Playa Hotels & Resorts N.V.

Good day and welcome to the Playa Hotels and Resorts Third Quarter 2023 Conference Call. All participants will be in a 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. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Ryan Emile. Please go ahead.

Thank you very much, Betsy. Good morning, everyone, and welcome to Playa Hotel Resort's third 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 that 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, when the company undertakes no obligations to update forward-looking statements. For discussion on 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 last night with the SEC. We've updated our investor relations website at investors.flyresorts.com with the company's recent releases. In addition, reconciliations to GAAP of the non-GAAP financial measures we discussed on this call were included in yesterday's press release. On today's call, Bruce Radinsky, Plius Chairman and CEO, will provide comments on the third quarter demand trends and key operational highlights. I will then review our third 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. Thank you for joining us. Our third quarter results were in line with the expectations we shared with you on our last earnings call. Led by strong performance in our Jamaica segment, Playa's own resort EBITDA, $52.8 million in the third quarter, included a significant year-over-year foreign currency exchange headwind of approximately $8 million due to the appreciation of the Mexican peso. Benefit from business interruption insurance proceeds of approximately $1 million and negative EBITDA at the jewel resource in the Dominican Republic. Also, as a reminder, Hurricane Fiona hit the Dominican Republic in late September of 2022. causing us to close the Hyatt's Evens, Laura Capcana, and Hilton La Romana resorts for repairs for a portion of the third quarter last year, which we estimated to be a 2.9 million negative impact on EBITDA and an 80 to 90 basis point hit to our Q3 22 owned resort EBITDA margin. We estimate that in Q3 2023, the foreign exchange headwinds had a negative 390 basis points impact on a reported owned resort EBITDA margin and 410 basis points for our legacy portfolio resort margins. Adjusting for all of these factors, underlying EBITDA growth for our legacy portfolio was approximately 9.5% during the third quarter, and we were still able to improve legacy resort margins by 150 basis points year over year. As we outlined earlier this year, our expectation was that the first quarter would represent the highest year-over-year ADR in EBITDA growth for 2023, as we lapped the impact from Omicron last year, and growth would normalize as we entered the second half of 2023, as the base comparison period had less noise. Playa's third quarter legacy portfolio year-over-year EBITDA growth was driven by ADR growth of 8.9%, and the cost efficiency measures we have implemented, particularly in Mexico. Fundamental strength during the third quarter was led by our Jamaican segment, which posted our highest occupancy rate and ADR growth, resulting in 510 basis points of resort margin expansion year over year. Although Jamaica had a fantastic year in 2023, there is still plenty of room to go in the recovery in that market. On an underlying basis, growth versus pre-pandemic is still lagging versus our other segments by 10 to 20 percentage points and is also evident when you drill down to like-for-like peers at the hotel level. Two. Supply growth over the last few years has been benign at a little under 10%, with year-to-date international arrivals into Montego Bay only slightly exceeding in the additional supply, but this was largely due to the timing of additional airlift. Three. Airlift versus 2019 was only slightly positive in Q1 2023, but is estimated to be over 20% in the second half of 2023, which bodes well for increased demand and the ability to close the ADR gap versus peers. With the improvements made to the Montego Bay Airport and the expected growth in additional flight capacity, we remain extremely optimistic for the Jamaican segment fundamentals. In Mexico, revenue declined modestly year over year, as a result of construction disruption in the Pacific and the impact of increased visitation to Europe this summer, which was largely offset by ongoing increases in ADR. We believe we are significantly outperforming the market in Mexico, a testament to our service from the heart and execution by our operations team. As I mentioned, both the Yucatan and the Pacific segments were negatively impacted by year-over-year appreciation in the Mexican peso, And we estimate that the Yucatan would have seen approximately 130 basis points of margin improvement year over year, excluding the impact of FX. And the Pacific would have expanded margins by approximately 50 basis points. With the hiring of a new regional operations director for Mexico, we've been taking a fresh look at our cost structure in Mexico and believe we have room to further optimize our staffing during the ebbs and flows of occupancy levels. While our early efficiency actions are already bearing fruit, we expect to see a long tail from greater efficiencies, especially as it relates to areas like procurement and staffing models, given the iterative nature of these changes. In the Dominican Republic, our legacy resorts, excluding the Jewel Palm Beach and the Jewel Punta Cana, grew both occupancy and ADR year over year. Adjusting for the previously discussed business interruption insurance benefit, In the impact in Q3 2022 from Hurricane Fiona, resort EBITDA for our legacy DR resorts grew over 6% during the third quarter. However, the results of the two jewel resorts in the DR segment continued to weigh on this segment, negatively impacting profits by approximately $6 million year over year in the third quarter. We had anticipated a weak summer for these two properties as a result of missing the summer selling season, particularly for its core European guest base. We still expect to improve on the year-over-year profit drag as we move into the fourth quarter. We do not have any information to share with respect to the timing of the disposition of the two resorts, but hope to have more to share on that in the future. On the booking front, demand for the fourth quarter and beyond improved in July and continued to accelerate through the third quarter. In aggregate, during the third quarter of 2023, 45.7% of Playa owned and managed transient revenues booked were booked direct, down 450 basis points year over year. The decline was driven by fewer World of Hyatt redemption bookings following a spike during the first quarter of 2023 ahead of a change in the conversion rate for point redemptions, which pulled forward quite a bit of demand. We expect this to smooth out in the coming months and believe we are on track with our targeted 50% booked revenue mix of transient revenue. During the third quarter of 2023, PlayaResorts.com accounted for approximately 11% of our total Playa owned and managed transient 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. Geographically, the biggest change in our guest mix during the third quarter was once again our Mexican-sourced guest mix, which was up nearly 570 basis points year over year. Our European-sourced guest mix was up slightly year over year and remained well ahead of pre-pandemic levels. Our Asian-sourced guest mix improved modestly year over year, but remains the most depressed, as it is still only approximately 25% recovered. The most noteworthy geographic source market to keep a close eye on though is Canada, which was a large source market for us prior to the pandemic, but has only recovered approximately 60%. However, recently there has been a significant increase in flight capacity into our markets from Canada for the high season. So I am optimistic that our Canadian guest mix will improve in the coming months. Our visibility remains a critical factor of our success as our booking window was just under three months. In total, while 2023 was a very successful year for Playa on many fronts, we faced significant headwinds that masked the robust performance in our core portfolio. However, our focus on execution and the stellar fundamentals should shine brighter in the near future as the profit headwinds are expected to abate. Starting in the first quarter, we will begin to lap the significant profit decline at the two jewel properties in the Dominican Republic. At current U.S. dollar to Mexican dollar Peso spot FX rates, FX would cease to be a profit headwind beginning in Q2 2024, and we will be lapping the significant increase in our insurance expense in Q2 2024 as well. Finally, on the capital allocation front, we repurchased approximately $76 million worth of Playa stock during the third quarter, and an additional $15.4 million thus far in the fourth quarter. bringing our total repurchases since resuming our program in September 2022 to approximately $212 million, or 17% 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 healthy business fundamentals. We believe stock or Our stock offers a tremendous value and that share repurchases are phenomenal use of capital for our free cash flow to boost total shareholder return over time. Once again, I would like to thank all of our associates that 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. With that, I'll turn the call back over to Ryan to discuss the balance sheet and our outlook.