Drive Shack Inc. (DS) Q1 2020 Earnings Call Transcript

Drive Shack Inc. (NYSE: DS)
Q1 2020 Earnings Call
May 08, 2020, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Maria, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Drive Shack's first-quarter 2020 earnings conference call. [Operator instructions] Today's call is being recorded.

At this time, I would like to hand the call over to Austin Pruitt, head of investor relations. Ms. Pruitt, you may begin.

Austin Pruitt -- Head of Investor Relations

Thank you, and good morning, everyone. I would like to welcome you to Drive Shack's first-quarter 2020 earnings call. Joining me here today are Wes Edens, our chairman of the board; Hana Khouri, our chief executive officer and president; and Larry Goodfield, our chief accounting officer and interim chief financial officer. We have posted an investor supplement on our website, which we encourage you to download if you have not already done so.

I would like to point out that certain remarks made today will include forward-looking statements. Actual results may differ materially from those considered by these statements. We encourage you to review the disclaimers in our press release and investor supplement and to review the risk factors contained in our annual and quarterly reports filed with the SEC. And now I would like to turn the call over to Hana.

Wes Edens -- Chairman of the Board

OK. Actually -- sorry. This is Wes. Good morning, everybody, and thanks for calling in.

Before Hana goes into the specifics of the quarter and the period that we're in right now, I thought it would be helpful to give a little bit of context in terms of the extraordinary events of the last few months. The tale of the first quarter is really the tale of two very different periods. The period from January 1 through March 13 when we actually had a very good quarter. We had actually extraordinary results in our venues.

We had lots of activities. We have some very exciting new initiatives that we think are going to provide a platform for substantial growth for us. There's lots of positive things going on. Then the night of March 11, Adam Silver in the NBA suspended the basketball season.

We closed our venues, as most folks did two days later. And basically have gone from a position of an operating business that was a vibrant and active one to one that like the rest of retail America shuttered and waiting for a reopen. Of the businesses in our category, which I'd say was the eatertainment, the food and restaurant businesses, etc. We're actually very well-positioned in that group.

In that, number one, the majority of our space is outdoors; number two, our space actually naturally provides for physical separation between the bays. And so we feel very good about our characteristics versus others. But the stark reality is that the company has no revenues today, although that's just about ready to change. Hana and her team did an extraordinary job in a very short period right as soon as the venues are shut down, to basically furlough activities, cut overhead, reduced her own and her management teams all took voluntary pay cuts.

They did an extraordinary job of creating a good job for us. And actually, on balance, we're in a very, very good position. We have a substantial and unlevered balance sheet. We have effectively no asset-level debt, very little corporate debt.

We have modest amounts of liquidity, but we're a public company, have access to liquidity either through additional borrowings or through capital raises. So it's actually a good place. And most importantly, we think we're on the verge of reopening a number of the sites over the next couple of weeks. So really an extraordinary period, really an extraordinary job, in my opinion, by the entire team that did it, not just the executive group, but all the operating people, the people in the field, etc.

And we look forward to reopening the stores and being part of reopening America. So with that, let me turn it over to Hana. Hana?

Hana Khouri -- Chief Executive Officer and President

Thank you, Wes. So before we get into the deck, I just want to take a step back and talk about what has happened over the last couple of months and where we are today. At the beginning of Q1, we were really on track to have a strong quarter, as Wes said. And what that showed us is that we now have proof of concept.

We have some of the best assets in the golf entertainment space, and those assets are situated in really desirable locations. The three that we opened last year, Raleigh, Richmond, and West Palm, have absolutely blown us away with their results. But around March 17, we were forced to shut down our venues and nearly all of our golf courses, which resulted in us having zero revenue, which is not a great place to be. But we acted really quickly to preserve liquidity, and I had to make a lot of difficult decisions in a very short period of time.

As Wes said, I furloughed over 4,000 of our staff. We went down to a skeleton team at our corporate offices. We deferred all of our capital spending, and we paused all of our construction projects across AGC and Drive Shack. These are just a few measures among many others that served to put us in a more favorable financial position.

Today, we have none of our entertainment golf properties open, and about 35 of our 60 golf courses opened, which has acted as some source of liquidity for the business. Right now, we have around $14 million in liquidity and a monthly cash burn of about $1.6 million. We have an unlevered balance sheet with only a small amount of corporate debt and assets worth a few hundred million dollars. We have meaningful sources of liquidity and the value of our assets.

And as we look at reopening our venues, we're planning for a few different scenarios. The first scenario would be that we could open up sometime in May, as Wes said, which we're hopeful, and are around 50% capacity for a month or two and then full capacity by the end of the year. I think that we're all hoping that there's going to be a vaccine or a cure for coronavirus by then and that people will feel more comfortable going out in the same ways that they did at the beginning of the year and last year. However, we know that this could all take a little longer.

So we're also making plans for the scenario that has us operating at a greatly reduced capacity through 2021. As we are making these reopening plans, we are also thinking about the safety of our guests and our employees. And we've done a great deal to make sure that everyone feels safe, not only to come back out to Drive Shack, but to be able to enjoy themselves while they're there. In addition to the required PPE and daily temperature screens of our employees, we're also going to administer antibody testing to them before they come back to work.

Additionally, we're going to require that our guests are temperature screened when they arrive. I'm going to be sharing more details about our reopening measures in the deck, which I'd like to turn to now. So I'm looking at Page 4, and I really just want to highlight again the fact that our company was on pace to have a very strong Q1 prior to the closures. Our total company revenue for the quarter is around $61 million, which is 13% up from the prior year.

I also want to point out that through the closure period, we continued to work internally on the development of the Urban Box. As a reminder, the Urban Box experience will generate unlevered development yields of at least 25% to 35%. We expect that over time, those returns will be even higher. I'll speak more to that in just a moment.

On Page 5, again, our response to COVID was critical, and we worked really fast to reduce expenses and spending across the company. As part of that reduction in expense, we elected not to pay the Q1 preferred dividends. Additionally, throughout the period of the closure, we worked really diligently to create that reopening plan that was safe and financially responsible. On Page 6, when we speak about the focus at Drive Shack, we remain steadfast, but with one minor tweak, which is that we are first focused on safely and responsibly reopening our venues.

We are still focused on the eatertainment industry and are excited about fulfilling our development plans for both Drive Shack and Urban Box. Turning to Page 7. Again, we have four Drive Shack venues committed; New Orleans, Chicago, Newport, and Manhattan, in addition to the four that are already in operation. The two Urban Box venues that we have committed are in Dallas and Charlotte, and we're focusing on maintaining our Urban Box pipeline, which has an active identified sites of over 60.

And we're looking forward to resuming that site selection process as soon as things normalize. Page 9 really, again, highlights how well our venues did this quarter despite the business interruption caused by COVID-19. Our venues generated around $10 million, which is only 10% below internal projections and again due to the coronavirus. As a reminder, we closed these things around March 15.

So really incredible results. We also believe that we're going to be able to reopen as early as in the next couple of weeks, maybe as soon as the end of next weekend and a couple of our properties. On Page 10, I want to highlight three of the initiatives that we had during the closure. It was really important to me to get the team, which was suddenly much smaller, focused on the things that would set us up for success once we reopened.

First, we wanted to focus on promoting cost efficiencies across the business. We looked at ways we could further streamline our operations by reducing overhead and other things. Second, it was important to me that we developed an operation strategy for how we were going to operate post-COVID-19. The reality is that once we reopen, things will have changed.

A lot has changed over the last several weeks, and we are not going to be able to operate in the same way that we once did before the virus, at least for the foreseeable future. We're going to be contending with things like mandated capacity restrictions, smaller group sizes, and social distancing, which, thanks to the way our buildings are set up, is actually very doable for us. So our goal here was to really be proactive and to get our team engaged in coming up with innovative operation strategies for those venues once we're able to reopen. And third, it was really important to me that we maintain our focus on growing the business.

I wanted to make sure that the innovation that makes Drive Shack so special continued even in a modified state. Things like reservation development and game development continued on a smaller scale. We also began talking about ways that technology could help us with this new world of social distancing, and we're discussing initiatives such as mobile ordering from your bay, which we'll begin working on soon. In addition to the measures that I already discussed, we're going to be providing training to all of our employees prior to their return to work.

The training is going to enforce CDC guidelines and teach them how to wear PPE properly. Most employees have never had to wear masks and gloves and face shields when they come to work. So we want to really make sure that they feel empowered with the knowledge that they need in order for them to feel safe and also for our guests to feel safe. As we look to the future, on Page 12, it shows some renderings of the facade of our Drive Shack venues in New Orleans and Chicago, as well as the Urban Box venues in Dallas and Charlotte.

Talking a little bit about the time line. New Orleans has been delayed until 2021 due to coronavirus and some construction restrictions, as well as the two venues for Urban Box. So our Dallas venue and our Charlotte venue will open. However, they will open in 2021 instead of at the end of this year.

As we turn to Page 13, I've really been looking forward to announcing that we now have a name for our Urban Box, which will now be known as The Puttery. We couldn't be more excited about the experience and again, just to remind everyone, The Puttery will really serve to bring food and beverage and technology together to elevate and put a modern spend on the experience of indoor mini golfs. The design process is on track, and we plan as of right now to begin construction in the fall. On Slide 14, bringing your attention to the Urban Box or The Puttery, as we will now refer to it, with the development cost of $7 million to $11 million on the high end and EBITDAs of $2 million to $3 million, which we believe is on the lower end.

The development yields of the Urban Box are 25% to 35%. We expect these yields to be even higher as we progress due to learned efficiencies in construction and operations. So we really do believe that Urban Box is going to be a real path of growth for us in this business. So with that, I want to hand it over to Larry.

Larry Goodfield -- Chief Accounting Officer and Interim Chief Financial Officer

Thanks, Hana. And it's great to talk to you all this morning. If you turn to Slide No. 16, I'm going to first start out with a discussion of our first-quarter performance.

And even though substantially all of our golf and golf entertainment was closed by mid-March, our revenue for the first quarter of 2020 was $48 million, after adjusting for managed course reimbursements. And this represents, for us, an increase of $3.6 million or 8% compared to the first quarter of 2019. And that's mainly the result of our golf entertainment venues in Raleigh, Richmond, and West Palm being online in 2020. But our traditional golf business did better as well than the comparable period in 2019, earning more revenue during the playable days before we closed.

So overall demand for golf was up in Q1. And what we're hearing on the course is it's in demand for Q2 as well. And given the company's suspension of operations in March, we are very pleased with the year-over-year growth, and we would obviously have done better if it were not for the pandemic. Now to jump in a little more detail on the business unit level.

Our four Drive Shack venues contributed $10.1 million in revenue before they closed, which is good. And frankly, it probably would have been better if the virus had not entered into the popular consciousness around late February when we first started to feel it. Hard to say whether seasonality here played an impact with the overhang from COVID, but our instinct is that COVID drove down the volume before we closed a bit. On the American Golf side, revenue for the first quarter of 2020 was around $38 million, and that's our revenue after adjusting for managed course reimbursements of $13 million.

And prior to the suspension of operations in mid-March, our same-store revenue increased relative to the same period in the prior year by approximately 11%, which we see as a very meaningful jump from the prior-year quarter. And for us, this is really due to an increase in total rounds of 14%, aided by 17% more playable days on our public courses. And so what we know from this information is that our warm weather locations in California and Florida showed a resurgent interest in green grass play during the first quarter of 2020. And my final point on liquidity, as Wes and Hana mentioned, in response to COVID-19 and to manage our existing cash balances, we reduced spending broadly, including furloughing substantial majority of our employees.

And we deferred payments of certain operating and corporate expenditures, also mentioned earlier by Hana. And so as of May 1, we have around $14 million of unrestricted cash and we estimate that our net weekly cash burn is approximately $1.6 million per month. And it obviously excludes any new capital expenditures, which have been placed on a temporary hold. And with that that concludes the financial section.

I'll turn it back to Hana.

Hana Khouri -- Chief Executive Officer and President

Thanks, Larry. I want to really quickly take this opportunity to just say thank you to everyone for joining us today. And as we work through this difficult time, I'm really proud of our team and their dedication. As you all have heard and can tell, we're down to a very, very small team.

They have been relentless about making sure that Drive Shack vision has been carried forward, which we cannot appreciate more. We're also really grateful for the continued support of our guests who have expressed their enthusiasm and excitement for our doors to reopen, which we hope to be very soon. We're working tirelessly to apply the lessons we're learning today to our business moving forward so that we come out even stronger on the other side and more prepared for anything that can come our way. So with that, I'd like to turn it back to the operator for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Aaron Hecht of JMP Securities.

Aaron Hecht -- JMP Securities -- Analyst

Hi, guys. Thanks for having the call today, and I hope everyone on the Drive Shack team is healthy and has remained well during the pandemic. So I'll start here on the liquidity side. You guys hit on it, $14 million of cash.

Monthly cash burn, I think you guys said it was $1.4 million. That doesn't sound that bad given everything that's going on. Obviously, you're going to open up the traditional golf courses, some are already open, can you get cash flow positive here near term if all of the traditional golf courses are reopened?

Hana Khouri -- Chief Executive Officer and President

Yes, Aaron. It's Hana. Thanks for the question. We can absolutely get to cash flow positive with all of our 60 golf courses open.

We have about half of them open right now, 35. We are expecting that very quickly in the next, call it, two weeks that we'll have, hopefully, the remainder open. The courses are spread across California and other states, but majority are in California. And they all kind of have different rules around when we can reopen and when we can't reopen based on these counties.

So that's been something that we've been really working to navigate, and the team there has done a great job. But every day, we're getting word that we can open even more courses. So as an example, yesterday, we got word that three more of our courses could reopen. We're hoping to get all of our L.A.

County courses back up and running. So yes, the answer to your question is, yes. With AGC up and running and with the reductions that we made, we can absolutely get there.

Aaron Hecht -- JMP Securities -- Analyst

That's good to hear. And then on the demand side for the courses, what are you seeing? And what's changed in terms of your ability to maximize volume given social distancing? And then on the food and beverage side, what's going on there in this new environment?

Hana Khouri -- Chief Executive Officer and President

Yes. The great thing about golf courses is that they're outside. Right? So we don't have a lot of the issues that we have or that you might see with a mall or a restaurant that's just indoors. Similarly, we're positioned in a great way at Drive Shack because we're mostly outdoor, all of our bays are outdoor.

But specifically, when we're looking at the golf courses, that team and the AGC team has done a lot to manage the tee sheets and to ensure that there aren't groups depending on the local rule. It could be singles that have to play, you could only play in groups of three or four. It largely varies. I can tell you, the demand has not actually subsided at all.

In fact, we saw a surge in demand for tee times across all of our golf courses when coronavirus kind of shut down everything else. Because in many cases, golf was outlined as an activity that was still permissible even under lockdown due to it being a great way to get your exercise and be outside because the virus can't spread outside is essentially what they were saying at one point. So yes, I think to answer your question very directly, we've seen a surge in demand. We are managing social distancing requirements course by course.

It's very different at every course. And then as far as F&B goes, in most of our courses, we're at grab-and-go F&B, so there'll be a food and beverage cart outside or we will socially distance folks coming inside. But in the majority of our courses, we are not doing sit-down food and beverage. That will change in the next couple of weeks.

And we're managing that by just spacing tables out and rearranging furniture to be totally honest with you.

Aaron Hecht -- JMP Securities -- Analyst

Gotcha. That makes perfect sense. And then on the entertainment side, you talked about those venues potentially opening up over the coming weeks. Do you think that they're going to be staggered in terms of the opening? Are you going to have certain geographies that are going to let you open first? And if that's the case, what are you seeing in those areas and the politicians in terms of time frames across those different locations?

Hana Khouri -- Chief Executive Officer and President

Yes. Great question. We've been watching this very closely. Florida is the first kind of state that comes to mind.

It's looking very positive that West Palm Beach will be able to be open as early as at the end of next week, and we're ready for that. It could take a bit longer, but we're seeing that Florida is largely open, but they kind of slowed down three of the counties just due to the coronavirus outbreak in those areas and the prevalence of it, and Palm Beach County was one of those. But as of last night, the officials in Palm Beach County were meeting to try to come to an agreement on how to accelerate and actually be able to not be locked down anymore. Same for Orlando.

Right? We're in a position that we can open as soon as we open West Palm. As far as Richmond and North Carolina go, Richmond, Virginia, and North Carolina, North Carolina is operating under the same four-phase plan as most of the country is right now. As of right now, North Carolina has bars and entertainment venues very specifically called out as part of phase two. They have not gotten to phase one yet.

So once they hit phase one, it says, in two to three weeks from that time, they will move on to phase two. We are in phase two. That is where we would fall in terms of opening. What we think will happen is as other states begin to open up, that will also kind of be accelerated if what we're seeing across the rest of the U.S.

as any indication. In Virginia, we're looking at a similar circumstance with being poised and ready to reopen. But we're just kind of waiting to see what the government says there. Watching very closely every day, but it really looks like Florida is going to be first.

Aaron Hecht -- JMP Securities -- Analyst

We're all watching really closely. Rooting for the economy.

Hana Khouri -- Chief Executive Officer and President

Yes. For sure.

Aaron Hecht -- JMP Securities -- Analyst

So when you get the green light to reopen certain venues, how long do you think it will take to get operations up? Maybe talk about the process a little bit.

Hana Khouri -- Chief Executive Officer and President

Yes. So really good question. We estimate it will take us no more than three days, which it sounds very short, but there's good reason. We have been really preparing, specifically in Florida, considering that looks to be poised to open first.

We have restarted all of our IT systems. We're testing all of the bays and all of the equipment to make sure that they're online and operational and fully functional. Our GMs have started to call staff to make sure that they have a team that's intact when we're ready to reopen. At that time, we'll bring them in, we will conduct antibody testing.

We will give them their training on their PPE and on CDC guidelines, which they already received before we closed, but we obviously, want to do a refresher, it's been a while. All of our vendors have dropshipped orders that they have on hand that our ops teams have given them. So as soon as we're ready to go, we essentially just have to let our vendors know and they'll have all of the product that we need to us in a timely manner within a day. So our vendors have been really, really great through this whole process, and they a big part of the reason that this three-day time line exists for us.

Aaron Hecht -- JMP Securities -- Analyst

Gotcha. And then in terms of profitability for the entertainment venues with the new social distancing guidelines as you kind of outlined them through your facilities, but what does that do to EBITDA or the profitability as you phase them into being normal again?

Hana Khouri -- Chief Executive Officer and President

Yes. So we've looked at it and we've taken a phased approach to this. So in our minds, when we open, we're hoping that we're open at 50% capacity. 50% capacity for us is greater than what a 50% capacity for a restaurant would be because we're largely -- we're outdoors.

So we will look at limiting the group sizes to help with social distancing, and we will seat people outdoors. So we're looking at potential EBITDA loss in the first month. In the second month, if we're able to scale up from the 50% to, say, 75% or 80%, we're looking at being EBITDA positive. And that is with AGC being its current state right now, which is 35 of the 60 courses open.

Aaron Hecht -- JMP Securities -- Analyst

So the leverage is weighed on the final 20%?

Hana Khouri -- Chief Executive Officer and President

That's it. Right. And if we stay at 50% forever, worst case, we will make other adjustments to our operating model to ensure that we are EBITDA positive. We'll look at things like our operating hours and the days that we're open for operations.

And then we'll take a further look at our overhead and what it would really take to run these venues. We've done that, and we feel really good about where we are. We've been really, really aggressive with that. But obviously, this is a very fluid situation.

So as things change, we want to be able to change with that to ensure our success.

Aaron Hecht -- JMP Securities -- Analyst

Do you think eventually, you're going to be able to charge more per bay if more space is available just in general in the facility?

Hana Khouri -- Chief Executive Officer and President

I don't think that that's something we would want to do simply for our guests and others. I think we want to have our operations be as normalized as possible. And we would never want our guests to feel that we were capitalizing on the situation in any way because, look, I think there's a lot of pent-up demand here. I think a lot of folks are just itching to get out safely, right, and responsibly.

And I think that the appetite is going to be there. Would we look at increasing prices sometime in the future? Maybe. Yes. Absolutely.

That's never off the table. But would we do it simply as a result of COVID-19? No. It's not something I would look at doing just because of that.

Aaron Hecht -- JMP Securities -- Analyst

Yes. The development you guys announced that it was paused makes sense to conserve capital. Are there any negative implications that can come from that? I don't think you have any construction loans, but maybe something like that to be called. Is the ability to hit underwriting targets, is that impaired a little bit? Just any thoughts around the development and shutting that down for the time?

Hana Khouri -- Chief Executive Officer and President

Yes. I mean, there are always kind of repercussions to hitting pause on development. The money that we put in will not be lost. I can tell you that with certainty.

The money that we've put into New Orleans, as well as the Urban Box, it is simply on pause. We don't have to start all over. As far as our agreements with the counties and the municipalities that we're going into in New Orleans and Dallas and Charlotte, Dallas and Charlotte are not an issue for us. With New Orleans, they've been really, really great about working with us and alongside us during this time to make sure that we're set up for success when we're able to resume construction.

Aaron Hecht -- JMP Securities -- Analyst

Gotcha. And then The Puttery, it seems like that setting has always been predicated on higher customer density. So how do you kind of navigate that challenge and allocating capital to that given what's going on with COVID?

Hana Khouri -- Chief Executive Officer and President

Yes. Interestingly enough, with The Puttery, we kind of have enforced social distancing before social distancing was a thing on the course itself. So when you're playing on the course, you're limited in your group size on the course. That doesn't mean that you won't be able to go with a large group.

It just means that part of your group might be playing five steps ahead of you, literally five steps or one hole ahead of you or behind you. So I don't see it being as much of an issue, especially during gameplay. As far as the bar and the interior spaces of The Puttery goes, we're not planning on making any adjustments to our current design. Once we release the renderings for The Colony, as an example, which is going to be our first venue that we open, that is The Puttery, there's a lot of space where we can naturally kind of space people out within the bar and still observe social distancing.

We have an exterior space there as well, an outside bar. So I'm not overly concerned by having our numbers be hit in a negative way from that at all. It's something that we've worked really closely at. And hopefully, I think we all hope that by the time we open these in 2021, we're in a different world.

Operator

Our next question comes from the line of Peter Saleh of BTIG.

Peter Saleh -- BTIG -- Analyst

Great. Thanks, and I hope everybody is doing well this morning. I just wanted to ask, Hana, I think you said you expect to be about at 50% capacity when you reopen some of the venues. If that's the case, can you just give us a sense of where the capacity was or what capacity you were running in January and February in some of these venues?

Hana Khouri -- Chief Executive Officer and President

Yes. I mean, I think, first, the 50% capacity, we had to kind of pick a number. I think the reality is that none of us really know what will happen when we're able to reopen. We have good indications that people will still want to come for all the reasons that I just spoke about.

But the 50% capacity number was based on what we've done really historically. So when you look at our venues, we did a range of capacities. If you looked at a Monday or Tuesday, obviously, our capacity was much lighter than it was on a Friday or Saturday night. On a Friday or Saturday night, we would be somewhere between 98% and 100% capacity in most cases.

That's just simply not going to be a safe way for us to operate because at that capacity, you're going to require a lot of standing room because with that capacity comes along wait times. And we don't want to have people congregating in our lobbies and in our bar spaces, at least in the initial phases of the reopening.

Peter Saleh -- BTIG -- Analyst

OK. Very helpful. On The Puttery, in terms of the timing, I think you said delayed until 2021, the construction may begin in the fall. Any thoughts on -- is it early '21? Or should we be expecting this more second-half '21 on the first two locations?

Hana Khouri -- Chief Executive Officer and President

Yes. No. Our goal is first half of 2021. Obviously, a lot of variables to contend with right now.

But we want to kind of get those open as soon as possible. It's something that we're really super excited about. So it's definitely a focus. And I can tell you the goal first half of 2021 and as soon as possible.

Peter Saleh -- BTIG -- Analyst

And just on the construction side. I know there's obviously lots of delays and stuff outside your control, but do you anticipate any sort of, I guess, relative to your initial estimates, construction costs being maybe lower as we go forward for some of these locations? Is there maybe more available labor? Or should we just consider the construction costs essentially the same?

Hana Khouri -- Chief Executive Officer and President

Yes. I think it's possible. In the next couple of weeks, we're really going to have better answers for that question because we'll be able to see for ourselves what the labor market and other things are going to look like. But yes, we are hoping and thinking that the cost could go down by an amount which we're not sure what that amount is yet, just due to the vast availability of labor and other things that have been changed by this.

Peter Saleh -- BTIG -- Analyst

All right. Very helpful. And then just my last question on maybe supply chain and some of the food and beverage. Are you seeing any sort of shocks there in terms of shortage of supply or anything? And we've been hearing from some of the restaurant operators that there are some shortages of products and we're seeing some spikes and some declines in other communities, any thoughts on your supply chain?

Hana Khouri -- Chief Executive Officer and President

Yes. We've spoken to our vendors in the last week, week and a half, about this because we started hearing about hamburger meat and all of these other things that we're going to have to contend with. As of right now, it does not appear to be something that will affect us. We are making contingency plans currently in case that does happen, specifically with the meat supply in the U.S.

We're in the process of doing that right now. Our vendors have assured us that we should see no interruption in supply chain. But obviously, as we've seen, things have changed very quickly in a small amount of time. So we just want to be prepared for that possibility.

Peter Saleh -- BTIG -- Analyst

Excellent. Just my last question is, any estimate on the additional costs that you expect to incur for reopening safely with PPE and some of the testing that you guys are planning to do? Is there any estimates on how much incremental cost that will add?

Hana Khouri -- Chief Executive Officer and President

Yes. Early estimates, it's pretty minimal, to be totally honest with you. Right now, it's under $100,000. Again, we only have four venues.

We have a head of procurement that's worked really closely with some of these antibody testing companies to source what we believe are the best possible tests for a great price. We started doing the masks -- obtaining the masks and the gloves and all this other PPE before there was this massive kind of run on the need for the supplies. So I believe that we were in a position to obtain these supplies at a much better rate than we might be if we were trying to do it right now and get a rush shipment in for the end of next week. That said, there will be ongoing costs associated with this that we're not able to quantify for you right now, but we should expect them to be fairly minimal by way of just securing gloves, which we already do, and then masks for our employees to keep them safe.

Operator

At this time, I'm showing no further questions. I would like to turn the call back over to Austin Pruitt for closing remarks.

Austin Pruitt -- Head of Investor Relations

Thank you, all, for participating in today's call, especially during these difficult times. We look forward to updating you after Q2. Stay safe.

Operator

[Operator signoff]

Duration: 38 minutes

Call participants:

Austin Pruitt -- Head of Investor Relations

Wes Edens -- Chairman of the Board

Hana Khouri -- Chief Executive Officer and President

Larry Goodfield -- Chief Accounting Officer and Interim Chief Financial Officer

Aaron Hecht -- JMP Securities -- Analyst

Peter Saleh -- BTIG -- Analyst

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