Q2 2020 Ashford Inc Earnings Call
Greetings and welcome to the Ashford incorporated second quarter 2020 results conference call.
At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
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I'll now turn the conference over to our host Jordan Jennings Investor Relations for Ashford. Thank you you may begin.
Good day, everyone and welcome to today's conference call to review results for Ashford for the second quarter of 2020 and talk to you on recent developments.
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.
Result, as well as notice of the stability on this conference call on I listen only basis over the Internet were just your yesterday and a press release.
At this time, let me 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 provisions of the federal Securities regulation.
Such forward looking statements are subject to numerous assumption, uncertainties, and known or unknown risk, which could cause actual results could differ materially from those anticipated. These doctors are more fully discussed in the complaint filings with the Securities and Exchange Commission you.
The forward looking statements included in this conference call early made as of the data. This cool and then companies not obligated to publicly update or revise them.
In addition, certain terms used in this call or non-GAAP financial measures reconciliations of which are provided in the coming the earnings release and accompanying tables were schedules, which had been filed on form 8-K with as you see on July three 2020. It may also be asked US do the company's website at www.
Ashford Inc. dot com each listener is encouraged to review those reconciliation provided in the earnings release together with all other information provided in the release also unless otherwise stated all reported results discussed in this call compared to second quarter 2020, with the second quarter of 2019, I'll now turn the call over to Mont.
Okay.
Thank you Jordan good morning, welcome to our call to discuss our financial results for the second quarter 2020.
I'll begin by discussing Ashfords operation strategy in response, and what the ongoing cobot 19 pandemic afterwards, Derek will review our financial results. The Jimmy will provide an update regarding or hospitality products and services businesses and then we will open it up for QNX.
As we discussed last month on our first quarter called Cobot 19 is having an unprecedented economic impact them hospitality industry due to the pin debit we adjusted the way we operate in how we manage the company its existing advisory platforms as well as your portfolio products and services businesses.
Our top priority has been to protect the health and safety of our associates and yes, well at the same time mitigating the impact on our business.
At Ashford, we successfully transitioned to a remote worked structure with near seamless business continuity, we remain diligently focused on our priorities and had been managing our decisions in coordination with our responsibility to all of our stakeholders. This includes an unwavering commitment to protect value for our shareholders.
We think that commitment we've taken steps to maintain our financial flexibility and have implemented meaningful cost saving measures, which we estimate will reduce or annual run rate corporate gionee by approximately 25%.
Additionally, hotels that we asset manager <unk> products and services businesses have experienced weisbrot disruption. During this pandemic, we have implemented significant cost cutting measures that are hotels.
Dixon services businesses have implemented similar actions designed to enhance their financial flexibility, while remaining focused on their long term growth in competitive position.
Ashford advisers to publicly traded <unk> platforms, Ashford Trust and bring more which together totaled 129 hotels with approximately 20000 rooms in approximately 7.8 billion of gross assets as of June 30, 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 123 up or whatever.
29 hotels or open and operating and we have plans to reopen the remaining hotels in the coming weeks are advised to reach have also partnered with local government agencies medical staffing organizations in hotel brands to support Cobot 19 response efforts to date through various initiatives close to 70 hotels have provided some pre logic for first responders health care professionals and other community residence.
Impacted by the crisis.
Well, Jeremy will discuss our products and services businesses and the steps they have already taken to mitigate the impact of the pandemic. Both Remington from your project management continues to execute on their long term growth strategies, well, making the decisions necessary to ensure that.
At the end of the crisis, they both remain strong vibrant companies.
They both have adopted a stringent focused on reducing expenses, which has included in student pay cuts for executives furloughing or eliminating a significant number of associates and significantly reducing discretionary spending in short those businesses or taking the necessary actions to navigate this pandemic in position themselves for successful future.
We continue to believe that these two hospitality service businesses are well positioned to cheap real through third party channels. The industry is incredibly fragmented with Remington and premier have solid reputations historically have not focused on third party business.
Separately has really just started but we have been strong <unk> I'm sorry, we have seen strong early momentum with this initiative with Remington signing three new hotel management contracts with third Party hotel owners and Premier project management, signing six New third party contracts. Looking ahead, we're extremely excited about the long term opportunity for third party growth at both Remington and Premier.
Periods of dislocation and volatility often creating new opportunities for growth for example, the American Hotel in Lodging Association recently released its safe to stay guidelines for hotel guests to the main components of these guidelines include guess choosing contact looks options and requesting enhance cleaning options. We believe the products offered by open can't pure wellness or will position.
To thrive in this environment.
As the hospitality industry strives to input measures to provide a clean and safe environment for their guests many hotels.
And guests will be seeking automated chicken, allowing that to bypass the front desk with keyless entry and secure digital capabilities. They will also be seeking enhance sanitation and air purification standards within the yesterday, we believe the benefits that opened key and pure Willis offer will position them well begin accelerated adoption in growth that hotels nationwide. We continued to see strong growth in demand.
Alan Keyes digital key product, which Jeremy will discuss in more detail in response to cobot 19, JCB his seamlessly pivoted to offering comprehensive virtual meeting services in a seeing increasing demand for virtual events and webcast. The integrated suite of audio visual services includes virtual meetings like virtual QNX sessions with presenters web streaming webcasts.
Digital signage.
Last September we announced the formation of Ashford Securities LLC, a dedicated platform to race, we feel capital through financial intermediaries and the broker dealer channel in order to grow our existing and future platforms. Our goal for Ashford Securities is to provide the market with highly differentiated alternative investment products.
Types of capital raise may include but are not limited to preferred equity convertible preferred equity mezzanine debt or non traded REIT common equity for future platforms. We believe it is a natural fit for us.
Additionally, given ashfords brought experienced an ability to execute on many different types of logic strategies. We believe we have unique opportunity for new investors also having a dedicated fund everything platform will provide ashford and its advice platforms. An additional source of capital that is not dependent on the traditional publicly traded capital markets. We're excited to pursue a fresh source of capital.
That will help us pretty liberal older platforms over the long term and increase shareholder value and we hope to be in a position to begin raising capital later this year.
Looking ahead. These are uncertain times and our people and businesses are being impacted on an unprecedented ways. Despite these near term challenges. Our management team has deep talent and is operated at numerous economic downturns in periods of meaningful industry disruption, including 911, and the great recession, we remain optimistic about the long term prospects for our company and believe we are made.
During the right strategic decisions to position our business to be even more successful once me emerge on the other side of this pandemic.
I'll now turn the call over there.
Thanks, Bonnie net loss attributable to common stockholders for the second quarter was $16.7 million adjusted EBITDA for the second quarter was $3.2 million and adjusted net income for the second quarter was zero point $8 million.
As of June 30, 2020, we had 7.1 million fully diluted shares of common stock and units, which included 4.1 million common shares associated with our series B convertible preferred stock.
You have 2.3 million common shares issued and outstanding 0.2 million common shares earmarked for issuance under our deferred 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.
That concludes our financial review and now I'll turn it over to Jeremy.
Thank you Derek we're pleased to provide updates on our hospitality products and services businesses and how we have responded with significant measures during the second quarter in the face of the club in 19 pandemic.
As was the case cross the hospitality sector, our hospitality products and services businesses were among the hardest hit from the global pandemic.
We have faced headwinds from sharp declines in occupancy in group business at our affiliated hotel before I get into more details 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.
As the severity of the pandemic became apparent in early March our hospitality products and services executive leadership and I began an extensive review of Virginia expenses and policies around each business. We implemented brought our lives at that time and the total at the peak of the crisis, 70% of our associates were furloughed were laid off.
Hospitality products and services businesses also instituted stringent spending controls to preserve cash and reduce non critical spending.
In fact, several of our 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 hospitality products and services remains.
But to more fully explain this strategy our products and services initiative is a unique investment strategy and a hostile the industry, where we strategically invest and operating companies that serves the industry and we act as an accelerator to grow these companies and doing so we believe we are able to establish synergies for hotel platforms provide.
Providing attractive pricing and higher levels of service then they would receive from a third party vendor.
We're also able to grow our portfolio companies in a number of ways by referring them to the hotels are owned by our advisory by leveraging our vast industry relationships and by consulting on Albert Best operating practices.
The business, where we are seeing the strongest growth at the moment is open key open keep provides a bluetooth enabled block upgrade module that can be added to the existing lot at a fraction of the cost of replacing the entire lock system.
This is a very attractive option for hotels as a balanced tighter capex budget, well satisfying growing guest demand for a contact list digital check and experience.
Thank you saw a second quarter increase in <unk> revenue of approximately 51% over the prior year quarter and finished the quarter with 209 hotels under contract. This reflects a growth rate of hotels under contract of 74% over the prior year quarter and 27% over the first quarter this year.
Well recognition of booked revenue was slowed by hotel closures and travel restrictions I think he added 44 net hotels under contract and the second quarter, which represented growth of 159% over the first quarter and 193% over the prior year quarter in terms of number of net hotels added to their.
Our system.
The strong sales growth has been supported by significant shifting guess preferences utilization of digital keys increased more than 250% in the second quarter over the prior year quarter with the majority of guests from May to June opting to usually digital key when offer.
I think he works with all major hotel lock manufacturers and property management systems, and we continue to be excited about the future growth prospects for the business.
Remington is a dynamic and growing hotel management company, providing top quality service and expertise in hotel management.
Got it must be given to Remington Ceos funding and his team who have navigated challenging situations, including numerous hotel closures over the last couple of months at the beginning of the crisis Remington furloughed relate off approximately 93% of its workforce. However, as hotels reopen and people began traveling again Remington is in great shape finance.
Police ramp up its operations, we find this current moment in the industry is aiding our growth and development, which is focused on Grand Remingtons Third party business Remington is establishing strong pipeline for new third party contracts and is actively seeking more deals. Additionally, Remington prioritizes the safety of its guess associates.
As it launched the ultra touch program.
That ensures the highest cleanliness standards and rooms and public spaces for our guests.
On the financial front for the second quarter Remington realize hotel management fee revenue of $3.7 million net loss attributable to the company of 2.7 million in adjusted EBITDA of 0.6 million.
Premier Project management provides comprehensive and cost effective design development architecture procurement and project management services to the hostile 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 was furloughed.
Laid off.
But that said Premier has done a great job pivoting to incorporate multifamily business opportunities into the marketing effort and has signed up several multifamily projects. During this year. In addition, third party Hotel project management deal sign.
We expect Capex spend to rebound next year and we expect premiered to be in great position to capitalize when that occurs for the second quarter Premier had project management fee revenue of 2.1 million net loss attributable to the company of 2.4 million and adjusted EBITDA of 0.4 million.
JV as a leading single source solution for me that means with an integrated suite of audio visual services, including show and event services hospitality services Creative services and design in integration with the elimination of group travel and bookings due to the pandemic JCB was significantly impacted and had to furlough or layoff 90.
4% of its workforce during due to the lack of demand.
Due to decisive leadership by James to these executives there very well positioned to emerge from the pandemic and capitalize on opportunities that will inevitably come as groups reconvene JV was proactive and quick to retool the strategy to focus on virtual means and move up in person meetings. These have established numerous virtual showrooms.
I locations around the country and these services result in higher margins as required less labor. Additionally, JCB continues to pursue in house Hotel Abbey contracts alongside the its virtual meetings and JV has created a strong pipeline of opportunities group business returns in July GSV signed a sizable non ashford contract.
With pre cope with revenues of $800000 and 40000 square feet of means space.
Red hostile the and leisure is a leading provider of watersports activities and other travel and transportation services in the U.S. Virgin Islands in key West, Florida, Red also face reductions in bookings and trips from both markets and took actions to furlough or layoff, 85% of its workforce. During this pandemic. Nevertheless, we believe key west will emerge.
Faster than most markets and as a drive to market, we expect leisure business to pick up from guest driving into key west more quickly compared to the U.S. we are.
The ability for the USPI to rebound is somewhat limited given the airline.
Well if requirement, but we see it benefiting by the strong business, we anticipate at the Westins timeshare property.
Taken together, we are optimistic about Reds ability to navigate the pandemic further we have plans to expand into Sarah into the Sarasota market as it really is Q4 2020. Additionally, Chris Bachelor our CEO Red is working on some exciting business development opportunities in Florida, and the Caribbean and we hope to be able to discuss those on future calls.
Sure well. This is also seeing strong opportunities first products in this pandemic environment for wellness is the industry, leading leader and wellness applications and is shifting its business from hypo allergenic rooms to a suite of services designed to eliminate viruses bacteria and other harmful can't contaminants within guest rooms, and public spaces well pay.
Your wellness will still offer his signature pure room for hotels, which includes the medical grade virus, killing air purification system. It is designed cleaning protocols that can be rolled out to hotel remediation cleaning service for areas infected by the virus a proactive electrostatic spray protocol the provides a growth.
Inhibiting protective Blair.
Pure wellness uses only products that are EPA registered and CDC approved for use against Koby 19.
Lastly, thus far this year Ashford trust in Bray more entered into agreements with lives more capital for lives more to seek modifications forbearances refinancing of the rate debt totaling approximately $5.1 billion across 40 different located 40 different loans, we've re allocated significant costs.
Corporate resources to this effort and have already completed several forbearance agreement given the rigs much needed flexibility in order to meet requirement under the the respective loans during the quarter, we booked 1.3 million in fees associated with these agreements. We will continue to have significant corporate resources focused on this.
The effort going forward that concludes our prepared remarks, and we'll now open the call up for Tonight.
Thank you ladies and gentlemen at this time will be conducting our question and answer session.
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Our first question comes from Tyler.
Battery with Janney capital markets. Please state your question.
Thank you good morning.
First question I have is just on opening TD and on pure rooms, as well I mean, both from those two businesses seem to be doing quite well. They certainly fit in with the current environment can you talk a little bit more about.
The competitive environment and both of those two businesses in your I know, they're small right now in terms of revenue contribution, but helps frame and help us think if you could.
The longer term growth control of both of these two segments.
Jeremy why don't you take that.
Question, Yeah, Yeah, sure I'll I'll start with pure.
Your main competitor would be just.
Onetime protocols, where are you going you disinfect.
Room or public space.
A competitive advantage that they have this differentiated is that they have a pure shield, which is as we've mentioned is more of a proactive.
Method that not only you know sanitizes around but also.
Habits the ability for.
Bacteria and viruses to grow and so it's very attractive product.
For an ongoing treatment and protective measure for a safe guest day.
As it relates to open key.
There's a few others that are out there that.
And then have tried with with limited success I.
I think that they are very uniquely position because you know that have this module that just is really just a plug and play.
On top of any lock system and.
It did take I mean this is yeah. This is us incubating and technology company with really limited technology experience, but we hired an incredible CEO.
Okay person and we have built I think you an incredible product in a credible guest experience I was at Pier House recently and.
Landed went straight to my Ram didn't go to the front desk didn't have to checking hotel.
And it's just a great.
Experience for the guest and it's very unique I think that there are some other folks have tried other other systems, but they just don't seem to work as well as what open. He does and then also in a lot of cases, you know require a wholesale walk replacement and so the module just being very low cost.
Method for for folks to upgrade their system.
Yeah, and be able to offer both RF I'd without having to buy in our five you lot or you know utilize the the open keep system I think it's a really good advantage. It we've got and then turn to retire Tyler you traveled somewhere odell.
Yes, good one of our independent and use it for yourself and I think it'd be very pleased with the experience.
Okay, I'll definitely I will definitely do that.
Just a follow up.
On the the Ashford security platform, what's the latest update on that and our current market conditions impacting how you're thinking about utilization of a Ashford securities.
Yeah, I can I can take that amount if you want to chime in after this we can't Fortunately just because the the nature of the because we can't comment on any specific offering.
Just a there's FINRA rules against that but I can talk generally about the platform and a and what we've built here I think is an incredible platform with a incredible.
Folks and talent our team has raised billions of dollars of capital historically very successfully in the hospitality sector as well and this alternative.
That's one space.
Obviously.
On the market has been disruptive and there has been some challenges you know recently in the in the market, but the low point for capital raising was was April and May as has been.
You know how did this amount of increase in June and and one of the other.
Companies. It is raising an entre preferred which is a a type of security that he may be to me that we would like to like to raise for one of our platforms are there cabarets actually up year over year today, So I think that there's an.
An appetite for our product and our potential products and I think we've got a great team. So in terms of when we would actually be in the market.
It's delayed from what we.
Originally wanted which was going to be April this year, it's probably late Q4 or early next year.
And you know the plan is not only to have just one product, but multiple products and create new platforms and have I think is very attractive.
You know investment security that we will be able to sell and deliver quality returns to investors.
Okay, very good and obviously it fuels growth for.
Oh Ashford.
All our advisory services, but also our related products and services as well, which I think is great.
Okay, great. Thank you very much.
Thank you just a reminder to ask a question press star one on your telephone keypad.
Sure move yourself from the Q press star to on your telephone keypad.
Our next question comes from Bryan Maher with B Riley FBR. Please state your question.
Good afternoon, a couple of question, but but kind of a big one.
You could address each of kind of the three big components.
To the layoffs I think Remington was 93% of workforce for me I think I heard that 3% in.
Yes audio visual 94%.
What are you looking or in the way of triggers out there you know data point that the.
To start to bring some of those employees back on how far to Dan you have to start doing that and what are the prospects that you can get back kind of all the level of people that you need that may have gone or may be going off and doing something else you can walk.
Each of those three Big Division.
Well Oh.
Hello, This is montiel well hit on them and.
Jeremy feud clean up here, one for the ones that I don't don't hit.
Unsurprisingly, Brian it's it's demand based and.
As we see business coming back.
We start to bring people back and try to plan accordingly.
We were off to a nice trajectory of business coming back.
With the low that's being made but that to come back.
Trajectory has slowed down with the emergence of these.
New cobot cases in the in it and the second wave so to speak that's coming around.
So we just do the best we can't forecast what business levels are going to be next week and the next month and then starting to bring people on accordingly and to.
The ones that we don't think we'll be able to.
Pullback for quite some time or bring back for quite some time, we have already have laid off and let go so that they know that they can go CECO alternatives.
We still have quite a few that are furloughed. So we reach out to those that are for furloughed and plano them coming back and we give it a little notice and.
And have them come and.
By and large the team has been able to two to do this pretty effectively and to bring them on you know as that business returns and so it said I think it's a process.
That anyone would do in trying to bring these people back.
In some cases, we do have people that hub.
You don't respond to the.
Initiative to come back.
For whatever reason and in those cases, we moved down there for listed.
Bring back the next person and so at this point in time that hasn't been an issue and it hasn't been significant number folks that have.
We've had to Passover, but it does happen.
But there hasn't been any problem with us.
A number of those people back.
Yeah, and I'll, just add a few points and it's not only in issue a Brian you know for Remington or JV or read or any of our subsidiary companies. It's also you know an issue or.
You know situation that we have with our brand managed properties as well.
Done the same thing to brand managed properties, where we've cut back our staff significantly and so.
One of the things that we do at Ashford and it's one of our core principles is engaging and and we have a high level of engagement with the furloughed associates and some of our platforms. We have weekly calls not only with ER.
Employed associates, but also our furloughed employees associates and were very matter of fact with them and ER and tell them you know what what what the situation is and what we're trying to do to to do what we can to bring them back but I do think that that is something that we've done a fantastic job honest is staying engaged not only with.
Our are you know employed associates, but also the furloughed associates, so that when we do have opportunities.
We can do a very quickly and ramp very quickly as demand.
Continues to come back overtime, and so I think it's a fluid situation elson varies a little bit by our businesses Red is little bit different because it's a red has a lot of.
Basically contract employees and we're moving towards that model more so a JV as well, which means that if we don't have the business or we don't run the trip a you know the boat trip. Then then the captain you know doesn't get paid that day and so it's a it's a little bit more flexible business model as well.
Yeah, I was thinking a little bit more along the line.
Take anything away from from the line hotel employees, but there are no literally millions of them.
But more along the lines of the project management, you know maybe more senior project management people, maybe more senior Jay if the people have those people being kept on the books or keeping you keeping very close to them because I'm sure that they're probably going to be very instrumental in ramping those businesses.
As demand comes back.
Yeah, we haven't we haven't furloughed any of our senior leadership at any of our businesses.
Our team as we built up a incredible leadership at all our business is something that I think that money and I are very very proud of and so we've got a great leadership across the board.
And so we've kept we've kept the you know the senior leadership.
Yeah, but in cases like you mentioned for James to be a lot of that is going to be more on the property level basis, where you might have a property director that we've had a furlough until there's group demand at the hotel, but in terms of the core infrastructure of each one of these businesses. The leadership team is there a and as it relates to Premier specifically you asked about project.
Managers product managers, a lot of cases typically tend to be freelance workers and lot of cases, we were at a different model at premier where we had them on our staff and have them employed.
And unfortunately, just with the lack of a volume we've had to let some of them go or furlough them, but I think that that's a a the easy place for us to Remobilize once business reasons. We've done this before we did this during the great great recession, we had to cut back on our capex spend than a and I think that we rebuilt.
With that business back very aggressively and very quickly.
One of the things I think that differentiates premier from other businesses and the spaces that we have I think a industry leading world class design team and that design team is still intact that leadership is still intact.
So I think that you know we've done a good job, making sure that we've kept the very very top talent across the board at all levels are and that we have the ability to demobilize very quickly as business resumes.
Got it back and shifting gears and maybe this is question for Derek.
But how should we think about.
Really not in the case of RAMAR, because it seems reasonably well positioned and and probably not going to lose any hotel in this pandemic, but Ashford trust is probably going to start losing hotel maybe as soon as in August how should we think about the E payments to Ashford own from.
Trust.
Oh, the the portfolio.
More specifically if any of the RFP hotel lead the portfolio.
This is a month to you you may be a weird, Brian that there's a certain floors and minimums that to.
Ashford Trust must pay to Ashford inc. as even this.
Assets may decline over to Ashford Trust and that was part of the trade of.
Of the RFP money and of those details or are in our filings and maybe offline. We can give you some.
Some further details of those.
That being said that to.
Ashford Inc. is committed to both of these platforms into.
Helping them survive and thrive and so to the extent to Ashford inc. needs to be flexible in any of these situations then.
It will be.
Because that's as fittings commitment to these platforms.
So I.
I think from a requirement standpoint.
And a guarantee standpoint, Ashford Nixon in good shape, but to Ashford Inc.
Tends to to support these platforms, especially can with it caveat that all these types of decisions are made by the independent directors and not to the folks on the phone here.
Alright, great. Thank you.
Thank you.
That concludes today's Ashford incorporated second quarter 2020 results conference call. All parties may disconnect have a good day.