Joseph Calabrese - Financial Relations Board Montgomery Bennett - Chairman of the Board & CEO J. Robinson Hays - Co-President & Chief Strategy Officer Jeremy Welter - Co-President & COO Deric Eubanks - Treasurer & CFO

Bryan Maher - B. Riley FBR Stephen Biggar - Argus Research

Good day, everyone, and welcome to today's conference call to review results for the Ashford Inc. for the first quarter of 2018 and to update you on recent developments.

On the call today, we have Monty Bennett, Chairman, Chief Executive Officer; Rob Hays, Co-President, Chief Strategy Officer; Deric Eubanks, Chief Financial Officer; Jeremy Welter, Co-President and Chief Operating Officer. The results as well as 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 are based upon forward-looking information, which are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 risk factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference 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 and schedules, which have been filed on Form 8-K with the SEC on May 3, 2018, 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 2018 with the first quarter of 2017. I will now turn the call over to Monty Bennett.

Please go ahead, sir.

Good morning. We're pleased to present our financial results for the first quarter of 2018.

I'll begin by giving a brief overview of the company, discuss our performance highlights. And then Rob will discuss the recently announced agreement to acquire Remington's Project Management business.

Afterward, Deric will review our financial results, then Jeremy will provide an update regarding our strategic investments in Pure Rooms, OpenKey, J&S, Lismore Capital and RED Hospitality & Leisure as well as other initiatives, and then we'll take your questions. We delivered strong financial and operating performance for the first quarter, driving significant growth in revenues, and we are pleased with the groundwork we are laying for the continued success of our platform.

For the first quarter, revenues increased by 270% over the prior year period, and we reported adjusted EBITDA of $5.4 million and adjusted net income of $4.6 million. Looking ahead, we are well positioned for further growth.

And as mentioned last quarter, we expect the lower tax rate will have significant positive impact on our earnings in 2018 and future years. Our strategy is built around our ability to leverage the combined expertise of our management team to both grow our company and the platforms we advise.

I believe we have the most highly aligned, stable and effective management team in the hospitality industry. Acting like shareholders has always distinguished us from others in our industry.

We consider it one of our main competitive advantages and a primary reason for our superior performance. Ashford currently advises two publicly traded REIT platforms: Ashford Trust and the recently re-branded Braemar Hotels & Resorts, which, together, have 131 hotels with approximately 29,000 rooms and approximately $7.4 billion of gross assets as of March 31, 2018.

Ashford has a high-growth fee-based business model with a diversified platform of multiple fee generators. We believe this is a scalable platform to attractive margins.

Additionally, it has a very stable cash flow base as the advisory agreements with the REITs stipulate that the minimum base fee can't drop by more than 10% from the previous year's base fee. Currently, our company is focused on 3 areas of growth: first, we would like to accretively grow our existing REIT platforms; second, as part of our growth strategy, we would like to add additional investment platforms; and third, through our service business initiatives, We are working diligently on opportunities to buy, invest in or incubate businesses related to the hospitality industry such as OpenKey, Pure Rooms, J&S, Lismore Capital and our most recent acquisition, RED Hospitality & Leisure.

Then through our connections and our relationships with our advisory platforms on leveraging our asset management expertise, we can accelerate our growth dramatically. In the first quarter, we acquired an 80% stake in RED Hospitality & Leisure, a leading provider of watersports activities and other travel and transportation services in the U.S.

Virgin Islands for approximately $1 million in cash. We see a tremendous opportunity for growth of this business as we expand the breadth of services they offer and bring these services to other hotels.

We also continue to be excited about our investments in J&S, OpenKey and Pure Rooms. All of these businesses saw significant growth in 2017, and we expect each of them to perform well in 2018.

Jeremy will be providing a more detailed update on all these investments in a few minutes. We have a revolutionary fee structure in place with Trust and Braemar that incentivizes shareholder value creation.

With the base fee driven by share price performance and incentive fee based on total shareholder return outperformance versus peers, this management team's primary focus is to maximize returns in our REIT platforms. Looking ahead, we're very excited about the proposed acquisition of the Project Management business of Remington, and we're optimistic about the prospects for our 2 managed REIT platforms.

Additionally, we see great opportunity for this platform to grow and deliver superior returns to our shareholders by adding additional investment platforms as well as investing in or incubating other hospitality-related businesses. I will now turn it over to Rob Hays.

Thanks, Monty. As Monty mentioned, on April 9, we announced that we signed a definitive agreement to acquire Remington's Project Management business for $203 million.

The transaction, which does not require private letter ruling from the Internal Revenue Service, is expected to close during the third quarter of 2018. The consideration for the acquisition was convertible preferred stock in Ashford Inc.

that is convertible at a stock price of $140 per share, a substantial premium to our current trading level, which illustrates the seller's conviction in future growth prospects for the company. From an operating perspective, Remington's high-margin project management business will immediately add scale, diversification and an enhanced competitive position in the hospitality industry while also expanding the breadth of services we offer our managed REITs.

Additionally, with deep industry experience and long-term contracts in place, we believe this transaction represents a compelling opportunity for Ashford to diversify its earnings stream, and moving forward, the potential to expand business to other third-party clients. As background, Remington's Project Management business provides comprehensive and cost-effective design, development and project management services for both Remington-managed hotels as well as our external partners.

It provides project oversight, coordination, planning and execution of renovation, capital expenditure or ground-up development projects. Its operations are responsible for managing and implementing substantially all capital improvements at Ashford Trust and Braemar.

Additionally, it has extensive experience working with many of the major hotel brands in areas of renovating, converting, developing or repositioning hotels. In 2017, Remington Project Management had revenues of approximately $29 million and adjusted EBITDA of approximately $16.3 million.

The transaction is expected to be immediately accretive to Ashford's adjusted net income per share. And in summary, we believe this is a terrific opportunity for Ashford to rapidly build our operating scale, increase the breadth of services provided to our managed REITs and other hospitality companies and increase our earnings potential.

I'll now turn the call over to Deric.

Thanks, Rob. Net loss attributable to the company for the quarter was $5.7 million or $2.84 per diluted share compared with a net loss of $2.4 million or $1.34 per diluted share for the prior year period.

For the first quarter, total revenues were $48.2 million, reflecting a 270% growth rate over the prior year. Adjusted EBITDA for the quarter was $5.7 million compared with $5.1 million for the prior year period, reflecting a growth rate of 6%.

Adjusted net income for the quarter was $4.6 million or $1.71 per diluted share compared with $4.4 million or $1.92 per diluted share for the prior year period. At the end of the first quarter, the company had $30.8 million in corporate cash, and we currently have a fully diluted equity market cap of approximately $250 million.

Also as of March 31, 2018, the company had 2.7 million fully diluted shares of common stock and units outstanding. We currently have 2.1 million common shares, 0.2 million common shares earmarked for issuance under our deferred compensation program, and the balance relates to the GAAP treatment for in-the-money stock options and put options associated with the minority interest of our strategic investments.

I will now turn the call over to Jeremy to discuss our investments in OpenKey, Pure Rooms, J&S, Lismore Capital, RED Hospitality & Leisure and our other initiatives.

Thank you, Deric. We are excited to provide updates on our hospitality products and services businesses.

To explain this strategy more fully, our products and services initiative is a unique investment strategy in the hospitality industry, whereby we strategically invest in operating companies that service the industry, and we act as an accelerator to grow these companies. In doing this, we were 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 quickly grow these companies in which we invest in a number of ways: by referring them to hotels in our managed REITs, by leveraging our vast industry relationships and by consulting on best practices. First, let me discuss the recently announced planned acquisition of Remington's Project Management business.

As Rob mentioned, from an operating perspective, Remington's high-margin project management business will immediately add scale, diversification and an enhanced competitive position in the hospitality industry while also expanding the breadth of services we offer to our managed REITs. Remington's Project Management has overseen over $1 billion of capital investments and has won multiple awards from the major hotel brands for their excellence in renovations and repositions So we're acquiring a very successful business and are excited about the growth prospects for this business as we seek to expand it by providing these services for other third parties.

We believe this is a terrific opportunity for Ashford to rapidly build our operating scale, increase the breadth of services provided to our managed REITs and other hospitality companies and increase our earnings potential. As previously announced, we acquired a controlling interest in RED Hospitality & Leisure, a leading provider of watersports activities and other travel and transportation services in the U.S.

Virgin Islands in the first quarter. RED Hospitality has already begun limited ferry operations between St.

Thomas and St. John and expects to capitalize on new contracts in charter business as the U.S.

Virgin Islands resorts begin to reopen in the second half of this year and into early 2019. To that end, RED Hospitality generated $256,000 of revenue and $86,000 of adjusted EBITDA in the first quarter during the company's first period of ownership.

We remain excited for the future prospects of RED Hospitality as we see many potential opportunities to expand this business into several other hotels in our advisory platforms. Additionally, we are pleased to provide an update on Lismore Capital, which has been providing debt placement services to our advisory platforms since the third quarter of 2017.

These are services which otherwise would have been provided by third parties for Ashford Trust and Braemar on competitive pricing terms related to property-level debt financings. During the quarter, Lismore Capital generated $632,000 of debt placement fee revenues, resulting in $1.8 million in total revenues in the past 3 quarters.

We remain excited about the prospects for future growth at Lismore Capital. Furthermore, we are excited to provide an update on J&S Audio Visual, a leading single-source solution for meeting and event needs with an integrated suite of audiovisual services, including show and event services, hospitality services, creative services and design and integration.

In the first full quarter since the acquisition of our controlling interest, revenue growth was 21%, and adjusted EBITDA growth was 29% as compared to the prior year period. First quarter growth was largely supported by third-party business, which saw a 17% growth in revenue highlighted by one of the best months in the company's history.

Since our investment in November 2017 through the end of the first quarter, revenues increased $5.7 million or 21%, and adjusted EBITDA increased $1.6 million or 60% over the prior year period. Additionally, J&S executed 3 new hotel contracts during the first quarter.

As of the end of the first quarter, J&S had multiyear contracts in place for 67 hotels and convention centers, in addition to regular businesses, representing over 2,500 annual events and productions, 500 venue locations and 650 clients. Going forward, 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 premium service provider relative to similar competitors in the industry. We will continue to leverage the know-how and deep relationships of the J&S management team acquired over the years of experience, along with our extensive knowledge and context in the hospitality industry, to accelerate and fuel long-term growth.

We also want to provide an update on our investment in the hospitality-focused mobile key platform, OpenKey. The company continues to expand this platform with growth from OpenKey China as well as securing an additional asset-level contract with yet another hotel brand, Yotel, increasing the company's access to 15 hotel brands and portfolios.

OpenKey remains as the industry leader in interfaces with major lock manufacturers with access to thousands of hotels worldwide. There's exclusive offerings with Preferred Hotels and World Hotels and its integration with Independent Boutique Collection, a hotel technology platform used worldwide.

The company also continues to be supported by its office also in Guadalajara, Mexico, which has been instrumental for growth in Mexico, Costa Rica and Colombia as well as independent resellers currently serving in 14 different countries. In the first quarter, revenue growth was 1,176% compared to the prior year period and 71% relative to the fourth quarter of 2017.

The company has now achieved 5 consecutive quarters of revenue growth dating back to the first quarter of 2017 for the first quarter of '18 at an all-time high of 1,176% year-over-year. We remain optimistic for the growth outlook of OpenKey.

I would also like to provide an update on our investment in Pure Rooms, a leading provider of hypoallergenic rooms in the hospitality space. We have seen a growing demand for health and wellness offerings in the hospitality industry.

And we believe that the investment in Pure Rooms will also allow us to bring our industry knowledge and expertise as well as our managed asset base to the company in order to optimize growth synergistically. The company currently has contracts in place with 174 hotels, representing approximately 2,600 rooms throughout the United States, including 55 Ashford asset managed hotels.

Going forward, we anticipate that we will be able to drive significant growth and value creation at Pure Rooms by not only integrating the product into additional Ashford Trust and Braemar Hotels that we asset manage but also by gaining traction into additional non-Ashford hotels because we believe the value proposition for adding Pure Rooms to a property is very compelling. We have found that hotel rooms participating in this program typically achieve a significant rate premium per night and typically experience returns of between 50% and 70% on their investment.

We continue to remain active in evaluating additional investments and operating companies, and we hope to share more details on that front in the upcoming quarters. That concludes our prepared remarks, and we will now open the call up to your questions.

Yes. Good afternoon, guys.

One kind of housekeeping question, I guess, for Deric. There's an impairment charge in the P&L for the first quarter of like $1.9 million.

What was that related to?

Bryan, that relates to some software that we were developing as part of an enterprise-wide software system that actually dates back to before the spinoff of Ashford Inc. from Ashford Trust.

We just recently completed that project and put that new system in place, and there was a part of that, that we ended up not using. And so we had to write that off and impair it, but it dates back to well before the spinoff of Ashford Inc.

Okay. Thanks.

And then we've had a couple of questions regarding the non-cash stock/unit-based compensation, both in the revenue and in the expense lines for the quarter, and it's my understanding that there are some vagaries in there that are unusual items. It's not just like one went up over the other.

Can you just walk through for listeners what is going on there?

Sure. This is Deric again.

The thing that I would point out is if you look at in revenue section where we have non-cash stock, unit based compensation expense, those amounts that you see up there in the revenue, there's an exact offsetting amount down in the expense line item as well. So those completely offset each other, and there's no impact to Ashford Inc.'

s adjusted EBITDA. If you go to the adjusted EBITDA table, you could see where we add back the equity-based compensation expense.

And in the first quarter, that was $3.8 million. In the prior year, it was $2.3 million.

That expense relates specifically to the non-cash equity-based comp expense at Ashford Inc., and it's the option amortization of the options. So hopefully that clears it up a little.

The amount that show up in the revenue and the expense relate to equity grants that are received by the REITs or advisory platforms, and those get mark-to-market. So there's a lot of volatility in those amounts, but they do not impact Ashford Inc.'

s earnings at all.

And then just kind of lastly, when you look at the pipeline of new business opportunities, especially having just pulled Remington Project Management into the fold or coming soon, how deep is that pipeline? It's starting to be kind of a lot of moving parts here.

How should we be thinking about that over the next kind of 6 to 12 months if more businesses kind of come online?

Sure. This is Monty.

What we'd like to do is attack kind of the big fee generators, right. And Ashford Inc.

already has the asset management business from these REITs. As project management subject to disclosing, we'd like to roll in property management from Remington if a deal can be worked out.

And JSAV is pretty material. These other businesses are a little smaller, although OpenKey has the advantage to be material if it really just goes -- grows like gangbusters like it very well could.

I think that these existing businesses all have the potential to grow dramatically, which some of them have already started. But as far as additional businesses, I think they're moving down the continuum of -- on them, and there's probably another, I don't know, half dozen businesses that may be -- will fit well into this.

We've looked at potential branding or printing-type companies that can provide all kinds of printed or logoed materials of every kind. We'd look at maybe some type of a linen company and/or glassware-related and supplies-related companies and then a few other services-type businesses such as energy services.

But we definitely, especially if and when a property management deal is done, are farther down the continuum. And as far as additional businesses, don't see a whole lot more after that.

But the existing businesses that we will require I think we have already started to see and will continue to see rapid growth among those businesses as we plug them into our system.

And if -- so the property management component of Remington, is that what's left after you get the project management component? And by doing it in a two-step process, is that more likely to clear the private letter ruling than when you try to do it in its entirety before?

To answer your first question, yes. That's all that's left in Remington after the project management moves over.

There's kind of a family office component that Remington is engaged in for myself, my father and other family members, but that will be gone and will just be held by us privately. And then -- so the operating part of the business for Remington is just the project and property management.

And yes, that will provide a cleaner -- a structure for them because we've had to do some kind of adjustments with Ashford Inc. in order to accommodate certain businesses like JSAV that, to a stretch, the IRS could say is operating a hotel, right, because JSAV personnel are in hotels.

And so we've already taken some steps in Ashford Inc. to accommodate what would be covered in a private letter ruling.

And so by keeping it clean and straight, it should be an easier process.

Okay. Thank you, Monty.

Thank you.

Yes. Good afternoon, guys.

So just a question on the adjusted EBITDA margin. So last year, it was 39%.

This year, it moved down to 11%. Obviously, there was a big acquisition in there, and you're buying businesses with something as big as Remington with 56% margin.

So just kind of the trend and adjusted EBITDA margins relative to revenues going forward. Is there any sort of framework or goal that we should keep in mind here?

This is Monty. I'll jump on it.

It's really what you mentioned and that it's dependent upon the deals that are rolled in. In all these businesses, we see margins being maintained or growing.

And so from a big-picture standpoint, we see all positive-type results. Some businesses just inherently have lower margins than others.

It's just the nature of the beast. So it depends upon which ones are rolled in.

Project management is high margin. JSAV is lower margin.

And so it's a matter of sitting down with a pencil and paper, and Deric will be happy to do that with you and kind of waiting them all in order to see what kind of combined margin comes in. So overall, it's hard to say.

It just depends upon what gets rolled in and when.

Okay. And then apologies if you covered this in another form, but just the highlights on the other platform, Ashford Trust, there was a fairly big mortgage refinancing that went on, saving close to $18 million over a year.

So it implies about a little over 1% interest rate savings. So I'm just curious, two things, I guess.

What was the mechanics behind that, that [allowed just] in a higher interest rate environment when they were first taken out or is there some improvement in credit quality that brought down that interest rate? And it looks like it's on 30 properties overall.

Secondly would be should we expect more of that going forward?

I'll hit some of it, and Deric can hit the balances. But generally, the interest rate environment has moved up a little bit, but the credit environment has improved and continues to improve.

So what's – three years ago, would be L plus 400 loans, say, at 65%, 70% is now plus 250 loan. It's just much more competitive, and you can see that from the high yield markets, which kind of mirrors what's going on here and that those credit spreads have compressed.

And so that provides just great savings. And so to the extent that we can in both platforms, we're trying to refinance debt to take advantage of these much more compressed margins and credit spreads, and that's more than offsetting the slight increase in interest rates that's going on.

Deric, do you want to...

Yes. I would just add that we focused on floating-rate financing at each of our REIT platforms, and having that floating-rate financing gives us that flexibility to be able to refinance well ahead of maturity dates on an opportunistic basis if spreads and the credit market has improved, and so that's what we've been seeing.

And as Monty said, I think we will continue to take advantage of those opportunities as they exist.

Okay. Thanks.

Thank you, guys. Thanks, everyone, for listening to our call today.

We look forward to the next call with you.