Ashford Inc. (NYSE:AINC) Q4 2022 Earnings Conference Call February 23, 2023 12:00 PM ET

Company Participants

Jordan Jennings - Investor Relations

Deric Eubanks - Chief Financial Officer

Eric Batis - Executive Vice President, Operations

Conference Call Participants

Bryan Maher - B. Riley Securities

Operator

Greetings and welcome to the Ashford Inc. Fourth Quarter 2022 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jordan Jennings, Investor Relations. Thank you. Please go ahead.

Jordan Jennings

Good day, everyone and welcome to today’s conference call to review results for Ashford for the fourth quarter and full year 2022 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 the 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 22, 2023, 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 and full year ended December 31, 2022, with the fourth quarter and full year ended December 31, 2021.

I will now turn the call over to Deric.

Deric Eubanks

Good morning, and welcome to our call to discuss our financial results for the fourth quarter of 2022. I will 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 themes we are going to highlight today are: first, the recovery in the lodging industry continues to gain momentum and both of our advised REIT platforms are well positioned. Second, we continue to see strong results in our third-party growth initiative for our operating businesses. And third, through our focus on growing assets under management, the pace of our capital raising efforts at Ashford Securities continues to accelerate. We recently completed the offering for Braemar’s nontraded preferred stock, placing approximately $460 million.

As of December 31, 2022, our two publicly traded REIT platforms, Ashford Hospitality Trust and Braemar Hotels & Resorts, had ownership interest in 116 hotels with approximately 26,000 rooms and had approximately $8.2 billion of gross assets as of December 31, 2022. While Braemar’s exposure to the resorts segment has fueled its strong performance for several quarters now, in the last two quarters, we have seen its urban hotels ramp up significantly. Braemar continues to report strong results compared to 2019 with RevPAR in the fourth quarter, up 20% compared to the fourth quarter of 2019. Braemar is in active on the acquisition front and completed two acquisitions in 2022, the iconic 96-room Ritz-Carlton Reserve Dorado Beach in Puerto Rico and the 210-room Four Seasons Resort Scottsdale at Troon North. We anticipate that Braemar will continue to actively look to deploy capital into accretive hotel investment opportunities.

Ashford Trust has significantly delevered its balance sheet from a few years ago and ended the quarter with over $500 million of net working capital. The offering for its non-traded preferred stock is effective and we anticipate capital raising to accelerate with Braemar’s offering now completed.

Looking ahead, we believe both advisory platforms have ample liquidity, and we remain focused on their future strategic objectives. 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 third-party owners and other capital providers as we are one of the largest owners and fee payers for the major hotel brands. 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 have completed numerous bolt-on acquisitions for our operating businesses, and 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 fourth quarter was $10.8 million and net loss attributable to common stockholders for the full year was $32.8 million. Adjusted EBITDA was $19.4 million for the fourth quarter and $75.7 million for the full year. This full year result reflected a growth rate of 56% over 2021. Our strong growth in adjusted EBITDA for the year, was driven primarily by INSPIRE, Remington and Premier. Adjusted net income for the fourth quarter was $13.2 million and adjusted net income per diluted share was $1.65. Adjusted net income and adjusted net income per share for the full year 2022 were $53.6 million and $6.88, respectively, reflecting strong growth over the prior year.

I want to remind analysts and investors that in the fourth quarter of 2021, we recognized $5.5 million of base advisory fees from Ashford Trust that had been deferred in previous quarters. So as you think about the year-over-year comparison, it’s important to keep that in mind.

Total advisory fee revenue from Braemar in the fourth quarter increased 27% over the prior year quarter. Our share count currently stands at 8 million fully diluted shares outstanding, which is comprised of 3 million common shares outstanding, 0.2 million common shares earmarked for issuance under our deferred compensation plan, 4.2 million common shares associated with our Series D convertible preferred stock, and the remaining 0.6 million shares are for acquisition-related shares and restricted stock.

I will now turn the call over to Eric to discuss our operating businesses in more detail.

Eric Batis

Thank you, Deric. We’re excited to provide updates on our Products & Services businesses, which posted another excellent quarter to round out a record year. Several of our portfolio companies broke company records in 2022. INSPIRE and Remington reached all-time highs for revenue and EBITDA, RED Hospitality and Leisure set a company record for revenue and Ashford Securities set a company record for capital raised within the year. We believe that our platform is poised to maintain the incredible momentum we established in 2022 and carry the success forward into 2023 and beyond.

As a reminder, our Products & Services division is a unique investment strategy in the hospitality industry, where we aim to accelerate growth and create shareholder value through the implementation of best operating practices, investment in infrastructure and the execution of accretive acquisitions. We are also able to utilize our extensive relationships and refer these businesses to our advised REITs, ensuring that their hotels receive exceptional service while optimizing financial performance.

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 event, hospitality and creative services. INSPIRE generated $34.2 million of audiovisual revenue in the fourth quarter, a 57.3% increase over the prior year quarter, and $4.6 million of adjusted EBITDA, representing a 13.5% adjusted EBITDA margin. INSPIRE realized significant growth in its show and event services segment generating $3.3 million of revenue in the fourth quarter, a 45.8% increase over the prior year quarter. INSPIRE also executed six new hospitality contracts during the fourth quarter, which are expected to contribute $9 million of annual revenue.

INSPIRE’s record 2022 culminated with $121.3 million of audiovisual revenue and $19.6 million of adjusted EBITDA for the year, representing a 16.1% adjusted EBITDA margin compared to 9% in 2021. The company also signed 18 new contracts in its hospitality segment in 2022, representing $15.2 million of expected annual revenue. Internationally, INSPIRE drove significant growth in Mexico and the Dominican Republic, generating $29 million of revenue compared to $10.7 million in 2021. We are thrilled with INSPIRE’s record-setting 2022 and the efforts the company has made to capture market share.

Remington is a dynamic hotel management company, providing best-in-class management and expertise to hotels across the country. Remington generated fourth quarter hotel management fee revenue and adjusted EBITDA of $13.1 million and $6.8 million, respectively. This reflects an impressive 52.1% margin. Hotel management fee revenue and adjusted EBITDA grew 73.8% and 93.4%, respectively, over the prior year quarter.

Remington continues to focus on growing its third-party business and was awarded hotel management contracts for 5 hotels in the fourth quarter, totaling $1.6 million of expected first full year base fees. At the end of the fourth quarter, Remington managed 118 properties that were open and operating, 45 under third-party management agreements and 73 for Ashford Trust and Braemar, located in 27 states and Washington, D.C., across 23 brands, including 19 independent and boutique properties.

The next business I’d like to discuss is Premier, which provides comprehensive and cost-effective design, development, architecture, procurement and project management services. Premier generated $6.6 million of fee revenue in the fourth quarter, representing 68.0% growth over the prior year quarter. Premier also generated $2.7 million of adjusted EBITDA, resulting in a 41.4% adjusted EBITDA margin. In addition, Premier executed nine new third-party contracts during the quarter, representing $6.5 million of expected fee revenue, a record quarter on the sales front for the company. Six of the new contracts were for multifamily projects, which brings the company’s total to 25 contracts for that property type and three contracts were in hospitality, which raises the total to 27 contracts for that property type.

Across the multifamily, hospitality and student housing segments, Premier has signed a total of 53 third-party contracts, spanning 26 ownership groups, representing $18.8 million of expected fee revenue. Repeat business is a significant portion of Premier’s third-party revenues and by delivering excellent service from design to completion Premier continues to gain the trust of its customers.

RED Hospitality and Leisure is the leading provider of water sports 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 $6 billion of revenue and $0.5 million of adjusted EBITDA, representing an 8.2% adjusted EBITDA margin. RED enters the first quarter of 2023 with $2.1 million of advanced bookings, a 23.5% increase over the prior year quarter.

Strong demand for water sports and excursion services, coupled with the company’s recent entry into transportation, signals an exciting growth trajectory as the company seeks to gain revenue from the entire customer experience. Additionally, RED continues to explore M&A opportunities in new and existing markets to continue to grow market share and gain scale.

Ashford Securities, our dedicated fundraising platform, made tremendous progress in 2022. We have built out a talented team of 25 professionals who are great at what they do. Since inception, Ashford Securities has placed a total of approximately $460 million and continues to generate interest in new investment offerings. Ashford Securities has recently launched two new investment offerings, an income-focused non-traded preferred stock offering for Ashford Hospitality Trust and a growth-oriented private offering that targets core commercial real estate investments in the state of Texas.

The growth-oriented offering is Ashford Securities’ first investment offering focused outside of the hospitality industry. 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. We are very excited about Ashford Securities prospects as we head into 2023 and view this platform to be an integral part of our strategy to significantly grow our assets under management.

As we look ahead, we will continue to focus on growing our businesses through the recovery in the hospitality industry and our two major initiatives: third-party sales and executing strategic acquisitions for our products and services platform. We continue to see significant runway in all of our businesses and see the opportunity to meaningfully scale across all our portfolio of companies.

That concludes our prepared remarks, and we will now open up the call for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first question is coming from Bryan Maher of B. Riley Securities. Please go ahead.

Bryan Maher

Good afternoon. I appreciate the comments. Just a few for me. When it comes to INSPIRE, I mean, clearly, that’s been one of your most important acquisitions to date and it rebounded nicely post-COVID. How are you sourcing new business there? I was a little surprised to hear about the strength in Mexico and Dominican Republic. Who’s driving that growth? And how big an opportunity do you see that part of your business?

Eric Batis

Yes, specifically in Mexico and the Dominican Republic, we have two very focused leaders there that have been in those markets for 20 years plus that are just consistently building relationships. We have a good base of business that we’re building on and it just continues to grow. It’s Chuck Bauman, also who joined the company as CEO from one of our largest competitors. He used to manage international property sales for the hospitality industry. And so he has relationships that we’ve been able to leverage as well in some of these hospitality contracts that we’re talking about are in Mexico and the Dominican Republic. So we just continue to grow there with new hospitality clients, and that creates those new revenues. I don’t know that I can give you a number on how large we think that opportunity specifically is for Mexico and the Dominican, but the nice part about being located in the Dominican Republic is we have the ability to also expand out into other areas of the Caribbean. And we think we can do that, and we’re looking at some of those other areas, too, so with Puerto Rico being potentially a target that we would look at in the near-term to try to jump into meaningfully. So I don’t have a great number for you in terms of total market size or market share that we would expect to capture, but I agree with you that it’s exciting, the amount of growth that we’ve been able to achieve there. I do think it’s also, I’ll say, a bit indicative of the recovery that those markets recovered so meaningfully that people are getting out and hosting big shows for their companies in 2022. A lot of that is corporate travel and travel benefits for sales teams, etcetera, that take big groups down to Mexico and Dominican Republic, and we put those shows on for them. So I think it’s indicative that, that there was a pretty significant recovery in those markets.

Bryan Maher

Okay. Thanks. And then moving on to RED, it seemed like RED might have slowed a little bit in the back half of 2022, likely due to Hurricane Fiona and – I forget what the other name was. Do you think that, that was just an aberration or might there be something else going on there? I wouldn’t want to necessarily dovetail it with some of the weakness we’ve seen at some of the kind of luxury resort at par. But maybe you can give us a little bit of color there and more along the lines of the M&A opportunity?

Eric Batis

Yes. I mean RED responded from the pandemic quicker than any of our other businesses, right? INSPIRE took the longest to recover and RED recovered very quickly with its presence in Florida and folks’ ability to travel to the U.S. Virgin Islands versus some of the other Caribbean markets. That being said, Q3 and Q4 are historically slower quarters for us, so it’s more of a timing thing where you’re seeing a slowdown. But I’d expect RED to grow and we think they are going to grow materially as we still have a lot of contracts that we can add. We have – we expect significant growth in the U.S. Virgin Islands coming up this year with some new contracts. And so I don’t think that there is an indication like you’re mentioning, I don’t think you need to attribute it to a slowdown of the markets. It’s a seasonal thing and certainly, there is a weather activity that hits us in Q3 and Q4. So I don’t see it as of any particular concern, and I expect RED to grow significantly. In terms of acquisitions, we are hot on the trail of a couple, and we would love to grow into other geographies and believe that we will do that so that we can kind of mitigate some of the impact when we do have weather events in the Caribbean and South Florida. So I think RED will be on track to make some acquisitions that are exciting in the near term here.

Bryan Maher

Just last for me, I have two more questions. On the Ashford Trust untraded preferred raise, is there a traded amount there, like how might that raise be? And then secondarily, I think some of us are fairly surprised by the success in the size of the Braemar non-preferred traded – non-traded raise. Might Ashford Securities pays money for other entities that aren’t Ashford related?

Deric Eubanks

Hey, Bryan, it’s Deric. I’ll take that. So to answer your question on the Ashford Trust raise, it’s a $500 million offering. So that’s the amount of the offering. It will be open for 3 years or if we hit the size prior to that, then we could close it early. The Braemar offering was the same, except they got kind of sidetracked because we initially filed the perspectives for that right before COVID. And then as you know, what happened in the hotel industry during COVID, we kind of shelved it for a little while. And then by the time we finally got it off the shelf and opened the offering, we only had about 1.5 years left on it. And so those registration statements kind of have a finite life to them. So we were out there for about 18 months or so, as you said, raised $460 million. We’re very pleased with that offering amount. And at AHT, we’re just ramping up, and we’re just getting started. So it’s really hard to know where we will ultimately end up. We’ve got a great syndicate of broker dealers that we’ve worked with and that we are working with. And obviously, a lot of those groups were involved with Braemar, and now we will sort of transition them over to the Ashford Trust raise.

In terms of your second question about raising capital for other groups, that’s clearly something we could do. I think from our perspective, we would just want to make sure it’s something that would be smart to do, it’s something that would be profitable for us. So I’m not sure – I wouldn’t say that you should expect us to do something like that anytime soon, but it is something that is always a potential for us. And as we said in the prepared remarks, we’re very pleased with the organization that Jay Steigerwald has really set up. We started really from scratch. And he’s really put together just a great team, and they kind of hit it out of the park with their first offering. So we couldn’t be more pleased with that group and how well they have ramped up and clearly, I think top performers in that space. So very, very pleased with that.

Bryan Maher

And thank you. That’s all for me.

Operator

Thank you. This brings us to the end of the question-and-answer session. We’d like to thank you for your interest in Ashford Hospitality. You may disconnect your lines and log off the webcast at this time and enjoy the rest of your day.