Drive Shack Inc.
Q2 2020 Earnings Call Transcript

Published: 5 Aug 2020

[Operator:]

Good morning. My name is Maria, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Drive Shack's Second Quarter 2020 Earnings Conference Call. 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. At this time, I would like to hand the call over to Austin Pruitt, Head of Investor Relations. Ms. Pruitt, you may begin.

[Austin Pruitt:]

Thank you, and good morning, everyone. I'd like to welcome you to Drive Shack's second quarter earnings call. Joining me here today are Hana Khouri, our Chief Executive Officer and President; and Larry Goodfield, our Chief Accounting Officer and Interim Chief Financial Officer. We've posted an investor supplement on our website, which we encourage you to download if you have not already done so. I would 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 review the risk factors contained in our annual and quarterly reports filed with the SEC. And now I would like to turn the call over to Hana.

[Hana Khouri:]

Hi. Good morning, everyone, and thank you for joining Drive Shack's second quarter earnings call. Before we dive into the supplement, I want to begin by giving a brief overview of the quarter and where we stand today. First, I want to start by saying that I am really pleased with the way that our company performed in Q2. Even with the uncertainty that COVID caused for businesses across the country and specifically across the hospitality space, I am genuinely impressed with the way our team has come together to manage through the pandemic, and I think it really shows in the results this quarter. As a reminder, we shutdown all of our venues and the majority of our golf courses in Q1. Across the various weeks in Q2, we were able to reopen all of our golf courses and all of our entertainment venues with the exception of Orlando. The big question last quarter in Q1 and really at the beginning of Q2 was, okay, so after you shutdown and then reopen, are guests really going to still have an appetite to go out and be social given the current environment? The answer to that question we've discovered is, yes, absolutely. People are still wanting to get out, they're still wanting to be social and active and Drive Shack as well as our golf courses have really provided our guests a safe space to do that. We've been able to provide our guests with a social entertainment experience, whether it is at our Drive Shack locations or at our golf courses, and we are able to do that safely and in accordance with local regulation. As we reopen venues and courses, we constantly reevaluated our expenses, overhead and operational efficiencies in order to ensure we were operating as cost effectively as possible, while still being able to provide our guests with the greatest experience. Last quarter, we deferred all of our capital spending. That deferment or pause on all capital projects continued throughout Q2. This has really helped us to preserve our liquidity and is an addition to maintaining the other cost saving measures that were put into place in Q1. As a result of these measures, we currently have $12 million in liquidity and expect to breakeven at the company level this month. Our unlevered balance sheet had only a small amount of corporate debt and assets value can provide meaningful sources of liquidity for us in the coming months. I want to turn now to the supplement on Page 3, and I'd like to touch on a couple of highlights specific to quarter two. So in quarter two, our total company revenue was $32 million, which is 55% lower than Q2 of 2019. The reality is that we knew it was going to be lower especially given the environment. When you look at the timing of our core venues and our golf courses reopening, we really went the entire quarter up until June with some, but not all venues operating. In June, we were able to get a 100% of our golf courses back on line along with Richmond, which opened at the end of May and Raleigh, which was not able to reopen until the end of the quarter in the final days of June. On the traditional golf side, we successfully reopened 17 courses in April, 38 in May and the remaining five in June. I also just want to highlight that despite the closures in Q1, we continue to work internally on finalizing the concept and strategy for The Puttery, which we still believe will generate significant growth for our company. We plan on beginning construction on our first two Puttery venues in the fall of this year. Turning to Page 4, in regards to our liquidity. As mentioned earlier, we have $12 million currently in unrestricted cash. Last quarter, we had $14 million in cash and gave guidance for a burn rate of $1.6 million a month. I am pleased to say that we were able to effectively manage and even lessen our cash burn through a combination of increased revenues coupled with streamlining our operations to become more efficient. Over the last five months, we've taken a very deliberate look at the cost base of the business. We've enhanced the efficiency of our business, and have worked diligently to identify ways to reduce spending without sacrificing our capacity to operate. Ultimately, this has allowed us to successfully reopen our venues and courses and has resulted in a more than 50% reduction in SG&A at the corporate level as compared to quarter two of 2019. As we continue to navigate the ever-changing environment in which we operate today, we believe we are positioning ourselves to emerge from this disruption as an industry leader. While an array of entertainment concepts were popular before COVID and you can see these on Page 5 by the way. The current state of the world we live in today due to the prevalence of the virus, really favored an open air or outdoor environment. While we've always prided ourselves on being the best entertainment experience in our space, we do attribute at least a portion of our popularity in this quarter to the temporary shift in consumer preference for outdoor activities that require limited overlap with other guests. Given the layout of both our AGC courses and Drive Shack venues, we can provide the ideal setting for our guests to connect with friends while enjoying physical activity in social distancing. Later on in the presentation, I'll spend some more time discussing the specific changes we've made to address the impacts of COVID-19. But I first want to start by highlighting that our ultimate focus as a business remains unchanged. While the path to obtain our goals may look a little different than we'd originally imagined, we will continue to manage the implications that COVID-19 has had on our business while safely and successfully operating our venues and courses. We are going to continue to develop the big-box Core Drive Shack venues in New Orleans and Manhattan, Randall's Island, and we will successfully launch The Puttery format with a goal now of opening seven stores in 2021. Turning to Page 7. I want to walk through a timeline for these new venues. As mentioned on the last call, we paused construction in New Orleans in Q1, which caused our opening date to shift into 2021. Additionally, we believe that the timeframe for Randall's Island in Manhattan will remain on track for its planned opening in 2022. In regards to The Puttery format, we expect to open our first two venues in 2021 in Dallas, Texas and Charlotte, North Carolina. Our goal for next year is to open New Orleans in seven Puttery locations. Lastly, you may notice that Chicago and Newport Beach are no longer on our list of venues we are pursuing. We recently elected to not move forward with those locations. The decision to reevaluate our path of these was driven in part by the economics as it relates to Drive Shack venue in comparison to that of The Puttery venue. For those of you following along in the supplement, this is laid out clearly on Page 8. When we look at The Puttery as it compares to a large format Drive Shack venue, The Puttery on average will cost around $6.5 million to build with projected EBITDA of around $2 million to $3 million. This generates an unlevered development yield of anywhere from 25% to 30% with a build time that's half that of a large format Drive Shack store. Additionally, we believe that the yields could be higher with learned efficiencies. The Puttery offers a path to scale more quickly with less capital and faster returns. Because of this, we believe that The Puttery is a real path for growth for our company in the future. To be very clear, we will continue to focus our core drive – on our Core Drive Shack stores and we are wholly committed to opening both New Orleans and Randall's Island. And at the same time, we are focusing on The Puttery in parallel and on being able to successfully and quickly open as soon as things normalize. Looking at our AGC venues and shifting gears for just a minute on Page 10, you can see the map where all of our courses are in the U.S. When we began quarter two, we had only three of those 60 courses open. We are glad to say that we ended the quarter with all 60 of our golf courses open. Despite the closures, our courses produced incredibly successful results in quarter two because just like our Drive Shack venues, our traditional golf courses provide a safe outdoor setting for guests to come and be entertained. On Page 11, we show some of the key results that AGC had in the quarter. So compared to June of last year, in June 2020, courses saw revenue from Green & Cart fees up 10%, despite available tee times being reduced by nearly 32%, that was due to the implications of COVID. Green & Cart fee rates per round were up 12%. Private member sales were up an impressive 32% and member rounds were up 20%. AGC’s exceptional results highlight the tremendous demand for traditional golf and really prove its ongoing viability as a top leisure activity. I want to turn your attention now to entertainment golf venue results on Page 12. After closing all four venues, the week of March 16, we reopened our Generation 2.0 venues in May and June. West Palm reopened first on May 15; Richmond closely followed reopening on May 29; and Raleigh was able to reopen at the very end of the quarter on June 26. These venues collectively generated $2 million of revenue in Q2, which we are really happy with given the staggered nature of the reopenings. Upon reopening, the revenue numbers at these venues steadily grew each week and have remained relatively stable. And despite official limitations on our venue capacity and group sizes, the venues took less than 21 days on average to breakeven after reopening. Further details around the venues breakeven success can be found on Page 13, which I will go through now. West Palm was open for 47 days in the quarter, generating revenue of $1.2 million and breaking even in 16 days. Richmond was open for 33 days in the quarter. They generated revenue of about $550,000 and broke even after 30 days. Finally, Raleigh was open for only five days of the quarter, but generated revenue of $63,000 and broke even after 16 days, similarly to West Palm. The results for Q3 through July 31 for these three venues have been very positive with all three venues trending towards great results. So early in the presentation, I touched upon the ways that Drive Shack was poised for success and our ability to continue to operate through the pandemic. On Page 14, I want to briefly touch on a few details around some of our safety measures that have set us up for success in this environment. First and foremost, all of our associates are required to wear masks and be well in order to come into work. We provided them with resources, additional training on PPE and other safety measures that will keep both them and their guests safe. We added partitions between each bay at Drive Shack, which allows the base to function more like private suites, allowing each group their own defined segmented space with physical barriers between other guests. We are also closely following our local and federal health and safety guidelines and are enforcing these policies with our guests as well as ours staffs. Our active games give guests the opportunity to get out, get moving and be physically active, which is something our guests are excited about, especially in a world where many gyms and recreational facilities are closed. Lastly, we provide a safe space for social interaction, which has been a real scarcity in the current environment. And finally, as it relates to our venues, we are pleased to announce the progress we've made on our Puttery experience. As a reminder, The Puttery will bring F&B and technology together to elevate and put a modern and more social spin on the game of mini golf. We are near completion on the construction documents and we'll begin the permitting process for Dallas and Charlotte in the fall. We plan to begin construction on these two venues in Q4 of 2020. Now, before I hand it over to Larry, I'd like to tie this all together. Our goal and plan over the next 18 months or by the end of 2021 is to have New Orleans fully constructed and in operation and to build and open seven Puttery stores. We are projecting a total cost of $100 million to complete our plan. We have meaningful sources of liquidity and value of our assets, which we are looking at in part as an option to fund our growth. Based on this growth plan that I've laid out, we expect 2021 run rate EBITDA of around $36 million, at a 15x multiple this produces an enterprise value of over $500 million. We really believe that the economics of The Puttery provides a growth path for us that is not only attainable, but it's also highly profitable. And with that, I'm going to hand it over to Larry to take you through the results.

[Lawrence Goodfield:]

Thanks, Hana, and good morning, everyone. And for those following our presentation, I'll start off on Page 22. For us, this was a truncated quarter for us. All of our golf courses in Drive Shack venues were either already closed or closed in April and then reopened by the end of June with few exceptions. And so the financial results showed some very positive trends that emerged as we progressed through our reopenings and built momentum. And this is on both sides of our business with June representing the first month where we had the majority of our golf courses and two of our Drive Shack venues open for the full month. So on the quarter, we're reporting total company revenue of $24 million, and that's after excluding managed course reimbursements of approximately $8.5 million. This represents a $35 million decrease or 60% reduction compared to the prior year's quarter, which we certainly expect it to be lower than the prior year. Now diving into the results at the business unit level to highlight the trends given the scattered reopenings during the quarter. First, our Drive Shack venues. Topline came in slightly about 50% of our pre-COVID plan and that's measured from the period of time when we reopened, and that's about $1.8 million of revenue for the quarter. But the headline is really in June where site-level EBITDA turned positive for the month, driven by a tighter venue cost structure. And this is with two venues open for the full month with Raleigh opening on June 26. And as a reminder, our three Generation 2.0 venues were not opened in the comparable period in 2019 since they were under development. So no same-store results to report. Moving to American Golf, which also had very good results in June, where all except for five of our golf courses were opened for the full month. The highlight here as we turn positive on course-level EBITDA of $3.5 million and $12 million of revenue. And that's based on increased top demand at our publics and stable memberships at private from Q1 to Q2. On the corporate cost side, we're reporting a G&A decrease of 50% from Q2 2019 and a 35% decrease from the prior quarter, and so we managed our costs smartly. That represents more than $5 million of savings year-over-year as we realigned our team and implemented cost reduction measures. Moving now to the balance sheet. During the quarter, we terminated one unprofitable golf lease and converted another lease to a management agreement. These transactions provide an annual $500,000 recurring benefit to our business and the impact of these transactions to the Q2 financials resulted in a net gain on lease termination of approximately $3 million and removed the lease liability from our balance sheet. Additionally, under GAAP accounting rules, we impaired an investment of an underlying commercial real estate development project due to the pandemic. This resulted in non-cash charge of $24 million. And my final point on liquidity in response to the pandemic and to manage our existing cash balances, we reduce spending and layered on costs when necessary in a disciplined manner as we open courses and venues. We reported $14 million of unrestricted cash in May, and now we have about $12 million of unrestricted cash as of July 31. As Hana mentioned, we are currently evaluating our options for new capital to resume development and we'll report once we have definitive terms. And with that, I'll turn it back to Hana for closing remarks.

[Hana Khouri:]

Thanks, Larry. I'd just like to say thank you to all of our employees across our business. I couldn't be more grateful for employees at both Drive Shack and American Golf. They have worked tirelessly over the last several months, both in the field and at our corporate offices to keep our businesses going. Thank you for sticking with us. We really could not do what we do without each of you. So with that, I think I'd like to turn it over to the operator for questions.

[Operator:]

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from the line of Aaron Hecht of JMP Securities.

[Aaron Hecht:]

Good morning. Obviously, the Newport Beach in Chicago developments were removed from the future lists, I’m wondering why those were prioritized over Manhattan or New Orleans in terms of reallocation of capital, given The Putterys are being prioritized on their higher returns?

[Hana Khouri:]

Hey, Aaron. How are you? Yes, great question. New Orleans, we actually had already begun construction on and we had to pause it due to COVID-19 in Q1. So we were further down the line with our New Orleans build than we were with Chicago. When we looked at the use of capital, and really said, okay, we in 2021, our goal is to get Chicago open, and we would need to, for several reasons it became very clear to us that it would be best – in our best interest to go ahead and forgo that venue. In terms of Newport Beach, Newport Beach was a little bit further out, but as we kind of worked through the due diligence process at that venue, it became more and more clear that the costs were going to become nearly unmanageable. And I know that sounds a bit dramatic, but there were so many different nuances with that particular site that were driving the cost to build up on a weekly basis. So while we were looking for efficiencies in our build costs, we were faced with seeing Newport Beach as a place where we really couldn't find any efficiencies for the sheer fact of the way we had to build the building and we have to dig into the ground very quite far actually, so you'd essentially be – you'd be I guess, underground for lack of a better way to say it and it's hitting upwards. And that was due to the height of the net poles and other complexities there that it just became very challenging to contend with. And I think in a situation where we did not have a liquidity strain or concerns about liquidity, and to be quite frank competition between where we were going to spend our capital, and it might have made sense to continue it. But for us, it didn't at this point.

[Aaron Hecht:]

Right. That makes sense. Obviously, the environment has been unique and difficult and ideal for you guys. And you talked about your liquidity and where you're going to place capital. Are there baseline that you would be willing to share in terms of what you need to see financially over the next couple of quarters, next year to hit the targets that you're talking about in terms of developments of The Putterys and Drive Shack's because they've been – seems like it's been dwindling the last couple quarters, and it makes sense why.

[Hana Khouri:]

Yes. So I think what we focused on in the presentation and what we've been focusing on collectively is our business plan for the next 18 months. We have a business plan. Obviously, we want to open 50 Putterys by the end of 2024 along with the Drive Shack's in New Orleans and Manhattan. So there's a plan behind that that scales the business by 10 or 15 or so Putterys a year. Because of all of the uncertainty in the current environment, we really chose to focus on the next 12 to 18 months. And in the next 12 to 18 months, we really want to build, finish and open New Orleans as well as get the first two Puttery locations that we already have open in hopefully Q1 or the beginning of Q2, and then the five additional Putterys that would bring us to seven. So to do all of that, we were estimating that we need $100 million in capital before or by the end of next year in order to accomplish those goals. In terms of laying it out monthly, that's not something that we've disclosed. We certainly have it and are using that as we evaluate different opportunities in the financing space.

[Aaron Hecht:]

Got it. And then last one. Obviously, the cost of running retail probably changed over the last couple of months. What are you seeing on cost of space for Putterys? And if that was the only variable that you changed, how does that kind of change your pro forma projections there, not that the world hasn't changed, but just wondering?

[Hana Khouri:]

It's a great question. What we're seeing right now is, obviously, there's – it's unfortunate what has happened over the last several months and retail is incredibly distressed right now, and we're going into retail spaces with The Puttery. So what we have seen is a larger inclination for landlords to want to work with us. They're giving more generous tenant incentives. They're also more flexible or tending to be a little bit more flexible on when the rent payments began, putting in different nuances in the agreements for COVID and other things. So what that does to our pro forma for The Puttery is it actually makes it a lot better. We have not changed it. We've always kind of said, we think it will take between $7 million and $11 million to build. I estimate, I always use $6.5 million because it's a good number for me. And I think that that's on average what it will be. And I expect that number to be even lower with some of these newer Puttery venues that would be going into more distressed retail spaces. So I expect us to be able to save a lot of money there.

[Aaron Hecht:]

Got it. That's all for me. Thanks for your time.

[Hana Khouri:]

Thank you so much.

[Operator:]

Our next question comes from the line of Peter Saleh of BTIG.

[Peter Saleh:]

Great. Thanks. Thanks for taking the question. I'm not sure if I missed this, but what is the plan for Orlando, the Drive Shack in Orlando. Is that planning to reopen? And if so, are there any opportunities to reduce the rents there given the overall environment to improve the economics of the Orlando facility?

[Hana Khouri:]

Hi, there. Great question, and thanks for asking. I did not touch on this in the presentation. So I'm grateful to have the opportunity to talk about it now. Orlando has remained closed right now given the fact that it's our beta site. We had obviously some issues with getting traffic in our visit numbers and our visit counts up, which we were working on prior to COVID. We have not reopened that facility yet, but we plan on reopening it. This isn't going to be a permanent closure. We're looking – we're actively looking at ways and strategies internally right now, where we can in this new environment, increase our visit counts as well as obviously our revenue. To your question about rent, we are actually not paying rent in Orlando. So we have looked at several other levers that we could potentially pull. And those are the same levers that, to be quite honest, we've looked at across our businesses as a whole. SG&A, fixed cost expense, overhead and other things. And we're looking at Orlando a bit differently at this point and trying to figure out if there's a way to kind of increase our guest count numbers there. And one thing we thrown around is because Orlando is our beta site, it’s potentially putting some version of this Puttery in or around the Orlando venue to help us and to also help us gather data, but to also help us drive traffic in that location.

[Peter Saleh:]

Great. And then just on the – I know in the past you guys have discussed the potential to sell some remaining golf courses to maybe reinvest back into either The Puttery or the Core Drive Shack’s, where do you guys stand on that? Is that still on the plan? Or are you guys plan on holding onto the two remaining golf courses? What's the update there?

[Hana Khouri:]

Great question. Our two on golf courses are Rancho San Joaquin and San Juan. We still do have those and we are currently looking at all opportunities to increase our cash balance and we would certainly be open to selling either of those properties. But we are also aggressively looking at potentially getting financing against the pool of our assets, Rancho and San Juan being two of those.

[Peter Saleh:]

Understood. Okay. And just last for me on the G&A. Is this that – the current level of G&A – is this what we should expect for you guys going forward? Or do you plan on adding back more G&A dollars in the second half of the year?

[Hana Khouri:]

There’s probably going to be a very, very modest increase. And the reason that I say that is because as our venues ramp up and as we work to open The Puttery, we will need to bring back on several folks. However, we should never expect it to reach the levels that it did, say, this time last year. And we are anticipating our SG&A to hover around the $20 million mark for Drive Shack.

[Peter Saleh:]

Got it. Thank you very much. That's all I got.

[Hana Khouri:]

You're welcome. Thank you.

[Operator:]

Our next question comes from the line of Eric Wold of B. Riley.

[Eric Wold:]

Thank you. Good morning. A few questions. I guess, one, can you talk a little bit more about the mix of business you saw with the Drive Shack locations when they reopened in terms of play bay rentals versus food and beverage? Clearly, I think a lot of capacity restrictions around the interior food and beverage options, the bars, maybe how do you worked around that and how the consumers kind to work around that?

[Hana Khouri:]

Yes. Eric, nice to hear from you. Great question. What we found is – I think to answer the first part of your question. We've found that guests are definitely coming out to our Drive Shack locations. We've seen a slightly different trend based on the location in terms of ramp, and how those locations have ramped up. They've all done so – but they've all done so just slightly differently to one another, I guess, given their differences in their locations. And in terms of the food and beverage, one of the main drivers of our revenue being what it is today is the fact that our food and beverages is down across the Board. That's mainly driven by events. If you look at our AGC food and beverage revenue, it is down and they're not doing any events because of just the nature of coronavirus and the regulations, and obviously we want to provide a safe environment. Drive Shack is very much in the same boat. I would say that when people come to Drive Shack now, they're actually eating a little bit more and then they're ordering more, I should say, than they were previously just simply due to the fact that I think people are tired of cooking. They're tired of being at home and they just want to go out and have a good time and not really worry too much about things. So our facility is such that the food is actually brought out to the individuals at Drive Shack in their bays, and in some facilities closed our bar service. So we don't have walkup service to the bars. There's not an ability for them to like walkup to the bar and order food, and they have to do that. They have to do that from their table that they're sat at outside. For our golf course, our golf courses at AGC, most of that F&B is grab-and-go at this point. There's 60 courses, so they're all doing something a bit different based on their local municipality, but by and large, what we're seeing is a grab-and-go F&B model there.

[Eric Wold:]

Perfect. And then as you think about restarting construction on The Puttery and completing New Orleans and then moving forward with Manhattan, how do you incorporate kind of the COVID-19 restrictions into those construction plans? And the assumption that a lot of these restriction or some of them remain in place for some time. Are you flexible? Construction is going to move back to maybe kind of pre-COVID environment when it becomes an option. How do you think about that?

[Hana Khouri:]

That's a great question. In terms of New Orleans and Manhattan, Eric, just to be clear, are you asking if we're going to make any kind of physical modifications to these builds in order to accommodate for COVID? Is that your question?

[Eric Wold:]

Yes. And I think about obviously – Drive Shack you've made, it could be temporary changes with the Plexiglass, et cetera, but The Putterys a little more indoor then Drive Shack is.

[Hana Khouri:]

Yes. Okay. I just want to make sure I understood you correctly. Thank you for clarifying. As far as just first the Drive Shack venues, we don't see a need to really change our building model, mostly given the fact that we are partially outdoors, and what we have been doing so far is working. If we are still in a COVID situation, by the time these venues open, we would just institute the same types of physical barriers that we've put in our current existing venues in Raleigh, Richmond and West Palm Beach, we've seen that work incredibly well. But I don't think that we would opt to make any kind of physical changes to those two buildings. In terms of The Puttery, it's a great question and something that we've kind of talked about a lot. We all hope that there's a vaccine for coronavirus that it's eradicated by sometime late this year or early next year. In the chance that it's not, we have found with our design team several adjustments that we make both in the preconstruction phase and in the form of temporary implementation. In the preconstruction phase, that would be things like adjusting large group fixed seating tables to be made into like multiple smaller tables that maybe aren't so fixed and creating partitions that we could eventually remove, but that would be permanent and changing around our entrances having a server-only entrance, spreading things out, some temporary implementations. We could change our furniture to kind of accommodate the need for flexing capacities. And we have talked about creating clear barriers around the course bars, removing the ability for walkup transactions from guests, and obviously adding the sanitation stations, and then we have a list of some operational considerations that are probably going to be in place whether we have COVID still or not. And those are things like digital ordering, alternating start times on the course, and touchless payment systems, things that we don't really have at Drive Shack quite yet, but that are good to have whether we're in a COVID environment or not.

[Eric Wold:]

Perfect. And final question for me. Where are you on the other five Puttery locations that you want to open next year in terms of site selection negotiation?

[Hana Khouri:]

So before coronavirus, it's a great question. We had an active pipeline of over 60 sites. At this point in time, we are – due to the fact that we are kind of running on a skeleton crew here. We have our person who's heading up development coming back through those venues. He has remained engaged with our brokers and as well as the landlords. And to be honest, some of the things that – some of the sites that we thought would have been top contenders in February are not anymore simply because there's better deals out there. We've been approached by several different cities that have some great incentives that were previously thought of is potentially too expensive or too costs prohibitive for us to go into for our first, say five venues. So we're reevaluating that now, and we will move quickly to get those locked in by the end of the quarter. Given the fact that there's five additional and we have two already selected. We have a good amount of time to be able to take our time in identifying those additional five given that our pipeline is still large.

[Eric Wold:]

Got it. Thank you very much.

[Hana Khouri:]

Thank you.

[Operator:]

And thank you. That was our final question. At this time, I would like to turn the call back over to Austin Pruitt for closing remarks.

[Austin Pruitt:]

Thank you all for participating in today's conference call. We look forward to updating you after Q3.

[Operator:]

And thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.