Ashford Inc.
Q4 2021 Earnings Call Transcript

Published: 25 Feb 2022

[Operator:]

Greetings, and welcome to the Ashford Inc. Fourth Quarter 2021 Results Call. 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 for Ashford Inc. Thank you. You may begin.

[Jordan Jennings:]

Good day, everyone, and welcome to today's conference call to review results for Ashford for the fourth quarter and full year 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 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. These 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 is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on February 24, 2022, and may also be accessed through the company's website at www.ashfordinc.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 fourth quarter of 2021 with the fourth quarter of 2020. I will now turn the call over to Jeremy.

[Jeremy Welter:]

Good morning, and welcome to our call to discuss our financial results for the fourth quarter of 2021. I will begin by discussing Ashford's operations and strategy. Deric 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. We had a great fourth quarter, highlighted by the highest quarterly adjusted EBITDA in the company's history. Our strong growth in adjusted EBITDA for the quarter was driven by our REIT Advisory Business and the ability to recognize the fee deferral from Ashford Trust, as well as continued recovery and improved financial performance at INSPIRE, Remington, and Premier. As a reminder, during the quarter we re-branded our audio visual and event technology business formerly known as JSAV to INSPIRE. We are particularly excited to report $3 million of adjusted EBITDA for INSPIRE in the fourth quarter, our business that was hit the hardest by the pandemic. As we look forward, I'm extremely optimistic about the future of our company, and 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 fourth quarter was $5 million, and net loss attributable to common stockholders for the full year was $46 million. Adjusted EBITDA for the fourth quarter was $19.5 million, which reflected growth of 174% over the prior year quarter and was the highest quarterly adjusted EBITDA in Company history. The growth in adjusted EBITDA over the prior year quarter was led by INSPIRE with an increase of $5.1 million, Remington with an increase of $1.9 million, Premier with an increase of $1.5 million and RED with an increase of $0.9 million. Adjusted EBITDA for the full year 2021 was $48.4 million. For the first time in our company's history, we provided long-term earnings guidance to the market last year. Given the significant growth potential we believe is possible for our company, we felt that it was important for us to share that with the investment community. Our adjusted EBITDA of $48.4 million for 2021 is only about 14% below the guidance we provided for adjusted EBITDA for 2023. As a result, our 2023 adjusted EBITDA guidance is currently under review, and we hope to have revised guidance soon. Adjusted net income for the fourth quarter was $17.1 million, and adjusted net income per share was $2.24. These results reflect growth rates over the prior year of 470% and 421%, respectively. Adjusted net income and adjusted net income per share for the full year 2021 was $39 million and $5.20, respectively. As it relates to our advised REITs, Ashford Trust raised approximately $564 million from the sale of shares of its common stock during 2021, while Braemar raised equity capital of approximately $104.4 million from the sale of shares of its common stock during the year. Since launching its non-traded preferred capital raise in July, Braemar has raised $62 million in net proceeds. These capital raises have helped shore up both REITs' liquidity and lowered their leverage. In terms of financial results for our portfolio of companies, I'll provide some highlights and then Eric will discuss more details. Lismore recorded revenue of $2.6 million in the quarter related to debt placement services and its agreement with Ashford Trust to seek modifications and forbearance for the REIT's debt. The forbearance effort is mostly completed, but Lismore will continue to record this revenue over the remaining term of the agreement, which expires in April of 2022. Remington realized hotel management fee revenue of $7.5 million in the quarter, net income attributable to the company of $129,000, and adjusted EBITDA of $3.5 million. For the full year, Remington reported adjusted EBITDA of $12.5 million. For the fourth quarter, Premier had design and construction fee revenue of $3.9 million, Net Loss Attributable to the company of $1.4 million, and adjusted EBITDA of $1.3 million. OpenKey finished the quarter with 288 hotels under contract, which compares to 267 hotels under contract at the end of the third quarter. This growth was driven by a significant shift in guest preferences as evidenced by utilization of digital keys increasing by 33% in the fourth quarter over the prior year quarter. OpenKey also reported revenue growth of 63% over the prior year quarter. Financial results for INSPIRE for the fourth quarter included revenue of $21.7 million, net income attributable to the company of $135,000, and adjusted EBITDA of $3 million. The revenue for INSPIRE reflected a growth rate of 427% over the prior year quarter, and it's the third consecutive quarter of positive adjusted EBITDA for INSPIRE. For the full year, INSPIRE reported adjusted EBITDA of $4.5 million. RED Hospitality & Leisure, our boating and watersports company, had a great 2021, reporting total revenue of $23.9 million, net income attributable to the company of $2.9 million, and adjusted EBITDA of $6.3 million. 2021 was a record year for RED. As of December 31, 2021, we had 7.6 million fully diluted shares of common stock and units, which included 4.3 million common shares associated with our Series D convertible preferred stock. We had 2.8 million common shares issued and outstanding, 0.2 million common shares earmarked for issuance under our deferred compensation plan, and the balance primarily comprised of restricted stock. I will now turn the call over to Eric.

[Eric Batis:]

Thank you, Deric. We are excited to provide updates on our Products and Services businesses. Looking forward, we have 2 major initiatives for 2022. Rapid growth in third party sales and executing strategic acquisitions for our Products and Services platform. We believe that our platforms are poised to capitalize on the incredible momentum we established during 2021 and carry that into 2022 and beyond. Cost control measures are in the final stages of being phased out as we see most of our businesses approaching pre-COVID levels of demand in 2022 and shift our attitude toward an aggressive growth stance. We continue to deliver results that are exceeding internal projections and believe that is a testament to the best-in-class leadership teams we have in place within our portfolio companies. The first business I'd like to discuss is RED Hospitality & Leisure, a leading provider of watersports activities and other travel services in the U.S. Virgin Islands, Puerto Rico, Key West, and Turks and Caicos. In the fourth quarter, RED generated $5.7 million of revenue and $1.0 million of adjusted EBITDA, representing 95% and 1,004% growth, respectively, over the prior year quarter. 2021 was a year for the record books for RED, breaking company records for annual revenue as well as EBITDA. During the year, RED assumed operations at The Ritz Carlton Turks and Caicos and began providing activities and services to guests. Performance at the property exceeded our expectations by generating $1.2 million of revenue in just 6 months of operations and RED will be looking to expand its offerings within Turks and Caicos. During the fourth quarter, RED Hospitality entered into an agreement to provide ferry services in Puerto Rico and expects future growth opportunities in this market. Lastly, RED continues to explore inorganic M&A opportunities to rapidly scale the platform expanding our market share within our existing markets as well as diversifying and expanding to new geographic areas. Remington is a dynamic hotel management company, providing best-in-class service and expertise to hotels across the country. Remington was awarded 8 third-party management agreements since the third quarter representing $2.1 million of first full year base fees. 7 of the contracts were for operating hotels and one was for a development. Since the fourth quarter of 2019, Remington has executed 20 third-party management agreements representing $4.6 million of first full year base fees. Remington's third-party hotels under management currently stand at 19 and represent approximately 20% of hotels under management. To-date, Remington has contracts with 12 ownership groups, 7 of which have more than one contract with Remington highlighting the best-in-class service and expertise we are able to offer our owners. We are optimistic about the future prospects of executing more third-party management contracts to bolster our roster of 92 hotels across 21 brands and 23 states and Washington, D.C. Lastly, in addition to our business development team organically sourcing new contracts, Remington is aggressively pursuing M&A opportunities to bolster its standing in the marketplace as a best-in-class hotel operator. We look forward to providing updates on this initiative in future quarters. Premier provides comprehensive and cost-effective design, development, architecture, procurement, and project management services. The company continues to add staff in order to support its growth objectives. During the quarter Premier was awarded 4 additional hospitality design, procurement, and project management contracts along with one project management multi-family contract. To date, Premier has signed 35 contracts across 20 ownership groups totaling over $11 million of third-party fees. The majority of Premier's third-party customers have come back to contract additional work for Premier. By delivering excellent service and exceptional projects, we are confident Premier will continue to capitalize on owners and investors uptick in capital investments. INSPIRE, our leading single-source solution for meeting and event needs with an integrated suite of audio-visual services, including show and event services, hospitality services, creative services, and design and integration delivered a fourth quarter that we are excited to share with you. Continuing the upward trend since the second quarter of 2021, INSPIRE generated $3 million of adjusted EBITDA in the fourth quarter. Fourth quarter adjusted EBITDA was 138% above that of 2019 even with 20% lower revenue. While we are still ramping up costs, we have taken significant measures to rebuild the company in a more efficient manner that will allow us to deliver superior margins in the long-term once INSPIRE fully recovers. Hospitality revenues, which include events at hotels, continue to rebound quicker than expected. In the fourth quarter, hospitality revenue was up 732% from the first quarter, highlighting the ramp we saw through the year. We remain extremely confident in the team's ability to win third party contracts as hotels began to shift focus back to business as usual as the recovery continues. OpenKey, a leading provider of digital key solutions allowing guests to unlock their rooms with mobile devices, posted another impressive quarter which included both app download growth of 65% and key delivery growth of 33% over the prior year period. While OpenKey's operating metrics continue to gain traction as brands go-live on the platform, the fourth quarter was headlined by strong revenue growth. Fourth quarter revenue was up 63% compared to the prior year quarter. We now have 17 Four Seasons properties under contract and added several other key properties in the fourth quarter. Finally, the Wyndham roll out is starting to gain significant traction with 12 properties under contract and 6 properties live. Lastly, I'd like to update you on the progress of Ashford Securities, our retail capital-raising platform. The Ashford Securities leadership team continues to build out a world class fundraising platform by hiring exceptional people and growing our relationships in the broker/dealer community. We believe our long-term commitment to this platform distinguishes us from many of our competitors in the lodging industry because it provides another source of capital - retail capital. The alternative investment industry, in which Ashford Securities sits, raised over $86 billion last year. $86 billion was an all-time high as investors continue to adopt low correlation, real assets that generally provide additional diversification and income. In just 8 months, Ashford Securities has raised $62 million in net proceeds from both retail and institutional investors for Braemar's non-traded preferred stock. Ashford Securities continues to evaluate its next product offerings by consulting with our underwriting, investment banking, and executive management teams. We continue to see a strong retail appetite for differentiated investment strategies designed to provide current income and growth that is not dependent on the traded capital markets. Ashford Securities is uniquely positioned to capitalize on this market opportunity. For 2022, we plan on launching several new products to our fundraising platform and believe we are at the very early stages of tapping this attractive capital source. In summary, we are very pleased with our decision to enter the retail space and are excited to see the first fruits of our investment start to pay off. We're excited to access a fresh source of retail capital that will help us grow our platforms over the long term, with the goal of growing our assets under management and increasing shareholder values. That concludes our prepared remarks, and we will now open up the call for Q&A.

[Operator:]

. Our first question comes from the line of Bryan Maher with B. Riley Securities.

[Bryan Maher:]

On INSPIRE, I know you talked about it a little bit in your prepared comments. But based upon what you're seeing now here in the first quarter of 2022 relative to bookings, both within INSPIRE directly and with your hotel bookings, how do you see the 2022 ramp going versus what you might have thought just 3 months ago?

[Jeremy Welter:]

Yes, Bryan, it's Jeremy. I'd say it's probably very similar. I think that we were pleasantly surprised in Q3 and Q4 in terms of the ramp coming back so quickly. I don't think that we're going to be out surprised here in the first quarter just because I do think that the Omicron ticks some wind out of the sales. But we do think that that's going to dissipate, and we do think that the ramp will come back here pretty quickly. One of the things that we have, which is a little bit surprising is that the bread and butter is actually some of the smaller groups of meetings, and that makes up a huge portion of the revenue mix. And so it's not that we need these big events or buyouts of the hotels or citywide or anything like that for INSPIRE to do well. It's actually some of the smaller groups of mains. So I do still think that it's probably going to be the last of our business segments to come back of our portfolio companies. But I do remain incredibly, incredibly bullish on that platform. As you can see, we were just really shocked if you look at Q3 and Q4 in terms of the profitability that we had with that platform.

[Bryan Maher:]

Right. Yes. We noticed that for sure. On Premier Project Management, given that most of your client companies have already established and given out to most of us analysts kind of CapEx guidance for 2022. How is that business likely to unfold relative to your expectations, again, just about a quarter or 2 ago?

[Jeremy Welter:]

Definitely more optimistic than just a quarter or 2. We're ramping back our efforts at both REITs. There's a pretty nice-sized capital plan that we have in place. We had a lot of backlog of projects that we basically put on hold during pandemic. So we've released those projects, and then we have a good amount of CapEx that we need to do that actually, in many cases, is contractually obligated that we have already extended as far past as possible. So I think from a rebounding in terms of where we are from the Trust and Braemar, I think that we're definitely higher than what we would have thought a few quarters ago. But we're not to where we were in 2019, for sure. But the biggest surprise has been the third-party business. I would never have thought that we'd have had $11 million contracted fees as we just started that effort and the amount of repeat business that we're getting and the size of each one of our contracts are becoming larger as well. The good thing about some of this third-party business is that it is a very long lead time. And so as we continue to contract, that business is going to come over, over the course of really the next 8 quarters in a lot of cases, not really the next 1 to 2 quarters. And so as we continue to sign up more and more business, you'll kind of see that stair-step effect of continued revenues that really helped stabilize that platform as well.

[Bryan Maher:]

Got it. And just last for me on RED, which is really, I think, surprised quite a few people with this growth. To continue to grow that business, what kind of capital requirements will that take? And does that impact how you allocate money across the other portfolio companies that you're trying to grow?

[Jeremy Welter:]

Yes. Great question. I think that just taking a high-level view is that we have more opportunities than we have access to capital right now. Now there are some things that we're working on that could help with that. Not anything that we'd issue any common equity at these levels, because we're very bullish on the outlook of Ashford Inc, and hopefully, the potential equity returns we expect as our -- the rest of our businesses continue to ramp and we expand our businesses. But when we look at capital allocation, we really want to see a minimum of a 20% unlevered IRR. And that's pretty much what we're seeing across all our businesses. So even when we put capital at INSPIRE, if we were to put any capital at Remington, 20% is the minimum threshold and in many cases, 30% or higher. With RED, it does take capital to grow. I mean, we've been able to grow by pushing rate, by filling up the boat. We've expanded the fleet. But we're at a point now that in order for us to continue to grow, there's some capital that needs to be put in place. And in most cases, that capital outlay is actually most attractive across our businesses. It's usually, in many cases, 30% or more unlevered IRRs. And we have plenty of opportunities not only to invest and expand within new markets, but then also vertically integrate where we are referring different customers that we have to sub vendors where we'll get a 20% basically booking fee, which is great business, but we also steer them to our own day charters if we had more boats in our fleet. And so that's another opportunity that we continue to look at. So we've got plenty of opportunities to vertically integrate, to expand into new markets. But generally speaking, it's about a 30% unlevered IRR when we invest in RED.

[Operator:]

. Our next question comes from the line of Tyler Batory with Janney Montgomery Scott.

[Jonathan Jenkins:]

This is Jonathan on for Tyler. Congrats on the results. First one for me is on Remington's third-party business. Can you talk about the notable third-party contract gains that you saw there this quarter, how that effort is ramping versus your expectations? And any changes to the way you're thinking about that opportunity long term, given the strong traction you've seen so far?

[Jeremy Welter:]

Eric, why don't you take that question?

[Eric Batis:]

Sure. As we mentioned in some of our prepared remarks, they're growing much faster than we have originally expected. And in addition to the growth that we're looking at from adding management turnover and new contracts with our development team, we really see an opportunity with M&A opportunities for Remington. So the one thing about Remington's growth is that the growth from Remington can and will lead to growth with our other platforms as we add hotels that Remington manages where we can add project management services and add audiovisual services and add digital key services and water sports services. So I'm not sure if that fully answers your question or if there's other clarification you like, but we're very excited about that growth at Remington and it's ahead of schedule.

[Jonathan Jenkins:]

That's very helpful. I appreciate all the detail. And then a follow-up on RED, you bought out the remaining 2% in the quarter. Any color you can provide on why that made sense if it changes the operations at all? And is it just a reaffirmation of the growth potential you see there?

[Eric Batis:]

Yes, this is Eric.

[Jeremy Welter:]

I'll take that, Eric. Basically, we had -- we had some incentives that we had with 2 key employees, and we did a buyout of their participation within RED and basically restructured the incentive plan that actually aligns our interest a lot more in terms of long-term productivity. And so it was really not by now any other third party but just really within our own team, but restructuring their long-term incentive plan, which we put in place. And details that we're not -- I don't think that we're going to disclose, but we do think we have a great team of place and they're more aligned not only to grow the existing business, but to also help with acquisitions the way we did this.

[Operator:]

Thank you. Ladies and gentlemen, that concludes our question-and-answer session, and this concludes our call today. We thank you for your participation. You may now disconnect your lines.