Sign in

You're signed outSign in or to get full access.

DS

Drive Shack Inc. (DSHK)·Q1 2022 Earnings Summary

Executive Summary

  • Q1 2022 revenue was $69.0M (+12.9% y/y) with consolidated net loss of ($18.9)M and loss per share of ($0.22), driven by an $11.3M impairment tied to the decision to halt New Orleans Drive Shack, partially offset by $2.6M insurance proceeds .
  • Entertainment Golf revenue rose 72% y/y to $14.2M, helped by $4.4M from two Puttery venues that each generated ~$2.2M revenue and ~38% venue-level EBITDA margins, supporting proof-of-concept; Drive Shack venue EBITDA margin improved to 27% (from 24%) .
  • Events reaccelerated: total event revenue was $6.4M in Q1, up >$5M y/y, with demand “exceptionally strong” across brands; walk-in business “largely normalized” post-COVID .
  • 2022 outlook centers on Puttery expansion (seven openings planned) and a targeted $18M full-year Adjusted EBITDA; near-term catalysts/risks are execution on openings and securing ~$75M of financing “over the next 3 months” to fund late-2022 and 2023 builds .

What Went Well and What Went Wrong

  • What Went Well
    • Puttery validation: two venues delivered ~$2.2M each in Q1 revenue and 38% venue-level EBITDA margins; “clear proof of concept … margins ahead of expectations” .
    • Events momentum: “Total event revenue in Q1 was $6.4M … up over $5M to last year,” with strong forward demand across portfolio .
    • Drive Shack venue profitability: EBITDA margin improved to 27% in Q1 from 24% last year; management highlighted better cost management and controllable expense leverage .
  • What Went Wrong
    • Impairment hit: Operating loss widened to ($18.4)M vs ($7.9)M y/y, primarily from $11.3M impairment at New Orleans after pivoting capital toward Puttery; net loss to common shareholders increased to ($20.4)M .
    • Adjusted EBITDA down y/y: $1.0M vs $2.7M, reflecting exit of five AGC courses that contributed ~$1.3M in Q1’21 and ~$1.0M incremental Puttery-related overhead in Q1’22 .
    • Capital needs: Company needs ~$75M new capital to fund late-2022 openings and kickstart 2023 Puttery pipeline; financing timing/terms remain an execution risk .

Financial Results

MetricQ3 2021Q4 2021 (updated)Q1 2022
Revenue ($M)$76.366 $70.528 $68.982
Operating Income (Loss) ($M)($5.921) ($7.881) ($18.392)
Operating Margin (%)(7.7%) (calc. from above )(11.2%) (calc. from above )(26.7%) (calc. from above )
Net Income (Loss) ($M)($8.866) ($10.023) ($18.913)
Loss to Common ($M)($10.246) ($11.040) ($20.361)
EPS (Basic)($0.11) ($0.12) ($0.22)
Adjusted EBITDA ($M)$3.254 $2.534 $1.019
Adjusted EBITDA Margin (%)4.3% (calc. )3.6% (calc. )1.5% (calc. )
Cash & Equivalents ($M, end)$63.867 $58.286 $44.068
S&P Global Consensus (Rev/EPS)——Unavailable (see Estimates Context)

Segment revenue and drivers

SegmentQ1 2021Q1 2022
Entertainment Golf (Drive Shack + Puttery) Revenue ($M)$8.2 $14.2
• Puttery Revenue ($M)—$4.4
• CommentaryCOVID restrictions impacted prior-year events 2 venues, strong walk-in/F&B
American Golf Revenue ($M)$52.9 (incl. $13.8 reimbursements) $54.6 (incl. $13.0 reimbursements)

KPIs and operating indicators

KPIQ1 2021Q1 2022
Total Event Revenue ($M)~1.4 (implied: “up over $5M” to $6.4M) $6.4
Drive Shack Venue EBITDA Margin (%)24% 27%
Puttery Venue Revenue ($M)—~$2.2 per venue
Puttery Venue EBITDA Margin (%)—38%
Walk-in Reservations (% of guests)—~60% plan in advance
Alcohol share of F&B (%)—~80%

Notes: Operating and EBITDA margins are calculated from cited revenue and profit figures. Q4 2021 reflects the updated 8-K (March 18, 2022) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA (Total Company)FY 2022Not previously quantified in Q4’21 release/call“On track” for ~$18M target Initiated/affirmed target
Puttery Openings20227 openings planned in 2022 (DC next; Houston/Chicago in Q3) 7 openings planned; DC next month, then Houston/Chicago in Q3; others in Q4 Maintained; timing detail
Capital Raise2022~$75–85M debt, targeted finalize in Q2’22 ~$75M financing; lender outreach underway; targeting funding over next ~3 months Maintained size; timing updated
Drive Shack New Orleansn/aPreviously on hold Development suspended; pursuing alternatives Formalized suspension
Drive Shack Randall’s IslandLate 20232023 open planned Continue development; expect strong sales/margins Maintained

Earnings Call Themes & Trends

TopicQ3 2021 (Q-2)Q4 2021 (Q-1)Q1 2022 (Current)Trend
Puttery unit economicsFirst venue opened (The Colony); $0.8M in Sept revenue; unit EBITDA target $2–3M/venue Two venues opened; positive venue-level operating results Both venues ~$2.2M revenue; 38% EBITDA margins Improving proof-of-concept
Events recoveryPipeline building; restructuring sales team Highest quarterly event revenue since pre-COVID Q1 events $6.4M, +$5M y/y; demand “exceptionally strong” Strong acceleration
Supply chain/laborCOVID-related delays, GC labor constraints Still present; openings weighted to H2 Managing constraints via early procurement; confident in 7 openings Stabilizing operational playbook
Capital strategy~$85M debt planned for Puttery expansion Expect to finalize debt in Q2’22 ~$75M raise; advisor engaged; funding targeted in ~3 months Active execution underway
Technology/productDrive Shack game tech upgrades (TrackMan, seasonal content) ——Steady state
Portfolio mix shiftPivoting capital to Puttery growth—Suspend New Orleans; focus capital on Puttery Mix tilting toward Puttery

Management Commentary

  • “2022 is off to an incredible start… We are gaining a clear proof of concept with our two Puttery venues, both delivering sales results and profitability margins ahead of our expectations this quarter.” – CEO Hana Khouri .
  • “Including our Q1 results, we remain on track to deliver our goal of $18 million in adjusted EBITDA for full year ’22.” – CEO Hana Khouri .
  • “With [suspending New Orleans], we took an impairment charge in Q1 … totaling $11.3 million.” – CEO Hana Khouri .
  • “We have available liquidity to complete 5 of our 7 venue openings planned for 2022… we will require approximately $75 million of new capital to fund the remaining 2 venues… and get the development for the 16 new venues off the ground this year.” – Interim CFO Kelley Buchhorn .

Q&A Highlights

  • Opening cadence and supply chain: Management affirmed confidence in opening DC next, then Houston/Chicago in Q3 and remaining units by Q4 despite varied permitting/construction stages; delays mitigated via early procurement and GC coordination .
  • Optimal Puttery format: Charlotte (smaller, 2 courses) matched The Colony’s revenue/EBITDA with higher alcohol mix; management now favors 2–3 course venues versus 4-course flagship except select markets .
  • Seasonality: Expect Q1 softness vs Q4 with reacceleration in Q2 and strongest in Q4; early data aligns with this view .
  • Financing timing: Company has capital to fund five 2022 openings; ~$75M financing underway with advisor, aiming to secure funding within ~3 months to support late-2022 and 2023 development .
  • Cost discipline: Puttery Q1 margins benefited from normalization post “surge labor” at launch, favorable COGS via alcohol mix, and lower maintenance in new venues; labor at budget/slightly over amid tight market .

Estimates Context

  • S&P Global consensus for Q1 2022 revenue and EPS was unavailable at time of analysis due to data access limits; therefore, no vs-consensus comparisons are provided. We will update vs-consensus when available from S&P Global.

Key Takeaways for Investors

  • Puttery is working: two venues are delivering ~$2.2M quarterly revenue each at ~38% venue-level EBITDA margins, validating the higher-return, lower-capex growth vector relative to Drive Shack big-box venues .
  • Mix shift accelerates: New Orleans Drive Shack suspended (impairment $11.3M), capital reallocated to Puttery; Randall’s Island DS remains a strategic outlier with expected above-peer returns .
  • Events-driven upside: Events rebounded sharply to $6.4M in Q1 with strong forward demand, providing incremental mix tailwind to margins across both Entertainment and American Golf .
  • Near-term execution hinges on build schedule and financing: Seven Puttery openings targeted for 2022 and ~$75M financing expected within ~3 months; timeline/terms are key stock catalysts/risks .
  • 2022 profitability target intact: Management reiterated ~$18M Adjusted EBITDA goal for FY22 despite Q1 impairment drag, supported by Puttery ramp and events strength .
  • Unit format optimization should enhance returns: Management leaning to 2–3 course Puttery designs in denser, beverage-heavy markets (Charlotte-like mix), potentially improving capital efficiency .
  • Watch liquidity runway: Cash declined to $44.1M at quarter-end due to capex; financing progress is vital to maintain development cadence into 2023 .

Appendix: Additional Details and Reconciliations

  • Non-GAAP: Adjusted EBITDA excludes income taxes, other income/(loss), interest, D&A, (gain)/loss on lease terminations and impairment, pre-opening costs, severance, transactional G&A, and stock-based comp; reconciliation provided in filings .
  • Cross-checks: Operating loss expansion primarily reflects New Orleans impairment (Q1’22 total loss on lease terminations and impairment $12.871M vs $3.209M y/y), consistent with pivot to Puttery .