Q1 2022 Drive Shack Inc Earnings Call
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Good morning, My name is Chelsea and I will be your conference operator today.
At this time I would like to welcome everyone to drive Shacks first quarter 2022 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.
Instructions will be given at that time.
Today's call is being recorded.
Need any operator assistance. Please press star zero at this time I would like to hand, the call over to Kelly Buckhorn interim Chief Financial Officer. Mr. Cohen, you may begin.
Thanks, Chelsea and good morning, everyone I'd like to welcome you to drive Shack first quarter 2022 earnings call. Joining me on the call today is president and Chief Executive Officer, Hannah Cory we've posted the Investor supplement to our Investor Relations website at IR Dot drive Shack Dot com.
Let's take a moment to download the presentation now if you have not had a chance to do so already.
Like to point out that certain remarks made today will include forward looking statements actual.
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 over to Hannah Good morning, everyone. Thanks for joining us today.
2022 is off to an incredible start for the first quarter, we delivered 69 million and total company revenue up $8 million or 13% compared to Q1 last year, our core business remains solid with four drive shack venues and 55 American golf courses delivering sales results above last year's same quarter or two pottery venue.
Is located in the colony, Texas, and Charlotte North Carolina exceeded our expectations generating a combined $4 4 million in total revenue.
Walk in business is largely normalized and we continue to experience strong momentum at our venues and courses.
Revenue in Q1. This year was $6 4 million and is up over $5 million to last year with more than $3 million of the increase coming from private event sales at American golf.
And for future events remains exceptionally strong across our entire brand portfolio, including corporate social and private events.
Adjusted EBITDA for the quarter was $1 million and in line with our expectations. While it did come in below last year's first quarter. It was expected given we exited five of our traditional golf courses. After Q1 last year, which together contributed $1 $3 million and of course EBITDA. In Q1, we also made strategic investments in <unk>.
Count and other related expenses throughout 2021 to support the development and growth of our <unk> business with that roughly $1 million in incremental expense related to these investments was realized in Q1. This year that had yet to be incurred in Q1 of last year.
Including our Q1 results, we remain on track to deliver our goal of $18 million and adjusted EBITDA for full year 'twenty two.
We have a strong core business foundation with both our drive shack venues and American golf courses.
As I mentioned, our walk in business has normalized and demand for advent is accelerating we are gaining a clear proof of concept with our to put or even use both delivering sales results slightly ahead of their plan and generating profitability margins ahead of our expectations there.
There is a large addressable market and the venue based entertainment business, we are investing our capital towards the development of new patrie venues as putter. He presents the best path forward for our near term growth.
We are on track to open seven locations by the end of 2022 with our next Gen. You plan to open in Washington, Dc's Penn quarter next month, followed by our Houston and Chicago locations, which are planned to open in the third quarter.
We are aggressively pursuing new leases for venue openings in 2023 and are currently in active discussion with landlords on multiple sites across the country.
Speak to this in a few moments speak more to this in a few moments.
With that we have made the tough decision to suspend any future development of our drive Shack, New Orleans location, the incremental capital required to complete the project is well in excess of $25 million and we are redirecting any further capital spend for this project into future <unk>, where the economics and investment returns are more compelling we're currently <unk>.
Receiving alternatives for New Orleans site, and we will update you when we have more to share.
With this decision we took an impairment charge in Q1 for the costs incurred to date for the building and the fixed assets, which totaled $11 3 million.
At this time, we plan to continue developing our drive shack venue on Randalls Island in Manhattan. We believe this venue will deliver sales and EBIT margins well above any of our current drive shack venues with it's over 4 million visitors to the island each year.
So turning to the deck. We've again included a brief history on our company on page six of the deck for those of you who are new to our story over.
Over the past four plus years drive Shack, Inc 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 course portfolio and converted a number of them into managed courses mainly to fund the growth and development of our drive Shack Entertainment golf business with the four venues that we operate today.
We opened our first drive shack venue in Orlando in April of 2018, we took our learnings from Orlando, specifically around technology and opened three generation two point open use in August September and October of 2019, and Raleigh, Richmond, and West Palm Beach.
These three venues opened strong.
Significantly outperforming our 2009 2019 expectations and beating their initial plans at year by 14%.
We have since developed a new entertainment golf experience <unk>, which is an immersive indoor putters putting experience.
We opened our first pet or in the colony just outside of Dallas in September of last year, followed by the opening of our Charlotte location. Three months later in mid December of 'twenty to meeting our goal to open a total of 500 venues by the end of 2024.
Turning now to page seven for some range on the American golf side of our business. We held 55 courses across nine states at the end of Q1.
132 leased in 'twenty, two Mantech Entertainment golf business. We currently have four venues in Orlando.
We're committed to one additional lease in Manhattan.
To open in late 2023.
With pottery, we currently operate two venues located in the colony, Texas and Charlotte North Carolina.
Behind these we've committed to.
To eight additional leases with seven of these planned to open this year in D C Houston, Chicago, Philadelphia, Miami, Pittsburgh in Kansas City.
Our Manhattan venue located in the Meatpacking district is expected to open in early 2023.
We have a robust pipeline of future Pud locations, we are aggressively pursuing in several markets across the U S for openings in 2023 and beyond we are currently in active discussions with landlords on multiple sites across the country.
Speak more to our development plans and timelines in a few moment.
Moving now to an update on the operations of our business, let's start with our newest brand pottery on page nine.
Today again, we have two pedigree venues open our first pottery and the colony has been open for a little over eight months now and our most recent menu in Charlotte has been open for about four five months.
Even with their market differences, one urban and one sub urban.
Both venues are relatively in line with one another and are performing slightly ahead of our expectations for Q1. They each generated total revenue of just over $2 million and both delivered venue EBIT margins was 38%.
We are gaining a clear proof of concept for our <unk> brand and while we continue to analyze our month over month trends in each venue. The performance in these two venues to date fully supports the menu economics, we put forward over two years ago, giving us even more confidence today that hunter is our best path forward for near term growth.
Let me quickly recap the quarter for each venue. The colony delivered Q1 total revenue of $2 2 million driven largely by walk in business, we're more effectively leveraging our variable operating expenses now as our business has stabilized which helped lead to a 38% margin. This core EBITDA margin this quarter.
With Charlotte, while we provided their Q4 results here, it's a bit more difficult to compare the results as they were only opened for the last two weeks in 2021.
With that Charlotte also delivered $2 2 million in total revenue, which was also driven by strong walk in business and led by our higher F&B spend per visit and the colony.
As a reminder, the colony is in the sub urban market just outside of Dallas with a little under 21000 square feet and 49 hole golf courses Charlotte is in a more urban market with around 15000 square feet and two nine hole courses.
When you turn to page 10, you will see a breakdown of the Q1 revenue mix between these venues that shows the differences between the two a bit more clearly.
For reference the colony had nearly 25% more walk in visitors in Charlotte during Q1, while both generated the same revenue this quarter at $2 2 million each the colony the colony generated a higher percentage of their revenue through gameplay, while Charlotte had a higher percentage of revenue through beverage sales, mainly alcohol specifically liquor.
And as I mentioned earlier, they generated a much higher F&B spend per visit.
In Q1 than the colony wash.
Guests, who plan their visit in advance via our online reservation platform is holding at around 60% for each venue.
<unk> sales comprise around 80% of the total F&B revenue per venue and each nine hole course is taking an average of just over 30 minutes to play.
We are intentional about the size and number of courses in our first handful of venue. So that we can prove out our concepts pro forma across venues of different sizes with different numbers of courses.
Even with the differences in the square footage and the number of courses at each of these venues we continue to observe similar trends across both and guest response remains very positive.
We are extremely pleased with the strong performance and success from our first two venues to date, particularly with each generating positive venue level EBITA results that are well within the projected venue level economics I can't say this enough. Our proof of concept is becoming very clear with each passing month, and we expect that our future putter, even use will deliver some.
Similar results.
The venue based entertainment business is a huge addressable market golf is a fun and easy active easy to access activity and we know that our experience at <unk> is no exception, we are experimenting with the best mix of the new size and number of courses that will optimize the greatest returns on our investment in fact were doing that today with the colony in Charlotte and very soon.
With our DC venue, which will have $3 900 courses inside 22000 square foot historic building in <unk> quarter.
We have dozens of potential new sites in the pipeline across the country and are working with landlords today on several locations that we expect we will finalize in the coming weeks more on this in a few moments.
Moving now to our drive shack business on page 11 for the quarter generated nearly $10 million in total revenue that's up nearly 20%.
Of the $1 6 million increase one.
$2 3 million was driven by higher than 50% versus Q1 of last year.
And while we saw strong.
Strong demand across all of our venues just under half of the Dod continues to perform exceptionally well.
So we returned to normalized levels and delivered a 3% increase in walk in revenue to last year again led by Raleigh.
Our drive shack venues delivered a combined.
Find EBITA margin of 27% or $2 6 million in Q1, this year compared to an EBIT margin in Q1 of last year.
Raleigh once again led the growth.
Orlando broke even in Q1 compared to an EBITDA loss of 200, K, while our venues delivered revenue results.
It's in line with their plan their EBIT contribution exceeded our expectations. Our teams are doing a fantastic job.
Managing costs and leveraging controllable expenses to give us better.
Then expected returns this quarter.
Our drive shack venues are strong stable business for us and with the increasing demand and events, we expect our run rate projections.
Yes.
Yes.
The demand for traditional golf remains solid we have a very strong and stable business with American golf, which continues to generate profitable.
And returns year over year American Golf's total revenue for Q1 was just under 42 million.
Excluding management fee revenue and was up 6%. This quarter, we saw an exceptionally strong demand for events, which drove $3 6 million in event revenue this year.
Up an impressive $3 3 million or 3100% to last year.
The increase came primarily from higher private events driven in a large part from the focused work our events team is doing to increase conversion rates across all of our courses can business. This year was just slightly below.
And private courses neared last years.
Levels across all metrics.
And we are up against an exceptionally strong quarter last year.
Extremely high given the Covid restrictions that were still in place for indoor activities.
We can do.
City at all of our private clubs with the solid performance that our courses continue to live to deliver.
Today, and will only continue to gain momentum with golfers and non golfers.
Let's move on now to.
So our development plans, we know that a large addressable market exists for a venue based entertainment business and we intend to continue capitalizing on this large scale opportunity as we maintain our focus on development plans on new venue openings.
When you look at page 14, we've laid out a visual presentation.
Of the states across the country, where we have an existing entertainment golf location as well as where we believe near term opportunity exists for pottery locations in the future.
Our target coverage includes well over 60 markets today and under our current strategy with hundreds of potential new sites across.
With this.
The vast availability of potential new sites, we are experimenting with different layouts to determine the best mix of the new size and.
Profitability returns, we have real data from the colony alarm Archer venue with four courses and data from Charlotte a smaller venue with fewer courses.
Both are generating similar returns to one another and soon we will add a third venue, which will open in our D. C location, where we have a slightly.
A larger venue and the colony, but one less course with three.
Again, we're clearly gaining a proof of concept in a huge market and are confident that we will continue to deliver within the expected ranges for sales and margin.
Moving now to page 15, where we provided an overview of our new venue opening timeline. We are currently lease committed to 10 total pottery venues with two open today in the colony in Charlotte, We expect to open an additional seven new pottery venues throughout 2022, starting in D. C next month.
Followed by Houston, and Chicago in the third quarter, Philadelphia, Pittsburgh, Miami, and Kansas City are all currently slated to open in Q4.
Additionally, we plan to open a pottery venue in Manhattans Meatpacking district in early 2023.
Our plans include the opening of 16, new pottery venues in 2023, including Manhattan.
As I've said throughout today's call, we are aggressively pursuing new leases new leases for openings in 2023 and beyond we are currently.
Well sites that we expect will finalize in the coming weeks behind these we have an active and expanding pipeline with a significant number of identified we plan to continue to execute.
Me too for openings in 2020.
'twenty three and beyond.
We will continue to be very clear and as transparent as possible when it comes to communicating the number of venues to open them we.
We are taking.
EMEA appropriate amount of time between builds in openings to remain thoughtful with our strategy and approach given the current market.
Clinical is presented by the strain on supply chain and GC labor are still pressed wherever possible to keep our development.
From a timeline on track we are very confident that the seven venues planned to open in 2022 is attainable and realistic.
And looking back at the projected venue level economics that we put forward several quarters ago. We remain confident that Perry was and will continue to be the best path of growth for our company.
For those who have not seen our projections page 16 outlines the illustrative venue level economics for both our drive shack and putter interchange fees and adjacency to our current business.
And as you can see here gives us the ability to grow quickly with less capital risk and higher returns in our big box drive shack venue.
With <unk>, we expect to spend between seven and $11 million to build each venue, taking approximately six to nine months to physically construct and plan to generate venue level EBITDA of between two and $3 million each.
Compare that to a drive shack venue, where we expect to spend between 25% and $40 million to build each venue, which takes approximately 18 to 24 months to complete and generates revenue EBITA between $6 million each.
And we're gaining clear proof of concept as a results we are generating in our two primary venues are ahead of our expectations, but the colony and Charlotte are providing proof.
The real results that we are well within the unit economic range as seen here.
So I'll now turn it over to Kelly to take you through our capital strategy and financial results.
Thanks, Hannah and good morning, again, everyone, let's start on page 17 of the deck.
As we've discussed before in Hana mentioned again today, there is a huge addressable market and the venue based entertainment business.
Okay.
<unk> represents the greatest opportunity for near term growth, we will balance the need to retain to retain a strong balance sheet with the ability to invest capital to fund the future development and growth of <unk> we.
Have a relatively unlevered balance sheet today, which will enable us to secure new capital as one source of funding. We also have the potential to utilize asset sales as a source of future funding.
As a reminder, we secured $55 million and our follow on equity offering in February 2021, we have available liquidity to complete five of our seven venue openings planned for 2022.
We continue to work through a large pipeline of additional venues for 2023 openings most of which we expect to sign this year to get to our goal of 16, new <unk> openings next year.
With that we will require approximately $75 million of new capital to fund the remaining two venues planned to open later in 2022 and get the development for the 16, new venues off the ground. This year. So that we remain on track with our 2023 opening timeline.
This additional capital is not planned to fully fund all 16 venues of our 2023 opening plan. We do expect it will be sufficient to meet our needs through early 2023.
We have engaged an independent financial advisory firm with significant experience in the entertainment industry to lead our $75 million financing initiative. We have spent the last few weeks working with their team on discovery and due diligence and are nearing the marketing and lender outreach phase of the project.
While we are still several weeks away from finalizing a deal we are working towards funding over the next three months.
Looking ahead, we will put plans in place before year end to enable us to timely source additional capital to ensure we have sufficient funding to not only complete the 16 planned openings in 2023, but also have the capacity to begin development on our 2024 planned openings next year.
We have options available to us and we will continue to pursue a path that enables us to meet our growth objectives, while maintaining a healthy balance sheet.
Let's turn now to page 19 in the deck for a summary view of our financial performance for the quarter.
For Q1, we generated total company revenue of $69 million up $7 9 million or 12, 9% compared to last year's first quarter total company revenue of $61 $1 million.
When we break this down the entertainment golf side of our business, which includes our drive shack venues.
Venues generated total revenue of $14 2 million in Q1, this year, an increase of $6 million or <unk> 72, 4% compared to $8 $2 million in the first quarter last year the.
The increase to last year was due to a $1 $6 million increase in total revenue at our four drive shack venues was $1 3 million of the increase driven by higher EBIT revenue this year.
Additionally, our two new patrie venues generated total revenue of $4 $4 million this quarter.
On the traditional golf side of our business American golf generated total revenue of $54 $6 million.
Including managed course reimbursements of $13 million <unk>.
Excluding managed course reimbursements American Golfs total revenue increased $1 8 million or three 3% compared to total revenue of $52 $9 million in Q1 last year, which included managed course reimbursements of $13 8 million.
The increase in total revenue was primarily due to higher event sales this year.
Operating loss for the quarter was $18 4 million a decrease of $10 $5 million in profitability versus an operating loss of $7 9 million in Q1 last year.
As Hana mentioned the chart the change to last year was primarily due to impairment charges on the building in fixed assets for the drive shack venue located in New Orleans.
Growing our decision to primarily invest capital spend into the development of future pedigree venues.
Last year the impairment charges recorded in Q1 related to our former corporate office in New York.
Consolidated consolidated net loss in Q1 was $18 9 million.
Compared to a consolidated net loss of $10 9 million in the same period last year.
The $8 million decrease in profitability is due to the impairment charges I, just mentioned, which were offset by approximately $2 $6 million in other income from insurance proceeds received this year for damages at two of our American golf courses last year.
The net loss applicable to common shareholders for the first quarter. This year was $24 million or 22 per share compared to last year's first quarter net loss applicable to common shareholders of $12 3 million or <unk> 15 per share.
<unk> declined versus Q1 last year is primarily related to the impairment charges net of the insurance proceeds just discussed.
Total company adjusted EBITDA was $1 million for Q1, this year compared to $2 $7 million in Q1 last year.
Last year adjusted EBITDA included approximately $1 3 million from five American golf courses that were exited after the first quarter last year and.
In addition, we made strategic investments in head count and other related expenses throughout 2021 to support the development and growth in pottery and approximately $1 million of incremental expense related to these investments was realized in the first quarter of this year that is yet to be incurred in the first quarter last year.
For reference GAAP to non-GAAP reconciliations have been provided on pages 22, and 23 of the earnings presentation that include the details of our entertainment and traditional golf segments.
And of course EBITDA contributions for the first quarter of 2022 and 2021.
It is important to note again that the $1 million in total company adjusted EBITDA for Q1. This year was in line with our expectations and we remain on track to deliver adjusted EBITDA of $18 million for full year 2022.
Cash and cash equivalents as of March 31, 2022 was $44 1 million compared to $58 3 million as of December 31, 2021.
The decrease to year end was primarily due to capital expenditures associated with the development of future pedigree venues incurred this quarter.
Finally, our board of directors declared dividend dividends on the company's preferred stock for the period, beginning may one 2022, and ending July 31 2022.
The dividends are payable on August one 2022 to holders of record on July one 2022.
And with that I'll turn the call back to Hana for closing remarks.
Thank you Kelly I want to thank the teams across our company for everything they continue to do that helps us to drive profitability and the growth of pottery and with that I'll turn it over to the operator for questions.
Okay.
At this time, if you have a question. Please press star one on your telephone keypad.
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We will take our first question from Peter <unk> with BTG.
Great good.
Morning, Thanks for taking the question.
You guys mentioned due to scheduled to open.
<unk> launched and then you've got Houston, and Chicago Potteries opening.
For the third quarter, I mean that will leave you about four.
Love to open in the fourth quarter could you give us a little bit of color on where those units those four units stand in terms of their construction.
And the confidence you have in getting those opened in the fourth quarter.
Yes sure.
Yeah.
Yes, I think I mentioned meatpacking, we've we were originally going to put that into this year, but given some of the complexities of.
Our assumed complexities I should say of opening in New York City, we pushed that went out.
Two Q1 of next year, but in terms of.
Betsy Chicago, Philadelphia, Miami, Pittsburgh, Kansas City.
We as well as Houston and DC, we are well underway and all of those locations. Some are further along than others specifically DC.
Houston, and Chicago, and we are through permitting phases.
We've already started ordering.
Different.
Equipment and identifying.
Identifying general contractors et cetera, because what we the reason honestly that theyre held in Q4 is because of obvious supply chain issues, we want to make sure that we get it right. So we've.
Our team has taken.
A lot of different steps to ensure that they can get everything and in a timely manner and that goes from our.
Electrical components for the tiniest breaker in an electrical panel all the way to things like our actual physical golf holes in our establishment. So I would say D. Peter they're all in various phases of permitting.
And construction, but I have all the faith in the world that they will open in ore by the end of Q4.
And if not sooner.
Okay.
Great and then.
On the <unk>.
<unk> pottery locations that you have open having Charlotte is about 25, maybe 30% smaller than Dallas is generating the same level of revenue EBITDA margin.
EBITDA actual dollars are very similar.
So what is the right size and format going forward.
Sure I think it feels like vastly different in terms of size.
Similar in terms of economics.
Yeah, Great question. So when we started this obviously with.
With the location in the colony.
We thought for sure.
I was going to be a four course.
2000, 25000 square foot, Danielle, but when we saw Charlotte and the location that it was in we kind of said, okay. We're going to take the risk to do two courses.
And C C what happens which is again.
We're testing the three course model in DC and some others that you'll see coming up this year, but what I would say is that.
It's clear to me that Charlotte's location.
Is.
Playing very well for its EBITA and.
And revenue numbers.
Have a much higher spend.
In the alcohol category than the colony does and I, just attribute that to differences in area and as well as slight differences in demographic.
So when I look at what do I think that the right size will be in the future.
Don't think it is for our courses I don't think it needs to be four courses.
Obviously, if we did a flagship somewhere.
We would we would look at increasing the size, but given what we've seen to date in these two markets.
And we think we could go into two course locations relatively easily.
As long as our demographic requirements lineup with with what we've now proven to be.
To be ideal for what we're offering.
Okay.
Understood all right. So just a couple more questions on my end and I'll pass it along.
In terms of.
Seasonality of the business of the powdery thank.
Thank you.
Expected in the fourth quarter to be among the strongest.
In the first quarter, and then maybe a reacceleration in Q2.
Pattern that you're you're seeing right now.
Part of reason.
Is that what you continue to expect for the balance of this year.
Yes, I would say it is absolutely what we continue to expect obviously, we're still learning, but so far.
Within our within our expectations and what you've just outlined is is what we're kind of.
Looking at and I will just reiterate that.
Charlotte location was only open for a couple of weeks in Q4 so.
We have better data on Q4 for the colony, obviously than we do for Charlotte, but we do expect.
The seasonality.
<unk> to be prevalent here with Q1, performing a bit lower than that in Q2, and then for it to really ramp in Q4 for.
For the holidays.
Okay.
Alright, and then just.
Lastly on my end.
Could you just.
Elaborate or comment a little bit on your capital raise plans.
The impact that has on development I think you guys had mentioned you need another $75 million.
Thoughts on.
More exact in terms of timing and.
How much capital you have.
Today avail.
Available to <unk>.
Units can you I guess get open with the capital that you have available today.
Yes.
Hi, Peter It's Kelly so in terms of what we have available. This year, we do have enough capital and liquidity to fund five of the seven planned openings for this year.
I think we've been.
Talking about that since last year, when we did the $55 million follow on equity raise early in the year.
Certainly with the four venues that Hannah just spoke about opening later in Q4.
Certainly we have enough runway this year to get us through the first five openings that will take us through the end of Q3 into early Q4.
Conversations are going.
Now with the advisory firm that we've engaged.
Again, like we said.
Completing our due diligence working through the marketing materials, we will start working towards lender outreach.
With the teams here in the very near future.
So I think as we move forward feeling pretty good with where we sit today.
Certainly update you guys.
Before.
Hopefully in early Q3.
And hopefully before we report Q2 earnings.
Conversations are really good.
And again, we'll come back with you with more to update when we have more to share.
Great. Thank you very much Peter.
Question will come from Alex Fuhrman with.
Craig Hallum.
Great. Thanks, very much for taking my question nice to see <unk> remain on track.
We opened this year I know the first two locations in Dallas and Charlotte took a lot longer to get open then.
No we planned due to labor shortages and just other kind of post COVID-19 reopening constraints or are you starting to see those constraints.
Using what war or is it just you know after getting the first to open you've been able to streamline the process to make it a little bit more predictable.
Curious how the.
These openings are going to our competitor.
Through the first two last year.
Hey, Alex Thanks for the question.
I would say first the colony and.
In Charlotte specifically the colony.
We were actually planning on getting that construction started as COVID-19 hit.
So we weren't able to do that just because of all of the restrictions imposed by by Covid. So that was very early days so.
The majority of the delays.
Two COVID-19 itself versus the effects Covid had although those were still at play and I just want to be clear that the timing around specifically the colony venue was definitely not in our in our favor in terms of opening in.
In a timely manner, just due to just due to COVID-19 and the fact that.
No one was allowed to work during that time.
And as that eased obviously, the world looks completely different.
And I would say about the.
The venues this year there are still definitely.
Some constraints that we're working within but at this point.
There are things that we I should say expect.
We have just kind of develop the mantra to expect the unexpected things that we could get easily.
Last year for the Charlotte build might not be something that we can get this year for.
Kansas City or or D C or one of these other builds so the team has done a great deal of work in trying to normalize what we're doing as much as possible. So.
That means.
<unk>, ensuring that our inter.
Internal purchasing folks our head of procurement and his team are kind of all over everything that we have to buy.
And they've done a really good job, giving me a lot of kind of piece around it and that said there are still hiccups that we encounter but we're using all of our resources in order to try to smooth those out because again at this point it is going to be a while I think before things normalize.
The question around each build is like well what is it going to be that is difficult at this build for us to get because.
Again, one month, one week two weeks actually changes everything in the supply chain World at this point. So we're just taking kind of a look forward approach and getting everything we possibly can.
<unk> purchased and stored so that we don't have any.
Issues this year.
Great. That's really helpful. Thanks, and then.
And that would be part part of the strong profitability of the <unk>.
<unk> location is due to a really really healthy mix of food and beverage as you look at your next couple openings.
Impossible to know for sure before they open but would you would you expect your next few opening to look more like Charlotte in terms of the mix of food and beverage or more like the quality or do you think those are kind of going to be the polls of it youll see things mostly in between just curious what you would expect to see is the food and beverage mix.
For your next few opening.
So I expect that the majority of our venues will look like Charlotte.
In terms of the mix now.
Obviously, we're learning here.
And we're also doing things well.
We have things in the works to try to increase our foods and.
We've put a great deal of effort. The team has put a great deal of effort into the food menu as well as the beverage menu.
It's clear people love, our food when they have it but they come to us to to socialize and tab drinks into play the game. So I would expect in the future for food to take on a larger percentage.
But beverage to also kind of remain the clear leader.
Alcohol, specifically and liquor EBIT more specifically than that.
But yes, I would expect them all to.
Most of them to look like Charlotte I don't think we'll have many this year that follow this path is the colony just because of the locations that we've selected for this year's openings. They are in more densely populated areas similar to what you would see in Charlotte.
Okay, that's really helpful. Thanks Donna.
Yes.
Thank you.
Last question will come from any Riley with Jeff Hutton.
Hey, guys. Thanks for taking my question.
Was wondering if you could unpack a little bit.
Managed variable operating expenses.
<unk> EBITDA margin increases.
This past quarter for quarterly revenues.
Fourth quarter.
Sorry, what was the last thing that you said.
First <unk>.
Sure.
How are you.
Managing your variable operating expenses through June .
Higher EBIT margin increases.
In the first quarter versus the fourth.
<unk> fourth quarter.
So.
The fourth quarter, you would see a lot that we can.
Incorporate what we call surge labor in the fourth quarter any new opening that we do we want to ensure that we are.
Appropriately staffed for kind of whatever might come our way and we also want to make sure that we are.
Slightly overstaffed.
The guests have a great experience be as things.
Go wrong, which they always do on an opening.
We have enough.
To cover that so.
What you are looking at <unk>.
Today, I would say as a more normalized view.
But to take that one step further obviously our cost of goods are.
Are coming in.
More favorably than we expected and that's going to be driven by.
By those alcohol sales and also game sales.
Our labor is looking really really good in both of our locations.
I will say our labor is the one place that is coming in right at budget, if not slightly over.
And Thats just due to everything we all know about the labor market right now higher wages.
We want to make sure that the team feels supported so were not over staffing anymore. At this point, but you would definitely.
I definitely wouldn't expect to see a savings on the labor line anywhere.
And then our operating expenses are far more favorable than budgeted and that's due to many things.
Newer venues that require less maintenance and upkeep than a 45 year old when you might and also we didn't really know.
How much maintenance one of these locations might need so we calculated as if we were looking at something between a drive shack venue in a restaurant and.
Taking all of that into consideration I think that we've really outperformed even our own expectations on on the.
On the cost savings our operators are doing in the field are really doing a fantastic job of making sure that they're managing all of these things pretty closely.
While also making sure that our guests and our.
Our employees feel like they're cared for and valued.
Thank you.
Should we maybe expect.
Two to three quarters.
For new revenues to kind of alludes studies.
Martin.
And in this case it looks like the colony reach this in two quarters too.
Two and a half roughly.
Charlotte reached at Charlotte opened at the very end of December So Charlotte reached in one quarter.
So I would say my expectation Kelly might have a different thought here.
My expectation would be after.
After the first quarter that they are open and we should see some stabilization there and it happens relatively quickly.
At least that's what we've seen here and we also have seen that in our drive shack venues. Kelly would you agree I would agree and I think a lot of it too is just ensuring that we are continually working with our teams out in the field and supporting them, but also ensuring that they are managing their expenses.
To a reasonable level. So that we can continue to drive the margins at these rates though.
Yes, I think that's kind of where we're sitting at.
Sure.
Thanks, guys.
Thank you Eddie.
Okay.
Alright at this time, we have no additional questions in the queue. It is now my pleasure to turn the call back over to MS. Buckwalter for any closing or additional remarks.
Yes, again, thank you everybody for joining us today, and we look forward to talking to you throughout the quarter and in particular, when we reached the end of Q2 next year to give you more update thanks.
Thanks, again, and we'll talk soon.
This does conclude today's program and we thank you for your participation you may disconnect at any time.
Yeah.
Okay.