Ashford Inc.
Q2 2021 Earnings Call Transcript

Published: 1 Aug 2021

[Operator:]

Greetings and welcome to the Ashford Inc. Second Quarter 2021 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. It is now my pleasure to introduce Jordan Jennings, Investor Relations for Ashford. Thank you. You may begin.

[Jordan Jennings:]

Good day, everyone, and welcome to today's conference call to review results for Ashford for the second quarter of 2021 and to update you on recent developments. On the call today will be Jeremy Welter, President and Chief Operating Officer; Deric Eubanks Chief Financial Officer; and Eric Batis Managing Director and Senior Vice President of Portfolio Management. The results, as well as notice of the accessibility of this conference call on a listen-only basis over the Internet, were distributed yesterday afternoon in a press release.

[Jeremy Welter:]

Good morning and welcome to our call to discuss our financial results for the second quarter of 2021. I will begin by discussing Ashford's operations and strategy. Derek will then review our financial results for the quarter and then Eric will provide an update regarding our products and services businesses. After that, we will open it up for Q&A. I want to begin by thanking our associates for their relentless hard work during this unprecedented time. I can't tell you how proud I am of our executive leadership team, as well as our associates throughout the country. It's a long year for those of us in the hospitality industry, where we are now experiencing a return in demand and the recovery is here. As we look forward, I'm extremely optimistic about the future of our company. We reported strong growth in adjusted EBITDA for the second quarter, driven by JSAV, Remington and RED. We're excited to report positive adjusted EBITDA for the quarter for JSAV, our business that was hit the hardest by the pandemic. We have a lot of exciting developments to discuss on today's call. The key themes we are going to highlight today are

[Deric Eubanks:]

Thanks, Jeremy. Net loss attributable to common stockholders for the second quarter was $14.7 million. Adjusted EBITDA for the second quarter was $10.7 million which reflected growth of 235% over the prior year quarter. The growth in adjusted EBITDA over the prior year quarter was led by JSAV with an increase of $3.1 million Remington, was an increase of $2.8 million and RED, with an increase of $2.6 million. Adjusted net income for the second quarter was $8.7 million and adjusted net income per share was $1.17. As it relates to our advised REITS during the second quarter, Ashford Trust continued to make significant progress in converting its preferred stock into common stock and has exchanged approximately 15.2 million shares of its preferred stock, representing approximately 67% of the share count prior to the exchanges into approximately 10.2 million shares of common stock. Also, year-to-date, Ashford Trust has raised approximately $478 million from the sale of shares of its common stock. Braemar has raised equity capital of approximately $78 million from the sale of shares of its common stock year-to-date. Braemar has also exchanged a significant portion of its preferred stock for common stock.

[Eric Batis:]

Thank you, Deric. We are pleased to provide updates on our products and services businesses. And we are encouraged by their forward momentum established during the second quarter of the year.

[Operator:]

Thank you. We will now be conducting a question-and-answer session Our first question is come from the line of Bryan Maher with B. Riley. Please go ahead with your questions.

[Bryan Maher:]

Good afternoon. So I want to focus on kind of the -- on Lodging component because those numbers tend to flow from our Braemar and Ashford models as you know. So to that end on JSAV, we were surprised by the revenue increase in the quarter. Can you talk about, what the pace of acceleration might be over the next 12 months? And how long do you think it takes to get back to 2019 levels?

[Jeremy Welter:]

Yes Brian, this is Jeremy. I think that's a difficult question for us to answer. What I can tell you is that week over week I'm still approving weekly payables for that company by the way. And so as they're submitted I get an updated probability adjusted revenue outlook by quarter for the upcoming quarters. And -- and there was period of time that every week I was getting and the revenues were coming down as there were more cancellations. And everyone can get that update more and more revenues are coming in. And what I'm surprised about, is the -- in the quarter for the quarter rather than because that we're getting. We received a lot of that in Q2 and we're very surprised and pleased with the revenue that we generated in Q2. And we continue to see that ramp up still slower than, what I'd like to see but it continues to accelerate. What we've done though is we've done a really good job of maintaining really attractive margins as we ramp the company back up and keep the cost structure much more efficient than, what it was pre-pandemic and certainly when we bought the company. As you recall, once we acquired a close in JSAV we put together a lot of cost optimization plans that we're still in process. We never really get the full benefit of them to early today. But I think we continue to see a good outlook. It's still very difficult to know how that advances. I think that if you listen to the Braemar, call earlier today group pace is basically, flat for next year although, that's a decrease in room nights. But still it's flat year-over-year. And so if we end up with -- I'm sorry versus 2019 if we end up anywhere close to 2019 levels and this company ramps up very, very quickly. But I would guess that it's probably 2023 to 2024 recovery to get to pre Pammi levels if I were to guess.

[Bryan Maher:]

Great. And as it relates to JSAV and maybe even Remington, how hard is it to bring employees back? I mean we've heard new stories in the media about how so many hospitality employees have moved on to other jobs or careers. Are you seeing that? And what type of incentives do you have to bring people ahead?

[Jeremy Welter:]

Yes. I don't think I want to disclose our incentives that we're doing to that varies by management company and location but we certainly are doing those. We're doing centers where there actually are signing on bonuses to bring associates back. We're definitely having wage pressure in many markets, where we are proactively increasing the wage scales to attract associates. But specifically, as it relates to Remington, I think I quoted yesterday that we're about 10% of our positions are open, which is unusually high for us. And so it continues to be a challenge. It continues to be a challenge to bring associates back to work. And we're just doing the best we can. I don't think it's a pervasive issue in terms of having to close out rooms because we can't serve some but that has happened certainly. As it relates JSAV, we've had some of our techs that left the industry, but the nature of that industry the audio visual industry is that a lot of the associates are kind of into the techie show -- services side where they want to put on these productions and they kind of live and breathe it as a passion. And so while it still is a challenge, I'd say it's probably a little bit less of a challenge right now for JSAV versus maybe the hotel management side.

[Bryan Maher:]

Okay. Thanks. Just last for me. On RED, I don't think maybe anybody on this call realized how quickly and profitably that could grow. But can you give us your internal thoughts on how big that can become for Ashford Inc. over the next couple of years? And what type of costs are going to be associated with growing that business? And that's all for me.

[Jeremy Welter:]

Yes. So, in our presentation, we put out a 2025 estimate of $9 million in adjusted EBITDA. And I think that we can well exceed that if we're able to do some acquisitions. And we have a good amount of acquisitions in our pipeline for RED that could really continue to ramp that company up pretty significantly. So, I think it could easily be a $20-plus million EBITDA company after we do some bolt-on acquisitions. And in terms of the cost to grow, it usually is typically a 30% cash-on-cash return for most of our investment opportunities. In some cases, it's a 50% plus. I would say that Turks and Caicos will prove out to be a 50% plus cash-on-cash return after we get that property ramped up. And so it's a very attractive way for us to invest capital. We do believe we have a proprietary operating platform that is very unique and very scalable from -- not only from a service perspective, from an operating perspective, from a standard perspective, but then also from an e-commerce and revenue generation perspective, we're very efficient on how we get cost effectively passengers in our boats and we get them the return as they come and stay in the resource that we service. So, I think we've got a great business model, we've got a great team, and I'm very optimistic that we will continue to grow that platform and you'll continue to be impressed with the results that we generate.

[Bryan Maher:]

Great. Thanks guys.

[Operator:]

Our next question comes from the line of Tyler Batory with Janney. Please proceed with your question.

[Tyler Batory:]

Good morning. Appreciate you taking my questions. Congratulations on the strong results here. First question I have is a multi-part question. In terms of the investor presentation that you put out last month, you gave some long-term targets and I think certainly notable for the growth, but also the first time that you've ever done something like this. So, can you touch more if you could on the process behind coming up with some of those financial targets? And that $85 million of EBITDA by 2025, it's a tremendous amount of growth. How much confidence do you have in that number? How conservative might that estimate end up being? And what sort of macro backdrop do you think is necessary to achieve that target?

[Jeremy Welter:]

Yes. Sure. I think just taking a step back, I think that as we look we understand we live and breathe this business. I'm very involved with all of our hotel operations and very involved with all our teams all our companies. It is a passion for all of us and we're very excited about what we're doing and what we're creating here. And what we felt like is that if investors knew what we know in terms of what we can do with this platform, then our stock should be trading up higher than what it was before we certainly file this presentation. I think there's still a good amount of upside where we trade today. If you were to project out what we think we could do from an earnings power perspective and then and discount that back to the present value at reasonable trade multiples, I think there's a good amount of upside in the stock. But that's for investors to choose whether or not they agree with that. But we felt like if we could articulate the opportunity that we have with this platform that that was a good service we can do for our shareholders -- existing shareholders and future shareholders, because this business has been hit so hard by the pandemic that it's hard for a lot of people to see a path to recover the way that we see it. And in terms of where you want to talk about how we layered this in and projected it, we went by each one of the companies and we have a very detailed model that goes through and projects the assets under management we have at our advised platforms and what amount of capital we can think we can generate at Ashford Securities and then what we think we can do from a third-party perspective. And so we did that, we're going to we started with kind of looking at two parts of the business the AUM and third-party, but then we do that all on an individual basis by company-by-company. So, there's a good amount of detail behind all of the information we laid out in the presentation. And I think we did a decent job given some of the assumptions. But it is a combination of the recovery, which we do believe is going to happen. Lodging always comes back, it proves to come back. And in fact, if you look at previous recoveries, it tended to come back faster than what industry estimates were. And so I think we're taking reasonable outlook in that recovery and then reasonable projections that we believe are readily achievable which is what we want to share with the community because this is the first time we've done it. I don't think we're sticking our neck out. I think that we have a high level of confidence that if we execute the way we believe we will execute and the market rebounds a way that we believe it will rebound, that we can meet or exceed those numbers. And my hope is that this is something we keep going forward at least for the time being and update and plan to provide an update in our Investor Day that we mentioned in previous calls, we're going to have in October. And hopefully, the numbers maybe are higher. We'll have to see it. I can tell you that the second quarter that we generated today was a nice surprise to us. We didn't think it'd be -- we'd have the level of EBITDA that we were able to achieve. So I think we're confident that we can -- that we're being prudent in terms of our outlook.

[Tyler Batory:]

Okay. Excellent. I appreciate that detail. And then just a follow-up question. A key part of the growth story here is the third-party business. So I think this is probably something that's worth asking each quarter. Obviously, you're making a lot of progress on that. But just help us put into perspective how this strategy is going versus your expectations? Any change in the opportunity set versus 90 days ago? And when you look at the cost structure at Remington and Premier any, sort of, expectations you're going to need to hire some more people as you start to ramp-up that third-party business?

[Jeremy Welter:]

Yes, yes. So we just recently added one other team member in the business development side. So if you look at the Remington outlook, I think, we're estimating $6 million of third-party revenue in 2025. We were strategically what I think is reasonably conservative on that estimate. And I would be disappointed if that's all we generated in 2025. So my expectation is that the team does a much better job to attract more contracts than what we're projecting out. We certainly have been very pleased with the progress we've had so far. I think we've announced that we've had nine signed contracts. We've got a good amount that have also been verbally awarded, but are in the contracting phase. And so just starting from nothing during the time of pandemic I think we're getting a lot of traction at Remington. And I think that -- I don't think that the Remington component certainly is going to be a big part of what we can estimate on the $85 million of EBITDA. And so hopefully there's some upside in that. Moving on to Premier. We projected $7 million in third-party revenue. What's interesting there is that I'm surprised that we had 27 contracts so far signed up. And we also have some major renovations that our repeat business area which I think is phenomenal that we've already got customers who are already so pleased with what we're doing from a renovation perspective that they've hired us on a second one. And they're good piece and great projects for Premier. And so as we continue to kind of expand out I think there's a good amount of upside. And if we did $7 million in third-party revenue 2025 I'd be disappointed with the team and I know the team would be disappointed with themselves. The other thing that I think is interesting is that we have tremendously expanded the total addressable market. I think that we've kind of put it out initially in our presentation mainly geared towards hospitality. But now that we're in multifamily more student housing those are huge markets. And we're getting a good amount of traction in both. And so when we recently started this campaign we were just focused on hospitality. This has been a very pleasant surprise that we've kind of been able to find ourselves in multifamily and student housing which again are just massive opportunities for us. In terms of RED, RED proven we can grow third-party. So I'm excited that we're able to get that contract in Turks and Caicos with risk growth. And that just is a change for the confidence in our ability to service the resort St. Thomas. Obviously, we own the one in St. Thomas we don't own the one in Turks and Caicos and they saw it RED because they wanted to provide the same experience to the customers there. And I think there will be other opportunities in other markets and other resorts to expand without acquisition. And then we also have the ability to acquire. And then the same thing with JSAV that the business was 100% third-party when we bought it and we have proven that we can grow that business third-party. I think that there's a tremendous amount of opportunity. I think we're very uniquely positioned within that space being the second largest now and being much smaller than the primary provider. And so actually during the pandemic we picked up some really nice pieces of business. We've only lost one contract in the hospitality segment. But we've picked up I think four or five nice contracts nice size contracts that are very exciting for us. And as it stands right now there's just not a lot of momentum because a lot of the existing hotels are not really biting out audio digital services right now because they're just getting ramped back up. And the last thing on their mind is an AV provider. But as that starts to occur I do think we'll see a lot more additional growth in terms of adding new contracts. And then certainly, we're what we're doing from a sales services perspective. So I think it is the third-party side I think that there's a lot of opportunity over the next five years. So we're very excited about it.

[Tyler Batory:]

Okay. Great. That’s all from me. Thank you for the detail.

[Operator:]

Thank you. There are no further questions at this time. I'd like to hand the call back over to management for any closing comments.

[Jeremy Welter:]

Yes. Thank you for joining today's call and we look forward to speaking with you again next quarter. In addition, we will be looking to host an Investor Day in New York on October 12 and we'll provide additional details later.

[Operator:]

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.