Ashford Q2 2023 Earnings Call Transcript

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August 3, 2023

Key Takeaways

  • Despite strong top-line growth—Adjusted EBITDA of $17.8 million—Ashford posted a net loss of $7.5 million in Q2 2023 against tough year-ago comps from record recovery levels.
  • Through Ashford Securities the company has raised over $500 million of capital since 2021 and placed more than $50 million of non-traded preferred stock for Ashford Trust, while launching a Texas-focused CRE fund.
  • Braemar Hotels & Resorts closed three high-profile acquisitions—Ritz-Carlton Reserve Dorado Beach, Four Seasons Resort Scottsdale and Mr. C Beverly Hills (to convert to Hilton’s LXR brand)—and sees improving leisure and corporate demand.
  • Remington Hospitality rebranded from Remington Hotels and delivered a record eight new third-party management agreements ($1.8 million of expected annual revenue), now overseeing 120 properties.
  • Core service platforms continued momentum: Inspire’s AV revenue rose 14.9% to $41.3 million (targeting a 15% margin), RED Hospitality grew revenue 27.5% to $9.8 million, and Premier’s design/construction fees jumped 60.5% to $7.6 million.
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Earnings Conference Call
Ashford Q2 2023
00:00 / 00:00

There are 5 speakers on the call.

Operator

Greetings, and welcome to Ashford Second Quarter 2023 Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. 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.

Operator

Thank you. You may begin.

Speaker 1

Good day, and welcome to today's conference call to review results for Ashford For the Q2 of 2023 and to update you on recent developments. On the call today will be Derek Eubanks, Chief Financial Officer and Eric Badis, Executive Vice President of Operations. The results as well as notice of accessibility 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 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.

Speaker 1

These factors are more fully discussed in the company's filings with the The 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 ks with SEC On August 2, 2023, and may also be accessed through the company's website at www.ashfordinc.com. Each listener is encouraged to review those regulations provided in their earnings release together with all other information provided in the release. Also, unless otherwise stated, all reported results discussed in this call compare the Q2 ended June 30, 2023 with the Q2 ended June 30, 2022. I will now turn the call over to Derek.

Speaker 2

Thanks, Jordan, And welcome everyone to our call to discuss our financial results for the Q2 of 2023.

Speaker 3

I'll start

Speaker 2

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'll open it up for Q and A. The key themes we're going to highlight today are: 1st, we had strong revenue growth in the quarter, But a difficult year over year comparison as last year we reported record results in the Q2 as demand came roaring back to hotels and labor conditions made it difficult to fill open positions. 2nd, we continue to see growth in the pace of capital raising through Ashford Securities And we're pleased to announce the milestone of over $500,000,000 of capital raised through Ashford Securities since its launch in 2021. And 3rd, Remington had a record quarter in terms of the number of new third party management agreements signed during the quarter.

Speaker 2

We continue to be excited about the potential for Remington and all of our portfolio companies to continue to grow their 3rd party business. As of June 30, 2023, our 2 publicly traded REIT platforms Ashford Trust and Braemar had ownership interests In 118 hotels with approximately 27,000 rooms and approximately $7,900,000,000 of growth assets, Braemar's resort portfolio has seen some stabilization in both demand and pricing as 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. Braemar has also been active on the acquisition front And have completed 3 acquisitions this cycle. The iconic 96 Room Ritz Carlton Reserve, Dorado Beach in Puerto Rico, The 210 Room Four Seasons Resort Scottsdale at Troon North and the 143 Room Mr. C Beverly Hills Hotel.

Speaker 2

We are excited about Braemar's recent announcement regarding the planned conversion of the Mr. C. Beverly Hills to Hilton's LXR 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 its debt maturities and ended the quarter with over $344,000,000 of net working capital.

Speaker 2

Today, Ashford Trust has issued over $50,000,000 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 pay down of approximately $255,000,000 For 19 hotels secured by a Keyes A, B and F loans, it's important to note That in the event, Osos Health Net is being transferred to the lender, we estimate the annual impact to Ashford Inc. Will only be A reduction in annual adjusted EBITDA between $2,000,000 $3,000,000 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 3rd party owners and other capital providers as we are one of the largest owners and fee payers for the major hotel brands.

Speaker 2

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've 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 Q2 was $7,500,000 Adjusted EBITDA was $17,800,000 for the 2nd quarter.

Speaker 2

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 2nd quarter was $12,700,000 and adjusted net income per diluted share was $1.57 Total advisory fee revenue from Braemar in the 2nd quarter increased 15.1% over the prior year quarter. Our share count currently stands at 8,000,000 fully diluted shares outstanding, which is comprised of 3,100,000 Common shares outstanding, 200,000 common shares earmarked for issuance under our deferred compensation plan, 4,200,000 common shares associated with our Series D convertible preferred stock and the remaining 500,000 shares or for acquisition related shares and restricted stock. I'll now turn the call over to Eric to discuss our operating businesses in more detail.

Speaker 3

Thank you, Derek. We are excited to provide updates on our products and services businesses, which continued to build momentum during the Q2. 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 2nd quarter was headlined by 2 key themes, impressive revenue growth and margin pressure. Margins in the Q2 were adversely impacted relative to the prior year quarter by inflation, a return to normalized staffing levels and revenue mix, which I will touch on shortly.

Speaker 3

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, hospitality and creative services. Continuing its strong growth trajectory, Inspire generated $41,300,000 of audiovisual revenue in the 2nd quarter, a 14.9% increase over the prior year quarter and $5,100,000 of adjusted EBITDA, representing a 12.3% adjusted EBITDA margin. Throughout the first half of twenty twenty three, Inspire has seen impressive top line growth that has required sub rentals and contract labor to execute on this new business, which has resulted in margin pressure. The Q2 of 2022 was the Q1 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 EBITDA margin of 15% and expect Inspire to achieve this margin on a stabilized basis.

Speaker 3

Inspire continues to grow its international operations in Mexico and the Dominican Republic, generating $11,800,000 of revenue in the 2nd quarter, which represented a 31.4% increase over the prior year quarter. Inspire also executed 2 new hospitality contracts during the 2nd quarter, which are expected to contribute $815,000 of annual audiovisual revenue. Remington is a dynamic hotel management company providing best in class management and expertise to hotels across the country. This quarter, we are excited to announce that Remington Hotels has rebranded to Remington Hospitality, which better reflect the company's expanded hospitality offerings and the future direction of the company. This rebrand is emblematic of Remington's In the 2nd quarter, Remington executed 8 new third party hotel management agreements, representing $1,800,000 of expected annual revenue, including its first hotel management agreement with an international hotel, which is located in Costa Rica.

Speaker 3

This was a record quarter for Remington in terms The number of new third party contracts signed and illustrates the momentum we continue to see in growing our 3rd party business. Remington also generated 2nd quarter hotel management fee revenue and adjusted EBITDA of $14,900,000 $6,700,000 respectively, representing a 44.8 percent adjusted EBITDA margin. Remington's 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 TEL's outperforming budget throughout the early days of the recovery. At the end of the Q2, Remington managed 120 properties We're open and operating. Remington managed 73 properties for Ashford's advised REIT, Ashford Hospitality Trust and Braemar Hotels and Resorts.

Speaker 3

Remington also managed 47 third party properties for 29 different ownership groups, 11 of which have hired Remington to manage 2 or more of their hotels. These ownership groups include real estate funds, family offices, high net worth individuals, private equity groups and developers. Remington's managed portfolio operates in 26 states and Washington, D. C. Across 25 brands, including 15 independent and boutique properties.

Speaker 3

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 2nd quarter, RED generated $9,800,000 of revenue, a 27.5% increase over the prior year quarter and $2,300,000 of adjusted EBITDA, representing a 23.7 percent adjusted EBITDA margin. RED has seen margin pressure in the last year due to increased salaries as they invest in leadership Support future growth, increased cost for items such as food and beverage and slowing demand in the Florida Keys and Turks and Caicos causing less high margin incremental passenger revenue to be captured.

Speaker 3

Brett's recent focus on the integration of Alii Inui and Maui dive shop in Hawaii, which was acquired on March 17. Alii Inui provides Luxury sailing and water sports experiences in Maui, offering sunset sales, dinner cruises, snorkeling and whale watching excursions, And is the on property provider of scuba programming at the Grand Wailea Resort in Maui. RED recently launched a new website and digital advertising campaign for Alihinui And ALI Inuit contributed $1,800,000 of revenue and $400,000 of adjusted EBITDA in the 2nd quarter. RED 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.

Speaker 3

Premier generated $7,600,000 of design and construction fee revenue in the 2nd quarter, representing 60.5% growth over the prior year quarter. Premier also generated $2,300,000 of adjusted EBITDA, resulting in 105.6% growth over the prior year quarter and a 30.4% adjusted EBITDA margin. During the quarter, Premier also executed 7 new third party contracts, representing $1,000,000 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.

Speaker 3

During the Q2, Ashford Securities hit an impressive milestone at $500,000,000 of capital raised since 2021. Ashford Securities is currently in the market with a redeemable non traded preferred stock offering for Ashford Trust and has continued to build momentum by growing our institutional broker dealer and RAA partners. Ashford Securities has placed over $50,000,000 of Ashford Trust's non traded preferred stock through its syndicate of 35 broker dealer And RAA firms. Ashford Securities is also raising capital for a growth oriented investment product 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.

Speaker 3

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 $2,300,000 of capital and signed dealer agreements with 17 firms to distribute this product. After a strong Q2, we are optimistic about the opportunities ahead for the remainder of 20 23. We continue to maintain a focus on growing our products and services platform through 2 primary initiatives, 3rd party sales and strategic acquisitions. While we continue to pursue opportunities to meaningfully scale across all our portfolio companies.

Speaker 3

That concludes our prepared remarks, And we'll now open up the call for Q and

Operator

A. Thank you. At this time, we'll be conducting a question and answer One moment please while we poll for questions. Our first question comes from Tyler Batory With Oppenheimer, please proceed with your

Speaker 4

question. Good afternoon. This is Jonathan on for Tyler. Thanks for taking my questions. First one for me is on the expense side.

Speaker 4

Can you just talk generally about the labor market? Do you feel there's additional positions to fill across your business? And Any color on kind of the wage growth you're seeing out there?

Speaker 3

Yes. 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 a lot more open positions that we need to fill at our portfolio companies, but we are continuing to add staff As these revenue levels climb at the levels that they are, so you're hearing me talk about 20%, 30%, 60% revenue increases, We obviously have to add staff to that and wages are increasing. I don't have a great number for you across the portfolio companies as they do blend Quite a bit and we have far fewer instances of hourly labor than we do at our hotels.

Speaker 3

But it is definitely a continuingly difficult labor market for us and you're seeing that in our margin.

Speaker 4

Okay. I appreciate the color there. And then Premier saw a pretty notable pickup in 3rd party engagements. Can you provide some color on the drivers of the increase? What types of hotels or other assets are added?

Speaker 4

And how are you thinking about sizing that opportunity longer term?

Speaker 3

Yes. So it's a lot of hotels. And what's happened is you see this We started the 3rd party effort just before the pandemic, kind of have come into recovery from the pandemic. And a lot of these projects are happening 6 months to a year after we get them signed up. So 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.

Speaker 3

We are experiencing projects in both 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 new build market across 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.

Speaker 4

Okay, excellent. Thank you for the color there. And then last one for me, if I could. Some modest softness in leisure was noted in the release. And I'm just curious, overall, if you're seeing anything from a demand perspective that maybe gives you pause or is worth calling out?

Speaker 4

Does everything still feel generally pretty healthy?

Speaker 2

This is Derek. I'll take that. I think I would say everything still feels pretty healthy. I think the softness 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. But we think that ultimately That demand will come back to our properties and feel very well about how our especially leisure focused assets are positioned.

Speaker 4

Okay, great. Thank you for all the color guys. That's all for me.

Operator

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

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