Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

ClubCorp Holdings Inc. (NYSE:MYCC)

Q4 2013 Earnings Conference Call

March 20, 2014 8:30 am ET

Executives

Eric Affeldt – President, Chief Executive Officer

Curtis McClellan – Chief Financial Officer

Frank Molina – Vice President, Investor Relations and Treasury

Analysts

Rick Nelson – Stephens

Steve Kent – Goldman Sachs

Shaun Kelly – Bank of America

Randy Konik – Jefferies

Operator

Good morning ladies and gentlemen and welcome to ClubCorp Holdings Inc’s Fourth Quarter Fiscal 2013 Earnings conference call. This call is being broadcast live from ClubCorp’s website and a replay will be available on the ClubCorp website after this call. During today’s presentation, all participants will be in a listen-only mode. At this time, I will turn the conference call over to Frank Molina, Vice President of Investor Relations and Treasury. Sir, you may begin.

Frank Molina

Thank you, Jamie. Good morning everyone and welcome to our fourth quarter earnings call. Joining me on today’s call from ClubCorp are Eric Affeldt, our President and CEO, and Curt McClellan, our CFO.

Before we get started, I’d like to address a few administrative items. During today’s call we will review fourth quarter fiscal 2013 results highlighted in our earnings release published this morning and also contained within our annual report on Form 10-K for the fiscal year ended December 31, 2013. If you do not have a copy of our earnings release, it can be accessed on the Investor Relations portion of our website at clubcorp.com.

Please note all growth percentages unless otherwise stated refer to year-over-year progress. Also note that today’s call references fourth quarter of fiscal 2013, which consists of 17 weeks versus 16 weeks in fiscal 2012. Likewise, our full-year fiscal 2013 results consist of 53 weeks versus 52 weeks in fiscal 2012.

I’d also like to remind all listeners that ClubCorp Holdings desires to take advantage of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Certain statements in this conference call may be considered forward-looking statements within the meaning of that act. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For a list of these factors, please refer to the Risk Factors section of our prospectus or in our 2013 Form 10-K to be filed with the SEC.

Finally, our discussion may include certain non-GAAP financial measures. More information regarding our forward-looking statements and reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in the earnings release and can be found in our SEC filings, and on our Investor Relations website at ir.clubcorp.com. Following our prepared remarks, the conference will be open for a question and answer session.

Now I will turn the call over to Eric.

Eric Affeldt

Thank you, Frank, and welcome everybody again to ClubCorp Holdings’ first full-year earnings call. For those of you not yet familiar with ClubCorp, our company is a leading owner-operator of private golf and country clubs, business, sports and alumni clubs. Today, we own and operate 156 clubs located in 25 states, the District of Columbia, and two foreign countries. Our operations are organized into two business segments, the first of which is our golf and country clubs, the second is our business, sport and alumni club. Most importantly, though, we consider ourselves to be in the membership business as almost 50% of our total revenues come from dues. Our central mission is to build relationships and enrich the lives of our members and their guests.

We believe our clubs are more relevant than ever as families and individuals are looking for great places to recreate, socialize, network, and just spend time together. Our clubs play an integral part in many of our members’ lives, and as a result over the last 10 years we have enjoyed an average annualized membership retention rate in excess of 80%. In our golf and country club division, the number has grown to almost 84%.

2013 has been extraordinary for ClubCorp. We completed our initial public offering in September, we’ve delivered record high financial performance and increased membership sales more than any time in recent years. As a result, I’m very pleased to announce that we surpassed our full-year revenue and adjusted EBITDA targets with total revenues of $815.1 million, up 8% year over prior year, and adjusted EBITDA of $177.4 million, up 6.7% over prior year. Curt will discuss our financial performance in more detail in just a few minutes, but first I’d like to give you an update on our three primary growth strategies: organic growth, reinvention, and acquisitions.

First, fiscal 2013 proved to be the second consecutive year of positive net member growth in our golf and country club segment. We saw stabilization of retention rates in our business, sports and alumni segment, and we’re experiencing increased facility utilization by our members in all parts of our business. Our day-to-day focus centers on growing our core business by increasing the value proposition for our members, making the clubs more relevant and increasing facility usage, and expanding club participation through programming initiatives. We continue to grow our core business through increased utilization and the addition of other membership-related products and services.

Penetration of upgrade offerings, including our optimal network experience, or ONE, of 43% was up three percentage points from the prior year. The ONE product gives members a home club benefit of 50% off a la carte dining, preferential access to clubs in their community, complimentary privileges to our extensive portfolio of clubs, and discounts at over 700 other clubs, resorts and facilities, both domestically and internationally. We continuously explore ways to strategically expand ONE to additional geographic areas, and this year we’re piloting a new ONE program in parts of our business, sports and alumni club segment. The ONE upgrade offering was recently added at two of our clubs in Florida plus Prestonwood, making it now available at 78 clubs or roughly 65% of our golf and country clubs.

Our second growth strategy is reinvention and ROI projects. We believe that our ability to conceptualize, fund and execute reinvention and other capital projects at our clubs gives us a significant competitive advantage over member-owned and individual privately-owned clubs who may have difficulty gaining member consensus or financial backing to execute such improvements. In 2007, we embarked on the reinvention of our clubs through strategic capital investment projects designed to drive membership sales, facility usage and member retention. Since that time, we have invested almost $410 million in total capital to better position and maintain our clubs in their respective markets.

The Trophy Club here just outside Dallas is a good example of how new home builds combined with the 2012 club reinvention investment is yielding positive returns. In 2013, year-end revenue and membership at the Trophy Club is up over 23% and 10% respectively compared to 2011 pre-reinvention revenue and membership. In 2013, we completed reinvention projects at nine golf and country clubs and three business, sports and alumni clubs. To date, we have completed reinvention projects across 35 clubs, a strategy we are carrying into 2014 with a $20 million reinvention investment across seven of our golf and country clubs and four business, sports and alumni clubs. We remain committed to evaluating future opportunities to apply our reinvention strategy.

Finally, I’ll discuss acquisitions. As you know, expanding and strengthening our portfolio of clubs through acquisitions remains an important strategic focus. Given the highly fragmented nature of our industry and a healthy pipeline of identified prospects, we believe a significant opportunity exists to acquire additional clubs while maintaining our disciplined underwriting criteria. This past quarter, we acquired Chantilly National Golf and Country Club, a private club located in Centreville, Virginia; and earlier last year as you are aware, we also acquired Oak Tree Country Club, located in Edmond, Oklahoma, and the Cherry Valley Country Club located in Skillman, New Jersey.

Our acquisition capacity and appetite is strong. We look forward to adding new clubs to our already strong portfolio. As you may know, 2014 is off to a strong start with the acquisition of two additional properties here in the Dallas area. Prestonwood Country Club features two 18-hole championship golf courses with Creek in Dallas and The Hills in nearby Plano. I’m extremely pleased with our 2013 results and look forward to what’s next in 2014.

Now, I’ll turn it back to Curt to give you more details on the numbers.

Curtis McClellan

Thanks Eric. As Eric just highlighted, we are pleased with our strong fourth quarter and full-year 2013 results. For the full year, consolidated revenue totaled $815.1 million, an increase of $60.1 million, up 8%, while adjusted EBITDA was $177.4 million, an increase of $11.2 million, up 6.7%. 2013 performance benefited from continued execution of our growth strategy to leverage our portfolio, add relevant programming, and deploy capital to reinvent our clubs and pursue strategic acquisitions.

I’d like to point out our disciplined approach to capital investment and deployment includes a 10 to 15% unlevered return hurdle rate for acquisitions and reinvention capital. While these investments generate incremental adjusted EBITDA in Year 1, we base our return objectives on forward adjusted EBITDA that typically occurs in Year 2 or Year 3 following an acquisition and reinvention.

From 2007 to 2013, we reinvented 35 clubs, acquired 10 golf and country clubs, and developed a new alumni club. I mention this fact because we believe we are now realizing the benefit of these investment decisions in our results today. We are experiencing an increase in memberships, an increase in club utilization, an increase in dues per average membership, and an increase in average revenue per member visit. We view these indicators as positive signs that our strategy is working.

Now let’s look at our fourth quarter results. Let me remind you that our fourth quarter of fiscal 2013 contained 17 weeks, or one additional week versus fiscal 2012. We experience an additional week every five to six years. As a result, all of our revenue streams and adjusted EBITDA benefited due to one additional week this year.

Fourth quarter – consolidated revenue was $269.6 million, an increase of $30.4 million, up 12.7%. The majority of this increase is attributable to same store clubs whose revenue was $258.3 million, an increase of $20.6 million, up 8.7% driven by increases from all three main revenue streams: dues, food and beverage, and golf operations. Same store dues were at $117.2 million, an increase of $11.1 million or 10.5% due to an increase in average dues per membership and an increased number of same store golf and country memberships throughout the quarter. Same store food and beverage revenue was $81.1 million, an increase of $6.6 million or 8.9% driven by an increase in a la carte revenue from higher club utilization and an increase in private event revenue from both segments that we experienced in the fourth quarter. Additionally, revenue from acquired clubs increased $5.5 million. As a reminder, acquired clubs will be considered same store once they’ve been fully operational for one fiscal year. The remaining increase is primarily due to other revenue and reimbursements for certain operating costs at our managed clubs and is directly offset with in-club operating costs and have no impact on income.

Turning to costs, Q4 club operating costs and expenses were $173.2 million, an increase of $24.9 million, up 16.8%. Operating costs as a percent of total revenue was 64.2%, up 220 basis points due to equity based compensation expense following the IPO and reimbursements for certain operating costs at our managed clubs that are directly offset in revenue. Cost of food and beverage, excluding labor, was $25.4 million, an increase of $2.6 million. Cost of F&B as a percent of F&B revenue increased approximately 20 basis points, highlighting our ability to tightly manage F& b expense despite an increase in a la carte food and beverage, increased covers, and an increased usage of ONE.

SG&A expenses increased $17.3 million, up 115% due in majority to $9.6 million of equity based compensation recognized following the IPO and one-time payment of $5 million to terminate the management agreement with KSL upon becoming a public equity company. Adjusted EBITDA was $60.2 million, up $2.5 million or 4.3%. Note, adjusted EBITDA compares to fourth quarter 2012 but contains 16 weeks, but was also positively impacted by a $3.2 million adjustment related to membership.

At the end of fiscal 2013, we had $53.8 million in cash and total liquidity of $174.3 million. During the year, we generated $79.8 million of free cash flow and made a distribution of $35 million to our owners prior to our IPO. Following our IPO and subsequent to fiscal year-end 2013, we paid $7.7 million in dividends to our shareholders.

In 2013, we spent $51.3 million on expansion capital, including the acquisition of three golf and country clubs. During 2014, we anticipate spending approximately $25 million on maintenance capital and $36 million on reinvention and other expansion projects, excluding new acquisitions. Subsequent to year-end, we have drawn $11.2 million from our revolver to fund the acquisition of Prestonwood.

As Eric mentioned earlier, our operations are organized into two principle segments: golf and country clubs, or GCC, and business, sports and alumni clubs, or BSA. We evaluate segment performance and allocate resources based on segment EBITDA. Our management team uses this key financial measure to gauge the health of our business and assess our ability to service debt, incur additional debt, and meet capital expenditure requirements.

We are pleased with our golf and country clubs’ performance in Q4. Same store GCC revenue increased $16.2 million to $194 million, up 9.1% due to growth from all three major revenue sources: dues, food and beverage, and golf operations. Same store dues revenue increased $9.2 million to $92.3 million, up 11.1% due to one additional week of membership dues this quarter, an increase in same store membership counts, and increased dues per average membership. This represents the second year in a row of increased same store GCC membership growth.

Same store food and beverage revenue increased $4.7 million to $46.2 million, up 11.3% largely driven by increased member usage of our clubs. A la carte revenue was up $2.6 million over Q4 2012 with the remaining increase attributable to increased private events revenue. Same store golf operations revenue increased $2.3 million to $41.6 million, up 5.9% compared to prior year due to increased greens fees and cart fee revenue, along with increased retail revenue. Segment EBITDA for same store golf and country clubs was $56.4 million, an increase of $3.1 million or 5.8%. GCC segment EBITDA stepped over a $3.2 million positive adjustment for memberships recorded in Q4 of 2012. Additionally, the increase in 2013 segment was primarily due to increased dues revenue which carries a higher margin than the other revenue streams.

Now turning to our business, sports and alumni club segment. Fourth quarter same store BSA revenue totaled $64.3 million, an increase of $4.4 million, up 7.3% due to the additional week in fiscal 2013 and an increase in food and beverage and dues revenue. Same store food and beverage revenue increased $1.9 million to $34.9 million, up 5.8% due to increases in both private events and a la carte revenue streams. Same store dues revenue increased $1.9 million to $24.8 million, up 8.3% due to the additional week in fiscal 2013 and an increase of average dues per membership. Segment EBITDA for business, sports and alumni clubs of $15.9 million increased $1 million or 6.9% due to the pick-up from dues revenue along with increased food and beverage sales. This quarter also saw major reinvention club reopenings, such as opening of the City Club of Los Angeles and the Houston Club.

Turning to our outlook for 2014, let me begin by saying Q1 is off to a good start despite a more volatile winter. Recall that we operate a dues-based business model that is less impacted by short-term changes in weather. We see continued momentum from both existing and acquisition clubs. Our club reinventions are progressing nicely and several projects are to be completed before the busy spring and summer months start. Our acquisition pipeline remains robust. Though we do not name or number what we will do in this arena, we are focused on the important part of our strategy and continue to look for the right clubs to add to our portfolio.

Now I’d like to present our guidance for full-year 2014 revenue and adjusted EBITDA. As always, our revenue and adjusted EBITDA targets are on a consolidated basis, reflecting momentum from same store and newly acquired clubs. We do not forecast unnamed acquisitions due to the lumpiness and timing of this activity; thus, for 2014 fiscal year, we expect to generate revenue in the range of $830 million to $860 million and adjusted EBITDA in the range of $182 million to $190 million. Please note that revenue and adjusted EBITDA growth will be offset by one less week in the fourth quarter of 2014. This additional week in 2013 benefited us this year, but likewise should be removed from model comparisons in 2014. Removing Week 53 from our 2013 results, this guidance is consistent with our long-term range to deliver 5% to 7% adjusted EBITDA growth.

Our guidance estimates are based on current management expectations and may be subject to change. Again, please refer to our forward-looking statement cautionary language in our earnings release and Risk Factors section of our 10-K.

In closing, I’d like to reaffirm how pleased we are with 2013 results and express our gratitude for the contributions made by our employee partners in delivering those results.

That concludes our prepared remarks. We’ll now open the line for questions.

Question and Answer Session

Operator

At this time, we’re ready to begin the question and answer session. [Operator instructions]

Our first question today comes from Rick Nelson from Stephens. Please go ahead with your question.

Rick Nelson – Stephens

Thanks, good morning. Congrats on a terrific quarter and year. I’d like to ask you about the acquisition pipeline and if you could discuss Prestonwood, how that came about and what sort of changes you (indiscernible) out there with invention capital, et cetera.

Eric Affeldt

Rick, this is Eric. Thanks for the question. First of all as we’ve said repeatedly, our pipeline continues to fill post-recession as people, again we’ve discussed, really didn’t want to sell at the bottom of the economy, but there are more people feeling more comfortable that they’ll be able to realize more proceeds from a potential sale. So while we don’t talk about specific acquisitions that are pending, I can tell you that we continue to have a 40 to 50 club number that we are in some form or fashion in dialogue with. So again, as we’ve said many, many times, acquisitions tend to be a bit lumpy. There is a bit of uncertainty relative to how many of those we’ll be able to actually close on.

Relative to Prestonwood, it was a very logical acquisition for us in that it’s right here in our backyard. The demographics around both clubs—as you know, it’s actually two clubs. There’s two clubhouses, two golf courses, two pools, tennis courts, tennis sets, et cetera. So we’d been chatting with the family that owned the club – actually, the family has been here for 30-plus years. I think they agreed that we were the most logical buyer given the strength of our market here in DFW. This actually increases our total portfolio in Dallas and Forth Worth to 17 clubs, 15 golf and country clubs and two business and sports clubs, so it adds tremendous value to our DFW members.

Relative to what we plan to do, we’re still doing focus groups with members to talk about where they would like to see us spend capital, but we anticipate spending in excess of $5 million improving both the golf courses as well as modernizing and refreshing the clubhouses, as we’ve done here and as we’ve done throughout the country. As I think you know, that tends to accelerate the revenue and EBITDA growth when we come in and reinvent these clubs, so we’re really excited for the Prestonwood acquisition and think it’s a perfect fit, again back to our strategy of adding clubs where we already have a presence.

Rick Nelson – Stephens

Thank you for that color. The reinvention capital that Curt had talked about, $20 million for 2014, how does that compare to what you spent reinvention in 2013, and is there any stepped up requirements now from a reinvention capital standpoint given the strength in the economy and competitive factors, other clubs spending capital?

Eric Affeldt

I think the number that we used in ’13 was $26 million, and Curt’s sitting here next to me and can confirm that. So it’s a little bit less, but you have to keep in mind that we don’t include—when we talk about $20 million for 2014, that does not include the capital that we’ve set aside as part of Prestonwood, as an example; so Prestonwood will be reinvented, but the capital dollars there have been baked into our model, our acquisition model. Same thing is true with Chantilly, same thing is true with Cherry Valley, so acquisition clubs typically are reinvented at the time that we acquire them and would not be included in the $20 million.

Relative to the overall strength of the economy, we feel that this is an appropriate amount of money to be allocating for 2014, and as I think we’ve suggested before, there’s always a bit of a competition for capital. Our business development team is out there trying to find acquisitions while our operating team is proposing new clubs to be reinvented, that we compare and contrast the relative benefits in terms of EBITDA growth with those two competing alternatives for our capital, either acquisitions or reinvention, and we think we’re balancing both.

Rick Nelson – Stephens

Thank you. And finally if I could ask you about the ONE upgrade program, you mentioned 65% of your clubs participate, 43% of your customer base participates. Do you have long-term goals as to how high those proportions could go, or targets?

Eric Affeldt

We really don’t, and I think the more interesting opportunity for us this year, we’ve mentioned the fact that we’re going to be testing some alternative ONE products in our business and sports club division. Again, keep in mind that ONE combines a compelling home club benefit. In the case of our golf and country clubs, that’s 50% off your home club a la carte dining, plus the travel benefits and access to the networks. So we’re going to be testing some products in our business club division, which really have a very, very small number of clubs with a one-type product. We think that could be quite a compelling addition to our menu of benefits, particularly to our business club members, but we don’t have a hard target of clubs that we think ONE would be applicable to.

Rick Nelson – Stephens

Okay, fair enough. Thanks a lot, and good luck.

Operator

Our next question comes from Steve Kent from Goldman Sachs. Please go ahead with your question.

Steve Kent – Goldman Sachs

Hi. Just a couple questions. I understand you’ve now said a couple times during your conference call and previous times that you don’t want to comment on acquisitions or the pipeline, but maybe if you could just give us some broader color on whether there is greater activity, whether there are more multi-property opportunities than before. And then just some smaller questions – one is at one point you talked about looking at maybe going asset-light in some of the club operations, so managing, not buying them. Maybe you could give some color on that. And then on same store membership dues, the ONE product versus normal price increases, how much of that was ONE versus normal price?

Eric Affeldt

Steve, good questions. I’ll try to take them in order. Again, the number of deals that we will do this year, as we’ve said many times, there’s two parties in any transaction and as much as we think we present a compelling offer and we think that we’re nice people, a seller could always say, not now. So it’s really difficult to predict. I can say, as we’ve said before, that we are intent on accelerating our acquisition pace and activity vis-à-vis the last three or four years, and we believe we’ll have the opportunity to do that.

Secondly, relative to your question on multi-course or multi-store competitors, we have mentioned in our S-1 that there are four or five companies that own or operate in excess of 20 facilities. We’ve also said repeatedly that we’re constantly chatting with everybody in the industry. I think everybody is aware that we do have an appetite to grow, but I certainly can’t provide any more direction relative to the probability of acquiring any of these competitors.

The next one, I’m not sure if it had to do with dues, same store member dues and how much of that is ONE versus recurring, and I’ll turn that over to Curt who probably has the answer right in front of him.

Curtis McClellan

Yes, hi Steve. I would say on the ONE product, overall in the golf and country club division where we primarily have the ONE product, we grew same store average membership about 4% on a normalized basis if you back out the 53rd week. The majority of those clubs have been online with the ONE program for the full year, so it’s not a significant increase. I would say most of that is due to the fact that we take price, as you guys know, on our dues each year, so the average dues increase usually outpaces inflation. Last year, again, we grew about 4% on a normalized basis in the golf and country club division.

Steve Kent – Goldman Sachs

And then the idea of going asset-light or managing properties?

Eric Affeldt

Yes – sorry, I left that out, Steve. We continue to focus on acquisitions as we like the model, now 57 years old, of turning clubs around and acquiring facilities, and then ultimately gaining the benefit of, again as you know, our golf and country club division we run close to 29% operating margins, relative to taking 3% or 4% off the top at a managed location. We’re still open to managing clubs, but again as I’ve said many times, they need to be additive to the overall portfolio so there are existing members would look at them and say, great, you just acquired a club in a location that we’d like to go visit.

So currently it’s not core to what we do. We will continue to assess management opportunities, and if we were to get heavily into that business, we’d either set up our own—we’d probably end up setting up our management division if we were going to go heavily in that direction, but at this point that’s not a priority. I will say that in the business club division, that is something that we look at on a more frequent basis, particularly internationally as we’re requested to come and assess opportunities in foreign countries to manage properties on behalf of developers.

Steve Kent – Goldman Sachs

Okay, thank you.

Operator

Our next question comes from Shaun Kelly from Bank of America. Please go ahead with your question.

Shaun Kelly – Bank of America

Great, good morning guys. So Curt, I just wanted to start off with a couple of clarifications. The 4% number you gave for golf and country club in terms of increased spend per member, that includes both ONE and without ONE, so that’s just your overall increase ex-the 53rd week? Did I catch that correctly?

Curtis McClellan

Yes, and that was for dues. Yes.

Shaun Kelly – Bank of America

Okay, great. Could you give us the same statistic ex-the 53rd week for F&B and golf operations? I think that’d be helpful.

Curtis McClellan

Yeah, actually what I would tell you there is the growth rates there are only modestly impacted from what you see in the release for the 53rd week. The 53rd week is more heavily weighted towards dues, if you will, so what I would tell you is in terms of the overall growth related to the 53rd week revenue, in the fourth quarter revenue grew about $11 million - $11.7 million related to the 53rd week. Again, the majority of that relates to dues and then modest impact in the other two revenue streams related to that.

What I would tell you in terms of growth rate, then, for F&B, roughly about 3%, a little better than 3% growth in the business and sports club division, and for the golf and country club division in the fourth quarter—well, I’ll give you the year. For the year, it’s roughly about 6% growth, excluding the 53rd week for F&B. Golf operations, not really impacted.

Shaun Kelly – Bank of America

Okay, that’s helpful. And then I guess thinking about golf kind of more broadly, obviously there’s been—you mentioned volatile weather and that it doesn’t seem like it’s impacting you in the first quarter. What do you think—what are you seeing from that core customer just overall, because what we’ve seen out of industry data, both kind of anecdotal statistics from sportswear makers as well as industry-wide statistics, is that both the fourth and the first quarter at least broadly speaking in terms of the golf industry were exceptionally weak. So what are you guys doing differently, or is it the contribution from acquired clubs? What do you think is driving the difference that you guys are seeing relative to the industry?

Eric Affeldt

Yeah, Shaun – Eric. Appreciate the question, and obviously a lot of business – you know, you read every day about the impact of weather on a lot of related businesses outside of ours. We continue to impress the fact that almost 50% of our revenues are coming from dues. The dues come in whether it’s snowing, raining, sleeting or sunny, so relative to what I would describe as a retail model – a walk-up customer and a daily fee golfer, or a walk-up customer to a sporting goods retailer, or a walk-up customer to a food restaurant – we are far less impacted by weather than those types of businesses, thus our fourth quarter was quite good, frankly, and our team did an excellent job where we did have weather issues of rebooking events to stay within either that period or falling into our first quarter 2014.

So again, I think we are very unique and we’ve stressed this many, many times that our dues-based model provides greater resiliency, both in the economic downturn and to the vagaries of weather.

Shaun Kelly – Bank of America

Thanks for that, Eric. I guess specifically I was kind of just interested in the golf operations. I totally understand you on dues and that makes perfect sense, but I am curious about the type of spending pattern you see from customers in golf ops when the weather isn’t there, or when they’re just not able to get out on the course.

Eric Affeldt

Yeah, I think again if you go back, Shaun, to our overall revenue mix, the percentage of revenues coming only from golf-related activities – cart fees, guest of member, et cetera – and Curt has that exact number. I know it’s in the pie chart that we used in our S-1, but I want to say that it’s 19%. Curt, you’re looking at it right now?

Curtis McClellan

Yeah, golf-related revenues – 16%.

Eric Affeldt

Sixteen percent – so again, a relatively small amount of our overall revenue base. I can say that even though you can’t get on the golf course, our ONE product has made it more compelling for you to still come to the club and spend money in some form or fashion, because we’ve provided you an incentive to go eat, which everybody is still doing even if you’re not playing golf. I would say that given the fact that a large segment of our portfolio is in Texas-California-Florida, places that have been less impacted by weather, that when we do get a break and we do get 55 to 70 degree weather, and in the case of obviously California, Arizona, Las Vegas, et cetera they really haven’t been impacted by nasty weather this year, the customer tends to go out in droves to take advantage of any kind of break that they get. So there’s a pent-up demand factor, and again we’ve benefited by the fact that many, many of our clubs are in, again, what I refer to as the smiley face of the United States, that going coast-to-coast and heavily down in Texas.

Shaun Kelly – Bank of America

That’s very helpful, Eric. And then maybe just to switch gears, one questions on the acquisitions. Curt, I think in the prepared remarks you actually gave the acquisition spending for 2013. I missed it if you did. Could you remind me what that figure was, and then I believe you also said $11.2 million for Prestonwood so far in the fourth quarter. Does the $11.2 million include the $5 million from the expected reinvention spending there, or is that in addition to the 11?

Curtis McClellan

Yeah, so in the ’13 number, that does not include the reinvention - the purchase price alone is what I gave you. So in 2013, we had Cherry Valley and Chantilly. We spent $5.6 million purchase price on Cherry Valley and Chantilly was $4.8 million. Oh, sorry – I also failed to mention Oak Tree, which was $10.2 million, the largest of those. So the total for the year is closer to $20 million for acquisitions.

The acquisition capital typically—what we’ll actually spend in ’14 will be probably around $7 million for those three properties in 2014, which would include the reinvention elements that we’ve discussed.

Shaun Kelly – Bank of America

And that’s included in that--$7 million is included in your overall reinvention budget, Curt?

Curtis McClellan

It’s not in the 20, but it is in the ROI capital that we anticipate spending for 2014.

Shaun Kelly – Bank of America

Got it. And then just a clarification on Prestonwood, 11.2 – does that include or not include the 5?

Curtis McClellan

It does not include the 5.

Shaun Kelly – Bank of America

Got it. Thank you very much, guys.

Curtis McClellan

And the 5 will not all be spent, by the way, in 2014. We’ll spend about 3 in 2014 on that one.

Shaun Kelly – Bank of America

Okay, that’s helpful. Thanks again.

Operator

Our next question comes from Randy Konik from Jefferies. Please go ahead with your question.

Randy Konik – Jefferies

Great, thanks a lot. I guess my first question – Eric, you spoke a lot about club utilization. We can see the same store kind of numbers from the company, but is there any kind of meat you could give us to give us some perspective on what you’re seeing specifically on the increasing club utilization? That’s my first question. Thanks.

Eric Affeldt

Randy, thank you. I don’t know that I have at my fingertips the actual increase in club utilization. I know that we track, but I’m not sure that we report covers per member or visits per member, which again we do track. I can tell you that the cover counts and visits per member are higher in the reinvented clubs than they are in the overall portfolio, but I’m looking at Curt because I’m just not sure that we report those numbers.

Curtis McClellan

Yeah, let me give you a little bit of perspective on that. So in the golf and country club division, our a la carte revenue grew about 7.8% this year. There was a 2% increase in a la carte check average, which means the members are spending about 2% more, and we also saw an uptick in visits. In the business and sports division in a la carte, which is where we feel we probably get the most bang from an acquisition where we’ve touched—or from a reinvention where we’ve touched F&B, we had about $8.9 million in a la carte increase and average check increase almost 6% in the business and sports club division. So that’s really members are using the club more, cover counts are up in both divisions, and we can see that in the a la carte revenue growth.

Randy Konik – Jefferies

That’s super helpful. I guess moving on, it looks like you’re now a cash tax payor, so how do you think about tax strategies going forward? That’s that part. And then how do you think about capital structure in terms of any debt maturities, et cetera, and in terms of what you could do there?

Curtis McClellan

Thanks Randy. I guess what I’ll do is let’s hit on kind of the capital structure question. As you guys know, we have been asked frequently about whether it made sense for us to REIT the company. What I would tell you there is we did have a very fulsome discussion with our board related to that topic. There are several options available to us; however as you all know, those are complex and certainly would take time to implement.

Additionally, I would put out there that KSL’s ownership does create obstacles with several of the structures, so from our perspective we’re continuing to evaluate the capital structure with the board. Obviously a REIT is an area where we directly can improve our cash tax position as we go forward. In addition to the REIT discussion, we do continue to pursue some other options that will help us minimize our cash tax or lower our cash tax that we would pay as we go forward and bring us down from that statutory rate in 2015.

Randy Konik – Jefferies

Got you, that’s helpful. Then regarding—you know, when you look at some of the recent transaction – you added some courses in Dallas, it seems as if you’re kind of monopolizing that market. Is there any kind of perspective you can give us on what differences in maybe returns or economics you’re seeing in some of these markets where you have almost an monopolistic type of penetration versus something like the one-off acquisition of Oak Tree or something like that? Just trying to get a perspective on what you kind of can add to the business or add from an economies of scale perspective as you backfill or infill markets.

Eric Affeldt

First Randy, we prefer not to use the term monopolize at any time, so I’ll refrain from using that. We have a very strong presence in Dallas-Fort Worth as we do in Atlanta and southern California and Houston, and a few other markets around the country. Obviously there is significant benefits to the members, first and foremost, when we cluster clubs because if variety is the spice of life, you have the opportunity to use more facilities in close proximity to your home club, so it really benefits the members.

Secondly, I can’t say that we run better margins per se in clubs that are in clusters versus one-off clubs. Our most profitable club in the entire system is not in a cluster, and therefore there is really not a factor where you’re automatically going to increase margins just because there are two, three, four, five or 10 clubs in a given marketplace.

Randy Konik – Jefferies

That’s very helpful. I guess my last question is, I think on Long Island when you made a multi-course transaction – I think it was three courses, there was one private, two public in the package. I don’t know if there is any type of multi-course potentials out there where there’s that type of—you know, some are private, some are public. How do you think about looking to acquire private versus public courses in either one-off cases or in package cases? Thanks, that’s my last question.

Eric Affeldt

We continue to focus on private. As you know, we’ve recently—or may not know, we recently received outside confirmation to be able to utilize the phrase, the world leader in private clubs. That is specifically focused on golf and dining clubs, so we do continue to focus on private. However, we do own today public courses and we have historically, dating back into the 1990s, actually had its own public golf division. So we feel we can play well in both arenas, but we prefer private for the reasons that we discussed previously, given the fact a high concentration of revenues coming from dues as opposed to pure—again, what I would call a retail business where you are subject to more vagaries in weather and local economic conditions, et cetera.

Randy Konik – Jefferies

Great, helpful. Thanks a lot, guys.

Operator

At this time, we’ll turn the conference call back over to management for closing remarks.

Eric Affeldt

I’d just like to say thanks everybody for your participation today. Obviously we’re very pleased with record results from 2013. The team has done an exceptional job of not only driving financial performance but equally, if not more importantly, driving satisfaction levels amongst our members. So we look forward to speaking with you again in May when we’ll update you on our first quarter 2014 results. We wish you a great weekend, hopefully get out and take advantage of good weather – let’s hope – around the country, and hopefully take advantage of it at one of our clubs.

Operator

Ladies and gentlemen, that does conclude today’s conference call. We do thank you for attending. You may now disconnect your telephone lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: ClubCorp's CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts