LuxUrban Hotels Inc.

Greetings and welcome to the Lux Urban Hotels Incorporated second quarter 2023 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. And it is now my pleasure to introduce your host, Devin Sullivan, Managing Director of the Equity Group. Thank you, Devin. You may begin.

Thank you, John. Good morning, everyone. Thank you for joining us today for Lux Urban Hotels 2023 Second Quarter Financial Results Conference Call. Our speakers for today will be Brian Ferdinand, Chairman and Chief Executive Officer, and Shanup Katari, the company's President and Chief Financial Officer. Before we begin, I'd like to remind everyone that during this call, we will be discussing forward-looking statements, including with respect to financial and operational guidance, the success of the company's collaboration with Wyndham Hotels and Resorts, scheduled property openings, expected closing of noted lease transactions, the company's ability to continue closing on additional leases for properties in the company's pipeline, as well as the company's anticipated ability to commercialize efficiently and profitably the properties it leases and will lease in the future. These forward-looking statements are based on current expectations and beliefs concerning future developments and their potential effect on the company. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements are subject to a number of risks, uncertainties, some of which are beyond our control, or other assumptions that may cause actual results or performance to be materially different from those expressed in or implied by these forward-looking statements, including those set forth under the caption risk factors in our public filings with the SEC, including in item 1A for our 10-K for the year ended December 31, 2022, and in item 1A of our form 10-Q for the three months into June 30, 2023. The forward-looking information and forward-looking statements are made as of today's date, and the company does not undertake to update any forward-looking information and or forward-looking statements that are contained or referenced herein except in accordance with applicable securities law. Management will also be discussing non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in the company's press releases. With that said, I'll now turn the call over to Brian Ferdinand, Chairman and Chief Executive Officer of Lux Urban Hotels. Brian, please go ahead.

Thank you, Devin. Good morning and thank you for joining us today. Almost one year to the day after completing our initial public offering, I am proud of what we've been able to accomplish operationally, financially, and culturally. These last several quarters have been a transformative period for Lux Urban, and I am happy to say that we have entered the second half of 2023 in the strongest position in our history to drive future growth, enhance cash flow, capture the benefits of scale, and deliver long-term value to our shareholders. In the second quarter of 2023, we generated record net rental revenue, EBITDA, and cash net income. On an adjusted basis, we reported our eighth consecutive quarter of cash-based net income and seventh consecutive quarter of positive EBITDA. We transformed our financial profile by eliminating the entirety of the approximately $9.8 million of senior secured debt held by our free IPO lenders and an estimated $87.5 million in future revenue share payments all while pursuing a focused, high conviction commitment to growth and profitability. When compared to December 31st, 2022 year end, our quarter end cash position more than tripled. Total debt and net debt each declined significantly and shareholders equity improved by nearly $17 million. We continue to pursue a significant pipeline opportunity that's accelerating as hotel owners facing upcoming debt maturities Deal flow remains incredibly strong, which allows us to pursue only the most favorable properties in deal structures to advance our growth. We continue to adhere to strict operating controls, and we believe that we currently have the lowest per night property level break-even costs in the markets we serve. We also transformed the arc of our anticipated growth by announcing a partnership with Wyndham Hotels and Resorts, the world's largest hotel franchise company. Highlights of the deal include Lux Urban Hotels initially being added to the Wyndham portfolio are expected to be integrated into the trademark brand and intern Wyndham's booking channels by the end of the year, likely sooner. By using Wyndham's platform, we expect to see a significant reduction in commissions and online booking fees compared to our prior operations. As a reminder, the Wyndham Rewards Program serves more than 100 million members. We have already begun the integration and it's underway. Wyndham will provide Lux Urban with significant upfront initial non-dilutive working capital and growth capital based primarily on Lux Urban's existing property portfolio with ongoing non-dilutive acquisition and working capital to be provided by Wyndham to fund future MLAs. Lux Urban's properties covered under this agreement will operate on Wyndham's world-class operational and customer service support systems, which are expected to enhance Luxurban's cash flow by optimizing enterprise-wide operating efficiencies, and Luxurban will remain operating control of its hotels while being jointly branded and marketed in partnership with Windows. We're incredibly enthusiastic about our alignment with Wyndham and believe that the financial brand and operating advantages will make Luxurban an even more attractive solution for property owners looking to employ our asset-light triple net lease alternatives while maintaining ownerships of their asset. With that, I'll turn it over to Shanukh Kothari, our President and Chief Financial Officer, for a review of our financials. Thank you, Brian. We reported another strong quarter. and continued to validate the growth and earnings power inherent in our model. Net rental revenue tripled to 31.9 million from last year's second quarter, driven primarily by an increase in average units available to rent from 565 in Q2 22 to 1,086 in Q2 23, as well as improved revenue per available room, or RevPar. Year-to-date RevPar rose to 291 from 183 in Q2 22 and from 247 at December 31st, 2022. 2Q2023 total cash rent expense was 4.8 million or 15.2% of net rental revenue compared to 2.1 million or 20.9% of net rental revenue in the same period last year. Non-cash rent expense amortization was 2.6 million up from 1.1 million in Q2 22. Gross profit rose to 10.2 million or 31.8% of net rental revenue from 2.9 million or 28% of net rental revenue in Q2 22. G&A expenses increased to 4.4 million or 13.9% of net rental revenue compared to 900,000 or 8.7 in Q2 22. Our net loss for the second quarter was $26.8 million or $0.78 per share as compared to net income of $762,000 or $0.04 per share in the second quarter of last year. The primary driver of the net loss was a $28.5 million one-time non-cash financing charge associated with the revenue share agreement that eliminated an estimated 87.5 million in future revenue share payments that we would have been contracted to pay. We also incurred a 1.2 million one-time cash interest and financing costs associated with the retirement of debt and related premiums associated with this. While these charges did impact our results, they should not mask the positive impact of the elimination of these revenue share payment obligations. we would have had on our business over the long term, primarily by removing the drag on our financial results, increasing our access to growth capital, and providing financial flexibility. Exclusive of these items, adjusted cash net income improved to 7.2 million, up from just under 1.9 million in last year's second quarter, and EBITDA improved to 8.4 million. Going forward, we will not have charges related to financing but we'll continue to have regular stock compensation expense associated with equity grants and non-cash rent expense amortization associated with ASC 842. For the quarter end of June 30th, 2023, our EBITDA margin increased to 26.5%. As we've discussed last quarter, our goals are to achieve 20 plus percent EBITDA margins in the short term and 25 plus percent EBITDA margins over the long term. We reiterate this guidance. During the June 2023 quarter, our units hosting guests rose to 1,086 from 988 in the prior quarter and 479 in Q22. Moving to the balance sheet. At June 30th, cash and cash equivalents totaled 3.8 million, a 2.7 million improvement from December 31st, 2022. Restricted cash was unchanged at 1.1 million. Total debt at quarter end declined to $4.6 million from $14 million at December 31, 2022, and net debt in the quarter end was around $800,000, down from $10.3 million at year end 2022. We continued to work on our payables and working capital and made strides during the quarter. Our working capital position narrowed to a negative 2.4 million at June 30th, 2023 from a negative 13.5 million at December 31st, 2022. However, removing short-term lease liabilities, our working capital for June 30th, 2023 was positive 3.7 million versus a negative 9.6 million at December 31st, 2022. That said, we'll continue to work towards improving our liquidity and working capital throughout the balance of the year. During the quarter, we deployed 4 million in security deposits and for the six months, over 8 million. As we have stated previously, we continue to make efforts in improving free cashflow and liquidity and look to improve these metrics while continuing to reduce our debt over the coming quarters. Looking at our portfolio, June 30th, 2023 and today. As of June 30th, we operated 12 properties, 1,086 units in five cities. As of today, we operate 15 properties, with 1,411 units hosting guests in New York, Los Angeles, Miami, Washington, and New Orleans. We currently have under MLA 17 properties totaling 1,625 short-term rental units. As of June 30th, 2023, across our portfolio, our investment and security deposits were 13,554 per unit, with the high being in New York at 17,307 and the low end in New Orleans and D.C. at $5,000 and $6,329 respectively per unit. We expect these amounts to remain relatively consistent in the near future. Regarding guidance, we have maintained our net rental revenue and EBITDA guidance for 2023 and 2024. We expect that all in-rep bar for 2023 will be between $250 and $280, and we expect gross margins of 30% to 40%. G&A, excluding non-cash items, will approximate 10% to 12% during the year. We believe that this will result in EBITDA margins of 20% to 25% plus. We continue to expect year-end operating units to be between 2,500 and 3,000 short-term hotel units under MLA, up from 844 at December 31, 2022, and 1,625 as of today. The timing to reach the goal of between 2,500 and 3,000 units may positively impact our revenue guidance for the year. A few additional comments about the Wyndham partnership. We estimate key money reduced by required CapEx provides us over 15 million of synthetic financing over the course of the initial stages of the agreement. We believe this could increase over time subject to one, how we perform under the agreement two the quality of the pipeline and three continued dialogue with our partner the transaction provides us significant benefits reducing operating expenses when we drive booking traffic to Wyndham's booking channels based on our expected case we we believe we will improve REVPAR which will impact us starting 2024 and reduce OTA costs by about one-third based on our current of booking fees. The net impact, once we're fully operational, will be after year end. Finally, we have yet to quantify the secondary benefits of staffing and resources at Lux Urban as we continue to become more dependent on Wyndham for items we're currently headering on an operational basis. With that, I'll turn the conversation back over to Brian. Thank you, Sinead. I believe We're going to open this up for questions now. Just want to thank everyone for participating. And I'll turn it over to Devin to open up for questions.