Ashford (AINC) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Unaudited financial statements detail financial position, operations, and cash flows, showing increased assets, liabilities, and a net loss Condensed Consolidated Balance Sheets Total assets and liabilities significantly increased due to acquisitions and new lease accounting standards, while total equity remained stable Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $36,400 | $51,529 | | Furniture, fixtures and equipment, net | $72,043 | $47,947 | | Goodwill | $61,969 | $59,683 | | Total assets | $421,837 | $379,005 | | Liabilities & Equity | | | | Notes payable, net | $28,675 | $17,772 | | Operating lease liabilities | $21,546 | $0 | | Total liabilities | $148,779 | $108,726 | | Total equity | $67,232 | $65,901 | Condensed Consolidated Statements of Operations Total revenue increased significantly for both the quarter and nine-month periods, but the company reported a net loss attributable to common stockholders Statement of Operations Summary (in thousands, except per share amounts) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $56,889 | $41,565 | $183,675 | $144,544 | | Operating Income (Loss) | $(6,801) | $(11,504) | $(3,316) | $(5,670) | | Net Income (Loss) | $(6,591) | $2,006 | $(6,352) | $5,103 | | Net Income (Loss) Attributable to Common Stockholders | $(9,428) | $1,409 | $(15,164) | $4,646 | | Basic EPS | $(3.65) | $0.67 | $(6.09) | $2.20 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased, while investing cash outflow rose significantly due to acquisitions, leading to an overall cash decrease Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,748 | $15,555 | | Net cash used in investing activities | $(38,740) | $(9,300) | | Net cash provided by financing activities | $4,919 | $23,918 | | Net change in cash, cash equivalents and restricted cash | $(11,065) | $30,103 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, recent acquisitions, debt, related party transactions, and significant subsequent events including the Remington acquisition - The company provides asset management and advisory services to Ashford Trust and Braemar and has been expanding its hospitality products and services business through acquisitions like Premier (project management), BAV (audio visual), and Sebago (watersports)[27][28][30] - On May 31, 2019, the company signed an agreement to acquire the Hotel Management business of Remington, a related party, with the transaction closing on November 6, 2019, after shareholder approval[39] - Subsequent to the quarter end, on October 2, 2019, the company repurchased 412,974 shares of its common stock from Ashford Trust and Braemar for $12.4 million; on November 6, 2019, it completed the acquisition of Remington's Hotel Management business for $275 million in Series D Convertible Preferred Stock[234][239] - The company has Enhanced Return Funding Program (ERFP) agreements to provide up to $50 million each to Ashford Trust and Braemar for hotel acquisitions in exchange for FF&E; as of September 30, 2019, the remaining commitments were $20.8 million for Ashford Trust and $39.7 million for Braemar[32][36][174] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial performance, highlighting revenue growth from acquisitions, declining net income due to increased expenses, and details liquidity and strategic initiatives Results of Operations Total revenue significantly increased due to acquisitions, but higher costs and a lower income tax benefit resulted in a net loss Revenue Comparison - Q3 2019 vs Q3 2018 (in thousands) | Revenue Source | Q3 2019 | Q3 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Advisory services | $20,055 | $21,016 | $(961) | (4.6)% | | Audio visual | $22,430 | $14,526 | $7,904 | 54.4% | | Project management | $7,881 | $3,616 | $4,265 | 117.9% | | Other | $6,523 | $2,407 | $4,116 | 171.0% | | Total revenue | $56,889 | $41,565 | $15,324 | 36.9% | Revenue Comparison - Nine Months 2019 vs 2018 (in thousands) | Revenue Source | Nine Months 2019 | Nine Months 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Advisory services | $60,462 | $68,118 | $(7,656) | (11.2)% | | Audio visual | $83,532 | $61,212 | $22,320 | 36.5% | | Project management | $23,371 | $3,616 | $19,755 | 546.3% | | Other | $16,310 | $11,598 | $4,712 | 40.6% | | Total revenue | $183,675 | $144,544 | $39,131 | 27.1% | - The decrease in advisory services revenue was mainly due to lower non-cash stock/unit-based compensation revenue, which was elevated in 2018 due to accelerated vesting from an executive's death, and a lower base advisory fee from Ashford Trust[298][299] - Depreciation and amortization expense increased by $12.6 million (242.7%) for the nine-month period, primarily due to amortization of intangible assets from the Premier acquisition and depreciation on ERFP assets[304] Liquidity and Capital Resources The company expects to meet short-term liquidity needs through operations and credit, with key requirements including ERFP commitments and recent credit facility draws - As of September 30, 2019, the company had $36.4 million in cash and cash equivalents and $12.0 million in restricted cash[322] ERFP Commitments as of September 30, 2019 (in thousands) | REIT | Remaining Commitment | | :--- | :--- | | Ashford Trust | $20,811 | | Braemar | $39,700 | | Total | $60,511 | - On October 2, 2019, the company repurchased 412,974 shares of its common stock from Ashford Trust and Braemar for $12.4 million[320] - On October 14, 2019, the Company drew $10.0 million on its senior revolving credit facility; as of November 7, 2019, $25.0 million was available[234][321] Quantitative and Qualitative Disclosures About Market Risk Primary market risks are interest rate and foreign currency exchange, with variable-rate debt posing quantifiable interest rate sensitivity - A 100 basis point change in interest rates would impact the company's results of operations by approximately $244,000 annually based on the $24.4 million of variable-rate debt outstanding at September 30, 2019[332] - The company has foreign exchange risk from its JSAV subsidiary's operations in Mexico and the Dominican Republic, but it does not hedge this exposure[334] Controls and Procedures Management concluded disclosure controls were effective, with new controls for lease accounting and no material changes to internal controls - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[335] - There were no material changes in internal controls over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[337] PART II. OTHER INFORMATION Legal Proceedings The company is involved in legal proceedings, but management does not expect a material adverse effect on financial position or results - Management does not believe the ultimate resolution of ongoing legal proceedings will have a material adverse effect on the Company's financial position or results of operations[339] Risk Factors Key risks include the Remington acquisition's potential non-accretive nature, associated costs, and stock price decline from the transaction and divestitures - The market price of the company's common stock declined approximately 51.4% between the announcement (May 31, 2019) and closing (November 6, 2019) of the Remington Hotel Management acquisition[343] - A key risk is that the acquisition of Remington's Hotel Management business may not be accretive to stockholders due to higher-than-anticipated expenses or lower-than-expected revenue[340][344] - Sales of substantial amounts of the company's common stock, particularly from the divestiture by Ashford Trust and Braemar to their shareholders, could cause the market price to decline further[345][346] Unregistered Sales of Equity Securities and Use of Proceeds The company issued common stock in a private placement for the Sebago acquisition and repurchased shares from related parties post-quarter - The company issued shares of common stock in a private placement on July 18, 2019, as part of the Sebago acquisition[350] - Subsequent to the quarter, on October 2, 2019, the Company repurchased 412,974 shares of its common stock from Ashford Trust and Braemar for $12.4 million[351] Other Information The company filed a Certificate of Correction to amend the stated par value of its Series B Convertible Preferred Stock from $25.00 to $0.01 per share - On November 4, 2019, the company filed a Certificate of Correction to fix an error in the stated par value of its Series B Convertible Preferred Stock, changing it from $25.00 to the correct value of $0.01 per share[351]