Q1 2020 Ashford Inc Earnings Call
[music] greetings and welcome to Ashford Inc. first quarter 2020 results conference call.
This time, all participants are in listen only mode.
A question and answer session.
Formal presentation.
No one should require operator assistant started called French Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It's now my pleasure to introduce your host Jordan Jottings manager of Investor Relations. Thank you you may begin.
Good day, everyone and welcome today's conference call to review results for Oxford for the first quarter 2020, and update you on recent development on the call today will be Monty Bennett, Chairman and Chief Executive Officer, Deric, Eubanks, Chief Financial Officer, and Jeremy Welter, President and Chief operating Officer there is.
Well as was noted the adaptability a this conference call on the listen only basis over the Internet were distributed yesterday and it properly.
At this time I remind you that certain statements and assumptions and this conference call contain or are based upon forward looking information and are being made pursuant to the safe Harbor provision at the federal Securities regulation.
Such forward looking statements are subject to numerous assumptions and uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These doctors are more fully discuss any company filings with the securities and Exchange Commission.
Before looking statements included in this conference call or only made as other data on this call and the company's not obligated to publicly update or revise them. In addition, certain terms used in this call our non-GAAP financial measures reconciliations of which are provided in the company's earnings release, an accompanying tables are scheduled which I've been filed on form 8-K.
I see see on June 17th 2020, and May also be access to the company's website.
Have you W.W. dot Ashford Inc. dotcom.
Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided and it really.
Also unless otherwise stated all reported results discussed in this call compared to first quarter of 2020 with the first quarter of 2019, I'll now turn the call over to Monte.
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Good morning, and welcome to our call to discuss our financial results for the first quarter 20 Twond.
I'll begin by discussing experts operations strategy in response somebody at the Covenant light to pandemic.
Afterward, Derek will review our financial results, Jeremy will provide an update regarding our probably products and services businesses and then we will open up for today.
Sure were covered my team is having an unprecedented economic impact hospitality industry.
Due to the pandemic, we've adjusted the way we operate how we manage the company its existing advisory platforms as well as her portfolio of products and services businesses.
Our top priority has been to protect the health and safety of our associates, you guess same time mitigated the impact of our business.
Third we successfully transition to a remote work structure, thereby ensuring a seamless business continuity. We remain diligently focused priorities have been managing our decisions in coordination with responsibility to all of our stakeholders. This includes an unwavering commitment to protect <unk> for our shareholders.
I cannot commit we've taken steps to maintain our financial flexibility and have implemented meaningful cost saving measures, which we estimate will reduce our annual corporate run rate do you an eight by approximately 25% I've also agreed to take my salary for the balance the you're in common shares instead of cash to conserve additional liquidity.
The cost saving steps, we've taken none have been more difficult decisions for low a significant number of our associates as well as eliminating a significant number positions within our company and our subsidiary.
We've also reduced the compensation for our board of directors and senior executives.
Same time, we strengthened our liquidity position, but I can probably got 35 million credit facility into a four year term loan late March.
[laughter] hotels that we had seven minutes products and services businesses have experienced watched disruption during his pandemic did implemented significant cost cutting measures that hotels and our products and service businesses have implemented similar actions designed to ensure their respective financial flexibility while remaining focused on their long term growth competitive position.
Ashford advisers to publicly traded Replatforming, Ashford trust and trademark, which together on 129 hotels with approximately 20000 rooms, and approximately $8 billion gross assets as of March 31, 2020, well, we suspended operations at some properties during the peak of the pandemic, we're working diligently to get our hotels back up and running currently.
105, or 129 hotels are open operating and we have plans to reopen <unk> Boston hotels coming weeks, our advice reach and also partnering with the local government agencies medical staff and organizations and hotel brands to support Cobot 19 response efforts to date. The various finished its close to 70 hotels have provided a temporary.
Washington, first responders health care professionals, another two new residents impact by the crime.
[laughter].
One moment, ladies and gentlemen, we lost Mr., Ben it's like I'm going to try and reconnect Tim.
Yeah.
Okay.
We're enjoying mr. about it.
Thank you apologies.
[laughter] periods of dislocation and volatility often create new opportunities for growth. For example, that's hospitality industry strives to implement measures to provide a clean and safe environment for the guess many hotels and guests will be seeking automated checking a lot in the to bypass the front desk with keyless entry and secure digital key capabilities people also.
Be seeking enhanced sanitation and air purification standards in the Guestroom, we believe the benefits that opened keegan pure wellness offer will position us well to gain accelerated adoption and girls hotels nationwide.
In fact, we're already seeing strong growth in demand for open keys digital key product, which Germany will discuss in more detail.
These are uncertain times that are people businesses are being impacted an unprecedented waste. Despite these near term challenges. Our management team has deep talent that has operated at numerous economic downturns in periods of meaningful industry disruption, including the great recession and 911, we remain optimistic but long term prospects for company and Bleep, we're making the right.
Teaching decisions to position our business to be even more successful once we emerge on the other side its pandemic.
I'll now turn the call over to Derek.
Thanks Bonnie.
Net loss attributable to common stockholders for the quarter was $186.3 million, including an impairment charge of $178.2 billion, primarily related to the goodwill and intangible assets associated with the acquisitions of Remington Premier JV.
GAAP requires us to test goodwill for impairment [noise] annually, which we typically perform in October of each year.
Or more frequently if there are indicators of impairment and apparently must be recorded at the current fair value of the underlying business is less than its carrying value.
Given the negative impact of the pandemic on Remington Premier Ajay if they'd be the impairment was necessary.
For the first quarter total revenues were $133.8 billion, reflecting a 111% growth rate over the prior year quarter.
Adjusted EBITDA for the first quarter was $12 million, reflecting a 5.8% growth rate over the prior year quarter.
Adjusted net income for the first quarter was $9.3 million.
As of March 31st 2020, we had 6.9 million fully diluted total shares of common stock and units, which included 4.1 million common shares associated with our series B convertible preferred stock. We had 2.2 million common shares associated issued and outstanding 0.2 million common shares earmark for issuance under order.
Third compensation program and the balance relates to put options associated with the minority interest of our strategic investments acquisition related shares and some restricted stock.
During the quarter, we converted or $35 million credit facility into a new 35 million dollar term loan with a four year term.
As Marty mentioned, we have taken significant steps to improve our liquidity and cash position have reduced our annual run rate corporate DNA by approximately 25%.
Despite the negative impact of the pandemic on our businesses. We believe we have ample liquidity.
I'll now turn the call over to Jeremy.
Derek we're pleased to provide updates on our hospitality products and services businesses and how we have responded with significant measures during the first quarter in the face the cover 19 pandemic.
As was the case across the hospitality sector, our hospitality products and services businesses were among the hardest hit industries from the global pandemic.
We have faced headwinds from sharp declines in occupancy and group business at our affiliated hotels <unk>.
Before I get into more detail on our operations.
I want to say, how proud I am of all of our associates and leadership across our entire platform for their hard work dedication and perseverance. During these very tough in challenging times.
At the seriousness other pandemic became more apparent in early March or.
Our hospitality products and services executive leadership, and I began an extensive review of our DNA expenses and policies around each business.
We implemented broad furloughed at that time and in total at the peak of the crisis, 70% of our associates were furloughed or termed.
Hi study products and services businesses also in instituted stringent spending controls to preserve cash and reduced non critical spending.
In fact, several over hospitality products and services businesses have pivoted their operations to launch new offerings that are focused on the safety of our guests and associates.
Our core strategy for hostelling products and services remained but to explain more fully this strategy our products and services initiative is a unique investment strategy in a hospitality industry, where we strategically invest in operating companies that service the industry and we act as an accelerator to grow these.
Companies.
In doing so we believe we are able to establish synergies for and hotel platforms, providing attractive pricing and higher levels of service then they would receive for my third party vendor.
We also.
Are able to grow our portfolio companies in a number of ways by referring them to the hotels owned bard buys reach by leveraging our vast industry relationships and by consulting on best operating practices.
The business, where we are seeing the strongest growth at the moment is open key.
Open keep provides a bluetooth enabled a lot module. They can interface on to any luck at a fraction of the cost replacing the entire lock system.
Making this a very attractive option for hotels as it reopens their doors to guess falling closures from Cowen 19.
Oh I think he is well positioned to capitalize on guess desires for contact list digital check in experience.
I think he saw revenues increased 103% in the first quarter and ended the quarter with 165 hotels under contract with representing growth of 57% over the prior year quarter.
That growth is continued into the second quarter as open keep currently has 201 hotels under contract representing growth of 22%.
The end of the first quarter.
We're also seeing a strong increase in request for product demonstrations. The number of demonstration request in April was 152% higher than what we experienced in January.
We're also seeing more guess use hoping he would you that with utilization up 270% from 2019.
I think he is currently integrated with over 35 property management systems, and we continue to be excited about the future growth prospects for up in King.
The first quarter marked the first full quarter since remingtons integration into our hospitality products and services platform.
Remington is a dynamic and growing hotel management company, providing top quality service and expertise in hotel management.
Credit must be getting into Remington CEO Sloan Dean and his team who navigated challenging situations, including numerous hotel closures over the last couple of months.
At the beginning the crisis, Remy tempur load or termed approximately 93% of its workforce.
However, as hotels reopen and people begin traveling Gan Remington is in great shape financially to ramp up its operations added 87 hotels in 27 states.
Across 17 brands, including 12 independent boutique part properties.
We find this current moment in the industry is 18, our growth and development, which is focused on growing Remington third party business did that in during the quarter Remington signed three new third party contracts and is actively seeking more deal definitely Remington prioritizes the safety of its guest in associates.
As it recently launched the ultra touch program that ensures the highest cleanliness standards in rooms and public spaces for our guests.
On the financial front, the first quarter Remington realized hotel management fee revenue was 6.1 million and adjusted EBITDA of 2.4 million.
Premier Project management provides comprehensive and cost effective design development architecture procurement and project management services did I style the industry.
Premier will be impacted greatly by hotel owners cutting back on Capex spend and during the last several months approximately 53% of its workforce for that or termed.
But that said Premier has done a great job pivoting and.
To incorporate multifamily business opportunities into their marketing efforts and is signed up several multifamily projects. During this year. In addition to six third Party Hotel project management deal side.
We expect Capex spend to rebound next year and we expect premiered to be in great position to capitalize when that occurs.
For the first quarter Premier had project management fee revenue of 3.9 million and adjusted EBITDA of 1.2 million.
JV is a leading single source solution for meeting and if that needs with an integrated suite of audio visual services, including show and events services hospitality services greatest services and design and integration.
Prior to the pandemic JCB started the year with incredible results with year to date revenue and adjusted EBITDA through February up 12, and 71% over the same period.
Prior year period, respectively.
However, with the elimination of group travel and booking due to the pandemic JCB was significantly impacted and had a furlough or term 94% of its workforce.
Due to the lack of demand.
During due to did decisive leadership by JC. These executives.
They're very well positioned to emerge from the pandemic and capitalize on opportunities that will inevitably come as groups reconvene.
Jay City was proactive in quick to retool that strategy to focus on virtual meetings and middle of in person meetings.
They have established numerous virtual showrooms at locations around the country and these services result in higher margins as they require less labor.
Financial results for the first quarter included revenue of 29.7 million and adjusted EBITDA of 5 million.
Red hospitality and leisure is a leading provider of water sports activities in other travel and transportation services and you guys Virgin Islands, and key West Florida.
Red also faced reduction in booking and trips from both markets and took actions to further out or term 85% of its workforce during the this pandemic.
Nonetheless, we believe key west will emerge faster than most markets.
And as you drive market, we expect leisure business to pick up from gas driving and key west more quickly compared to the U.S. yeah.
The ability for the U.S. be I'd rebound is somewhat limited given the airlines airlift requirement.
But we see it benefiting from strong business and we anticipate the at the Westins timeshare property.
Taken together, we are optimistic about red ability to navigate the pandemic further Chris Bachelor our CEO, a red is working on some exciting business development opportunities in Florida, and he USPI and we hope to be able to discuss those on future calls.
Financial results for the first quarter included revenue of 3.3 million in adjusted EBITDA of Zero point Sixmillion.
Pure wellness is also seen strong opportunities from its products in this pandemic environment pure wellness is the industry leader in wellness applications and is shifting its focus from hypo allergenic rooms to a suite of services designed to eliminate viruses bacteria and other harmful contaminants within.
Guest rooms in public spaces.
Well pure wellness will still offer it signature pure room for hotels, which includes the medical grade virus King Air purification system. It has designed cleaning protocols that can be rolled out to hotels remediation cleaning service for areas infected infected by the virus and a proactive electrostatic spray.
Protocol that provides a growth inhibiting protective layer.
Pure wellness uses only chemicals sprays that our EPA registered and C.D.C. approved for use it gets cover 19.
Lastly, during the quarter Ashford Trust and brain Maher entered into agreements with lives more capital for lose more to seek modifications forbearances or refinancings of the read debt totaling approximately $5.1 billion across over 40 different moms.
We've reallocated significant corporate resources to this effort and have already completed several forbearance agreement, giving the rates much needed flexibility in order to meet requirements.
Under the respect.
In respect of loans, we will continue to have significant corporate resources focused on this effort going forward.
That concludes our prepared remarks, and we'll now open the call up for Q and <unk>.
Thank you ladies and gentlemen at this time, we won't be conducting a question of answer session.
And if you'd like to ask questions. You May press star one on your telephone keypad.
Confirmation total and you can't your line is in the question Q.
You May press Star, Tim If you would like to remove your question from the Q.
For participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star Kate.
Our first question comes from along Oh, Bryan Maher with.
B. Riley FBR. Please proceed with your question.
Good morning.
A few questions, but let's start with open a.
And specifically as it relates to the capacity to grow that they you know whether that hardware software customer service with 200, or so you know now under contract to be Onboarded, how long does that take it really accomplish.
This is Monte can you can you hear me.
Yes.
Perfect I got to just kind of food line here, So I apologize.
In order to what to bring a property up to up to speed to bring them online, it's pretty straightforward process, where modules installed in the lock and to.
That's about it and so right now the a the timeframe to bringing.
Someone onboard is about four weeks to six weeks to get the module out there and to get it scheduled and it's a pretty easy process. So it can be scaled up fairly easily.
HM Okay and did those clients do they sign you know an annual service a multi year Howard.
The company paid monthly fee that you got.
It's a monthly fee and to it say usually a fee per.
Door per month.
And the contracts themselves have typically been.
Month to month all of the company is considering moving towards maybe annual a renewable contracts.
And since you have to actually go out and install a module do they have to absorb that cost if they weren't cig cancel within a certain period of time.
[noise] they'll pay for the module and so the upfront cost for the module is approximately $49 and so that covers a the companys cost of doing things. There's also some smaller installation.
Charges that are are assessed as well so.
It's a.
Even selling the module without the SAS service attached to it is a profitable endeavor.
And so there's there's no losses, if they subsequently canceled.
Okay, Great and then shifting gears can we talk and maybe this is a question for Derek I don't know about the write down the magnitude of the write down, which which kind of caught us off guard and and how that was derived.
Yeah, Hey, Brian it there so.
I mentioned in my comments goodwill is based on a fair value, which is a korean market value.
As opposed to other impairment them gap that allow you to take a more long term view of the hold period of the asset it's based on on the exists on the fair value at that moment add just given the extreme drop in revenues for those properties.
We had to reassess the value in today's market for those.
Assets.
And in doing that with outside advisors, and our auditors landed on that impairment and it was associated with the goodwill for Remic, then the goodwill for Premier and up and then some a small amount relative related trademarks as well.
Okay, and then kind of help us with our model given that the facility was.
Converted to a term loan can you share as with the interest rate is on that term loan.
Yeah, the interest rate stay the same and and there is some amortization that kicks in but.
We're very happy to get that Don when we got to dawn and it gives us a lot of flexibility and so we're very pleased to get that done.
And the time and we were able to do it.
Okay, and then just two last ones for me.
As it relates to the furloughs I mean, you guys like most of the people in the industry vertical showed an awful lot of people, but you have it under a couple of different buckets you had the Remington employees. All you have the premier employee.
Yes, Avi employees, what are your thoughts on a kind of a longer term organizational view of being able to bring all those people back I know you're not going to bring them. All back once you bring it back at the business recovers, but is it the business recovers over the next you know two to four quarters. You know you may lose some of those what.
The thoughts of the firm as it relates to being able to staff with demand.
Yeah. This is that this is Jeremy I can answer that question, Yeah, Oh wait and with all the folks that we have left it's all our eight plus talent across the board and so we've got a really good core group of associates in each one of these respective businesses.
And in terms of bringing people back that's our goal I mean, we want to bring <unk>.
As many people back as quickly as possible, but it varies by business unit. So you've got to look at it and you did describe that well. So we like the case Remington you know we're seeing you know increased demand at our properties on a daily basis any accelerated that that demand is accelerating each day.
And so we have brought back some folks are in June 1st at Remington already and that's it feel you know in the field at corporate.
But we will still only bring them back is as ER visits bad warrants when you look at Red.
Read is that you know in key west I wouldn't we keep my stope in a we've had some great demand on and a lot of our boating trips. In fact, we've had you know sunset sales that have you know 70 folks on a on a boat instead of demand has been very strong and sorry, you'll see that business, probably being the quickest to rebound in turn.
As a associate headcount and a good part of that model as it most of our labor at Red is variable we run on if we run a yeah like a trip then they kept it gets paid if we don't then unfortunately, we don't pay but we only run trips if it has a certain level of occupancy.
That minimally assures that we break even on that a trip and so we will cancel if we don't have enough demand you know for a brief scheduled out any when it goes JV.
That's gonna be probably the.
Most difficult I think for us to you I have to bring associates back.
But we will do that as group business, you know recovers, we don't need a lot of labor.
Through a virtual meeting back eventually that margins are significantly higher, albeit the revenues are lower but we do expect to have you know positive cash flow a JV infusion Q3 in Q4, and if you would ask me six weeks ago I would've thought we ran negative cash flow at that platform for the foreseeable future.
But because of our ability to reach shift our business.
Strategy to virtual meetings very very quickly.
And our aggressive sales effort, we have booked a a lot of a beatings just over the course of the last three or four weeks, which is right and then you know just opened key we didn't really have to furlough everybody to people at all I think we just have one.
And instead that businesses is a is growing and we're very excited about it. So it really depends on each one of the business units and then as mentioned Premier a in the prepared remarks.
We are getting a decent amount of demand outside of hospitality and in some cases within hospitality for Ah you know some some owners that want to take advantage of debt. So over time and they have excess capital to you I have to renovate the hotel so.
That continues to be kind of a you an area that we think it's probably going to be somewhere between Remington and James to be in terms of bringing back staff, but the boats. We have today our top notch players.
So just last for me and none of that is a multi questioner Jeremy you know as we look at the Smith travel numbers each week, we see the recovery you know how would you characterize.
Ashford Inc. and maybe more Granularly, Ashford trust and brain Mars recovery relative to what we're seeing in the Smith travel numbers.
In the how our occupancy is recovering as compared to how Ah Ah Smith travel or the general industry just recovering.
Correct I mean, it is your Rep car you know improving at a faster you know rate what we're seeing in Smith travel or is it slower I mean, we know that Ashford trust is pretty broadly diversified, but there is a chunk of select service properties in that portfolio, which seem to be doing better than the full service.
Urban properties and so when we look at that Raymark anymore.
Some higher and kind of resort hotels, whether its key west or Lake Tahoe, all et cetera, which might benefit from the drive to summer vacation or you know how are you seeing business unfold relative to that so that kind of macro numbers were saying.
Yes, good question.
That's great question I can I can tell you that to you know I for one.
Can't say that I've compared.
Our recoveries as compared to the average recoveries.
Yes, you're right, we're definitely seeing more demand picking up in.
Select service, we see demand picking up and not group houses and demand picking up in resorts leisure type locations of unless or with the opposite right City Center Urban group these kinds of but I can't say that compared it to the industry, maybe Jeremy has.
Yeah, I can I can take that yeah, Brian we got to be sensitive because we you know I don't want to share information. We haven't released publicly at either trust her brain <unk> platforms, but it's very consistent with what we described on the Brame our earnings call, where you know the drive to resist resort locations.
Have rebounded.
Pretty favorably and we're holding rate in our luxury hotels I'm not not not not saying you know year over year, but but but we're doing a very good job yes.
So I am distractive rate and so those breakeven levels are much lower than we would have anticipated. It at some of those properties, but you're right urban locations are going to be much slower to rebound, especially with some.
Some of the.
Many demonstrations, we hadn't something to cities and what have you I. It has impacted travel I think nationally, but I think I think you'd see that you know that's fairly consistent.
With with industry numbers, a economy is definitely the the segment that is rebounding the fastest and we don't have economy hotels.
Okay. Thank you that's all for me.
Our next question comes from along our power battery with Gen. Janney Capital markets. Please proceed with your question.
Hey, good morning, Thanks for taking my question.
First one for me probably more housekeeping question in terms of the based speed from right.
You just remind us in theory or how far back could fall year over year, just given some of the movements and share prices.
Yeah, Hey, Tyler Derek I'll take that so the based advisory fee is 70 basis points times. The total market capitalization of the company, which includes the debt the preferred at liquidation preference and the current market cap equity market cap of the company. There is a component to that that has a.
Floor, where the the fee cannot dropped more than 10% from the prior year.
And there's also a component that that the when the read sell assets.
It continues to be part of that.
Calculations called the net asset value adjustment that continues to be part of that calculation. If the if the rates were to sell assets and a significant amount, but the answer. Your question is that it cannot dropped by more than 10% from the previous years me.
Okay, Perfect and then when you look broadly at.
Ashford and strategy is it possible or you could book to get into new businesses, the juice into hospitality them and you mentioned Premier I believe getting involved with multifamily, but do you have any other segments within the product hotel product and services businesses, where you could look at other.
Our opportunities adjacent to the hospitality industry just to drive some incremental revenue and then kind of falling along grid. That's certainly a lot of disruption in the markets.
Do you think there could be some distressed opportunities potentially on the acquisition from maybe a year or two years from now about no could be a drilling.
Yeah. This Jeremy.
This is Marty let me let me address this.
As far as a.
Jumping into a a.
Of the.
Corollary businesses are or other product lines, there's definitely that opportunity.
Listen to premier and going into multifamily.
Over to open key theirs.
The ability to.
To provide that.
But the digital key products to multi family I think we're even installed and in one multifamily location in there shouldn't requests about that.
And so all these businesses have that ability pure has also.
Talk to some non hospitality.
Customers about doing some work for them.
And to we've also even.
Thought about from a capital standpoint of.
Not only.
Barring hotels, but other property types. So it's something that we've looked at.
But just on an area that will provide any material amount of.
Revenues for us in the near term.
But hope it will slowly I think you know start to grow over time so.
I think that that's that's probably where we'll be going with all that.
Yeah, one thing if I might add.
Tyler as you are familiar we didn't really talking about on this a script that we have around broker dealer now in Ashford Securities and we were.
You know prepared to launch our offering at Bray more.
As early as April of this year, obviously that was put on hold given the panic, but but we were about you know get that broker dealer up and running you know in very very quick timing ahead of our internal projections and under our internal costs, but it is a great asset for us to launch other new cash.
Capital raising the efforts.
Within hospitality as well as maybe then within mortgage debt Securities. A and then also as might imagine you know other asset classes out outside of hospitality. So I think that that's a good you know long term part of our strategy.
Okay Thats all from me. Thank you.
This does conclude our culinary session and this does conclude our call for today. Thank you for participating you may disconnect. Your lines at this time and have a wonderful day.
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