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 is available for digital replay. The number is (800) 585-8367, and the conference ID number is 5678843. [Operator Instructions] 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. So 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 exhibit to 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 EBITDAre, but that is just how strange this year has been. The third quarter was our first full quarter of operations since reopening 4 of our 5 Gaylord Hotels, and we observed many green shoots and encouraging sequential trends in this business as we move through the last 3 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 '22 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 EBITDAre sequentially compared to the second quarter of this…

Thanks, Colin. Let me first remind investors that we've posted a brief supplemental investor presentation on our website. I'd encourage you to review the data in that document, alongside our remarks on this call in our earnings release. In the third quarter, the company generated total revenue of $70.2 million, which was a $55.6 million increase sequentially from the second quarter when the most -- when most of our assets were closed. Net loss to common shareholders was $117.7 million or a loss of $2.14 per fully diluted share, which is a $55.8 million sequential improvement over the second quarter. Our third quarter results include a $7.8 million noncash charge as we recorded a credit loss related to the Gaylord National bond due to the continued closure and reduced rooms revenue projections for that hotel. On a non-GAAP basis, the company's consolidated adjusted EBITDAre was negative $35.3 million, representing a sequential improvement of approximately $30 million from the second quarter, and adjusted funds from operations available to common shareholders was a negative $60.3 million or a loss of $1.09 per fully diluted share, which improved $30.4 million sequentially. Our cash interest expense for the third quarter was $27.1 million, and we amortized $1.25 million of our term loan B principal, so our debt service was $28.4 million in the quarter or about $9.5 million per month. This is consistent with the second quarter and in line with the estimates we provided in our investor updates. We also spent approximately $4.4 million on essential maintenance capital that was not funded by our FF&E reserve. Together, these 3 components, our adjusted EBITDAre loss, our debt service and our non FF&E maintenance capital expenditures, puts our approximate monthly cash burn for the third quarter at $22.7 million. This is over $2 million better…

No closing remarks, Mark. Thank you very much. Maria will open the floor to questions.

[Operator Instructions] Our first question comes from line of Smedes Rose of Citi.

Colin, I agree with you certainly on the longer-term outlook for your relative advantages in the group space as it eventually recovers, but I wanted to ask you just kind of in the near term. When you -- from your last deck to this one, we saw pretty significant cancellations in the first quarter. I think it's about 20% decline on room nights on the books for the first quarter, which I realize is out of your control because the pandemic is still around. But this very favorable rebookings trend, I mean, is it just a matter of people getting to kind of rebook the longer this thing lasts and they just keep sort of moving down the curve? Or are they paying penalties in order to rebook? Or maybe you just can provide a little more color around that.

Yes. And I'm going to push this over as well to Patrick to weigh in on this because he's living and breathing this every single hour of the day. Look, the reality is that when we all went into this thing back at -- I remember your conference back in March, when we really started first week of March, we really started talking about all this, the general consensus was that at that time, we didn't know, but everyone thought maybe second, third quarter of this year, this thing would -- we would be over the hill of moving away, moving back to normalcy. But the reality is this, COVID-19 is just taking longer to deal with, and there's no question that meeting planners are looking -- have looked aggressively at the first quarter. And the reason they do that, as you understand, Smedes, is that our contracts are set up in a way that if they cancel inside of 6 months -- our group contracts are very explicit, if they cancel inside of 6 months, the penalties that they have are materially higher than if they cancel outside of 6 months. So we have seen leakage in the first quarter. We haven't seen a ton of leakage in the second, third and fourth quarter. And we are hoping that we get to this inflection point here with a vaccine sometime between now and the year-end that will keep our second and third quarters pretty much intact. But our relationship with the meeting planning community has been very, very good over the last 7 months, and we've -- as you've seen in our numbers, we've been able to rebook 54% of the canceled room nights. And I don't expect any degradation to our ability to rebook these room nights. Our relationship is pretty good. Now with government restrictions falling away, although we've seen in the last week or 2, in the last few days, some major changes taking place across Europe, Lord knows what happens post election in this country to restrictions, that will change how we prosecute cancellation and attrition fees over the course of the next 3 to 4 months. But I would say, generally speaking, we're optimistic that we're going to see the trends continue in our favor here over the next 2 to 3 months. Patrick, do you want to weigh on this?

Sure. Smedes, it's a very good question on we're just allowing folks to kick the can down the road. What you saw in the third quarter is an increase in the collection of cancellation fees that we -- compared to the second quarter. What's going on there, the vast majority of that is for cancellations into 2021, and what we are doing is we're no longer just saying, "Hey, rebooking is fine, but we're collecting cash in the short term as well as rebooking." So we recognize it's still a stress environment, but as we move into 2021, as we promised we would, we've been putting greater penalties out there for just simply rebooking into the future. So we're having great success, and you saw the $7 million reflected in the third quarter of this year. If you look at the combination of getting some cash and also getting the rebooking, we're having great success in making sure that's just not going out 10 years in the future. The majority of those rebookings are going into the next 3 years. We also have a lot of rebookings and cash collection discussions that are still in process. It may be hard to believe, but on average, our sales team is having to spend a large amount of time with every single one of these rebookings. It's about 100 individual points of contact that they have to make with that meeting planner to go through the full process of, "Hey, we have to cancel, let’s get a rebooking out there, and let's talk through the cash that we're going to have to pay to you." So meeting planners are feeling that it's getting more and more penalizing to cancel and rebook in 2021 because they are having to pay the cash. They don't want to. They're waiting until they absolutely have to make the call to do that. And as a result, we're getting a little bit of cash. We're getting the rebooking. There's tremendous value in having those rebookings into the next 3 or 4 years. And we are moving through this process as we get closer and closer to a force majeure no longer being in place.

I appreciate that. And then the other thing I just wanted to ask, as we think about cash burn, are you -- you mentioned some severance and furlough fees in the quarter. What do you see that, I guess, going forward? I mean, I guess, the severance piece is kind of more onetime in nature. So maybe can you sort of break out what you're seeing there?

Yes. The -- we're not going to be replicating the severance pieces we've done. We've eliminated quite a lot of jobs here in our hotel business. Patrick, do you have the numbers at your fingertips?

Yes. So if you think about the third quarter, on average, when we extend out an additional quarter from a benefits perspective to continue providing benefits to the folks, it's about $2 million to $3 million of expense for the quarter. On the severance side, we incurred $6.5 million to about $7 million in severance in the third quarter of this year. And to Colin's point, that will -- we hope that won't be replicated because we hope that this entire pandemic will be coming to an end in the short term. So that's kind of the run rate that we've been seeing.

But let me just emphasize and touch on it a little bit in the script. We've been forced to -- with this pandemic, we've been forced to make some decisions here that, in the ordinary course of business, we probably wouldn't have made, where we've consolidated -- and I've talked about this before, where we've consolidated leadership roles. And it's extraordinary that when you run 4 hotels at about 18% occupancy and if you eliminate the COVID costs, we're almost breakeven. And the reason for this is we've made some very aggressive decisions on the consolidation of positions with Marriott in these businesses. And I would say that when we get over this hill, get through the tunnel, we won't be uniformly just putting the structures in place that existed in February of this year, and I suspect that we will see improvement in our margins coming out -- coming -- as we get -- as we emerge from this pandemic. So we've just got a few more months to deal with this cash burn, but then I think our business will recover very quickly. And unlike the vast majority of the hotel industry, we do have these contracts in place where groups want to come. And we had groups in September and October that wanted to come to Opryland, willing to actually travel and do this, but we couldn't because we were on the Metro Health restrictions. So I think our business will recover pretty quickly when the consumer has a sense of -- that it's safe now to travel.

Our next question comes from the line of Shaun Kelley of Bank of America.

Colin and Patrick, I wanted to stick with maybe the cancellation fee mechanic first. And just to dig a little deeper, so obviously, this quarter, you've kind of done a little bit more of a hybrid where you give some refund and some enforcement for the -- in exchange for the rebooking. I guess, as we move into -- throughout the fourth quarter and Q1, does that pattern stay about the same? Or do we actually see you move back to more of a traditional model where you'd have, I guess, even more enforcement of cancellation fees? And really, what I'm asking is, will you continue to collect more cash as time goes on here? Or are we going to just continue to strike this balance and you feel comfortable with what that balance is right now?

Yes. So Shaun, this is a very complicated question that you've asked. It sounds simple, but it isn't. And if I remind you that back in '09 when we lost about 135,000, 140,000 room nights when companies were just arbitrarily canceling because of the financial crisis, we collected that year $28 million in cancellation fees. The reason we were able to do that is because there was no dispute in the quality of the contract. Here, it's a little bit more difficult because we've got government interfering in the relationship between us and the customer. Government is saying, "You can't travel." Here in Nashville, up until about a month ago, we couldn't hold more than 20 people -- group of 20 people under the ordinances that were in place. So the complicated part of all of this is what is going to be the overhang from federal government and state government and metro and the different health departments. We've got restrictions that have been put back in place in the state of Colorado recently. Now we've got a waiver at our hotel, but this is changing our dialogue with the consumer, this -- the government interference. Now I suspect what's going to happen here is there will be a vaccine that will arrive at some point. It will be disseminated -- it will be distributed, not disseminated, distributed, and you'll see easing of government restrictions that, that will give us a ton more teeth in the negotiation with our customers. If a customer comes to us today and says, "Hey, I feel I need to cancel because I'm not sure I can get my people together. Let's pick a date, June of next year." Our argument to that customer is that, very likely, there's going to be no restrictions in…

Yes. The only thing I would add to that, and I agree 100% with what Colin said, as long as we're -- essentially, meeting planners and us are both waiting on a vaccine announcement and for state restrictions to start lifting, when that happens, then these conversations become much easier. Right now, we're still uncertain and there's a lot of unknown. And so it's a difficult conversation to have, and that's why it takes 100 touch points or interactions with each customer to make this happen. I would remind you, though, that a lot of the cash we're collecting right now is for 2021 cancellations. As I mentioned, when we were talking to Smedes a moment ago, the vast majority, roughly about 90% of what we collected in Q3 cancellation fees was for 2021. So once we have a vaccine announcement and state restrictions start to lift, the conversation becomes much easier and it becomes much more focused on cancellation fee collection. But I would tell you that our hope is that once force majeure is no longer even part of the discussion, cancellations, we hope, will subside and then we'll have less discussions, even be -- even have to have a conversation around cancellation fees. So our hope is that once these restrictions subside, once a vaccine has been announced, cancellations start to subside. And the conversation becomes less and less about even having a cancellation at all, so fee collection will subside with the cancellations.

Very -- look, again, it's very complicated, but thank you for the detailed answer for both of you. And then just as a follow-up, I think, Colin, in the prepared remarks, you mentioned that if we look out at the booking pattern, you could have it because of the way, I guess, some of the rebookings are occurring. Your second half of '21 could -- if vaccine and all these other things played out, could actually look a lot like 2019 levels. I was just wondering if you could help us with that bridge a little bit more. I think you gave in the slide deck a little clarity around the room night declines in '20 -- in kind of the second half of '21, Q3 and Q4. As we look at those, they look like they're down something like low double digit, but I guess you also have some rate gains that are there. So could you just help us with that bridge a little bit more and how exactly that would work right now?

Do you want to tackle that one, Mark?

Yes, Shaun. If you look at -- in that slide deck on Page 7, we provide by quarter our -- on the books, net room nights, revenue and occupancy by quarter for next year and compare it to the last 2 years. And if you compare the second half of '21 in terms of where we sit now versus where we were in '19 or '20, we're down about $4 million in the third quarter and about $9 million in the fourth quarter in terms of revenue. But it's -- we've got about $150 million of rooms revenue on the books right now for that back half. So it's a strong back half right now when you compare it to historical averages. It's not very far behind where we were for '19. We're actually ahead in the third quarter for -- versus where we were in '18 for '19 and flat compared to where we were for '19 in the fourth quarter.

And if you take, on top of that, improvements that we expect to make in the actual cost structure of these businesses and just the general sentiment of the leisure customer, I mean, in the middle of a raging pandemic, these 4 hotels of ours have essentially done about 18 points of leisure business. And so if you feel like the back end of next year people have had the shackles taken off of them and are now prepared to move around, I know I'm often accused as the eternal optimist, but the back end of next year could look pretty decent if all things are equal with this pandemic. But certainly, there's no dispute about what '21 looks -- '22 looks like.

No, the numbers in the detail are super helpful. And then last really a clarification point would just be, just what's the kind of right time line for, let's call it, a rolling cancellation here? So is it -- let's say, is it basically on a 6-month out basis is when you start to really see those negotiations, that discussion point with the meeting planners really picking up? Usually, there's probably some kind of language in the contract that might get them to a place where it forces that conversation. Is that -- is kind of T minus 6 months about the right period that people are working off of? Is it shorter or longer than that? Or just how are you kind of seeing that timing play out?

Yes. I'm going to push this over to Patrick because he spends a lot of time on this subject, and we talk about it a lot internally, talk about that time line.

Yes. So I guess, I would start by saying it really depends on the group, right, because the area of the country they're coming from and the sector or segment of group that they function then, so it depends on the group. But on average, to your point, at about 180 days or 6 months prior to their arrival, they ratchet up to the more penalizing level of cancellation fee. So a lot of groups will start reaching out, and there's uncertainty. And so they're feeling the water to try and understand where are our heads from an RHP and Gaylord perspective and trying to figure out whether or not they should go ahead and cancel. If that discussion goes forward, then we will focus more on cancellation fees, obviously, because it is 180 days out, and there's -- we don't believe force majeure will be in effect 180 days from now. We've seen, on average, though, most of the cancellations occur between 90 and 110 days from arrival, so that's when most folks pull the trigger. So if you think about that, that's why we're seeing a lot of cancellations for 2021 first quarter because we are now in that primary cancellation window for groups who are saying, "We have to make a decision. So let's go ahead and start the process of talking through cancellation fees and a rebooking."

Our next question comes from the line of Bill Crow of Raymond James.

Patrick, any change in the economics on regrouped -- rebooked business? And is there any sort of kind of trade-off between payment of some sort of cancellation fee, plus a rebooking kind of nets that client to 0 or even?

Honestly, we've done a lot of work around this to try and understand the value of rebooking. And obviously, given the cash burn that we're going through right now and the fact that cash is king, it is obviously very important for us to collect some cash. And as you saw in the third quarter, we're doing that. We've been talking about that a lot for the past few minutes. But I would tell you, as we look at the rebooking, there's a lot of value for us in the rebooking. We are not just rebooking at the same rate that is canceled that, we're rebooking at an elevated rates. So ADR is actually growing and the rebooking that we're booking for the future as well as the fact that we are capturing more than one year on most occasions. So if you're canceling for 2021, we're going to rebook you for '23 and '24, maybe even '25. So as we look at the value that rebooking, if our sales team does their job, which they've definitely been doing, is of great value to us in the future. So cash for now to help us weather the storm, but then the rebooking is hugely valuable to us for the future.

All right. Mark, what is your estimate, maybe it's in the note -- the release, but estimate for cancellation and attrition fees in the fourth quarter?

Basically -- essentially, we've assumed kind of a consistent rate of cancellation collections. No material increases.

Okay. And Colin, I just wanted to pin 2 things off you. Number one, any update on the National and what you're thinking there? And then number two, any concerns that we may see greater unitization around the country over the next 4 years?

Well, I think -- so your first question and the second question are obviously heavily linked. The -- we are, when I say we, the powers at Marriott are engaged with organized labor, having discussions around work rules and flexibilities that we want to put in place in Washington. And I believe, as I get updated on those discussions, I think they are moving in the right direction. So right now, we've said end of the year, but we're going to continue to look at when it makes the most economic sense to reopen that hotel. So that's where we are, but we're making headway. I think the question -- the second part of your question, a lot of it is going to be dependent upon what happens today in the country. There was a very interesting article in the Wall Street Journal a couple of days ago about Ride to Work states and about if there is a blue wave in the country, does all that change? Do you see legislation changing all of that? And I think a lot of it is going to be dependent upon the political environment within the country. Has organized labor more involvement or not? And -- but look, we -- what we have done, and I know you know this, Bill, because we've had you in our hotels, you understand the culture of the way we run these hotels, when I say we, Marriott. When we handed our businesses over to Marriott, we had businesses over with a very distinctive culture, and we're very people centric. And I think businesses like that are going to be harder to unionize than businesses that really don't care so much about their people. So I don't know the answer to your question. I think a lot of it is going to be dependent upon which direction this country goes from a political perspective. But I do know this, that the things that we do to build culture will help anesthetize any attempt to put organized labor in any of our businesses. We'll do one more question, Maria, if there are -- if there is someone else. And if there isn't, then we'll move on with the day.

Our final question comes from the line of Patrick Scholes of Truist.

It sounds like once group meetings begin to come back sometime, whenever that is, next year that they may be hybrid events with people in physical attendance and people doing it -- attending those meetings virtually. I'm just curious on how you think about like revenues and logistics from that. Is it possible you can collect any fees from the virtual attendees? And if so, how would that happen?

Well, it's going to be based -- remember, the groups that we've just spent time talking about the amount of business that we have on the books for next year, they're all in contract form. So if the company or the association comes to us and says, "It's going to be a little harder in the short term for us to get these people to move," they're going to have to renegotiate these contracts with us. So we'll be ready to retire negotiate with them. But Patrick, it's interesting. There was -- we hosted a new piece of business at Texas -- at our Texas hotel about 1.5 months ago, and it wasn't a piece of business that was on the books pre-pandemic. It was a piece of business that was in a city convention center. And it was a large manufacturing -- industrial manufacturing company that produces farm equipment. And they were going to hold this convention at this convention center, but the convention center arbitrarily shut down and said, "We can't hold your convention." They came to us. And they said, "What we would like to do is hold a hybrid at your Texas hotel because in Texas, there was no restriction on the size of meetings." They wanted to bring in 300, 400 people of their corporate. It's a massive company. If I told you the name, which I'm not going to, you would know it. But they also have thousands of dealers around the country. And the reason that they were having their convention at a convention center was because they wanted to bring all their dealers in that could touch and feel their equipment. And -- but what was interesting is that the technology that they use failed them on the first day, and this company came back to us and said, "We're never going to do anything quite like this again." So there's 2 points to this. The first point is I do believe that there's an opportunity for a company like us with beautiful atriums and meeting space that we have to maybe cannibalize those businesses that are, today, 4,000, 5,000, 6,000, 8,000 people in a city convention center, staying in hotels around that convention center. There may be a new piece of business that we could -- where we could build the hybrid with that group inside of our -- in one of our businesses. But I think, whether there will be new revenue streams for the hybrid, downstream from customers that we -- that are our customers today, I think that's going to be individually negotiated as they twist and turn over the next 12 months.

Patrick, this is Patrick. I would just add to Colin's point that if we're streaming video for folks to be able to participate from home, we should be able to monetize the extension of that technology to them and -- whether that's being a registration fee or something. But I think it's very fair to say that we could potentially have a hybrid model for 3 to 6 months or something like that. The thing I would point out, though, is that we should have advanced notice from the groups that they're not going to be able to travel with their original contracted group block. So from a nutrition perspective, we'll know that they're not going to be able to show up with that number and sell into that. What I would also add to that then is where we're seeing a little bit of a recovery start to occur is in small groups, the 10 to 300 on peak. Those are ideal for filling in the gaps left by larger groups not being able to travel as many folks into their meeting. So while we may have a hybrid approach for a period of time, as small group continues to recover, we'll be able to sell those groups into some of these gaps that are created. And I think there's definitely going to be some pent-up demand, so the opportunity to potentially fill some of those gaps left by the larger groups.

So that was a genuine attempt to answer -- your question is a complicated question. And -- but I can tell you, if there are opportunities to capture revenue, we're going to do that. All right. Maria, thank you. And everyone, thank you for joining us this morning. And if you have any follow-up questions of any of us, you know where we are, and I appreciate your time. And I know we've shared a lot of info with you, but we like to be transparent here and give you all the details of what we're up to. So thank you for joining us.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.