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spk03: Good morning. My name is Chelsea and I will be your conference operator today. At this time, I would like to welcome everyone to DriveShack's first quarter 2022 earnings conference call. Currently, 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. If you should need any operator assistance, please press star zero. At this time, I would like to hand the call over to Kelly Buckhorn, Interim Chief Financial Officer. Ms. Buckhorn, you may begin.
spk01: Thanks, Chelsea, and good morning, everyone. I'd like to welcome you to DriveShack's first quarter 2022 earnings call. Joining me on the call today is President and Chief Executive Officer Hannah Corey. 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 have not 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 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 Hannah.
spk07: Good morning, everyone. Thanks for joining us today. 2022 is off to an incredible start. For the first quarter, we delivered $69 million in total company revenue, up $8 million or 13% compared to Q1 last year. Our core business remains solid with four drive shack venues and 55 American golf courses delivering sales results above last year's same quarter. Our two puttery venues located in the Colony, Texas and Charlotte, North Carolina exceeded our expectations and generating a combined $4.4 million in total revenue. Our walk-in business has largely normalized, and we continue to experience strong momentum at our venues and courses. Total event revenue in Q1 this year was $6.4 million and is up over $5 million to last year, with more than $3 million of the increase coming from private event sales at American Golf. Demand for future events remains exceptionally strong across our entire brand portfolio, including corporate, social, and private events. Adjusted EBITDA for the quarter was $1 million and in line with our expectations. While it did come in below last year's first quarter, it was expected, given we exited five of our traditional golf courses after Q1 last year, which together contributed $1.3 million in course EBITDA in Q1. We also made strategic investments in headcount and other related expenses throughout 2021 to support the development and growth of our puttery business. With that, roughly $1 million of incremental expense related to these investments was realized in Q1 this year that had yet to be incurred in Q1 of last year. Including our Q1 results, we remain on track to deliver our goal of $18 million in adjusted EBITDA for full year 22. We have a strong core business foundation with both our drive shack venues and American golf courses. As I mentioned, our walk-in business has normalized and demand for events is accelerating. We are gaining a clear proof of concept with our two puttery venues, both delivering sales results slightly ahead of their plan and generating profitability margins ahead of our expectations. There's a large addressable market in the venue-based entertainment business. We are investing our capital towards the development of new puttery venues as puttery presents the best path forward for our near-term growth. We are on track to open seven locations by the end of 2022, with our next venue planned to open in Washington, D.C.' 's Penn Quarter next month, followed by our Houston and Chicago locations, which are planned to open in the third quarter. We are aggressively pursuing new leases for venue openings in 2023 and are currently in active discussion with landlords on multiple sites across the country. I'll speak to this in a few moments, speak more to this in a few moments. With that, we've made the tough decision to suspend any future development of our DriveShack New Orleans location. The incremental capital required to complete the project is well in excess of $25 million, and we are redirecting any further capital spent for this project into future puttery builds where the economics and investment returns are more compelling. We are currently pursuing alternatives for a New Orleans site, and we will update you when we have more to share. With this decision, we took an impairment charge in Q1 for the costs incurred to date for the building and the fixed assets, which totaled $11.3 million. At this time, we plan to continue developing our drive shack venue on Randall's Island in Manhattan. We believe this venue will deliver sales and EBITDA margins well above any of our current drive shack venues, with its over 4 million visitors to the island each year. So turning to the deck, we've again included a brief history on our company on page six of the deck for those of you who are new to our story. Over the past four plus years, DriveShack Inc. has undergone a significant transformation from a traditional golf business to an entertainment operating company. During this time, we sold the majority of our owned course portfolio and converted a number of them into managed courses, mainly to fund the growth and development of our DriveShack entertainment golf business with the four venues that we operate today. We opened our first DriveShack venue in Orlando in April of 2018. We took our learnings from Orlando, specifically around technology, and opened three Generation 2.0 venues in August, September, and October of 2019 in Raleigh, Richmond, and West Palm Beach. These three venues opened strong, significantly outperforming our 2019 expectations and beating their initial plans that year by 14%. We've since developed a new entertainment golf experience, Puttery, which is an immersive indoor putting experience. We opened our first Puttery in the Colony just outside of Dallas in September of last year, followed by the opening of our Charlotte location three months later in mid-December of 2021. We are underway to meeting our goal to open a total of 50 Puttery venues by the end of 2024. Turning now to page seven for a summary and timeline view of our courses and venues. On the American golf side of our business, we held 55 courses across nine states at the end of Q1, with one owned, 32 leased, and 22 managed courses. With our Dry Shack Entertainment golf business, we currently have four venues in Orlando, Raleigh, Richmond, and West Palm, and are committed to one additional lease in Manhattan on Randall's Island, which we expect to open in late 2023. With Puttery, we currently operate two venues located in the Colony, Texas and Charlotte, North Carolina. Behind these, we've committed to eight additional leases with seven of these planned to open this year in DC, Houston, Chicago, Philadelphia, Miami, Pittsburgh, and Kansas City. Our Manhattan venue located in the Meatpacking District is expected to open in early 2023. We have a robust pipeline of future puttery locations we are aggressively pursuing in several markets across the U.S. for openings in 2023 and beyond. We are currently in active discussions with landlords on multiple sites across the country. I'll speak more to our development plans and timeline in a few moments. Moving now to an update on the operations of our business, let's start with our newest brand puttery on page nine. Today, again, we have two puttery venues open. Our first puttery in the colony has been open for a little over eight months now, and our most recent venue in Charlotte has been open for about four and a half months. Even with their market differences, one urban and one suburban, both venues are relatively in line with one another and are performing slightly ahead of our expectations. For Q1, they each generated total revenue of just over $2 million, and both delivered venue EBITDA margins of 38%. We are gaining a clear proof of concept for our PutterE brand, and while we continue to analyze our month-over-month trends in each venue, the performance in these two venues to date fully supports the venue economics we put forward over two years ago, giving us even more confidence today that PutterE is our best path forward for near-term growth. Let me quickly recap the quarter for each venue. The Colony delivered Q1 total revenue of $2.2 million, driven largely by walk-in business. We're more effectively leveraging our variable operating expenses now as our business is stabilized, which helped lead to a 38% EBITDA margin this quarter. With Charlotte, while we provided their Q4 results here, it's a bit more difficult to compare the results as they were only open for the last two weeks in 2021. With that, Charlotte also delivered 2.2 million in total revenue, which was also driven by a strong walk-in business and led by a higher F&B spend per visit than the Colony. As a reminder, the Colony is in a sub-urban market just outside of Dallas with a little under 21,000 square feet and four nine-hole golf courses. Charlotte is in a more urban market with around 15,000 square feet and two nine-hole courses. When you turn to page 10, you'll see a breakdown of the Q1 revenue mix between these venues that shows the differences between the two a bit more clearly. For reference, the Colony had nearly 25% more walk-in visitors than Charlotte during Q1. While both generated the same revenue this quarter at 2.2 million each, the Colony generated a higher percentage of their revenue through game play, while Charlotte had a higher percentage of revenue through beverage sales, mainly alcohol, specifically liquor. And as I mentioned earlier, they generated a much higher F&B spend per visit in Q1 than the Colony. Walking guests who plan their visit in advance via our online reservation platform is holding at around 60% for each venue. Alcohol sales comprise around 80% of the total F&B revenue per venue, and each nine-hole course is taking an average of just over 30 minutes to play. We were intentional about the size and number of courses in our first handful of venues so that we could prove out our concepts pro forma across venues of different sizes with different numbers of courses. Even with the differences in the square footage and the number of courses at each of these venues, we continue to observe similar trends across both, and guest response remains very positive. We are extremely pleased with the strong performance and success from our first two venues to date, particularly with each generating positive venue-level EBITDA results that are well within the projected venue-level economics. I can't say this enough. Our proof of concept is becoming very clear with each passing month, and we expect that our future puttery venues will deliver similar results. The venue-based entertainment business is a huge, accessible market. Golf is a fun and easy-to-access activity, and we know that our experience at Puttery is no exception. We're experimenting with the best mix of venue size and number of courses that will optimize the greatest returns on our investment. In fact, we're doing that today with the Colony in Charlotte and very soon with our D.C. venue, which will have three nine-hole courses inside a 22,000-square-foot historic building in Penn Quarter. We have dozens of potential new sites in the pipeline across the country and are working with landlords today on several locations that we expect we will finalize in the coming weeks. More on this in a few moments. Moving now to our drive shack business on page 11. For the quarter, our four venues generated nearly $10 million in total revenue. That's up nearly 20% to Q1 of last year. Of the 1.6 million increase, 1.3 million was driven by higher event sales, which was up 160% versus Q1 of last year. And while we saw strong event demand across all of our venues, just under half of the dollar increase came from Raleigh, which continues to perform exceptionally well. Our guest traffic has largely returned to normalized levels and delivered a 3% increase in walk-in revenue to last year, again led by Raleigh. Our drive shack venues delivered a combined EBITDA margin of 27% or $2.6 million in Q1 this year compared to an EBITDA margin of 24% or $2 million in Q1 of last year. Raleigh once again led the group with West Palm right behind. Orlando broke even in Q1 compared to an EBITDA loss of $200K in Q1 of last year. While our venues delivered revenue results in line with their plan, their EBITDA contribution exceeded our expectations. Our teams are doing a fantastic job of managing costs and leveraging controllable expenses to give us better than expected returns this quarter. Our DriveShack venues are a strong, stable business for us, and with the increasing demand and events, we expect them to continue delivering at or above their rent rate projections. The demand for traditional golf remains solid. We have a very strong and stable business with American Golf, which continues to generate profitable earnings and returns year over year. As you'll see on page 12, American Golf's total revenue for Q1 was just under $42 million, excluding management fee revenue, and was up 6% to last year's first quarter. This quarter, we saw an exceptionally strong demand for events, which drove $3.6 million in event revenue this year, up an impressive 3.3 million or 1,300% to last year. The increase came primarily from higher private events driven in a large part from the focused work our events team is doing to increase conversion rates across all of our courses. While our Q1 walk-in business this year was just slightly below last year's performance, our public and private courses neared last year's levels across all metrics, and were up against an exceptionally strong quarter last year when demand for outdoor traditional golf was extremely high given the COVID restrictions that were still in place for indoor activities. We continue to maintain 99% capacity at all of our private clubs. With the solid performance that our courses continue to deliver, the game of golf is here to stay and will only continue to gain momentum with golfers and non-golfers alike. Let's move on now to our development plans. We know that a large addressable market exists for a venue-based entertainment business, and we intend to continue capitalizing on this large-scale opportunity as we maintain our focus and development plans on new puttery venue openings. When you look at page 14, we've laid out a visual presentation of the states across the country where we have an existing entertainment golf location, as well as where we believe near-term opportunity exists for puttery locations in the future. Our target coverage includes well over 60 markets today and under our current strategy with hundreds of potential new sites across the country to choose. With the vast availability of potential new sites, we are experimenting with different layouts to determine the best mix of venue size and number of courses to optimize margin and profitability returns. We have real data from the Colony, a larger venue with four courses, and data from Charlotte, a smaller venue with fewer courses. Both are generating similar returns to one another, and soon we will add a third venue, which will open in our DC location, where we have a slightly larger venue than the colony, but one less course with three. Again, we're clearly gaining a proof of concept in a huge market and are confident that we will continue to deliver within the expected ranges for sales and margin returns. Moving now to page 15, where we've provided an overview of our new venue opening timeline. We are currently least committed to 10 total pottery venues, with two open today in the colony in Charlotte. We expect to open an additional seven new pottery venues throughout 2022, starting in DC next month, followed by Houston and Chicago in the third quarter. Philadelphia, Pittsburgh, Miami, and Kansas City are all currently slated to open in Q4. Additionally, we plan to open a pottery venue in Manhattan's Meatpacking District in early 2023. Our plans include the opening of 16 new pottery venues in 2023, including Manhattan. As I've said throughout today's call, we are aggressively pursuing new leases for openings in 2023 and beyond. We are currently in active discussions with landlords on multiple sites that we expect will finalize in the coming weeks. Behind these, we have an active and expanding pipeline with a significant number of identified sites continually under review. We plan to continue executing new operating leases throughout 2022 for openings in 2023 and beyond. We will continue to be very clear and as transparent as possible when it comes to communicating the number of venues we expect to open and when we expect to open them. We are taking the appropriate amount of time between builds and openings to remain thoughtful with our strategy and approach given the current market conditions. While the obstacles presented by the strain on supply chain and GC labor are still present, we are working ahead of the challenges wherever possible to keep our development timeline on track. We are very confident that the seven venues planned to open in 2022 is attainable and realistic. In looking back at the projected venue-level economics that we put forward several quarters ago, we remain confident that Puttery was and will continue to be the best path of growth for our company. For those who have not seen our projections, page 16 outlines the illustrative venue-level economics for both our DriveShack and Puttery Entertainment golf venues. Puttery is an adjacency to our current business, and as you can see here, gives us the ability to grow quickly with less capital risk and higher returns than a big-box DriveShack venue. With puttery, we expect to spend between $7 and $11 million to build each venue, taking approximately six to nine months to physically construct and plan to generate venue-level EBITDA of between $2 and $3 million each. Compare that to a drive shack venue where we expect to spend between $25 and $40 million to build each venue, which takes approximately 18 to 24 months to complete and generates venue EBITDA of between $4 and $6 million each. Again, we're gaining clear proof of concept as the results we are generating in our two puttery venues are ahead of our expectations. But the Colony and Charlotte are providing proof with real results that we are well within the unit economic ranges seen here. So I'll now turn it over to Kelly to take you through our capital strategy and financial results.
spk01: Thanks, Hannah, and good morning again, everyone. Let's start on page 17 of the deck. As we've discussed before and Hannah mentioned again today, there is a huge addressable market in the venue-based entertainment business. For us, puttery represents the greatest opportunity for near-term growth. We will balance the need to retain a strong balance sheet with the ability to invest capital to fund the future development and growth of puttery. We have a relatively unlevered balance sheet today, which will enable us to secure new capital as one source of funding, We also have the potential to utilize asset sales as a source of future funding. As a reminder, we secured $55 million in a follow-on equity offering in February 2021. We have available liquidity to complete five of our seven venue openings planned for 2022. We continue to work through a large pipeline of additional venues for 2023 openings, most of which we expect to sign this year to get to our goal of 16 new puttery openings next year. With that, we will require approximately $75 million of new capital to fund the remaining two venues planned to open later in 2022 and get the development for the 16 new venues off the ground this year so that we remain on track with our 2023 opening timeline. While this additional capital is not planned to fully fund all 16 venues of our 2023 opening plan, we do expect it will be sufficient to meet our needs through early 2023. We have engaged an independent financial advisory firm with significant experience in the entertainment industry to lead our $75 million financing initiative. We have spent the last few weeks working with their team on discovery and due diligence and are nearing the marketing and lender outreach phase of the project. While we are still several weeks away from finalizing a deal, we are working towards funding over the next three months. Looking ahead, we will put plans in place before year-end to enable us to timely source additional capital to ensure we have sufficient funding to not only complete the 16 planned openings in 2023, but also have the capacity to begin development on our 2024 planned openings next year. We have options available to us and will continue to pursue a path that enables us to meet our growth objectives while maintaining a healthy balance sheet. Let's turn now to page 19 in the deck for a summary view of our financial performance for the quarter. For Q1, we generated total company revenue of $69 million, up $7.9 million, or 12.9%, compared to last year's first quarter total company revenue of $61.1 million. When we break this down, the entertainment golf side of our business, which includes our drive shack and punter venues, generated total revenue of $14.2 million in Q1 this year. an increase of $6 million or 72.4% compared to $8.2 million in the first quarter last year. The increase to last year was due to a $1.6 million increase in total revenue at our four drive shack venues with $1.3 million of the increase driven by higher event revenue this year. Additionally, our two new puttery venues generated total revenue of $4.4 million this quarter. On the traditional golf side of our business, American Golf generated total revenue of $54.6 million, including managed course reimbursements of $13 million. Excluding managed course reimbursements, American Golf's total revenue increased $1.8 million, or 3.3%, compared to total revenue of $52.9 million in Q1 last year, which included managed course reimbursements of $13.8 million. The increase in total revenue was primarily due to higher event sales this year. Operating loss for the quarter was $18.4 million, a decrease of $10.5 million in profitability versus an operating loss of $7.9 million in Q1 last year. As Hannah mentioned, the change to last year was primarily due to impairment charges on the building and fixed assets for the drive shack venue located in New Orleans, following our decision to primarily invest capital spend into the development of future puttery venues. Last year, the impairment charges recorded in Q1 related to our former corporate office in New York. Consolidated net loss in Q1 was $18.9 million compared to a consolidated net loss of $10.9 million in the same period last year. The $8 million decrease in profitability is due to the impairment charges I just mentioned, which were offset by approximately $2.6 million in other income from insurance proceeds received this year for damages at two of our American golf courses last year. The net loss applicable to common shareholders for the first quarter this year was $20.4 million, or 22 cents per share, compared to last year's first quarter net loss applicable to common shareholders of $12.3 million, or 15 cents per share. The 7-cent decline versus Q1 last year is primarily related to the impairment charges net of the insurance proceeds just discussed. Total company adjusted EBITDA was $1 million for Q1 this year compared to $2.7 million in Q1 last year. Last year, adjusted EBITDA included approximately $1.3 million from five American golf courses that were exited after the first quarter last year. In addition, we made strategic investments expenses throughout 2021 to support the development and growth in puttery, and approximately $1 million of incremental expense related to these investments was realized in the first quarter this year that has yet to be incurred in the first quarter last year. For reference, GAAP to non-GAAP reconciliations have been provided on pages 22 and 23 of the earnings presentation that include the details of our entertainment and traditional golf segments and course EBITDA contributions for the first quarter of 2022 and 2021. It is important to note again that the $1 million in total company adjusted EBITDA for Q1 this year was in line with our expectations, and we remain on track to deliver adjusted EBITDA of $18 million for full year 2022. Cash and cash equivalents as of March 31st, 2022 was $44.1 million compared to $58.3 million as of December 31st, 2021. The decrease to year-end was primarily due to capital expenditures associated with the development of future puttery venues incurred this quarter. Finally, our Board of Directors declared dividends on the company's preferred stock for the period beginning May 1, 2022 and ending July 31, 2022. The dividends are payable on August 1, 2022 to holders of record on July 1, 2022. And with that, I'll turn the call back to Hannah for closing remarks.
spk07: Thank you, Kelly. I want to thank the teams across our company for everything they continue to do that helps us to drive this profitability and the growth of Puttery. And with that, I'll turn it over to the operator for questions.
spk03: At this time, if you have a question, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. When posing your question, we ask that you please pick up your handset to allow optimal sound quality. We'll take our first question from Peter Sala with BTIG.
spk06: Great. Good morning, and thanks for taking the question. Hannah, you guys mentioned that D.C. is scheduled to open next month, and then you've got Houston and Chicago putteries opening in the third quarter. I think that will leave you about four left to open in the fourth quarter. Could you give us a little bit of color on where those units, those four units stand in terms of their construction? and the confidence you have in getting those open in the fourth quarter? Yeah, sure.
spk07: So, yeah, so I think I mentioned meatpacking. We were originally going to put that into this year, but given some of the complexities of, or assumed complexities, I should say, of opening in New York City, we pushed that one out to Q1 of next year. But in terms of let's see, Chicago, Philadelphia, Miami, Pittsburgh, and Kansas City, as well as Houston and D.C., we are well underway in all of those locations. Some are further along than others, specifically D.C., Houston, and Chicago. But we are, through permitting phases, we've already started ordering different equipment and identifying general contractors, et cetera, because the reason, honestly, that they're all in Q4 is because of obvious supply chain issues. We want to make sure that we get it right, so our team has taken a lot of different steps to ensure that they can get everything in in a timely manner, and that goes from our you know, electrical components for, you know, the tiniest breaker in an electrical panel all the way to things like our actual physical golf holes in our establishment. So I would say, D. Peter, they're all in various phases of permitting and construction, but I have all the faith in the world that they will open in or by the end of Q4, if not sooner.
spk06: Great. And then just on the two pottery locations that you have open, I think Charlotte is about 25%, maybe 30% smaller than Dallas. Yeah, it's generating the same level of revenue EBITDA margin, and I think the EBITDA actual dollars are very similar. So, what is the right size and format going forward if these two are, you know, I think it feels like vastly different in terms of size, yet similar in terms of economics?
spk07: Yeah, great question. So, when we started this, obviously, with the location in the colony, we thought for sure it was going to be a four-course, you know, 20-, 25,000-square-foot venue. But when we saw Charlotte and the location that it was in, we kind of said, okay, we're gonna take the risk to do two courses and see what happens, which is, again, we're testing the three-course model in D.C. and some others that you'll see coming up this year. But what I would say is that it's clear to me that Charlotte's location is playing very well for its EBITDA and revenue numbers, they have a much higher spend in the alcohol category than the colony does. And I just attribute that to differences in area as well as slight differences in demographic. So when I look at what do I think that the right size will be in the future, I don't think it is four courses. I don't think it needs to be four courses. Obviously, if we did a flagship somewhere, we would look at increasing the size. But given what we've seen to date in these two markets, we think we could go into two course locations relatively easily as long as our demographic requirements line up with what we've now proven to be to be ideal for what we're offering.
spk06: Understood. All right. And so just a couple more questions on my end, and I'll pass it along. In terms of seasonality of the business at the pottery, I think you had expected fourth quarter to be among the strongest a dip in the first quarter and then maybe a reacceleration in 2Q. Is that the pattern that you're seeing right now with the putteries, and is that what you continue to expect for the balance of this year?
spk07: Yes. I would say it is absolutely what we continue to expect. Obviously, we're still learning, but so far it's within our expectations, and what you've just outlined is what we're kind of looking at. I will just reiterate that the Charlotte location was only open for a couple of weeks in Q4. So, you know, we have better data on Q4 for the colony, obviously, than we do for Charlotte. But we do expect the seasonality effect to be prevalent here with Q1 performing a bit lower than Q2 and then to really, you know, ramp in Q4 for the holidays.
spk06: Great. And then just lastly on my end, could you just elaborate or comment a little bit on your capital raise plans and the impact that has on development? I think you guys had mentioned you need another $75 million. Any thoughts on more exact in terms of timing and how much capital you have invested today available to – how many units can you, I guess, get open with the capital that you have available today?
spk01: Yeah. Hi, Peter. It's Kelly. So in terms of what we have available this year, we do have enough capital and liquidity to fund five of the seven planned openings for this year. You know, I think we've been, you know, talking about that since last year when we, you know, did the $55 million follow-on equity raise, you know, early in the year. Certainly with the four venues that Hannah just spoke about opening later in Q4, certainly we have enough runway this year to get us through the first five openings that will take us through the end of Q3 into early Q4. Conversations are going on with the advisory firm that we've engaged. Again, like we said, we're still completing our due diligence, working through the marketing materials. We'll start working towards lender outreach, you know, with the teams here in the very near future. So, you know, I think as we move forward, feeling pretty good with where we sit today. You know, certainly, you know, we'll update you guys before, you know, the end of Q3, certainly hopefully in early Q3, and hopefully before we report Q2 earnings. So, yeah, I think things are going really well right now. Conversation's really good, and, again, we'll come back with you with more to update when we have more to share.
spk06: Great. Thank you very much.
spk05: I'll pass it along.
spk03: Thanks, Peter. Thank you. Our next question will come from Alex Berman with Craig Hallam.
spk02: Great. Thanks very much for taking my question. Nice to see that the seven putteries remain on track to be opened this year? I know the first two locations in Dallas and Charlotte took a lot longer to get open than originally planned due to labor shortages and just other kind of post-COVID reopening constraints. Are you starting to see those constraints easing, or is it just after getting the first two open, you've been able to streamline the process to make it a little bit more predictable. Just curious, you know, how smooth these openings are going now compared to the first two last year.
spk07: Hey, Alex. Thanks for the question. I would say first the colony in Charlotte, specifically the colony, we were actually planning on getting that construction started as COVID hit. So we weren't able to do that just because of all of the restrictions imposed by COVID. So that was very early days. So I would attribute the majority of the delays to COVID itself versus the effects COVID had, although those were still at play. I just want to be clear that the timing around specifically the Colony Venue was definitely not in our favor in terms of opening. in a timely manner just due to COVID and the fact that no one was allowed to work during that time. And as that eased, obviously the world looked completely different. And I would say about the venues this year, there are still definitely some constraints that we're working within, but at this point, There are things that we, I should say, expect. We have just kind of developed a mantra to expect the unexpected. Things that we could get easily last year for the Charlotte build might not be something that we can get this year for Kansas City or D.C. or one of these other builds. So the team has done a great deal of work in trying to normalize what we're doing as much as possible. That means really ensuring that our internal purchasing folks, our head of procurement and his team, are kind of all over everything that we have to buy. And they've done a really good job, given me a lot of kind of peace around it. That said, there are still hiccups that we encounter, but we're using all of our resources in order to try to smooth those out because, again, at this point, It's going to be a while, I think, before things normalize. The question around each build is like, well, what is it going to be that's difficult at this build for us to get? Because, again, one month, one week, two weeks actually changes everything in the supply chain world at this point. So we're just taking kind of a look-forward approach and getting everything we possibly can purchased and stored so that we don't have any issues this year.
spk02: Great. That's really helpful. Thanks, Hannah. And then I think you mentioned that part of the strong profitability of the Charlotte location is due to a really healthy mix of food and beverage. As you look at your next couple openings, I guess it's impossible to know for sure before they open, but would you expect your next few openings to look more like Charlotte in terms of the mix of food and beverage or more like the Colony? Or do you think those are kind of going to be the poles of it? You'll see things mostly in between, just curious what you would expect to see as the food and beverage mix for your next few openings.
spk07: So I expect that the majority of our venues will look like Charlotte in terms of the mix. Now, obviously we're learning here and we're also doing things and we have things in the works to try to increase our food spend. We've put a great deal of effort, the team has put a great deal of effort into the food menu. as well as the beverage menu. It's clear people love our food when they have it, but they come to us to socialize and to have drinks and to play the game. So I would expect, you know, in the future for food to take on a larger percentage, but beverage to also kind of remain the clear leader, alcohol specifically, and liquor even more specifically than that. But yeah, I would expect them all to most of them to look like Charlotte. I don't think we'll have many this year that follow the same path as the colony, just because of the locations that we've selected for this year's openings. They're in more densely populated areas, similar to what you'd see in Charlotte.
spk05: Okay, that's really helpful. Thanks, Hannah.
spk03: Yeah. Thank you. Our last question will come from Eddie Riley with EF Hutton.
spk04: Hey guys, thanks for taking my question. I was wondering if you could unpack a little bit how you managed your variable operating expenses to achieve EBITDA margin increases in this past quarter for the putter revenues. This is fourth quarter.
spk07: Sorry, what was the last thing that you said?
spk04: Just how you achieve managing your variable operating expenses to achieve such higher EBITDA margin increases in the first quarter versus the fourth quarter?
spk07: Yeah, so the fourth quarter, You would see a lot that we incorporate what we call surge labor in the fourth quarter. Any new opening that we do, we want to ensure that we're appropriately staffed for kind of whatever might come our way. And we also want to make sure that we are slightly overstaffed so that, A, the guests have a great experience. B, as things go wrong, which they always do in an opening, we have enough staff to cover that. What you're looking at today, I would say, is a more normalized view. But to take that one step further, obviously our cost of goods are coming in more favorably than we expected, and that's going to be driven by those alcohol sales and also game sales. Our labor is looking really, really good in both of our locations. I will say our labor is the one place that is coming in right at budget, if not slightly over. And that's just due to everything we all know about the labor market right now. Higher wages. We want to make sure that the team feels supported. So we're not overstaffing anymore at this point, but I definitely wouldn't expect to see a savings on the labor line anywhere. And then our operating expenses are far more favorable than budgeted, and that's due to many things. We're in newer venues that require less maintenance and upkeep than a four- or five-year-old venue might. Also, we didn't really know how much maintenance one of these locations might need. We calculated it as if we were looking at something between a drive-shack venue and a restaurant. And taking all of that into consideration, I think that we've really outperformed even our own expectations on the drive-shack. on the cost savings. Our operators are doing, in the field, are really doing a fantastic job of making sure that they're managing all of these things pretty closely, while also making sure that our guests and our employees feel like they're, you know, cared for and valued.
spk04: Gotcha. Thank you. And should we maybe expect it to take two to three quarters for new venues to kind of reach these steady state EBITDA margins?
spk07: Well, I mean, in this case, it looks like the colony reached this in two quarters, two and a half, roughly. Charlotte reached it. I mean, Charlotte opened at the very end of December. So Charlotte reached it in one quarter. So I would say my expectation, Kelly might have a different thought here, that my expectation would be after the first quarter that they're open, we should see some stabilization there. It happens relatively quickly. At least that's what we've seen here. We also have seen that in our drive shack venues. Kelly, would you agree?
spk01: I would agree. And I think a lot of it, too, you know, is just ensuring that, you know, we're continually working with our teams out in the field and supporting them, but also, you know, ensuring that they're managing their expenses. you know, to a reasonable level so that we can continue to drive the, you know, margins at these rates. So, yeah, I think that's kind of where we're sitting at.
spk05: All right. Great. Thanks, guys. Appreciate it. Thank you. Thanks, Eddie.
spk03: All right. At this time, we have no additional questions in the queue. It is now my pleasure to turn the call back over to Ms. Buckhorn for any closing or additional remarks.
spk01: Yes. Again, thank you, everybody, for joining us today. We look forward to talking to you throughout the quarter and, in particular, when we reach the end of Q2 next year to give you more updates. Thanks again, and we'll talk soon.
spk03: This does conclude today's program, and we thank you for your participation. You may disconnect at any time.
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