Q2 2019 Earnings Call
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Good morning May have your conference I'd number.
Good morning.
Of course 957.
Five to four eight.
Okay, we have the spelling of your first and last name.
Your first name Rachel are a C H E L.
And a last name Smit SM I th.
Your company name.
Our euro.
Hey, I E R. Eight.
And your telephone number.
You want to.
960 3697.
George when you.
Thank you.
<unk> have improved dramatically on everything about it so new technology.
Track Man, which we'll talk about that and by far and away the leader of golf ball technology in the world and exclusive partner to them. We're incredibly excited about that have made major advancements to the games and then regionalized food and beverage so really the whole suite of offerings across the the site and be very very different that also allows us to go back then and take our 1.0 site in Orlando retrofit it with this technology gaming and food and beverage and so in effect you get four new 2.0 sites. All open here in the course of the next several months. So it's a it's an exciting time for the company will have really great things to report on we think over the course of the rest of this year.
Secondly, the innovation is is really the the heartbeat of other company like this and we are very focused on the adjacent seasonal market because what we started with which is the natural thing to start with we think are these large.
Sites in densely populated large NFL like city, so large places to do business and that's that's where we're starting we think that there are other significant growth opportunities for adjacencies. So the mid size, which is a slightly smaller bayes actually works well with the 500000 population centers and down urban box, which is the newest newest thing that we're focused on around here indoor small format cutting oriented great technology, great food and beverage. We are very very excited about this taking the same expertise that we used to develop the large box. We then apply to these smaller offerings in these smaller.
Our markets and we need to expand the potential to grow the company dramatically.
Hannah we'll walk through both in the nature of what we're looking at and also what we think the right economics of it are but it's it's a very logical extension of our existing product that was something we think has has tremendous promise for us.
Liquidity update and the transformation of the company in terms of a golf course owner and manager David will walk through this but we closed another four courses $20 million in gross proceeds we now generate a $149 in proceeds expect another couple of properties to sell through the course of the year and this will largely be behind us. So that's a that's a kind of cleaning up the the rockpile the existing assets, we're very very happy about that lastly.
I'd like to introduce Hannah, but in a very similar fashion to our kind of 1.0 to 2.0 version of our operating sites themselves were experiencing the same thing on the management side. So.
Getting into business and having proof of concept that allows us to go back and really retool the organization to expand the organization and add in people with.
The most relevant skill sets that help us become the best management team in the world, which for US. That's the goal we are doing.
I have a very personal experience and that's what we're going through this and going from the English championship into the Premier League and I think Theres a lot of parallels between them because you take the core of your existing organization and then add to it substantially because you want to compete at the highest levels and that's very much. We're in the process of doing here a drive shack. So can make him in about a year ago and that was a big step for us in terms of a person has had tremendous experience and leadership in the industry. We then have added approximately 30 people. The vast vast majority of them are people who have come from.
Either one of our competitors or people that are.
In the.
In the competitive landscape of these entertainment individuals. So we now have a very very highly skilled and experienced workforce. The last person to join us as really a hana Hana had a non compete with one of the competitors that expired on on August . The first she has worked for me is.
My Chief of staff and one of my other businesses for the last year and has been a tremendous addition to our playbook around here. She comes in with a wealth of personal experience so over five years and top golf.
Open personally over 20 sites globally.
Created the operations playbook that was used in all those openings theres a long list of things that she has done that we think are very relevant.
And so we're extremely excited that she joins us.
We think that Hana kind of completes the list now with a 30 plus people that we have across the organization.
You know on a on an unrelated note completely.
Ken came to US came to the board about a week ago asset take a personal leave of absence. He's he's been a tremendous force force of the company has done a great job for us and not being completely coincident with Hana who is a plant addition, as soon as that her or her.
For.
Noncompete expired also.
Canada step back for a period of time, we hope is a brief period of time, we're obviously deeply supportive of him. He has been a wonderful addition, here and has done a lot of the innovation that you're going to see in these new venues that an open here in less than two weeks are at his handiwork. So we feel great about that and we wish him nothing but the best and we hope that we'll have a good update on that but we feel incredibly good about the management team that exists both on the senior leadership satisfied now with Hana as President, but then the technology in the food offerings and everything else throughout the rest of it.
So with that let me turn the call over to Hannah. Thank you Lance.
I really couldn't be more excited to join guys shack. So early in their story and I feel like I'm joining at the perfect time, and our transformation from a traditional golf course owner operator and entertainment business is largely complete at the end of last year. We opened 13 golf courses and had only one operating guide shack in Orlando by the end of this year, we expect to golf courses and half were operating drive shacks with even more sites in the development pipeline.
We're on the verge of three major openings, we're going to open a rally in the coming weeks as Wes said.
Then we turned around and open our venue in Richmond. Shortly thereafter, then finally west Palm Beach, shortly after which means in.
If we look ahead at our development pipeline over the next few years, we expect to have an additional three to five new sites open and operating by the end of next year.
We currently have seven in development and are analyzing economics over 30 potential sites, which includes our new urban box concept, which I will discuss shortly.
Our development goes it really simple we want to be smart about our site selection, we want to compress the construction timeline and be on or below budget and we went to shorten the time period from opening to breakeven.
Orlando has really served as our beta site successfully allowing us successfully allowing us to test our technology operational and product offerings, especially ahead of this 2018 years opening.
We entered into an exclusive partnership with tax man, which we really believe is the best ball tracking technology in that were held in high regard bye.
PJ printers, and we really expect it to you.
And improve our gaming experience and the guest experience.
Simultaneously, we have redesigned the outfield and to provide a more intuitive layout for game play has enhanced lighting and effects and more durable tourists.
We've also rolled out any food and beverage menu, which we're seeing feature seasonal local offerings.
These enhancements as Wes said will be retrofitted back into Orlando and we will continue to use certainly endo as their beta site in the future to continue to test these innovations.
Well, we're thrilled to quadruple the number of operating chart shacks over the next three months with Raleigh, Richmond, and West Palm and the key priority for US has been and will continue to be innovation.
We're really excited to announce as any of its product development that we have cut the urban box format.
It's going to be an indoor concept that's ideal for dense highly trafficked urban locations, where a typical large format drive shack that you see today would not fit so the footprint will be around 25000 square feet. When you compare that to the two other boxes, so to just over 55000 square feet.
This concept is going to leverage all the key features that you know another bad drive shack, including an elevated food and beverage offering great hospitality and then our technology compared.
Our technology paired with a petting concept.
And most importantly, it's going to be super entertaining and really fun.
The cost of our urban box will be about a third of our full size stores and it will make it will be both easier and faster to build compared to our full size.
We expect any format to cost between five and $8 million to below and to generate about $8 million in revenue.
While we'll continue to develop the urban box. The midsize 72 base facilities will remain equal priority. We expect to debut both of these formats in 2020 and expect to have 20 stores open by 2022.
With that im going to turn it over to David to take you through our results for the quarter and our future outlook.
Thanks Ana.
I'm first going to talk about Orlando, where in our first year of operations, we've generated about $6.3 million in revenue driven by 160000 visitors with an average spend per visit of about $40.
If you look at our revenue today about 38% has been driven by food and beverage with events at 31% and they play a 29%.
Over the past two months as we've been looking at some of the innovations we have been doing there walk in sales accounted for about 70% with advanced.
At 30% and as as Han mentioned, we're really focused on enhancing Orlando with the 2.0 enhancements, including Trochmann and range design and we think this will help improve the unit economics of our land and move forward.
Turning to our traditional golf business as you know our American golf business has 50 plus years of experience operating golf course, and we think this is a key asset for the company in fact that played a role in helping US unlock two key development sites for our US Reynolds Island, and Newport Beach, and we're really excited to leverage that going forward.
In terms of our own golf course sales as of today, we sold approximately we sold 20 courses for approximately $140 million since beginning of 2019.
Over the next few months, we expect to sell an additional 35 million of sales across four courses, which gets us to our projected goal of 175 million by the end of this year.
This will this 175 million will be is the proceeds for 24 of the 26 strong courses that we started with it in our own portfolio as we've previously said the two courses that remain have.
Approximately valued at 45 to 65 million in total proceeds when you include development upside we will continue to explore the best way to monetize those assets as we move forward.
Before I before I am today, I'd like to summarize our overall future expectations for the business.
In the coming months, we plan to open Raleigh, West Palm Beach in Richmond, and we expect them to generate revenue and EBITDA consistent with our unit economics, starting in 2020.
Moving forward those unit economics for drive Shack Entertainment include a cost to build of $25 million to $35 million for the midsize and full size stores and $5 million to $8 million for urban box topline revenues will be $15 million to $25 million for our midsize and full size stores with seven to 9 million for our urban locks and overall stabilized EBITDA margins will be between 25 and 30%.
We expect to complete those 24 to 26 owned go golf course sales by year end for $175 million.
After completing our trends are traditional.
Golf business transformation, we believe the stabilized economics for the business will be approximately 175 million in revenues with course, EBITDA margins of 15% to 20%.
Our own golf course sales proceeds will fund our development Capex through the beginning of Q1 and we are currently exploring capital financing options to move the business forward.
As mentioned previously our total company yesterday, we expect to be between five and 10% of company revenues by the by 2022.
Overall looking at the company today, we're very excited about the focus on moving the business from 1.0 to 2.0, and the product innovation, Hannah and West discussed.
With that I'll turn it over to the operator for questions.
Thank you at this time I would like to ask a question Press Star then the number one on your telephone keypad.
And you have a question from George Kelly of Imperial capital.
Hi, guys. Thanks for taking my questions.
Thanks George.
So sorry to hear about Ken.
Hopefully he will return soon but so just a few questions for you.
First of all.
Can you take us through the sites that you expect to open in 2020.
Sure, which ones I know you've announced a lot of locations.
It seems like they are in process. So yes coming next yes, so that.
The three I can talk about today that we expect to open our Houston, which is specifically Stafford, Texas, New Orleans, and Bloomington, which is in Minneapolis, The mall of America.
Okay.
Okay and then.
Discussion today button and you're talking about the urban the new format.
And then just in your projected new store openings for the next few years Theres quite a few of those are the urban.
Box. So wondering if you could talk about why.
Why that's why you are so excited about that and ER.
It is challenging to find sites for the larger midsize stores.
What's going into the mix being so heavily weighted towards towards the smaller format stores.
Hey, George as well, let me give a little bit overview ill turn over to Anna but I think.
If you look at the development timelines for the large stores. It's a couple of years from the time that you make a site selection agree on a piece of land to build through a permitting process construction process and then get opening so.
It can be as quick as 18 months right in a little bit less if you actually really really fortunate in terms of all the planning and permitting but it also can be two plus years and we're talking about a place like New York City, which we think is going to be.
And amazing sight to say, the least but it takes a number of years to make that happen the.
The smaller sites for the mid level sites.
Smaller cities, we think will be a little bit easier to permit and build the footprint is a little bit smaller the last the urban box is one that is actually we think considerably less in the development timeline and has very similar economics to the big stores. So we show on Hana walk through it a little bit the.
Representative economics of it but we are really looking for is probably the minimum 15000 square feet, a maximum 25000 square feet, so something in that range and as it turns out there's a lot of space in America that has that fits those characteristics. The permitting process is really really a permitting process that is really just talking about the fit out for our retail tenant no different than if you are a drug store or a clothing store or whatnot. So you don't have a restaurant you don't have a significant permitting timeline. So we think that the once we are up and going and it's kind of finalized our format for that we think that the total time from identification of an asset to open new doors could be as little as nine months.
And the number of sites that are available number in the thousands and there's hundreds and hundreds of market. So and the economics, we believe will be comparable obviously little bit less but comparable at the end of the day to the very large sites and so I think you have the large size, which provide brand awareness proof of concept you get it to build up your all the different technology Entertainment. All this rest and things and these small sites may be the greatest expression of it all so it's actually it's a really really exciting thing and we think it's a very logical extension of kind of what our brand is and couldn't be better behavior. I know you have a lot thats about those yes, I think and why are we so excited about that I think people really are nowadays craving that social interaction and going sitting at a bar is not as popular as it once was people want to participate in an activity when they when they go out and I think that's good.
An interesting alternative while still being able to and stay true to the drive shack brand.
And on the West side I think there is there's just a lot more there's a lot of opportunity in these empty spaces across America to be able to put this concept into.
Okay. That's helpful. Then just a couple other.
Questions the long term golf course sales.
What kind of timeline would you expect that 45 to six or whatever the number was.
It's always hard to give an answer sensitive it is long term I would say.
We probably expect.
On one of those two forces to do something in the next six to 12 months, because our hope but.
As you know that we have conversations going but.
So thats, probably the most guidance I can give on that charge. Okay. Okay. And then last question from me.
And I don't know if west Sir David West, but I appreciate you being on this conference call and taking questions and everything.
So im curious just about financing that you're considering.
With with your pipeline of new stores can you give any kind of update about.
You know how that dialogue is going or if you've started it and when would you expect to have more to announce there.
Yeah, we've had a bunch of preliminary conversations there is also the the work that's been done in the industry is beneficial to us. So people are very familiar with it whether it's straight out financing or sale leaseback financing on the venues I think as soon as that there as they are open which again. The next version 2.0 opens and 13 days from now as soon as they are open and running I think our financing options expand exponentially and so between now and the end of the year I think you'll have a lot of news on the financing side to kind of show how we can pay for existing staff and of course, the stuff to come so.
Okay. Thank you.
And once again, if you would like to ask a question Press Star then the number one on your telephone keypad.
If there are no more questions, we will end the call.
Thank you.
Thank you. This does conclude today's conference call you may now disconnect.
Okay.