Playa Hotels & Resorts N.V.

Good morning and welcome to the Playa Hotels and Resorts fourth quarter 2023 earnings release and conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Ryan Hemel with the company. Please go ahead, sir.

Thank you very much, Drew. Good morning, everyone, and welcome again to Playa Hotels and Resorts' fourth 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 risk factors that could cause our results to differ, please review the risk factors section of our annual report on Form 10-K, which we filed last night with the SEC. 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 discussed on today's call were included in yesterday's press release. On the call today, Bruce Wardinsky, Plyus Chairman and Chief Executive Officer, will provide comments on the fourth quarter demand trends and key operational highlights. I will then review the fourth quarter results and our outlook for 2024. Bruce will wrap up the call with some concluding remarks before we turn it over to Q&A. With that, I'll turn it over to Bruce.

Great. Thanks, Ryan. Good morning, everyone, and thank you for joining us. Our fourth quarter results exceeded our expectations, coming in well above the high end of our expected range. The better-than-expected results were broad-based across our segments, driven by strong demand during the high season. Before we dive in, I'd like to remind everyone that Hurricane Fiona hit the Dominican Republic in late September of 2022, causing us to temporarily close the Hyatt Zeebens, Laura Capcana, and Hilton La Romana resorts for repairs for a portion of the third and fourth quarters of 2022. We estimate this had a 5.4 million negative impact net of business interruption proceeds on adjusted EBITDA in Q4 2022, but was an approximate 70 basis points benefit to our reported Q4 2022 owned resort EBITDA margin, as there were no corresponding revenues accompanying the business interruption proceeds we received. Comparability of our KPIs for the fourth quarter is further challenged by the fact that the affected resorts reopened for only the highest ADR portion of the quarter. Playa's owned resort EBITDA of $73.6 million in the fourth quarter of 2023 included a significant year-over-year foreign currency exchange headwind of approximately $5.6 million due to the appreciation of the Mexican peso, a benefit from business interruption proceeds of approximately $900,000, and negative EBITDA at the jewel resorts in the Dominican Republic. For Q4 2023, We estimate that the FX headwinds had a negative 250 basis points impact on both our reported owned resort EBITDA margin as well as for our legacy portfolio, which excludes the dual resorts in the Dominican Republic. Adjusting for all of these factors, underlying adjusted EBITDA growth for our legacy portfolio was approximately 6% during the fourth quarter. Finally, we have included a breakout of segment financial KPIs, excluding the DR dual resorts for the fourth quarter, and full year 2023 on pages 17 and 20 of our earnings release to help you with your modeling and provide a frame of reference for the impact on our financials from these significantly lower ADR resorts. For our discussion today, commentary on comparable full year 2024 KPIs is synonymous with our legacy portfolio, as the Jewel Palm Beach was closed for a portion of Q123 and the Jewel Punta Cana was sold during Q4 2023. and thus would not be comparable for the full year metrics. As we outlined earlier in 2023, our expectation was that the first quarter would represent the highest year-over-year ADR in EBITDA growth in 2023, as we lapped the impact from Omicron in early 2022, and growth would normalize as we entered the second half of 2023, as the base comparison period had less noise. Additionally, based on our pacing and booking data, We were of the belief that the brief slowdown in bookings experienced ahead of the summer travel season was likely the result of pent-up demand for European travel, and not indicative of weak demand for traditional winter travel to beach and warm weather destinations. This view largely came to fruition during the fourth quarter of 2023, as close in demand during the high season, particularly in Mexico, exceeded our expectations and aided our ADR growth as these peak season bookings came at healthy rates. Her results in the Yucatan were quite exceptional on a currency-adjusted basis, with occupancy nearing fourth quarter 2018 and 2019 levels. Her fourth quarter 2022 Yucatan ADR reflected multiple favorable true-up adjustments. Excluding these adjustments, underlying fourth quarter ADR in the Yucatan increased approximately 2% year-over-year. The most remarkable aspect of her fourth quarter in the Yucatan, however, was a continued execution by our operations teams in Mexico, which were able to grow currency-neutral margins approximately 100 basis points year over year on modest reported ADR growth. As you may recall, following the realignment of key management personnel, we've been revisiting various processes, staffing models, and procurement practices since the second quarter of 2023, and the results of our efforts really began to show in the second half of the year as ADR growth moderated. As we've mentioned on previous earnings calls, The process improvement will be iterative, and we will continue increasing efficiency where possible to help offset the impacts of rising wages and inflation in various expense categories. We believe we can hold FX neutral margins steady year over year in the Yucatan in 2024 on positive low single digit to mid single digit ADR growth, despite underlying wage pressure continuing. In the Pacific, Close-in demand helped ADR growth in this segment as well, partially offset by year-over-year occupancy declines as a result of Hurricanes Norma and Lydia and our ongoing renovation work. We estimate that Hurricanes Norma and Lydia negatively impacted segment EBITDA by approximately $1 to $1.25 million in the quarter. Similar to the Yucatan, the Pacific was able to grow margins on a currency-neutral basis by approximately 290 basis points year-over-year, despite significant wage pressure. We expect to continue our renovation work in this segment during 2024, which should further help sustain rate growth in the future, as the Hyatt Los Cabos had not had any major renovation work done since the significant renovation that occurred following Hurricane Odile in 2014. In the DR, fundamental strength during the fourth quarter was led by the Hyatt Cap Cana, which continues to be the preeminent resort in one of the top resort markets in the world and was our best performing resort in Q4. Results in the segment were hindered by the Jewel Resorts, which posted a modest loss in Q4. As a reminder, we completed the sale of the Jewel Punta Cana in late December, and the Jewel Palm Beach was closed for a significant portion of Q1 2023. which we expect will provide a meaningful year-over-year increase in EBITDA during Q1 2024. The two resorts combined for an EBITDA loss of approximately $15 million in 2023, with the Jewel Palm Beach's loss in the fourth quarter narrowing to just under $1 million. We are still actively pursuing a sale of Jewel Palm Beach, but do not have any updates on the status of the sale process at this time. Finally, Jamaica had another solid quarter, with occupancy increasing slightly year-over-year along with mid-single-digit ADR growth, despite a significant headwind from lower mice group mix year-over-year. The segment was off to a good start in 2024, but the U.S. State Department's travel advisory notice for Jamaica on January 23rd has had a negative impact on the segment near term, as cancellations picked up meaningfully. Although the warning doesn't pertain to our resorts as much as the major metro areas, and the fact that the level of the travel advisory was unchanged from the prior advisory, the press coverage of this advisory notice was significantly greater than prior warnings. Bookings in Jamaica have since stabilized, but the majority of the cancellations were for stays in the coming months and will be difficult to backfill. Given the warning level was not based on any new incidents or data, the impact of this, while unfortunate, will likely be confined to lost bookings in March through June. Looking at demand as a whole, demand for the fourth quarter of 2023 and beyond improved in July of last year, continued to accelerate through the third quarter, and remained healthy in the fourth quarter. In aggregate, during the fourth quarter of 2023, 47.4% of apply-owned and managed transit revenues booked were booked direct, down 460 basis points year over year. The decline was driven by fewer World of High Redemption bookings, following a spike during the first quarter of 2023 ahead of a change in the conversion rate per point redemptions, which pulled forward quite a bit of demand. We expect this to smooth out over time and believe we are in line with our targeted 50% transient direct book revenue mix. During the fourth quarter of 2023, PlayaResource.com accounted for approximately 13.6% 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 43.3% of apply-own-and-manage roommates in the quarter came from our direct channels. Geographically, the biggest change in our guest mix during the fourth quarter was our European and Mexican source guest mix, both of which were up nearly 300 basis points year-over-year. Our Asian source guest mix improved modestly year-over-year, that remains the most depressed as it is still only approximately 25% recovered versus pre-pandemic levels. Our Canadian guest mix has remained relatively muted at approximately 60% recovered versus pre-pandemic levels. However, there's recently been a significant increase in flight capacity into our markets from Canada for the high season. So I'm optimistic 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 over three months during the fourth quarter. 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 dual properties in the Dominican Republic. At current U.S. dollar Mexican peso spot FX rates, we expect FX pressure to ease significantly beginning in Q3 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 $33.5 million worth of Playa stock during the fourth quarter, and an additional $14.6 million thus far in the first quarter, bringing our total repurchases since resuming our program in September 2022 to approximately $245 million, or approximately 20% 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 continued healthy business fundamentals. Once again, I would like to thank all of our 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 Kalei apart. With that, I will turn the call back over to Ryan to discuss the balance sheet and our outlook.