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Edited Transcript of RLH earnings conference call or presentation 6-Aug-19 1:00pm GMT

Q2 2019 Red Lion Hotels Corp Earnings Call

Spokane Aug 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Red Lion Hotels Corp earnings conference call or presentation Tuesday, August 6, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dan Redmond

Red Lion Hotels Corporation - VP of Financial Planning & Analysis

* Gregory T. Mount

Red Lion Hotels Corporation - President, CEO & Director

* Julie A. Shiflett

Red Lion Hotels Corporation - Executive VP, CFO & Treasurer

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Conference Call Participants

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* Alex Joseph Fuhrman

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Brian H. Dobson

Nomura Securities Co. Ltd., Research Division - VP of Lodging REITs

* Eric Christian Wold

B. Riley FBR, Inc., Research Division - Senior Equity Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to RLHC Second Quarter 2019 Earnings Conference Call.

(Operator Instructions)

As a reminder, this conference call is being recorded. It is now my pleasure to turn the conference over to your host, Mr. Dan Redmond. Thank you. You may begin.

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Dan Redmond, Red Lion Hotels Corporation - VP of Financial Planning & Analysis [2]

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Thank you. Welcome to RLH Corporation's Second Quarter Earnings Call. With us today are President and Chief Executive Officer, Greg Mount; and EVP 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 SEC. Our Form 10-K and other filings are available on our website, rlhco.com, in the Investor Relations section or through the SEC website at sec.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 tables 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.

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Gregory T. Mount, Red Lion Hotels Corporation - President, CEO & Director [3]

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Thanks, Dan, and good morning from the 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 as 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 9 of the 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 2 assets to monetize those hotels until their ultimate sale. The combined proceeds from the sale, along with the expected valuation on the remaining 2 hotels and the refinance proceeds is near our original sales guidance.

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 owned or leased in the near term.

What we want to do is dispose of these assets at any price. As fiduciary, 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 this 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 operation of all, but 2 of our remaining owned and leased hotels to well-known third-party hotel management companies who are capable experts.

Let's talk for a moment about what we are. We're building a world-class franchise and technology company. As the 10th largest franchise 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 of franchise EBITDA by $4.6 million from $1.8 million loss in the prior year trailing 12 months 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, and 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 50% less than our competitors. This, combined with our competitive demand generation, create what we refer to as our value-first positioning within the marketplace. We combine the 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 an up-and-out mentality. Those owners realize that they're either have to accept the returns on their invested capital for mandated product improvement plans, buy the larger brands or they need to step out. Our combined value-build standard 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 RevPak. 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 marketplaces, innovations and are beginning to now focus on greater attribution of our capabilities into areas such as headless commerce.

We have never wavered from our core strategies over the last 5 years. We have and will continue to make investments in our platform and franchising. With that being said, we have and we'll continue to look for ways to operate more efficiently, and through that, reduce our SG&A expenses while supporting the growth of our franchise business.

We have reduced the guidance for SG&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 Knights Inn, we didn't have to add cost to onboard those hotels to our system nor do we expect that we will have to add significant additional costs 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 mid-scale franchise agreements typically contain future royalty rate escalations and premiums, as mentioned before, and we expect that our relative internal cost will continue to stabilize or shrink the technology efficiencies. For instance, our mid-scale 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 15% in 2020 and an estimated 40% over the next 3 years. This is the beauty of building a franchise business and reflect the importance of long-term value creation. However, this takes time.

Now I want to share my thoughts on transactions. The world is 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. So that being said, a higher margin opportunity is still available given the millions of transactions we generate every year. Transaction activity is an increasing opportunity that must delever both additional revenue opportunities and cost reductions as both have significant flow-through. You can see these verticals growing on our own platform today, and it will continue to be an area of optimization and accelerated focus and growth for us.

Based upon what we see as the future evolution in e-commerce, earlier this year, we announced the launch of our subsidiary RLabs. RLabs is not a franchise business, but rather a software-as-a-service product and innovator of hotel technology platforms. RLabs is allowing us the ability to monetize an early industry-leading platform and expand upon it by selling the complete platform to independent hotels around the world.

Currently, Canvas Integrated Systems, along with RevPak, is the sole product offering that provides the complete platform solutions for our franchise business and for independent hotels that lack scale, pricing and advanced and complete platforms. We have built the capability of the system to deliver product 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 Canvas Integrated Systems is significant. In just the upper upscale and luxury resort segments, we estimate there are 82,000 hotels that are all generating transactions 24 hours a day, 7 days a week. We are beginning to get a better understanding of the Canvas business model based upon open and operating hotels and resorts, and we'll look to provide additional more specific guidance in the future.

As a reminder, Canvas is an all-in-one cloud-based 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 provides solutions for both customer-facing functionality such as reservations, interface with OTAs 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 7 agreements for Canvas and are in discussions with many more independent hotels, third-party operators as well as large time-share and other consortiums. The product is being market primarily through relationships we have with third-party hotel management companies, independent hotel owners as well as consortium 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 hotel owners and the management companies who have financial tenants built into their contracts related to profitability. It is also provided to them under a white label so that they can brand it, monetize it in their business and own the data.

Given our lease, the promising indications of interest through our professional network, we are being mindful of keeping our customer acquisition cost in check as demand for this product ramps up. We believe that the margins we can achieve with Canvas can rival margins we are experiencing in our core franchise business. It is important to remember, no business is without its challenges. The path we have been on for over 5 years is now beginning to take shape, but this is a long-term strategy that leverages a stabilized and industry-leading platform.

Now on to some second quarter specifics. Business development efforts in the quarter were highly successful. We completed 40 new signings, 5 of which are mid and upscale USB. Our focus on this segment remains conversion opportunities with higher room count than longer-term contracts, which lead to higher NPV contribution to our core revenue system. In the quarter, our average NPV on USB signings was over $235,000 for all deals, including new contracts for existing locations and $220,000 for new deals. Our SFP signings totaled $35,000 in the quarter with an average NPV of $36,000 for all deals, including new contracts for existing locations and $25,000 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 are of higher caliber than those leaving the system. The majority of the terminations are concentrated in the FFE brand that has properties nearing the end their economic cycles. As we've 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 agreement and expect that a number of terminations to settle into a more industry-standard termination rate of 6% to 10% over the next several quarters.

In closing, RLH is building and investing in the future of a world-class franchising and software-as-a-service company. These 2 disciplines, we believe, go hand-in-hand as platforms change. We see this combination as an opportunity to emphasize our technology and low cost of service while maximizing our relative scale. These keys hold the greatest potential for RLH 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 Pate to our Board. We are benefiting from their experience and contributions already. We are 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.

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Julie A. Shiflett, Red Lion Hotels Corporation - Executive VP, CFO & Treasurer [4]

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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 RLH. 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 operations 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 over time to assist the investment community with underwriting and understanding the value of our franchise company.

Moving on to our recent financial results, RLH Corporation reported a net loss for the second quarter of 2019 of $2.8 million or $0.11 per share as compared to a net loss of $2.3 million or $0.10 per share in the prior year period. The change is primarily due to prior year hotel sales and current year performance of 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 $900,000 decline in the contribution of owned hotels for the current period.

As Salt Lake and Olympia were outsourced in February and Anaheim was outsourced in April, third-party management companies are in the process of performing assessments and changes to staffing and the restabilization 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 the result of the Knights Inn 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 terminated 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 who have phased conversions or openings over the next 24 months. It's anticipated that 30 contracts for new locations will contribute approximately $228,000 in royalty revenue in 2019. The 30 new hotel contracts have also an estimated royalty revenue baseline of approximately $875,000 for their first 12 months of fees, after application of incentives and fee deferments. This royalty stream does not include additional incremental revenues that are generated from transactions, marketing or other franchises fees.

As the executed pipeline for USB 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 4 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 of a higher caliber and that are more profitable to RLH. As we've shared in the past, terminated contracts could be the result of a number of different events. For us, primarily economy hotels that lack compliance with brand standards and are moving to an independent hotel status or hotel sales or defaults.

Our mid-scale and upscale brands that participate in our revenue management programs have seen strong RevPAR improvement for the year. Our stabilized USB hotels utilizing these services saw 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 reduce compensation expenses. Almost 50% of our SG&A expense is related to selling and support of franchise agreements. And the 5% is related directly to the Board of Directors and direct, publicly held and 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 on to marketing, reservations and 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 30, 2019, the company had approximately $56.5 million 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 million held by the joint ventures.

Our net debt to trailing 12-month EBITDA after the second quarter was 2.6x, which we believe is on the low-end as compared to other public lodging companies. Adjusted free cash flow for the first 6 months of 2019 was $5.4 million as compared to $542,000 for the same period last year. The year-over-year improvement is largely related to the timing of key money dispersed for USB 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 $27.5 million to $29.5 million, which includes estimated stock compensation of $2.8 million to $3.2 million.

Adjusted EBITDA guidance continues to be in the range of $20.5 million to $22.5 million, which includes the add-back of stock-based compensation. We are keeping our adjusted EBITDA guidance the same as the decline in SG&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 finding guidance for the year, it is our expectation, as previously discussed, that these new hotels signed in the remainder of the year will primarily begin 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 we'll 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.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question comes from Brian Dobson with Nomura.

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Brian H. Dobson, Nomura Securities Co. Ltd., Research Division - VP of Lodging REITs [2]

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So I want a -- 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 tend to benefit from higher level of flag conversions seen during a RevPAR deceleration?

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Gregory T. Mount, Red Lion Hotels Corporation - President, CEO & Director [3]

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Yes, Brian. Having spent a large portion of my career with Starwood and heading up the franchise development, management development for North America for a period of time, I was able to really live through these cycles and really understand the impact of those, particularly on a franchising organization. And quite frankly, the good organizations with the right cost basis, which we believe we have built into what we are offering owners really tend to do better in -- during a churn. And as owners seek, not only some relief from the higher expenses versus the lower performance that they're seeing, they're 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 we talked a little bit about in the call, there is really a very distinct up-and-out mentality that's currently pretty prevalent with some of the larger systems as they really push hard on their gen 1 and gen 2 hotels and really look to price them out through the renovations or what we call, pits 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 -- and every quarter, we've been able to increase those signings and that activity and our deal pipeline continues to grow. And so the right thing are coming together and our platform continues to succeed and people are recognizing that.

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Brian H. Dobson, Nomura Securities Co. Ltd., Research Division - VP of Lodging REITs [4]

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Okay. And then in terms of revenue management, I guess, how some of the steps you've taken been received by your rather decentralized ownership base? And do you think that your improvement in RevPAR index is what's behind your uptick in franchise growth?

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Gregory T. Mount, Red Lion Hotels Corporation - President, CEO & Director [5]

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Yes, it's -- you really -- if you relook at it kind of on a bifurcated basis. Meaning, we look versus kind of the economy of what we call the flexure brand versus our USB brand, which tend to be more sophisticated. And so really, the communication of what we do for those 2 separate segments is really very, very different. On the USB side, mid-scale, upscale hotels, we have upwards of 120 or so hotels that we revenue manage. And as we talked about, they saw a significant RevPAR growth, which really speaks to our capabilities around leveraging the platform that we've built. But at the same time, we saw good, strong RevPAR growth in our select serve segments where we do get that information. And so both are, for us, things that we watch very, very closely. On the flexure side, I think you're going to see us start to really begin to test, which we're close to being able to do, systems that really leverage AI and really look to manage the revenue manager, the pricing decision on more of a basic, kind of simplistic basic basis for our economy segment hotels. So that's always going to be working in the background and we feel that, that's going to have a big impact on their performance as we go forward. But again, part of what you're seeing right now in the U.S. is you're seeing the secondary and tertiary markets really, over the last few months, slip a little bit on their other RevPAR growth. I think that, that's fairly consistent. As I speak to my peers in other hotel companies, I think that's fairly consistent. The key though, is that being able to leverage the businesses that's there and we feel we've built a platform and the capabilities to be able to do that.

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Brian H. Dobson, Nomura Securities Co. Ltd., Research Division - VP of Lodging REITs [6]

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Okay. And then in terms of Canvas, what's the average size of the portfolio of the company that you're looking to partner with on that platform?

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Gregory T. Mount, Red Lion Hotels Corporation - President, CEO & Director [7]

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Yes, I'll tell you that, I think that -- I'll give you a range. I mean, we've looked at some consortiums that are around 100 hotels and we've spoken to some larger consortiums that exceed 700 hotels. Again, it's really an opportunity, 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 more 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're very interested in looking at that. At the same time, we're 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 it make it more sticky for them. And so that's why they perked up. That's why they're listening. That's why in a couple of cases, we're on our third or fourth meeting with these groups as we work through this process.

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Brian H. Dobson, Nomura Securities Co. Ltd., Research Division - VP of Lodging REITs [8]

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And just last one, one quick follow-up on the system growth. You saw Hilton reiterate a system growth outlook. Marriott, Marriott brought theirs down by roughly 25 basis points at the midpoint. I know that Marriott was relating to construction delays and that wouldn't be less impactful for you. But are you at the margin, seeing any kind of weakness in the forward outlook in terms of feedback you're getting from your salespeople?

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Gregory T. Mount, Red Lion Hotels Corporation - President, CEO & Director [9]

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No. Actually, our pipeline is actually continuing to grow. I mean, we -- as you know, we were in a little bit different situation than they are. I think if anything, 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 it's just -- is a delay or a slight increase in the time it takes to get these hotels online. So as we've talked about before, we're really focused on the net present value of the contract that we're signing and those continue to grow. But I think if anything for us, you're seeing just a little bit of a delay for these hotels to open up the system.

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Operator [10]

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Our next question is from Eric Wold with B. Riley.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [11]

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A few questions. I guess one, and I apologize if I missed this at the beginning, either Greg or Julie, where did the $2 million come out from G&A? And what were you pulling out of that to reduce $2 million? Should we view that as kind of a lower base from this point? Or was any of that spending pushed into next year and subsequent years?

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Julie A. Shiflett, Red Lion Hotels Corporation - Executive VP, CFO & Treasurer [12]

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That's a great question. Thanks, Eric. The real reductions there had 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, but what we're using internally to automate pieces. So in terms of a go-forward, that 27.5% to 29.5% would be a good annualized rate going into the future also. While we're seeing some of those cost reductions are already annualized in the year because they were pieces of what would have happened in the last half of this year. And remembering that our Q4 SG&A is always slightly higher because that is the month where we have our annual conference for all of our franchise owners. And so our -- we have a seasonal uptick in costs in the fourth quarter.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [13]

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Got it. And then so lastly, a few questions on transactional things. I guess one, with the notes last night that you plan to run kalispell and SeaTac kind of through the end of their current leases. On SeaTac, is that -- is there an indication that talks to extend that lease with the [hotel] owners they see that no longer an option or will that still be a possibility?

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Gregory T. Mount, Red Lion Hotels Corporation - President, CEO & Director [14]

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It is -- continues to be a possibility. I think that, again, the ownership there, it takes a very pragmatic approach. We have pride in negotiating what we think of really fair long-term lease there and I think it's just getting the 2 groups together and kind of reaching that consensus. At this point, I think everyone has kind of just stood down, take -- kind of took a break over the summer, they tend to like to go off on long-term vacations. And our hope is to pick it back up towards October. And we'll see that. But if we can get it done, we obviously would love to do that. But at this point, we just -- we can't accept some of the terms that they're looking for, because I think just given the marketplace, they're a little bit too risky.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [15]

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Okay. And then on the $80 million to $100 million of kind of projected gross proceeds from the 6 hotels, is there a way to kind of break that out between the first 3 and the second 3, the 3 are being kind of an (inaudible)? And then what is the revenue and EBITDA in total for the 6 hotels. I would like you go to each (inaudible) total will be helpful.

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Julie A. Shiflett, Red Lion Hotels Corporation - Executive VP, CFO & Treasurer [16]

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Yes. That's a great question on the revenue and EBITDA and we'll get that information out in the near future to likely include something in that area in our next investor relations presentation and we'll break out additional proceeds between the 2 at that time also.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [17]

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Got it. And then lastly, then. With the slowdown kind of the transaction environment over the past 6 months, maybe you can talk about how that's impacting your ability to find acquisition targets. It's still robust out there. Still our valuations, can you give a sense of kind of what you're seeing in the market?

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Gregory T. Mount, Red Lion Hotels Corporation - President, CEO & Director [18]

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Yes, Eric, we're continuing to see opportunity. I think that there's still a little bit of a growing gap between kind of the bid and ask on that, but they still exist. I think that from our perspective, while we will continue 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 good, solid organic growth, that means continuing to improve upon our capabilities around monetizing the verticals in our transactions and I think that those will come as we start to move forward. And I think that owners of some of these smaller regional brands start to understand 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.

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Operator [19]

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Our next question comes from Alex Fuhrman with Craig-Hallum Capital Group.

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Alex Joseph Fuhrman, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [20]

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Great. I wanted to ask about the opportunity here with Canvas. It 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 offering of yours. Is it mostly in the U.S. or outside? Is it mostly independent? Curious if it's skewing more towards economy or upper scale hotels. Just wondering kind of how you've been positioning that and where you've been seeing the most success?

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Gregory T. Mount, Red Lion Hotels Corporation - President, CEO & Director [21]

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Alex, thanks for the question. Yes, we're -- we've been very, very excited as we started to kind of prove out the hypothesis that we felt that was there and really the interest that would be created around it. And our primary focus and objective from a standpoint of speaking with potential deals are really those hotels in the upper upscale luxury kind of resort markets where there's a higher level of sophistication, there is 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, either single assets. But interestingly enough, as we've spoken to a number of larger consortiums, as we talked about earlier on the call, we're seeing interest in there just because of the fact and I think they're starting to understand that they can no longer continue to just offer kind of attribution 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 a more stabilized, more complete platform solution that they can then 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 owners and we're seeing the cost savings come through fairly consistently as we work with these hotels kind of up and down the food chain there as it relates to the upscale through luxury and resort hotels.

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Alex Joseph Fuhrman, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [22]

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Great. That's really helpful, Greg. And can you give us just a little bit of a sense of the revenue and the profit potential there for Canvas? And obviously, I would imagine the sort of revenue you could be generating per unit could vary pretty substantially, depending on the size of the property, especially with a state 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 what that business looks like as it scales up to presumably hundreds of units over time.

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Gregory T. Mount, Red Lion Hotels Corporation - President, CEO & Director [23]

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Yes, we haven't put anything out there, Alex. It's really specific on that because we've 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 areas that we needed to refine or improve in the deliverables. And so we've been working very closely with our current agreements to really get that under talent. At the same time, to really begin to understand the business and how the pricing works. As I'm sure you can understand, it's immensely complicated, and we tried to take that pricing down to a much more simplistic approach based on a consumed room basis for kind of the core competencies that we're providing. At this point, we're feeling that we're getting very close to be able to give more color around that. And as we talked about, we'll be doing that in the near-term to really kind of give everyone a better optic into what we think that business model looks like. So hopefully, it's here in the near-term.

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Julie A. Shiflett, Red Lion Hotels Corporation - Executive VP, CFO & Treasurer [24]

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And I want to go back to Eric's question on the proceeds for the hotels held for sale. They're really very close to being divided evenly between the 3 that are being listed for sale in this year and the next tranche of 3. So gross proceeds, fairly evenly split between those 2 tranches and net proceeds to RLH Corporation, fairly evenly split between those 2 tranches.

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Operator [25]

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There are no further conversions at this time. At this point, I'd like to turn the call back to Greg Mount for closing comments.

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Gregory T. Mount, Red Lion Hotels Corporation - President, CEO & Director [26]

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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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Operator [27]

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This is the operator.

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