ASHFORD INC. As used in this Quarterly Report on Form 10-Q, unless the context otherwise indicates, the references to "we," "us," "our," and the "Company" refer toAshford Inc. , aNevada corporation, and, as the context may require, its consolidated subsidiaries, includingAshford Hospitality Advisors LLC , aDelaware limited liability company, which we refer to as "Ashford LLC " or "our operating company";Ashford Hospitality Holdings LLC , aDelaware limited liability company, which we refer to as "Ashford Holdings ";Ashford Hospitality Services LLC , aDelaware limited liability company, which we refer to as "Ashford Services";Premier Project Management LLC , aMaryland limited liability company, which we refer to as "Premier Project Management," or "Premier"; andRemington Lodging & Hospitality, LLC , aDelaware limited liability company, which we refer to as "Remington.""Braemar" refers to Braemar Hotels & Resorts Inc., aMaryland corporation, and, as the context may require, its consolidated subsidiaries, includingBraemar Hospitality Limited Partnership , aDelaware limited partnership, which we refer to as "Braemar OP." "Ashford Trust " or "AHT" refers to Ashford Hospitality Trust, Inc., aMaryland corporation, and, as the context may require, its consolidated subsidiaries, includingAshford Hospitality Limited Partnership , aDelaware limited partnership andAshford Trust's operating partnership, which we refer to as "Ashford Trust OP."
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements that are subject to risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "anticipate," "estimate," "approximately," "believe," "could," "project," "predict," or other similar words or expressions. Additionally, statements regarding the following subjects are forward-looking by their nature: •the impact of the ongoing COVID-19 pandemic, including the resurgence of cases relating to the spread of the Delta, Omicron or other potential variants, on our business, financial condition, liquidity and results of operations;
•the impact of numerous governmental travel restrictions and other orders related to COVID-19 on our clients' and our business, including one or more possible recurrences of COVID-19 case surges that could cause state and local governments to reinstate travel restrictions;
•our business and investment strategy;
•our projected operating results;
•our ability to obtain future financing arrangements;
•our ability to maintain compliance with the
•our understanding of our competition;
•market trends;
•the future success of recent acquisitions;
•the future demand for our services as our clients in the hospitality industry,
including
•projected capital expenditures; and
•the impact of technology on our operations and business.
Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, taking into account all information currently available to us, our actual results and performance could differ materially from those set forth in our forward-looking statements. Factors that could have a material adverse effect on our forward-looking statements include, but are not limited to: •the risk factors set forth in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theU.S. Securities and Exchange Commission (the "SEC") onMarch 25, 2022 , including under the sections captioned "Item 1. Business," "Item 1A. Risk Factors," "Item 3. Legal Proceedings," and "Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations," as supplemented by our subsequent Quarterly Reports on Form 10-Q and other filings under the Exchange Act; •adverse effects of the COVID-19 pandemic, including a significant reduction in business and personal travel and potential travel restrictions in regions where our clients' hotels are located, and one or more possible recurrences of 52 -------------------------------------------------------------------------------- COVID-19 case surges causing a further reduction in business and personal travel and potential reinstatement of travel restrictions by state or local governments; •extreme weather conditions may cause property damage or interrupt business; •actions by our clients' lenders to accelerate loan balances and foreclose on our clients' hotel properties that are security for our clients' loans that are in default; •uncertainty associated with the ability of the Company to remain in compliance with all covenants in our Credit Agreement and our subsidiaries to remain in compliance with the covenants of their debt and related agreements;
•general volatility of the capital markets, the general economy or the hospitality industry, whether the result of market events or otherwise, and the market price of our common stock;
•availability, terms and deployment of capital;
•changes in our industry and the market in which we operate, interest rates or the general economy;
•the degree and nature of our competition;
•actual and potential conflicts of interest with or between
•availability of qualified personnel;
•changes in governmental regulations, accounting rules, tax rates and similar matters;
•our ability to implement effective internal controls to address the material weakness identified in this report;
•legislative and regulatory changes;
•the possibility that we may not realize any or all of the anticipated benefits from transactions to acquire businesses, including the 2018 acquisition of Premier, the 2019 acquisition of Remington and the 2022 acquisition of Chesapeake, and the possibility we will be required to record additional goodwill impairments relating to Remington as a result of the impact of the COVID-19 pandemic on our clients', and our business;
•the possibility that the lodging industry may not fully recover to pre-pandemic levels as a result of the acceptance of "work-from-home" business practices and potentially lasting increased adoption of remote meeting and collaboration technologies;
•the possibility that we may not realize any or all of the anticipated benefits from our business initiatives;
•the failure to make full dividend payments on our Series D Convertible Preferred Stock in consecutive quarters, which would result in a higher interest rate and the right of Mr.Monty J. Bennett and Mr.Archie Bennett , Jr. to each have the right to appoint one member to the Board until such arrearages are paid in full; •disruptions relating to the acquisition or integration of Premier, Remington or any other business we invest in or acquire, which may harm relationships with customers, employees and regulators; and
•unexpected costs of further goodwill impairments relating to the acquisition or integration of Remington or any other business we invest in or acquire.
When considering forward-looking statements, you should keep in mind the risk
factors and other cautionary statements under "Item 1A. Risk Factors" of our
Annual Report and this Quarterly Report, the discussion in this Management's
Discussion and Analysis of Financial Conditions and Results of Operations, and
elsewhere which could cause our actual results and performance to differ
significantly from those contained in our forward-looking statements.
Additionally, many of these risks and uncertainties are currently amplified by
and will continue to be amplified by, or in the future may be amplified by, the
COVID-19 outbreak and the numerous government travel restrictions imposed in
response thereto. The extent to which COVID-19 impacts us will depend on future
developments, which are highly uncertain and cannot be predicted with
confidence, including the scope, severity and duration of the pandemic, the
actions taken to contain the pandemic or mitigate its impact, and the direct and
indirect economic effects of the pandemic and containment measures, among
others. Accordingly, we cannot guarantee future results or performance. Readers
are cautioned not to place undue reliance on any of these forward-looking
statements, which reflect our views as of the date of this Form 10-Q.
Furthermore, we do not intend to update any of our forward-looking statements
after the date of this Form 10-Q to conform these statements to actual results
and performance, except as may be required by applicable law.
53
--------------------------------------------------------------------------------Overview
Ashford Inc. is aNevada corporation that provides products and services primarily to clients in the hospitality industry, includingAshford Trust and Braemar. We became a public company inNovember 2014 , and our common stock is listed on the NYSE American. As ofAugust 10, 2022 , Mr.Monty J. Bennett ,Ashford Inc.'s Chairman and Chief Executive Officer and the Chairman ofAshford Trust and Braemar, and his father, Mr.Archie Bennett , Jr., Chairman Emeritus ofAshford Trust , owned approximately 610,246 shares of our common stock, which represented an approximately 19.6% ownership interest inAshford Inc. , and owned 18,758,600 shares of our Series D Convertible Preferred Stock (the "Series D Convertible Preferred Stock"), which is convertible at a price of$117.50 per share into an additional approximate 3,991,191 shares ofAshford Inc. common stock, which if exercised as ofAugust 10, 2022 would have increased Mr.Monty J. Bennett and Mr.Archie Bennett , Jr.'s ownership interest inAshford Inc. to approximately 64.7%. We provide: (i) advisory services; (ii) asset management services; (iii) hotel management services; (iv) design and construction and architectural 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 throughAshford LLC , Ashford Services and their respective subsidiaries.
We seek to grow through the implementation of two primary strategies: (i) increasing our assets under management; and (ii) pursuing third-party business to grow our other products and services businesses.
We are currently the advisor forAshford Trust and Braemar. In our capacity as the advisor toAshford Trust and Braemar, we are responsible for implementing the investment strategies and managing the day-to-day operations ofAshford Trust and Braemar and their respective hotels from an ownership perspective, in each case subject to the respective advisory agreements and the supervision and oversight of the respective boards of directors ofAshford Trust and Braemar.Ashford Trust is focused on investing in full-service hotels in the upscale and upper upscale segments inthe United States that have RevPAR generally less than twice theU.S. national average. Braemar invests primarily in luxury hotels and resorts with RevPAR of at least twice theU.S. national average. Each ofAshford Trust and Braemar is a REIT as defined in the Internal Revenue Code, and the common stock of each ofAshford Trust and Braemar is traded on the NYSE. We provide the personnel and services that we believe are necessary for each ofAshford 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 eitherAshford Trust or Braemar, which duties are, and will continue to be, the responsibility of the hotel management companies that operate the hotel properties owned byAshford Trust and Braemar. Additionally, Remington, a subsidiary of the Company, operates certain hotel properties owned byAshford Trust , Braemar and third-parties.
Recent Developments
As ofJune 30, 2022 , the Company had aggregate undeclared preferred stock dividends of approximately$17.7 million , which relates to the second and fourth quarters of 2021. OnApril 10, 2022 , the Board declared a cash dividend on the Company's Series D Convertible Preferred Stock for accrued and unpaid dividends for the quarters endingJune 30, 2020 andDecember 31, 2020 to stockholders of record as ofApril 11, 2022 . The Company paid the dividend of approximately$17.8 million , or$0.932 per share of Series D Convertible Preferred Stock, onApril 15, 2022 . Dividends for the Series D Convertible Preferred Stock remain in arrears for the quarters endingJune 30, 2021 andDecember 31, 2021 . On each ofApril 15, 2022 andJuly 15, 2022 , the Company paid$8.7 million of dividends previously declared by the Board with respect to the Company's Series D Convertible Preferred Stock for the first and second quarters of 2022. OnApril 1, 2022 , the Company entered into the Credit Agreement withMustang Lodging Funding LLC , as administrative agent, and the lenders from time to time party thereto. The Credit Agreement evidences the Credit Facility in the amount of$100.0 million , including a$50.0 million term loan funded upon closing and commitments to fund up to an additional$50.0 million of term loans in up to five separate borrowings within 24 months after the Closing Date, subject to certain conditions. The Company used a portion of the proceeds from the Credit Agreement to pay off the remaining$26.6 million balance of the Company's existing Term Loan Agreement and pay dividends to the holders of the Series D Convertible Preferred Stock as stated above. OnApril 18, 2022 , the Company drew an additional$20.0 million on the Credit Facility. OnApril 15, 2022 , the Company acquired privately held Chesapeake, a third-party hotel management company. The Company paid to the sellers$6.3 million in cash, subject to certain adjustments, and issued to the sellers 378,000 Series CHP Convertible Preferred Units ofAshford Holdings (the "Series CHP Units") at$25 per Unit, for a total liquidation value of$9.45 million . The Series CHP Units include a discount of$8.1 million resulting in a total fair value of$1.4 million . The 54 -------------------------------------------------------------------------------- discount is due to the Company's ability to convert the Series CHP Units to common units ofAshford Holdings at the preferred conversion price of$117.50 . Common units ofAshford Holdings are exchangeable into common stock of the Company on a 1:1 ratio. The sellers also have the ability to earn up to$10.25 million of additional consideration based on the base management fee contribution from the acquired business for the trailing 12 month periods endingMarch 2024 andMarch 2025 , respectively, for a total potential consideration of$18.1 million , subject to certain adjustments. The first$6.3 million of such additional consideration is payable in cash and any amounts payable in excess of such$6.3 million may be satisfied by the issuance of shares of common stock of the Company, common units ofAshford Holdings or additional Series CHP Units, as determined by the Company in its sole discretion. Each Series CHP Unit (i) has a liquidation value of$25 plus all unpaid accrued and accumulated distributions thereon; (ii) is entitled to cumulative dividends at the rate of 7.28% per annum, payable quarterly in arrears; (iii) participates in any dividend or distribution paid on all outstanding common units ofAshford Holdings in addition to the preferred dividends; (iv) is convertible, along with the aggregate accrued or accumulated and unpaid distributions thereon, into common units ofAshford Holdings at the option of the holder or the issuer, which common units ofAshford Holdings will then be redeemable by the holder thereof into common stock of the Company on a 1:1 ratio or cash, at the Company's discretion; and (v) provides for customary anti-dilution protections. The number of common units ofAshford Holdings to be received upon conversion of Series of CHP Units, along with the aggregate accrued or accumulated and unpaid distributions thereon, is determined by: (i) multiplying the number of Series CHP Units to be converted by the liquidation value thereof; and then (ii) dividing the result by the preferred conversion price, which is$117.50 per unit. In the event the Company fails to pay the required dividends on the Series CHP Units for two consecutive quarterly periods (a "Preferred Unit Breach"), then until such arrearage is paid in cash in full, the dividend rate on the Series CHP Units will increase to 10.00% per annum until no Preferred Unit Breach exists. Except with respect to certain protective provisions, no holder of Series CHP Units will have voting rights in its capacity as such. As long as any Series CHP Units are outstanding, the Company is prohibited from taking specified actions without the consent of at least 50% of the holders of Series CHP Units, including (i) modifying the terms, rights, preferences, privileges or voting powers of the Series CHP Units or (ii) altering the rights, preferences or privileges of any Units ofAshford Holdings so as to adversely affect the Series CHP Units. OnApril 15, 2022 , the Company and Ashford Services agreed withJeremy Welter , the Chief Operating Officer of the Company, that, effective onJuly 15, 2022 ,Mr. Welter would terminate employment with and service to the Company, Ashford Services and their affiliates.Mr. Welter was also the Chief Operating Officer ofAshford Trust and Braemar and accordingly his service as Chief Operating Officer of each ofAshford Trust and Braemar also ended onJuly 15, 2022 .
Discussion of Presentation
The discussion below relates to the financial condition and results of
operations of
55
--------------------------------------------------------------------------------RESULTS OF OPERATIONS
Cost reimbursement revenue and reimbursed expenses for the three and six months endedJune 30, 2021 , were restated as previously disclosed in the restated condensed consolidated statement of operations for the three and six months endedJune 30, 2021 included in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . See discussion in note 2 to our condensed consolidated financial statements.
Three Months Ended
The following table summarizes the changes in key line items from our condensed consolidated statements of operations for the three months endedJune 30, 2022 and 2021 (in thousands): 56 -------------------------------------------------------------------------------- Three Months Ended June 30, Favorable (Unfavorable) 2022 2021 $ Change % Change REVENUE Advisory services fees$ 11,969 $ 10,062 $ 1,907 19.0 % Hotel management fees 13,420 6,515 6,905 106.0 % Design and construction fees 4,738 1,867 2,871 153.8 % Audio visual 35,977 9,451 26,526 280.7 % Other 12,072 12,166 (94) (0.8) % Cost reimbursement revenue 89,277 45,351 43,926 96.9 % Total revenues 167,453 85,412 82,041 96.1 % EXPENSES Salaries and benefits 16,603 17,392 789 4.5 % Cost of revenues for design and construction 2,206 1,022 (1,184) (115.9) % Cost of revenues for audio visual 23,279 6,872 (16,407) (238.8) % Depreciation and amortization 8,019 8,259 240 2.9 % General and administrative 10,173 6,591 (3,582) (54.3) % Other 5,669 5,059 (610) (12.1) % Reimbursed expenses 89,181 45,217 (43,964) (97.2) % Total expenses 155,130 90,412 (64,718) (71.6) % OPERATING INCOME (LOSS) 12,323 (5,000) 17,323 346.5 % Equity in earnings (loss) of unconsolidated entities 67 (58) 125 215.5 % Interest expense (2,536) (1,288) (1,248) (96.9) % Amortization of loan costs (232) (45) (187) (415.6) % Interest income 38 72 (34) (47.2) % Realized gain (loss) on investments - (179) 179 100.0 % Other income (expense) (259) (172) (87) (50.6) % INCOME (LOSS) BEFORE INCOME TAXES 9,401 (6,670) 16,071 240.9 % Income tax (expense) benefit (4,076) 697 (4,773) (684.8) % NET INCOME (LOSS) 5,325 (5,973) 11,298 189.2 % (Income) loss from consolidated entities attributable to noncontrolling interests 298 234 64 27.4 % Net (income) loss attributable to redeemable noncontrolling interests (141) 19 (160) (842.1) % NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY 5,482 (5,720) 11,202 195.8 % Preferred dividends, declared and undeclared (9,020) (8,633) (387) (4.5) % Amortization of preferred stock discount - (311) 311 100.0 % NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS$ (3,538) $ (14,664) $ 11,126 75.9 %
Net Income (Loss) Attributable to Common Stockholders. Net income (loss)
attributable to common stockholders changed
57
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Total Revenues. Total revenues increased $82.0 million , or 96.1%, to $167.5
million for the 2022 quarter compared to the 2021 quarter due to the following
(in thousands):
Three Months Ended June 30, Favorable (Unfavorable)
2022 2021 $ Change % Change
Advisory services fees:
Base advisory fees (1) $ 11,839 $ 9,932 $ 1,907 19.2 %
Other advisory revenue (2) 130 130 - - %
Total advisory services fees revenue 11,969 10,062 1,907 19.0 %
Hotel management fees:
Base management fees 9,484 5,308 4,176 78.7 %
Incentive management fees 2,867 1,207 1,660 137.5 %
Other management fees 1,069 - 1,069
Total hotel management fees revenue (3) 13,420 6,515 6,905 106.0 %
Design and construction fees revenue (4) 4,738 1,867 2,871 153.8 %
Audio visual revenue (5) 35,977 9,451 26,526 280.7 %
Other revenue:
Watersports, ferry and excursion services
(6) 7,684 6,861 823 12.0 %
Debt placement and related fees (7) 690 2,290 (1,600) (69.9) %
Claims management services (8) 1 16 (15) (93.8) %
Other services (9) 3,697 2,999 698 23.3 %
Total other revenue 12,072 12,166 (94) (0.8) %
Cost reimbursement revenue (10) 89,277 45,351 43,926 96.9 %
Total revenues $ 167,453 $ 85,412 $ 82,041 96.1 %
REVENUES BY SEGMENT (11)
REIT advisory $ 19,221 $ 16,745 $ 2,476 14.8 %
Remington 90,799 44,083 46,716 106.0 %
Premier 7,085 2,430 4,655 191.6 %
INSPIRE 36,016 9,451 26,565 281.1 %
RED 7,693 6,861 832 12.1 %
OpenKey 413 477 (64) (13.4) %
Corporate and other 6,226 5,365 861 16.0 %
Total revenues $ 167,453 $ 85,412 $ 82,041 96.1 %
________
(1)The increase in base advisory fee is primarily due to higher revenue of $1.4
million from Ashford Trust and higher revenue of $549,000 from Braemar. Advisory
fees earned from Ashford Trust during the 2021 quarter excluded $1.7 million of
advisory fees that were deferred as a result of the $29.0 million annual
Advisory Fee Cap . See note 3 to our condensed consolidated financial statements
for discussion of the advisory services revenue recognition policy.
(2) Other advisory revenue from Braemar is a result of the $5.0 million cash
payment received upon stockholder approval of the Fourth Amended and Restated
Braemar Advisory Agreement in June 2017 . The payment is included in "deferred
income" on our condensed consolidated balance sheet and is being recognized
evenly over the initial ten-year term of the
58
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(3) The increase in hotel management fees revenue is due to higher base management fees fromAshford Trust , Braemar and third-parties of$2.1 million ,$211,000 and$1.9 million , respectively, higher incentive management fees of$856,000 ,$120,000 and$684,000 fromAshford Trust , Braemar and third-parties, respectively and other management fees of$1.1 million from third-parties. The increase fromAshford Trust and Braemar are due to increased demand compared to the 2021 quarter as the industry recovers from COVID-19. The increase in third-party revenue is primarily due to Remington's acquisition of Chesapeake in the 2022 quarter.
(4) The increase in design and construction fees revenue is due to higher
revenue from
(5) The
(6) The$823,000 increase in watersports, ferry and excursion services revenue is due to$1.1 million in revenue from RED's expansion in theTurks and Caicos Islands in the third quarter of 2021 partially offset by a decrease in revenue for RED's recreational services in theU.S. Virgin Islands andKey West, Florida . (7) The decrease in debt placement and related fee revenue is due to lower revenue of$1.6 million fromAshford Trust . Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services. The decrease is due to Lismore's agreement withAshford Trust for providing modifications, forbearances or refinancing ofAshford Trust's loans as a result of the financial impact from COVID-19. The 2022 quarter does not include revenue from the Ashford Trust Agreement with Lismore which expiredApril 6, 2022 .
(8) Claims management services include revenue earned from providing insurance
claim assessment and administration services to
(9) The increase in other services revenue is primarily due to higher revenue from Marietta of$1.0 million in the 2022 quarter compared to the 2021 quarter as Marietta's operations continue to recover from COVID-19. Other services revenue relates to other hotel services provided by our consolidated subsidiaries, OpenKey and Pure Wellness, toAshford Trust , Braemar and other third parties and also includes Marietta. (10) The increase in cost reimbursement revenue is primarily due to an increase in Remington's cost reimbursement revenue of$39.8 million in the 2022 quarter due a recovery in operations in the 2022 quarter compared to the 2021 quarter and Remington's acquisition of Chesapeake in the 2022 quarter. The increase is additionally due to an increase of$1.8 million in cost reimbursement revenue from Premier in the 2022 quarter due to a recovery in operations in the 2022 quarter compared to the 2021 quarter and an increase of$585,000 in cost reimbursement revenue in the 2022 quarter related to reimbursable advisory expenses forAshford Trust and Braemar.
(11) See note 17 to our condensed consolidated financial statements for discussion of segment reporting.
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Salaries and Benefits Expense. Salaries and benefits expense decreased $789,000 ,
or 4.5%, to $16.6 million for the 2022 quarter compared to the 2021 quarter. The
change in salaries and benefits expense consisted of the following (in
thousands):
Three Months Ended June 30,
2022 2021 $ Change
Salaries and benefits:
Salary expense (1) $ 10,562 $ 9,118 $ 1,444
Bonus expense 3,502 3,560 (58)
Benefits related expenses (2) 2,623 1,120 1,503
Total salary, bonus, and benefits related expenses 16,687 13,798 2,889
Non-cash equity-based compensation:
Stock option grants (3) 32 543 (511)
Employee equity grant expense 484 308 176
Total equity-based compensation 516 851 (335)
Non-cash (gain) loss in deferred compensation plan (4)
(600) 2,743 (3,343)
Total salaries and benefits $ 16,603 $ 17,392 $ (789)
________
(1)The increase in salary expense is primarily due to an increase in corporate
employees at both the Company's corporate office and our subsidiaries' corporate
offices compared to the 2021 quarter as the industry continues to recover from
COVID-19. The increase is additionally due to an increase in RED's corporate
employees compared to 2021 as RED began operating in Turks and Caicos in the
third quarter of 2021.
(2)The increase in benefits related expenses is primarily due to the
reinstatement of the Company's 401(k) contribution to employees at the start of
the 2022 fiscal year and due to an increase in corporate employees at both the
Company's corporate office and our subsidiaries' corporate offices compared to
the 2021 quarter.
(3)The decrease in stock option grant related expense in the 2022 quarter
primarily relates to the Company not issuing stock option grants beginning in
2020 (when the Company began to issue restricted stock in lieu of stock options
under its equity incentive program).
(4) The DCP obligation is recorded as a liability at fair value with changes in
fair value reflected in earnings. The gain in the 2022 quarter and the loss in
the 2021 quarter are primarily attributable to decreases and increases in the
fair value of the DCP obligation, respectively. See note 14 to our condensed
consolidated financial statements.
Cost of Revenues for Design and Construction. Cost of revenues for design and
construction increased $1.2 million , or 115.9%, to $2.2 million during the 2022
quarter compared to $1.0 million for the 2021 quarter due to increased capital
expenditures by our clients as the industry recovers from COVID-19.
Cost of Revenues for Audio Visual. Cost of revenues for audio visual increased
$16.4 million , or 238.8%, to $23.3 million during the 2022 quarter compared to
$6.9 million for the 2021 quarter, primarily due to an increase in operations as
the industry recovers from COVID-19.
Depreciation and Amortization Expense. Depreciation and amortization expense
decreased $240,000 , or 2.9%, to $8.0 million for the 2022 quarter compared to
the 2021 quarter, primarily due to a decrease in FF&E related to the respective
ERFP agreements with Ashford Trust and Braemar compared to the 2021 quarter.
Depreciation and amortization expense for the 2022 quarter and the 2021 quarter
excludes depreciation expense related to audio visual equipment of $1.2 million
and $1.2 million , respectively, which is included in "cost of revenues for audio
visual" and also excludes depreciation expense for the 2022 quarter and the 2021
quarter related to marine vessels in the amount of $280,000 and $247,000 ,
respectively, which are included in "other" operating expense.
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General and Administrative Expense. General and administrative expenses
increased $3.6 million , or 54.3%, to $10.2 million for the 2022 quarter compared
to the 2021 quarter. The change in general and administrative expense consisted
of the following (in thousands):
Three Months Ended June 30,
2022 2021 $ Change
Professional fees (1) $ 3,923 $ 2,234 $ 1,689
Office expense 2,643 2,028 615
Public company costs 131 246 (115)
Director costs 751 827 (76)
Travel and other expense (2) 2,506 1,211 1,295
Non-capitalizable - software costs 219 45 174
Total general and administrative $ 10,173 $ 6,591 $ 3,582
________
(1) The increase includes increased corporate legal and accounting fees associated with Remington's acquisition of Chesapeake in the 2022 quarter.
(2) The increase in travel and other expense includes increases in the Company's business travel in the 2022 quarter as the Company's subsidiaries' operations accelerated compared to the 2021 quarter. The increase is also due to an increase in advertising expense at INSPIRE associated with their strategic rebranding from JSAV to INSPIRE. Other. Other operating expense increased$610,000 , or 12.1%, to$5.7 million for the 2022 quarter compared to the 2021 quarter. The increase was primarily caused by operating expenses associated with RED and Marietta as their operations increased due to their respective recoveries from COVID-19's impact on their operations. Other operating expense also includes cost of goods sold, royalties and operating expenses associated with OpenKey and Pure Wellness. Reimbursed Expenses. Reimbursed expenses increased$44.0 million to$89.2 million during the 2022 quarter compared to$45.2 million for the 2021 quarter primarily due to increased hotel management expenses incurred by Remington due to the increase in hotel room demand and Remington's acquisition of Chesapeake during the 2022 quarter. Reimbursed expenses recorded may vary from cost reimbursement revenue recognized in the quarter due to timing differences between the costs we incur for centralized software programs and the related reimbursements we receive fromAshford Trust and Braemar. Over the long term, these timing differences are not designed to impact our economics, either positively or negatively. The timing differences consisted of the following (in thousands): Three Months Ended June 30, 2022 2021 $ Change Cost reimbursement revenue$ 89,277 $ 45,351 $ 43,926 Reimbursed expenses 89,181 45,217 43,964 Net total $ 96$ 134 $ (38) Equity in Earnings (Loss) of Unconsolidated Entities. Equity in earnings (loss) of unconsolidated entities changed$125,000 for the 2022 quarter. Equity in earnings (loss) of unconsolidated entities primarily represents earnings (loss) in our equity method investment in REA Holdings. See note 2 to our condensed consolidated financial statements. Interest Expense. Interest expense was$2.5 million and$1.3 million for the 2022 quarter and the 2021 quarter, respectively. The increase is primarily due to the Company's Credit Facility entered into in the 2022 quarter. Interest expense relates to our Credit Facility and notes payable, lines of credit and finance leases held by our consolidated subsidiaries. See note 6 to our condensed consolidated financial statements. Amortization of Loan Costs. Amortization of loan costs was$232,000 and$45,000 for the 2022 quarter and the 2021 quarter, respectively. The increase is primarily due to the Company's Credit Facility entered into in the 2022 quarter. Amortization of loan costs relates to our Credit Facility and notes payable held by our consolidated subsidiaries. See note 6 to our condensed consolidated financial statements.
Interest Income. Interest income was
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Realized Gain (Loss) on Investments. Realized loss on investments was $0 and
$179,000 for the 2022 quarter and the 2021 quarter, respectively. The realized
loss on investments for the 2021 quarter primarily relates to realized losses 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. See note 7 to our condensed consolidated financial statements.
Other Income (Expense). Other income (expense) was
Income Tax (Expense) Benefit. Income tax (expense) benefit changed by$4.8 million , from a benefit of$697,000 in the 2021 quarter to an expense of$4.1 million in the 2022 quarter. Current income tax expense changed by$4.3 million , from$898,000 of expense in the 2021 quarter to$5.2 million of expense in the 2022 quarter. Deferred income tax benefit changed by$521,000 from a$1.6 million benefit in the 2021 quarter to a$1.1 million benefit in the 2022 quarter. The difference in income tax (expense) benefit is related to an increase in operations. (Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. The noncontrolling interests in consolidated entities were allocated a loss of$298,000 in the 2022 quarter and a loss of$234,000 in the 2021 quarter. See notes 2, 11 and 15 to our condensed consolidated financial statements for more details regarding ownership interests, carrying values and allocations. Net (Income) Loss Attributable to Redeemable Noncontrolling Interests. Redeemable noncontrolling interests were allocated income of$141,000 in the 2022 quarter and a loss of$19,000 in the 2021 quarter. The 2022 quarter includes$145,000 of preferred dividends declared to the holders of the Series CHP Units. Redeemable noncontrolling interests represents ownership interests inAshford Holdings which include the Series CHP Units which are recorded as a redeemable noncontrolling interest in the mezzanine section of our condensed consolidated balance sheets. For a summary of ownership interests, carrying values and allocations, see notes 2 and 12 to our condensed consolidated financial statements. Preferred Dividends, Declared and Undeclared. Preferred dividends increased$387,000 , or 4.5%, to$9.0 million during the 2022 quarter compared to$8.6 million for the 2021 quarter, due to the increase in the dividend rate of the Series D Convertible Preferred Stock which occurred onNovember 6, 2021 and due to accumulating and compounding dividends related to undeclared preferred stock dividends. See note 12 to our condensed consolidated financial statements. Amortization of Preferred Stock Discount. The amortization of preferred stock discount decreased$311,000 , or 100.0%, to$0 during the 2022 quarter compared to$311,000 for the 2021 quarter, due to the ending of the amortization period on the dividend rate of the Series D Convertible Preferred Stock onNovember 6, 2021 . See note 12 to our condensed consolidated financial statements.
Six Months Ended
The following table summarizes the changes in key line items from our condensed consolidated statements of operations for the six months endedJune 30, 2022 and 2021 (in thousands): 62 -------------------------------------------------------------------------------- Six Months Ended June 30, Favorable (Unfavorable) 2022 2021 $ Change % Change REVENUE Advisory services fees$ 23,771 $ 19,989 $ 3,782 18.9 % Hotel management fees 20,598 10,987 9,611 87.5 % Design and construction fees 9,262 3,409 5,853 171.7 % Audio visual 60,942 13,062 47,880 366.6 % Other 23,511 22,795 716 3.1 % Cost reimbursement revenue 163,328 77,538 85,790 110.6 % Total revenues 301,412 147,780 153,632 104.0 % EXPENSES Salaries and benefits 33,448 33,168 (280) (0.8) % Cost of revenues for design and construction 4,116 1,780 (2,336) (131.2) % Cost of revenues for audio visual 41,158 11,258 (29,900) (265.6) % Depreciation and amortization 15,644 16,398 754 4.6 % General and administrative 17,536 11,859 (5,677) (47.9) % Other 11,136 8,670 (2,466) (28.4) % Reimbursed expenses 163,089 77,332 (85,757) (110.9) % Total expenses 286,127 160,465 (125,662) (78.3) % OPERATING INCOME (LOSS) 15,285 (12,685) 27,970 220.5 % Equity in earnings (loss) of unconsolidated entities 257 (172) 429 249.4 % Interest expense (3,815) (2,555) (1,260) (49.3) % Amortization of loan costs (305) (131) (174) (132.8) % Interest income 119 135 (16) (11.9) % Realized gain (loss) on investments (71) (373) 302 81.0 % Other income (expense) (112) (285) 173 60.7 % INCOME (LOSS) BEFORE INCOME TAXES 11,358 (16,066) 27,424 170.7 % Income tax (expense) benefit (5,354) 1,648 (7,002) (424.9) % NET INCOME (LOSS) 6,004 (14,418) 20,422 141.6 % (Income) loss from consolidated entities attributable to noncontrolling interests 558 329 229 69.6 % Net (income) loss attributable to redeemable noncontrolling interests (132) 195 (327) (167.7) % NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY 6,430 (13,894) 20,324 146.3 %
Preferred dividends, declared and undeclared (18,393) (17,239)
(1,154) (6.7) %
Amortization of preferred stock discount - (627) 627 100.0 %
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ (11,963) $ (31,760) $ 19,797 62.3 %
Net Income (Loss) Attributable to Common Stockholders. Net loss attributable to
common stockholders changed $19.8 million to a $12.0 million loss for the six
months ended June 30, 2022 ("the 2022 period") compared to the six months ended
June 30, 2021 ("the 2021 period") as a result of the factors discussed below.
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Total Revenues. Total revenues increased by $153.6 million , or 104.0%, to $301.4
million for the 2022 period compared to the 2021 period due to the following (in
thousands):
Six Months Ended June 30, Favorable (Unfavorable)
2022 2021 $ Change % Change
Advisory services fees:
Base advisory fees (1) $ 23,513 $ 19,731 $ 3,782 19.2 %
Other advisory revenue (2) 258 258 - - %
Total advisory services fees revenue 23,771 19,989 3,782 18.9 %
Hotel management fees:
Base management fees 15,658 9,165 6,493 70.8 %
Incentive management fees 3,871 1,822 2,049 112.5 %
Other management fees 1,069 - 1,069
Total hotel management fees revenue (3) 20,598 10,987 9,611 87.5 %
Design and construction fees revenue (4) 9,262 3,409 5,853 171.7 %
Audio visual revenue (5) 60,942 13,062 47,880 366.6 %
Other revenue:
Watersports, ferry and excursion services
(6) 13,729 11,422 2,307 20.2 %
Debt placement and related fees (7) 3,173 6,578 (3,405) (51.8) %
Claims management services (8) 16 33 (17) (51.5) %
Other services (9) 6,593 4,762 1,831 38.5 %
Total other revenue 23,511 22,795 716 3.1 %
Cost reimbursement revenue (10) 163,328 77,538 85,790 110.6 %
Total revenues $ 301,412 $ 147,780 $ 153,632 104.0 %
REVENUES BY SEGMENT (11)
REIT advisory $ 38,614 $ 31,813 $ 6,801 21.4 %
Remington 161,306 74,892 86,414 115.4 %
Premier 13,311 4,374 8,937 204.3 %
INSPIRE 61,038 13,062 47,976 367.3 %
RED 13,738 11,422 2,316 20.3 %
OpenKey 795 931 (136) (14.6) %
Corporate and other 12,610 11,286 1,324 11.7 %
Total revenues $ 301,412 $ 147,780 $ 153,632 104.0 %
________
(1)The increase in base advisory fees is primarily due to higher revenue of $2.8
million from Ashford Trust and higher revenue of $943,000 from Braemar. Advisory
fees earned from Ashford Trust during the 2021 period excluded $3.2 million of
advisory fees that were deferred as a result of the $29.0 million annual
Advisory Fee Cap . See note 3 to our condensed consolidated financial statements
for discussion of the advisory services revenue recognition policy.
(2) Other advisory revenue from Braemar is a result of the $5.0 million cash
payment received upon stockholder approval of the Fourth Amended and Restated
Braemar Advisory Agreement in June 2017 . The payment is included in "deferred
income" on our condensed consolidated balance sheet and is being recognized
evenly over the initial ten-year term of the agreement.
(3) The increase in hotel management fees revenue is due to higher base
management fees from
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third-parties of $3.7 million , $580,000 and $2.2 million , respectively,
incentive management fees of $1.1 million , $243,000 and $703,000 from Ashford
Trust , Braemar and third-parties, respectively and other management fees of $1.1
million from third-parties. The increase from Ashford Trust and Braemar are due
to increased demand compared to the 2021 period as the industry recovers from
COVID-19. The increase in third-party revenue is primarily due to Remington's
acquisition of Chesapeake in the 2022 period.
(4) The increase in design and construction fees revenue is due to higher
revenue from
(5) The
(6) The$2.3 million increase in watersports, ferry and excursion services revenue is due primarily to$1.9 million in revenue from RED's expansion in theTurks and Caicos Islands in the third quarter of 2021 and increased demand in the 2022 period for RED's recreational services in theU.S. Virgin Islands andKey West, Florida as theU.S. travel and hospitality industry continues to recover from COVID-19. (7) The decrease in debt placement and related fee revenue is due to lower revenue of$2.7 million fromAshford Trust and lower revenue of$663,000 from Braemar. Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services. The decrease in revenue fromAshford Trust in the 2022 period is due to the expiration of the Ashford Trust Agreement with Lismore onApril 6, 2022 . The decrease in revenue from Braemar in the 2022 period is due to the expiration of the Braemar Agreement with Lismore inMarch 2021 .
(8) Claims management services include revenue earned from providing insurance
claim assessment and administration services to
(9) The increase in other services revenue is primarily due to higher revenue of$2.1 million in the 2022 period from Marietta due to a recovery in the 2022 period compared to the 2021 period. Other services revenue relates to other hotel services provided by our consolidated subsidiaries, OpenKey and Pure Wellness, toAshford Trust , Braemar and other third parties and also includes Marietta. (10) The increase in cost reimbursement revenue is primarily due to an increase in Remington's cost reimbursement revenue of$76.6 million in the 2022 period due a recovery in operations in the 2022 period compared to the 2021 period and Remington's acquisition of Chesapeake in the 2022 period. The increase is additionally due to an increase of$3.1 million in cost reimbursement revenue from Premier in the 2022 period due to a recovery in operations in the 2022 period compared to the 2021 period and an increase of$3.0 million in cost reimbursement revenue in the 2022 period related to reimbursable advisory expenses forAshford Trust and Braemar.
(11) See note 17 to our condensed consolidated financial statements for discussion of segment reporting.
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Salaries and Benefits Expense. Salaries and benefits expense increased by
$280,000 , or 0.8%, to $33.4 million for the 2022 period compared to the 2021
period. The change in salaries and benefits expense consisted of the following
(in thousands):
Six Months Ended
June 30,
2022 2021 $ Change
Salaries and benefits:
Salary expense (1) $ 20,190 $ 17,824 $ 2,366
Bonus expense 7,746 7,831 (85)
Benefits related expenses (2) 4,786 2,623 2,163
Total salary, bonus, and benefits related expenses 32,722 28,278 4,444
Non-cash equity-based compensation:
Stock option grants (3) 386 1,549 (1,163)
Employee equity grant expense 829 540 289
Total equity-based compensation 1,215 2,089 (874)
Non-cash (gain) loss in deferred compensation plan
(4) (489) 2,801 (3,290)
Total salaries and benefits $ 33,448 $ 33,168 $ 280
________
(1) The increase in salary expense is primarily due to an increase in corporate
employees at both the Company's corporate office and our subsidiaries' corporate
offices compared to the 2021 period as the industry continues to recover from
COVID-19. The increase is additionally due to an increase in RED's corporate
employees compared to 2021 as RED began operating in Turks and Caicos in the
third quarter of 2021.
(2) The increase in benefits related expenses is primarily due to the
reinstatement of the Company's 401(k) contribution to employees at the start of
the 2022 period and due to an increase in corporate employees at both the
Company's corporate office and our subsidiaries' corporate offices compared to
the 2021 period.
(3) The decrease in stock option grant related expense in the 2022 period
primarily relates to the Company not issuing stock option grants beginning in
2020 (when the Company began to issue restricted stock in lieu of stock options
under its equity incentive program).
(4) The DCP obligation is recorded as a liability at fair value with changes in
fair value reflected in earnings. The gain in the 2022 period and the loss in
the 2021 period are primarily attributable to decreases and increases,
respectively, in the fair value of the DCP obligation which is based on the
Company's common stock price. See note 14 to our condensed consolidated
financial statements.
Cost of Revenues for Design and Construction. Cost of revenues for design and
construction increased $2.3 million , or 131.2% to $4.1 million during the 2022
period compared to $1.8 million for the 2021 period due to increased capital
expenditures by our clients as the industry recovers from COVID-19.
Cost of Revenues for Audio Visual. Cost of revenues for audio visual increased
$29.9 million , or 265.6%, to $41.2 million during the 2022 period compared to
$11.3 million for the 2021 period, primarily due to an increase in operations as
the industry recovers from COVID-19.
Depreciation and Amortization Expense. Depreciation and amortization expense
decreased by $754,000 , or 4.6%, to $15.6 million for the 2022 period compared to
the 2021 period, primarily due to a decrease in FF&E related to the respective
ERFP agreements with Ashford Trust and Braemar compared to the 2021 period.
Depreciation and amortization expense for the 2022 period and the 2021 period
excludes depreciation expense related to audio visual equipment of $2.4 million
and $2.5 million , respectively, which is included in "cost of revenues for audio
visual" and also excludes depreciation expense for the 2022 period and the 2021
period related to marine vessels in the amount of $567,000 and $466,000 ,
respectively, which are included in "other" operating expense.
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General and Administrative Expense. General and administrative expenses
increased by
Six Months Ended June 30,
2022 2021 $ Change
Professional fees (1) $ 6,058 $ 4,012 $ 2,046
Office expense (2) 5,046 3,862 1,184
Public company costs 358 416 (58)
Director costs 1,148 1,274 (126)
Travel and other expense (3) 4,492 2,172 2,320
Non-capitalizable - software costs 434 123 311
Total general and administrative $ 17,536 $ 11,859 $ 5,677
________
(1) The increase includes increased corporate legal and accounting fees associated with Remington's acquisition of Chesapeake in the 2022 period.
(2) The increase in office expenses in the 2022 period is primarily due to increases within INSPIRE related to the industry's recovery from COVID-19 compared to the 2021 period.
(3) The increase in travel and other expense is primarily due to increases in the Company's business travel in the 2022 period as the Company's subsidiaries' operations accelerated compared to the 2021 period. The increase is also due to an increase in advertising expense at INSPIRE associated with their strategic rebranding from JSAV to INSPIRE. Other. Other operating expense increased$2.5 million , or 28.4%, to$11.1 million for the 2022 period compared to the 2021 period. The increase was primarily caused by operating expenses associated with RED and Marietta as their operations increased due to their respective recoveries from COVID-19's impact on their operations. Other operating expenses for the 2022 period also includes a loss on sale of FF&E previously leased toAshford Trust of$706,000 . Other operating expense also includes cost of goods sold, royalties and operating expenses associated with OpenKey and Pure Wellness. Reimbursed Expenses. Reimbursed expenses increased$85.8 million to$163.1 million during the 2022 period compared to$77.3 million for the 2021 period primarily due to an increase in hotel management reimbursed expenses incurred by Remington due to a recovery in hotel operations in the 2022 period compared to the 2021 period and Remington's acquisition of Chesapeake in the 2022 period. Reimbursed expenses may vary from cost reimbursement revenue recognized in the period due to timing differences between the costs we incur for centralized software programs and the related reimbursements we receive from our clients. Over the long term, these timing differences are not designed to impact our economics, either positively or negatively. The timing differences consisted of the following shown below (in thousands): Six Months Ended June 30, 2022 2021 $ Change Cost reimbursement revenue$ 163,328 $ 77,538 $ 85,790 Reimbursed expenses 163,089 77,332 85,757 Net total $ 239$ 206 $ 33 Equity in Earnings (Loss) of Unconsolidated Entities. Equity in earnings (loss) of unconsolidated entities were earnings of$257,000 and a loss of$172,000 for the 2022 period and the 2021 period, respectively. Equity in earnings (loss) of unconsolidated entities primarily represents earnings (loss) in our equity method investment in REA Holdings. See note 2 to our condensed consolidated financial statements. Interest Expense. Interest expense was$3.8 million and$2.6 million for the 2022 period and the 2021 period, respectively. The increase is primarily due to the Company's Credit Facility entered into in the 2022 period. Interest expense relates to our Credit Facility and notes payable, lines of credit and finance leases held by our consolidated subsidiaries. See note 6 to our condensed consolidated financial statements. 67 -------------------------------------------------------------------------------- Amortization of Loan Costs. Amortization of loan costs was$305,000 and$131,000 for the 2022 period and the 2021 period, respectively. The increase is primarily due to the Company's Credit Facility entered into in the 2022 period. Amortization of loan costs relates to our Credit Facility and notes payable held by our consolidated subsidiaries. See note 6 to our condensed consolidated financial statements.
Interest Income. Interest income was
Realized Gain (Loss) on Investments. Realized loss on investments was$71,000 and$373,000 for the 2022 period and the 2021 period, respectively. The realized loss on investments for the 2022 period and the 2021 period primarily relate to realized losses on shares of common stock ofAshford Trust and Braemar purchased by Remington on the open market and held for the purpose of providing compensation to certain employees. See note 8 to our condensed consolidated financial statements.
Other Income (Expense). Other income (expense) was expense of
Income Tax (Expense) Benefit. Income tax (expense) benefit changed by$7.0 million from a$1.6 million benefit in the 2021 period to$5.4 million of expense in the 2022 period due to an increase in operations. Current income tax expense changed by$7.2 million from$589,000 of expense in the 2021 period to$7.8 million in expense in the 2022 period. Deferred income tax benefit changed by$210,000 from a$2.2 million benefit in the 2021 period to a$2.4 million benefit in the 2022 period. (Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. The noncontrolling interests in consolidated entities were allocated a loss of$558,000 in the 2022 period and a loss of$329,000 in the 2021 period. See notes 2 and 11 to our condensed consolidated financial statements for more details regarding ownership interests, carrying values and allocations. Net (Income) Loss Attributable to Redeemable Noncontrolling Interests. The redeemable noncontrolling interests were allocated income of$132,000 in the 2022 period and loss of$195,000 in the 2021 period. The 2022 period includes$145,000 of preferred dividends declared to the holders of the Series CHP Units. Redeemable noncontrolling interests represents ownership interests inAshford Holdings which include the Series CHP Units which are recorded as a redeemable noncontrolling interest in the mezzanine section of our condensed consolidated balance sheets. The change in the 2022 period compared to the 2021 period is also due to the Company's acquisition of all of the redeemable noncontrolling interests in OpenKey in the 2021 period. Redeemable noncontrolling interests represents ownership interests inAshford Holdings and, in the 2021 period, OpenKey. For a summary of ownership interests, carrying values and allocations, see notes 2 and 12 to our condensed consolidated financial statements. Preferred Dividends, Declared and Undeclared. Preferred dividends, declared and undeclared, increased$1.2 million to$18.4 million during the 2022 period compared to$17.2 million for the 2021 period due to the increase in the dividend rate of the Series D Convertible Preferred Stock which occurred onNovember 6, 2021 and due to accumulating and compounding dividends related to undeclared preferred stock dividends. See note 12 to our condensed consolidated financial statements. Amortization of Preferred Stock Discount. The amortization of preferred stock discount decreased$627,000 to$0 during the 2022 period compared to$627,000 from the 2021 period due to the ending of the amortization period on the dividend rate of the Series D Convertible Preferred Stock onNovember 6, 2021 . See note 12 to our condensed consolidated financial statements. 68 --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The prolonged presence of COVID-19 has continued to impact the Company's operating results and cash flows. However, the Company has taken significant steps to improve its operating results and liquidity. We continue to see improvement in the operations of our clients,Ashford Trust and Braemar, and our subsidiaries as the industry continues to recover from COVID-19. Facts and circumstances related to COVID-19 could change in the future that are outside of management's control, such as changes inAshford Trust's and Braemar's financial position and liquidity, that could impact future operating results, future cash flows and our ability to pay dividends on the Series D Convertible Preferred Stock. Loan Agreements-OnApril 1, 2022 , the Company entered into the Credit Agreement withMustang Lodging Funding LLC , as administrative agent, and the lenders from time to time party thereto. The Credit Agreement evidences the Credit Facility in the amount of$100.0 million , including a$50.0 million term loan funded upon closing and commitments to fund up to an additional$50.0 million of term loans in up to five separate borrowings within 24 months after the Closing Date, subject to certain conditions. The Company used a portion of the proceeds from the Credit Agreement to pay off the remaining$26.6 million balance of the Company's existing Term Loan Agreement and pay dividends to the holders of the Series D Convertible Preferred Stock as stated below. OnApril 18, 2022 , the Company drew an additional$20.0 million on the Credit Facility. The Credit Facility is a five-year interest-only facility with all outstanding principal due at maturity, with three successive one-year extension options subject to an increase in the interest rate during each extension period. Borrowings under the Credit Agreement will bear interest, at the Company's option, at either the Eurodollar Rate (defined as LIBOR or a comparable or successor rate, with a floor of 0.25%) plus an applicable margin, or the base rate (defined as the highest of the federal funds rate plus 0.50%, the prime rate or the Eurodollar Rate plus 1.00%, with a floor of 1.25%) plus an applicable margin. The applicable margin for borrowings under the Credit Agreement for Eurodollar loans will be 7.35% per annum and the applicable margin for base rate loans will be 6.35% per annum, with increases to both applicable margins of 0.50%, 0.75% and 1.00% per annum during each of the three extension periods, respectively. The remaining undrawn balance of the Credit Facility is subject to an unused fee of 1.0%. The Credit Facility does not require the maintenance of financial covenants, but if the ratio (the "Leverage Ratio") of consolidated funded indebtedness that is recourse to the Company or any guarantor (less unrestricted cash) to consolidated EBITDA of the Company and its subsidiaries is greater than 4.00 to 1.00 as of the end of any fiscal quarter during the term of the loan, including any extension period, then the Company is required to apply 100% of the excess cash flow generated during such fiscal quarter to prepay the term loans. During any extension period, the Company is also required to apply 100% of the excess cash flow generated during such period to prepay the term loans. The Company may not pay dividends on the Company's shares of common stock or preferred stock if the Leverage Ratio is greater than 3.00 to 1.00 after giving effect to the payment of such dividends. The Credit Agreement is guaranteed by the Company,Ashford LLC , and certain subsidiaries of the Company, and secured by, among other things, all of the assets ofAshford LLC and each guarantor and a pledge of the equity interests inAshford LLC and each guarantor. As ofJune 30, 2022 , our Credit Agreement was in compliance with all covenants or other requirements and debt held by our subsidiaries was in compliance with all covenants or other requirements. The Company does not expect our Credit Agreement and debt held by our subsidiaries to violate any loan covenants within one year of the issuance of the financial statements. Certain segments of our business are capital intensive and may require additional financing from time to time. Any additional financings, if and when pursued, may not be available on favorable terms or at all, which could have a negative impact on our liquidity and capital resources. Aggregate portfolio companies' notes payable, net were$27.3 million and$30.6 million as ofJune 30, 2022 andDecember 31, 2021 , respectively. For further discussion see note 6 to our condensed consolidated financial statements. Preferred stock dividends-As ofJune 30, 2022 , the Company had aggregate undeclared preferred stock dividends of approximately$17.7 million , which relates to the second and fourth quarters of 2021. OnApril 10, 2022 , the Board declared a cash dividend on the Company's Series D Convertible Preferred Stock for accrued and unpaid dividends for the quarters endingJune 30, 2020 andDecember 31, 2020 to stockholders of record as ofApril 11, 2022 . The Company paid the dividend of approximately$17.8 million , or$0.932 per share of Series D Convertible Preferred Stock, onApril 15, 2022 . Dividends for the Series D Convertible Preferred Stock remain in arrears for the quarters endingJune 30, 2021 andDecember 31, 2021 . On each ofApril 15, 2022 andJuly 15, 2022 , the Company paid$8.7 million of dividends previously declared by the Board with respect to the Company's Series D Convertible Preferred Stock for the first and second quarters of 2022. The Company currently intends to declare and pay the accrued and unpaid dividends on the Series D Convertible Preferred Stock for the quarters endingJune 30, 2021 andDecember 31, 2021 during calendar year 2023 and to keep current on future preferred dividend payments. However, the independent members of the Board plan to revisit the dividend payment policy with respect to the Series D Convertible Preferred Stock on an ongoing basis and will make decisions on such preferred dividend payments based on the ongoing liquidity and capital needs of the Company. 69 -------------------------------------------------------------------------------- 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 untilNovember 6, 2020 ; (b) 6.99% per annum fromNovember 6, 2020 untilNovember 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 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 onApril 15 ,July 15 ,October 15 andJanuary 15 of each calendar year in respect of the quarterly periods ending onMarch 31 ,June 30 ,September 30 andDecember 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 or converted to common shares. See also note 12 to our condensed consolidated financial statements. ERFP Commitments-OnJune 26, 2018 , the Company entered into theAshford Trust ERFP Agreement withAshford Trust . The independent members of the board of directors of each of the Company andAshford Trust , with the assistance of separate and independent legal counsel, engaged to negotiate theAshford Trust ERFP Agreement on behalf of the Company andAshford Trust , respectively. OnJanuary 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 ofAshford 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 paid each REIT 10% of each acquired hotel's purchase price in exchange for FF&E at a property owned by such REIT, which were 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 required 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 respective REITs' acquisition of the hotel property. The Company recognized the related depreciation tax deduction at the time such FF&E was purchased by the Company and placed into service at the respective REIT's hotel properties. However, the timing of the FF&E purchased and placed into service was 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. OnMarch 13, 2020 , the Company entered into an Extension Agreement related to the Ashford Trust ERFP Agreement. Under the terms of the Extension Agreement, the deadline to fund the remaining ERFP commitment under the Ashford Trust ERFP Agreement of$11.4 million , was extended fromJanuary 22, 2021 toDecember 31, 2022 . As ofJune 30, 2022 , the Company has no remaining ERFP commitment to Braemar under the Braemar ERFP Agreement. See note 10 to our condensed consolidated financial statements. OnApril 20, 2021 , the Company received written notice fromAshford Trust of Ashford Trust's intention not to renew the Ashford Trust ERFP Agreement. As a result, the Ashford Trust ERFP Agreement terminated in accordance with its terms onJune 26, 2021 . The expiration of the Ashford Trust ERFP Agreement has no impact on the Extension Agreement, which continues in full force and effect in accordance with its terms. OnNovember 8, 2021 , the Company delivered written notice to Braemar of the Company's intention not to renew the Braemar ERFP Agreement. As a result, the Braemar ERFP Agreement terminated in accordance with its terms onJanuary 15, 2022 . Other liquidity considerations-OnDecember 5, 2017 , the Board approved a stock repurchase program pursuant to which the Board granted a repurchase authorization to acquire shares of the Company's common stock, having an aggregate value of up to$20 million . No shares were repurchased under the stock repurchase program during the six months endedJune 30, 2022 . 70 -------------------------------------------------------------------------------- Our deferred compensation plan currently has only one participant, Mr.Monty J. Bennett , our Chairman and Chief Executive Officer. Mr.Monty J. Bennett has elected to invest his deferred compensation account in our common stock. As a result, we have an obligation to issue approximately 196,000 shares of our common stock to Mr.Monty J. Bennett in quarterly installments over five years beginning in 2024. Mr.Monty J. Bennett may postpone all or a portion of the distributions, for a minimum of 5 years, if he notifies the Company 12 months prior to the scheduled distributions. As ofJune 30, 2022 , the fair value of the DCP liability was$2.8 million . The Company has commitments related to cash compensation for the departure ofMr. Welter which include a cash termination payment of$750,000 , which was paid onAugust 5, 2022 , and severance payments totaling approximately$6.4 million , which are payable in 24 substantially equal monthly installments of approximately$267,000 beginning inAugust 2022 .
Additional information pertaining to other liquidity considerations of the Company can be found in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments."
Sources and Uses of Cash
As ofJune 30, 2022 andDecember 31, 2021 , we had$48.4 million and$37.6 million of cash and cash equivalents, respectively, and$38.2 million and$34.9 million of restricted cash, respectively. Our principal sources of funds to meet our cash requirements include: net cash provided by operations and existing cash balances, which include borrowings from our existing lending agreements. Additionally, our principal uses of funds are expected to include possible operating shortfalls, capital expenditures, preferred dividends, debt interest and principal payments. Items that impacted our cash flow and liquidity during the periods indicated are summarized as follows: Net Cash Flows Provided by (Used in) Operating Activities. Net cash flows provided by operating activities were$16.0 million for the six months endedJune 30, 2022 compared to net cash flows provided by operating activities of$4.1 million for the six months endedJune 30, 2021 . The increase in cash flows from operating activities was primarily due to an increase in earnings due to a recovery in the Company's operations in the six months endedJune 30, 2022 from the effects of the COVID-19 pandemic and the timing of payments of accounts payable and accrued expenses to third-parties. These increases in cash flows were offset by decreases in operating cash flows due to the timing of receipt of our receivables fromAshford Trust , Braemar and third-parties. Net Cash Flows Provided by (Used in) Investing Activities. For the six months endedJune 30, 2022 , net cash flows used in investing activities were$9.0 million . These cash flows consisted of net cash paid to acquire Chesapeake of$6.3 million , capital expenditures primarily of FF&E and audio visual equipment totaling$3.0 million , capital expenditures of$1.1 million for RED's marine vessels and an investment in an unconsolidated entity of$400,000 . These were offset by cash inflows of$406,000 in proceeds received from the sale of FF&E toAshford Trust and proceeds from a note receivable of$1.4 million . For the six months endedJune 30, 2021 , net cash flows used in investing activities were$6.1 million . These cash flows consisted of the receipt of a note receivable of$2.9 million from a third party hotel owner, purchases ofAshford Trust and Braemar common stock related to Remington's employee compensation plan of$873,000 , capital expenditures of$1.5 million for RED's marine vessels and capital expenditures of FF&E of$2.6 million , including$1.8 million FF&E purchased from Braemar. Net cash flows used in investing activities were offset by the sale of FF&E of$1.8 million to Braemar. Net Cash Flows Provided by (Used in) Financing Activities. For the six months endedJune 30, 2022 , net cash flows provided by financing activities were$7.2 million . These cash flows consisted of$68.1 million of proceeds from borrowings on notes payable primary related to the Company's Credit Agreement entered into in the 2022 quarter and$164,000 of contributions from Braemar's investment in OpenKey in the 2022 quarter. These were offset by$29.0 million of payments on notes payable which were primarily related to paying off the remaining balance of the Company's Term Loan Agreement withBank of America, N.A and$26.5 million of dividend payments on the Series D Convertible Preferred Stock. Other cash flows used in financing activities consist of$2.7 million of loan cost payments,$1.7 million of net payments on our revolving credit facilities,$515,000 of payments on finance leases, net repayments in advances to employees of$257,000 associated with tax withholdings for restricted stock vestings, purchases of$241,000 of treasury stock and$32,000 of distributions to consolidating noncontrolling interests. For the six months endedJune 30, 2021 , net cash flows used in financing activities were$14.2 million . These cash flows consisted of$8.4 million of payments for dividends on preferred stock,$5.3 million of payments on notes payable,$620,000 of payments on our revolving credit facilities, purchases of$121,000 of treasury stock and$91,000 of payments on finance leases. These were offset by$325,000 of proceeds from borrowings on notes payable and employee advances of$49,000 associated with tax withholdings for restricted stock vesting. 71 --------------------------------------------------------------------------------
Seasonality
Quarterly revenues may be adversely affected by events beyond our control, such as the COVID-19 pandemic and government-issued travel restrictions in response, extreme weather conditions, natural disasters, terrorist attacks or alerts, civil unrest, government shutdowns, airline strikes or reduced airline capacity, economic factors and other considerations affecting travel and products and services. To the extent that cash flows from operations are insufficient during any quarter due to temporary or seasonal fluctuations in revenues, we expect to utilize cash on hand or borrowings to fund operations.
Contractual Obligations and Commitments
There have been no material changes sinceDecember 31, 2021 , outside the ordinary course of business, to contractual obligations and commitments included in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Form 10-K, other than items as described in Liquidity and Capital Resources.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in accordance with accounting principles generally accepted inthe United States requires us 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our accounting policies that are critical or most important to understanding our financial condition and results of operations and that require management to make the most difficult judgments are described in our 2021 Form 10-K. There have been no material changes in these critical accounting policies.
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