Ryman Hospitality Properties, Inc. (REIT)

Welcome to Ryman Hospitality Properties Third 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, and 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 585-8367 and the conference ID number is 567-8843. 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.

Thank you, Maria. Good morning, everyone. Thanks for joining us today. We apologize for being a few minutes late. We had some technical challenges with our dial-in. but it is 2020 so I wouldn't expect anything less for this year. 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 exhibits at today's release. and I'll now turn the call over to Colin.

Thank you, Mark, and good morning, everyone. Well, I never imagined I would start off an earnings call sounding optimistic after a quarter in which we reported $35 million of negative adjusted EBITDA RE, but that is just how strange this year has been. The third quarter was our first full quarter of operations since reopening four of our five Gaylord hotels. and we observe many green shoots and encouraging sequential trends in this business as we move through the last three months and the same can be said for our entertainment business. I'd like to highlight many of these because I believe the data from our third quarter performance provides solid evidence of the strong position our company is in as we get closer each day to a vaccine and therapeutic resolution to the COVID-19 pandemic. None of us can say precisely when that day will occur, but if we assume, as most experts do, that a viable vaccine is possible around the end of this year or the beginning of 21, with some additional time to achieve widespread distribution, then we can paint a very good picture for you of how we expect our business to perform over the next 12 to 18 months. What's more, regardless of the exact timing of that inflection, I can assure you that the longer term, in 2022 and beyond, our business is poised to emerge from this period in an even better position than before COVID-19. And I'll discuss the unique attributes of our business and the broader trends in our industry and the economy that gives us the confidence to say just that. So let's look at the progress we made in the third quarter. For starters, we considerably improved our adjusted EBITDA RE sequentially compared to the second quarter of this year when we were essentially fully shut down by, in fact, $30 million. Our adjusted EBITDA RE loss in the quarter of $35.3 million combined with our average monthly interest expense and debt service of $9.5 million and about $4.4 million in maintenance capital expenditures in the quarter represents a cash burn of about $22.7 million per month during the quarter. This is below our forecast of $25 million per month, which we provided in early September, which was itself below the $28 to $30 million range we estimated in our second quarter call in early August. The primary drivers of this steady improvement in cash burn are the positive trends we've seen in our hotels. both from a revenue and expense perspective since we reopened. For our consolidated hotel segment, third quarter occupancy was 14.6% with ADR down only 3.8% compared to the third quarter of last year. Now if we exclude the National, which remained closed in the third quarter, and our two small overflow hotels, the combined occupancy rate from initial reopening through September 30 for just the four Gaylord hotels has been 18.1% at an average daily rate of $184. This combination of occupancy rate and solid outside of the room spend we have seen is comfortably above the levels necessary to justify the reopening decision. and has been primarily driven by the amount of leisure transient demand we've been able to induce throughout the summer and early fall. And we continue to see this in October, which has performed better than we'd expected, especially in light of the current increases in COVID-19 cases in the news globally. Naturally, this has us optimistic as we head into the holiday season, which is typically our strongest period for leisure transient. and in which we believe we have a compelling programming slate this year. We began with our Halloween program and now we're moving into our Thanksgiving and Christmas displays which will be headlined by our first ever I Love Christmas Movies event that will occur around Thanksgiving through year end. This program replaces the ice exhibit we have typically hosted and instead gives our guests an opportunity to immerse themselves in 13 scenes from classic Warner Brothers Christmas films such as Elf, Polar Express, and Christmas Vacation. We've been selling tickets since October 1st and been pleased with the response, including both ticket and room night packages. Drilling down a little bit, our occupancy levels have been led by the Gaylord Texan, which achieved over 27 points in the third quarter. That is an average of 486 rooms sold per day. and included in that, we were pleased to host almost 8,100 group room nights in the quarter at the Texan as well. In fact, the Texan turned in an operating profit in the third quarter with a positive adjusted EBITRE of $345,000. And that figure is after 2.4 million of expenses that were quite clearly devoted specifically to COVID-19 mitigation which includes severance, furlough benefits and specific material supplies. The Textham was followed by the Gaylord Rockies which achieved over 19 points of occupancy in the third quarter. The Rockies had a modest loss in terms of adjusted EBITDA RE but if you also exclude the approximate $1.5 million of similar direct COVID-19 related expenses This property would have also been in the black by about $200,000. Another way to look at this performance is this. After excluding COVID-19 costs, our hotel's portfolio generated a pro forma operating loss of only $3 million per month on an occupancy of just 15% during the third quarter. Now this is really a remarkable achievement for the the operating and asset management teams of our company. Both in terms of scaling our expenses quickly in response to the sudden demand shock, as well as on the revenue side quickly pivoting to optimize drive-to leisure demand in the absence of meaningful group business. It really confirms that reopening these four hotels was absolutely the correct decision. We plan to continue to build on this momentum. I should add that we are accumulating valuable lessons from this experience that we will carry forward with us well after this pandemic is over. Another bright spot for our hotels was with regard to cancellation and attrition fees where we were able to collect close to $7 million in the third quarter. This is an area of our business where we've been very conservative in setting our expectations. and I've often emphasized how we are prioritizing rebookings and preserving customer relationships over immediate collection of full contractual fees now that we're open. What we've been able to do in many of our customer conversations is to strike a great balance between collecting some partial cancellation fees up front in exchange for a rebooking and that has been a win-win for us and for the customer. This brings me to yet another green shoot in our hotel business, and that is our sales activity and the on-the-books pace for the short and long term. In the third quarter, our gross new bookings totaled 669,000 room nights, which was a decline from the third quarter of last year of only a little over 22,000 room nights. Now, of course, a substantial amount, about 77% of these new room nights, were those rebookings of COVID-related cancellations, which I just mentioned. But nevertheless, these are real downstream bookings. In fact, as of October the 30th, we've rebooked now over 54% of all COVID-related cancellations today. Frankly, I do not know of another company in our space with this type of performance. And it's above our aspirational goal of 50%, which we set at the outside at the outset of the pandemic back in mid-March. Back to our third quarter sales. What is remarkable is that the flip side of that 77% means that 23%, almost one quarter of our sales activity in the last three months were entirely new future bookings. Meeting planners right now are experiencing something they've never experienced in their careers. with essentially every city convention center closed and every large group canceled in the near future. These folks are so distracted and I find it remarkable that we have their attention to the extent that we do. So while certainly the pace of new bookings has slowed as meeting panels not surprisingly await more clarity on the next four months or so, there remains an encouraging level of activity in some of the outer years, that is 22 and beyond, where planners and customers feel they have more visibility and still comfortable making longer-term plans. The net bottom line of our cancellation, rebookings, and new bookings is that as of September 30th, we still have over 38 points of occupancy on our books for next year, 2021. Of course, this is below where we would typically be standing with two months left to go before the start of the new year, which is normally in the range of 45 to 50 points or so. But under the current circumstances, this is a substantial book of business, which is mostly concentrated in the second through the fourth quarters of next year. We believe this bodes quite well should a vaccine arrive by the end of this year with potential for widespread distribution to be achieved by the midpoint of next year. In a best case scenario, with a timely vaccine approval and distribution that hastens people's sense of return to normal, our current book would imply that the second half of next year could look pretty close to normal. Again, I'll emphasize that this is under a timely vaccine scenario, which of course is out of our control, but appears to be one reasonable possibility according to the experts. Furthermore, if you look past next year, we have 39.7 points of net occupancy on the books for 2022, which is in fact slightly ahead of last year's pace when we had 39.2% points of occupancy on the books for T plus two or 21, or 2021 at that time. This means that today, when we look past the next 14 months, we are still looking at a healthy, normal book of business in the long term, as long as this environment does not drag on for another year or so. Now, this is the point where you're probably wondering, what about the future? Won't your industry be permanently changed as a result of COVID-19? We've had many conversations with investors recently and meeting planners, and obviously this is the question that needs very clear clarification. They say, it's great that you still have this book of business, but what about the nature of group travel itself after COVID-19? Won't it be replaced by Zoom or the like, or won't corporations simply stop traveling? So let's talk a little more about the big picture trends in the years ahead and why we believe we will emerge in an even better position just as we have after past shocks like September 11th, the financial crisis, or the great flood of Nashville. We've always talked about the special attributes of our group business that makes it so distinct from other forms of travel, both leisure, transient, and business transient. We have always emphasize the supply side of the equation as well. We don't see any of these key advantages dissipating as a result of COVID-19. In fact, we see them becoming more entrenched. Now, let's talk about disruption first. For example, Zoom and the idea of virtual meetings or the related work from home trend. Now, while Zoom or the like are wonderful tools for workforce collaboration and small team meetings, or for a salesperson to check in with a client, it cannot replace a 500 or 1,000 person keynote networking conference or an incentive reward trip for 200 of the company's best salespeople or the manufacturing company that wants to showcase its new line of products to hundreds of dealers. And professional association members don't typically pay thousands of dollars for the privilege of attending a virtual conference. Nor will the vendors and exhibitors who want to sell to those professionals pay to pitch their products and services if they can't set up physical booths in an exhibit hall to capture foot traffic. Indeed, for association groups, their annual meetings and conferences are typically their number one driver of revenue to support their mission and often their very existence. So we don't see technology disrupting this business in a meaningful way. and as a reminder, associations and other non-corporate groups comprise about one half of our group business in a given year. For corporate customers who may institute more work from home arrangements for their day-to-day operations, we believe human nature dictates the more employees are distributed at home, the greater their desire and incentive to occasionally gather and network in a safe environment with their colleagues once they no longer interact daily. I'm a big believer in the power of corporate culture. And when folks are working remotely, it's so hard to develop a distinct industry-leading culture. Therefore, I believe that if companies do become more work from home over time, the good companies will always bring their people together from time to time. Now, I'm gonna break from my script here and share you a quick story. Last December, We held our annual board meeting, our December board meeting at our Colorado hotel. Mark and I was walking the convention and exhibition space and there was a large tech company meeting there, about 500 people. Well, guess what? This company was one of the virtual meeting businesses that have become a household name in this country since COVID. And that is what our hotels with their industry leading meeting space per room are custom designed to permit companies like that to do. Come together, build culture, talk strategy, and celebrate. Finally, even if one insists that there must be some disruption from technology to at least the smallest groups, I would note that the smallest slice of our group business, that is meetings of less than 100 room nights on peak, only account for 10% of our group business. In short, we believe the fundamental motivations for why groups meet will not materially change in the post-COVID world. And on the supply side, the entrenchment of our advantages is even clearer. Supply growth in large 1,000-plus-room convention hotels with vast meeting space has been limited for several years now due to a number of structural and economic factors that we have often talked about. These include fewer deep-pocketed financial sponsors with long enough time horizons willing to take on development risk than in decades past, and the reduced availability in municipal incentives, which are often required to make the economics of new construction work. And there's simply nothing about COVID-19 that we see leading to improvements in supply. Indeed, we believe you're more likely to see marginally competitive supply come out of the industry as some of the old vertical large group hotels that need a ton of capital in more dense urban downtowns which lack the volume of meeting and outdoor space of our assets become less attractive to groups in the immediate post COVID era. In the post-COVID world, our industry-leading meeting space per room, our horizontal footprint, our open-air atriums, our all-under-one-roof experience that requires little use of public transportation or travel beyond the controlled confines of hotels becomes quite a compelling offering as long as COVID remains in the memories of customers. So we see a very bright future for our hotels. Now let me quickly touch on our entertainment business as there's a lot happening there. The discussion has to start with the old red brand where our reopened restaurants have been conforming really well under the circumstances that includes the ongoing capacity constraints here in Nashville. Old Red Gatlinburg has been the real standout here approaching pre-COVID levels of performance lately with revenues down 22% in the quarter but only 13% in the most recent month of September. Meanwhile, adjusted EBITDA RE in the quarter was up 68% over last year's third quarter and was within 20% of our pre-COVID plan heading into this year. So we're really encouraged by this and believe that as the tourist markets recover in Nashville and Orlando, these locations will play catch up with Gatlinburg as well. Turning to our music venues, we were very excited just after the quarter ended to begin phasing in live audiences once again at the Grand Ole Opry show, which we've been live streaming throughout this pandemic. As a consequence of our collaboration with Metro Nashville Health Department and the City's COVID-19 Task Force, We were able to welcome 500 ticketed guests to witness the 95th Anniversary Show on October 3rd. Since that time, because of the rigorous safety protocols we've put in place, we've been permitted to move the audience from 500 to 800 and now to 1,100, which represents about a 25% capacity. While audiences will continue to be limited in the foreseeable future, We plan to continue in November and December with shows on Friday and Saturday, though we may add more shows at a later date and increase the audience size as we work alongside metro health authorities to ensure proper safety precautions. Now one very interesting thing that we've noticed about these ticket sales when we reintroduce live audiences at the Opry is that a large percentage of them were purchased outside of Tennessee on essentially a week's notice and from locations that would be considered flying distance such as Washington State. We believe this is a very powerful indicator of the pent-up demand among our target consumers and confirmation of the new customers we're able to convert and bring into our brands through our extended digital reach and streaming products which we'll talk about in a second. Turning to Ryman, in the third quarter, we successfully piloted our Live at the Ryman pay-per-view concert series. This was a run of six weekly Friday night concerts through September the 18th. Beginning in week four of the series, we also introduced a limited in-venue audience of 125 people, which grew each subsequent week, committing us to host up to 375 by week six, and currently we're permitted now to conduct these shows at a 25% capacity or approximately 590 guests. This hybrid of live audience plus pay-per-view model proved successful during its initial run, delivering on our goals for profitability from streaming purchases, live ticket sales, and sponsorships while generating a high degree of favorable media exposure and artist feedback. We're excited to build on this model as a promising path through the pandemic period, and we have more shows lined up in the fourth quarter. In the meantime, our loyal fans across the country are increasingly finding us online and over the air, not only through those Live at the Opry and Grand Ole Opry livestreams, but also through the content we deliver direct to consumers through our new linear TV, television network, and video on demand channel, Circle. Our broadcast of Opry Live, which are carried by Circle and over 80 network affiliates, achieve an average rating of 2.2 per show through the 25 weeks ended September 19. We have seen Circle's social media following and engagement grow steadily alongside these viewership numbers, and we added new distribution partners for the network in the third quarter. Fans can now access Circle through our network affiliates, satellite, cable, and as of September, the smart TV platforms of Roku, Vizio, Samsung, and Comcast Zumo. These additional video on demand platforms reach over 89 million monthly average consumers, and Circle is off to a hot start on them with over 20 million minutes of viewing time to date since launch. Live TV streams have exceeded 40 million in over 100 countries since the second week of March, and the Opry Live consistently ranks number one on the Polestar Live streaming charts across all genres, not just country. And all of these streaming interactions will drive demand to our businesses once we get our lives back and we're excited about the future. We encourage you to visit circleallaccess.com and check it out for yourselves. So in conclusion, while there's No sugarcoating that this is an extraordinary tough time for our businesses and for our customers, our employees, and our communities in which we do business. COVID-19, in a weird way, is giving us the opportunity to rethink and re-engineer our businesses. So when these crazy times are behind us, we will emerge stronger than we were when this pandemic hit seven months ago. So that's a lot of data, wanted to give you A lot of information on what's going on in our businesses, and now let me turn the floor over to Mark.