DS - Earnings call transcript Q3 2019

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Operator

Good morning. My name is Laurie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Drive Shack's Third Quarter 2019 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 period. at given be will that time. Instructions is call being recorded. Today's Thank you.

ma’am. I like this Investor the ahead, call At Relations. hand go of over would Head to time, Pruitt, to Please Austin

Austin Pruitt

would Thank like Shack's you, quarter call. earnings XXXX morning, and everyone. third to you to good welcome Drive I

Joining me our Hammarley, our Chief Officer. Wes are Chairman Hana Board; David the here President; Chief our and today Khouri, Executive Edens, of Officer and Financial

you an investor you supplement on not which website, so. encourage if posted our to we download have have done already We

would today in and like disclaimers the those encourage Actual review to annual differ to remarks I We our point out factors quarterly reports supplement and review from will results the in the certain risk that filed our materially considered made statements. to with statements. by press these include release SEC. contained forward-looking you investor may and

And now, to over I Wes. would call like the turn to

Wes Edens

Austin. Thanks Great.

the the company. briefly, many real from the that to that introduce decided retire call, has yesterday May announcement I'm sure to Just saw you of Ken

we us to that Ken leadership a his while and He's thing stuff, call, he absence. so health-related great of on. of period, life concluded go to thank the some and platform had of. Ken for with he took gave do ahead off. And his end And he in to was a right build time retire the here, of we and off announced he lots in move leave was challenges dealing our personal and taken and at and As whatnot last

of That was person we Fortress have, that Hana a Staff obviously, Chief at Hana. is New extremely replacement. great Energy. my feel fortunate We in-house,

her process to prior XXXX company got things our of she that needed of public joining fill aspects the she on where She any the to exposure though, IPO saw and stuff both went we the as a in background. XXXX. globally, the For as – and in to over expenses locations that Vegas Australia. national in. to lot through Prior to XX lot a Topgolf led Topgolf She need was the Hana in well was the she an didn't year venue oversaw of the Las assets flagship – that, company as of direct opening operations, here, were filling from executive of including international

part So what I working she to experience has had time fortunate about the feel in here, personal the her at her of obviously tremendous we're I've this with seen between very, have like was direct and experience place at frankly, And of Fortress. small and very us she's I assembled she New here. think around the exposure in to a the – a without her, this terrific the is thunder, of to team both has no her. quarter success part I'll businesses and her pass had now, over it And been function the stealing of that

And so it Hana. to over you, going turn that, to with I'm

Hana Khouri

I I'm Thanks that, and be thank Drive earnings Ken know third certainly into say good quarter for this role want organization in that Shack's actually stepping to CEO excited much, I that And to morning everyone, to along With honored for retirement. at the call. joining introduction. and here. best Wes, so his others I with really the very wish you

quarter. the about headed. about really talk after today We and great quarter very business We quite have a productive and is where our feel a busy bit to

through plan. highlight to our and I take hand I'll third updates am short financial across it a business. and quarter summary targets David over first, of going our with the capital to then So I you then discuss start would to

look taking First, a quarter highlights. third at our

they've and this outperformed in venues that more thrilled beating I share our our West opened speak to going Raleigh, we to new X.X successfully Palm, XX%. to by Generation our plan am shortly. projected revenue significantly approximately are all Richmond expectations, have We and

of the Urban strides opening and our to entertainment opening development significant addition experience, of of new have three the three of In towards our Box, venues these also are core working stores, the by end goal the XXXX. in we of these made

at Finally, X% year. as well, we as Club business, of last golf to they our our look base perform the arm traditional to compared by Players growing QX incredibly of continue membership

showcases So of quarter, across venues. the last to Since X.X now, new our store our achieved on exceptional moving we X supplement the Generation results, reporting we really Page which openings. opened successfully

by XX. on Raleigh revenue Since us to August The on our targets. thereafter beating September first October approximately Beach million, $X.X Palm on in was we by setting have XX. QX last achieved opened plan shortly we revenues XX% on Friday, path West followed was exceed Richmond opening of our Raleigh and lastly, And the XX.

XX% of to We XX% on XXXX, with couldn't $X million these more to an each excited are we pace of EBITDA to $X report. yields achieve be in average million which in venues to of

a to our these Most combined provider allowed extended visit Orlando In with Orlando. and in reminder, venue will a test X.X our venue It which XXXX experience, beta to notably, our as As product openings. has to visit order times an retrofit the late we ball the proprietary we will increased platform, close September, offerings, in and to consistent we've exclusive per integrated made tracking technology us with the our result especially of engaging in Trackman, and enhancements. site. provide decision Orlando made more served successfully we temporarily spend gaming ahead technology. guest believe, upgrades Trackman, of

are the continuously feedback. thrilled to guest's learning’s far, our also new for stores ways enhance and we our space venue thus on of While looking that success we're

in focus By term. goal more The the like games We for this XXXX, we Guests games developing are developing traditional focus on Shackjack, of interest the the feedback really currently in – which has more near in will been so we developing far our QX positive. have beginning debut regarding shown new less guest of process and Hunt year. more for is Monster games of this a like quarter. which games to exceptional golf every of on rollout

Another update see and QX that on should end menu. going made items food including beverage be some is of offering you We're more in-house, the to options. focusing are by new a to expect healthier XXXX

we get the of QX We the XXXX. what the for our new buying to are we we are help by consistent, data looking help number their that decisions to ensure guide some will, at the out of size. – due have end times online items that alleviate high-quality items lastly, working guests. experiencing making in Narrowing of are going menu our around guests venues wait the rolled reduce popularity. And menu are many is diligently execution to guests reservations our in on help This that are to and what to our part, very to long using

really Moving Page about Box the supplement, Shack, spoke a Box our next provide be and key At social to to priority will few expense Urban has minigolf Urban beverage. been to tech-enhanced about minutes we the last page experience, want a and X. food quarter. first focus talking and of exceptional with will innovation. I which to Drive be to continue spend a The

States. are than fit. XX and our the to stores we've urban These expertise across to of same markets used populated and one the locations, taking potential highly in for are would stores core are United more densely develop where our it applying not smaller We ideal core trafficked locations indoor

on lines less The the availability retail vast Box, key it four Urban and space, Box development we shorter store focused of Urban to will capital due which growth time are the increase call, Since potential all our significantly of last as to underway. pertains really deliverables the have risk.

scoring. identify tracking and and for automatic First, needed technology we to ball secure

to and helping our and the and focus course Second, venue get format, wanted architects we identified vibe. to determine layout designers on

create estate test a to to trademark identify we started And registration and we fits. wanted real name Third, select potential the lastly, needed on to get process. and

because of three to and of the work underway, deliverables we well by end four So of team, the of all are our these year. expect next talented open venues have hard

Drive to out have to I opening Shack Beach, Drive North previously Florida; locations four core Florida. and our Orlando, opening Palm that in development, West strategy about bay already developing Urban talk our core the locations. facilities, simultaneously Raleigh, we our want XX-plus mentioned and Shack Box As continue XX We and Carolina; point Virginia is while Richmond,

the we openings of our As builds completed these had in team a our clean of venues, ensure hand-in-hand work we each construction to with handoff. order teams

success operations – filled This both role stacked our We've really really in teams do so, multiunit getting priority teams open. are players. of leading played other And we with venues with both to and – these veterans the ensure a from development businesses. critical these made to of a it experienced

to committed also have we – additional four have also We four venues.

which Orleans XXXX is are is broke in to planned this opening; ground both XXXX. earlier which open for Chicago, Manhattan, planned XXXX and for Newport and a New expected year Beach and opening;

The the for the X across in markets Urban or the map U.S. are the the either well both on already Box supplement course that considering as Page we we a illustrates markets store are of as

As keep I've joining are Shack new signed. deals spend they we the talking the negotiation the continue Since competition, Drive us I now. as minute from about number growing, and often of to differentiates asked team, contracts what that a been under want will announce to

our the and Urban our of few business golf special reasons. with as Box, about Drive in traditional it very debut to for the As success new we offering competition along is the the clear differentiated the a success has of Shack think that compared venues, a of AGC, core

of our Titleist. ESPN. their software earlier, actively courses. and incorporated the largest around Callaway, ways XX% is on PGA the of that including to exist equipment including virtual with of of work They opportunity TOUR touched golf I at of some versions across play is manufacturers, including pros traditional companies, golf works – courses the Channel Trackman. enhanced TaylorMade our and that gaming tech we the Trackman's also As are accuracy allows real the technology partner incorporate Trackman entertainment golf to and exclusive and platform, with looking Trackman world's track We've The Golf golf guests we world. radar-based top our broadcast by are used unrivaled,

us Alongside software. only allowing based quite a relatively on to these Trackman bit us new innovate gaming This trend. our on games, is games, creation games build also easy to flexibility, what want our allows what continued of games but and proprietary with own around modification, of we guests not

has which refreshed year-over-year we a believe be roll games, and Our out in update been the sales future. of will growth key driver gaming the new consistently software designed, same-store

launching we are are product innovation really concept proven which new Urban and about. already discussed, Europe As in with an the Box, we is one the excited

golf a only offer integrated and the traditional to truly company also are We entertainment proposition.

property the arm We ability to ready our existing ranges Shack have over traditional ground. Drive take courses operate golf and the break is then to and through and unique manage until

Additionally, to relationships through municipalities not. local access AGC's may real with estate others governments, have we and that

public base Players program, golf Club, grow subscription to industry. the is Finally, the and leading model continues their is in membership due AGC's subscription which

take of running our the Before could to all traditional more of venues to I about team. and motor I'm corporate just I moment really hard turn come. across a his not the folks the and business We working, golf it this really to be what's thank well at managers and the so proud are want part of a AGC. business, be our excited over as office David, associates to as to exceptional They

David with that, here's And Hammarley.

David Hammarley

you of supplement. and Page those Hana, for am Thanks, following on the I on X

development and Drive yield XX% really costs we're venues traditional and million results $XX to expecting about to our our to million core EBITDA said, Shack, venues, XX just million track economics. for because those, bay-plus, Gen Hana to development of and XX of of as the our And So right the X.X $X target we million $X on achieve with that's they're site-level review XX%. to excited of $XX initial are

build our often to through deliver the The For come our lower top tenant yield with ability line EBITDA development with to expecting by are product, $X relative million development incentives. million, margins combined development yields Urban potential costs, will is size to smaller go development of revenue, cost million XX%. venues. higher strong higher driven Box Urban given of to $X to which Box and site-level cost XX% and build we're core with existing the yields $X $XX Those of spaces, to and million strong in

our of Moving X, about Page to we're entertainment growth prospects excited very the on the business. golf of

year Urban XXXX business that plan to XXXX Box a core three scale next targeting achieved current gets to units and with includes Drive business X to X venues and venues beyond. XXXX. XX by units Our plan development our year, Shack staff We X plan ramping per to up in XX

and of and we our development, ability to $XX value of and which million. $XXX debt the courses, be with between million estimate $XX fund to on between existing $XXX our expect remaining terms million this and hand, that will cash cost In monetize owned two have we million

to the in Moving to our from One Page last on XX. we've few golf transformation of business business golf business. is traditional entertainment a about calls thing talked our an

mentioned, goal our selling owned of $XXX of that's we've of achieved XX XX courses been the our our used and for fund As million, entertainment business. to golf growth

opened units first XXXX Orlando this year. in unit our and we golf know, Gen you X in entertainment as three April Now the

by to our two-thirds a company golf between look and business expansion one-third mix you very will golf golf million as traditional That entertainment will and As XX to approximately lead the units XXXX, going going revenue revenue forward, a entertainment of be of transformation of of total rapid, $XXX takes that XXXX eight XXXX. place. from and

on Page XX. Moving to

think $XX value approximately X% potential EBITDA units Shack $XX we in – million; our estimate estimated broken margin million, That targeted of SG&A approximately American we into at million which approximately be of XXXX, $X As and business Drive for discussed. our to at revenues. store; is cost is a XX with then XX% XX% based core Boxes XX million I about to XX% upon at is $XX business, our targeted estimated revenues just by to total XXXX Urban EBITDA million $X.X $XXX our the the business, per the at an estimate revenues million, of company Golf we our at course in which

our $XX of trading we consider times. Given significant If we price multiunit of between times XX is there of X upside all high-growth of times, other of approximately the believe share XX expect times EBITDA current and to that, businesses we million. X approximately entertainment to multiples

back over operator. will With I call turn that, the to the

Operator

[Operator Instructions] Securities. line from you. JMP comes of Your the first Aaron question Thank Hecht of

Aaron Hecht

Good morning. Thanks for taking questions. my

David Hammarley

Aaron. Hi,

Hana Khouri

morning. Good

Aaron Hecht

look like those rollouts at from removed future the terms previously development? Portland, sites that all? removed? the map been of to I we like future saw couple take should in that has be timing development a that Houston So of away at caused list. supplement, Anything and And of we pipeline when have looks sites the from the there, changed in What

Hana Khouri

a really question. Hi Aaron, it’s Hana. Thanks, that’s good

provided Oregon, Previously, You're of These Stafford, real consideration, we in had format the look at Urban markets additional the Bloomington, flexibility explored in still Texas and we're estate. are Minnesota. to Beaverton, right. sites some under way has able absolutely rollout but us the Box that

the So Stafford for competing example Houston actually MSA. there's the stores in three site regarding

first venue, So golf be instead of adding concept. opportunity a we saw entertainment the instead fourth an to indoor putting large-format

a core in at minutes competitor from XX XX looking was Portland's and from we're store. site minutes away The Beaverton about urban away about

with guests core that we're more be So Portland of would here, an to the opportunity exposure us the targeting. to Urban with Box provide at the

markets, In to your proceed that is we'll Urban those continuing shift all. experience that's look locations potential that, out in be base the whether we stores the boxes. really expect we of question core to to than development in the to this and the on So time store Urban concept the but to of the faster absolutely answer not. rolling reference going instead feel line these We of is that development one Box Box plan for actually The locations about in in at markets core particular. the short, much

Aaron Hecht

a there, they Yes, obviously, Drive Box out numbers have than Urban the on venue. the you're return higher the Shack investment concepts, given Got you. putting

given or deliveries, than Urban outsized early returns costs those more Box even capital returns? some would you'd roll XXXX to be see on quicker it those performance higher now logical you those upfront talking out you're think If of venues smaller in about

Hana Khouri

absolutely. Yes,

year. availability end also We the right So build be next time real cost of cheaper three especially of much shorter actually and year our America the aiming retail can more the of next now. aggressive, again by we’re estate the stores to Box and times to the development across Urban the believe line given that open

Aaron Hecht

for you think other side, think represent staying is these not entertainment-related concepts, do you about box you what ancillary thinking an Box-type Drive stabilizes? of this on your Golf. percentage of American there's can Urban the Shack entertainment venues there the there kind a as – it when out guys line just we'll other more or Right. are or And What call But business everything total of opportunity maybe about golf outside do that company think golf-related. the an concepts traditional considering? then And you

Hana Khouri

questions. Good Yes.

now, first golf I right off is definitely space. and the the goal time right people to to really and the think and we're they're But be their on how about their now people with family. entertain entertainment thing when our think, focused friends to golf deciding spend

now, right also would fulfilling and But becomes envision future we diversified offering traditional through – AGC we're our golf. a entertainment can and that certainly robust. where golf and through goal So more certainly and

where focused regular our proactively every we suite basis and games a and we currently, providing on thinking highly engaging a we're for guests. new original are games roll about of to Speaking how out intently on are quarter can

offerings a our and in those further games incorporate our where So entertainment. experience. we focus in the through competitive term, our and additional in do see diversifying golf definitely on world Right we socializing the entertainment is obviously, near space now

Aaron Hecht

to a debt would obviously, cash now just thus mean options people funding looking about job How right that? golf of holistically, in some then other the think would that. whether you have And you done or you at you'd future plans I you terms some growth, how between monetizing in the describe and courses financing from have cash the Got far, you. future? tell guys good have the be

David Hammarley

it Yes excited some think require additional Aaron, other than the its is Yes, going I financing about plans, and to we're David. sales. growth core the

looking – we free through remaining asset-backed we're courses that as monetize. at we debt move owned potentially be And we as flow business do plan. the we We an move two still So debt cash as will generating have option. could forward,

but medium different it'll we to near I looking for, that options debt say are a the I would say, be at combination, So term. would

Aaron Hecht

Got you. appreciate quarter. time all I the That’s got. nice I and

Hana Khouri

much. so you Thank

David Hammarley

Aaron. Thanks,

Operator

Kelly comes question the George next of Your line from Imperial of Capital.

George Kelly

everyone. my Thanks questions. taking Hi for

Hana Khouri

Hi.

David Hammarley

George. Hi,

George Kelly

you. have I few So a for

entertainment off, with just golf the venues. start First

I you've of the first much before. a of know opening venues does opens, productivity Hana. months of – for you lot First, a after – What of seeing that sort opened the have do that confidence that – site? store in these after these how few you give how future

Hana Khouri

it Yes, a preopening that’s gives able confidence. social our understand could on numbers, how But it be which prebooking. question. like will before successful based us, of that venue, guests that short, sales, preopening really and results. are the selling very are in early we're event or to a lot And we're events our we corporate hiring Things essentially really even good open to

And doors. have lot a even so the we before of open early indicators we

But year. be because venues, the of of ones faith, on to last in that specifically, and we've into current Richmond identified to faith in a and the in how fairly things very – ability are in will are these to very, look successful of strong their their Raleigh, In lot can we and in their successful. forward there to different those a have metrics sales future quickly. open, and we pipeline identified The at based do lot we address once your of event venue number go and of consistently of West part, lot future, question a also few are a that be next a determine sales specifically, Palm

George Kelly

next me. okay. – That’s don't slide and the have Okay, question helpful. in And front of I then deck

on New only XXXX one you in there. one introducing in there are other two So I and those – plan or if years? venue opening in Chicago Orleans well gone this are through I've are XXXX? may – things that very Or you there and it But

Hana Khouri

as question. the XXXX, miss outwardly was New so did in Shack. opening good And you we I yes, that’s core Yes, a only don't think Drive Orleans really it deck a will that. In not be

are we're that excited So ground excited. excited us, really we. to Orleans. year. already will very year, broken next in We're really That that this and on be to open is community New We've have as

to we be In – Shack, will locations. drive addition Drive Urban Box that, opening core three

in XXXX. at You in XXXX Urban only from our have to as open look looking Chicago anywhere additional years in We're we to forward well And Shacks beyond for move that plans expect possibilities opening five at are pipeline we we and year XXXX, our identified into grow. also Boxes. as Drive to core XX as as for

George Kelly

the kind is a I Box. a entertainment question sort look about the explain et experience. I'm will profile, is But it what a Oka, bar cetera. a and an what theme? – like? golf mean okay. it of restaurant still briefly, can I mostly understand what is. the And sports then Urban and It's this it's of just with I unclear return – concept Or side a bar mean, you on

Hana Khouri

broadly hoping going when putting the It's speaking, can tech-enabled. able Urban were But to a into very be next We going and our process. that on experience some say brings earnings be give that I the Box is, focused that we're right call, to really and what is specific clarity on minigolf further to to people together. on Yes. be now

you. carry friend about and won't eat you versus worrying care that's which means if opportunity your socialize all freely a scorecard, that So with your the drink of is or and allows friends have for to who's to cheating around winning, you taken and family

food are offerings. hyperfocused these be spaces elevated some offering beverage in aiming going food and and really provide to We're differentiated beverage on and to our and

on you plan So with if coming come friends, a your would would maybe Saturday night. the are you George, be,

could that some to food your and really even friends competitive You round would wins. come see maybe and have then in so of and you bet who engage one bar and minigolf, or the two enjoy with play

Operator

would like Thank today's question-and-answer concludes Austin remarks. I session. to Pruitt This turn further the call back any you. to for now

Austin Pruitt

all you forward conference Thank we and look for today's participating updating QX. after you to call, in

Operator

Ladies and conference Thank concludes for gentlemen, call. you this today's participating.

now disconnect. may You

Drive Shack (DSHK) 12 Nov 192019 Q3 Earnings call transcript