Ashford (AINC) - 2024 Q3 - Quarterly Report

FORM 10-Q General Information This section provides general information about Ashford Inc.'s Quarterly Report (Form 10-Q), its corporate status, and common stock details - The document is a Quarterly Report (Form 10-Q) for the period ended September 30, 2024[1] - Ashford Inc. is a Nevada corporation, classified as a non-accelerated filer and not an emerging growth company or a shell company[1][3][4] Common Stock Outstanding | Metric | Value | |:---|:---| | Common Stock, $0.001 par value outstanding | 1,738,597 shares | | As of | November 11, 2024 | Table of Contents This section outlines the structure and content of the quarterly report Part I. Financial Information This part presents the company's unaudited condensed consolidated financial statements and related disclosures Item 1. Financial Statements (Unaudited) This section presents Ashford Inc.'s unaudited condensed consolidated financial statements and notes for Q3 2024 and FY 2023 Condensed Consolidated Balance Sheets This section details the company's financial position, showing changes in assets, liabilities, and equity - Total assets decreased by 4.15% from $504.81 million at December 31, 2023, to $483.85 million at September 30, 2024[8] - Total liabilities increased by 2.85% from $329.40 million to $338.80 million over the same period[8] Balance Sheet Summary | Metric | Sep 30, 2024 (in thousands) | Dec 31, 2023 (in thousands) | Change (in thousands) | % Change | |:-----------------------------------|:----------------------------|:----------------------------|:----------------------|:---------| | ASSETS | | | | | | Total current assets | 128,302 | 140,930 | (12,628) | (8.96%) | | Investments | 14,397 | 9,265 | 5,132 | 55.39% | | Property and equipment, net | 62,100 | 56,852 | 5,248 | 9.23% | | Intangible assets, net | 193,780 | 210,095 | (16,315) | (7.77%) | | Total assets | 483,847 | 504,807 | (20,960) | (4.15%) | | LIABILITIES | | | | | | Accounts payable and accrued expenses | 44,302 | 54,837 | (10,535) | (19.21%) | | Dividends payable | 47,794 | 28,508 | 19,286 | 67.65% | | Total current liabilities | 140,927 | 135,404 | 5,523 | 4.08% | | Total liabilities | 338,797 | 329,402 | 9,395 | 2.85% | | EQUITY (DEFICIT) | | | | | | Total equity (deficit) of the Company | (348,934) | (311,572) | (37,362) | (11.99%) | | Total liabilities, mezzanine equity and equity (deficit) | 483,847 | 504,807 | (20,960) | (4.15%) | Condensed Consolidated Statements of Operations This section presents the company's operating performance, detailing revenues, expenses, and net income (loss) for the reporting periods - For the three months ended September 30, 2024, net loss attributable to common stockholders increased by 9.03% to $(13.13) million, from $(12.05) million in the prior year[11][222] - For the nine months ended September 30, 2024, net loss attributable to common stockholders increased by 14.37% to $(31.15) million, from $(27.23) million in the prior year[11][243] Statements of Operations Summary (Three Months) | Metric | Three Months Ended Sep 30, 2024 (in thousands) | Three Months Ended Sep 30, 2023 (in thousands) | Change (in thousands) | % Change | |:----------------------------------------------------|:-----------------------------------------------|:-----------------------------------------------|:----------------------|:---------| | Total revenues | 191,112 | 181,215 | 9,897 | 5.46% | | Total expenses | 190,540 | 180,611 | 9,929 | 5.49% | | Operating income (loss) | 572 | 604 | (32) | (5.30%) | | Net income (loss) attributable to the Company | (3,751) | (2,991) | (760) | (25.41%) | | Preferred dividends, declared and undeclared | (9,382) | (9,054) | (328) | (3.62%) | | Net income (loss) attributable to common stockholders | (13,133) | (12,045) | (1,088) | (9.03%) | | Basic EPS | (5.71) | (3.87) | (1.84) | (47.54%) | | Diluted EPS | (5.71) | (3.87) | (1.84) | (47.54%) | Statements of Operations Summary (Nine Months) | Metric | Nine Months Ended Sep 30, 2024 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Change (in thousands) | % Change | |:----------------------------------------------------|:----------------------------------------------|:----------------------------------------------|:----------------------|:---------| | Total revenues | 611,646 | 559,047 | 52,599 | 9.41% | | Total expenses | 599,147 | 547,278 | 51,869 | 9.48% | | Operating income (loss) | 12,499 | 11,769 | 730 | 6.20% | | Net income (loss) attributable to the Company | (3,330) | (100) | (3,230) | (3230.00%) | | Preferred dividends, declared and undeclared | (27,815) | (27,132) | (683) | (2.52%) | | Net income (loss) attributable to common stockholders | (31,145) | (27,232) | (3,913) | (14.37%) | | Basic EPS | (10.84) | (8.88) | (1.96) | (22.07%) | | Diluted EPS | (10.84) | (9.18) | (1.66) | (18.08%) | Condensed Consolidated Statements of Comprehensive Income (Loss) This section outlines the company's comprehensive income (loss), including net income and other comprehensive income items - For the three months ended September 30, 2024, comprehensive loss attributable to the company increased by 31.06% to $(3.88) million, from $(2.96) million in the prior year[14] - For the nine months ended September 30, 2024, comprehensive loss attributable to the company significantly increased by 1517.31% to $(3.36) million, from $(0.21) million in the prior year[14] Comprehensive Income (Loss) Summary (Three Months) | Metric | Three Months Ended Sep 30, 2024 (in thousands) | Three Months Ended Sep 30, 2023 (in thousands) | Change (in thousands) | % Change | |:-------------------------------------------------|:-----------------------------------------------|:-----------------------------------------------|:----------------------|:---------| | Net income (loss) | (3,768) | (3,070) | (698) | (22.74%) | | Foreign currency translation adjustment | (131) | 29 | (160) | (551.72%) | | Comprehensive income (loss) attributable to the Company | (3,882) | (2,962) | (920) | (31.06%) | Comprehensive Income (Loss) Summary (Nine Months) | Metric | Nine Months Ended Sep 30, 2024 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Change (in thousands) | % Change | |:-------------------------------------------------|:----------------------------------------------|:----------------------------------------------|:----------------------|:---------| | Net income (loss) | (3,665) | (393) | (3,272) | (832.57%) | | Foreign currency translation adjustment | (34) | (108) | 74 | 68.52% | | Comprehensive income (loss) attributable to the Company | (3,364) | (208) | (3,156) | (1517.31%) | Condensed Consolidated Statements of Equity (Deficit) This section details changes in the company's equity (deficit), including common shares, accumulated deficit, and noncontrolling interests - Total equity (deficit) decreased by 10.02% from $(304.57) million at December 31, 2023, to $(335.08) million at September 30, 2024[8] - Common shares outstanding decreased by 34.31% due to repurchases and retirement of common stock[16][17] Equity (Deficit) Summary | Metric | Dec 31, 2023 (in thousands) | Sep 30, 2024 (in thousands) | Change (in thousands) | % Change | |:----------------------------------------------------|:----------------------------|:----------------------------|:----------------------|:---------| | Common Shares | 3,212 | 2,110 | (1,102) | (34.31%) | | Stock Amount | 3 | 2 | (1) | (33.33%) | | Additional Paid-in Capital | 299,304 | 291,817 | (7,487) | (2.50%) | | Accumulated Deficit | (609,312) | (640,506) | (31,194) | (5.12%) | | Accumulated Other Comprehensive Income (Loss) | (213) | (247) | (34) | (15.96%) | | Treasury Stock Amount | (1,354) | 0 | 1,354 | 100.00% | | Noncontrolling Interests in Consolidated Entities | 7,005 | 13,856 | 6,851 | 97.80% | | Total equity (deficit) | (304,567) | (335,078) | (30,511) | (10.02%) | - Preferred dividends declared and undeclared reduced accumulated deficit by $27.82 million for the nine months ended September 30, 2024[17] Condensed Consolidated Statements of Cash Flows This section presents the company's cash flow activities from operations, investing, and financing for the reporting periods - Net cash provided by operating activities significantly increased by 229.45% to $32.54 million for the nine months ended September 30, 2024, compared to $9.88 million in the prior year, primarily due to timing of working capital cash flows[21][275] - Net cash used in investing activities decreased by 22.35% to $20.04 million, mainly for capital expenditures ($16.22 million) and investments ($4.56 million)[21][276] - Net cash used in financing activities increased by 497.58% to $7.91 million, driven by payments on revolving credit facilities ($31.48 million) and preferred stock dividends ($8.70 million), partially offset by new borrowings ($34.01 million) and noncontrolling interest contributions ($6.77 million)[23][278] Cash Flow Summary | Cash Flow Activity | Nine Months Ended Sep 30, 2024 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Change (in thousands) | % Change | |:----------------------------------------------------|:----------------------------------------------|:----------------------------------------------|:----------------------|:---------| | Net cash provided by (used in) operating activities | 32,543 | 9,878 | 22,665 | 229.45% | | Net cash provided by (used in) investing activities | (20,038) | (25,805) | 5,767 | 22.35% | | Net cash provided by (used in) financing activities | (7,906) | (1,323) | (6,583) | (497.58%) | | Net change in cash, cash equivalents and restricted cash | 4,599 | (17,215) | 21,814 | 126.72% | | Cash, cash equivalents and restricted cash at end of period | 79,869 | 64,233 | 15,636 | 24.34% | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures on accounting policies, revenue recognition, segment information, and other critical financial data 1. Organization and Description of Business This note describes Ashford Inc.'s business as an alternative asset manager and its recent delisting from NYSE American - Ashford Inc. is an alternative asset management company providing products and services primarily to clients in the real estate and hospitality industries, including Ashford Hospitality Trust, Inc. ('Ashford Trust'), Braemar Hotels & Resorts Inc. ('Braemar'), Stirling Hotels & Resorts, Inc. ('Stirling'), and Texas Strategic Growth Fund, L.P. ('TSGF L.P.')[25][27] - The company delisted its common stock from NYSE American on July 29, 2024, and terminated its public company reporting obligations, effective November 6, 2024, with an expected annual savings of approximately $2.5 million[25][29][30][209] - Ashford Inc. provides a diverse range of services including advisory, asset management, hotel management, design and construction, event technology, mobile room keys, watersports, hypoallergenic room products, insurance, debt placement, and real estate advisory[26] 2. Significant Accounting Policies This note details the company's accounting principles, including consolidation, fair value measurements, and restricted cash - The condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and include accounts of Ashford Inc., its majority-owned subsidiaries, and controlled Variable Interest Entities (VIEs)[34][36] Noncontrolling Interests | Noncontrolling Interests (in thousands) | Sep 30, 2024 | Dec 31, 2023 | |:----------------------------------------|:-------------|:-------------| | Carrying value of redeemable noncontrolling interests | $2,128 | $1,972 | | Carrying value of noncontrolling interests | $13,856 | $7,005 | - TSGF L.P.'s investments are reported at fair value, with unrealized gains and losses reflected in 'other income (expense)'. The fair value of TSGF L.P.'s investments increased from $5.0 million at December 31, 2023, to $10.0 million at September 30, 2024[41] Restricted Cash Breakdown | Restricted Cash (in thousands) | Sep 30, 2024 | Dec 31, 2023 | |:---------------------------------------|:-------------|:-------------| | Advisory (Insurance claim reserves) | $1,731 | $18,947 | | Warwick (Insurance claim reserves) | $11,489 | $0 | | Remington (Managed hotel properties' reserves) | $1,001 | $2,508 | | Remington (Insurance claim reserves) | $2,012 | $1,761 | | Total restricted cash | $16,233 | $23,216 | - The allowance for doubtful accounts increased from $2.1 million at December 31, 2023, to $3.7 million at September 30, 2024, primarily due to a $909,000 increase in Premier's allowance related to a third-party client[46] - Claims liabilities and other included reserves of $28.0 million for Warwick's liabilities and $3.3 million for Remington health insurance claims as of September 30, 2024[49][50] - The company adopted ASU 2020-06 (Convertible Instruments) effective January 1, 2024, with no material impact. New ASUs 2023-07 (Segment Reporting) and 2023-09 (Income Tax Disclosures) are effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively, and are expected to impact disclosures only[56][57][58] 3. Revenues This note provides a detailed breakdown of the company's revenue streams by type and segment, and related recognition policies - Revenue is recognized when control of promised goods or services is transferred to customers, reflecting the expected consideration[61] - Incentive advisory fees are deferred until probable of not being subject to significant reversal and are recognized annually in the fourth quarter[66] - Design and construction fees revenue in the first quarter of 2024 increased by $3.6 million due to cumulative catch-up adjustments from contract modifications with Ashford Trust and Braemar[69] Revenue by Type (Three Months) | Revenue Type (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Change (in thousands) | % Change | |:------------------------------------|:--------------------------------|:--------------------------------|:----------------------|:---------| | Advisory services fees | 12,010 | 11,712 | 298 | 2.54% | | Hotel management fees | 12,350 | 12,391 | (41) | (0.33%) | | Design and construction fees | 6,191 | 7,430 | (1,239) | (16.68%) | | Audio visual | 34,360 | 30,641 | 3,719 | 12.14% | | Other revenue | 15,491 | 11,175 | 4,316 | 38.62% | | Cost reimbursement revenue | 110,710 | 107,866 | 2,844 | 2.64% | | Total revenues | 191,112 | 181,215 | 9,897 | 5.46% | Revenue by Type (Nine Months) | Revenue Type (in thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change (in thousands) | % Change | |:------------------------------------|:-------------------------------|:-------------------------------|:----------------------|:---------| | Advisory services fees | 35,467 | 36,129 | (662) | (1.83%) | | Hotel management fees | 39,194 | 39,456 | (262) | (0.66%) | | Design and construction fees | 21,003 | 21,964 | (961) | (4.38%) | | Audio visual | 126,855 | 112,347 | 14,508 | 12.91% | | Other revenue | 50,776 | 32,057 | 18,719 | 58.39% | | Cost reimbursement revenue | 338,351 | 317,094 | 21,257 | 6.70% | | Total revenues | 611,646 | 559,047 | 52,599 | 9.41% | Revenue by Segment | Revenue by Segment (in thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change (in thousands) | % Change | |:----------------------------------|:-------------------------------|:-------------------------------|:----------------------|:---------| | Advisory | 57,625 | 60,316 | (2,691) | (4.46%) | | Remington | 340,355 | 314,454 | 25,901 | 8.24% | | Premier | 31,147 | 30,780 | 367 | 1.19% | | INSPIRE | 127,029 | 112,506 | 14,523 | 12.91% | | RED | 32,882 | 25,866 | 7,016 | 27.13% | | OpenKey | 1,050 | 1,184 | (134) | (11.32%) | | Corporate and other | 21,558 | 13,941 | 7,617 | 54.64% | | Total revenues | 611,646 | 559,047 | 52,599 | 9.41% | 4. Goodwill and Intangible Assets, net This note details the company's goodwill and definite-lived intangible assets, including changes due to amortization - Goodwill remained stable at $61.01 million as of September 30, 2024, and December 31, 2023[87] Goodwill Breakdown | Goodwill (in thousands) | Sep 30, 2024 | Dec 31, 2023 | |:------------------------|:-------------|:-------------| | Remington | $56,658 | $56,658 | | RED | $3,573 | $3,573 | | Corporate and Other | $782 | $782 | | Total Goodwill | $61,013 | $61,013 | - Net carrying amount of definite-lived intangible assets decreased by 8.03% to $186.79 million at September 30, 2024, from $203.11 million at December 31, 2023, primarily due to amortization[88] Definite-lived Intangible Assets | Definite-lived Intangible Assets (in thousands) | Sep 30, 2024 Net Carrying Amount | Dec 31, 2023 Net Carrying Amount | Change (in thousands) | % Change | |:----------------------------------------|:---------------------------------|:---------------------------------|:----------------------|:---------| | Remington management contracts | $55,516 | $62,840 | (7,324) | (11.65%) | | Premier management contracts | $121,128 | $129,192 | (8,064) | (6.24%) | | INSPIRE customer relationships | $1,835 | $2,674 | (839) | (31.38%) | | RED boat slip rights | $8,311 | $8,399 | (88) | (1.05%) | | Total Definite-lived Intangible Assets | $186,790 | $203,105 | (16,315) | (8.03%) | - Amortization expense for definite-lived intangible assets was $16.6 million for the nine months ended September 30, 2024, compared to $18.2 million for the same period in 2023[88] 5. Notes Payable, net This note outlines the company's debt structure, including its Credit Facility, other notes, and covenant compliance - Notes payable, net, increased by 2.01% to $139.72 million at September 30, 2024, from $136.97 million at December 31, 2023[90] Notes Payable Summary | Metric (in thousands) | Sep 30, 2024 | Dec 31, 2023 | Change (in thousands) | % Change | |:------------------------------------|:-------------|:-------------|:----------------------|:---------| | Total notes payable | 143,023 | 141,068 | 1,955 | 1.39% | | Deferred loan costs, net | (2,216) | (2,723) | 507 | 18.62% | | Original issue discount, net | (1,090) | (1,379) | 289 | 20.96% | | Notes payable, net | 139,717 | 136,966 | 2,751 | 2.01% | | Less current portion | (4,575) | (4,387) | (188) | (4.29%) | | Total notes payable, net - non-current | 135,142 | 132,579 | 2,563 | 1.93% | - Ashford Inc.'s Credit Facility is a $100 million senior secured term loan, maturing April 1, 2027, with interest at Base Rate + 6.35% or Adjusted Term SOFR + 7.35%[90][91] - INSPIRE's credit agreement was amended to increase its revolving credit facility to $6.0 million and equipment note to $7.0 million, maturing March 24, 2028, with interest at Daily Adjusted Term SOFR + 2.75%[91] - The company was in compliance with all covenants related to its Credit Facility and subsidiary debt as of September 30, 2024[93] 6. Accounts Payable and Accrued Expenses This note details the composition and changes in the company's accounts payable and accrued expenses - Accounts payable and accrued expenses decreased by 19.21% to $44.30 million at September 30, 2024, from $54.84 million at December 31, 2023[94] Accounts Payable and Accrued Expenses Breakdown | Metric (in thousands) | Sep 30, 2024 | Dec 31, 2023 | Change (in thousands) | % Change | |:------------------------------------|:-------------|:-------------|:----------------------|:---------| | Accounts payable | 19,194 | 18,482 | 712 | 3.85% | | Accrued payroll expense | 21,383 | 31,153 | (9,770) | (31.36%) | | Accrued vacation expense | 43 | 2,408 | (2,365) | (98.21%) | | Accrued interest | 550 | 444 | 106 | 23.87% | | Other accrued expenses | 3,132 | 2,350 | 782 | 33.28% | | Total accounts payable and accrued expenses | 44,302 | 54,837 | (10,535) | (19.21%) | - The decrease was primarily driven by a $9.77 million reduction in accrued payroll expense and a $2.37 million reduction in accrued vacation expense[94] 7. Fair Value Measurements This note explains the company's fair value measurement classifications and the impact of changes on financial statements - Fair value measurements are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (significant unobservable inputs)[95][96][97] Fair Value Measured Assets | Fair Value Measured Assets (in thousands) | Sep 30, 2024 | Dec 31, 2023 | Change (in thousands) | % Change | |:----------------------------------------|:-------------|:-------------|:----------------------|:---------| | Investments (Level 3) | $10,011 | $5,000 | 5,011 | 100.22% | | Restricted Investment (Level 1) | $170 | $128 | 42 | 32.81% | | Total Assets | $10,181 | $5,128 | 5,053 | 98.54% | Fair Value Measured Liabilities | Fair Value Measured Liabilities (in thousands) | Sep 30, 2024 | Dec 31, 2023 | Change (in thousands) | % Change | |:-------------------------------------------|:-------------|:-------------|:----------------------|:---------| | Contingent consideration (Level 3) | $(449) | $(2,920) | 2,471 | 84.62% | | Deferred compensation plan (Level 1) | $(1,639) | $(891) | (748) | (83.95%) | | Total Liabilities | $(2,088) | $(3,811) | 1,723 | 45.21% | - TSGF L.P.'s Level 3 investments increased by $5.01 million, with $4.55 million from new investments in Slate TSGF Fitz II LLC and $0.46 million from unrealized gains[102][104] - The contingent consideration liability decreased due to $1.43 million transferred out of Level 3 (paid) and $0.99 million in unrealized gains for the three months ended September 30, 2024[103][104] Fair Value Measurement Impact on Operations | Effect on Statements of Operations (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:--------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Unrealized gain (loss) on investments | $483 | $(67) | $492 | $(77) | | Realized gain (loss) on investments | $0 | $(80) | $0 | $(160) | | Contingent consideration (gain) loss | $988 | $(130) | $1,038 | $(430) | | Deferred compensation plans (gain) loss | $(25) | $689 | $(737) | $1,479 | | Net Effect | $1,446 | $492 | $793 | $966 | 8. Summary of Fair Value of Financial Instruments This note summarizes the fair value of the company's financial instruments, categorized by valuation techniques - Restricted investment and deferred compensation plan are measured at fair value using Level 1 valuation techniques (quoted market prices)[108][109] - Contingent consideration liabilities for Chesapeake are Level 3, while Alii Nui is Level 1[110] - Cash, cash equivalents, restricted cash, accounts receivable, notes receivable, and various due to/from affiliates have carrying values approximating fair value due to their short-term nature (Level 1)[111][112] - Notes payable fair value is based on credit spreads on observable transactions (Level 2). Claims liabilities are based on independent actuary findings (Level 3)[113][114] 9. Commitments and Contingencies This note discloses the company's legal, tax, and insurance-related commitments and contingent liabilities - The Tax Administration Service's Administration of Quintana Roo (MTA) asserted a $3.9 million tax contingency against INSPIRE Mexico for the 2020 tax year; the company has accrued $525,000 as its best estimate of the liability[115] - A class action lawsuit alleging California employment law violations against a subsidiary is ongoing, with a second mediation ordered by January 31, 2025. No amounts have been accrued as the potential loss is not reasonably estimable[117][118] - Two class action lawsuits related to a cyber incident in Q3 2023 have been consolidated, with a motion to dismiss pending. The company believes it has sufficient insurance coverage, and incremental costs are immaterial[120] - Management believes aggregate liabilities for Warwick's insurance claims are best estimates but acknowledges uncertainty in actual loss experience[116] 10. Equity (Deficit) This note details the allocation of income (loss) to noncontrolling interests and changes in equity components - For the three months ended September 30, 2024, noncontrolling interests were allocated income of $25,000, a shift from a loss of $190,000 in the prior year[122] - For the nine months ended September 30, 2024, noncontrolling interests were allocated a loss of $431,000, an improvement from a loss of $692,000 in the prior year[122] Noncontrolling Interests Income (Loss) Allocation | (Income) loss attributable to noncontrolling interests (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:----------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | OpenKey | $267 | $187 | $713 | $647 | | Pure Wellness | $0 | $(10) | $0 | $32 | | TSGF L.P. | $(292) | $13 | $(282) | $13 | | Total net (income) loss attributable to noncontrolling interests | $(25) | $190 | $431 | $692 | 11. Mezzanine Equity This note describes the company's redeemable noncontrolling interests and preferred stock, including dividend accruals - Redeemable noncontrolling interests were allocated a loss of $42,000 for the three months ended September 30, 2024, and income of $96,000 for the nine months ended September 30, 2024[125] Redeemable Noncontrolling Interests Income (Loss) Allocation | Net (income) loss attributable to redeemable noncontrolling interests (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-------------------------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Ashford Holdings | $42 | $(111) | $(96) | $(399) | - Series CHP Units represent a preferred membership interest in Ashford Holdings with a liquidation value of $25 plus unpaid dividends, accruing cumulative dividends at 7.28% per annum[125] - Series D Convertible Preferred Stock accrues cumulative dividends at 7.28% per annum, convertible into common stock at $117.50 per share[127] - As of September 30, 2024, aggregate undeclared preferred stock dividends were approximately $38.9 million, recorded as a $47.6 million liability in 'dividends payable'[132][133][136] - Failure to pay Series D Convertible Preferred Stock dividends for two consecutive quarters increases the dividend rate to 10.00% and grants holders the right to appoint two additional Board members[127] 12. Equity-Based Compensation This note details the company's equity-based compensation expense for employees and non-employees, and unrecognized expense - Total equity-based compensation increased to $762,000 for the three months ended September 30, 2024, from $464,000 in the prior year, mainly due to higher employee equity grant expense[137] - For the nine months ended September 30, 2024, total equity-based compensation decreased to $1.91 million from $1.94 million, while REIT equity-based compensation significantly decreased to $3.70 million from $10.17 million[137] Equity-Based Compensation Expense | Equity-based compensation (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Class 2 LTIP Units and stock option amortization | $33 | $32 | $98 | $97 | | Employee LTIP Units and equity grant expense | $682 | $428 | $1,591 | $1,308 | | Director and other non-employee equity grants expense | $47 | $4 | $219 | $539 | | Total equity-based compensation | $762 | $464 | $1,908 | $1,944 | | REIT equity-based compensation | $644 | $3,029 | $3,701 | $10,167 | | Total | $1,406 | $3,493 | $5,609 | $12,111 | - As of September 30, 2024, unrecognized compensation expense related to Class 2 LTIP Units was $59,000 (0.5 years weighted average period) and for restricted shares/LTIP Units was $1.6 million (2.0 years weighted average period)[137] 13. Deferred Compensation Plan This note describes the company's non-qualified deferred compensation plan and its impact on liabilities and expenses - The non-qualified deferred compensation plan (DCP) allows participants to choose investment options, including Ashford Inc. common stock. The DCP obligation is recorded as a fair value liability, with changes reflected in 'salaries and benefits'[138] - The carrying value of the DCP liability increased to $1.6 million at September 30, 2024, from $891,000 at December 31, 2023[139] Deferred Compensation Plan Fair Value Change | Change in fair value (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Unrealized gain (loss) | $(25) | $689 | $(737) | $1,479 | 14. Related Party Transactions This note details significant transactions and agreements with related parties, including Ashford Trust and Braemar - The Third Amended and Restated Advisory Agreement with Ashford Trust (March 12, 2024) modified terms including Portfolio Company Fee, limits on additional payments, and revised covenants[141] - Amendment No. 1 to Third Amended and Restated Advisory Agreement with Ashford Trust (August 8, 2024) extended the exclusion date for certain hotel property sales from Company Change of Control calculation[142] - A Limited Waiver Under Advisory Agreement with Braemar (August 8, 2024) waives termination rights related to potential foreclosure of four hotel properties until November 15, 2025, in exchange for Braemar covering Ashford LLC's obligation under the Stockton Employment Agreement[211][212] Ashford Trust Revenues by Type | Ashford Trust Revenues by Type (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:----------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Advisory services fees | $8,306 | $8,121 | $24,708 | $24,839 | | Hotel management fees | $5,667 | $6,751 | $19,106 | $22,892 | | Design and construction fees | $3,098 | $4,532 | $9,651 | $12,771 | | Other revenue | $1,643 | $839 | $6,962 | $2,997 | | Cost reimbursement revenue | $63,447 | $70,196 | $205,348 | $206,857 | | Total revenues | $82,161 | $90,439 | $265,775 | $270,356 | Braemar Revenues by Type | Braemar Revenues by Type (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:----------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Advisory services fees | $3,704 | $3,591 | $10,759 | $11,290 | | Hotel management fees | $610 | $670 | $1,851 | $1,883 | | Design and construction fees | $2,278 | $1,690 | $8,729 | $5,973 | | Other revenue | $2,630 | $1,962 | $5,955 | $3,633 | | Cost reimbursement revenue | $11,245 | $12,747 | $27,636 | $39,409 | | Total revenues | $20,467 | $20,660 | $54,930 | $62,188 | - The Fourth Amended and Restated Contribution Agreement (effective January 1, 2024) revised funding allocation for Ashford Securities, resulting in Ashford Trust paying $3.4 million to the Company and the Company paying $5.9 million to Braemar for true-up adjustments[159] - The Company acquired Remington Hotel Corporation (RHC) on January 3, 2023, for a de minimis price, eliminating a $17.2 million operating lease liability upon consolidation[165][166] 15. Income (Loss) Per Share This note presents the calculation of basic and diluted earnings per share, considering preferred dividends and anti-dilutive items - For the three months ended September 30, 2024, basic and diluted EPS were both $(5.71), compared to $(3.87) in the prior year[172] - For the nine months ended September 30, 2024, basic and diluted EPS were both $(10.84), compared to $(8.88) and $(9.18) respectively in the prior year[172] Income (Loss) Per Share Calculation | Metric (in thousands, except per share amounts) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:----------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net income (loss) attributable to the Company | $(3,751) | $(2,991) | $(3,330) | $(100) | | Less: Dividends on preferred stock, declared and undeclared | $(9,382) | $(9,054) | $(27,815) | $(27,132) | | Net income (loss) attributable to common stockholders | $(13,133) | $(12,045) | $(31,145) | $(27,232) | | Weighted average common shares outstanding – basic | 2,301 | 3,116 | 2,873 | 3,065 | | Weighted average common shares outstanding – diluted | 2,301 | 3,116 | 2,873 | 3,130 | | Income (loss) per share – basic | $(5.71) | $(3.87) | $(10.84) | $(8.88) | | Income (loss) per share – diluted | $(5.71) | $(3.87) | $(10.84) | $(9.18) | - Undeclared dividends were deducted to arrive at net income (loss) attributable to common stockholders[172] - Due to their anti-dilutive effect, certain items like redeemable noncontrolling interests, subsidiary convertible interests, and preferred stock conversion are not reflected in diluted EPS computation[174] 16. Segment Reporting This note provides financial information by reportable segment, including revenues and net income (loss) - The company has six reportable segments: Advisory, Remington, Premier, INSPIRE, RED, and OpenKey. Pure Wellness and Warwick are combined into 'Corporate and Other'[175] - The Chief Operating Decision Maker (CODM) primarily measures segment profitability by net income; segment assets are not reviewed for resource allocation[176] Segment Revenue Breakdown | Segment Revenue (in thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change (in thousands) | % Change | |:-------------------------------|:-------------------------------|:-------------------------------|:----------------------|:---------| | Advisory | $57,625 | $60,316 | (2,691) | (4.46%) | | Remington | $340,355 | $314,454 | 25,901 | 8.24% | | Premier | $31,147 | $30,780 | 367 | 1.19% | | INSPIRE | 127,029 | 112,506 | 14,523 | 12.91% | | RED | 32,882 | 25,866 | 7,016 | 27.13% | | OpenKey | 1,050 | 1,184 | (134) | (11.32%) | | Corporate and other | 21,558 | 13,941 | 7,617 | 54.64% | | Total revenues | $611,646 | $559,047 | $52,599 | 9.41% | Segment Net Income (Loss) Breakdown | Segment Net Income (Loss) (in thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change (in thousands) | % Change | |:-----------------------------------------|:-------------------------------|:-------------------------------|:----------------------|:---------| | Advisory | $26,744 | $25,891 | 853 | 3.29% | | Remington | $5,430 | $4,791 | 639 | 13.34% | | Premier | $(459) | $(729) | 270 | 37.04% | | INSPIRE | $2,717 | $2,117 | 600 | 28.34% | | RED | $(47) | $848 | (895) | (105.54%) | | OpenKey | $(2,755) | $(2,792) | 37 | 1.32% | | Corporate and Other | $(35,295) | $(30,519) | (4,776) | (15.65%) | | Total net income (loss) | $(3,665) | $(393) | (3,272) | (832.57%) | 17. Subsequent Events This note discloses significant events occurring after the reporting period, including advisory agreement amendments - On November 7, 2024, Stirling REIT Advisors, LLC amended its advisory agreement with Stirling, extending the payment date for organizational and offering expenses to December 31, 2025, and the repayment period to 120 monthly installments starting January 2026[189][216] - On November 8, 2024, Ashford Trust's advisory agreement was amended to extend the exclusion date for certain hotel property sales from the Company Change of Control calculation to November 30, 2025[190][215] - The Second Amendment to Ashford Trust's advisory agreement also places certain limitations on Ashford Trust's operations should a Potential Company Change of Control occur[190][215] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Ashford Inc.'s financial performance and condition, including an overview of its business as an alternative asset manager, recent developments such as the delisting of common stock and advisory agreement amendments, and a detailed analysis of operating results for the three and nine months ended September 30, 2024 Overview This section provides an overview of Ashford Inc.'s business as an alternative asset manager and its strategic initiatives - Ashford Inc. is an alternative asset management company with a portfolio of strategic operating businesses serving real estate and hospitality industries, including Ashford Trust, Braemar, Stirling, and TSGF L.P.[199][202] - The company delisted its common stock from NYSE American on July 29, 2024, and terminated its public company reporting obligations, effective November 6, 2024[199] - Primary growth strategies include increasing assets under management, pursuing third-party business for products and services, and acquiring additional businesses aligned with strategic initiatives[201] - Mr. Monty J. Bennett and Mr. Archie Bennett, Jr. hold a controlling interest, with approximately 46.6% common stock ownership and potential 84.7% ownership upon conversion of Series D Convertible Preferred Stock as of November 11, 2024[199] Forward-Looking Statements This section cautions readers about forward-looking statements, outlining key risks and the limitations of such information - Forward-looking statements are generally identifiable by terms such as 'may,' 'will,' 'should,' 'expect,' and cover topics including business strategy, operating results, financing, competition, acquisitions, and the impact of technology[193] - Key risk factors include changes in interest rates, macroeconomic conditions (e.g., weak economic growth, inflation, market volatility), catastrophic events, actions by clients' lenders, dependence on Ashford Trust and Braemar, compliance with debt covenants, and potential conflicts of interest[194][196] - Readers are cautioned not to place undue reliance on forward-looking statements, which reflect views as of the Form 10-Q date and will not be updated, except as required by applicable law[197] Recent Developments This section provides updates on significant events and changes impacting the company's operations and governance Termination of the Registration of the Company's Common Stock This section details the company's actions to terminate the registration of its common stock and associated implications - Stockholders approved a 1-for-10,000 reverse stock split immediately followed by a 10,000-for-1 forward stock split on July 22, 2024, effective July 29, 2024[206][207] - The transaction aimed to reduce record holders to fewer than 300, enabling termination of public registration under Section 12(g) and suspension of reporting obligations under Section 13(a) of the Exchange Act[208] - The company paid approximately $6.9 million to purchase 1.4 million shares from stockholders holding fewer than 10,000 shares[210] - Annual savings from deregistration are estimated at $2.5 million, eliminating expenses associated with public company compliance[209] Limited Waiver Under Advisory Agreement (Braemar) This section describes a limited waiver granted by Ashford LLC to Braemar regarding advisory agreement termination rights - On August 8, 2024, Ashford LLC entered into a Limited Waiver Under Advisory Agreement with Braemar, waiving its right to terminate the advisory agreement due to potential mortgage foreclosure on four hotel properties[211] - The waiver is effective from August 8, 2024, until the earlier of November 15, 2025, or the refinancing of Braemar's mortgage loan[211] - In exchange for the waiver, Braemar agreed to pay Ashford LLC an amount equal to Ashford LLC's obligation under the Stockton Employment Agreement[212] - The Limited Waiver becomes null and void if the composition of the Braemar Board changes such that the incumbent board members no longer constitute a majority[212] Amendments No. 1 and No. 2 to Third Amended and Restated Advisory Agreement (Ashford Trust) This section details amendments to the advisory agreement with Ashford Trust, extending exclusion dates and imposing limitations - Amendment No. 1 (August 8, 2024) extended the exclusion date for sales of Ashford Trust's eight hotel properties associated with JPM8 from the Company Change of Control calculation to August 31, 2025[214] - Amendment No. 2 (November 8, 2024) further extended this exclusion date to November 30, 2025, for Ashford Trust's Highland portfolio and JPM8 hotel properties[215] - Amendment No. 2 also imposes certain limitations on Ashford Trust's operations if a Potential Company Change of Control occurs[215] Amendment No. 1 to the Advisory Agreement (Stirling) This section outlines an amendment to Stirling's advisory agreement, modifying expense payment and repayment terms - The date for Stirling REIT Advisors, LLC to pay for Stirling's Organization and Offering Expenses was extended from December 31, 2024, to December 31, 2025[216] - The repayment period for these expenses and other costs was changed from 60 equal monthly installments starting January 2025 to 120 equal monthly installments starting January 2026[216] Other Developments This section reports on recent personnel and board changes within the company and its affiliates - J. Robison Hays, III, Senior Managing Director of the Company and President/CEO of Ashford Trust, resigned effective June 30, 2024[218] - Stephen Zsigray was appointed President and Chief Executive Officer of Ashford Trust, effective June 30, 2024[218] - Mr. W. Michael Murphy, a Board member, passed away on July 24, 2024, and Mark A. Sharkey, PhD, was appointed to the Board of Directors on October 15, 2024, to fill the vacancy[219] Discussion of Presentation This section clarifies the scope of the financial discussion and the forward-looking nature of historical data - The discussion relates to the financial condition and results of operations of Ashford Inc. and entities which it controls[220] - Historical financial information is not necessarily indicative of future results of operations, financial position, and cash flows[220] Results of Operations This section analyzes the company's operating performance, detailing revenue and expense changes for the reporting periods Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 This section compares the company's financial results for the three months ended September 30, 2024, against the prior year - Net loss attributable to common stockholders increased by 9.0% to $(13.13) million for the three months ended September 30, 2024, compared to $(12.05) million in the prior year[222] Statements of Operations Summary (Three Months) | Metric (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Change (in thousands) | % Change | |:----------------------------------------------------|:--------------------------------|:--------------------------------|:----------------------|:---------| | Total revenues | 191,112 | 181,215 | 9,897 | 5.46% | | Total expenses | 190,540 | 180,611 | 9,929 | 5.49% | | Operating income (loss) | 572 | 604 | (32) | (5.30%) | | Net income (loss) attributable to common stockholders | (13,133) | (12,045) | (1,088) | (9.03%) | - Total revenues increased by $9.9 million (5.5%), primarily driven by a $3.7 million increase in audio visual revenue and a $4.3 million increase in other revenue, largely from Warwick's premiums earned[224][225] - Salaries and benefits expense increased by $0.73 million (3.2%), mainly due to a $0.71 million non-cash loss in the deferred compensation plan[227] - General and administrative expenses increased by $3.4 million (32.1%), primarily due to $1.4 million in professional fees for common stock deregistration and $0.9 million for strategic initiatives[231] - Other operating expense increased by $2.2 million (41.3%), mainly due to $2.0 million in expenses related to Warwick, incorporated in December 2023[232] - Interest expense increased by $0.58 million (15.8%) due to a higher balance in the Company's Credit Facility[235] Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 This section compares the company's financial results for the nine months ended September 30, 2024, against the prior year - Net loss attributable to common stockholders increased by 14.4% to $(31.15) million for the nine months ended September 30, 2024, compared to $(27.23) million in the prior year[243] Statements of Operations Summary (Nine Months) | Metric (in thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change (in thousands) | % Change | |:----------------------------------------------------|:-------------------------------|:-------------------------------|:----------------------|:---------| | Total revenues | 611,646 | 559,047 | 52,599 | 9.41% | | Total expenses | 599,147 | 547,278 | 51,869 | 9.48% | | Operating income (loss) | 12,499 | 11,769 | 730 | 6.20% | | Net income (loss) attributable to common stockholders | (31,145) | (27,232) | (3,913) | (14.37%) | - Total revenues increased by $52.6 million (9.4%), primarily due to a $14.5 million increase in audio visual revenue, an $18.7 million increase in other revenue (largely from Warwick's premiums earned), and a $21.3 million increase in cost reimbursement revenue[244][247] - Salaries and benefits expense increased by $2.8 million (4.0%), driven by increased headcount at INSPIRE and RED, partially offset by a reduction in bonus accrual[249] - General and administrative expenses increased by $14.6 million (44.7%), mainly due to $4.6 million in professional fees for common stock deregistration, $3.1 million for strategic initiatives, and $2.5 million to reimburse Braemar for Ashford Securities contributions[253] - Other operating expense increased by $10.6 million (61.8%), primarily due to $7.4 million in expenses related to Warwick and $4.4 million in RED's operating expenses[253] - Interest expense increased by $2.6 million (26.3%) due to a higher balance in the Company's Credit Facility and higher average interest rates (SOFR 5.30% vs 4.90%, Prime 8.48% vs 8.10%)[256] Liquidity and Capital Resources This section discusses the company's cash management, debt agreements, preferred stock dividends, and capital needs Loan Agreements This section details the company's credit facilities, debt covenants, and compliance status - The company's $100 million Credit Facility, amended on March 31, 2023, bears interest at Adjusted Term SOFR + 7.35% or Base Rate + 6.35%, maturing in five years with extension options[267] - The Credit Facility requires 100% excess cash flow prepayment if the Leverage Ratio (consolidated funded indebtedness recourse to the Company less unrestricted cash to consolidated EBITDA) exceeds 4.00 to 1.00[268] - Dividends on common or preferred stock are prohibited if the Leverage Ratio exceeds 3.00 to 1.00 after payment[268] - INSPIRE's credit agreement was amended to increase its revolving credit facility to $6.0 million and equipment note to $7.0 million, extending maturity to March 24, 2028[269] - The company was in compliance with all covenants related to its Credit Facility and subsidiary debt as of September 30, 2024[268] Preferred Stock Dividends This section outlines the company's preferred stock dividend obligations and potential implications of non-payment - As of September 30, 2024, aggregate undeclared preferred stock dividends were approximately $38.9 million, recorded as a $47.6 million liability in 'dividends payable'[271][272] - The Series D Convertible Preferred Stock accrues cumulative dividends at 7.28% per annum[273] - A 'Preferred Stock Breach' (failure to pay dividends for two consecutive quarters) increases the dividend rate to 10.00% and allows holders to appoint two additional Board members[273] - The Board's independent members will continuously review the dividend payment policy based on the company's ongoing liquidity and capital needs[272] Sources and Uses of Cash This section analyzes the company's cash flows from operating, investing, and financing activities - Net cash provided by operating activities significantly increased to $32.5 million for the nine months ended September 30, 2024, from $9.9 million in the prior year, primarily due to working capital timing[275] - Net cash used in investing activities was $20.0 million, mainly for capital expenditures ($16.2 million) and investments ($4.6 million)[276] - Net cash used in financing activities was $7.9 million, driven by revolving credit facility payments ($31.5 million) and preferred dividends ($8.7 million), partially offset by new borrowings ($34.0 million) and noncontrolling interest contributions ($6.8 million)[278] Cash Flow Summary | Cash Flow Activity | Nine Months Ended Sep 30, 2024 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Change (in thousands) | % Change | |:----------------------------------------------------|:----------------------------------------------|:----------------------------------------------|:----------------------|:---------| | Net cash provided by (used in) operating activities | 32,543 | 9,878 | 22,665 | 229.45% | | Net cash provided by (used in) investing activities | (20,038) | (25,805) | 5,767 | 22.35% | | Net cash provided by (used in) financing activities | (7,906) | (1,323) | (6,583) | (497.58%) | Seasonality This section addresses the impact of seasonal factors and external events on the company's quarterly revenues and liquidity - Quarterly revenues may be adversely affected by events beyond the company's control, such as extreme weather, natural disasters, terrorist attacks, civil unrest, economic factors, and other travel-related considerations[280] - The company expects to use cash on hand or borrowings to fund operations if cash flows are insufficient due to temporary or seasonal revenue fluctuations[280] Contractual Obligations and Commitments This section confirms no material changes to contractual obligations since the last annual report - There have been no material changes to contractual obligations and commitments since December 31, 2023, outside the ordinary course of business, other than items described in the Liquidity and Capital Resources section[281] Critical Accounting Policies and Estimates This section highlights key accounting policies and estimates, noting no material changes since the 2023 Form 10-K - The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities[282] - There have been no material changes in the critical accounting policies and estimates since the 2023 Form 10-K[282] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to interest rate and foreign exchange risks and its approach to managing them Interest Rate Risk This section quantifies the company's exposure to interest rate fluctuations on its variable-rate debt - As of September 30, 2024, total indebtedness was $143.0 million, with $134.9 million (94.3%) being variable-rate debt[284] - A hypothetical 100 basis point change in interest rates on the outstanding variable-rate debt would impact annual results of operations by approximately $1.3 million[284] - The information presented is based on exposures at September 30, 2024, and has limited predictive value for future periods[285] Foreign Exchange Risk This section describes the company's exposure to foreign currency exchange rate fluctuations from international operations - The majority of the company's revenues, expenses, and capital purchases are transacted in U.S. dollars[286] - Opera