter led by sequential increases in Green and cart fee revenue and daily feed round revenue at our public courses when compared to Q1 of this year.
On the private side of our business private course membership levels are near Max capacity at 99%, leaving roughly 1% of availability for new member sales since the onset of Covid. We've seen these levels continue to increase as traditional golf remains a safe outdoor activity.
<unk> golf team continues to do a tremendous job in delivering strong results quarter. After quarter, we expect to continue delivering great results as our business begins to slowly return to pre COVID-19 levels.
Turning now to the pottery flipping the page 15 of the deck. So part of it is our modern version of indoor putting we've integrated the auto scoring technology with the game of mini golf.
Well really focusing on providing an immersive and high energy atmosphere with the great food and beverage program.
When we look at the projected venue level of economics that we put forward several quarters ago. We remain confident the pottery was and will continue to be the best part of growth for our company.
We expect to spend between 7% of 11 million to build each venue.
We expect them to take about 6 to 9 months to complete and we expect them to generate EBITDA of between 2 and $3 million. When you compare these numbers to drive shack venue, where we expect to spend up to $40 million to build each venue, which takes approximately 18 to 24 months to complete and generates about $4 million to $6 million in EBITA.
We believe pottery is is the obvious choice here.
The numbers for drive shack location of our great pedigree of it gives us the ability to grow quickly with less capital risk than a big box drive shack venue and putters are a cadre of as an adjacency to our current business.
The colonies are first part of rebound just outside of Dallas, and we've learned quite a bit, especially as it relates to creating a new experienced during a global pandemic to be more specific the expected and anticipated impacts from COVID-19 have been widespread across both the design and construction phases of our belts. In spite of these COVID-19 related variables. We're pleased to report.
We are still projecting development costs to fall within the $7 million to $11 million range.
Page 17 gives the great view of our development pipeline as you can see on the map of the U S. We've marked or 5 committed pottery venues in Dallas, Charlotte D C Miami and Houston, along with the robust pipeline of additional pottery geographic locations, we are pursuing prioritized by market the.
The 5 lease committed locations are currently in various stages of their development lifecycle, either in the design phase or in the construction phase. We also have 2 additional sites that are either in or nearing active lease execution.
When these 2 leases are executed it will bring us to a total of 7 pedigree of unused committed in 2021.
We've continued to target summer 2021, as the debut for our first pet of relocation and the colony just outside of Dallas with an opening planned in the coming weeks. The economy is just over 20000 square feet spanning 2 floors with for 9 hole uniquely themed golf courses, which are rooftop large library and illusion the.
The details on these courses are designed to embarrass our guests into their experience we focus not only on the design, but also on the total guest experience the food and beverage program has been hugely important to us and while you'll have to enjoy your food in 1 of our lounge of bar areas, you'll be able to enjoy for of course specific specialty cocktails on every course.
There are 3 bars located throughout the venue, including an indoor outdoor patio bar on the second floor, which overlooks an outdoor amphitheater and our colony location. There are also multiple lounges and seating areas throughout we've shown you a few photos of our Connie venues on of her calling your venue on page 18 to 22.
Charlotte is also underway with great progress being made on construction Charlotte faced many of the same COVID-19 conditions, we spoke about earlier, specifically related to supply chain delays of material and labor shortages specific to their market as such we slightly adjusted the opening time line and are now targeting a Q for 'twenty, 1 opening date for Charlotte.
The remaining venues will open over the course of the first half of next year as Covid driven conditions and labor shortages have also impacted these timelines.
With these many years, we will be able to apply all of our learnings from both the colony and Charlotte to ensure smooth and successful openings.
We still have a very active and robust pipeline of potential new pottery sites and we still expect of an additional 10 pedigree of venues will be open under development or in lease by the end of next year.
In order to accomplish this we'll need around 75 million by the beginning of Q1.2022 to complete this plan as well as to begin construction on a Randalls Island drive shack venue.
We expect to access the debt capital market and are confident we can obtain the necessary funding to complete our 2020 to plan. We are currently pursuing all options and expect we will use our over 200 million of unencumbered entertainment venue assets, which are performing increasingly well to help the to help secure the required funding if needed.
It's important to note that $75 million is incremental to the 10 million that Larry and his investment partners have committed to invest in the future development of new pottery venues between now and the end of 2023.
We've provided a summary overview of the agreement with where he and his team on page 16 as the reference.
And then lastly in the coming days, we will fully unveil our new site <unk> Dot com as we near the opening of the colony as it will showcase the full cut or the experience. We have a preview of our website on page 23 of the supplement.
But of Reis website will serve as the information hub for all the news with the reservation system event inquiries location finder, food and beverage menu connection to social media and so much more so with that I'm going to now turn it over to Mike to go over our financial results in a little more detail and then I'll come back with the few closing remarks, Mike.
Thanks, Anna and good morning, everyone before I begin I want to provide details on the number of courses and venues open in the second quarter of this year compared to the same period last year. This year all of our traditional golf courses and are for drive shack venues were opened for the entire second quarter. During the second quarter last year, we were still experiencing COVID-19 closures and restrictions of <unk>.
Pact of both of our businesses for drive Shack. During Q2.2020, our west Palm Beach venue reopened on May 15th Richmond reopened on May 29th Raleigh reopened the last week of the quarter on June 26, and Orlando remained closed. Additionally.
Additionally, only 3 of our traditional golf courses were open for the entire second quarter 2020, with most courses reopening in early may of 2020 once reopened restrictions on large group gatherings will still in effect for both drive shack and AGC severely impacting our events business and revenue with that as a backdrop I won't be walking through detailed comparisons to last.
The second quarter.
Turning now to page 25 in the debt for a summary view of our financial performance for the quarter on a total company basis for the second quarter, we generated revenue of $73.9 million operating income of $1.1 million and adjusted EBITDA of $7.7 million as Hana mentioned earlier, we reported our first quarterly operating income of 3 years.
Since Q2 of 2018, we reported our fourth consecutive quarter of positive adjusted EBITDA and on the trailing 12 month basis, we have delivered total company adjusted EBITDA of $19.1 million.
At the business unit level, our entertainment golf segment generated $11.6 million of revenue with walk in revenue at an all time high of $10.1 million for the quarter on the traditional golf side AGC generated $62.3 million of revenue, including managed of course reimbursements of $12.9 million.
As I just mentioned, we reported operating income of $1.1 million for the second quarter. This year, our venue level EBITDA was $15.1 million for the quarter, which includes the $4.6 million for entertainment Golf mentioned in his earlier comments and traditional golf venue level EBITDA of $10.5 million. We have achieved these results in large part because we continue to ex.
<unk> expense control discipline throughout the entire company.
Our total SG&A and other expenses in Q2. This year were below our pre pandemic levels and came in at $8.8 million versus $10.4 million in the last quarter before Covid restrictions Q1.2021.
While we will leverage our SG&A expenses were great extent as we grow our pottery business. We are nonetheless planning of modest increase in our annual run rate for SG&A expense dollars of less than 10% to ensure we have adequate resources to support the new business. This will still represent more than 15% of decline versus our pre COVID-19 SGA SG&A expense run rate.
I also want to briefly address liquidity and future capital needs as of the end of June 2021, we had approximately $81 million of unrestricted cash as a reminder, we received 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.
Our first 7 cautery venues.
As we look ahead to our capital plans to fund our growth plans for 10 additional pottery venues in 2022. We currently estimate we will need approximately $75 million to fund its development, we expect to access the debt capital markets. Later this year in an effort to secure the necessary funding for the first quarter of 2022.
Moving onto our summary financial results on page 26, the net loss applicable to common shareholders for the quarter was $3.4 million or for per share for the year to date. The net loss to common shareholders is $12.9 million or <unk> 18 per share. There was an approximate <unk> <unk> benefit in Q2, this year, resulting from the roughly 24 million of.
The additional shares issued earlier this year as part of the follow on common equity offering which settled in February.
Finally, I am pleased to announce the drive Shack board declared dividends on the company's preferred stock for the quarterly period ending October 31, 2021. The dividends are payable on November 1.2021 to holders of record on October 1.2021 with the.
I'll turn it back the Hannah for closing remarks, thanks, Mike.
As you can tell we've been extremely busy this last quarter as we prepare to debut our first pet of relocation. The entire organization remains focused on our 2021 strategic priorities to drive growth and profitability with 1 of the primary objectives being to successfully launch and expand pottery I'm very grateful for the collaboration and dedication from the numerous teams in <unk>.
<unk> that have been involved throughout the last 2 plus years and helped to bring <unk>. The pud revision to life today huge thanks to the entire team in the field across our entire organization for making these results possible. Thank you all for joining us today I'd like to now turn the call back to the operator to open the line for questions.
Okay.
And at this time, if you have a question. Please press star 1 on your telephone keypad.
And then any part of your question has been answered you may remove yourself from the queue by pressing the pound key.
Those of your question, we ask that you. Please pickup your handset to allow optimal sound quality, we will take our first question from Peter's delay with BTG. Please go ahead.
Great. Thank you.
I'm just curious you know.
Lately, there's been a lot of concern about the the new Delta variant.
Have you seen any impact.
And your and the performance of the drive shack units or anywhere else within the.
The business is at.
Related to the Delta have you seen consumers pull back at all in terms of the spending or enthusiasm.
Hey, Pete.
It's interesting we're watching this very closely I think as is every business right now we have not seen of substantial pullback or I would say, even a slight pullback.
That we can attribute to the Delta variant.
Fact, we've seen our venues continue to perform exceptionally well to their to our internal kind of projections.
We have taken steps to make sure that we're protecting our staff and our guests from this new surge.
So first and foremost, we're encouraging our associates and our employees to get the vaccine.
We want them to believe in the science.
We're re implementing weekly testing in our corporate office.
The rollout of vaccine incentive program and the colony part of relocation to encourage managers and hourly staff to get the vaccine we've implemented masking of all associates in all of our venues.
And we'll just continue to follow the CDC recommendations and will adjust our standards as necessary, but no. We haven't seen any kind of significant pullback which has been great.
Great. Good to hear can you talk a little bit about your commitment to opening.
The drive Shack units and New Orleans, and in New York.
Given the the development yields there are below <unk>. So just trying to understand how much capital commitments you guys have already invested in those 2 venues.
Or are the are there is definite or or or is there a possibility of that you just move all of the capital towards investment in the pottery and stuff.
Yeah. So I think as we've talked about in our previous quarters. We are definitely on hold in New Orleans as of right now and I can let Mike speak to the capital committed to date, there, which is minimal I believe so.
We are going to press forward with our drive shack location in Manhattan, and Randalls Island. However that is now slated to open in 2023.
There were various COVID-19 delays, specifically in New York, I mean across the whole U S. But specifically in New York with stay at home mandates and other restrictions that have.
That really slowed us down last year, but we're still we're still very much committed to working with the with the city and with that location to get up and running there will also be were also attempting I should say are planning to put to put of recourses inside of that venue.
Yes, there were.
The roughly 6 million of hard costs on from a capital standpoint related to New Orleans and some additional.
The development and design cost prior to that invested in New Orleans.
Okay.
Great very helpful.
Great and then just my last question and I'll pass it along can you talk a little bit about the performance of Orlando I think all of a positive surprise this quarter to hear that you're on track to be.
Or above breakeven.
Can you just talk about some of the initiatives you guys put in place and if you anticipate that you.
You'll be well above breakeven or.
How do you view this venue of going forward. Thank you.
Yeah. Thanks Pete.
We are very very proud of the results that the team in Orlando has put forward.
Obviously, a long time of long time, coming and I think it was the combination of things 1 we're really focused on trying to be really innovative in driving revenue and all of our locations, but specifically in Orlando.
We partnership we partnered with the development group, there Tavistock and they've really been helpful in and helping us get.
The word out to all of the whole community there, but also all of the other businesses that they have.
We again Institute of the day play path, which sold out in Orlando, We've really managed our expenses that team. There has managed their expenses incredibly well.
We've because of Covid right sized the size of that management team and continue to monitor that and I'm happy to say, though that we're able to actually add back event sales in that venue to help support the event inquiries. We have is as <unk>.
And some of the businesses reopen there.
There's a lot of great local corporate businesses that support us there and during Covid, obviously, they were closed and as they move to reopen.
And hopefully resume normalized activities.
Also on the radar for for hosting events, both in Q3 and in Q4, so we're expecting them.
Orlando to perform well overall, the Sierra and you asked if im expecting them to to go over breakeven I think that what I've said in the past, which is what I'll say again today is that we will be very happy if Orlando continues this positive trajectory and breaks even for the year.
Okay.
Great. Thank you very much thanks Peter.
Yeah.
And we'll take our last question from Alex Fuhrman with Craig Hallum Capital Group. Please go ahead. Your line is open.
Great. Thank you very much for taking my question and congratulations on a really strong second quarter performance.
I wanted to ask about the development of pottery.
We're all excited to see the the Dallas location opening.
Over the next couple of weeks are there any specific kind of bottlenecks that you've been encountering just development wise as you think about the rest of that portfolio and then kind of going 1 step further.
How has it been hiring for the pottery and Dallas in the next couple of you start moving down that road.
Yeah, Hey, Alex good to talk to you.
Thanks for the question I think the.
Great questions first and foremost we are really really excited to debut pottery I think we've all been waiting a long time for this so.
So in the coming weeks for Super excited to be able to open our doors to kind of show everyone. What it's about.
We have experienced some COVID-19 COVID-19 related delays.
And I think that to be to be very specific some of this has had to do with supply chain.
The material shortages longer lead times, some modest cost increase of materials, which we've found substitution for.
General Labor labor shortages, and when I say labor shortages I'm talking about kind of on the subcontractor side.
There definitely is the labor shortage in the hospitality business, but as we were building, we we realized very quickly that.
Subcontractors were also experiencing the same thing.
Which which impacted us as well as our timelines.
And.
When you do anything for the first time, obviously you have a lot of learnings, we're very happy that we could take these learnings and we now have a bit of time to apply them to our future vignettes.
<unk>.
The what we're trying to mitigate going forward than what we've already mitigated some of those labor issues.
Our contracts with our general contractor and some of the the requirements.
Requirements that we will be including in those contracts going forward will be slightly modified in slightly different to help them to help guarantee dates as well as penalties for not hitting dates so theres a few things that we've learned.
That we Werent able to really institute during Covid, just because of the the situation that he brought to the market and when we talk about hiring which was the second part of your question and the colony. Specifically it is we went into the colony really being prepared for it to be very very difficult and I will not say it was easy.
What I will say is we found that given our marketing efforts and then just given the the depth of talent that we have on our management team, we were really able to them to get a lot of really really talented employees that we're excited about and we kind of met.
Like a point, where we were like well we need 7 more we need 10 more.
And at that point, we instituted a referral program.
Debt was good for you know of $150 for any associate who recommended someone who stayed for at least 90 days and that helped us get over the hump.
We still are hiring actively just to account for attrition and the other variables, but I'm very comfortable with our with our levels and where we are right now from a hiring perspective, when we look at Charlotte.
And the in the future we've had.
No issues hiring our Charlotte management team. So we feel confident there and we plan on implementing a similar approach that we implemented in Dallas and in the colony to hire our hourly staff so well.
Well, obviously adapt as the times times change I feel like it's a it's a new obstacle every week with Covid and with the labor market. So we'll take it as it comes but we feel like we're well prepared to deal with it.
Okay terrific, that's great to hear and then on the on the traditional golf side of the business it sounds like.
Youre pretty pretty tight on membership how did that compare to historically I mean have you typically had a high 90.
Percentage of of membership.
Just wondering what we could expect to see there in the back half of the year.
Yeah pre COVID-19, we did not see membership levels. This high so.
So we definitely saw the membership levels rise.
With Covid, so I would assume that those 2 things are correlated.
While we can't say for sure the the 2 things happened at the identical times. So what we're what we're continuing with now is no.
Previously before Covid, we were trying to come up with innovative ways to increase our membership numbers.
At this point, we are trying to make sure that we're managing the weightless appropriately that we're setting expectations appropriately and that we're just guiding both our current and prospective members.
In the right way, so that we're able to kind of manage this high member capacity moving forward.
Great. That's really helpful. Thanks, Thanks very much.
Yeah. Thank you.
Okay.
Okay.
And there are no further questions I'll turn the call back over to Kelly Buck Horne for any closing remarks.
Thank you everyone, we'd like to thank you for joining us on the call today and as always we look forward to catching up with you next quarter. If not before then have a great rest of the your day.
And that does conclude today's program. Thank you for your participation you may disconnect at anytime.
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