[PART I](index=5&type=section&id=PART%20I) [Business](index=5&type=section&id=Item%201.%20Business) Ashford Inc. is an alternative asset manager for real estate and hospitality, serving Ashford Trust and Braemar, with diverse services and significant Bennett family control - **Ashford Inc.** is an alternative asset management company serving the real estate and hospitality sectors, with key clients being Ashford Trust and Braemar[19](index=19&type=chunk) - The company's growth strategy is **twofold**: increasing assets under management and expanding its products and services businesses to third parties[21](index=21&type=chunk) - As of December 31, 2022, Chairman Monty J. Bennett and his father, Archie Bennett, Jr., held a significant ownership interest of approximately **19.6%** in common stock, which could increase to **65.5%** upon conversion of their Series D Convertible Preferred Stock[19](index=19&type=chunk) Overview of Business Segments and Services | Service Line | Description | | :--- | :--- | | **Advisory & Asset Management** | Implements investment strategies and manages day-to-day operations for Ashford Trust and Braemar. | | **Hotel Management (Remington)** | Provides hotel operations, sales, marketing, and revenue management for 118 properties as of Dec 31, 2022. | | **Design & Construction (Premier)** | Offers renovation and construction solutions, including interior design and project management. | | **Event Technology (INSPIRE)** | Provides integrated audio-visual and creative services for events. | | **Other Services** | Includes watersports (RED), mobile room keys (OpenKey), hypoallergenic rooms (Pure Wellness), debt placement (Lismore), and broker-dealer services (Ashford Securities). | [Our Advisory Agreements](index=7&type=section&id=Our%20Advisory%20Agreements) The company advises Ashford Trust and Braemar under similar agreements, with fees based on market capitalization and performance, and significant termination clauses - The advisory agreement with Ashford Trust was amended on January 14, 2021, establishing a **10-year** initial term with a fixed base fee of **0.70%** of Total Market Capitalization[52](index=52&type=chunk)[56](index=56&type=chunk) - The advisory agreement with Braemar has an initial **10-year** term expiring January 24, 2027, with provisions for **seven successive 10-year** renewal terms[88](index=88&type=chunk) Advisory Fees Earned (Year Ended Dec 31, 2022) | Client | Total Advisory Fees | Incentive Fees Included | | :--- | :--- | :--- | | Ashford Trust | $34.8 million | $0 | | Braemar | $13.1 million | $268,000 | - Termination of the Ashford Trust advisory agreement without cause requires a termination fee equal to **1.1 times** the greater of two earnings-based calculations, plus a tax gross-up[75](index=75&type=chunk)[76](index=76&type=chunk) [Our Hotel Management Agreements, Project Management Agreements and Mutual Exclusivity Agreements](index=17&type=section&id=Our%20Hotel%20Management%20Agreements%2C%20Project%20Management%20Agreements%20and%20Mutual%20Exclusivity%20Agreements) Through Remington and Premier, the company manages hotels and capital improvements for Ashford Trust and Braemar under long-term, exclusive agreements with structured fees - Remington manages **68** of Ashford Trust's **100** properties and **4** of Braemar's properties under master hotel management agreements with **10-year** initial terms and renewal options totaling up to **35 years**[111](index=111&type=chunk)[149](index=149&type=chunk) - Hotel management fees include a base fee of **3%** of gross revenues (subject to a minimum) and an incentive fee of up to **1%** of gross revenues based on profitability targets[113](index=113&type=chunk)[151](index=151&type=chunk) - Premier acts as the exclusive manager for capital improvements for both Ashford Trust and Braemar, earning fees of **3-4%** of total project costs, plus additional fees for specific services like architecture and interior design[144](index=144&type=chunk)[145](index=145&type=chunk)[182](index=182&type=chunk) - Mutual Exclusivity Agreements grant Ashford Trust and Braemar the **first right of refusal** on lodging investments identified by Remington, and in turn, Remington has the right to manage those properties if acquired[133](index=133&type=chunk)[170](index=170&type=chunk) [Agreements with the Bennetts and Lismore](index=32&type=section&id=Agreements%20with%20the%20Bennetts%20and%20Lismore) Key agreements with the controlling Bennett family include board nomination rights, non-competition clauses, and services from Lismore to Ashford Trust and Braemar - The Investor Rights Agreement grants the Bennetts the right to nominate **two members** to the board of directors as long as they maintain at least **20%** beneficial ownership (on an as-converted basis)[189](index=189&type=chunk) - A Non-Competition Agreement prevents the Bennetts from engaging in hotel management or design and construction businesses in the U.S. for at least **five years** post-acquisition, with certain exceptions for properties they own[203](index=203&type=chunk) - Lismore, a subsidiary, provides debt placement services to Ashford Trust and Braemar. In 2022, it earned **$3.3 million** from Ashford Trust and **$940,000** from Braemar[39](index=39&type=chunk) [Regulation, Competition, and Human Capital](index=37&type=section&id=Regulation%2C%20Competition%2C%20and%20Human%20Capital) The company and its clients are subject to REIT regulations and face intense competition, with a shareholder rights plan adopted to protect against hostile takeovers - The company's clients, Ashford Trust and Braemar, must adhere to REIT regulations, including distributing at least **90%** of their taxable income[215](index=215&type=chunk) - The asset management industry is **highly competitive**, with pressure from firms that may have greater financial resources, a lower cost of capital, or different risk tolerances[224](index=224&type=chunk) - As of December 31, 2022, the company had **127** corporate employees and its consolidated subsidiaries had approximately **7,700** employees[217](index=217&type=chunk)[234](index=234&type=chunk) - A shareholder rights plan was adopted on August 30, 2022, to protect against hostile takeovers, with a **10%** beneficial ownership trigger and an expiration date of July 30, 2023[227](index=227&type=chunk)[228](index=228&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its dependence on the hospitality industry and key clients, potential conflicts of interest, economic downturns, and competitive pressures - The business is **highly dependent** on Ashford Trust and Braemar, and any adverse events affecting them, such as loan defaults or foreclosures on their hotel properties, could significantly harm the company's revenues[237](index=237&type=chunk)[258](index=258&type=chunk) - Actual and potential **conflicts of interest** with executive officers and non-independent directors, particularly the Bennett family who have **significant control**, may lead to decisions that do not align with all stockholders' interests[237](index=237&type=chunk)[294](index=294&type=chunk) - Economic slowdowns, pandemics (like COVID-19), and inflation pose **significant risks** to the hospitality industry, which in turn directly impacts the company's advisory fees and service revenues[237](index=237&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk) - Failure to make full dividend payments on the Series D Convertible Preferred Stock for **two consecutive quarters** would result in a higher interest rate and grant the Bennetts the right to appoint **two additional members** to the Board[237](index=237&type=chunk)[290](index=290&type=chunk) [Unresolved Staff Comments](index=57&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - There are **no unresolved staff comments**[324](index=324&type=chunk) [Properties](index=57&type=section&id=Item%202.%20Properties) The company leases its corporate headquarters in Dallas, Texas, and its consolidated businesses lease various other office and warehouse facilities - The company's **headquarters** is located at 14185 Dallas Parkway, Suite 1200, Dallas, Texas 75254, which it leases[325](index=325&type=chunk) [Legal Proceedings](index=58&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in several legal proceedings, including class action and personal injury lawsuits, but management expects no material adverse effect - A subsidiary is facing a **class action lawsuit** in California regarding alleged violations of employment laws, specifically concerning employee rest breaks. The potential loss is **not currently estimable**[328](index=328&type=chunk) - A subsidiary is involved in a **lawsuit** in the U.S. Virgin Islands alleging **negligence** in connection with personal injuries. The company intends to vigorously defend against these claims[329](index=329&type=chunk) - Management believes that the ultimate resolution of current legal proceedings will **not have a material adverse effect** on the company's consolidated financial position, results of operations, or cash flow[330](index=330&type=chunk) [Mine Safety Disclosures](index=58&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - **Not Applicable**[331](index=331&type=chunk) [PART II](index=59&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=59&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Ashford Inc.'s common stock trades on NYSE American, has not paid common dividends recently, and has an active stock repurchase program with no 2022 buybacks - The company's common stock is listed on the **NYSE American** under the ticker symbol "**AINC**"[333](index=333&type=chunk) - **No dividends** were declared or paid on common stock for the years ended December 31, 2022, 2021, and 2020[336](index=336&type=chunk) - A stock repurchase program with up to **$20 million** authorization is active, but **no shares were repurchased** under it during the year ended December 31, 2022[340](index=340&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | **Approved by security holders** | 1,680,223 | $65.48 | 594,121 | | **Not approved by security holders** | — | — | — | | **Total** | 1,680,223 | $65.48 | 594,121 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=62&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Ashford Inc. saw significant revenue growth in 2022 driven by hospitality recovery, turning an operating loss into income, while managing debt and preferred stock dividends - Key developments in 2022 included entering a new **$100 million** credit facility, acquiring Chesapeake Hospitality for **$9.6 million**, and settling an **$11.4 million** ERFP commitment with Ashford Trust through the disposition of the Marietta Hotel leasehold[351](index=351&type=chunk)[353](index=353&type=chunk)[355](index=355&type=chunk) Financial Performance Summary (2022 vs. 2021) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | $644.4M | $384.6M | +67.6% | | **Operating Income (Loss)** | $21.6M | ($5.2M) | +512.6% | | **Net Income (Loss) Attributable to Company** | $3.6M | ($9.9M) | +136.7% | | **Net Loss Attributable to Common Stockholders** | ($32.8M) | ($46.0M) | +28.6% | - As of December 31, 2022, the company had **$44.4 million** in cash and cash equivalents and **$37.1 million** in restricted cash. It also had **$18.4 million** in undeclared and unpaid dividends on its Series D Convertible Preferred Stock[393](index=393&type=chunk)[404](index=404&type=chunk) [Results of Operations](index=65&type=section&id=Results%20of%20Operations) Total revenues increased significantly in 2022 due to hospitality recovery, leading to operating income despite higher expenses, though net loss persisted due to preferred dividends Revenue by Service Line (2022 vs. 2021) | Revenue Source | 2022 (in millions) | 2021 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Advisory services fees | $48.4 | $47.6 | +1.7% | | Hotel management fees | $46.5 | $26.3 | +77.3% | | Design and construction fees | $22.2 | $9.6 | +131.9% | | Audio visual | $121.3 | $49.9 | +143.1% | | Cost reimbursement revenue | $361.8 | $204.0 | +77.4% | | **Total Revenues** | **$644.4** | **$384.6** | **+67.6%** | - The significant increase in audio visual and design & construction revenues reflects a **strong recovery** in group events and increased capital expenditures by clients as the hospitality industry rebounded from the pandemic[369](index=369&type=chunk) - Salaries and benefits expense increased by **17.3%** to **$76.5 million** in 2022, driven by an increase in corporate employees and the reinstatement of the company's 401(k) match[370](index=370&type=chunk) - Interest expense rose to **$10.0 million** in 2022 from **$5.1 million** in 2021, primarily due to borrowings under the new Credit Facility and higher average interest rates[377](index=377&type=chunk) [Liquidity and Capital Resources](index=71&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is driven by operations and a new credit facility, with cash used for preferred dividends and ERFP settlement, resulting in increased net cash from operating activities - On April 1, 2022, the company entered into a new **five-year**, **$100 million** senior secured term loan facility. As of December 31, 2022, **$70.0 million** was drawn[351](index=351&type=chunk)[389](index=389&type=chunk) - In 2022, the company paid approximately **$43.9 million** in dividends on its Series D Convertible Preferred Stock, including payments for arrears from 2020. However, **$18.4 million** in dividends for two quarters of 2021 remained unpaid as of year-end[393](index=393&type=chunk)[407](index=407&type=chunk) - The company's **$11.4 million** Enhanced Return Funding Program (ERFP) commitment to Ashford Trust was **fully settled** on December 16, 2022, through the transfer of the Marietta Hotel leasehold[355](index=355&type=chunk)[399](index=399&type=chunk) Cash Flow Summary (2022 vs. 2021) | Cash Flow Activity | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $42.1 | $20.8 | | **Net Cash Used in Investing Activities** | ($22.4) | ($9.4) | | **Net Cash Used in Financing Activities** | ($10.7) | ($21.6) | [Critical Accounting Policies](index=75&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant judgment in revenue recognition, accounting for acquisitions, impairment of goodwill, and income tax assessments - **Revenue Recognition**: Advisory fees are recognized as services are rendered. Incentive fees are a form of variable consideration and are recognized only when it is probable that a significant reversal will not occur, typically in the **fourth quarter**[411](index=411&type=chunk)[415](index=415&type=chunk) - **Acquisitions**: Business combinations are accounted for using the acquisition method, requiring assets acquired and liabilities assumed to be recorded at **fair value**. This process involves significant estimates for intangible assets and goodwill[430](index=430&type=chunk) - **Goodwill and Intangible Asset Impairment**: Goodwill and indefinite-lived intangibles are tested for impairment **annually** (as of October 1) or more frequently if indicators exist. The company uses qualitative assessments and, if necessary, quantitative tests comparing carrying value to fair value[432](index=432&type=chunk) - **Income Taxes**: The company uses the asset and liability method to account for income taxes. It assesses the realizability of deferred tax assets and establishes valuation allowances if it is more likely than not that some portion will not be realized[426](index=426&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=79&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate fluctuations on variable-rate debt and foreign currency exchange rates from international operations - As of December 31, 2022, the company had **$94.4 million** of variable-rate debt. A **100 basis point** change in interest rates would result in an approximate annual impact of **$944,000**[437](index=437&type=chunk) - The company is exposed to foreign currency exchange risk through its INSPIRE operations in Mexico and the Dominican Republic. A **10%** change in the Mexican Peso exchange rate would impact net income by approximately **$215,000** annually[439](index=439&type=chunk) - The company is managing the transition from **LIBOR** to alternative reference rates like **SOFR** for its variable-rate debt. Its Credit Agreement identifies Term SOFR as the applicable benchmark replacement rate[322](index=322&type=chunk)[323](index=323&type=chunk) [Financial Statements and Supplementary Data](index=80&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes audited consolidated financial statements and notes, with a critical audit matter highlighted regarding the Chesapeake acquisition's business combination accounting - The independent auditor's report from BDO USA, LLP expresses a **clean opinion** on the consolidated financial statements[444](index=444&type=chunk) - A **critical audit matter** identified was the accounting for the **Chesapeake Hospitality acquisition**, focusing on the valuation of intangible assets (management contracts), contingent consideration, and the classification and measurement of preferred units issued as part of the purchase price[448](index=448&type=chunk)[449](index=449&type=chunk)[450](index=450&type=chunk) Consolidated Balance Sheet Highlights (as of Dec 31, 2022) | Account | Amount (in thousands) | | :--- | :--- | | **Total Assets** | **$482,356** | | Cash and cash equivalents | $44,390 | | Goodwill | $58,675 | | Intangible assets, net | $226,544 | | **Total Liabilities** | **$274,208** | | Notes payable, net | $94,875 | | **Total Equity (Deficit)** | **($271,466)** | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=151&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - **None reported**[744](index=744&type=chunk) [Controls and Procedures](index=151&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022, excluding the recently acquired Chesapeake Hospitality - Management concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2022[745](index=745&type=chunk) - Management concluded that internal control over financial reporting was **effective** as of December 31, 2022. The assessment **excluded the recently acquired Chesapeake Hospitality**[748](index=748&type=chunk)[749](index=749&type=chunk) - There were **no material changes** in internal controls over financial reporting during the fourth quarter of 2022[750](index=750&type=chunk) [Other Information](index=151&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - **None**[751](index=751&type=chunk) [PART III](index=152&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=152&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information concerning directors, executive officers, and corporate governance is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement - Information is **incorporated by reference** from the registrant's definitive Proxy Statement[754](index=754&type=chunk) [Executive Compensation](index=152&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement - Information is **incorporated by reference** from the registrant's definitive Proxy Statement[755](index=755&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=152&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information concerning security ownership is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement - Information is **incorporated by reference** from the registrant's definitive Proxy Statement[756](index=756&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=152&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information concerning related party transactions and director independence is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement - Information is **incorporated by reference** from the registrant's definitive Proxy Statement[757](index=757&type=chunk) [Principal Accountant Fees and Services](index=152&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information concerning principal accountant fees and services is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement - Information is **incorporated by reference** from the registrant's definitive Proxy Statement[758](index=758&type=chunk) [PART IV](index=153&type=section&id=PART%20IV) [Financial Statement Schedules and Exhibits](index=153&type=section&id=Item%2015.%20Financial%20Statement%20Schedules%20and%20Exhibits) This section lists financial statements, schedules, and exhibits filed as part of the Form 10-K, with many incorporated by reference from previous filings - The consolidated financial statements are listed under **Item 8** of the report[761](index=761&type=chunk) - A detailed list of exhibits filed with the report is provided, including **key agreements** such as the Separation and Distribution Agreement, Advisory Agreements with Ashford Trust and Braemar, and the Combination Agreement for the Remington acquisition[763](index=763&type=chunk) [Form 10-K Summary](index=160&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for this item - **None**[772](index=772&type=chunk)

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 hos ...

PART I. FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=2&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(unaudited)) The unaudited financial statements for the period ended September 30, 2022, reflect asset growth, a widened equity deficit, and strong revenue performance [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2022, total assets increased, total liabilities rose, and the total equity deficit widened compared to year-end 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Items | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$525,199** | **$514,796** | | Cash and cash equivalents | $44,071 | $37,571 | | Goodwill | $58,675 | $56,622 | | Intangible assets, net | $233,031 | $244,726 | | **Total Liabilities** | **$306,806** | **$278,492** | | Notes payable, net (Current & Non-current) | $94,007 | $59,394 | | Dividends payable | $26,777 | $34,574 | | **Total Mezzanine Equity** | **$479,732** | **$478,069** | | **Total Equity (Deficit)** | **($261,339)** | **($241,765)** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q3 and the nine months ended September 30, 2022, the company experienced significant revenue growth, leading to improved operating income and a narrowed net loss for the nine-month period Q3 2022 vs Q3 2021 Performance (in thousands, except per share) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | **Total Revenues** | **$164,608** | **$108,186** | | Operating Income | $2,795 | $627 | | Net Income (Loss) | ($1,103) | ($356) | | **Net Loss Attributable to Common Stockholders** | **($10,018)** | **($9,231)** | | Basic & Diluted Loss Per Share | ($3.38) | ($3.31) & ($3.64) | Nine Months 2022 vs 2021 Performance (in thousands, except per share) | Metric | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | **Total Revenues** | **$466,020** | **$255,966** | | Operating Income (Loss) | $18,080 | ($12,058) | | Net Income (Loss) | $4,901 | ($14,774) | | **Net Loss Attributable to Common Stockholders** | **($21,981)** | **($40,991)** | | Basic & Diluted Loss Per Share | ($7.59) & ($7.64) | ($14.93) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2022, operating cash flow significantly increased, while investing activities rose due to acquisitions, and financing cash outflow decreased Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | **$24,087** | **$12,362** | | **Net Cash from Investing Activities** | **($12,967)** | **($6,993)** | | **Net Cash from Financing Activities** | **($2,379)** | **($13,308)** | | Net Change in Cash | $8,736 | ($7,902) | | **Cash, Cash Equivalents & Restricted Cash at End of Period** | **$81,185** | **$74,764** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed information on the company's business, accounting policies, key financial transactions, and segment performance, including recent acquisitions and financing activities [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=54&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses significant revenue growth driven by hospitality recovery and acquisitions, improved operating income, and key liquidity events including a new credit facility and dividend plans - The company's growth strategy focuses on two main areas: increasing assets under management and expanding its other products and services businesses through third-party clients[592](index=592&type=chunk) - In Q3 2022, the company initiated a Cash Management Strategy to invest excess cash from Ashford Trust and Braemar in short-term U.S. Treasury securities, earning a fee for this service[242](index=242&type=chunk)[391](index=391&type=chunk) - On August 30, 2022, the company adopted a shareholder rights plan to protect against hostile takeovers, which becomes exercisable if a party acquires **10%** or more of common stock without board approval[243](index=243&type=chunk)[384](index=384&type=chunk)[596](index=596&type=chunk) [Results of Operations](index=59&type=section&id=Results%20of%20Operations) The company experienced significant revenue growth in Q3 and the nine-month period, driven by various service fees, which improved operating income despite increased expenses Revenue Growth by Category (Q3 2022 vs Q3 2021) | Revenue Category | Q3 2022 (in thousands) | Q3 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Advisory services fees | $12,255 | $10,143 | 20.8% | | Hotel management fees | $12,876 | $7,750 | 66.1% | | Design and construction fees | $6,276 | $2,202 | 185.0% | | Audio visual | $26,159 | $15,108 | 73.1% | | **Total Revenues** | **$164,608** | **$108,186** | **52.2%** | Revenue Growth by Category (Nine Months 2022 vs 2021) | Revenue Category | 9M 2022 (in thousands) | 9M 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Advisory services fees | $36,026 | $30,132 | 19.6% | | Hotel management fees | $33,474 | $18,737 | 78.7% | | Design and construction fees | $15,538 | $5,611 | 176.9% | | Audio visual | $87,101 | $28,170 | 209.2% | | **Total Revenues** | **$466,020** | **$255,966** | **82.1%** | - Salaries and benefits expense increased **54.6%** in Q3 2022 YoY, primarily due to more corporate employees, reinstatement of the 401(k) match, and expenses related to the COO's termination agreement[257](index=257&type=chunk)[258](index=258&type=chunk) [Liquidity and Capital Resources](index=72&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by operating cash and a new credit facility, with plans to address preferred dividend arrears and fulfill a purchase commitment by year-end 2022 - On April 1, 2022, the company secured a new **$100 million** senior secured term loan facility, drawing **$70 million** to refinance existing debt and pay preferred dividends[298](index=298&type=chunk)[651](index=651&type=chunk) - The company has undeclared preferred stock dividends of approximately **$18.1 million** for Q2 and Q4 2021, which it intends to pay during calendar year 2023[300](index=300&type=chunk)[653](index=653&type=chunk) - A remaining purchase commitment of **$11.4 million** exists under the Enhanced Return Funding Program (ERFP) with Ashford Trust, which must be fulfilled by December 31, 2022[307](index=307&type=chunk)[500](index=500&type=chunk)[660](index=660&type=chunk) Cash Position (in millions) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $44.1 | $37.6 | | Restricted cash | $37.1 | $34.9 | [Quantitative and Qualitative Disclosures About Market Risk](index=75&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to market risks primarily from interest rate fluctuations on its variable-rate debt and unhedged foreign currency exchange rates from international operations - The company is exposed to interest rate risk, with **$94.2 million** of its **$98.4 million** total debt being variable-rate. A **100 basis point** change would result in an approximate annual impact of **$942,000**[322](index=322&type=chunk)[675](index=675&type=chunk) - Foreign exchange risk exists due to INSPIRE's operations in Mexico and the Dominican Republic. The company does not currently use financial instruments to hedge this risk[323](index=323&type=chunk)[676](index=676&type=chunk) [Controls and Procedures](index=76&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls during the quarter - As of September 30, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[325](index=325&type=chunk)[678](index=678&type=chunk) - No material changes were made to the company's internal controls over financial reporting during the third quarter of 2022[326](index=326&type=chunk)[679](index=679&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=77&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in ongoing legal proceedings, including a class-action employment lawsuit and a personal injury claim, none of which are expected to materially impact its financial position - A class-action lawsuit in California alleges violations of employment laws regarding rest breaks. The company believes a potential loss is not reasonably estimable at this time[328](index=328&type=chunk)[502](index=502&type=chunk)[681](index=681&type=chunk) - A lawsuit in the U.S. Virgin Islands alleges negligence and gross negligence related to personal injuries. The company intends to vigorously defend against the claims and believes any potential loss is immaterial[329](index=329&type=chunk)[503](index=503&type=chunk)[682](index=682&type=chunk) [Risk Factors](index=77&type=section&id=ITEM%201A.%20RISK%20FACTORS) Key risks include challenges in integrating acquired businesses, the deterrent effect of the shareholder rights plan, and adverse impacts from uncertain U.S. economic conditions - The company faces risks related to the acquisition and integration of businesses, such as the recent Chesapeake purchase, which could disrupt business and dilute stockholder value[333](index=333&type=chunk)[334](index=334&type=chunk)[686](index=686&type=chunk) - A shareholder rights plan has been adopted, which could make a third-party acquisition more difficult while it is in effect[335](index=335&type=chunk)[336](index=336&type=chunk)[688](index=688&type=chunk) - Uncertain economic conditions in the U.S., including recessionary concerns, rising inflation, and increasing interest rates, pose a material risk to the company's earnings and financial condition[337](index=337&type=chunk)[339](index=339&type=chunk)[690](index=690&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=80&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) During Q3 2022, the company did not repurchase shares under its stock repurchase program, with only minor share acquisitions for employee tax withholding - No shares were repurchased under the company's **$20 million** stock repurchase program during the three months ended September 30, 2022[341](index=341&type=chunk)[694](index=694&type=chunk) [Defaults Upon Senior Securities](index=80&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company is in arrears on approximately **$18.1 million** in Series D Convertible Preferred Stock dividends for two quarters of 2021, which constitutes a 'Preferred Stock Breach' with potential implications - As of November 7, 2022, the company had approximately **$18.1 million** in undeclared and unpaid dividends for its Series D Convertible Preferred Stock, related to the second and fourth quarters of 2021[343](index=343&type=chunk)[696](index=696&type=chunk) - The company paid previously declared dividends for Q1 and Q2 2022, as well as a dividend for Q3 2022 subsequent to the quarter's end[344](index=344&type=chunk)[697](index=697&type=chunk) [Exhibits](index=82&type=section&id=ITEM%206.%20EXHIBITS) This section provides a comprehensive list of all exhibits filed with the Form 10-Q, including key agreements and certifications

Revenue Generation - For the year ended December 31, 2020, advisory services revenues were $34.7 million from Ashford Trust and $10.0 million from Braemar, with no incentive fees earned[26]. - Hotel management revenues for the year ended December 31, 2020, were $15.9 million from Ashford Trust and $1.0 million from Braemar[28]. - Project management revenues for the year ended December 31, 2020, totaled $5.0 million from Ashford Trust, $2.1 million from Braemar, and $1.8 million from third-party clients[30]. - Audio visual revenues from event technology services were $37.9 million for the year ended December 31, 2020, down from $110.6 million in 2019[31]. - Revenue from mobile room keys and keyless entry solutions was $1.5 million for the year ended December 31, 2020, compared to $987,000 in 2019[32]. - Watersports, travel, concierge, and transportation services generated $9.7 million in revenue for the year ended December 31, 2020, slightly up from $9.4 million in 2019[32]. - Pure Wellness generated revenue of $1.9 million in 2020, down from $3.1 million in 2019, indicating a decline of approximately 38.7%[34]. - Lismore earned revenue of $8.4 million in 2020, significantly up from $2.0 million in 2019, representing a growth of 320%[34]. - Ashford Securities reported cost reimbursement revenue of $2.7 million in 2020, an increase from $1.2 million in 2019, reflecting a growth of 125%[36]. Company Strategy and Growth - The company aims to grow by increasing assets under management and pursuing third-party business for its products and services[23]. - The company acquired Remington Lodging & Hospitality, LLC on November 6, 2019, enhancing its hotel management capabilities[14]. - The company is focused on investing in full-service hotels in the upscale and upper upscale segments, with Ashford Trust targeting properties with RevPAR generally less than twice the national average[24]. Advisory Agreements and Terms - The advisory agreements require the Company to manage the business affairs of Ashford Trust and Braemar, with all officers being employees of the Company[38]. - The Second Amended and Restated Advisory Agreement established a fixed base fee percentage of 0.70% based on the Total Market Capitalization of Ashford Trust[45]. - The Second Amended and Restated Advisory Agreement replaced the existing perpetual term with an initial 10-year term, allowing for up to 7 successive additional 10-year renewal terms[42]. - The advisory agreements allow for termination without a fee under certain conditions, including a change of control or material breach[66]. - Ashford Trust's advisory agreement has a term of 10 years, with potential for up to 7 successive 10-year renewals[68]. - Termination fees for Ashford Trust's advisory agreement can be up to 1.1 times the greater of specified earnings calculations[68]. - The Company agreed to subordinate its right to receive fees under the advisory agreement to obligations under Ashford Trust's senior secured credit facility[69]. Financial Commitments and Conditions - The Company agreed to provide $50 million to each of Ashford Trust and Braemar under the ERFP Agreements, with the option to increase to $100 million upon mutual agreement[51]. - Ashford Trust's acquisition commitments under the ERFP Agreement included approximately $11.1 million for the Hilton Old Town Alexandria and $5.0 million for La Posada de Santa Fe, totaling $16.1 million[53]. - The requirement for Ashford Trust to maintain a minimum Consolidated Tangible Net Worth has been suspended until the first fiscal quarter beginning after June 30, 2023[47]. - The remaining ERFP commitment funding deadline was extended from January 22, 2021, to December 31, 2022[54]. - As of January 15, 2021, the Company received $14.4 million from Ashford Trust for previously deferred fees[54]. Management Agreements - Remington manages 68 of Ashford Trust's 103 hotel properties under the Ashford Trust Master Hotel Management Agreement[103]. - The base management fee for each hotel is either $14,105 or 3% of gross revenues, whichever is greater[105]. - The incentive management fee is capped at 1% of gross revenues or the amount by which actual house profit exceeds target house profit[106]. - The Ashford Trust Master Hotel Management Agreement has an initial term of 10 years, with options for renewal[104]. - The annual operating budget must be submitted at least 45 days prior to the fiscal year, detailing an estimated profit and loss statement for the next 12 months[123]. - Remington is required to prepare a capital improvement budget for necessary expenditures for property and equipment replacement and repairs for the following fiscal year[124]. Exclusivity and Investment Opportunities - Ashford Trust has granted Remington a first right of refusal for lodging investment opportunities, including hotel acquisitions and developments, provided Ashford Trust has not materially modified its investment guidelines[132]. - If Ashford Trust accepts an investment opportunity from Remington, it must reimburse Remington for actual out-of-pocket costs, excluding finder's fees and brokerage fees[133]. - Ashford Trust is obligated to hire Remington for hotel management services unless independent directors unanimously decide otherwise based on special circumstances or prior performance[134]. - Certain investment opportunities are excluded from the exclusivity rights, including those where independent directors vote not to engage Remington[135]. Project Management Agreements - The Ashford Trust Project Management Agreement stipulates a project management fee of 4% of total project costs, reducing to 3% if costs exceed 5% of gross revenues[145]. - Premier is appointed as the exclusive manager for capital improvement projects for Ashford Trust Hotels, with specific fees for various services outlined in the agreement[143]. - The term of the Ashford Trust Project Management Agreement is initially 10 years, with options for renewal for up to 25 additional years[146]. Investor Rights and Governance - The Investor Rights Agreement governs the relationship post-acquisition of the hotel management business, replacing a previous agreement[201]. - Covered Investors holding at least 20% of common stock can nominate board members, with specific rights for Mr. Monty J. Bennett and Mr. Archie Bennett, Jr.[202]. - Transfer restrictions prevent Covered Investors from transferring shares to anyone who would own 10% or more of the common stock for five years post-transaction[205]. - Voting limitations apply to Covered Investors, ensuring their voting power does not exceed 40% of the combined voting power of all outstanding securities[206].