Q1 2022 Ashford Inc Earnings Call
Greetings and welcome to the Ashford, Inc. First quarter 2022 results conference call. At this time, all participants are in a listen only mode.
And answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Now I'll turn the conference over to your host Jordan Jennings manager of Investor Relations you may begin.
Good day, everyone and welcome to today's conference call to review results for Ashford for the first quarter 2022 and to update you on recent developments.
On the call today will be Eric Eubanks, Chief Financial Officer, and Erik <unk>, managing director and senior Vice President of portfolio management.
Results as well as notice of accessibility of this call.
This call on a listen only basis over the Internet were distributed yesterday in a press release.
At this time, let me remind you that certain statements and assumptions in 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 forward looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated.
These factors are more fully discussed any company's filings with the securities and Exchange Commission.
Forward looking statements, including this conference call are only made as of the date of 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 table or schedules, which have been filed on form 8-K.
The SEC on May four 2022, and May also be accessed the company's website at Www Dot Ashford, Inc. Dot com.
Listeners are 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 compare the first quarter of 2020 with the first quarter of 2021, I will now turn the call over to Derek.
Good morning, and welcome to our call to discuss our financial results for the first quarter 2022.
I'll start by giving you an overview of our operations strategy and financial results for the quarter and then Eric will provide an update regarding our operating businesses.
After that we will open it up for Q&A.
We have a lot of exciting developments to discuss on today's call.
The key themes, we're going to highlight today are first the recovery in the lodging industry continues to gain momentum while the year started off a little slow we saw demand trends ramp up quickly in mid late February and that strength has continued into the second quarter.
Both of our advised REIT platforms are on solid footing.
Trust has significant liquidity recently reinstated as preferred dividends and filed an S. Three with the SEC for the future offering of its non traded preferred stock.
Braemar is back on offense in growing with its recent acquisition of the Ritz Carlton Reserve Dorado Beach in Puerto Rico.
Second we continue to see strong results of our third party growth initiative highlighted with Remington as recent acquisition of Chesapeake hospitality, which added 33rd party hotels derivatives portfolio.
Remington is mix of third party hotels under management now stands at approximately 40% and Eric will discuss more details around this transformational transaction in a minute.
Third through our focus on growing AUM.
We have been successful in raising substantial amounts of capital and continue to ramp up our capital raising efforts at Ashford Securities.
In fact, when comparing the first three quarters of capital raising in the broker dealer channel for non traded preferred stock Ashford Securities is significantly outpacing its peers.
Fourth as of the end of the first quarter, our trailing 12 month adjusted EBITDA is now $57 $7 million, which is nearly back to our pro forma 2019, adjusted EBITDA level, and we continue to be well positioned for future growth.
Last year for the first time in our history as a public company. We provided long term guidance for what we expected our adjusted EBITDA to be for 2023 and 2025.
While we have historically not providing earnings guidance, we felt that it was important for the market to better understand the growth potential for our platform over the long term.
As a result of the improved recovery, we've been seeing in the hospitality industry, along with significant progress that we've made on our growth strategies yesterday, we updated those projections.
Our updated guidance includes projections for adjusted EBITDA for the calendar years 2023 through 2026.
Our current projection for adjusted EBITDA in 2023 is $70 million, which is a 25% increase above our previous guidance.
These projections are driven by the continued recovery we are seeing in the hospitality industry. The continued ramp up of Ashford securities and growth in our assets under management.
And continued growth in our third party business for our portfolio companies.
We encourage investors and analysts to review the projections, which can be found in a presentation on our website.
Our two publicly traded REIT platforms, Ashford Trust and Braemar owned 115 hotels with approximately 26000 rooms and had approximately $7 9 billion of gross assets as of March 31 2022.
Braemar is currently benefiting from its focus on the luxury segment and specifically its luxury resorts.
<unk> continues to report industry, leading results in its first quarter results significantly exceeded its 2019 results.
<unk> also announced the reinstatement of its quarterly common stock dividend and completed its second acquisition of the cycle with the 96 room Ritz Carlton Reserve Dorado Beach, and Dorado, Puerto Rico Asher.
Ashford Trust has significantly deleverage its balance sheet is now paying interest current on its strategic financing is paying its preferred dividends and filed a registration statement in early March for the future offering of our series J and series K redeemable non traded preferred stock, which will be issued through Ashford securities.
Ashford Trust also continued to maintain a significant cash balance which ended the quarter at $549 million and remain encouraged by the positive momentum in its portfolio.
Looking ahead, both platforms now have significant liquidity and with both re stabilized and performing well. We believe both are well positioned for the continued recovery of the hotel industry and we remain focused on their future strategic objectives.
Our strategy and structure is designed for growth we have a powerful ecosystem of businesses that all benefit as we grow our assets under management.
We estimate that for every $100 million increase in AUM, our adjusted EBITDA would increase approximately $1 million our size and scale in the lodging industry also brings benefits to third party owners and other capital providers.
We believe we have a superior strategy and structure that is unique within the hospitality space and we're excited about the potential future growth of our platform.
I'll now turn to our financial results for the quarter.
Net loss attributable to common stockholders for the first quarter was $8 $4 million.
Adjusted EBITDA was $14 $9 million, an increase of 170% over the prior year quarter.
Our strong growth in adjusted EBITDA for the quarter was driven by a REIT advisory business and improved financial performance that inspire Remington premier and Red hospitality.
We are particularly excited to report $3 9 million of adjusted EBITDA for inspire in the first quarter. We are seeing an acceleration in the bookings for group events and inspire is well positioned to continue to benefit from that recovery.
In terms of growth in adjusted EBITDA over the prior year. Our performance was led by inspire with an increase of $5 $3 million than Remington with an increase of $2 million and then premier with an increase of $1 7 million adjusted net.
Income for the quarter was $11 $2 million and adjusted net income per share was $1 50.
These results reflect growth rates over the prior year of 134% and 131% respectively.
Our share count currently stands at $7 6 million fully diluted shares outstanding which is comprised of $3 1 million common shares outstanding.
0.2 million common shares earmarked for issuance under our deferred compensation plan for.
$4 1 million common shares associated with our series D convertible preferred stock.
0.1 million common shares associated with preferred op units issued as part of the Chesapeake acquisition that closed after the end of the first quarter and the balance is primarily restricted stock.
Subsequent to the end of the quarter, we entered into a new $100 million corporate term loan.
The corporate financing commitment has an initial term of five years with three one year extension options subject to the satisfaction of certain conditions and bears interest at a rate of LIBOR plus 735%.
At closing, we drew down $50 million and have the option to draw the additional $50 million over the next 24 months.
We currently have $70 million drawn on this mark.
Additionally, subsequent to the end of the quarter Ashford Board of directors declared cash dividends for our series D convertible preferred stock, reflecting accrued and unpaid dividends for the quarters ending June 32020, and December 31 2020.
We paid an aggregate cash dividend.
<unk> nine <unk> 90, <unk> per share on April 15th 2022, representing approximately 50% of the accrued dividends we.
We hope to be in a position to pay the remaining accrued preferred dividends sometime during 2023 and going forward, we plan to keep the preferred dividend payments current.
I'll now turn the call over to Eric to discuss our operating businesses in more detail.
Thank you Derek we're excited to provide updates on our products and services businesses. Our continued rapid recovery coming out of the pandemic makes us even more confident in the opportunities ahead and what these businesses can be tough.
As a reminder, our products and services Division is a unique investment strategy in the hospitality industry, where we aim to accelerate growth and create shareholder value through the implementation of best operating practices and the execution of accretive acquisitions.
We are also able to utilize our extensive relationships and refer these businesses to our advised Reits ensuring their hotels receive exceptional service, while optimizing financial performance.
The first business I'd like to discuss is red hospitality and leisure a leading provider of watersports activities and other travel services in the U S. Virgin Islands, Puerto Rico key west in Turks and Caicos.
In the first quarter Red generated $6 million of revenue and $1 3 million of adjusted EBITDA, representing 32, 5% revenue growth over the prior year quarter, and achieving a 22% margin.
<unk> had a record year in 2021 and continues to benefit from strong leisure demand in its markets.
Lastly, red continues to explore inorganic M&A opportunities to rapidly scale its platform by growing its market share within its existing markets as well as diversifying and expanding to new geographic areas.
As previously discussed in the fourth quarter of 2021, <unk> completed a strategic rebranding and is now named inspire.
Throughout its 35 year history. The full service event Technology company has developed creative and individualized event production solutions and the new name inspire reflects the energy and momentum the company brings to each of its clients and the aspiration to create events that moved people.
Continuing the upward trend since the second quarter of 2021 inspire generated $25 million of revenue and $3 9 million of adjusted EBITDA in the first quarter.
First quarter revenue was 593% above that of 2021, resulting in a 15, 7% adjusted EBITDA margin compared to a negative 37, 8% margin in the prior year quarter.
This margin is the second best adjusted EBITDA margin for a quarter in company history, just below the all time record of 16% in the first quarter of 2018.
Additionally, in the month of March inspired generated over $3 million and adjusted EBITDA.
<unk> single month of EBITDA in company history at a record 25% EBITDA margin.
Hospitality revenues, which include events at hotels, where inspire is contracted as the exclusive audiovisual provider were $11 $9 million in the first quarter, which represents growth of 748% over the prior year quarter also during the quarter inspire executed five new hospitality contracts.
Adding $3 $1 million of annual revenues, we are thrilled with inspire start to 2022 and look forward to seeing their results improve throughout the rest of the year as hotel performance continues to rebound and focus shifts to business as usual and in person events.
Remington is a dynamic hotel management company, providing best in class service and expertise to hotels across the country.
Subsequent to the end of the quarter Remington closed on the acquisition of Chesapeake hospitality and its 30 properties across 20, new ownership groups.
Chesapeake was acquired for an initial consideration of $15 $75 million payable.
Payable with $6 $3 million in cash and $945 million of a new series CHP convertible preferred unit, which will pay a 7% to 8% annual dividend and have a $117 50 conversion price per share.
Chesapeake will also have the ability to earn up to $10 $25 million of additional consideration based on its base management fee contribution for the trailing 12 month periods ending March 2024 in March 2025 for a total potential consideration of $26 million.
Should Chesapeake performance result in the full earn out for the seller Ashford expects a $5 3 million excuse me Ashford expects $5 3 million of EBITDA contribution for the full year of 2024, which would represent an acquisition multiple of four nine times EBITDA. This is a very attractive multiple compared to recent comparable transactions.
<unk>.
The acquisition expands remingtons geographic footprint to complementary and Midwestern markets, such as Pittsburgh, Milwaukee, Detroit and St. Louis It will also expand remingtons portfolio of IHG and independent properties, while adding its first Wyndham property.
Remington is third party hotels under management currently stand at 47 and represent approximately 40% of hotels under management up from approximately 20% pre acquisition.
We are optimistic about the future prospects of executing more third party management contracts to bolster our roster of 121 hotels across 25 brands in 28 States in Washington, D C, including 19 independent and boutique properties.
In addition to the Chesapeake acquisition Remington executed three third party management agreements in the first quarter and was verbally awarded another representing $944000 of first year full base fees.
All four of the contracts were for operating hotels.
We are excited for Remingtons continued growth in the third party space as it continues to climb the ranks as one of the largest third party hotel management companies.
Premier provides comprehensive and cost effective design development architecture procurement and project management services. The company continues to add staff in order to support its growth objectives. Since the fourth quarter of 2021 Premier has executed five hospitality design procurement architecture and project.
Management contracts.
Premier has signed a total of 37 contracts across 20 ownership groups, representing $11 $6 million of third party fees.
Additionally, the majority of Premier's third party customers have come back to contract additional work from Premier Baidu.
By delivering excellent service and exceptional projects, we're confident premier will continue to capitalize on the uptick in cash capital investments by owners and investors.
Lastly, I'd like to update you on the progress of Ashford Securities our retail capital raising platform.
In just 10 months Ashford Securities has issued approximately $96 $1 million of Braemar as non traded preferred stock to both retail and institutional investors. We have signed over 40 dealer agreements that represent almost 6000 brokers and we continue to have conversations with more dealers about signing onto this capital raise.
Ashford Securities continues to elevate excuse me evaluate this next product offerings by consulting with our underwriting investment banking and executive management teams.
We continue to see a strong retail appetite for differentiated investment strategies designed to provide current income and growth that is not dependent on the traded capital markets.
<unk> Securities is uniquely positioned to capitalize on this market opportunity.
For the remainder of 2022, we plan on launching several new products to our fundraising platform, including our non traded preferred security for Ashford Trust.
And believe we are at the very early stages of tapping into this attractive capital source.
As we look forward to the rest of 2022, we will continue focusing on growing our businesses through the recovery in the hospitality industry.
Pursuing third party growth and our two major initiatives rapid growth in third party sales and executing strategic acquisitions for our products and services platform.
We continue to see significant runway in all of our businesses and see the opportunity to meaningfully scale across all our portfolio companies.
That concludes our prepared remarks, and we will now open up the call for Q&A.
And at this time, we will be conducting a question and answer session.
I 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 would like to remove your question from the queue 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.
Our first question comes from the line of Bryan Mayer with B Riley.
Please proceed with your question.
Good afternoon, Eric and Eric.
Those comments a couple of questions.
On the corporate financing the $100 million what was the main rationale for that was it to have funds to come current.
On the preferred was to have dry powder for acquisitions like Chesapeake I mean.
Can you give us a little more color on that $100 million yes.
Yeah sure Brian This is Derek thanks so.
So we had an existing term loan that had some covenants on there and some things that we're tying our hands somewhat in terms of our flexibility.
And ability to really execute on our growth strategies and so we were looking for capital that would both be at a relatively attractive cost, but then also be very flexible.
In terms of any covenants or.
No strings attached in terms of ability to really grow our platform. So that's really what.
Interested us in pursuing that financing and we believe we.
Achieved really everything that we were trying to achieve in that in that sort of capital or search for that capital, where it's a relatively attractive cost.
Extremely flexible in terms of term.
Really no covenants to speak of.
And allows us to go on offense gives us some capital to grow our platform at a time when we're seeing a lot of opportunities and we've announced one deal with the Chesapeake acquisition. We've got other deals that we're looking at and still have some capacity on that line just to use that for future growth. So that's really what the <unk>.
Barry focus was.
Okay, and kind of sticking with Chesapeake.
Got it.
How do we think about that from a modeling standpoint, do we folded into our Remington section of our model and grow it from there and are there more opportunities to buy managers like that and if you do would they all ultimately be branded Remington or will you lead them under there.
Existing names, which maybe their clients in the area of the country that they service might recognize a little bit more yeah. So to answer your first question.
Yes, you should just roll that Chesapeake numbers into the Remington segment of our business.
Going forward speaking tour to potentially future deals there are other opportunities out there to acquire a hotel management businesses.
I would say, it's hard to give any guidance in terms of what the branding might look like in the future.
So I won't really speculate on that.
But as it relates to the Chesapeake numbers, yes, we should roll those into the Remington segment of our business.
And is the right way to think about buying those management deals a multiple of EBITDA is at a multiple of revenues how do you negotiate those deals.
Yes. This is Eric.
It's a multiple of EBITDA and you see varying EBITDA multiples on trailing EBITDA.
Seller EBITDA somewhere between eight to 12 times as some of the numbers that we see out in the market. There's obviously a significant amount of of synergies and those though so that's where as I talk about the.
Effective multiple if the earn out was fully achieved as being under five.
Assuming our EBITDA, which includes significant amount of synergies so we.
We did negotiate based on the earnings that they are able to achieve and recognize those synergies for ourselves and don't don't pay for US yes. So Bryan the synergies are obviously very valuable to us and important to us, but also the ability to expand remingtons client base and growth of its third party business, which is a strategic focus of ours.
Getting that close to 40% of its portfolio, we think is up.
A huge win in terms of executing on our strategies.
Got it.
And inspire you know the former J S. A b.
We're modeling Ashford Inc.
Really an important part of what drives profitability for the firm.
Can you give us any color on how you see that business ramping over the next year or two and what the ability is to control costs in an inflationary market to make sure that we kind of get back to the profitability levels, we saw pre COVID-19.
Yes, so the ramp up for inspire is obviously significantly faster than.
We originally expected I think we've talked about on previous calls is getting them back to their 2020 budgeted numbers that we had.
By 2024.
And just having a record quarter this quarter for those guys was not something that we that we budgeted for originally.
We provided that guidance that <unk>.
Recently, which does outline what we expect for <unk>.
For growth for those guys and Brian what I would say directly to your question is we actually fully expect to be able to outperform the historical numbers that you saw because we were still implementing a lot of cost savings and.
Best practices at inspire werent, even achieving the margin that we.
Really wanted to achieve in 2019 so.
We were single digit EBITDA margin.
In the year of our acquisition in the two years subsequent to that and then when Covid hit we still havent achieved that full margin. So you'll see in the guidance, we expect to get to 15% stabilized margin.
Going forward and it looks you know.
That is happening faster and faster every quarter that we look up so.
Two inflation some of the margin numbers that youre seeing now are certainly our ability to control those costs we are having.
Some started hiring folks right now so those margins are not what we expect to achieve forever as we do hire and kind of rightsize our platform, but we're very confident in our ability to control costs and achieve our targeted margin for inspire.
Right I'm on page slide 18 on the Dash Cam.
Inspires them.
Maybe we can take it offline, but I don't really understand the bar charts that breakout.
Third party revenue within.
Within inspire I mean, yeah I understand.
Inspire so thats the other way to think about as Ashford and non Ashford hotels, or Ashford and non Ashford revenue contribution right. So the green on adjusted EBITDA is not intended to be.
Land, so Ashford AUM associated revenues and so youll see that.
Vast majority of inspires revenue.
Is from third parties, non Ashford hotels or other show services clients, yes, So Brian we didnt breakout we didn't break out the EBITDA by third party AUM, but we did for revenues.
Yeah, I would probably just rework that he had.
Wasn't clear when I.
Looked at it just.
Just lastly for me when we think about Ashford Securities within Ashford, Inc, and raising.
$90 million for Braemar, and moving down that road, what is Ashford, Inc. Get out of it I am assured that the brokers selling the product get some fee, but does Ashford Inc. Actually get a key or does Ashford Inc. Benefit given the fact that it increases the AUM at trust and Braemar and ultimately flows through to the profitability.
Thanks.
Yes. So there is a fee that comes back to Ashford Securities that Ashford, Inc. Would obviously benefit from through that but the real benefit is the growth.
And the growth in our ability to.
To grow our assets under management and I walked through.
The benefit of our ecosystem, where as we grow our assets under management, we grow our EBITDA significantly. So that is the primary benefit that Ashford Inc. Gets from from raising capital through Ashford Securities. It's also as you've seen a very resilient channel.
Availability of capital and the participants in that space have been able to raise a lot of capital and so we think that's a huge opportunity for us.
Okay. Thank you that's all for me thanks.
And we have reached the end of the question and answer session and this also concludes today's conference you may disconnect. Your lines at this time.
Thank you for your participation.
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