Drive Shack Inc.
Q2 2017 Earnings Call Transcript

Published: 2 Aug 2017

[Operator:]

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

[BooHee Yoon:]

Thanks, Maria, and good morning everyone. I would like to welcome you today to Drive Shack's second 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 presentation on our website, which we encourage you to download if you have not already done so. 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. 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 be found in the investor presentation. We encourage you to review the disclaimers in our press release and investor presentation and to review the risk factors contained in our Annual and Quarterly Reports filed with the SEC. And now I'd like to turn the call over to Sarah.

[Sarah Watterson:]

Good morning, everyone. Thank you so much for joining us today. As we mentioned, we posted a presentation on the website and so I'll be referring to that during the call. I'll start on page three, just a little overview of the first half of the year, starting with our traditional golf business, American Golf. During the quarter, we experienced some heavy rain particularly on weekends and particularly in California, which resulted in fewer public grounds versus the prior year. However in spite of this, the team has done a terrific job offsetting that weather by adding members to our private courses and to The Players Club. So year-to-date, we've generated $14 million of adjusted EBITDA and we remain on track towards generating our targeted adjusted EBITDA of $35 million to $37 million for the year. Moving to the entertainment golf business, we continue to make great progress developing these Drive Shack venues. In Orlando, we began vertical construction and we remain on track with our goal of being open in the first quarter of 2018. And as I mentioned last quarter, our second Drive Shack venue is being developed in Richmond, Virginia and we aim to open in the third quarter of 2018. We're also excited to announce the development of our third venue in Raleigh, North Carolina, which we expect to open in the second half of 2018. We're in many various stages of development on a number of different sites within our pipeline, both in the U.S. and globally and we'll continue to update as we continue to convert those sites. And finally on the debt front, we received the final pay down of our Intrawest-related loan yesterday, resulting in approximately $70 million of proceeds. So we expect to recover the remaining portion of the $35 million of debt recovery in 2017 and our goal is to use these proceeds plus $190 million of cash inclusive of the Intrawest pay down to thoughtfully grow our business. Turning the page four, American Golf remains one of the largest owners and operators of golf properties in the U.S. with 77 private and public golf courses across 13 states. Our portfolio decreased by one course versus the last quarter as a result of not renewing one management agreement in California that was virtually net neutral to earnings. And as mentioned in previous calls, we will remain focused on restructuring the size and composition of this portfolio to maximize results for our shareholders. And now turning to page five, I'll talk about the financial results of American Golf. So the total company same-store revenues were up $2 million or 1% and adjusted EBITDA for the trailing 12 months was up $1 million or 4%. On the private side, our same-store revenues were up $3 million on a trailing 12-month basis. And this increase was primarily a result of our ability to drive full golf members by over 183 and raise our average dues per full golf member by 211. On the public side, as I mentioned before our same-store revenues were down about 1% on a trailing 12-month basis from the decline in total rounds. However this was nearly offset by a 20% increase we experienced in the Players Club membership. We now have 42,000 Players Club members. And as I mentioned before, again, we remain on track towards generating $35 million to $37 million of adjusted EBITDA for the year. And now turning to page six, focal point of our business in terms of growth on Drive Shack are entertainment destination, combined golf, dining, competition and fun. For those of you who aren't too familiar with this concept, our venues feature over 90 hitting suites that span three stories in a 60,000 square foot building where friends, family, coworkers, complete strangers can play together tech powered golf games while using complementary tailor-made clubs and enjoying great food and beverage. For those of you who are not golfers or don't want to play in the facility, you can spectate from one of our many bar and restaurant areas or event lounge or game lounge. And we have a variety of ways for individuals to enjoy this venue and we believe it's poised to become the go-to entertainment destination for non-golfers and golfers alike. On page seven just an update on our market and our growth, we now have three venues in development, expected to open during 2018, again, Orlando, Richmond and Raleigh. We believe each of these sites can generate $3 million to $6 million of site level EBITDA and the cost to build an average facility is about $20 million to $25 million. Beyond these sites, the opportunity is very robust and we are actively evaluating 25-plus markets in top 100 MSAs across our American Golf courses and outside the U.S. And we'll continue to update you on our progress as we continue to develop. And I'd be happy to take any questions at this time.

[Operator:]

[Operator Instructions] Our first question comes from the line of George Kelly of Imperial Capital.

[George Kelly:]

Hi guys. Couple of questions for you, first, on your golf course portfolio, I was wondering how many courses - I see that there was another there was a sequential decline by one course. Just wondering three years, five years from now, what is your expectation for number of courses, how many when this process is through, how many do you think there will be?

[Sarah Watterson:]

This is a continually evolving process and we have over 4,500 dedicated employees at our courses that so serve nearly 4 million visitors a year. And so we're going to continually work alongside those individuals to evaluate which are the courses that might be better positioned away from us and continue to optimize the ones that we believe still have potential but it requires kind of hands on programs and hands on sales from our amazing employees.

[George Kelly:]

And is there still a big other several courses that are unprofitable?

[Sarah Watterson:]

There are courses within our portfolio that are unprofitable, yes.

[George Kelly:]

And can you help at all quantify how many that is?

[Sarah Watterson:]

I can't at this time but that's - we'll begin to give more information on that as especially with Intrawest pay down, golf becomes a much larger component of our business and so we'll continue as we have in the K and the Q to move over to look more like a growth company and operating company and give more information there.

[George Kelly:]

Okay. And then you may have said this in your prepared remarks, I hoped on a bit late. But when do you expect to realize - I think it's $35 million remaining, when do you expect that to be realized?

[Sarah Watterson:]

A proportion of that we do expect to realize this year over the near term but the whole of it, we're going to continue to try and optimize it but again this is some of these are more times in terms of when the maturity is plus when we're able to optimize it earlier than that maturity date.

[George Kelly:]

Okay. And then can you give specific site construction costs for Orlando and Richmond?

[Sarah Watterson:]

On average, as I just mentioned, we did tighten our range. We believe on average the cost to build one of these sites will be $20 million to $25 million.

[George Kelly:]

Okay. And then the last question for me, how long - so your target EBITDA is $3 million to $6 million per site, how long will it take - get to that EBITDA level?

[Sarah Watterson:]

We believe it should be rather quickly the first site because it is our first site and in terms of building a brand, it might take a little bit longer for that first site but once you know we have an established brand and we are pre-marketing we believe it should be relatively quickly.

[George Kelly:]

Okay. And I guess I do have one more question. On the technology, can you help at all with what the game is, have you finalized a vendor agreement with that or any kind of added detail?

[Sarah Watterson:]

We don't disclose any of our partners, but we have finalized our partner and I can assure you that we are making a very fine game that non-golfers and golfers will enjoy craves and come back for.

[George Kelly:]

Thank you.

[Operator:]

At this time I'd like to turn the call back over to management for any additional or closing remarks.

[Sarah Watterson:]

Thank you guys very much. We look forward to continuing to update you on the progress we're making and we'll talk to you next quarter. Thanks.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.