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Edited Transcript of AINC.A earnings conference call or presentation 3-May-19 4:00pm GMT

Q1 2019 Ashford Inc Earnings Call

DALLAS May 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Ashford Inc earnings conference call or presentation Friday, May 3, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Deric S. Eubanks

Ashford Inc. - CFO & Treasurer

* J. Robison Hays

Ashford Inc. - Co-President, Chief Strategy Officer & Director

* Jeremy J. Welter

Ashford Inc. - Co-President & COO

* Jordan Jennings

Ashford Inc. - Manager of IR

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Conference Call Participants

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* Bryan Anthony Maher

B. Riley FBR, Inc., Research Division - Analyst

* Stephen Biggar

Argus Research Company - Director of Financial Institutions Research

* Tyler Anton Batory

Janney Montgomery Scott LLC, Research Division - VP of Travel, Lodging and Leisure

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Ashford Inc. First Quarter 2019 Results Conference. Today's conference is being recorded. And now it's my pleasure to turn the conference over to Jordan Jennings. Please go ahead.

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Jordan Jennings, Ashford Inc. - Manager of IR [2]

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Good day, everyone, and welcome to today's conference call to review results for Ashford for the first quarter of 2019 and to update you on recent developments.

On the call today will be Robison Hays, Co-President and Chief Strategy Officer; Deric Eubanks, Chief Financial Officer; Jeremy Welter, Co-President and Chief Operating Officer. The results as well as the notice of the accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday afternoon in a press release that has been covered by the financial media. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the federal securities regulations. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated.

These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on May 2, 2019, and may also be accessed through the company's website at www.ashfordinc.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release.

Also, unless otherwise stated, all reported results discussed in this call compare the first quarter of 2019 with the first quarter of 2018. I will now turn the call over to Robison Hays. Please go ahead, sir.

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J. Robison Hays, Ashford Inc. - Co-President, Chief Strategy Officer & Director [3]

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Good morning and welcome to our call to discuss our financial results for the first quarter of 2019.

I will begin by giving a brief overview of our quarterly results and then we'll discuss in more detail, our recently announced Enhanced Return Funding Program, or ERFP, with Braemar Hotels & Resorts as well as provide an update on our ERFP with Ashford Trust and an update on our investor outreach efforts.

Afterward, Deric will review our financial results, and Jeremy will provide an update regarding our strategic advancements as well as other initiatives, and then we'll open up for Q&A.

We delivered strong operating and financial performance in the first quarter and are pleased with the groundwork we're laying for the continued success of the platform. The quarter revenues increased 31%, adjusted EBITDA grew 110% to $11.3 million and adjusted net income per share grew 39% to $2.39.

Ashford Inc. is a growth platform, and we're pleased with these results and believe they demonstrate the benefits of the strategy.

Before discussing our growth strategy in more detail, I'd like to mention how excited we are about the new ERP agreement with Braemar as well as the continued momentum of our ERFP initiative with Trust.

ERFP is a $50 million funding commitment from Ashford designed to produce strong returns on hotel investments at Braemar and a strong fee growth at Ashford.

Similar to our ERFP with Trust, it does this in a very simple way. Ashford effectively provides capital to Braemar in order to lower the amount of equity that Braemar has to put into hotel investments.

That reduction of equity can materially improve equity returns to Braemar and in return, Ashford has paid incremental fees it customarily receives from Braemar and its assets.

Now looking at the program structure in terms, ERFP provides for a $50 million commitment from Ashford Inc. for a 2-year term with 1-year renewals as well as the ability to upsized to $100 million based upon mutual agreement. It's a sizable program and we believe it can materially help grow both platforms. Capital from this program will be sized equal 10% of purchase price of each new Braemar Hotel acquisition. And we believe the predictability of sizing should help investors underwrite the impact of the ERFP to both companies.

We expect that ERFP funding should be available for up to $500 million of acquisitions by Braemar. And similar to our previous key money program, the funding takes the form of purchased furniture, fixture and equipment by Ashford for use of Braemar Hotels.

This allows Ashford to get the benefit of immediate deduction for tax purposes, which significantly enhances our returns. And we're pleased that in January, Braemar utilized the ERFP for the first time to complete its acquisition of the Ritz-Carlton in Lake Tahoe.

Also, we continue to make progress with the ERFP that we have in place with Ashford Trust.

To date, Trust has closed on $406 million of acquisitions, including the Hilton Alexandria Old Town, La Posada de Santa Fe, and during the first quarter, the Embassy Suites New York Midtown Manhattan and the Hilton Santa Cruz/Scotts Valley. These acquisitions bring utilization of the ERP funds with Trust to approximately 80% of the original 5 -- $50 million commitment. Moving forward, we're excited about the future prospects of these programs and their positive benefit for Ashford as well as for Trust and Braemar.

Bottom line is we believe the ERP is sizable, predictable and repeatable, and it's an innovative structure that we believe can drive strong returns at all companies involved. Our strategy is built around their ability to leverage the combined expertise of our management team to grow both our company and the platforms we advise. And we believe that we have one of the most highly aligned, stable and effective management teams in the hospitality industry and acting like shareholders has distinguished us from others in our industry, and we consider it one of our main competitive advantages.

Ashford currently advises 2 publicly-traded REIT platforms, Trust and Braemar, which together own 134 hotels with approximately 29,000 rooms and approximately $8.2 billion of assets as of March 31.

Ashford is a high-growth fee-based business model with a diversified platform of multiple fee generators.

We believe it to be a scalable platform with attractive margins. And additionally, it has a very stable cash flow basis, the adviser agreements with the REITs stipulate that the base fee is maintained at a level of at least 90% of the previous year's base fee.

With the fee structure that place -- in place that incentivizes Ashford to create shareholder value to its advisory platforms with our base fee driven by share price performance and our incentive fee based on our total shareholder return outperformance versus REIT peers, our management team's primary focus is maximizing returns.

Currently, our company is focused on 3 areas of growth: first, we'd like to prudently grow our existing REIT platforms. Second, we'd like to add additional investment platforms. And third, we're working diligently on opportunities to buy, invest in or incubate businesses related to the hospitality industry, such as Premier Project Management, OpenKey, Pure Wellness, J&S, Lismore Capital, and RED Hospitality & Leisure. Then through our connections and relationships with our advisory platforms and leveraging our asset management expertise, we can accelerate their growth dramatically. In the first quarter, J&S acquired substantially all the assets of BAV, an integrated provider of audiovisual services based in Buffalo, New York. Representing the next phase of growth for J&S in becoming a leading provide of integrated audiovisual services in the hospitality industry, BAV provides integrated single source audiovisual services with a well-diversified geographical presence and customer base. With over 30 years of operating history, BAV has a strong presence in the several East Coast markets, including New York and Washington, D.C. with operational presence in approximately 32 states across the U.S., representing approximately 100 clients and nearly 200 events annually. BAV's estimated customer retention rate is approximately 90%, which highlights the high level of customer service, professional production quality and the unique tailored solutions the company provides.

J&S expects revenue, market, service offering and the customer diversification benefits considering BAV's focus on customer satisfaction and professional quality.

We also remain very excited about our acquisition of Premier Project Management, which recently completed a new branding initiative and launched a new architectural services business.

We see tremendous opportunities for that business to add significant value by diversifying our platform and growing the services we could provide to hotels and hotel owners.

To that end, during the first quarter, Premier Project Management generated $7.8 million of revenue and $3.7 million of adjusted EBITDA and is well positioned for the remainder of 2019.

We continue to be excited for all of our strategic investments and are optimistic about the prospects for our 2 advisory platforms. Additionally, we see great opportunity for this platform to grow and deliver superior returns to shareholders by adding additional investment platforms as well as investing in or incubating other hospitality-related businesses.

On the Investor Relations front, we believe having an active investor outreach effort and broadening our investor base are important areas of focus.

And we believe one of the most effective ways to broaden our investor base is increasing our equity float. During 2018, we made significant progress on that front by -- as our trading volume for both shares and dollar volume basis increased by over 600% to 740%, respectively, from 2017 levels. And those trends have continued in the first quarter of 2019 with both shares traded and dollar volume traded up over the prior year quarter. Much of these increases can be attributed to the significant investor outreach efforts that we have underway.

And since the beginning of 2018, we've held over 300 meetings with sell-side analysts, existing shareholders and potential shareholders. Now over the coming months, we plan to attend a number of investor conferences, targeting a wide range of investors from small and mid-cap focus funds to industry-dedicated investors as well as the family offices and retail holders. We believe exposure to these conferences can provide further opportunity to tell our story and provide meaningful dialogue with potential investors, which we should, in turn, continue to have a positive impact on expanding our investor base. I will now turn the call over to Deric.

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Deric S. Eubanks, Ashford Inc. - CFO & Treasurer [4]

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Thanks, Robison. net loss attributable to common stockholders for the first quarter was $2.6 million or $1.13 per diluted share compared with a net loss of $5.7 million or $2.84 per diluted share for the prior year quarter.

For the first quarter, total revenues were $63.3 million, reflecting a 31% growth rate over the prior year quarter. Adjusted EBITDA for the first quarter was $11.3 million compared with $5.4 million for the first quarter of 2018, reflecting a growth rate of 110%.

Adjusted net income for the first quarter was $10.1 million or $2.39 per diluted share compared with $4.6 million or $1.72 per diluted share for the first quarter of 2018.

At the end of the first quarter, the company had $37 million in corporate cash, and we currently have a fully diluted equity market capitalization of approximately $153 million.

Also, as of March 31, 2019, the company had $2.8 million fully diluted total shares of common stock in units. We currently have 2.5 million common shares issued outstanding, 0.2 million common shares earmarked for issuance under our deferred compensation program and the balance relates to the GAAP treatment or in-the-money stock options, put options associated with the minority interest of our strategic investments and some restricted stock. In our financial results, we also include 1.45 million common shares from our series B convertible preferred stock. During the quarter, we purchased $5 million of FF&E from Ashford Trust as part of our ERFP commitment associated with its acquisition of the Hilton Santa Cruz/Scotts Valley. I will now turn the call over to Jeremy to discuss our strategic investments and other initiatives.

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [5]

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Thank you, Deric. We are excited to provide updates on our hospitality products and services businesses and our strong results and accomplishments during the first quarter.

To explain this strategy more fully, our products and services initiative is a unique investment strategy in the hospitality industry, where we strategically invest in operating companies that service the industry, and we act as an accelerator to grow these companies.

In doing this, we believe we able to establish synergies for our hotel platforms, providing attractive pricing and higher levels of service than they would otherwise receive from a third-party vendor. We're also able to grow our portfolio of companies in a number of ways by referring them to the hotels in our REITs by leveraging our vast industry relationships and by consulting on best operating practices.

We remain very excited about the acquisition of Premier Project Management through our first 2 full quarters of ownership and are focused on exciting several -- executing several initiatives and branding exercises to accelerate growth and profitability over the long term. To that end, we have seen early returns of Premier's new architecture service and branding initiatives with $800,000 of architecture revenue in the first quarter.

Overall, Premier generated $7.8 million of revenue and $3.7 million of adjusted EBITDA in the first quarter. Additionally, during our first 2 full quarters of ownership, the company has generated $14.8 million of revenue and $7.4 million of adjusted EBITDA.

We continue to see significant opportunities going forward for this business. J&S Audio Visual is a leading single-source solution for meeting and event needs with an integrated suite of audiovisual services, including show service -- show and event services, hospitality services, creative services and design and integration.

We are deeply saddened by the unexpected passing of Monroe Jost, founder and former Chief Executive Officer of J&S. He was a beloved leader and a caring mentor to so many during his 4 decades of leadership at J&S. He grew the company to incredible success through an unwavering commitment to customer service and a lifelong investment in personal relationships. All of us at Ashford will miss Monroe greatly, and we express our heartfelt condolences to his family and friends for our collective loss.

Industry veteran, Chuck Bauman, has been appointed as J&S' Chief Executive Officer. Bauman was recently retained as Monroe's successor as part of the succession planning that was previously underway and his first day at J&S was April 1, 2019.

Bauman joins J&S from Encore Event Technologies, where he served as Senior Vice President, Sales and Strategic Accounts. All of us in the Ashford and J&S family remain committed to carrying on the culture and legacy at the company that Monroe built over 4 decades.

To that end, we continue to see outstanding growth at the company with revenue up 33% in the first quarter compared to the prior year quarter. Additionally, during the first quarter, J&S closed on the acquisition of substantially all the assets of an integrated provider of audiovisual services based in Buffalo New York, BAV, for approximately $5 million in cash and $4 million of Ashford common stock, excluding transaction costs, working capital adjustments and continued consideration. The implied forward-adjusted EBITDA multiple is 5x based on the total initial purchase price and expected to contingent consideration, which we believe represents an attractive potential return on investment.

With over 30 years of operating history, we are excited about the opportunities to increase J&S' service offering with the outstanding customer satisfaction and service priority of BAV to support future growth. They also continue to see positive results from integrating J&S in Ashford asset-managed hotels with an average revenue per group per room per night up 21% and average customer satisfaction scores up 15% since the transition occurred from the prior AV provider, highlighting the company's incredible service level. In the first quarter, J&S executed 5 new non-Ashford asset-managed hotel contracts and 6 Ashford asset-managed hotel contracts, increasing the number of multi-year contracts in place with hotels and convention centers to 84 compared to 59 at the end of 2017, representing 42% growth.

For the trailing 12 months ended March 13, 2019, revenue attributable to Ashford asset-managed hotels represented only 11% of total business for J&S, highlighting the exceptional opportunity remaining to accelerate growth of the company even further, including the opportunity for outsized growth as operations normalize. We see a tremendous opportunity for integrating J&S into more hotels in the U.S. and internationally given the company's outstanding reputation as a leading service provider in the industry. RED Hospitality & Leisure is the leading provider of water sports activities and other travel and transportation services in the U.S. Virgin Islands. We remain excited for the future growth prospects of the company, including opportunities to expand into several other hotels at our advisory platforms, expansion in the U.S. VI and expansion elsewhere in the Caribbean market.

To that end, with the commencement of ferry transportation services in beach and water sport services to the Westin St. John in January, continued beach and water sports services to the Ritz-Carlton St. Thomas Club, the timeshare and rental property adjacent to the Ritz-Carlton St. Thomas Hotel and increased direct bookings and private charter business in the first quarter, the company generated $1.6 million of revenue and $394,000 of adjusted EBITDA.

First quarter revenue growth was 509% compared to the prior year period and adjusted EBITDA growth was 359% compared to the prior year period.

Moreover, the company generated more adjusted EBITDA in the first quarter this year than in the full year 2018. We remain optimistic about the growth outlook for RED Hospitality going forward. We continue to remain active in evaluating additional investments in operating companies, and we hope to share some more details on that front in the upcoming quarters. That concludes the prepared remarks. And we will now open the call for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll go first to Tyler Batory at Janney Capital Markets.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - VP of Travel, Lodging and Leisure [2]

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So I apologize, I missed some of your prepared comments. So I apologize if some of my questions were already answered. But the first one I had is I just wanted to take a step back -- its probably for Jeremy. I mean when you take a step back and you look at all your hospitality businesses, well not just J&S and Premier but OpenKey and all the others, et cetera. Obviously, some of those numbers look quite good. But I'm just curious, what's your expectations versus your underwriting? How are things progressing? How did things progress in the first quarter as far as the results that you reported? Any big outperformers or underperformers?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [3]

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You're talking about the services businesses, right?

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - VP of Travel, Lodging and Leisure [4]

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Yes, yes, yes.

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [5]

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Yes, yes, yes. Yes, well I'll tell you, BAV in the first quarter, and really I think we reported it our March numbers, and it exceeded by far underwriting.

So we had that [yield] meltdown. Probably, fourth quarter of last year's -- early in the fourth quarter last year, and there's some things we had to finalize and negotiate how to get it closed but it definitely exceeded. I'd say the JSAV has well exceeded our growth in terms of revenue, but there's a lot of improvement that we plan to implement in the upcoming quarters and years on the margin side, and we see a lot of opportunity on that.

I would say that we would be slightly behind in margin at JSAV. And I can talk more detail in that later. And then RED is well above what our expectations were. When we acquired it, we assumed that the rebounding of the U.S. VI hotels, would take some time to get in, but they did pick up a pretty attractive contract, which is the Westin St. John ferry which is pretty lucrative, and that's what you saw the first quarter. And there's still a lot of opportunity as we continue to ramp-up and then our hotel, which is Ritz-Carlton St. Thomas, as you know, won't be open until the fourth quarter of this year.

Premier, in the first quarter, we expected it to be down in the first quarter year-over-year, and that's really attributable to some seasonality of our spend.

If you listen to some of the other calls of our advisory platforms, we had a decline year-over-year in CapEx spend in the first quarter.

We do have a lot of other projects underway, particularly the [up] branding of some of these courtyards to Autograph's as well as a rebuilding of Ritz St. Thomas. So we anticipate a decent amount of spend in insurance-funded spend throughout the balance of the year.

So I think that we would anticipate that stronger growth going forward on a year-over-year basis. We were pleased that we're able to get architecture platform up and running pretty quickly at Premier as well. But all things being equal, we actually expected a worse quarter in the first quarter for Premier, so we're pleased with the way that, that turned out. We can go to Pure Wellness. That is one that is -- actually, I don't know that we fully disclosed it. It might be lumped in with some other businesses, but that's done a good job in our hotels. And when I did the underwriting recently originally on it, we just basically assumed that we've maintained the business that we have and to be able to grow it in our -- throughout our portfolio. What I would say is that, that's happened, although it's still more profitable than probably what we underwrote, but one thing I've been disappointed is that even though I didn't expect or at least pitch it to the Board when we bought the business, so we'd be able to get a lot of third-party business with Pure. I would like to see more, and there are some potential wins we have that could be great for that business. We hired a new CEO that I think started in the fourth quarter of last year for that business.

So I think that gives it a decent rundown. What I could say -- I do want to say because I'd anticipate some questions on JSAV in terms of the margins year-over-year.

And what I'd like to say on that is that we've been focused on growth since we acquired that platform. And we've been able to grow, we show them we can grow. We've grown third-party incredibly well, and we've got some great potential business underway within that company. So we're very, very excited about it.

The performance of the margin side is really kind of more reflective of taking a family business to an enterprise. And that is our plan -- is we want to change the dynamics of this business, and it will be an enterprise, and we're very excited about a lot of the initiatives that we have underway. What I'd ask is that we look at this more of a long-term approach because as we're ramping up on a lot of hotels, there's -- there are some start-up cost and when we take on any of these hotel contracts, the business kind of comes. As you implement it, we've had a lot of takeovers. But then also, we've kind of put it together, an infrastructure that could support the growth that we anticipate. And we have had a recent change in leadership. We're very excited about Chuck and what he can bring to the table. He is a great leader, very dynamic. And what we're going to do is use our expertise that we have, both from -- just from my background as CFO of Remington or overseeing the operations of Ashford's hotels. All the financial acumen we've got and discipline to really implement a lot of new processes and changes in place to really look at things a lot more analytically.

So I think we've done a great job on the top line. I would anticipate that we will continue to improve the margins and overall EBITDA of that -- of J&S on a go-forward basis. And one other thing I'd add on that is that this recent acquisition of BAV was really strategic because we picked up some really good leadership, and their show services segment, they actually don't do any hotel businesses. They do large show services business where they go to different convention centers and actually the client brings them to the hotel or the convention. And they have an incredible business model to drive profitability on their segment, and that's an opportunity, specifically in JSAV, that we plan to implement to drive more profitability within the combined company.

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Deric S. Eubanks, Ashford Inc. - CFO & Treasurer [6]

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And Tyler, one thing I would add that I think we're -- especially when you mentioned compared to underwriting, I think the landscape in this business has changed quite a bit since we first began the process of looking at and underwriting J&S. So there's some significant potential consolidation in some of the big players above J&S in this space that still have to go out see how that all fleshes out, but there's a real chance for J&S to be able to build a big vacuum of space that's needed in audiovisual when hotels need to have at least 2, if not 3, different options. Some of those players are combining and so I think opportunity in front of us for J&S is probably materially larger than when we first underwrote it. And so that's why the acquisitions like BAV looking to really build this business to a place that can ramp significantly. And so we're willing to put that investment in now and find the right people now, as Jeremy said, to be able to support growth that may be more substantial than I think we have originally imagined.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - VP of Travel, Lodging and Leisure [7]

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That's very helpful. I appreciate all that detail. And then kind of tied into my next question, I was going to ask a little bit on the pipeline as far as acquiring more hospitality services businesses. What are you guys seeing out there? What do you think about your potential investment capacity? What sorts of other areas are interesting to you? It sounds like potentially audiovisual is maybe a place you'd like to build more scale. But anything else that you can talk about as far as areas that might be of interest?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [8]

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There are areas of interest and there are identified opportunities that we have, but I don't think that there's anything that we can really talk about just yet. Hopefully, next quarter, we might have a little bit more details on that horizon for you.

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Operator [9]

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We'll move next to Bryan Maher at FB -- BF Riley (sic) [B. Riley FBR].

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [10]

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(inaudible)

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Operator [11]

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And Bryan, I'm sorry. We can't really hear you.

(technical difficulty)

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J. Robison Hays, Ashford Inc. - Co-President, Chief Strategy Officer & Director [12]

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You're breaking up, Bryan.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [13]

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Does that help?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [14]

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No.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [15]

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(inaudible)

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Deric S. Eubanks, Ashford Inc. - CFO & Treasurer [16]

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Brian, why don't you try to dial back in? We can't hear you. Then we can go to the next question, and you can get back in the queue.

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Operator [17]

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(Operator Instructions) And we'll go next to Stephen Biggar at Argus Research Company.

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Stephen Biggar, Argus Research Company - Director of Financial Institutions Research [18]

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Okay. My question was partially answered, I guess. It was regarding J&S and another great quarter there. So with that being such that strong growth vehicle and now adding BAV. I just wondered any insights, industry insights, as you went through that process about acquiring about just the fragmentation in the AV space? Whether are there dozens or hundreds of providers that might be acquirable at that 5 to 5.7 EBITDA multiple that was paid for J&S and BAV and just the opportunity to be that real consolidator in the space.

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [19]

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Yes, that opportunity still exists even though there's a couple 800-pound gorillas in the space that are likely to merge, but that's been announced publicly, that's out there. But I think that there is still is an opportunity to acquire some bolt-on acquisitions. It's not necessarily our focus right now. In fact, it really isn't our focus just yet. We're trying to maximize and optimize what we have, which we think is an incredible platform. I think we've got incredible team and leadership, associates and a proven business model.

The reason why BAV was so strategic to us is that we didn't have an East Coast office. We have off-season in Texas and in various locations. One in Denver, and I'm talking about a distribution warehouse and office, not necessary hotel presence. We have those all over -- throughout the nation. And so it's strategic to us from a -- to get a presence on the East Coast. And then also, as I mentioned, they have some really proprietary software and business processes as they do on the show services side. They just drive a really, really high margin and a very competitive business and great leadership within that organization. And so we, basically, are combining the show services segment that BAV has and that leadership is going to oversee it at J&S, and we're going to implement a lot of the good practices they have. And I'll tell you that there's a lot of great things that J&S does, well, on the show services side. But there is a strategic, more of a strategic reason for us, to do it. Plus, as you mentioned, we've got a great price, and so we're very, very excited about it.

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Operator [20]

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And we will go back to Bryan Maher.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [21]

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Hope you can hear me now. Is that better? Is that better?

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Operator [22]

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Yes. Thank you so much.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [23]

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Now i don't know if my questions were asked during the intermission there, but I wanted to check in on the BAV acquisition. How are you guys looking at that? As a subsidiary of J&S or as a bolt-on? Or as a strategic different geographic region? How should we think about that?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [24]

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Yes, it actually was the previous question. But I'll give you a little more color on it. It is really a subsidiary right now because we do have a contingent consideration and so we're segmenting that out separately, internally. I don't know necessarily for what, we roll up to you guys, but it is through the subsidiaries. Clearly, strategic for us. They have a proprietary way that they do business. They got a great software that they've developed on how they basically workflow software and tracking software, customer relationship software to drive much better profitability in our show services segment. And while when we bought J&S, it was about the hotel hospitality segment. There is a separate segment, which is show services that we have at J&S, which is a great business for us. And it really elevates our capabilities in the hotels when we have this capability to go big major productions in any convention center, anywhere in the U.S., and BAV does that, and they do a great job at it. But they do a better job in terms of driving more profitability. So even though it's going to be subsidiary, some of the leadership that we have and acquired with BAV we'll be overseeing the show services segment, and we also plan to utilize a lot of their best practices that they have developed over their timeframe. And so to manage strategically for show services, but also, we did want an East Coast presence in terms of warehouse and office. Buffalo, it wouldn't necessarily be the first location we'd pick, but it's a fine location for us. We've got a lot of hotels on the East Coast, and so that made a lot of sense as well. We've got a great valuation, and first quarter, the revenue profitability was up quite a bit, more than what we expected.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [25]

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Okay. And then shifting gears. When you look at your ERFP relative to what's been utilized, what's still available and the prospects for near-term, maybe Ashford Trust coming back for an upsizing of that. And then when we look at your cash, I think it was $30-something million on hand, how do you think about the potential to fund future FF&E commitments if you we're to expand ERFP?

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Deric S. Eubanks, Ashford Inc. - CFO & Treasurer [26]

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Hey Brian, this is Deric. I'll comment on that. So we've got a decent amount of cash on hand. As you mentioned, $37 million of corporate cash at the end of the quarter. Our business model generates a significant amount of excess cash flows, so we've got operating cash flow as well. We've also got a corporate credit facility that's completely undrawn, which has the ability to be upsized as well. So from an asset to capital standpoint, we really feel like we've got decent access to capital. Ashford Inc. is the adviser to the REITs, also controls the acquisition opportunities that are brought to the REITs, and so from that perspective, the ERFP, it is really contingent on Ashford Inc. bringing the acquisition opportunity to the REIT platform. So that, from a timing perspective, we kind of control the timing there.

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [27]

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And also Brian, I'll say that's something that we'll, as we try to think of kind of what's the best way to continue to structure it. I mean, this was in some times ERFP version 1.0. That was a new and innovative idea that we knew we'd be able to kind of get through that first wave very easily from a capital standpoint.

And so I think as we are successful at Ashford Trust and continue to find acquisitions that make sense. As Doug Kessler would say, turn good acquisitions into great ones. We'll kind of revisit the kind of the structure and sources of capital of it at Ashford Inc. So I think we want to kind of get through the program first wave and as we then think about what version 2.0 looks like is make sure we see -- look at all the other alternatives of ways to fund it, whether it's a more permanent piece of a debt stack. Is it outside capital? We'll kind of scour around and look at are there any better ways to fund that program that can be more profitable, more accretive to all of the various players involved.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [28]

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And then just one more for me. When we look at RED, I think that maybe even you guys might be a little bit surprised by how quickly that can grow, and we certainly are as well. Now that you've had it for a little bit of time and you see what it can do, how big do you think that, that business can grow? And is there anything with any maritime laws or anything that prohibits you from taking RED to Key West or Miami or any of the ports in the U.S.?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [29]

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That is a fantastic question, Brian. It has exceeded our expectations. And maybe what I'll do is, I think we might have brought him to our Investor Day. Chris Batchelor who runs that business. I'll bring him out again, and he just a fantastic operator. He's done a great job. But we do see a lot of opportunity. It is -- it's great cash flow. I mean, when you look at the EBITDA, we've got great cash flow. It is -- it does require some CapEx, but we're able to finance that CapEx at pretty attractive terms typically, but we will need to continue to either build or buy our way in the markets. And by building them, I'm talking about building out a team and boats. We've got a great business plan. We've done a great job and great customer service, and I think it can be easily replicated to a lot of markets. As it relates to specifically to Key West, we nailed it. I mean it's a market that we want to get into and we plan to get into. The details and how we get into that, I don't think I'm prepared to necessarily talk specifically on the call. But I can tell you that we can have those details and we know what we're going to do, and I'm hopeful that we'll be able to execute on that in the near future.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [30]

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If you do go into Key West, is there the ability to maybe use some of the beachside facilities that is at Pure house? Or would you have to go into the main marina, do you now?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [31]

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I think it's a combination of both. So there's actually -- not only just -- I'm happy to actually know our business pretty well. And at RED, by the way, because the beach services are fantastic. We definitely do it at Pure house. We also can run the concierge, which is a great business for us at RED, at both Pure house and La Concha. We think that there is a big opportunity because the beach services that we provide at St. Thomas and water sports activities that we provided at St. Thomas and St. Johnson, the U.S. Virgin Islands, it's just not the same experience we have at Key West, and I get that people go Key West basically to have a good time on Duval Street. But there is a lot of folks that want to have that water sports beach experience, and they certainly can provide a differentiated experience that doesn't exist today. And so we're excited about that.

As it relates to the marina, yes, in order to be able to do a lot of the boats, it's about getting access to slips. There are some barriers to entry that are things that we're going to have to deal with. But we do have plans in place in how we plan to deal with that, and we'll be able to hopefully share with you some more news in the upcoming quarters on that. One other thing I would say, Bryan, is Sarasota is another market I'd like to get into. I think that's a good opportunity for RED.

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Operator [32]

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And with no additional questions at this time, I'll turn the program back over to management for any concluding remarks.

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J. Robison Hays, Ashford Inc. - Co-President, Chief Strategy Officer & Director [33]

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All right. Thank you for joining us on our first quarter earnings call, and we look forward to speaking to you on the next one.

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Operator [34]

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Once again, that does conclude today's conference. And again, I'd like to thank everyone for joining us today.