#Drive shack cost free#

Weak quarters due to seasonality have produced highly negative operating margin numbers as gross margins fall to nearly zero in a lot of cases. The point I wanted to make here is that Drive Shack's margins have been pretty awful for the duration of its time as a public company, so optimism around its ability to scale The Puttery or Gen 2.0 Drive Shack locations should be taken with the proverbial grain of salt. In addition, given the below, it looks to me like Drive Shack - if it makes it long enough to scale The Puttery - will have a very hard time with profitability.Ībove I've plotted the relationship between revenue, gross margins, and operating margins for each quarter since the end of 2017. The idea sounds like a good one to me, but Drive Shack is betting its future on The Puttery, a concept that isn't even operational yet. In addition, the company is in the midst of launching The Puttery, which is a similar venue to the Gen 2.0 sites, except with mini-golf instead of a driving range. There are only a handful of Gen 2.0 Drive Shack sites today, with room for a few dozen across the US. Growth path is murky at bestĭrive Shack reckons it has a long runway for growth, and it certainly could. The pandemic situation has caused Drive Shack to shut its venues down, and while they are mostly back to normal operating conditions, this shutdown is about the last thing Drive Shack needed.

Of course, these stats were generated during normalized conditions, pre-COVID-19. It is easy to understand why its cash pile has dwindled over time the business itself produces negative cash flow, and when capex is piled on top, the financing situation is quite dire. Meanwhile, $24 million has typically represented one to two quarters' worth of capex, which means that Drive Shack, on average, burns through many millions of dollars each quarter. They've been quite small as well, with the cumulative positive operating cash flow of those four quarters coming in at just $24 million. In the past 11 quarters, Drive Shack has managed four quarters of positive operating cash flow.

#Drive shack cost free#

The two metrics above, cash from operations and capex, are the two primary components of free cash flow, and the picture isn't pretty. In addition, the company's history on cash generation is absolutely abysmal, so I wouldn't be optimistic about this situation turning around anytime soon. The problem is that Drive Shack still has $106 million in current liabilities, so in other words, where it had nearly double the cash it needed for a years' worth of current liabilities 2.5 years ago, it now has maybe a month or two. The cash pile has fairly quickly dwindled and is now down to just $17 million as of the end of June. All of those sources of cash have a tangible cost, excluding cash from operations, so there is only so long any business can rely upon those external sources of cash before investors will cease lending to the business.Īs we can see below, that is a problem for Drive Shack, as it has burned through the huge cash pile it had a few years ago, with no end in sight.ĭrive Shack had $173 million in cash and equivalents at the end of 2017, with $104 million in offsetting current liabilities. That cash can come from the operations of the business (ideally) or it can come from debt, stock issuance, preferred stock, etc. Cash burn remains a huge problemĪny company needs to produce cash from somewhere to continue operations. To that end, the below will take a look at Drive Shack's financing situation, and determine what to do with the stock based upon its prospects for surviving. After all, growth potential doesn't matter if the company isn't around to realize it.

While Drive Shack has a compelling business model with plenty of future growth potential, the key question today is whether or not it can survive this crisis. That's about double the low that Drive Shack put in a few months ago, but after a parabolic spike to just over $3, investors have unloaded the stock in big quantities. Shares have fallen from more than $5 at this time last year to just $1.60. One stock that certainly hasn't adapted or recovered is Drive Shack ( DS), a purveyor of outdoor golf experiences.

Some have recovered, while others haven't, depending upon how well the companies have adapted to a COVID-19 world. Consumer discretionary stocks were, of course, crushed earlier this year.