Q3 2022 Drive Shack Inc Earnings Call

Good morning, My name is Gretchen and I will be your conference operator today at this time I would like to welcome everyone to drive Shack third 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 and instructions will be given at that time today's call is being recorded if you shouldn't need 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. Buckland you may begin.

Thanks, Christian and good morning, everyone I'd like to welcome you to drive Shack, Inc. Third quarter 2022 earnings call. Joining me on the call today is president and Chief Executive Officer, Hannah Corey we.

We've posted the investor supplement to our Investor Relations website at IR Dot drive Shack Dotcom. Please take a moment to download the presentation now if you haven't had a chance to do so already I'd.

I'd like to point out that certain remarks made today will include forward looking statements actual results may differ materially from those considered by these statements. We encourage you to review the disclaimers in our press release and Investor supplement and to also 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 Hana, Thanks, Kelly and good morning, everyone.

In addition to the two existing pet or even use the company opened in 2020. One we opened an additional three been used in 2022 D. C. On June 26, Houston on September 16th and most recently Chicago on November 4th.

In Q3, the company had a total revenue of $89 million up 16% or 12 million versus prior year. The increase was driven by the addition of pet or even use coupled with an increase in event revenue.

Our Q3, adjusted EBITDA of $7 million in Q3 puts us on track to achieve our yearly adjusted EBIT plan of $18 million.

The company currently operates four drive shack venues in Orlando, Raleigh, Richmond, and West Palm. We currently operate five how do we even used in the colony Charlotte D C Houston and Chicago and.

In addition to the pipette or even use opened there are an additional five committed and scheduled to open in 2023. These are in Pittsburgh, Kansas City, Minneapolis, New York City and Miami.

The company also continues to operate the traditional golf side of our business American Golf Corporation. In this business segment. We operate one owned 32 leased in 'twenty managed courses.

I want to turn to our pet or even use on page nine in the supplement the three part or even use open the entire quarter delivered a total of $6 2 million in revenue in Q3, and $15 1 million of revenue year to date.

Total consolidated revenue.

Sorry, total consolidated EBITA for Q3 was $2 2 million at 35% margin. This includes a one time inventory true up for our Charlotte been your year.

Year to date EBITDA is $4 6 million, which is a margin of 31%. This performance is in line with our expectations.

A breakdown of some of the main segments of guest behavior. We observe is on page 10 over 60% of our guests, but their visit online in advance via a reservation portal nearly 80% of our F&B sales are attributed to alcohol.

It takes an average of 32 minutes to play a nine hole course on one of our at one of our venues.

Houston opened on September 16th and generated $1 2 million in revenue between September 16th in October 25.

But it isn't the veneer on Patriot weapons.

Their guest trends are in line with what we've seen across the other big news, 65% of their guests planning their visit online in advance 87% of their F&B sales are attributed to alcohol and it takes an average of 35 minutes to play a nine hole cores.

On page 12, the performance of drive Shack Entertainment been uses outlined.

In Q3, the board Entertainment Golf properties generated total revenue of just over $10 million down 4% to prior year.

Revenue has increased by over 20% versus prior year at $2 5 million each.

EBITDA came in at $2 2 million for Q3 down 29% versus prior year due to a decline in walk in revenue brought on by weather and other inflationary costs.

Moving onto our traditional golf business on page 13, AGC saw strong demand in Q3, 51% above prior year their revenue of $55 4 million in Q3 is 10% higher than prior year, our private courses remain at 98% capacity and our public course revenue from greeting card fees.

Increased 2% over prior year.

On page 15, as the company looks towards next year, we are planning on opening an additional five put or even used in New York City, Miami, Kansas City Minneapolis in Pittsburgh, We have an active and expanding pipeline with a number of sites under review and in various stages of marketing analysis. The company plans to execute additional leases once.

We have additional funding in place.

With that I'll turn it over to Kelly to review our financial results in greater depth. Thanks Hanna.

Let's look now at page 17 in the deck for a summary view review of our financial performance for the quarter for the third quarter. This year, we generated total company revenue of $88 7 million up $12 3 million or 16, 1% compared to last year's third quarter total company revenue of $76 4 million.

The increase to last year was primarily driven by higher event sales, mainly at American golf and pottery sales from our four venues in the colony, Charlotte DC and most recently Houston.

On the entertainment golf side of our business, which includes both drive shack and pedigree venues. They generated total revenue of $16 7 million in Q3. This year, an increase of $5 4 million or <unk> 47, 4% compared to $11 3 million in the third quarter last year. When the colony was opened for just under one month in the quarter.

Our four drive shack venues generated total revenue of $10 1 million for the quarter compared to $10 $5 million in Q3 last year. While total revenue was slightly down to last year, our drive shack venues drove a solid event business with $2 5 million in total event revenue.

<unk> 4 million or 21, 5% versus Q3 last year.

Total revenue generated by our four pedigree venues was $6 $6 million this quarter, including events, which continues to pace ahead of our expectations for the Q3 year to date period.

American golf generated total revenue of $71 8 million, including managed of course reimbursements of $16 4 million.

<unk> managed horse reimbursements American Golfs total revenue increased $5 million or 10% compared to total revenue of $65 1 million in Q3 last year, which included managed course reimbursements of 40 $14 7 million.

The increase in total revenue was primarily due to higher event sales this year, which totaled $9 million and was up $3 million or 51% versus the third quarter last year.

Operating loss for the quarter was $5 2 million versus an operating loss of $5 9 million in Q3 last year. The improvement to last year was primarily due to the addition of new patrie venues and a reduction in overall general corporate expenses, including payroll.

Consolidated net loss was $7 1 million for the third quarter. This year versus a consolidated net loss of $8 9 million in the same period last year.

And the net loss applicable to common shareholders. This quarter was $8 5 million.

Or <unk> <unk> per share compared to last year's loss of $10 2 million or <unk> 11 per share.

Total company adjusted EBITDA was $7 million for the quarter compared to $3 4 million in Q3 last year. The improvement to last year was primarily related to the addition of new patrie venues and a reduction in overall general corporate expenses again, including payroll.

And for reference GAAP to non-GAAP reconciliations have been provided in the back of the earnings deck.

Did that include the details of our entertainment and traditional golf segment venue and of course EBITDA contributions for the third quarter and first nine months of 2022 and 2021.

Cash and cash equivalents as of September 30th 2022 was $11 $7 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.

And finally, our board of directors declared dividends on the company's preferred stock for the period beginning November one 2022, and ending January 31, 2023, and the dividends are payable on January 31, 2023 to holders of record on January 2nd 2023, and with that I'll turn it back to Hana for closing.

Marks.

Thanks, Kelly before we open the lines for Q&A I want to briefly update you on our New York Stock Exchange listing status in early October we were notified by the exchange that we had falling out of compliance with their continued listing standards given that our 30 day average closing share price had fallen below $1 as of October 3rd we are actively considering.

Options in response to the continued listing standard deficiency.

We notified the New York stock Exchange on October 19th of this and expect to make a decision during the two year period ending April 5th.

We continue to review all options available to us and we intend to inform the New York stock exchange as soon as our board has determined the appropriate action in response to the continued listing standard deficiency, we have nothing more to share on this topic at this time.

But at this time I would like to turn the call back over to the operator for Q&A.

Okay.

At this time, if you have a question. Please press star one on your telephone keypad. If at any point. Your question has been answered you may remove yourself from the queue by pressing star two when posing a question. We ask that you. Please pick up your handset to permit optimal sound quality, we will take our first question from Peter Lee from BT I E.

Great Thanks, and good morning.

Hannah Oh, I, just wanted to come back to the conversation around the capital raise.

Can you just talk a little bit give us a little bit of color on what options you have explored at this point and what seems to be you know what's off the table and what options you may.

What path you May go down just trying to understand if the debt financing is still on the table or asset sales or something you are considering.

Just some color on that would be very helpful.

Yeah, Thanks, Peter so.

At one point, we were considering an asset sale.

We are no longer considering that at this point, we're actively considering the capital markets. So we are expecting.

Our funding to come by way of debt Hum and then just to add to that we continue to reduce our expenditures broadly across all aspects of the business to prudently manage our liquidity position until we get that secured which were which were actively very actively sourcing right now.

Is there any thoughts on the timing on when you may have.

I have that in place.

As soon as possible. He is obviously our goal.

I would say we are in.

We are in pretty substantial.

Substantial a substantial number of conversations right now so my timing is as soon as possible. No later than the end of Q1 of next year, but I expect it to be sooner.

Okay, and then just on the you.

You know Mcelroy partnership and that's been in place for a while now.

Has there been any incremental capital from that partnership does come to drive shack of the upsides and he was units.

They are right now of the colony, just lapsed their year and Charlotte is about to lapse. Their years. So they are in their period of decision right now with that they have all of the materials that.

<unk> are required by the contractor that we're contract contractually obligated to give them.

In order to make that decision and we expect a decision on that by the end of the year.

The partnership continues to be really positive and they're really excited about the growth and continue to express a desire to outsize their investment.

However, there's nothing that has been.

I'm committed to as of yet mostly just due to the timing of they're they're kind of contractual obligation.

Great. Thank you for that color and then just on the outlook in terms of development.

You guys are looking for five pottery units down in others.

Down pretty substantially from the prior outlook can you just give us a sense on the five reasons.

The reasons that are planning to open what is the timing.

In terms of those one Q2 Q I'm just trying to understand how are you.

Trying to get those open.

Yeah. So we're looking at one in Q1 I believe it's two in Q2 and then the remainder would be in Q3, obviously there are shifts that could end have occurred.

Given different demands on supply chain and other things that are happening universally in the hospitality space.

That are that are and have delayed some of these projects, but we're excited about getting them open and.

And we're looking at kind of and as soon as possible timeline. So.

Hopefully some of those timelines will be brought.

Brought up meaning open sooner, but that's what we have as of right now.

Got it and then just lastly on my end and I'll pass it along Randalls Island for 2023 or is that off the table or is that still in play.

Yeah not off the table.

We are working with our partners in New York as well as our internal resources to try and figure out what an opening date there might might be so that we can share that appropriately we're really we're really weighing them.

The cost of of opening there versus it.

Also by the way the supply chain, they need to get the net pools et cetera.

With the timeline that we report so where we're cautiously and very carefully walking through that project right now to try to get the best date as possible.

Great. Thank you very much.

Thanks Peter.

Okay.

And our last question comes from Alex Fuhrman from Craig Hallum Capital Group.

Hey, guys. Thanks, very much for taking my question and congratulations on the really strong pottery results I wanted to ask about your decision to take the asset sale off the table.

You'd think with 35% venue level EBITDA margins.

Any opportunity to accelerate openings there would be attractive can you talk about that decision to take that off the table and are there any other levers.

Might be able to pull to accelerate openings next year, if youre not able to get that secured until the end of Q1.

Hi, Alex Yeah. Thanks for the question.

We were not.

As far as the asset sale goes we were not getting the value that we.

That we knew we should be able to get out of that asset.

And.

It was.

It was a hard decision to make obviously, but it was the right decision to make for our company as well as for our shareholders.

We ran a process the process.

That we ran with quite lengthy and.

Quite detailed and unfortunately at the end of that process.

We found that the value that we might have gotten.

Better market with better market conditions, we were not able to to get so we were really faced with the decision to go ahead and continue the asset sale and to come to the shareholders and our internal board with a hefty decision frankly, because it was being majorly undervalued.

Or to pivot and go down that path, which is what we chose to do.

As far as the debt goes I am very hopeful and very optimistic that it will be completed before the end of Q1. However.

I don't have a crystal ball, so I want to be very transparent and that we do need it by the end of Q1. However, we're working really hard to get it before that.

As far as any kind of.

Acceleration of any timeline, yes, we will look at that very hard and we will be able to do that once we have that in hand.

You know some of the markets are a little bit more challenging from a labor perspective for instance, New York City, we use union labor in that.

That always takes a little bit more time, which we all knew him.

So that might be one.

As an example that might be a little bit harder to escalate.

But in a market like Kansas City.

Or you know, Minnesota even.

That might be that might be one that we're able to.

Bring forward.

We will absolutely look at everything.

Okay, that's really helpful. Thanks.

Can I ask also about how how alcohol versus food has been trending.

Curious, especially at.

The colony and the Charlotte locations that have had a little bit more time in market has there been more uptake of food as a percentage of the overall food and beverage mix as those units have matured a little bit.

And we're getting there.

We're not quite where I want us to be.

I'm happy that our our alcohol revenue it is going strong because we are a bar and we want we want to do that really well, but as you know and as I've said in previous calls food is really something that we're proud of at our venues.

And we want to make sure that that showcase.

I will say the food percentage at the colony has crept up not as much as I would like it to but you know slow changes. So we are seeing that food percentage increase but we are not we still basically liquor.

The day in our business.

Yes.

Okay. That's really helpful. Thank you very much.

Sure.

Thank you ladies and gentlemen. This concludes today's call you may now disconnect.

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Thanks.

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