Q2 2019 Earnings Call
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Greetings and welcome to our out H.C. second quarter 2019 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference call is being recorded.
It is now my pleasure to turn the conference over to your host Mr. Dan Redmen. Thank you you may begin.
Thank you welcome to our earliest corporation second quarter earnings call with US today are president and Chief Executive Officer, Greg Mount and he VP and Chief Financial Officer, Julie Shiflett before we get started I want to remind you that the company's remarks today contain forward looking information.
That is subject to a number of risk factors that may cause actual results to differ materially from those expressed or implied.
For a discussion of important risk factors. Please see our most recent Form 10-K and subsequent reports filed with the FCC our Form 10-K and other filings are available on our website.
Arledge co dot com in the Investor Relations section or through the FCC website at <unk> Dot Gov. These 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. The reconciliation of these measures to their comparable GAAP measure is provided in the table of the press release today.
That release is also available on the Investor Relations section of our website I will now turn the call over to Greg Mount.
Thanks, Dan and good morning from a beautiful Rocky Mountains, and thank you for joining us today.
Just about a year ago, we announced our intention to sell a large part of our joint venture real estate is part of the transition from being real estate based to developing a best in class Global franchising organization.
I'm pleased with the sale proceeds of nine of these initial 11 hotels, we announced as part of those sales.
As the market softened for asset sales in the first half of 2019, we pivoted managed what we encountered and refinanced the remaining two assets to monetize those hotels until their ultimate sale.
The combined proceeds from the sale along with expected valuation on the remaining two hotels and the refinance proceeds is near our original sales Guy.
Our joint venture partners, and we will continue to assess the appropriate pricing and timing of our remaining hotels and we will continue to assess the sale of the hotels that we have separately own or at least in the near term.
Well, we won't do is dispose of these assets at any price as fiduciaries. It is our responsibility to try and maximize the proceeds to all stakeholders.
We've provided more specifics regarding the remaining real estate and our expectations for the balance of these sale process in a press release yesterday.
It's important to note that our time and talent is focused on our core franchise business. We have delegated the operation of all but two of our remaining owned and leased hotels to well known third Party Hotel management companies, who are capable expert.
Let's talk for a moment about what we are.
We are building a world class franchise and technology company.
As the 10th largest franchise or in North America, we are focused on accelerating our progress continuing to invest in that growth.
We're basically a year into this and I believe we have set the right tone by improving our trailing 12 months, a franchisee EBITDA by 4.6 million from $1.8 million or loss.
In the prior year trailing 12 month to income of 2.8 million in the recent period.
This increase shows the increasing value of the platform. We have built the investment is succeeding we must continue to leverage it.
So how are we able to compete.
We have purposely built our platform to allow us the ability to leverage superior economics, and deliver services up to 30% less than our competitors.
This combined with our competitive demand generation creates what we refer to as our value first positioning within the marketplace.
We combine this value first approach by focusing on the significant initiative being made by the larger hotel brands to basically price older generation hotels out of their brands.
What we like to call it up and out mentality those owners realize that they are either have to accept the returns on their invested capital for mandated product improvement plans.
By the larger brands or they need to step out.
Our combined value built standards system costs and demand generation offer that alternative and that's where we win.
Lastly, we have evolved by building a cutting edge platform in rough pack. This platform focuses on what is developing in the industry by leveraging channel connect attributes versus the long term model of loyalty.
We will continue to make investments to advance our position in these evolving marketplace innovations and are beginning to now focus on greater attribution of our capabilities in the areas such as headless commerce.
We have never wavered from our core strategies over the last five years, we have and will continue to make investments in our platform in franchising with that being said, we have and will continue to look for ways to operate more efficiently and through that reduced our SGN a expenses, while supporting the growth of our franchise business.
We have reduced the guidance for SGN, a by $2 million to a range of 27.5 million to 29.5 million from 29.5 million to 31.5 million, reflecting ongoing efficiencies through technology.
Related staffing adjustments and compensation expenses, what's important to understand here is that these costs are not growing but are necessary investments to succeed in supporting the platform that said it should be noted that after last year's acquisition of nights and we didnt have to add cost to onboard those hotels to our system.
Nor do we expect that we will have to add significant additional cost as we grow organically.
This is a key point to understand when we combined.
With franchise EBITDA growth over the last 12 months of $4.6 million.
In conjunction we have provided in our financial information this quarter some line of sight into our future as well as the value of the agreements being executed again, it is a new and greater pace than ever before our upscale and Midscale franchise agreements typically contained future royalty rate escalations in premiums as mentioned before and we expect that our relative internal costs will continue to stabilize or shrink with technology efficiencies.
For instance, our midscale and upscale contracts are expected to contribute approximately 30% of our royalty revenue in 2019.
With contractual rate changes these same contracts will increase their future annual royalty revenue by an estimated at 15% and 2020 and an estimated 40% over the next three years.
This is the beauty of building a franchise business that reflects the importance of long term value creation.
However, this takes time.
Now I want to share my thoughts on transactions, the world evolving and changing the business model and companies like ours need to adapt and progress to succeed.
These are still at this point in franchising, our core business, but that being said a higher margin opportunities still available given the millions of transactions we generated every year.
Transaction activity is an increasing opportunity and it must be levered, both additional revenue opportunities and cost reductions as both have significant flow through.
You can see this vertical is growing in our own platform today and it will continue to be an area of optimization and accelerated focused and growth for us.
Based upon what we see as a future evolution and E. Commerce earlier this year, we announced the launch of our subsidiary our labs.
Our labs is not a franchise business, but rather a software as a service product and innovator of hotel technology platforms.
Hi, labs is allowing us the ability to monetize an early industry, leading platform and expand upon it by sign the complete platform to independent hotels around the world.
Currently canvas integrated systems, along with growth pack is the sole product offering that provides a complete platform of solutions for our franchising business and for independent hotels that lack scale pricing and advanced and complete platforms.
We have built the capability of the system deliver products and services anywhere in the world.
In fact, we are currently speaking with owners and operators in locations such as South Africa.
The addressable market for campus integrated systems is significant.
And just the upper upscale and luxury resorts segments. We estimate there are 82000 hotels that are all generating transactions 24 hours a day seven days a week.
We're beginning to get a better understanding of the canvas business model based upon opened an operating hotels resorts and we'll look to provide additional more specific guidance in the future.
As a reminder, campuses and all of them on cloud base hospitality management suite encompassing all the elements that an owner would require to maximize the value of a hotel.
Which we debuted.
Earlier or the first quarter of this year.
Canvas provide solutions for both customer facing functionality, such as reservations interface with OTI days, and even keyless entry as well as back of the house functions, including a Crs property management and revenue management.
At this time, we have entered into seven agreements for campus and are in discussions with many more independent hotels third party operators as well as large timeshare and other consortium's.
The product is being market primarily through relationships, we have with third party hotel management companies independent hotel owners as well as consortium's of independent hotels.
Canvas is of particular interest to them because our solution is more cost effective versus the single system attribution that independent hotels currently have available which means higher profitability for both the hotel owners and management companies well financial incentives built into their contracts related to profitability. It has also provided to them under a white label. So that they can branded monetize it in their business and on the data.
Given early the promising indications of interest through our professional network, we're being mindful of keeping our customer acquisition costs in check at demand for the product ramps up.
We believe that the margins we can achieve with cannabis can rival margins, we are experiencing in our core franchise business.
It is important to remember no businesses without its challenges the path we've been on for over five years is now beginning to take shape, but this is a long term strategy that leverages a stabilized in industry leading platform.
Now on to some second quarter specifics business development efforts in the quarter were highly successful we completed 40, new signing five of which are mid and upscale or USPI.
Our focus on this segment remains conversion opportunities with higher room count than longer term contracts, which lead to higher MPV contribution to our core revenue system.
In the quarter, our average MPV anew SP signings was over 235000 for all deals, including new contracts for existing locations and 220000 for new deals.
Our SSP, citing totaled 35 in the quarter with an average NPV of 36000 for all deals, including new contracts for existing locations and 25000 in NPV for new signings.
In both cases, the difference between average NPV for new signings meaningfully exceeded the average NPV for terminated contracts as we discussed on the first quarter call. The contracts we are entering into.
Our of higher caliber than those leaving the system.
The majority of the terminations are concentrated in the SSP brands that have properties nearing the end of their economic cycles.
As we said in the past these terminated hotels do not profitably contribute to our operations and require time and intention that could be put to more productive use we are working through the short term agreements and expect the number of terminations to settle into a more industry standard termination rate of 6% to 10% over the next several quarters.
In closing our latest building and investing in the future of a world class franchising and software as a service company. These two disciplines. We believe go hand in hand as platforms change, we see this combinations opportunity to emphasize our technology and low cost of service, while maximizing our relative scale.
These keys hold the greatest potential for Arledge Corporation.
Our brands and our platform hold our value we will continue to leverage our platform through accelerated growth and we must remove nonconforming owners that are not accretive to the overall system.
Lastly, we would like to welcome Jake brace and Carter paid to our board we are benefiting from their experience in contributions already we're pleased to have them.
Round out the body of knowledge on our board and are eager to work with the entire board as we execute our growth plan with that I'd like to turn the call over to Julie.
Thanks, Greg.
Before I go through our results in detail I wanted to take a moment to highlight additional information and disclosures that we are providing as a result of requests from current and prospective shareholders.
In conjunction with this earnings release, we also provided an update of the status of our owned and leased hotels and the related sales process.
We wanted to provide a perspective on potential sales timing and estimated proceeds for the remaining hotels as well as provide a recap of the progress and the net proceeds from the 2018 hotel sales.
While we transition to a franchise company, our historical and current financial information can be unclear as hotel operations are still included.
To add clarity and assist with our the analysis of our core franchise business since the beginning of the year. We have added disclosures in the earnings release tables, providing additional information on our franchise business.
In the exhibit you can find a table expanding information for our franchise signings.
Hotel count by brand, including terminations.
Estimated 2019 EBITDA guidance calculations.
And year to date adjusted free cash flow clarifying the cash available to our knowledge.
We have also included adjusted EBITDA by operating segment based on GAAP segment calculations. The goal of this disclosure is to provide information on our EBITDA adjustments by segment.
GAAP requires allocation of corporate overhead to the hotel segment.
Those allocations are footnoted in the table as from an actual operation standpoint, we have minimal to no corporate overhead devoted to those operations.
This process of improved transparency began with our year end 2018 disclosures and the recast of our income statement and we are committed to the continued evaluation of our information overtime to assist the investment community with underwriting and understanding the value of our franchise company.
Moving on to our recent financial results Barlage Corporation reported a net loss for the second quarter of 2019 at $2.8 million or 11 cents per share as compared to a net loss of $2.3 million or 10 cents per share in the prior year period.
The change is primarily due to prior year hotel sales and current year performance at the hotel segment, partially offset by improving franchise profitability and reductions in selling general administrative and other expenses.
These same factors also affected our adjusted EBITDA for the second quarter of 2019, which came in at $3.7 million as compared to $6.6 million in the same period last year.
The change in adjusted EBITDA reflects the growth of the franchise business.
Offset by $2.6 million of EBITDA contribution from hotels that were sold in 2018.
And $900000 decline in the contribution of owned hotels for the current period.
As Salt Lake in Olympia were outsourced in February and Anaheim was outsourced in April 3rd Party management companies are in the process of performing assessments and changes to staffing and the re stabilization of these hotels.
We anticipate the performance of the owned hotels to improve in the second half of 2019 as changes made by our third party managers take effect.
Adjusted EBITDA margin for the core franchise business was approximately 33% consistent with the prior year and on target with our expectations.
During the second quarter franchise revenue increased 8% to $14.7 million as compared to $13.6 million in the prior year.
The strong performance of our franchise revenue was a result of the nice N acquisition and organic growth primarily related to transaction fees and new revenue streams, we've added to our franchise agreements.
These increases were offset by terminate agreements.
In the quarter, we signed 40, new franchise license agreements, bringing our total through the end of the second quarter to 96, and we signed another 17 agreements since the end of June .
We're particularly pleased with this level of execution as historically most of our signings occur in the latter part of the year consistent with industry norms.
The number of signings in this quarter, while lower than the first quarter exceeded our expectations. Our pipeline is active and signs are fluid throughout the year and can vary from quarter to quarter. So it's important to evaluate the signings of contracts on a year over year basis as opposed to quarter to quarter.
These contracts will have base conversions, our openings over the next 24 months.
Its anticipated the 30 contracts for new locations will contribute approximately $228000 in royalty revenue in 2019.
The 30, New hotel contracts have also an estimated royalty revenue baseline of approximately $875000 per their first 12 months of fees.
After application of incentives and see deferments.
This royalty stream does not include additional incremental revenues that are generated from transactions marketing or other franchisees.
As the executed pipeline for U.S.B. signings grows it's important to remember these hotels typically have a longer lead time for opening conversion or fee deferrals.
In the quarter. We also had 60 agreements terminate all but four were economy select service brand hotels.
The total net present value of those contracts signed in the quarter at $2.4 million is twice the net present value of the terminated contracts in the quarter consistent with our intention to replace these agreements with contracts have a higher caliber and that are more profitable to arledge.
As we shared in the past terminated contracts could be the result of a number of different events for us primarily economy hotel lack compliance with brand standards and are moving to an independent hotel status or hotel sales or defaults.
Our midscale and upscale brands that participate in our revenue management programs have seen strong revpar improvement for the year.
Our stabilized you SB hotels utilizing these services saw a 4.5% increase year to date in their Revpar index.
Whereas our stabilized properties that are not managed by our revenue management team had a negative revpar growth versus their comp set.
Our selling general and administrative expenses declined 21% year over year to $6.5 million in the second quarter.
The decline reflects the company's continued focus on cost controls and using technology to create efficiencies and reduce staffing and reduced compensation expenses.
Almost 50% of our SGN a expense is related to selling and support a franchise agreements.
And the 5% is related directly to the board of directors and direct publicly held an investor relation costs.
The remaining expenses include the corporate executive team administrative support functions of finance accounting risk management human resources and information technology.
Moving onto marketing reservations are reimbursable expense in the second quarter, we experienced roughly a 9% increase primarily from the growth in the franchise business and the timing of when expenses occur.
We anticipate that marketing reservations and Reimbursable revenues will slightly exceed the related expense over the remainder of the year.
As the expenses are purposefully higher in the first half of the year as we increase our advertising and marketing spend to drive reservations for the summer travel months.
With respect to our balance sheet as of June Thirtyth 2019, the company had approximately 56 and a half million dollars of indebtedness.
With a weighted average remaining maturity of 1.8 years.
We finished the quarter with cash and cash equivalents of roughly $23 million.
Including 6.1 dollars held by the joint ventures.
Our net debt to trailing 12 months EBITDA for the second quarter was 2.6 times.
Which we believe is on the low end as compared to other public lodging companies.
Adjusted free cash flow for the first six months of 2019 was $5.4 million as compared to $542000 for the same period last year.
The year over year improvement is largely related to the timing of key money disbursed for U.S.B. hotels in early 2018 versus more ratably throughout 2019.
To conclude with our guidance, we are revising our outlook on some of our ranges for 2019 and would like to provide some color around certain items.
In the first half of the year, we signed 96 franchise license agreements and we have raised our expectations for new agreements to a range of 175 to 210 franchise agreements for 2019.
Our selling general and administrative and other expenses guidance has been revised to a range of 27, and a half million to 29, and a half million, which includes estimated stock compensation of $2.8 million to two point to $3.2 million.
Adjusted EBITDA guidance continues to be in the range of 20, and a half to 22 and a half million.
Which includes the add back of stock based compensation.
We are keeping our adjusted EBITDA guidance the same as the decline in ESG in a expense is anticipated to be offset by the performance of our owned hotels.
The percentage of our annual hotel segment profit contributed in the third and fourth quarter is estimated to be 50% in the third quarter and 20% in the fourth quarter.
In addition, while we are increasing our franchise signing guidance for the year. It is our expectation.
As previously discussed that these new hotels signed in the remainder of the year, we will primarily began contributing royalty revenue in 2020 and beyond.
As a reminder, our guidance does not include or contemplate the impact of additional hotel sales as we sell our hotels, we will file an 8-K and will update our guidance for intra quarter activities. During the subsequent quarter earnings call.
That concludes our prepared remarks, so we'd now like to open the call for questions.
Thank you.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation tone.
Indicate your line is in the question queue. You May press Star two if you like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Brian Dobson with Nomura.
Please proceed with your question.
Hi, good morning, Thanks for taking my question.
So that that will be a good pickup good morning, I said that was a good pickup in terms of your franchise signing outlook.
Do you think you can just talk a little bit about how you see your system growth trajectory longer term.
And how your franchise model might stand to benefit from higher level flag conversions seen during a revpar deceleration.
Yes happy to Brian you know.
Having spent a large portion of my career with Starwood and heading up.
The franchise development manager development for North America for.
A period of time.
I was able to really live through a few of these these cycles and really understand the impact to both particularly on a franchise in organization and quite frankly, the good organizations with the right cost basis, which we believe we have built into to what we're offering owners really tend to do better in during a churn.
As owners seek you know not only some relief from the higher expenses versus the lower performance that they are seeing.
They are just looking for greener pastures and opportunities to improve.
And at least try to maintain the EBITDA that they've seen over the past few years so for us.
That churn creates opportunity.
And I think we feel that we're in the right position to take advantage of that as as we talked a little bit about in the call.
There is really a very distinct up and out.
Mentality that it's currently.
Pretty prevalent with some of the larger systems as they really pushed hard on their gen. One and gen. Two.
Hotels, and really look to price them out through the end of the renovations are what we call pickups in the industry.
And we see that as an equal opportunity as well for us as our organic growth.
Continues.
The good news is every year, we've been able to two and every quarter, we have been able to increase those signings in that activity in our deal pipeline continues to grow and so the right things are coming together.
And our platform continues to succeed and people are recognizing that.
Okay. Thanks, and then.
You know in terms of in terms of revenue management I guess, how some of the steps you've taken been received by your buyer rather decentralized ownership base.
And do you think that your improvement in Revpar index is what's behind your your uptick in franchise growth.
Yes. It is.
It really if you look at it kind of on a bifurcated basis meeting, we look you know versus kind of the economy, what we call the flux or brand for since our USPI brands, which tend to be more sophisticated.
And so really the communication on what we do for those two separate segments is really very very different you know on the on the U.S.B. side Midscale upscale hotels that we have.
Upwards of 120, or so hotels that we revenue manage and as we talked about they saw significant revpar growth, which really speaks to our capabilities around leveraging the platform that weve built.
But at the same time, we saw good strong you know.
Revpar growth in our select serve.
Segments, where we do get that information and and so both are for US you know things that we watch very very closely on the on the flux or five I think you're going to see us start to to really begin to test.
Which were close to being able to do no systems that really leverage AI and really look to manage the revenue management or the pricing decision on more of a basic kind of simplistic basic basis for our economy segment hotels, so that thats always going to be working in the background and we feel that that's going to have a big impact on their on their performance.
As we go forward, but again part of what you're seeing right now in the past as Youre seeing youre seeing.
Secondary and tertiary markets really you know over the last few months slipped a little bit on there are other revpar growth I think that thats fairly consistent as I speak to my peers in other in other hotel companies I think that's fairly consistent the key though is being able to leverage the businesses there and we feel we have built the platform and the capabilities to do that.
Okay. Thanks, and then in terms of canvas, what's the average size of the portfolio of the.
The companies that you are looking to partner with on that platform.
Yeah, I'll tell you that I think that I'll give you a range I mean, we've looked at we've looked at some consortiums that are.
You know around the 100 hotels, when we've spoken to some larger consortiums that exceed 700 hotels again.
It's really.
An opportunity as they as we speak to them to help them understand a couple of key points. One is that their current attribution of many kind of single or double systems together is really costing them.
You know more than than they should have to pay and it's impacting their system and frankly I think it will impact if they don't do something about it it's going to impact their ability to stick with those independent owners as we go forward.
So they are very interested in looking at that and at the same time, we are helping educate them on the fact that.
They too are creating a significant amount of transactions on an annual basis and frankly, none of them are taking advantage of those transactions in a meaningful way. So canvas allows them to do that it allows them to bring technology that they currently don't have.
And we think that it helps that make it more sticky for them and so that's that's why the perked up that's why they're listening Thats why you know in a couple of cases, rather a third or fourth meeting with these groups as we work through this process.
And just last one one quick follow up on the system growth. You saw you saw Hilton reiterated system growth outlook of Marriott.
Barry I brought there is down by roughly 25 basis points at the midpoint and I know that marriott's was related to construction delays.
And that would it be less impactful for you but are you at the margin seeing any kind of weakness in the in the forward outlook in terms of feedback you're getting from your from your salespeople.
No actually you know our our pipeline is actually continuing to grow I mean, we you know as you know we were at a little bit different situation than they are I think of anything you know it just makes it a little bit more choppy and less consistent for these hotel openings right. So if anything.
What we're seeing is just is you know a a delay.
Or in a slight increase in the time it takes to get these hotels online. So as we've talked about before you know we're really focused on the net present value of the contracts that we're signing.
Those continue to grow but I think if anything for US you are seeing just a little bit of a delay as it for these hotels to open on the system.
Thank you very much.
Thanks, Brian .
Our next question is from Eric Wold with B. Riley. Please proceed with your question.
Thank you and good morning.
A few questions I guess, one and apologies if I missed this at the beginning.
Either Greg or Julie we're going to be at the $2 million come out from gene akin to what we are you pulling out of that to reduce over 2 million is that should we view that as kind of a lower base from this point or was any of that spending pushed into next year in subsequent years.
That's a great question. Thanks, Eric.
No real reductions there have been us being able to systematize.
Processes that support our administration and the franchise system in our offices.
So.
And that has allowed us to reduce our personnel costs.
Our compensation costs and really take advantage of the technology not just what we're delivering to our franchises. So what were using internally.
To automate pieces. So in terms of a go forward into that 27, and a half to 29 and a half would be a good annualized rate going into the future also.
While we're seeing some of those some of those cost reductions have already are already annualized in the year because they were pieces that would have happened in the last half of this year.
And remembering that our Q4.
As gene a is always slightly higher because that is the month, where we have our annual conference for all of our franchise owners.
And so are we have a.
Seasonal uptick in costs in the fourth quarter.
Got it. Thank you and then so then lastly, then a few questions on kind of the transactional.
Thanks, I guess one.
With the notes last night that you.
We plan to run council in Seatac kind of through the end of their current leases on Seatac is that there's no indication that.
Talks to extend that lease.
With the family owners busy is that no longer option or is that still a possibility.
Hey, good morning, Eric.
It is continues to be a possibility I think that again.
You know the ownership there it takes a very pragmatic approach you know.
We have tried to negotiate what we think is really fair a long term lease there.
And I think it's just getting the two the two groups together and kind of reaching a consensus at this point I think everyone is kind of just stood down take kind of took a break over the summer they tend to like to to go off on long term vacations and our hope is to pick it back up.
Towards towards.
October and we'll see that but if we can get it done we obviously, we would love to do that but at this point.
You know, we just we can't accept some of the terms that they're looking for.
Because I think it just given the marketplace or a little bit too risky.
Okay and then on the.
The.
80 $200 million of Gonna projected gross proceeds from the the six hotels.
Is there we can get a break that out between the first three in the second three the 300 being kind of an LOI stage now and the other three and then.
What is the revenue EBITDA in total for the six until they wouldn't like you go through each one but it is in total will help be helpful.
Yeah. That's a great question on the on the revenue and EBITDA and we'll look to get that information out.
In the near future can likely include something in that area in our next Investor Relations presentation.
And we'll break out additional proceeds between the two at that time also.
Got it and then lastly, then.
You wouldn't want to slow down kind of the the transaction environment over the past six months, maybe talk about how that's.
Impacted.
Your ability to find acquisition targets.
There's still robust out there still.
Our valuations reasonable maybe just give a sense of kind of what you're seeing in the market. Thank you.
[noise], yet or if you know our continuing to see opportunities I think that Theres still you know, there's a little bit of a growing gap between kind of the bid and ask on that.
But they still exist I think that that from our perspective, while we will continue to to focus and look at those opportunities.
We're really going to continue to focus on building a world class franchising organization and that means you know good solid organic growth that means continuing to to improve upon our capabilities around monetizing the verticals and our transactions.
And I think that those will come.
You know as we start to move forward and I think as you know owners of some of these smaller.
Regional.
Brands.
You know start to understand where you know where the valuations really are currently and maybe not looking at some of the valuations they've seen over the past 12 to 18 months.
Perfect. Thanks, Greg.
Yes sector.
Our next question comes from Alex Fuhrman with Craig Hallum Capital Group. Please proceed with your question.
Great. Thanks, very much for taking my question I wanted to ask about the opportunity here with canvas sounds like you're getting some good early traction there I guess I'd be curious what hotels have really been gravitating to that new our offering of yours has it been mostly in the U.S. are outside has it been mostly independent curious if it's skewing more towards economy or upper upscale hotels, just just wondering kind of how you've been positioning than where you've been seeing the most success.
Hey, good morning, Alex Thanks for the question.
Yeah, you know, we're we've been very very excited as we've started to kind of prove out the hypothesis as we felt that it was there and really the interest that would be created around it and our primary focus and objective from from a standpoint of speaking with with potential.
Deals are really those hotels in the upper upscale luxury kind of resort markets, where there is a higher level of sophistication there is.
On an obvious need for ongoing technology innovation.
There they tend to want to keep their independence and not be forced to have to go to a soft brand.
In many cases you know these are single assets, but interestingly enough as we've spoken to you know a number of larger consortiums as we talked about earlier on the call. We're seeing interest there just because of the fact that I think they are starting to understand that you know they can no longer continue to just you know offer kind of the.
Kind of contribution of single systems that they have in the past either through them or just from a recommendation standpoint I. Just don't think that's going to be satisfactory for independent hotel owners going forward.
They're going to look for you know a more stabilized more complete platform solution. They can then you know leverage.
They can brand they own their own data.
It starts to become very very important and so that's what we're really excited about as we speak with these honors and we're seeing we're seeing the cost savings come through fairly consistently as we work with fees as we work with these hotels kind of up and down.
The food chain there as it relates from kind of the upscale through luxury and resort hotels.
Great. That's really helpful. Greg and then can you give us just a little bit of a sense of the revenue and the profit potential there for Canada, I mean, obviously I would imagine the you know sort of revenue you could be generating per unit could could vary pretty substantially you know depending on the size of the of the property, especially if you take resort kind of property, but just if there's any way in terms of maybe a percentage of revenues or fee per booking or any way that you can kind of give us just a little bit of a way to think about it you know what that business should looks like as it as it scales up to presumably hundreds of units overtime.
Yeah, you know, we we haven't put anything out there Alex really specific on that because weve really been working through this year to start to really make sure that we're understanding the business that we're kind of focused on on areas that we needed to refine or improve and the deliverables and so we've been working very closely with our current agreements to really get that under talent at the same time, you know to really begin to understand the business and and you know how the pricing works as I'm sure. You can understand is immensely complicated and we've tried to to take that pricing down to a much more simplistic approach you know based on a consumed room basis for kind of the core competencies that we're providing.
At this point you know, we're feeling that we are getting very close to be able to give more color around that and and as we've talked about we'll be doing that in the near term to really kinda give everyone a better optic into what we think that business model looks like so hopefully here in the near term.
Great. Thanks, very much Greg.
Thanks.
And I wanted to go back to Eric.
Eric's question on.
The proceeds for the hotels held for sale, they're really very close to being.
Divided evenly between the three that are being listed for sale and this year and the next tranche of three so gross proceeds fairly evenly split between those two tranches and net proceeds to RH Corporation.
Fairly evenly split between those two tranches.
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Okay. Operator, if there are no further questions at this time at this point I'd like to turn the call back to Greg Mount for closing comments.
Thank you operator, we'd like to thank everyone for joining us this morning, and we look forward to speaking with each of you as we move forward through the next quarter.
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