Q2 2023 Ashford Inc Earnings Call
Greetings and welcome to <unk> second quarter 2023 results conference call. At this time, all participants are in a listen only mode.
<unk> answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Jordan Jennings manager of Investor Relations. Thank you you may begin.
Good day and welcome today's conference call to review results for Ashford for the second quarter of 2023 and talk to you on recent developments on the call today will be Eric Eubanks, Chief Financial Officer, and Eric <unk> Executive Vice President of operations and results as well as notice of accessibility of this conference.
Call on a listen only basis over the internet or you still really yesterday in our 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 under 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 in the company's filings with the Securities and Exchange Commission.
Forward looking statements included in 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 tables or schedules, which have been filed on form 8-K with SEC on August 2nd 2023, and May also be accessed through the company's website at Www Dot Ashford, Inc. Dot com.
Each listener is encouraged to review those regular fishing 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 second quarter ended June 30 of 2023 with the second quarter ended June 32022.
I will now turn the call over to Derek.
Thanks, Jordan and welcome everyone to our call to discuss our financial results for the second quarter of 2023.
I'll start by giving you an overview of our operations strategy and financial results for the quarter.
Eric will provide an update regarding our operating businesses after that we'll open it up for Q&A.
The key themes, we're going to highlight today are first we had strong revenue growth in the quarter.
But a difficult year over year comparison is last year, we reported record results in the second quarter.
Demand came roaring back to hotels and labor conditions made it difficult to fill open positions.
Second we continue to see growth in the pace of capital raising through Ashford Securities and we're pleased to announce the milestone of over $500 million of capital raised through Ashford securities since its launch in 2021.
And third Remington had a record quarter in terms of the number of New third party management agreements signed during the quarter. We continue to be excited about the potential for Remington and all of our portfolio companies to continue to grow the third party business.
As of June 32023, or two publicly traded REIT platforms, Ashford Trust and Braemar had ownership interests in 118 hotels with approximately 27000 rooms, and approximately $7.9 billion of gross assets.
<unk> resort portfolio has seen some stabilization in both demand and pricing and leisure guests now have more options for travel while its urban hotels continue to recover nicely as both corporate and group demand continues to strengthen.
<unk> has also been active on the acquisition front.
We completed three acquisitions this cycle.
Iconic 96 room Ritz Carlton Reserve Dorado Beach in Puerto Rico, The 210 room four seasons resort Scottsdale at true North in the 143 room, Mr. C. Beverly Hills Hotel.
We are excited about <unk> recent announcements regarding the planned conversion of the Mr. C. Beverly Hills, two hiltons, Alex our brand.
We believe the strength of the Hilton reservation system will make a big impact at that property.
Ashford Trust continues to focus on deleveraging its balance sheet and extending our debt maturities and ended the quarter with over $344 million of net working capital to.
Today Ashford Trust has issued over $50 million of its non traded preferred stock and we believe this is an attractive source of capital for that platform.
Further in early July Ashford Trust made the strategic decision to not make the required paydown of approximately $255 million for 19 hotels secured by his keys, a b and F loans. It is important to note that in the event those hotels and are being transferred to the lender we.
The annual impact to Ashford, Inc will only be a reduction in annual adjusted EBITDA between two and $3 million our strategy and structure are designed for growth with a powerful ecosystem of businesses that all benefit as we grow our assets under management.
Our size and scale in the lodging industry also brings benefits to third party owners and other capital providers. Because we are one of the largest owners of fee payers for the major hotel brands. We believe we have a superior strategy and structure that is unique within the hospitality space and we are excited about the potential growth of our platform.
Over the past few years, we have completed numerous bolt on acquisitions for our operating businesses and with ample dry powder, we continue to look for attractive opportunities to strategically and accretively grow our business.
I will now turn to our financial results for the quarter net loss attributable to common stockholders for the second quarter was $7 $5 million.
Adjusted EBITDA was $17 $8 million for the second quarter.
As I previously mentioned, we had difficult comparisons to last year and our portfolio companies are working to balance their cost structures, while experiencing robust revenue growth.
Adjusted net income for the second quarter was $12 $7 million and adjusted net income per diluted share was $1 57 says.
Total advisory fee revenue from Braemar in the second quarter increased 15, 1% over the prior year quarter.
Our share count currently stands at 8 million fully diluted shares outstanding which is comprised of $3 1 million common shares outstanding.
<unk> 2 million common shares earmarked for issuance under our deferred compensation plan.
$4 2 million common shares associated with our series D convertible preferred stock and the remaining 0.5 million shares or four acquisition related shares and restricted stock.
Now I'll 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 build momentum during the second quarter.
As a reminder, our strategy is to acquire exceptional businesses and create shareholder value by implementing best operating practices executing accretive add on acquisitions and utilizing our unique ability to refer these businesses to our advised Reits.
The second quarter was headlined by two key themes impressive revenue growth and margin pressure margins.
Margins in the second quarter were adversely impacted relative to the prior year quarter by inflation are returned to normalized staffing levels and revenue mix, which I will touch on shortly.
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 audio visual services, including shown event hospitality and creative services.
Continuing its strong growth trajectory inspired generated $41 $3 million of audio visual revenue in the second quarter of 14, 9% increase over the prior year quarter and $5 $1 million of adjusted EBITDA, representing a 12, 3% adjusted EBITDA margin.
Throughout the first half of 2023 inspire has seen impressive topline growth that has required sub rentals and contract labor to execute on this new business, which has resulted in margin pressure.
The second quarter of 2022 was the first quarter, where revenue significantly accelerated following the pandemic and its 25% adjusted EBITDA margin at the time was the product of handling large show services events with a very lean team.
We target an adjusted EBIT margin of 15% and expect inspired to achieve this margin on a stabilized basis.
Inspire continues to grow its international operations in Mexico, and the Dominican Republic, generating $11 $8 million of revenue in the second quarter, which represented a 31, 4% increase over the prior year quarter.
Inspire also executed two new hospitality contracts during the second quarter, which are expected to contribute $815000 of annual audio visual revenue.
Remington is a dynamic hotel management company, providing best in class management and expertise to hotels across the country.
This quarter, we're excited to announce that Remington hotels has rebranded to Remington hospitality, which better reflects the company's expanded hospitality offerings and the future direction of the company.
This rebrand is emblematic of remingtons commitment to innovation and evolving with industry trends and consumer preferences.
In the second quarter Remington executed eight new third party hotel management agreements, representing $1 $8 million of expected annual revenue, including its first hotel management agreement with an international Hotel, which is located in Costa Rica.
This was a record quarter for Remington in terms of the number of new third party contracts signed and illustrates the momentum we continue to see in growing our third party business.
Remington also generated second quarter Hotel management fee revenue and adjusted EBITDA of $14 9 million and $6 $7 million, respectively, representing a 44, 8% adjusted EBITDA margin.
Remingtons margin decreased compared to the prior year quarter due to an increase in lower margin ancillary revenue and lower incentive management fees, which were elevated in 2022 due to hotels outperforming budget throughout the early days of the recovery.
At the end of the second quarter Remington managed 120 properties that were open and operating.
And can manage 73 properties for Ashford has advised REIT Ashford hospitality Trust and Braemar hotels <unk> resorts.
You can also managed 47 third party properties for 29 different ownership groups 11 of which have hired Remington to manage two or more of their hotels.
These ownership groups include real estate funds family offices high net worth individuals private equity groups and developers.
Remington managed portfolio operates in 26 States and Washington D C across 25 brands, including 15 independent and boutique properties.
Red hospitality and leisure is a leading provider of water sports activities and destination services in the U S Virgin Islands, Puerto Rico, Florida, Keys, Turks, and Caicos and Hawaii.
In the second quarter Red generated $9 $8 million of revenue, representing a 27, 5% increase over the prior year quarter and $2 3 million of adjusted EBITDA, representing a 23, 7% adjusted EBITDA margin.
<unk> seen margin pressure in the last year due to increased salaries as they invest in leadership to support future growth increased cost for items, such as food and beverage and slowing demand in the Florida keys in Turks, and Caicos, causing less high margin incremental passenger revenues to be captured.
Reds recent focus has been on the integration of elite <unk> Maui dive shop in Hawaii, which was acquired on March 17th.
Oh no. He provides luxury sailing in water sports experiences and Maui offering sunset sales dinner cruises snorkeling and whale watching excursions and as the on property provider of scuba programming at the Grand Wailea resort in Bali.
Read recently launched a new website and digital advertising campaign for <unk>.
And our Leidy annuity contributed $1.8 million of revenue and zero point $4 million of adjusted EBITDA in the second quarter.
<unk> is excited about and actively pursuing additional growth opportunities in Hawaii now that the company has established a strategic foothold in the market.
The next business I'd like to discuss is premier which provides comprehensive and cost effective design development architecture procurement and project management services for.
Amir generated $7 $6 million of designing construction fee revenue in the second quarter, representing 65% growth over the prior year quarter.
Premier also generated $2 $3 million of adjusted EBITDA, resulting in a 105, 6% growth over the prior year quarter, and a 34% adjusted EBITDA margin.
During the quarter Premier also executed seven new third party contracts, representing $1 million of expected fee revenue.
Premier plans to further grow ground up development General contracting architecture and design project opportunities to diversify its revenue streams.
We are very pleased with the ongoing success of Ashford Securities fundraising efforts during the second quarter Ashford Securities had an impressive milestone of $500 million of capital raised since 2021.
Ashford Securities is currently in the market with the redeemable non traded preferred stock offering for Ashford Trust and has continued to build momentum by growing our institutional broker dealer and raw partners. Ashford Securities is placed over $50 million of Ashford Trust non traded preferred stock through its syndicate of 35 broker dealer.
<unk> and our <unk> firms.
Ashford Securities is also raising capital for a growth oriented investment products focused on commercial real estate in the state of Texas. We are very bullish on Texas commercial real estate market because of the continued migration of people companies and wealth into the Lone Star State.
It continues to be a very attractive place for personal and professional purposes.
As of the end of the second quarter Ashford Securities has raised $2 $3 million of capital.
<unk> dealer agreements with 17 firms to distribute this product.
After a strong second quarter, we were optimistic about the opportunities ahead for the remainder of 2023, we continue to maintain a focus on growing our products and services platform through two primary initiatives third party sales and strategic acquisitions, while we continue to pursue opportunities to meaningfully scale across all our portfolio companies.
That concludes our prepared remarks, and we'll now open up the call for Q&A.
Thank you.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May press star two if you'd 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.
[noise].
Our first question comes from Tyler Batori with Oppenheimer. Please proceed with your question.
Yeah. Good afternoon. This is Jonathan on for Tyler Thanks for taking my questions.
First one for me is on the expense side can you just talk generally about the labor market do you feel there's additional positions to fill across your business.
Any color on kind of the wage growth you're seeing out there.
Yeah. So as you can see from the margin pressure. This is Eric by the way Jonathan.
We are continuing to see increased labor costs.
We do have some open positions, but in general we're not seeing.
Seeing a lot more open positions that we need to fill in our portfolio companies, but we are continuing to add staff at these revenue levels climb at the levels that they are so you are hearing me talk about 20%, 30%, 60% revenue increases we obviously have to add staff for that and wages are increasing I don't have a great number for you.
Across the.
The portfolio of companies as you blend quite a bit and we have far fewer instances of of our hourly labor than we do at our hotels, but it is it is definitely a continuing continually difficult labor market for us and you're seeing that in our in our margin.
Okay I appreciate the color there and then premier saw pretty notable pick up in third party engagements.
Can you provide some color on the drivers of the increase what types of hotels.
Hotels or other assets are added and how youre thinking about sizing that opportunity longer term.
Yeah. So it's a lot of hotels and what's what's happened as you see this pick up increasingly started the the third party effort just before the pandemic kind of have come into a recovery from the pandemic in a lot of these projects are happening six months to a year after we get them signed up.
The messages that we've been delivering over the last year about signing contracts for Premier are now starting to show.
In the projects actually coming to fruition.
We are experiencing projects in both our hospitality and multifamily primarily a lot of that is in hospitality.
And in terms of sizing the opportunity.
It's huge the renovation market and the.
The newbuild market across particularly those two with hospitality and multifamily in particular is massive and so.
I'd be hesitant to size it I would say that it has a ton of room for growth from where we are today.
And we're very excited about capitalizing on more and more of that.
Okay excellent. Thank you for the color there and then last one from me if I could hum some modest softness in leisure was noted in the release and I'm just curious.
Or if you're seeing anything from a demand perspective that maybe gives you pause or is worth calling out or does everything still generally pretty healthy.
This is Eric I'll take that I think I would say everything still feels pretty healthy I think the the <unk>.
As we've seen in demand has been more of a shift in demand than just a decrease in overall demand just leisure travelers, having more options of whether that's international traveler cruises or just other options.
That we think that ultimately that.
That demand will come back to our properties and feel very well up.
About how or especially the leisure focused assets our position.
Okay, great. Thank you for all the color guys. That's all for me.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Okay.
Yeah.