Drive Shack Inc.
Q1 2017 Earnings Call Transcript

Published: 6 May 2017

[Operator:]

Good morning. My name is Natalie and I will be your conference operator today. At this time, I would like to welcome everyone to the Drive Shack's First Quarter 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. BooHee Yoon, you may begin your conference.

[BoHee Yoon:]

Thanks, Natalie, and good morning everyone. I would like to welcome you today to Drive Shack's first quarter 2017 earnings call. Joining me here today are Sarah Watterson, our Chief Executive Officer; Larry Goodfield, our Chief Financial Officer and Chief Accounting Officer; and Sara Yakin, our Chief Operating Officer. We have posted an investor website - investor presentation on our website, which we encourage you to download if you have not already done so. Before I turn the call over to Sarah, I would like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release in the investor presentation and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we'll be discussing some non-GAAP financial measures, and the reconciliation of those measures to the most directly comparable GAAP measures can also be found in the investor presentation. And now I'd like to turn the call over to Sarah.

[Sarah Watterson:]

Morning, everyone. Thank you for joining us today. As BoHee mentioned, we've posted the presentation on the website. And I'll start on Page 3 with an overview of our activity to date, starting with our traditional golf business, American Golf. California experienced a significant amount of rain in the first quarter. And even despite that rain we achieved a 12% increase in adjusted EBITDA versus last year, generating about $2.7 million of adjusted EBITDA for the quarter. Typically, there is a lot of seasonality in the first quarter in our business. And so earnings from that quarter generally represent less than 10% of our total annual earnings for the year, making it our least impactful quarter. As such, we remain very much on track towards generating our targeted adjusted EBITDA for the year of $35 million to $37 million and really expect the next two quarters to be our most important towards achieving this goal. On the entertainment golf business, we continue to be very excited and make strides in developing our global network of Drive Shack venues. In Orlando, we're in the midst of constructing our first venue, with the goal being open in 1Q 2018. We're also very excited to announce that our second Drive Shack venue will be developed in Richmond, Virginia. On the debt front, we monetized a portion of our agency securities in the first quarter, resulting in $13 million of proceeds. We expect the majority of the remaining $110 million of debt recovery to occur throughout 2017. We expect our goal really on the majority of these proceeds and $130 million plus or minus of cash is to use these proceeds to thoughtfully grow both our traditional and our entertainment leisure businesses. So with that, I'll turn the call over to Sarah Yakin, who will discuss American Golf first quarter results.

[Sara Yakin:]

Thanks, Sarah, and good morning, everyone. Turning to Page 4, American Golf is one of the largest owners and operators of public and private golf courses in the U.S. with 78 properties, 50,000 members and nearly 4 million rounds played annually across our courses. Although our properties remain unchanged this year-end, our focus continues to be on – around our finding the size and composition of the portfolio to maximize results for our shareholders. Now turning to Page 5, I'd like to discuss the quarterly results for American Golf. Despite heavy rain in California during Q1, which decreased our playable days by 13, total company same-store revenues and adjusted EBITDA were up 2% and 6% respectively on a trailing 12-month basis. On the private site, where we have 19 properties, our same-store revenue was up $4 million or over 3% on a trailing 12-month basis. By eliminating lower-cost trial membership and increasing dues, we were able to raise our average dues per full golf member by 4% or $206 per member. On the public side, where we have 49 properties, the players club provided a stable and steady revenue stream. And at the end of Q1 we had 36,000 members. We continue to see growth within our existing portfolio. And for 2017 we're targeting adjusted EBITDA of $35 million to $37 million, which implies a 9% increase at the midpoint. With that, I'll turn the call back to Sarah to provide an update on Drive Shack.

[Sarah Watterson:]

Great. On Page 6, as I mentioned earlier we're very excited about the prospect of growing our entertainment golf business Drive Shack. To give you a flavor of who we are, for those who haven't joined us on the call before, Drive Shack venues are entertainment destinations, combined golf, competition, dining and fun. Our features - our venues feature multiple stories of hitting suites, whether friends, family, coworkers or complete strangers are able to compete in various technologically-enhanced golf games while using TaylorMade clubs. Consumers who are seeking a good time, but maybe not looking to participate in the game, are able to enjoy food and beverage options from 1 of our many entertainment, restaurant or lounge areas. On Page 7, you'll see how we're looking to scale of the business. Again, I'm pleased to report that our development in Orlando is very much continuing to track towards our expected open in 1Q 2018 and also our second side in Richmond, Virginia. We're working towards an open in 2018 for that site as well. As I previously mentioned, we're targeting about $3 million to $6 million of site level EBITDA per each site as we scale. And then beyond these sites, we continue to work towards the opportunity to grow the business, which we believe is a very vast one. And we're actively working on a robust pipelines of markets, both through the U.S. and globally. And so with this, our golf business is very much on track to achieve our $35 million to $37 million of adjusted EBITDA for the year. Drive Shack is very much on the path to grow and develop the portfolio venues across both the nation and abroad. And we'll continue to work towards monetizing the debt and continuing to thoughtfully use our cash to fund these endeavors. So happy to take questions at this time.

[Operator:]

Q - A -

[Sarah Watterson:]

All right, thanks very much, everyone. We look forward to updating you shortly.