UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the quarterly period ended September 30, 2023

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the transition period from ________________ to ________________

Commission file number: 001-36400

ASHFORD INC.

(Exact name of registrant as specified in its charter)

Nevada						84-2331507
(State or other jurisdiction of incorporation or organization)						(IRS employer identification number)
14185 Dallas Parkway
Suite 1200
Dallas
Texas						75254
(Address of principal executive offices)						(Zip code)

(972) 490-9600

(Registrant’s telephone number, including area code)

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☐			Accelerated filer			☐
Non-accelerated filer			☑			Smaller reporting company			☑
						Emerging growth company			☐

    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock

AINC

NYSE American LLC

Preferred Stock Purchase Rights

NYSE American LLC

    

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.001 par value per share						3,213,975
(Class)						Outstanding at November 9, 2023

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ASHFORD INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022			3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022			4
Condensed Consolidated Statements of Equity (Deficit) for the Three and Nine Months Ended September 30, 2023 and 2022			5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022			7
Notes to Condensed Consolidated Financial Statements			9
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			53
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			72
ITEM 4. CONTROLS AND PROCEDURES			72
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			73
ITEM 1A. RISK FACTORS			73
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			74
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			74
ITEM 4. MINE SAFETY DISCLOSURES			75
ITEM 5. OTHER INFORMATION			75
ITEM 6. EXHIBITS			76
SIGNATURES			78

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PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS (unaudited)

ASHFORD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share amounts)

			September 30, 2023						December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	28,018					$	44,390
Restricted cash			36,215						37,058
Restricted investment			88						303
Accounts receivable, net of allowance of $1,251 and $175, respectively			31,038						17,615
Due from affiliates			575						463
Due from Ashford Trust			7,625						—
Due from Braemar			—						11,828
Inventories			2,544						2,143
Prepaid expenses and other			14,062						11,226
Total current assets			120,165						125,026
Investments, includes $4,500 and $0 reported at fair value, respectively			7,542						4,217
Property and equipment, net			54,942						41,791
Operating lease right-of-use assets			22,140						23,844
Goodwill			61,013						58,675
Intangible assets, net			216,184						226,544
Other assets, net			1,118						2,259
Total assets			$	483,104					$	482,356
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses			$	42,067					$	56,079
Dividends payable			28,318						27,285
Due to affiliates			49						15
Due to Ashford Trust			—						1,197
Due to Braemar			3,533						—
Deferred income			673						444
Notes payable, net			4,145						5,195
Finance lease liabilities			426						1,456
Operating lease liabilities			4,076						3,868
Claims liabilities and other			32,677						25,630
Total current liabilities			115,964						121,169
Deferred income			7,971						7,356
Deferred tax liability, net			27,613						27,873
Deferred compensation plan			1,370						2,849
Notes payable, net			119,241						89,680
Finance lease liabilities			2,947						1,962
Operating lease liabilities			20,180						20,082
Other liabilities			3,716						3,237
Total liabilities			299,002						274,208
Commitments and contingencies (note 10)
MEZZANINE EQUITY
Series D Convertible Preferred Stock, $0.001 par value, 19,120,000 shares issued and outstanding as of September 30, 2023 and December 31, 2022			478,000						478,000
Redeemable noncontrolling interests			1,764						1,614
EQUITY (DEFICIT)
Common stock, 100,000,000 shares authorized, $0.001 par value, 3,317,786 and 3,181,585 shares issued and 3,213,975 and 3,110,044 shares outstanding at September 30, 2023 and December 31, 2022, respectively			3						3
Additional paid-in capital			299,365						297,715
Accumulated deficit			(595,717)						(568,482)
Accumulated other comprehensive income (loss)			(30)						78
Treasury stock, at cost, 103,811 and 71,541 shares at September 30, 2023 and December 31, 2022, respectively			(1,331)						(947)
Total equity (deficit) of the Company			(297,710)						(271,633)
Noncontrolling interests in consolidated entities			2,048						167
Total equity (deficit)			(295,662)						(271,466)
Total liabilities, mezzanine equity and equity (deficit)			$	483,104					$	482,356

See Notes to Condensed Consolidated Financial Statements.

2

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ASHFORD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
REVENUE
Advisory services fees			$	11,712					$	12,255					$	36,129					$	36,026
Hotel management fees			12,391						12,876						39,456						33,474
Design and construction fees			7,430						6,276						21,964						15,538
Audio visual			30,641						26,159						112,347						87,101
Other			11,175						10,391						32,057						33,902
Cost reimbursement revenue			107,866						96,651						317,094						259,979
Total revenues			181,215						164,608						559,047						466,020
EXPENSES
Salaries and benefits			22,728						21,328						68,132						54,776
Cost of revenues for design and construction			2,975						1,789						9,430						5,905
Cost of revenues for audio visual			23,876						19,884						81,697						61,042
Depreciation and amortization			7,084						8,096						21,074						23,740
General and administrative			10,702						8,390						32,759						25,926
Other			5,377						5,750						17,163						16,886
Reimbursed expenses			107,869						96,576						317,023						259,665
Total expenses			180,611						161,813						547,278						447,940
OPERATING INCOME (LOSS)			604						2,795						11,769						18,080
Equity in earnings (loss) of unconsolidated entities			(327)						(147)						(1,174)						110
Interest expense			(3,650)						(2,966)						(9,909)						(6,781)
Amortization of loan costs			(269)						(219)						(775)						(524)
Interest income			522						76						1,239						195
Realized gain (loss) on investments			(80)						(3)						(160)						(74)
Other income (expense)			(75)						(22)						259						(134)
INCOME (LOSS) BEFORE INCOME TAXES			(3,275)						(486)						1,249						10,872
Income tax (expense) benefit			205						(617)						(1,642)						(5,971)
NET INCOME (LOSS)			(3,070)						(1,103)						(393)						4,901
Net (income) loss from consolidated entities attributable to noncontrolling interests			190						272						692						830
Net (income) loss attributable to redeemable noncontrolling interests			(111)						(158)						(399)						(290)
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY			(2,991)						(989)						(100)						5,441
Preferred dividends, declared and undeclared			(9,054)						(9,029)						(27,132)						(27,422)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS			$	(12,045)					$	(10,018)					$	(27,232)					$	(21,981)
INCOME (LOSS) PER SHARE - BASIC AND DILUTED
Basic:
Net income (loss) attributable to common stockholders			$	(3.87)					$	(3.38)					$	(8.88)					$	(7.59)
Weighted average common shares outstanding - basic			3,116						2,960						3,065						2,895
Diluted:
Net income (loss) attributable to common stockholders			$	(3.87)					$	(3.38)					$	(9.18)					$	(7.64)
Weighted average common shares outstanding - diluted			3,116						2,960						3,130						2,960

See Notes to Condensed Consolidated Financial Statements.

3

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ASHFORD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
NET INCOME (LOSS)			$	(3,070)					$	(1,103)					$	(393)					$	4,901
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Foreign currency translation adjustment			29						(214)						(108)						96
COMPREHENSIVE INCOME (LOSS)			(3,041)						(1,317)						(501)						4,997
Comprehensive (income) loss attributable to noncontrolling interests			190						272						692						830
Comprehensive (income) loss attributable to redeemable noncontrolling interests			(111)						(158)						(399)						(290)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY			$	(2,962)					$	(1,203)					$	(208)					$	5,537

See Notes to Condensed Consolidated Financial Statements.

4

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ASHFORD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

(unaudited, in thousands)

			Common Stock												Additional Paid-in Capital						Accumulated  Deficit						Accumulated Other Comprehensive Income (Loss)						Treasury Stock												Noncontrolling Interests in Consolidated Entities						Total						Convertible Preferred Stock												Redeemable Noncontrolling Interests
			Shares						Amount																								Shares						Amount																		Shares						Amount
Balance at June 30, 2023			3,214						$	3					$	299,039					$	(583,673)					$	(59)					(103)						$	(1,324)					$	(336)					$	(286,350)					19,120						$	478,000					$	1,726
Equity-based compensation			—						—						365						—						—						—						—						—						365						—						—						100
Forfeiture of restricted common shares			—						—						7						—						—						—						(7)						—						—						—						—						—
Asset acquisition of TSGF L.P.			—						—						—						—						—						—						—						2,413						2,413						—						—						—
Dividends declared and undeclared - preferred stock			—						—						—						(9,054)						—						—						—						—						(9,054)						—						—						—
Employee advances			—						—						(3)						—						—						—						—						—						(3)						—						—						—
Contributions from noncontrolling interests			—						—						(43)						—						—						—						—						161						118						—						—						—
Redemption value adjustment			—						—						—						1						—						—						—						—						1						—						—						(1)
Distributions to consolidated noncontrolling interests			—						—						—						—						—						—						—						—						—						—						—						(172)
Foreign currency translation adjustment			—						—						—						—						29						—						—						—						29						—						—						—
Net income (loss)			—						—						—						(2,991)						—						—						—						(190)						(3,181)						—						—						111
Balance at September 30, 2023			3,214						$	3					$	299,365					$	(595,717)					$	(30)					(103)						$	(1,331)					$	2,048					$	(295,662)					19,120						$	478,000					$	1,764

			Common Stock												Additional Paid-in Capital						Accumulated  Deficit						Accumulated Other Comprehensive Income (Loss)						Treasury Stock												Noncontrolling Interests in Consolidated Entities						Total						Convertible Preferred Stock												Redeemable Noncontrolling Interests
			Shares						Amount																								Shares						Amount																		Shares						Amount
Balance at December 31, 2022			3,110						$	3					$	297,715					$	(568,482)					$	78					(71)						$	(947)					$	167					$	(271,466)					19,120						$	478,000					$	1,614
Equity-based compensation			136						—						1,686						—						—						—						—						(1)						1,685						—						—						264
Forfeiture of restricted common shares			(1)						—						25						—						—						(1)						(25)						—						—						—						—						—
Purchase of treasury stock			(31)						—						—						—						—						(31)						(359)						—						(359)						—						—						—
Asset acquisition of TSGF L.P.			—						—						—						—						—						—						—						2,413						2,413						—						—						—
Dividends declared and undeclared - preferred stock			—						—						—						(27,132)						—						—						—						—						(27,132)						—						—						—
Employee advances			—						—						(18)						—						—						—						—						—						(18)						—						—						—
Contributions from noncontrolling interests			—						—						(43)						—						—						—						—						161						118						—						—						—
Redemption value adjustment			—						—						—						(3)						—						—						—						—						(3)						—						—						3
Distributions to consolidated noncontrolling interests			—						—						—						—						—						—						—						—						—						—						—						(516)
Foreign currency translation adjustment			—						—						—						—						(108)						—						—						—						(108)						—						—						—
Net income (loss)			—						—						—						(100)						—						—						—						(692)						(792)						—						—						399
Balance at September 30, 2023			3,214						$	3					$	299,365					$	(595,717)					$	(30)					(103)						$	(1,331)					$	2,048					$	(295,662)					19,120						$	478,000					$	1,764

5

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			Common Stock												Additional Paid-in Capital						Accumulated  Deficit						Accumulated Other Comprehensive Income (Loss)						Treasury Stock												Noncontrolling Interests in Consolidated Entities						Total						Convertible Preferred Stock												Redeemable Noncontrolling Interests
			Shares						Amount																								Shares						Amount																		Shares						Amount
Balance at June 30, 2022			3,116						$	3					$	295,461					$	(547,602)					$	(257)					(66)						$	(867)					$	459					$	(252,803)					19,120						$	478,000					$	1,509
Equity-based compensation			—						—						1,814						—						—						—						—						—						1,814						—						—						50
Forfeiture of restricted common shares			(1)						—						10						—						—						(1)						(10)						—						—						—						—						—
Dividends declared and undeclared - preferred stock			—						—						—						(9,029)						—						—						—						—						(9,029)						—						—						—
Employee advances			—						—						6						—						—						—						—						—						6						—						—						—
Contributions from noncontrolling interests			—						—						—						—						—						—						—						163						163						—						—						—
Reallocation of carrying value			—						—						(222)						—						—						—						—						222						—						—						—						—
Redemption value adjustment			—						—						—						(15)						—						—						—						—						(15)						—						—						15
Foreign currency translation adjustment			—						—						—						—						(214)						—						—						—						(214)						—						—						—
Net income (loss)			—						—						—						(989)						—						—						—						(272)						(1,261)						—						—						158
Balance at September 30, 2022			3,115						$	3					$	297,069					$	(557,635)					$	(471)					(67)						$	(877)					$	572					$	(261,339)					19,120						$	478,000					$	1,732

			Common Stock												Additional Paid-in Capital						Accumulated  Deficit						Accumulated Other Comprehensive Income (Loss)						Treasury Stock												Noncontrolling Interests in Consolidated Entities						Total						Convertible Preferred Stock												Redeemable Noncontrolling Interests
			Shares						Amount																								Shares						Amount																		Shares						Amount
Balance at December 31, 2021			3,023						$	3					$	294,395					$	(534,999)					$	(1,206)					(49)						$	(596)					$	638					$	(241,765)					19,120						$	478,000					$	69
Equity-based compensation			110						—						3,354						—						—						—						—						—						3,354						—						—						112
Forfeiture of restricted common shares			(3)						—						40						—						—						(3)						(40)						—						—						—						—						—
Purchase of treasury stock			(15)						—						—						—						—						(15)						(241)						—						(241)						—						—						—
Acquisition of Chesapeake			—						—						—						—						—						—						—						—						—						—						—						1,390
Dividends declared and undeclared - preferred stock			—						—						—						(27,422)						—						—						—						—						(27,422)						—						—						—
Employee advances			—						—						(251)						—						—						—						—						—						(251)						—						—						—
Contributions from noncontrolling interests			—						—						—						—						—						—						—						327						327						—						—						—
Reallocation of carrying value			—						—						(469)						—						—						—						—						469						—						—						—						—
Redemption value adjustment			—						—						—						(16)						—						—						—						—						(16)						—						—						16
Distributions to consolidated noncontrolling interests			—						—						—						—						—						—						—						(32)						(32)						—						—						(145)
Foreign currency translation adjustment			—						—						—						—						96						—						—						—						96						—						—						—
Other			—						—						—						(639)						639						—						—						—						—						—						—						—
Net income (loss)			—						—						—						5,441						—						—						—						(830)						4,611						—						—						290
Balance at September 30, 2022			3,115						$	3					$	297,069					$	(557,635)					$	(471)					(67)						$	(877)					$	572					$	(261,339)					19,120						$	478,000					$	1,732

See Notes to Condensed Consolidated Financial Statements.

6

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ASHFORD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

			Nine Months Ended September 30,
			2023						2022
Cash Flows from Operating Activities
Net income (loss)			$	(393)					$	4,901
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			26,231						28,431
Change in fair value of deferred compensation plan			(1,479)						(567)
Equity-based compensation			1,944						3,591
Equity in (earnings) loss in unconsolidated entities			1,174						(110)
Deferred tax expense (benefit)			(1,826)						(3,622)
Change in fair value of contingent consideration			430						300
(Gain) loss on disposal of assets			1,032						837
Amortization of other assets			166						497
Amortization of loan costs			775						524
Realized loss on investment			160						74
Other (gain) loss			743						70
Changes in operating assets and liabilities, exclusive of the effect of acquisitions:
Accounts receivable			(13,694)						(9,643)
Due from affiliates			(112)						(91)
Due from Ashford Trust			(7,625)						(1,908)
Due from Braemar			11,828						(8,418)
Inventories			(368)						(361)
Prepaid expenses and other			(1,055)						3,804
Investment in unconsolidated entities			—						150
Operating lease right-of-use assets			2,739						2,580
Other assets			(55)						(3)
Accounts payable and accrued expenses			(16,336)						7,627
Due to affiliates			51						232
Due to Ashford Trust			(747)						—
Due to Braemar			3,533						—
Claims liabilities and other			4,946						724
Operating lease liabilities			(2,912)						(2,589)
Deferred income			728						(2,943)
Net cash provided by (used in) operating activities			9,878						24,087
Cash Flows from Investing Activities
Additions to property and equipment			(17,479)						(8,002)
Proceeds from sale of property and equipment, net			24						418
Cash acquired in asset acquisition of RHC			849						—
Acquisition of Alii Nui, net of cash acquired			(6,704)						—
Asset acquisition of TSGF L.P., net of cash acquired			(2,226)						—
Investments			—						(400)
Acquisition of Chesapeake, net of cash acquired			—						(6,363)
Proceeds from note receivable			1,000						1,380
Issuance of notes receivable			(1,269)						—
Net cash provided by (used in) investing activities			(25,805)						(12,967)
									(Continued)

7

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			Nine Months Ended September 30,
			2023						2022
Cash Flows from Financing Activities
Payments for dividends on preferred stock			(26,099)						(35,219)
Payments on revolving credit facilities			(17,516)						(2,910)
Borrowings on revolving credit facilities			17,982						1,092
Proceeds from notes payable			28,739						68,674
Payments on notes payable			(2,924)						(30,062)
Payments on finance lease liabilities			(321)						(918)
Payments of loan costs			(409)						(2,694)
Purchase of treasury stock			(359)						(241)
Employee advances			(18)						(251)
Contributions from noncontrolling interest			118						327
Distributions to noncontrolling interests in consolidated entities			(516)						(177)
Net cash provided by (used in) financing activities			(1,323)						(2,379)
Effect of foreign exchange rate changes on cash and cash equivalents			35						(5)
Net change in cash, cash equivalents and restricted cash			(17,215)						8,736
Cash, cash equivalents and restricted cash at beginning of period			81,448						72,449
Cash, cash equivalents and restricted cash at end of period			$	64,233					$	81,185
Supplemental Cash Flow Information
Interest paid			$	9,868					$	6,556
Income taxes paid (refunded), net			7,876						4,137
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Acquisition of Chesapeake through issuance of Series CHP Units from our subsidiary Ashford Holdings			$	—					$	1,390
Acquisition of Alii Nui through issuance of RED Units			2,000						—
Acquisition related contingent consideration liability			1,000						1,670
Capital expenditures accrued but not paid			776						317
Finance lease additions			277						585
Supplemental Disclosure of Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period			$	44,390					$	37,571
Restricted cash at beginning of period			37,058						34,878
Cash, cash equivalents and restricted cash at beginning of period			$	81,448					$	72,449
Cash and cash equivalents at end of period			$	28,018					$	44,071
Restricted cash at end of period			36,215						37,114
Cash, cash equivalents and restricted cash at end of period			$	64,233					$	81,185

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Organization and Description of Business

Ashford Inc. (the “Company,” “we,” “us” or “our”), a Nevada corporation, is an alternative asset management company with a portfolio of strategic operating businesses that provides products and services primarily to clients in the real estate and hospitality industries, including Ashford Hospitality Trust, Inc. (“Ashford Trust”) and Braemar Hotels & Resorts, Inc. (“Braemar”). We became a public company in November 2014, and our common stock is listed on the NYSE American LLC (“NYSE American”).

We provide: (i) advisory services; (ii) asset management services; (iii) hotel management services; (iv) design and construction 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 through Ashford Hospitality Advisors LLC (“Ashford LLC”), Ashford Hospitality Services LLC (“Ashford Services”) and their respective subsidiaries.

We are currently the advisor for Ashford Trust and Braemar. In our capacity as the advisor to Ashford Trust and Braemar, we are responsible for implementing the investment strategies and managing the day-to-day operations of Ashford 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 of Ashford Trust and Braemar. Ashford Trust is focused on investing in full-service hotels in the upscale and upper upscale segments in the United States that have revenue per available room (“RevPAR”) generally less than twice the U.S. national average. Braemar invests primarily in luxury hotels and resorts with RevPAR of at least twice the U.S. national average. Each of Ashford Trust and Braemar is a real estate investment trust (“REIT”) as defined in the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and the common stock of each of Ashford Trust and Braemar is traded on the New York Stock Exchange (the “NYSE”).

We provide the personnel and services that we believe are necessary for each of Ashford Trust and Braemar to conduct their respective businesses. We may also perform similar functions for new or additional platforms. In our capacity as an advisor, we are not responsible for managing the day-to-day operations of Ashford Trust or Braemar’s individual hotel properties, which duties are, and will continue to be, the responsibility of the hotel management companies that operate such hotel properties. Additionally, Remington Lodging & Hospitality, LLC (“Remington”), a subsidiary of the Company, operates certain hotel properties for Ashford Trust, Braemar and third parties.

Other Developments

On January 3, 2023, the Company acquired Remington Hotel Corporation (“RHC”), an affiliate owned by Mr. Monty J. Bennett, our Chairman and Chief Executive Officer and the Chairman of Ashford Trust and Braemar, and his father, Mr. Archie Bennett, Jr., Chairman Emeritus of Ashford Trust, from which the Company leases the offices for our corporate headquarters in Dallas, Texas. The purchase price paid was de minimis. The transaction was accounted for as an asset acquisition. See note 15.

On February 1, 2023, the Company, Ashford Trust and Braemar (collectively, the “Parties” and each individually a “Party”) entered into a Third Amended and Restated Contribution Agreement with respect to the funding of certain operating expenses of Ashford Securities LLC, a subsidiary of the Company (“Ashford Securities”). The Third Amended and Restated Contribution Agreement states that after reaching the earlier of $400 million in aggregate non-listed preferred equity offerings or other debt or equity offerings through Ashford Securities or June 10, 2023 (the “Amended and Restated True-Up Date”) capital contributions to Ashford Securities for the remainder of fiscal year 2023 will be divided between each Party based on the actual amount of capital raised by such Party through Ashford Securities. Thereafter on a yearly basis at year-end, starting with the year-end of 2023, there will be a true-up between the Parties whereby there will be adjustments so that the capital contributions made by each Party will be based on the cumulative amount of capital raised by each Party through Ashford Securities as a percentage of the total amount raised by the Parties collectively through Ashford Securities since June 19, 2019 (the resulting ratio of capital contributions among the Company, Ashford Trust and Braemar following this true-up, the “Cumulative Ratio”). Thereafter, the capital contributions will be divided among each Party in accordance with the Cumulative Ratio, as recalculated at the end of each year.

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

On March 17, 2023, RED Hospitality & Leisure LLC (“RED”) acquired certain privately held entities and assets associated with the Alii Nui and Maui Dive Shop (“Alii Nui”), which provides luxury sailing and watersports experiences in Maui, Hawaii, for a total purchase price of $11.0 million, excluding working capital adjustments. The purchase price consisted of $8.0 million in cash, subject to certain adjustments, $1.0 million of contingent consideration and 80,000 Preferred Units issued by RED (the “RED Units”) issued at $25 per unit for a total liquidation value of $2.0 million. See note 4.

On March 24, 2023, Inspire Event Technologies Holdings, LLC (“INSPIRE”) amended its credit agreement dated as of November 1, 2017 (the “INSPIRE Amendment”). The INSPIRE Amendment increased the maximum borrowing capacity under INSPIRE’s revolving credit facility (the “Revolving Note”) from $3.0 million to $6.0 million, provides for a $20.0 million senior secured term loan (“Term Note”) and an equipment note (“Equipment Note” and together with the Revolving Note and the Term Note, the “Notes”) pursuant to which, until September 24, 2027, INSPIRE may request advances up to $4.0 million in the aggregate to purchase new machinery or equipment to be used in the ordinary course of business. The INSPIRE Amendment extended the maturity date of INSPIRE’s Notes from January 1, 2024 to March 24, 2028. See note 6.

On May 15, 2023, the Company and Computershare Trust Company, N.A., a federally chartered trust company (the “Rights Agent”) entered into Amendment No. 1 (“Amendment No. 1”) to the Rights Agreement dated as of August 30, 2022 (the “Rights Agreement”). Our board of directors implemented the rights plan by declaring (i) a dividend to the holders of the Company’s common stock of one preferred share purchase right (a “Right”) for each share of common stock and (ii) a dividend to the holders of the Company’s Series D Convertible Preferred Stock of one Right in respect of each share of the Company’s common stock issuable upon conversion of the Series D Convertible Preferred Stock. The dividends were distributed on September 9, 2022, to our stockholders of record on that date. Each of those Rights become exercisable on the date on which the Rights separate and begin trading separately from our common stock and entitles the registered holder to purchase from the Company one one-thousandth of a share of our Series F Preferred Stock, par value $0.001 per share (“Series F Preferred Stock”), at a price of $275 per one one-thousandth of a share of our Series F Preferred Stock represented by such Right, subject to adjustment. Pursuant to Amendment No. 1, the Rights Agreement was amended to (i) extend the final expiration date with respect to the Company’s Rights until July 30, 2024, and (ii) decrease the beneficial ownership threshold in the definition of an acquiring person from 10% to 7%. The value of the Rights was de minimis.

On August 21, 2023, the Company invested $2.5 million to acquire 51% of the equity of the Texas Strategic Growth Fund, L.P. (“TSGF L.P.”), a fund which provides a growth-oriented investment product focused on commercial real estate in the State of Texas. The Company consolidated TSGF L.P. as of the investment date as management concluded TSGF L.P. is a variable interest entity (“VIE”) for which the Company is considered the primary beneficiary. Our interests in TSGF L.P. were accounted for as an asset acquisition. The approximately $5.0 million of total assets consolidated include an investment of $4.5 million, $274,000 of cash and cash equivalents and other immaterial assets related to working capital.

Change in Control

On August 8, 2023, the 40% voting cap under the Investor Rights Agreement, dated November 6, 2019 and entered into by and among the Company, Mr. Archie Bennett Jr. and Mr. Monty J. Bennett (the “Bennetts”) and other holders of the Company’s Series D Convertible Preferred Stock (the “Investor Rights Agreement”), expired. As a result, the Bennetts may now vote their full ownership interests in the Company as they determine at their sole discretion. Upon the expiration of the voting cap, the Bennetts controlled a majority of the Company’s voting securities, resulting in a change of control of the Company. As of August 8, 2023, the Bennetts owned approximately 610,261 shares of our common stock and owned 18,758,600 shares of our Series D Convertible Preferred Stock (the “Series D Convertible Preferred Stock”), which, along with all unpaid accrued and accumulated dividends thereon, is convertible at a price of $117.50 per share into approximately 4,152,301 shares of Ashford Inc. common stock, resulting in a combined ownership interest in Ashford Inc. of approximately 64.6%. The Company elected the accounting policy option as allowed under ASC 805, Business Combinations, to continue to use Ashford Inc.’s historical accounting basis rather than apply pushdown accounting.

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

2. Significant Accounting Policies

Basis of Presentation and Principles of Consolidation—The accompanying historical unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These condensed consolidated financial statements include the accounts of Ashford Inc., its majority-owned subsidiaries and entities that it controls. All significant intercompany accounts and transactions between these entities have been eliminated in these historical condensed consolidated financial statements. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the condensed consolidated financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in our 2022 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 17, 2023.

A VIE must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires significant judgment.

Noncontrolling Interests—The following tables present information about noncontrolling interests in our consolidated subsidiaries, including those related to consolidated VIEs, as of September 30, 2023 and December 31, 2022 (in thousands):

			September 30, 2023
			Ashford Holdings												OpenKey (3)						Pure Wellness (4)												TSGF L.P. (5)
Ashford Inc. ownership interest			99.49		%										76.78		%				70.00		%										49.00		%
Redeemable noncontrolling interests (1) (2)			0.51		%										—		%				—		%										—		%
Noncontrolling interests in consolidated entities			—		%										23.22		%				30.00		%										51.00		%
			100.00		%										100.00		%				100.00		%										100.00		%
Carrying value of redeemable noncontrolling interests			$	1,764											n/a						n/a												n/a
Redemption value adjustment, year-to-date			3												n/a						n/a												n/a
Redemption value adjustment, cumulative			614												n/a						n/a												n/a
Carrying value of noncontrolling interests			n/a												(375)						(138)												2,561
Assets, available only to settle subsidiary’s obligations (6)			n/a												1,819						1,257												5,047
Liabilities (7)			n/a												849						1,854												19
Notes payable (7)			n/a												237						—												—
Revolving credit facility (7)			n/a												—						150												—

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

			December 31, 2022
			Ashford Holdings												OpenKey (3)						Pure Wellness (4)
Ashford Inc. ownership interest			99.87		%										76.79		%				70.00		%
Redeemable noncontrolling interests (1) (2)			0.13		%										—		%				—		%
Noncontrolling interests in consolidated entities			—		%										23.21		%				30.00		%
			100.00		%										100.00		%				100.00		%
Carrying value of redeemable noncontrolling interests			$	1,614											n/a						n/a
Redemption value adjustment, year-to-date			32												n/a						n/a
Redemption value adjustment, cumulative			613												n/a						n/a
Carrying value of noncontrolling interests			n/a												273						(106)
Assets, available only to settle subsidiary’s obligations (6)			n/a												2,114						1,580
Liabilities (7)			n/a												1,078						2,048
Revolving credit facility (7)			n/a												—						150

________

(1)    Redeemable noncontrolling interests are included in the “mezzanine” section of our condensed consolidated balance sheets as they may be redeemed by the holder for cash or registered shares in certain circumstances outside of the Company’s control. The carrying value of the noncontrolling interests is based on the greater of the accumulated historical cost or the redemption value, which is generally fair value.

(2)    Redeemable noncontrolling interests in Ashford Hospitality Holdings LLC (“Ashford Holdings”) represent the members’ proportionate share of equity in earnings/losses of Ashford Holdings. Net income/loss attributable to the common unit holders is allocated based on the weighted average ownership percentage of the members’ interest.

(3)    Represents ownership interests in OpenKey, Inc. (“OpenKey”), a VIE for which we are considered the primary beneficiary and therefore we consolidate it. OpenKey is a hospitality-focused mobile key platform that provides a universal smartphone app for keyless entry into hotel guest rooms.

(4)    Represents ownership interests in PRE Opco, LLC (“Pure Wellness”), a VIE for which we are considered the primary beneficiary and therefore we consolidate it. Pure Wellness provides hypoallergenic premium rooms in the hospitality and commercial office industry. See note 11.

(5)    Represents ownership interests in TSGF L.P. a VIE for which we are considered the primary beneficiary and therefore we consolidate it. See note 4.

(6)    Total assets consist primarily of cash and cash equivalents, property and equipment and other assets that can only be used to settle the subsidiaries’ obligations.

(7)    Liabilities consist primarily of accounts payable, accrued expenses and notes payable for which creditors do not have recourse to Ashford Inc. See note 6.

Investments—Our subsidiary TSGF L.P. is accounted for as an investment company in accordance with GAAP under ASC 946. TSGF L.P.’s investment is reflected in “investments” in our condensed consolidated balance sheets at fair value, with unrealized gains and losses resulting from changes in fair value reflected as a component of “other income (expense)” in our condensed consolidated statements of operations. Fair value is the amount that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date, at current market conditions (i.e., the exit price). The fair value of TSGF L.P.’s investment as of September 30, 2023 was $4.5 million. See note 8.

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

We additionally hold an investment in an unconsolidated variable interest entity with a carrying value of $500,000 at September 30, 2023 and December 31, 2022. We account for the investment at fair value based on recent observable transactions as we do not exercise significant influence over the entity. No equity in earnings (loss) of unconsolidated entities due to a change in fair value of the investment was recognized during the three and nine months ended September 30, 2023 and 2022. In the event that the assumptions used to determine fair value change in the future, we may be required to record an impairment charge related to this investment.

We review our equity method investments for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its fair value is less than the carrying amount of our investment. No such impairment was recorded during the three and nine months ended September 30, 2023 and 2022.

Our investment in Real Estate Advisory Holdings LLC (“REA Holdings”) is accounted for under the equity method as we have significant influence over the voting interest entity. We have an option to acquire an additional 50% of the ownership interests in REA Holdings for $12.5 million beginning on January 1, 2022, which expires on the later of (i) February 28, 2024 and (ii) 30 business days following the completion date of the Company’s audit for calendar year 2023.

The following table summarizes our carrying value and ownership interest in REA Holdings (in thousands):

			September 30, 2023						December 31, 2022
Carrying value of the investment in REA Holdings			$	1,892					$	3,067
Ownership interest in REA Holdings			30		%				30		%

The following table summarizes our equity in earnings (loss) in REA Holdings (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Equity in earnings (loss) in unconsolidated entities REA Holdings			$	(327)					$	(147)					$	(1,174)					$	110

Acquisitions—We account for acquisitions and investments in businesses as business combinations if the target meets the definition of a business and (a) the target is a VIE and we are the target’s primary beneficiary, and therefore we must consolidate its financial statements, or (b) we acquire more than 50% of the voting interest of the target and it was not previously consolidated. We record business combinations using the acquisition method of accounting, which requires all of the assets acquired and liabilities assumed to be recorded at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill. The application of the acquisition method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted-average cost of capital. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in our condensed consolidated financial statements may be exposed to potential impairment of the intangible assets and goodwill.

If our investment involves the acquisition of an asset or group of assets that does not meet the definition of a business, the transaction is accounted for as an asset acquisition. An asset acquisition is recorded at cost, which includes capitalizing transaction costs, and does not result in the recognition of goodwill.

Use of Estimates—The preparation of these condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents—Cash and cash equivalents include cash on hand or held in banks and short-term investments with an initial maturity of three months or less at the date of purchase.

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Restricted Cash—Restricted cash was comprised of the following (in thousands):

			September 30, 2023						December 31, 2022
Advisory:
Insurance claim reserves (1)			$	29,258					$	23,471
Remington:
Managed hotel properties’ reserves (2)			4,085						11,464
Insurance claim reserves (3)			2,872						2,123
Total Remington restricted cash			6,957						13,587
Total restricted cash			$	36,215					$	37,058

________

(1)    Ashford Inc.’s Risk Management department collects funds from the Ashford Trust and Braemar properties and their respective management companies in an amount equal to the actuarial forecast of that year’s expected casualty claims and associated fees. These funds are deposited into restricted cash and used to pay casualty claims throughout the year as they are incurred. The claim liability related to the restricted cash balance is included in “claims liabilities and other” in our condensed consolidated balance sheets.

(2)    Cash received from hotel properties managed by Remington is used to pay certain centralized operating expenses as well as hotel employee bonuses. The liability related to the restricted cash balance for centralized billing is primarily included as a payable which is presented net within “due to/from Ashford Trust” and “due from Braemar” in our condensed consolidated balance sheets. The liability related to the restricted cash balance for hotel employee bonuses is included in “accounts payable and accrued expenses” in our condensed consolidated balance sheets.

(3)    Cash reserves for health insurance claims are collected primarily from Remington’s managed properties as well as certain of Ashford Inc.’s other subsidiaries to cover employee health insurance claims. The liability related to this restricted cash balance is included in “claims liabilities and other” in our condensed consolidated balance sheets.

Accounts Receivable—Accounts receivable consists primarily of receivables from customers of audio visual services and third-party owned properties managed by Remington. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments for services. The allowance is maintained at a level adequate to absorb estimated receivable losses. The estimate is based on past receivable loss experience, known and inherent credit risks, current economic conditions and other relevant factors, including specific reserves for certain accounts.

Notes Receivable—Notes receivable were comprised of the following (in thousands):

			September 30, 2023						December 31, 2022
Remington note receivable (1)			$	525					$	1,506
Ashford LLC note receivable (2)			1,075						535
REA Holdings affiliate (3)			830						—
Total notes receivable			$	2,430					$	2,041

________

(1)    Remington holds a note receivable from a third party which matures on January 31, 2024. The interest rate on the note receivable is 10% per annum with payments of interest payable quarterly commencing March 31, 2023. As of September 30, 2023 and December 31, 2022, the outstanding principal balance is included in “prepaid expenses and other” and “other assets, net,” respectively, in our condensed consolidated balance sheets.

(2)    Ashford LLC holds a note receivable from a third party. The note bears interest at 8% per annum, compounding annually. Interest is paid in-kind and added to the outstanding principal balance until the note maturity date of November 11, 2026. The note receivable is recorded in “other assets, net” in our condensed consolidated balance sheet.

(3)    On April 3, 2023, the Company entered into a note receivable with an affiliate of REA Holdings. Principal plus any accrued interest is due to the Company on demand or, in the absence of any demand, 24 months. Interest is paid in-kind and added to the outstanding principal balance until the note maturity date. The interest rate on the note receivable is 7.5% per annum. The note receivable is recorded in “prepaid expenses and other” in our condensed consolidated balance sheet.

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Property and Equipment, net—Property and equipment, including assets acquired under finance leases, is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. We record property and equipment at cost. As of September 30, 2023 and December 31, 2022, property and equipment, net of accumulated depreciation, included enhanced return funding program (“ERFP”) assets of $3.2 million and $5.9 million, audio visual equipment at INSPIRE of $14.3 million and $8.8 million and marine vessels at RED of $19.0 million and $14.2 million, respectively.

Claims Liabilities and Other—As of September 30, 2023 and December 31, 2022, claims liabilities and other included reserves in the amount of $28.8 million and $23.5 million, respectively, related primarily to Ashford Trust and Braemar properties’ insurance claims and related fees. The liability for casualty insurance claims and related fees is established based upon an analysis of historical data and actuarial estimates. We record the related funds received from Ashford Trust and Braemar in “restricted cash” in our condensed consolidated balance sheets. As of September 30, 2023 and December 31, 2022, claims liabilities and other also included $2.5 million and $2.2 million, respectively, relating to reserves for Remington health insurance claims and, as of September 30, 2023, cash consideration liabilities of $1.3 million from the Company’s acquisition of Alii Nui. See notes 4 and 8.

Other Liabilities—As of September 30, 2023, other liabilities included the contingent consideration liability from the Company’s acquisition of Chesapeake Hospitality (“Chesapeake”) of $2.8 million and an uncertain tax position of $966,000. As of December 31, 2022, other liabilities included a liability for contingent consideration from the Company’s acquisition of Chesapeake of $2.3 million and an uncertain tax position liability of $917,000.

Revenue Recognition—See note 3.

Income Taxes—We are a taxable corporation for federal and state income tax purposes. Income tax expense includes U.S. federal and state income taxes, Mexico and Dominican Republic income taxes and U.S. Virgin Islands taxes. In accordance with authoritative accounting guidance, we account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between our consolidated financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.

The “Income Taxes” topic of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification addresses the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance requires us to determine whether tax positions we have taken or expect to take in a tax return are more likely than not to be sustained upon examination by the appropriate taxing authority based on the technical merits of the positions. Tax positions that do not meet the more likely than not threshold would be recorded as additional tax expense in the current period. We analyze all open tax years, as defined by the statute of limitations for each jurisdiction, which includes the federal jurisdiction and various states. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our portfolio companies file income tax returns in the U.S. federal jurisdiction and various states and cities, beginning in 2017, in Mexico and the Dominican Republic and, beginning in 2018, in the U.S. Virgin Islands. Tax years 2018 through 2022 remain subject to potential examination by certain federal and state taxing authorities.

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Recently Adopted Accounting Standards—In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 sets forth an “expected credit loss” impairment model to replace the current “incurred loss” method of recognizing credit losses. The standard requires measurement and recognition of expected credit losses for most financial assets held. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”). ASU 2019-10 revised the mandatory adoption date for public business entities that meet the definition of a smaller reporting company to be effective for fiscal years beginning after December 15, 2022. We adopted ASU 2016-13 and ASU 2019-10 effective January 1, 2023 and the adoption did not have a material impact on our condensed consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), which provides optional guidance through December 31, 2022 to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which further clarified the scope of the reference rate reform optional practical expedients and exceptions outlined in Topic 848. The amendments in ASU Nos. 2020-04 and 2021-01 apply to contract modifications that replace a reference rate affected by reference rate reform, providing optional expedients regarding the measurement of hedge effectiveness in hedging relationships that have been modified to replace a reference rate. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848) (“ASU 2022-06”), which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company applied the optional expedient in evaluating debt modifications converting from London Interbank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“SOFR”). The Company adopted the standards upon the respective effective dates. There was no material impact as a result of this adoption.

Recently Issued Accounting Standards—In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt - Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company continues to evaluate whether the adoption of ASU 2020-06 will have any impact on the Company’s financial statements.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”), which incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification. The amendments in this ASU clarify or improve disclosure and presentation requirements of a variety of Topics in the Codification and apply to all reporting entities within the scope of the affected topics unless otherwise indicated. For entities subject to the SEC’s existing disclosure requirements, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments in this ASU should be applied prospectively. The Company continues to evaluate whether the adoption of ASU 2023-06 will have any impact on the Company’s financial statements.

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(unaudited)

3. Revenues

Revenue Recognition—Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We determine revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, we satisfy a performance obligation

In determining the transaction price, we include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved.

The following provides detailed information on the recognition of our revenues from contracts with customers:

Advisory Services Fees Revenue

Advisory services fees revenue is reported within our Advisory segment and primarily consists of advisory fees that are recognized when services have been rendered. Advisory fees consist of base fees and incentive fees.

For Ashford Trust, the base fee is paid monthly in an amount equal to 1/12th of 0.70% of Ashford Trust’s total market capitalization plus the Net Asset Fee Adjustment, as defined in our Second Amended and Restated Advisory Agreement with Ashford Trust, as amended, subject to certain minimums.

For Braemar, the base fee is paid monthly in an amount equal to 1/12th of 0.70% of Braemar’s total market capitalization plus the Net Asset Fee Adjustment, as defined in our Fifth Amended and Restated Advisory Agreement with Braemar, as amended, subject to certain minimums.

Incentive advisory fees are measured annually in each year that Ashford Trust’s and/or Braemar’s annual total stockholder return exceeds the average annual total stockholder return for each company’s respective peer group, subject to the Fixed Charge Coverage Ratio Condition (the “FCCR Condition”), as defined in the respective advisory agreements. Incentive advisory fees are paid over a three-year period and each payment is subject to the FCCR Condition, which relates to the ratio of adjusted EBITDA to fixed charges for Ashford Trust or Braemar, as applicable. Incentive advisory fees are a form of variable consideration and therefore must be (i) deferred until such fees are probable of not being subject to significant reversal, and (ii) tied to a performance obligation in the contract with the customer so that revenue recognition depicts the transfer of the related advisory services to the customer. Accordingly, the Company does not record incentive advisory fee revenue in interim periods prior to the fourth quarter of the year in which the incentive fee is measured. The first-year installment of incentive advisory fees will generally be recognized only upon measurement in the fourth quarter of the first year of the three-year period. The second- and third-year installments of incentive advisory fees are recognized as revenue on a pro rata basis each quarter subject to meeting the FCCR Condition.

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(unaudited)

Hotel Management Fees Revenue

Hotel management fees revenue is reported within our Remington segment and primarily consists of base management fees, incentive management fees and other management fees. Base management fees, incentive management fees and other management fees are recognized when services have been rendered. For hotels owned by Ashford Trust and Braemar, Remington receives base management fees of 3% of gross hotel revenue for managing the hotel employees and daily operations of the hotels, pursuant to Remington’s hotel management agreements, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). Remington additionally receives an incentive management fee for hotels owned by Ashford Trust and Braemar whenever a hotel’s gross operating profit (“GOP”) exceeds the hotel’s budgeted GOP. The incentive fee is equal to the lesser of 1% of each hotel’s annual gross revenue or the amount by which the respective hotel’s GOP exceeds the hotel’s budgeted GOP. The base management fees and incentive management fees that Remington receives for third-party owned properties vary by property. Other management fees primarily includes fees for health insurance programs administered on behalf of certain third-party properties. Health insurance program fees are recognized monthly at rates which approximate market rates for similar plans provided by independent insurance companies. Other management fees additionally includes fees for fixed monthly accounting services, revenue management services and other services at certain third-party properties.

Design and Construction Fees Revenue

Design and construction fees revenue primarily consists of revenue generated by our subsidiary, Premier Project Management LLC (“Premier”). Premier provides design and construction management services, capital improvements, refurbishment, project management, and other services such as purchasing, interior design, architectural services and freight management at properties. Premier receives fees for these services and recognizes revenue over time as services are provided to the customer.

Audio Visual Revenue

Audio visual revenue primarily consists of revenue generated within our INSPIRE segment by providing event technology services such as audio visual services, audio visual equipment rental, staging and meeting services and event-related communication systems as well as related technical support, to our customers in various venues including hotels and convention centers. Revenue is recognized in the period in which services are provided pursuant to the terms of the contractual arrangements with our customers. We also evaluate whether it is appropriate to present: (i) the gross amount that our customers pay for our services as revenue, and the related commissions paid to the venue as cost of revenue; or (ii) the net amount (gross revenue less the related commissions paid to the venue) as revenue. We are responsible for the delivery of the services, including providing the necessary labor and equipment to perform the services. We are generally subject to inventory risk, have latitude in establishing prices and selecting suppliers and, while in many cases the venue bills the end customer on our behalf, we bear the risk of collection from the customer. The venues’ commissions are not dependent on collections. As a result, our revenue is primarily reported on a gross basis. Cost of revenues for audio visual principally includes commissions paid to venues, direct labor costs, the cost of equipment sub-rentals, depreciation of equipment, amortization of signing bonuses, as well as other costs such as supplies, freight, travel and other overhead from our venue and customer facing operations and any losses on equipment disposal.

Other Revenue

Other revenue includes revenue provided by certain of our products and service businesses, including RED. RED’s revenue is primarily generated through the provision of watersports activities and ferry and excursion services. The revenue is recognized as services are provided based on contractual customer rates. Debt placement and related fees include revenue earned from providing placement, modifications, forbearances or refinancing of certain mortgage debt by our subsidiary, Lismore Capital II LLC (“Lismore”). For certain agreements, the fees are recognized based on a stated percentage of the loan amount when services have been rendered and the subject loan, modification or other transaction is closed. For other agreements, deferred income related to the various Lismore fees will be recognized over the term of the agreement on a straight-line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes.

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(unaudited)

Cost Reimbursement Revenue

Cost reimbursement revenue is recognized in the period we incur the related reimbursable costs. Under our advisory agreements and our Amended and Restated Contribution Agreement with Ashford Trust and Braemar (as defined below), we are entitled to be reimbursed for certain costs we incur on behalf of Ashford Trust and Braemar, with no added mark-up. These costs primarily consist of expenses related to Ashford Securities (as defined below), overhead, internal audit, risk management advisory services and asset management services, including compensation, benefits and travel expense reimbursements. We record cost reimbursement revenue for equity grants of Ashford Trust and Braemar common stock and LTIP units awarded to our officers and employees in connection with providing advisory services equal to the fair value of the award in proportion to the requisite service period satisfied during the period.

Under our project management agreements and hotel management agreements, we are entitled to be reimbursed for certain costs we incur on behalf of Ashford Trust, Braemar and other hotel owners with no added mark-up. Design and construction costs primarily consist of costs for accounting, overhead and project manager services. Hotel management costs primarily consist of the properties’ payroll, payroll taxes and benefits-related expenses at managed properties where we are the employer of the employees at the properties as provided for in our contracts with Ashford Trust, Braemar and other hotel owners.

The recognition of cost reimbursement revenue and reimbursed expenses for centralized software programs reimbursed by Ashford Trust and Braemar may result in temporary timing differences in our operating and net income. Over the long term, these programs and services are not designed to impact our economics, either positively or negatively.

Certain of our consolidated entities enter into contracts with customers that contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our consolidated entities’ overall pricing objectives taking into consideration market conditions and other factors, including the customer and the nature and value of the performance obligations within the applicable contracts.

Practical Expedients and Exemptions

We do not disclose the amount of variable consideration that we expect to recognize in future periods in the following circumstances:

(1) if we recognize the revenue based on the amount invoiced or services performed;

(2) if the consideration is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of the consideration relate specifically to our efforts to transfer, or to a specific outcome from transferring the service.

Deferred Income and Contract Balances

Deferred income primarily consists of customer billings in advance of revenue being recognized from our advisory agreements and other products and services contracts. Generally, deferred income that will be recognized within the next 12 months is recorded as current deferred income and the remaining portion is recorded as noncurrent. Current deferred income additionally includes customer deposits which could result in cash payments within the next 12 months. The change in the deferred income balance is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by revenue recognized that was included in the deferred income balance at the beginning of the period.

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(unaudited)

The following tables summarize our consolidated deferred income activity (in thousands):

			Deferred Income
			2023						2022
Balance as of June 30			$	9,019					$	8,680
Increases to deferred income			2,687						2,458
Recognition of revenue (1)			(3,062)						(3,175)
Balance as of September 30			$	8,644					$	7,963

________

(1)    Revenue recognized in the three months ended September 30, 2023, which was previously included in deferred income includes (a) $809,000 of advisory revenue primarily related to our advisory agreements and our Amended and Restated Contribution Agreement with Ashford Trust and Braemar, (b) $34,000 of audio visual revenue and (c) $2.2 million of “other services” revenue earned by our products and services companies. Revenue recognized in the three months ended September 30, 2023 includes $4.0 million which was recorded in deferred income in our condensed consolidated balance sheet as of June 30, 2023.

Deferred income recognized in the three months ended September 30, 2022, includes (a) $371,000 of advisory revenue primarily related to our advisory agreements and our Amended and Restated Contribution Agreement with Ashford Trust and Braemar, (b) $535,000 of audio visual revenue and (c) $1.6 million of “other services” revenue earned by our products and services companies.

			Deferred Income
			2023						2022
Balance as of January 1			$	7,800					$	10,905
Increases to deferred income			9,512						8,247
Recognition of revenue (1)			(8,668)						(11,189)
Balance as of September 30			$	8,644					$	7,963

________

(1)    Revenue recognized in the nine months ended September 30, 2023, which was previously included in deferred income includes (a) $629,000 of advisory revenue primarily related to our advisory agreements and our Amended and Restated Contribution Agreement with Ashford Trust and Braemar, (b) $1.5 million of audio visual revenue, and (c) $6.5 million of “other services” revenue earned by our products and services companies. Revenue recognized in the nine months ended September 30, 2023 includes $5.0 million which was recorded in deferred income in our condensed consolidated balance sheet as of December 31, 2022.

Deferred income recognized in the nine months ended September 30, 2022 includes (a) $1.2 million of advisory revenue primarily related to our advisory agreements and our Amended and Restated Contribution Agreement with Ashford Trust and Braemar, (b) $2.2 million of audio visual revenue, (c) $2.3 million of other revenue related to Ashford Trust’s agreement with Lismore (see note 15), and (d) $4.8 million of “other services” revenue earned by our products and services companies, excluding Lismore.

We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was primarily related to (i) reimbursed software costs that will be recognized evenly over the period the software is used to provide advisory services to Ashford Trust and Braemar, (ii) a $5.0 million cash payment received in June 2017 from Braemar in connection with our Fourth Amended and Restated Advisory Agreement with Braemar, which is recognized evenly over the 10-year initial contract period that we are providing Braemar advisory services, and (iii) debt placement and related fees that will be recognized over the term of the agreement on a straight-line basis as the service was rendered, only to the extent it was probable that a significant reversal of revenue would not occur.

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(unaudited)

The timing of revenue recognition may differ from the timing of payment by customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred income until the performance obligations are satisfied. We had receivables related to revenues from contracts with customers of $23.7 million, $17.6 million and $7.6 million included in “accounts receivable, net” primarily related to our products and services segment, $7.6 million, $0 and $2.6 million in “due from Ashford Trust,” and $0, $11.8 million and $1.1 million included in “due from Braemar” related to advisory services at September 30, 2023, December 31, 2022 and December 31, 2021, respectively. See note 15.

Disaggregated Revenue

Our revenues were comprised of the following for the three and nine months ended September 30, 2023 and 2022, respectively (in thousands):

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(unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Advisory services fees:
Base advisory fees			$	11,514					$	12,124					$	35,539					$	35,637
Incentive advisory fees			67						—						201						—
Other advisory revenue			131						131						389						389
Total advisory services fees revenue			11,712						12,255						36,129						36,026
Hotel management fees:
Base fees			9,159						9,285						28,557						24,943
Incentive fees			925						2,242						3,966						6,113
Other management fees			2,307						1,349						6,933						2,418
Total hotel management fees revenue			12,391						12,876						39,456						33,474
Design and construction fees revenue			7,430						6,276						21,964						15,538
Audio visual revenue			30,641						26,159						112,347						87,101
Other revenue:
Watersports, ferry and excursion services (1)			8,375						6,608						25,797						20,337
Debt placement and related fees (2)			1,714						125						3,125						3,298
Cash management fees (3)			34						—						213						—
Claims management services			5						—						6						16
Other services (4)			1,047						3,658						2,916						10,251
Total other revenue			11,175						10,391						32,057						33,902
Cost reimbursement revenue			107,866						96,651						317,094						259,979
Total revenues			$	181,215					$	164,608					$	559,047					$	466,020
REVENUES BY SEGMENT (5)
Advisory			$	19,138					$	20,053					$	60,316					$	58,668
Remington			106,812						93,756						314,454						255,062
Premier			10,605						9,582						30,780						22,893
INSPIRE			30,694						26,197						112,506						87,235
RED			8,398						6,616						25,866						20,354
OpenKey			373						389						1,184						1,184
Corporate and other			5,195						8,015						13,941						20,624
Total revenues			$	181,215					$	164,608					$	559,047					$	466,020

________

(1)    Watersports, ferry and excursion services revenue is earned by RED, which includes RED’s legacy operations in the U.S. Virgin Islands and the Turks and Caicos Islands, Alii Nui, which provides luxury sailing and watersports experiences in Maui, Hawaii and Sebago, a provider of watersports activities and excursion services based in Key West, Florida.

(2)    Debt placement and related fees are earned by Lismore for providing placement, modification, forbearance or refinancing services to Ashford Trust and Braemar.

(3)     Cash management fees include revenue earned by providing active management and investment of Ashford Trust and Braemar’s excess cash in short-term U.S. Treasury securities.

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(unaudited)

(4)     Other services revenue relates primarily to other hotel services provided by our consolidated subsidiaries OpenKey and Pure Wellness, to Ashford Trust, Braemar and third parties. The three and nine months ended September 30, 2022 included the revenue of Marietta Leasehold LP (“Marietta”), which holds the leasehold rights to a single hotel and convention center property in Marietta, Georgia, and was acquired by Ashford Trust on December 16, 2022.

(5)    We have six reportable segments: Advisory, Remington, Premier, INSPIRE, RED and OpenKey. We combine the operating results of Pure Wellness and, for the three and nine months ended September 30, 2022, Marietta into an “all other” category, which we refer to as “Corporate and Other.” See note 17 for discussion of segment reporting.

Geographic Information

Our Advisory, Remington, Premier, OpenKey, and Corporate and Other reporting segments conduct their business primarily within the United States. Our INSPIRE reporting segment conducts business in the United States, Mexico and the Dominican Republic. RED conducts business in the United States, the U.S. Virgin Islands and the Turks and Caicos Islands, a territory of the United Kingdom.

The following table presents revenue from INSPIRE and RED geographically for the three and nine months ended September 30, 2023 and 2022, respectively (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
INSPIRE:
United States			$	25,464					$	21,986					$	81,803					$	68,114
Mexico			3,465						2,345						23,530						14,118
Dominican Republic			1,765						1,866						7,173						5,003
Total audio visual revenue			$	30,694					$	26,197					$	112,506					$	87,235
RED:
Continental United States			$	2,668					$	2,968					$	8,138					$	8,801
Hawaii			1,460						—						3,729						—
U.S. Virgin Islands			3,102						2,613						10,026						8,634
United Kingdom (Turks and Caicos Islands)			1,168						1,035						3,973						2,919
Total watersports, ferry and excursion services			$	8,398					$	6,616					$	25,866					$	20,354

4. Business Combination

Alii Nui

On March 17, 2023, RED acquired certain privately held entities and assets associated with Alii Nui, which provides luxury sailing and watersports experiences in Maui, Hawaii, for a total purchase price of $11.0 million, excluding working capital adjustments. The purchase price consisted of $8.0 million in cash, subject to certain adjustments, $1.0 million of contingent consideration and 80,000 RED Units issued at $25 per unit for a total liquidation value of $2.0 million. The RED Units accrue interest at 6.5% per annum with required quarterly payments.

The $8.0 million cash consideration includes $300,000 of cash held back by the Company to be paid eighteen months after the acquisition date (the “Holdback Date”), subject to certain conditions. The $1.0 million of contingent consideration is subject to Alii Nui obtaining a permit to operate a marine vessel (the “Permit”) prior to the Holdback Date, of which $500,000 is to be paid upon the later of January 15, 2024 or the date the Permit is obtained and the remaining $500,000 is to be paid on the Holdback Date, subject to certain conditions. Subsequent to the acquisition date, Alii Nui obtained approval to be issued the Permit upon registration of the marine vessel.

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(unaudited)

Both the Company and the holders of the RED Units have the right to convert the RED Units at the liquidation value of $25 per unit three years after the acquisition date upon providing notice to the respective party. The Company may convert the RED Units by paying cash or a combination of cash or the Company’s common shares at the sole discretion of the Company (the “Call Right”). The holders of the RED Units may convert their RED Units for cash (the “Put Right”). Under current accounting guidance, the Call Right and the Put Right are accounted for on a combined basis as a form of financing the acquisition of Alii Nui and recorded as a non-current note payable of $2.0 million in our condensed consolidated balance sheet.

The acquisition of Alii Nui was recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations, and the purchase price allocation was based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair value measurements and disclosure framework. Key assumptions include cash flow projections for Alii Nui and the discount rate applied to those cash flows. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded as goodwill. For goodwill reporting purposes, the operations and goodwill for Alii Nui are included in our RED reporting unit as they are similar businesses. See note 5.

We have allocated the purchase price to the assets acquired and liabilities assumed based upon our valuation of the fair value assigned to the RED Units, contingent consideration and intangible assets. In the third quarter of 2023, we finalized the valuation of the acquired assets and liabilities resulting in an increase to goodwill and deferred tax liabilities of $1.6 million from finalizing the tax basis of the acquired assets and the acquired business corporate entity.

The fair value of the purchase price and final allocation of the purchase price are as follows (in thousands):

Cash						$	7,700
Cash consideration payable						300
Contingent consideration						1,000
RED Units						2,000
Working capital adjustments						304
Total fair value of purchase price						$	11,304

						Fair Value						Estimated Useful Life
Current assets including cash of $996						$	1,286
Property and equipment, net						2,254						20 years
Goodwill						2,338
Trademarks						1,600
Boat slip rights						6,250						20 years
Total assets acquired						13,728
Current liabilities						857
Deferred tax liability						1,567
Total assumed liabilities						2,424
Net assets acquired						$	11,304

We do not expect any of the goodwill balance to be deductible for tax purposes. The qualitative factors that make up the recorded goodwill includes value attributable to growth opportunities to expand RED’s operations to new markets in Hawaii.

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(unaudited)

Results of Alii Nui

The results of operations of Alii Nui have been included in our results of operations since the acquisition date of March 17, 2023. Our condensed consolidated statements of operations for the three and nine months ended September 30, 2023 include total revenue from Alii Nui of $1.5 million and $3.7 million, respectively. In addition, our condensed consolidated statements of operations for the three and nine months ended September 30, 2023 include net loss from Alii Nui of $171,000 and $79,000, respectively.

Pro Forma Financial Results

The following table reflects the unaudited pro forma results of operations of the Company as if the Alii Nui acquisition had occurred on January 1, 2022, and the removal of $375,000 of transaction costs directly attributable to the acquisition (net of the incremental tax expense) for the nine months ended September 30, 2023 (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Total revenues			$	181,215					$	166,685					$	560,887					$	472,270
Net income (loss)			(3,070)						(2,070)						85						4,869
Net income (loss) attributable to common stockholders			(12,045)						(10,985)						(26,754)						(22,013)

5. Goodwill and Intangible Assets, net

Goodwill

The carrying amount of goodwill as of September 30, 2023 is as follows (in thousands):

						Remington																		RED						Corporate and Other (1)						Consolidated
Balance at December 31, 2022						$	56,658																	$	1,235					$	782					$	58,675
Changes in goodwill:
Additions (2)						—																		686						—						686
Adjustments (2)						—																		1,652						—						1,652
Balance at September 30, 2023						$	56,658																	$	3,573					$	782					$	61,013

________

(1) Corporate and Other includes the goodwill from the Company’s acquisition of Pure Wellness.

(2) The additions and subsequent adjustments relate to RED’s acquisition of Alii Nui. See note 4.

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(unaudited)

Intangible Assets

Intangible assets, net as of September 30, 2023 and December 31, 2022, are as follows (in thousands):

						September 30, 2023												December 31, 2022
						Gross Carrying Amount									Accumulated Amortization			Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization			Net Carrying Amount
Definite-lived intangible assets:
Remington management contracts						$	114,731								$	(49,046)		$	65,685					$	114,731					$	(40,519)		$	74,212
Premier management contracts						194,000									(61,959)			132,041						194,000						(53,415)			140,585
INSPIRE customer relationships						9,319									(6,366)			2,953						9,319						(5,527)			3,792
RED boat slip rights (1)						9,350									(835)			8,515						3,100						(535)			2,565
						$	327,400								$	(118,206)		$	209,194					$	321,150					$	(99,996)		$	221,154
						Gross Carrying Amount																		Gross Carrying Amount
Indefinite-lived intangible assets:
Remington trademarks						$	4,900																	$	4,900
RED trademarks (2)						2,090																		490
						$	6,990																	$	5,390

________

(1) Includes $6.3 million of boat slip rights acquired in RED’s acquisition of Alii Nui on March 17, 2023. See note 4.

(2) Includes $1.6 million of trademarks acquired in RED’s acquisition of Alii Nui on March 17, 2023. See note 4.

Amortization expense for definite-lived intangible assets was $6.1 million and $18.2 million for the three and nine months ended September 30, 2023, respectively. Amortization expense for definite-lived intangible assets was $6.5 million and $18.8 million for the three and nine months ended September 30, 2022, respectively. The useful lives of our customer relationships range from seven to 15 years and the useful lives of our Remington management contracts range from eight to 22 years. Our Premier management contracts and RED’s boat slip rights intangible assets were assigned useful lives of 30 years and 20 years, respectively.

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

6. Notes Payable, net

Notes payable—Notes payable, net consisted of the following (in thousands):

Indebtedness						Borrower						Maturity						Interest Rate						September 30, 2023						December 31, 2022
Credit facility (6) (9)						Ashford Inc.						April 1, 2027						Base Rate (1) + 6.35% or Adjusted Term SOFR (3) + 7.35%						$	87,000					$	70,000
Note payable (6) (11)						Ashford Inc.						February 29, 2028						4.00%						1,300						1,495
Note payable (5) (17)						OpenKey						On demand						15.00%						237						—
Term loan (5) (7) (10)						INSPIRE						March 24, 2028						BSBY Rate (2) + 2.75%						19,000						17,300
Revolving credit facility (5) (7) (10)						INSPIRE						March 24, 2028						BSBY Rate (2) + 2.75%						466						—
Equipment note (5) (7) (10)						INSPIRE						March 24, 2028						BSBY Rate (2) + 2.75%						2,000						—
Revolving credit facility (5) (12)						Pure Wellness						On demand						Prime Rate (4) + 1.00%						150						150
Term loan (5) (8) (13)						RED						July 18, 2029						6.00%						1,654						1,596
Term loan (5) (8)						RED						April 18, 2024						6.50%						123						337
Term loan (5) (8) (14)						RED						August 5, 2029						Prime Rate (4) + 2.00%						815						858
Term loan (5) (8)						RED						August 5, 2029						Prime Rate (4) + 2.00%						1,868						1,980
Term loan (6) (8)						RED						August 5, 2029						Prime Rate (4) + 1.75%						2,758						3,006
Term loan (5) (8) (18)						RED						March 17, 2033						Prime Rate (4) + 1.50%						1,655						—
Term loan (5) (8) (18)						RED						March 17, 2033						Prime Rate (4) + 1.50%						2,358						—
Term loan (5) (8) (20)						RED						May 19, 2033						Prime Rate (4) + 1.00%						632						—
Draw term loan (5) (8) (15)						RED						March 17, 2032						5.00%						971						641
Draw term loan (5) (8) (15)						RED						March 17, 2032						5.00%						1,009						640
Draw term loan (5) (8) (16)						RED						Various (16)						Prime Rate (4) + 1.00%						1,419						1,099
Draw term loan (5) (8) (21)						RED						February 5, 2029						Prime Rate (4) + 1.25%						84						—
RED Units (5) (19)						RED						See footnote (19)						6.50%						2,000						—
Total notes payable																								127,499						99,102
Capitalized default interest, net																								—						148
Deferred loan costs, net																								(2,643)						(2,643)
Original issue discount, net (9)																								(1,470)						(1,732)
Notes payable including capitalized default interest and deferred loan costs, net																								123,386						94,875
Less current portion																								(4,145)						(5,195)
Total notes payable, net - non-current																								$	119,241					$	89,680

__________________

(1)     Base Rate, as defined in the amended credit facility agreement with Mustang Lodging Funding LLC, is the greater of (i) the Wall Street Journal prime rate, (ii) the federal funds rate plus 0.50%, (iii) Adjusted Term SOFR plus 1.00%, or (iv) 1.25%.

(2)     The Daily Adjusting Bloomberg Short-Term Bank Yield Index rate (the “BSBY Rate”) was 5.39% at September 30, 2023.

(3)     Adjusted Term SOFR is the one-month forward-looking SOFR rate plus 0.03%. Adjusted Term SOFR was 5.35% at September 30, 2023.

(4)     The Prime Rate was 8.50% and 7.50% at September 30, 2023 and December 31, 2022, respectively.

(5)     Creditors do not have recourse to Ashford Inc.

(6)    Creditors have recourse to Ashford Inc.

(7)    INSPIRE’s revolving credit facility and equipment note are collateralized primarily by INSPIRE’s eligible receivables, including accounts receivable, due from Ashford Trust and due from Braemar, with a total carrying value of $10.1 million as of September 30, 2023. INSPIRE’s term loan is collateralized by substantially all of the assets of INSPIRE.

(8)    RED’s loans are collateralized primarily by RED’s marine vessels and associated leases with a carrying value of $17.7 million and $13.6 million as of September 30, 2023 and December 31, 2022, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

(9)    On March 31, 2023, the Company amended its Credit Agreement (the “Credit Agreement”), previously entered into on April 1, 2022, with Mustang Lodging Funding LLC, as administrative agent, and the lenders from time to time party thereto. The amendment replaced the one-month LIBOR rate with Adjusted Term SOFR. The Credit Agreement evidences a senior secured term loan facility (the “Credit Facility”) in the amount of $100.0 million, including a $50.0 million term loan funded on the closing date of the Credit Facility (the “Closing Date”) and commitments to fund up to an additional $50.0 million of term loans in up to five separate borrowings within 24 months after the Closing Date, subject to certain conditions. The Credit Facility is a five-year interest-only facility with all outstanding principal due at maturity, with three successive one-year extension options subject to an increase in the interest rate during each extension period. Borrowings under the Credit Agreement will bear interest, at the Company’s option, at either Adjusted Term SOFR plus an applicable margin, or the Base Rate plus an applicable margin. The applicable margin for borrowings under the Credit Agreement for Adjusted Term SOFR loans will be 7.35% per annum and the applicable margin for Base Rate loans will be 6.35% per annum, with increases to both applicable margins of 0.50%, 0.75% and 1.00% per annum during each of the three extension periods, respectively. Undrawn balances of the Credit Facility are subject to an unused fee of 1.0% during the first 24 months of the term, payable on the last business day of each month. The Credit Facility included an original issue discount of $2.0 million on the Closing Date. As of September 30, 2023, the amount unused under the Credit Facility was $13.0 million.

(10)    On March 24, 2023, INSPIRE amended its credit agreement by entering into the INSPIRE Amendment. The INSPIRE Amendment increased the maximum borrowing capacity under INSPIRE’s Revolving Note from $3.0 million to $6.0 million, provides for a $20.0 million Term Note and an Equipment Note pursuant to which, until September 24, 2027, INSPIRE may request advances up to $4.0 million in the aggregate to purchase new machinery or equipment to be used in the ordinary course of business. The INSPIRE Amendment extended the maturity date of INSPIRE’s Notes from January 1, 2024 to March 24, 2028. Monthly principal payments commence on April 1, 2023 for the Term Note in the amount of approximately $167,000. Borrowings under the Revolving Note require monthly payments of interest only until the maturity date and borrowings under the Equipment Note require monthly principal payments at 1/60th of the original principal amount of each advance. The Notes bear interest at the BSBY Rate plus a margin of 2.75% and the undrawn balance of the Revolving Note and the Equipment Note are subject to an unused fee of 0.25% per annum. As of September 30, 2023, the amounts unused under INSPIRE’s revolving credit facility and equipment note were $5.5 million and $2.0 million, respectively.

(11)    On March 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 in Ashford Inc. common stock, including a 10% premium, or cash at our sole discretion.

(12)    As of September 30, 2023, the amount unused under Pure Wellness’s revolving credit facility was $100,000.

(13)    On July 18, 2019, RED entered into a term loan of $1.7 million. The interest rate for the term loan is 6.0% for the first five years. After five years, the interest rate is equal to the Prime Rate plus 0.5% with a floor of 6.0%.

(14)    On July 23, 2021, RED entered into a term loan agreement with a maximum principal amount of $900,000.

(15)    On March 17, 2022, in connection with the purchase and construction of marine vessels, RED entered into two closed-end non-revolving line of credit loans of $1.5 million each which convert to term loans once fully drawn. Each loan bears an interest rate of 5.0% for the first three years. After three years, the interest rate is equal to the Prime Rate plus 0.5% with a floor of 5.0%.

(16)    On September 15, 2022, RED entered into a closed-end non-revolving line of credit for $1.5 million that converts into an individual term loan each time RED draws upon the facility. As of September 30, 2023, RED had drawn the full amount allowed under the line of credit. Maturity dates for amounts drawn under the facility are November 30, 2027, December 28, 2027 and January 20, 2028.

(17)    On February 2, 2023, OpenKey entered into a loan funding agreement with Braemar with a maximum loan amount of $395,000. As of September 30, 2023, the remaining unused loan balance was $158,000.

(18)    On March 17, 2023, in connection with the acquisition of Alii Nui, RED entered into two term loans of $1.7 million and $2.4 million. RED is required to make monthly payments on the term loans starting April 17, 2023.

(19)    On March 17, 2023, in connection with the Alii Nui acquisition, RED issued 80,000 RED Units at $25 per unit with a liquidation value of $2.0 million. The RED Units accrue interest at 6.5% per annum with required quarterly payments. The RED Units are considered a form of financing the acquisition of Alii Nui under current accounting guidance and is recorded as a non-current note payable in our condensed consolidated balance sheet. See note 4.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

(20)    On May 19, 2023, RED entered into a term loan for two vessels. The interest rate is equal to the Prime Rate plus 1.00% and the note matures on May 19, 2033. RED is required to make monthly principal payments on the term loan starting in June 2023.

(21)    On August 4, 2023, RED entered into a draw term loan with Merchants Commercial Bank with a maximum draw of $900,000 through February 5, 2024. The interest rate is equal to the Prime Rate plus 1.25% and the maturity date is February 5, 2029. As of September 30, 2023, the amount unused under RED’s draw term loan was $816,000.

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 of September 30, 2023, our Credit Agreement was in compliance with all covenants or other requirements and debt held by our subsidiaries was in compliance with all covenants or other requirements.

7. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses were comprised of the following (in thousands):

			September 30, 2023						December 31, 2022
Accounts payable			$	18,493					$	18,841
Accrued payroll expense			20,413						30,626
Accrued vacation expense			2,286						2,418
Accrued interest			422						381
Other accrued expenses			453						3,813
Total accounts payable and accrued expenses			$	42,067					$	56,079

8. Fair Value Measurements

Fair Value Hierarchy—Our assets and liabilities measured at fair value, either on a recurring or a non-recurring basis, are classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs in the market- place as discussed below:

•Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.

•Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

•Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):

			Quoted Market Prices (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs  (Level 3)						Total
September 30, 2023
Assets
Investments			$	—					$	—					$	4,500		(1)			$	4,500
Restricted Investment:
Ashford Trust common stock			24			(2)			—						—						24
Braemar common stock			64			(2)			—						—						64
Total			$	88					$	—					$	4,500					$	4,588
Liabilities
Contingent consideration			$	(1,000)		(3)			$	—					$	(2,750)		(4)			$	(3,750)
Deferred compensation plan			(1,370)						—						—						(1,370)
Total			$	(2,370)					$	—					$	(2,750)					$	(5,120)
Net			$	(2,282)					$	—					$	1,750					$	(532)

__________________

(1) Represents the fair value of TSGF L.P.’s investment which is reported within “investments” in our condensed consolidated balance sheets.

(2) The restricted investment includes shares of common stock of Ashford Trust and Braemar purchased by Remington on the open market and held for the purpose of providing compensation to certain employees. The compensation agreement liability is based on ratably accrued vested shares through September 30, 2023, which are distributed to the plan participants upon vesting. The liability is the total accrued vested shares multiplied by the fair value of the quoted market price of the underlying investment.

(3) Represents the fair value of the contingent consideration liability related to Alii Nui obtaining the Permit which is reported within “claims liabilities and other” in our condensed consolidated balance sheets.

(4) Represents the fair value of the contingent consideration liability related to the achievement of certain performance targets associated with the acquisition of Chesapeake, which is reported within “other liabilities” in our condensed consolidated balance sheets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

			Quoted Market Prices (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total
December 31, 2022
Assets
Restricted Investment:
Ashford Trust common stock			$	57		(1)			$	—					$	—					$	57
Braemar common stock			246			(1)			—						—						246
Total			$	303					$	—					$	—					$	303
Liabilities
Contingent consideration			$	—					$	—					$	(2,320)		(2)			$	(2,320)
Subsidiary compensation plan			—						(74)			(1)			—						(74)
Deferred compensation plan			(2,849)						—						—						(2,849)
Total			$	(2,849)					$	(74)					$	(2,320)					$	(5,243)
Net			$	(2,546)					$	(74)					$	(2,320)					$	(4,940)

__________________

(1) The restricted investment includes shares of common stock of Ashford Trust and Braemar purchased by Remington on the open market and held for the purpose of providing compensation to certain employees. The compensation agreement liability is based on ratably accrued vested shares through December 31, 2022, which are distributed to the plan participants upon vesting. The liability is the total accrued vested shares multiplied by the fair value of the quoted market price of the underlying investment.

(2) Represents the fair value of the contingent consideration liability related to the achievement of certain performance targets associated with the acquisition of Chesapeake, which is reported within “other liabilities” in our condensed consolidated balance sheets.

The following table presents our roll forward of our Level 3 investments (in thousands):

															Investments (1)
Balance at December 31, 2022 and June 30, 2023															$	—
TSGF L.P. investment															4,500
Balance at September 30, 2023															$	4,500

__________________

(1) TSGF L.P.’s investment is measured at fair value at each reporting period. The Company used the market value approach method when determining the fair value of the investment acquired as of September 30, 2023.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table presents our roll forward of our Level 3 contingent consideration liability (in thousands):

															Contingent Consideration Liability (1)
Balance at December 31, 2022															$	(2,320)
Gains (losses) from fair value adjustments included in earnings															(300)
Balance at June 30, 2023															(2,620)
Gains (losses) from fair value adjustments included in earnings															(130)
Balance at September 30, 2023															$	(2,750)

__________________

(1) The Company measures contingent consideration liabilities related to the Chesapeake acquisition in April of 2022 at fair value at each reporting period using significant unobservable inputs classified within Level 3 of the fair value hierarchy. The fair value of the contingent consideration liability is based on the present value of the expected future payments to be made to the sellers of Chesapeake in accordance with the provisions outlined in the respective purchase agreements, which is a Level 3 fair value measurement. In determining fair value, the Company estimates Chesapeake’s future performance using a Monte Carlo simulation model. The key assumptions in applying the Monte Carlo simulation model are (a) a discount rate, with a range of 36.01% to 36.03%; (b) a forward-looking risk-free rate, with a range of 5.34% to 5.47%; and (c) a volatility rate of 48.15%.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Effect of Fair Value Measured Assets and Liabilities on Our Condensed Consolidated Statements of Operations

The following table summarizes the effect of fair value measured assets and liabilities on our condensed consolidated statements of operations (in thousands):

			Gain (Loss) Recognized
			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Assets
Unrealized gain (loss) on investment: (1)
Ashford Trust common stock			$	5					$	12					$	68					$	68
Braemar common stock			8						6						15						(50)
Realized gain (loss) on investment: (2)
Ashford Trust common stock			(73)						(3)						(146)						(97)
Braemar common stock			(7)						—						(14)						23
Total			$	(67)					$	15					$	(77)					$	(56)
Liabilities
Contingent consideration (3)			$	(130)					$	(300)					$	(430)					$	(300)
Subsidiary compensation plan (4)			—						(42)						(6)						(110)
Deferred compensation plans (4)			689						78						1,479						567
Total			$	559					$	(264)					$	1,043					$	157
Net			$	492					$	(249)					$	966					$	101

__________________

(1)     Represents the unrealized gain (loss) on shares of common stock of Ashford Trust and Braemar purchased by Remington on the open market and held for the purpose of providing compensation to certain employees. Reported as a component of “other income (expense)” in our condensed consolidated statements of operations.

(2)     Represents the realized gain (loss) on shares of common stock of Ashford Trust and Braemar purchased by Remington on the open market and held for the purpose of providing compensation to certain employees.

(3)    Represents the changes in fair value of our contingent consideration liabilities. The change in the fair value in the three and nine months ended September 30, 2023 related to the level of achievement of certain performance targets associated with the acquisition of Chesapeake in April of 2022. Changes in the fair value of contingent consideration are reported within “other” operating expense in our condensed consolidated statements of operations.

(4)    Reported as a component of “salaries and benefits” in our condensed consolidated statements of operations.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Restricted Investment

The historical cost and approximate fair values, together with gross unrealized gains and losses, of securities restricted for use in our subsidiary compensation plan are as follows (in thousands):

			Historical Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Available-for-sale securities:
September 30, 2023
Equity securities (1)			$	672					$	—					$	(584)					$	88

__________________

(1)     Distributions of $210,000 of available-for-sale securities occurred in the nine months ended September 30, 2023.

			Historical Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Available-for-sale securities:
December 31, 2022
Equity securities (1)			$	821					$	—					$	(518)					$	303

__________________

(1)     Distributions of $365,000 of available-for-sale securities occurred in the year ended December 31, 2022.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

9. Summary of Fair Value of Financial Instruments

Certain of our financial instruments are not measured at fair value on a recurring basis. The estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled. The carrying amounts and estimated fair values of financial instruments were as follows (in thousands):

						September 30, 2023												December 31, 2022
						Carrying Value						Estimated Fair Value						Carrying Value						Estimated Fair Value
Financial assets measured at fair value:
Restricted investment						$	88					$	88					$	303					$	303
Investments						4,500						4,500						—						—
Financial liabilities measured at fair value:
Deferred compensation plan						$	1,370					$	1,370					$	2,849					$	2,849
Contingent consideration						3,750						3,750						2,320						2,320
Financial assets not measured at fair value:
Cash and cash equivalents						$	28,018					$	28,018					$	44,390					$	44,390
Restricted cash						36,215						36,215						37,058						37,058
Accounts receivable, net						31,038						31,038						17,615						17,615
Notes receivable						2,454						2,454						2,041						2,041
Due from affiliates						575						575						463						463
Due from Ashford Trust						7,625						7,625						—						—
Due from Braemar						—						—						11,828						11,828
Financial liabilities not measured at fair value:
Accounts payable and accrued expenses						$	42,067					$	42,067					$	56,079					$	56,079
Dividends payable						28,318						28,318						27,285						27,285
Due to affiliates						49						49						15						15
Due to Ashford Trust						—						—						1,197						1,197
Due to Braemar						3,533						3,533						—						—
Claims liabilities and other						32,643						32,643						26,547						26,547
Notes payable						127,499						121,124 to 133,874						99,102						94,147 to 104,057

Restricted investment. These financial assets are carried at fair value based on quoted market prices of the underlying investments. This is considered a Level 1 valuation technique.

Deferred compensation plan. The liability resulting from the deferred compensation plan is carried at fair value based on the closing prices of the underlying investments. This is considered a Level 1 valuation technique.

Contingent consideration. The liabilities associated with the Company’s acquisition of Chesapeake and Alii Nui are carried at fair value based on the terms of the acquisition agreements and any changes to fair value are recorded in “other” operating expenses in our condensed consolidated statements of operations. The Chesapeake liability is considered a Level 3 valuation technique and the Alii Nui liability is considered a Level 1 valuation technique. See note 8.

Cash, cash equivalents and restricted cash. These financial assets bear interest at market rates and have maturities of less than 90 days. The carrying values approximate fair value due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.

Accounts receivable, net, due from affiliates, due to/from Ashford Trust, due to/from Braemar, notes receivable, accounts payable and accrued expenses, dividends payable, due to affiliates and claims liabilities and other. The carrying values of these financial instruments approximate their fair values due primarily to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.

Investments. The Company measures TSGF L.P.’s investment at fair value at each reporting period using the income approach valuation method. This is considered a Level 3 valuation technique. See notes 2 and 8.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Notes payable. The fair value of notes payable is based on credit spreads on observable transactions of a similar nature and is considered a Level 2 valuation technique.

10. Commitments and Contingencies

Release and Waiver Agreement—On April 15, 2022, the Company and Ashford Services agreed with Jeremy Welter, the Chief Operating Officer of the Company, that, effective on July 15, 2022, Mr. Welter would terminate employment with and service to the Company, Ashford Services and their affiliates. Mr. Welter was also the Chief Operating Officer of Ashford Trust and Braemar and accordingly his service as Chief Operating Officer of each of Ashford Trust and Braemar also ended on July 15, 2022. The Company has commitments related to cash compensation for the departure of Mr. Welter which included a cash termination payment of $750,000, which was paid on August 5, 2022, and payments totaling approximately $6.4 million, which are payable in 24 substantially equal monthly installments of approximately $267,000 beginning in August 2022. As of September 30, 2023, the Company’s remaining commitment to Mr. Welter totaled approximately $2.7 million.

Litigation—On December 20, 2016, a class action lawsuit was filed against one of the Company’s subsidiaries in the Superior Court of the State of California in and for the County of Contra Costa alleging violations of certain California employment laws. The court has entered an order granting class certification with respect to: (i) a statewide class of non-exempt employees who were allegedly deprived of rest breaks as a result of the subsidiary’s previous written policy requiring employees to stay on premises during rest breaks; and (ii) a derivative class of non-exempt former employees who were not paid for allegedly missed breaks upon separation from employment. Notices to potential class members were sent out on February 2, 2021. Potential class members had until April 4, 2021 to opt out of the class, however, the total number of employees in the class has not been definitively determined and is the subject of continuing discovery. The opt out period has been extended until such time that discovery has concluded. In May of 2023, the trial court requested additional briefing from the parties to determine whether the case should be maintained, dismissed, or the class decertified. The trial court set a due date of August 7, 2023 for the briefs. After submission of the briefs, the court requested that the parties submit stipulations for the court to rule upon. If this litigation goes to trial, we expect that the earliest the trial would occur is the last quarter of 2023, based on various extensions to which the parties have agreed. While we believe it is reasonably possible that we may incur a loss associated with this litigation, because there remains uncertainty under California law with respect to a significant legal issue, discovery relating to class members continues, and the trial judge retains discretion to award lower penalties than set forth in the applicable California employment laws, we do not believe that any potential loss to the Company is reasonably estimable at this time. As of September 30, 2023, no amounts have been accrued.

We are also engaged in other legal proceedings that have arisen but have not been fully adjudicated. To the extent the claims giving rise to these legal proceedings are not covered by insurance, they relate to the following general types of claims: employment matters, tax matters, matters relating to compliance with applicable law (for example, the Americans with Disability Act and similar state laws), and other general matters. The likelihood of loss for these legal proceedings is based on definitions within contingency accounting literature. We recognize a loss when we believe the loss is both probable and reasonably estimable. Legal costs associated with loss contingencies are expensed as incurred. Based on the information available to us relating to these legal proceedings and/or our experience in similar legal proceedings, we do not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position, results of operations or cash flow.

During the quarter ended September 30, 2023, we had a cyber incident that resulted in the potential exposure of certain employee personal information. We have completed an investigation and have identified certain employee information may have been exposed, but we have not identified that any customer information was exposed. Systems have been substantially restored with minimal effect on certain hotel operations. We believe that we maintain a sufficient level of insurance coverage related to such events, and the related incremental costs incurred to date are immaterial. It is reasonably possible that the Company may incur additional costs related to the matter, but we are unable to predict with certainty the ultimate amount or range of potential loss. At this time, no litigation has been filed nor has any been threatened.

Our assessment may change depending upon the development of any current or future legal proceedings, and the final results of such legal proceedings cannot be predicted with certainty. If we ultimately do not prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position, results of operations, or cash flows could be materially adversely affected in future periods.

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ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

11. Equity (Deficit)

Noncontrolling Interests in Consolidated Entities—See note 2 for details regarding ownership interests, carrying values and allocations related to noncontrolling interests in our consolidated subsidiaries.

The following table summarizes the (income) loss attributable to noncontrolling interests for each of our consolidated entities (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
(Income) loss attributable to noncontrolling interests:
OpenKey			$	187					$	223					$	647					$	677
Pure Wellness			(10)						49						32						153
TSGF L.P.			13						—						13						—
Total net (income) loss attributable to noncontrolling interests			$	190					$	272					$	692					$	830

12. Mezzanine Equity

Redeemable Noncontrolling Interests—Redeemable noncontrolling interests are included in the mezzanine section of our condensed consolidated balance sheets as the ownership interests are redeemable for cash or registered shares outside of the Company’s control. Redeemable noncontrolling interests in Ashford Holdings includes the Series CHP Unit preferred membership interest issued in our acquisition of Chesapeake in April of 2022 and the membership interests of common units and LTIP units.

The following table summarizes the net (income) loss attributable to our redeemable noncontrolling interests (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Net (income) loss attributable to redeemable noncontrolling interests:
Ashford Holdings			$	(111)					$	(158)					$	(399)					$	(290)

Series CHP Units—In connection with the acquisition of Chesapeake, Ashford Holdings issued 378,000 Series CHP Units to the sellers of Chesapeake. The Series CHP Units represent a preferred membership interest in Ashford Holdings having a priority in payment of cash dividends over the common unit holders of Ashford Holdings. Each Series CHP Unit (i) has a liquidation value of $25 plus all unpaid accrued and accumulated distributions thereon; (ii) is entitled to cumulative dividends at the rate of 7.28% per annum, payable quarterly in arrears; (iii) participates in any dividend or distribution paid on all outstanding common units of Ashford Holdings in addition to the preferred dividends; (iv) is convertible, along with the aggregate accrued or accumulated and unpaid distributions thereon, into common units of Ashford Holdings at the option of the holder or the issuer, which common units of Ashford Holdings will then be redeemable by the holder thereof into common stock of the Company on a 1:1 ratio or cash, at the Company’s discretion; and (v) provides for customary anti-dilution protections. The number of common units of Ashford Holdings to be received upon conversion of Series of CHP Units, along with the aggregate accrued or accumulated and unpaid distributions thereon, is determined by: (i) multiplying the number of Series CHP Units to be converted by the liquidation value thereof; and then (ii) dividing the result by the preferred conversion price, which is $117.50 per unit. In the event the Company fails to pay the required dividends on the Series CHP Units for two consecutive quarterly periods (a “Preferred Unit Breach”), then until such arrearage is paid in cash in full, the dividend rate on the Series CHP Units will increase to 10.00% per annum until no Preferred Unit Breach exists. Except with respect to certain protective provisions, no holder of Series CHP Units will have voting rights in its capacity as such. As long as any Series CHP Units are outstanding, the Company is prohibited from taking specified actions without the consent of at least 50% of the holders of Series CHP Units, including (i) modifying the terms, rights, preferences, privileges or voting powers of the Series CHP Units or (ii) altering the rights, preferences or privileges of any Units of Ashford Holdings so as to adversely affect the Series CHP Units.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

For the three and nine months ended September 30, 2023, the Company recorded net income attributable to redeemable noncontrolling interests of $172,000 and $516,000, respectively, to the Series CHP Unit holders which is included in Ashford Holdings in the table above. For the three and nine months ended September 30, 2022, the Company recorded net income attributable to redeemable noncontrolling interests of $172,000 and $317,000, respectively, to the Series CHP Unit holders.

Convertible Preferred Stock—Each share of Series D Convertible Preferred Stock: (i) has a liquidation value of $25 per share plus the amount of all unpaid accrued and accumulated dividends on such share; (ii) accrues cumulative dividends at the rate of 7.28% per annum; (iii) participates in any dividend or distribution on the common stock in addition to the preferred dividends; (iv) is convertible, along with all unpaid accrued and accumulated dividends thereon, 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 beneficially held primarily by Mr. Monty J. Bennett, the Chairman of our Board and our Chief Executive Officer, and Mr. Archie Bennett, Jr., who is Mr. Monty J. Bennett’s father.

To the extent not paid on April 15, July 15, October 15 and January 15 of each calendar year in respect of the quarterly periods ending on March 31, June 30, September 30 and December 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 or converted to common shares.

The Series D Convertible Preferred Stock is entitled to vote alongside our voting common stock on an as-converted basis, subject to applicable voting limitations.

So long as any shares of Series D Convertible Preferred Stock are outstanding, the Company is prohibited from taking specified actions without the consent of the holders of 55% of the outstanding Series D Convertible Preferred Stock, including: (i) modifying the terms, rights, preferences, privileges or voting powers of the Series D Convertible Preferred Stock; (ii) altering the rights, preferences or privileges of any capital stock of the Company so as to affect adversely the Series D Convertible Preferred Stock; (iii) issuing any security senior to the Series D Convertible Preferred Stock, or any shares of Series D Convertible Preferred Stock other than pursuant to the Combination Agreement dated May 31, 2019 between us, the Bennetts, Remington Holdings, L.P. and certain other parties, as amended (the “Combination Agreement”); (iv) entering into any agreement that expressly prohibits or restricts the payment of dividends on the Series D Convertible Preferred Stock or the common stock of the Company or the exercise of the Change of Control Put Option (as defined in the Combination Agreement); or (v) other than the payment of dividends on the Series D Convertible Preferred Stock or payments to purchase any of the Series D Convertible Preferred Stock, transferring all or a substantial portion of the Company’s or its subsidiaries’ cash balances or other assets to a person other than the Company or its subsidiaries, other than by means of a dividend payable by the Company pro rata to the holders of the Company common stock (together with a corresponding dividend payable to the holders of the Series D Convertible Preferred Stock).

After June 30, 2026, we will have the option to purchase all or any portion of the Series D Convertible Preferred Stock (except that the option to purchase may not be exercised with respect to shares of Series D Convertible Preferred Stock with an aggregate purchase price less than $25.0 million) on a pro rata basis among all holders of the Series D Convertible Preferred Stock (subject to the ability of the holders to provide for an alternative allocation amongst themselves), at a price per share equal to: (i) $25.125; plus (ii) all accrued and unpaid dividends (provided any holder of Series D Convertible Preferred Stock shall be entitled to exercise its right to convert its shares of Series D Convertible Preferred Stock into common stock not fewer than five business days before such purchase is scheduled to close).

As of September 30, 2023, the Company had aggregate undeclared preferred stock dividends of approximately $19.6 million, which relates to the second and fourth quarters of 2021. On each of April 14, 2023 and July 12, 2023, the Company paid $8.7 million of dividends previously declared by the Board with respect to the Company’s Series D Convertible Preferred Stock for the first and second quarters of 2023. On September 7, 2023, the Board declared a cash dividend on the Company’s Series D Convertible Preferred Stock for the quarter ended September 30, 2023. The Company paid the dividend of $8.7 million, or $0.455 per share of Series D Convertible Preferred Stock, on October 11, 2023.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

All dividends, declared and undeclared, are recorded as a reduction in net income (loss) attributable to common stockholders 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 Series D Convertible Preferred Stock dividends, declared and undeclared, totaling $28.3 million and $27.1 million at September 30, 2023 and December 31, 2022, respectively, are recorded as a liability in our condensed consolidated balance sheets as “dividends payable.”

Convertible preferred stock cumulative dividends declared during the three and nine months ended September 30, 2023 and 2022 for all issued and outstanding shares were as follows (in thousands, except per share amounts):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Preferred dividends - declared			$	8,700					$	—					$	26,099					$	35,219
Preferred dividends per share - declared			$	0.4550					$	—					$	1.3650					$	1.8420

Aggregate undeclared convertible preferred stock cumulative dividends (in thousands, except per share amounts):

			September 30, 2023						December 31, 2022
Aggregate preferred dividends - undeclared			$	19,619					$	18,414
Aggregate preferred dividends - undeclared per share			$	1.0261					$	0.9631

13. Equity-Based Compensation

Equity-based compensation expense is primarily recorded in “salaries and benefits expense” and REIT equity-based compensation expense is primarily recorded in “reimbursed expenses” in our condensed consolidated statements of operations. The components of equity-based compensation expense for the three and nine months ended September 30, 2023 and 2022 are presented below by award type (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Equity-based compensation
Class 2 LTIP units and stock option amortization (1)			$	32					$	979					$	97					$	1,365
Employee LTIP units and equity grant expense (2)			428						896						1,308						1,725
Director and other non-employee equity grants expense (3)			4						46						539						501
Total equity-based compensation			$	464					$	1,921					$	1,944					$	3,591
Other equity-based compensation
REIT equity-based compensation (4)			$	3,029					$	4,638					$	10,167					$	13,116
			$	3,493					$	6,559					$	12,111					$	16,707

________

(1)    As of September 30, 2023, the Company had approximately $189,000 of total unrecognized compensation expense related to the Class 2 LTIP units that will be recognized over a weighted average period of 1.5 years.

(2)    As of September 30, 2023, the Company had approximately $3.0 million of total unrecognized compensation expense related to restricted shares and LTIP units that will be recognized over a weighted average period of 1.9 years.

(3)    Grants of stock, restricted stock and stock units to independent directors and other non-employees are recorded at fair value based on the market price of our shares at grant date, and this amount is expensed in “general and administrative” expense.

(4)    REIT equity-based compensation expense is primarily recorded in “reimbursed expenses” and is associated with equity grants of Ashford Trust’s and Braemar’s common stock and LTIP units awarded to our officers and employees.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

14. Deferred Compensation Plan

We administer a non-qualified deferred compensation plan (“DCP”) for certain executive officers and other employees which give the participants various investment options, including Ashford Inc. common stock, for measurement that can be changed by the participant at any time. These modifications resulted in the DCP obligation being recorded as a liability in accordance with the applicable authoritative accounting guidance. Distributions under the DCP for our executive officers are made in cash, unless the participant has elected Ashford Inc. common stock as the investment option, in which case any such distributions would be made in Ashford Inc. common stock. Additionally, the DCP obligation is carried at fair value with changes in fair value reflected in “salaries and benefits” in our condensed consolidated statements of operations.

The following table summarizes the DCP activity (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Change in fair value
Unrealized gain (loss)			$	689					$	78					$	1,479					$	567

As of September 30, 2023 and December 31, 2022, the carrying value of the DCP liability was $1.4 million and $2.8 million, respectively. No distributions were made to any participant during the three and nine months ended September 30, 2023 and 2022.

15. Related Party Transactions

As an asset manager providing advisory services to Ashford Trust and Braemar, as well as holding an ownership interest in other businesses providing products and services to the hospitality industry, including Ashford Trust and Braemar, related party transactions are inherent in our business. Details of our related party transactions are presented below.

Ashford Trust—We are a party to an amended and restated advisory agreement with Ashford Trust and its operating subsidiary, Ashford Hospitality Limited Partnership (“Ashford Trust OP”).

Premier is party to a master project management agreement with Ashford Trust OP and Ashford Trust TRS, a subsidiary of Ashford Trust OP, and certain of their affiliates to provide comprehensive and cost-effective design, development, architectural, and project management services and a related mutual exclusivity agreement with Ashford Trust and Ashford Trust OP.

Remington is party to a master hotel management agreement with Ashford Trust TRS and certain of its affiliates to provide hotel management services. Ashford Trust pays the Company a monthly hotel management fee equal to the greater of approximately $17,000 per hotel (increased annually based on consumer price index adjustments) or 3% of gross revenue (the “base fee”) as well as annual incentive hotel management fees, if certain operational criteria are met, and other general and administrative expense reimbursements. Ashford Trust pays the base fee and reimburses all expenses for Remington-managed hotels on a weekly basis for the preceding week. Remington is also party to a mutual exclusivity agreement with Ashford Trust and Ashford Trust OP.

Lismore has certain agreements with Ashford Trust to provide debt placement, modifications and refinancings of certain mortgage debt. Lismore’s fees are recognized based on a stated percentage of the loan amount when services have been rendered and the subject loan, modification or other transaction is closed.

Lismore also previously held an agreement with Ashford Trust (the “Ashford Trust Agreement”) with an effective date of April 6, 2020 pursuant to which Lismore negotiated forbearance, modifications and refinancings of the existing mortgage debt on Ashford Trust’s hotels. The Ashford Trust Agreement additionally allowed for the Company to receive certain fees for refinancings performed within eight months after the Ashford Trust Agreement terminated. The Ashford Trust Agreement terminated effective April 6, 2022. For the three and nine months ended September 30, 2022, the Company recognized revenue of $125,000 and $2.4 million, respectively, under the Ashford Trust Agreement.

During June 2023, Lismore entered into various 12-month agreements with Ashford Trust to seek modifications or refinancings of certain mortgage loans held by Ashford Trust. For the three and nine months ended September 30, 2023, Ashford Trust paid approximately $0 and $525,000, respectively, to Lismore in nonrefundable work fees. The fees are included in “deferred income” in our condensed consolidated balance sheet and are recognized on a straight-line basis over the term of

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

the agreements. As of September 30, 2023, the Company had $360,000 of deferred income recorded related to these agreements.

The following table summarizes the revenues and expenses related to Ashford Trust (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
REVENUES BY TYPE
Advisory services fees:
Base advisory fees			$	8,121					$	8,855					$	24,839					$	26,202
Hotel management fees:
Base management fees			6,020						6,230						19,428						17,805
Incentive management fees			731						1,376						3,464						4,080
Total hotel management fees revenue (1)			6,751						7,606						22,892						21,885
Design and construction fees revenue (2)			4,532						3,065						12,771						7,881
Other revenue:
Watersports, ferry and excursion services (4)			21						74						58						198
Debt placement and related fees (5)			377						125						1,677						3,108
Cash management fees (6)			19						—						106						—
Claims management services (7)			3						—						4						15
Other services (8)			419						342						1,152						1,018
Total other revenue			839						541						2,997						4,339
Cost reimbursement revenue			70,196						61,687						206,857						181,613
Total revenues			$	90,439					$	81,754					$	270,356					$	241,920
REVENUES BY SEGMENT (9)
Advisory			$	12,096					$	12,221					$	36,799					$	37,381
Remington			69,490						66,888						208,728						189,375
Premier			6,125						5,593						17,927						13,073
INSPIRE			28						19						84						74
RED			33						79						95						208
OpenKey			30						29						89						93
Corporate and other (10)			2,637						(3,075)						6,634						1,716
Total revenues			$	90,439					$	81,754					$	270,356					$	241,920
COST OF REVENUES
Cost of revenues for audio visual (3)			$	2,012					$	1,833					$	7,205					$	5,506
SUPPLEMENTAL REVENUE INFORMATION
Audio visual revenue from guests at REIT properties (3)			$	4,502					$	4,267					$	16,785					$	12,903

________

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

(1)    Hotel management fees revenue is reported within our Remington segment. Base management fees and incentive management fees are recognized when services have been rendered. Remington receives base management fees of 3% of gross hotel revenue for managing the hotel employees and daily operations of the hotels, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). Remington receives an incentive management fee equal to the lessor of 1% of each hotel’s annual gross revenues or the amount by which the respective hotel’s gross operating profit exceeds the hotel’s budgeted gross operating profit. See note 3 for discussion of the hotel management fees revenue recognition policy.

(2)    Design and construction fees revenue primarily consists of revenue generated within our Premier segment by providing design, development, architectural, and project management services for which Premier receives fees. See note 3 for discussion of the design and construction fees revenue recognition policy.

(3)    INSPIRE primarily contracts directly with customers to whom they provide services. INSPIRE recognizes the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Ashford Trust, for INSPIRE are recognized in “cost of revenues for audio visual” in our condensed consolidated statements of operations. See note 3 for discussion of the revenue recognition policy.

(4)    Watersports, ferry and excursion services revenue includes revenue that is earned by RED for providing services directly to Ashford Trust rather than contracting with third-party customers.

(5)    Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services.

(6)    Cash management fees include revenue earned by providing active management and investment of Ashford Trust’s excess cash in short-term U.S. Treasury securities.

(7)    Claims management services include revenue earned from providing insurance claim assessment and administration services.

(8)    Other services revenue is primarily associated with other hotel products and services, such as mobile key applications and hypoallergenic premium rooms, provided to Ashford Trust by our consolidated subsidiaries, OpenKey and Pure Wellness.

(9)    See note 17 for discussion of segment reporting.

(10)    The Corporate and Other segment’s revenue includes cost reimbursement revenue from Ashford Trust’s capital contributions to Ashford Securities under the Third Amended and Restated Contribution Agreement between the Company, Ashford Trust and Braemar. Capital contributions are divided between the Company, Ashford Trust and Braemar based upon the actual amount of capital raised through Ashford Securities for each company which may result in increases or decreases to cost reimbursement revenue in any given reporting period. See discussion regarding Ashford Securities below.

Braemar—We are also a party to an amended and restated advisory agreement with Braemar and its operating subsidiary, Braemar Hospitality Limited Partnership (“Braemar OP”).

Premier is party to a master project management agreement with Braemar OP and Braemar TRS Corporation, a wholly owned subsidiary of Braemar OP, and certain of their affiliates to provide comprehensive and cost-effective design, development, architectural, and project management services and a related mutual exclusivity agreement with Braemar and Braemar OP.

Remington is party to a master hotel management agreement with Braemar TRS Corporation and certain of its affiliates to provide hotel management services. Braemar pays the Company a monthly hotel management fee equal to the greater of approximately $17,000 per hotel (increased annually based on consumer price index adjustments) or 3% of gross revenue (the “base fee”) as well as annual incentive hotel management fees, if certain operational criteria are met, and other general and administrative expense reimbursements. Braemar pays the base fee and reimburses all expenses for Remington-managed hotels on a weekly basis for the preceding week. Remington is also party to a mutual exclusivity agreement with Braemar and Braemar OP.

Lismore has certain agreements with Braemar to provide debt placement, modifications and refinancings of certain mortgage debt. Lismore’s fees are recognized based on a stated percentage of the loan amount when services have been rendered and the subject loan, modification or other transaction is closed.

During June 2023, Lismore entered into a 12-month agreement with Braemar to seek modifications or refinancings of certain mortgage debt held by Braemar. For the three and nine months ended September 30, 2023, Braemar paid approximately $0 and $150,000, respectively, to Lismore in nonrefundable work fees. The fees are included in “deferred income” in our

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

condensed consolidated balance sheet and are recognized on a straight-line basis over the term of the agreements. As of September 30, 2023, the Company had $100,000 of deferred income recorded related to the agreement.

The following table summarizes the revenues and expenses related to Braemar (in thousands):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
REVENUES BY TYPE
Advisory services fees:
Base advisory fees			$	3,393					$	3,269					$	10,700					$	9,435
Incentive advisory fees (1)			67						—						201						—
Other advisory revenue (2)			131						131						389						389
Total advisory services fees revenue			3,591						3,400						11,290						9,824
Hotel management fees:
Base management fees			670						715						1,883						2,210
Incentive management fees			—						123						—						587
Total hotel management fees revenue (3)			670						838						1,883						2,797
Design and construction fees revenue (4)			1,690						2,387						5,973						5,352
Other revenue:
Watersports, ferry and excursion services (6)			559						574						1,866						1,848
Debt placement and related fees (7)			1,337						—						1,448						190
Cash management fees (8)			15						—						107						—
Claims management services (9)			2						—						2						1
Other services (10)			49						56						210						128
Total other revenue			1,962						630						3,633						2,167
Cost reimbursement revenue			12,747						19,404						39,409						42,523
Total revenues			$	20,660					$	26,659					$	62,188					$	62,663
REVENUES BY SEGMENT (11)
Advisory			$	7,042					$	7,830					$	23,517					$	21,285
Remington			7,480						6,964						20,465						21,157
Premier			3,222						3,080						9,397						7,231
INSPIRE			26						19						75						60
RED			570						577						1,898						1,855
OpenKey			8						9						28						28
Corporate and other (12)			2,312						8,180						6,808						11,047
Total revenues			$	20,660					$	26,659					$	62,188					$	62,663
COST OF REVENUES (5)
Cost of revenues for audio visual			$	915					$	1,081					$	3,330					$	2,837
Other			364						272						1,415						717
SUPPLEMENTAL REVENUE INFORMATION
Audio visual revenues from guests at REIT properties (5)			$	2,276					$	2,549					$	8,291					$	6,858
Watersports, ferry and excursion services revenue from guests at REIT properties (5)			684						458						2,198						1,669

________

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(unaudited)

(1)    The incentive advisory fees for the three months and nine months ended September 30, 2023 includes the pro rata portion of the second year installment of the 2022 incentive advisory fee which will be paid in January 2024. Incentive fee payments are subject to meeting the December 31st FCCR Condition each year, as defined in our advisory agreements. The annual total stockholder return did not meet the relevant incentive fee thresholds during the 2021 measurement period.

(2)    In connection with our Fourth Amended and Restated Braemar Advisory Agreement, a $5.0 million cash payment was made by Braemar upon approval by Braemar’s stockholders, which is recognized over the 10-year initial term.

(3)    Hotel management fees revenue is reported within our Remington segment. Base management fees and incentive management fees are recognized when services have been rendered. Remington receives base management fees of 3% of gross hotel revenue for managing the hotel employees and daily operations of the hotels, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). Remington receives an incentive management fee equal to the lessor of 1% of each hotel’s annual gross revenues or the amount by which the respective hotel’s gross operating profit exceeds the hotel’s budgeted gross operating profit. See note 3 for discussion of the hotel management fees revenue recognition policy.

(4)    Design and construction fees revenue primarily consists of revenue generated within our Premier segment by providing design, development, architectural and project management services for which Premier receives fees. See note 3 for discussion of the design and construction fees revenue recognition policy.

(5)    INSPIRE and RED primarily contract directly with third-party customers to whom they provide services. INSPIRE and RED recognize the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Braemar, for INSPIRE and RED are recognized in “cost of revenues for audio visual” and “other” operating expense, respectively, in our condensed consolidated statements of operations. See note 3 for discussion of the revenue recognition policy.

(6)    Watersports, ferry and excursion services revenue includes revenue that is earned by RED for providing services directly to Braemar rather than contracting with third-party customers.

(7)    Debt placement and related fees are earned by Lismore for providing debt placement, modification and refinancing services.

(8)    Cash management fees include revenue earned by providing active management and investment of Braemar’s excess cash in short-term U.S. Treasury securities.

(9)    Claims management services include revenue earned from providing insurance claim assessment and administration services.

(10)    Other services revenue is primarily associated with other hotel products and services, such as mobile key applications and hypoallergenic premium rooms, provided to Braemar by our consolidated subsidiaries, OpenKey and Pure Wellness.

(11)    See note 17 for discussion of segment reporting.

(12)    The Corporate and Other segment’s revenue includes cost reimbursement revenue from Braemar’s capital contributions to Ashford Securities under the Third Amended and Restated Contribution Agreement between the Company, Ashford Trust and Braemar. Capital contributions are divided between the Company, Ashford Trust and Braemar based upon the actual amount of capital raised through Ashford Securities for each company which may result in increases or decreases to cost reimbursement revenue in any given reporting period. See discussion regarding Ashford Securities below.

Ashford Securities—On December 31, 2020, the Company entered into an Amended and Restated Contribution Agreement with the Parties with respect to funding certain expenses of Ashford Securities. Beginning on the effective date of the Amended and Restated Contribution Agreement, costs to fund the operations of Ashford Securities were allocated 50% to the Company, 50% to Braemar and 0% to Ashford Trust. Upon reaching the Amended and Restated True-Up Date, there will be a true-up among the Parties whereby the actual amount contributed by each Party will be based on the actual amount of capital raised by such Party through Ashford Securities (the resulting ratio of contributions among the Parties, the “Initial True-Up Ratio”). On January 27, 2022, the Parties entered into a Second Amended and Restated Contribution Agreement which provided for an additional $18 million in aggregate contributions to Ashford Securities allocated 10% to the Company, 45% to Ashford Trust and 45% to Braemar. On February 3, 2023, the Amended and Restated True-Up Date occurred and, on March 30, 2023, Braemar paid the Company $8.7 million for Braemar’s portion of their contributions to fund Ashford Securities as calculated under the Initial True-Up Ratio. The $8.7 million payment consisted of $2.5 million and $6.2 million for the Company’s and Ashford Trust’s prior contributions made to Ashford Securities, respectively, which were owed by Braemar as calculated under the Initial True-Up Ratio. On March 30, 2023, the Company paid Ashford Trust $6.2 million.

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(unaudited)

On February 1, 2023, the Parties entered into a Third Amended and Restated Contribution Agreement. The Third Amended and Restated Contribution Agreement states that after reaching the Amended and Restated True-Up Date capital contributions for the remainder of fiscal year 2023 will be divided between each Party based on the actual amount of capital raised by such Party through Ashford Securities. Thereafter on a yearly basis at year-end, starting with the year-end of 2023, there will be a true-up between the Parties whereby there will be adjustments so that the capital contributions made by each Party will be based on the cumulative amount of capital raised by each Party through Ashford Securities as a percentage of the total amount raised by the Parties collectively through Ashford Securities since June 19, 2019 (the resulting ratio of capital contributions among the Company, Ashford Trust and Braemar following this true-up, the “Cumulative Ratio”). Thereafter, the capital contributions will be divided among each Party in accordance with the Cumulative Ratio, as recalculated at the end of each year.

As of September 30, 2023, Ashford Trust and Braemar had funded approximately $166,000 and $19.4 million, respectively. The Company recognized cost reimbursement revenue from Ashford Trust in our condensed consolidated statements of operations of $1.9 million and $3.9 million for the three and nine months ended September 30, 2023, respectively, and recognized a reduction to cost reimbursement revenue of $3.5 million and $2.3 million for the three and nine months ended September 30, 2022, respectively. The Company recognized cost reimbursement revenue from Braemar in our condensed consolidated statements of operations of $938,000 and $5.2 million for the three and nine months ended September 30, 2023, respectively, and $8.1 million and $10.8 million for the three and nine months ended September 30, 2022, respectively. Cost reimbursement revenue for the three and nine months ended September 30, 2023 includes $572,000 and $1.4 million of dealer manager fees earned by Ashford Securities for the placement of Ashford Trust’s non-listed preferred equity offerings, respectively. Cost reimbursement revenue for the three and nine months ended September 30, 2023 includes $2.0 million of dealer manager fees earned by Ashford Securities for the placement of Braemar’s non-listed preferred equity offerings.

Expiration of Ashford Trust ERFP Agreement Related Leases—On June 26, 2018, the Company entered into an Enhanced Return Funding Program Agreement with Ashford Trust (the “Ashford Trust ERFP Agreement”). Although the Ashford Trust ERFP Agreement expired in accordance with its terms on June 26, 2021, certain obligations of the parties survived. In the first quarter of 2022, Ashford Trust purchased furniture, fixtures and equipment (“FF&E”) with a net book value of $1.1 million from the Company at the fair market value of $406,000 upon expiration of the underlying leases of the FF&E under the Ashford Trust ERFP Agreement. The Company recorded a loss on sale of the FF&E of $706,000 which is included within “other” operating expense in our condensed consolidated statement of operations for the nine months ended September 30, 2022.

In the fourth quarter of 2022, Ashford Trust purchased FF&E with a net book value of $3.1 million from the Company at the fair market value of $1.0 million upon expiration of the underlying leases of the FF&E under the Ashford Trust ERFP Agreement. The Company recognized a $1.0 million outstanding receivable which is recorded in “due from Ashford Trust” in our condensed consolidated balance sheet as of September 30, 2023.

In the first quarter of 2023, Ashford Trust purchased FF&E with a net book value of $1.5 million from the Company at the fair market value of $450,000 upon expiration of the underlying leases of the FF&E under the Ashford Trust ERFP Agreement. The Company recognized a $450,000 outstanding receivable which is recorded in “due from Ashford Trust” in our condensed consolidated balance sheet as of September 30, 2023. The Company recorded a loss on the sale of the FF&E of $1.0 million which is included within “other” operating expense in our condensed consolidated statement of operations for the nine months ended September 30, 2023.

Other Related Party Transactions—On January 3, 2023, the Company acquired RHC, an affiliate owned by Mr. Monty J. Bennett, our Chairman and Chief Executive Officer and the Chairman of Ashford Trust and Braemar, and his father, Mr. Archie Bennett, Jr., Chairman Emeritus of Ashford Trust, from which the Company leases the offices for our corporate headquarters in Dallas, Texas. The purchase price paid was de minimis. We accounted for this transaction as an asset acquisition because substantially all of the fair value of the gross assets acquired was concentrated in a group of similar identifiable assets. Upon the acquisition date, the operating lease asset and corresponding operating lease liability of $17.2 million associated with the Company’s lease with RHC was eliminated upon consolidation.

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(unaudited)

The following table summarizes the assets and liabilities acquired by the Company on the asset acquisition date (in thousands):

			January 3, 2023
Restricted cash			$	849
Property and equipment, net			2,183
Operating lease right-of-use assets			15,017
Total assets acquired			18,049
Operating lease liabilities			17,200
Other liabilities			849
Total assumed liabilities			18,049
Net assets acquired			$	—

On March 2, 2023, the Company entered into a Limited Waiver Under Advisory Agreement (the “2023 Braemar Limited Waiver”) with Braemar, Braemar OP, and Braemar TRS and a Limited Waiver Under Advisory Agreement (the “2023 Ashford Trust Limited Waiver” and, together with the 2023 Braemar Limited Waiver, the “2023 Limited Waivers”) with Ashford Trust, Ashford Trust OP, and Ashford Trust TRS. Pursuant to the 2023 Limited Waivers, the parties to the Second Amended and Restated Advisory Agreement with Ashford Trust and the Fifth Amended and Restated Advisory Agreement with Braemar waive the operation of any provision of such agreement that would otherwise limit the ability of Ashford Trust or Braemar, as applicable, in its discretion, at its cost and expense, to award during the first and second fiscal quarters of calendar year 2023 (the “2023 Waiver Period”), cash incentive compensation to employees and other representatives of the Company; provided that, pursuant to the 2023 Ashford Trust Limited Waiver, such awarded cash incentive compensation does not exceed $13.1 million, in the aggregate, during the 2023 Waiver Period.

Ashford Inc.’s Risk Management department collects funds from the Ashford Trust and Braemar properties and their respective management companies in an amount equal to the actuarial forecast of that year’s expected casualty claims and associated fees. These funds are deposited into restricted cash and used to pay casualty claims throughout the year as they are incurred. The claim liability related to the restricted cash balance is included in current “other liabilities” in our condensed consolidated balance sheets. See note 2.

As of September 30, 2023 and December 31, 2022, Ashford Trust held a 15.06% noncontrolling interest in OpenKey, and Braemar held a 7.92% noncontrolling interest in OpenKey.

The Company or its affiliates provide to the Bennetts or their permitted designees certain services, including, but not limited to, accounting, tax and administrative services pursuant to that certain Transition Cost Sharing Agreement entered into on November 6, 2019 in connection with Company’s acquisition of Remington from the Bennetts. The gross amount of expenses and reimbursements for these transition services for the three and nine months ended September 30, 2023 was $115,000 and $316,000, respectively. The gross amount of expenses and reimbursements for these transition services for the three and nine months ended September 30, 2022 was $100,000 and $290,000, respectively. The expenses and reimbursements for transition services are recorded on a net basis and, therefore, the reimbursed activity does not impact our condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022.

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(unaudited)

16. Income (Loss) Per Share

The following table reconciles the amounts used in calculating basic and diluted income (loss) per share (in thousands, except per share amounts):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Net income (loss) attributable to common stockholders – basic and diluted:
Net income (loss) attributable to the Company			$	(2,991)					$	(989)					$	(100)					$	5,441
Less: Dividends on preferred stock, declared and undeclared (1)			(9,054)						(9,029)						(27,132)						(27,422)
Undistributed net income (loss) allocated to common stockholders			(12,045)						(10,018)						(27,232)						(21,981)
Distributed and undistributed net income (loss) - basic			$	(12,045)					$	(10,018)					$	(27,232)					$	(21,981)
Effect of deferred compensation plan			—						—						(1,509)						(620)
Distributed and undistributed net income (loss) - diluted			$	(12,045)					$	(10,018)					$	(28,741)					$	(22,601)
Weighted average common shares outstanding:
Weighted average common shares outstanding – basic			3,116						2,960						3,065						2,895
Effect of deferred compensation plan shares			—						—						65						65
Weighted average common shares outstanding – diluted			3,116						2,960						3,130						2,960
Income (loss) per share – basic:
Net income (loss) allocated to common stockholders per share			$	(3.87)					$	(3.38)					$	(8.88)					$	(7.59)
Income (loss) per share – diluted:
Net income (loss) allocated to common stockholders per share			$	(3.87)					$	(3.38)					$	(9.18)					$	(7.64)

________

(1)    Undeclared dividends were deducted to arrive at net income (loss) attributable to common stockholders. See note 12.

Due to their anti-dilutive effect, the computation of diluted income (loss) per share does not reflect the adjustments for the following items (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Net income (loss) allocated to common stockholders is not adjusted for:
Net income (loss) attributable to redeemable noncontrolling interests in Ashford Holdings			$	111					$	158					$	399					$	290
Net income (loss) attributable to subsidiary convertible interests			46						—						542						—
Dividends on preferred stock, declared and undeclared			9,054						9,029						27,132						27,422
Total			$	9,211					$	9,187					$	28,073					$	27,712
Weighted average diluted shares are not adjusted for:
Effect of unvested restricted shares			13						82						18						87
Effect of assumed conversion of Ashford Holdings units			97						89						96						56
Effect of conversion of subsidiary interests			463						125						336						116
Effect of assumed conversion of preferred stock			4,234						4,258						4,230						4,289
Total			4,807						4,554						4,680						4,548

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(unaudited)

17. Segment Reporting

Our operating segments include: (a) Advisory, which provides asset management and advisory services to other entities; (b) Remington, which provides hotel management services; (c) Premier, which provides comprehensive and cost-effective design, development, architectural, and project management services; (d) INSPIRE, which provides event technology and creative communications solutions services; (e) OpenKey, a hospitality focused mobile key platform that provides a universal smartphone app for keyless entry into hotel guest rooms; (f) RED, a provider of watersports activities and other travel and transportation services; and (g) Pure Wellness, which provides hypoallergenic premium rooms in the hospitality and commercial office industry. For 2023, Premier, OpenKey, RED, and Pure Wellness do not meet the aggregation criteria or the quantitative thresholds to individually qualify as reportable segments. However, we have elected to disclose Premier, RED and OpenKey as reportable segments. Accordingly, we have six reportable segments: Advisory, Remington, Premier, INSPIRE, RED and OpenKey. We combine the operating results of Pure Wellness and, for the three and nine months ended September 30, 2022, Marietta, into an “all other” seventh reportable segment, which we refer to as “Corporate and Other.” See note 3 for details of our segments’ material revenue generating activities.

Our chief operating decision maker’s (“CODM”) primary measure of segment profitability is net income. Our CODM currently reviews assets at the consolidated level and does not currently review segment assets to make key decisions on resource allocations. Since such asset information by segment is not reviewed by our CODM, segment assets are not available for disclosure.

Certain information concerning our segments for the three and nine months ended September 30, 2023 and 2022 are presented in the following tables (in thousands). Consolidated subsidiaries are reflected as of their respective acquisition dates or as of the date we were determined to be the primary beneficiary of variable interest entities.

			Three Months Ended September 30, 2023
			Advisory						Remington						Premier						INSPIRE						RED						OpenKey						Corporate and Other						Ashford Inc. Consolidated
REVENUE
Advisory services			$	11,712					$	—					$	—					$	—					$	—					$	—					$	—					$	11,712
Hotel management			—						12,391						—						—						—						—						—						12,391
Design and construction fees			—						—						7,430						—						—						—						—						7,430
Audio visual			—						—						—						30,641						—						—						—						30,641
Other			40						—						—						—						8,375						373						2,387						11,175
Cost reimbursement revenue (1)			7,386						94,421						3,175						53						23						—						2,808						107,866
Total revenues			19,138						106,812						10,605						30,694						8,398						373						5,195						181,215
EXPENSES
Depreciation and amortization			368						3,006						2,882						490						308						3						27						7,084
Other operating expenses (2)			—						7,936						4,700						31,615						8,130						1,163						12,114						65,658
Reimbursed expenses (1)			7,389						94,421						3,175						53						23						—						2,808						107,869
Total operating expenses			7,757						105,363						10,757						32,158						8,461						1,166						14,949						180,611
OPERATING INCOME (LOSS)			11,381						1,449						(152)						(1,464)						(63)						(793)						(9,754)						604
Equity in earnings (loss) of unconsolidated entities			—						—						—						—						—						—						(327)						(327)
Interest expense			—						—						—						(438)						(445)						(7)						(2,760)						(3,650)
Amortization of loan costs			—						—						—						(42)						(10)						—						(217)						(269)
Interest income			—						44						—						—						—						—						478						522
Realized gain (loss) on investments			—						(80)						—						—						—						—						—						(80)
Other income (expense)			—						13						—						(85)						—						(3)						—						(75)
INCOME (LOSS) BEFORE INCOME TAXES			11,381						1,426						(152)						(2,029)						(518)						(803)						(12,580)						(3,275)
Income tax (expense) benefit			(2,780)						(314)						8						907						263						—						2,121						205
NET INCOME (LOSS)			$	8,601					$	1,112					$	(144)					$	(1,122)					$	(255)					$	(803)					$	(10,459)					$	(3,070)

________

(1)    Our segments are reported net of eliminations upon consolidation. Approximately $2.8 million of hotel management fees revenue, cost reimbursement revenue and reimbursed expenses were eliminated in consolidation primarily for overhead expenses reimbursed to Remington including rent, payroll, office supplies, travel and accounting.

(2)    Other operating expenses includes salaries and benefits, costs of revenues for design and construction, cost of revenues for audio visual, general and administrative expenses and other expenses.

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(unaudited)

			Nine Months Ended September 30, 2023
			Advisory						Remington						Premier						INSPIRE						RED						OpenKey						Corporate and Other						Ashford Inc. Consolidated
REVENUE
Advisory services fees			$	36,129					$	—					$	—					$	—					$	—					$	—					$	—					$	36,129
Hotel management fees			—						39,456						—						—						—						—						—						39,456
Design and construction fees			—						—						21,964						—						—						—						—						21,964
Audio visual			—						—						—						112,347						—						—						—						112,347
Other			220						3						—						—						25,797						1,184						4,853						32,057
Cost reimbursement revenue (1)			23,967						274,995						8,816						159						69						—						9,088						317,094
Total revenues			60,316						314,454						30,780						112,506						25,866						1,184						13,941						559,047
EXPENSES
Depreciation and amortization			1,253						8,836						8,648						1,420						775						9						133						21,074
Other operating expenses (2)			1,032						24,324						14,227						104,425						23,412						3,891						37,870						209,181
Reimbursed expenses (1)			23,896						274,995						8,816						159						69						—						9,088						317,023
Total operating expenses			26,181						308,155						31,691						106,004						24,256						3,900						47,091						547,278
OPERATING INCOME (LOSS)			34,135						6,299						(911)						6,502						1,610						(2,716)						(33,150)						11,769
Equity in earnings (loss) of unconsolidated entities			—						—						—						—						—						—						(1,174)						(1,174)
Interest expense			—						—						—						(1,109)						(1,138)						(12)						(7,650)						(9,909)
Amortization of loan costs			—						—						—						(121)						(30)						—						(624)						(775)
Interest income			—						99						—						—						—						—						1,140						1,239
Realized gain (loss) on investments			—						(160)						—						—						—						—						—						(160)
Other income (expense)			—						84						—						(155)						422						(64)						(28)						259
INCOME (LOSS) BEFORE INCOME TAXES			34,135						6,322						(911)						5,117						864						(2,792)						(41,486)						1,249
Income tax (expense) benefit			(8,244)						(1,531)						182						(3,000)						(16)						—						10,967						(1,642)
NET INCOME (LOSS)			$	25,891					$	4,791					$	(729)					$	2,117					$	848					$	(2,792)					$	(30,519)					$	(393)

________

(1)    Our segments are reported net of eliminations upon consolidation. Approximately $8.8 million of hotel management fees revenue, cost reimbursement revenue and reimbursed expenses were eliminated in consolidation primarily for overhead expenses reimbursed to Remington including rent, payroll, office supplies, travel and accounting.

(2)    Other operating expenses includes salaries and benefits, costs of revenues for design and construction, cost of revenues for audio visual, general and administrative expenses and other expenses.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

			Three Months Ended September 30, 2022
			Advisory						Remington						Premier						INSPIRE						RED						OpenKey						Corporate and Other						Ashford Inc. Consolidated
REVENUE
Advisory services fees			$	12,255					$	—					$	—					$	—					$	—					$	—					$	—					$	12,255
Hotel management fees			—						12,876						—						—						—						—						—						12,876
Design and construction fees			—						—						6,276						—						—						—						—						6,276
Audio visual			—						—						—						26,159						—						—						—						26,159
Other			—						—						—						—						6,608						389						3,394						10,391
Cost reimbursement revenue (1)			7,798						80,880						3,306						38						8						—						4,621						96,651
Total revenues			20,053						93,756						9,582						26,197						6,616						389						8,015						164,608
EXPENSES
Depreciation and amortization			853						3,288						2,978						418						175						3						381						8,096
Other operating expenses (2)			—						6,971						3,071						25,571						5,895						1,362						14,271						57,141
Reimbursed expenses (1)			7,723						80,880						3,306						38						8						—						4,621						96,576
Total operating expenses			8,576						91,139						9,355						26,027						6,078						1,365						19,273						161,813
OPERATING INCOME (LOSS)			11,477						2,617						227						170						538						(976)						(11,258)						2,795
Equity in earnings (loss) of unconsolidated entities			—						—						—						—						—						—						(147)						(147)
Interest expense			—						—						—						(345)						(195)						—						(2,426)						(2,966)
Amortization of loan costs			—						—						—						(23)						(10)						—						(186)						(219)
Interest income			—						38						—						—						—						—						38						76
Realized gain (loss) on investments			—						(3)						—						—						—						—						—						(3)
Other income (expense)			—						18						—						(91)						(1)						—						52						(22)
INCOME (LOSS) BEFORE INCOME TAXES			11,477						2,670						227						(289)						332						(976)						(13,927)						(486)
Income tax (expense) benefit			(2,849)						(256)						(112)						53						192						—						2,355						(617)
NET INCOME (LOSS)			$	8,628					$	2,414					$	115					$	(236)					$	524					$	(976)					$	(11,572)					$	(1,103)

________

(1)    Our segments are reported net of eliminations upon consolidation. Approximately $3.5 million of hotel management fees revenue, cost reimbursement revenue and reimbursed expenses were eliminated in consolidation primarily for overhead expenses reimbursed to Remington including rent, payroll, office supplies, travel and accounting.

(2)    Other operating expenses includes salaries and benefits, costs of revenues for design and construction, cost of revenues for audio visual, general and administrative expenses and other expenses

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Table of Contents

ASHFORD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

			Nine Months Ended September 30, 2022
			Advisory						Remington						Premier						INSPIRE						RED						OpenKey						Corporate and Other						Ashford Inc. Consolidated
REVENUE
Advisory services fees			$	36,026					$	—					$	—					$	—					$	—					$	—					$	—					$	36,026
Hotel management fees			—						33,474						—						—						—						—						—						33,474
Design and construction fees			—						—						15,538						—						—						—						—						15,538
Audio visual			—						—						—						87,101						—						—						—						87,101
Other			16						181						—						—						20,337						1,180						12,188						33,902
Cost reimbursement revenue (1)			22,626						221,407						7,355						134						17						4						8,436						259,979
Total revenues			58,668						255,062						22,893						87,235						20,354						1,184						20,624						466,020
EXPENSES
Depreciation and amortization			2,558						9,107						8,914						1,358						501						9						1,293						23,740
Other operating expenses (2)			706						17,216						9,787						76,377						16,633						4,024						39,792						164,535
Reimbursed expenses (1)			22,312						221,407						7,355						134						17						4						8,436						259,665
Total operating expenses			25,576						247,730						26,056						77,869						17,151						4,037						49,521						447,940
OPERATING INCOME (LOSS)			33,092						7,332						(3,163)						9,366						3,203						(2,853)						(28,897)						18,080
Equity in earnings (loss) of unconsolidated entities			—						—						—						—						—						—						110						110
Interest expense			—						—						—						(860)						(537)						—						(5,384)						(6,781)
Amortization of loan costs			—						—						—						(93)						(41)						—						(390)						(524)
Interest income			—						145						—						—						—						—						50						195
Realized gain (loss) on investments			—						(74)						—						—						—						—						—						(74)
Other income (expense)			—						18						—						(95)						(41)						4						(20)						(134)
INCOME (LOSS) BEFORE INCOME TAXES			33,092						7,421						(3,163)						8,318						2,584						(2,849)						(34,531)						10,872
Income tax (expense) benefit			(8,196)						(251)						(678)						(3,318)						(680)						—						7,152						(5,971)
NET INCOME (LOSS)			$	24,896					$	7,170					$	(3,841)					$	5,000					$	1,904					$	(2,849)					$	(27,379)					$	4,901

________

(1)    Our segments are reported net of eliminations upon consolidation. Approximately $9.6 million of hotel management fees revenue, cost reimbursement revenue and reimbursed expenses were eliminated in consolidation primarily for overhead expenses reimbursed to Remington including rent, payroll, office supplies, travel and accounting.

(2)    Other operating expenses includes salaries and benefits, costs of revenues for design and construction, cost of revenues for audio visual, general and administrative expenses and other expenses.

18. Subsequent Events

On November 9, 2023, the Company drew the remaining balance available under the Credit Facility of $13.0 million.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

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 to Ashford Inc., a Nevada corporation, and, as the context may require, its consolidated subsidiaries, including Ashford Hospitality Advisors LLC, a Delaware limited liability company, which we refer to as “Ashford LLC” or “our operating company” Ashford Hospitality Holdings LLC, a Delaware limited liability company, which we refer to as “Ashford Holdings” or “AHH” Ashford Hospitality Services LLC, a Delaware limited liability company, which we refer to as “Ashford Services” Premier Project Management LLC, a Maryland limited liability company, which we refer to as “Premier Project Management” or “Premier” and Remington Lodging & Hospitality, LLC, a Delaware limited liability company, which we refer to as “Remington.”“Braemar” refers to Braemar Hotels & Resorts Inc., a Maryland corporation, and, as the context may require, its consolidated subsidiaries, including Braemar Hospitality Limited Partnership, a Delaware limited partnership, which we refer to as “Braemar OP.” “Ashford Trust” or “AHT” refers to Ashford Hospitality Trust, Inc., a Maryland corporation, and, as the context may require, its consolidated subsidiaries, including Ashford Hospitality Limited Partnership, a Delaware limited partnership and Ashford 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: 

•our business and investment strategy;

•our projected operating results;

•our ability to obtain future financing arrangements;

•our ability to maintain compliance with the NYSE American continued listing standards;

•our understanding of our competition;

•the future success of recent acquisitions;

•the future demand for our services;

•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 factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 17, 2023, 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;” as updated in our subsequent Quarterly Reports on Form 10-Q and other filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”);

•changes in interest rates;

•macroeconomic conditions, such as a prolonged period of weak economic growth, inflation and volatility in capital markets;

•uncertainty in the banking sector and market volatility due to the recent failures of Silicon Valley Bank, New York Signature Bank and First Republic Bank;

•extreme weather conditions may cause property damage or interrupt business;

•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;

•uncertainty associated with the ability of the Company to remain in compliance with all covenants in our credit agreements and our subsidiaries to remain in compliance with the covenants of their debt and related agreements;

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•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 between Ashford 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 possibility that we may not realize any or all of the anticipated benefits from transactions to acquire businesses;

•the possibility that we may not realize any or all of the anticipated benefits from our business initiatives;

•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 Alii Nui and Chesapeake 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 Alii Nui, Chesapeake 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.

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Overview

Ashford Inc., a Nevada corporation, is an alternative asset management company with a portfolio of strategic operating businesses that provides products and services primarily to clients in the real estate and hospitality industries, including Ashford Trust and Braemar. We became a public company in November 2014, and our common stock is listed on the NYSE American. As of November 9, 2023, Mr. Monty J. Bennett, Ashford Inc.’s Chairman and Chief Executive Officer and the Chairman of Ashford Trust and Braemar, and his father, Mr. Archie Bennett, Jr., Chairman Emeritus of Ashford Trust, hold a controlling interest in Ashford Inc. The Bennetts owned approximately 610,261 shares of our common stock, which represented an approximately 19.0% ownership interest in Ashford Inc., and owned 18,758,600 shares of our Series D Convertible Preferred Stock (the “Series D Convertible Preferred Stock”), which, along with all unpaid accrued and accumulated dividends thereon, is convertible at a price of $117.50 per share into an additional approximate 4,155,317 shares of Ashford Inc. common stock, which if converted as of November 9, 2023 would have increased Mr. Monty J. Bennett and Mr. Archie Bennett, Jr.’s ownership interest in Ashford Inc. to approximately 64.7%.

We provide: (i) advisory services; (ii) asset management services; (iii) hotel management services; (iv) design and construction 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 through Ashford 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 for Ashford Trust and Braemar. In our capacity as the advisor to Ashford Trust and Braemar, we are responsible for implementing the investment strategies and managing the day-to-day operations of Ashford 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 of Ashford Trust and Braemar. Ashford Trust is focused on investing in full-service hotels in the upscale and upper upscale segments in the United States that have RevPAR generally less than twice the U.S. national average. Braemar invests primarily in luxury hotels and resorts with RevPAR of at least twice the U.S. national average. Each of Ashford Trust and Braemar is a REIT as defined in the Internal Revenue Code, and the common stock of each of Ashford Trust and Braemar is traded on the NYSE.

We provide the personnel and services that we believe are necessary for each of Ashford Trust and Braemar to conduct their respective businesses. We may also perform similar functions for new or additional platforms. In our capacity as an advisor, we are not responsible for managing the day-to-day operations of Ashford Trust or Braemar’s individual hotel properties, which duties are, and will continue to be, the responsibility of the hotel management companies that operate such hotel properties. Additionally, Remington, a subsidiary of the Company, operates certain hotel properties for Ashford Trust, Braemar and third parties. As of September 30, 2023, Remington provided hotel management services to 121 properties, 49 of which were owned by third parties.

Recent Developments

On August 21, 2023, the Company invested $2.5 million to acquire 51% of the equity of the Texas Strategic Growth Fund, L.P. (“TSGF L.P.”), a fund which provides a growth-oriented investment product focused on commercial real estate in the State of Texas. The Company consolidated TSGF L.P. as of the investment date as management concluded TSGF L.P. is a variable interest entity (“VIE”) for which the Company is considered the primary beneficiary. Our interests in TSGF L.P. were accounted for as an asset acquisition. The approximately $5.0 million of total assets consolidated include an investment of $4.5 million, $274,000 of cash and cash equivalents and other immaterial assets related to working capital.

Amended and Restated Bylaws

On August 24, 2023, the Board of Directors (the “Board”) of the Company approved amendments to the Amended and Restated Bylaws of the Company (the “Bylaws”), effective immediately. The amendments to the Bylaws provide, among other things, that:

•the notice to be furnished to the Company by a stockholder seeking to bring a proposed director nomination before a meeting of the Company’s stockholders must include the information required pursuant to Rule 14a-19(b) under the “Exchange Act”, if the stockholder intends to engage in a solicitation in support of director nominees other than the Company’s nominees;

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•no stockholder may solicit proxies in support of any nominees other than individuals nominated by the Board unless such stockholder has complied with Rule 14a-19 under the Exchange Act in connection with the solicitation of such proxies, including the provision to the Company of notices required thereunder in a timely manner;

•if any stockholder provides notice pursuant to Rule 14a-19(b) under the Exchange Act and subsequently fails to comply with any of the requirements of Rule 14a-19 under the Exchange Act, then the Company will disregard any proxies or votes solicited for such stockholder’s nominee; and

•at the request of the Company, if any stockholder provides notice pursuant to Rule 14a-19(b) under the Exchange Act, such stockholder must deliver to the Company, no later than five business days prior to the applicable meeting of stockholders, reasonable evidence that such stockholder has met the requirements of Rule 14a-19 under the Exchange Act.

In addition, the amendments to the Bylaws include enhancements to certain advance notice procedures and disclosure requirements for a stockholder nomination of directors and the submission of proposals for consideration at annual meetings of the stockholders of the Company (other than proposals to be included in the Company’s proxy statement pursuant to Rule 14a-8 of the Exchange Act).

Change in Control

On August 8, 2023, the 40% voting cap under the Investor Rights Agreement, dated November 6, 2019 and entered into by and among the Company, Mr. Archie Bennett Jr. and Mr. Monty J. Bennett (the “Bennetts”) and other holders of the Company’s Series D Convertible Preferred Stock (the “Investor Rights Agreement”), expired. As a result, the Bennetts may now vote their full ownership interests in the Company as they determine at their sole discretion. Upon the expiration of the voting cap, the Bennetts controlled a majority of the Company’s voting securities, resulting in a change of control of the Company. As of August 8, 2023, the Bennetts owned approximately 610,261 shares of our common stock and owned 18,758,600 shares of our Series D Convertible Preferred Stock (the “Series D Convertible Preferred Stock”), which, along with all unpaid accrued and accumulated dividends thereon, is convertible at a price of $117.50 per share into approximately 4,152,301 shares of Ashford Inc. common stock, resulting in a combined ownership interest in Ashford Inc. of approximately 64.6%. The Company elected the accounting policy option as allowed under ASC 805, Business Combinations, to continue to use Ashford Inc.’s historical accounting basis rather than apply pushdown accounting.

Discussion of Presentation

The discussion below relates to the financial condition and results of operations of Ashford 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.

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RESULTS OF OPERATIONS

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The following table summarizes the changes in key line items from our condensed consolidated statements of operations for the three months ended September 30, 2023 and 2022 (in thousands):

						Three Months Ended September 30,												Favorable (Unfavorable)
						2023						2022						$ Change						% Change
REVENUE
Advisory services fees						$	11,712					$	12,255					$	(543)					(4.4)		%
Hotel management fees						12,391						12,876						(485)						(3.8)		%
Design and construction fees						7,430						6,276						1,154						18.4		%
Audio visual						30,641						26,159						4,482						17.1		%
Other						11,175						10,391						784						7.5		%
Cost reimbursement revenue						107,866						96,651						11,215						11.6		%
Total revenues						181,215						164,608						16,607						10.1		%
EXPENSES
Salaries and benefits						22,728						21,328						(1,400)						(6.6)		%
Cost of revenues for design and construction						2,975						1,789						(1,186)						(66.3)		%
Cost of revenues for audio visual						23,876						19,884						(3,992)						(20.1)		%
Depreciation and amortization						7,084						8,096						1,012						12.5		%
General and administrative						10,702						8,390						(2,312)						(27.6)		%
Other						5,377						5,750						373						6.5		%
Reimbursed expenses						107,869						96,576						(11,293)						(11.7)		%
Total expenses						180,611						161,813						(18,798)						(11.6)		%
OPERATING INCOME (LOSS)						604						2,795						(2,191)						(78.4)		%
Equity in earnings (loss) of unconsolidated entities						(327)						(147)						(180)						(122.4)		%
Interest expense						(3,650)						(2,966)						(684)						(23.1)		%
Amortization of loan costs						(269)						(219)						(50)						(22.8)		%
Interest income						522						76						446						586.8		%
Realized gain (loss) on investments						(80)						(3)						(77)						(2,566.7)		%
Other income (expense)						(75)						(22)						(53)						(240.9)		%
INCOME (LOSS) BEFORE INCOME TAXES						(3,275)						(486)						(2,789)						(573.9)		%
Income tax (expense) benefit						205						(617)						822						133.2		%
NET INCOME (LOSS)						(3,070)						(1,103)						(1,967)						(178.3)		%
Net (income) loss from consolidated entities attributable to noncontrolling interests						190						272						(82)						(30.1)		%
Net (income) loss attributable to redeemable noncontrolling interests						(111)						(158)						47						29.7		%
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY						(2,991)						(989)						(2,002)						(202.4)		%
Preferred dividends, declared and undeclared						(9,054)						(9,029)						(25)						(0.3)		%
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS						$	(12,045)					$	(10,018)					$	(2,027)					(20.2)		%

Net Income (Loss) Attributable to Common Stockholders. Net income (loss) attributable to common stockholders changed $2.0 million, or 20.2%, to a $12.0 million loss for the three months ended September 30, 2023 (the “2023 quarter”) compared to a $10.0 million loss for the three months ended September 30, 2022 (the “2022 quarter”) as a result of the factors discussed below.

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Total Revenues. Total revenues increased $16.6 million, or 10.1%, to $181.2 million for the 2023 quarter compared to the 2022 quarter due to the following (in thousands):

			Three Months Ended September 30,												Favorable (Unfavorable)
			2023						2022						$ Change						% Change
Advisory services fees:
Base advisory fees (1)			$	11,514					$	12,124					$	(610)					(5.0)		%
Incentive advisory fees (2)			67						—						67
Other advisory revenue (3)			131						131						—						—		%
Total advisory services fees revenue			11,712						12,255						(543)						(4.4)		%
Hotel management fees:
Base management fees			9,159						9,285						(126)						(1.4)		%
Incentive management fees			925						2,242						(1,317)						(58.7)		%
Other management fees			2,307						1,349						958						71.0		%
Total hotel management fees revenue (4)			12,391						12,876						(485)						(3.8)		%
Design and construction fees revenue (5)			7,430						6,276						1,154						18.4		%
Audio visual revenue (6)			30,641						26,159						4,482						17.1		%
Other revenue:
Watersports, ferry and excursion services (7)			8,375						6,608						1,767						26.7		%
Debt placement and related fees (8)			1,714						125						1,589						1,271.2		%
Cash management fees (9)			34						—						34
Claims management services (10)			5						—						5
Other services (11)			1,047						3,658						(2,611)						(71.4)		%
Total other revenue			11,175						10,391						784						7.5		%
Cost reimbursement revenue (12)			107,866						96,651						11,215						11.6		%
Total revenues			$	181,215					$	164,608					$	16,607					10.1		%
REVENUES BY SEGMENT (13)
Advisory			$	19,138					$	20,053					$	(915)					(4.6)		%
Remington			106,812						93,756						13,056						13.9		%
Premier			10,605						9,582						1,023						10.7		%
INSPIRE			30,694						26,197						4,497						17.2		%
RED			8,398						6,616						1,782						26.9		%
OpenKey			373						389						(16)						(4.1)		%
Corporate and other			5,195						8,015						(2,820)						(35.2)		%
Total revenues			$	181,215					$	164,608					$	16,607					10.1		%

________

(1)The decrease in base advisory fee is primarily due to lower revenue of $734,000 from Ashford Trust offset by higher revenue of $124,000 from Braemar. See note 3 to our condensed consolidated financial statements for discussion of the advisory services revenue recognition policy.

(2)     The $67,000 of incentive advisory fees for the 2023 quarter includes the pro rata portion of the second year installment of the Braemar 2022 incentive advisory fee which will be paid in January 2024. Incentive fee payments are subject to meeting

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the December 31st FCCR Condition each year, as defined in our advisory agreements. Ashford Trust’s annual total stockholder return did not meet the relevant incentive fee thresholds during the 2022 and 2021 measurement periods. Braemar’s annual total stockholder return did not meet the relevant incentive fee thresholds during the 2021 measurement period.

(3)     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 in June 2017. The payment is included in “deferred income” on our condensed consolidated balance sheet and is being recognized evenly over the initial 10-year term of the agreement.

(4)     The decrease in hotel management fees revenue is primarily due to lower incentive management fees from Ashford Trust, Braemar and third parties of $645,000, $123,000 and $549,000, respectively, offset by an increase in other management fees of $1.0 million primarily due to various management fees earned from third-parties which began in the first quarter of 2023. Other management fees primarily includes fees for health insurance programs administered on behalf of certain third-party properties. Other management fees additionally includes fees for fixed monthly accounting services, revenue management services and other services at certain third party properties.

(5)     The increase in design and construction fees revenue is due to an increase in revenue from increased capital expenditures from Ashford Trust and third parties of $1.5 million and $384,000, respectively, offset by lower revenue from Braemar of $697,000.

(6)     The $4.5 million increase in audio visual revenue is due to an increase in demand for group events in the 2023 quarter.

(7)    The $1.8 million increase in watersports, ferry and excursion services revenue is due $1.5 million from RED’s acquisition of Alii Nui in the first quarter of 2023 and increases of $489,000 and $133,000 in revenue in RED’s operations in the U.S. Virgin Islands and Turks and Caicos, respectively. These increases were partially offset by a decrease in revenue of $300,000 from RED’s operations in the continental U.S.

(8)     The increase in debt placement and related fee revenue is due to higher revenue of $252,000 and $1.3 million from Ashford Trust and Braemar, respectively. Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services.

(9)    Cash management fees include revenue earned by providing active management and investment of Ashford Trust and Braemar’s excess cash in short-term U.S. Treasury securities.

(10)    Claims management services include revenue earned from providing insurance claim assessment and administration services to Ashford Trust and Braemar.

(11)     Other services revenue relates to other hotel services provided by our consolidated subsidiaries, OpenKey and Pure Wellness, to Ashford Trust, Braemar and third parties. Other revenue in the 2022 quarter additionally includes Marietta which was acquired by Ashford Trust on December 16, 2022. The decrease in other services revenue is primarily due to the sale of Marietta, which recognized $2.7 million of revenue in the 2022 quarter.

(12)     The increase in cost reimbursement revenue in the 2023 quarter is primarily due to an increase in Remington’s cost reimbursement revenue of $13.5 million. The increase is offset by a decrease of $412,000 in cost reimbursement revenue in the 2023 quarter compared to the 2022 quarter related to reimbursable advisory expenses for Ashford Trust and Braemar and $131,000 in cost reimbursement revenue from Premier in the 2023 quarter compared to the 2022 quarter.

(13)     See note 17 to our condensed consolidated financial statements for discussion of segment reporting.

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Salaries and Benefits Expense. Salaries and benefits expense increased $1.4 million, or 6.6%, to $22.7 million for the 2023 quarter compared to the 2022 quarter. The change in salaries and benefits expense consisted of the following (in thousands):

			Three Months Ended September 30,
			2023						2022						$ Change
Salaries and benefits:
Salary expense (1)			$	14,240					$	12,031					$	2,209
Bonus expense			4,705						4,597						108
Benefits related expenses			4,011						2,903						1,108
Total salary, bonus, and benefits related expenses			22,956						19,531						3,425
Non-cash equity-based compensation:
Class 2 LTIP units and stock option grants			33						979						(946)
Employee equity grant expense			428						896						(468)
Total equity-based compensation			461						1,875						(1,414)
Non-cash (gain) loss in deferred compensation plan (2)			(689)						(78)						(611)
Total salaries and benefits			$	22,728					$	21,328					$	1,400

________

(1)The increase in salary expense is primarily due to an increase in headcount at INSPIRE’s corporate offices compared to the 2022 quarter due to an increase in operations. Salary expense additionally includes $770,000 and $660,000 of expense recognized in the 2023 quarter and the 2022 quarter, respectively, related to Mr. Welter’s termination agreement with the Company. See note 10 to our condensed consolidated financial statements.

(2)    The DCP obligation is recorded as a liability at fair value with changes in fair value reflected in earnings. The gains in the 2023 quarter and the 2022 quarter are primarily attributable to decreases in the fair value of the DCP obligation, respectively. See note 14 to our condensed consolidated financial statements.

Cost of Revenues for Design and Construction. Cost of revenues for design and construction increased $1.2 million, or 66.3%, to $3.0 million during the 2023 quarter compared to $1.8 million for the 2022 quarter due to increased capital expenditures by our clients as well as higher salary and benefits related expenses from an increase in employee headcount involved in Premier’s operations.

Cost of Revenues for Audio Visual. Cost of revenues for audio visual increased $4.0 million, or 20.1%, to $23.9 million during the 2023 quarter compared to $19.9 million for the 2022 quarter, primarily due to an increase in demand for group events.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $1.0 million, or 12.5%, to $7.1 million for the 2023 quarter compared to the 2022 quarter. The decrease is primarily due to the sale of FF&E which was previously leased to Ashford Trust under the Ashford Trust ERFP Agreement and the sale of Marietta to Ashford Trust in the fourth quarter of 2022. Depreciation and amortization expense for the 2023 quarter and the 2022 quarter excludes depreciation expense related to audio visual equipment of $1.4 million and $1.3 million, respectively, which is included in “cost of revenues for audio visual” and also excludes depreciation expense for the 2023 quarter and the 2022 quarter related to marine vessels in the amount of $536,000 and $421,000, respectively, which are included in “other” operating expense.

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General and Administrative Expense. General and administrative expenses increased $2.3 million, or 27.6%, to $10.7 million for the 2023 quarter compared to the 2022 quarter. The change in general and administrative expense consisted of the following (in thousands):

			Three Months Ended September 30,
			2023						2022						$ Change
Professional fees			$	3,070					$	2,410					$	660
Office expense			3,178						2,710						468
Public company costs			140						75						65
Director costs			290						374						(84)
Travel and other expense (1)			3,733						2,593						1,140
Non-capitalizable - software costs			291						228						63
Total general and administrative			$	10,702					$	8,390					$	2,312

________

(1)    The increase in travel and other expenses is primarily due to corporate business development and related costs incurred in the 2023 quarter and increases in the Company’s business travel, general insurance and other related expenses for our products and services companies in the 2023 quarter.

Other. Other operating expense was $5.4 million for the 2023 quarter and $5.8 million for the 2022 quarter. Other operating expense in the 2023 quarter includes a decrease of $1.6 million of operating expenses related to Marietta, which was acquired by Ashford Trust in December of 2022. The decrease in other operating expense was offset by an increase of approximately $1.3 million in RED’s operating expenses primarily due to the acquisition of Alii Nui in the first quarter of 2023.

Reimbursed Expenses. Reimbursed expenses increased $11.3 million to $107.9 million during the 2023 quarter compared to $96.6 million for the 2022 quarter primarily due to increased hotel management expenses incurred by Remington.

Reimbursed expenses recorded may vary from cost reimbursement revenue recognized in the quarter due to timing differences between the costs we incur for centralized software programs and the related reimbursements we receive from Ashford 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):

			Three Months Ended September 30,
			2023						2022						$ Change
Cost reimbursement revenue			$	107,866					$	96,651					$	11,215
Reimbursed expenses			107,869						96,576						11,293
Net total			$	(3)					$	75					$	(78)

Equity in Earnings (Loss) of Unconsolidated Entities. Equity in earnings (loss) of unconsolidated entities changed $180,000 for the 2023 quarter. 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 $684,000 to $3.7 million during the 2023 quarter compared to $3.0 million for the 2022 quarter. The increase is primarily due to an increase in interest rates from the 2022 quarter. The average SOFR rate in the 2023 quarter was 5.24% and in the 2022 quarter the average LIBOR rate was 2.47%. The average Prime Rate in the 2023 quarter and the 2022 quarter were 8.43% and 5.37%, respectively. Interest expense relates to our Credit Facility and notes payable, lines of credit and finance leases held by our consolidated subsidiaries. See note 6 to our condensed consolidated financial statements.

Amortization of Loan Costs. Amortization of loan costs was $269,000 and $219,000 for the 2023 quarter and the 2022 quarter, respectively.

Interest Income. Interest income was $522,000 and $76,000 for the 2023 quarter and the 2022 quarter, respectively. The increase is primarily due to higher interest rates earned on the Company’s cash and cash equivalents in the 2023 quarter.

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Other Income (Expense). Other income (expense) was $75,000 of expense in the 2023 quarter and $22,000 of expense in the 2022 quarter.

Income Tax (Expense) Benefit. Income tax (expense) benefit changed by $822,000 from $617,000 of expense in the 2022 quarter to a benefit of $205,000 in the 2023 quarter. Current income tax expense decreased by $1.5 million from $1.8 million in the 2022 quarter to $311,000 in the 2023 quarter. Deferred income tax benefit decreased by $684,000 from $1.2 million in the 2022 quarter to $516,000 in the 2023 quarter. The decrease in income tax expense is primarily due to a decrease in operating income and an increase in interest expense.

Net (Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. The noncontrolling interests in consolidated entities were allocated a loss of $190,000 in the 2023 quarter and a loss of $272,000 in the 2022 quarter. See notes 2, 11 and 15 to our condensed consolidated financial statements for more details regarding ownership interests, carrying values and allocations.

Net (Income) Loss Attributable to Redeemable Noncontrolling Interests. Redeemable noncontrolling interests were allocated income of $111,000 in the 2023 quarter and $158,000 in the 2022 quarter. Redeemable noncontrolling interests represents ownership interests in Ashford Holdings which include the Series CHP Units which are recorded as a redeemable noncontrolling interest in the mezzanine section of our condensed consolidated balance sheets. For a summary of ownership interests, carrying values and allocations, see notes 2 and 12 to our condensed consolidated financial statements.

Preferred Dividends, Declared and Undeclared. Preferred dividends increased $25,000, or 0.3%, to $9.1 million during the 2023 quarter, due to accumulating and compounding dividends related to undeclared preferred stock dividends. See note 12 to our condensed consolidated financial statements.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

The following table summarizes the changes in key line items from our condensed consolidated statements of operations for the nine months ended September 30, 2023 and 2022 (in thousands):

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			Nine Months Ended September 30,																		Favorable (Unfavorable)
			2023						2022												$ Change						% Change
REVENUE
Advisory services fees			$	36,129					$	36,026											$	103					0.3		%
Hotel management fees			39,456						33,474												5,982						17.9		%
Design and construction fees			21,964						15,538												6,426						41.4		%
Audio visual			112,347						87,101												25,246						29.0		%
Other			32,057						33,902												(1,845)						(5.4)		%
Cost reimbursement revenue			317,094						259,979												57,115						22.0		%
Total revenues			559,047						466,020												93,027						20.0		%
EXPENSES
Salaries and benefits			68,132						54,776												(13,356)						(24.4)		%
Cost of revenues for design and construction			9,430						5,905												(3,525)						(59.7)		%
Cost of revenues for audio visual			81,697						61,042												(20,655)						(33.8)		%
Depreciation and amortization			21,074						23,740												2,666						11.2		%
General and administrative			32,759						25,926												(6,833)						(26.4)		%
Other			17,163						16,886												(277)						(1.6)		%
Reimbursed expenses			317,023						259,665												(57,358)						(22.1)		%
Total expenses			547,278						447,940												(99,338)						(22.2)		%
OPERATING INCOME (LOSS)			11,769						18,080												(6,311)						(34.9)		%
Equity in earnings (loss) of unconsolidated entities			(1,174)						110												(1,284)						(1,167.3)		%
Interest expense			(9,909)						(6,781)												(3,128)						(46.1)		%
Amortization of loan costs			(775)						(524)												(251)						(47.9)		%
Interest income			1,239						195												1,044						535.4		%
Realized gain (loss) on investments			(160)						(74)												(86)						(116.2)		%
Other income (expense)			259						(134)												393						293.3		%
INCOME (LOSS) BEFORE INCOME TAXES			1,249						10,872												(9,623)						(88.5)		%
Income tax (expense) benefit			(1,642)						(5,971)												4,329						72.5		%
NET INCOME (LOSS)			(393)						4,901												(5,294)						(108.0)		%
Net (income) loss from consolidated entities attributable to noncontrolling interests			692						830												(138)						(16.6)		%
Net (income) loss attributable to redeemable noncontrolling interests			(399)						(290)												(109)						(37.6)		%
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY			(100)						5,441												(5,541)						(101.8)		%
Preferred dividends, declared and undeclared			(27,132)						(27,422)												290						1.1		%
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS			$	(27,232)					$	(21,981)											$	(5,251)					(23.9)		%

Net Income (Loss) Attributable to Common Stockholders. Net loss attributable to common stockholders changed $5.3 million to a $27.2 million loss for the nine months ended September 30, 2023 (the “2023 period”) compared to a $22.0 million loss for the nine months ended September 30, 2022 (the “2022 period”) as a result of the factors discussed below.

Total Revenues. Total revenues increased by $93.0 million, or 20.0%, to $559.0 million for the 2023 period compared to the 2022 period due to the following (in thousands):

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			Nine Months Ended September 30,																		Favorable (Unfavorable)
			2023						2022												$ Change						% Change
Advisory services fees:
Base advisory fees (1)			$	35,539					$	35,637											$	(98)					(0.3)		%
Incentive advisory fees (2)			201						—												201
Other advisory revenue (3)			389						389												—						—		%
Total advisory services fees revenue			36,129						36,026												103						0.3		%
Hotel management fees:
Base management fees			28,557						24,943												3,614						14.5		%
Incentive management fees			3,966						6,113												(2,147)						(35.1)		%
Other management fees			6,933						2,418												4,515						186.7		%
Total hotel management fees revenue (4)			39,456						33,474												5,982						17.9		%
Design and construction fees revenue (5)			21,964						15,538												6,426						41.4		%
Audio visual revenue (6)			112,347						87,101												25,246						29.0		%
Other revenue:
Watersports, ferry and excursion services (7)			25,797						20,337												5,460						26.8		%
Debt placement and related fees (8)			3,125						3,298												(173)						(5.2)		%
Cash management fees (9)			213						—												213
Claims management services (10)			6						16												(10)						(62.5)		%
Other services (11)			2,916						10,251												(7,335)						(71.6)		%
Total other revenue			32,057						33,902												(1,845)						(5.4)		%
Cost reimbursement revenue (12)			317,094						259,979												57,115						22.0		%
Total revenues			$	559,047					$	466,020											$	93,027					20.0		%
REVENUES BY SEGMENT (13)
Advisory			$	60,316					$	58,668											$	1,648					2.8		%
Remington			314,454						255,062												59,392						23.3		%
Premier			30,780						22,893												7,887						34.5		%
INSPIRE			112,506						87,235												25,271						29.0		%
RED			25,866						20,354												5,512						27.1		%
OpenKey			1,184						1,184												—						—		%
Corporate and other			13,941						20,624												(6,683)						(32.4)		%
Total revenues			$	559,047					$	466,020											$	93,027					20.0		%

________

(1)The decrease in base advisory fees is primarily due to lower revenue of $1.4 million from Ashford Trust offset by higher revenue of $1.3 million from Braemar. See note 3 in our condensed consolidated financial statements for discussion of the advisory services revenue recognition policy.

(2)The $201,000 of incentive advisory fees for the 2023 period includes the pro rata portion of the second year installment of the Braemar 2022 incentive advisory fee which will be paid in January 2024. Incentive fee payments are subject to meeting the December 31st FCCR Condition each year, as defined in our advisory agreements. Ashford Trust’s annual total stockholder return did not meet the relevant incentive fee thresholds during the 2022 and 2021 measurement periods. Braemar’s annual total stockholder return did not meet the relevant incentive fee thresholds during the 2021 measurement period.

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(3)    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 in June 2017. The payment is included in “deferred income” on our condensed consolidated balance sheet and is being recognized evenly over the initial 10-year term of the agreement.

(4)    The increase in hotel management fees revenue is due to higher base management fees and other management fees. Base management fees from Ashford Trust and third parties increased by $1.6 million and $2.3 million, respectively, offset by a decrease of $327,000 from Braemar. Other management fees increased $4.5 million primarily due to various management fees earned from third parties which began in the first quarter of 2023 and due to the timing of Remington’s acquisition of Chesapeake in April of 2022. Other management fees primarily includes fees for health insurance programs administered on behalf of certain third-party properties. Other management fees additionally includes fees for fixed monthly accounting services, revenue management services and other services at certain third party properties. Incentive management fees from Ashford Trust, Braemar and third parties decreased by $616,000, $587,000 and $944,000, respectively.

(5)    The increase in design and construction fees revenue is primarily due to higher revenue from Ashford Trust, Braemar and third parties of $4.9 million, $621,000 and $915,000, respectively, due to increased capital expenditures from our clients.

(6)    The $25.2 million increase in audio visual revenue is primarily due to an increase in demand for group events in the 2023 period.

(7)    The $5.5 million increase in watersports, ferry and excursion services revenue is due to an increase of $3.7 million from RED’s acquisition of Alii Nui in the first quarter of 2023 and increases of $1.4 million and $1.1 million in revenue in RED’s operations in the U.S. Virgin Islands and Turks and Caicos, respectively. These increases were partially offset by a decrease in revenue of $663,000 from RED’s operations in the continental United States.

(8)    The decrease in debt placement and related fee revenue is due to lower revenue of $1.4 million from Ashford Trust offset by higher revenue of $1.3 million from Braemar. Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services. The decrease in revenue from Ashford Trust in the 2023 period is primarily due to the expiration of the Ashford Trust Agreement with Lismore on April 6, 2022. Debt placement and related fees revenue related to the Ashford Trust Agreement in the 2022 period were $2.4 million.

(9)    Cash management fees include revenue earned by providing active management and investment of Ashford Trust and Braemar’s excess cash in short-term U.S. Treasury securities.

(10)    Claims management services include revenue earned from providing insurance claim assessment and administration services to Ashford Trust and Braemar.

(11)    Other services revenue relates to other hotel services provided by our consolidated subsidiaries, OpenKey and Pure Wellness, to Ashford Trust, Braemar and third parties. Other revenue additionally includes Marietta prior to Ashford Trust’s acquisition of Marietta on December 16, 2022. The decrease in other services revenue is primarily due to the sale of Marietta, which recognized $7.3 million of revenue in the 2022 period.

(12)    The increase in cost reimbursement revenue in the 2023 period is primarily due to an increase in Remington’s cost reimbursement revenue of $53.6 million from Remington’s acquisition of Chesapeake in April of 2022. The increase is additionally due to an increase of $1.5 million in Premier’s cost reimbursement revenue due to our clients’ increased capital expenditures in the 2023 period compared to the 2022 period and an increase of $1.3 million in cost reimbursement revenue in the 2023 period related to reimbursable advisory expenses for Ashford Trust and Braemar.

(13)    See note 17 in our condensed consolidated financial statements for discussion of segment reporting.

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Salaries and Benefits Expense. Salaries and benefits expense increased by $13.4 million, or 24.4%, to $68.1 million for the 2023 period compared to the 2022 period. The change in salaries and benefits expense consisted of the following (in thousands):

															Nine Months Ended September 30,
																					2023						2022												$ Change
Salaries and benefits:
Salary expense (1)																					$	41,096					$	32,221											$	8,875
Bonus expense (2)																					14,019						12,343												1,676
Benefits related expenses (3)																					13,091						7,689												5,402
Total salary, bonus, and benefits related expenses																					68,206						52,253												15,953
Non-cash equity-based compensation:
Class 2 LTIP units and stock option grants (4)																					97						1,365												(1,268)
Employee equity grant expense																					1,308						1,725												(417)
Total equity-based compensation																					1,405						3,090												(1,685)
Non-cash (gain) loss in deferred compensation plan (5)																					(1,479)						(567)												(912)
Total salaries and benefits																					$	68,132					$	54,776											$	13,356

________

(1)    The increase in salary expense is due to an increase in corporate employees at both the Company’s corporate office and our subsidiaries’ corporate offices compared to the 2022 period and $2.8 million of expense recognized in the 2023 period related to Mr. Welter’s termination agreement with the Company. See note 10 to our condensed consolidated financial statements.

(2)    The increase in bonus expense is primarily due to a reduction to the Company’s bonus accrual in the 2022 period due to Mr. Welter’s departure from the Company.

(3)    The increase in benefits related expenses is primarily due to an increase in corporate employees at both the Company’s corporate office and our subsidiaries’ corporate offices compared to the 2022 period and increases in Remington’s corporate payroll taxes and employee insurance related expenses due to the timing of the Chesapeake acquisition.

(4)    The decrease in Class 2 LTIP units and stock grant expense in the 2023 period primarily relates to the vesting of previously issued stock option grants which were subject to a three-year vesting period. Beginning in 2020, the Company began to issue restricted stock in lieu of stock options under its equity incentive program.

(5)    The DCP obligation is recorded as a liability at fair value with changes in fair value reflected in earnings. The gains in the 2023 period and the 2022 period are primarily attributable to decreases in the fair value of the DCP obligation which is based on the Company’s common stock price. See note 14 in our condensed consolidated financial statements.

Cost of Revenues for Design and Construction. Cost of revenues for design and construction increased $3.5 million, or 59.7% to $9.4 million during the 2023 period compared to $5.9 million for the 2022 period due to increased capital expenditures by our clients as well as higher salary and benefits-related expenses from an increase in employee headcount involved in Premier’s operations.

Cost of Revenues for Audio Visual. Cost of revenues for audio visual increased $20.7 million, or 33.8%, to $81.7 million during the 2023 period compared to $61.0 million for the 2022 period, primarily due to an increase in demand for group events.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $2.7 million, or 11.2%, to $21.1 million for the 2023 period compared to the 2022 period. The decrease is primarily due to the sale of FF&E which was previously leased to Ashford Trust under the Ashford Trust ERFP Agreement and the sale of Marietta to Ashford Trust in the fourth quarter of 2022. Depreciation and amortization expense for the 2023 period and the 2022 period excludes depreciation expense related to audio visual equipment of $3.7 million and $3.7 million, respectively, which is included in “cost of revenues for audio visual” and also excludes depreciation expense for the 2023 period and the 2022 period related to marine vessels in the amount of $1.4 million and $987,000, respectively, which are included in “other” operating expense.

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General and Administrative Expense. General and administrative expenses increased by $6.8 million, or 26.4%, to $32.8 million for the 2023 period compared to the 2022 period. The change in general and administrative expense consisted of the following (in thousands):

															Nine Months Ended September 30,
																					2023						2022												$ Change
Professional fees																					$	8,941					$	8,468											$	473
Office expense (1)																					10,123						7,756												2,367
Public company costs																					453						433												20
Director costs																					1,371						1,522												(151)
Travel and other expense (2)																					11,057						7,085												3,972
Non-capitalizable - software costs																					814						662												152
Total general and administrative																					$	32,759					$	25,926											$	6,833

________

(1)    The increase in office expense in the 2023 period is primarily due to an increase in INSPIRE’s operations compared to the 2022 period and Remington and RED’s acquisitions of Chesapeake and Alii Nui, respectively.

(2)    The increase in travel and other expenses is primarily due to corporate business development and related costs incurred in the 2023 period and increases in the Company’s business travel and other related expenses for our products and services companies in the 2023 period.

Other. Other operating expense increased $277,000, or 1.6%, to $17.2 million for the 2023 period compared to the 2022 period. The increase in the 2023 period was primarily due to an increase of approximately $3.5 million of RED’s operating expenses. These increases were offset by a decrease of $4.3 million of operating expenses related to Marietta, which was acquired by Ashford Trust in December 2022. Other operating expenses for the 2023 and 2022 periods include losses on the sale of FF&E previously leased to Ashford Trust of $1.0 million and $706,000, respectively, under the Ashford Trust ERFP agreement and cost of goods sold, royalties and operating expenses associated with OpenKey and Pure Wellness.

Reimbursed Expenses. Reimbursed expenses increased $57.4 million to $317.0 million during the 2023 period compared to $259.7 million for the 2022 period primarily due to an increase in hotel management reimbursed expenses due to the timing of Remington’s acquisition of Chesapeake in April of 2022.

Reimbursed expenses 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 from our clients. 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 shown below (in thousands):

			Nine Months Ended September 30,
			2023						2022						$ Change
Cost reimbursement revenue			$	317,094					$	259,979					$	57,115
Reimbursed expenses			317,023						259,665						57,358
Net total			$	71					$	314					$	(243)

Equity in Earnings (Loss) of Unconsolidated Entities. Equity in earnings (loss) of unconsolidated entities were a loss of $1.2 million and earnings of $110,000 for the 2023 period and the 2022 period, respectively. Equity in earnings (loss) of unconsolidated entities primarily represents earnings (loss) in our equity method investment in REA Holdings. See note 2 in our condensed consolidated financial statements.

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Interest Expense. Interest expense increased $3.1 million to $9.9 million during the 2023 period compared to $6.8 million for the 2022 period. The increase is primarily due to an increase in the Company’s notes payable under our Credit Facility entered into in April of 2022, which had an outstanding balance of $87.0 million as of September 30, 2023. Interest expense in the 2023 period included expense of $7.6 million related to the Company’s Credit Facility. The increase in interest expense is also due to higher average interest rates during the 2023 period. The average SOFR rate in the 2023 period was 4.90% and in the 2022 period the average LIBOR rate was 1.24%. The average Prime Rates in the 2023 period and the 2022 period were 8.10% and 4.22%, respectively. Interest expense relates to our Credit Facility and notes payable, lines of credit and finance leases held by our consolidated subsidiaries. See note 6 in our condensed consolidated financial statements.

Amortization of Loan Costs. Amortization of loan costs was $775,000 and $524,000 for the 2023 period and the 2022 period, respectively. The increase is primarily due to the Company’s Credit Facility entered into in April of 2022. Amortization of loan costs relates to our Credit Facility and notes payable held by our consolidated subsidiaries. See note 6 in our condensed consolidated financial statements.

Interest Income. Interest income was $1.2 million and $195,000 for the 2023 period and the 2022 period, respectively. The increase is primarily due to higher interest rates earned on the Company’s cash and cash equivalents in the 2023 period.

Realized Gain (Loss) on Investments. Realized loss on investments was $160,000 and $74,000 for the 2023 period and the 2022 period, respectively. The realized loss on investments for the 2023 period and the 2022 period primarily relate to realized losses on shares of common stock of Ashford Trust and Braemar purchased by Remington on the open market and held for the purpose of providing compensation to certain employees. See note 8 in our condensed consolidated financial statements.

Other Income (Expense). Other income (expense) was income of $259,000 and expense of $134,000 in the 2023 period and the 2022 period, respectively.

Income Tax (Expense) Benefit. Income tax expense decreased by $4.3 million from $6.0 million in the 2022 period to $1.6 million in the 2023 period. Current income tax expense decreased by $6.1 million from $9.6 million in the 2022 period to $3.5 million in the 2023 period. Deferred income tax benefit decreased by $1.8 million from $3.6 million in the 2022 period to $1.8 million in the 2023 period. The decrease in income tax expense is primarily due to a decrease in operating income and an increase in interest expense.

Net (Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. Noncontrolling interests in consolidated entities were allocated a loss of $692,000 in the 2023 period and $830,000 in the 2022 period. See notes 2 and 11 in our condensed consolidated financial statements for more details regarding ownership interests, carrying values and allocations.

Net (Income) Loss Attributable to Redeemable Noncontrolling Interests. Redeemable noncontrolling interests were allocated income of $399,000 in the 2023 period and $290,000 in the 2022 period. Redeemable noncontrolling interests represents ownership interests in Ashford Holdings which include the Series CHP Units which are recorded as a redeemable noncontrolling interest in the mezzanine section of our condensed consolidated balance sheets. For a summary of ownership interests, carrying values and allocations, see notes 2 and 12 in our condensed consolidated financial statements.

Preferred Dividends, Declared and Undeclared. Preferred dividends, declared and undeclared, decreased $290,000 to $27.1 million during the 2023 period compared to $27.4 million for the 2022 period. The decrease is due to the Company’s payment in April 2022 of $17.8 million of accrued and outstanding Series D Convertible Preferred Stock dividends for the quarters ended June 30, 2020 and December 31, 2020.

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LIQUIDITY AND CAPITAL RESOURCES

Our liquidity requirements consist primarily of funds necessary to pay for operating expenses primarily attributable to paying our employees, investments and other capital expenditures to grow our businesses, interest and principal payments on our Credit Facility and our subsidiaries’ borrowings and dividends on the Series D Convertible Preferred Stock. We expect to meet our liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, borrowings under our Credit Facility or other loans, which we believe will provide sufficient liquidity to meet our existing non-discretionary obligations and anticipated ordinary course operating expenses.

Loan Agreements—On March 31, 2023, the Company amended its Credit Agreement, previously entered into on April 1, 2022, with Mustang Lodging Funding LLC, as administrative agent, and the lenders from time to time party thereto. The amendment replaced the one-month LIBOR rate with Adjusted Term SOFR. The Credit Agreement evidences the Credit Facility in the amount of $100.0 million, including a $50.0 million term loan funded upon closing and commitments to fund up to an additional $50.0 million of term loans in up to five separate borrowings within 24 months after the Closing Date, subject to certain conditions. On November 9, 2023, the Company drew the remaining balance available under the Credit Facility as of September 30, 2023 of $13.0 million. The Credit Facility is a five-year interest-only facility with all outstanding principal due at maturity, with three successive one-year extension options subject to an increase in the interest rate during each extension period. Borrowings under the Credit Agreement will bear interest, at the Company’s option, at either Adjusted Term SOFR plus an applicable margin, or the Base Rate plus an applicable margin. The applicable margin for borrowings under the Credit Agreement for Adjusted Term SOFR loans will be 7.35% per annum and the applicable margin for Base Rate loans will be 6.35% per annum, with increases to both applicable margins of 0.50%, 0.75% and 1.00% per annum during each of the three extension periods, respectively. Undrawn balances of the Credit Facility are subject to an unused fee of 1.0% during the first 24 months of the term, payable on the last business day of each month.

The Credit Facility does not require the maintenance of financial covenants, but if the ratio (the “Leverage Ratio”) of consolidated funded indebtedness that is recourse to the Company or any guarantor (less unrestricted cash) to consolidated EBITDA of the Company and its subsidiaries is greater than 4.00 to 1.00 as of the end of any fiscal quarter during the term of the loan, including any extension period, then the Company is required to apply 100% of the excess cash flow generated during such fiscal quarter to prepay the term loans. The Company may not pay dividends on the Company’s shares of common stock or preferred stock if the Leverage Ratio is greater than 3.00 to 1.00 after giving effect to the payment of such dividends. The Credit Agreement is guaranteed by the Company, Ashford LLC, and certain subsidiaries of the Company, and secured by, among other things, all of the assets of Ashford LLC and each guarantor and a pledge of the equity interests in Ashford LLC and each guarantor. As of September 30, 2023, our Credit Agreement was in compliance with all covenants or other requirements and debt held by our subsidiaries was in compliance with all covenants or other requirements. The Company does not expect the Leverage Ratio under our Credit Agreement to exceed 3.00 to 1.00 or debt held by our subsidiaries to violate any loan covenants within one year of the issuance of the financial statements.

On March 24, 2023, INSPIRE amended its credit agreement by entering into the INSPIRE Amendment. The INSPIRE Amendment increased the maximum borrowing capacity under INSPIRE’s Revolving Note from $3.0 million to $6.0 million, provides for a $20.0 million Term Note and an Equipment Note pursuant to which, until September 24, 2027, INSPIRE may request advances up to $4.0 million in the aggregate to purchase new machinery or equipment to be used in the ordinary course of business. The INSPIRE Amendment extended the maturity date of INSPIRE’s Notes from January 1, 2024 to March 24, 2028. Monthly principal payments commence on April 1, 2023 for the Term Note in the amount of approximately $167,000. Borrowings under the Revolving Note require monthly payments of interest only until the maturity date and borrowings under the Equipment Note require monthly principal payments at 1/60th of the original principal amount of each advance. The Notes bear interest at the BSBY Rate plus a margin of 2.75% and the undrawn balance of the Revolving Note and the Equipment Note are subject to an unused fee of 0.25% per annum. As of September 30, 2023, the amounts unused under INSPIRE’s revolving credit facility and equipment note were $5.5 million and $2.0 million, respectively.

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 were $39.2 million and $27.6 million as of September 30, 2023 and December 31, 2022, respectively. For further discussion see note 6 in our condensed consolidated financial statements.

Preferred stock dividends—As of September 30, 2023, the Company had aggregate undeclared preferred stock dividends of approximately $19.6 million, which remain in arrears for the second and fourth quarters of 2021. On each of April 14, 2023 and July 12, 2023, the Company paid $8.7 million of dividends previously declared by the Board with respect to the Company’s Series D Convertible Preferred Stock for the first and second quarters of 2023. On September 7, 2023, the Board declared a cash dividend on the Company’s Series D Convertible Preferred Stock for the quarter ended September 30, 2023. The Company paid the dividend of $8.7 million, or $0.455 per share of Series D Convertible Preferred Stock, on October 11, 2023.

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The Company does not currently expect to declare and pay the accrued and unpaid dividends on the Series D Convertible Preferred Stock for the quarters ended June 30, 2021 and December 31, 2021 during calendar year 2023. However, the Company remained current on the preferred dividend payments in 2022 and the first three quarters of 2023 and currently intends to remain current on future preferred dividend payments. The independent members of the Board plan to revisit the dividend payment policy with respect to the Series D Convertible Preferred Stock on an ongoing basis and will make decisions on such preferred dividend payments based on the ongoing liquidity and capital needs of the Company.

Each share of Series D Convertible Preferred Stock: (i) has a liquidation value of $25 per share plus the amount of all unpaid accrued and accumulated dividends on such share; (ii) accrues cumulative dividends at the rate of 7.28% per annum; (iii) participates in any dividend or distribution on the common stock in addition to the preferred dividends; (iv) is convertible, along with all unpaid accrued and accumulated dividends thereon, 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 beneficially held primarily by Mr. Monty J. Bennett, the Chairman of our Board and our Chief Executive Officer, and Mr. Archie Bennett, Jr., who is Mr. Monty J. Bennett’s father.

To the extent not paid on April 15, July 15, October 15 and January 15 of each calendar year in respect of the quarterly periods ending on March 31, June 30, September 30 and December 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 or converted to common shares. See note 12 in our condensed consolidated financial statements.

Other liquidity considerations—On December 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 nine months ended September 30, 2023.

Our deferred compensation plan currently has only one participant, Mr. Monty J. Bennett, our Chairman and Chief Executive Officer. Mr. Monty J. Bennett has elected to invest his deferred compensation account in our common stock. As a result, we have an obligation to issue approximately 196,000 shares of our common stock to Mr. Monty J. Bennett in quarterly installments over five years beginning in 2025. Mr. Monty J. Bennett may postpone all or a portion of the distributions, for a minimum of five years, if he notifies the Company 12 months prior to the scheduled distributions. As of September 30, 2023, the fair value of the DCP liability was $1.2 million.

The Company has commitments related to cash compensation for the departure of Mr. Welter which included a cash termination payment of $750,000, which was paid on August 5, 2022, and payments totaling approximately $6.4 million, which are payable in 24 substantially equal monthly installments of approximately $267,000 beginning in August 2022. As of September 30, 2023, the Company’s remaining commitment to Mr. Welter totaled approximately $2.7 million.

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 of September 30, 2023 and December 31, 2022, we had $28.0 million and $44.4 million of cash and cash equivalents, respectively, and $36.2 million and $37.1 million of restricted cash, respectively. The majority of the Company’s cash and cash equivalents are owned by Ashford LLC and Ashford Services and are either invested in short-term U.S. Treasury securities with maturity dates of less than 90 days or held at commercial banks in insured cash sweep accounts, which are fully insured by the FDIC. Our principal sources of funds to meet our cash requirements include: net cash provided by operations and existing cash balances, which include borrowings from our existing lending agreements. Additionally, our principal uses of funds are expected to include possible operating shortfalls, capital expenditures, preferred dividends, debt interest, principal payments, acquisitions and key money payments to grow our products and services companies. Items that impacted our cash flow and liquidity during the periods indicated are summarized as follows:

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Net Cash Flows Provided by (Used in) Operating Activities. Net cash flows provided by operating activities were $9.9 million for the nine months ended September 30, 2023 compared to net cash flows provided by operating activities of $24.1 million for the nine months ended September 30, 2022. The decrease in cash flows from operating activities were primarily due to a decrease in earnings in the 2023 period and the timing of working capital cash flows such as collecting receivables, settling with vendors and settling with related parties, primarily our clients Ashford Trust and Braemar.

Net Cash Flows Provided by (Used in) Investing Activities. For the nine months ended September 30, 2023, net cash flows used in investing activities were $25.8 million. These cash flows consisted of capital expenditures primarily for FF&E, audio visual equipment and marine vessels totaling $17.5 million, net cash paid to acquire Alii Nui of $6.7 million, net cash paid in the asset acquisition of TSGF L.P. of $2.2 million and issuance of notes receivable of $1.3 million. These were offset by cash inflows of $1.0 million from proceeds from a note receivable and $849,000 from the asset acquisition of RHC.

For the nine months ended September 30, 2022, net cash flows used in investing activities were $13.0 million. These cash flows consisted of net cash paid to acquire Chesapeake of $6.4 million, capital expenditures primarily of FF&E, audio visual equipment and marine vessels totaling $8.0 million, and an investment in an unconsolidated entity of $400,000. These were offset by cash inflows of $418,000 in proceeds primarily received from the sale of FF&E to Ashford Trust and proceeds from a note receivable of $1.4 million.

Net Cash Flows Provided by (Used in) Financing Activities. For the nine months ended September 30, 2023, net cash flows used in financing activities were $1.3 million. These cash flows consisted of $26.1 million of dividend payments on the Series D Convertible Preferred Stock, $2.9 million of payments on notes payable, purchases of $359,000 of treasury stock, $516,000 of distributions to consolidating noncontrolling interests, $409,000 of loan cost payments and $321,000 of payments on finance leases. These were offset by $28.7 million of proceeds from borrowings on notes payable, $17.0 million of which related to the Company’s Credit Agreement, and $466,000 of net borrowings on revolving credit facilities.

For the nine months ended September 30, 2022, net cash flows used in financing activities were $2.4 million. These cash flows consisted of $35.2 million of dividend payments on the Series D Convertible Preferred Stock and $30.1 million of payments on notes payable which were primarily related to paying off the remaining balance of the Company’s Term Loan Agreement with Bank of America, N.A. These were offset by $68.7 million of proceeds from borrowings on notes payable primary related to the Company’s Credit Agreement entered into in the 2022 period. Other cash flows used in financing activities consist of $2.7 million of loan cost payments, $1.8 million of net payments on our revolving credit facilities, $918,000 of payments on finance leases, $327,000 of contributions from Braemar’s investment in OpenKey in the 2022 period, net repayments in advances to employees of $251,000 associated with tax withholdings for restricted stock vestings, purchases of $241,000 of treasury stock and $177,000 of distributions to consolidating noncontrolling interests.

Seasonality

Quarterly revenues may be adversely affected by events beyond our control, such as 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 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.

Contractual Obligations and Commitments

There have been no material changes since December 31, 2022, 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” in our 2022 Form 10-K, other than items as described in Liquidity and Capital Resources.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in accordance with accounting principles generally accepted in the 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 2022 Form 10-K. There have been no material changes in these critical accounting policies.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Our primary market risk exposures consist of changes in interest rates on borrowings under our debt instruments that bear interest at variable rates that fluctuate with market interest rates as well as foreign currency exchange rate risk.

Interest Rate Risk—At September 30, 2023, our total indebtedness of $127.5 million included $120.2 million of variable-rate debt. The impact on our results of operations of a 100 basis point change in interest rates on the outstanding balance of variable-rate debt at September 30, 2023 would be approximately $1.2 million annually. Interest rate changes have no impact on the remaining $7.3 million of fixed rate debt.

The amount above was determined based on the impact of a hypothetical interest rate on our borrowings and assumes no changes in our capital structure. As the information presented above includes only those exposures that existed at September 30, 2023, it does not consider exposures or positions that could arise after that date. Accordingly, the information presented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on exposures that arise during the period, the hedging strategies at the time, and the related interest rates.

Foreign Exchange Risk—The majority of our revenues, expenses and capital purchases are transacted in U.S. dollars. INSPIRE has operations in Mexico and the Dominican Republic, and therefore, we have exposure with respect to exchange rate fluctuations. Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred. We have chosen not to hedge foreign exchange risks related to our foreign currency denominated earnings and cash flows through the use of financial instruments. RED’s operations outside of the U.S. are primarily transacted in U.S. dollars, which is the official currency of the Turks and Caicos Islands.

ITEM 4.CONTROLS AND PROCEDURES

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2023 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective (i) to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On December 20, 2016, a class action lawsuit was filed against one of the Company’s subsidiaries in the Superior Court of the State of California in and for the County of Contra Costa alleging violations of certain California employment laws. The court has entered an order granting class certification with respect to: (i) a statewide class of non-exempt employees who were allegedly deprived of rest breaks as a result of the subsidiary’s previous written policy requiring employees to stay on premises during rest breaks; and (ii) a derivative class of non-exempt former employees who were not paid for allegedly missed breaks upon separation from employment. Notices to potential class members were sent out on February 2, 2021. Potential class members had until April 4, 2021 to opt out of the class, however, the total number of employees in the class has not been definitively determined and is the subject of continuing discovery. The opt out period has been extended until such time that discovery has concluded. In May of 2023, the trial court requested additional briefing from the parties to determine whether the case should be maintained, dismissed, or the class decertified. The trial court set a due date of August 7, 2023 for the briefs. After submission of the briefs, the court requested that the parties submit stipulations for the court to rule upon. If this litigation goes to trial, we expect that the earliest the trial would occur is the last quarter of 2023, based on various extensions to which the parties have agreed. While we believe it is reasonably possible that we may incur a loss associated with this litigation, because there remains uncertainty under California law with respect to a significant legal issue, discovery relating to class members continues, and the trial judge retains discretion to award lower penalties than set forth in the applicable California employment laws, we do not believe that any potential loss to the Company is reasonably estimable at this time. As of September 30, 2023, no amounts have been accrued.

We are also engaged in other legal proceedings that have arisen but have not been fully adjudicated. To the extent the claims giving rise to these legal proceedings are not covered by insurance, they relate to the following general types of claims: employment matters, tax matters, matters relating to compliance with applicable law (for example, the Americans with Disability Act and similar state laws), and other general matters. The likelihood of loss for these legal proceedings is based on definitions within contingency accounting literature. We recognize a loss when we believe the loss is both probable and reasonably estimable. Legal costs associated with loss contingencies are expensed as incurred. Based on the information available to us relating to these legal proceedings and/or our experience in similar legal proceedings, we do not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position, results of operations or cash flow.

During the quarter ended September 30, 2023, we had a cyber incident that resulted in the potential exposure of certain employee personal information. We have completed an investigation and have identified certain employee information may have been exposed, but we have not identified that any customer information was exposed. Systems have been substantially restored with minimal effect on certain hotel operations. We believe that we maintain a sufficient level of insurance coverage related to such events, and the related incremental costs incurred to date are immaterial. It is reasonably possible that the Company may incur additional costs related to the matter, but we are unable to predict with certainty the ultimate amount or range of potential loss. At this time, no litigation has been filed nor has any been threatened.

Our assessment may change depending upon the development of any current or future legal proceedings, and the final results of such legal proceedings cannot be predicted with certainty. If we ultimately do not prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position, results of operations, or cash flows could be materially adversely affected in future periods.

ITEM 1A.RISK FACTORS

The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies, or prospects in a material and adverse manner. Other than as set forth below, as of September 30, 2023, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.

We may be a “controlled company” within the meaning of the rules of NYSE American and, as a result, would qualify for, and could rely on, exemptions from certain corporate governance requirements.

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Following the expiration of certain time and voting restrictions in the Investor Rights Agreement on August 8, 2023, Mr. Monty J. Bennett and Mr. Archie Bennett, Jr. gained control of a majority of the voting power of our equity securities. For a period of five years after the effective date of the Investor Rights Agreement, the Bennetts have agreed not to elect, or to cause the Company to elect, to be exempt from the NYSE American’s corporate governance requirements on account of the Company’s status as a “controlled company.” As a result, we may be a “controlled company” within the meaning of the corporate governance standards of the NYSE American after such time. Currently, under the rules of the NYSE American, a company for which more than 50% of the outstanding voting power is held by an individual, group, or another company is a “controlled company” and may elect to be exempt from certain stock exchange corporate governance requirements, which, generally, include the following:

•the requirement that a majority of the board of directors consists of independent directors;

•the requirement that the Company’s nominating and corporate governance committee consists entirely of independent directors; and

•the requirement that the Company’s compensation committee consists entirely of independent directors.

Accordingly, in the event we are a “controlled company” and elect to be exempt from some or all of these corporate governance requirements, you may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE American corporate governance requirements.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer

The following table provides information with respect to purchases and forfeitures of shares of our common stock during each of the months in the third quarter of 2023:

Period						Total Number of Shares Purchased						Average Price Paid Per Share						Total Number of Shares Purchased as Part of a Publicly Announced Plan (1)						Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plan
Common stock:
July 1 to July 31						36						$	—		(2)			—						$	20,000,000
August 1 to August 31						26						$	—		(2)			—						$	20,000,000
September 1 to September 30						420						$	—		(2)			—						$	20,000,000
Total						482						$	—					—

________

(1) On December 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 ended September 30, 2023.

(2) There is no cost associated with the forfeiture of 36, 26 and 420 restricted shares of our common stock in July, August and September, respectively.

ITEM 3.DEFAULT UPON SENIOR SECURITIES

As of September 30, 2023, the Company had aggregate undeclared preferred stock dividends of approximately $19.6 million, which remain in arrears for the second and fourth quarters of 2021. All dividends, declared and undeclared, are recorded as a reduction in net income (loss) attributable to common stockholders 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 Series D Convertible Preferred Stock dividends, declared and undeclared, totaling $28.3 million and $27.1 million at September 30, 2023 and December 31, 2022, respectively, are recorded as a liability in our condensed consolidated balance sheets as “dividends payable.” As previously disclosed, each share of Series D Convertible Preferred Stock accrues cumulative preferred dividends at the rate of 7.28% per annum and will participate in any dividend or distribution on the common stock in addition to the preferred dividends. 

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On each of April 14, 2023 and July 12, 2023, the Company paid $8.7 million of dividends previously declared by the Board with respect to the Company’s Series D Convertible Preferred Stock for the first and second quarters of 2023. On September 7, 2023, the Board declared a cash dividend on the Company’s Series D Convertible Preferred Stock for the quarter ended September 30, 2023. The Company paid the dividend of $8.7 million, or $0.455 per share of Series D Convertible Preferred Stock, on October 11, 2023.

See note 12 in our condensed consolidated financial statements for a full description of all material terms of the Series D Cumulative Convertible Preferred Stock. The Series D Convertible Preferred Stock is beneficially held primarily by Mr. Monty J. Bennett, the Chairman of our Board and our Chief Executive Officer, and Mr. Archie Bennett, Jr., who is Mr. Monty J. Bennett’s father.

ITEM 4.MINE SAFETY DISCLOSURES

None.

ITEM 5.OTHER INFORMATION

None.

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ITEM 6.EXHIBITS

Exhibit						Description
3.1						Amended and Restated Certificate of Incorporation of Ashford Inc. (incorporated by reference to Exhibit 3.1 of Form 8-K, filed on November 6, 2019) (File No. 001-36400)
3.2						Articles of Amendment to the Certificate of Incorporation of Ashford Inc. (incorporated by reference to Exhibit 3.3 of Form 8-K, filed on November 6, 2019) (File No. 001-36400)
3.3						Articles Supplementary establishing the Series B Convertible Preferred Stock of Ashford Inc. (incorporated by reference to Exhibit 3.3 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
3.4						Certificate of Correction, filed on November 4, 2019, to Articles Supplementary establishing the Series B Convertible Preferred Stock of Ashford Inc. (incorporated by reference to Exhibit 3.4 of Form 10-Q, filed on November 7, 2019) (File No. 001-36400)
3.5						Articles Supplementary establishing the Series C Preferred Stock of Ashford Inc. (incorporated by reference to Exhibit 3.4 of Form 8-K, filed on August 8, 2018) (File No. 001-36400)
3.6						Amended and Restated Bylaws of Ashford Inc., as amended August 24, 2023 (incorporated by reference to Exhibit 3.14 of Form 8-K, filed on August 25, 2023) (File No. 001-36400)
3.7						Certificate of Designation of the Series D Convertible Preferred Stock of Ashford Inc. (incorporated by reference to Exhibit 3.2 of Form 8-K, filed on November 6, 2019) (File No. 001-36400)
3.8						Certificate of Designation of Series E Preferred Stock of Ashford Inc. (incorporated by reference to Exhibit 3.1 of Form 8-K, filed on March 16, 2020) (File No. 001-36400)
3.9						Certificate of Designation of Series F Preferred Stock of Ashford Inc. (incorporated by reference to Exhibit 3.1 of Form 8-K, filed on August 31, 2022) (File No. 001-36400)
3.10						Certificate of Withdrawal of Certificate of Designation of Series E Preferred Stock of Ashford Inc., as filed with the Secretary of State of the State of Nevada on August 30, 2022 (incorporated by reference to Exhibit 3.2 of Form 8-K, filed on August 31, 2022) (File No. 001-36400)
10.1						Amended and Restated Credit Agreement by and between Inspire Event Technologies Holdings, LLC and Comerica Bank, dated March 24, 2023 (composite version, reflects all amendments through March 24, 2023) (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on March 28, 2023) (File No. 001-36400)
10.2						Third Amended and Restated Master Term Note, dated March 24, 2023, made by Inspire Event Technologies Holdings, LLC in favor of Comerica Bank (incorporated by reference to Exhibit 10.2 of Form 8-K, filed on March 28, 2023) (File No. 001-36400)
10.3						Third Amended and Restated Master Revolving Note, dated March 24, 2023, made by Inspire Event Technologies Holdings, LLC in favor of Comerica Bank (incorporated by reference to Exhibit 10.3 of Form 8-K, filed on March 28, 2023) (File No. 001-36400)
10.4						Equipment Note Agreement, dated March 24, 2023, made by Inspire Event Technologies Holdings, LLC in favor of Comerica Bank (incorporated by reference to Exhibit 10.4 of Form 8-K, filed on March 28, 2023) (File No. 001-36400)
10.5						Limited Waiver Under Advisory Agreement, dated as of March 2, 2023, by and among Ashford Hospitality Trust, Inc., Ashford Hospitality Limited Partnership, Ashford TRS Corporation, Ashford Inc., and Ashford Hospitality Advisors LLC (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on March 3, 2023) (File No. 001-36400)
10.6						Limited Waiver Under Advisory Agreement, dated as of March 2, 2023, by and among Braemar Hotels & Resorts Inc., Braemar Hospitality Limited Partnership, Braemar TRS Corporation, Ashford Inc., and Ashford Hospitality Advisors LLC (incorporated by reference to Exhibit 10.2 of Form 8-K, filed on March 3, 2023) (File No. 001-36400)
10.7						Rights Agreement, dated August 30, 2022, between Ashford Inc. and Computershare Trust Company, N.A, as Rights Agent (incorporated by reference to Exhibit 4.5 of Ashford Inc.’s Annual Report on Form 10-K filed on March 17, 2023) (File No. 001-36400)
10.8						Amendment No. 1 to the Rights Agreement, dated May 15, 2023, between Ashford Inc. and Computershare Trust Company, N.A, as Rights Agent (incorporated by reference to Exhibit 4.2 of Form 8-K filed on May 15, 2023) (File No. 001-36400)
10.9†						Amended and Restated Employment Agreement by and between Ashford Hospitality Advisors LLC and Deric S. Eubanks, dated to be effective January 1, 2023 (incorporated by reference to Exhibit 10.1 of Form 8-K filed on August 25, 2023) (File No. 001-36400)
31.1*						Certifications of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of Securities Exchange Act of 1934, as amended

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31.2*						Certifications of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of Securities Exchange Act of 1934, as amended
32.1**						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following materials from the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2023, are formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income (Loss); (iv) Condensed Consolidated Statements of Equity (Deficit); (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements. In accordance with Rule 402 of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document			Submitted electronically with this report.
101.CAL						Inline XBRL Taxonomy Calculation Linkbase Document			Submitted electronically with this report.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document			Submitted electronically with this report.
101.LAB						Inline XBRL Taxonomy Label Linkbase Document.			Submitted electronically with this report.
101.PRE						Inline XBRL Taxonomy Presentation Linkbase Document.			Submitted electronically with this report.
104						Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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* Filed herewith.

**Furnished herewith.

† Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ASHFORD INC.

Date:

November 13, 2023

By:

/s/ MONTY J. BENNETT

Monty J. Bennett

Chief Executive Officer

Date:

November 13, 2023

By:

/s/ DERIC S. EUBANKS

Deric S. Eubanks

Chief Financial Officer

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