Playa Hotels & Resorts N.V.

Good morning and welcome to the Playa Hotels and Resorts second quarter 2023 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ryan Heimel. Please go ahead.

Thank you very much, Jason. Good morning, everyone, and welcome again to Playa Hotels and Resorts' second quarter 2023 earnings conference call. Before we begin, I'd like to remind participants that many of our comments today will be considered forward-looking statements and are subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what has been communicated. Forward-looking statements made today are effective only as of today, and the company undertakes no obligation to update forward-looking statements. For discussion of some of the factors that could cause our actual results to differ, please review the risk factors section of our quarterly report on Form 10-Q, which we filed with the SEC last night. We've updated our investor relations website at investors.plyresorts.com with the company's recent releases. In addition, reconciliations to GAAP of the non-GAAP financial measures we will discuss on this call were included in yesterday's press release. On today's call, Bruce Wierdinski, Playa's Chairman and Chief Executive Officer, will provide comments on the second quarter, demand trends, and key operational highlights. I will then address our second quarter results and our outlook. Bruce will wrap up the call with some concluding remarks before we turn it over to Q&A. With that, I'll turn the call over to Bruce.

Great. Thanks, Ryan. Good morning, everyone, and thank you for joining us. Our second quarter results continued to build on the momentum established in 2022, with both ADR and occupancy growing year over year in our core legacy portfolio and owned resort EBITDA margin expansion, despite a significant FX headwind. Playa's owned resort EBITDA of $83.1 million in the second quarter was the best second quarter performance in the company's history, driven by the continued recovery in our Jamaica segment and and an 18.2% year-over-year rev part increase in our core legacy portfolio. The quarter was not without challenges, however, as we continue to experience year-over-year pressure from both of the two jewel resorts in the Dominican Republic that recently transitioned to Playa Management and foreign currency exchange headwinds in Mexico. Additionally, our operations teams executed at the resort level, delivering 100 basis points of owned resort EBITDA margin expansion on a reported basis despite an approximate 260 basis point FX drag from the appreciation of the Mexican peso this quarter. The core legacy portfolio resort margins improved 280 basis points year-over-year, inclusive of a negative 270 basis points foreign currency drag. The margin performance was particularly impressive given the moderating pace of year-over-year rev part growth. As a reminder, our expectation was that the first quarter would represent the highest year-over-year ADR growth for 2023, as we lapped the impact of Omicron last year. And that growth would normalize as we entered the second half of 2023. Finally, I would also like to note that during the second quarter, we recognized a $4.3 million benefit from business interruption insurance in the Dominican Republic related to Hurricane Fiona, which occurred in the second half of 2022. Although we expect more business interruption insurance proceeds, the exact amount and timing of the proceeds is unpredictable. As I mentioned, fundamental strength during the quarter was led by our Jamaican segment, as this market is a little behind on the recovery curve compared to our other segments due to the longer-lived COVID-related travel restrictions being in place until April of 2022. The second quarter of 2023 marked the highest Q2 occupancy rate and owned resort EBITDA margin we have ever achieved in Jamaica. reinforcing our belief that nothing has fundamentally changed for this market compared to the pre-pandemic period, when it was our best performing segment. Compared to 2019, international passenger arrivals into Montego Bay Airport had been lagging our other major destinations by approximately 15 to 20 basis points during the first quarter. That gap narrowed to approximately 10 to 15 percentage points during the second quarter, with June showing a significant ramp. Comparing ADRs in the segment vis-a-vis peers, we believe ADRs still have a meaningful runway of improvement ahead. In Mexico, revenue growth in this market was predominantly ADR-driven, given where the country was on the recovery curve. Both of our Mexican segments were negatively impacted by the year-over-year change in the Mexican peso during the quarter, and we estimate both segments would have seen improved margins year-over-year, excluding the impact of FX. We have been actively working on efficiency opportunities to manage costs and help mitigate the significant impact of FX on our margins in Mexico, as evidenced by our Yucatan segment growing margins year over year on a currency-neutral basis, an ADR growth of 6%. Although the second quarter was largely as expected, we experienced some softness in close-in demand for the Yucatan in June for the summer period. Demand, however, improved in July in the month for the month, Our expectation is that demand in the Yucatan will remain choppy through the fall as the transatlantic travel resurgence subsides. In the Dominican Republic, our legacy DR resorts, excluding the Jewel Palm Beach and Jewel Punta Cana resorts, grew both occupancy and ADR year over year, yielding over 900 basis points of margin, resort margin expansion year over year. Adjusting for the previously discussed business interruption insurance benefit, Resort margins for the legacy DR properties grew by 170 basis points year-over-year. Results of the two dual resorts in the DR segment were slightly ahead of the expectations we laid out on our last earnings call, representing an approximate $7 million year-over-year EBITDA drag in the second quarter. We continue to expect the year-over-year profit drag from these resorts to improve during the second half of the year while we continue to pursue the sale of these assets. We have been in negotiations with two separate buyers to sell the assets individually, and the only update I can share with you today is that one of the processes is further along than the other, but we are diligently working on both dispositions. On the booking front, demand has remained steady as a whole. In aggregate, during the second quarter of 2023, 47.2% of Playa-owned and managed transient revenues were booked direct, down 190 basis points year over year. The decline was driven by fewer World of Hyatt redemption bookings following a significant increase during the first quarter ahead of a change in the conversion rate for point redemptions. We expect this to smooth out over the course of the year and believe we will be ahead of our targeted 50% booked revenue mix of transient revenue. During the second quarter of 2023, PlayaResorts.com accounted for approximately 10% our total Playa owned and managed room night bookings, continuing to be a critical factor in our customer sourcing and ADR gains. Taking a look at who is traveling, roughly 39% of the Playa owned and managed room night stays in the quarter came from our direct channels. Our OTA mix has remained the most depressed channel compared to pre-pandemic levels for stays. Geographically, the biggest change in our guest mix during the second quarter was our Mexican source guest mix, which was up nearly 500 basis points year-over-year. Our European source guest mix was down slightly year-over-year, but well ahead of pre-pandemic levels. Our Asian source guest mix improved modestly year-over-year, but remains the most depressed, as it is only approximately 20% recover. Our visibility remains a critical factor of our success, as our booking window was just under three months. Once again, I would like to thank all of our Playa associates who have continued to deliver world-class service in the face of unexpected challenges and rising operating costs. Their unwavering passion and dedication to service from the heart is what truly sets Playa apart. Finally, on the capital allocation front, we purchased approximately $34 million worth of Playa stock during the second quarter and an additional $24 million in July. bringing our total repurchases since resuming our program in September 2022 to approximately 145 million, or well over 11.5% of the shares outstanding. We continue to believe that our significant free cash flow generation is underappreciated given the modest amount of ROI-driven CapEx expected in the near term and our healthy business fundamentals. We believe that our stock, offers a tremendous value opportunity, and share repurchases are a phenomenal use of capital from our free cash flow to boost total shareholder returns over time. With that, I will turn the call back over to Ryan to discuss the balance sheet and our outlook.