OPERATIONS
As used in this Quarterly Report on Form 10-Q, unless the context otherwise indicates, the references to "we," "us," "our," and the "Company" refer toAshford Inc. , aNevada corporation, and, as the context may require, its consolidated subsidiaries, includingAshford Hospitality Advisors LLC , aDelaware limited liability company, which we refer to as "Ashford LLC " or "our operating company";Ashford Hospitality Holdings LLC , aDelaware limited liability company, which we refer to as "Ashford Holdings ";Ashford Hospitality Services LLC , aDelaware limited liability company, which we refer to as "Ashford Services";Premier Project Management LLC , aMaryland limited liability company, which we refer to as "Premier Project Management," or "Premier";Remington Lodging & Hospitality, LLC , aDelaware limited liability company, which we refer to as "Remington"; andMarietta Leasehold, L.P. ("Marietta")."Braemar" refers to Braemar Hotels & Resorts Inc., aMaryland corporation, and, as the context may require, its consolidated subsidiaries, includingBraemar Hospitality Limited Partnership , aDelaware limited partnership, which we refer to as "Braemar OP." "Ashford Trust " or "AHT" refers to Ashford Hospitality Trust, Inc., aMaryland corporation, and, as the context may require, its consolidated subsidiaries, includingAshford Hospitality Limited Partnership , aDelaware limited partnership andAshford Trust's operating partnership, which we refer to as "Ashford Trust OP." FORWARD-LOOKING STATEMENTS This Form 10-Q contains certain forward-looking statements that are subject to risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "anticipate," "estimate," "approximately," "believe," "could," "project," "predict," or other similar words or expressions. Additionally, statements regarding the following subjects are forward-looking by their nature: •the impact of the COVID-19 pandemic and numerous governmental travel restrictions and other orders on our clients' and our business, including one or more possible recurrences of COVID-19 cases that could cause state and local governments to reinstate travel restrictions; •our business and investment strategy; •our projected operating results; •our ability to obtain future financing arrangements; •our ability to regain compliance with theNYSE American LLC (the "NYSE American") continued listing standards; •our understanding of our competition; •market trends; •the future success of recent acquisitions, including the 2018 acquisition of Premier and the 2019 acquisition of Remington; •the future success of recent business initiatives withAshford Trust and Braemar; •projected capital expenditures; and •the impact of technology on our operations and business. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, taking into account all information currently available to us, our actual results and performance could differ materially from those set forth in our forward-looking statements. Factors that could have a material adverse effect on our forward-looking statements include, but are not limited to: •the risk factors set forth in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , as filed with theU.S. Securities and Exchange Commission (the "SEC") onMarch 16, 2021 , including under the sections captioned "Item 1. Business," "Item 1A. Risk Factors," "Item 3. Legal Proceedings," and "Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations;" •adverse effects of the COVID-19 pandemic, including a significant reduction in business and personal travel and potential travel restrictions in regions where our clients' hotels are located, and one or more possible recurrences of COVID-19 cases causing a further reduction in business and personal travel and potential reinstatement of travel restrictions by state or local governments; •actions by our clients' lenders to accelerate loan balances and foreclose on our clients' hotel properties that are security for our clients' loans that are in default; 47 -------------------------------------------------------------------------------- •uncertainty associated with the ability of the Company to remain in compliance with all covenants in our Term Loan Agreement and our subsidiaries to remain in compliance with the covenants of their debt and related agreements; •general volatility of the capital markets, the general economy or the hospitality industry, whether the result of market events or otherwise, and the market price of our common stock; •availability, terms and deployment of capital; •changes in our industry and the market in which we operate, interest rates or the general economy; •the degree and nature of our competition; •actual and potential conflicts of interest with or betweenAshford Trust and Braemar, our executive officers and our non-independent directors; •availability of qualified personnel; •changes in governmental regulations, accounting rules, tax rates and similar matters; •legislative and regulatory changes; •the timing and outcome of theSEC investigation; •the possibility that we may not realize any or all of the anticipated benefits from transactions to acquire businesses, including the 2018 acquisition of Premier and the 2019 acquisition of Remington, and the possibility we will be required to record additional goodwill impairments relating to Remington as a result of the impact of the COVID-19 pandemic on our clients', and our business; •the possibility that the lodging industry may not fully recover to pre-pandemic levels as a result of the acceptance of "work-from-home" business practices and potentially lasting increased adoption of remote meeting and collaboration technologies; •the possibility that we may not realize any or all of the anticipated benefits from our business initiatives, including the ERFP Agreement with Braemar; •the failure to make full dividend payments on our Series D Convertible Preferred Stock in consecutive quarters, which would result in a higher interest rate and the right of Mr.Monty J. Bennett and Mr.Archie Bennett , Jr. to each have the right to appoint one member to the Board until such arrearages are paid in full; •disruptions relating to the acquisition or integration of Premier, Remington or any other business we invest in or acquire, which may harm relationships with customers, employees and regulators; and •unexpected costs of further goodwill impairments relating to the acquisition or integration of Remington or any other business we invest in or acquire. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements under "Item 1A. Risk Factors" of our Annual Report and this Quarterly Report, the discussion in this Management's Discussion and Analysis of Financial Conditions and Results of Operations, and elsewhere which could cause our actual results and performance to differ significantly from those contained in our forward-looking statements. Accordingly, we cannot guarantee future results or performance. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this Form 10-Q. Furthermore, we do not intend to update any of our forward-looking statements after the date of this Form 10-Q to conform these statements to actual results and performance, except as may be required by applicable law. 48 --------------------------------------------------------------------------------
Overview
Ashford Inc. is aNevada corporation that provides products and services primarily to clients in the hospitality industry, includingAshford Trust and Braemar. We became a public company inNovember 2014 , and our common stock is listed on the NYSE American. As ofMay 7, 2021 , Mr.Monty J. Bennett ,Ashford Inc.'s Chairman and Chief Executive Officer and the Chairman ofAshford Trust and Braemar, and his father, Mr.Archie Bennett , Jr., Chairman Emeritus ofAshford Trust , owned approximately 607,743 shares of our common stock, which represented an approximately 20.2% ownership interest inAshford Inc. , and owned 18,758,600 shares of our Series D Convertible Preferred Stock (the "Series D Convertible Preferred Stock"), which is exercisable (at an exercise price of$117.50 per share) into an additional approximate 3,991,191 shares ofAshford Inc. common stock, which if exercised as ofMay 7, 2021 would have increased Mr.Monty J. Bennett and Mr.Archie Bennett , Jr.'s ownership interest inAshford Inc. to 65.7%. We provide: (i) advisory services; (ii) asset management services; (iii) hotel management services; (iv) project management services; (v) event technology and creative communications solutions; (vi) mobile room keys and keyless entry solutions; (vii) watersports activities and other travel, concierge and transportation services; (viii) hypoallergenic premium room products and services; (ix) debt placement and related services; (x) real estate advisory and brokerage services; and (xi) wholesaler, dealer manager and other broker-dealer services. We conduct these activities and own substantially all of our assets primarily throughAshford LLC , Ashford Services and their respective subsidiaries. We seek to grow through the implementation of two primary strategies: (i) increasing our assets under management; and (ii) pursuing third-party business to grow our other products and services businesses. We are currently the advisor forAshford Trust and Braemar. In our capacity as the advisor toAshford Trust and Braemar, we are responsible for implementing the investment strategies and managing the day-to-day operations ofAshford Trust and Braemar and their respective hotels from an ownership perspective, in each case subject to the respective advisory agreements and the supervision and oversight of the respective boards of directors ofAshford Trust and Braemar.Ashford Trust is focused on investing in full-service hotels in the upscale and upper upscale segments in theU.S. that have RevPAR generally less than twice the national average. Braemar invests primarily in luxury hotels and resorts with RevPAR of at least twice theU.S. national average. Each ofAshford Trust and Braemar is a REIT as defined in the Internal Revenue Code, and the common stock of each ofAshford Trust and Braemar is traded on the NYSE. As required for disclosure under the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement, for the trailing twelve months endedMarch 31, 2021 , the total incremental expenses incurred (including all reimbursable expenses), as reasonably determined, in connection with providing services to Braemar under the agreement was$10.5 million . Recent Developments COVID-19, Management's Plans and Liquidity InDecember 2019 , COVID-19 was identified inWuhan, China , which subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses in every state inthe United States . InMarch 2020 , theWorld Health Organization declared COVID-19 to be a global pandemic. Our clientsAshford Trust and Braemar have reported that the negative impact on room demand within their respective portfolios stemming from COVID-19 is significant, which has resulted and is expected to result in significantly reduced occupancy and RevPAR. Furthermore, the prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses. The hotel industry has experienced postponement or cancellation of a significant number of business conferences and similar events. Following the government mandates and health official orders, the Company dramatically reduced staffing and expenses at its products and services businesses and at our corporate office. COVID-19 has had a significant negative impact on the Company's operations and financial results to date. In addition, one or more possible recurrences of COVID-19 cases could result in further reductions in business and personal travel and could cause state and local governments to reinstate travel restrictions. The Company expects that the COVID-19 pandemic will continue to have a significant negative impact on the Company's results of operations, financial position and cash flow in 2021 and potentially beyond. As a result, inMarch 2020 , the Company amended payment terms pursuant to certain hotel management agreements to better manage corporate working capital, reduced planned capital expenditures, significantly reduced operating expenses and reduced the cash compensation of its executive officers and other employees, including an arrangement pursuant to whichMr. Bennett received his base salary in the form of common stock issued under the Company's 2014 Incentive Plan, as amended. Additionally, the Company did not declare dividends which were due with respect to its Series D Convertible Preferred Stock for the second and fourth quarters of 2020. As ofMarch 31, 2021 , the Company had aggregate undeclared preferred stock dividends of approximately$16.5 million which relates to the second and fourth quarters of 2020. 49 -------------------------------------------------------------------------------- During the first quarter of 2021, base salaries for the Company's executive officers and other employees were restored to pre-reduction levels and the arrangement by whichMr. Bennett received his base salary in the form of common stock ended. Additionally, onMarch 25, 2021 , the Company declared$8.4 million in dividends which were due with respect to its Series D Convertible Preferred Stock for the first quarter of 2021. When preparing financial statements, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that create substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. In applying the accounting guidance, the Company considered its current financial condition and liquidity sources, including current funds available, forecasted future cash flows and its unconditional obligations due over the next 12 months. We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in the inability of our portfolio companies to borrow unused amounts under their respective lines of credit. As ofMarch 31, 2021 , our Term Loan Agreement was in compliance with all covenants or other requirements. Debt held by our subsidiaries was in compliance with all covenants or other requirements. Additionally, JSAV executed a credit agreement amendment onDecember 31, 2020 , which extended the maturity date of the loan and includes a covenant which commences with the quarter endingMarch 31, 2023 . As a result of the impact of COVID-19, JSAV is reliant onAshford Inc. to make contributions to cover JSAV's projected operating shortfall and amortization and interest payments on its outstanding debt within one year of the issuance of the financial statements. All such contributions are subject to the discretion ofAshford Inc. As such, all of JSAV's outstanding debt balance has been classified as a current liability within our condensed consolidated balance sheet as ofMarch 31, 2021 . We cannot predict when hotel operating levels at our clients,Ashford Trust and Braemar, will return to normalized levels after the effects of the pandemic subside, whether our clients' hotels will be forced to shut down operations or whether one or more governmental entities may impose additional travel restrictions due to a resurgence of COVID-19 cases in the future. As a result of these factors resulting from the impact of the pandemic, we are unable to estimate future financial performance with certainty. However, based primarily on our assessment of the ability of our key customers,Ashford Trust and Braemar, to pay their obligations to the Company in accordance with the advisory agreements, the Company has concluded that management's current plan alleviates the substantial doubt about its ability to continue as a going concern. Additional factors considered in our assessment include our completed loan amendments, other agreements, our current cash on hand, our forecast of future operating results for the next 12 months from the date of this report and the actions we have taken to improve our liquidity. Facts and circumstances could change in the future that are outside of management's control, such as changes inAshford Trust's and Braemar's financial position and liquidity, additional government mandates, health official orders, travel restrictions and extended business shutdowns due to COVID-19. See notes 5 and 13 to our condensed consolidated financial statements. Other Developments OnJanuary 4, 2021 , the independent members of the Board agreed to: (i) deferAshford Trust's payment of the base advisory fees that were previously deferred for the months ofOctober 2020 ,November 2020 andDecember 2020 ; (ii) defer approximately$2.8 million in base advisory fees with respect to the month ofJanuary 2021 ; (iii) deferAshford Trust's payment of Lismore success fees that were previously deferred for the months ofOctober 2020 ,November 2020 andDecember 2020 ; (iv) defer payment ofAshford Trust's Lismore success fees for the month ofJanuary 2021 . As a result, the foregoing payments became due onJanuary 11, 2021 . Additionally, the independent members of the board of directors ofAshford Inc. waived any claim against Ashford Trust andAshford Trust's affiliates and each of their officers and directors for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of such fee deferrals. OnJanuary 11, 2021 , the independent members of the Board providedAshford Trust an additional deferral of the base advisory fees and any Lismore success fees for the months ofOctober 2020 ,November 2020 ,December 2020 andJanuary 2021 that were previously deferred such that all such fees would be due and payable on the earlier of (x)January 18, 2021 and (y) immediately prior to the closing of Credit Agreement betweenAshford Trust and Oaktree. Additionally, the Board waived any claim against Ashford Trust andAshford Trust's affiliates and each of their officers and directors for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of such fee deferral. In accordance with the terms of the previously disclosed deferrals,Ashford Trust paid the Company$14.4 million onJanuary 15, 2021 . OnJanuary 14, 2021 , the Company entered into the Second Amended and Restated Advisory Agreement withAshford Trust . The Second Amended and Restated Advisory Agreement amends and restates the terms of the Amended and Restated Advisory Agreement, datedJune 10, 2015 , as amended by the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement, dated as ofJune 26, 2018 to, among other items (i) revise the term 50 -------------------------------------------------------------------------------- and termination rights; (ii) fix the percentage used to calculate the base fee thereunder at 0.70% per annum; (iii) update the list of peer group members; (iv) suspend the requirement that the Company maintain a minimum Consolidated TangibleNet Worth until the first fiscal quarter beginning afterJune 30, 2023 ; and (v) revise the criteria that would constitute a Company Change of Control in order to provide the Company additional flexibility to dispose of underperforming assets negatively impacted by COVID-19. In connection with the transactions contemplated by the Credit Agreement, dated as ofJanuary 15, 2021 (the "Credit Agreement"), by and amongAshford Trust , Oaktree and the lenders party thereto, onJanuary 15, 2021 , the Company entered into the Subordination and Non-Disturbance Agreement ("SNDA") withAshford Trust and Oaktree pursuant to which the Company agreed to subordinate to the prior repayment in full of all obligations under the Credit Agreement, (1) prior to the later of (i) the second anniversary of the Credit Agreement and (ii) the date accrued interest "in kind" is paid in full, advisory fees (other than reimbursable expenses) in excess of 80% of such fees paid during the fiscal year endedDecember 31, 2019 , (the "AdvisoryFee Cap ") (2) any termination fee or liquidated damages amounts under the advisory agreement, or any amount owed under any enhanced return funding program in connection with the termination of the advisory agreement or sale or foreclosure of assets financed thereunder, and (3) any payments to Lismore in connection with the transactions contemplated by the Credit Agreement. See further discussion in note 13 to our condensed consolidated financial statements. InJanuary 2021 , Remington executed two new hotel management contracts with a third-party hotel owner. In conjunction, Remington loaned approximately$2.9 million to the hotel owner. The loan requires interest only payments at an annual rate of 10% commencing onMarch 31, 2021 . The principal balance and all accrued interest on the loan shall be due and payable to Remington in full onDecember 31, 2022 . The note receivable is recorded with "other assets" in our condensed consolidated balance sheet. OnFebruary 1, 2021 , the base salaries for the Company's executive officers (other thanMr. Bennett ) and other employees were restored to their pre-reduction levels, and onFebruary 3, 2021 , the independent members of the Board of Directors of the Company restoredMr. Bennett's salary to its pre-reduction level, effective as ofFebruary 1, 2021 . In addition, and also effective as ofFebruary 1, 2021 , the independent members of the Board of Directors ended the arrangement pursuant to whichMr. Bennett had been receiving his base salary in the form of common stock issued under the Company's 2014 Incentive Plan, as amended, such thatMr. Bennett's base salary will again be paid in cash. OnMarch 9, 2021 , we acquired all of the redeemable noncontrolling interests in OpenKey for a purchase price of approximately$1.9 million . Pursuant to the agreement, the purchase price will be paid to the seller in equal monthly installments over a seven year term and will include interest in arrears at an annualized rate of 4.0%. The purchase price is payable inAshford Inc. common stock including a 10% premium or cash at our sole discretion. As a result of the acquisition, our ownership in OpenKey increased to 74.76% with the remainder held by noncontrolling interest holders, including 17.07% and 7.97% owned byAshford Trust and Braemar, respectively. OnMay 3, 2021 , we increased our ownership of RED from 84.21% to 96.0% for a total purchase price of$200,000 . The purchase price will be paid in the Company's common stock delivered in quarterly share distributions valued at$25,000 beginning on the closing date and endingNovember 15, 2022 . Discussion of Presentation The discussion below relates to the financial condition and results of operations ofAshford Inc. and entities which it controls. The historical financial information is not necessarily indicative of our future results of operations, financial position and cash flows. 51 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS Three Months EndedMarch 31, 2021 Compared to Three Months EndedMarch 31, 2020 The following table summarizes the changes in key line items from our condensed consolidated statements of operations for the three months endedMarch 31, 2021 and 2020 (in thousands): Three Months Ended March 31, Favorable (Unfavorable) 2021 2020 $ Change % Change REVENUE Advisory services$ 9,927 $ 11,836 $ (1,909) (16.1) % Hotel management fees 4,472 6,124 (1,652) (27.0) % Project management fees 1,542 3,938 (2,396) (60.8) % Audio visual 3,611 29,674 (26,063) (87.8) % Other 10,629 6,691 3,938 58.9 % Cost reimbursement revenue 33,752 75,579 (41,827) (55.3) % Total revenues 63,933 133,842 (69,909) (52.2) % EXPENSES Salaries and benefits 15,776 16,310 534 3.3 % Cost of revenues for project management 758 1,451 693 47.8 % Cost of revenues for audio visual 4,386 20,430 16,044 78.5 % Depreciation and amortization 8,139 9,969 1,830 18.4 % General and administrative 5,268 6,183 915 14.8 % Impairment - 178,213 178,213 100.0 % Other 3,611 4,226 615 14.6 % Reimbursed expenses 33,680 75,511 41,831 55.4 % Total expenses 71,618 312,293 240,675 77.1 % OPERATING INCOME (LOSS) (7,685) (178,451) 170,766 95.7 % Equity in earnings (loss) of unconsolidated entities (114) 236 (350) (148.3) % Interest expense (1,267) (1,176) (91) (7.7) % Amortization of loan costs (86) (66) (20) (30.3) % Interest income 63 28 35 125.0 % Realized gain (loss) on investments (194) (375) 181 48.3 % Other income (expense) (113) (521) 408 78.3 % INCOME (LOSS) BEFORE INCOME TAXES (9,396) (180,325) 170,929 94.8 % Income tax (expense) benefit 951 2,085 (1,134) (54.4) % NET INCOME (LOSS) (8,445) (178,240) 169,795 95.3 % (Income) loss from consolidated entities attributable to noncontrolling interests 95 160 (65) (40.6) % Net (income) loss attributable to redeemable noncontrolling interests 176 440 (264) (60.0) %
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY (8,174) (177,640)
169,466 95.4 % Preferred dividends, declared and undeclared (8,606) (7,875) (731) (9.3) % Amortization of preferred stock discount (316) (810) 494 61.0 % NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS$ (17,096) $ (186,325) $ 169,229 90.8 % Net Income (Loss) Attributable to Common Stockholders. Net loss attributable to common stockholders decreased$169.2 million to a$17.1 million loss for the three months endedMarch 31, 2021 ("the 2021 quarter") compared to the three months endedMarch 31, 2020 ("the 2020 quarter") as a result of the factors discussed below. 52 -------------------------------------------------------------------------------- Total Revenues. Total revenues decreased by$69.9 million , or 52.2%, to$63.9 million for the 2021 quarter compared to the 2020 quarter due to the following (in thousands): Three Months Ended March 31, Favorable (Unfavorable) 2021 2020 $ Change % Change
Advisory services revenue: Base advisory fee (1)$ 9,799 $ 11,537 $ (1,738) (15.1) % Incentive advisory fee (2) - 170 (170) (100.0) % Other advisory revenue (3) 128 129 (1) (0.8) % Total advisory services revenue 9,927 11,836 (1,909) (16.1) % Hotel management: Base management fees 3,857 6,124 (2,267) (37.0) % Incentive management fees 615 - 615 Total hotel management revenue (4) 4,472 6,124 (1,652) (27.0) % Project management revenue (5) 1,542 3,938 (2,396) (60.8) % Audio visual revenue (6) 3,611 29,674 (26,063) (87.8) % Other revenue: Debt placement and related fees (7) 4,288 128 4,160 3,250.0 % Claims management services (8) 17 57 (40) (70.2) % Other services (9) 6,324 6,506 (182) (2.8) % Total other revenue 10,629 6,691 3,938 58.9 % Cost reimbursement revenue (10) 33,752 75,579 (41,827) (55.3) % Total revenues$ 63,933 $ 133,842 $ (69,909) (52.2) % REVENUES BY SEGMENT (11) REIT advisory$ 15,068 $ 20,957 $ (5,889) (28.1) % Remington 32,374 70,456 (38,082) (54.1) % Premier 1,944 5,152 (3,208) (62.3) % JSAV 3,611 29,674 (26,063) (87.8) % OpenKey 454 522 (68) (13.0) % Corporate and other 10,482 7,081 3,401 48.0 % Total revenues$ 63,933 $ 133,842 $ (69,909) (52.2) % ________ (1)The decrease in base advisory fee is primarily due to lower revenue of$1.7 million fromAshford Trust and lower revenue of$75,000 from Braemar. Advisory fees earned fromAshford Trust during the three months endedMarch 31, 2021 , excluded$1.5 million of advisory fees that were constrained and deferred as a result of the$29.0 million annual AdvisoryFee Cap . The deferred fees are included in deferred revenue in our condensed consolidated balance sheet. See note 3 of our condensed consolidated financial statements for discussion of the advisory services revenue recognition policy. (2) The incentive advisory fee for the 2020 quarter includes the pro-rata portion of the third year installment of the Braemar 2018 incentive advisory fee in the amount of$170,000 . Incentive fee payments are subject to meeting theDecember 31 FCCR Condition each year, as defined in our advisory agreements.Ashford Trust's annual total stockholder return has not met the incentive fee threshold in any of the annual measurement periods subsequent to the 2016 measurement period. Braemar's annual total stockholder return did not meet the relevant incentive fee thresholds during the 2020 and 2019 measurement periods. 53 -------------------------------------------------------------------------------- (3) Other advisory revenue remained steady. Other advisory revenue from Braemar is a result of the$5.0 million cash payment received upon stockholder approval of the Fourth Amended and Restated Braemar Advisory Agreement inJune 2017 . The payment is included in "deferred income" on our condensed consolidated balance sheet and is being recognized evenly over the initial ten-year term of the agreement. (4) The decrease in hotel management revenue is due lower base management fees fromAshford Trust and Braemar of$2.3 million and$24,000 , respectively, due to COVID-19 partially offset by incentive management fees of$536,000 and$79,000 fromAshford Trust and Braemar, respectively. (5) The decrease in project management revenue is due to lower revenue fromAshford Trust and Braemar of$2.7 million and$472,000 , respectively, due to reduced capital expenditures by our clients as a result of COVID-19, offset by an increase in project management revenue from third parties of$755,000 . (6) The$26.1 million decrease in audio visual revenue is the result of COVID-19. (7) The increase in debt placement and related fee revenue is due to higher revenue of$3.3 million fromAshford Trust and higher revenue of$853,000 from Braemar. Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services. The increase is primarily due to Lismore's respective agreements withAshford Trust and Braemar for providing modifications, forbearances or refinancings ofAshford Trust and Braemar's loans in the 2021 period due to the financial impact from COVID-19. (8) Claims management services include revenue earned from providing insurance claim assessment and administration services toAshford Trust and Braemar. (9) The decrease in other services revenue is primarily due to decreased revenue from Marietta of$1.4 million from a decrease in operations due to COVID-19 partially offset by increased revenue from RED of$1.2 million during the 2021 quarter. Other services revenue primarily relates to other hotel services provided by our consolidated subsidiaries, OpenKey, RED and Pure Wellness toAshford Trust , Braemar and other third-parties, and Marietta. (10) The decrease in cost reimbursement revenue is primarily due to a decrease in Remington's cost reimbursement revenue of$36.5 million in the 2021 quarter as a result of declines in hotel operations due to COVID-19 and a decrease of$3.9 million in cost reimbursement revenue in the 2021 quarter related to reimbursable advisory expenses forAshford Trust and Braemar due to management's cost reductions in response to COVID-19. (11) See note 15 to our condensed consolidated financial statements for discussion of segment reporting. Salaries and Benefits Expense. Salaries and benefits expense decreased by$534,000 , or 3.3%, to$15.8 million for the 2021 quarter compared to the 2020 quarter. The change in salaries and benefits expense consisted of the following (in thousands): Three Months Ended March 31, 2021 2020 $ Change Cash salaries and benefits: Salary expense$ 8,706 $ 11,387 $ (2,681) Bonus expense 4,271 3,600 671 Benefits related expenses 1,503 2,706 (1,203) Total cash salaries and benefits (1) 14,480 17,693 (3,213) Non-cash equity-based compensation: Stock option grants (2) 1,006 2,089 (1,083) Employee equity grant expense 232 105 127 Total non-cash equity-based compensation 1,238 2,194 (956) Non-cash (gain) loss in deferred compensation plan (3) 58 (3,577) 3,635 Total salaries and benefits$ 15,776 $ 16,310 $ (534) ________ (1)The decrease in cash salaries and benefits in the 2021 quarter is primarily due to management significantly reducing operating expenses in response to COVID-19 in March of 2020. (2)The decrease in stock option grant related expense in the 2021 quarter primarily relates to the forfeiture of 98,603 options from the voluntary resignation ofDouglas A. Kessler , Senior Managing Director of the Company, in May of 2020 and due to the Company not issuing any stock option grants during fiscal year 2020 (when the Company began to issue restricted stock in lieu of stock options under its equity incentive program). (3) The DCP obligation is recorded as a liability at fair value with changes in fair value reflected in earnings. The loss in the 54 -------------------------------------------------------------------------------- 2021 quarter and the gain in the 2020 quarter are primarily attributable to increases and decreases in the fair value of the DCP obligation, respectively. See note 12 to our condensed consolidated financial statements. Cost of Revenues for Project Management. Cost of revenues for project management decreased$693,000 , or 47.8% to$758,000 during the 2021 quarter compared to$1.5 million for the 2020 quarter due to reduced capital expenditures by our clients as a result of COVID-19. Cost of Revenues for Audio Visual. Cost of revenues for audio visual decreased$16.0 million , or 78.5%, to$4.4 million during the 2021 quarter compared to$20.4 million for the 2020 quarter, primarily due to a significant decline in business and cost control initiatives implemented by JSAV inthe United States ,Mexico and theDominican Republic as a result of COVID-19. Depreciation and Amortization Expense. Depreciation and amortization expense decreased by$1.8 million , or 18.4%, to$8.1 million for the 2021 quarter compared to the 2020 quarter, primarily due to the write-off of$6.4 million of FF&E in the third quarter of 2020 related to FF&E formerly leased toAshford Trust under the Ashford Trust ERFP Agreement uponAshford Trust's sale of theEmbassy Suites New York Manhattan Times Square and the sale of FF&E in the fourth quarter of 2020 to Braemar for FF&E formerly leased to Braemar under the Braemar ERFP Agreement at the expiration of the lease. Depreciation and amortization expense for the 2021 quarter and the 2020 quarter excludes depreciation expense related to audio visual equipment of$1.3 million and$1.2 million , respectively, which is included in "cost of revenues for audio visual" and also excludes depreciation expense for the 2021 quarter and the 2020 quarter related to marine vessels in the amount of$220,000 and$200,000 , respectively, which are included in "other" operating expense. General and Administrative Expense. General and administrative expenses decreased by$0.9 million , or 14.8%, to$5.3 million for the 2021 quarter compared to the 2020 quarter. The change in general and administrative expense consisted of the following (in thousands): Three Months Ended March 31, 2021 2020 $ Change Professional fees$ 1,778 $ 1,342 $ 436 Office expense 1,834 2,470 (636) Public company costs 170 102 68 Director costs 447 109 338 Travel and other expense (1) 961 2,065 (1,104) Non-capitalizable - software costs 78 95 (17) Total general and administrative$ 5,268 $ 6,183 $ (915)
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(1) The decrease in travel and other expense in the 2021 quarter is primarily from decreased travel due to COVID-19. Impairment. In the 2020 quarter, as a result of our reduced cash flow projections and the significant decline in our market capitalization as a result of the COVID-19 pandemic, we concluded that sufficient indicators existed to require us to perform an interim quantitative assessment of goodwill and intangible assets. As a result, we recorded goodwill impairment charges of$170.6 million and intangible asset impairment charges of$7.6 million . There were$178.2 million impairment charges for the 2020 quarter. No impairment charges were recorded during the 2021 quarter. See notes 4 and 6 to our condensed consolidated financial statements. Other. Other operating expense was$3.6 million and$4.2 million for the 2021 quarter and the 2020 quarter, respectively. Other operating expense includes cost of goods sold, depreciation, and royalties associated with OpenKey, RED and Pure Wellness and costs related to Marietta. Other operating expense for the 2021 quarter additionally includes a loss on sale of FF&E previously leased toAshford Trust of$352,000 . See note 13 to our condensed consolidated financial statements. Reimbursed Expenses. Reimbursed expenses decreased$41.8 million to$33.7 million during the 2021 quarter compared to$75.5 million for the 2020 quarter primarily due to a decrease in hotel management expenses incurred by Remington due to management's curtailing expenses and declines in hotel operations in response to COVID-19. Reimbursed expenses recorded may vary from cost reimbursement revenue recognized in the period due to timing differences between the costs we incur for centralized software programs and the related reimbursements we receive fromAshford Trust and Braemar. Over the long term, these timing differences are not designed to impact our economics, either positively or negatively. The timing differences consisted of the following (in thousands): 55 --------------------------------------------------------------------------------
Three Months Ended March 31, 2021 2020 $ Change Cost reimbursement revenue$ 33,752 $ 75,579 $ (41,827) Reimbursed expenses 33,680 75,511 (41,831) Net total $ 72$ 68 $ 4 Equity in Earnings (Loss) of Unconsolidated Entities. Equity in earnings (loss) of unconsolidated entities was a loss of$114,000 and earnings of$236,000 for the 2021 quarter and the 2020 quarter, respectively. Equity in earnings (loss) of unconsolidated entities primarily represents earnings (loss) in our equity method investment in REA Holdings. See note 2 to our condensed consolidated financial statements. Interest Expense. Interest expense increased to$1.3 million from$1.2 million for the 2021 quarter and the 2020 quarter, respectively, related to increases in our Term Loan Agreement and notes payable, lines of credit and finance leases held by our consolidated subsidiaries. See notes 2 and 5 to our condensed consolidated financial statements. Amortization of Loan Costs. Amortization of loan costs was$86,000 and$66,000 for the 2021 quarter and the 2020 quarter, respectively, related to our Term Loan Agreement and notes payable held by our consolidated subsidiaries. See notes 2 and 5 to our condensed consolidated financial statements. Interest Income. Interest income was$63,000 and$28,000 for the 2021 quarter and the 2020 quarter, respectively. Realized Gain (Loss) on Investments. Realized loss on investments was$194,000 and$375,000 for the 2021 quarter and the 2020 quarter, respectively. The realized loss on investments relates to losses on shares of common stock ofAshford Trust and Braemar purchased by Remington on the open market and held for the purpose of providing compensation to certain employees. Other Income (Expense). Other expense was expense of$113,000 and$521,000 in the 2021 quarter and the 2020 quarter, respectively. Income Tax (Expense) Benefit. Income tax (expense) benefit changed by$1.1 million , from a$2.1 million benefit in the 2020 quarter to a$951,000 benefit in the 2021 quarter. Current tax expense changed by$1.5 million , from$1.2 million in expense in the 2020 quarter to a$308,000 benefit in the 2021 quarter. Deferred tax (expense) benefit changed by$2.7 million from a$3.3 million benefit in the 2020 quarter to a$607,000 benefit in the 2021 quarter. The difference in income tax (expense) benefit is related to a decrease in operations and non-taxable or non-deductible GAAP items, primarily impairment. (Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. The noncontrolling interests in consolidated entities were allocated a loss of$95,000 in the 2021 quarter and a loss of$160,000 in the 2020 quarter. See notes 2 and 9 to our condensed consolidated financial statements for more details regarding ownership interests, carrying values and allocations. Net (Income) Loss Attributable to Redeemable Noncontrolling Interests. The redeemable noncontrolling interests were allocated a loss of$176,000 in the 2021 quarter and loss of$440,000 in the 2020 quarter. Redeemable noncontrolling interests represented ownership interests inAshford Holdings and certain of our consolidated subsidiaries. For a summary of ownership interests, carrying values and allocations, see notes 2 and 10 to our condensed consolidated financial statements. Preferred Dividends, Declared and Undeclared. Preferred dividends, declared and undeclared increased$731,000 to$8.6 million during the 2021 quarter compared to$7.9 million for the 2020 quarter, primarily due to the increase in the dividend rate of the Series D Convertible Preferred Stock onNovember 6, 2020 , from 6.59% to 6.99% and due to$253,000 of accumulating and compounding dividends related to the undeclared preferred stock for the second and fourth quarters of 2020. See note 10 to our condensed consolidated financial statements. Amortization of Preferred Stock Discount. The amortization of preferred stock discount decreased$494,000 to$316,000 during the 2021 quarter compared to$810,000 from the 2020 quarter, primarily due to the increase in the dividend rate of the Series D Convertible Preferred Stock onNovember 6, 2020 , from 6.59% to 6.99%. See note 10 to our condensed consolidated financial statements. 56 -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES COVID-19, Management's Plans and Liquidity InDecember 2019 , COVID-19 was identified inWuhan, China , which subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses in every state inthe United States . InMarch 2020 , theWorld Health Organization declared COVID-19 to be a global pandemic. Our clientsAshford Trust and Braemar have reported that the negative impact on room demand within their respective portfolios stemming from COVID-19 is significant, which has resulted and is expected to result in significantly reduced occupancy and RevPAR. Furthermore, the prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses. The hotel industry has experienced postponement or cancellation of a significant number of business conferences and similar events. Following the government mandates and health official orders, the Company dramatically reduced staffing and expenses at its products and services businesses and at our corporate office. COVID-19 has had a significant negative impact on the Company's operations and financial results to date. In addition, one or more possible recurrences of COVID-19 cases could result in further reductions in business and personal travel and could cause state and local governments to reinstate travel restrictions. The Company expects that the COVID-19 pandemic will continue to have a significant negative impact on the Company's results of operations, financial position and cash flow in 2021 and potentially beyond. As a result, inMarch 2020 , the Company amended payment terms pursuant to certain hotel management agreements to better manage corporate working capital, reduced planned capital expenditures, significantly reduced operating expenses and reduced the cash compensation of its executive officers and other employees, including an arrangement pursuant to whichMr. Bennett received his base salary in the form of common stock issued under the Company's 2014 Incentive Plan, as amended. Additionally, the Company did not declare dividends which were due with respect to its Series D Convertible Preferred Stock for the second and fourth quarters of 2020. As ofMarch 31, 2021 , the Company had aggregate undeclared preferred stock dividends of approximately$16.5 million which relates to the second and fourth quarters of 2020. During the first quarter of 2021, base salaries for the Company's executive officers and other employees were restored to pre-reduction levels and the arrangement by whichMr. Bennett received his base salary in the form of common stock ended. Additionally, onMarch 25, 2021 , the Company declared$8.4 million in dividends which were due with respect to its Series D Convertible Preferred Stock for the first quarter of 2021. When preparing financial statements, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that create substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. In applying the accounting guidance, the Company considered its current financial condition and liquidity sources, including current funds available, forecasted future cash flows and its unconditional obligations due over the next 12 months. We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in the inability of our portfolio companies to borrow unused amounts under their respective lines of credit. As ofMarch 31, 2021 , our Term Loan Agreement was in compliance with all covenants or other requirements. Debt held by our subsidiaries was in compliance with all covenants or other requirements. Additionally, JSAV executed a credit agreement amendment onDecember 31, 2020 , which extended the maturity date of the loan and includes a covenant which commences with the quarter endingMarch 31, 2023 . As a result of the impact of COVID-19, JSAV is reliant onAshford Inc. to make contributions to cover JSAV's projected operating shortfall and amortization and interest payments on its outstanding debt within one year of the issuance of the financial statements. All such contributions are subject to the discretion ofAshford Inc. As such, all of JSAV's outstanding debt balance has been classified as a current liability within our condensed consolidated balance sheet as ofMarch 31, 2021 . We cannot predict when hotel operating levels at our clients,Ashford Trust and Braemar, will return to normalized levels after the effects of the pandemic subside, whether our clients' hotels will be forced to shut down operations or whether one or more governmental entities may impose additional travel restrictions due to a resurgence of COVID-19 cases in the future. As a result of these factors resulting from the impact of the pandemic, we are unable to estimate future financial performance with certainty. However, based primarily on our assessment of the ability of our key customers,Ashford Trust and Braemar, to pay their obligations to the Company in accordance with the advisory agreements, the Company has concluded that management's current plan alleviates the substantial doubt about its ability to continue as a going concern. Additional factors considered in our assessment include our completed loan amendments, other agreements, our current cash on hand, our forecast of future operating results for the next 12 months from the date of this report and the actions we have taken to improve our liquidity. Facts and circumstances could change in the future that are outside of management's control, such as changes inAshford Trust's and Braemar's financial position and liquidity, additional government mandates, health official orders, travel restrictions and extended business shutdowns due to COVID-19. See notes 5 and 13 to our condensed consolidated financial statements. 57 -------------------------------------------------------------------------------- Loan Agreements-OnMarch 29, 2021 , the Company amended our Term Loan Agreement withBank of America, N.A . The Seventh Amendment (a) increases the required amortization rate from 1.25% to 2.50% each quarter commencingJuly 1, 2021 , (b) requires the Company to maintain a minimum liquidity of$15.0 million at all times, including pro forma for preferred dividends, and (c) restricts dividends and stock repurchases, other than preferred dividends, so long as there is no default under the Term Loan Agreement. Principal payment amounts are subject to maintaining a fixed charge coverage ratio below specified thresholds which if not met increase the principal payment due each quarter from 2.50% to 5.0% of the outstanding principal balance. Upon signing the Seventh Amendment, the Company made a$5.0 million prepayment toBank of America, N.A . as consideration for their execution and delivery of the Seventh Amendment. The Company is also subject to certain financial covenants. As ofMarch 31, 2021 , our Term Loan Agreement was in compliance with all covenants or other requirements. Debt held by our subsidiaries was in compliance with all covenants or other requirements. The Company does not expect our Term Loan Agreement and debt held by our subsidiaries to violate any loan covenants within one year of the issuance of the financial statements, outside of our consideration of JSAV. See discussion regarding JSAV's outstanding debt in "COVID-19, Management's Plans and Liquidity" above. Certain segments of our business are capital intensive and may require additional financing from time to time. Any additional financings, if and when pursued, may not be available on favorable terms or at all, which could have a negative impact on our liquidity and capital resources. Aggregate portfolio companies' notes payable, net was$28.9 million and$29.1 million as ofMarch 31, 2021 andDecember 31, 2020 , respectively. For further discussion see note 5 to our condensed consolidated financial statements. Preferred stock dividends-OnMarch 25, 2021 , the Company declared dividends which were due with respect to its Series D Convertible Preferred Stock for the first quarter of 2021. The declared$8.4 million of dividends were paid onApril 15, 2021 . As ofMarch 31, 2021 , the Company had aggregate undeclared preferred stock dividends of approximately$16.5 million which relates to the second and fourth quarters of 2020. All dividends, declared and undeclared, are recorded as a reduction in net income (loss) in the period incurred in our condensed consolidated statements of operations. All accrued dividends accumulate and compound until paid in cash or converted into common stock of the Company pursuant to the Certificate of Designation for the Series D Convertible Preferred Stock. Unpaid dividends, declared and undeclared, totaling$24.9 million atMarch 31, 2021 , are recorded as a liability in our condensed consolidated balance sheets as "dividends payable". The Board plans to revisit the dividend payment policy with respect to the Series D Convertible Preferred Stock on an ongoing basis. The Board believes that the deferral of certain preferred dividends will provide the Company with additional funds to meet its ongoing liquidity needs. Each share of Series D Convertible Preferred Stock: (i) has a liquidation value of$25 per share; (ii) accrues cumulative dividends at the rate of: (a) 6.59% per annum untilNovember 6, 2020 ; (b) 6.99% per annum fromNovember 6, 2020 untilNovember 6, 2021 ; and (c) 7.28% per annum thereafter, (iii) participates in any dividend or distribution on the common stock in addition to the preferred dividends; (iv) is convertible into voting common stock at$117.50 per share; and (v) provides for customary anti-dilution protections. In the event the Company fails to pay the dividends on the Series D Convertible Preferred Stock for two consecutive quarterly periods (a "Preferred Stock Breach"), then until such arrearage is paid in cash in full: (A) the dividend rate on the Series D Convertible Preferred Stock will increase to 10.00% per annum until no Preferred Stock Breach exists; (B) no dividends on the Company's common stock may be declared or paid, and no other distributions or redemptions may be made, on the Company's common stock; and (C) the Board will be increased by two seats and the holders of 55% of the outstanding Series D Convertible Preferred Stock will be entitled to fill such newly created seats. The Series D Convertible Preferred Stock is held primarily by Mr.Monty J. Bennett , the Chairman of our Board and our Chief Executive Officer, Mr.Archie Bennett , Jr.,who is Mr.Monty J. Bennett's father, one of our other executive officers and several other individuals. To the extent not paid onApril 15 ,July 15 ,October 15 andJanuary 15 of each calendar year in respect of the quarterly periods ending onMarch 31 ,June 30 ,September 30 andDecember 31 , respectively (each such date, a "Dividend Payment Date"), all accrued dividends on any share shall accumulate and compound on the applicable Dividend Payment Date whether or not declared by the Board and whether or not funds are legally available for the payment thereof. All accrued dividends shall remain accumulated, compounding dividends until paid in cash pursuant hereto or converted to common shares. See also note 10 to our condensed consolidated financial statements. ERFP Commitments-OnJune 26, 2018 , the Company entered into theAshford Trust ERFP Agreement withAshford Trust . The independent members of the board of directors of each of the Company andAshford Trust , with the assistance of separate and independent legal counsel, engaged to negotiate theAshford Trust ERFP Agreement on behalf of the Company andAshford Trust , respectively. OnJanuary 15, 2019 , the Company entered into the Braemar ERFP Agreement (collectively with the Ashford Trust ERFP Agreement, the "ERFP Agreements") with Braemar. The independent members of the board of directors of each of the Company and Braemar, with the assistance of separate and independent legal counsel, engaged to 58 -------------------------------------------------------------------------------- negotiate the Braemar ERFP Agreement on behalf of the Company and Braemar, respectively. Under the ERFP Agreements, the Company agreed to provide$50 million (each, an "Aggregate ERFP Amount" and collectively, the "Aggregate ERFP Amounts") to each ofAshford Trust and Braemar (collectively, the "REITs"), respectively, in connection with each such REIT's acquisition of hotels recommended by us, with the option to increase each Aggregate ERFP Amount to up to$100 million upon mutual agreement by the parties to the respective ERFP Agreement. Under each of the ERFP Agreements, the Company will pay each REIT 10% of each acquired hotel's purchase price in exchange for FF&E at a property owned by such REIT, which will be subsequently leased by us to such REIT rent-free. Each of the REITs must provide reasonable advance notice to the Company to request ERFP funds in accordance with the respective ERFP Agreement. The ERFP Agreements require that the Company acquire the related FF&E either at the time of the property acquisition or at any time generally within two years of the respective REITs' acquisition of the hotel property. The Company recognizes the related depreciation tax deduction at the time such FF&E is purchased by the Company and placed into service at the respective REIT's hotel properties. However, the timing of the FF&E being purchased and placed into service is subject to uncertainties outside of the Company's control that could delay the realization of any tax benefit associated with the purchase of FF&E. OnMarch 13, 2020 , the Company entered into the Extension Agreement related to the Ashford Trust ERFP Agreement. Under the terms of the Extension Agreement, the deadline to fund the remaining ERFP commitment under the Ashford Trust ERFP Agreement of$11.4 million , was extended fromJanuary 22, 2021 toDecember 31, 2022 . As ofMarch 31, 2021 , the Company has no remaining ERFP commitment to Braemar under the Braemar ERFP Agreement. See note 8 to our condensed consolidated financial statements. OnApril 20, 2021 , the Company received written notice fromAshford Trust of Ashford Trust's intention not to renew the Ashford Trust ERFP Agreement. As a result, the Ashford Trust ERFP Agreement will terminate in accordance with its terms at the end of the current term onJune 26, 2021 . The expiration of the Ashford Trust ERFP Agreement will have no impact on the Extension Agreement, which will continue in full force and effect in accordance with its terms. Following expiration of the Ashford Trust ERFP Agreement, we intend to amend the Second Amended and Restated Advisory Agreement, datedJanuary 14, 2021 , to reflect certain changes necessary in connection with the expiration of the Ashford Trust ERFP Agreement. Other liquidity considerations-OnDecember 5, 2017 , the Board approved a stock repurchase program pursuant to which the Board granted a repurchase authorization to acquire shares of the Company's common stock, having an aggregate value of up to$20 million . No shares were repurchased under the stock repurchase program during the three months endedMarch 31, 2021 . During the first quarter of 2020, we paid the remainder of contingent consideration due to the BAV Sellers in connection with the acquisition of BAV, including$350,000 related to the earn-out which was paid onJanuary 11, 2021 , and the final stock collar consideration payments in the amount of$870,000 and$888,000 which were paid onFebruary 1, 2021 andMarch 4, 2021 , respectively. In connection with the transactions contemplated by the Credit Agreement, dated as ofJanuary 15, 2021 (the "Credit Agreement"), by and amongAshford Trust , Oaktree and the lenders party thereto, onJanuary 15, 2021 , the Company entered into the Subordination and Non-Disturbance Agreement (the "SNDA") withAshford Trust and Oaktree pursuant to which the Company agreed to subordinate to the prior repayment in full of all obligations under the Credit Agreement, (1) prior to the later of (i) the second anniversary of the Credit Agreement and (ii) the date accrued interest "in kind" is paid in full, advisory fees (other than reimbursable expenses) in excess of 80% of such fees paid during the fiscal year endedDecember 31, 2019 , (the "AdvisoryFee Cap ") (2) any termination fee or liquidated damages amounts under the advisory agreement, or any amount owed under any enhanced return funding program in connection with the termination of the advisory agreement or sale or foreclosure of assets financed thereunder, and (3) any payments to Lismore in connection with the transactions contemplated by the Credit Agreement. See additional discussion in notes 3 and 13 to our condensed consolidated financial statements. Additional information pertaining to other liquidity considerations of the Company can be found in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments." Sources and Uses of Cash As ofMarch 31, 2021 andDecember 31, 2020 , we had$34.0 million and$45.3 million of cash and cash equivalents, respectively, and$35.0 million and$37.4 million of restricted cash, respectively. Our principal sources of funds to meet our cash requirements include: net cash provided by operations, existing cash balances and borrowing on our existing lending agreements. Additionally, our principal uses of funds are expected to include possible operating shortfalls, capital expenditures, preferred dividends and debt interest and principal payments. Items that impacted our cash flow and liquidity during the periods indicated are summarized as follows: 59 -------------------------------------------------------------------------------- Net Cash Flows Provided by (Used in) Operating Activities. Net cash flows used in operating activities were$5.4 million for the three months endedMarch 31, 2021 compared to net cash flows provided by operating activities of$4.3 million for the three months endedMarch 31, 2020 . The decrease in cash flows from operating activities in the three months endedMarch 31, 2021 was primarily due to a decrease in earnings due to COVID-19 and decreases in cash flows due to the timing of receipt of our receivables from Braemar and payments of accounts payable offset by the timing of receipt of our receivables fromAshford Trust and third parties in the three months endedMarch 31, 2021 . Net Cash Flows Provided by (Used in) Investing Activities. For the three months endedMarch 31, 2021 , net cash flows used in investing activities were$3.0 million . These cash flows consisted of the issuance of a note receivable of$2.9 million , purchases ofAshford Trust and Braemar common stock related to Remington's employee compensation plan of$873,000 , capital expenditures of$637,000 for RED's marine vessels and capital expenditures of FF&E of$491,000 , offset by cash inflows of$1.9 million primarily from proceeds received in 2021 from the sale of FF&E to Braemar in the fourth quarter of 2020. For the three months endedMarch 31, 2020 , net cash flows used in investing activities were$3.4 million . These cash flows consisted of capital expenditures of$2.0 million primarily for audio visual equipment, a$1.3 million working capital payment to the sellers of Remington Lodging related to the acquisition in November of 2019 and$147,000 for RED's marine vessels offset by cash inflows of$57,000 for proceeds from disposals of audio visual equipment. Net Cash Flows Provided by (Used in) Financing Activities. For the three months endedMarch 31, 2021 , net cash flows used in financing activities were$5.1 million . These cash flows consisted of$5.1 million of payments on notes payable,$332,000 of payments on our revolving credit facilities, purchases of$102,000 of treasury stock and$61,000 of payments on finance leases. These were offset by$325,000 of proceeds from borrowings on notes payable and employee advances of$245,000 associated with tax withholdings for restricted stock vesting. For the three months endedMarch 31, 2020 , net cash flows provided by financing activities were$21.2 million . These cash flows consisted of$29.5 million of proceeds from borrowings on notes payable,$77,000 of contributions from noncontrolling interests in a consolidated entity, and employee advances of$124,000 associated with tax withholdings for restricted stock vesting. These were offset by$4.7 million of payments for dividends on our preferred stock,$2.3 million of net payments on our revolving credit facilities,$819,000 of payments on notes payable,$282,000 of payments on finance leases and$290,000 of loan cost payments. Seasonality Quarterly revenues may be adversely affected by events beyond our control, such as the COVID-19 pandemic and government-issued travel restrictions in response, extreme weather conditions, natural disasters, terrorist attacks or alerts, civil unrest, government shutdowns, airline strikes or reduced airline capacity, economic factors and other considerations affecting travel and hospitality products and services. To the extent that cash flows from operations are insufficient during any quarter due to temporary or seasonal fluctuations in revenues, we expect to utilize cash on hand or borrowings to fund operations. Off-Balance Sheet Arrangements In the normal course of business, we may form or invest in partnerships or joint ventures. We evaluate each partnership and joint venture to determine whether the entity is a VIE. If the entity is determined to be a VIE, we assess whether we are the primary beneficiary and need to consolidate the entity. For further discussion, see note 2 to our condensed consolidated financial statements. Long-term liability of our subsidiary compensation plan We do not record on the balance sheet the long-term liability portion of theAshford Trust and Braemar shares purchased by Remington Lodging on the open market and held for the purpose of providing compensation to certain employees as granted under our subsidiary compensation plan. The long-term liability was$1.2 million and$134,000 as ofMarch 31, 2021 andDecember 31, 2020 , respectively. Contractual Obligations and Commitments There have been no material changes sinceDecember 31, 2020 , outside the ordinary course of business, to contractual obligations and commitments included in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2020 Form 10-K. 60 --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in accordance with accounting principles generally accepted inthe United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our accounting policies that are critical or most important to understanding our financial condition and results of operations and that require management to make the most difficult judgments are described in our 2020 Form 10-K. There have been no material changes in these critical accounting policies.
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