ASHFORD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
REVENUE
|
|
|
|
|
|
|
|
Advisory services
|
$
|
10,832
|
|
|
$
|
10,871
|
|
|
$
|
34,098
|
|
|
$
|
33,280
|
|
Hotel management fees
|
3,777
|
|
|
—
|
|
|
13,592
|
|
|
—
|
|
Project management fees
|
1,790
|
|
|
6,660
|
|
|
7,780
|
|
|
19,533
|
|
Audio visual
|
3,114
|
|
|
22,430
|
|
|
33,758
|
|
|
83,532
|
|
Other
|
8,222
|
|
|
5,627
|
|
|
18,250
|
|
|
14,719
|
|
Cost reimbursement revenue
|
28,133
|
|
|
11,301
|
|
|
127,830
|
|
|
32,611
|
|
Total revenues
|
55,868
|
|
|
56,889
|
|
|
235,308
|
|
|
183,675
|
|
EXPENSES
|
|
|
|
|
|
|
|
Salaries and benefits
|
13,820
|
|
|
13,602
|
|
|
43,807
|
|
|
40,795
|
|
Cost of revenues for project management
|
703
|
|
|
1,461
|
|
|
3,032
|
|
|
4,376
|
|
Cost of revenues for audio visual
|
3,126
|
|
|
17,732
|
|
|
25,872
|
|
|
61,400
|
|
Depreciation and amortization
|
10,094
|
|
|
8,048
|
|
|
30,172
|
|
|
16,671
|
|
General and administrative
|
5,540
|
|
|
6,795
|
|
|
16,064
|
|
|
22,238
|
|
Impairment
|
—
|
|
|
—
|
|
|
178,213
|
|
|
—
|
|
Other
|
9,147
|
|
|
4,849
|
|
|
14,734
|
|
|
9,326
|
|
Reimbursed expenses
|
28,072
|
|
|
11,203
|
|
|
127,638
|
|
|
32,185
|
|
Total expenses
|
70,502
|
|
|
63,690
|
|
|
439,532
|
|
|
186,991
|
|
OPERATING INCOME (LOSS)
|
(14,634
|
)
|
|
(6,801
|
)
|
|
(204,224
|
)
|
|
(3,316
|
)
|
Equity in earnings (loss) of unconsolidated entities
|
48
|
|
|
464
|
|
|
301
|
|
|
(109
|
)
|
Interest expense
|
(1,259
|
)
|
|
(456
|
)
|
|
(3,681
|
)
|
|
(1,198
|
)
|
Amortization of loan costs
|
(86
|
)
|
|
(75
|
)
|
|
(242
|
)
|
|
(214
|
)
|
Interest income
|
—
|
|
|
—
|
|
|
29
|
|
|
29
|
|
Realized gain (loss) on investments
|
—
|
|
|
—
|
|
|
(386
|
)
|
|
—
|
|
Other income (expense)
|
(44
|
)
|
|
(20
|
)
|
|
(499
|
)
|
|
(115
|
)
|
INCOME (LOSS) BEFORE INCOME TAXES
|
(15,975
|
)
|
|
(6,888
|
)
|
|
(208,702
|
)
|
|
(4,923
|
)
|
Income tax (expense) benefit
|
1,835
|
|
|
297
|
|
|
7,404
|
|
|
(1,429
|
)
|
NET INCOME (LOSS)
|
(14,140
|
)
|
|
(6,591
|
)
|
|
(201,298
|
)
|
|
(6,352
|
)
|
(Income) loss from consolidated entities attributable to noncontrolling interests
|
319
|
|
|
101
|
|
|
757
|
|
|
395
|
|
Net (income) loss attributable to redeemable noncontrolling interests
|
604
|
|
|
334
|
|
|
1,688
|
|
|
623
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
|
(13,217
|
)
|
|
(6,156
|
)
|
|
(198,853
|
)
|
|
(5,334
|
)
|
Preferred dividends, declared and undeclared
|
(7,985
|
)
|
|
(2,909
|
)
|
|
(23,800
|
)
|
|
(8,492
|
)
|
Amortization of preferred stock discount
|
(781
|
)
|
|
(363
|
)
|
|
(2,386
|
)
|
|
(1,338
|
)
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$
|
(21,983
|
)
|
|
$
|
(9,428
|
)
|
|
$
|
(225,039
|
)
|
|
$
|
(15,164
|
)
|
|
|
|
|
|
|
|
|
INCOME (LOSS) PER SHARE - BASIC AND DILUTED
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
(9.53
|
)
|
|
$
|
(3.65
|
)
|
|
$
|
(99.62
|
)
|
|
$
|
(6.09
|
)
|
Weighted average common shares outstanding - basic
|
2,306
|
|
|
2,580
|
|
|
2,259
|
|
|
2,489
|
|
Diluted:
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
(9.53
|
)
|
|
$
|
(3.94
|
)
|
|
$
|
(99.62
|
)
|
|
$
|
(7.95
|
)
|
Weighted average common shares outstanding - diluted
|
2,306
|
|
|
2,782
|
|
|
2,259
|
|
|
2,679
|
|
See Notes to Condensed Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
NET INCOME (LOSS)
|
$
|
(14,140
|
)
|
|
$
|
(6,591
|
)
|
|
$
|
(201,298
|
)
|
|
$
|
(6,352
|
)
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(1,170
|
)
|
|
(116
|
)
|
|
(584
|
)
|
|
119
|
|
Unrealized gain (loss) on restricted investment
|
(214
|
)
|
|
—
|
|
|
(1,014
|
)
|
|
—
|
|
Less reclassification for realized (gain) loss on restricted investment included in net income
|
—
|
|
|
—
|
|
|
386
|
|
|
—
|
|
COMPREHENSIVE INCOME (LOSS)
|
(15,524
|
)
|
|
(6,707
|
)
|
|
(202,510
|
)
|
|
(6,233
|
)
|
Comprehensive (income) loss attributable to noncontrolling interests
|
319
|
|
|
101
|
|
|
757
|
|
|
395
|
|
Comprehensive (income) loss attributable to redeemable noncontrolling interests
|
739
|
|
|
350
|
|
|
1,753
|
|
|
609
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
|
$
|
(14,466
|
)
|
|
$
|
(6,256
|
)
|
|
$
|
(200,000
|
)
|
|
$
|
(5,229
|
)
|
See Notes to Condensed Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated
Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Treasury Stock
|
|
Noncontrolling Interests in Consolidated Entities
|
|
Total
|
|
Convertible Preferred Stock
|
|
Redeemable Noncontrolling Interests
|
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
Balance at June 30, 2020
|
2,505
|
|
|
$
|
3
|
|
|
$
|
288,774
|
|
|
$
|
(447,649
|
)
|
|
$
|
(114
|
)
|
|
(31
|
)
|
|
$
|
(428
|
)
|
|
$
|
251
|
|
|
$
|
(159,163
|
)
|
|
19,120
|
|
|
$
|
475,665
|
|
|
$
|
3,682
|
|
Equity-based compensation
|
35
|
|
|
—
|
|
|
1,922
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,922
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeiture of restricted common shares
|
(1
|
)
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of preferred stock discount
|
—
|
|
|
—
|
|
|
—
|
|
|
(781
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(781
|
)
|
|
—
|
|
|
781
|
|
|
—
|
|
Dividends declared and undeclared - preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,985
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,985
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Deferred compensation plan distribution
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Employee advances
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
380
|
|
|
380
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Redemption value adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
19
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,035
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,035
|
)
|
|
—
|
|
|
—
|
|
|
(135
|
)
|
Unrealized gain (loss) on available for sale securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(214
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(214
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,217
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(319
|
)
|
|
(13,536
|
)
|
|
—
|
|
|
—
|
|
|
(604
|
)
|
Balance at September 30, 2020
|
2,539
|
|
|
$
|
3
|
|
|
$
|
290,674
|
|
|
$
|
(469,651
|
)
|
|
$
|
(1,363
|
)
|
|
(32
|
)
|
|
$
|
(436
|
)
|
|
$
|
312
|
|
|
$
|
(180,461
|
)
|
|
19,120
|
|
|
$
|
476,446
|
|
|
$
|
2,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated
Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Treasury Stock
|
|
Noncontrolling Interests in Consolidated Entities
|
|
Total
|
|
Convertible Preferred Stock
|
|
Redeemable Noncontrolling Interests
|
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
Balance at December 31, 2019
|
2,203
|
|
|
$
|
2
|
|
|
$
|
285,825
|
|
|
$
|
(244,084
|
)
|
|
$
|
(216
|
)
|
|
(2
|
)
|
|
$
|
(131
|
)
|
|
$
|
628
|
|
|
$
|
42,024
|
|
|
19,120
|
|
|
$
|
474,060
|
|
|
$
|
4,131
|
|
Equity-based compensation
|
365
|
|
|
1
|
|
|
4,512
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
4,516
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeiture of restricted common shares
|
(28
|
)
|
|
—
|
|
|
287
|
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
(287
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of treasury stock
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(18
|
)
|
|
—
|
|
|
(18
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of preferred stock discount
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,386
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,386
|
)
|
|
—
|
|
|
2,386
|
|
|
—
|
|
Dividends declared and undeclared - preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,800
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,800
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Deferred compensation plan distribution
|
1
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Employee advances
|
—
|
|
|
—
|
|
|
79
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
79
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
457
|
|
|
457
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Reallocation of carrying value
|
—
|
|
|
—
|
|
|
(37
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
(56
|
)
|
|
—
|
|
|
—
|
|
|
56
|
|
Redemption value adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(528
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(528
|
)
|
|
—
|
|
|
—
|
|
|
528
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(519
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(519
|
)
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
Unrealized gain (loss) on available for sale securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,014
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,014
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Reclassification for realized loss (gain) on available for sale securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
386
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
386
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(198,853
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(757
|
)
|
|
(199,610
|
)
|
|
—
|
|
|
—
|
|
|
(1,688
|
)
|
Balance at September 30, 2020
|
2,539
|
|
|
$
|
3
|
|
|
$
|
290,674
|
|
|
$
|
(469,651
|
)
|
|
$
|
(1,363
|
)
|
|
(32
|
)
|
|
$
|
(436
|
)
|
|
$
|
312
|
|
|
$
|
(180,461
|
)
|
|
19,120
|
|
|
$
|
476,446
|
|
|
$
|
2,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated
Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Noncontrolling Interests in Consolidated Entities
|
|
Total
|
|
Convertible Preferred Stock
|
|
Redeemable Noncontrolling Interests
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
Balance at June 30, 2019
|
2,476
|
|
|
$
|
25
|
|
|
$
|
289,821
|
|
|
$
|
(219,965
|
)
|
|
$
|
(293
|
)
|
|
$
|
410
|
|
|
$
|
69,998
|
|
|
8,120
|
|
|
$
|
201,822
|
|
|
$
|
3,615
|
|
Equity-based compensation
|
3
|
|
|
—
|
|
|
2,081
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
2,089
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisition of Sebago
|
135
|
|
|
1
|
|
|
4,546
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,547
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of preferred stock discount
|
—
|
|
|
—
|
|
|
—
|
|
|
(363
|
)
|
|
—
|
|
|
—
|
|
|
(363
|
)
|
|
—
|
|
|
363
|
|
|
—
|
|
Dividends declared - preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,909
|
)
|
|
—
|
|
|
—
|
|
|
(2,909
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Deferred compensation plan distribution
|
1
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
583
|
|
|
583
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Reallocation of carrying value
|
—
|
|
|
—
|
|
|
(255
|
)
|
|
—
|
|
|
—
|
|
|
(135
|
)
|
|
(390
|
)
|
|
—
|
|
|
—
|
|
|
390
|
|
Redemption value adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(100
|
)
|
|
—
|
|
|
(100
|
)
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,156
|
)
|
|
—
|
|
|
(101
|
)
|
|
(6,257
|
)
|
|
—
|
|
|
—
|
|
|
(334
|
)
|
Balance at September 30, 2019
|
2,615
|
|
|
$
|
26
|
|
|
$
|
296,213
|
|
|
$
|
(229,379
|
)
|
|
$
|
(393
|
)
|
|
$
|
765
|
|
|
$
|
67,232
|
|
|
8,120
|
|
|
$
|
202,185
|
|
|
$
|
3,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated
Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Noncontrolling Interests in Consolidated Entities
|
|
Total
|
|
Convertible Preferred Stock
|
|
Redeemable Noncontrolling Interests
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
Balance at December 31, 2018
|
2,392
|
|
|
$
|
24
|
|
|
$
|
280,159
|
|
|
$
|
(214,242
|
)
|
|
$
|
(498
|
)
|
|
$
|
458
|
|
|
$
|
65,901
|
|
|
8,120
|
|
|
$
|
200,847
|
|
|
$
|
3,531
|
|
Equity-based compensation
|
8
|
|
|
—
|
|
|
6,917
|
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
6,901
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisition of BAV Services
|
60
|
|
|
1
|
|
|
3,747
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,748
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisition of Sebago
|
135
|
|
|
1
|
|
|
4,546
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,547
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Investment in Real Estate Advisory Holdings LLC
|
17
|
|
|
—
|
|
|
887
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
887
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of preferred stock discount
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,338
|
)
|
|
—
|
|
|
—
|
|
|
(1,338
|
)
|
|
—
|
|
|
1,338
|
|
|
—
|
|
Dividends declared - preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,492
|
)
|
|
—
|
|
|
—
|
|
|
(8,492
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Deferred compensation plan distribution
|
3
|
|
|
—
|
|
|
93
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
93
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Employee advances
|
—
|
|
|
—
|
|
|
353
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
353
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,038
|
|
|
1,038
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Reallocation of carrying value
|
—
|
|
|
—
|
|
|
(489
|
)
|
|
—
|
|
|
—
|
|
|
(257
|
)
|
|
(746
|
)
|
|
—
|
|
|
—
|
|
|
746
|
|
Redemption value adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
(27
|
)
|
Distributions to consolidated noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(63
|
)
|
|
(63
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
105
|
|
|
—
|
|
|
105
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,334
|
)
|
|
—
|
|
|
(395
|
)
|
|
(5,729
|
)
|
|
—
|
|
|
—
|
|
|
(623
|
)
|
Balance at September 30, 2019
|
2,615
|
|
|
$
|
26
|
|
|
$
|
296,213
|
|
|
$
|
(229,379
|
)
|
|
$
|
(393
|
)
|
|
$
|
765
|
|
|
$
|
67,232
|
|
|
8,120
|
|
|
$
|
202,185
|
|
|
$
|
3,641
|
|
See Notes to Condensed Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
Cash Flows from Operating Activities
|
|
|
|
Net income (loss)
|
$
|
(201,298
|
)
|
|
$
|
(6,352
|
)
|
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
|
|
|
|
Depreciation and amortization
|
34,438
|
|
|
21,461
|
|
Change in fair value of deferred compensation plan
|
(3,566
|
)
|
|
(5,603
|
)
|
Equity-based compensation
|
4,088
|
|
|
6,950
|
|
Equity in (earnings) loss in unconsolidated entities
|
(301
|
)
|
|
109
|
|
Deferred tax expense (benefit)
|
(12,918
|
)
|
|
(1,057
|
)
|
Change in fair value of contingent consideration
|
751
|
|
|
4,412
|
|
Impairment
|
178,213
|
|
|
—
|
|
(Gain) loss on disposal of property and equipment
|
6,556
|
|
|
(73
|
)
|
Amortization of other assets
|
978
|
|
|
—
|
|
Amortization of loan costs
|
242
|
|
|
214
|
|
Realized loss on restricted investments
|
386
|
|
|
—
|
|
Write off of deferred loan costs
|
145
|
|
|
—
|
|
Changes in operating assets and liabilities, exclusive of the effect of acquisitions:
|
|
|
|
Accounts receivable
|
3,276
|
|
|
(969
|
)
|
Due from affiliates
|
249
|
|
|
(10
|
)
|
Due from Ashford Trust
|
2,220
|
|
|
849
|
|
Due from Braemar
|
1,467
|
|
|
(228
|
)
|
Inventories
|
73
|
|
|
(154
|
)
|
Prepaid expenses and other
|
(709
|
)
|
|
(230
|
)
|
Investment in unconsolidated entities
|
—
|
|
|
115
|
|
Operating lease right-of-use assets
|
2,551
|
|
|
1,387
|
|
Other assets
|
(142
|
)
|
|
—
|
|
Accounts payable and accrued expenses
|
3,273
|
|
|
2,113
|
|
Due to affiliates
|
(278
|
)
|
|
(610
|
)
|
Other liabilities
|
15,498
|
|
|
3,864
|
|
Operating lease liabilities
|
(2,522
|
)
|
|
(1,362
|
)
|
Deferred income
|
12,030
|
|
|
(2,078
|
)
|
Net cash provided by (used in) operating activities
|
44,700
|
|
|
22,748
|
|
Cash Flows from Investing Activities
|
|
|
|
Purchases of furniture, fixtures and equipment under the Ashford Trust ERFP Agreement
|
—
|
|
|
(13,089
|
)
|
Purchases of furniture, fixtures and equipment under the Braemar ERFP Agreement
|
—
|
|
|
(10,300
|
)
|
Additions to property and equipment
|
(2,383
|
)
|
|
(5,143
|
)
|
Proceeds from disposal of property and equipment, net
|
4
|
|
|
231
|
|
Additional purchase price paid for Remington working capital adjustment
|
(1,293
|
)
|
|
—
|
|
Acquisition of BAV
|
—
|
|
|
(4,267
|
)
|
Acquisition of Sebago
|
—
|
|
|
(2,426
|
)
|
Investment in REA Holdings
|
—
|
|
|
(2,176
|
)
|
Acquisition of assets related to RED
|
(1,170
|
)
|
|
(1,570
|
)
|
Net cash provided by (used in) investing activities
|
(4,842
|
)
|
|
(38,740
|
)
|
|
|
|
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
Payments for dividends on preferred stock
|
(12,665
|
)
|
|
(5,582
|
)
|
Payments on revolving credit facilities
|
(12,200
|
)
|
|
(25,980
|
)
|
Borrowings on revolving credit facilities
|
10,412
|
|
|
26,448
|
|
Proceeds from notes payable
|
44,797
|
|
|
11,019
|
|
Payments on notes payable
|
(17,029
|
)
|
|
(1,735
|
)
|
Payments on finance lease liabilities
|
(637
|
)
|
|
(476
|
)
|
Payments of loan costs
|
(290
|
)
|
|
(45
|
)
|
Purchase of treasury stock
|
(18
|
)
|
|
—
|
|
Employee advances
|
79
|
|
|
353
|
|
Payment of contingent consideration
|
(1,384
|
)
|
|
—
|
|
Contributions from noncontrolling interest
|
457
|
|
|
980
|
|
Distributions to noncontrolling interests in consolidated entities
|
—
|
|
|
(63
|
)
|
Net cash provided by (used in) financing activities
|
11,522
|
|
|
4,919
|
|
Effect of foreign exchange rate changes on cash and cash equivalents
|
571
|
|
|
8
|
|
Net change in cash, cash equivalents and restricted cash
|
51,951
|
|
|
(11,065
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
53,249
|
|
|
59,443
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
105,200
|
|
|
$
|
48,378
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
Interest paid
|
$
|
3,039
|
|
|
$
|
1,063
|
|
Income taxes paid (refunded), net
|
7,746
|
|
|
2,203
|
|
Supplemental Disclosure of Non-Cash Investing and Financing Activities
|
|
|
|
Ashford Inc. common stock consideration for BAV acquisition
|
$
|
—
|
|
|
$
|
3,748
|
|
Ashford Inc. common stock consideration for Sebago acquisition
|
—
|
|
|
4,547
|
|
Ashford Inc. common stock consideration for investment in REA Holdings
|
—
|
|
|
887
|
|
Distribution from deferred compensation plan
|
8
|
|
|
93
|
|
Capital expenditures accrued but not paid
|
743
|
|
|
445
|
|
Finance lease additions
|
1,864
|
|
|
1,620
|
|
Contributions from noncontrolling interests
|
—
|
|
|
58
|
|
|
|
|
|
Supplemental Disclosure of Cash, Cash Equivalents and Restricted Cash
|
|
|
|
Cash and cash equivalents at beginning of period
|
$
|
35,349
|
|
|
$
|
51,529
|
|
Restricted cash at beginning of period
|
17,900
|
|
|
7,914
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
$
|
53,249
|
|
|
$
|
59,443
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
$
|
68,623
|
|
|
$
|
36,400
|
|
Restricted cash at end of period
|
36,577
|
|
|
11,978
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
105,200
|
|
|
$
|
48,378
|
|
See Notes to Condensed Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Description of Business
Ashford Inc. (the “Company”) is a Nevada corporation that provides products and services primarily to clients in the hospitality industry, including Ashford Hospitality Trust, Inc. (“Ashford Trust”) and Braemar Hotels & Resorts Inc. (“Braemar”). We became a public company in November 2014, and our common stock is listed on the NYSE American LLC (“NYSE American”). Unless the context otherwise requires, references to the “Company”, “we”, “us” or “Ashford Inc.” for the period before August 8, 2018 refer to Old Ashford (as defined below), for the period from and including August 8, 2018 through November 6, 2019 refer to Maryland Ashford (as defined below), and for the period beginning on and including November 6, 2019, and thereafter refer to Ashford Inc., a Nevada corporation.
We provide: (i) advisory services; (ii) asset management services; (iii) hotel management services; (iv) project management services; (v) event technology and creative communications solutions; (vi) mobile room keys and keyless entry solutions; (vii) watersports activities and other travel, concierge and transportation services; (viii) hypoallergenic premium room products and services; (ix) debt placement and related services; (x) real estate advisory and brokerage services; and (xi) wholesaler, dealer manager and other broker-dealer services. We conduct these activities and own substantially all of our assets primarily through Ashford Hospitality Advisors, LLC (“Ashford LLC”), Ashford Hospitality Services, LLC (“Ashford Services”) and their respective subsidiaries.
We are currently the advisor to Ashford Trust and Braemar. In our capacity as the advisor to Ashford Trust and Braemar, we are responsible for implementing the investment strategies and managing the day-to-day operations of Ashford Trust and Braemar from an ownership perspective, in each case subject to the supervision and oversight of the respective board of directors of Ashford Trust and Braemar. Ashford Trust is focused on investing in full-service hotels in the upscale and upper upscale segments in the U.S. that have revenue per available room (“RevPAR”) generally less than twice the national average. Braemar invests primarily in luxury hotels and resorts with RevPAR of at least twice the U.S. national average. Each of Ashford Trust and Braemar is a real estate investment trust (“REIT”) as defined in the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and the common stock of each of Ashford Trust and Braemar is traded on the New York Stock Exchange (the “NYSE”).
We provide the personnel and services that we believe are necessary for each of Ashford Trust and Braemar to conduct their respective businesses. We may also perform similar functions for new or additional platforms. In our capacity as an advisor, we are not responsible for managing the day-to-day operations of the individual hotel properties owned by either Ashford Trust or Braemar, which duties are, and will continue to be, the responsibility of the hotel management companies that operate the hotel properties owned by Ashford Trust and Braemar. Additionally, Remington, which we acquired on November 6, 2019, operates certain of the hotel properties owned by Ashford Trust and Braemar.
Shareholder Rights Plan
On March 13, 2020, we adopted a shareholder rights plan by entering into a Rights Agreement, dated March 13, 2020, with ComputerShare Trust Company, N.A., as rights agent (the “Rights Agreement”). We intend for the shareholder rights plan to improve the bargaining position of the Company’s board of directors (the “Board”) in the event of an unsolicited offer to acquire our outstanding shares of common stock. The Board implemented the rights plan by declaring a dividend of one preferred share purchase right (a “Right”) that was paid on March 23, 2020, for each outstanding share of our common stock on March 23, 2020 (the “Record Date”), to our stockholders of record on that date. Each of those Rights becomes exercisable on the Distribution Date (defined below) and entitles the registered holder to purchase from the Company one one-thousandth of a share of our Series E Preferred Stock, par value $0.001 per share, at a price of $275 per one one-thousandth of a share of our Series E Preferred Stock represented by such a right, subject to adjustment. The Rights will expire on February 13, 2021 unless the expiration date is extended or unless the Rights are earlier redeemed by the Company.
Initially, the Rights will be attached to all certificates representing our common stock, and no separate certificates evidencing the Rights (the “Rights Certificates”) will be issued. The Rights Agreement provides that, until the date on which the Rights separate and begin trading separately from our common stock (which we refer to as the “Distribution Date”) or earlier expiration or redemption of the Rights: (i) the Rights will be transferred with and only with the shares of our common stock; (ii) new certificates representing shares of our common stock issued after the Record Date or upon transfer or new issuance of shares of our common stock will contain a notation incorporating the Rights Agreement by reference; and (iii) the surrender for transfer of any certificates for shares of our common stock outstanding as of the Record Date, even without such notation or a copy of the Summary of Rights (as defined in the Rights Agreement) being attached thereto, will also constitute the transfer of the Rights associated with the shares of our common stock represented by such certificate. The Distribution Date will occur, and the Rights would separate and begin
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
trading separately from the shares of our common stock, and Rights Certificates will be caused to evidence the Rights on the earlier to occur of:
|
|
i.
|
10 business days following a public announcement, or the public disclosure of facts indicating, that a person or group of affiliated or associated persons has acquired Beneficial Ownership (as defined in the Rights Agreement) of 10% or more of the outstanding shares of our common stock (referred to, subject to certain exceptions, as “Acquiring Persons”) (or, in the event an exchange of the Rights for shares of our common stock is effected in accordance with certain provisions of the Rights Agreement and the Board determines that a later date is advisable, then such later date that is not more than 20 days after such public announcement); or
|
|
|
ii.
|
10 business days (or such later date as may be determined by action of the Board prior to such time as any person becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer, the consummation of which would result in the Beneficial Ownership by a person or group of 10% or more of the outstanding shares of our common stock.
|
The Rights also become exercisable if a person or group that already beneficially owns 10% or more of our common stock acquires any additional shares of our common stock without the approval of the Board, except that the Distribution Date will not occur as a result of our company, one of our subsidiaries, one of our employee benefit plans or a trustee for one of those plans, or Mr. Monty J. Bennett and certain of his affiliates and associates acquiring additional shares of our common stock, and those persons will not be Acquiring Persons.
If a person or group becomes an Acquiring Person at any time after the date of the Rights Agreement, with certain limited exceptions, the Rights will become exercisable for shares of our common stock (or, in certain circumstances, shares of our Series E Preferred Stock or other of our securities that are similar) having a value equal to two times the exercise price of the right. From and after the announcement that any person has become an Acquiring Person, if the Rights evidenced by a Rights Certificate are or were at any time on or after the earlier of: (i) the date of such announcement; or (ii) the Distribution Date acquired or beneficially owned by an Acquiring Person or an associate or affiliate of an Acquiring Person, such Rights shall become void, and any holder of such Rights shall thereafter have no right to exercise such Rights. In addition, if, at any time after a person becomes an Acquiring Person: (i) we consolidate with, or merge with and into, any other person; (ii) any person consolidates with us, or merges with and into us and we are the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the shares of our common stock are or will be changed into or exchanged for stock or other securities of any other person (or of ours) or cash or any other property; or (iii) 50% or more of our consolidated assets or Earning Power (as defined in the Rights Agreement) are sold, then proper provision will be made so that each holder of a right will thereafter have the right to receive, upon the exercise of a right at the then current exercise price of the right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. Upon the occurrence of an event of the type described in this paragraph, if the Board so elects, we will deliver upon payment of the exercise price of a right an amount of cash or securities equivalent in value to the shares of common stock issuable upon exercise of a right. If we fail to meet that obligation within 30 days following of the announcement that a person has become an Acquiring Person, we must deliver, upon exercise of a right but without requiring payment of the exercise price then in effect, shares of our common stock (to the extent available) and cash equal in value to the difference between the value of the shares of our common stock otherwise issuable upon the exercise of a right and the exercise price then in effect. The Board may extend the 30-day period described above for up to an additional 60 days to permit the taking of action that may be necessary to authorize sufficient additional shares of our Common Stock to permit the issuance of such shares of our Common Stock upon the exercise in full of the Rights.
COVID-19, Management’s Plans and Liquidity
In December 2019, COVID-19 was identified in Wuhan, China, which subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses in every state in the United States. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. Our clients Ashford Trust and Braemar have reported that the negative impact on room demand within their respective portfolios stemming from COVID-19 is significant, which has resulted and is expected to result in significantly reduced occupancy and RevPAR. Furthermore, the prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses. The hotel industry has experienced postponement or cancellation of a significant number of business conferences and similar events. Following the government mandates and health official orders, the Company dramatically reduced staffing and expenses at its products and services businesses and at our corporate office. COVID-19 has had a significant negative impact on the Company’s operations and financial results to date. In addition, a possible “second wave” or recurrence of COVID-19 cases could result in further reductions in business and personal travel and could cause state and local governments to reinstate travel restrictions. The Company expects that the COVID-19 pandemic will have a significant negative impact on the Company’s results of operations,
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
financial position and cash flow in 2020 and beyond. As a result, in March 2020, the Company declared 50% of the cumulative preferred dividend which was due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020, reduced the cash compensation of its executive officers and other employees, amended payment terms pursuant to certain hotel management agreements to better manage corporate working capital, reduced planned capital expenditures, and significantly reduced operating expenses. On March 16, 2020, the Company announced that the Board had declared and the Company would pay 50% of the dividend which was due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020. The declared $3.9 million dividends were paid on April 15, 2020. On June 24, 2020, the Company declared the remaining 50% or approximately $4.0 million of dividends, including compounding dividends, due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020 which were paid on July 14, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the second quarter of 2020. On September 14, 2020, the Board declared a dividend of $0.411875 per share which was due with respect to its Series D Convertible Preferred Stock for the third quarter of 2020. The declared $7.9 million dividends were paid on October 15, 2020. As of September 30, 2020, the Company had aggregate undeclared preferred stock dividends of approximately $7.9 million which relates to the second quarter of 2020. The Company adopted a remote-work policy at its corporate office in an effort to protect the health and safety of its employees and does not anticipate these policies to have any adverse impact on its ability to continue to operate its business.
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in the inability of our portfolio companies to borrow unused amounts under their respective lines of credit, even if repayment of some or all of their borrowings is not required. As of September 30, 2020, we were in compliance in all material respects with all covenants or other requirements set forth in our $35 million Term Loan Agreement, as amended. However, as of September 30, 2020, the entire $34.1 million outstanding balance under our Term Loan agreement, as amended, has been classified as a current liability on our condensed consolidated balance sheets due to uncertainty about the Company’s ability to remain in compliance with the loan’s financial covenants for the next twelve months. This uncertainty is the result of issues outside of management’s control, including that Ashford Trust, one of the Company’s key clients, currently exhibits conditions that create substantial doubt about its ability to continue as a going concern and continued cash payment of advisory fees and other revenue remains subject to the discretion of the independent board members of Ashford Trust. As of September 30, 2020, Presentation Technologies LLC (“JSAV”) was not in compliance with certain debt covenants pursuant to existing debt agreements which have no recourse to Ashford Inc., including the leverage and fixed charge coverage ratios, which constituted an “Event of Default” as such term is defined under the applicable loan agreements. Following an Event of Default, JSAV’s lender can generally elect to accelerate all principal and accrued interest payments that remain outstanding under the applicable loan agreements. As a result, JSAV’s outstanding debt balance of $20.6 million has been classified as a current liability within our condensed consolidated balance sheet as of September 30, 2020. As of September 30, 2020, Pure Wellness and RED were in compliance in all material respects with all covenants or other requirements set forth in their debt and related agreements as amended. However, there can be no guarantee that our portfolio companies will remain in compliance for the remainder of the fiscal year. Due to the significant negative impact of COVID-19 on the operations of our portfolio companies, we expect that within the next twelve months RED will violate debt covenants pursuant to certain existing loan agreements which have no recourse to Ashford Inc. As a result, RED may be required to immediately repay a debt balance of $2.6 million which has therefore been classified as a current liability within our condensed consolidated balance sheet as of September 30, 2020. The JSAV and RED portfolio company loans are secured by the respective portfolio company’s tangible assets. None of our portfolio companies’ debt has recourse to Ashford Inc. with the exception of $3.8 million of debt held by the entity that conducts RED’s legacy U.S. Virgin Islands operations which is currently not expected to violate debt covenants. See notes 2 and 6.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Company has determined that there is substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date the financial statements are issued. U.S. generally accepted accounting principles require that in making this determination, the Company cannot consider any remedies that are outside of the Company’s control and have not been fully implemented. As a result, the Company could not consider future potential fundraising activities, whether through equity or debt offerings, disposition of assets or the likelihood of obtaining debt waivers as we could not conclude they were probable of being effectively implemented. Further, the Company could not consider continued cash payment of advisory fees and other revenue from Ashford Trust, one of the Company’s key customers, due to the uncertainty of future payment of such fees because Ashford Trust currently exhibits conditions that create substantial doubt about its ability to continue as a going concern. Also, the continued cash payment of such advisory fees and other revenue remains subject to the discretion of the independent board members of Ashford Trust, which is not within the Company’s control. As such, the Company’s ability to remain in compliance with the financial covenants related to our Term Loan Agreement, as amended, for the next twelve months is outside of management’s control. Accordingly, the Company has classified the entire $34.1 million outstanding under our Term Loan Agreement, as amended, as a current liability on our condensed consolidated balance sheet which resulted in a negative $49.3 million working capital position as of September 30, 2020.
We expect that the continuing COVID-19 pandemic will put additional financial stress on Ashford Trust, which may in turn negatively impact our ability to collect our receivables fully or in a timely manner. As previously disclosed, the independent members of the Board determined to provide Ashford Trust with a short-term deferral of certain fees and expenses payable pursuant to our advisory agreement with Ashford Trust and the Ashford Trust Agreement. The Board may decide to make similar deferrals or waivers in the future or decide to accept a form of consideration other than cash for fees and expenses pursuant to the advisory agreement with Ashford Trust and the Ashford Trust Agreement. Additionally, due to the uncertainty surrounding future cash flows and Ashford Trust’s financial position, it may be necessary for Ashford Trust to seek protection under Chapter 11 of the United States Bankruptcy Code. If Ashford Trust files for bankruptcy, this may result in the termination of its advisory agreement, hotel management agreement, project management agreement and/or any other agreements with the Company or our consolidated portfolio companies. Any unsecured claim we hold against a bankrupt entity, including the termination fee due under our advisory agreement with Ashford Trust, may be paid only to the extent funds are available and is unlikely to be paid in full. We may recover substantially less than the full value of any unsecured claims in the event of the bankruptcy of Ashford Trust, which would adversely impact our financial condition and could cause us to seek protection under Chapter 11 of the United States Bankruptcy Code.
The condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Other Developments
On March 13, 2020, the Company entered into the Extension Agreement (the “Extension Agreement”), related to the Ashford Trust Enhanced Return Funding Program (the “Ashford Trust ERFP Agreement”). Under the terms of the Extension Agreement, the remaining ERFP commitment funding deadline under the Ashford Trust ERFP Agreement of $11.4 million as of September 30, 2020 and December 31, 2019, has been extended from January 22, 2021 to December 31, 2022. See note 9.
On March 16, 2020, the Company announced that in light of the uncertainty created by the effects of the COVID-19, effective March 21, 2020, the base salary for its Chief Executive Officer, Mr. Monty J. Bennett, will be temporarily reduced by 20% and the base salary for certain other Company officers, including its Chief Financial Officer and its other named executive officers, will be temporarily reduced by 15% until the effects of COVID-19 have subsided and it has been determined that the Company is in a healthy financial position. Any amounts relinquished pursuant to the reduction may be paid by the Company in the future.
On March 16, 2020, the Company announced that in light of the uncertainty created by the effects of COVID-19, the annual cash retainer for each non-employee director serving on the Company’s Board would be temporarily reduced by 25% and would continue in effect until the Board determined in its discretion that the effects of COVID-19 had subsided. The Company also disclosed at that time that any amounts relinquished pursuant to the reduction in fees may be paid in the future, as determined by the Board in its discretion. On August 7, 2020, the Company announced that for fiscal year 2020, the directors will receive the full value of their annual cash retainer (without reduction). However, the full value of such cash retainer will be paid 25% in fully vested common shares and 75% in cash. The remaining quarterly installments of such retainer will be adjusted so that, for fiscal year 2020 in the aggregate, each director will have received 25% of the value of the full annual cash retainer in equity and the remaining 75% in cash. This arrangement does not apply to any additional cash retainers for committee service or service as lead director, which will continue to be paid in cash. The Board currently intends to continue this arrangement through our 2021 Annual Meeting of Stockholders, at which time the Board currently intends to re-examine the program.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
On May 15, 2020, the Company and its Chief Executive Officer, Mr. Monty J. Bennett, entered into a letter agreement pursuant to which, effective as of May 15, 2020 and continuing through and including the Company’s last payroll period in 2020, Mr. Monty J. Bennett will accept payment of his base salary (as previously reduced by mutual agreement of the Company and Mr. Monty J. Bennett) in the form of common stock of the Company, issued pursuant to the Company’s 2014 Incentive Plan, as amended. Each issuance of the Company’s common stock will occur on, or as soon as reasonably practicable following, each regular payroll date. The number of shares issued with respect to each payroll date will be equal to the cash salary which would have been paid, less any taxes withheld and benefits deductions, divided by the volume weighted average price per share of the Company’s common stock over all trading days in the period commencing on the first trading date in the applicable payroll period and ending on the last trading date immediately prior to the last day of the payroll period. The Board and Mr. Bennett agreed to effectuate this change to preserve Company liquidity as the Company navigates the effects of the novel coronavirus (COVID-19).
The accompanying condensed consolidated financial statements reflect the operations of our advisory and asset management business, hospitality products and services business, and entities that we consolidate. In this report, the terms the “Company,” “we,” “us” or “our” refers to Ashford Inc. and all entities included in its condensed consolidated financial statements.
2. Significant Accounting Policies
Basis of Presentation and Principles of Consolidation—The accompanying historical unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These condensed consolidated financial statements include the accounts of Ashford Inc., its majority-owned subsidiaries and entities which it controls. All significant intercompany accounts and transactions between these entities have been eliminated in these historical condensed consolidated financial statements. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the condensed consolidated financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in our 2019 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 12, 2020.
In the fourth quarter of 2019, cost reimbursement revenue and reimbursed expenses were reclassified from their previous presentation into aggregated financial statement line items titled “cost reimbursement revenue” and “reimbursed expenses” in our consolidated statements of operations. Our presentation of the three and nine months ended September 30, 2019, revenues and operating expense line item amounts have been reclassified to conform to the presentation adopted in the fourth quarter of 2019. These reclassifications have no effect on total revenues, total operating expense or net income previously reported.
A variable interest entity (“VIE”) must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires significant judgment.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Noncontrolling Interests—The following tables present information about noncontrolling interests in our consolidated subsidiaries, including those related to consolidated VIEs, as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
Ashford
Holdings
|
|
JSAV (3)
|
|
OpenKey(4)
|
|
Pure
Wellness (5)
|
|
RED (6)
|
|
Other
|
Ashford Inc. ownership interest
|
99.84
|
%
|
|
88.70
|
%
|
|
49.04
|
%
|
|
70.00
|
%
|
|
84.21
|
%
|
|
55.00
|
%
|
Redeemable noncontrolling interests(1) (2)
|
0.16
|
%
|
|
11.30
|
%
|
|
25.06
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Noncontrolling interests in consolidated entities
|
—
|
%
|
|
—
|
%
|
|
25.90
|
%
|
|
30.00
|
%
|
|
15.79
|
%
|
|
45.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value of redeemable noncontrolling interests
|
$
|
24
|
|
|
$
|
1,519
|
|
|
$
|
1,419
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Redemption value adjustment, year-to-date
|
323
|
|
|
4
|
|
|
200
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Redemption value adjustment, cumulative
|
438
|
|
|
788
|
|
|
2,297
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Carrying value of noncontrolling interests
|
—
|
|
|
—
|
|
|
417
|
|
|
112
|
|
|
(228
|
)
|
|
11
|
|
Assets, available only to settle subsidiary’s obligations (7) (8)
|
n/a
|
|
|
47,680
|
|
|
2,367
|
|
|
1,817
|
|
|
21,869
|
|
|
145
|
|
Liabilities (9)
|
n/a
|
|
|
44,280
|
|
|
954
|
|
|
1,829
|
|
|
14,050
|
|
|
61
|
|
Notes payable (9)
|
n/a
|
|
|
20,017
|
|
|
—
|
|
|
—
|
|
|
7,686
|
|
|
—
|
|
Revolving credit facility (9)
|
n/a
|
|
|
616
|
|
|
—
|
|
|
100
|
|
|
246
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Ashford
Holdings
|
|
JSAV (3)
|
|
OpenKey(4)
|
|
Pure
Wellness (5)
|
|
RED (6)
|
|
Other
|
Ashford Inc. ownership interest
|
99.81
|
%
|
|
88.20
|
%
|
|
47.61
|
%
|
|
70.00
|
%
|
|
84.21
|
%
|
|
55.00
|
%
|
Redeemable noncontrolling interests(1) (2)
|
0.19
|
%
|
|
11.80
|
%
|
|
26.59
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Noncontrolling interests in consolidated entities
|
—
|
%
|
|
—
|
%
|
|
25.80
|
%
|
|
30.00
|
%
|
|
15.79
|
%
|
|
45.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value of redeemable noncontrolling interests
|
$
|
98
|
|
|
$
|
2,449
|
|
|
$
|
1,584
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Redemption value adjustment, year-to-date
|
(63
|
)
|
|
784
|
|
|
64
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Redemption value adjustment, cumulative
|
115
|
|
|
784
|
|
|
2,097
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
Carrying value of noncontrolling interests
|
—
|
|
|
—
|
|
|
395
|
|
|
164
|
|
|
37
|
|
|
32
|
|
Assets, available only to settle subsidiary’s obligations (7)
|
n/a
|
|
|
56,824
|
|
|
1,881
|
|
|
1,852
|
|
|
19,277
|
|
|
250
|
|
Liabilities (9)
|
n/a
|
|
|
44,542
|
|
|
510
|
|
|
1,671
|
|
|
10,652
|
|
|
59
|
|
Notes payable (9)
|
n/a
|
|
|
17,785
|
|
|
—
|
|
|
—
|
|
|
6,275
|
|
|
—
|
|
Revolving credit facility (9)
|
n/a
|
|
|
2,599
|
|
|
—
|
|
|
45
|
|
|
106
|
|
|
—
|
|
________
|
|
(1)
|
Redeemable noncontrolling interests are included in the “mezzanine” section of our condensed consolidated balance sheets as they may be redeemed by the holder for cash or registered shares in certain circumstances outside of the Company’s control. The carrying value of the noncontrolling interests is based on the greater of the accumulated historical cost or the redemption value, which is generally fair value.
|
(2) Redeemable noncontrolling interests in Ashford Holdings represent the members’ proportionate share of equity in earnings/losses of Ashford Holdings. Net income/loss attributable to the common unit holders is allocated based on the weighted average ownership percentage of the members’ interest.
(3) Represents ownership interests in JSAV, which we consolidate under the voting interest model. JSAV provides event technology and creative communications solutions in the hospitality industry. See also notes 1, 10 and 11.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
(4) Represents ownership interests in OpenKey, a VIE for which we are considered the primary beneficiary and therefore we consolidate it. OpenKey is a hospitality focused mobile key platform that provides a universal smartphone app for keyless entry into hotel guest rooms. See also notes 1, 10 and 11.
(5) Represents ownership interests in Pure Wellness, a VIE for which we are considered the primary beneficiary and therefore we consolidate it. Pure Wellness provides hypoallergenic premium rooms in the hospitality industry. See also notes 1 and 10.
(6) Represents ownership interests in RED, a VIE for which we are considered the primary beneficiary and therefore we consolidate it. RED is a provider of watersports activities and other travel and transportation services and includes the entity that conducts RED’s legacy U.S. Virgin Islands operations and Sebago, a leading provider of watersports activities and excursion services based in Key West, Florida which was acquired by RED in 2019. We are provided a preferred return on our investment in RED’s legacy U.S. Virgin Islands operations and Sebago which is accounted for in our income allocation based on the applicable partnership agreement. See also notes 1 and 10.
(7) Total assets consist primarily of cash and cash equivalents, property and equipment and other assets that can only be used to settle the subsidiaries’ obligations.
(8) The assets of Sebago are not available to settle the obligations of the entity that conducts RED’s legacy U.S. Virgin Islands operations.
(9) Liabilities consist primarily of accounts payable, accrued expenses and notes payable for which creditors do not have recourse to Ashford Inc. except in the case of the term loans and line of credit held by RED’s legacy U.S. Virgin Islands operations, for which the creditor has recourse to Ashford Inc.
Investments in Unconsolidated Entities—We hold “investments in unconsolidated entities” in our condensed consolidated balance sheets, which are considered to be variable interests and voting interests in the underlying entities. Certain of our investments in variable interests are not consolidated because we have determined that we are not the primary beneficiary. Certain other investments are not consolidated as the underlying entity does not meet the definition of a VIE and we do not control more than 50% of the voting interests. We review our “investments in unconsolidated entities” for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of our investment. No such impairment was recorded during the three and nine months ended September 30, 2020 and 2019.
We held an investment in an unconsolidated variable interest entity with a carrying value of $500,000 at September 30, 2020 and December 31, 2019. We account for the investment at estimated fair value based on recent observable transactions as we do not exercise significant influence over the entity. No equity in earnings (loss) of unconsolidated entities due to a change in fair value of the investment was recognized during the three and nine months ended September 30, 2020 and 2019. In the event that the assumptions used to estimate fair value change in the future, we may be required to record an impairment charge related to this investment.
Effective January 1, 2019, we acquired a 30% noncontrolling ownership interest in Real Estate Advisory Holdings LLC (“REA Holdings”), a real estate advisory firm that provides financing, advisory and property sales services primarily to clients in the hospitality and leisure industry, for a purchase price of approximately $3.0 million which was paid in the form of $2.1 million cash and the issuance of 16,529 shares of our common stock (approximately $890,000) to the seller pursuant to the exemption from the registration requirements under the Securities Act provided under Section 4(a)(2) thereunder. We have an option to acquire an additional 50% of the ownership interests in REA Holdings for $12.5 million beginning on January 1, 2022. Our investment in REA Holdings is accounted for under the equity method as we have significant influence over the voting interest entity.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes our carrying value and ownership interest in REA Holdings (in thousands):
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Carrying value of the investment in REA Holdings
|
$
|
2,963
|
|
|
2,662
|
|
Ownership interest in REA Holdings
|
30
|
%
|
|
30
|
%
|
The following table summarizes our equity in earnings (loss) in REA Holdings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Equity in earnings (loss) in unconsolidated entities
|
$
|
48
|
|
|
$
|
464
|
|
|
$
|
301
|
|
|
$
|
(109
|
)
|
Use of Estimates—The preparation of these condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents—Cash and cash equivalents include cash on hand or held in banks and short-term investments with an initial maturity of three months or less at the date of purchase.
Restricted Cash—As of September 30, 2020 and December 31, 2019, restricted cash included $28.1 million and $10.7 million, respectively, of reserves for insurance claims and the associated ancillary costs. The restricted cash balance increased in 2020 primarily due to a transfer of $11.8 million of cash from Ashford Trust into an insurance claim related Company escrow account in the second quarter of 2020. At the beginning of each year, Ashford Inc.’s Risk Management department collects funds from the Ashford Trust and Braemar properties and their respective management companies in an amount equal to the actuarial forecast of that year’s expected casualty claims and associated fees. These funds are deposited into restricted cash and used to pay casualty claims throughout the year as they are incurred. The claim liability related to the restricted cash balance is included in current “other liabilities” in our consolidated balance sheets.
As of September 30, 2020 and December 31, 2019, restricted cash also included $6.1 million and $5.3 million, respectively, of reserves related to cash received from hotel properties under Remington’s management. The cash is funded by the hotel properties and used to pay certain centralized operating expenses as well as hotel employee bonuses. The liability related to the restricted cash balance for centralized billing is primarily included as a payable within “due from Ashford Trust” and “due from Braemar” in our consolidated balance sheets. The liability related to the restricted cash balance for hotel employee bonuses is included in “accounts payable and accrued expenses.” As of September 30, 2020 and December 31, 2019, restricted cash also included $1.6 million and $1.2 million, respectively, of reserves for Remington health insurance claims. Cash is collected primarily from Remington’s managed properties to cover employee health insurance claims. The liability related to this restricted cash balance is included in current “other liabilities” in our consolidated balance sheets.
Restricted cash as of September 30, 2020 and December 31, 2019 also includes approximately $800,000 of cash held in an escrow account in accordance with the Marietta lease agreement. These funds are restricted for use only for repair and maintenance or capital improvements associated with the property.
Property and Equipment, net—Property and equipment, including assets acquired under finance leases, is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. We record property and equipment at cost. As of September 30, 2020 and December 31, 2019, property and equipment, net of accumulated depreciation, included assets related to our consolidated subsidiary Marietta Leasehold, L.P.’s (“Marietta”) finance lease of $43.2 million and $44.1 million, ERFP assets of $20.3 million and $33.5 million, audio visual equipment at JSAV of $12.6 million and $15.1 million and marine vessels at RED of $9.9 million and $10.1 million, respectively.
Other Liabilities—As of September 30, 2020 and December 31, 2019, other liabilities included reserves in the amount of $28.1 million and $10.8 million, respectively, related primarily to Ashford Trust and Braemar properties’ insurance claims and related fees. The liability for casualty insurance claims and related fees is established based upon an analysis of historical data and actuarial estimates. We record the related funds received from Ashford Trust and Braemar in “restricted cash” in our condensed consolidated balance sheets. As of September 30, 2020 and December 31, 2019, other liabilities also included $1.6 million and
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
$2.2 million, respectively, of reserves for Remington health insurance claims, $500,000 and $500,000, respectively, of the remaining purchase price due to the sellers of BAV Services (“BAV”), subject to certain conditions, and reserves of $3.9 million and $4.6 million, respectively, for the fair value of contingent consideration due to the sellers of BAV. Other liabilities as of December 31, 2019 also included a $1.0 million accrual for contingent consideration due to the sellers of Sebago. See notes 4.
Revenue Recognition—See note 3.
Income Taxes—We are a taxable corporation for federal and state income tax purposes. Income tax expense includes U.S. federal and state income taxes, Mexico and Dominican Republic income taxes and U.S. Virgin Islands taxes. In accordance with authoritative accounting guidance, we account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between our condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.
The “Income Taxes” topic of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification addresses the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance requires us to determine whether tax positions we have taken or expect to take in a tax return are more likely than not to be sustained upon examination by the appropriate taxing authority based on the technical merits of the positions. Tax positions that do not meet the more likely than not threshold would be recorded as additional tax expense in the current period. We analyze all open tax years, as defined by the statute of limitations for each jurisdiction, which includes the federal jurisdiction and various states. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our portfolio companies file income tax returns in the U.S. federal jurisdiction and various states and cities, beginning in 2017, in Mexico and the Dominican Republic and, beginning in 2018, in the U.S. Virgin Islands. Tax years 2016 through 2019 remain subject to potential examination by certain federal and state taxing authorities.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law and includes certain income tax provisions relevant to the business. The Company is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which is the period ended March 31, 2020. For the period ended September 30, 2020, the CARES Act did not have a material impact on the Company’s condensed consolidated financial statements. At this time, the Company does not expect the impact of the CARES Act to have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2020. The Company filed a claim to carryback the 2018 tax net operating loss to a prior year as provided for by the CARES Act. The Company expects to receive the carryback amount of approximately $1.0 million within the next 12 months.
Recently Adopted Accounting Standards—In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, ASU 2017-04 clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. We adopted ASU 2017-04 effective January 1, 2020. See our Goodwill and Indefinite-Lived Intangible Assets accounting policy disclosed in note 5.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies certain disclosure requirements related to fair value measurements including requiring disclosures on changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements and a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We adopted this standard effective January 1, 2020, and the adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
and hosting arrangements that include an internal-use software license. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We elected to prospectively adopt ASU 2018-15 effective January 1, 2020, in our condensed consolidated financial statements. The adoption of ASU 2018-15 resulted in reclassifying capitalized implementation costs of service contracts incurred in a hosting arrangement from “property and equipment, net” to “other assets” in our condensed consolidated balance sheets. Amortization of the service contracts will continue to be recorded in “reimbursed expenses” in our condensed consolidated statements of operations.
Recently Issued Accounting Standards—In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 sets forth an “expected credit loss” impairment model to replace the current “incurred loss” method of recognizing credit losses. The standard requires measurement and recognition of expected credit losses for most financial assets held. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”). ASU 2019-10 revised the mandatory adoption date for public business entities that meet the definition of a smaller reporting company to be effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact ASU 2016-13 and ASU 2019-10 may have on our condensed consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.
For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. We are currently evaluating the impact that ASU 2020-06 may have on our condensed consolidated financial statements and related disclosures.
3. Revenues
Revenue Recognition—Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
•Identification of the contract, or contracts, with a customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, we satisfy a performance obligation
In determining the transaction price, we include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following provides detailed information on the recognition of our revenues from contracts with customers:
Advisory Services Revenue
Advisory services revenue is reported within our REIT Advisory segment and primarily consists of advisory fees that are recognized when services have been rendered. Advisory fees consist of base fees and incentive fees. For Ashford Trust, the base fee is paid monthly and ranges from 0.50% to 0.70% per annum of the total market capitalization ranging from less than $6.0 billion to greater than $10.0 billion plus the Net Asset Fee Adjustment, as defined in the amended and restated advisory agreement, as amended, subject to certain minimums. For Braemar, the base fee is paid monthly and is fixed at 0.70% of Braemar’s total market capitalization plus the Net Asset Fee Adjustment, as defined in the advisory agreement, as amended, subject to certain minimums.
Incentive advisory fees are measured annually in each year that Ashford Trust’s and/or Braemar’s annual total stockholder return exceeds the average annual total stockholder return for each company’s respective peer group, subject to the Fixed Charge Coverage Ratio Condition (the “FCCR Condition”), as defined in the respective advisory agreements. Incentive advisory fees are paid over a three-year period and each payment is subject to the FCCR Condition, which relates to the ratio of adjusted EBITDA to fixed charges for Ashford Trust or Braemar, as applicable. Incentive advisory fees are a form of variable consideration and therefore must be (i) deferred until such fees are probable of not being subject to significant reversal, and (ii) tied to a performance obligation in the contract with the customer so that revenue recognition depicts the transfer of the related advisory services to the customer. Accordingly, the Company does not record incentive advisory fee revenue in interim periods prior to the fourth quarter of the year in which the incentive fee is measured. The first year installment of incentive advisory fees will generally be recognized only upon measurement in the fourth quarter of the first year of the three year period. The second and third year installments of incentive advisory fees are recognized as revenue on a pro-rata basis each quarter subject to meeting the FCCR Condition. In the third quarter of 2020, the Company determined it was no longer probable Braemar would meet the minimum FCCR Condition requirement as stated in the Braemar advisory agreement. As such, the Company did not recognize any incentive fee revenue related to Braemar in the three months ended September 30, 2020. The three months ended September 30, 2020 additionally includes a reversal of $339,000 of incentive fee revenue recognized in the first two quarters of 2020 which the Company no longer expects to collect due to Braemar no longer meeting the FCCR Condition.
Hotel Management Revenue
Hotel management revenue is reported within our Remington segment and primarily consists of base management fees and incentive management fees. Base management fees and incentive management fees are recognized when services have been rendered. Remington receives base management fees of 3% of gross hotel revenue for managing the hotel employees and daily operations of the hotels, pursuant to the amended and restated hotel management agreements, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). Remington receives an incentive management fee equal to the lesser of 1% of each hotel’s annual gross revenue or the amount by which the respective hotel’s gross operating profit exceeds the hotel’s budgeted gross operating profit.
Project Management Revenue
Project management revenue primarily consists of revenue generated within our Premier segment by providing development and construction, capital improvements, refurbishment, project management, and other services such as purchasing, interior design, architectural services, freight management, and construction management services at properties. Premier receives fees for these services and recognizes revenue over time as services are provided to the customer.
Audio Visual Revenue
Audio visual revenue primarily consists of revenue generated within our JSAV segment by providing event technology services such as audio visual services, audio visual equipment rental, staging and meeting services and event-related communication systems as well as related technical support, to our customers in various venues including hotels and convention centers. Revenue is recognized in the period in which services are provided pursuant to the terms of the contractual arrangements with our customers. We also evaluate whether it is appropriate to present: (i) the gross amount that our customers pay for our services as revenue, and the related commissions paid to the venue as cost of revenue; or (ii) the net amount (gross revenue less the related commissions paid to the venue) as revenue. We are responsible for the delivery of the services, including providing the necessary labor and equipment to perform the services. We are generally subject to inventory risk, have latitude in establishing prices and selecting suppliers and, while in many cases the venue bills the end customer on our behalf, we bear the risk of collection from the customer. The venues’ commissions are not dependent on collections. As a result, our revenue is primarily reported on a gross basis. Cost
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
of revenues for audio visual principally includes commissions paid to venues, direct labor costs, the cost of equipment sub-rentals, depreciation of equipment, amortization of signing bonuses, as well as other costs such as supplies, freight, travel and other overhead from our venue and customer facing operations and any losses on equipment disposal.
Other Revenue
Other revenue includes revenue provided by certain of our hospitality products and service businesses, including RED. RED’s revenue is primarily generated through the provision of watersports activities and ferry and excursion services. The revenue is recognized as services are provided based on contractual customer rates. Debt placement and related fees include revenue earned from providing placement, modifications, forbearances or refinancings of certain mortgage debt by Lismore. For certain agreements, the fees are recognized based on a stated percentage of the loan amount when services have been rendered and the subject loan is closed. For other agreements, deferred income related to the various Lismore fees will be recognized over the term of the agreement on a straight line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes. In connection with our ERFP Agreements and legacy key money transaction with Ashford Trust and legacy key money transaction with Braemar, we lease FF&E to Ashford Trust and Braemar rent-free. Our ERFP leases entered into in 2018 with Ashford Trust commenced on December 31, 2018. Consistent with our accounting treatment prior to adopting ASU 2016-02, Leases (“ASU 2016-02”), other revenue for the three and nine months ended September 30, 2019, includes a portion of the base advisory fee for leases commencing prior to our adoption, which is equal to the estimated fair value of the lease payments that would have been made.
Cost Reimbursement Revenue
Cost reimbursement revenue is recognized in the period we incur the related reimbursable costs. Under our advisory agreements, we are entitled to be reimbursed for certain costs we incur on behalf of Ashford Trust and Braemar, with no added mark-up. These costs primarily consist of expenses related to Ashford Securities, overhead, internal audit, risk management advisory services and asset management services, including compensation, benefits and travel expense reimbursements. We record cost reimbursement revenue for equity grants of Ashford Trust and Braemar common stock and LTIP units awarded to our officers and employees in connection with providing advisory services equal to the fair value of the award in proportion to the requisite service period satisfied during the period. We additionally are reimbursed by Ashford Trust for expenses incurred by Ashford Investment Management, LLC (“AIM”) for managing Ashford Trust’s excess cash under the Investment Management Agreement. AIM is not compensated for its services but is reimbursed for all costs and expenses.
Under our project management agreements and hotel management agreements, we are entitled to be reimbursed for certain costs we incur on behalf of Ashford Trust, Braemar and other hotel owners, with no added mark-up. Project management costs primarily consist of costs for accounting, overhead and project manager services. Hotel management costs primarily consist of the properties’ payroll, payroll taxes and benefits related expenses at managed properties where we are the employer of the employees at the properties as provided for in our contracts with the Ashford Trust, Braemar and other hotel owners.
We recognize revenue within the “cost reimbursement revenue” in our condensed consolidated statements of operations when the amounts may be billed to Ashford Trust, Braemar and other hotel owners, and we recognize expenses within “reimbursed expenses” in our condensed consolidated statements of operations as they are incurred. This pattern of recognition results in temporary timing differences between the costs incurred for centralized software programs and the related reimbursements we receive from Ashford Trust and Braemar in our operating and net income. Over the long term, these programs and services are not designed to impact our economics, either positively or negatively.
Certain of our consolidated entities enter into contracts with customers that contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our consolidated entities’ overall pricing objectives taking into consideration market conditions and other factors, including the customer and the nature and value of the performance obligations within the applicable contracts.
Deferred Income and Contract Balances
Deferred income primarily consists of customer billings in advance of revenue being recognized from our advisory agreements and other hospitality products and services contracts. Generally, deferred income that will be recognized within the next twelve months is recorded as current deferred income and the remaining portion is recorded as noncurrent. The increase in the deferred
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
income balance is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by revenue recognized that was included in the deferred income balance at the beginning of the period.
The following tables summarize our consolidated deferred income activity (in thousands):
|
|
|
|
|
|
|
|
|
|
Deferred Income
|
|
2020
|
|
2019
|
Balance as of June 30
|
$
|
20,237
|
|
|
$
|
11,226
|
|
Increases to deferred income
|
10,786
|
|
|
1,681
|
|
Recognition of revenue (1)
|
(5,802
|
)
|
|
(1,287
|
)
|
Balance as of September 30
|
$
|
25,221
|
|
|
$
|
11,620
|
|
________
|
|
(1)
|
Deferred income recognized in the three months ended September 30, 2020, includes (a) $554,000 of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $458,000 of audio visual revenue, (c) $4.0 million of other revenue related to the Ashford Trust Agreement and the Braemar Agreement with Lismore (see note 14), which includes a $1.3 million cumulative catch-up adjustment to revenue which was previously considered constrained, and (d) $773,000 of “other services” revenue earned by our hospitality products and services companies, excluding Lismore. Deferred income recognized in the three months ended September 30, 2019, includes (a) $554,000 of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $194,000 of audio visual revenue and (c) $539,000 of “other services” revenue earned by our hospitality products and services companies.
|
|
|
|
|
|
|
|
|
|
|
Deferred Income
|
|
2020
|
|
2019
|
Balance as of January 1
|
$
|
13,280
|
|
|
$
|
13,544
|
|
Increases to deferred income
|
22,457
|
|
|
4,429
|
|
Recognition of revenue (1)
|
(10,516
|
)
|
|
(6,353
|
)
|
Balance as of September 30
|
$
|
25,221
|
|
|
$
|
11,620
|
|
________
|
|
(1)
|
Deferred income recognized in the nine months ended September 30, 2020, includes (a) $1.7 million of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $1.6 million of audio visual revenue, (c) $5.4 million of other revenue related to the Ashford Trust Agreement and the Braemar Agreement with Lismore (see note 14) and (d) $1.9 million of “other services” revenue earned by our hospitality products and services companies, excluding Lismore. Deferred income recognized in the nine months ended September 30, 2019, includes (a) $2.0 million of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $2.6 million of audio visual revenue and (c) $1.8 million of “other services” revenue earned by our hospitality products and services companies.
|
We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was primarily related to (i) reimbursed software costs that will be recognized evenly over the period the software is used to provide advisory services to Ashford Trust and Braemar, (ii) a $5.0 million cash payment received in June 2017 from Braemar in connection with our Fourth Amended and Restated Braemar Advisory Agreement, which is recognized evenly over the 10-year initial contract period that we are providing Braemar advisory services, and (iii) debt placement and related fees that will be recognized over the term of the agreement on a straight line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes. See notes 1 and 14. Incentive advisory fees that are contingent upon future market performance are excluded as the fees are considered variable and not included in the transaction price at September 30, 2020.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The timing of revenue recognition may differ from the timing of payment by customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred income until the performance obligations are satisfied. We had receivables related to revenues from contracts with customers of $3.8 million and $7.2 million included in “accounts receivable, net” primarily related to our hospitality products and services segment, $2.6 million and $4.8 million in “due from Ashford Trust”, and $124,000 and $1.6 million included in “due from Braemar” related to REIT advisory services at September 30, 2020 and December 31, 2019, respectively. We had no significant impairments related to these receivables during the three and nine months ended September 30, 2020 and 2019.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Disaggregated Revenue
Our revenues were comprised of the following for the three and nine months ended September 30, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Advisory services revenue:
|
|
|
|
|
|
|
|
Base advisory fee
|
$
|
11,040
|
|
|
$
|
10,570
|
|
|
$
|
33,707
|
|
|
$
|
32,382
|
|
Incentive advisory fee
|
(339
|
)
|
|
170
|
|
|
—
|
|
|
509
|
|
Other advisory revenue
|
131
|
|
|
131
|
|
|
391
|
|
|
389
|
|
Total advisory services revenue
|
10,832
|
|
|
10,871
|
|
|
34,098
|
|
|
33,280
|
|
|
|
|
|
|
|
|
|
Hotel management:
|
|
|
|
|
|
|
|
Base fee
|
3,777
|
|
|
—
|
|
|
13,592
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Project management revenue
|
1,790
|
|
|
6,660
|
|
|
7,780
|
|
|
19,533
|
|
|
|
|
|
|
|
|
|
Audio visual revenue
|
3,114
|
|
|
22,430
|
|
|
33,758
|
|
|
83,532
|
|
|
|
|
|
|
|
|
|
Other revenue:
|
|
|
|
|
|
|
|
Debt placement and related fees (2)
|
4,017
|
|
|
429
|
|
|
5,480
|
|
|
1,862
|
|
Claims management services
|
55
|
|
|
51
|
|
|
184
|
|
|
147
|
|
Lease revenue
|
—
|
|
|
1,029
|
|
|
—
|
|
|
3,088
|
|
Other services (3)
|
4,150
|
|
|
4,118
|
|
|
12,586
|
|
|
9,622
|
|
Total other revenue
|
8,222
|
|
|
5,627
|
|
|
18,250
|
|
|
14,719
|
|
|
|
|
|
|
|
|
|
Cost reimbursement revenue
|
28,133
|
|
|
11,301
|
|
|
127,830
|
|
|
32,611
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
55,868
|
|
|
$
|
56,889
|
|
|
$
|
235,308
|
|
|
$
|
183,675
|
|
|
|
|
|
|
|
|
|
REVENUES BY SEGMENT (1)
|
|
|
|
|
|
|
|
REIT advisory
|
$
|
16,790
|
|
|
$
|
21,381
|
|
|
$
|
53,297
|
|
|
$
|
64,638
|
|
Remington
|
24,800
|
|
|
—
|
|
|
117,715
|
|
|
—
|
|
Premier
|
2,277
|
|
|
7,881
|
|
|
10,173
|
|
|
23,371
|
|
JSAV
|
3,114
|
|
|
22,430
|
|
|
33,758
|
|
|
83,532
|
|
OpenKey
|
341
|
|
|
313
|
|
|
1,155
|
|
|
764
|
|
Corporate and other
|
8,546
|
|
|
4,884
|
|
|
19,210
|
|
|
11,370
|
|
Total revenues
|
$
|
55,868
|
|
|
$
|
56,889
|
|
|
$
|
235,308
|
|
|
$
|
183,675
|
|
________
|
|
(1)
|
We have five reportable segments: REIT Advisory, Remington, Premier, JSAV and OpenKey. We combine the operating results of RED, Marietta, Pure Wellness, Lismore and REA Holdings into an “all other” category, which we refer to as “Corporate and Other.” See note 16 for discussion of segment reporting.
|
|
|
(2)
|
Debt placement and related fees are earned by Lismore for providing placement, modification, forbearance or refinancing services to Ashford Trust and Braemar.
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
|
(3)
|
Other services revenue relates primarily to other hotel services provided by our consolidated subsidiaries OpenKey, RED and Pure Wellness, to Ashford Trust, Braemar and third parties, and the revenue of Marietta, which holds the leasehold rights to a single hotel and convention center property in Marietta, Georgia.
|
Geographic Information
Our REIT Advisory, Remington, Premier, OpenKey, and Corporate and Other reporting segments conduct their business within the United States. Our JSAV reporting segment conducts business in the United States, Mexico, and the Dominican Republic. The following table presents revenue from our JSAV reporting segment geographically for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
United States
|
$
|
2,977
|
|
|
$
|
19,860
|
|
|
$
|
25,622
|
|
|
$
|
67,550
|
|
Mexico
|
54
|
|
|
1,804
|
|
|
6,563
|
|
|
11,289
|
|
Dominican Republic
|
83
|
|
|
766
|
|
|
1,573
|
|
|
4,693
|
|
|
$
|
3,114
|
|
|
$
|
22,430
|
|
|
$
|
33,758
|
|
|
$
|
83,532
|
|
4. Acquisitions
Remington
On November 6, 2019, we completed the acquisition of Remington Lodging’s hotel management business and Marietta for $275 million in consideration in the form of 11,000,000 shares of Series D Convertible Preferred Stock of Ashford Inc. Remington provides hotel management services primarily to hotels owned by Ashford Trust and Braemar. Hotel management services consist of hotel operations, sales and marketing, revenue management, budget oversight, guest service, asset maintenance (not involving capital expenditures) and related services. The results of operations of Remington are included in our condensed consolidated financial statements from the date of acquisition.
Marietta leases a single hotel and convention center property in Marietta, Georgia, from the City of Marietta and earns revenue from the operation of this hotel property. The hotel property is managed by Remington as part of the Hilton brand of hotels and offers hotel and conference center services. Marietta’s revenue and operating expenses are included in “other” revenue and “other” operating expenses, respectively, in the condensed consolidated statements of operations. The lease, which expires on December 31, 2054, was classified as a finance lease. The right-of-use asset was adjusted at the acquisition date by approximately $4.2 million for favorable lease terms compared to market terms. The results of operations of Marietta are included in our condensed consolidated financial statements from the date of acquisition.
The acquisition of Remington was recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations, and the purchase price allocation is based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair value measurements and disclosure framework. Key assumptions include cash flow projections of Remington and the discount rate applied to those cash flows. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded as goodwill.
In the first quarter of 2020, we finalized the valuation of the acquired assets and liabilities associated with the acquisition. The final fair value analysis resulted in a $40.9 million adjustment to reduce the value of the acquired management contracts to their estimated fair value and a corresponding increase to goodwill on our condensed consolidated balance sheets during the first quarter of 2020. We also recorded an adjustment of approximately $10.3 million to reduce the deferred tax liability and a corresponding decrease to goodwill. Additionally, the purchase price adjustment related to working capital was finalized and paid in the first quarter of 2020 resulting in a $1.3 million increase in the fair value of the purchase price.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The fair value of the purchase price and final allocation of the purchase price are as follows (in thousands):
|
|
|
|
|
|
Series D Convertible Preferred Stock
|
|
$
|
275,000
|
|
Preferred stock discount
|
|
(2,550
|
)
|
Working capital adjustments
|
|
1,341
|
|
Total fair value of purchase price
|
|
$
|
273,791
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Estimated Useful Life
|
Current assets including cash
|
|
$
|
27,661
|
|
|
|
Assets acquired under finance leases (1)
|
|
44,294
|
|
|
35 years
|
Property and equipment, net
|
|
466
|
|
|
|
Operating lease right-of-use assets
|
|
24,649
|
|
|
|
Goodwill
|
|
175,653
|
|
|
|
Trademarks
|
|
10,400
|
|
|
|
Management contracts
|
|
107,600
|
|
|
22 years
|
Total assets acquired
|
|
390,723
|
|
|
|
Current liabilities
|
|
23,740
|
|
|
|
Finance lease liabilities, current
|
|
331
|
|
|
|
Operating lease liabilities, current
|
|
2,038
|
|
|
|
Deferred tax liability
|
|
28,439
|
|
|
|
Finance lease liabilities, non-current
|
|
39,773
|
|
|
|
Operating lease liabilities, non-current
|
|
22,611
|
|
|
|
Total assumed liabilities
|
|
116,932
|
|
|
|
Net assets acquired
|
|
$
|
273,791
|
|
|
|
(1) Assets acquired under finance leases are included in “property and equipment, net.”
We do not expect any of the goodwill balance to be deductible for tax purposes. The qualitative factors that make up the recorded goodwill include value associated with an assembled workforce and value attributable to growth opportunities to expand Remington’s hotel management services to third-party owners in the hospitality industry.
Results of Remington
The results of operations of Remington have been included in our results of operations since the acquisition date. Our condensed consolidated statement of operations for the three and nine months ended September 30, 2020 include total revenue from Remington of $24.8 million and $117.7 million, respectively. In addition, our condensed consolidated statements of operations for the three and nine months ended September 30, 2020 includes a net loss from Remington of $3.3 million and $133.3 million, respectively. Net loss for the nine months ended September 30, 2020 includes goodwill impairment of $121.0 million and impairment of trademarks of $5.5 million incurred in the first quarter of 2020. The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, 2019, are included below under “Pro Forma Financial Results.”
Sebago
On July 18, 2019, RED completed the acquisition of substantially all of the assets of Sebago, a leading provider of watersports activities and excursion services based in Key West, Florida. After giving effect to the transaction, Ashford Inc. owns an approximately 84% interest in the common equity of RED.
The purchase price consisted of approximately $2.5 million in cash (excluding transaction costs and working capital adjustments) funded by new RED term loans and $4.5 million in the form of Ashford Inc. common stock consisting of 135,366 shares issued on July 18, 2019, subject to a six month stock consideration collar which the Company settled in the first quarter of
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
2020 with a cash payment of $1.0 million to the sellers of Sebago. The number of Ashford Inc. shares to be issued was determined using a 30-Day VWAP of $33.24 and had an estimated fair value of approximately $4.5 million as of the acquisition date.
The acquisition of Sebago was recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations, and the purchase price allocation is based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair value measurements and disclosure framework. Key assumptions include cash flow projections of Sebago and the discount rate applied to those cash flows. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded as goodwill. In the third quarter of 2020, we finalized the valuation of the assets acquired and liabilities associated with the acquisition.
The fair value of the purchase price and final allocation of the purchase price is as follows (in thousands):
|
|
|
|
|
|
Cash
|
|
$
|
2,500
|
|
Less working capital adjustments
|
|
(74
|
)
|
Fair value of Ashford Inc. common stock issued
|
|
4,547
|
|
Purchase price consideration
|
|
$
|
6,973
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Estimated Useful Life
|
Current assets
|
|
$
|
76
|
|
|
|
Marine vessels
|
|
2,115
|
|
|
20 years
|
Property and equipment, net
|
|
1,635
|
|
|
20 years
|
Operating lease right-of-use assets
|
|
391
|
|
|
|
Goodwill
|
|
1,235
|
|
|
|
Trademarks
|
|
490
|
|
|
|
Boat slip rights
|
|
3,100
|
|
|
20 years
|
Total assets acquired
|
|
9,042
|
|
|
|
Current liabilities
|
|
291
|
|
|
|
Noncurrent liabilities
|
|
1,778
|
|
|
|
Total assumed liabilities
|
|
2,069
|
|
|
|
Net assets acquired
|
|
$
|
6,973
|
|
|
|
We expect approximately $1.2 million of the goodwill balance to be deductible by Ashford Inc. for tax purposes. The qualitative factors that make up the recorded goodwill include value associated with an assembled workforce and value attributable to expanding Sebago’s operations through our relationship with RED.
Results of Sebago
The results of operations of Sebago have been included in our results of operations since the acquisition date. Our condensed consolidated statements of operations for the three and nine months ended September 30, 2020, include total revenue from Sebago of $1.6 million and $3.4 million, respectively. Our condensed consolidated statements of operations for the three and nine months ended September 30, 2019, include total revenue from Sebago of $1.2 million. In addition, our condensed consolidated statements of operations for the three and nine months ended September 30, 2020, include net income from Sebago of $37,000 and a net loss of $214,000, respectively. Our condensed consolidated statements of operations for the three and nine months ended September 30, 2019, include net income from Sebago of $129,000. The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, 2019, are included below under “Pro Forma Financial Results.”
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
BAV
On March 1, 2019, JSAV acquired a privately-held company, BAV. BAV is an audio visual rental, staging, and production company focused on meeting and special event services. As a result of the acquisition, our ownership interest in JSAV, which we consolidate under the voting interest model, increased from 85% to approximately 88%.
Pursuant to the asset purchase agreement, as amended on September 24, 2019, the purchase price consisted of: (i) $5.0 million in cash (excluding working capital adjustments) funded by an existing JSAV term loan; (ii) $3.5 million in the form of Ashford Inc. common stock consisting of 61,387 shares issued on March 1, 2019, which was determined based on a 30-Day VWAP of $57.01 and had an estimated fair value of approximately $3.7 million as of the acquisition date; (iii) $500,000 payable in cash or Ashford Inc. common stock at our sole discretion to be issued 18 months after the acquisition date, subject to certain conditions; and (iv) contingent consideration related to the achievement of certain performance targets with an estimated fair value of approximately $1.4 million, payable, if earned, 12 to 18 months after the acquisition date. In the first quarter of 2020, BAV achieved the maximum performance target allowed resulting in a liability of $3.0 million being recorded in “other liabilities” in our condensed consolidated balance sheets. Additionally, the transaction included a stock consideration collar with potential settlements at 12 months, 15 months and 18 months after the acquisition date dependent upon the 30-Day VWAP of Ashford Inc.’s common stock on each respective settlement date. A liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved, with changes in fair value recognized in earnings within “other” operating expenses in our consolidated statements of operations. On May 6, 2020, the Company executed the Second Amendment to the Asset Purchase Agreement in which we agreed to immediately pay $1.5 million in cash and modified certain contingent consideration and stock consideration collar payment terms related to the acquisition of BAV to extend remaining payments of cash or stock on various payment dates through March 2021. Pursuant to the agreement, we paid $1.5 million cash to the BAV sellers on May 7, 2020 related to the $3.0 million in contingent consideration earned by the BAV sellers in connection with BAV’s achievement of performance targets during the trailing twelve month period. See note 7 for further discussion of the Company’s liabilities related to acquisition-related contingent consideration. On November 4, 2020, the Company executed the Third Amendment to the Asset Purchase Agreement in which we deferred $500,000 of consideration payable to the BAV sellers until November 30, 2020. The payment may be settled in cash or Ashford Inc. common stock using a 30-Day VWAP as of October 31, 2020.
The acquisition of BAV was recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations, and the purchase price allocation is based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair value measurements and disclosure framework. Key assumptions include cash flow projections of BAV and the discount rate applied to those cash flows. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded as goodwill. In the first quarter of 2020, we finalized the valuation of the acquired assets and liabilities associated with the acquisition.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The fair value of the purchase price and final allocation of the purchase price is as follows (in thousands):
|
|
|
|
|
|
Term loan
|
|
$
|
5,000
|
|
Less working capital adjustments
|
|
(733
|
)
|
Fair value of Ashford Inc. common stock issued
|
|
3,748
|
|
Consideration payable
|
|
500
|
|
Fair value of contingent consideration
|
|
1,384
|
|
Purchase price consideration
|
|
$
|
9,899
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Estimated Useful Life
|
Current assets
|
|
$
|
754
|
|
|
|
Property and equipment, net
|
|
1,983
|
|
|
5 years
|
Operating lease right-of-use assets
|
|
165
|
|
|
|
Goodwill
|
|
4,827
|
|
|
|
Trademarks
|
|
440
|
|
|
|
Customer relationships
|
|
2,800
|
|
|
15 years
|
Total assets acquired
|
|
10,969
|
|
|
|
Current liabilities
|
|
639
|
|
|
|
Noncurrent liabilities
|
|
431
|
|
|
|
Total assumed liabilities
|
|
1,070
|
|
|
|
Net assets acquired
|
|
$
|
9,899
|
|
|
|
We expect approximately $4.8 million of the goodwill balance to be deductible by Ashford Inc. for tax purposes. The qualitative factors that make up the recorded goodwill include value associated with an assembled workforce and value attributable to expanding BAV’s operations through our relationship with JSAV.
Results of BAV
The results of operations of BAV have been included in our results of operations since the acquisition date. Our condensed consolidated statements of operations for the three and nine months ended September 30, 2020, include total revenue from BAV of $1.1 million and $4.0 million, respectively. Our condensed consolidated statements of operations for the three and nine months ended September 30, 2019, include total revenue from BAV of $2.8 million and $8.5 million, respectively. In addition, our condensed consolidated statements of operations for the three and nine months ended September 30, 2020, include net income from BAV of $449,000 and $850,000, respectively. Our condensed consolidated statements of operations for the three and nine months ended September 30, 2019, include net income from BAV of $428,000 and $1.2 million, respectively. The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, 2019, are included below under “Pro Forma Financial Results.”
Pro Forma Financial Results
The following table reflects the unaudited pro forma results of operations as if the Remington, Sebago and BAV acquisitions had occurred and the indebtedness associated with those acquisitions was incurred on January 1, 2019, and the removal of $212,000 and $775,000 of transaction costs directly attributable to the acquisitions (net of the incremental tax expense) for the three and nine months ended September 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Total revenues
|
$
|
55,868
|
|
|
$
|
132,000
|
|
|
$
|
235,308
|
|
|
$
|
425,800
|
|
Net income (loss)
|
(13,982
|
)
|
|
(2,704
|
)
|
|
(200,616
|
)
|
|
1,420
|
|
Net income (loss) attributable to common stockholders
|
(21,825
|
)
|
|
(10,936
|
)
|
|
(224,357
|
)
|
|
(23,763
|
)
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
5. Goodwill and Intangible Assets, net
Impairment of Goodwill and Intangible Assets —During the first quarter of 2020, as a result of our reduced cash flow projections and the significant decline in our market capitalization as a result of the COVID-19 pandemic, we concluded that sufficient indicators existed to require us to perform an interim quantitative assessment of goodwill and intangible assets. As a result, we recorded goodwill impairment charges of $170.6 million and intangible asset impairment charges of $7.6 million. No impairment charges were recorded in the second or third quarter of 2020.
During the first quarter of 2020, we recognized goodwill impairment charges of $170.6 million, of which $121.0 million related to our Remington segment, and $49.5 million related to our Premier segment. We engaged a third-party valuation expert to assist us in performing an interim quantitative assessment to determine whether it was more likely than not that the carrying value of goodwill in our reporting units was impaired as of March 31, 2020. The fair value estimates for all reporting units were based on a blended analysis of the present value of future discounted cash flows and the market value approach. No impairment charges were recorded in the second or third quarter of 2020. See note 7.
Based on our quantitative assessment as of March 31, 2020, we determined that the fair values of Remington and Premier were less than the carrying values of these reporting units. The carrying value of Remington was reduced by a $5.5 million impairment of the Remington trademarks prior to assessing goodwill for impairment. The excess carrying value of Remington and Premier over the estimate of fair value was recorded in “impairment” on our condensed consolidated statements of operations. No impairment charges were recorded in the second or third quarter of 2020. As of September 30, 2020, our Remington segment had $54.6 million goodwill remaining and our Premier segment had no goodwill remaining.
Intangible Assets
During the first quarter of 2020, we engaged a third-party valuation expert to assist in determining the fair value of our indefinite-lived trademarks. We recognized intangible asset impairment charges of $7.6 million related to trademarks within our Remington and JSAV segments which resulted from changes in estimated future revenues. The Remington and JSAV trademarks were written down to $4.9 million and $1.5 million, respectively, based on a valuation using the relief-from-royalty method. No impairment charges were recorded in the second or third quarter of 2020.
The changes in the carrying amount of goodwill for the nine months ended September 30, 2020, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remington
|
|
Premier
|
|
JSAV
|
|
Corporate and Other
|
|
Consolidated
|
Balance at December 31, 2019
|
|
$
|
143,854
|
|
|
$
|
49,524
|
|
|
$
|
10,211
|
|
|
$
|
2,017
|
|
|
$
|
205,606
|
|
Changes in goodwill:
|
|
|
|
|
|
|
|
|
|
|
Adjustments (1)
|
|
31,800
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,800
|
|
Impairments (2)
|
|
(121,048
|
)
|
|
(49,524
|
)
|
|
—
|
|
|
—
|
|
|
(170,572
|
)
|
Balance at September 30, 2020
|
|
$
|
54,606
|
|
|
$
|
—
|
|
|
$
|
10,211
|
|
|
$
|
2,017
|
|
|
$
|
66,834
|
|
________
(1) The adjustment to Remington goodwill relates to changes in our final valuation of the acquired assets and liabilities associated with the acquisition of Remington. See note 4.
(2) See explanation of impairment charges above.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Intangible assets, net as of September 30, 2020 and December 31, 2019, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
Definite-lived intangible assets:
|
|
|
|
|
|
|
|
Remington management contracts
|
$
|
107,600
|
|
$
|
(12,746
|
)
|
$
|
94,854
|
|
|
$
|
148,500
|
|
$
|
(2,436
|
)
|
$
|
146,064
|
|
Premier management contracts
|
194,000
|
|
(26,279
|
)
|
167,721
|
|
|
194,000
|
|
(16,830
|
)
|
177,170
|
|
JSAV customer relationships
|
9,319
|
|
(3,012
|
)
|
6,307
|
|
|
9,319
|
|
(2,173
|
)
|
7,146
|
|
RED boat slip rights
|
3,100
|
|
(186
|
)
|
2,914
|
|
|
3,100
|
|
(70
|
)
|
3,030
|
|
Pure Wellness customer relationships
|
175
|
|
(122
|
)
|
53
|
|
|
175
|
|
(96
|
)
|
79
|
|
Other
|
47
|
|
(9
|
)
|
38
|
|
|
44
|
|
(3
|
)
|
41
|
|
|
$
|
314,241
|
|
$
|
(42,354
|
)
|
$
|
271,887
|
|
|
$
|
355,138
|
|
$
|
(21,608
|
)
|
$
|
333,530
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
Impairment
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
Impairment
|
Net Carrying Amount
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
Remington trademarks
|
$
|
10,400
|
|
$
|
(5,500
|
)
|
$
|
4,900
|
|
|
$
|
10,300
|
|
$
|
—
|
|
$
|
10,300
|
|
JSAV trademarks
|
3,641
|
|
(2,141
|
)
|
1,500
|
|
|
3,641
|
|
—
|
|
3,641
|
|
RED trademarks
|
490
|
|
—
|
|
490
|
|
|
490
|
|
—
|
|
490
|
|
|
$
|
14,531
|
|
$
|
(7,641
|
)
|
$
|
6,890
|
|
|
$
|
14,431
|
|
$
|
—
|
|
$
|
14,431
|
|
Amortization expense for definite-lived intangible assets was $7.0 million and $20.7 million for the three and nine months ended September 30, 2020, respectively. Amortization expense for definite-lived intangible assets was $5.3 million and $11.3 million for the three and nine months ended September 30, 2019, respectively. The useful lives of our customer relationships range from 5 to 15 years. Our Remington management contracts, Premier management contracts and boat slip rights intangible assets were assigned useful lives of 22, 30, and 20 years, respectively.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
6. Notes Payable, net
Notes payable—Notes payable, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indebtedness
|
|
Borrower
|
|
Maturity
|
|
Interest Rate
|
|
September 30, 2020
|
|
December 31, 2019
|
Term loan (7)
|
|
Ashford Inc.
|
|
March 19, 2024
|
|
Base Rate (1) + 2.00% to 2.25% or LIBOR (2) + 3.00% to 3.25%
|
|
$
|
34,125
|
|
|
$
|
10,000
|
|
Term loan (5) (8)
|
|
JSAV
|
|
November 1, 2022
|
|
One-Month LIBOR (3) + 3.25%
|
|
12,300
|
|
|
12,642
|
|
Revolving credit facility (5) (8)
|
|
JSAV
|
|
November 1, 2022
|
|
One-Month LIBOR (3) + 3.25%
|
|
616
|
|
|
2,599
|
|
Equipment note (5) (9)
|
|
JSAV
|
|
November 1, 2022
|
|
One-Month LIBOR (3) + 3.25%
|
|
6,017
|
|
|
3,393
|
|
Draw term loan (5) (9)
|
|
JSAV
|
|
November 1, 2022
|
|
One-Month LIBOR (3) + 3.25%
|
|
1,700
|
|
|
1,750
|
|
Revolving credit facility (5) (10)
|
|
Pure Wellness
|
|
On demand
|
|
Prime Rate (4) + 1.00%
|
|
100
|
|
|
45
|
|
Term loan (6) (11)
|
|
RED
|
|
October 5, 2025
|
|
Prime Rate (4) + 1.75%
|
|
581
|
|
|
605
|
|
Revolving credit facility (6) (12)
|
|
RED
|
|
November 5, 2020
|
|
Prime Rate (4) + 1.75%
|
|
246
|
|
|
106
|
|
Draw term loan (6) (13)
|
|
RED
|
|
June 5, 2027
|
|
Prime Rate (4) + 1.75%
|
|
1,375
|
|
|
1,400
|
|
Term loan (6) (14)
|
|
RED
|
|
February 1, 2029
|
|
Prime Rate (4) + 2.00%
|
|
1,592
|
|
|
1,636
|
|
Term loan (5) (15)
|
|
RED
|
|
July 17, 2029
|
|
6.0% (16)
|
|
1,663
|
|
|
1,674
|
|
Term loan (5) (16)
|
|
RED
|
|
July 17, 2023
|
|
6.5%
|
|
900
|
|
|
960
|
|
Draw term loan (5) (17)
|
|
RED
|
|
August 5, 2028
|
|
Prime Rate (4) + 2.00%
|
|
1,575
|
|
|
—
|
|
Notes payable
|
|
|
|
|
|
|
|
62,790
|
|
|
36,810
|
|
Less deferred loan costs, net
|
|
|
|
|
|
|
|
(497
|
)
|
|
(227
|
)
|
Notes payable less net deferred loan costs
|
|
|
|
|
|
|
|
62,293
|
|
|
36,583
|
|
Less current portion
|
|
|
|
|
|
|
|
(57,719
|
)
|
|
(3,550
|
)
|
Notes payable, net - non-current
|
|
|
|
|
|
|
|
$
|
4,574
|
|
|
$
|
33,033
|
|
__________________
|
|
(1)
|
Base Rate, as defined in the term loan agreement, is the greater of (i) the prime rate set by Bank of America, or (ii) federal funds rate plus 0.50%, or (iii) LIBOR plus 1.00%.
|
|
|
(2)
|
Ashford Inc. may elect a 1, 2, 3 or 6 month LIBOR period for each borrowing.
|
|
|
(3)
|
The one-month LIBOR rate was 0.15% and 1.76% at September 30, 2020 and December 31, 2019, respectively.
|
|
|
(4)
|
Prime Rate was 3.25% and 4.75% at September 30, 2020 and December 31, 2019, respectively.
|
|
|
(5)
|
Creditors do not have recourse to Ashford Inc.
|
|
|
(6)
|
Creditors have recourse to Ashford Inc.
|
|
|
(7)
|
On March 19, 2020, the Company amended and restated the senior revolving credit facility pursuant to a Fourth Amendment to the Term Loan Agreement. The Company converted and consolidated the existing $10 million borrowing under the senior revolving credit facility (which had been borrowed on a revolving basis) into a term loan and drew down the remaining $25 million balance of the senior revolving credit facility, borrowing $35 million under the term loan in the aggregate. Effective June 23, 2020, the Company and Bank of America N.A. executed the Fifth Amendment to the Term Loan Agreement. The Fifth Amendment (a) established a 0.50% LIBOR floor, (b) eliminated the consolidated net worth financial covenant, and (c) waived the violation of the consolidated net worth financial covenant that occurred on March 31, 2020. The Term Loan Agreement has a four year term and a maximum principal amount of $35 million. Principal payments of 1.25% of the outstanding balance are payable on the last business day of each fiscal quarter commencing June 30, 2020. Principal payment amounts are subject to maintaining a fixed charge coverage ratio below specified thresholds which if not met increase the principal payment due each quarter from 1.25% to 5.0% of the outstanding principal balance. The Company is also subject to certain financial covenants. See covenant compliance discussion below.
|
|
|
(8)
|
On March 1, 2019, in connection with the acquisition of BAV, JSAV amended the existing term loan and borrowed an additional $5.0 million. The revolving credit facility was also amended to increase the borrowing capacity from $3.0 million to $3.5 million. In connection with the term loan, JSAV entered into an interest rate cap with an initial notional amount totaling $5.0 million and a strike rate of 4.0%. The fair value of the interest rate cap at September 30, 2020 and December 31, 2019, was not material.
|
|
|
(9)
|
On March 1, 2019, in connection with the acquisition of BAV, JSAV amended the existing equipment note and draw term note to increase the borrowing capacity to $8.0 million and $2.4 million, respectively. All the loans are partially secured by a
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
security interest on all of the assets and equity interests of JSAV.
|
|
(10)
|
On April 6, 2017, Pure Wellness entered into a $100,000 line of credit. On July 20, 2020, Pure Wellness increased the line of credit to $250,000.
|
|
|
(11)
|
On March 23, 2018, RED entered into a term loan of $750,000.
|
|
|
(12)
|
On August 5, 2020, RED renewed its $250,000 revolving credit facility for an additional three months.
|
|
|
(13)
|
On February 27, 2019, RED entered into a draw term loan in the amount of $1.4 million.
|
|
|
(14)
|
On August 31, 2018, RED entered into a term loan of $1.8 million.
|
|
|
(15)
|
On July 18, 2019, in connection with the acquisition of Sebago, RED entered into a term loan of $1.7 million. The interest rate for the term loan is 6.0% for the first five years. After five years, the interest rate is equal to the Prime Rate plus 0.5% with a floor of 6.0%.
|
|
|
(16)
|
On July 18, 2019, in connection with the acquisition of Sebago, RED entered into a term loan of $1.1 million.
|
|
|
(17)
|
On March 24, 2020, RED entered into a draw term loan with a maximum aggregate principal amount of $1.9 million. The draw term loan requires payment of interest only until March 5, 2021.
|
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in the inability of our portfolio companies to borrow unused amounts under their respective lines of credit, even if repayment of some or all of their borrowings is not required. As of September 30, 2020, we were in compliance in all material respects with all covenants or other requirements set forth in our $35 million Term Loan Agreement, as amended. However, as of September 30, 2020, the entire $34.1 million outstanding balance under our Term Loan agreement, as amended, has been classified as a current liability on our condensed consolidated balance sheets due to uncertainty about the Company’s ability to remain in compliance with the loan’s financial covenants for the next twelve months. This uncertainty is the result of issues outside of management’s control, including that Ashford Trust, one of the Company’s key clients, currently exhibits conditions that create substantial doubt about its ability to continue as a going concern and continued cash payment of advisory fees and other revenue remains subject to the discretion of the independent board members of Ashford Trust. As of September 30, 2020, JSAV was not in compliance with certain debt covenants pursuant to existing debt agreements which have no recourse to Ashford Inc., including the leverage and fixed charge coverage ratios, which constituted an “Event of Default” as such term is defined under the applicable loan agreements. Following an Event of Default, JSAV’s lender can generally elect to accelerate all principal and accrued interest payments that remain outstanding under the applicable loan agreements. As a result, JSAV’s outstanding debt balance of $20.6 million has been classified as a current liability within our condensed consolidated balance sheet as of September 30, 2020. As of September 30, 2020, Pure Wellness and RED were in compliance in all material respects with all covenants or other requirements set forth in their debt and related agreements as amended. However, there can be no guarantee that our portfolio companies will remain in compliance for the remainder of the fiscal year. Due to the significant negative impact of COVID-19 on the operations of our portfolio companies, we expect that within the next twelve months RED will violate debt covenants pursuant to certain existing loan agreements which have no recourse to Ashford Inc. As a result, RED may be required to immediately repay a debt balance of $2.6 million which has therefore been classified as a current liability within our condensed consolidated balance sheet as of September 30, 2020. The JSAV and RED portfolio company loans are secured by the respective portfolio company’s tangible assets. None of our portfolio companies’ debt has recourse to Ashford Inc. with the exception of $3.8 million of debt held by the entity that conducts RED’s legacy U.S. Virgin Islands operations which is currently not expected to violate debt covenants. See note 1.
In April of 2020, certain of our portfolio companies applied for and received loans from Key Bank, N.A., Comerica Bank and Centennial Bank under the Paycheck Protection Program (“PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). All funds borrowed under the PPP were returned on or before May 7, 2020.
7. Fair Value Measurements
Fair Value Hierarchy—Our assets and liabilities measured at fair value, either on a recurring or a non-recurring basis, are classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs in the market place as discussed below:
•Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
•Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market Prices (Level 1)
|
|
Significant Other
Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
September 30, 2020
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Restricted Investment:
|
|
|
|
|
|
|
|
Ashford Trust common stock
|
$
|
48
|
|
(2)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48
|
|
Braemar common stock
|
108
|
|
(2)
|
—
|
|
|
—
|
|
|
108
|
|
Total
|
$
|
156
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
156
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
(2,359
|
)
|
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2,359
|
)
|
Subsidiary compensation plan
|
—
|
|
|
(33
|
)
|
(2)
|
—
|
|
|
(33
|
)
|
Deferred compensation plan
|
(1,156
|
)
|
|
—
|
|
|
—
|
|
|
(1,156
|
)
|
Total
|
$
|
(3,515
|
)
|
|
$
|
(33
|
)
|
|
$
|
—
|
|
|
$
|
(3,548
|
)
|
Net
|
$
|
(3,359
|
)
|
|
$
|
(33
|
)
|
|
$
|
—
|
|
|
$
|
(3,392
|
)
|
__________________
(1) Represents the fair value of the contingent consideration liability of $2.4 million related to the stock consideration collar associated with JSAV’s acquisition of BAV. The contingent consideration liabilities are reported as “other liabilities” in our condensed consolidated balance sheets. See notes 1 and 4.
(2) The assets acquired in our acquisition of Remington Lodging included shares of common stock of Ashford Trust and Braemar purchased by Remington Lodging on the open market and held for the purpose of providing compensation to certain employees. The compensation agreement liability is based on ratably accrued vested shares through September 30, 2020, which are exercisable upon vesting. The liability is the total accrued vested shares multiplied by the fair value of the quoted market price of the underlying investment.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market Prices (Level 1)
|
|
Significant Other
Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
December 31, 2019
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Restricted Investment:
|
|
|
|
|
|
|
|
Ashford Trust common stock
|
$
|
768
|
|
(3)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
768
|
|
Braemar common stock
|
427
|
|
(3)
|
—
|
|
|
—
|
|
|
427
|
|
Total
|
$
|
1,195
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,195
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
(2,668
|
)
|
(1)
|
$
|
—
|
|
|
$
|
(2,959
|
)
|
(2)
|
$
|
(5,627
|
)
|
Subsidiary compensation plan
|
—
|
|
|
(415
|
)
|
(3)
|
—
|
|
|
(415
|
)
|
Deferred compensation plan
|
(4,729
|
)
|
|
—
|
|
|
—
|
|
|
(4,729
|
)
|
Total
|
$
|
(7,397
|
)
|
|
$
|
(415
|
)
|
|
$
|
(2,959
|
)
|
|
$
|
(10,771
|
)
|
Net
|
$
|
(6,202
|
)
|
|
$
|
(415
|
)
|
|
$
|
(2,959
|
)
|
|
$
|
(9,576
|
)
|
__________________
(1) Represents the fair value of the contingent consideration liability of $1.6 million related to the stock consideration collar associated with JSAV’s acquisition of BAV and $1.0 million related to the stock consideration collar associated with RED’s acquisition of Sebago. The contingent consideration liabilities related to BAV and Sebago are reported as “other liabilities” in our consolidated balance sheets. See notes 1 and 4.
(2) Represents the fair value of the contingent consideration liability related to the achievement of certain performance targets associated with the acquisition of BAV, which is reported within “other liabilities” in our consolidated balance sheets. See notes 1 and 4.
(3) The assets acquired in our acquisition of Remington Lodging included shares of common stock of Ashford Trust and Braemar purchased by Remington Lodging on the open market and held for the purpose of providing compensation to certain employees. The compensation agreement liability is based on ratably accrued vested shares through December 31, 2019, which are exercisable upon vesting. The liability is the total accrued vested shares multiplied by the fair value of the quoted market price of the underlying investment.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table presents the rollforward of our Level 3 contingent consideration liability (in thousands):
|
|
|
|
|
|
Contingent Consideration Liability
|
Balance at December 31, 2019
|
$
|
(2,959
|
)
|
Acquisitions
|
—
|
|
Gains (losses) included in earnings (1)
|
(41
|
)
|
Dispositions and settlements
|
—
|
|
Transfers into/out of Level 3 (2)
|
3,000
|
|
Balance at September 30, 2020
|
$
|
—
|
|
__________________
|
|
(1)
|
Reported as “other” operating expense in our condensed consolidated statements of operations.
|
|
|
(2)
|
Includes JSAV’s contingent consideration associated with the acquisition of BAV in March of 2019. In the first quarter of 2020, BAV fully achieved the operating performance targets during the earn-out period, in accordance with the applicable agreement. On May 6, 2020, the Company executed the Second Amendment to the Asset Purchase Agreement in which we agreed to immediately pay $1.5 million in cash and modified certain contingent consideration and stock consideration collar payment terms related to the acquisition of BAV to extend remaining payments of cash or stock on various payment dates through March 2021. Pursuant to the agreement, we paid $1.5 million cash to the BAV sellers on May 7, 2020. The final liability of $1.5 million owed to the sellers of BAV is no longer contingent and is reported in our condensed consolidated balance sheets within “other liabilities.”
|
Assets Measured at Fair Value on a Non-recurring Basis
Our non-financial assets, such as goodwill, indefinite-lived intangible assets and long-lived assets are adjusted to fair value when an impairment charge is recognized. Such fair value measurements are based predominately on Level 3 inputs.
Goodwill
During the first quarter of 2020, we recognized goodwill impairment charges of $170.6 million, of which $121.0 million related to our Remington segment, and $49.5 million related to our Premier segment. As a result of our reduced cash flow projections and the significant decline in our market capitalization due to the COVID-19 pandemic, we concluded that sufficient indicators existed to require us to perform an interim quantitative assessment of goodwill as of March 31, 2020, in which we compared the fair value of the reporting units to their carrying value. We engaged a third-party valuation expert to assist us in performing this assessment. The fair value estimates for all reporting units were based on a blended analysis of the present value of future discounted cash flows and the market value approach, Level 3 inputs. The significant estimates used in the discounted cash flows model included our weighted average cost of capital, projected cash flows and the long-term rate of growth. Our cash flow assumptions were based on the actual historical performance of the reporting unit and took into account the recent severe and continued weakening of operating results as well as the anticipated rate of recovery due to the COVID-19 pandemic. The projected cash flows were based on management’s expectation of the timing of recovery from the economic downturn under various scenarios. The significant estimates used in the market approach model included identifying public companies engaged in businesses that are considered comparable to those of the reporting unit and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit. The excess of the reporting unit's carrying value over our estimate of the fair value was recorded as the goodwill impairment charge in the first quarter of 2020. No goodwill impairment charges were recorded in the second or third quarter of 2020. As of September 30, 2020, our Remington segment had $54.6 million goodwill remaining and our Premier segment had no goodwill remaining. Changes in circumstances due to the potential long-term economic impact and near-term financial impacts of the COVID-19 pandemic could result in additional impairment losses of all or a portion of our goodwill and intangible assets, including further declines in our market capitalization or further declines in our cash flows if Ashford Trust files for bankruptcy, which could result in the termination of the advisory agreement, hotel management agreement, project management agreement and/or any other agreements with the Company or our portfolio companies. We will continue to monitor and evaluate our results and evaluate the likelihood of any potential impairment charges at our reporting units.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Indefinite-Lived Intangible Assets
As a result of our reduced cash flow projections and the significant decline in our market capitalization due to the COVID-19 pandemic, we concluded that sufficient indicators existed to require us to perform an interim quantitative assessment of intangible assets as of March 31, 2020. During the first quarter of 2020, we engaged a third-party valuation expert to assist in determining the fair value of our indefinite-lived trademarks. We recognized intangible asset impairment charges of $7.6 million related to trademarks within our Remington and JSAV segments which resulted from changes in estimated future revenues. The Remington and JSAV trademarks were written down to $4.9 million and $1.5 million, respectively, based on a valuation using the relief-from-royalty method, which includes unobservable inputs including royalty rates and projected revenues. No impairment charges were recorded in the second or third quarter of 2020.
Long-Lived Assets
Long-lived assets include property and equipment, finance and operating lease assets, and definite-lived intangible assets which primarily include Remington and Premier management contracts, JSAV customer relationships and RED boat slip rights resulting from our acquisitions. In the first quarter of 2020, we performed a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset to its carrying value. The undiscounted cash flows exceeded the carrying value and therefore the assets were not impaired and no further evaluation was required. No impairment charges were recorded in the second or third quarter of 2020.
Effect of Fair Value Measured Assets and Liabilities on Our Condensed Consolidated Statements of Operations
The following table summarizes the effect of fair value measured assets and liabilities on our condensed consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Assets
|
|
|
|
|
|
|
|
Restricted investment: (1)
|
|
|
|
|
|
|
|
Ashford Trust common stock
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(200
|
)
|
|
$
|
—
|
|
Braemar common stock
|
—
|
|
|
—
|
|
|
(186
|
)
|
|
—
|
|
Goodwill
|
—
|
|
|
—
|
|
|
(170,572
|
)
|
|
—
|
|
Intangible assets, net
|
—
|
|
|
—
|
|
|
(7,641
|
)
|
|
—
|
|
Total
|
—
|
|
|
—
|
|
|
(178,599
|
)
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration (2)
|
$
|
(134
|
)
|
|
$
|
(2,773
|
)
|
|
$
|
(751
|
)
|
|
$
|
(4,412
|
)
|
Subsidiary compensation plan (3)
|
22
|
|
|
—
|
|
|
187
|
|
|
—
|
|
Deferred compensation plan (3)
|
869
|
|
|
1,526
|
|
|
3,566
|
|
|
5,603
|
|
Total
|
$
|
757
|
|
|
$
|
(1,247
|
)
|
|
$
|
3,002
|
|
|
$
|
1,191
|
|
Net
|
$
|
757
|
|
|
$
|
(1,247
|
)
|
|
$
|
(175,597
|
)
|
|
$
|
1,191
|
|
__________________
|
|
(1)
|
Represents the realized loss on shares of common stock of Ashford Trust and Braemar purchased by Remington on the open market and held for the purpose of providing compensation to certain employees.
|
|
|
(2)
|
Represents the changes in fair value of the contingent consideration liabilities related to the level of achievement of certain performance targets and stock consideration collars associated with the acquisition of BAV. Changes in the fair value of contingent consideration are reported within “other” operating expense in our condensed consolidated statements of operations. See note 4.
|
(3) Reported as a component of “salaries and benefits” in our condensed consolidated statements of operations.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Restricted Investment
The historical cost and approximate fair values, together with gross unrealized gains and losses, of securities restricted for use in our subsidiary compensation plan are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
|
|
|
|
|
Equity securities (1)
|
$
|
1,170
|
|
|
$
|
—
|
|
|
$
|
(1,014
|
)
|
|
$
|
156
|
|
__________________
|
|
(1)
|
Distribution of $195,000 of available-for-sale securities were recognized in the nine months ended September 30, 2020. Unrealized gains and losses associated with available-for-sale securities are included within “accumulated other comprehensive income” in our condensed consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Equity securities (1)
|
$
|
1,309
|
|
|
$
|
—
|
|
|
$
|
(114
|
)
|
|
$
|
1,195
|
|
__________________
|
|
(1)
|
No distributions of available-for-sale securities occurred as of December 31, 2019. Unrealized losses associated with available-for-sale securities are included within “accumulated other comprehensive income” in our condensed consolidated balance sheets.
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
8. Summary of Fair Value of Financial Instruments
Certain of our financial instruments are not measured at fair value on a recurring basis. The estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled. The carrying amounts and estimated fair values of financial instruments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
Financial assets measured at fair value:
|
|
|
|
|
|
|
|
|
Restricted investment
|
|
$
|
156
|
|
|
$
|
156
|
|
|
$
|
1,195
|
|
|
$
|
1,195
|
|
Financial liabilities measured at fair value:
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
|
$
|
1,156
|
|
|
$
|
1,156
|
|
|
$
|
4,729
|
|
|
$
|
4,729
|
|
Contingent consideration
|
|
2,359
|
|
|
2,359
|
|
|
5,627
|
|
|
5,627
|
|
Financial assets not measured at fair value:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68,623
|
|
|
$
|
68,623
|
|
|
$
|
35,349
|
|
|
$
|
35,349
|
|
Restricted cash
|
|
36,577
|
|
|
36,577
|
|
|
17,900
|
|
|
17,900
|
|
Accounts receivable, net
|
|
3,833
|
|
|
3,833
|
|
|
7,241
|
|
|
7,241
|
|
Due from affiliates
|
|
108
|
|
|
108
|
|
|
357
|
|
|
357
|
|
Due from Ashford Trust
|
|
2,585
|
|
|
2,585
|
|
|
4,805
|
|
|
4,805
|
|
Due from Braemar
|
|
124
|
|
|
124
|
|
|
1,591
|
|
|
1,591
|
|
Investments in unconsolidated entities
|
|
3,777
|
|
|
3,777
|
|
|
3,476
|
|
|
3,476
|
|
Financial liabilities not measured at fair value:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
42,093
|
|
|
$
|
42,093
|
|
|
$
|
39,160
|
|
|
$
|
39,160
|
|
Dividends payable
|
|
15,860
|
|
|
15,860
|
|
|
4,725
|
|
|
4,725
|
|
Due to affiliates
|
|
733
|
|
|
733
|
|
|
1,011
|
|
|
1,011
|
|
Other liabilities
|
|
31,664
|
|
|
31,664
|
|
|
13,868
|
|
|
13,868
|
|
Notes payable
|
|
62,790
|
|
|
59,109 to 65,331
|
|
|
36,810
|
|
|
34,705 to 38,359
|
|
Restricted investment. These financial assets are carried at fair value based on quoted market prices of the underlying investments. This is considered a Level 1 valuation technique.
Deferred compensation plan. The liability resulting from the deferred compensation plan is carried at fair value based on the closing prices of the underlying investments. This is considered a Level 1 valuation technique.
Contingent consideration. The liability associated with JSAV’s acquisition of BAV is carried at fair value based on the terms of the acquisition agreements and any changes to fair value are recorded in “other” operating expenses in our condensed consolidated statements of operations. See note 7.
Cash, cash equivalents and restricted cash. These financial assets bear interest at market rates and have maturities of less than 90 days. The carrying values approximate fair value due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.
Accounts receivable, net, due from affiliates, due from Ashford Trust, due from Braemar, accounts payable and accrued expenses, dividends payable, due to affiliates and other liabilities. The carrying values of these financial instruments approximate their fair values due primarily to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.
Investments in unconsolidated entities. The carrying value of the asset resulting from investment in unconsolidated entities approximates fair value based on recent observable transactions. This is considered a level 2 valuation technique. See note 2.
Notes payable. The fair value of notes payable is based on credit spreads on observable transactions of a similar nature and is considered a Level 2 valuation technique.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
9. Commitments and Contingencies
Purchase Commitment—As of September 30, 2020, we had approximately $11.4 million of remaining purchase commitments related to our Ashford Trust ERFP Agreement which, under the Extension Agreement, must be fulfilled by December 31, 2022.
Contingent Consideration—We had total acquisition-related contingent consideration liabilities outstanding of approximately $3.9 million and $5.6 million as of September 30, 2020 and December 31, 2019, respectively, primarily related to the level of achievement of certain performance targets and stock consideration collars. See notes 4 and 7.
Litigation—In June 2020, each of the Company, Braemar, Ashford Trust, and Lismore, a subsidiary of the Company (collectively with the Company, Braemar, Ashford Trust and Lismore, the “Ashford Companies”), received an administrative subpoena from the SEC. The Company’s administrative subpoena requires the production of documents and other information since January 1, 2018 relating to, among other things, (1) related party transactions among the Ashford Companies (including the Ashford Trust Agreement and the Braemar Agreement pursuant to which each of Ashford Trust and Braemar engaged Lismore to negotiate the refinancing, modification or forbearance of certain mortgage debt) or between any of the Ashford Companies and any officer, director or owner of the Ashford Companies or any entity controlled by any such person, and (2) the Company’s accounting policies, procedures and internal controls related to such related party transactions. In addition, in October 2020, Mr. Monty J. Bennett, the Chairman of our Board and our Chief Executive Officer, received an administrative subpoena from the SEC requesting testimony and the production of documents and other information substantially similar to the requests in the subpoenas received by the Ashford Companies. The Company and Mr. Monty J. Bennett are responding to the administrative subpoenas.
A class action lawsuit has been filed against one of the Company’s subsidiaries alleging violations of certain California employment laws. The court has entered an order granting class certification with respect to: (1) a statewide class of non-exempt employees who were allegedly deprived of rest breaks as a result of the subsidiary’s previous policy requiring employees to stay on premises during rest breaks; and (2) a derivative class of non-exempt former employees who were not paid for allegedly missed breaks upon separation from employment. Notices to potential class members are being prepared. Upon receipt, recipients of the notice will have sixty (60) days to opt out of the class. While we believe it is reasonably possible that we may incur a loss associated with this litigation, because the class size has not yet been determined and there is uncertainty under California law with respect to a significant legal issue, we do not believe that any potential loss to the Company is reasonably estimable at this time. As of September 30, 2020, no amounts have been accrued.
The Company is engaged in other various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the financial position, results of operations or cash flow of the Company. However, the adjudication of legal proceedings is difficult to predict, and if the Company failed to prevail in one or more of these legal matters, and the associated realized losses were to exceed the Company’s current estimates of the range of potential losses, the Company’s consolidated financial position or results of operations could be materially adversely affected in future periods.
10. Equity (Deficit)
Shareholder Rights Plan—On March 13, 2020, the Board adopted a shareholder rights plan (the “2020 Rights Agreement”). The 2020 Rights Agreement is intended to improve the bargaining position of the Board in the event of an unsolicited offer to acquire our outstanding shares of common stock. Pursuant to the 2020 Rights Agreement, the Board declared a dividend of one preferred share purchase right (a “Right”) payable on March 23, 2020, for each outstanding share of common stock, par value $0.001 per share, outstanding on March 23, 2020 to the stockholders of record on that date. Each Right initially entitles the registered holder to purchase from the Company one one-thousandth of a share of Series E Preferred Stock, par value $0.001 per share (the “Preferred Shares”), of the Company, at a price of $275 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment. The Rights become exercisable upon certain conditions, as defined in the rights agreement. At any time prior to the time any person or group becomes an Acquiring Person, as defined in the rights agreement, the Board may redeem the Rights in whole, but not in part, at a price of $0.001 per Right. The value of the Rights is de minimis.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Noncontrolling Interests in Consolidated Entities—See note 2 for details regarding ownership interests, carrying values and allocations related to noncontrolling interests in our consolidated subsidiaries.
The following table summarizes the (income) loss allocated to noncontrolling interests for each of our consolidated entities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
(Income) loss allocated to noncontrolling interests:
|
|
|
|
|
|
|
|
OpenKey
|
181
|
|
|
146
|
|
|
420
|
|
|
475
|
|
RED
|
109
|
|
|
(27
|
)
|
|
264
|
|
|
(87
|
)
|
Pure Wellness
|
29
|
|
|
(27
|
)
|
|
52
|
|
|
(2
|
)
|
Other
|
—
|
|
|
9
|
|
|
21
|
|
|
9
|
|
Total net (income) loss allocated to noncontrolling interests
|
$
|
319
|
|
|
$
|
101
|
|
|
$
|
757
|
|
|
$
|
395
|
|
11. Mezzanine Equity
Redeemable Noncontrolling Interests—Redeemable noncontrolling interests are included in the mezzanine section of our condensed consolidated balance sheets as the ownership interests are redeemable for cash or registered shares outside of the Company’s control. See note 2 for tables summarizing the redeemable noncontrolling ownership interests and carrying values.
The following table summarizes the net (income) loss allocated to our redeemable noncontrolling interests (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net (income) loss allocated to redeemable noncontrolling interests:
|
|
|
|
|
|
|
|
Ashford Holdings
|
$
|
35
|
|
|
$
|
15
|
|
|
$
|
396
|
|
|
$
|
25
|
|
JSAV
|
392
|
|
|
165
|
|
|
870
|
|
|
71
|
|
OpenKey
|
177
|
|
|
154
|
|
|
422
|
|
|
527
|
|
Total net (income) loss allocated to redeemable noncontrolling interests
|
$
|
604
|
|
|
$
|
334
|
|
|
$
|
1,688
|
|
|
$
|
623
|
|
Convertible Preferred Stock—Our convertible preferred stock is included in the mezzanine section of our condensed consolidated balance sheets as the ownership interests are redeemable for cash or registered shares outside of the Company’s control.
On November 6, 2019, we completed the acquisition of Remington Lodging’s hotel management business and Marietta for $275 million, payable by the issuance of $275 million of a new Ashford Inc. Series D Convertible Preferred Stock. In the previous transaction for Remington Lodging’s project management business, the sellers received $203 million of Maryland Ashford’s Series B Convertible Preferred Stock. For the transaction involving Remington Lodging’s hotel management business, that $203 million of Maryland Ashford’s Series B Convertible Preferred Stock was exchanged, pursuant to a merger transaction whereby Maryland Ashford became our wholly-owned subsidiary, for $203 million of Series D Convertible Preferred Stock (such that, after the transactions, $478 million of Series D Convertible Preferred Stock, and no Series B Convertible Preferred Stock, was outstanding).
Each share of Series D Convertible Preferred Stock: (i) has a liquidation value of $25 per share; (ii) accrues cumulative dividends at the rate of: (a) 6.59% per annum until November 6, 2020; (b) 6.99% per annum from November 6, 2020 until November 6, 2021; and (c) 7.28% per annum thereafter, (iii) participates in any dividend or distribution on the common stock in addition to the preferred dividends; (iv) is convertible into voting common stock at $117.50 per share; and (v) provides for customary anti-dilution protections. In the event the Company fails to pay the dividends on the Series D Convertible Preferred Stock for two consecutive quarterly periods (a “Preferred Stock Breach”), then until such arrearage is paid in cash in full: (A) the dividend rate on the Series D Convertible Preferred Stock will increase to 10.00% per annum until no Preferred Stock Breach exists; (B) no
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
dividends on the Company’s common stock may be declared or paid, and no other distributions or redemptions may be made, on the Company’s common stock; and (C) the Board will be increased by two seats and the holders of 55% of the outstanding Series D Convertible Preferred Stock will be entitled to fill such newly created seats. The Series D Convertible Preferred Stock is held primarily by Mr. Monty J. Bennett, the Chairman of our Board and our Chief Executive Officer, Mr. Archie Bennett, Jr., who is Mr. Monty J. Bennett’s father, one of our other executive officers and several other individuals.
To the extent not paid on April 15, July 15, October 15 and January 15 of each calendar year in respect of the quarterly periods ending on March 31, June 30, September 30 and December 31, respectively (each such date, a “Dividend Payment Date”), all accrued dividends on any share shall accumulate and compound on the applicable Dividend Payment Date whether or not declared by the Board and whether or not funds are legally available for the payment thereof. All accrued dividends shall remain accumulated, compounding dividends until paid in cash pursuant hereto or converted to common shares.
The Series D Convertible Preferred Stock is entitled to vote alongside our voting common stock on an as-converted basis, subject to applicable voting limitations.
So long as any shares of Series D Convertible Preferred Stock are outstanding, the Company is prohibited from taking specified actions without the consent of the holders of 55% of the outstanding Series D Convertible Preferred Stock, including: (i) modifying the terms, rights, preferences, privileges or voting powers of the Series D Convertible Preferred Stock; (ii) altering the rights; preferences or privileges of any capital stock of the Company so as to affect adversely the Series D Convertible Preferred Stock; (iii) issuing any security senior to the Series D Convertible Preferred Stock, or any shares of Series D Convertible Preferred Stock other than pursuant to the Combination Agreement dated May 31, 2019 between us, the Bennetts, Remington Holdings, L.P. and certain other parties, as amended (the “Combination Agreement”); (iv) entering into any agreement that expressly prohibits or restricts the payment of dividends on the Series D Convertible Preferred Stock or the common stock of the Company or the exercise of the Change of Control Put Option (as defined in the Combination Agreement); or (v) other than the payment of dividends on the Series D Convertible Preferred Stock or payments to purchase any of the Series D Convertible Preferred Stock, transferring all or a substantial portion of the Company’s or its subsidiaries’ cash balances or other assets to a person other than the Company or its subsidiaries, other than by means of a dividend payable by the Company pro rata to the holders of the Company common stock (together with a corresponding dividend payable to the holders of the Series D Convertible Preferred Stock).
After June 30, 2026, we will have the option to purchase all or any portion of the Series D Convertible Preferred Stock, in $25.0 million increments, on a pro rata basis among all holders of the Series D Convertible Preferred Stock (subject to the ability of the holders to provide for an alternative allocation amongst themselves), at a price per share equal to: (i) $25.125; plus (ii) all accrued and unpaid dividends (provided any holder of Series D Convertible Preferred Stock shall be entitled to exercise its right to convert its shares of Series D Convertible Preferred Stock into common stock not fewer than five business days before such purchase is scheduled to close).
Under the applicable authoritative accounting guidance, the increasing dividend rate feature of the Series D Convertible Preferred Stock results in a discount that must be reflected in the fair value of the preferred stock, which was reflected in “Series D Convertible Preferred Stock, net of discount” on our condensed consolidated balance sheets. For the three and nine months ended September 30, 2020, we recorded $781,000 and $2.4 million, respectively, of amortization related to preferred stock discounts. For the three and nine months ended September 30, 2019, we recorded $363,000 and $1.3 million, respectively, of amortization related to preferred stock discounts.
On March 16, 2020, the Company announced that the Board had declared and the Company would pay 50% of the dividend which was due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020. The declared $3.9 million dividends were paid on April 15, 2020. On June 24, 2020, the Company declared the remaining 50% or approximately $4.0 million of dividends, including compounding dividends, due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020 which were paid on July 14, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the second quarter of 2020. On September 14, 2020, the Board declared a dividend of $0.411875 per share which was due with respect to its Series D Convertible Preferred Stock for the third quarter of 2020. The declared $7.9 million dividends were paid on October 15, 2020. As of September 30, 2020, the Company had aggregate undeclared preferred stock dividends of approximately $7.9 million which relates to the second quarter of 2020. All dividends, declared and undeclared, are recorded as a reduction in net income (loss) in the period incurred in our condensed consolidated statements of operations. All accrued dividends accumulate and compound until paid in cash or converted into common stock of the Company pursuant to the Certificate of Designation for the Series D Convertible Preferred Stock. Unpaid dividends, declared and undeclared, totaling $15.9 million at September 30, 2020, are recorded as a liability in our condensed consolidated balance sheets as “dividends payable”.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Declared convertible preferred stock cumulative dividends for all issued and outstanding shares were as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Preferred dividends - declared
|
$
|
7,875
|
|
|
$
|
2,909
|
|
|
$
|
15,815
|
|
|
$
|
8,492
|
|
Preferred dividends per share - declared
|
$
|
0.4119
|
|
|
$
|
0.3583
|
|
|
$
|
0.8271
|
|
|
$
|
1.0458
|
|
Aggregate undeclared convertible preferred stock cumulative dividends (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Aggregate preferred dividends - undeclared
|
$
|
7,985
|
|
|
$
|
—
|
|
Aggregate preferred dividends - undeclared per share
|
$
|
0.4176
|
|
|
$
|
—
|
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
12. Equity-Based Compensation
Equity-based compensation expense is primarily recorded in “salaries and benefits expense” and REIT equity-based compensation expense is primarily recorded in “reimbursed expenses” in our condensed consolidated statements of operations. The components of equity-based compensation expense for the three and nine months ended September 30, 2020 and 2019 are presented below by award type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Equity-based compensation
|
|
|
|
|
|
|
|
Stock option amortization (1)
|
$
|
1,454
|
|
|
$
|
2,070
|
|
|
$
|
3,146
|
|
|
$
|
6,264
|
|
Employee equity grant expense (2)
|
221
|
|
|
14
|
|
|
573
|
|
|
71
|
|
Director and other non-employee equity grants expense (3)
|
100
|
|
|
5
|
|
|
369
|
|
|
615
|
|
Total equity-based compensation
|
$
|
1,775
|
|
|
$
|
2,089
|
|
|
$
|
4,088
|
|
|
$
|
6,950
|
|
|
|
|
|
|
|
|
|
Other equity-based compensation
|
|
|
|
|
|
|
|
REIT equity-based compensation (4)
|
$
|
4,088
|
|
|
$
|
6,743
|
|
|
$
|
13,288
|
|
|
$
|
19,226
|
|
|
$
|
5,863
|
|
|
$
|
8,832
|
|
|
$
|
17,376
|
|
|
$
|
26,176
|
|
________
|
|
(1)
|
As of September 30, 2020, the Company had approximately $4.3 million of total unrecognized compensation expense related to stock options that will be recognized over a weighted average period of 0.8 years. The nine months ended September 30, 2020, includes the forfeiture of 98,603 options from the voluntary resignation of Douglas A. Kessler, Senior Managing Director of the Company, in May of 2020.
|
|
|
(2)
|
As of September 30, 2020, the Company had approximately $2.1 million of total unrecognized compensation expense related to restricted shares that will be recognized over a weighted average period of 2.3 years. Effective as of May 15, 2020, employee equity grant expense additionally includes common stock issued to Mr. Monty J. Bennett at fair value in lieu of cash for payment of his base salary pursuant to the Company’s 2014 Incentive Plan, as amended. See note 1.
|
|
|
(3)
|
Grants of stock, restricted stock and stock units to independent directors and other non-employees are recorded at fair value based on the market price of our shares at grant date, and this amount is expensed in “general and administrative” expense. See “Equity-based Compensation” in note 2.
|
|
|
(4)
|
REIT equity-based compensation expense is primarily recorded in “reimbursed expenses” and is associated with equity grants of Ashford Trust’s and Braemar’s common stock and LTIP units awarded to our officers and employees. See notes 2 and 14.
|
13. Deferred Compensation Plan
We administer a non-qualified deferred compensation plan (“DCP”) for certain executive officers. The plan allowed participants to defer up to 100% of their base salary and bonus and select an investment fund for measurement of the deferred compensation obligation. For the periods the DCP was administered by Ashford Trust, the participants elected Ashford Trust common stock as their investment option. In accordance with the applicable authoritative accounting guidance, the deferred amounts and any dividends earned received equity treatment and were included in additional paid-in capital. In connection with our spin-off and the assumption of the DCP obligation by the Company, the DCP was modified to give the participants various investment options, including Ashford Inc. common stock, for measurement that can be changed by the participant at any time. These modifications resulted in the DCP obligation being recorded as a liability in accordance with the applicable authoritative accounting guidance. Distributions under the DCP are made in cash, unless the participant has elected Ashford Inc. common stock as the investment option, in which case any such distributions would be made in Ashford Inc. common stock. Additionally, the DCP obligation is carried at fair value with changes in fair value reflected in “salaries and benefits” in our condensed consolidated statements of operations and comprehensive income (loss).
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes the DCP activity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Change in fair value
|
|
|
|
|
|
|
|
Unrealized gain (loss)
|
$
|
869
|
|
|
$
|
1,526
|
|
|
$
|
3,566
|
|
|
$
|
5,603
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
|
|
|
|
|
|
Fair value (1)
|
$
|
2
|
|
|
$
|
20
|
|
|
$
|
8
|
|
|
$
|
93
|
|
Shares (1)
|
—
|
|
|
1
|
|
|
1
|
|
|
3
|
|
________
|
|
(1)
|
Distributions made to one participant.
|
As of September 30, 2020 and December 31, 2019 the carrying value of the DCP liability was $1.2 million and $4.7 million, respectively.
14. Related Party Transactions
As an asset manager providing advisory services to Ashford Trust and Braemar, as well as holding an ownership interest in other businesses providing products and services to the hospitality industry, including Ashford Trust and Braemar, related party transactions are inherent in our business. Details of our related party transactions are presented below.
Ashford Trust—We are a party to an amended and restated advisory agreement, as amended, with Ashford Trust and Ashford Trust OP. In addition, Premier is party to a master project management agreement with Ashford Trust OP and Ashford TRS Corporation, a subsidiary of Ashford Trust OP, and certain of its affiliates (collectively, “Ashford Trust TRS”) to provide comprehensive and cost-effective design, development, architectural, and project management services and a related mutual exclusivity agreement with Ashford Trust and Ashford Trust OP. On March 20, 2020, we amended the master project management agreement to provide that Premier’s fees shall be paid by Ashford Trust to Premier upon the completion of any work provided by third party vendors to Ashford Trust.
Further, Ashford Trust entered into hotel master management agreements with Remington Lodging (then wholly-owned by Mr. Monty J. Bennett and Mr. Archie Bennett, Jr.) governing the terms of Remington Lodging’s provision of hotel management services and project management services with respect to hotels owned or leased by Ashford Trust in 2003, as amended, and 2006. In connection with the Company’s acquisition of Premier from Remington Lodging in August 2018, Ashford Trust amended and restated the original hotel master management agreement to provide only for hotel management services to be provided to Ashford Trust’s TRSs by Remington Lodging by entering into the Consolidated, Amended and Restated Hotel Master Management Agreement dated as of August 8, 2018, which agreement we refer to below as the “Ashford Trust master hotel management agreement.”
In connection with the Company’s subsequent acquisition of Remington Lodging on November 6, 2019, Remington Lodging became a subsidiary of the Company, and the Ashford Trust master hotel management agreement between Remington Lodging and Ashford Trust remains in effect. Ashford Trust pays the Company a monthly hotel management fee equal to the greater of $14,000 (increased annually based on consumer price index adjustments) or 3% of gross revenue (the “base fee”) as well as annual incentive hotel management fees, if certain operational criteria are met and other general and administrative expense reimbursements. Under the original terms of the Ashford Trust master hotel management agreement, Ashford Trust paid us on the fifth day of each month for the base fees in the preceding month. On March 13, 2020, Ashford Trust entered into the Ashford Trust Hotel Management Letter Agreement with the Company. In order to allow the Company to better manage our corporate working capital and to ensure the continued efficient operation of the Ashford Trust hotels managed by Remington, Ashford Trust agreed to pay the base fee and to reimburse all expenses for Remington-managed hotels on a weekly basis for the preceding week, rather than on a monthly basis. The Ashford Trust Hotel Management Letter Agreement went into effect on March 13, 2020 and will continue until terminated by Ashford Trust.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
On March 20, 2020, Lismore, a wholly owned subsidiary of the Company, entered into an agreement to seek modifications, forbearances or refinancings of Ashford Trust’s loans (the “Ashford Trust Agreement”). Pursuant to the Ashford Trust Agreement, Lismore shall, during the term of the agreement (which commenced on March 20, 2020 and shall end on the date that is twelve months following the commencement date, or upon it being terminated by Ashford Trust on not less than thirty days written notice) negotiate the refinancing, modification or forbearance of the existing mortgage debt on Ashford Trust’s hotels. For the purposes of the Ashford Trust Agreement, financing shall include, without limitation, senior or subordinate loan financing, provided in any single transaction or a combination of transactions, including, mortgage loan financing, mezzanine loan financing, or subordinate loan financing encumbering the applicable hotel or unsecured loan financing.
On July 1, 2020, Lismore and Ashford Trust amended and restated the Ashford Trust Agreement with an effective date of April 6, 2020. Pursuant to the amended and restated agreement, the term of the agreement was extended to 24 months following the commencement date. In connection with the services to be provided by Lismore under the amended and restated agreement, Lismore received a fee of $2.6 million in three equal installments of $857,000 per month beginning July 20, 2020, and ending on September 20, 2020. Lismore is also entitled to receive a fee that is calculated and payable as follows: (i) a fee equal to 25 basis points (0.25%) of the amount of a loan, payable upon the acceptance by the applicable lender of any forbearance or extension of such loan, or in the case where a third-party agent or contractor engaged by Ashford Trust has secured an extension of the maturity date equal to or greater than 12 months of any such loan, then the amount payable to Lismore shall be reduced to 10 basis points (0.10%); (ii) a fee equal to 75 basis points (0.75%) of the amount of any principal reduction of a loan upon the acceptance by any lender of any principal reduction of such loan; and (iii) a fee equal to 150 basis points (1.50%) of the implied conversion value (but in any case, no less than 50% of the face value of such loan or loans) of a loan upon the acceptance by any lender of any debt to equity conversion of such loan.
At the time of amendment, Lismore had been paid approximately $8.3 million, in the aggregate, pursuant to the original agreement. Under the amended and restated agreement, Ashford Trust is still entitled, in the event that Ashford Trust does not complete, for any reason, extensions or forbearances during the term of the agreement equal to or greater than approximately $4.1 billion, to offset, against any fees Ashford Trust or its affiliates owe pursuant to the advisory agreement, a portion of the fee previously paid by Ashford Trust to Lismore equal to the product of (x) approximately $4.1 billion minus the amount of extensions or forbearances completed during the term of the agreement multiplied by (y) 0.125%. For the three and nine month period ended September 30, 2020, the Company recognized revenue of $3.0 million and $3.6 million, respectively. The three month period ended September 30, 2020 includes a $1.1 million cumulative catch-up adjustment to revenue which was previously considered constrained. As of September 30, 2020, the Company recorded $9.9 million as deferred income of which $2.0 million is subject to claw back. The deferred income related to the various Lismore fees described above will be recognized over the 24 month term of the agreement on a straight line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes. See the table below for details of the revenue recognized by the Company and note 3 for additional discussion of the related deferred income.
On October 16, 2020, the independent members of the Board provided Ashford Trust a 30-day deferral on the payment of: (i) approximately $3.0 million in base advisory fees due to the Company with respect to the month of October 2020; (ii) approximately $1.0 million in reimbursable expenses due to the Company with respect to the month of October 2020, payable under the amended and restated advisory agreement, as amended, with Ashford Trust and Ashford Trust OP; and (iii) $3.0 million of success fees earned by Lismore in the third quarter of 2020. The Board also accelerated approximately $506,000 in claw back credit due to Ashford Trust which, absent a waiver, would occur after the expiration of the Lismore Agreement. In addition, the independent members of the Board provided to Ashford Trust a limited waiver of any claim against Ashford Trust and Ashford Trust’s affiliates, and each of their officers and directors, for breach of the Ashford Trust Agreement or any damages that may have arisen in absence of the success fee deferrals.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
On November 4, 2020, the independent members of the Board provided Ashford Trust: (i) a deferral on the payment of base advisory fees with respect to October 2020 in the amount of approximately $3.0 million that were previously deferred on October 16, 2020; (ii) a deferral on the payment of approximately $3.0 million of success fees earned by Lismore that were previously deferred on October 16, 2020; (iii) a deferral on the payment of approximately $3.0 million in base advisory fees due to the Company with respect to the month of November 2020; (iv) a deferral on the payment of any Lismore success fees that may be earned during November 2020, such that each such deferred payment shall be due and payable on December 1, 2020; and (v) a limited waiver of any claim against Ashford Trust and Ashford Trust’s affiliates, and each of their officers and directors, for breach of the advisory agreement or any damages that may have arisen in absence of the fee deferrals. In addition, the independent members of the Board waived the obligation of Ashford Trust to replace the FF&E owned by the Company at Ashford Trust’s Embassy Suites New York Manhattan Times Square hotel that was lost when Ashford Trust consummated a deed-in-lieu of foreclosure transaction with the mezzanine lender.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes the revenues and expenses related to Ashford Trust (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
REVENUES BY TYPE
|
|
|
|
|
|
|
|
Advisory services revenue:
|
|
|
|
|
|
|
|
Base advisory fee
|
$
|
8,653
|
|
|
$
|
8,003
|
|
|
$
|
26,127
|
|
|
$
|
24,463
|
|
|
|
|
|
|
|
|
|
Hotel management:
|
|
|
|
|
|
|
|
Base management fees (1)
|
3,491
|
|
|
—
|
|
|
12,688
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Project management revenue (2)
|
722
|
|
|
4,192
|
|
|
4,642
|
|
|
12,481
|
|
Audio visual revenue (3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other revenue
|
|
|
|
|
|
|
|
Debt placement and related fees (4)
|
2,957
|
|
|
—
|
|
|
3,774
|
|
|
1,158
|
|
Claims management services (5)
|
42
|
|
|
26
|
|
|
88
|
|
|
57
|
|
Lease revenue (6)
|
—
|
|
|
946
|
|
|
—
|
|
|
2,837
|
|
Other services (7)
|
340
|
|
|
482
|
|
|
1,126
|
|
|
1,358
|
|
Total other revenue
|
3,339
|
|
|
1,454
|
|
|
4,988
|
|
|
5,410
|
|
|
|
|
|
|
|
|
|
Cost reimbursement revenue
|
23,155
|
|
|
8,289
|
|
|
111,175
|
|
|
24,245
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
39,360
|
|
|
$
|
21,938
|
|
|
$
|
159,620
|
|
|
$
|
66,599
|
|
|
|
|
|
|
|
|
|
REVENUES BY SEGMENT (8)
|
|
|
|
|
|
|
|
REIT advisory
|
$
|
12,457
|
|
|
$
|
15,888
|
|
|
$
|
38,419
|
|
|
$
|
48,500
|
|
Remington
|
22,049
|
|
|
—
|
|
|
108,323
|
|
|
—
|
|
Premier
|
1,020
|
|
|
5,083
|
|
|
6,281
|
|
|
15,098
|
|
OpenKey
|
49
|
|
|
28
|
|
|
178
|
|
|
83
|
|
Corporate and other
|
3,785
|
|
|
939
|
|
|
6,419
|
|
|
2,918
|
|
Total revenues
|
$
|
39,360
|
|
|
$
|
21,938
|
|
|
$
|
159,620
|
|
|
$
|
66,599
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES
|
|
|
|
|
|
|
|
Cost of audio visual revenues (3)
|
$
|
59
|
|
|
$
|
1,778
|
|
|
$
|
2,073
|
|
|
$
|
5,324
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL REVENUE INFORMATION
|
|
|
|
|
|
|
|
Audio visual revenue from guests at REIT properties (3)
|
$
|
133
|
|
|
$
|
4,110
|
|
|
$
|
4,737
|
|
|
$
|
12,160
|
|
________
|
|
(1)
|
Hotel management revenue is reported within our Remington segment. Base management fees are recognized when services have been rendered. Remington receives base management fees of 3% of gross hotel revenue for managing the hotel employees and daily operations of the hotels, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). See note 3 for discussion of the hotel management revenue recognition policy.
|
|
|
(2)
|
Project management revenue primarily consists of revenue generated within our Premier segment by providing design, development, architectural, and project management services for which Premier receives fees. See note 3 for discussion of the project management revenue recognition policy.
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
|
(3)
|
JSAV primarily contracts directly with customers to whom it provides audio visual services. JSAV recognizes the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Ashford Trust, are recognized in “cost of revenues for audio visual” in our condensed consolidated statements of operations. See note 3 for discussion of the audio visual revenue recognition policy.
|
|
|
(4)
|
Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services. Revenue recognized by the Company in the three months ended September 30, 2020 includes a $1.1 million cumulative catch-up related to revenue which was previously considered constrained.
|
|
|
(5)
|
Claims management services include revenue earned from providing insurance claim assessment and administration services.
|
|
|
(6)
|
In connection with our ERFP Agreements and legacy key money transaction with Ashford Trust, we lease FF&E to Ashford Trust rent-free. Our ERFP leases entered into in 2018 commenced on December 31, 2018. Consistent with our accounting treatment prior to adopting ASU 2016-02, other revenue for the three and nine months ended September 30, 2019, includes a portion of the base advisory fee for leases commencing prior to our adoption, which is equal to the estimated fair value of the lease payments that would have been made.
|
|
|
(7)
|
Other services revenue is primarily associated with other hotel products and services, such as mobile key applications and hypoallergenic premium rooms, provided to Ashford Trust by our consolidated subsidiaries, OpenKey and Pure Wellness.
|
|
|
(8)
|
See note 16 for discussion of segment reporting.
|
Braemar—We are also a party to an amended and restated advisory agreement with Braemar and Braemar OP. In addition, Premier is party to a master project management agreement with Braemar OP and Braemar TRS Yountville LLC, a limited liability company existing under the laws of the state of Delaware and wholly-owned subsidiary of Braemar OP (“Braemar TRS”) to provide comprehensive and cost-effective design, development, architectural, and project management services and a related mutual exclusivity agreement with Braemar and Braemar OP. On March 20, 2020, we amended the project management agreement to provide that Premier’s fees shall be paid by Braemar to Premier upon the completion of any work provided by third party vendors to Braemar.
In 2014, Braemar entered into a hotel master management agreement with Remington Lodging (then wholly-owned by Mr. Monty J. Bennett, our Chairman and Mr. Archie Bennett, Jr., who is Monty J. Bennett’s father.) governing the terms of Remington Lodging’s provision of hotel management services and project management services with respect to hotels owned or leased by Braemar. In connection with the Company’s acquisition of Premier from Remington Lodging in August 2018, Braemar amended and restated the original hotel master management agreement to provide only for hotel management services to be provided to Braemar’s TRSs by Remington Lodging by entering into the Amended and Restated Hotel Master Management Agreement dated as of August 8, 2018, which agreement we refer to below as the “Braemar master hotel management agreement.” In connection with the Company’s subsequent acquisition of Remington Lodging on November 6, 2019, Remington Lodging became a subsidiary of the Company, and the Braemar master hotel management agreement between Remington Lodging and Braemar remains in effect. Braemar pays the Company a monthly hotel management fee equal to the greater of $14,000 per hotel (increased annually based on consumer price index adjustments) or 3% of gross revenue (the “base fee”) as well as annual incentive hotel management fees, if certain operational criteria are met and other general and administrative expense reimbursements. Under the original terms of the Braemar master hotel management agreement, Braemar paid us on the fifth day of each month for the base fees in the preceding month. On March 13, 2020, Braemar entered into the Braemar Hotel Management Letter Agreement with the Company. In order to allow the Company to better manage its corporate working capital and to ensure the continued efficient operation of the Braemar hotels managed by Remington, Braemar agreed to pay the base fee and to reimburse all expenses for Remington-managed hotels on a weekly basis for the preceding week, rather than on a monthly basis. The Braemar Hotel Management Letter Agreement went into effect on March 13, 2020 and will continue until terminated by Braemar.
On March 20, 2020, Lismore entered into an agreement to seek modifications, forbearances or refinancings of Braemar’s loans (the “Braemar Agreement”). Pursuant to the Braemar Agreement, Lismore shall, during the term of the agreement (which commenced on March 20, 2020 and shall end on the date that is twelve months following the commencement date, or upon it being terminated by Braemar on not less than thirty days written notice) negotiate the refinancing, modification or forbearance of the existing mortgage and mezzanine debt on Braemar’s hotels. For the purposes of the Braemar Agreement, financing shall include, without limitation, senior or subordinate loan financing, provided in any single transaction or a combination of transactions, including, mortgage loan financing, mezzanine loan financing, or subordinate loan financing encumbering the applicable hotel or unsecured loan financing.
In connection with the services provided by Lismore, Lismore shall be paid an advisory fee of up to 50 basis points (0.50%) of the aggregate amount of the modifications, forbearances or refinancings, of Braemar’s mortgage and mezzanine debt and Braemar’s secured revolving credit facility (the “Braemar Financings”) calculated and payable as follows: (i) 0.125% of the
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
aggregate amount of potential Braemar Financings upon execution of the Braemar Agreement; (ii) 0.125% payable in six equal installments beginning April 20, 2020 and ending on September 20, 2020; provided, however, in the event Braemar does not complete, for any reason, Braemar Financings during the term of the Braemar Agreement equal to or greater than $1.1 billion, then Braemar shall offset, against any fees owed by Braemar or its affiliates pursuant to the advisory agreement, a portion of the fee paid by Braemar to Lismore pursuant to this section equal to the product of (x) the amount of Braemar Financings completed during the term of the Braemar Agreement minus $1.1 billion multiplied by (y) 0.125%; and (iii) 25 basis points (0.25%) payable upon the acceptance by the applicable lender of any Braemar Financing. For the three and nine month period ended September 30, 2020, the Company recognized revenue of $1.0 million and $1.7 million, respectively. The three month period ended September 30, 2020 includes a $137,000 cumulative catch-up adjustment to revenue which was previously considered constrained. As of September 30, 2020, the Company recorded $2.5 million as deferred income of which $682,000 is subject to claw back. The deferred income related to the various Lismore fees described above will be recognized over the 12 month term of the agreement on a straight line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes the revenues related to Braemar (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
REVENUES BY TYPE
|
|
|
|
|
|
|
|
Advisory services revenue:
|
|
|
|
|
|
|
|
Base advisory fee
|
$
|
2,387
|
|
|
$
|
2,567
|
|
|
$
|
7,580
|
|
|
$
|
7,919
|
|
Incentive advisory fee (1)
|
(339
|
)
|
|
170
|
|
|
—
|
|
|
509
|
|
Other advisory revenue (2)
|
131
|
|
|
131
|
|
|
391
|
|
|
389
|
|
Total advisory services revenue
|
2,179
|
|
|
2,868
|
|
|
7,971
|
|
|
8,817
|
|
|
|
|
|
|
|
|
|
Hotel management:
|
|
|
|
|
|
|
|
Base management fees (3)
|
256
|
|
|
—
|
|
|
765
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Project management revenue (4)
|
362
|
|
|
2,413
|
|
|
1,817
|
|
|
6,862
|
|
Audio visual revenue (5)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other revenue
|
|
|
|
|
|
|
|
Debt placement and related fees (6)
|
1,060
|
|
|
429
|
|
|
1,706
|
|
|
704
|
|
Claims management services (7)
|
13
|
|
|
25
|
|
|
96
|
|
|
90
|
|
Lease revenue (8)
|
—
|
|
|
83
|
|
|
—
|
|
|
251
|
|
Other services (9)
|
300
|
|
|
356
|
|
|
775
|
|
|
904
|
|
Total other revenue
|
1,373
|
|
|
893
|
|
|
2,577
|
|
|
1,949
|
|
|
|
|
|
|
|
|
|
Cost reimbursement revenue
|
4,491
|
|
|
3,108
|
|
|
14,851
|
|
|
8,362
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
8,661
|
|
|
$
|
9,282
|
|
|
$
|
27,981
|
|
|
$
|
25,990
|
|
|
|
|
|
|
|
|
|
REVENUES BY SEGMENT (10)
|
|
|
|
|
|
|
|
REIT advisory
|
$
|
4,338
|
|
|
$
|
5,493
|
|
|
$
|
14,868
|
|
|
$
|
16,138
|
|
Remington
|
2,278
|
|
|
—
|
|
|
7,527
|
|
|
—
|
|
Premier
|
501
|
|
|
2,839
|
|
|
2,491
|
|
|
8,079
|
|
OpenKey
|
30
|
|
|
9
|
|
|
101
|
|
|
42
|
|
Corporate and other
|
1,514
|
|
|
941
|
|
|
2,994
|
|
|
1,731
|
|
Total revenues
|
$
|
8,661
|
|
|
$
|
9,282
|
|
|
$
|
27,981
|
|
|
$
|
25,990
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES
|
|
|
|
|
|
|
|
Cost of audio visual revenues (5)
|
$
|
20
|
|
|
$
|
199
|
|
|
$
|
467
|
|
|
$
|
404
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL REVENUE INFORMATION
|
|
|
|
|
|
|
|
Audio visual revenues from guests at REIT properties (5)
|
$
|
87
|
|
|
$
|
439
|
|
|
$
|
1,092
|
|
|
$
|
888
|
|
________
|
|
(1)
|
In the third quarter of 2020, the Company determined it was no longer probable Braemar would meet the minimum FCCR Condition requirement as stated in the Braemar advisory agreement. As such, the Company did not recognize any incentive fee revenue related to Braemar in the three months ended September 30, 2020. The three months ended September 30, 2020
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
additionally includes a reversal of $339,000 of incentive fee revenue recognized in the first two quarters of 2020 which the Company no longer expects to collect due to Braemar no longer meeting the FCCR Condition. Incentive advisory fee for the three and nine months ended September 30, 2019, includes the pro-rata portion of the second year installment of the 2018 incentive advisory fee, which was paid in January 2020. Incentive fee payments are subject to meeting the December 31 FCCR Condition each year, as defined in the Braemar advisory agreement. Braemar’s annual total stockholder return did not meet the relevant incentive fee thresholds during the 2019 and 2017 measurement periods. See note 3.
|
|
(2)
|
In connection with our Fourth Amended and Restated Braemar Advisory Agreement, a $5.0 million cash payment was made by Braemar upon approval by Braemar’s stockholders, which is recognized over the 10-year initial term.
|
|
|
(3)
|
Hotel management revenue is reported within our Remington segment. Base management fees are recognized when services have been rendered. Remington receives base management fees of 3% of gross hotel revenue for managing the hotel employees and daily operations of the hotels, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). See note 3 for discussion of the hotel management revenue recognition policy.
|
|
|
(4)
|
Project management revenue primarily consists of revenue generated within our Premier segment by providing design, development, architectural, and project management services for which Premier receives fees. See note 3 for discussion of the project management revenue recognition policy.
|
|
|
(5)
|
JSAV primarily contracts directly with customers to whom it provides audio visual services. JSAV recognizes the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Braemar, are recognized in “cost of revenues for audio visual” in our condensed consolidated statements of operations. See note 3 for discussion of the audio visual revenue recognition policy.
|
|
|
(6)
|
Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services. Revenue recognized by the Company in the three months ended September 30, 2020 includes a $137,000 cumulative catch-up related to revenue which was previously considered constrained.
|
|
|
(7)
|
Claims management services include revenue earned from providing insurance claim assessment and administration services.
|
|
|
(8)
|
In connection with our legacy key money transaction with Braemar which commenced prior to 2019, we lease FF&E to Braemar rent-free. Consistent with our accounting treatment prior to adopting ASU 2016-02, other revenue for the three and nine months ended September 30, 2019, includes a portion of the base advisory fee for leases commencing prior to our adoption, which is equal to the estimated fair value of the lease payments that would have been made.
|
|
|
(9)
|
Other services revenue is primarily associated with other hotel products and services, such as mobile key applications, marine vessel transportation and hypoallergenic premium rooms, provided to Braemar by our consolidated subsidiaries, OpenKey, RED and Pure Wellness.
|
|
|
(10)
|
See note 16 for discussion of segment reporting.
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Other Related Party Transactions—On June 26, 2018, the Company entered into the Ashford Trust ERFP Agreement with Ashford Trust. The independent members of the board of directors of each of the Company and Ashford Trust, with the assistance of separate and independent legal counsel, engaged to negotiate the Ashford Trust ERFP Agreement on behalf of the Company and Ashford Trust, respectively. On January 15, 2019, the Company entered into the Braemar ERFP Agreement (collectively with the Ashford Trust ERFP Agreement, the “ERFP Agreements”) with Braemar. The independent members of the board of directors of each of the Company and Braemar, with the assistance of separate and independent legal counsel, engaged to negotiate the Braemar ERFP Agreement on behalf of the Company and Braemar, respectively. Under the ERFP Agreements, the Company agreed to provide $50 million (each, an “Aggregate ERFP Amount” and collectively, the “Aggregate ERFP Amounts”) to each of Ashford Trust and Braemar (collectively, the “REITs”), respectively, in connection with each such REIT’s acquisition of hotels recommended by us, with the option to increase each Aggregate ERFP Amount to up to $100 million upon mutual agreement by the parties to the respective ERFP Agreement. Under each of the ERFP Agreements, the Company will pay each REIT 10% of each acquired hotel’s purchase price in exchange for FF&E at a property owned by such REIT, which will be subsequently leased by us to such REIT rent-free. Each of the REITs must provide reasonable advance notice to the Company to request ERFP funds in accordance with the respective ERFP Agreement. The ERFP Agreements require that the Company acquire the related FF&E either at the time of the property acquisition or at any time generally within two years of the REITs’ acquisition of the hotel property. The Company recognizes the related depreciation tax deduction at the time such FF&E is purchased by the Company and placed into service at the respective REIT’s hotel properties. However, the timing of the FF&E being purchased and placed into service is subject to uncertainties outside of the Company’s control that could delay the realization of any tax benefit associated with the purchase of FF&E.
On March 16, 2020, the Company announced entry into the Extension Agreement, dated March 13, 2020 (the “Extension Agreement”), related to the Ashford Trust ERFP Agreement. Under the terms of the Extension Agreement, the remaining ERFP commitment funding deadline under the Ashford Trust ERFP Agreement of $11.4 million as of September 30, 2020 and December 31, 2019, has been extended from January 22, 2021 to December 31, 2022. See note 9.
On August 19, 2020, Ashford Trust sold the Embassy Suites New York Manhattan Times Square. The hotel contained FF&E with a net book value of $6.4 million which was owned by the Company and leased to Ashford Trust rent-free pursuant to the Ashford Trust ERFP Agreement. On November 4, 2020, the independent members of the Board waived the requirement for Ashford Trust to provide replacement FF&E. As a result, the Company recorded a loss on disposal of FF&E of $6.4 million within “other” operating expense in our condensed consolidated statements of operations for the three and nine months ended September 30, 2020.
On September 25, 2019, the Company announced the formation of Ashford Securities to raise capital in order to grow the Company’s existing and future platforms. In conjunction with the formation of Ashford Securities, Ashford Trust and Braemar entered into a contribution agreement with Ashford Inc. in the third quarter of 2019 in which Ashford Trust and Braemar agreed to a combined contribution of up to $15.0 million to fund the operations of Ashford Securities. As of September 30, 2020, Ashford Trust and Braemar have funded approximately $3.0 million and $996,000, respectively. The Company recognized $538,000 and $183,000 of cost reimbursement revenue from Ashford Trust and Braemar, respectively, for the three months ended September 30, 2020 in our condensed consolidated statements of operations. The Company recognized $1.7 million and $613,000 of cost reimbursement revenue from Ashford Trust and Braemar, respectively, for the nine months ended September 30, 2020 in our condensed consolidated statements of operations.
Additionally, see note 2 with respect to the Company’s restricted cash and other liabilities policies related to reserves for insurance claims and associated ancillary costs.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
15. Income (Loss) Per Share
The following table reconciles the amounts used in calculating basic and diluted income (loss) per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income (loss) attributable to common stockholders – basic and diluted:
|
|
|
|
|
|
|
|
Net income (loss) attributable to the Company
|
$
|
(13,217
|
)
|
|
$
|
(6,156
|
)
|
|
$
|
(198,853
|
)
|
|
$
|
(5,334
|
)
|
Less: Dividends on preferred stock, declared and undeclared (1)
|
(7,985
|
)
|
|
(2,909
|
)
|
|
(23,800
|
)
|
|
(8,492
|
)
|
Less: Amortization of preferred stock discount
|
(781
|
)
|
|
(363
|
)
|
|
(2,386
|
)
|
|
(1,338
|
)
|
Undistributed net income (loss) allocated to common stockholders
|
(21,983
|
)
|
|
(9,428
|
)
|
|
(225,039
|
)
|
|
(15,164
|
)
|
Distributed and undistributed net income (loss) - basic
|
$
|
(21,983
|
)
|
|
$
|
(9,428
|
)
|
|
$
|
(225,039
|
)
|
|
$
|
(15,164
|
)
|
Effect of deferred compensation plan
|
—
|
|
|
(1,526
|
)
|
|
—
|
|
|
(5,603
|
)
|
Effect of incremental subsidiary shares
|
—
|
|
|
—
|
|
|
—
|
|
|
(527
|
)
|
Distributed and undistributed net income (loss) - diluted
|
$
|
(21,983
|
)
|
|
$
|
(10,954
|
)
|
|
$
|
(225,039
|
)
|
|
$
|
(21,294
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
2,306
|
|
|
2,580
|
|
|
2,259
|
|
|
2,489
|
|
Effect of deferred compensation plan shares
|
—
|
|
|
202
|
|
|
—
|
|
|
135
|
|
Effect of incremental subsidiary shares
|
—
|
|
|
—
|
|
|
—
|
|
|
55
|
|
Weighted average common shares outstanding – diluted
|
2,306
|
|
|
2,782
|
|
|
2,259
|
|
|
2,679
|
|
|
|
|
|
|
|
|
|
Income (loss) per share – basic:
|
|
|
|
|
|
|
|
Net income (loss) allocated to common stockholders per share
|
$
|
(9.53
|
)
|
|
$
|
(3.65
|
)
|
|
$
|
(99.62
|
)
|
|
$
|
(6.09
|
)
|
Income (loss) per share – diluted:
|
|
|
|
|
|
|
|
Net income (loss) allocated to common stockholders per share
|
$
|
(9.53
|
)
|
|
$
|
(3.94
|
)
|
|
$
|
(99.62
|
)
|
|
$
|
(7.95
|
)
|
________
|
|
(1)
|
As of September 30, 2020, the Company had aggregate undeclared preferred stock dividends of approximately $7.9 million. Undeclared dividends were deducted to arrive at net income attributable to common stockholders. See note 11.
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Due to their anti-dilutive effect, the computation of diluted income (loss) per share does not reflect the adjustments for the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income (loss) allocated to common stockholders is not adjusted for:
|
|
|
|
|
|
|
|
Net income (loss) attributable to redeemable noncontrolling interests in Ashford Holdings
|
(35
|
)
|
|
(15
|
)
|
|
(396
|
)
|
|
(25
|
)
|
Net income (loss) attributable to redeemable noncontrolling interests in subsidiary common stock
|
(569
|
)
|
|
(319
|
)
|
|
(1,292
|
)
|
|
(71
|
)
|
Dividends on preferred stock, declared and undeclared
|
7,985
|
|
|
2,909
|
|
|
23,800
|
|
|
8,492
|
|
Amortization of preferred stock discount
|
781
|
|
|
363
|
|
|
2,386
|
|
|
1,338
|
|
Total
|
$
|
8,162
|
|
|
$
|
2,938
|
|
|
$
|
24,498
|
|
|
$
|
9,734
|
|
Weighted average diluted shares are not adjusted for:
|
|
|
|
|
|
|
|
Effect of unvested restricted shares
|
14
|
|
|
12
|
|
|
27
|
|
|
10
|
|
Effect of assumed exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
27
|
|
Effect of assumed conversion of Ashford Holdings units
|
4
|
|
|
4
|
|
|
4
|
|
|
4
|
|
Effect of incremental subsidiary shares
|
835
|
|
|
186
|
|
|
598
|
|
|
74
|
|
Effect of assumed conversion of preferred stock
|
4,136
|
|
|
1,450
|
|
|
4,091
|
|
|
1,450
|
|
Total
|
4,989
|
|
|
1,652
|
|
|
4,720
|
|
|
1,565
|
|
16. Segment Reporting
Our operating segments include: (a) REIT Advisory, which provides asset management and advisory services to other entities, (b) Remington, which provides hotel management services, (c) Premier, which provides comprehensive and cost-effective design, development, architectural, and project management services, (d) JSAV, which provides event technology and creative communications solutions services, (e) OpenKey, a hospitality focused mobile key platform that provides a universal smartphone app for keyless entry into hotel guest rooms, (f) RED, a provider of watersports activities and other travel and transportation services, (g) Marietta, which holds the leasehold rights to a single hotel and convention center property in Marietta, Georgia, (h) Pure Wellness, which provides hypoallergenic premium rooms in the hospitality industry, and (i) Lismore and REA Holdings, which provide debt placement and related services, real estate advisory services and brokerage services. For 2020, OpenKey, RED, Marietta, Pure Wellness and Lismore and REA Holdings do not meet aggregation criteria or the quantitative thresholds to individually qualify as reportable segments. However, we have elected to disclose OpenKey as a reportable segment. Accordingly, we have five reportable segments: REIT Advisory, Remington, Premier, JSAV and OpenKey. We combine the operating results of RED, Marietta, Pure Wellness and Lismore and REA Holdings into an “all other” sixth reportable segment, which we refer to as “Corporate and Other.” See footnote 3 for details of our segments’ material revenue generating activities.
Our chief operating decision maker (“CODM”) uses multiple measures of segment profitability for assessing performance of our business. Our reported measure of segment profitability is net income, although the CODM also focuses on adjusted EBITDA and adjusted net income, which exclude certain gains, losses and charges, to assess performance and allocate resources. Our CODM currently reviews assets at the corporate (consolidated) level and does not currently review segment assets to make key decisions on resource allocations.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Certain information concerning our segments for the three and nine months ended September 30, 2020, and 2019 are presented in the following tables (in thousands). Consolidated subsidiaries are reflected as of their respective acquisition dates or as of the date we were determined to be the primary beneficiary of variable interest entities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
REIT Advisory
|
|
Remington
|
|
Premier
|
|
JSAV
|
|
OpenKey
|
|
Corporate and Other
|
|
Ashford Inc. Consolidated
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services
|
$
|
10,832
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,832
|
|
Hotel management
|
—
|
|
|
3,777
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,777
|
|
Project management fees
|
—
|
|
|
—
|
|
|
1,790
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,790
|
|
Audio visual
|
—
|
|
|
—
|
|
|
—
|
|
|
3,114
|
|
|
—
|
|
|
—
|
|
|
3,114
|
|
Other
|
55
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
341
|
|
|
7,826
|
|
|
8,222
|
|
Cost reimbursement revenue (1)
|
5,903
|
|
|
21,023
|
|
|
487
|
|
|
—
|
|
|
—
|
|
|
720
|
|
|
28,133
|
|
Total revenues
|
16,790
|
|
|
24,800
|
|
|
2,277
|
|
|
3,114
|
|
|
341
|
|
|
8,546
|
|
|
55,868
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
2,128
|
|
|
3,514
|
|
|
3,157
|
|
|
494
|
|
|
5
|
|
|
796
|
|
|
10,094
|
|
Other operating expenses (2)
|
—
|
|
|
3,101
|
|
|
1,662
|
|
|
6,033
|
|
|
1,035
|
|
|
20,505
|
|
|
32,336
|
|
Reimbursed expenses (1)
|
5,841
|
|
|
21,023
|
|
|
487
|
|
|
—
|
|
|
—
|
|
|
721
|
|
|
28,072
|
|
Total operating expenses
|
7,969
|
|
|
27,638
|
|
|
5,306
|
|
|
6,527
|
|
|
1,040
|
|
|
22,022
|
|
|
70,502
|
|
OPERATING INCOME (LOSS)
|
8,821
|
|
|
(2,838
|
)
|
|
(3,029
|
)
|
|
(3,413
|
)
|
|
(699
|
)
|
|
(13,476
|
)
|
|
(14,634
|
)
|
Equity in earnings (loss) of unconsolidated entities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
48
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(187
|
)
|
|
—
|
|
|
(1,072
|
)
|
|
(1,259
|
)
|
Amortization of loan costs
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(72
|
)
|
|
(86
|
)
|
Other income (expense)
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(36
|
)
|
|
(44
|
)
|
INCOME (LOSS) BEFORE INCOME TAXES
|
8,821
|
|
|
(2,838
|
)
|
|
(3,029
|
)
|
|
(3,622
|
)
|
|
(699
|
)
|
|
(14,608
|
)
|
|
(15,975
|
)
|
Income tax (expense) benefit
|
(2,093
|
)
|
|
(502
|
)
|
|
624
|
|
|
816
|
|
|
—
|
|
|
2,990
|
|
|
1,835
|
|
NET INCOME (LOSS)
|
$
|
6,728
|
|
|
$
|
(3,340
|
)
|
|
$
|
(2,405
|
)
|
|
$
|
(2,806
|
)
|
|
$
|
(699
|
)
|
|
$
|
(11,618
|
)
|
|
$
|
(14,140
|
)
|
________