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DS

Drive Shack Inc. (DSHK)·Q3 2022 Earnings Summary

Executive Summary

  • Q3 2022 revenue was $88.7M, up 16.1% year over year, with Adjusted EBITDA rising to $7.0M (vs. $3.4M in Q3 2021) driven by Puttery expansion and stronger event sales; GAAP net loss improved to $(7.1)M and EPS to $(0.09) from $(0.11) prior year .
  • Management said it is “on track to achieve” FY 2022 Adjusted EBITDA of $18M and highlighted venue-level Puttery margins (Q3 EBITDA $2.2M, 35% margin), while noting Drive Shack EBITDA down 29% on weaker walk-in traffic due to weather and inflationary costs .
  • The company pivoted from a contemplated asset sale to pursuing debt financing to fund 2023 Puttery openings (five venues planned), and disclosed NYSE listing compliance deficiency with options under evaluation during a cure period ending April 5, 2023 .
  • Wall Street consensus estimates for Q3 2022 via S&P Global were unavailable at the time of analysis due to rate limits; therefore, beat/miss vs. estimates cannot be determined at this time (S&P Global consensus data unavailable).

What Went Well and What Went Wrong

  • What Went Well

    • Puttery revenue reached $6.6M in Q3 2022, with three full-quarter venues delivering $6.2M and venue-level EBITDA of $2.2M (35% margin); YTD Puttery EBITDA was $4.6M (31% margin), “in line with expectations” .
    • Event revenue strength: American Golf event sales were $9.0M, up $3.0M or 51% YoY; Drive Shack event revenue was $2.5M, up $0.4M or 22% YoY; management emphasized “strong momentum” in corporate and social events .
    • Consolidated Adjusted EBITDA improved to $7.0M (vs. $3.4M), aided by new Puttery venues and lower corporate expense, with operating loss moderating to $(5.2)M (vs. $(5.9)M) .

  • What Went Wrong

    • Drive Shack venues’ total revenue fell to $10.1M (from $10.5M), and venue EBITDA declined 29% YoY, attributed to weather-driven declines in walk-in revenue and inflationary cost pressure .
    • Liquidity tightened: cash and equivalents fell to $11.7M (from $58.3M at year-end), primarily due to capex for future Puttery venues; management is actively seeking debt financing to support growth .
    • Listing overhang: the company fell below NYSE’s $1 average price listing standard; management is evaluating options during the cure period, introducing regulatory uncertainty near term .

Financial Results

MetricQ3 2021Q1 2022Q2 2022Q3 2022
Revenue ($USD Millions)$76.366 $68.982 $86.689 $88.674
Adjusted EBITDA ($USD Millions)$3.365 $1.019 $4.584 $7.044
Adjusted EBITDA Margin (%)4.4% (3.365/76.366) 1.5% (1.019/68.982) 5.3% (4.584/86.689) 7.9% (7.044/88.674)
Operating Income (Loss) ($USD Millions)$(5.921) $(18.392) $(6.361) $(5.191)
GAAP Net Income (Loss) ($USD Millions)$(8.866) $(18.913) $(9.567) $(7.131)
EPS ($USD, Basic)$(0.11) $(0.22) $(0.12) $(0.09)

Segment Breakdown

Segment MetricQ3 2021Q1 2022Q2 2022Q3 2022
Entertainment Golf Revenue ($USD Millions)$11.3 $14.2 $15.7 $16.7
Drive Shack Venues Revenue ($USD Millions)$10.5 ~$9.8 (14.2–4.4) $11.2 $10.1
Drive Shack Event Revenue ($USD Millions)~$2.1 (2.5–0.4 YoY delta) N/A$3.2 $2.5
Puttery Venues Revenue ($USD Millions)$0.8 $4.4 $4.5 $6.6
American Golf Total Revenue incl. Reimbursements ($USD Millions)$65.1 $54.6 $70.8 $71.8
Managed Course Reimbursements ($USD Millions)$14.7 $13.0 $15.2 $16.4
American Golf Revenue excl. Reimbursements ($USD Millions)$50.4 (65.1–14.7) $41.6 (54.6–13.0) $55.6 (70.8–15.2) $55.4

KPIs

KPIQ3 2021Q1 2022Q2 2022Q3 2022
American Golf Event Revenue ($USD Millions)~$6.0 (9.0–3.0 YoY delta) N/A$9.5 $9.0
Drive Shack Event Revenue ($USD Millions)~$2.1 (2.5–0.4 YoY delta) N/A$3.2 $2.5
Puttery Venue EBITDA ($USD Millions)N/AN/AN/A$2.2 (35% margin)
Houston Puttery Revenue (9/16–10/25) ($USD Millions)N/AN/AN/A$1.2
Online Booking Rate (%)N/AN/AN/A>60% overall; 65% Houston
Alcohol Share of F&B (%)N/AN/AN/A~80% overall; 87% Houston
Avg Time to Play 9 Holes (minutes)N/AN/AN/A32 overall; 35 Houston

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($USD Millions)FY 2022N/A$18 (management: “on track to achieve”) Maintained/on track
Puttery Openings (count)FY 2023N/A (analyst noted “down substantially” vs prior outlook) 5 venues (NYC, Miami, Kansas City, Minneapolis, Pittsburgh) Revised lower vs prior outlook (no prior numeric disclosed)
Preferred Stock DividendsQ4 2022Series B: $0.609375; Series C: $0.503125; Series D: $0.523438 (Q3 declaration) Series B: $0.609375; Series C: $0.503125; Series D: $0.523438 Maintained
Listing ComplianceCure to 4/5/2023In compliance (prior periods)Below NYSE $1 average price; options under evaluation New disclosure/monitoring
Capital Funding PathNear termAsset sale under consideration (prior) Pursuing debt financing; asset sale off the table Strategic pivot

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2022)Trend
Puttery expansion and unit economicsQ1: “On track to open seven locations by end of 2022” ; Q2: 3 venues open with $4.5M revenue; walk-in revenue “well ahead” expectations 5 venues operating; Q3 venue EBITDA $2.2M, 35% margin; YTD $4.6M, 31% margin; 5 venues committed for 2023 Strong performance; moderated 2023 opening cadence pending funding
Events demandQ1: Event revenue meaningfully higher YoY across portfolio ; Q2: $9.5M at American Golf (+311% YoY), DS events $3.2M (+106%) American Golf events $9.0M (+51% YoY); DS events $2.5M (+22% YoY) Persistently robust; normalization vs extreme YoY comps
Drive Shack venue trendsQ2: DS revenue $11.2M, slightly down YoY; strong events DS revenue $10.1M (down YoY); EBITDA down 29% on weather/inflation Continued pressure; mix favoring events
Capital structure/fundingNo explicit funding path disclosedPivot to debt financing; asset sale process terminated; aiming to secure by end of Q1 2023 Deleveraging via debt raise; liquidity management
Supply chain & inflationQ2: Pre-opening costs increased; strategic investments in headcount Timing of 2023 openings affected by supply chain and labor (e.g., NYC union labor) Ongoing constraint on development timelines
Regulatory/listing statusNo prior issues disclosedNYSE price deficiency; evaluating options within cure period New risk factor introduced
Partnerships (Rory McIlroy)Not detailedPotential upsizing under review post 1-year laps; decision expected by year-end Possible incremental capital; timing dependent

Management Commentary

  • “Our sales results this quarter reflect the strong momentum we continue to see across American Golf and Puttery… Event revenue this quarter is over $3 million higher than prior year” — CEO Hana Khouri .
  • “Puttery delivered another quarter of great results… Puttery Houston opened on September 16th… their key metrics are aligning closely to our other venues” .
  • “Our Q3 adjusted EBITDA of $7 million… puts us on track to achieve our yearly adjusted EBITDA plan of $18 million” — CEO .
  • “Drive Shack… 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” — CEO .
  • “We were notified by [NYSE] that we had fallen out of compliance… we are actively considering several options… cure period ending April 5” — CEO .

Q&A Highlights

  • Funding strategy: Management ceased the asset sale process due to undervaluation and is pursuing debt financing, targeting completion “as soon as possible,” no later than end of Q1 2023; cost controls implemented to manage liquidity until funding is secured .
  • McIlroy partnership: Post one-year laps, materials have been provided for decision-making; potential for upsizing investment, with a decision expected by year-end (no commitments yet) .
  • 2023 development timing: Plan for 5 Puttery openings (one in Q1, two in Q2, remainder in Q3), with timing subject to supply chain and labor factors; NYC (Randall’s Island) remains under evaluation, balancing costs and procurement needs .
  • F&B mix and operations: Alcohol continues to dominate F&B (~80% overall; 87% in Houston); food mix is “creeping up” at The Colony, with a goal to better showcase food offering; online bookings exceed 60% .

Estimates Context

  • Consensus EPS and revenue estimates for Q3 2022 via S&P Global were unavailable due to rate limits at the time of retrieval; as a result, we cannot assess beat/miss vs. Wall Street consensus for Q3 2022 (S&P Global data unavailable).
  • Given strong event revenue and Puttery performance with Adjusted EBITDA improvement, near-term estimate revisions may focus on higher contribution from Puttery and events, offset by inflationary cost impacts and weather sensitivity in Drive Shack venues .

Key Takeaways for Investors

  • Puttery is validating its unit economics: Q3 venue EBITDA of $2.2M at a 35% margin with supportive KPIs (online booking >60%, alcohol ~80% of F&B), underpinning the brand’s expansion case .
  • Events are a durable growth lever across segments, with American Golf event revenue up 51% YoY and Drive Shack events up 22% YoY, partially offsetting walk-in weakness .
  • Drive Shack venues face weather and inflation headwinds; mix shift toward events supports revenue, but walk-in declines weigh on EBITDA; monitor margin recovery into seasonally stronger periods .
  • Liquidity and capital structure are key catalysts: debt financing progress and terms will dictate 2023 opening cadence and alleviate cash constraints ($11.7M as of 9/30) .
  • NYSE listing compliance status is an overhang; management is evaluating options during the cure period—updates may drive stock volatility around corporate actions .
  • FY 2022 Adjusted EBITDA plan of $18M remains “on track”; sustainability into 2023 will hinge on funding timing, development execution, and cost normalization .
  • Watch partnership developments (McIlroy) and NYC Randall’s Island decision for incremental capital and strategic footprint upgrades; announcements expected by year-end/on a rolling basis .