Q3 2020 Ashford Inc Earnings Call
Greetings and welcome to the <unk> Group incorporated third quarter 2020 results conference call.
This time, all participants are in a listen only mode.
<unk> session will follow the formal presentation.
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I'll now turn the conference over to your host Ms., Jordan Jennings Investor Relations for accurate you may begin.
Good day, everyone and welcome to today's conference call to review our results for Ashford for third quarter of 2020 and to update you on recent developments on the call today, we'll be Jeremy Welter, President and Chief operating Officer, and Deric Eubanks, Chief Financial Officer, you results as well as notice of the stability of this conference call.
On a listen only basis over the Internet were just to read yesterday in our press release.
At this time.
Thank 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 regulations such.
Such forward looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from then those anticipated. These factors are more fully discussed in the Companys filings with the Securities and Exchange Commission before looking statements included in this conference call early made as of the date.
This call and the company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on form 8-K with the FTC on October 28, 2020 and May also be accessed is it.
Companies website at Www Dot I pretty dot com.
Each listener is encouraged to review those reconciliations 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 third quarter of 2020 with the third quarter of 2018, I will now turn the call over to Jeremy.
Good morning, and welcome to our call to discuss our financial results for the third quarter of 2020.
I'll begin by discussing Ashfords operations strategy and response in light of the ongoing COVID-19 pandemic.
Afterward, Derek will review our financial results, then I will provide an update regarding our hospitality <unk> products and services businesses.
And then we will open it up for <unk>.
I want to begin by thanking our senior management team as well as the thousands of associates, who have been at our side. During this unprecedented time.
I can't tell you how proud I am upper executive leadership team as well as our associates spread out across the country.
They have all experienced some serious hardships whether it be reducing other pay reducing a bonuses long.
Long hours like the furloughs or many cases outright terminations.
Through this difficult time, they've shown great resilience in energy.
My deepest gratitude to to you all.
Due to the pandemic, we've adjusted the way, we operate and how we manage the company and its existing advisory platforms.
As well as our portfolio of products and services businesses.
Our top priority has been to protect the health and safety of our associates and guess well at the same time mitigating the impact on our business.
We remain diligently focused on our priorities and had been managing our decisions in coordination with the responsibility to all of our stakeholders.
This includes an unwavering commitment to protect the value of our shareholders.
Reflecting that commitment we've taken steps to maintain our financial flexibility and implemented meaningful cost saving measures.
Hotels that we asset manage and our products and services businesses have experienced widespread disruption during this pandemic.
We've implemented significant cost cutting measures at our hotels in a products and services business is designed to enhance.
The financial flexibility.
Well remain focused on their long term growth.
And competitive position.
Ashford advisers to publicly traded Replatformed.
Ashford Trust and brain Maher.
Together out 116 hotels.
Approximately 26000 rooms.
And approximately $7.2 billion of gross assets.
As of September Thirtyth 2020.
Although operations were suspended at some properties during the peak of the pandemic all Abry more hotels are currently open and operating.
And all but two of Ashford Trust hotels are open and operating.
[music].
Both Remington in Premier project management continued to execute on their long term growth strategies well.
Well, making the decisions necessary to ensure.
At the end of the crisis, they both remain strong vibrant company.
They both have adopted a stringent focus on reducing expenses, which is included in instituting pay cuts for executives.
Furloughing or living eliminating a large number of associates and significantly reducing discretionary spending.
In short those businesses are taking the necessary actions to navigate this pandemic and position themselves for a successful future.
We continue to believe that these two businesses are well positioned to achieve growth through third party channels.
The industry is incredibly fragmented and both Remington a premier have solid reputation historically have not focused on third party business.
Safford has really just started but.
Well, we've seen strong early momentum with Remington signing four new hotel management contracts with third Party hotel owners and Premier project management, signing seven New third party contracts.
Looking ahead, we're extremely excited about the long term opportunity for third party growth.
Both ready 10 premiere.
Periods of dislocation and volatility have created new opportunities for growth for us.
Example, the American Hotel margin Association recently released its safe state guidelines for hotel guests.
Do you have the main components of these guidelines include guests choosing contact lists options.
Requesting enhanced cleaning options.
We believe the products offered by open key impure well mass are well positioned to thrive in this environment.
Its hospitality industry strives to implement measures spurred by a clean and safe environment here.
Many hotels and gas will be seeking automatic check in allowing them to bypass the front desk with keyless entry and secure digital key capabilities.
It will also be seeking enhance invitation and air purification standards within the gas from.
We believe the benefits it open key in pure wellness offer will position them well to achieve accelerated adoption and growth at hotels.
Nationwide, we continue to see strong growth in demand for <unk> digital key product, which I will discuss in more detail.
In response to COVID-19, JV has pivoted to offering comprehensive virtual me main services.
And it's seen increasing demand for virtual events and Webcasts.
They are integrated suite of audio visual services includes virtual meetings.
Hi, virtual kinase actions with presenters web streaming web cast and digital signage.
Additionally earlier this year, Ashford trust and prime or entered into agreements, but there's more capital for those more to seek modifications.
Forbearances worried.
Well refinancings or the reach debt totaling approximately 5.1 billion.
Across 40 different Mount.
We have reallocated significant corporate resources to this effort.
And have already completed several forbearance agreements given the returns.
Much needed flexibility in order to meet requirements under the respective logs.
Looking ahead. These are uncertain times, and our people and businesses are being impacted and unprecedented ways.
Despite these near term challenges our management team has deep talent and is operated in numerous economic downturns in periods of meaningful industry disruption.
80, 911, and the great recession.
We remain optimistic about the long term prospects for our company and believe we are making the right strategic decisions pertinent to position our business.
To be even more successful once we emerge on the other side of this pandemic.
I will now turn the call over to Derek.
Thanks, Jeremy.
Net loss attributable to common stockholders for the third quarter was $22 million.
Adjusted EBITDA for the third quarter was $6.8 million and adjusted net income for the third quarter was $2.8 million.
In terms of financial results for our portfolio of businesses I'll provide some highlights and then Jeremy will discuss more details.
What's more recorded revenue of $4 million in the quarter related to its agreements with Ashford Trust and Bryan Maher to seek modifications and forbearance for the read that.
We're making unrealized hotel management fee revenue of $3.8 million in the quarter net loss attributable to the company of $3.3 million.
And adjusted EBITDA.
Zero point $9 billion.
For the third quarter Premier had project management fee revenue of $1.8 million net loss attributable to the company up $2.4 million and adjusted EBITDA of zero point $2 million.
Open key saw a year to date revenue through the third quarter increased by 51% over the prior year period and finished the quarter with 216 hotels under contract.
Well recognition of book revenue was slowed by hotel closures and travel restrictions open he added seven hotels under contract in the third quarter, which represented growth of 46% over the prior year quarter.
The strong sales growth has been supported by a significant shift in guest preferences.
Elimination of digital keys increased by 196% in the third quarter over the prior year quarter with the majority of gas from July to September opting to use a digital key went offer.
Financial results for J S. A V for the third quarter included revenue of $3.1 million net loss attributable to the company of $2.4 million and adjusted EBITDA of negative $1.2 million.
As of September 32020, we had 7.5 million fully diluted shares of common stock and units, which included 4.1 million common shares associated with our series D convertible preferred stock, we had 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 option associated with the minority interest of our strategic investments acquisition related shares at some restricted stock I will now turn the call back over to Jeremy.
Thank you Derek we're pleased to provide an update on our hospitality products and services businesses and how we have responded with significant measures during the third quarter in the face of the COVID-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 in group business at are advised hotels.
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 and challenging times.
As the seriousness of the pandemic Biggie became more apparent in early March.
Hi, static products and services executive leadership, and I began extensive review of our DNA expenses and policies around each business.
We implemented a broad furloughs at that time and in total at the peak of the crisis, 70% of our associates were furloughed or termed.
I studied products and services businesses also implemented stringent spending controls preserve cash and reduce non critical spending which we continue to this day.
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 the strategy our products and services initiative is a very unique investment strategy in a hostile the industry.
Where we strategically invest in operating companies the service the industry and we act as an accelerator to grow these companies.
In doing so we believe were able to establish synergies for a hotel platforms, providing attractive pricing and higher levels of service then they would receive from a third party vendor.
We were also able to grow our portfolio companies in a number of ways are referring them to the hotels owned by <unk> advised reached.
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 red hospitality.
Good hospitality and leisure is the leading provider of water sports activities and other travel and transportation services and U.S. Virgin Islands in key West Florida.
Read also face reductions in bookings and trips from both markets and took actions to furlough or term 85% of its workforce during this pandemic.
Well the key west market Red had a very strong quarter capped off with a record breaking September driven by strong leisure demand.
Great anticipate the key West will continue this strong performance.
During the fall and as Dr., Tim as you drive to market, we expect leisure business to pick up from gas driving into key west more quickly compared to the U.S. <unk>.
The ability for the U.S.C.B. I to rebound is somewhat limited given the year that requirement but.
But we see it benefiting by the strong business, we anticipate at the Westin timeshare property.
Taken together, we are optimistic about Reds ability to navigate this pandemic.
Further we have plans to expand into the Sarasota market in 2021.
Additionally, Chris Bachelor our CEO I've read is working on some exciting business development opportunities in Florida, and the Caribbean, We hope to be able to discuss those on future calls.
Profitability for the quarter was adversely affected.
Due to the U.S. Virgin Islands closing for 30 days in response to a spike in covet cases.
Open key is a leading provider of Bluetooth enabled block upgrade module that can be added to existing lots at a fraction of the cost of replacing the entire lock system.
This is a very attractive option for hotels as they balance tighter capex budgets well satisfying growth guest.
Yes demand for a contact less digital check in experience.
Oh I think he works with all major hotel lock manufacturers and property management systems, we continue to be excited about the future growth prospects for the business.
Pure wellness is also seeing strong opportunities for its products and this pandemic environment.
Your wellness is the industry leader in wellness applications and is shifting its focus from hypoallergenic rooms to a suite of services designed to eliminate viruses bacteria and other contaminates within guest rooms and public spaces.
Well pure wellness will still offer his signature pure room for hotels, which includes the medical grade virus, killing air purification system. It.
It is designed claimed protocols that can be rolled out two hotels remediation cleaning service for Aries infected by the virus and.
And it proactive electrostatic spray protocol.
Provide <unk> wrote inhibiting protective layer.
Pure wellness uses only chemical sprayed said or EPA registered and CDC approved for use against COVID-19.
Remington is a dynamic and growing hotel management company, providing top quality service and expertise.
Credit must be given to Remington CEO Sloan Dean and his team navigated challenging situations, including numerous hotel closures over the last couple of months.
At the beginning of the crisis, Remington furloughed or termed approximately 93% of its workforce.
However, as hotels reopened and people began traveling again Remington is in great shape financially to ramp up its hotel operations added 77 managed hotels in 23 States and Washington, D.C. across 15 brands, including 12 independent boutique properties.
The finest current moment any industry is aiding our growth and development, which is focused on growing Remington third party business.
EBITDA established a strong pipeline for new third party contracts and is actively seeking more deals.
Additionally, Remington prioritizes the safety of its guests and associates as it launched the ultra touch program that strives for the highest cleanliness standards and rooms and public spaces for hotel guests.
Premier Project management provides comprehensive and cost effective design development architecture procurement.
And project management services to the hospitality industry for.
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 or termed but.
But that said Premier has done a great job pivoting to incorporate multifamily business opportunities into the marketing efforts and they signed up several multifamily projects. During this year. In addition to third Party Hotel project management deal sign.
In total Premier has signed up seven non Ashford projects. This year and has a strong pipeline to add more to finish the year.
We expect capital investment to rebound and we expect from air to be in great position to capitalize when that occurs.
He is a leading single source solution for medium that need with an integrated suite of audio visual services, including show in event services hospitality services greatest services and design and integration.
But the elimination of group travel and bookings due to the pandemic JCB was significantly impacted and had a furlough or term 94% of its workforce.
Due to the lack of demand.
Jay City was proactive equate to retool that strategy.
Focus on virtual meetings and live in person meetings.
They have established numerous virtual showrooms.
Locations around the country and these services result in higher margins as it requires less labor.
Question on JCB continues to pursue in house hotel Abby contracts alongside his virtual meetings JV has created a strong pipeline of opportunities as group business returns.
He has done a great job to reduce its variable costs. However, profitability was adversely affected this quarter due to fixed cost associated with its core business that we expect to rebound in 2021.
That concludes our prepared remarks, and we'll now open the call for today.
And at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you act to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
And our first question is from Bryan Mayer with B. Riley Securities. Please proceed with your question.
Good afternoon, two two housekeeping kind of items, maybe for Derrick and then a bigger picture.
On the EBITDA adjustment line, there was a six and a half million dollar.
Loss on disposal assets, what was that related to Gary.
Yeah, Brian that relates to EPS, if any that was associated with the embassy suites, New York Manhattan as part of our ERP program.
That Ashford Inc. acquired that funny as part of that RFP and when that asset was given back to the lender Ashford Inc. had to had to write that off so.
Ashford Inc. still got the tax benefit from the ERP contribution but.
But from an accounting and GAAP standpoint, just had to had to write that off but that was still on our books.
Based on a lease that we do as part of that ERP program.
Great. That's helpful. And then the other expense line was unusually big this quarter what was tucked in there that that made that go up.
Well see.
Looking at other expense on the income statement.
Correct.
[noise], there's like a little over nine.
We had been looking for around two and yeah.
Yeah, I mean, a lot of that is a function of.
The the fact that.
Oh I don't see.
[noise] just looking at the FX.
Yeah, I didn't mean to catch on that if you want to call me later, we think we can go over that that line item.
Yes, let me.
Let me, let me circle back with you on that upper ahead of time to dig into it I'm just trying to step that that could be up where that.
Where that.
That losses hitting.
But let me let me, let me get circle back with you on that.
Great and then.
On a bigger picture question is there an opportunity for Remington.
Add assets get handed back to lenders our CMBS servicers over the next couple of months couple of quarters.
To possibly be higher too.
Or manage that while those properties are looking for a new home is that a type of business that you explore and what's the opportunity there.
Yeah, definitely and Thats, where the focus is for yes, remingtons growth is transactions transactions facilitate a need or an opportunity you know to change property management companies, whether it be transactions, where lender takes control of an asset or if an asset is sold and so.
Our business development team at Remington is spending a lot of times not only with the with.
With lenders, but also potential.
You know private equity partners and they they spent a lot of time actually just underwriting deals on behalf of a company.
Companies or businesses or lenders that are looking to potentially you know.
Fire or step in the shoes, a as an owner and so that's just a very important part of our business and and that's very active right now.
Okay, and just lastly for me on the preferred dividend.
There's been some kind of movement, there with partial payment than a catch up and then in the <unk> and then in a payment and then kind of the catch up what does management thought of the preferred dividend, which is kind of sizable relative to try to maintain a decent cash position and might we see some type of conversion there.
Our activity there.
Well, Brian This is Derek I mean, I can I can tell you that there is a.
There is an incentive for the company to pay the preferred and that if it is not paid for two consecutive quarters that it began to accrue at a higher rate and so.
Thats kind of explains why we've done what we've done to this point.
I would say going forward.
It's going to be up to the board in terms of those those dividend declarations going forward, but that's that's why you saw one quarter be paid in full and and then one quarter are not paid.
And then one quarter paid again.
So so so just to be clear, if you kind of skip a quarter.
Oh man pay don't pay pay downs pay then that rate does not increase but yet you still accrue owing the dividends on that to be paid at a later date is that a proper read yes, that's correct.
Okay. Thank you that's all for me thanks.
Thanks, Brian.
Hey, Brian and let me I just wanted to confirm that that other expense line item is where that loss on disposal of assets was hitting.
Got it thank you.
And again if anyone has any questions. You May proceed star one on your telephone keypad doing so will ensure that you're in the question queue.
And our next question is from kind of the battery with Janney capital markets. Please proceed with your question.
Hey, good morning, I. Appreciate you taking my question just warm really for me. This is more just when you look at the broader competitive environment within some of your hospitality products and services businesses. Obviously, you guys are well capitalized owner.
Number of use these businesses here I mean are you starting to see any sort of dislocation and some of the markets from your competitors in the Union.
Your competitors going out of business, Yeah, we've got a potential opportunity for you on either the acquisition side or potential opportunity to grow and add some incremental revenue opportunities just to your maybe take some business away from some of the other other competitors.
We are out there.
Yeah I appreciate it just Jeremy Yeah of course, there's a this is this pandemic in the in our industry has decimated industry and has been impactful too to every operator or a across the board.
But you're right we've done a we've done a good job we feel at Ashford, a you know cutting cost and putting ourselves in position for growth and that's what we're looking for to there.
There are definitely opportunities are out there and who we can go by you know probably the best way to look at is by business segment, let's start with with Red we have identified a lots of very attractive potential.
Acquisitions for Rad that or we may pursue a and I think that they you know are they the ones we've done the past.
Generate pretty high attractive cash on cash returns for our investors.
So that there's there's definitely opportunities there Remington is has opportunity not only just Sam just third party business, but but there are some acquisition opportunities out there you know what it comes down to is access to capital for us as well, but but that you know there could be opportunities and we have had some discussion.
But they're all very very preliminary at this point are.
There are opportunities that we potentially could raise capital.
Yeah, and do a JV with some of our businesses as well, which I think can be attractive.
Yeah like a JV.
Yeah, there's really what's interesting there is that you obviously know the PSV encore merger and there the 800 pound gorilla in the space.
But what what slowly has happened over time or maybe not slowly I mean, we kind of accelerate the growth when we bought shares to be in 2017, which was a company that we didn't even know existed. It was yeah. We had a search for an acquisition opportunity for audio visual and it just so happens we found one our backyard.
The owner of the company actually lived in my neighborhood and so it's very unusual and we bought the company and we accelerated the growth pretty significantly and we've got an incredible team that we've built there I think you know.
As good as the management team as it exists.
But they've slowly become or like I said, maybe quickly became the second largest avi provider and so they're a good alternative for a lot of owners that want you know maybe a <unk> another option and and certainly that space has been the most hardest impacted at all our businesses because.
Obviously events in group names just aren't taking place.
And so I think that you know when you look at this.
The smaller competitors, there's definitely going to be some opportunities to.
To capture share there I don't know that would make sense to buy any business. There just because I think that the opportunities going existed to just do it at a much much more cost effective way of just you know the old fashion.
Way to grow and.
Our our CEO.
At at JCB, you know did did come with a noncompete initially and that is burned off his background is.
To to sell third party business.
He's he's great at it and and so we anticipate that he's going to be focused very much on growing outside of our advisory platforms and and actually when you look at each one you know one of the things. We we spent money and I over the last couple of years as Weve kind of developed this process yet hospitality cracks in sales.
Mrs businesses is that we have delta did very top level sales oriented leaders and and if you knew each one of the Ceos are all focused heavily on sales. We've got incredible sales marketing plans that we're putting in place right now that we're finalizing the kind of look at a five year growth plan and.
Each one of them I think is uniquely positioned to grow outsize outsider advice reached a premier as well primarily just we just recently during the pandemic hardly new CEO there and his name is Hector Sanchez. He is very talented and he's done a very good job of kind of retooling that business to grow.
Really focus on third party growth, so I I am optimistic and then and then there is up in key yeah, which.
Have you seen that theres been a lot of demand there as well and we're working on some some potential you know a large.
Large partnerships, there where we can do you know.
System wide potential upgrades, a box and so I.
I I think that we've got a good group of products and services and I think they're all uniquely positioned for growth and I think there is also the opportunity for us to expand in other business lines as well, which we continue to look at.
Okay I appreciate all that detail is.
Very helpful I'll leave it there thank you.
And we have reached the end of the question and answer session and this also concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.