ClubCorp Holdings (MYCC) CEO Eric Affeldt on Q1 2017 Results - Earnings Call Transcript

| About: ClubCorp Holdings, (MYCC)

ClubCorp Holdings, Inc. (NYSE:MYCC) Q1 2017 Earnings Conference Call April 12, 2017 8:30 AM ET

Executives

Eric L. Affeldt - CEO

Mark A. Burnett - President and COO

Curt D. McClellan - CFO

John Beckert - Chairman

Analysts

Timothy Conder - Wells Fargo Securities

Shaun Kelley - Bank of America

Carlo Santarelli - Deutsche Bank

Susan Anderson - FBR Capital Markets

Steven Wieczynski - Stifel

George Arthur Kelly - Imperial Capital

Operator

Good morning, ladies and gentlemen. Welcome to ClubCorp Holdings Fiscal 2017 First Quarter Earnings Conference Call. Please note today's call is being recorded and has been 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. [Operator Instructions]

At this time, I will turn the call over to Curt McClellan, CFO and Treasure.

Curt D. McClellan

Thank you, operator. Good morning, everyone, and welcome to today’s call. Joining me this morning are Eric Affeldt, our CEO; and Mark Burnett, our President and COO. Also on the call with us today is John Beckert our Board Chairman.

Earlier today, we issued our financial results for our fiscal 2017 first quarter ended March 21, 2017. We also issued press releases regarding the Board’s Strategic Review and our CEO succession plan. These releases and our earnings presentation are available online at ir.clubcorp.com. The first quarter of fiscal 2017 and fiscal 2016 consisted of 12 weeks. All growth percentages, unless otherwise stated, will refer to year-over-year results. Following our prepared remarks, we will open the conference call for questions and answers.

ClubCorp Holdings desires to take advantage of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 and certain statements in this conference call may be considered forward-looking statements within the meaning of that act. These forward-looking statements are subject to risks, uncertainties and other factors that 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 2016 Annual Report and Form 10-K, filed with the SEC on February 27, 2017.

Our discussions include certain non-GAAP financial measures and more information regarding our forward-looking statements and reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in our earnings release and in our SEC filings.

I will now turn the call over to Eric.

Eric L. Affeldt

Thank you, Curt. Good morning, everyone, and welcome to our first quarter earnings call for 2017. The purpose of today’s call is to discuss our fiscal 2017 first quarter financial and operational results. However, I would like to take a moment to address two other press releases we issued this morning.

First, the Board announced an update regarding the review of strategic alternative. During the past four months the Board’s Strategic Review Committee along with the Board’s independent financial and legal advisors, conducted a robust and thorough process which included discussions with a wide array of potential counter parties regarding an outright purchase of potential investments in partnerships with and/or outset purchases from the company.

While we did not receive a purchase proposal for the entire company, the strategic review process has been useful in identifying opportunities and potential partners and our Strategic Review Committee and Board will continue to consider all available alternatives to enhance value for our shareholders. At this time, the Board is determined the best option is for the company to continue operating as an independent company and execute our strategic plan.

Additionally, I have announced my intention to retire from my role as Chief Executive Officer, upon the appointment of my successor. As you would expect the Board has an established succession planning process and we have a strong internal candidate whom we will continue weeding along with external candidates to be provided by a leading search firm.

I’d like to say, that it’s been a tremendous privilege to help lead the world leader in private clubs for the past 11 years. We have achieved so much since our IPO in 2013 and have set the industry bar for reinventions within the modern club management sector.

I am so proud of our 20,000 employee partners, and the outstanding service they provide to all our members and guests each day. Our valued members and employee partners have been the primary reason, we have achieved the best 10 years of financial performance in ClubCorp’s 60 year history.

Now on to the first quarter in which we delivered solid results, supported by continued momentum in our golf and country club segment, partially offset by the performance of our business, sports and alumni segment. We are pleased with the 4.2% growth in the first quarter consolidated adjusted EBITDA, which was in line with our expectations versus last year’s impressive growth of 8.2%.

For the first quarter 2017, revenue was $221.3 million and adjusted EBITDA was $43.7 million. We continue to execute our growth strategy and in particular we are very excited about the pace of acquisitions. We have already added four new clubs to our broad portfolio this year. The first three acquisitions increased density in our upper East Coast network, which now consist of 24 clubs. The fourth and most recent acquisition expands our Detroit, Michigan community.

In each case, these clubs add value to our overall network and are situated in prime locations, where we are excited to expand our membership growth. These clubs have great demographics with meaningful population density and high household income and fit perfectly with our reinvention strategy to drive additional return on investment.

We are confident in our ability to continue growing our pipeline and bringing additional deals to fruition. With approximately 3,800 private clubs in the United States, this remains a very fragmented industry.

While we cannot predict exactly, when a member equity club or a private owner is ready or willing to sell, we do know that our success in closing deals is based both on our strong balance sheet and on our nearly 60 year history of adding value to our members and their communities.

The members and former Board members at our recently acquired clubs are eager to provide valuable testimonials. They can personally attest to the progress, professionalism and improvements, these clubs have made under ClubCorp ownership. We greatly appreciate their continued support.

We are committed to our three-pronged growth strategy of organic growth, reinvention and acquisitions. The strategy is working and we will continue to execute this strategy to deliver long-term shareholder value.

Before turning the call over to Mark to review our first quarter results, I want to remind you that our first quarter is the smallest quarter of the year and historically represents less than 20% of our revenue and EBITDA contribution for the full year. We are reiterating our outlook for the full year, which Curt will discuss in his remarks.

And I will now turn the call over to Mark.

Mark A. Burnett

Thanks, Eric, and good morning everyone. As just mentioned from a revenue and adjusted EBITDA contribution standpoint our first quarter is our smallest quarter of the year. That said, we are pleased with the positive momentum we are seeing in our gulf and country club business. We are gearing out for what we expect will be a busy golf season this spring and into the summer.

Our growth is dependent on the execution of our three-pronged strategy across all of our clubs. In addition to our new club core travel offering, we announced last quarter, we have also begun piloting a new one plus program that provides further benefits to members bringing guests to the club.

During the quarter, penetration of our O.N.E. offering remained at approximately 54% of total memberships. Also, our reinvention work is progressing well and continues to gain traction. In regards to last year’s acquisitions, we just completed the reinvention of Marsh Creek in St. Augustine, Florida. We are in process of finalizing of reinventions on the remaining two clubs as well that we acquired last year and hope to have these completed soon.

Additionally, as Eric mentioned, we are very pleased with the piece of acquisitions that we started this year. In March, we announced the acquisition on Norbeck Country Club in Rockville, Maryland which is just outside of Washington, D.C. And today we announce the acquisition of Oakhurst Golf and Country Club in Clarkston, Michigan which is just outside of the Detroit.

These two additions bring our acquisition count this year to a total of four Clubs. We are already well ahead of our pace of three clubs acquisitions for all of last year and our acquisition pipeline remains very strong.

For the first quarter, same-store golf and country club revenue grew 3%, while adjusted EBITDA grew 5.1%. Our golf and country club segment continued its momentum in the first quarter with favorable weather encouraging more rounds of golf played that resulted in increased à la carte food and beverage revenue and increased golf operations return.

Golf and country club same-store food and beverage revenue increased 1.9%, while same-store golf operation, revenue was up 4.7%. Same-store golf and country club adjusted EBITDA margins also expended 60 basis points to 29.7%.

We are well positioned for growth across our entire network with newly completed reinventions of golf and country clubs coming online. We are experiencing an uptick in member club usage and we look for this momentum to continue throughout the remainder of the year.

The economic benefit of reinvention is undeniable, at our legacy golf and country clubs which we on prior 2010 our accumulative cash-on-cash return three years post reinvention is an impressive 44%. This includes clubs reinvented between 2008 and 2013 where reinventions have matured at least three years.

Also at our legacy business sports and alumni clubs our accumulative cash-on-cash return three years post reinvention is 26%. Through the first quarter of 2017, we have reinvented 89 clubs including 63 in the golf and country club division and 26 in the business sports and alumni division.

In the business sports and alumni segment our same-store revenue grew 0.6% yet adjusted EBITDA fell 8.4%. Our business club segment continue to feel pressure from membership resignations that began during the second quarter of 2016 particularly at a handful of clubs in Houston.

We have just finalized the lease agreement on our first Avenue Club which is a new concept business social club targeting the growing active urban dweller market. The street level club will feature collaborative work areas, a day and night bar, live music, urban spa and boutique bouldering gym. We anticipate opening this club named the Collective based in Seattle, Washington during the second quarter of 2018.

And additionally, we are also making progress on the China, U.S. Sky Club which is being built on the 89th floor of One World Trade Center in New York City. We anticipate this club will open during the second quarter of 2018.

I’ll now turn the call over the Curt to give you more financial details on the quarter.

Curt D. McClellan

Thank you, Mark and good morning, everyone. As Eric mentioned, we are pleased by the start of this year and remain focused on the execution of our strategy and on delivering quality results throughout the remainder of 2017.

In the first quarter, consolidated revenue increased 3% to $221.3 million and adjusted EBITDA increased 4.2% to $43.7 million. Looking at segment results staring with the golf and country club segment, for the first quarter same-store golf and country club revenue increased $5.2 million to $177.2 million up 3%.

Same-store dues revenue increased $3.3 million up 3.5% due primarily to an increase in same-store memberships, greater club participation in the O.N.E. program and the rate increase in dues for same-store average membership.

Same-store food and beverage revenue increased 0.7% up 1.9%, due primarily to a 2.7% increase in à la carte revenue. Same-store golf ops revenue increased $1.4 million up 4.7% due primarily to favorable weather, which resulted in higher rounds played and higher carte fee, green fee and retail revenues. Recovery from last year’s inclement weather continues and we look for this pattern to continue as we progress through the spring.

Same-store adjusted EBITDA increased $2.5 million to $52.6 million up 5.1%, due primarily to higher margins dues and golf operations revenue combined with well controlled variable operating costs and expenses. Same-store adjusted EBITDA margin increased 60 basis points to 29.7%.

Recently acquired clubs in 2016 and 2017, contributed $2.7 million in revenue and $0.2 million in adjusted EBITDA. In total, our golf and country club segment revenue was up 4.2% to $179.9 million. Total adjusted EBITDA was $52.8 million, up 5.4%. Total adjusted EBITDA margins were up 40 basis points to 29.4%. Finally, total memberships excluding managed club memberships was 122,177, up 3.8%.

In our business sports and alumni club segments, for the first quarter same-store business sports and alumni club revenue increased by $0.2 million to $39.9 million. Same-store dues revenue declined $0.1 million, down 0.3% due primarily to a decline in memberships as certain clubs as discussed by Mark during his comments earlier. Partially offset by an increase and upgrade dues related to the O.N.E. program.

Same-store food and beverage revenue increased $0.4 million, up 2.2% due primarily to an increase in private party revenue. Same-store adjusted EBITDA declined $0.6 million to $6.7 million down 8.4% due largely to an increase in club operating costs and a decline in same-store memberships. Same-store adjusted EBITDA margin decreased 170 basis points to 16.7%. Total membership excluding manage clubs were 51,893, down 2.1%.

Looking at other items, for the first quarter our SG&A expense increased $1.6 million to $21.3 million, largely due to a $3 million increase in legal settlements, a $1.8 million increase related to design, implementation and centralization of certain administrative processes and a $0.4 million increase in equity based compensation.

These amounts were offset by $1.6 million of lower costs related to our initial compliance with Secs 404(b) a $0.7 million decrease in capital structure costs, a $0.4 million decrease in ongoing support, software and service fees related to the centralization and transformation of certain administrative, finance and IT related systems and processes and a $0.4 million decrease in severance expense and a $0.4 million decrease in acquisition costs.

As we look at CapEx. During Q1 we spent approximately $20 million on maintenance CapEx. This amount includes $12 million net of insurance proceeds to maintain our existing properties less than $1 million to maintain our existing information technology systems and $7.3 million on information technology projects related to the centralization of administrative processes.

During fiscal year 2017, we anticipate spending $60 million on maintenance CapEx, net of insurance proceeds. This amount includes $45 million net of insurance proceeds to maintain our existing properties, $4 million to maintain our existing information technology systems and $11.1 million on information technology projects related to the centralization of administrative processes.

Not including purchase price on acquisitions, in Q1 we invested $3.3 million on ROI expansion capital on major reinventions. During fiscal year 2017, we anticipate investing approximately $44 million on ROI expansion capital and reinvention including approximately $26 million on same-store clubs and approximately $18 million to reinvent certain recently acquired clubs, including the three clubs we acquired in Q1 of 2017.

Regarding our capital structure and liquidity, as of March 21, 2017, we held cash and cash equivalents totaling $53.9 million and we had $145 million available for borrowing under our revolving credit facility for a total liquidity of $198.9 million.

Turning to our outlook for this year, the company reiterates its outlook for fiscal year 2017. The company anticipates revenue in the range of $1,095 million to $1,135 million and adjusted EBITDA in the range of $255 million to $265 million. As a reminder our estimated guidance is based on current management expectations and maybe subject to change. Again please refer to our forward-looking statements cautionary language in our earnings release and 2016 10-K and the Risk Factors section of our 2016 10-K.

Before we open the call for your questions, our Chairman of the Board, John Beckert, will make a few remarks. John?

John Beckert

Thanks, Curt. I know shareholders have a lot of questions about the Strategic Review Process and while there isn’t much more I can add, I felt it was important for me to join the call today and provide our Board’s perspective. First, I want to underscore the Board’s Strategic Review Committee remains in place, and will continue to consider all options to enhance shareholder value.

With regard to the process itself, as Eric briefly mentioned. The two investment banks retained by the company cast a very wide net and we talk with dozens of potential counter parties domestically and internationally. In addition to the potential sale of the company a wide range of other alternatives were also considered.

At the end of the day however we didn’t identify a strategic alternative that we believe would create more value for shareholders. As such, the Board will remain open minded while the management team continues to execute as proven strategy to drive growth and value creation.

Now I want to take moment to personally thank Eric for his strong leadership. Under Eric Affeldt’s leadership, ClubCorp has delivered outstanding growth and progress. And today the company is stronger in better position than ever. Eric helped significantly improve the company’s financial performance, setting the stage of ClubCorp’s continued success. On behalf of the Board and all of ClubCorp’s other stakeholders, thank you Eric for your many contributions for the company’s success.

Now, I’ll turn the call back over to you.

Eric L. Affeldt

Thanks very much for the kind words, John. Operator we will go now to open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. And your first question this morning comes from Tim Conder from Wells Fargo Securities. Please go ahead.

Timothy Conder

Thank you and just a few here gentlemen. First of all on the business sports and alumni clubs, you sighted some issues in a couple of particular clubs. Any more detail which you could provide on that and when do you anticipate these leveling off?

And then if you could just remind us all, I think your easiest weather comparison in Q3, given a lot of the high heat indices and you also had some significant green changes going on during that period, if you could just confirm that? And then final question relates to the legal fees, any additional color on that and when those -- we anticipate those abating or forward through that? Thank you.

Eric L. Affeldt

Tim thank you, its Eric. On the legal fees, we don’t comment on those type of fees, so I won’t get into any details there nor do we get into any discussion of any particular legal activity going on in the company, unless we believe its material.

Second on the weather related issues, I think the reality is at the end of Q2 last year we had the flooding in Houston and so that caused some drag in Q2. Yes we had also weather -- I think at the end of Q3 and I am about to turn it over to Mark to confirm that as well as discuss the business sports club question you raised.

Mark A. Burnett

Sure. Tim thanks. Yes, Eric is right, so on the golf side we did have some impact in weather last year in Q2 particularly in Texas and largely down in Houston and South Texas. So, as we look at this year we are hoping to have some good opportunity there. And then we did have some storms along the East Coast with some of the hurricane and tropical storms impact in Q3 last year, so that’s the setup there.

On a business and sports side, the membership decline that we reported here largely due to just a handful of clubs. We have got and I think we reported this in a quarter or two ago, the impact and drag from last year in Houston, one of our biggest fitness clubs are down Met club is under reinvention process right now. Things are stabilizing there nicely here, during the quarter, but as far as the comp to prior year there is some impact.

And then I think we mentioned in our previous call Met Chicago club, we were down with fitness, there was a fitness closure that impacted us from a membership count standpoint not as much on EBITDA and now that is back open. So we are looking forward to some good growth back at Met Chicago as we go forward.

Timothy Conder

And speaking of Houston, any color commentary, I know the weather has improved year-over-year here and the impact of the repairs had to be done there. The core business at the golf and country club side how is that looking, if you can separate out whether or changes in particular I guess the changes in membership that you are seeing there renewals.

Mark A. Burnett

Yes, again feel really good on our golf and country club segment and our clubs down there. We have now gotten through all of the improvements that were done from the damage last year. The courses are in great shape, we’re as positioned as well as we have ever been from a product standpoint here going into Q2 and onward. So we feel real good about it.

Timothy Conder

Thank you, gentlemen.

Operator

Your next question comes from Shaun Kelley from Bank of America. Please go ahead.

Shaun Kelley

Hey, good morning everyone and Eric congratulations and pleasure working with your over the years. So, maybe just to start off, if you could provide a little bit more color on sort of the timing for the CEO transition, so appreciate that you’re looking at both internal and external set of options. But when should we expect to hear more and think about kind of the next step there?

Eric L. Affeldt

Shaun it’s Eric and thank you for the thank you. I think the Board we said in the release that we have a strong internal candidate, the Board wants to make sure that we discover or exploit all -- explore all opportunities. So I can’t tell you that it will be 30, 60 or 90 days, but it is obviously very high on the Board’s agenda.

Shaun Kelley

Okay.

John Beckert

If I may, let me reiterate that Eric is staying on during the transition, we are excited that have his continued involvement and one of the things is not lost on the Board at this point is the second quarter is our busiest quarter of the year and we are very focus on making sure that it’s a great quarter as it relates to our financial performance.

Shaun Kelley

Appreciate that. And then I guess the second things I just wanted ask about and kind of totally understand that there are very limited things you can probably say here. But kind of curious as you think about the response to the Strategic Review. Is there any commonality in response or something counter parties you spoke with about, whether it was features in the business that were more attractive or less attractive or anything that kind of came back as the feedback, as it relates to sort of not receiving kind of any interest in the company as a whole.

I guess the specific language around the company as a whole is unique and I guess that sort of the piece that I was curious if there was any feedback on as you spoke with potential counter parties, likely private equity and strategic?

Eric L. Affeldt

Shaun, Eric again to start and then I’ll turn it over to John. As we said when we started the process, nothing was off the table. I do believe that there were speculators if you will, who were thinking that perhaps we were going to sell the whole company that certainly was a possibility, but not the only possibility.

So I wouldn’t -- we are not going to and you pointed out, we’re not going to get into a lot of detail as to what specifically was discussed with any of the people involved in the process. But with that said, I’ll see if John has any additional color.

John Beckert

We thought it was important to be transparent and we did not receive an offer from the whole company at this point. So we thought it was appropriate to include. I do want to say the whole process has been very valuable for the company, it’s five to six months that the Board, the Strategic Review Committee and management have worked this very hard.

And as Eric just pointed out, the goal was not to find a fire for the whole company, but to truly look at all of our alternatives. And I think it’s been a very positive experience, the whole process, and a lot of hours and weekends and nights through it all, but I think the company is in better shape with better strategies today than we have been in some period of time. And it’s really going to [ph] allow us to go back and focus on our growth strategy, which we have articulated many times the three-pronged growth organic, reinvention and acquisitions.

Shaun Kelley

Thank you very much.

Operator

Your next question comes from Carlo Santarelli from Deutsche Bank. Please go ahead.

Carlo Santarelli

Hey, everyone thanks and congratulations Eric. This question maybe is for John. John, as you think about the process and obviously you guys have sighted a strong internal candidate. But if you were to look externally in this part of that search, does someone with public company experience kind of come at the top of the list, or how would you think about the identification of that individual, if you were to go outside of the company?

John Beckert

Well the process is twofold. First of all, we are revisiting what the job specs really should be. What do we want in the future letter of the company and then who is the best person to match those specs. And to your question, obviously we are a public company so experiences within that realm in their resume is important, but it’s certainly not the only factor.

Carlo Santarelli

Understood. Thank you. And then you guys obviously talked about learning a lot and identifying opportunities and partners, could you maybe provide a little bit more light on some of the learnings and maybe some of things that that you guys potentially got a little bit more clarity on as you look at the business going forward from the discussions that you had?

Eric L. Affeldt

Carlo, Eric I’ll jump in. I think again without going into detail many of the people -- many of the groups we spoke with our investors and other leisure travel recreation related businesses, they have perspectives on the company and potential business adjacencies some of which we have previously considered, some of which we had not. So it’s always good to talk to other smart people who have invested in businesses similar to ours.

So I would say that that was help as John pointed out not only in reviewing our internal view of our business and potential for growth, but also other companies again that are adjacent to ours and what they are going to grow their business some of which frankly is transferable.

John Beckert

Again I will add a few comments if I may Eric, part of what happen is reinforce that what we are doing is the right thing and if you look at our results over the last quarter, we are very close to or on our financial plan. We acquired four clubs in the first four months we announced next generation business club possibly. There is a lot of very good things happening within the organization and certainly was not lost on us as we were proceeding through the review.

Carlo Santarelli

Great, that’s helpful guys. Thank you very much.

Operator

Your next question comes from Steven Grandplan [ph] from Goldman Sachs. Please go ahead.

Unidentified Analyst

Hi, thanks for taking the question. I guess the follow-up on the last two lines of questioning. So, was the collective one of those outcomes and can you maybe talk a little bit more about the imputes for that club specifically and maybe how you think about the scalability of that as well as maybe the return profile? Thanks.

Eric L. Affeldt

Steven, Eric. Thanks for the question. Actually the collective has been percolating for two or three years and maybe a little bit longer as you know we went through a fairly exhaustive process a few years ago, which led to many of our reinventions both in the golf and country club sector as well as in the business sports and alumni sector. And at the time we did the research, we review the concept of what we call then avenue clubs or ground floor clubs that would really be somewhat of cross between a Soho House and a we work.

So, with more hospitality than we works but far more casual than a traditional business clubs. So we do think this has tremendous opportunity to scale. Our first club is going to be Seattle. I know our Chief Marketing Officer was just up there I believe Mark was just up there it’s in a great location, urban very active certainly catering to the next generation of business individual.

So we really think this has scale, but we can’t say yet whether we are going to rollout 10, 20 or 30 of these we are going to test it first in Seattle and see where we go from there.

Unidentified Analyst

Thanks. And then so it sounds like that was already percolating. So if we think about the other learnings from this process when can we see some of those I guess other than maybe some of these acquisitions come to fruition and are those things that are already embedded in your guidance? Thanks.

Eric L. Affeldt

I would say they are not embedded certainly in terms of our financial projections, I would anticipate over the next quarter or two that you will hear more about some of the next gen ClubCorp opportunities again many of which we have been working on for the past couple of years, some of which we frankly learned about or learned more about this process.

Unidentified Analyst

Alright, thanks so much. Best of luck.

Operator

Your next question comes from Susan Anderson from FBR. Please go ahead.

Susan Anderson

Hi, good morning. Thanks for taking my question and I just wanted to say my congrats to Eric also. I just want to dig in a little bit on just kind of member initiative the O.N.E. program, how much do you think is left with that. I think the penetration has been 34% for a couple of quarters now.

And then also maybe just touch a little bit on, what you have learned from the new travel program, any early reads there or opportunities to roll it out to other markets? And then just any other initiatives that you guys are thinking about to continue to drive the top-line?

Eric L. Affeldt

Suzan thanks for the question. I’ll begin and then I will turn it over to Mark. First on the one penetration rates, we have said as you know that we anticipate that the one penetration rate will continue to increase, but frankly can’t tell you exactly how fast it will increase as it’s largely a function of people leaving the system, who logically are not O.N.E. members, because they are typically a lower users. And people joining the system, who typically take the one product at north of a 75% clip.

So one of the questions that we got early on when we launched O.N.E. was, is it how high can it go and our answer has been pretty consistent, I don’t know, I do know that with people joining the club and particularly golf members taking the product at north of a 75% rate and people leaving the system again who logically are not likely O.N.E. users, the number will continue to go higher.

I’ll turn it over to Mark to talk about your travel question and see if he has any expansion on the one plus program.

Mark A. Burnett

Sure, thanks Suzan. First on the ClubCorp travel again as we mentioned it I think last call, but this is more of a virtual membership product that we’re piloting and have been piloting in markets where we do not have our own clubs located. And again the driver there is for a reasonable price point to be able to travel, visit ClubCorp clubs, get access to our clubs and our affiliates in many cases in non-peak times.

So golf during the week and dining in non-peak times, the pilot has gone really well, so we are just now ready to start going on a larger scale rollout in other markets and been planning on that here the last 30, 60 days.

The other -- you mentioned questions on new products. We have got a few that we’re working on, one in particular, we have labeled as the one plus. The one plus product again takes our core benefits and values that a O.N.E. member gets some 50% of food discount as well as travelling benefits. And this is really gearing the benefits to our guest of members.

So it’s a motivator for members to bring guests, which is great for us, because then we can use that information for prospects for new member growth and it increases the usage significantly at the clubs. So again that is in pilot right now and we just started here in Q1.

Susan Anderson

Great. And just a couple of more, maybe if you could update us on our deleveraging strategy as the plan still take it below four times this year any more thought on increasing that further? And then also just on the acquisitions, looking kind of across the country, there is obviously a lot of clubs out there that you could purchase, but where do you think you’re at in terms of just penetrating the top cities where you feel that income levels are right in order to add a club?

Eric L. Affeldt

Suzan this is Eric, I’ll kick it off and then I will turn it over to Curt to talk about the leverage question. We’ve said before and we've proven this year in Dallas, it’s great actually living example. There is no right number of clubs to have in any particular MSA. Few years ago, you may recall we added two clubs that were marketed and we continue to market them as one called Prestonwood, we spend a long time considering whether or not we should add two more clubs because we already had 13 or 14 golf and country clubs in DFW at the time. And frankly we asked ourselves the same question, you just did that how much is too much.

We added the clubs in part to be defensive and they round up to be very offensive, we have grown the clubs dramatically in the last three years. So there is not a right answer as to how many clubs we might want to have in any given MSA. With that said, we have also commented over the last couple of years that we’d like to fill in our Mid-Atlantic segment if you will, we have just done that. We have had good success in the Detroit market, we just added another club in Detroit.

And lastly around acquisitions and as both John Beckert and I commented this morning, again we can’t predict exactly how many clubs we’re going to acquire in any given year, but we have already exceeded last year’s pace and we continue to have a very robust pipeline, in addition to the collective club we just discussed a moment ago.

So Curt, I’ll turn it over to you to talk about leverage.

Curt D. McClellan

Sure. Hi, Susan. On the leverage point, yes we do remain on track by mid-2018 we will be below four times. Keep in mind that we paid down $24 million in voluntary pay down at the end of 2016 and a year ago we were at 4.5 time levered we’re at 4.27 times now. So we’ve chipped away at that and we’ll continue to do so over the next 12 months.

Susan Anderson

Okay. Thank you guys, very helpful. Good luck next quarter.

Curt D. McClellan

Thanks.

Operator

Your next question comes from Steve Wieczynski from Stifel. Please go ahead.

Steven Wieczynski

Hey, good morning guys. How are you doing? So, I guess this question is for the John going back to the strategic review, I was wondering if you guys during this process revisited each structure again and I know that’s something you guys basically turned down a couple of years ago. But then also maybe how closely did you guys explore selling individual assets as well? Thanks.

John Beckert

Well, let me say we did not look at selling individual assets; we do that regularly on an ongoing basis. The portfolio is always reviewed and if we are in a market or a position that we don’t believe there is good upside we’ll consider selling it. So that’s certainly wasn’t part of the specific review.

The process was incredibly robust. We looked at over - we had conversations with over 50 different counter parties we looked at all kinds of different alternatives, including as you suggested the re-discussion was had two years ago and nothing has really changed and it’s still clear in the Board’s opinion that that's not a viable option for the company at this point. Again I hope that answers your question it’s obviously been discussed and it is not a viable option at this point.

Steven Wieczynski

Okay, great. Thanks for the color. And then second question goes back to your 2018 goal of $300 million in EBITDA and I know you’ve always said that’s a range of $280 million to $320 million. But again going after going through this review process, does the board and management still view that target as feasible at this point. I would assume that if that’s the case that's a pretty big data point to show you guys still feel very comfortable around the long-term prospects for the company.

Eric L. Affeldt

Steve it’s Eric and yes, the Board and management review obviously long range planning on a regular basis, we stick with our guidance of that range of $280 million to $320 million by the end of 2018 and that was without acquisitions by the way. So with acquisition pacing increasing, we certainly hope that our EBITDA is going to continue to accelerate. But we are sticking with that range and not being held to a particular number within that range.

Steven Wieczynski

Okay, great. Thanks and best of luck Eric.

Eric L. Affeldt

Thank you.

Operator

[Operator Instructions] And your next question comes from the George Kelly from Imperial Capital. Please go ahead.

George Arthur Kelly

One if I could just start with a follow-up on the previous question. You mentioned the $280 million to $320 million range by the end of 2018. So does that mean that you’ll be run rating it by the fourth quarter or can you give more detail on that?

Curt D. McClellan

Yes, just for clarity, the range that was discussed we only issued it once I believe it was in the first quarter of 2015. But keep in mind that that range was based on fiscal year 2018 results being in the range of $280 million to $320 million for adjusted EBITDA.

George Arthur Kelly

Thank you. And then couple of other questions, what are your expectations for cash taxes in 2017 and 2018?

Curt D. McClellan

We’ve maintained that our cash tax will be probably in the $10 million to $15 million range for fiscal 2017. That's what we aspect now at this point somewhere in that range.

George Arthur Kelly

And 2018?

Curt D. McClellan

We haven’t put anything out for 2018 and wouldn’t do that until the end of 2017.

George Arthur Kelly

Okay. And then what are your expectations for insurance recoveries in 2017?

Curt D. McClellan

I believe that we are primarily through the recovery process. We’ve got Kingwood which was the most impacted back up and running. The clubs that were impacted with the Hurricane on the outer banks are also up and running. So the assets are largely in place, I think we finished a small amount of capital spend in this quarter little less than $2 million that we kind of finished that off. And we are prepared for the season and ready for start.

George Arthur Kelly

Good. And then just one last question on the Strategic Review Process, wondering if you reviewed the capital structure and capital allocation specifically around share buybacks and debt pay down and all that kind of stuff? And are there any changes to that plan, could we see you becoming more aggressive with one of those options?

Eric L. Affeldt

George it’s Eric, I’ll take that and then if John wants to add on. Obviously as we have said, every single quarter frankly the Board is looking at capital allocation relative to dividend increases, share buybacks, reduction of debt, acceleration of acquisitions, et cetera. So the process wasn’t specifically focusing on that, but that is an ongoing issue that the Board looks at, I mean literally every Board Meeting.

George Arthur Kelly

Okay, thank you.

Operator

Your next question comes from Tim Conder from Wells Fargo Securities. Please go ahead.

Timothy Conder

Thank you for the follow-up. Regarding the acquisitions that you have made here to-date, you have given a little bit of color, what you are doing with the reinventions. But has the thought process around the level of return, when you factor in the reinvention money that you are investing the purchase price. Has the thought process changed about the level return you are anticipating or the trajectory is to when those return should be realized?

You have outlined before usually after I think two years or so, there is a nice uptick in the EBITDA. Has that trajectory changed or any anticipatory in that change on your acquisitions going forward? And Eric congratulations again and best of luck.

Eric L. Affeldt

Tim, thank you and I’ll take the question. The targeted returns have not changed and it’s actually at the end of the three years that we are targeting 17% cash-on-cash from these acquisitions. The acceleration frankly has nothing to do with the relaxation of our expectations, it is rather as we have discussed previously that the pipeline, any company that grows via acquisition as oppose to just construction of a new unit.

The pipeline gets filled up, the pipeline empties out as you actually close on some transactions then the pipeline gets filled up again and you start closing again. So our acceleration is not the results of any reduction and our expectations for returns.

Timothy Conder

Thank you.

Eric L. Affeldt

I think that maybe it, operator is that correct, no more questions.

Operator

That’s correct.

Eric L. Affeldt

Then I again would like to thank everybody for participating in our call today. Hopefully you had a chance to take a look at one of our Flagship clubs at Mission Hills here two weeks ago, I think with the A&A the first major of the year and the LPGA Tournament. We look forward to speaking with many of you over the next several weeks. We invite you to schedule sometime with us after this call, if we have not done so previously. So thank you John for joining and again appreciate all of you on the line.

Operator

This concludes today's conference. You may now disconnect.

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