Earnings Call Transcript - RHP Q2 2021

Operator, Operator

Hello. Welcome to Ryman Hospitality Properties' Second Quarter 2021 Earnings Conference Call. Hosting the call today for Ryman Hospitality Properties are Mr. Colin Reed, Chairman and Chief Executive Officer; Mr. Mark Fioravanti, President and Chief Financial Officer; Mr. Patrick Chaffin, Chief Operating Officer; and Mr. Scott Bailey, President, Opry Entertainment Group. This call will be available for digital replay. The number is 800 (585)-8367, and the conference ID number is 5259795. At this time, all participants have been placed on listen-only mode. It is now my pleasure to turn the floor over to Mr. Mark Fioravanti. Sir, you may begin.

Mark Fioravanti, CFO

Good morning. Thanks for joining us today. This call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about the company's expected financial performance. Any statements we make today that are not statements of historical fact may be deemed to be forward-looking statements. Words such as believes or expects are intended to identify these statements which may be affected by many factors, including those listed in the company's SEC filings and in today's release. The company's actual results may differ materially from the results we discuss or project today. We will not update any forward-looking statements, whether as a result of new information, future events or any other reason. We will also discuss non-GAAP financial measures today. We reconcile each non-GAAP measure to the most comparable GAAP measure in exhibit to today's release. And with that, I'll turn the floor to Colin.

Colin Reed, CEO

Thank you, Mark, and good morning, everyone. As those of you who follow us closely may have already seen from our last investor update published just over two weeks ago, the month-by-month acceleration in our business that we witnessed in the first quarter continued to gain steam throughout the second quarter. I'll highlight a few of these remarkable rates and I can now add some preliminary July results as well, just to emphasize again how rapid the pace of recovery has been in our industry and for our company. At the start of the second quarter in April, as the vaccine was still in the early stages of a nationwide rollout, we saw just over 20,000 group room nights traveling in our hotels. Total hotel occupancy for April, excluding the national, was 30%. These group room nights represented about 28% of all room nights as leisure transient continued to constitute the majority of our guests that month. Now just two months later in June, we saw a surge to over 69,000 group room nights or 47% of total room nights traveling in the month as overall occupancy, still excluding the national, reached nearly 59%. To add to this, I'm happy to report that in the month of July, with the Gaylord National once again opened, we serviced for the 5 resorts nearly 105,000 group room nights. This year-to-date has seen an extraordinary rate of change for such a short time in our group business such that week by week over the last few months, it continually outpaced our internal forecast. Meanwhile, our average daily cancellations in June fell to a post-COVID low of about 1,000 room nights per day, the fourth consecutive month of steady decline and not that far off from our pre-COVID average of about 600 room nights per day over the 2018 and 2019 time period.

Mark Fioravanti, CFO

Thanks, Colin. In the second quarter, the company generated total revenue of $170.9 million, and a net loss to common shareholders of $57.9 million or a net loss of $1.05 per fully diluted share. On a non-GAAP basis, the company's second quarter consolidated adjusted EBITDA was positive $28.2 million, and AFFO available to common shareholders was negative $1.6 million or negative $0.03 per diluted share. This marks the first quarter of positive consolidated adjusted EBITDA since the first quarter of 2020 before the COVID-19 pandemic. And we saw steady sequential progress in this measure month by month, reflecting the rapid pickup in our group business that Colin described. April was close to breakeven at a negative $1.2 million, followed by our first positive month in May at $2.8 million before jumping to a positive $26.5 million in June. These figures consistently exceeded our internal expectations moving through the quarter and allowed us to substantially exceed the cash burn guidance that we provided on our February earnings call. Specifically, we had cash interest expense and debt service of approximately $29.3 million in the quarter, leaving us with an average cash burn rate of only about $1 million per month, substantially better than the $10 million to $13 million we initially anticipated going into the quarter. As we noted in our investor supplement issued two weeks ago, we continue to expect further improvement in both our hospitality and entertainment businesses based on their existing books of business. We expect positive adjusted EBITDA and positive cash flow after debt service in both the third and fourth quarters and are looking forward to retiring the term cash burn for good. As Colin said, we are watching the Delta variant closely for any impact on our business. Notwithstanding that scenario, we continue to expect third quarter positive cash flow defined as adjusted EBITDA less our average monthly debt service before maintenance capital in the range of $16 million to $19 million per month. In terms of liquidity, we ended the quarter with $225 million outstanding on our revolving credit facility, mostly attributable to the purchase of the 35% interest in the Gaylord Rockies from our prior joint venture partner, which closed in the quarter. This leaves $475 million of available capacity and another $72 million of unrestricted cash for total available liquidity of $547 million. While the company put an ATM program in place in the second quarter, no equity was raised through this program to date. We view it as giving us added flexibility with which to take advantage of future investment opportunities or equitize some of the significant capital we have invested in our business in recent years and that we're excited to see finally mature after the COVID-19 disruption. We provided a comprehensive breakdown of these investments in our most recent investor supplement and Colin has emphasized several of them again today. I would encourage you to go through each of these investments using our investor supplement as a guide and look at the capital we've committed in our expected returns. We're confident that if you go through this exercise, you will be as enthusiastic as we are about the future of both our hotel and entertainment businesses. With virtually all this capital deployed, we expect to deleverage over the coming quarters and by the end of next year, anticipate approaching our long-term target leverage levels once again. And with that, I'll turn it back to Colin for any closing remarks.

Colin Reed, CEO

Mark, I think for getting through the next few minutes, let's just go straight to Q&A. So Crystal, if you could open up the lines, we look forward to hearing some of the analysts have to say.

Operator, Operator

Your first question comes from the line of Shaun Kelley with Bank of America.

Shaun Kelley, Analyst

Maybe, obviously, there's a lot of eyeballs and attention being placed on sort of what's happening very much at the margin here with COVID and the variants out there. So Colin, you obviously touched on this in prepared remarks, and it doesn't sound like there's too much concrete for you to give us. But we've definitely heard a little bit of concern around incremental cancellations in Las Vegas. And I wanted to get your latest up-to-date thinking. Have you seen either anything at the margin there? And maybe you can give us a little bit of an update around localized mask mandates or requirements and how you think that would impact business, if they are in place today in any of your properties and what your sort of outlook for that kind of looking forward might be?

Colin Reed, CEO

Yes. Well, Shaun, we're obviously watching this hour by hour. We're monitoring this very closely. And Patrick spends a lot of his time talking to the health authorities. And I'll hand over to Patrick in a second. He has spent a lot of time speaking to each of the health organizations that govern the jurisdictions where our hotels sit. We saw in Las Vegas, some mandates were put back in about wearing masks. I think that's probably having some impact. But as we talk to communities here in Texas, Nashville, and here in Tennessee, we look at what's going on in Florida and Colorado, which were fairly aggressive in dealing with COVID in the early stages. We don't see any major changes in things like mask mandates. We've had 1 or 2 groups come at us and talk to us about potentially not turning up in August and September. But from our perspective, net-net, when you look at what's going on the leisure side of our business for the year for the year bookings, I mean, look, we booked in July 25,000 group room nights for this year in July, and that was during the Delta variant. It's not something that occurred in the last week. It's been ongoing here for the last month. So we're not overly concerned about this. We're obviously keeping our eyes on it, but that's how I would describe it. Patrick, do you want to weigh in on Shaun's question?

Patrick Chaffin, COO

Yes. Shaun, it's Patrick. I'll give you 4 data points just to back up what Colin's already told you. On the masking, we are in jurisdictions that have recommended masking, but we're not in any jurisdiction that's mandated masking. So it is an option for both our guests and for our employees on property. The second thing I would tell you is that from a transient perspective, to Colin's point, we have seen really strong transient production, and we think that will serve to mitigate any impact from Delta in the short term. Let's talk a little bit about cancellations. We've had a few, but it's pretty minor. If you look across what we've incurred thus far, we've had, let's say, 15,000 room nights canceled. That is really not that significant. It's less than 3% of what we currently have on the books for Q3 and less than 1% that has canceled for Q4, and we're kind of pushing back on those and saying, 'Hey, canceling for Q4 at this point would be very premature.'

Colin Reed, CEO

Those contracts are all enforceable.

Patrick Chaffin, COO

That's correct. And then to Colin's point around the in-the-year for the year leads, if you look at what we produced in July, the lead volume that we're seeing in the year for the year is up about 21% over where it stood for 2019. So masking remains a choice, transient remains strong. Lead volumes are very encouraging to us and the impact from cancellations has been slight. But we continue to watch it, and we'll continue to see how to best respond to it at each of our hotels.

Colin Reed, CEO

Patrick, the other piece of data that you shared with me yesterday afternoon is the lead volume jump we've seen in the last week. It's been what we were expecting to see, Shaun, with the constant debate that's going on regarding the Delta variant, and all the political issues that are occurring around the country regarding schools and Tyson Foods making things mandated now. Despite all this rhetoric, we were expecting to see our lead volumes week over week, which we typically check flat to down. But last week was quite the exception.

Patrick Chaffin, COO

Yes, we've watched over the past 2 weeks, a steady recovery. Early in July, we saw the impact of Delta as the media frenzy around that really started, and our lead volumes did start to slow down a bit. But to Colin's point, in the past couple of weeks, we've seen it coming back very strongly, both from an in-the-year for the year perspective as well as for T plus 1 or in this case, 2022. We're watching what's happened in the U.K., and we're watching more and more companies mandating vaccines. We believe these are both very positive signs for where this issue is heading for us.

Colin Reed, CEO

Yes. As every day goes by with people getting vaccinated and given the reality that we're getting nearer to herd immunity, we may have a little bit of variability here for the next 3 to 4 months, but I feel certain that very soon this situation will be well and truly behind us.

Shaun Kelley, Analyst

As my follow-up, you guys have given great clarity and disclosure with the investor presentations on what you're seeing on the forward book of business. The last update there was as of July 15. Just any change in effectively sort of how those numbers look today, positive or negative, but just any change at the margin on sort of what was provided back there? Or is it relatively steady as you look at particularly revenues on the books for Q3, the trend into Q4, and then obviously for 2022?

Colin Reed, CEO

No. I would say that when we pushed that data out in the middle of July, we were pretty excited about what we were seeing. Notwithstanding the massive debate around the Delta variant, I think 2 to 3 weeks later when we look at our production for the month of July, which was where we expected it to be, and we look at the organic bookings for July, in fact, I think the in-the-year bookings in July came in a little stronger than we expected. Our belief in the direction this organization is moving is as strong today as it was 2 weeks earlier when we put out that release. We generated in the month of June, we haven't yet received the financials for the month of July, but we have a good sense of where revenues came in, and they came in pretty good in terms of our expectations. In the month of June, we generated $25 million of EBITDA, which was up from almost a goose in May, and our revenues in July were indeed stronger than in June. So we're moving in the right direction really rapidly and we're quite pleased with where we are.

Patrick Chaffin, COO

Yes. I would tell you that our reforecast in July was increasing essentially every 3 to 5 days. So July just kept getting stronger and stronger through the month to Colin's point. The other thing I would share is that what has changed just even since we put the supplement out is that typically, at this point in the year, our in-the-year for the year demand kind of falls off a cliff as folks start to move towards T plus 1. However, there's still so much pent-up demand that our in-the-year for the year continues to be very strong. So if Delta continues to cause disruption and potential cancellations, it's very encouraging to us that there's so much demand looking to book into the second half of the year just in the past few weeks that we should be able to replace any impact from Delta.

Operator, Operator

Your next question comes from the line of Smedes Rose with Citi.

Smedes Rose, Analyst

I just wanted to ask you a little bit about what you're seeing on the margin side? Specifically, have you been able to restaff at the levels that you would expect? And would you expect to be able to maintain that? When you look at the run margin in the quarter, it was actually higher than where it was in 2019, I know lower absolute levels but a higher margin. Is that something you think you can continue with going forward? Or do you have more staff that needs to come back as the levels continue to grow?

Colin Reed, CEO

Simple question, complicated answer. It really is a complicated answer. We do have in both our hotel business and some markets and in our entertainment business, we have some labor deficiencies where we're doing job fairs and recruiting. The margins in our business are benefiting from the fact that our customers are returning at a far quicker rate than our employees are returning. But we're managing through that. Our managers are doing a really good job. The other thing going on is that we've made some healthy labor cost increases over the last month to 2 months, both in our hotel and in our entertainment business. But correspondingly, the other part of all of this is we've been able to affect pricing, particularly, and surprisingly so, in our hotel business. I'll turn it over to Patrick in a second and may push this over to Scott to discuss the entertainment business. There will be some rebalancing through the course of this year as we return to normalized occupancies. Remember, in June, we ran at 57% occupancy, still got 15 to 20 points of occupancy to go. However, on our entertainment business, the amount of customers we are putting into the seats is as good and as strong as what we saw back in 2019. There will be some shakeout here. There will be some structural changes occurring through the next 6 months. But we are not moving off the position that we've been fairly vocal about over the last 6 to 9 months, and that is that when we're through this, we expect to run our businesses with improved margins because going through a crisis like this teaches you how to adapt and confront some of the structural problems we've faced.

Patrick Chaffin, COO

Yes. Just to give some additional context to what Colin has already pointed out, you're right. Our margins, especially on the room side, are benefiting from the fact that we simply don't have enough staffing to fully service the level we historically would. Yet we have very high occupancies. We're addressing this labor shortage across the country, specifically in rooms, front desk, and culinary. We are having to increase wages and are using referral bonuses and signing bonuses. We know that there will be labor expense increases; however, there are many levers that we're pulling to offset that for the future to ensure we come out of this leaner. Our transient rate perspective, we've been setting records in terms of the transient rate that we're able to achieve. Each week has been a pleasant surprise to see how much we're able to push the rate. On the transient leisure side, our unique amenities, including our pool offerings, programming, all enjoy very high demand, and we've found guests are willing to pay higher rates for those unique offerings. On the group side, we saw our July production ADR grow about 10% for all future years, indicating our ability to drive rate for future bookings.

Colin Reed, CEO

That's a lot of detail, Smedes, but this is not a simple question. Do you want to talk about the entertainment side?

Scott Bailey, President, Opry Entertainment Group

Yes, I think we're seeing the same trends. We're experiencing high demand and taking advantage of some pricing flexibility. We did see a 6.5% increase versus 2019 in terms of margins. There might be a bit of a decrease, but we're taking advantage of consumer demand. We invested during the COVID period with the intent of ensuring we wouldn't come out with the same type of company that we entered. This includes making efficiency decisions during that time and incorporating new technology like a new ticketing platform that will allow us to be more efficient in the coming years.

Colin Reed, CEO

I'm just going to finish this up with one statement, Smedes. If you run businesses that are iconic, where people want to come and spend their time, you have a much greater chance of successfully adapting your pricing model. Companies that are more generic will struggle as they face labor shortages and potential pricing increases due to inflation. However, businesses like ours, with exceptional hotel facilities and entertainment offerings, are well positioned to handle these challenges. We'll get through this.

Operator, Operator

Your next question comes from the line of Chris Woronka with Deutsche Bank.

Chris Woronka, Analyst

Appreciate all the helpful data points thus far. I was hoping you could talk a little bit about the composition of the groups you're seeing and their booking tendencies as we look toward the back half and into 2022. You mentioned a 6% rate growth versus 2019. Does that imply a bigger mix of corporate, higher-rated business? Or are you seeing associations also willing to pay more for next year and beyond?

Colin Reed, CEO

This is not pushing to sound patronizing; this is a very good question. Patrick, could you address this with some very good data points?

Patrick Chaffin, COO

Yes. Chris, let's talk a little bit about what we saw travel in Q2, as that's a great starting point. We're very encouraged by the fact that among the groups that traveled in Q2, 40% of those were corporate. This may surprise many, but it's very encouraging to us, and I believe it's a direct result of our rebooking efforts. The association made up about 22%. As we look to the back half of this year, we're witnessing the associations come back stronger even as corporate continues to strengthen. We observed that about 28% of what traveled in Q2 was a large group, 1,000 plus, which is very encouraging. A lot of folks assumed that Q2 would only see small groups, but that was not the case. If you analyze our mix for 2022, we find that we have a slightly higher percentage or mix of corporate business on the books compared to the situation heading into 2019. This is encouraging news. In terms of rates, looking at our July production, the association rate we experienced was an increase of 15%. There are positive signs indicating that corporate business is returning quicker than anticipated, and our mix for 2022 closely resembles our most successful performance years in the past. We also see a willingness from both the corporate and association sides to pay higher rates moving forward.

Chris Woronka, Analyst

I've heard a few analysts suggest that large groups may not return as quickly as small groups. Could you clarify what's actually happening with large groups?

Patrick Chaffin, COO

Yes. To reiterate, we are definitely seeing a recovery for groups of 1,000-plus. From the lead volume perspective, large groups are performing better and are traveling in increasingly greater numbers. Analyzing April, May, and June, we see that larger groups are recovering through the second quarter. Regarding lead volume, looking ahead, large groups are showing stronger performance. This is very encouraging for us.

Colin Reed, CEO

Yes, in our opinion, the entertainment business has only strengthened. Observing the developments in distribution and inquiries from organizations looking to partner with us enhances our confidence. With recently completed deals in live entertainment and expectations of strong growth, we believe this business is positioned favorably. In the next few months, you will hear us discuss explicit strategies to expand this business, which we're very excited about.

Dori Kesten, Analyst

Can you tell us how attrition changed from April to July versus what was initially booked by the meeting planners?

Colin Reed, CEO

Yes. Dori, it's Patrick. I would tell you that going into Q2 and as we were preparing for Q2 and Q3 several months ago, we anticipated attrition numbers to be much higher than historical norms. It's still a component, as you have areas of the country where folks remain hesitant. However, I would say from an attrition perspective, we are not experiencing levels we had anticipated. They're higher than historical norms, but they are moving in a positive direction pretty quickly. Just to give you some perspective, we would normally operate around 14% to 15% attrition. Currently, we are operating at 18% to 19% in the second quarter. So while slightly elevated, this is certainly not the 30% to 35% we had feared.

Dori Kesten, Analyst

Other lodging companies are discussing how business transients and leisure overlap by adding to lengths of stay. Do you think this same concept exists with groups and leisure?

Scott Bailey, President, Opry Entertainment Group

We've ensured that we build our assets with leisure components to encourage guests to stay longer. Our length of stay has not materially changed to date. However, we are attracting more leisure guests than we ever have historically. From a group perspective, we haven't observed a significant change in length of stay.

Patrick Chaffin, COO

Though, we are seeing groups that are family-oriented booking into our properties. Because of the shift, our offerings have been particularly attractive to those groups.

Scott Bailey, President, Opry Entertainment Group

Indeed, we've noted that cheerleading groups and other sports activities tend to bring more family-oriented participants. We've observed strong demand for our pools and attractions this summer, leading to high attendance levels. Our amenities such as Sound Waves at Gaylord Opryland have remained very popular.

Colin Reed, CEO

Crystal, hey, it is 7 minutes before the top of the hour. We may have time for one more question.

Operator, Operator

No other questions.

Colin Reed, CEO

Okay. Thank you, everyone, for being on the call today. Any questions that you may have offline, you know where we are. Appreciate it very much. Thank you.

Operator, Operator

This concludes today's conference call. You may now disconnect.