LuxUrban Hotels Incorporated (LUXH) Q4 2023 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call showed mixed results: strong net rental revenue and EBITDA growth, but declining gross profit and increased expenses. The Q&A highlighted some operational challenges, such as union requirements and unresolved legal issues. However, the company expects to turn cash flow positive in late 2024, which is optimistic. The lack of clear guidance and specific timelines for resolving key issues tempers enthusiasm, leading to a neutral outlook for the stock price.
Key Financial Performance
Net Rental Revenue $113.4 million (up 159% from $43.8 million) driven by an increase in average units available to rent to 1,249 from 487 and an improvement in total RevPAR.
Total RevPAR $249, which would have been within the previously guided range if adjusted for the Wyndham transition.
Gross Profit $8.9 million (7.9% of net rental revenue) compared to $12.4 million (28% of net rental revenue), reflecting an increase in average units available to rent and better TRevPAR per unit, offset by $3 million in costs related to the surrender of leases at four underperforming hotels.
General and Administrative Expense $15.6 million compared to $6.8 million, reflecting higher payroll, supplies, legal and accounting, and software costs. As a percentage of net rental revenues, G&A was just under 14%.
EBITDA $20 million, with adjusted EBITDA increasing to $29.8 million from $14.3 million, reflecting a significant reduction in non-recurring costs.
Cash and Cash Equivalents Approximately $800,000 compared to $1.1 million.
Total Debt Approximately $4.3 million, down from $14.0 million.
Accounts Payable and Accrued Expenses Increased to approximately $24.4 million from $6.3 million.
Non-Cash Charges $61 million in non-cash charges, including $41.2 million in non-cash financing charges, which will not recur in 2024.
Cash Charges $12.2 million related to the exit of the legacy apartment rental business, which will not occur in 2024.
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Operating Highlights
Market Expansion: LuxUrban intends to selectively expand its presence in Miami, New Orleans, and Los Angeles, while exploring new market opportunities in destination cities across the U.S.
Operational Efficiency: The company has begun to mature as an organization, focusing on customer engagement and professional hotel operations that meet industry standards. The integration of hotel properties to the Wyndham platform is expected to increase direct sales, reducing dependency on lower-margin third-party OTAs. The company expects to realize up to 5% top-line revenue increase and 3% to 5% margin improvement through new revenue streams.
Strategic Shift: LuxUrban has signed a collaboration agreement with Wyndham that provides financial brand and operating support to advance growth objectives. The company is focused on acquiring long-term operating rights to higher-end hotel properties. The company aims to improve its working capital, receivables, and cash flow profile by adopting a slower pace of acquisitions.
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Risk or Challenges
Rising Interest Rates: Rising interest rates are creating a challenging refinancing environment for hotel owners, leading to limited options for owners and lenders.
Debt Maturities: Looming debt maturities are causing financial strain on hotel owners, impacting their ability to manage properties effectively.
Transition to Wyndham Platform: The transition of properties to the Wyndham booking platform resulted in a one-time revenue impact of approximately $5 million and EBITDA impact of about $4.5 million.
Legacy Issues: The company has faced legacy issues that have required urgent attention and mitigation to prevent future headwinds.
Cash Flow and Working Capital: The company is focused on improving its working capital, receivables, and cash flow profile, which are critical for future growth.
Legal Exposure: The company has recorded approximately $8.4 million in legal exposure, which is considered conservative and may be lower than recorded.
Non-Cash Charges: The company incurred $61 million in non-cash charges, which will not recur in 2024, but impacted the financial results significantly.
Market Dependency: The company is working to reduce dependency on lower-margin third-party OTAs by increasing direct sales through the Wyndham platform.
Operational Challenges: The company acknowledges that its current business is not optimized, indicating potential operational challenges that need to be addressed.
Future Capital Needs: The company’s growth strategy is contingent on securing necessary capital, which poses a risk if not achieved.
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Guidance & Outlook
Collaboration with Wyndham Hotels & Resorts: LuxUrban signed a collaboration agreement with Wyndham that provides financial brand and operating support to advance growth objectives.
Pipeline of Opportunities: LuxUrban has a strong pipeline of hotels available for lease, focusing on acquiring long-term operating rights to higher-end hotel properties.
Executive Team Expansion: The company has fortified its executive team with industry veterans to enhance operations and capture growth opportunities.
Focus on Ancillary Revenue: The company aims to add up to 5% top line revenues and drive 3% to 5% margin improvement through new revenue streams.
Integration with Wyndham Platform: The integration of hotel properties to the Wyndham platform is expected to increase direct sales and reduce dependency on lower-margin OTAs.
2024 Q1 Revenue Guidance: Net rental revenue is expected to be in the range of $27 million to $30 million.
2024 Full Year Priorities: Increase portfolio of hotels under long-term master lease, generate increased net rental revenue and TRevPAR, and improve working capital profile.
Quarterly Revenue Expectations: The business is expected to generate roughly $27 million to $30 million of quarterly revenues with about $2 million of free cash flow.
2024 EBITDA Expectations: The company expects to clarify further outlook for 2024 later this year, with a focus on improved margins and cash flow.
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Shareholder Return Plan
Shareholder Return Plan: LuxUrban Hotels has not explicitly mentioned a shareholder return plan involving dividends or share buybacks during the call. However, the management emphasized their commitment to maximizing financial benefits for shareholders and improving free cash flow, liquidity, and working capital.
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Key Q&A
Q:Do you think -- based on what you think today, are there any other properties that you have units in that you might be considering divesting?
A:No. I think we've got the right portfolio. Some of the units that we walked away from were legacy issues where landlord actually didn't perform what they did on their side and also that impacted our results to it. So I think at this stage where we're at, we're very comfortable with the portfolio.
Q:And in terms of signing up new hotel rooms, can you talk about any issues with the unions and if you view them as temporary delays and costs that could be associated with that?
A:Historically, when we were scaling the portfolio from capital requirement... the union requires three months of payroll bond, which is the impediment to currently, which was not a requirement prior to March of '24.
Q:And then just on working capital, could you go in just a little bit more on how you're thinking about the receivables and the payables of when you think this could turn positive?
A:We're -- as I mentioned in my remarks, we're -- management owns 40-plus percent of the business. We're thinking through what's the right capital structure for the business. I would say that sometime in Q2, we're thinking about turning some of that.
Q:My last question is -- and I don't know if you can answer this, but when do you expect to turn operating cash flow positive? Which quarter in '24?
A:I would say sometime in the second half of 2024.
Q:So from an operational standpoint, where should we expect expenses to go? How much of the total headcount was reduced with the removal of those other properties?
A:Headcount was only reduced at the property level... the impact to the overall business has been actually very positive.
Q:And then going back to expenses, you touched on the legal expenses. Could you expand on that a little bit?
A:With regard to legal, the legal and just accrued liabilities our approach to how we did the annual audit was to really go on the higher end typically in these sort of processes.
Q:And then one last quick one from me. You said strong pipeline, what's the average number of keys that you guys are looking at to take on with these new hotels?
A:Sure. So there's a couple over 300 and then minimum size is around 170.
Q:So for the $27 million to $30 million for the March Q, what is actually the average rooms that you have available for March Q?
A:So the average rooms -- so we exited -- we surrendered some of the assets in March. So the average rooms is going to be around maybe 1,500.
Q:And then what's the RevPAR that you then expect at the midpoint?
A:In the high 200s -- low 200s, I'm sorry.
Q:And then a follow-on to Alan's initial question about union labor and Brian responded, hey, we need to basically put up an incremental $6,000 per key in New York City -- for New York City rooms. So at 1,140 rooms, I think that equates to that you had to basically put up $7 million of incremental working capital in the month of March, which was above and beyond working capital considerations that you had talked about at your February 6 Investor Day, is that correct?
A:That's correct.
Q:And have you had any Wyndham key money receipts during the December quarter or March quarter?
A:Yes. It's -- if you look at the balance sheet, you'll see at 1,231 there was $5 million.
Q:And what about for the March quarter?
A:Yes, $3 million.
Q:And do you have anything more coming that's contractually committed at this point in time?
A:No, not without a new lease on it.
Q:And then, Shanoop you talked about how you have a $27 million to $30 million quarterly revenue run basis with the current portfolio of hotels and that you believe that will generate $2 million of quarterly free cash flow when properly capitalized. Is this $27 million to $30 million on a seasonally adjusted basis, i.e. just the March quarter? Or does this represent the average quarterly revenue run rate through the fourth quarters of the calendar year?
A:It's Q1. I mean, seasonally, we should expect that to be higher in Q2, Q3.
Q:Most of my questions have been answered. Just a quick one on the surety agreements. Is there other opportunities for that? Or is it limited by your balance sheet? Or how do those work?
A:No, there's other opportunities. It's basically -- it's a form of credit, right?
Q:One last quick one. Can you comment on the James NoMad Hotel was in possession in March as expected.
A:We are currently not operating but in possession.
Q:And that's expected this quarter? Or can you comment on the timing of that?
A:Yes, I would expect this quarter.
Q:So for the $27 million to $30 million for the March Q, what is actually the average rooms that you have available for March Q?
A:So the average rooms -- so we exited -- we surrendered some of the assets in March.
Q:And then what's the RevPAR that you then expect at the midpoint?
A:In the high 200s -- low 200s, I'm sorry.
Q:And then a follow-on to Alan's initial question about union labor and Brian responded, hey, we need to basically put up an incremental $6,000 per key in New York City -- for New York City rooms. So at 1,140 rooms, I think that equates to that you had to basically put up $7 million of incremental working capital in the month of March, which was above and beyond working capital considerations that you had talked about at your February 6 Investor Day, is that correct?
A:That's correct.
Q:And have you had any Wyndham key money receipts during the December quarter or March quarter?
A:Yes. It's -- if you look at the balance sheet, you'll see at 1,231 there was $5 million.
Q:And what about for the March quarter?
A:Yes, $3 million.
Q:And do you have anything more coming that's contractually committed at this point in time?
A:No, not without a new lease on it.
Q:And then, Shanoop you talked about how you have a $27 million to $30 million quarterly revenue run basis with the current portfolio of hotels and that you believe that will generate $2 million of quarterly free cash flow when properly capitalized. Is this $27 million to $30 million on a seasonally adjusted basis, i.e. just the March quarter? Or does this represent the average quarterly revenue run rate through the fourth quarters of the calendar year?
A:It's Q1. I mean, seasonally, we should expect that to be higher in Q2, Q3.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer regarding the specific timing of turning operating cash flow positive, only stating it would be in the second half of 2024. Additionally, there was a lack of clarity on the exact impact of legal expenses and how they would be reduced, as well as the specifics of the cost of insurance and utilities.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ADRs
Act
Capital Markets
Ferdinand
Forward
GA
Northland Capital
Securities
Shanoop
Wyndham money
Wyndham platform
Wyndham transition
York City
bond
capital requirement
cash charge
debt
development
example
exposure
hand
insurance
item
landlord
line
maintenance
mid
model
nature
opportunity front
percent
percentage
possession
process
profile
property tax
quarter
regard
surety
union
LUXH Transcript
LuxUrban Hotels Inc. (LUXH) Q2 2024 Earnings Call Transcript
Unknown9-25
The earnings call reveals significant financial struggles, including a 43% revenue drop and severe liquidity issues. The lack of a share buyback program and unclear guidance on one-time expenses further dampen sentiment. Despite optimistic future guidance, the current financial health is poor, with a working capital deficit of $62.6 million. The Q&A session highlights management's lack of clarity and confidence, particularly regarding NASDAQ compliance and operating expenses. Overall, the negative financial performance and operational challenges suggest a strong negative stock price reaction.
LuxUrban Hotels Incorporated (LUXH) Q4 2023 Earnings Call Transcript
Unknown4-16
The earnings call showed mixed results: strong net rental revenue and EBITDA growth, but declining gross profit and increased expenses. The Q&A highlighted some operational challenges, such as union requirements and unresolved legal issues. However, the company expects to turn cash flow positive in late 2024, which is optimistic. The lack of clear guidance and specific timelines for resolving key issues tempers enthusiasm, leading to a neutral outlook for the stock price.
LUXH Report
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