Q3 2023 LuxUrban Hotels Inc Earnings Call

Greetings and welcome to Lux urban hotels third quarter 'twenty to 'twenty three financial results conference call.

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I would now like to turn the conference over to your host Devin Sullivan managing director of the equity group. Please go ahead.

And for joining us for luck, serving hotels 2023 third quarter financial results Conference call. Our speakers for today will be Brian Ferdinand Chairman and co CEO and she knew Qatari the company's co CEO and Chief Financial Officer.

Before we begin I'd like to remind everyone that this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 set forth in section 27, a the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 1934 as amended.

Statements that are not purely historical are forward looking statements.

Looking statements include but are not limited to statements regarding expectations hopes beliefs intentions or strategies regarding the future. In addition, any statements that refer to projections forecasts or other characterizations of future events or circumstances, including Andy any underlying assumptions our forward looking statements generally the words <unk>.

Dissipates believes continues could estimates expects intends may might plans possible potential predicts projects should would and similar expressions may identify forward looking statements, but the absence of these words does not mean that a statement is not forward looking.

Forward looking statements May include statements with respect to financial and operational guidance. The success of the company's collaboration with Wyndham hotels and resorts scheduled property openings expected closings of noted lease transactions the company's ability to continue closing on additional leases.

Properties in the pipeline as well as anticipate its anticipated ability to commercialize efficiently and profitably the properties at leases and we'll lease in the future.

Forward looking statements are based on current expectations and beliefs concerning future developments and their potential effects on the company and there can be no assurances.

Of these future developments.

We will have we will have been anticipating these forward looking statements are subject to a number of risks and uncertainties some of which are beyond the company's control or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward looking statements.

Including those set forth under the caption risk factors in our public filings with the SEC, including in item one a of our 10-K for the year ended December 31, 2022, and any updates to those factors set forth in subsequent.

Quarterly reports on Form 10-Q, or other public filings.

Forward looking information and forward looking statements are made as of the date of this presentation.

And the company does not undertake any forward looking information and are forward looking statements that are contained a reference herein, except in accordance with applicable securities laws management will also be discussing non-GAAP financial metrics and a reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in the company's press release, which we issued yesterday afternoon.

With that said I'd now like to turn the call over to Brian Ferdinand Brian. Please go ahead.

Thank you Debbie good morning, and thank you for joining us today everyone.

Continued to be very pleased with the trajectory of our growth the consistency of our execution and the depth and breadth of the opportunities that we're pursuing.

We continue to evolve as a company and management team.

It's validated by our results we are successfully leveraging our first mover status asset light approach and focus on turnkey properties to identify and least dislocated hotel properties and destination locations across the U S. In the third quarter of 2023, we generated record.

Net rental revenue EBITDA, our first GAAP net income.

Quarter since coming public in prior quarters, we had incurred a variety of costs and charges associated with our now retired longterm debt. It serves to NASCAR inherent profitability. The expenses are now behind us, which we believe will result in a cleaner less complicated P&L in future quarters.

We remain true to our commitment to grow the business via non diluted funding.

To that end, we closed our series a preferred stock offering in late October and generated gross proceeds of $7 million, which.

Which we will deploy to further expand our portfolio the results of the offering which reflects our focus on raising capital that can be immediately utilized to expand our footprint and enhance our operations.

Want to avoid raising expensive capital in the future that we cannot deploy in a quick and efficient manner to the benefit of our stakeholders in a non dilutive fashion.

Our relationship with Wyndham hotels, <unk> resorts continues to transform our business and help drive our growth we have successfully on boarded the 17 initial properties under the Wyndham agreement.

In the process of inspiration integrating additional hotels to the Wyndham brands family and operating platform.

We remain very optimistic about our future.

Our pipeline of opportunities continues to expand and our asset light triple net lease alternatives is becoming an increasingly attractive solution for property owners against the backdrop of rapidly rising interest rates and its related impact the upcoming asset refinancings with that I'll turn it over to Chris.

Ari Arco's, CEO and Chief Financial Officer for a review of our financials.

Thank you, Brian and thank you for joining us today.

As Brian noted, we are very proud of our third quarter results and I've put us in an excellent condition.

Finished the year strong our balance sheet is much improved and our business model is expected to allow us to realize the continuing growth throughout 2024.

I would like to also remind everyone that our press release issued yesterday afternoon, and our Form 10-Q filed with the SEC both contain a good amount of detail on our operating results with that in mind I'll focus my remarks on selected highlights and key items.

Net rental revenue nearly tripled to $31 2 million from last year's third quarter, driven primarily by an increase in average units available to rent.

<unk> 1423 from 571 as well as improved revenue per available room or revpar during the period.

Year to date Revpar rose to 274 from 191 in the same period in 2022 and from 247 at December 31, 2022 occupancy for the first nine months of 2023 was 81%.

Q3, 2023, total cash rent expense was $7 $8 million or 25% of net rental revenue compared to $2 8 million or 24% of net revenue in the same period last year.

Noncash rent expense amortization was $2 million in Q3 2022.

Gross profit rose to $7 8 million or 25% of net rental revenue from $4 9 million or 42% of net rental revenue in Q3 2022 gross profit in 2023 third quarter included other expenses totaling $13 6 million as compared to three.

One 9 million in last year's third quarter last year's expense numbers are not comparable based on the accounting for certain expenses below gross margin under the apartment rental business model, which we exited in 2022.

General and administrative expenses declined to two point.

Zero million from $6 four.

Or six 4% of net rental revenue from 5.0 million or 42, 8% of net rental revenue.

The decline has with gross profit was driven primarily by one time charges incurred in 2022 related to our exit from our apartment rental business.

Income from operations improved to $5 1 million from an operating loss of 400000.

Before the provision of income taxes improved to $2 9 million from a loss of 4 million net income improved to $4 9 million or 11 cents per share from a net loss of $3 2 million or negative <unk> 13 per share.

Adjusted net income adjusted cash net income rose to $5 7 million compared to 900000 in Q3 2022.

For the quarter ended September 32023, our EBITDA and EBITDA margin increased to $8 4 million or 27%, respectively up from $2 4 million or 20% in Q3 2022 Q.

Q3, 'twenty two 'twenty three margin results were slightly ahead of our goals of 20 plus percent EBITDA margins in the short term and 25 plus percent EBITDA margins in the long term.

Moving to the balance sheet.

At September 30th 2023, cash and cash equivalents totaled $4 8 million a $3 7 million improvement from December 31, 2022 research restricted cash was unchanged and change of $1 1 million.

Our balance sheet at quarter end did not include proceeds from our October closing of an underwritten public offering.

The company's 13% series, a cumulative redeemable preferred stock that generated gross proceeds of $7 million. The offering was non dilutive and we believe our ability to go to market with this new security reflects the growing strength of our financial position and promising outlook.

I'd like to also add that senior management participated in this offering.

Total debt at the quarter end declined to $5 2 million from $14 million at December 31, 2022, and net debt in the quarter was around 400000 down from $12 9 million at the end of 2022, staying with the balance sheet. We continue to work on our payables and working capital and made strides in the quarter.

Working capital position improved to $6 6 million from a negative $2 4 million at June.

30th 2023, and from a negative $13 9 million in December 31, 2022.

As we have stated previously we continue to make efforts to improve free cash flow liquidity and working capital and look to improve these metrics in the coming quarters.

During the quarter, we added four properties a total of 360 units all in New York City looking at our portfolio as of September 30th 2023, The company leased 16 properties with.

1446 units available for rent as of November eight 2023, the company leased 18 properties with 1599 units available for rent.

And and and as of November 9th November eight 2023, we leased 21 properties with 2032 units and these includes properties under leased but not yet available for rent.

Regarding guidance, we have increased our net rental revenue and EBITDA guidance for 2023, and 2024, reflecting the expected addition of new rooms to our portfolio and the associated operating synergies, we expect to realize from our Wyndham relationship.

We expect that all in Revpar for 2023 will be between 250 and $280 per room, while achieving over the year a target of quarterly gross margins of 30% both in 2023 and 2024 weeks.

We expect G&A, including excluding noncash items will approximate 10% to 12% during the year and we believe that that would result in EBITDA margins of 20% in the short term and 25% plus in the long term.

We expect to end the year operating at approximately 2500 to 3000, yet as always the timing of reaching our goals may positively impact our revenue guidance as a result of a partnership with Wyndham, we're pursuing larger higher quality properties than previously.

We did previously.

Although this is elongated or close cycle 245 to 90 days our pipeline of opportunities has never been larger.

Regarding a couple operational initiatives and accomplishments over the quarter.

As Brian mentioned, we completed the Onboarding process with Wyndham all the initial properties are now co branded under the bylaws harbored trademark collection by Wyndham brands.

We reduced corporate staffing by more than 10% without sacrificing client service organizational health. This included adding Matt Homan to our senior executive team as General counsel effective at the end of this month.

We promoted to general matters and managers oversee operations in New York and Miami with the goal to improve operations and share best practices in areas, we have meaningful unit density and.

And as we continue to grow and evolve as a company we expect to focus on two new initiatives over the next few quarters, one improve occupancy and seasonal markets, which we will we believe will result in much higher revpar and the second is with the business well over $100 million run rate formerly focus.

On the ancillary revenue and co branding opportunities, we believe that over the next two to four quarters. We can add five plus percent topline revenues in three to five per cent margin improvement pursuing these new revenue streams I'll now turn the conversation back over to Brian.

Thanks, <unk> and thanks to each of you for joining us today I'll now ask the operator to open the call to questions.

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One moment, please while we poll for questions.

Our first question today comes from Allen Klee of Maxim Group. Please proceed with your question.

Good morning, congratulations on the strong results.

First question is on <unk>.

Okay.

It looks like it drops.

I think third quarter was down a little from second quarter.

Questionnaires.

Max Roberts.

So talk about apples to apples and sandbox.

The fact that you have to.

But some of the properties.

Well I don't know if this is temporary.

Pardon.

Irrational when you're trying to come in and then that could fix.

Thank you.

Thanks, Alan So I'll I'll take that and then turn it over to Scott for additional follow up so.

So really a combination of three things.

First is on some seasonality within the portfolio.

The second piece is we did transition.

The entire portfolio, all 17 hotels and there were periods of time, where on sales and distribution.

Distribution dropped during the quarter as we made that transition. So there was some a little bit of degradation. There in terms of sales pick up for the quarter. Obviously, that's come back come back online and seeing a pick up there and then a slight softening on given the overall economic environment and one thing I will say is you know a lot of questions around.

Our business is no could we withstand the softening in revpar.

No as you can see the leverage in the business, we did see a softening in revpar.

Through those combination of factors in the business still performed very well.

Really really well so I think that should answer some questions in terms of the.

Ability for Revpar to create higher revpar to create additional margin expansion and then if you do get a softening revpar for a variety of reasons, including a softer economy.

The business really still works.

Yeah. So so Alan the front part of Brian's response, you know a lot of the the second quarter bookings.

That drove Revpar were where were made in the early part of the year right. We don't recognize that revenue until the stay occurs.

So that's just the nature of you know coming still lot of Covid summer travel pent up.

And so that was part of the Q2 increase versus Q3. So the softening is light I you know, we're not seeing the softening in New York market you know.

Personally experienced.

Occupancy, we're actually in some cases over booked and operationally, we're figuring out how not to turn away guests because it's a bad experience, but but but really it's based on.

The front end of of you know.

So that's the block of reservations.

Reservations booked at a frothy time, and then a little bit of the of the transition to Wyndham, where we were we were down a little bit.

Transitioning over so.

Okay.

Thank you I had two more questions one was.

You have guidance of 2500 to 3000 rooms under them.

M. L. A is by the end of this year I'm not sure if that actually means that many that are operational or is there a way to think I don't know if you can provide us of a framework of maybe how many might be operational by the end of the year.

Yeah.

Go ahead, Brian.

I'll, let you take that okay. So so.

So I mean, we have 2032 units.

Under MLA.

You know all of which 1600 or operating the bulk of that will be operating I would say 1800 plus units. Shortly you know maybe in the next week or two actively discussing that on the operational level. So you know my my my thought on this is you know the <unk>.

You know in some cases, you know are our longer just based on the process that we're going through but I would say between 22000 to 2000 to 2500 would be what is operational so maybe somewhere in the middle of that with the balance being under MLA. So will enter.

<unk> you.

2024.

Somewhere in between 25 to 3000, maybe on the higher end one one single property can get us well over the range right. There as theres number of assets in the pipeline that are two 300 keys that could easily get us over that so it just depends on when the chips dropped but from a revenue guidance perspective, we're very comfortable as we've always been with your guidance.

Okay.

That's great My last question is.

This is more just so I can understand your deal with Wyndham, where they've put up roughly half of a.

Your upfront costs for for a property that you're or for.

Master leases leases that youre putting on.

The units.

Related to that.

How does that work in terms of you have to put up the cash upfront and then they reimburse you is can I understand kind of the timing of that and I'm really asking that just to understand like your working capital to be able to fund that.

Future projects. Thank you.

Sure So our strategy so the way the Wyndham.

Financing works is they provide key money or Dan money development enhance my notes.

Or incentive notes for each property that we bring onto the platform. So they provide key money in the form of a development.

No.

Which advertisers over the life of the franchise agreement so that capital as you can.

Gets redeployed to us for the initial portfolio right, which was.

Substantial capital into the business.

Can then get redeployed into the business for new acquisitions working capital at the property level et cetera. So.

We do put out the capital.

And then we get reimbursed on opening.

For the property, that's going to life. So when youre doing this in large scale, which was the purpose of the preferred offering was to get a larger scale cycle going.

1000 keys.

Per quarter.

And then we get reimbursed that capital.

And then redeploy capital into additional units.

That's great. Thank you so much and congrats again.

Thanks Al.

The next question is from Matthew <unk> of Jones trading. Please proceed with your question.

Hey, guys. Good morning, Congrats on a good quarter. So can you just talk about the opportunities that you guys have right now and then on top of that the seven new properties that you brought on the three and four star and then I guess, how Wyndham has played into the role of the developmental.

Just the pipeline itself.

Sure. So currently we have.

Approximately 5000 high quality keys.

With the heavy concentration in New York.

New Orleans, Boston and London.

Under binding LOI or LOI that we're moving into our MLA cycle.

Larger scale higher quality properties summer or even five star properties, so very very robust.

<unk> has been very helpful. Both in.

Sourcing of properties.

The MLA as well as <unk>.

Each property that we.

Bring onto the <unk> platform that would be branded through <unk>.

Trademark for one of the variety of brands on goes through underwriting through Wyndham, we work very closely with their business development teams.

And we obviously when.

When we onboard the property, both operationally and from a sales and distribution perspective, it's done in a joint process.

Yeah. That's helpful and then as a follow up you talked about occupancy in seasonal markets is there any insight that you can kind of give in the <unk> occupancy numbers and then if you could could you expand on I guess, what youre going to be doing to try and increase the occupancy in some of those markets.

Sure I'll, let you take that yeah. So so occupancy.

Hum.

So again, you know New York continues to stay very robust rate. So it's a combination of.

Of overall dynamics of the city as well as the way we approach perishable inventory the other markets New Orleans does very well L. A is improving.

You know just based on us getting getting more traction and understanding of that market as well as I believe we opened not we but.

There was a restaurant opened within the property at the ground floor that will help help there Miami continues to say seasonal right. So as we enter into the colder months in the northeast we should see a pickup there initiatives wise, you know where we're looking.

We're looking to do a bunch of things at the property level improve overall offerings.

In terms of a grab and go breakfast coffee focus on you know one of our one of our one of our one of a really you know I would say you know higher quality properties.

Properties.

Is slightly lower than our expected with regard to occupancy.

No I think that's a function of you know not as many reviews on that property you think about reviews typically they're negative negatively slanted people don't give attaboys wouldn't have great stage. They they usually put in put a review down when they're when they're unhappy. So we've got a focus on getting that the high quality reviews and their to improve occupancy. So there's a number of factors.

<unk> as a management team, we're talking about it now weekly uncertain markets as to what how to improve especially where it seasonal where we we have to work much harder to get the occupancy up but look I mean, just as a management team is the underlying comment we've collapsed some of the team Hum you know as a function of really sort of getting you know our.

Hands more deeper involved in the business and focusing on the operations, which is occupancy and then I mentioned as well ancillary revenues. So these are two things that are extremely low hanging fruit, we can't guarantee that will happen next quarter, but we can we can definitely say that we're gonna put full effort into it in the next couple of quarters are going to see a material.

Packed.

Awesome. Thank you guys.

Thank you Matt.

The next question is from Kris Tuttle of Caterpillar investments. Please proceed with your question.

Alright, thanks, very much and congratulations for a well earned promotion there.

I think I can speak for everyone. When I you might want to just point us to a linked to understand that safe Harbor rules.

All right.

I've got a few questions and.

Wanted to know behind your 2020 guide.

30 year Revpar assumption I'm looking at next year.

Okay.

Yeah. So revpar next year, we haven't adjusted that and we're being conservative based on a couple of factors right. So one is.

You know economic overhang, which which I think from the hospitality perspective has has been been overdone.

If you followed other companies that have reported they havent really seen much of an impact yet I think it's it's sort of one of the bright spots, where there's overhang with economic uncertainty. The second is you know Revpar is is is heavily weighted on what type of properties, we acquire so.

<unk> is going to be on the higher end three star is gonna be lower end markets also matter New Orleans is much lower than New York equal Star comparison. So you know, we don't have a crystal ball and which are the best opportunities that we're going to be putting online in March April May June right. We have strong visibility into what we think is coming online over the next three to four months.

But after that sort of depends so for example in Brian's World you know he'll rejected property and then they'll come back right because they're not quite at the refinancing deadline, they'll they'll they'll try to garner a better alternative but they'll come back to the table potentially in three or four months.

So even though we may have passed on a property. That's of course started may come back into the pipeline. So theres a number of factors I think we're being conservative, but we've always been conservative we have initiatives here, obviously ancillary revenue and occupancy will drive revpar up, but we want to make sure that we provide guidance that's achievable and we'll.

We'll manage through that.

Okay, I can read into that.

Can you can you talk a little bit about a little more about your you talked about your two initiatives and one of them was the ancillary revenue partnership example.

You just provide a little color on what types of things.

That involves before asking a follow up question on that.

Oh, yes, so early check in late checkout.

Providing at the higher end properties are more of a I wouldn't call. It resort fee because that's that's Hum you know not not not not well received at this point, but you know more of a bundled service offering.

Sundry bar, we've got something that we're talking to with which is a a large sort of.

Digital assistant.

Our platform so theres a number of things that we get approached on as we continue to grow the portfolio, we become much more of a sought.

Sought after candidate to continue to enhance the guest.

Experienced through a third party co branding and you know obviously adds revenue to us. So so very a variety of of aspects. We've been so focused on really coming out of the gates of the IPO executing on the business model proving the business model, which I think some in some cases there is some skepticism associated to our the.

<unk> really that good.

And now that we have an adequate portfolio and good operational team, we're going to start focusing on that.

One additional thought one additional item there as we've recently signed.

A agreement with Amazon Hospitality pilot program in a number of our hotels and that'll be rolling it out probably more details on that coming soon so.

Oh that sounds interesting.

Just a couple a couple more.

So now.

As you.

Acquire and bring these properties online.

One off each of them with their individual contracts with Wi Fi.

Processing whatever.

My question is as you guys get more scale are you able to go to.

A payment processor like a ship for or a national Communications company like an AT&T or something to get a better and more manageable deal on things like patient service and payment processing is that.

How important that is.

Being part of the model part of the opportunity you have in them in the near to medium term I guess.

Chris could you just repeat that.

I want to make sure I fully understood the question.

Yeah, I'm, sorry, I'm trying to simplify it as you get more scale and have more property.

Can you negotiate.

A more comprehensive deal with.

Someone like ship for for payment processing or AT&T for all the Wi Fi and hotel communications.

<unk> you.

You bet it better price performance basically.

Yeah, absolutely so as we get scale theres leverage across multiple pieces of the business.

Obviously.

Driving commissions down right payment processing, which is a large cost inherent in the business, 98% of the transactions are 90 monitor credit card processing lower rates there have pure incremental.

Margin expansion.

Supply ordering right when we're leveraging window system for a number of things in terms of what we call supplies.

And then in addition, we're working on a number of partnerships with <unk> talks about ancillary revenue, it's not just property level and ancillary revenue, which is potential partnerships, which we're working on with large scale scope and beauty companies product placement companies again, I mentioned, the Amazon hospitality that details.

Coming on that.

Similar where youre not only creating a better guest experience the ability to upcharge for services, but also.

You know along the project pumps for free right. So it's pure incremental margin.

When they're looking to place product even down too.

Certain pillows mattresses as you get scale, there's a lot of incremental <unk>.

Ability to generate revenue across the portfolio.

Okay, alright, thanks, a lot I can appreciate that.

Yeah.

And let's see I had one last question and then I'll get off is.

Where are we in the transition or the uptake of you guys talk about the you pay the Cta.

Are the Otas.

They rather and then as Youre on the Wyndham platform, you'll have the opportunity to enjoy more bookings can you that flat.

The lower percentage.

Where are we on that.

What inning are we in in terms of that transition are you able to do that yet how long will that team.

Currently our 100% of our hotels.

That were from the prior portfolio versus.

Previous can move your signings are on the Windows platform.

We're working through that process now with them.

So we are we are live on Wyndham rewards on the Ta Commission rates currently.

And we're working on technology.

Technology requirements as we scale the portfolio and optimizing that.

Okay, Alright, thanks, guys I'll, let the next person.

Okay.

Thank you the next.

The next question is from Tom <unk> of Zacks investment Research. Please proceed with your question.

Good morning, guys. Thank all my questions have been covered.

One quick one on the taxes that $2 million benefit taxes that just a timing issue and then how do we look at tax rates for the fourth quarter and maybe even into 2024.

Yeah. So so.

So the tax benefit.

Was related to you know upon further inspection you think about the way tax provisions are done you make an estimate.

At each quarter for what you think the year is going to be the estimate is based on a.

Where do you think the year is going to be as we'll see.

Dr ability certain expenses so in the preparation of our 2022 I'm <unk>.

Going a little too complex, but in the preparation of our 2022 tax return.

Remember 2022 is the first year, we were a C Corp.

The ability to deduct the large charge from last year was was determined which we thought there was a limitation to that so that's the hence the big the.

The big benefit.

And so we have a large benefit associated to the.

The Rev share agreement that we entered into so going forward next few quarters I would expect a very low tax rate with with the benefit of that deductibility and then as we as we probably approach sort of maybe second quarter onwards next year about 30% would be kind of.

Where we've penciled in all in.

With the state's state and federal taxes.

Okay. So there will be normalized tax rate at some point in 2024 and beyond.

Yeah. If you think about 2024 with the first half being low in the back half.

Half being sort of normalize so maybe maybe in the in the teens or twenties.

But then normalize from that point forward.

It's based on the the large the large deductible nature of.

Of the Rev share accounting, we did last quarter.

Yes.

I think that's all I have everything else has been covered.

I appreciate it.

Yeah.

The next question. Thank you.

Leo Carpio of Joseph Gunnar. Please proceed with your question.

Good morning, gentlemen, most of my questions have been answered, but I actually have two follow up questions on first on the Wyndham relationship could you provide some more insights in terms of how they help you with improving your revpar and especially on the occupancy in the slow season, and then secondly can you comment on the <unk>.

High Pine of deals that you are having right now in terms of.

Our distressed property vendors coming to hotel properties coming to you and increasing volumes or the same volume as you're gaining more recognition in the market. Thanks.

Great. Thanks Leah.

So first question.

Wyndham has the largest rewards program in the world of approximately 110 million members worldwide 9000 hotel footprint on 600000 keys.

Et cetera, so very very large footprint high volume on through Wyndham rewards.

For rewards and direct booking channels, so leveraging that.

As any.

The main point of distribution across from Luxor portfolio.

It drives additional volume should result in increased Revpar on we're seeing some good traction there in early days.

For maybe.

30, 45 days and seeing good velocity in bookings there.

So that's that's the main point of distribution and then in addition to that Wyndham gives us the ability to leverage lower commission rates across the Otas to drive bottom line margin expansion, so lowers our costs versus us doing it independently. So those two points in terms of sales and distribution.

Dubuque.

As well as Wyndham is a globally.

Recognize hospitality brand Lux urban as a new entrant into hospitality couple of years old leveraging co branding.

Biologics urban trademark collection by Wyndham enhances the property value.

It also helps in terms of pipeline acquisition owners from obviously more comfortable.

With windows name attached to the hotel.

Sure a higher standard of both operating employee training at the property level.

Property inspections.

And just.

A higher brand standard then tip.

Typical boutique hotels so.

Good quality control around employee interaction customer service functions and also <unk>.

Property <unk>.

Level upkeep so.

So helping there and then in terms of the pipeline we're seeing.

Just about every deal come through in the market currently.

Very very difficult refinancing and financing market for hotel owners.

Historically, the most challenging ever.

And we're seeing higher quality assets higher velocity of hotels in terms of amount of.

Deals coming to us.

It's a very very very robust.

Alright, thank you.

Okay.

The next question is from Matt Cohen of Ancora. Please proceed with your question.

Yes, Hi, gentlemen, I wanted to follow up on the funding arrangement between you and Wyndham.

You mentioned that.

Yeah.

After reimbursement.

It's amortized over the life of the franchise agreement does that mean that you are actually re pain.

The reimbursement that Wyndham.

Wyndham provides to you and and over what time period.

Yes.

Yeah. So so the way we account for it.

The spirit of the agreement is.

It's roughly.

They're done asset by asset roughly 20 year agreements.

If if we perform on the agreement there's no repayment. So it's amortized from our financials. So it's a liability amortized to.

Two a reduction of expenses over the 20 year course, if if we.

If we don't perform on the agreement you know there's a there's a there's a there's a liquidated damages provision that's about about 18 months of.

Fees that they would receive.

For that for that for that for that key money on the front end. So so again in the spirit of it is is it's not a it's not really a liability it's booked as a liability just kind of put it somewhere in the balance sheet.

It's brought down off the balance sheet over the term of the agreement.

Okay that brings me to my next question, which.

I've made an assumption, but I haven't actually seen it spelled out is how is wyndham getting paid for all of these benefits that they're providing to luxor urban what is that going to look like on the income statement.

Yeah. So so it's going to be in cost of revenues.

There's a there's a there's a slew of fees.

But on a very very high level basis. The combination of the fees are booked with with the booking fee included right. So if it's booked off of there.

Their platform so if a if a guest.

Directly books off of their platform. It's it's a it's a it's a reduction of overall operating expenses by the magnitude of you know call. It.

Three or four 5% than what we had previously.

If we book if the guest books off of a third party platform you know they have negotiated rates off the third party platform that were better than what we had before the agreement, but it is a incremental cost increase.

So look I mean, initially day zero and day, one as traffic goes towards their site, we would incur greater expenses and then over time, we'd expect them.

To achieve.

70, 80, plus percent of bookings off the Wyndham platform, which is a overall margin savings for US right. So and the magnitude of a few percent, which thinking about run rate business beyond $100 million go into 200 meaningful dollars.

Okay. So despite the fact that you're paying them, some kind of fear or royalty.

At the top you actually I actually expect this to be accretive to that maybe the margin profile that you put out in the past is that is that accurate to say.

Yes.

See 3% to 4%.

Minimum margin improvement.

Penguin the all inclusive.

Okay great.

And then O T a receivables are growing.

Growing line item on your balance sheet, what do you expect kind of the the collection period or or dsos to be on that.

Sure. So so those those receivables are made up of we took over so the OTT receivables.

Pretty consistent with last SKU, we took over to properties that had receivables due from.

From New York City that we turned over.

That that is the bulk of the increase this Q so they're sitting in New York receivables for our programs.

Really one time.

As we took over possession of two properties there was receivables for the quarter.

<unk> receivables were about five or $6 million consistent with last huge stay static around there that was really a onetime turnover on the on.

On the two particular hotels.

That's clear.

Okay. So as you continue to grow that would not be a normal it would not normally be as large as that or might go away.

Okay, Yes, I would say 19% of the of the <unk> revenue.

Okay. That's helpful. And then kind of last one for me I think you mentioned 5000 properties under LOI with the new Wyndham partnership and you've kind of put out some numbers of 6000 msas by by June and up to 12.

Thousand by year end.

You know what.

I guess, what gives you the confidence to put out kind of some some big numbers like that and you know how.

How.

How confident are you in those conversions of those yellow life and over what timeframe will they occur.

Sure sure highly confident we wouldn't have put it out historically, we have we have met or exceeded guidance on both an earnings and unit count.

Conviction.

Deep deep in the process on boats lease negotiations <unk> signing of leases on those.

D processing with Wyndham underwriting on those in terms of key money.

Brand standards Pip reports on a lot of those assets had been run so they are very far along in the process and they're highly achievable.

Okay, great. Thanks, that's all from me guys.

The next question is from Adam Waldo Lismore partners. Please proceed with your question.

Yes, good day gentlemen, thank you very much for taking my question one more on the balance sheet. Following the Priors Park Questioners inquiry about the Oh Ta channel retail funds receivable the processor retain funds I think relates obviously the payment processor and I think if I recall you all put out a press release late 'twenty two early 'twenty three around the switching.

Processor, resulting in freeing up that working capital to be able to reinvest in growth am I right in my recollection, there and if so how do you how should we think about the process of retaining funds balance of developing as we go forward that the rate of growth you're seeing.

Yeah, great. So if you see it's so it's no longer.

Increasing if you see I think it went down about $1 1 million Q over Q right. So we did get some release there I think it went from.

Six six and change down into the fives on site, we got a release of about over $1 million that came into working capital over the Q.

Deployed into the business.

So I think over the next two or three Qs you should see that come down to a negligible number it certainly will not increase and it will come down through the balance of the next few quarters as we get those those funds released working with those processors.

Does that become Oh I'm sorry.

But thinking about it from you know.

When that balanced peaked.

At the at the end of last year.

The revenues are almost not quite but two and a half times. So as a percentage of revenues has gone down considerably right and so so it's really meant for protection of hold backs and so forth but.

As a percentage it's plummeted and they've also started releasing capital no absolutely, but I guess, where I was going because there's now that you're you know obviously payment processing almost entirely through the windows platform.

I can go down to just a few million dollars over.

Over the next few quarters Brian's comments seem to suggest maybe that doesn't become a source of growth capital and no follow up after that thank you.

It does it should eventually go to zero right because there is no more hold backs given the strength of the business on current payment processing, it's historically and the processors that we're working with but we're holding back.

Given.

The balance sheet of the company historically.

And as it has improved we don't have a requirement for hold backs and no longer on the payment processing. So as we work over the time periods in most contracts. The money gets released so it will provide working capital.

Should get to zero over the next three to four quarters.

Tremendously helpful. Thanks, very much and good luck on continued strong performance.

Thank you very much.

There are no additional questions at this time I would like to turn the call back to Brian <unk> for closing remarks.

Great I appreciate everyone joining.

And thank you very much.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

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