Q1 2020 Earnings Call
[noise] greetings, you're welcome to the U.R.L.A.C. first quarter 2020 earnings call. At this time, all participants are in English and Oh remote a brief question and answer session will follow the formal presentation.
Anyone should require operator, she says during the conference police part stars you're on your telephone keypad.
As a reminder, this conference is being recorded.
Now my pleasure to introduce your host Dan Whitman vice-president financial planning and analysis.
Go ahead.
Thank you welcome to our all age corporations first quarter earnings call with US today are John Russell interim C.O.N. nature, E.V.P.N. Chief Financial Officer.
Before we get started and I want to remind you that the company's remarks today in 10 forward looking information that is subject to a number of risk factors.
That may cause actual results to defer materially and that was expressed or implied.
Or discussion other important risk factors police D.R.. Most recent form 10, K. filed with the S.D.C. as well a subsequent filings, including our form of 10 Q. did you filed after today's call our form 10, K. and other filings are available on our website are all H. code Dot com and the Investor Relations section.
Through the S.D.C. website S.C.C. dot com.
Use forward looking statements speak as of today, and we undertake no obligation to publicly update them to reflect subsequent events or circumstances.
The company will also be referring to a number of non-GAAP measures. They're reconciliation of these measures to their comparable gap measure is provided in the tables of our press release that releases also available on the Investor Relations section of our website I will now turn the call over to John Russell Interim Chief Executive Officer.
Thank you damn good morning all.
For joining us today screw you are results with the first quarter of 20 point, we find ourselves in a very different global situation as compared to our last earnings report.
We had our L.H.C.
We hope that you are there was important to your healthy save finding ways to shelter and place happily productively.
The Cobra 19 pandemic introduced a myriad of challenges across the professional and personal lives recording each of us to assess or situations adapt our behavior embraced what we believe will help us get through.
The pandemic has influenced the truck here like no other but.
It has forced us to seriously consider every bars or ways of living working and traveling.
The duration of the pandemic is unclear.
We do know that the hospitality industry has a history of resilience and the actions are Oh Gee as decisively taken in the last two months will support the resilience of our brand as the impact of the pandemic subsides.
We started to you as a quarter executing or back to basic strategy with renewed focused on her franchise business.
Strategy emphasize improving our core service offering tort franchisees, well aligning or L.H., she's cost structure to our current size and profitability.
The effect of the pandemic on our business escalated <unk> decisive action to sustain our company and accelerate our cost cutting initiatives.
These initiatives included a large reduction workforce company wide compensation reduction.
Salvation of operations in Denver, what the closing on the Spokane office.
Meaningful reduction capital spam.
All of these challenging initiatives undertaking.
Team was sheltering in place and working from home.
Managing and navigating managerial decisions is never easy.
There's less so when we have to communicate difficult news remote.
Despite our focus on defensive moves toward the end as a quarter of friendships development team deliberate 70 franchise agreements exceeding the number cheap than the first quarter of 2019 by 25%.
Agreements included six months ago hotels, and 64 economy hotels, which 16 were for new locations.
Oh, starting a new franchise agreements or 44 termination, representing a 21% improvement from last year.
And the 55% drop in the fourth quarter.
<unk>, one bit skill hotel and 43 times hotels.
With respect to franchise times or pre cope with 19 progress was encouraging.
Franchise development team continues to cultivate relationships with teacher franchisees. So when the environment normalizes, we can return to the expression of our franchise network.
We're still sending outbreak just disclosed to prospects and soon franchise coming through conversions to sign contracts I've slowed considerably due to the ongoing uncertainty around code 19.
Usually the lack of visibility cost by the pandemic.
<unk> contract sightings and the expectations that this trend will continue foreseeable future.
Withdrawing our gotten something new location Sarney's 2020.
What a positive note.
Completed itself to prop hotel or L. in Washington D.C.
And the Red line.
Which provided us with overnight.
That's the closing costs and a repayment of property level and corporate level.
From a bounce you perspective, we now have a <unk> $38 million cash and cash equipment Oh.
Oh corporate debt.
One 6 million property level debt.
Hotel up yet.
Which is currently being marked.
From operations perspective, we have seen a significant ship from the beginning of the year.
<unk> in our economy Midscale hotel showed promising improvement in January.
2020.
Oh did the same <unk>.
We experienced a precipitous decline beginning in March what's the impact of covered 19 took effect.
<unk> certainly felt back to the pandemic.
However, as up to date and all of our 1000 plus hotels across the country.
Open for business.
Franchisees small business owners remain committed just 40 central workers are forced to be on the road provided him with a safe clean and walking in place to stay during this time of uncertainty.
<unk> properties off the Interstate highways in secondary tertiary should be in urban locations across the country and are currently providing accommodations or central workers, who keep our country moving for during this crisis, our truck drivers postal workers theme of personnel health care providers food service providers and the like.
However, due to non essential travel restrictions or franchisees I've seen a significant dropping business.
Our corporate stuff is working closely with our franchisees to guide them through the uncertainties of these tumultuous times and we are working with our friends proven expand service and information they provide to wear franchise network.
<unk> help or franchisees with cash flow.
Amount of other reduction and delayed implementation of capital intensive branch Sanders and extended deadlines or <unk> completions.
We know that eventually they pandemic ones.
Reopening success, you won't be an important factor in our collective success.
Or French I support team working diligently on developing plans that can be implemented and easily mother bought as the reopening for the nation balls.
We're cautiously optimistic that would travel reasons or she will be in that beneficiary.
Hotels are economically price and predominant located in secondary tertiary drive to work.
Away from urban centers that have been hot spots of coping 19.
We believe that our price point locations and our geographic dispersion.
Could contribute to orally, she's Brazilians that'd be economy, and much guilt shame typically apple for in a recovering economic backdrop.
I'd like to thank our team for their child separate story is challenging time in a franchise used for the focus and dedication.
Shelter all our central works.
Well that I'd like to turn the call over Tonight discuss our results 19 related actions in more detail.
Thanks, John as John described covert 19, instead of pervasive impact on our industry and our L.H. corporations first quarter results were not immune to the economic impact.
In the first quarter of 2020, or L.H. reported the net loss of 8.1 million or 32 cents per share as compared to a net loss of 4.3 billion or 17 cents per share in the prior year period.
Year over year change was deeply impacted by covert 19, which specifically influenced 9.7 million knows that dead expense, primarily associated with inner circle and other former franchisees 1.8 million dollar acid impairment all the Red line Hotel, Seattle Airport and $500000 of employees separation costs.
Separate from covert 19 as part of our D. leveraging initiative. We also incurred at 1.3 million dollar loss associated with retirement of debt.
Partially offsetting the laws in the quarter was a 7.9 million dollar gain from the disposal or hotels in Washington, D.C., and then I'm, California.
And the first quarter or just leave it it was negative 10.3 million as compared to a positive 1 million a year.
A year over year decline reflects the lower contribution from the sale of owned hotels.
Lower royalty revenues do determinations, along with the impact took over 19.
And then 9.7 million dollar inside that expense recognize him the first quarter of 2020.
Core adjusted EBITDA, which excludes the results of our company operated hotels was negative 10 million in the first quarter of 2020 as compared to negative $428000 in the first quarter of 2019.
Selling general any administrative expense and a quarter 16.3 million as compared to 7.4 million a year ago.
The 8.9 billion dollar increase in 2020 was driven primarily by the $9.7 million and thought that expense referenced earlier.
This expense was largely due to the right off of the 6.3 million dollar remainder of the inner circle receive which we discussed on October 19 update on April 6th.
As we discussed on that call code 19 headed detrimental impact on the expected value of the collateral supporting the remaining receivables from the inner circle default, which we'd originally disclosed.
Okay.
In response to the circumstances, the first clean holder for the collateral indicated it's desired exercise, it's right for clothes on or take control of the clutter on an accelerated pace.
The the timing of this action in conjunction with the decline for value of the collateral property due to the economic impacts of the go with 19 pandemic.
We've concluded the value of Declawed will no longer supports the remaining balances and as such with recognized that that expensive $6.3 million for the preset reserved inner circle bounces.
Aside from inner circle, we recognize the current and former franchisees with outstanding receivable balances are facing significant castle constraints as a result dependable.
Facing difficult working capital constraints. These franchisees will focus first on sustain your business.
This may leave little cast to address certain age receivables. Accordingly, we also took a hard work that other folder dated accounts receivable certain notes receivable updated or estimate of Collectability based on the new information available in first quarter.
Considering the current Coca 19 affecting about.
This resulted in recognition of an additional 3.4 million of that that this court.
We believe it or recognition to bad debt and a quarter reflects the current help proposed franchise.
And while the duration to an extent of covert 19 remains uncertain, we do not anticipate that that recognition of this magnitude computer recorders.
As John discussed earlier, we sign 70, new contracts and the first quarter, 25% improvement over the first quarter of 2019.
These contracts were comprised of six Midscale hotels, and 64 economy hotels.
Oh, the 70, new contract signed in a quarter 16 were for new locations to before Midscale brands and 14 for for our economy bills.
Offset by 44 terminations comprised of one Midscale hotel and 43 economy hotels.
Determinations were substantially less than 21% compared to the first quarter of 2019.
And down from nine determinations, and the fourth quarter of 2019 sequential improvement of 55%.
The first quarter of 2020 represented the lowest quarterly termination rate since 2018.
We believe this declining terminations, coupled with the executing 25% more contracts and the first quarter compared to this including a probably a year.
To the improvement in our franchise relations and demonstrates the longer term potential about back to the basics project work, which we introduced late last year.
Turning out hotel sales and liquidity, we completed two hotel sales in the corner hotel or L., Washington, D.C. and the Red line hotel and for gross proceeds of approximately $30 million.
Closing costs repayment of property level debt at D.C. and repayment of 100 per cent of our remaining corporate level of debt, we noted over $9 million on cash.
You additional hotels are being currently market hotel, Oreal, Baltimore, which we own outright, which carries no debt and hotel or L. Olympia, which is in the joint center, which is a 5.6 million dollar mortgage <unk> only remain debt on a consolidated about.
Given to disrupt his impact the Cooper 19 has had on the real estate transaction market, we cannot provide an estimate what to expect to tidings completion.
With respect to our liquidity or L.H.C. finished the quarter with cash cash equivalent to $37.8 million.
The company has no corporate debt outstanding and with only the 5.6 million, that's probably a little bit that remaining cast needed for interest payments over the last nine months of 2020 is expected to be less than $200000.
This compares to $4.9 million cash paid for interest in the full 12 months of 29th.
That largely concludes their presentation of quarterly results. However, in the light of the covert 19 pandemic, we'd like to provide the following <unk> commentary on liquidity based on what we're seeing develop so far in the second quarter.
First we Nelson or eight K. on April 23rd that we successfully received 4.2 million and proceeds from a bone and the U.S. governments Paycheck protection program.
Subsequent to oversee to those funds the government issued new gods effective effective retroactively that we feel introduced significant ambiguity to certain eligibility requirements, particularly for publicly traded companies.
While we believe that we met the eligibility requirements in place at the time that we applied for the loan. It does not appear that we meet the new eligibility requirements accordingly, and consistent with the conclusion of many other similarly situated public companies.
Made the decision to return the proceeds of R.P.P.P. alone.
As to where cash was for the month of April we were still in the process of causing her books. So don't have final figures and haven't fully completed our analysis. However, we expect to close the month of April between 35, and 36 million in cash.
After adjusting for the return to the P.D.P. loan which occur to me.
The ongoing impact of covert 19 on a cash receipts is very uncertain in April as we expected or cash receipts were slowed by the impacts the pandemic, reflecting park participation by a franchisees previously announced feet referral program, which offers delete billing of royalty and marketing fees for all brands.
Counts differed under this program are expected to be recouped within the 12 Bucks period.
As for cash how close as we announced on October 19th update call on April 6th the company's you'd see lower caste needs with G.N.A. in coming months, reflecting or previously announced reduction in force in compensation cuts.
A reduction in force and company wide reductions in compensation costs led to lower cash used for payroll in the second ethical. However, this was offset by separation costs delaying the casual improvements other reduction of for some compensation reductions.
We have also consolidated our real estate foot, but which should reduce costs by $300000 or the remainder of 2020.
And suspended nonessential Catholics, which a decrease cash consumption in coming months and quarters.
Also as previously mentioned or do you leveraging is left us with minimal cash needs for debt service.
<unk>, we continue to work with our vendors on cost reductions of payment deferrals, which we expect will further slow for spend levels throughout the near future.
In summary, the pandemic is introduce significant uncertainty to our cash flows and results of operations. However, we feel the cost cutting initiatives that we've executed on as well as are significant D.V.D. leveraging puts us in a good liquidity position as we face to censored.
That concludes are prepared remarks, and will now open the call for questions operator.
And at this time will be conducting a question and answer session. If you would like to ask the question. Please crestar one on your telephone keypad.
<unk> indicate in line is in the question cute.
<unk> Star too if you would like to remove your question from the queue for participates using speaker equipment. It may be necessary to pick up your hands had before pressing to start keys. One more me. Please while we pull for questions.
In our first question is from Brian Dopson from number one incident.
Please we'll see what your question.
Good morning, Thanks for taking my question.
Do you think that you could give us an update on how you how you envision occupancy returning starting call. It this summer and heading over the next 12 months, which segments of your occupancy are most likely to come back first in in which segments should take a a longer time to build and then I have I been follow.
The question as well.
Yeah <unk> a great question since we've got a lot of our properties in secondary tertiary cities and then some warm weather locations, we feel that the.
The drive business will pick up substantially people in their cars and arby's kind of visit family and friends National Parks that have been picked up for the last couple of months.
Starting in say late May going into June July and August so feel very strong about the trend. The these your transplant business and family reunion type things throughout the country.
As a matter of fact, what we've seen just just recently Smith travel research had a sent some information out that the last weekend of April.
<unk> first weekend of May.
<unk> occupancy in the cities that you could travel in the travel restrictions were lifted doubled doubled and so we feel very strong that the leisure markets will come back substantially.
Pick up the June July August September.
And that's great for economy Hood brands, you know like America's best values and the nights in.
Oh, the other side the business travel will be slow slowly coming back.
Business corporate business slowly coming back I think you'll see that pick up a in October November going into next year that'd be a slow it builds and that's that'll affect Moreover, upscale type brands like Red line and Red line ins and our L.
Great that's very helpful.
So as we are I.
I guess as as we're exiting the teeth of this it's locked down but but demand is still the greatly diminished I guess what opportunities do you see within your business to take this time to improve.
Best practices operating practices. So that you can head into 2021 is stronger as a stronger company is there anything that you've undertaken over the past few weeks that would be in mind.
Well I you know we've been.
Focused very heavily on <unk> sanitation, we've put best practices out it with <unk> tour franchise use we'd help some webinars already and that's going to it you know the way we operate to hotel just going to be quite different than we did before.
With social distant saying the way you check in mobile checking his credit cards swipes as opposed to give them your credit card at the front desk attendance the way, we cleaned the rooms spacing of.
Of a guest a every other room, maybe also practices in policies procedures and so piece for clean the room was different we have give guidance out on on breakfast no more buffets, mostly package kind of breakfast.
Amenities.
<unk> those properties that have room service will be.
So look a lot different.
Have restaurants, the way it seated and what you pick up where you get your food and what are your food and get your go to be different.
That said I think what this doesn't and we've had her franchise operations Department working very closely with all the brand Subbrands Advisory Committee committee's.
Boards, rather as well as we've had several called the franchise groups <unk> dirt your town Hall meetings Now's the time to really focus on how you operate your hotel from cost saving measures.
You know I think it's a kind of like we're doing it you know this whole concept back to the basics. That's what are our properties are doing the same thing back to the basics tiny was everything works friendliness and insuring that that's <unk>.
Safe and healthy place to stay.
And I think Brian I'd like to add to that you know from a corporate perspective, we obviously accelerated a lot of our cost cutting initiatives that we'd already put in place as a result of Goldman.
And you know I, that's that's that's going to stick right. I think we're we're really focused on automation any where we can automate we're focused on process efficiency. We're focused on watching where every single Nicholas spent we we cut very judiciously and we want to stay at that level think very high.
About any dollar spent as I think from a cost side a lot of the efficiencies that we've accelerated and and latched on to do this process. We we expect to maintain it. It's it's very important to we we think about it that way.
Yeah excellent. So then I guess finally turned into your franchise owners have you have you heard any feedback from them regarding their access to S.B.A. loans or other forms of governmental support during this period.
Yeah, we we keep pretty close tabs on that Brian the they have been getting access to S.B. at the P.P. loans.
Don't know a number they do use that they've used to eat E.M.I.D.L. loans as well, but a lot of them quite frankly are getting forbearance from their their local community regional banks, that's probably the number one thing they've got so they get a foot three month forbearance on that.
And a vast majority that we've talked to have applied for the for the loan and I don't know the exact percentage of what Scott the loan, but they they are utilizing knows.
Those opportunities.
Great. Thank you very much.
And our next question is from Alex farming from Greyhound them Capital Group. Please we'll see what your question.
Great. Thank you very much for taking my question I I hope, you're all well I wanted to ask about the keep our country moving a program that that you announce back in April.
Curious what response, you had to that and how that may have for provided some kind of a base for your business in in April and and starting here in May and you know just curious from you know little bit of a bigger picture perspective as you look over the next couple of months, then and demand for leisure travel slowly returning or are there any opportunity that Deborah.
Have a a small bait the business for essential workers, who don't want to return home and risk you know impacting their family that that has that emerged as an opportunity coming out of debt keep our country moving program.
Yeah, Let me thanks for the question Alex.
So far today, you know we don't touch that just in kind of late April we've got about a 500 room night. So far have been adopted consumed a will continue tomorrow. The results of the promotion of course or the next <unk>. It ends in June.
It it necessary, we will extend it.
But it would it has stimulated.
And you know <unk>, it's a good it's a good promotion for.
For those those workers, but what it has stimulated as a lot of demand or I should say public relations. It's getting a lot to demand for several bar hotels are are actually providing housing the female workers now disciplining housing for of course, you health care providers non coated patients that are.
<unk>, Okay. Your next to those.
Hospitals so.
Promotion actually from it is it it's good in the stone right, but it also stimulated other business into our hotels that looks like you know the company that we have a company that does care and I see that continuing on the one thing that we were starting to see to the people that are working from home.
That you know some of the <unk>.
Families with lots of children dogs, and cats working out of there there I.
<unk> <unk> some of our hotels have a program, where it's kind of like <unk> work in the hotel. It's it's work remotely from hotel room, you know they give a reasonable rate $39 $60 something like that you get a free coffee you'd get a access to a printer and it's a way to get.
Either way in other words get away from your home and and I have a place it's quiet a little more spacious and though a little bit of amenities. So we see those things happening.
Right. That's that's really helpful Bank. The men as you as you you know think about you know it sounds like you're you're starting to see an increase in it in demand you know it'll be thought with low level, but you know started beeping pick up in in you know June July heading into the summer months, you talk about where you know you're you're seeing the the big it pick up in terms.
The booking either geographically or or in terms of side. The video at it. It certainly strikes me that the the the name Big Red Lion brand has a lot of properties out where that battery proximity of National Park I'm. Just curious where you know you you you think Americans will start to be returning to as we had into the summer.
Yeah, I I I think the warm weather locations the floors to California is for sure definitely they.
The national Parks and.
You know what I, just telling they'd the other day I just saw were in other words, all the drive business I I did see we're R.V. sales were up 21% on a per R.V.s. So that's an indicator that there's going to be an awful long road traffic over the summer and we're so position you know we've got a lot of hotels.
<unk> Carter hotels that are off the Interstate highways on on your way from 0.8 point B. that should it should probably shalonda that business.
<unk> and so you can drive then drive right up checking mobley, if you want to and get ready to your own. So we see the secondary tertiary cities, but the warm weather locations. The resort locations in the National Parks I think will be do the early winters winter winters in there.
And as as we get back to business.
<unk>, that's great. The here and the sounds like you guys are doing everything that that you can and and you know we see the best of luck and hope that hope that demand you know continues to recover the it'd be your moves on.
<unk> thanks out.
And we have reached the end of the question and answer session. You know now turned to call over to John Russell for closing remarks.
Yeah. Thank you very much I want to think everybody's it participated on behalf of Red Line Hotel Corporation. Thank you for your time. Thank you pre questions do you have anything that you'd like to talk Naderite directly please feel free reach out.
I want you to stay safe and healthy and God bless. Thank you.
And just conclusive news conference and you May just gonna two lines at this time. Thank you for your participation.