Q3 2019 Earnings Call

For standing by welcome to apply your management third quarter earnings Conference call. At this time all participants are in listen only mode. After the speakers presentation third will be a question answer session to ask the question. During this session. He will need to press star one on your telephone please be advised.

Hi that today's conference is being recorded if you require any further assistance. Please press star zero I wouldn't like to have the conference over to your host Mr. Ryan you know. Thank you. Please go ahead Sir.

Thank you very much drew good morning, everyone welcome to Playa hotels and resorts third quarter 2019 earnings conference call before we begin I'd like to remind participants that many of our comments today will be considered forward looking statements and are subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what has been communicated.

Forward looking statements made today, our effective only as of today and the company undertakes no obligation to update forward looking statements for discussion of some of the factors that could cause our actual results to differ. Please review the risk factor section of our annual report on Form 10-K , which we filed with the end of February Securities and Exchange Commission, we've updated our Investor Relations website investors that Playa resorts dot com with it.

Days presentation and recent releases. In addition, a reconciliation to GAAP of the non-GAAP financial measures. We discussed on this call were included in yesterday's press release on today's call Bruce Wardinsky, plus chairman and Chief Executive Officer will provide some comments on the third quarter and key operational highlights I will then address our third quarter results in 2019 outlook. Bruce will then wrap up the call with some concur.

Adding remarks before we turn it over to Q today with that ill turn it over to Bruce.

Great. Thanks, Ryan Good morning, everyone and thanks for joining US. We appreciate your interest in Playa I'll begin today by reviewing several of our third quarter strategic accomplishments and then give some high level thoughts on the operating environment as well as give an update on our near term initiatives and outlook. I'll, then turn the call over to Ryan to discuss our third quarter results in our 20.

19 outlook in more detail.

Before we dive into the results Im pleased to share that last week, we opened the highly anticipated Hyatt coopcana and we are rapidly approaching the unveiling of our three newly remodeled and rebranded Hilton all inclusive resorts totaling over 1200 rooms, a very big. Thank you told all of our team members and associates for their hard work and dedication to make.

These fantastic properties a reality.

Highly encourage everyone to go Cds iconic properties as they will be key drivers apply a success for years to come.

Now turning to our third quarter results.

At a high level or third quarter fundamentals were encouraging across the majority of our portfolio similar to last quarter, we saw robust top and bottom line trends out of Jamaica, and the Pacific Coast as both segments benefited from strong group business performance in the quarter.

In the Yucatan Revpar was largely largely in line with our expectations with fundamentals that we hope are beginning to stabilize primarily as a result of improved perception around safety security measures imply it'll Carmen.

In addition, the sargasso situation greatly improved as the seasonal shift incurrence currents has largely alleviated the problem.

We also continue to grow direct bookings and are confident that we are on target with our five year plan to increase consumer direct business to at least 50% by 2023.

In aggregate during the third quarter of 29.

The.

Dominican Republic recovery, which I will address in more depth momentarily, but.

But before I discuss the situation in the D.R. I'd like to touch on some of our ongoing technological strategic initiatives.

We continue to invest in the business launching an expanding on several initiatives, including our book direct initiative I've already mentioned aimed at improving the customer experience lowering our customer acquisition costs and driving more growth.

In early March we began the soft rollout of a new end to end up sell and Rebook technology has selected resorts by using sophisticated algorithms. It identifies in real time, new revenue opportunities, including selling ancillary items and additional room packages to targeted gas. This technology will also enable us to accept more of the room upgrade.

Bids as we move further back through the booking window and enter a seasonally slower period of the year.

We anticipate rolling it out to the remainder of our own portfolio due during Q4.

During the third quarter, we expanded the advanced sales offerings to include airport transfers across the entire portfolio. Ultimately we expect these non package revenues to be at least as large as the rooms up sell piece. We therefore anticipate it will be a driver of EBITDA and guest satisfaction in Q4 as we enter peak season in 2020.

During the first quarter, we launched the next evolution of the Playa resorts website, which contains a portal on which travel agents can now may commissioned reservations directly apply resource dot com without having to go through a tour and travel operator.

This effectively removes a layer of costs have previously existed saving playa roughly 7% to 9% in commissions per bookings while at the same time, maintaining the economics for the travel agent on a basic booking and improving the economics in the case of Upsells are pre booked ancillary revenues.

We are alive with the ability to book hotel rooms, and are in the process of negotiating a solution for bundling air and of course, all the ancillary services, we mentioned earlier.

To date travel agent bookings via our website have been inline with our modest expectations as in our view the real growth potential is in 2020. Once agents can book Commissionable end to end vacation inclusive of Air Grand Trust transportation excursion suites exclusive dinners in luxury spot points as of July one.

One Playa resorts Dot Com is pacing ahead of our expectations with 52.3 million of gross revenue on the books for 2019 versus only 9.7 million in 2018 per 2020, Playa resorts Dot com has $13.3 million of gross revenue on the books booked in 2019 versus $3.9 million.

During the same period last year.

Let's turn now to the rollout of our new yield management system. We went live with our first property in Q1 and expanded into two more properties during Q2.

We made further progress during Q3 and are aiming to get the system rolled out to the majority of our owned hotels by the end of Q1 2020.

We will operate the new system in parallel with our current forecasting process for at least a year to fine tune it leveraging historical data.

Our marketing teams and important to staff given the seasonality of our business.

We expect the real benefit of the system to show up on our financial results starting in late 2020.

To round out our technology initiatives, we will be launching a new CRM tool in Q4 to facilitate better communication and more effective selling of ancillary products to our guests will provide more details on that next quarter.

Now I'd like to turn to the situation in the Dominican Republic in the market recovery. There that is progressing slower than we had anticipated which is the primary driver of the change in our outlook for the near term.

In the third quarter, we experienced a 30.8% drop in comparable revpar and a $1.2 million loss in EBITDA in the DCR phone.

Both of which were in line with the expectation shared with you on our last earnings call.

Given the fluidity in importance of this market for us we want to be as transparent as possible to help you with your models, Brian will talk more about the impact we expect to see going forward.

The last time, we spoke we mentioned that our branding strategy was being validated by the market in the form of a roughly double digit revpar divergence between the Hilton La Romano and our two dreams properties in the dark.

Although hills and long Romano has continued to book at a healthy pace in light of current market conditions.

The pace of bookings for our non branded hotels, which are managed by third party slowed incept timber much more than at our branded hotels, resulting in the spread between our branded and non branded hotels, increasing by an incremental 20 percentage points as the broader market has not recovered as we envisioned.

Although we are hopeful that this spread will tighten, especially as the dealer market recovers. Our expectation is it will continue in the near to medium term Ryan will give more details, but the situation in the IDR will continue to impact near term results.

On the share repurchase front during the third quarter, we repurchased approximately 846000 shares outstanding at an average price of 754 per share for 6.4 million.

Between October Onest in October 30, Onest, we repurchased an additional 139.6 thousand shares and an average price of 774 since program inception, we've repurchased a total of one approximately 1.5 million shares at an average price of 762 were almost $12 million.

In conclusion, while the industry continues to experience certain headwinds, particularly in the D.R.. We are encouraged by what we are seeing and continuing to push forward on our strategic priorities of opening high return projects and returning capital to shareholders.