Ashford Inc.
Q4 2023 Earnings Call Transcript

Published: 1 Mar 2024

[Operator:]

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Ashford Inc. Fourth Quarter 2023 Results Conference Call. [Operator Instructions] I will now turn the conference over to your host Jordan Jennings, Director of Investor Relations. Thank you. You may begin.

[Jordan Jennings:]

Good day, and welcome to today's conference call to review results for Ashford for the fourth quarter and full year 2023 and to update you on recent developments. On the call today will be Deric Eubanks, Chief Financial Officer; and Eric Batis, Executive Vice President of Operations. The results as well as notice of accessibility of this conference call on a listen-only basis over the Internet, were distributed yesterday in the 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 29, 2024, and may also be accessed through the company's website at www.ashfordinc.com. Each listener is encouraged to review these 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 ended year-ended December 31, 2023, with the fourth quarter and year-ended December 31, 2022. I'll now turn the call over to Deric.

[Deric Eubanks:]

Thanks, Jordan, and welcome, everyone to our call to discuss our fourth quarter and full year financial results for 2023. I'll start by giving you an overview of our operations, strategy and financial results for the quarter and then Eric will provide an update regarding our operating businesses. After that, we will open it up for Q&A. The key things we're going to highlight today are

[Eric Batis:]

Thank you, Deric. We are excited to provide fourth quarter updates on our products and services businesses. Throughout 2023, our businesses successfully gained market share through organic and inorganic initiatives, positioning the company well for 2024. This is highlighted by INSPIRE's third straight year of more than 20% revenue growth, Remington's expansion into the Caribbean and Latin American markets, RED's acquisition of Alii Nui and Maui Dive Shop, and Premier's diversification into new verticals. The first business I'd like to discuss is INSPIRE. INSPIRE generated $36.3 million of audiovisual revenue in the fourth quarter and $3.9 million of adjusted EBITDA. On the sales front, INSPIRE executed three new hospitality contracts during the fourth quarter, which are expected to contribute $3.1 million of annual audiovisual revenue. For the full year of 2023, INSPIRE generated $148.6 million of audiovisual revenue, $39.2 million of which was from international markets, representing a 22.6% and 35.0% increase over the prior year, respectively. INSPIRE also executed 11 new hospitality contracts in 2023, which are expected to contribute $10.1 million of annual Audio Visual revenue. We are thrilled with INSPIRE's growth in 2023 and look forward to continuing the momentum throughout 2024. Moving to Remington. In November, the company began managing its first hotel outside of the United States, Croc’s Resort and Casino in Costa Rica. Remington also signed on to manage Autograph Archie in Costa Rica and two resorts in Larimar City, Dominican Republic, Royal Sonesta Hotel and the James Sonesta. During the fourth quarter, Remington generated hotel management revenue and adjusted EBITDA of $13.1 million and $5.1 million respectively, representing a 38.5% adjusted EBITDA margin. Remington also executed 9 new third-party hotel management agreements, which are expected to contribute $2.9 million of annual hotel management revenue. At the end of the fourth quarter, Remington managed 122 properties that were open and operating. Remington managed 68 properties for Ashford's advised REITs, Ashford Hospitality Trust, Braemar Hotels and Resorts, and Stirling Hotels and Resorts. Remington also managed 54 third-party properties for 31 different ownership groups, 13 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. We're pleased to see that Remington's hotels under management for third-party owners now represents approximately 44% of total hotels under management. Remington's managed portfolio operates in 25 states, Washington DC, and Costa Rica across 28 brands, including 14 independent and boutique properties. In the fourth quarter, RED generated $8.3 million of revenue, representing a 38.3% increase over the prior year quarter and $0.3 million of adjusted EBITDA. 2023 was a transformational year for RED. The company expanded into new geographies, grew its asset base and entered new verticals. RED established a strategic foothold in Hawaii with the acquisition of Alii Nui and Maui Dive Shop, which we are pleased to report has recovered to normalized demand levels following the Maui fires in August. In addition, RED expanded its services to now include ground transportation services in the U.S. Virgin Islands. Premier generated $5.8 million of design and construction fee revenue in the fourth quarter, culminating in $27.7 million total design and construction fee revenue for 2023, a 25.1% increase over the prior year. Premier also generated $1.7 million of adjusted EBITDA in the fourth quarter and $9.5 million of adjusted EBITDA in 2023, resulting in adjusted EBITDA margins of 30.2% and 34.4%, respectively. We continue to see strong growth with Premier's third-party business as revenue surpassed $4 million for the first time in 2023 and grew 32.9% over the prior year. During the quarter, Premier executed 7 new third-party contracts, representing $0.4 million of expected design and construction fee revenue. Premier plans to continue to grow their third-party business and build upon their ground up architecture capabilities in the year ahead. We are very pleased with the ongoing success of Ashford Securities fundraising efforts. To date, Ashford Securities has raised approximately $580 million of capital. Ashford Securities is currently in the market with a redeemable non-traded preferred stock offering for Ashford Hospitality Trust and has continued to build momentum by growing our institutional broker dealer and RIA relationships. Since the launch of the Ashford Hospitality Trust non-traded preferred stock offering, Ashford Securities has placed approximately $104.7 million of capital from a syndicate of 42 firms. This is an attractive source of capital for Ashford Hospitality Trust to both improve its balance sheet and deploy for growth. Ashford Securities is also raising capital for a growth oriented investment product focused on commercial real estate in the state of Texas. To date, Ashford Securities has raised $11.5 million of gross capital, which comprises $2.5 million from Ashford Inc. and $9 million from a syndicate of dealers that includes 22 broker dealers. 2023 was a successful year with our two primary initiatives, third-party sales and strategic acquisitions, and we are excited to continue this momentum into 2024. That concludes our prepared remarks, and we will now open up the call for Q&A.

[Operator:]

[Operator Instructions] Your first question is from the line of Tyler Batory with Oppenheimer.

[Jonathan Jenkins:]

This is Jonathan on for Tyler. Thanks for taking our questions. First one for me, understanding there's a lot of moving pieces, but given the industry is kind of seeing this normalization of leisure trends and accelerating group demand, any color on kind of how that played out for you guys over the quarter and how you're thinking about the opportunity for that mix shift going forward?

[Eric Batis:]

Yeah. Sure. In terms of our portfolio company performance and our hotel performance, we're excited about the trends, with the continued growth of leisure and the kind of normalizing of the performance of our urban properties. You can see some of that showing up in our ability to add contracts at Remington. And then across our portfolio companies, Premier is getting some increased third-party business, which is representative of the industry normalizing and coming back to spending normal amounts of CapEx, and leisure remaining strong with, RED, for example, in their revenue growth. Also, with INSPIRE, the continued stabilization of travel to urban markets and business travel, is helping those guys with their continued growth. So by and large, you know, in addition to what we're seeing at our advised hotels, we're seeing the impact of the stabilization across our portfolio companies as well.

[Jonathan Jenkins:]

And then, can you provide some additional color on the Stirling Hotels and Resorts offering, maybe how that opportunity came about? How are you thinking about the long-term potential of that offering and kind of the opportunity set for a private NAV REIT that's out there?

[Deric Eubanks:]

Yes, I'm happy to take that one Jonathan. I mean the genesis of the idea for that platform is we've obviously operated publicly traded REITs for over 20 years now. And we've just seen the challenge of raising equity capital in the public markets and that publicly traded hotel REITs very rarely traded NAV or premium to NAV. And so it's very difficult to raise equity accretively. And so we were intrigued by the NAV REIT concept where the portfolio is constantly valued at the NAV of the underlying assets and there's been a lot of capital raised in that space. We've now have Ashford Securities. We've raised significant capital through Ashford Securities. That channel has been a very resilient source of capital over multiple cycles. And so we think it's an interesting product. We're obviously very early days on it. We've just launched it. But we think it's interesting because investors can come in and come out at NAV. And so it's hopefully an interesting product for us to be able to grow our asset center management. And so over time we're hopeful that we could raise significant capital in that vehicle and grow our portfolio of assets under management which would ultimately help all of our portfolio companies as well.

[Jonathan Jenkins:]

And last one for me if I could. Any color from the release this morning on the compliance plan with the exchange kind of what that entails and kind of what needs to happen to satisfy the exchange requirements? Anything you can add there?

[Deric Eubanks:]

Yes. It really boils down to our value of our public float and the challenge we've had. We've got a lot of preferred equity in our capital structure, a very small piece of our company is publicly traded, publicly listed. Commercial real estate asset managers in general have not fared very well in the public markets lately. I think we got swept up into that somewhat. And so we're hopeful that over time the value would get back to a level that's consistent with the listing standards within NYSE America and the NYSE America has given us some time to get back in compliance with that criteria.

[Operator:]

Ladies and gentlemen, we have reached the end of the question-and-answer session. Thank you for your participation and you may disconnect your lines at this time.