Q3 2023 Ashford Inc Earnings Call

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Good afternoon, My name is Jordan and I'll be your conference operator.

At this time I would like to welcome everyone to the Ashford Inc. Results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a <unk> and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question again press Star followed by the number one. Thank you Jordan <unk> director of Investor Relations you May begin your conference.

Good day and welcome to today's conference call to review results for Ashford for the third quarter of 2023 and to update you on recent developments on our call today will be Derrick Eubanks, Chief Financial Officer, and Eric <unk> Executive Vice President of operations.

As well as notice accessibility of this conference 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.

Factors are more fully discussed in the company's filings with the Securities and Exchange Commission.

The forward looking statements included in this conference call are only made as of the date of this call and the company has the obligation to publically update or revise them.

In addition, third turkeys 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 SEC on November eight 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 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 third quarter ended September 32023, the third quarter ended September 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 third quarter of 2023, 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.

The key themes, you're going to highlight today are first the lodging industry has continued to perform well and for the quarter, we reported revenue growth over the prior year at most of our portfolio companies. However, our margins have been negatively impacted as our businesses resume more normalized staffing levels second.

Second we continue to see an attractive pace of capital raising through Ashford securities and raised approximately $540 million of capital since its launch in 2021.

And third we're excited to provide an update on our newest advice platform, the Texas strategic growth fund the.

The Texas strategic growth fund is a private investment vehicle focused on investing in all types of commercial real estate in Texas.

As of September 32023, or two publicly traded REIT platforms, Ashford Trust and Braemar had ownership interest in 116 hotels with approximately 27000 rooms, and approximately $7 $9 billion of gross assets.

<unk> resort portfolio continues to see some stabilization in both demand and pricing as leisure guests now have more options for travel.

It's urban hotels continued to recover nicely as both corporate and group demand continues to strengthen.

Ashford Trust continues to focus on deleveraging its balance sheet and extending its maturities and ended the quarter with 271 million of net working capital.

To date Ashford Trust issued approximately $77 million of its non traded preferred stock. We believe this is an attractive source of capital for that platform.

Ashford Trust recently announced the planned conversion of its Crowne Plaza La Concha Hotel in key West, Florida to a Marriott autograph collection property in early 2024, and the planned conversion of the <unk> Hotel in New Orleans, Louisiana to attribute portfolio property also part of the Marriott brand family.

Both of these announcements illustrate how Ashford trust can unlock embedded value and its high quality geographically diversified portfolio.

Her trust continued to focus on paying off its corporate financing, primarily through select asset sales refinancing and extending upcoming debt maturities and raising capital there is non traded preferred stock offerings.

Our newest advisor platform is the Texas strategic growth fund, which we launched late last year. We recently made a $2 $5 million investment in this fund and that capital along with other capital raise from outside investors was used to make an equity investment and a multifamily property in San Antonio Texas.

Our strategy and structure are designed for growth, we have 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. As we are one of the largest owners and 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 we continue to look for attractive opportunities to.

Two 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 third quarter was $12 million.

Adjusted EBITDA was $11 8 million for the third quarter.

Adjusted net income for the third quarter was $7 $8 million and adjusted net income per diluted share was <unk> 96.

Total advisory fee revenue from Braemar in the third quarter increased five 8% over the prior year quarter.

Our share count currently stands at $8 2 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 2 million common shares associated with our series D convertible preferred stock and the remaining <unk> 7 million shares of our acquisition related shares and restricted stock.

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 third quarter update on our products and services businesses.

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.

In the third quarter and products and services businesses posted strong top line performance with three businesses, achieving greater than 15% revenue growth over the prior year quarter. We are excited about these market share gains, particularly for our businesses with recurring client as we look to optimize expenses in future quarters.

The first business I'd like to discuss inspire our leading single source solution for meeting and event needs with an integrated suite of audiovisual services, including show and event hospitality and creative services.

Inspire executed four new hospitality contracts during the third quarter, which are expected to contribute $2 2 million of annual audio visual revenue.

Inspire generated $36 million of audio visual revenue in the quarter of 17, 1% increase over the prior year quarter and zero point $8 million of adjusted EBITDA.

The third quarter is historically, the lowest margin quarter of the year for inspire due to seasonality, but we are pleased with the continued revenue growth.

Remington is a dynamic hotel management company, providing best in class management and expertise to hotels across the country.

In the third quarter Remington executed four new third party hotel management agreements, representing $1 $1 million of annual revenue.

Remington also generated third quarter hotel management fee revenue.

And adjusted EBITDA of $12 4 million and $4 $7 million, respectively, representing a 37, 8% adjusted EBITDA margin.

Remingtons margin has decreased compared to the prior year quarter due to an increase in lower margin ancillary revenues and lower incentive management fees, which were elevated in 2022 due to hotels outperforming budget throughout the pandemic recovery.

At the end of the third quarter Remington managed 121 properties that were open and operating.

<unk> managed 72 properties for Ashford advisers reached Ashford Hospitality Trust and Braemar hotels <unk> resorts Remington.

Remington also managed 49 third party properties for 30 different ownership groups 13 of which have hired Remington managed 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.

Remington managed portfolio operates in 26 States and Washington D C across 26 brands, including 13 independent and boutique properties.

Earlier this week Remington announced its expansion into the Caribbean market. The company has begun managing crops resort and casino in Costa Rica marketing Remingtons first property in the region.

Remington hospitality is broadening its international portfolio with one additional signed contract in Costa Rica, and two in the Dominican Republic, we look forward to providing additional updates on future calls.

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 in Hawaii.

In the third quarter Red generated $8 $4 million of revenue, representing a 26, 7% increase over the prior year quarter and.

Zero point $9 billion of adjusted EBITDA.

<unk> has continued to see demand level off from its post Covid peak in the Florida keys market, causing less high margin incremental passenger revenue to be captured.

Earlier, this year Red acquired elite <unk>, and Maui dive shop in Hawaii, establishing a strategic foothold in the market. The Reds operations in Hawaii were significantly impacted by the wildfires in August 2023.

We would expect demand to ramp back up through the end of 2023 and into early 2024.

As value recovers and tourism demand normalizes, our hearts go out to the people impacted by this strategy.

The next business I'll discuss premier, which provides comprehensive and cost effective design development architecture procurement and project management services.

Premier generated $7 $4 million of design and construction fee revenue in the third quarter, representing 18, 4% growth over the prior year quarter.

Premier also generated $2 $7 million of adjusted EBITDA, resulting in a 36, 9% adjusted EBITDA margin.

During the quarter premiere executed five new third party contracts, representing zero point $5 million are expected to be revenue.

Premier plans to further grow ground up development General contracting architecture and design project opportunities to diversify its revenue streams.

We're very pleased with the ongoing success of Ashford Securities fundraising efforts during the third quarter Ashford Securities has raised approximately $540 million of capital since 2021.

Ashford Securities is currently in the market with the redeemable non traded preferred stock offerings for Ashford Trust and has continued to build momentum by growing our institutional broker dealer in raw relationships since the launch of the Ashford trusts non traded preferred stock offering Ashford securities is placed approximately $76 $8 billion of capital.

This is an attractive source of capital for Ashford Trust to both improve its balance sheet and for potential growth.

Ashford Securities is also raising capital for a growth oriented investment product focused on commercial real estate in Texas.

As of the end of the third quarter Ashford Securities has raised over $5 6 million of capital, including an investment by Ashford, Inc of $2 5 million and <unk> dealer agreements with 19 firms to distribute this product.

Additionally, during the third quarter the fund made its first acquisition.

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 will now open up the call for Q&A.

Your first question comes from the line of Tyler Battery from Oppenheimer. Your line is live.

Hi, Good afternoon. This is Jonathan on for Tyler. Thanks for taking my questions first one for me.

I have a pretty unique viewpoint, given the variety of businesses that you own this might be difficult given the normalization in seasonality that's going on right now but are you seeing that trend line slow at all here in November is there anything that kind of gives you pause or does it still feel pretty healthy out there and within reason.

Yes. This is derrick.

And Eric May want to add some information there as well look I think from our perspective, the lodging industry in general continues to perform well.

As we've mentioned on other calls the demand side from both groups and business transient corporate demand.

<unk> to be strong where we've seen normalization as we've talked about is on the leisure side, where you had this.

Extreme ramp up in demand after COVID-19 and a lot of that was concentrated in Florida and the keys in the Caribbean.

Folks didn't go overseas and this year, we saw the impact of leisure travelers travelers, having more options and more of that travel going overseas and cruises and elsewhere that negatively impacted.

Leisure markets and leisure resorts, our resorts that are more focused on leisure, but having said that those properties are still performing well above par.

Previous performance levels of 2019 et cetera. So.

We continue to have the view that the lodging industry is performing well.

Demand is strong not as not as strong as it wasn't a leader perspective, but that was to be expected.

And.

At our businesses, where we've seen some.

I guess some impact on our margins was really because of the revenue growth that we saw last year when those businesses, we're not fully staffed back up and we knew those margins were not sustainable.

Because we were not we did have a normalized staffing level, yes, yes, we've had the benefit of a lot of those revenues coming in and so that's been one of the challenges as we continue to grow our revenues at our portfolio companies, we have seen some margin pressure as our.

Labor situation in staffing levels are more normalized so.

With that I'll, let I'll, let Eric Jonathan.

Yes, Jonathan the only thing I would add to that is that the.

The only.

I'd say the biggest sign we would see of any kind of quote unquote slowing is it in some cases, its taking folks have longer to make decisions. When they are hiring any of our portfolio companies. So our time to close.

Close business is a little bit longer than what we've seen in prior years with people just hesitating a bit. However, you can tell by the comments I made with inspire Remington premiere all continuing to add business that we're overcoming that still it's not as if people are completely putting penciled out stopping so that's the only other color I'd add beyond with Derek.

Richard.

Okay, Great I appreciate the color there and then maybe the segue off of Barrick's comments on labor can you provide some additional color on that.

Now returning to more normalized staffing levels and the labor environment in general and in how many physicians are left to fill any color on the waitress you've seen out there as well.

Yes sure so.

It's a number of different things right. As you can tell in addition to returning to normalized staffing levels. We're also growing revenue pretty significantly and so we are continuing to staff up for that growth as well and we expect that growth to continue so we will certainly.

At some point here soon begin capturing more of the more profitability from the revenue growth, but what youre seeing is kind of a combination of.

Staffing up to normal levels we.

We don't have a lot of positions outstanding still.

That.

I think we're we're dying to Phil I don't have specific numbers for you.

The portfolio of companies, but.

It's as much getting to normalized staffing wages, increasing four kind of hourly labor and then still continued planning for the significant revenue growth that we are achieving now expecting into next year to continue.

I don't know if that answered your question, but that's kind of.

The same there and of course that kind of per unit cost of.

Of labor in some of our other expenses are higher with some of the inflation that we're experiencing.

Okay understood and then switching gears.

So remington any any high level commentary on the expansion in the Caribbean.

And how youre thinking about the opportunities for growth at Remington longer term, yes in the Caribbean maybe broader internationally.

Yes, we will.

A lot more next quarter on this probably but we.

We see it as an area, where we have a lot of opportunity to grow we've got some resources dedicated specifically to growth in that in that area.

There is not as.

Competitive market in terms of the number of people that are managing.

Number of companies managing in those markets.

We've.

Recently established Miami office, and it's a concerted effort for us to go.

Identify opportunities down there and we are having some early success so.

I do expect that will.

Mentioned in my prepared remarks that we've added.

Three additional contracts already in addition to that the one that we're adding now and I don't think I expect that growth to accelerate.

As we continue to focus on that area.

Okay, and then last one from me if I could on Ashford Securities continues to accelerate nicely can you remind us kind of the opportunity for further growth there and maybe how that ramp has compared to your initial expectation.

Yes, I'll take that.

Look we've been very happy with the ramp up in capital raising I think if you look across that.

History and segment being able to raise over $500 million in the amount of time that we've been able to raise it.

Is pretty pretty fantastic. So we're very happy with the ramp up there.

Those are our two primary objectives are to grow our assets under management and to grow our third party business, We view Ashford securities as a primary way to be able to grow our assets under management by raising capital and then deploy that capital into either hotel acquisitions investments in other property types like our <unk>.

Future growth fund.

And other investments like that that we can asset management potentially put in our other portfolio companies into those assets et cetera. So.

I think the growth prospects for Ashford Securities.

Is is pretty significant and we had a great success with our braemar non traded preferred offering we've now raised approximately $77 million for Ht that offering will be open for <unk>.

More than two more years, so theres still plenty of room to run on that offering.

We're out in the market right now with this private fund.

The types of strategic growth fund and there are other products that we could sell through Ashford securities to grow our assets under management and potentially have other advised platforms and so thats something that we are constantly thinking about and talking about.

We'll see what comes out of the pipe there, but we continue to be very excited about the potential for Ashford securities to help us grow our assets under management.

Okay excellent. Thank you for all the color that's all for me.

Thanks.

As a reminder, if you'd like to ask a question press star followed by the number one on your telephone keypad.

We will pause for a brief moment just to confirm we have follow up questions.

This concludes today's conference call you may now disconnect.

Yes.

Okay.

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