Ryman Hospitality Properties, Inc. (REIT)

Welcome to Ryman Hospitality Properties' Second Quarter 2020 Earnings Conference Call. Hosting the call today from 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 800-585-7000. and the conference ID number is 4586285. At this time, all participants have been placed on a listen-only mode. It is now my pleasure to turn the floor over to Mr. Mark Fioravanti. Sir, you may begin.

Thank you, Maria. Good morning, everyone. Thank you 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, further events, or any other reason. We will also discuss non-GAAP financial measures today. We reconcile each non-GAAP financial measure to the most comparable GAAP measure in the exhibit to today's release. I'll now turn the call over to Colin.

Thank you, Mark, and good morning, everyone. When we last spoke on our first quarter call in May, Our Gaylord hotels and the majority of our entertainment venues were closed as the nation grappled with flattening the curve during the initial outbreak of COVID-19. I'm happy that as we meet today, some three months later, four of our five Gaylord hotels are again open and we've been able to resume some reduced capacity operations across several of our entertainment assets as well. Of course, we still have a ways to go to return to pre-pandemic business levels as the challenges our economy and our country faces are far from over. And frankly, no one knows how long this recovery will take. However, based on the initial success that some of the early virus epicenters around the country have had in battling back the pandemic and then the rapid progress we're seeing on the therapeutic and vaccine front, In my view, despite some recent case increases in some states, the overall outlook for an eventual resolution has meaningfully improved over the past three months. And as a consequence, I am firmly of the belief that we will be in a recovery in the foreseeable future. So rather than throw up our hands and feel sorry for ourselves over the last three months, our company has been diligently focused on two key areas to ensure we are in the best possible position to benefit from that recovery. These are minimizing our expenses and cash burn and positioning our assets and our business to not only participate in the recovery when it does come, but more importantly, to capitalize on this opportunity. This has us asking questions like how can we grow our market share in the large group meetings business? Remember, all group business in this nation has been canceled over the last four months and quite probably over the next few months. And every single meetings business is stressing, this is in fact a time of opportunity. How can we deliver better customer service and do so in a more cost effective way? And in that vein, how do we at Ryman help Marriott become a better manager of our assets? From an entertainment perspective, no one in this country is sitting in theaters, concert halls, or the like. They're sitting at home watching Netflix, Amazon Prime, or streaming their favorite content. So how do we take advantage of this? In short, we do not just want to be resilient and come through this situation bruised but kicking, but rather we want our businesses to come out stronger than before. We have used this same approach in past, whether it was the great financial crisis, the flood in Nashville in 2010, or our reconversion in 2013. Through each of these difficult situations, we as a company became better, more focused, and stronger, and I am confident that you will see the same outcome in the months and years ahead. But before I get into those questions, First, a brief comment on what is going on in our business today, and more importantly, our cash burn. In the second quarter, during the majority of which essentially all of our businesses were shut down, our monthly cash burn rate was approximately $31.7 million per month. This is simply our consolidated adjusted EBITRE plus our cash interest expense and debt service, but excludes The discretionary capital investment we continue to put to work at the Gaylord Palms. This figure is well below our initial estimates in May of around $42 million and better than the updated estimate of $35.2 million that we communicated in our investor update on June 1. So we're pleased with our success in reining in our cash expenses quickly and effectively during the second quarter. Now that four of our five Gaylord hotels as well as several of our entertainment venues are reopened and operating at levels that weren't remaining open, we expect this cash burn during the third quarter should continue to improve to approximately $28 to $30 million per month. Mark will elaborate in a moment on some of the details of our cash uses as well as our current liquidity and how that translates into substantial run weight. Thank you for joining us today. and Gaylord Palms, Opryland and Rockies on June 25th. The Gaylord National remains closed, but we continue to monitor this market closely and it will reopen when we believe it is warranted. Naturally, with group business essentially suspended, our focus on these reopenings has been on the drive-to leisure market and generating at least enough revenue in EBITDA from the hotels to justify remaining open and waiting return of the group customer. We know families and individuals may be reluctant to take international and long distance flights, but still have a strong urge to take summer or fall break as many states loosen their stay at home restrictions. This represents an opportunity for our hotels, each of which are in easy, drivable reach to literally millions of families. Thus, we have very carefully targeted these markets, and results to date have been pretty good in our view, certainly given the circumstances. In fact, this has been a revealing experiment in some ways. We're used to hearing the description, particularly from some members of the sales side, that Ryman's hotels are purely group-focused and not really leisure destinations. Of course, the reason we don't do as much leisure business, apart from our usual summer and holiday periods, is that our assets are very attractive to the group customer. And this naturally stifles the space available for the leisure customer. Pandemics notwithstanding, we love the group business. It is predictable, repeat, and highly profitable from an outside of the room perspective. However, that should not be taken to mean that Gaylord Resorts and Convention Centers are not an attractive year-round destination for leisure guests. Quite the contrary. Some of you may overlook the first part of that label, Resort, and focus on the second part, Convention Center. Those who have followed us over the years know that we have proactively invested substantial capital to add and upgrade our resort amenities. These include spas, pools, water parks, multiple F&B concepts, expansive atriums, retail shops, and customized programming that offers unique leisure demand generators. Combined with our proximity to downtown tourist markets, the truth is we can drive significant leisure volume if we truly want to. And this unique window in time serves as a laboratory demonstration of that. It is also to our advantage that the expansive all-under-one roof nature of our hotels gives us the square footage to accommodate increased social distancing pretty easily. For example, many of our F&B outlets are configured out in the open under the cover of our tall, beautiful atriums with lots of airflow, and our public areas and corridors are designed to be wide and spacious to accommodate the movement of large groups. This allows our guests to feel quite comfortable visiting us on top of the hospital grade cleaning and disinfecting processes that we have rigorously put in place. So when group was suddenly taken out of the equation and we instead executed our leisure marketing strategy post reopening, our hotels were able to capture more than their fair share of limited amount of leisure travel that is taking place in our markets. For example, in the full week Ending on the holiday Saturday, 4th of July, just after we had reopened the four hotels, the Gaylords ran a transient RepR indices from 159% at the Rockies to 194% at Opryland and up to 210% at both Texas and the Palms. These are star percentages of competitive hotels in those markets. Now, while this reflected occupancy levels of only 14 to 24%, for hotels of our size, this translates to more than a few leisure guests, on top of which we were able to achieve good daily rates ranging from $187 to $214 per night. Now, just so you don't think I've been selective in sharing data on one holiday week, Let me give you the star of REVPAR indices for the latest available week ending the 25th of July. During this period, total occupancies at our four open Gaylord hotels range from 14% at the Palms to 26% at the Texan. That's for the full week. And by the way, in case you think these occupancies sound low, 26% at the Texan is the equivalent of 95% occupancy at a 500-room hotel. For the same week, transient ADR ranged from 159 at the Rockies to 194 at the Texan, resulting in transient RevPAR indices of over 160% for the Rockies and Opryland, 175% for the Palms, and 217% for the Texan. Now, one last stat regarding occupancy. Three of the four hotels experienced their highest transient occupancy This is how our hotels are performing right now, which frankly, we're pretty pleased with given the circumstances. but the important question, questions I suppose, is when does the group segment really recover and has this segment suffered any long-term permanent damage? Now if you think about this segment from a macro perspective, COVID-19 has decimated it over the last few months. As I said earlier, almost all group business in this nation has been canceled. Tens of billions of dollars of lost revenue and every meeting planning company in the country has been massively disrupted. But the interesting thing is that when you talk to the planners, and by the way, we do, they inform us that they and their clients want and intend to meet when they're able to and it is safe. In our opinion, this segment will recover to previous levels. The question is when? And the answer, I believe, is at the time the nation feels it's safe to travel and congregate inside in numbers. In short, when there is a vaccine available. So with that as a backdrop, let me talk about how the future is stacking up from a demand perspective. And to do that, let's start with canceled room nights and more importantly, the rebookings. In our formal press release, we talk about cancellations and rebooks as of the end of June. But let me give you the latest numbers. As of Friday, 31st of July, last Friday, total loss room nights in our company for backwards and all forwards was 1,579,000 room nights, which translates to about $737 million of loss revenue. We're finding that the average cancellation window has been running at about 100 days out as groups make their decision. Of these cancellations, around 93% have fallen into 2020 and the other 7% into 2021, early part of 2021. More importantly, we've successfully rebooked now 684,000 room nights representing just over $300 million of revenue into future periods for about a 43% rebookings rate thus far. and as you will comprehend if you read the earnings script, that pace of rebooking has in fact accelerated in the month of July. Our strategy from the beginning of this pandemic has been to emphasize rebookings with our valued customers and these have gained momentum over the course of the quarter and as I said, certainly into the third quarter. Where appropriate and warranted, we've also been able to collect some attrition and cancellation fees which have also contributed to the improved monthly burn rate versus expectations. As regards cancellations and attrition fees, let me be clear on how we're dealing with these fees as a company with Marriott. And this is where we currently, this is our current thought on this process. Through the end of the third quarter is one way. But if groups are wanting to cancel in the fourth quarter and into 21, we're taking the position that attrition and cancellation fees are due. On the sales side, you'll see that we booked 655,000 room nights in the second quarter, which is a really good number, of which 516 were from those rebookings I mentioned. But more notably, we booked 139,000 new room nights for future travel Beyond 2020. And hot off the press, here are the preliminary group sales numbers for July. In July of 2019, we booked 131,000 room nights. This July, we booked 196,000 room nights, of which 131,000 were rebookings and approximately 65,000 were new bookings in the month of July. Not only are the meeting planners still active beyond 2020, but we as a company continue to have a sizable book of business for 21 and 22 already contracted. To be precise, as of June 30th, we had 1.64 million net room nights on the books for 21, or 43.4 points of net occupancy. which is that is down only one point compared to where we stood in June 30th of 18 for 2019. Next for 22, we have 1.46 million room nights on the books or 38.4 points of net occupancy on the books as of the 30th of June. That is in fact up 1.6 points compared to the same time last year in 19 for 21. In addition, for both years 21 and 22, about 56% of the on-the-books room nights are in the first half of the year, and the balance is for the second half. Now, this volume of business on-the-books and sentiment from the meeting planners is extremely important because it speaks to how rapid a recovery may look for our segment of the industry once the customer gets comfortable about traveling. In a sense, our group business is like a loaded spring, which, upon successful launch of a vaccine or effective therapeutics, or simply a control of the pandemic to manageable levels, has the potential to experience a more rapid rebound, just due to the business on the books that I believe some investors and sell-side analysts are, in fact, giving us credit for. I think some analysts are looking back at 2009, when bookings in the year in the year for the year were materially impacted due to the financial challenges corporations and associations were having all over the board. But today, what is stopping companies and associations is more out of fear and government mandates. And when these have lifted, I believe the sector of the industry will recover pretty quickly. This is the situation we are nurturing and preparing our hotels for. And we believe our hospitality segment is still well positioned for a decent 2021 and even a better 2022 once any of these factors manifest. Now, turning to our entertainment segment, like our hotels, we reopened our Nashville and Gatlinburg All Red locations in the second quarter, as well as hosted the grand opening of our All Red Orlando location. All three venues have been performing well despite their respective social distancing rules and other measures, which both Nashville and Gatlinburg, with both Nashville and Gatlinburg delivering positive adjusted EBITDA in the month of June. I would note that on July 3rd, the city of Nashville did roll back its modified, roll back to a modified phase two of their reopening plan which limits restaurants to 50% capacity down from 75%. The other bright spot for our entertainment business in the quarter has been the success we've had in the digital part of this business. We're using this opportunity when people are spending more time at home to deliver more of our content digitally and continuing to build our brand, deepen relationships with our customers and form new ones. For example, our weekly Saturday night Opry live shows are now averaging well over 2 million viewerships each week across all distribution points, which includes Circle TV Joint Venture, U.S. affiliate TV stations, Dish Network, Sling TV, and social streaming platforms. That's based on our growing average of 1.3 million digital streams of the show each week. Our U.S. affiliate market's adding another 588,000 average weekly views and Dish and Sling adding another $150,000. Circle TV is not yet rated so its viewership is not even yet calculated into the estimates and no doubt it is significantly additive. Circle is expected to begin rating late fall this year and our decision to offer Opry Live as a digital livestream has proven very powerful. Keep in mind that 1.3 million digital streams of this show is just the average over many weeks. For Garth Brooks and Tricia Yearwood, we saw nearly 4 million digital streams that evening. In July, Vince and Reba delivered 2.4 million streams. All in, Opry Live has just shy of 25 million digital streams over 21 weeks we've been live streaming. We plan to continue to offer the free live stream options through the duration of this pandemic leading to a launch of Circle's subscription video on demand or SVOD product in early 21. Meanwhile, Circle's advertising supported video on demand or AVOD product is scheduled to launch in Q3 this year. And with distribution partners, we expect to reach an additional 60 million plus consumers. And digging into the numbers, Circle is doing a fantastic job finding a younger generation Thank you for watching. We are really excited about this data and believe these consumers are on course to become the next generation of fans and guests across our entertainment platform, both physical and digital. So, while the pandemic has certainly taken a toll on our physical businesses, the timing of our push into digital for our entertainment business was really good. and we likely look back at this period as one that only accelerated the growth of the content and distribution side of our business. So, in summary, while this pandemic has been devastating for our country, our economy and our business particularly, I do believe we're seeing green shoots that give us cause for optimism that we will manage through this in the not too distant future. In the meantime, everything that we can control and optimize as a company in this period, we are doing aggressively. This has the dual benefit of maximizing our time horizon and liquidity during the pandemic while also transforming and positioning our business to thrive even better than before when all and our business will be absolutely better Thanks Colin.