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spk00: Good morning. My name is Gretchen, and I will be your conference operator today. At this time, I would like to welcome everyone to DriveShack's third 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 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.
spk02: Thanks, Gretchen, and good morning, everyone. I'd like to welcome you to DriveShack, Inc.' 's third 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 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 Hannah.
spk01: Thanks, Kelly, and good morning, everyone. In addition to the two existing puttery venues the company opened in 2021, we opened an additional three 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 and Q3 puts us on track to achieve our yearly adjusted EBITDA plan of $18 million. The company currently operates four drive shack venues in Orlando, Raleigh, Richmond, and West Palm. We currently operate five puttery venues in the colonies, Charlotte, DC, Houston, and Chicago. In addition to the five puttery venues opened, there are an additional five 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 one owned, 32 leased, and 20 managed courses. I want to turn to our puttery venues on page nine in the supplement. The three puttery venues open the entire quarter delivered a total of $6.2 million in revenue in Q3 2020. and $15.1 million of revenue year-to-date. Total consolidated venue EBITDA for Q3 was $2.2 million, a 35% margin. This includes a one-time 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 observe is on page 10. Over 60% of our guests book their visit online in advance via a reservation portal. Nearly 80% of our F&B sales are attributed to alcohol. Finally, it takes an average of 32 minutes to play a nine-hole course at one of our venues. Houston opened on September 16th and generated $1.2 million in revenue between September 16th and October 25th. Photos of the venue are on page 11. Their guest trends are in line with what we've seen across the other venues. 65% of their guests planning their visit online in advance, 87% of their F&B sales are attributed to alcohol, and it takes an average of 35 minutes to play a nine-hole course. On page 12, the performance of Drive Shack Entertainment Venues is outlined. In Q3, the four 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, agencies saw strong event demand in Q3, 51% above prior year. Their revenue of $55.4 million in Q3 is 10% higher than prior year. Our private courses remain at 98% capacity, and our public course revenues 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 five 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 Kelly to review our financial results in greater depth. Thanks, Hannah.
spk02: 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 four 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 open for just under one month in the quarter. Our four DriveShack 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 DriveShack venues drove a solid events business with $2.5 million in total event revenue at $0.4 million or 21.5% versus Q3 last year. Total revenue generated by our four Petri 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, Gap to non-gap 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 nine months of 2022 and 2021. Cash and cash equivalents as of September 30th, 2022 was $11.7 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. 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 Hannah for closing remarks.
spk01: Thanks, Kelly. Before we open the lines 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 standard, given that our 30-day average closing share price had fallen below $1 as of October 3rd. We are actively considering several options in response to the continued listing standard deficiency. We notified the New York Stock Exchange on October 19th of this and expect to make a decision during the cure period ending April 5th. 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.
spk00: 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 star 2. When posing your question, we ask that you please pick up your handset to permit optimal sound quality. We'll take our first question from Peter Soleil from BTIG.
spk04: Great. Thanks, and good morning. Hannah, 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've explored at this point and what seems to be, you know, what's off the table and what options you may, what path you may go down, just trying to understand that. 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.
spk01: Yeah. 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.
spk04: Is there any thoughts on the timing on when you may have that in place?
spk01: As soon as possible is obviously our goal. I would say we are in – We are in a 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.
spk04: Okay. And then just on the McElroy partnership, and that's been in place for a while now, has Has there been any incremental capital from that partnership that's come to DriveShack? Has he upsized any of his units?
spk01: Right now, the colony just lapsed their year, and Charlotte is about to lapse 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 or 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 obligations.
spk04: Great. Thank you for that color. And then just on the outlook in terms of development, I mean, you guys are looking for five putter units now, and that's down pretty substantially from the prior outlook. Can you just give us a sense on the five putteries that are planned to open? What is the timing in terms of those 1Q, 2Q? Just trying to understand how you plan to get those open.
spk01: Yeah, so we're looking at one in Q1. I believe it's two 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 an as soon as possible timeline. So hopefully some of those timelines will be brought up, meaning open sooner, but that's what we have as of right now.
spk04: And then just lastly on my end, and I'll pass it along, Randall's Island for 2023, is that off the table or is that still in play?
spk01: Yeah, 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 you know, the cost of opening there versus – and also, by the way, the supply chain, the need to get the net pulls, et cetera, with the timeline that we report. So, we're cautiously and very carefully walking through that project right now to try to get the best dates possible.
spk04: Great. Thank you very much. Thanks, Peter.
spk00: And our last question comes from Alex Furman from Craig Helen Capital Group.
spk03: Hey, guys. Thanks very much for taking my question, and 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?
spk01: Hi, Alex. Yeah, thanks for the question. We were not – as far as the asset sale goes, we were not getting the value that we – that we knew we should be able to get out of that asset. 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 timeline yes we will look at that very hard and we will be able to do that once we have the debt in hand um you know 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 that always takes a little bit more time which we all knew um 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.
spk03: Okay, that's really helpful. Thanks, Hannah. 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?
spk01: We're getting there. We're not quite where I want us to be. I'm happy that our alcohol revenue is going strong because we are a bar and we want to do that really well. 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 is the colony has crept up, not as much as I would like it to, but, you know, slow changes. So we are seeing that food percentage increase, but we are not, we still basically liquor rules the day in our business.
spk03: Okay, that's really helpful. Thank you very much.
spk00: Sure. Thank you. Ladies and gentlemen, this concludes today's call. You may now disconnect.
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