Golf Entertainment Group Inc. (GLFE) Earnings Call Transcript & Summary

Good morning. My name is Gretchen, and I will be your conference operator today. At this time, I would like to welcome everyone to Drive Shack's Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. [Operator Instructions] At this time, I would like to hand the call over to Kelley Buchhorn, Interim Chief Financial Officer. Ms. Buchhorn, you may begin.

Thanks, Gretchen, and good morning, everyone. I'd like to welcome you to Drive Shack Inc.'s Third Quarter 2022 Earnings Call. Joining me on the call today is President and Chief Executive Officer, Hana Khouri. We've posted the investor supplement to our Investor Relations website at ir.driveshack.com. Please take a moment to download the presentation now if you haven't had a chance to do so already. I'd 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 also review the risk factors contained in our annual and quarterly reports filed with the SEC. And with that, I'd like to now turn the call over to Hana.

Thanks, Kelley, and good morning, everyone. In addition to the 2 existing Puttery venues the company opened in 2021, we opened an additional 3 venues in 2022, D.C. on June 26; Houston on September 16; and most recently, Chicago on November 4. In Q3, the company had a total revenue of $89 million, up 16% or $12 million versus prior year. The increase was driven by the addition of Puttery venues, coupled with an increase in event revenue. Our Q3 adjusted EBITDA of $7 million in Q3 puts us on track to achieve our yearly adjusted EBITDA plan of $18 million. The company currently operates 4 Drive Shack venues in Orlando, Raleigh, Richmond and West Palm. We currently operate 5 Puttery venues in The Colony, Charlotte, D.C., Houston and Chicago. In addition to the 5 Puttery venues opened, there are an additional 5 committed and scheduled to open in 2023. These are in Pittsburgh, Kansas City, Minneapolis, New York City and Miami. The company also continues to operate the traditional golf side of our business, American Golf Corporation. In this business segment, we operate 1 owned 32 leased and 20 managed courses. I want to turn to our Puttery venues on Page 9 in the supplement. The 3 Puttery venues opened the entire quarter delivered a total of $6.2 million in revenue in Q3 and $15.1 million of revenue year-to-date. Total consolidated revenue -- consolidated venue EBITDA for Q3 was $2.2 million, a 35% margin. This includes a onetime inventory true-up for our Charlotte venue. Year-to-date, EBITDA is $4.6 million, which is a margin of 31%. This performance is in line with our expectations. A breakdown of some of the main segments of guest behavior we observed is on Page 10. Over 60% of our guests book their visit online in advance via our reservation portal. Nearly 80% of our F&B sales are attributed to alcohol. Finally, it takes an average of 32 minutes to play a 9-hole course on one of our -- at one of our venues. Houston opened on September 16 and generated $1.2 million in revenue between September 16 and October 25. Photos of the venue are on Page 11. Their guest trends are in line with what we've seen across the other venues, with 65% of their guests planning their visit online in advance, 87% of the F&B sales are attributed to alcohol, and it takes an average of 35 minutes to play a 9-hole course. On Page 12, the performance of Drive Shack entertainment venues is outlined. In Q3, the 4 entertainment golf properties generated total revenue of just over $10 million, down 4% to prior year. Our event revenue has increased by over 20% versus prior year at $2.5 million. EBITDA came in at $2.2 million for Q3, down 29% versus prior year due to a decline in walk-in revenue brought on by weather and other inflationary costs. Moving on to our traditional golf business on Page 13. AGC saw a strong event demand in Q3, 51% above prior year. The revenue of $55.4 million in Q3 is 10% higher than prior year. Our private courses remain at 98% capacity and our public course revenue from green and cart fees increased 2% over prior year. On Page 15, as the company looks towards next year, we are planning on opening an additional 5 Puttery venues in New York City, Miami, Kansas City, Minneapolis and Pittsburgh. We have an active and expanding pipeline with a number of sites under review and in various stages of market analysis. The company plans to execute additional leases once we have additional funding in place. With that, I'll turn it over to Kelley to review our financial results in greater depth.

Thanks, Hana. Let's look now at Page 17 in the deck for a summary review of our financial performance for the quarter. For the third quarter this year, we generated total company revenue of $88.7 million, up $12.3 million or 16.1% compared to last year's third quarter total company revenue of $76.4 million. The increase to last year was primarily driven by higher event sales, mainly at American Golf and Puttery sales from our 4 venues in The Colony, Charlotte, D.C., and most recently, Houston. On the entertainment golf side of our business, which includes both Drive Shack and Puttery venues, they generated total revenue of $16.7 million in Q3 this year, an increase of $5.4 million or 47.4% compared to $11.3 million in the third quarter last year when The Colony was opened for just under 1 month in the quarter. Our 4 Drive Shack venues generated total revenue of $10.1 million for the quarter compared to $10.5 million in Q3 last year. While total revenue was slightly down to last year, our Drive Shack venues drove a solid events business, with $2.5 million in total event revenue, up $0.4 million or 21.5% versus Q3 last year. Total revenue generated by our 4 Puttery venues was $6.6 million this quarter, including events, which continues to pace ahead of our expectations for the Q3 year-to-date period. American Golf generated total revenue of $71.8 million, including managed course reimbursements of $16.4 million. Excluding managed course reimbursements, American Golf's total revenue increased $5 million or 10% compared to total revenue of $65.1 million in Q3 last year, which included managed course reimbursements of $14.7 million. The increase in total revenue was primarily due to higher event sales this year, which totaled $9 million and was up $3 million or 51% versus the third quarter last year. Operating loss for the quarter was $5.2 million versus an operating loss of $5.9 million in Q3 last year. The improvement to last year was primarily due to the addition of new Puttery venues and a reduction in overall general corporate expenses, including payroll. Consolidated net loss was $7.1 million for the third quarter this year versus a consolidated net loss of $8.9 million in the same period last year. And the net loss applicable to common shareholders this quarter was $8.5 million or $0.09 per share compared to last year's loss of $10.2 million or $0.11 per share. Total company adjusted EBITDA was $7 million for the quarter compared to $3.4 million in Q3 last year. The improvement to last year was primarily related to the addition of new Puttery venues and a reduction in overall general corporate expenses, again, including payroll. And for reference, GAAP to non-GAAP reconciliations have been provided in the back of the earnings deck that include the details of our entertainment and traditional golf segment venue and course EBITDA contributions for the third quarter and first 9 months of 2022 and 2021. Cash and cash equivalents as of September 30, 2022, was $11.7 million compared to $58.3 million as of December 31, 2021. The decrease to year-end was primarily due to capital expenditures associated with the development of future Puttery venues. And finally, our Board of Directors declared dividends on the company's preferred stock for the period beginning November 1, 2022, and ending January 31, 2023. And the dividends are payable on January 31, 2023, to holders of record on January 2, 2023. And with that, I'll turn it back to Hana for closing remarks.

Thanks, Kelley. Before we open the line for Q&A, I want to briefly update you on our New York Stock Exchange listing status. In early October, we were notified by the exchange that we had fallen out of compliance with their continued listing standards, given that our 30-day average closing share price had fallen below $1 as of October 3. We are actively considering several options in response to a continued listing standard deficiency. We notified the New York Stock Exchange on October 19 of this and expect to make a decision during the cure period ending April 5. We continue to review all options available to us, and we intend to inform the New York Stock Exchange as soon as our Board has determined the appropriate action in response to the continued listing standard deficiency. We have nothing more to share on this topic at this time. But at this time, I would like to turn the call back over to the operator for Q&A.

[Operator Instructions] We'll take our first question from Peter Saleh from BTIG.

Hana, I just want to come back to the conversation around the capital raise. Can you just talk a little bit -- give us a little bit of color on what options you have explored at this point? And what seems to be -- what's off the table and what options you may -- what path you may go down? Just trying to understand if the debt financing is still on the table or if asset sales are something you're considering? Just some color on that would be very helpful.

Yes. Thanks, Peter. So at one point, we were considering an asset sale, we are no longer considering that. At this point, we're actively considering the capital markets. So we are expecting our funding to come by way of debt. And then just to add to that, we continue to reduce our expenditures broadly across all aspects of the business to prudently manage our liquidity position until we get that secured, which we're actively -- very actively sourcing right now.

Is there any thoughts on the timing on when you may have that in place?

As soon as possible is obviously our goal. I would say we are in pretty substantial number of conversations right now. So my timing is as soon as possible, no later than the end of Q1 of next year, but I expect it to be sooner.

Okay. And then just on the McIlroy partnership -- and that's been in place for a while now. Has there been any incremental capital from that partnership that's come to Drive Shack, has they upsized any of his units?

They are -- right now The Colony just lapped their year and Charlotte is about to lap their year. So they're in their period of decision right now with that. They have all of the materials that are required by the contract that we're contractually obligated to give them in order to make that decision, and we expect a decision on that by the end of the year. The partnership continues to be really positive. They're really excited about the growth and continue to express a desire to outsize their investment. However, there is nothing that has been committed to as of yet, mostly just due to the timing of their kind of contractual obligation.

Great. And then just on the outlook in terms of development. I think you guys are looking for 5 Puttery units now and that's down pretty substantially from the prior outlook. Can you just give us a sense on the 5 putteries that are planning to open? What is the timing in terms of those 1Q, 2Q? Just trying to understand how you plan to get those open.

Yes. So we're looking at one in Q1. I believe it's 2 in Q2, and then the remainder would be in Q3. Obviously, there are shifts that could and have occurred given different demands on supply chain and other things that are happening universally in the hospitality space that are and have delayed some of these projects, but we're excited about getting them open. And we're looking at kind of as-soon-as-possible time line. So hopefully, some of those time lines will be brought up, meaning open sooner, but that's what we have as of right now.

Got it. And then just lastly, on my end, and then I'll pass it along. Randall's Island for 2023, is that off the table? Or is that still in play?

Yes, not off the table. We are working with our partners in New York as well as our internal resources to try and figure out what an opening date there might be so that we can share that appropriately. We're really weighing the cost of opening there versus -- and also, by the way, the supply chain, the need to get the net pools, et cetera, with the time line that we report. So we're cautiously and very carefully walking through that project right now to try to get the best dates possible.

And our last question comes from Alex Fuhrman from Craig-Hallum Capital Group.

Congratulations on the really strong Puttery results. I wanted to ask about your decision to take the asset sale off the table. I would think with 35% venue-level EBITDA margins, any opportunity to accelerate openings there would be attractive. Can you talk about that decision to take that off the table? And are there any other levers you might be able to pull to accelerate openings next year if you're not able to get debt secured until the end of Q1?

Alex, yes, thanks for the question. We were not -- as far as the asset sale goes, we were not getting the value that we knew we should be able to get out of that asset. And it was a hard decision to make, obviously, but it was the right decision to make for our company as well as for our shareholders. We ran a process. The process that we ran was quite lengthy and quite detailed. And unfortunately, at the end of that process, we found that the value that we might have gotten in a better market with better market conditions we were not able to get. So we were really faced with the decision to go ahead and continue the asset sale and to come to the shareholders and our internal Board with a hefty decision, frankly, because it was being majorly undervalued or to pivot and go down the debt path, which is what we chose to do. As far as the debt goes, I am very hopeful and very optimistic that it will be completed before the end of Q1. However, I don't have a crystal ball, so I want to be very transparent in that we do need it by the end of Q1. However, we're working really hard to get it before that. As far as any kind of accelerations of any time line, yes, we will look at that very hard, and we will be able to do that once we have the debt in hand. Some of the markets are a little bit more challenging from a labor perspective. For instance, New York City, we use union labor. I mean that always takes a little bit more time, which we all knew. So that might be one as an example, that might be a little bit harder to escalate. But in a market like Kansas City or Minnesota, even that might be one that we're able to bring forward. We will absolutely look at everything.

Okay. That's really helpful. And then can I ask also about how alcohol versus food has been trending? Curious, especially at The Colony and the Charlotte locations that have had a little bit more time in market. Has there been more uptake of food as a percentage of the overall food and beverage mix as those units have matured a little bit?

We're getting there. We're not quite where I want us to be. I'm happy that we're -- our alcohol revenue is going strong because we are a bar, and we want to do that really well. But as you know, and as I've said in previous calls, food is really something that we're proud of at our venues, and we want to make sure that, that's showcased. So I will say the food percentage at the Colony has crept up, not as much as I would like it to but slow changes. So we are seeing that food percentage increase, but we are not we still -- basically, liquor rules today in our business.

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