Ashford Inc.
Q1 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Greetings and welcome to Ashford Inc. First 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 your host Jordan Jennings, 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 first 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 accessibility of this conference call, on a listen-only basis, over the Internet were distributed yesterday in a press release.

[Jeremy Welter:]

Good morning, and welcome to our call to discuss our financial results for the first 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. 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 been a long year for those of us in the hospitality industry. We're now seeing demand come back and the recovery is here. As we look forward, I'm extremely optimistic about the future of our company. The key themes we are going to highlight today are

[Deric Eubanks:]

Thanks, Jeremy. Net loss attributable to common stockholders for the first quarter was $17.1 million. Adjusted EBITDA for the first quarter was $5.5 million and adjusted net income for the first quarter was $4.8 million. Adjusted net income per share for the first quarter was $0.65. In terms of financial results for our portfolio of companies, I'll provide some highlights and then Eric will discuss more details. During the quarter, Ashford Trust completed a $450 million strategic corporate financing drawing $200 million. Ashford Trust has also continued to make significant progress in converting its preferred stock into common stock and has exchanged approximately 13 million shares of its preferred stock, representing approximately 58% of the share count prior to the exchanges into approximately 85 million shares of common stock. Also during the first quarter and subsequent to the end of the quarter, Ashford Trust raised approximately $89 million from the sale of shares of its common stock. Braemar also raised equity capital of approximately $26.4 million from the sale of shares of its common stock during the first quarter and subsequent to the end of the quarter.

[Eric Batis:]

Thank you, Deric. We are excited to give an update on our products and services businesses and their impressive start to the year. There are many positive takeaways from the first quarter, including record performances, third party business generation from new sales personnel and penetration into new markets with massive opportunity. We will spend most of our time talking about the quarter as a whole, but it is worth noting the momentum we are experiencing within the quarter itself. Cumulative March revenue was over 40% higher than the average of January and February. The momentum is palpable and growing each week.

[Operator:]

Thank you. Our first question comes from the line of Tyler Batory with Janney Capital Markets. Please proceed with your question.

[Tyler Batory:]

Good morning. Thank you. Just a couple of questions for me here. And some nice progress I think that you're making on the third-party businesses at Remington and Premier. Just interested, how that has gone versus your expectations. And do you think that there are more opportunities than you had originally anticipated to grow third-party side of things just given some potential disruptions out there from the pandemic?

[Jeremy Welter:]

Yes, this is Jeremy. Appreciate it, Tyler. Yes, I'd say that probably like if you could go back when we bought Remington and then bought Premier, I think we would have thought as we stand today that we'd be maybe further along in our third-party developments, but that was largely driven because of the pandemic obviously. What happens with third-party property management is that transactions definitely stimulate more opportunity to gain more contracts. And there just haven't been that many transactions. But I do believe that given just recent developments that we're already at seven hotels which is -- a decent percentage of our total portfolio as we stand today. I think we're proud of what we've accomplished recently and we're very optimistic of what we see going forward. I mean we've got a very robust pipeline. I think we've got an incredible business development team over at Remington and probably as good a leadership as anyone else would have was flown. So, I do think that it is an initiative that will be -- prove to be very successful as we look maybe in another couple of years and look back. And I'd be very optimistic on what we think we can achieve over at Remington. The second part is Premier and Premier I think if we were to sit down as a management team and say where we think we might have the most opportunity we can make an argument for each one of our businesses by the way. But I think Premier a lot of times wins that argument just because it's such a fragmented landscape. And there's a tremendous amount of market share that the Premier would be able to gain with just a little bit of business. And so we've gained think -- I think we reported that we're up to 15 contracts. And I think our first contract if I recall was March of 2020. And so I think we've been very pleased with our progress at Premier through the pandemic and one of those things is that we don't have to just play in hospitality. As we've mentioned in previous quarters that there's a strong demand for our services and multifamily. And so we've always looked at our market share when we bought Premier to be an opportunity within the hospitality sector. But then when you expand it to other forms of real estate it's just a huge market potential. And I do believe you can make an argument that within each one of the verticals within Premier which is design and architecture and the purchasing and then project management, construction management, corporate engineering we have some of the best service providers with each one of those landscapes. And so it is a very unique offering and we're excited to see the potential growth that we've got. I'm very optimistic that we have the right leadership and we've just created really a business development effort. I think we brought on two folks in January this year. So, most of our business that we're able to get was without a sales team. And so -- and one of the other things that we're seeing as well as a new recent development is that we've got some big transactions that they're doing and we're getting recurring business from those owners. And so there's one ownership group that we're talking about a third renovation now already and it's a nice sized project, all three of them. And so there's just so many different ways that we can grow within each one of these businesses. And the good news is -- and this is something that we're going to highlight with you guys going forward on our optimism of our platform is that even if we don't get third-party growth at Remington and Premier and we just get back to 2019 levels there is a pretty compelling investment opportunity we believe with Ashford Inc. And so, when you add the potential of third-party growth on top of it we're very excited about our prospects.

[Tyler Batory:]

And then at RED Hospitality, obviously, the result there quite strong. Can you talk a little bit more about the growth potential for that business and as well as expansion opportunities in the new geographies as well?

[Jeremy Welter:]

Yes. Yes. Let me pin back the question to you because you've been to the US Virgin Islands and you've seen the offering there. I don't -- we talk about it on these calls and I don't think a lot of investors and some of your peers really understand fully what this business is. But I think you would agree that it is a pretty unique and luxury experience that we offer in the US Virgin Islands. Would you agree with that?

[Tyler Batory:]

Yes absolutely. I think also Chris is a great person to have in his role in terms of not only operations but certainly expansion for the business as well.

[Jeremy Welter:]

Well, I appreciate that. Chris is not only an important part of our team and leadership, but he's developed to be a good friend of mine as well and he just is fantastic. And so I think what we have with RED is what we have with Remington and Premier is that we can go into any market certainly in the US and compete and win. We've already proven that because we entered in the Key West and bought Sebago and we utilized our best practices to really transform that company. It's been a widely accretive acquisition. And if you look at March, I think that was the most profitable month on record in RED's history and Key West's history at Sebago. And so we're just very optimistic of what we can do in any market. And it's not just limited to boating. It's our concierge services as well which I think is a really unique offering. And it's unique in that in US Virgin Islands the concierge is a very guest high-impact touchpoint. And Ritz-Carlton as you know does not like to outsource anything if they don't have to because they want to have control over all the guest interactions. But RED oversees concierge services at the Ritz Carlton in St. Thomas. And they're doing a fantastic job and it's just a great business model for us because you get commissions on everything you refer out and it just gives you the ability to kind of be the initial touchpoint for all different types of add-on services you can do as well. So we got into Key West. We have expanded in other hotels. And as we sit today, we've been verbally awarded a nice contract that's in Turks and Caicos that we're looking towards penciling. So, we believe we'll be in a new market that we'll be able to share with you more details in the upcoming quarter, but that's a near-term business opportunity. And it will be the same thing that we offer essentially at RED St. Thomas, but even more so because we'll be overseeing the Cabana sales as well. So, I think there's a lot of markets, certainly domestically in the US, but then also in the Caribbean.

[Tyler Batory:]

Okay. Excellent. And then last question for me. When we look at the recovery playing out over the next couple of quarters years here, just help us think about your various products and services businesses, which do you think are poised to return to 2019 levels first versus others? I know, you can't give specific guidance or numbers around that. But just curious, your thoughts in terms of which of those businesses could return to normal first?

[Jeremy Welter:]

Yes. I'm just writing them out on a piece of paper. I'm going to talk through each one of them. So just give me a second here as I do this. Okay. So let's start with the two that I think are going to exceed 2019 levels this year. And I think that's going to be OpenKey and RED are going to do that. So that's fantastic news. And so, we're very optimistic about those two platforms. And there are a lot of accretive acquisitions that we have at RED and also vertical integrations that we have that have high cash-on-cash returns. So, I think that we're already there on a couple of businesses and we will continue to see great growth in both of those businesses. Premier is going to be a little bit slower to rebound because of the capital spend that we've cut at the REITs. But as we ramp back up to 2019 levels from a hotel revenue perspective, we should be exceeding profitability at Premier, I would hope because of our third-party efforts. So just go back to a 2019 level at Premier, which basically only have two customers at that time. If you fast forward and you say, the recovery is going to be in 2023 or 2024, whatever you believe as an equity analyst, I think that premier should be hopefully greater than where we stated in 2019. Remington, same case, because again the third-party efforts that they should exceed hopefully profitability once we get back to a steady state within the industry. And we have some opportunities there that we can continue to deploy some capital to continue to get more contracts control more deals with other owners. And then potentially, there are some management companies because of the pandemic that if we wanted to acquire, it may make sense to do that. And then you go to JSAV. And that's clearly going to be the one that's going to lag. So if hotels get back to 2019 numbers events and meetings are going to lag that because, it's just going to be maybe probably another year or so after 2019 numbers that we're back to where we should be from a group meetings perspective. That's hard to know because we do see a lot of pent-up demand in the group business. But we definitely think it's going to recover a little bit slowly. But what I would argue against that from a growth perspective is that, JSAV is our largest third-party business that we've got. Most of its businesses is outside of Ashford. And I think we have an incredible team there both from a sales effort and a leadership effort across the board that I believe will continue to grow that business outside of Ashford. And so, we don't necessarily need the hotel industry to recover to previous levels to see outsized growth of that platform because we will pick up new contracts, we will grow outside of Ashford. And I think, it could be maybe the highest growth potential on a third-party basis. And what I would say is, you can look back again to 2020 and the numbers we posted in January and February of 2020 late in the cycle and how much growth JSAV had. I believe off the top of my head and don't quote me on this, but you can go back and look I think it was north of 70% year-over-year EBITDA growth in January and February. I don't know that we necessarily reported that because March obviously dipped so low. But we were just very optimistic with what we're doing from a growth perspective. And you saw that as well because, we bought it, I think it was like $4.5 million of EBITDA. We believe pro forma EBITDA for 2020 probably would have been closer to $14 million. So within a short period of time, we were looking to basically triple the growth of that company. So I think all of them you make a case that they're going to have outsized growth.

[Deric Eubanks:]

Hey Tyler, it's Deric. The other thing I think we should point out is that, if you look at our 2019 actual results, we reported $38 million of adjusted EBITDA in 2019. But that only included about two months of Remington because we closed on the Remington transaction in November of 2019. And so that did not include about $20 million of Remington EBITDA that would be pro forma that they would have had prior to the closing of that acquisition. So, if you look at our 2019 results you really have to look at it pro forma for having Remington because we did not have it for the entire year which would add about $20 million to our reported 2019 results.

[Tyler Batory:]

Okay, very good detail. I appreciate all that. That’s all for me. Thank you.

[Operator:]

The next question comes from the line of Bryan Maher with B. Riley. Please proceed with your question.

[Bryan Maher:]

Good afternoon. So not much left after that, but I got a couple. Can you clarify -- a little unclear to us maybe we're just missing it. On OpenKey and acquiring the nonredeemable noncontrolling interest is your position now? Is it 75%? Is it higher? Is it 100%? What is the ownership stake of Ashford Inc. now in OpenKey?

[Deric Eubanks:]

Yes. It's 75% Bryan.

[Bryan Maher:]

Okay. And the Four Seasons deal does that span all of the Four Seasons hotels globally?

[Jeremy Welter:]

I believe it does. I want to get back to you on that. It was just a new recent development. But yes it's a big opportunity for OpenKey.

[Bryan Maher:]

Okay. And then labor costs we continue to hear this across all of our covered REITs with the extended and enhanced employment benefits that the government is doling out. What are you seeing as it relates to kind of reonboarding furloughed employees over the past year? How difficult has that been for Ashford and Remington?

[Jeremy Welter:]

It's been difficult. It's definitely a challenge and it has definitely been difficult to get people back to work and certainly in certain markets. So, it's been a struggle at Remington. It's actually been a struggle for RED particularly in Key West. Just access to labor has been difficult. And you wouldn't think that would be the case given just the general state of the economy and unemployment rate but it's just because the premium unemployment benefits that were put in by our government have created the wrong incentives for folks to come back to work unfortunately. So it's something we're dealing with. It's just something we'll have to continue to deal with. We've been very creative on how we can access labor. But we're hopeful this is only a short-term issue. Unfortunately, just -- it is a little draining for our teams Bryan at all levels because they've been through so much over the course of last year the management team's supervisors and any of the employees are already working. They're doing more with less resources and we want to address that as quickly as possible but our hands are tied a little bit until September or October this year. But hopefully like I said, it's a short-term issue. But the only positive thing I'd say is that, we've really dissected all of our businesses each one of them at a very granular level. And so not only once we do get to appropriate staffing levels those appropriate staffing levels will be at a level, we believe lower than what they were pandemic because of a lot of efficiencies we've uncovered as a part of being basically being forced to through the challenges we had over the last year. And so hopefully there'll be some good long-term benefits from it.

[Bryan Maher:]

Great. And then just last for me. And I would say that, we had been truly impressed by JSAV post-acquisition and as it grew through and into the first quarter of last year so that has to have been really painful. And given its importance and ability to do pretty dramatic revenue and EBITDA numbers, I heard your comments to Tyler on it's going to lag. But what is the pulse of the market that you're hearing via JSAV to get that business ramped? Are there any early shoots out there that we should be thinking about? And how much of a lag do you think it is maybe as measured in quarters to a decent return of business transient?

[Jeremy Welter:]

Yes. I'll take that and then if Eric has anything, he'll comment on as well. But -- and we say right here listen that team -- we have put them through hell. I mean it's been terrible what the team has had to go through. I mean, we think we went from 500 associates down to 38 in the course of a week and that wasn't enough. So we went down in the next week or so down to 26. I mean, it's just -- it was crazy and that was in March. And it was definitely the business that was the strongest right before the pandemic. And then certainly the most challenged week during the pandemic. But I can tell you that I'm incredibly proud of that acquisition as we stand today. I'm incredibly proud of the leadership we put in place. I would love to be able to showcase them at a future Investor Day because it's just incredible, incredible leadership we've got within that organization. And they've got a really good competitive advantage I think going forward because it's a great team and there's great growth prospects. But you're right, it will lag the transient for sure. I don't know if we're talking -- it's certainly not months. It's going to be quarters and if not maybe a year or so until it gets back to where -- it gets back to pre-pandemic levels versus transient demand. But we are very optimistic. And the green shoots we're seeing is that, I actually -- for that one of our businesses, I actually approve weekly payables at the company because we just have been very tight on cash flow within JSAV. And I asked them to give me a week-over-week change in revenue. And over the course of maybe the last probably six weeks is when it turned because every time I would see the week-over-week change revenue is falling out of our pipeline. And we do have probability adjusted of what we think revenue is going to be for the next four quarters. So in the quarter, the next quarter and the next two quarters. And -- but over the last six weeks every single week, we're adding more and more revenue to our pipeline, which is fantastic. And that's a forecasted pipeline. So our forecast continue to go up week over week. So there definitely is green shoots. It's still going to be a little bit more of a walk before you run. But again because of the competitive landscape, we do believe that business will grow regardless of whether or not the hotel industry grows because we think we've got a really good offering there and we've proven it.

[Eric Batis:]

Yes, this is Eric. One thing I'll add is we've talked a little bit about the growth in March and Jeremy is mentioning some of the pipeline growth. One of the interesting things that we're seeing, we've talked to you guys about virtual meetings and then potentially having hybrid meetings where folks are getting in person and then having a hybrid component. But one thing that we started announcing is that as groups come back, which they really want to do in-person meetings, the show size is actually larger for JSAV in many of these cases than it otherwise would have been because as a group of 100 comes back they're actually renting more space because they want to practice social distancing, which leads to more speakers, more screens, more projectors. And so the show cost actually in the short-term might be higher than it was prior. So there are opportunities for us to catch back up to those pre-COVID levels by increasing our per show cost for expanded offerings both hybrid and then additional space, additional needs because of the social distancing.

[Jeremy Welter:]

Yes. And one thing I'll add too Bryan, just to give you a little bit more clarity because when we went through we restructured that loan and I think it was a great restructuring by the way by the team. But we really went through a lot of our own diligence and as we went through to understand even our per group size and our revenue per group, we were surprised that the bread and butter of JSAV is not your big events. They certainly have the ability to do that. They do it really well. But at our hotel or hospitality segment, it's a lot of the small board meetings small groups and you're talking projectors, you're talking just rentals for screens and setup. And so that I think is actually a good -- a great thing for us because that -- the small majors are going to come back a lot more quickly than the larger groups. But we were surprised to see that our bread and butter is actually much smaller on a per group basis than what we would have thought.

[Bryan Maher:]

Great. Thanks. That’s all for me.

[Operator:]

That concludes our Q&A session. This also concludes our call. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.