Drive Shack Inc. (DS) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning. My name is Tasha, and I will be your conference operator today. At this time, I would like to welcome everyone to Drive Shack's First Quarter 2021 Earnings Conference Call. . At this time, I would like to hand the call over to Kelley Buchhorn, Head of Investor Relations. Ms. Buchhorn, you may begin.
Kelley Buchhorn: Thank you, Pasha, and good morning, everyone. I'd like to welcome you to our first quarter 2021 earnings call. And joining me today is President and Chief Executive Officer, Hana Khouri; and Chief Financial Officer, Mike Nichols. We've posted the investor supplement on our Investor Relations website at ir.driveshack.com, and we encourage you to download it now if you have not done so already.
Hana Khouri: Good morning, everyone, and thank you for joining our Q1 quarterly conference call. 2021 is off to a great start for the year with strength and performance from both our Drive Shack and American Golf businesses this quarter. Coming off a very historic and challenging year in 2020, we believe our Q1 results validate our team's ability to remain focused and adapt to the constant and ever-changing challenges we faced due to COVID, while at the same time delivering on the wants and needs of our guests. This is a testament to the drive, passion and dedication from all of our associates across the entire organization. For the quarter, we generated total company revenue of $61 million. This was flat to last year's Q1 levels. These results are incredible, especially given the ongoing impact COVID-19 has had on our events business. I'm especially pleased that we delivered our third consecutive quarter of positive total company adjusted EBITDA, which was $2.7 million this quarter, an increase of $7.4 million versus Q1 of last year. We were able to accomplish this by continuing our ongoing expense control. With over $81 million of unrestricted cash on hand, we remain centered on our strategic priorities to drive growth and profitability in 2021 and beyond, with a large focus on the successful launch and expansion of Puttery. We're excited to introduce our first 2 venues in Dallas and Charlotte this summer and are on track with development and construction time lines in both locations. In March, we announced our third Puttery location in Washington, D.C.'s Penn Quarter, which will open later this year. We're also actively engaged with landlords and brokerage in multiple markets across the U.S. and look forward to sharing more details with you as we finalize leases in those locations. On previous calls, we've discussed how we've been creating ways to generate revenue during less popular times while providing guests a way to safely compete and socialize during COVID. Along with our Drive Shack Open tournaments and our soon to debut Monster Hunt challenge, we also relaunched our popular Social Leagues this last Monday, which was received with great demand from our guests.
Michael Nichols: Thanks, Hana, and good morning, everyone. For those following our presentation, I'll start off on Page 17. All AGC courses and our 4 Drive Shack venues were open for the entire first quarter this year. On a total company basis, we generated revenue of $61.1 million for the quarter, which was flat compared to the first quarter of 2020. While our total company revenue was flat, AGC total revenue was up $1.9 million, and Drive Shack's total revenue was down $1.9 million. Both AGC and Drive Shack continue to experience reduced event and F&B revenue, primarily due to COVID-related restrictions in both businesses. Total company adjusted EBITDA came in at $2.7 million, which was up $7.4 million versus Q1 2020, the results of continued strong expense control efforts across our operations. At the business unit level, our entertainment golf segment generated $8.2 million of revenue with all 4 venues opened for the entire quarter. As I just mentioned, revenue was down $1.9 million or 19% versus Q1 2020, driven largely by reduced event revenue of approximately $1.6 million resulting from COVID-related restrictions. Our walk-in revenue averaged roughly 96% of Q1 2020 levels. However, total revenue averaged approximately 81% of Q1 levels, highlighting the impact of reduced event revenue. As a reminder, our Drive Shack venues were not open for the full quarter during 2020, closing on March 17 and March 19 due to the onset of the pandemic, so we do not have same venue comps to report. On the traditional call side, AGC generated $52.9 million of revenue, including managed course reimbursements of $13.8 million, which is up $1.9 million or 4% compared to Q1 2020. This was driven largely by a $5 million increase in revenue related to golf operations, primarily due to our courses being opened for the full first quarter this year compared to Q1 last year when we had to close our courses in mid-March due to COVID. This increase was partly offset by an approximate 50% or $3.1 million decline in event revenue compared to Q1 2020 and again, primarily due to COVID-related restrictions on large group gatherings. For the quarter, we reported an operating loss of $7.9 million, a $7 million or 47% improvement compared to the $14.8 million operating loss in Q1 last year. The improvement was primarily the result of continued expense control discipline throughout the entire company. I also want to note that the Q1 operating loss includes a $3-point million impairment charge for our New York office lease after the company relocated its headquarters to Dallas at the beginning of the first quarter. Net loss applicable to common shareholders was $12.3 million or $0.15 per share compared to a net loss applicable to common shareholders of $18.8 million or $0.28 per share last year. There was an approximate $0.03 benefit in Q1 this year, resulting from the roughly 24 million additional shares issued earlier this year subsequent to the follow-on common equity offering that settled in February. Briefly addressing liquidity. As of the end of April 2021, we had approximately $82 million of unrestricted cash, down slightly from the $86 million in unrestricted cash we reported at the end of February 2021. The slight decrease in cash on hand was primarily due to capital spend for our 2021 Puttery venues and the preferred dividend payment that we made at the end of April. As a reminder, we received approximately $54 million of net proceeds from our follow-on common stock offering that settled in February. This cash provides the capital we need to execute our 2021 growth plans for Puttery. Finally, I am pleased to announce the Drive Shack Board declared dividends on the company's preferred stock for the quarterly period ending July 31, 2021. The dividends are payable on July 30, 2021, to holders of record on July 1, 2021. With that, I'll turn it back to Hana for closing remarks.
Hana Khouri: Thanks, Mike. With a strong start to 2021, we are extremely encouraged with what the remainder of the year holds for us. Our entire organization is focused on key strategic priorities designed to work together to deliver growth and profitability to our business. And I want to thank our employees for their hard work and continued commitment to drive results. . Thank you all for joining us today. I would like to now turn the call back to the operator to open the line for questions.
Operator: . And your first question is from the line of Peter Saleh with BTIG.
Peter Saleh: Great. I wanted to ask real quick on -- it seems like Raleigh and Richmond you were operating at 60% of capacity, and that seems to be lifted now, which seems like it could be a good unlock for the businesses. Is there any visibility on -- that you guys can see on the event revenue at those 2 locations? Any way to forecast what you expect the event revenue to be in the coming months ahead?
Hana Khouri: Peter, nice to hear from you. Yes, great question. So we see -- we have seen, since we listed, again, I believe it was April 19, that the restrictions in Richmond and Raleigh were released, allowing up to 100 people, 100 guests outside. We have seen an increase in inquiries coming in for events really for the end of Q2, but mostly for Q3 and Q4. We're noticing an influx of inquiries also from the corporate side of our business. So corporate event business has been picking up. We expect to be able to generate in Q2. We expect to be able to kind of give you guys a better understanding of what we are projecting in event revenue for the remainder of the year because it's all just happened. We're fielding a lot of inquiries right now. I think we get a couple of hundred a day, which is great, and we're ready for it. I think we're all ready to get back to normal there.
Peter Saleh: Excellent. All right. No, that's helpful. Is there any way you could give us a sense of -- on the maybe Orlando venue? I recognize it's only really been open again for maybe another full quarter. I see it generated about $1 million. Can anybody can give us a sense on where the breakeven revenue is for that venue?
Michael Nichols: From a quarterly standpoint?
Peter Saleh: Or any way you want to frame it is fine.
Michael Nichols: Well, I think given the cost controls that we put in place, if we can get back to our early 2020 performance, roughly in the $1.1 million to $1.2 million per quarter revenue range will be very close to breakeven.
Hana Khouri: Peter, I'll say also that we are on budget right now and on track to breakeven given Q1's results, Q2, I guess, quarter-to-date results. We're well on our way, obviously, keeping a very close eye on it moving into Q3 and Q4 because the budget is slightly more aggressive in those quarters for all of our venues given the COVID restrictions easing.
Peter Saleh: Understood. Okay. Maybe 1 or 2 more on my end. I know several months ago or maybe a quarter ago, you guys announced the partnership with Rory McIlroy for The Puttery. Any more details you guys care or can share at this point in terms of the relationship and how deep that runs and maybe some of the operational how involved he will be with operations and just getting that comp up to speed?
Hana Khouri: Yes. So I think last quarter, I had expected to be able to share something prior to this call. We are actively working on it. There are no issues with the agreement. It's just taken a little bit longer than we had initially anticipated or than I had initially anticipated. Rory and his team are actively engaged with us on the first few Puttery venues. They're excited about it. They remain excited about it. And I wish I could say more and give you more, but I hope to be able to do that in the next few weeks. We're at the very kind of end of our process with that, with finalizing some of the agreement with them.
Peter Saleh: Great. And just last question on mind. Hana, I think you mentioned that the Dallas location is on track within the cost range. How are you thinking about Charlotte in terms of development costs there? We continue to hear that construction costs are up, and labor costs are up. Is that something you guys are concerned about? Or do you anticipate that it will fall within the range?
Hana Khouri: Yes. Great question. Obviously, something that we are keeping a very close eye on. I still anticipate that we will -- that our venues will fall within the range that we've provided in the deck and that we've kind of been saying this for the last year or so, the $7 million to $11 million gross cost to bill, we still expect to fall within that range. To answer your question, we are watching costs very closely. We've seen a modest increase in the cost of raw material, things like steel and lumber. However, most of our build cost is wrapped up in the holes themselves, tech and thematic design, all of which we handle locally. And we're working very closely with our suppliers to make sure that we can manage that. As far as the cost of labor goes, yes, it will have an impact. It would be silly to think that it wouldn't. But we still expect to be within the range.
Operator: Your next question comes from the line of Alex Fuhrman with Craig-Hallum Capital Group.
Alex Fuhrman: Great. I was wondering if you could give us a sense of how far along in the construction process Dallas and Charlotte are? And then as you start to get closer to the big openings of these menus in the summer months, at what point are you going to start engaging with clients about larger reservations for events and things like that in the summer months.
Hana Khouri: Alex, nice to hear from you. Great questions. As far as Dallas goes, we are in the process of installing some of our courses there. We -- they're running cabling and other things right now so that we'll be ready for a tech install. We are definitely on track in Dallas to open in the summer. Charlotte, I think on the last call, I said that Charlotte was just naturally a couple of months behind Dallas. There was -- there were tenant improvements that needed to take place and other things. But they have started construction there, and I believe they're in a running electrical phase of that build. And then I think that you asked about the others in the summer, in the events. We're going to start selling events about 30 days out. We are working on -- at least for our first one, we're working with our marketing agency to compile renderings and decks and other things so that we have something to show folks when we're selling to them. We're also planning on doing event showcases and other things prior to our opening to invite those folks in that are corporate businesses and others that want to book events primarily at this point for Q4 looking at the holiday parties and that kind of traffic.
Alex Fuhrman: Great. Hana, that's really helpful. And then can you talk about the decision to resume paying preferred dividends? You obviously have a lot of exciting investment opportunities in front of the company over the next year. Do you feel that there's just a good enough handle on your budget for this year that, that gives you that confidence? I would love to just hear about kind of the thought process that went into that reinstatement.
Hana Khouri: Yes. I'll say a little bit on this, and I'll turn it over to Mike. But for us, paying these dividends is really important. We suspended them during COVID because, as you can imagine, there was so much uncertainty, both with our liquidity as well as just with the environment that COVID kind of created for the hospitality industry. We're pleased that we're able to reinstate these, and we're pleased that we're able to start paying them again. We have a lot of faith in our current balance sheet and in our liquidity position. We are still exercising expense control as we will continue to do. But I have every faith in the world that our venues and our golf courses are going to continue to perform well throughout the year. And so it was really important to us. So I don't know, Mike, if you have anything to add there.
Michael Nichols: Yes, certainly. It was part of our budget plan this year to reinstate those preferred dividends. And obviously, it's always at the discretion of the Board who evaluates our performance vis-a-vis the budget we've put in place. And particularly given the fact that we have been able to turn our adjusted EBITDA numbers over the last several quarters certainly gives the Board the confidence to continue to declare those dividends as we perform according to our budget plans.
Operator: Ladies and gentlemen, at this time, I am showing there are no further questions. I would like to turn the call back over to Kelley Buchhorn for closing remarks.
Kelley Buchhorn: Thank you very much, and we'd like to thank everybody for joining us again on the call today. We look forward to catching up with you next quarter, if not, before. Reach out any time if you have any additional questions. Have a great day.
Operator: Thank you, ladies and gentlemen. This concludes today's conference call. We now ask that you please disconnect your lines.
