Earnings Call Transcript - BHR Q3 2020

Operator, Operator

Greetings, and welcome to the Braemar Hotels & Resorts, Inc. Third Quarter 2020 Results Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Jordan Jennings, for Braemar. Please go ahead, Ms. Jennings.

Jordan Jennings, Host

Good morning, and welcome to today's call to review results for Braemar Hotels & Resorts for the third quarter of 2020 and to update you on recent developments. On the call today will be Richard Stockton, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Chief Operating Officer. The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday in a press release. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the federal securities regulations. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them. Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus, which can be found at www.sec.gov. In addition, certain terms used in this call are non-GAAP financial measures. Reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on October 28, 2020, and may also be accessed through the company's website at www.bhrreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release.

Richard Stockton, CEO

Good morning. Welcome to our third quarter 2020 earnings conference call. I will begin by providing an overview of our business and an update on our portfolio, which includes our hotels achieving positive hotel EBITDA for the quarter. And all of our hotels are now open, including the recently rebranded Clancy hotel in San Francisco. The COVID-19 pandemic has created both social and economic disruption on an unprecedented level and has created a volatile landscape throughout the hospitality industry. As I have said previously, this has been an extraordinary period for all of us, and our entire leadership team has been steadfast in our commitment to protect all of our stakeholders during this unprecedented time. A few objectives have continued to guide us. The health and well-being of the employees at our hotels, our hotel guests, and the communities in which we operate have been a top priority, and we have taken several preventative measures to keep them safe. As state home orders were implemented, we quickly adapted to the restrictions and challenges affecting our properties and adjusted the staffing model at our hotels while reducing other operating expenses in an effort to preserve cash and minimize near-term losses. I am extremely pleased to report that since then, all of our properties have reopened, and we reached an important milestone by achieving positive hotel EBITDA across our portfolio during the quarter, driven by strong occupancy performance of over 48% at our resort properties. Upon the bulk of our properties reopening in July, we achieved portfolio-wide occupancy of almost 30% and hovered around that level for August and September, while our ADR declined as a result of adding lower-rated room inventory to the reopened portfolio. While leisure demand is holding up nicely, particularly on weekends, any significant uptick in RevPAR performance is likely to rely on the recovery of corporate transient demand and ultimately, group demand as a result of widespread vaccination or achieving herd immunity. Many of our hotels are in drive-to leisure markets and have been well positioned to benefit from the resurgence of leisure demand in recent months. In total, eight of our 13 hotels are considered resort destinations. These hotels include the Ritz-Carlton Sarasota, Bardessono, Hotel Yountville, Ritz-Carlton Lake Tahoe, Pier House Resort, Park Hyatt Beaver Creek, Hilton La Jolla Torrey Pines, and Ritz-Carlton St. Thomas. We are pleased to report that this thesis has played out just as we expected as all eight of these properties had positive EBITDA for the quarter. While it is still early in the reopening process and the impact of the virus is still unpredictable, it is clear from the feedback we are hearing that guests are excited to be traveling again. With all of our hotels now reopened to the public, we continue to prioritize the health and safety of our guests and staff, and we are being thoughtful, deliberate, and flexible as our hotels resume operations. To enhance guest safety, our properties have instituted stringent safety measures and protocols consistent with evolving best practice recommendations regarding COVID-19, ranging from enhanced hygiene standards to keyless check-in and electrostatic sprayers to protect guests. Additionally, in the near term, we have specific plans to contain expenses across the portfolio as we continue to navigate the reopening process. We are offering optional housekeeping services at some properties for stayovers. We are also eliminating van transportation, airport shuttle service, valet parking services, turndown service, and all amenities that exceed brand standards. We're also suspending some services at concierge, lounges, clubs, and all spas and kids clubs. Our asset management efforts have been relentless and have positioned us well for the continued ramp-up in operations that we now anticipate. We are also excited about the recent opening of The Clancy in early October, located in San Francisco's vibrant SoMa market. The former Courtyard San Francisco Downtown underwent a rebranding and renovation in excess of $30 million to create The Clancy. It joins Marriott International's Autograph Collection Hotels, and the property features 410 guestrooms, over 11,000 square feet of modern meeting space throughout 16 event rooms. While construction restrictions delayed The Clancy's reopening by several months, and we expect that occupancy levels will be moderately low given COVID-19's negative impact on group and business transient demand, we look forward to realizing enhanced financial performance from this property over the long-term as a result of the rebranding and renovation. While we continue to face the challenges of the pandemic and the uncertainties that go with it, we have taken proactive and aggressive actions to protect and enhance our corporate liquidity. This included cutting expenses at the corporate level and significantly reducing our planned CapEx spend for the year. We will continue to preserve cash until we have more clarity on the recovery and the direction of the economy. All in all, we estimate that we have reduced our run rate, corporate G&A and reimbursable expenses under our advisory agreement by approximately 25%. As previously discussed, we also closed on an amendment to our corporate credit facility with a paydown of $10 million; the amendment converted the $75 million corporate credit facility into a $65 million term loan with the same maturity date of October 25, 2022. During the quarter, we also finalized discussions with our property level lenders and now have no defaults across our borrowings. Our intention is to remain current on these obligations going forward. We successfully navigated through a very challenging operating environment during this quarter. Our balance sheet is in good shape, and I believe we are set up very well for the ultimate recovery in our industry.

Deric Eubanks, CFO

Thanks, Richard. During the third quarter, we settled our insurance claim with our carriers related to the Ritz-Carlton St. Thomas for a total of $123.5 million, of which $42.3 million related to business interruption income that had been previously recognized in our financial statements. This was a significant claim that resulted in a positive outcome for the hotel and its associates and demonstrated the great working relationship our risk management team has with our insurance carriers. For the third quarter of 2020, we reported a net loss attributable to common stockholders of $18.7 million or $0.55 per diluted share. For the quarter, we reported AFFO per diluted share of negative $0.15. Adjusted EBITDAre for the quarter was negative $3.1 million. At quarter's end, we had total assets of $1.7 billion. We had $1.1 billion of mortgage loans, of which $49 million related to our joint venture partner share of the loan on the Hilton properties. Our total combined loans had a blended average interest rate of 2.5%. Our loans are entirely floating rate. As of the end of the third quarter, we had approximately 54% net debt to gross assets. We ended the quarter with cash and cash equivalents of $88.2 million and restricted cash of $34.7 million. The vast majority of that restricted cash is comprised of lender and manager held reserve accounts. At the end of the quarter, we also had $14.3 million and due from third-party hotel managers. This represents cash held by one of our property managers which is also available to fund hotel operating costs. As Richard mentioned, we have been and continue to work with our property managers and lenders in order to utilize these lender and manager held reserves to fund operating shortfalls at our hotels. To date, we have signed forbearance agreements on 6 loans, including the mortgage loans on the Bardessono Hotel, Ritz-Carlton Lake Tahoe, Ritz-Carlton Sarasota, Pier House Resort, Capital Hilton, and the Hilton properties. The agreements typically allow the company to defer interest on the loans for a period of up to 6 months, subject to certain conditions. The forbearance agreements also allow us to utilize lender and manager held reserve accounts, which are included in restricted cash on our balance sheet in order to fund the operating shortfalls at the hotels. We also signed an FF&E use agreement on the 4 hotel portfolio loan that includes the Sofitel Chicago, Marriott Seattle Waterfront, The Notary Hotel, and The Clancy. This agreement allows us to use the lender and manager held reserve accounts to fund operating shortfalls. This agreement also provides for the exercise of the first of the loan's 5 1-year extensions. With these agreements in place, our balance sheet is in good shape, we are now out of default on all of our loans, and our present intention is to remain current on these obligations going forward. As we highlighted with our positive hotel EBITDA for the quarter, our monthly cash burn at our hotels has been reduced to close to 0. Interest expense, corporate G&A, including advisory fees, and preferred dividends total approximately $5 million per month. With all of our hotels currently open and operating, $88 million of cash and cash equivalents at the end of the quarter, and based on realistic yet conservative assumptions for future hotel operations, we believe that we have sufficient liquidity to outlast the COVID-related downturn in our business. As of September 30, 2020, our portfolio consisted of 13 hotels with 3,487 net rooms. Our share count currently stands at 41.1 million fully diluted shares outstanding, which is comprised of 36.6 million shares of common stock and 4.5 million OP units. In our financial results, we include approximately 6.7 million shares in our fully diluted share count associated with our Series B convertible preferred stock. This concludes our financial review. I'd now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

Jeremy Welter, COO

Thank you, Deric. Comparable RevPAR for our portfolio dropped 65.6% during the third quarter, but hotel EBITDA flow-through was a notable 55%. As the hospitality industry begins to recover, we are closely monitoring the daily performance of each asset. Overall, we are experiencing significantly higher demand at our resort hotels, with third quarter comparable RevPAR down 37%, which is an improvement compared to our urban properties, which are down 91%. All of our resort assets reported positive EBITDA for the third quarter, collectively generating over $6.3 million in hotel EBITDA. As mentioned earlier, our resort hotels have performed quite well throughout the pandemic, exemplified by the Ritz-Carlton Sarasota, which has seen the fastest recovery. In the third quarter, comparable RevPAR decreased only 3.7% compared to the same quarter last year, and hotel EBITDA for this period rose over 500% compared to the previous year, thanks to increased transient demand and the asset management team’s efforts to eliminate costs. Actions taken included temporarily suspending concierge services, discontinuing turndown service, reducing sales and staffing levels by about 50%, and cutting expenses associated with the golf course. Another strong asset is the Ritz-Carlton St. Thomas, which reopened in June and achieved 63% occupancy in July. It saw demand grow in August before a second stay-at-home order was issued and reopened again on September 19. Despite being closed for 25 days, the hotel generated around $100,000 in positive EBITDA for the quarter, aided by cost-control measures and the realization of pent-up leisure demand. For our resort portfolio in the quarter, the Pier House resort attained 57% occupancy. Our California properties, including Bardessono, Hotel Yountville, Hilton La Jolla Torrey Pines, and Ritz-Carlton Lake Tahoe, achieved an average of 50% occupancy, while the Park Hyatt Beaver Creek reached 35%. Despite wildfires in September and early October, our California properties performed reasonably well. However, we did see some impact due to the fires, particularly at our Yountville hotels, with Bardessono losing approximately $1.1 million in cancellation revenue and Hotel Yountville seeing about $900,000 in lost revenue. With the fires abating and air quality improving, these assets are rebounding. As Richard mentioned earlier, this quarter marked the completion of the strategic repositioning of the Courtyard San Francisco Downtown into The Clancy, becoming part of Marriott's Autograph Collection. The renovation took just over 1.5 years and required an investment of more than $30 million, during which we reconfigured the hotel's entrance and lobby to create a more inviting arrival experience. We built a new central bar with lounge seating that leads into the renovated restaurant and cafe. As California eases its restrictions, we anticipate a quick recovery for this property. Regarding capital investment, we invested heavily in our portfolio in 2019 to enhance our competitive position, including the conversion of the Courtyard Philadelphia Downtown to The Notary Hotel, the addition of a three-suite presidential villa at the Bardessono Hotel, and value-add projects during the Ritz-Carlton St. Thomas rebuild. These initiatives enabled us to reduce capital expenditure spending significantly during the COVID-19 pandemic. In 2020, even with a substantial cut in capital expenditures, we completed the conversion of the Courtyard San Francisco Downtown to The Clancy and renovated the Pier House Resort’s guestrooms. Overall, we expect to spend about $25 million on capital expenditures in 2020. Additionally, our portfolio has successfully upheld ADR this year, with year-to-date figures showing a 29% increase for the Park Hyatt Beaver Creek, 6% for Ritz-Carlton Lake Tahoe, 4% for Ritz-Carlton Sarasota, and around 1.4% for The Clancy compared to 2019. Overall, our portfolio has seen a 10.5% increase in ADR this year compared to the previous period. Notably, Ritz-Carlton St. Thomas is projected to achieve October rates 36% higher than those before Hurricane Irma, indicating the strength of our assets and the potential for our portfolio as demand continues to recover. I will now hand the call back to Richard for final thoughts.

Richard Stockton, CEO

Thank you, Jeremy. In summary, our focus during the quarter was on the reopening of our entire portfolio of hotels. This sets us up nicely for a slow but steady recovery in our financial results. We have taken decisive actions to navigate the near-term challenges of this crisis. And while we cannot predict the trajectory of the pandemic, we are encouraged as we look ahead that we have in place the appropriate runway to get back to positive cash flow. I am proud of our efforts to protect our assets and maintain financial flexibility to position us for future success. We look forward to updating you on our progress as we move through the remainder of 2020 and into the New Year. This concludes our prepared remarks, and we will now open the call up for Q&A.

Operator, Operator

The first question is from Tyler Batory, Janney Capital Markets.

Jonathan Jenkins, Analyst

This is Jonathan on for Tyler. First one from me. I was wondering if you guys could provide some color on the demand trends that you've seen post Labor Day and in October. Has there been any noticeable shifts in recent weeks with the recent spikes in COVID cases?

Richard Stockton, CEO

Yes, sure. I'll say there seems to be a commonly held belief that post Labor Day, things would fall off. And as kids went back-to-school and people weren't able to travel as much, particularly to generate that leisure demand. I will tell you, with our portfolio and what we're seeing, that is not the case. October is tracking several occupancy points ahead of September, and it's up a few percent in ADR as well. So our October is shaping up very nicely. As I look forward at our bookings for November and December, the occupancy is also building very nicely. Rate in December is very strong. And then we get to January. And January, as part of the first quarter, seasonally, is always our best quarter. And even January is shaping up well. So we're benefiting from a couple of different trends going into the first quarter. One is the inauguration. So we have almost 30% occupancy on the books already for Capital Hilton. But then we also have, as you know, some resorts that are benefiting from the snow and then some resorts that are benefiting from snowbirds traveling south for the sun. So the trends are favorable. I do think in order for us to get up to portfolio-wide occupancy of 50% or so, which is probably what we need to achieve corporate level breakeven, that will take a little bit more time. But I can tell you that things are certainly looking to be heading in the right direction.

Jonathan Jenkins, Analyst

That's great. I appreciate that color. And then ADR in the quarter was up 7%, which was quite good and surprising to us. And I know Jeremy gave some comments in his remarks, but could you guys just provide some additional color on your revenue management strategy and the overall rate environment you guys are seeing in your markets?

Jeremy Welter, COO

Yes, I can do that. We are maintaining our rates because it's not about the quality of our assets or price sensitivity. The key question is whether people are going to travel. We believe our portfolio features destinations that appeal to travelers and for which they are willing to pay. Therefore, we have been holding and increasing our rates as much as possible. I don't think this has negatively impacted our occupancy, as we are still observing demand returning, albeit not as quickly as we would like. However, we have established a level of discipline among our teams and revenue managers to uphold our rates and push them where feasible.

Jonathan Jenkins, Analyst

Okay. That's very helpful. And then last one for me, switching gears to St. Thomas, and I know this may be difficult to answer, given the island closure. But can you just talk about what you've seen there and how performance has come in versus expectations given the pricing nature of the island?

Richard Stockton, CEO

Yes. Well, as you know, the island is reopened now. In fact, I personally visited the property a couple of weeks ago. And I'll tell you, it looks absolutely stunning. The renovation that we've undertaken there has really turned out very well. And all of our guests' comments and reviews are extremely, extremely positive. With that better product, and frankly, with less supply in that market and the fact that Americans, I think, feel a little bit more comfortable traveling there and are able to travel there versus international destinations. We're benefiting greatly. And if you look at the ADR for October, it's up over 30% versus the premium levels. And that's a result of the new product, the restricted supply available, and this pent-up leisure demand, which I think is a little less elastic, frankly, in the luxury resort space than maybe other chain scale segments. And we're capitalizing on that.

Jeremy Welter, COO

Yes. And what I'd add to that is prior to having to shut it down for the second time, we were running, I believe, in the high 70s with a rate of close to $800. So we were obviously very disappointed that we had to close the resort down a second time. So as you pointed out, there's just a lot of noise in the numbers. And the fact that we were able to generate positive hotel EBITDA was a huge accomplishment. I mean just if you think about the costs associated with closing the hotel and then reopening it again. Then we've got to bring back people early to train them and retrain them. So it was a great result that we generated a positive hotel EBITDA in light of all of that. And I'd also add that even before that, not only because folks feel more comfortable with maybe traveling to a U.S. destination, we had a lot of first-time travelers to that resort. Tons of them. And that was because a lot of the other Caribbean resorts were closed to U.S. visitors. And so where folks may have typically gone to another Ritz-Carlton resort somewhere else, and even in locations like California, they chose to give St. Thomas a try. And that was a huge opportunity for us because we have all this new product, fresh product, which I think is nice as almost any resort in the Caribbean. And so we do believe that this is going to be sustainable in terms of recapturing those first-time guests on a go-forward basis. So I'd be surprised if this property does not well outperform what we would have anticipated coming out of the recovery of reopening it and out of COVID.

Operator, Operator

The next question is from Bryan Maher, B. Riley Securities.

Bryan Maher, Analyst

Just a point of clarity on the St. Thomas commentary, which I appreciate. Did I hear you say that it was running high 70s occupancy in an $800 a night rate?

Jeremy Welter, COO

Yes. Right before we concluded, it was indeed performing very, very well.

Richard Stockton, CEO

So that would have been July, which is a strong month. Yes.

Bryan Maher, Analyst

Okay. And what exactly triggered that shutdown? And what is the likelihood that this could happen again in your view?

Jeremy Welter, COO

Yes, I had a conversation with the governor, and it seemed that the decision was somewhat compelled. It was not primarily due to U.S. travelers visiting the Virgin Islands but rather because local residents were not adhering to social distancing guidelines. This led to a significant shutdown lasting about three to four weeks. Part of the issue stemmed from many restaurants, bars, and small businesses, which often are located on the beach, lacking the sanitary standards comparable to those of high-end establishments like the Ritz-Carlton, especially concerning the cleanliness of their materials. Consequently, they had to switch to plasticware as mandated on the island. The government implemented various measures to curb the virus's spread, including setting a required testing positivity rate for reopening. I believe that with increased testing, we can expect a lower positivity rate, making it less likely for shutdowns to occur in the future. The preparations they have made have been commendable. For instance, visitors must present a negative test before arriving, which likely reassures more travelers about their safety. Furthermore, the airport has been efficient with temperature checks to expedite the entry process. Although we were disappointed by the shutdown, I think the government’s actions have contributed to a greater sense of security for those traveling to the island.

Bryan Maher, Analyst

Got it. And then shifting gears to your urban hotels, the Chicago Sofitel, the Seattle Marriott, The Notary, the Capital Hilton, these are pretty aggressive RevPAR declines. What's the thought process at Braemar to deal with that? Is it to just tough it out and make the payments and cut costs as much as you can and wait for the recovery? Or is there a plan B that you're thinking about on some of those assets?

Richard Stockton, CEO

Yes. The decision to reopen our assets was based on the point where the financial loss from being open matched the loss from being closed. This still holds true, although it is somewhat less relevant now because those assets are indeed facing challenges due to the lack of corporate and group business. However, they are seeing some leisure demand, especially on weekends. For instance, the Sofitel had nearly 30% occupancy for the quarter, mainly from weekend stays by residents of the Chicago suburbs. Other properties are benefiting from similar trends. Our current strategy is to stay focused on improving RevPAR and profitability over time. I believe that gradually, business travel will pick up, and we will start booking some smaller groups. Additionally, we have some airline crews utilizing a few of our assets, which is providing a reliable source of business.

Jeremy Welter, COO

Yes. I would say we've entered segments that we might not have pursued otherwise, particularly in a stronger market. Our goal is to keep this approach temporary to limit our risks. When you examine each property on its own, they are exceptional assets located in strong markets with great long-term potential. I encourage you, Bryan, to visit The Clancy. We have transformed a courtyard into a remarkable hotel, and I anticipate that this property will perform exceptionally well due to its proximity to a significant number of demand generators in the San Francisco area.

Richard Stockton, CEO

Bryan, you mentioned funding the losses at our urban properties. We have access to FF&E reserves to cover those operating losses, which is quite beneficial at this moment. We anticipate these reserves will be enough to help us navigate through this period.

Operator, Operator

We have a question from Michael Bellisario, Baird.

Michael Bellisario, Analyst

Richard, a question for you. I know it's probably a little early, but you're clearly on a path to being in a better cash flow position soon. But was hoping you could maybe share your thoughts on acquisitions, your appetite for growing the portfolio, what you're seeing out there today and how you're positioning yourself to grow the portfolio eventually.

Richard Stockton, CEO

Yes. It's a fair question. We are starting to think about it, and I am tracking all the transactions that we're seeing, which I know you know is very few and there are some interesting trends. There are some hotels that are trading at significant discounts on a per key basis than what you would have seen a year ago. And in some cases, even more than the kind of 25%. I think people generally believe that values are down. And so that speaks to our interest. We're not seeing it for properties in the luxury segment. And I don't know if that's a function of it, maybe just being too early, the circumstances haven't risen yet. But we are seeing it in the lower rate of chain scales. As far as Braemar's appetite is concerned, right now we are cash flow negative and preserving our liquidity is of paramount importance. So you won't see us using our cash opportunistically until we get at least back to cash flow positive on a corporate level. So our view is we just don't know when that is going to happen precisely. There's too many factors that make that an unknown. So we have to be solidly in the black on a corporate level, on a monthly cash flow level before we would ever consider a new acquisition. So that's how we think about new acquisitions. So for the moment, we're studying the market. We're aware of kind of what's out there and how things are trading. But we're not bidding on anything, that's for sure.

Operator, Operator

We have a question from Chris Woronka, Deutsche Bank.

Chris Woronka, Analyst

You mentioned a lot of initiatives you've taken at the property level to kind of maintain margins and generate positive EBITDA and I suspect some of that is because you've had a greater mix of leisure demand. I mean at what point does some of that, at a certain rate or a certain occupancy level, at what point do you have to pull back on some of those more aggressive closures of things like lounges and things like that?

Jeremy Welter, COO

Yes, we have seen strong demand and our lounges are operational. At Ritz Carlton, we can offer lounge access at a premium rate. We have either kept these lounges open or reopened them. I believe many of the cost-cutting measures we've implemented will be sustainable for a long time because we have restructured our hotel operations. Our collaboration with Marriott and Ritz-Carlton has yielded remarkable results. In Sarasota, for example, profitability rose significantly in the third quarter despite a slight decline in RevPAR. While the results may not appear impressive at first glance, I expect to see substantial flow-throughs as we move forward. Additionally, we anticipate potential declines in property taxes within our portfolio next year, which we will actively pursue. Overall, we foresee an extended period where we can achieve higher margins. Although the average daily rate may decrease due to a higher mix of group and lower-rated business, we anticipate maintaining strong margins at the rates we will still offer.

Richard Stockton, CEO

Yes. I'd add to that. I'd say our resort portfolio, the amenities are essentially available, but there is a call made on the ground on almost a daily basis. If there's not sufficient occupancy on a particular day, they may not open a certain food and beverage outlet or the concierge club or the fitness. But the weekends have been so strong that I think if you visit any of our resort hotels, by and large, most of it is open. Some exceptions. The urban properties aren't anywhere near the occupancy necessary to open up food and beverage outlets and clubs, etc. I think that they would need to significantly move up to at least kind of 50% occupancy, I think, to justify full operations. So again, it's case by case, and in some cases, day by day. But you'll see the resort portfolio operating, as you'd expect, but the urban is much less so. It remains to be seen when we achieve that level of occupancy, and that's going to be based on, as I said in my opening comments, vaccinations and the resurgence of business travel. So that's what's going to trigger it.

Chris Woronka, Analyst

That's helpful. Before COVID, you had a process in place with the Chicago Sofitel. The numbers are now quite varied. Can you provide an update on its status? Will you return to your previous state, or are there ongoing negotiations? What is happening?

Richard Stockton, CEO

Yes. So that's the subject of an ongoing legal dispute. So I'm not able to give any more color on it today.

Operator, Operator

Ladies and gentlemen, this concludes today's question-and-answer session. I'd like to turn the call back over to management for closing remarks.

Richard Stockton, CEO

Okay. Thank you, everybody, for joining us on our third quarter earnings call, and we look forward to speaking with you again on our next call.

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.