Ashford (US:AINC)2022-11-08 16:00PART I. FINANCIAL INFORMATION Financial Statements (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 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 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 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 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 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 clients592 - 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 service242391 - 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 approval243384596 Results of Operations 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 agreement257258 Liquidity and Capital Resources 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 dividends298651 - 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 2023300653 - 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, 2022307500660 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 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 $942,000322675 - 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 risk323676 Controls and Procedures 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 effective325678 - No material changes were made to the company's internal controls over financial reporting during the third quarter of 2022326679 PART II. OTHER INFORMATION Legal Proceedings 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 time328502681 - 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 immaterial329503682 Risk Factors 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 value333334686 - A shareholder rights plan has been adopted, which could make a third-party acquisition more difficult while it is in effect335336688 - 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 condition337339690 Unregistered Sales of Equity Securities and Use of Proceeds 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, 2022341694 Defaults Upon Senior Securities 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 2021343696 - The company paid previously declared dividends for Q1 and Q2 2022, as well as a dividend for Q3 2022 subsequent to the quarter's end344697 Exhibits This section provides a comprehensive list of all exhibits filed with the Form 10-Q, including key agreements and certifications