Q2 2022 Ashford Inc Earnings Call
Premier continues to report industry, leading results and our second quarter results significantly exceeded its 2019 results.
<unk> also recently reinstated its quarterly common stock dividend.
And completed a second acquisition of this cycle with the iconic 96 room Ritz Carlton Reserve Dorado Beach, and Dorado, Puerto Rico.
Ashford Trust has significantly deleverage its balance sheet is now paying interest current on its strategic financing is paying its preferred dividends and is now effective on the registration statement for its offering of 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 $538 million and remains encouraged by the positive momentum in its portfolio.
Looking ahead, both platforms now have significant liquidity.
And with both reached 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.
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 are 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 second quarter was $3 5 million.
Adjusted EBITDA was $24 8 million, an increase of 131% over the prior year quarter.
Our strong growth in adjusted EBITDA for the quarter was driven by inspire and Remington.
We are particularly excited to report a $9 million of adjusted EBITDA for inspire and the second 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 $8 million than Remington with an increase of $4 8 million and then premier with an increase of $1 5 million.
Adjusted net income for the second quarter was $17 3 million.
And adjusted net income per share was $2 21.
These results reflect growth rates over the prior year of 99% and 89% 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.
$4 1 million common shares associated with our series D convertible preferred stock.
$0 1 million common shares associated with the Chesapeake acquisition and the balance is primarily restricted stock.
During 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 the loan.
Additionally, during 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 of <unk> 93 per share on April 15, 2022, representing approximately 50% of the accrued dividends. We currently 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, which continued to outperform our expectations.
As business travel returns and leisure travel remains strong our portfolio is poised to continue its growth trajectory.
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 inspire our leading single source solution for meeting and event needs with an integrated suite of audiovisual services, including show and event services hospitality services and creative services.
Inspire previously known as J S.
Before completing a strategic rebranding in 2021 delivered a record setting.
<unk> quarter that we're excited to share with you.
Inspire generated $36 million of revenue and $9 million of adjusted EBITDA in the second quarter, representing a 25% adjusted EBITDA margin.
Second quarter revenue was 281% above the prior year quarter and adjusted EBITDA margin was the highest quarterly margin in company history.
Hospitality revenues, which include events at hotels, where inspire is contracted as the exclusive audiovisual provider were $19 7 million in the second quarter, which represents growth of 293% over the prior year quarter.
Inspire also executed three new hospitality contracts, representing $1 $5 million of cumulative stabilized annual revenues during the quarter.
We are thrilled with inspire start to 'twenty 2022, and look forward to seeing strong performance throughout the rest of the year.
The next 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 and Turks and Caicos.
Red Hospitality has continued to benefit from the desire of consumers for unique and memorable experiences as evidenced by USPI and key west average customer spend increasing by 24% and 6% respectively over the prior year quarter.
Additionally, the USPI generated over $1 $1 million of revenue the highest ever in June .
And third highest month in company history for this market.
In the second quarter Red generated $7 $7 million of revenue and $2 4 million of adjusted EBITDA, representing 12% revenue growth over the prior year quarter, and a 31% adjusted EBITDA margin.
During the second quarter Red hospitality extended its service agreement to provide <unk> services in Puerto Rico through October and expect future growth in this market.
Lastly, red continues to explore M&A opportunities in new and existing markets to continue to grow market share and gain scale.
Remington is a dynamic hotel management company, providing best in class service and expertise to hotels across the country.
Remington generated second quarter Hotel management fee revenue and adjusted EBITDA of $13 4 million and $8 3 million respectively.
Which represents a 61% adjusted EBITDA margin.
Revenue and adjusted EBITDA grew 106% and 141% respectively over the prior year quarter.
As previously discussed on April 15th Remington closed on the acquisition of Chesapeake hospitality for $6 $3 million in cash and the issuance of $945 million of a new series CHP convertible preferred unit.
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, and March 2025 for a total potential consideration.
Of $26 million.
The acquisition has expanded remingtons geographic footprints to complementary Midwestern markets, such as Pittsburgh, Milwaukee, Detroit and St. Louis.
It also expanded remingtons portfolio of IHG and independent properties and added its first Wyndham property.
Chesapeake portfolio contributed just over $2 $6 million of hotel management fee revenue and $1 4 million of adjusted EBITDA for the quarter.
In addition to the Chesapeake acquisition Remington continues to focus on growing its third party business and was awarded four contracts in the second quarter, representing $1 $3 million of first year.
Full base fees.
Remington currently manages 42 third party properties, which represents approximately 36% of all managed properties.
We are excited for Remingtons continued growth in the third party space to bolster its roster of 116 properties that are opened and operating across 23 brands in 27 States and Washington D C, including 18 independent and boutique properties.
Premier provides comprehensive and cost effective design development architecture procurement and project management services.
Premier generated second quarter design, and construction fee revenue of $4 $7 million.
Representing 154% growth over the prior year quarter.
Premier also generated $1 1 million of adjusted EBITDA, resulting in a 24% adjusted EBITDA margin.
In addition, during the quarter Premier executed three new contracts representing $270000 of fees.
One contract was in multifamily, which represents the 17th contract in this segment and one contract was in student housing, which represents the second contract in that segment for Premier.
Premier has signed a total of 39 third party contracts across 21 ownership groups, representing $11 $8 million of fees. Additionally, the majority of Premier's third party customers have come back to contract additional work from Premier.
By delivering excellent service and exceptional projects. We are confident premier will continue to capitalize on the uptick in capital investments by owners and investors.
Turning now to Ashford Securities our dedicated fundraising platform.
We're extremely pleased with the progress Ashford Securities has made during the past year.
We have built out a world class team of 21 professionals, who are the best in the industry of what they do.
Since the commencement of <unk> non traded preferred offering Ashford securities is placed approximately $178 million through a syndicate of 60 firms with over 7200 financial advisers.
Ashford is dedicated to taking a disciplined approach to raising capital and aims to provide highly differentiated investment opportunities to retail and institutional investors. We recently announced two new alternative investment offerings and income focused non traded preferred stock offering for Ashford.
Just.
And a growth oriented private offering that will target investments in all types of commercial real estate in the state of Texas.
We are very excited to launch our first investment offering focused on an area outside of the hospitality industry and believe this could be a big area of growth for us in the future.
Today Ashford Securities offers a suite of three unique investment products that are designed to meet the needs of income oriented and growth oriented investors.
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 and Ashford securities is uniquely positioned to capitalize on this market opportunity.
We are excited about the growth prospects of Ashford Securities and look forward to the future of this dynamic business.
Open key a leading provider of digital key solutions, allowing guests to unlock their rooms with mobile devices posted an impressive quarter, which included trailing 12 month SaaS revenues almost hitting $1 million.
Since the fourth quarter of 2019 trailing 12 month SaaS revenues at open key have increased every quarter and have risen from $530000 as of the fourth quarter of 2019 to $996000 as of the end of the second quarter of 2022.
This represents an 88% increase over that timeframe open.
<unk> continues to gain traction as customers prefer a seamless contactless check in experience.
As of the end of the second quarter <unk> had over 33000 rooms live on the platform. We are excited about the future for <unk> and look forward.
To providing more updates in future quarters.
As we look ahead to the remainder of 2022, we will continue to focus on growing our businesses throughout the recovery in the hospitality industry and our two major initiatives third party sales and executing strategic acquisitions for our products and services platform.
We can see 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.
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Okay.
Your first question comes from Bryan Maher with B Riley Securities. Please proceed with your question.
Hi.
Alright.
Eric Thanks for those comments a lot of color there, we're looking to drill down a little bit more on buyer I mean.
Outside of the debates hotel management fee. This things really driving results by our model and we're trying to figure out.
What's pushing those revenues higher.
And maybe what percentage of that pre COVID-19 when it was J D.
Kind of return to the platform.
And then lastly on that how much of the business is coming from affiliated hotels within the Ashford system versus other hotel and venue.
Yeah, let me take that brands there. So thanks for the question and we're certainly very interested in the inspire performance over the last two quarters as well.
As we talked about a little bit last quarter is a huge part of the increase in revenue is still just recovery.
On a TTM basis I believe there.
$97 million of revenue.
Pre COVID-19 that was our 2020 budget for example was around $120 million. So there's still some runway.
For recovery.
<unk>.
We haven't lost any hotels are significant business. So.
And in addition, as we talked about today, we've added some things and we believe we'll continue adding them. So.
We're excited about that the recovery is happening faster than we expected it to.
And.
We're benefiting from that for sure in terms of percentage of staff that we have I don't know those numbers I don't have those here, we can look into that for you.
I can tell you that it will probably never get back to a 100% of the staff that we had not probably we will never get back to a 100% of the staff and thats not because of.
<unk>.
A lack of ability to hire we don't want to get back to a 100% of what we had you may recall, we were running single digit EBITDA margins.
In 2018, and 2019 with that business, our target was always to get much higher than that and I think with.
Covid it forced our hand a bit.
Cut a significant amount of costs, obviously and we're realizing we don't have to add those back.
Even as much as we might have thought we would so.
While these 25% margins are amazing and I'd love to continue those we we will add additional staff.
But.
We're certainly not going to dip anywhere near the margins.
If at all.
Because we're stretching that business and realize that we can do a lot more with less.
In terms of <unk>.
<unk> business versus.
Versus third party.
Hi.
Don't have looked at TTM is.
It should be.
It's 80% on a stabilized basis, 80% third party business and 20% Ashford related business.
And that third party element is just going to continue to.
Actually grow because we're.
We're not going to add as much business with Ashford as we did historically pretty much added about as much of the business as we.
Intend to know until we buy more hotels with trust and Braemar or other platforms. So.
We think that that will just continue to go higher above 80%, Yeah, Brian I would just add.
One of our strategies to grow our third party business will inspire in in Red Bee the other business, where the vast majority of their business is currently third party. That's still a goal for us to grow third party business from where it is but both of those companies are roughly 80% or so of their revenues come from third party.
Opposed to.
Archives platforms.
But that continues to be one of our strategies to grow that third party segment.
Thanks.
Pre COVID-19 when I look back at my model for 2018 2019, the Gis profit margin within that kind of.
One and a half to 25, 5% range do you think you're kind of peak out there or is there the potential to go higher if youre talking about red or JCB.
Okay.
Pre COVID-19, we werent at those levels, that's where we are today at 25% so.
Bob.
I don't mind.
In 2019, the range of $25 seven and I'm talking about.
<unk> profit margin not necessarily EBITDA and.
In 2018, there was 25.
Yes, there's probably some corporate costs on there you are picking up and this is more of an operating.
For gross margin there is definitely room there to answer your question that goes to the staffing that we talked about and the costs that we've been able to cut out of the business. During COVID-19 that we don't feel a need to add back there's going to be some additional staffing would certainly would I would say.
Near the bottom of what we expect to achieve for inspire in 2018 in 2019, we expected significant growth in 2020 and would expect.
Far better than what we ever even budgeted for 2020.
Going forward with the business.
Okay, moving on a little bit G&A was running a little bit hotter than we expected is there anything going on there.
For modeling purposes.
That just continues to be a ramp up across the businesses in terms of staffing.
Theres nothing that I would point out.
At least on the corporate side I think the corporate if you look at just the corporate G&A for the.
Quarter is a pretty good run rate, but then if you look at it across all the other businesses. It's really been a function of we continue to step up some of the portfolio companies.
Okay. Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.
Your next question comes from Tyler Batori with Oppenheimer. Please proceed with your question.
Hi, good morning, Thank you.
Just a couple of questions from me here.
In terms of your future outlook I think you have a pretty unique perspective.
Good point.
Given the businesses that you own and I know you talked about significant runway for growth in all of your businesses, but when you look real time right now.
The macro concerns about the macro worries out there are you seeing the trend lines.
Slow at all.
And through June into July here or.
Yes.
It still.
Everything still feels quite healthy.
Yes, I'll take a stab at that.
Eric can chime in if he wants look from our businesses as we mentioned on the calls for the rates. We're not we're not seeing any slowdown in terms of the trends and demand.
We've been seeing.
And I know, there's a lot of talk out there about.
Potential recession or economic softness and typically in our industry. We're one of the first industry to see that.
I think one of the factors that's been sort of driving why we haven't seen that has really been driven by the corporate and corporate corporate transient and corporate group segments that are still recovering and so we're still in the sort of upswing of that recovery curve and so we haven't seen softness in that segment. The leisure segment has been very strong across the board.
We've kind of been bracing ourselves for some softness in leisure for awhile, but that segment continues to be very strong.
As we sit here today, we would say that the trends are still positive we're not seeing.
Any any slowdown, but we continue to watch it like a hawk because we're reading the same things you are.
Okay. Okay. That's helpful. That's helpful.
In terms of the second quarter you closed the acquisition.
Chesapeake hospitality.
Real quick now that that transaction is closed.
Any early takeaways there and then I'm also really curious.
Kind of thoughts on potential other bolt on acquisitions that might be out there.
Yeah.
Early.
Impression on Chesapeake is that it's fantastic for us both from.
The ability to differentiate in half.
Larger base of non Ashford properties and the performance is far outperforming what we underwrote the deal so the one point.
$4 million.
Adjusted EBITDA contributed by Chesapeake for the quarter was about $500000, 61% above our underwriting that's primarily due to us underwriting very conservatively for incentive management fees.
But also just some.
Performance.
Then what we are.
Underwrote frankly.
So we're very excited about that and I think it's indicative of our ability to take on investments and bolt on to our existing businesses, which we've done with.
Red and inspire in the past.
And do that seamlessly and effectively with our operations teams.
And very Accretively.
Certainly a lot of other opportunities out there and we'd love to do other deals.
Like the Chesapeake deal.
And we are looking at those.
Say too much more about how much but I would say.
Theres definitely pipeline.
Opportunities for Remington and we don't see ourselves.
Stopping.
<unk> businesses anytime soon.
Okay, and then shifting gears to Ashford securities.
The new offering.
Terms of the commercial real estate in Texas can you talk a little bit more about.
What that gives you more more color on.
Perhaps when you might be able to start raising money for that.
Kind of some some high level thoughts on why that's an area of real estate, but you thought.
Made sense as well.
Yes, Eric I'll take that Theres.
There is not much we can say about it it is a private offering but we have launched it. So we would anticipate that the capital raising would start very soon.
Same thing applies to the Ashford hospitality trust non traded preferred as well.
Timing and sort of where we are in the process of raising that capital it's hard to know when the capital comes in because it's.
So kind of an open offering for a period of time. So you just you just don't know and there's a process to build that syndicate.
Start raising the capital.
It was an important strategic strategic objective for us to start a platform that was outside of the hospitality industry.
At this point in our.
Sort of lifecycle, where we are we're 100% hospitality focus for the most part there is a little bit of.
Their business that premier has outside of hospitality.
And inspire as well, but we viewed it as an important part of our just being an asset manager.
Managing capital across different sectors, we wanted to expand that would be more diversified outside of hospitality.
And we thought it made the most sandwich to start in our backyard and focus on taxes as Im sure. You know there is a ton of.
Benefits to taxes at the moment from a business standpoint from.
Relocation standpoint from whether it's corporate relocations.
People moving here job growth et cetera, the business friendly environment, and we're very bullish.
On the state and it felt like from a thematic investing standpoint, it would resonate and be attractive to investors. So.
That's what led us to launch the initiative.
Unfortunately, I can't speak more about it in more detail just given the.
The fact that it's a private offering and it's still in process.
But over time, we hope to be able to provide a lot more information on that as we move forward.
Okay. That's all from me thank you for the detail.
Ladies and gentlemen, we have reached the end of the question and answer session and this concludes today's conference you may disconnect. Your lines at this time. Thank you all for your participation.
Okay.
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