Playa Hotels & Resorts - Q1 2022

Transcript

Speaker 0

Day, and welcome to the Playa Hotels and Resorts First Quarter 2022 Earnings Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Mr.

Ryan Himel. Please go ahead, sir.

Speaker 1

Thank you, Chuck, and good morning, everyone, again, and welcome to Lai Hotels and Resorts Q1 2022 Earnings Conference Call. Before we begin, as always, I'd like to remind participants that many of our comments today will be considered forward looking statements and are subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what has been communicated. Forward looking statements made today are effective only as of today, The company undertakes no obligation to update forward looking statements. For a discussion of some of the factors that could cause our actual results to differ, Please review the Risk Factors section of our annual report on Form 10 Q, which we filed last night with the SEC. We've updated our Investor Relations website at investors.

Playaresorts. With the company's recent releases. In addition, reconciliations to GAAP of the non GAAP financial measures we discuss on today's call were included in yesterday's press release.

Speaker 2

On the

Speaker 1

call today, Bruce Wardinski, Playa's Chairman and Chief Executive Officer, will provide comments on the Q1 and key operational highlights. I will then address our Q1 results and our outlook. Bruce will wrap up the call with some concluding remarks before we turn it over to Q and A. With that, I'll turn the call over to Bruce.

Speaker 2

Great. Thanks, Ryan. Good afternoon, everyone, and thank you for joining us. Once again, our Q1 results experienced a continuation of the fundamental momentum that built throughout 2021 And exceeded our expectations, despite the impact from the omicron variant during the early part of the quarter. As we shared with you on our last earnings call, Our bookings accelerated materially at the beginning of the year, which we attributed to catch up demand from the impact of Omicron on our bookings during the month of December and the ongoing recovery.

However, this elevated pace of bookings continued through the entire quarter, exceeding typical seasonal patterns It is a highly encouraging trend as consumers shift back to spending on services. As of May 1, our Playa owned managed revenue on the books for the 3rd quarter is pacing up 37% year over year and over 70% versus 2019. And the 4th quarter is pacing up 23% year over year and also nearly 70% higher versus 2019. Most importantly, this robust demand has come at very healthy ADRs. We will continue to balance both occupancy and yield, while continuing to deliver on the operations and guest satisfaction front.

1 of the interesting developments during this recovery Has been the repricing of off peak periods, which resulted in highly abnormal ADR trends for Playa during 2021, with ADRs improving sequentially during each quarter of the year. We believe that we had likely seen a sticky rebasing of pricing during our summer period and that the dips from the traditional high season might be shallower going forward. That view appears to be playing out in 2022 based on our bookings. We expect our Q2 ADR to increase nearly 40% versus our Q2 2019 ADR, which is an acceleration versus the growth rate reported during this Q1. Our Q3 ADR Growth on the books year over year is up nicely as well and continued to build during the Q1.

Successfully lapping the robust results from Q3 2021. We expect our Q3 ADR to increase at high single digit rate year over year. Similarly, we expect Q4 ADRs to be up high single digits year over year as well, with momentum to the upside for both periods. We expect our occupancy rate for the remainder of 2022 to improve slightly versus our occupancy in Q1. These ADR and occupancy gains bode well for our ability to deliver an exceptional customer experience and strong resort EBITDA margins.

Although this earnings call is to discuss results from the high season that just wrapped up, we are also highly encouraged by the book of business building for the next high season in 2023 as the year over year revenue and ADR pacing remained robust, driven by our MICE business pacing at 2 times the pre pandemic levels for the year ahead. It is important to note that all these positive trends are occurring without us experiencing a full customer demand dynamic.

Speaker 3

There are

Speaker 2

still groups of customers, particularly families with young children, not traveling yet due to pandemic concerns. There are potential customers who do not wish to travel due to the testing requirements to reenter the USA and the risk of having the return trip impacted. And finally, we have not seen a full recovery of our international markets, particularly Asia, certain parts of Europe and our Canadian guests. The positive trends we are experiencing are even more encouraging given the potential for higher demand levels once all customer segments have fully recovered. With that in mind, let's turn to the Q1 fundamentals, which once again improved sequentially with occupancies continuing to ramp up, particularly in the Dominican Republic.

The strength in the business was consistent and relatively broad based with occupancy improving sequentially each month and consistently strong ADR performance. As we discussed on our last earnings call, we did not expect record Q1 resort EBITDA margins given the impact from Omicron and the absolute level of RevPAR and Resort margins in our prior 1st quarters, but our results significantly exceeded our expectations As our mice business during the quarter was not significantly disrupted by the omicron variant. While close in demand drove higher than expected ADRs And our operations teams continue to execute at a very high level. I still strongly believe we are in the initial phase of the resurgence in travel And the trial and awareness of the all inclusive experience also have a long runway. In today's inflationary environment, our relative value proposition Has become incredibly compelling despite our ADR gains.

This value continues to be reflected in the pace of bookings, which is significantly ahead of last year on both revenue and ADR for the second half of twenty twenty two. Looking at our segments, the Dominican Republic once again experienced the biggest sequential occupancy improvement in the quarter. As you may recall, Doctor had the highest mix of European guests in the pre pandemic period, which was a drag on its performance during the early part of the recovery, particularly in our mid scale properties. The return of European gas has been the key driver in the segment And we are thrilled to be a destination of choice as they resume traveling. Once again, our flagship Hyatt Ziva and Zilara Cap Cana led the way as it has established itself as a rate leader in the market with the resorts EBITDA margins exceeding 45% during the Q1 with occupancy in the low 70s.

As a result of the strong Q1, our trailing 12 month EBITDA at the Hyatt Cap Cana Has already exceeded our goal of 12% to 15% stabilized cash and cash returns on our investment in just 2 full years of operation and has not even reached its Full potential. The segment's profit performance was weighed down by our 2 externally managed properties, which have lagged behind our globally branded resorts in the segment with respect to rate gains and margins. They also yield a significantly lower absolute ADR compared to our globally branded in Playa Managed Resorts, which is a drag on the segment's ADR gains as the occupancy improves at these properties. Turning to Mexico. Performance has remained steady in this segment and we expect this to continue as recovery progresses.

Both year over year and sequential occupancy gains in Mexico were driven by higher MICE group mix and increasing guest counts from Europe and Canada. Turning to Jamaica. Despite being hit The hardest by omicron of any of our segments, Jamaica had the largest sequential improvement in occupancy during the Q1, largely driven by group business. The most encouraging development in this segment is the recent announcement that the pretesting requirements to enter Jamaica expired on April This bodes well for our business here based on the recovery we experienced in the Dominican Republic after removing the same requirement And also in the negative impact on our Jamaican results following the implementation of the incremental restrictions. While Jamaica has seen a nice pickup in occupancy recently, We have a lot of room for ADR improvement in this segment as the restrictions have caused Jamaica's ADR gains to lag their potential and our other segments.

Our focus on direct channels continues to pay off. We are confident that Playa is on target with our 5 year plan to increase consumer direct business to at least 50% by 2023. In aggregate, during the Q1 of 2022, 42.4% of Playa Managed Room Nights Booked. We're booked direct, down 8.2 percentage points year over year, reflecting the continued relative strength of our direct channels, including a significant acceleration in group and third party sourced business. During the Q1 of 2022, playaresorts.com accounted for 15.7 percent of our total playa managed room night bookings, down 8.7 percentage points year over year.

This is a critical aspect of our business I believe many overlook. We apply it to drive a significant portion of our direct revenue in house, which is now a major competitive advantage for our current portfolio and for potential third party managed resorts in the future. Finally, as a reminder, we anticipated that as the world slowly returned to normal, our mix of direct business would likely fall below 50%, but we still believe that will remain higher than levels seen prior to the pandemic and significantly higher on an absolute dollar basis. Now taking a look at who is traveling. A little less than 40% of the Playa managed room night stays in the quarter came from our direct channels as our group mix improved sequentially and OTA mix remained significantly depressed.

Geographically, our U. S. Sourcing increased Approximately 10 percentage points compared to Q1 2019 to 67% of managed room nights, while our South American sourced business increased 200 basis points European guests mixed 6 percentage points higher. Given the changing state of travel restrictions, our Canadian and Asian customer mix remains significantly depressed versus pre pandemic levels. Our booking window was similar to what we experienced during the Q4 of 2021, but The Q1 was the Q1 in the post pandemic period to exceed the pre pandemic lead time for the comparable period.

Our length of stay during the Q1 was in line with Q1 2019 and was in line with Q1 2020. And this trend is expected to continue as we rely less on close in bookings. Once again, I would like to thank all of our associates that have continued to deliver world class service in the face of pandemic related challenges. Their unwavering passion and dedication to service is what truly sets Playa apart. With that, I will turn the call back over to Ryan to

Speaker 1

Thank you, Bruce. Good morning or I guess good afternoon everyone again. I will first give you an update on our liquidity and balance sheet and then review the fundamentals 1st quarter and then finish with a discussion of forward bookings and market trends. As you know, we finished the quarter with a total unrestricted cash balance of just under $300,000,000 I'm pleased to share that subsequent to the end of the quarter, we have satisfied the conditions for the release of our restricted cash pursuant to the terms of our property loan agreement, which totaled a little over $20,000,000 On the other side of the ledger, we currently have no outstanding borrowings on our revolving credit facility and total outstanding interest bearing debt of $1,140,000,000 We anticipate our cash CapEx spend for full year 2022 to be approximately $30,000,000 to $35,000,000 with approximately $5,000,000 being carried over from CapEx we did not spend in 2020 as anticipated. The vast majority of our projected 2022 CapEx is maintenance related.

Turning to our Meitz Group business. While our business on the books in this segment saw some movement between quarters as a result of Omicron, we're pleased that we experienced very minimal cancellation activity during the Q1 I've seen a nice pickup in demand for the rest of 2022. Our 2022 net MICE Group business on the books is approximately 41,000,000 versus 36 at the time of our last earnings call and is well ahead of both our final full year 2019 MICE revenue of 32,000,000 and well ahead of the $33,000,000 we had on the books in early 2020 for that year prior to the onset of the pandemic. Nearly 75% of this MICE business is slated to stay in the first half of twenty twenty two, which is slightly more balanced than our MICE pacing at the time of our last call, as many of our incremental bookings have come for the second half of the year given limited space and some movement of existing reservations. Our pacing for 2023 has remained quite strong as well with nearly $21,000,000 already on the books, which as Bruce mentioned is roughly 2 times the amount of MICE revenue we had on the books in April 2019 for the year ahead in 2020.

Return of this MICE business should provide a good base to help manage yields and drive improved profitability year over year, particularly at our resorts in Los Cabos, Rose Hall and Cabraland. Now moving on to the fundamentals. Our Q1 results exceeded our expectations as a result of higher than expected ADRs and resort margins. Resort margins benefited from marketing efficiencies given the higher booked revenue position. While F and B costs were higher compared to Q4 due to both inflationary pressures, but much more importantly additional targeted investments in the guest experience.

On the cost front, as Bruce mentioned, the teams have done an excellent job navigating the current environment. We continue to expect a similar degree of inflation in the first half of twenty twenty two that we experienced in the second half of twenty twenty one. Though it is still early, we do not anticipate expense inflation to be worse in the second half of twenty twenty two with the exception of increased insurance costs beginning in the Q2 of 2022 in connection with our regularly scheduled annual property policy renewal. With respect to the top line, I continue to believe 2022 can be a phenomenal year for Playa as they look out at how our book of business has been building for future periods. We're particularly encouraged by year over year ADR gains And revenue pacing in the second half of the year as we expect to lap the second half of twenty twenty one's record ADR performance.

Both the 3rd and 4th quarters are pacing significantly ahead of the comparable periods in 2019 and just as importantly ahead of 2021 in both revenues and ADR. Looking at the Q2, we expect occupancy to improve modestly versus the Q1 with ADR up nearly 40% when compared to 2019, as Bruce mentioned earlier, which should continue to lead to excellent resort EBITDA margins. As As we move into the second half of the year, the typical interplay between occupancy, ADR and OpEx for modeling purposes should again become easier. In order to maintain property margins we experienced in the second half of twenty twenty one, we will need to grow ADR slightly faster than inflation to account for additional headcount required for higher occupancy levels until we reach stabilized occupancy. We expect occupancy to be in the mid-70s in the second half of twenty twenty two and high single digit ADR growth over 2021 with an upward bias on our ADR forecast based on what we're seeing in this current booking environment.

To give some additional detail and context on that, our ADRs for the second half of twenty twenty two have continued to improve materially since even our last earnings call as we keep booking at significantly higher market rates versus what is on the books already and our forecast does not assume any further improvement. I hope that framework helps you as you fine tune your models. With that, I'll turn it over to Bruce for some closing remarks.

Speaker 2

Great. Thanks, Ryan. So in summary, given what we're seeing on the bookings front and the recent change in travel requirements in Jamaica, I have never been more optimistic for the ongoing recovery And our ability to drive value by providing a one of a kind guest experience, increase ADR and take care of our guests and Playa team members. We will continue to look for ways to leverage our expertise, leadership and experience in the all inclusive segment to create shareholder value. Playa is arguably the best positioned institutionally focused owner and operator of all inclusive resorts in the world and we want to move quickly to continue improving upon our strategic initiatives.

With that, I'll open up the line for any questions that you may

Speaker 3

have. We

Speaker 0

will now begin the question and answer session. Please pick up your handset before pressing the keys. And the first question will come from Shaun Kelley with Bank of America. Please go ahead.

Speaker 4

Hi, good afternoon everyone. Thank you for all the color. Sorry, I was kind of typing furiously and I want to make I caught it all. So first question would just be hopefully an easy one and clarification. I think you said 2Q ADR to be up 40% over the same quarter in 2019, if I caught that right, Ryan and or Bruce.

And if that's the case, Am I calculating that you're actually yes, sequentially you might be down, but you're kind of within striking distance of the ADRs that you posted in Q1. Again, I just want to make sure I'm in the right ballpark of that.

Speaker 1

Yes. You got all that correctly. Technically, I said nearly 40%, but you're right, John, and then that's definitely within spitting distance of the ADRs that we just put up. Correct.

Speaker 4

Super. Okay. Thank you for the clarification. And then Second question would be just a little bit more thematic and I got pulled out of queue here. So if you said this, I apologize for the repeat.

But When thinking about Jamaica, obviously, this is sort of the one market that you probably didn't have a major contribution for in Q1 relative Pre COVID, any way you can help us think about the building blocks for maybe how much if that market was stabilized you might have left on the table there, be that in either revenue or EBITDA terms, preferably EBITDA?

Speaker 2

Yes. So we looked at a

Speaker 1

couple of different ways just based on how our other markets trended and built kind of starting a couple of quarters ago for the Q1 to kind of triangulate kind of the impact Of that market and where it's at. So just in rough terms, it's roughly a 2.5% drag on our total Playa ADR growth versus 2019 or said differently, our ADR would be roughly $8 higher. It's roughly a 2% drag, 2 percentage point drag in our occupancy Or to answer your question specifically, roughly a $6,000,000 to $9,000,000 drag on EBITDA or loss EBITDA potential.

Speaker 4

Great. And Ryan, that was just for the quarter, right?

Speaker 1

Just for Q1, correct.

Speaker 4

Super. Very last question, a little bit thematic, But obviously, we've seen just incredible numbers across a lot of the Caribbean markets. These types of metrics would theoretically Track the decent amount of interest from developers and supply. Can you just give us kind of current thoughts or outlook on Why landscape, maybe we can narrow it to maybe just Cancun and the Doctor to kind of to be thoughtful, but like what are you seeing out there and How much just generically are these markets do you expect these markets to grow on the supply front in 2022 and 2023?

Speaker 2

Sure. I mean, in our markets, Sean, if you look back over time and over a long period of time, there's been pretty healthy growth in supply year over year. And it's relatively easily absorbed into the market. The one good thing about kind of the all inclusive world is that it's a more is merrier kind of situation Where as you have markets that have more and more rooms within the market, it attracts more Airplane seats, it attracts more customers. You can send a kind of throw out a wider net.

So first of all, I just want to comment on that because it's not like New York City, where you have like new rooms coming in and then rates are coming down. We've actually experienced just The opposite that demand is driven. And for us particularly, most of the new rooms that I'm going to talk about are coming in At kind of competitive levels and prices that are below most of our properties. And so up at where our guests are Trending right now, we're not seeing as much new supply. So with that, if you look at Cancun proper, in the hotel zone, There's virtually no new supply coming, okay?

There's no land there and there's nothing coming. So the resource that we In the hotel zone, I think are going to continue to perform exceptionally well and you'll see that. So then you go down Riviera Maya and all the way from Puerto Morelos to Playa del Carmen to Tulum. And is there new stuff coming? Yes, there's new stuff coming.

But as I caveated before, it's not necessarily directly competitive, but any new room is a new room. But you will see some projects. Hilton just announced, I think it was a 7 50 room new Hilton down in Tulum. The thing about Tulum is That's a really far way down the coast. People I think are not familiar with how big the coast is.

And the way to Think of it, it's almost like going from Miami all the way up Florida coast or from Key West all the way up. So we're talking it gets up to like 90 miles, 100 miles of resort coastline. So there are many distinct markets within that airport location. And the thing is the further you get away from the airport, the less attractive it is, particularly again for our customer, okay. At lower price points, people are willing to be on a big bus and go an hour and a half or more, but we just don't see that.

So, while there will be new supply in Riviera Maya, I don't think it's going to be overly concerning to our resorts. Okay. So that's kind of the Yucatan. Puerto Vallarta, much more restricted and limited. I know you didn't ask about that.

And Los Cabos, what you've seen in Los Cabos is it's been much more at the high Very high price point EP hotels, not a lot at all inclusive. So again, I think we're well positioned. In the Dominican Republic, It's a similar situation, I would call it, to Riviera Maya or Cancun. Most of the close in properties Are relatively built out, okay? So you look at our situation in Cap Cana with our flagship Hyatt Ziva and Hyatt Zilara there, there's Very little land space.

There's a little bit in Cap Cana, but very little. So I think we're incredibly well positioned there. Other close in locations near the airport in Punta Cana also historically have already been built out. I think the opportunity For us and others going forward, there will be more conversions than newbuild. And so a lot of the newbuild that you're seeing in the Dominican are kind of newer destinations and Destination significantly further away from the airport.

So way up north past a market called Uber Alto or in the new markets of Coming on other newer locations. So the Dominican and the government and the Tourism Ministry are touting all of these and pushing them. But I think it's going to be more challenging to get People to go there, and I think they're going to be at lower price points. So again, while new stuff will come in, I think in the long run, it's not going to be overly Competitive to us. And then for Jamaica, and I know you just wanted to focus on the Dominican, but just in the short term, there's really nothing going in Jamaica.

So I think that's a good situation, Tim.

Speaker 3

Thank you. Thanks, John.

Speaker 0

The next question will come from Chris Woronka with Deutsche Bank. Please go ahead.

Speaker 5

Hey, good morning guys and congratulations on the quarter. Bruce, maybe we could drill down a little bit on customer mix and how it kind of relates to rate. I mean, it almost sounds like if you can keep These like for like rates structurally higher kind of where they are now. Do you intentionally maybe stay away from certain buckets of business, whether that's How they're booked or certain geographies, just is that possible? Should we think about occupancy not getting back 80% or something?

Speaker 2

Sure. Well, thanks, Chris. Good talking to you. Good question. From our standpoint, we have been focused and we've said this in previous Calls on rate since the beginning of the pandemic, okay.

In fact, in the very beginning, our thought process is, hey, just lowering rates isn't going to drive any more Right. The people who are going to travel are going to travel. And then as the travel increased over the last couple of years, we've noticed a lot of very interesting trends, Okay. And really it's a lot of new people trying out all inclusive. So these are people who maybe previously would have gone to Europe Or on a cruise or to other Caribbean islands and those opportunities weren't available to them.

Mexico, as people are well aware, Never had restrictions at all on entering the country. The Dominican had it early on, but then lifted. And now, of course, Jamaica has lifted theirs. So what you've seen is, it's into our markets, it's been relatively easy to travel there. And so because of that, we've seen a lot of different people.

No question, the dominant supply market for us is the United States, And that's been really good. Europe had more restrictions. Asia, that business still isn't coming back. And Canada also was shut down. So that was the biggest thing that changed was just the percentage of Americans, so that increased.

But It's also the type of customer who that is. And so I think we got a lot more exposure. And if you recall, right before the pandemic, we had just finished Construction in the opening of Hyatt Ziva and Zilara in Cap Cana, the renovated Hilton 2 resorts, the all adults and all ages in La Romana And the all adults Hilton in Playa del Carmen. So those things just were open and we had our plans to launch and ramp The business and then the pandemic came and they shut down. So what you started to see in the last 12 to 18 months is really the ramp up of those resorts.

And so you're seeing the strong customer acceptance of those resorts. The investment we made there and the quality of The resorts and the high level of service are really paying huge dividends for us. And so that's not really so much. A mix change is just Achieving what we expected to achieve anyway, even if there had not been a pandemic, okay? And so I think that's really positive to note.

And overall, and we've emphasized this, but I've got to emphasize it because having listened to some of the other earnings call from other lodging companies in the And concerns people have over sustainability of leisure rates. We're in a very, very different position. I think our rates are more than And I would argue they're still incredibly cheap, okay? And so if you look at the value proposition of ours, we're not seeing any kind of risk of the rates coming down for the rest This year and going into next year. And I think as more and more people get kind of dismayed by what they may have to pay to go in Arizona Or a second summer in Fort Lauderdale, I think you're going to see that our resorts are going to be just great options for them and we'll continue to drive rates.

So our focus is on rates, number 1, okay? We're all inclusive. So the more people we have, the more expensive, right? Because we provide all the food and beverage. So it really makes sense for us if we want to drive more down to the bottom line to focus on rates and not necessarily occupancy.

We may never get back to some of the really astronomical occupancy levels that we ran in the past, and that's totally fine. I would much rather trade it off for Higher rates and better customer experience. And that's what we're seeing. That's why we're driving high margins. And that's why I think we're going to get more and more people coming to our resorts, Particularly in the summer season.

And Chris, the

Speaker 1

only thing I'd add to that to your point just on the inflection in occupancy versus ADR. This Marginal this marginal booking in a demand environment like the one we have today is incredibly attractive To the existing base of business versus a world where you're discounting to fill a final room and accepting essentially a low profit margin. In the world we live in today, the final room Incredibly, incredibly attractive.

Speaker 5

Yes. No, for sure. Very helpful commentary and agree with you on The relative value proposition. So that's great. Just as a follow-up, Bruce, this is kind of a spin off of Sean's question, but more on the M and A side.

I mean, with things looking pretty good for the future, do you think we're going to see any transactions out there that maybe give folks Comfort in some of these per room values that we might assign to your assets? And secondarily, you talked about With rates hopefully being structurally higher, are there going to be more opportunities for you guys to participate, whether Management contracts or joint ventures or anything like that?

Speaker 2

Okay. I'd say on question 1 and I'll elaborate, I'll say, I hope so. And on question 2, absolutely yes. Okay. So with the M and A opportunities, it's different in our market as I know you know, but Just kind of talking to the audience listening today, we don't have the breadth of institutional owners of our properties.

Many of the resorts, all inclusive resorts in our markets, are owned by family companies, owner operators. They have very long investment periods. I mean, they could be forever kind of investment period, so things don't trade as often. So it's always more challenging to see. Having said that, The interest has just been building and building from all kinds of different players, institutional owners of real estate, the global brand companies, Others looking to expand in the segment if they're already there or others looking to enter the segment.

So do I think there's a good possibility of M and A activity? Yes. Do I think those will trade at attractive prices that will make our values look cheap? Yes. Okay.

So I think that's Kind of answers to that question. And then from our perspective, do I think we can grow and get more management contracts and new opportunities? I think absolutely, yes. So the good news about being the only public all inclusive company and reporting our numbers Is that everybody gets to see our results. And so the positive is that our results have been really strong and growing and that has brought people Who may not have been interested in talking to us before, who are now looking at us and they want to talk to us about what we're doing with our strategy, with Our global branding strategy on the resorts and the way we sell, as we've mentioned, the strength of playaresorts.com, the focus on direct sales, Different distribution channels.

Every resort we add, owned or managed to our portfolio gives us more ability To spend money on reaching more and more customers, and I view that as a big positive. So I think it's going to be positive for us, and you'll see us make more announcements Growth.

Speaker 5

Okay, great. Sounds good. Appreciate all the color. Thanks guys. Thanks, Chris.

Speaker 0

Next question will come from Chad Beynon with Macquarie. Please go ahead.

Speaker 6

Hi, afternoon. Congrats on the results.

Speaker 2

Hey Chad. You guys provided

Speaker 6

a lot of commentary on the revenue side, and I wanted to see how this could translate to EBITDA. I don't know. We generally think about it from a flow through standpoint. And I think given the details that you've provided, the next couple of quarters, we'll probably see Revenue is anywhere between $15,000,000 $30,000,000 off of what you guys just printed. But historically, that would kind of lead to a Greater degree of EBITDA decline.

I'm wondering how we should think about flow through or margins, any help there to kind of frame the back half of the year, which is mode. Certainly different than what you guys would do in 2017, 2018 or 2019. Thanks.

Speaker 1

Yes. No, things are certainly Off to a great start. And I think one of the things that we kind of want to get across like one, we've made it very clear that we're not immune to inflationary pressure, right? But We aren't having some of the severe issues or out of control and we're for lack of a better term, like we're not getting completely crushed by cost like so many others in the world are. Inflation has always been a normal part of the operating environment in all regions and is really nothing new.

We have labor cost increases At least for the line staff, at least every year or in some cases every 2 years. And even though it's very elevated at the moment, we have a good experience dealing with all that at the property level. And so we think of it as a fairly fantastic opportunity for us to, 1, kind of continue to flex the operating muscle that we've already done so, Actually play more often. And what you see and I was very specific in some of the prepared comments that while our costs are up, some of that It is voluntary and very, very intentional. We're choosing to invest in the guest experience and maintain and grow our edge and maintain those rates that we've Made very clear that are paramount to this operating margin and lead to record margins that you saw last year And that we expect to be repeated again this year.

Just some simple examples of some of the things we've invested in, whether it's hires at the corporate level for food and beverage and procurement, Staffing areas, we've made investments in the food and beverage quality and presentation at our properties. And I think more importantly, because we've been asked this before, like do you think you're over earning now From a staffing perspective, are you having some of the issues that you hear so many other operators talk about? And while we have our own unique set of circumstances from time to time and as we've come out of From time to time and as we've come out of this pandemic, currently our essentially our labor for guests or headcount for guests It's at or above pre pandemic levels. So I think we can definitively say we're not over earning in this environment. And everything I just mentioned right now, It was already in our Q1 numbers and it's already there.

So, this continued rate environment that is completely playing in our favor, just given the relative value proposition that Bruce covered, And just given the fact that we can operate incredibly well, it should lead to better margins than you've seen even in, like you said, in 2017 or 2018 or 2019.

Speaker 6

Great. Thanks, Ryan. And then just in terms of the outlook on the airplane side of things, Do you have a sense if there's been any pushback from the consumer as flight prices may have increased with the increase in gas prices or Just given that such a small part of the overall trip and more importantly the experience, the consumer is strong and they're kind of looking past any increase On the flight side? Thanks.

Speaker 1

Yes. In short, you're correct. I mean, obviously, it goes without saying, we always monitor and pay attention to anything that affects Airline pricing given that's the only way our customers can get to our properties, right? But ultimately, it kind of depends. Like most of the time, Higher oil prices are a result of a stronger economy and demand and thus not really noticeable on our business.

Obviously commodity price shocks, However, certainly can cause some sort of hesitation or at least short term issues with traveling. But to your point, we've not seen any of that Any impact in our business from the recent move in oil. Obviously, it's likely a function of a very good and robust job market, higher earnings for a segment of the population. But I think one of the bigger factors at play and others in our space have kind of touched on this throughout this earnings season. There's this ongoing shift back To services from durables, right?

And travel happens to be the service that is universally loved by all. And as Bruce mentioned earlier, there's still a large Swap of the population in the U. S. And abroad that still has not hit the road and traveled again. So, so far so good.

Speaker 6

Great. Thank you very much. Congrats.

Speaker 1

Thanks.

Speaker 2

Thanks, Chad.

Speaker 0

The next question will come from Smedes Rose with Citi. Please go ahead.

Speaker 7

Hi, thanks. I just wanted to ask you specifically a little bit about the introduction of the Linden Ultra brand and How do you see the initial pickup with customers there?

Speaker 2

Yes. I mean, I think, Smedes, the brand has Started very, very well. First of all, I just and I think we may have said this before, but our relationship with Wyndham in kind of The efficient operation coordination between our two companies, I'd say is exceptional. So that's just the first point. 2nd, At that price point, as I alluded to when I was answering kind of the supply question is that's the big kind of big bubble In the all inclusive world is that price point.

So there's a lot of property at that price point. And what I think We have with Wyndham, Ultra is the advantage of standing out from the crowd. So a lot of the other brands aren't that recognizable by consumers, particularly the U. S. Consumers.

They tend to source much more of it through tour operator channels and other high expensive Customer acquisition channels and we try to do the same thing we're doing with our Hyatts and our Hiltons. And so I think that's a big, big positive for us. At this point in time, I'm extremely positive about the relationship with Wyndham Altra. So we have the 2, 1 in Cancun and 1 in Playa del Carmen. And it would be great in the very near future that we could significantly expand that relationship and have a lot more of those properties.

And when I commented on people reaching out to us, they see our results, they want to talk to us, I can assure you a lot of them are at that price point and I think that's Going to drive a lot of growth with that brand and that relationship.

Speaker 7

So that could be more on the management contract side?

Speaker 2

Yes. Could be acquisitions too and repositionings, renovations, but also on management contracts on both. Yes.

Speaker 7

Okay. And then, sorry to be like really specific here, but I just I did want to ask you, your the Cap Cana, Hi, it's Cappana. There is a large lot next to it, but I think partially is being And looks like maybe some condos are going to be built there, but there is the Margaritaville opened fairly recently and it looks like maybe there's another hotel coming up there Or be slated there. And I was just wondering if you could maybe talk about any impact you see from the Margaritaville or is it just a totally different customer base and your thoughts on Potentially having another hotel adjacent to that one.

Speaker 1

Well, Bruce, all I've mentioned, we that's a You're right. It's immediately adjacent next door. Bruce can comment on whether or not I don't believe anything has actually fully been planned despite what signs are put up there or not. But The Margaritaville, I think has been successful, but it's in a unique position. It's kind of behind our sanctuary asset that we operate, Right.

And so it kind of has a funky situation layout and a

Speaker 2

very small beach. Yes. I think that's true. So first of all, let's talk about Margaritaville. I think it's a nice project and very attractive construction project that was delivered there.

But as Ryan said, about 80% of it It sits behind our Sanctuary Resort, so it's not on the beach. So the part is kind of a big it's like a big Al, almost like on the map, you can think of it like New York State, right, where you have New York City and that part sticking down, that's kind of the beach part Of the Margaritaville. And so the access to the beach and the kind of water views, etcetera, are much more limited. So that's the situation there. As far as impacting either of our properties in Cap Cana, it is not.

I can tell you, it is not impacting either of our properties there. So I think that's Kind of neutral to non existent as far as that goes. We're driving plenty of business there at both the Sanctuary and the Hyatt Ziva and Zilara Cap Cana. And then as Ryan said, that piece of land, I can assure you there is nothing committed to that piece of land today. And we are obviously incredibly happy with what we've done in Cap Cana And I'd love to have more Cap Canas in the future.

Let me just end it that way.

Speaker 7

Okay. Thank you. Appreciate it. Okay.

Speaker 1

Thanks, Steve.

Speaker 0

Next question will come from Tyler Boitay with Oppenheimer. Please go ahead.

Speaker 3

Thank you. Good afternoon. I just wanted to ask the margin question a little bit more directly here. And assuming high single digit year over year ADR growth in the second half, what does that really Apply for margin compared with 2021. I mean, it sounds like you're telling us that under that scenario, you expect margin will be flat With 2021 in the back half, I just want to be sure that I'm understanding that correctly.

Speaker 1

Yes, that's correct. It should be Give or take, but roughly at or near or slightly above those historical levels that we saw last year, correct.

Speaker 3

Okay, okay, great. Just want to be sure on that. And then in terms of the Jamaica announcement, and I appreciate some of the numbers you provided on that, but Maybe just to play devil's advocate for a second. I mean, do you think this announcement really grows things? Or is this potentially a Scenario where there's just a little bit of a share shift and maybe folks that were going to be going to Cancun or Dominican are now just going Switching and going to Jamaica, maybe it's a net net kind of a wash in terms of the overall business.

Is that something

Speaker 2

Let me just start and then I'll pass it over to Ryan and Tyler. But I'll tell you this from my standpoint, Jamaica has always done incredibly well. It's a different market. People who go to Jamaica are historically very different than the people who would go to Cancun or the Dominican Republic, okay? Typically, it's a much higher rated business.

You get a lot more Northeast U. S. People that go to Jamaica As well as a very high UK component, given the historical connection with the United Kingdom. Prior to the pandemic, just to refresh everyone's memory, Jamaica was our best performing segment. So I don't think you're going to look at this And say, okay, it's just people switching, not going to Cancun or not going to Punta Cana and going to Jamaica.

I think we're going to open it to a lot more people. 2nd, let's just talk about again, who typically has gone to Jamaica coming out of the Northeast market. So it's a higher rate market, much higher disposable income. And to be quite honest, it's a group that really has not come back significantly due to pandemic concerns. Okay?

So I think As things have changed, all the cities in the Northeast have opened up, people are getting more comfortable with the removal of mask mandates And other protocols related to COVID, I think the potential for Jamaica is huge, absolutely huge.

Speaker 3

Okay. Excellent. That's very helpful. And so last one for me. I'm interested, I know you track where your guests are coming From quite a bit and you follow that very, very closely.

Are you do you think you're getting some incremental folks that have never been to an all inclusive resort Before that are coming down and maybe visiting you guys for the first time and hope that they have a good experience and then come back. I'm just kind of interested how that Compared now in terms of brand new folks or even just to your specific properties, maybe not just all

Speaker 2

Yes. No, absolutely. Yes, absolutely, Tyler. We're seeing a lot more people who never experienced All Inclusive before over the last 2 years, okay? And part of it became There was we were the only game in town, right?

So you could only go to our markets. And so people looked at our properties. And I think there was a Very high desire to stay at an all inclusive because at the early part of concerns about COVID, people felt safer being at an all inclusive. Okay. So they knew what we were doing and they didn't have to go outside to restaurants where they didn't know what the safety protocols were, etcetera.

So they felt very comfortable. So we got a lot of people trying all inclusive. And it's always been the case. I mean, I've been involved in all inclusive now for 20 years. And from the very beginning, my goal and my kind of issue was like how do you drive more people, particularly U.

S. Consumers to this segment, which I just think is amazing segment and experience. And so every time you do, the people like it and they come back. We have a very high Return percentage after we get people to come to our resorts. And so I think that's a big part of what we do.

And then add to it our focus on branding, right? So we're the only one of the all inclusive major all inclusive who focuses on branding. Why do we do that? As we've said early on, we can never replicate what the brands can do. We can't have over 100, 150,000,000, 160,000,000 Members in a frequent stay program and the reach that the brands have and the ability for people to use all of their Built up frequency points and use them as redemption at our resorts.

So our affiliation with the brands is another big component of it. And then finally, look at what the brands have been doing over the last 2 years in all inclusive. They're eager. They have grown and they're eager to grow even more. You saw Hyatt acquiring Appalachia Group.

You saw Marriott doing the Ellicant portfolio and then the Sunwing transaction. Accor just made a major announcement about their strategic focus on all inclusive. They've been particularly focused kind of in Europe and the Middle East and the Mediterranean, and now they're going to focus more on our part of the world. So Every time one of these brand companies takes the initiative to kind of drive all inclusive, it's going out to tens of millions or over 100,000,000 Yes. And I think that is just really good for us.

People start looking at all inclusive, they start looking at TripAdvisor ratings, we're at the top of the list. We get a lot of those eyeballs looking at us.

Speaker 3

Okay. Very helpful. That's all for me. Thank you. Thanks, Tyler.

Speaker 0

This concludes our question and answer session. I would like to turn the conference back over to Bruce Wardinski for any closing remarks. Please go ahead, sir.

Speaker 2

Great. Thank you very much. So just quickly, I just want to make a couple of points just to make sure people walk away with kind of the themes. Hopefully, they got them today. We had a great 1st quarter and we've got momentum rolling into the 2nd quarter.

We think our prices are still really cheap. As we said, it's a great value proposition for our resorts. Our second half ADRs this year are surpassing really strong second half ADRs in 2021. Lots of cohorts have not yet started traveling. And as we mentioned, the people with young children or people that were hesitant during COVID Or people coming out of Europe or Asia or Canada, we're starting to see that business coming back.

And finally, our MICE business is back And it's really building well into 2023. We think you take all of these components and things are looking really good for Playa. So thank you again for participating this afternoon. Hope everyone has a great weekend.

Speaker 0

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.