Hello. Welcome to Ryman Hospitalities Properties Second Quarter 2021 Earnings Conference Call. Hosting the call today for 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 800 (585)-8367, and the conference ID number is 5259795. 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.

Good morning. Thanks for joining us today. This call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about the company's expected financial performance. Any statements we make today that are not statements of historical fact may be deemed to be forward-looking statements. Words such as believes or expects are intended to identify these statements which may be affected by many factors, including those listed in the company's SEC filings and in today's release. The company's actual results may differ materially from the results we discuss or project today. We will not update any forward-looking statements, whether as a result of new information, 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 with that, I'll turn the floor to Colin.

Thank you, Mark, and good morning, everyone. As those of you who follow us closely may have already seen from our last investor update published just over two weeks ago, the month-by-month acceleration in our business that we witnessed in the first quarter continued to gain steam throughout the second quarter. I'll highlight a few of these remarkable rates have changed, which I can now add some preliminary July results as well, just to emphasize again how rapid the pace of recovery has been in our industry and for our company. At the start of the second quarter in April as the vaccine was still in the early stages of a nationwide rollout, we saw just over 20,000 group room nights travel in our hotels. Total hotel occupancy for April, excluding the national, was 30%. And these group room nights represented about 28% of all room nights as leisure transient continued to constitute the majority of our guests that month. Now just two months later in June, we saw a search to over 69,000 group room nights or 47% of total room nights traveling in the month as overall occupancy still excluding the national reached nearly 59%. To add to this, I'm happy to report that in the month of July, with the Gaylord National once again opened, we serviced for the 5 resorts nearly 105,000 group room nights. This year-to-date has seen an extraordinary rate of change for such a short time in our group business such that week by week over the last few months, it continually outpaced our internal forecast. Meanwhile, our average daily cancellations in June fell to a post-COVID low of about 1,000 room nights per day, the fourth consecutive month of steady decline and not that far off from our pre-COVID average of about 600 room nights per day over the 2018 and 2019 time period.

Thanks, Colin. In the second quarter, the company generated total revenue of $170.9 million, and a net loss to common shareholders of $57.9 million or a net loss of $1.05 per fully diluted share. On a non-GAAP basis, the company's second quarter consolidated adjusted EBITDAre was positive $28.2 million, and AFFO available to common shareholders was negative $1.6 million or negative $0.03 per diluted share. This marks the first quarter of positive consolidated adjusted EBITDAre since the first quarter of 2020 before the COVID-19 pandemic. And we saw steady sequential progress in this measure month by month, reflecting the rapid pickup in our group business that Colin described. April was close to breakeven at a negative $1.2 million, followed by our first positive month in May at $2.8 million before jumping to a positive $26.5 million in June. These figures consistently exceeded our internal expectations moving through the quarter and allowed us to substantially exceed the cash burn guidance that we provided on our February earnings call. Specifically, we had cash interest expense and debt service of approximately $29.3 million in the quarter, leaving us with an average cash burn rate of only about $1 million per month, substantially better than the $10 million to $13 million we initially anticipated going into the quarter. As we noted in our investor supplement issued two weeks ago, we continue to expect further improvement in both our hospitality and entertainment businesses based on their existing books of business. We expect positive adjusted EBITDAre and positive cash flow after debt service in both the third and fourth quarters and are looking forward to retiring the term cash burn for good. As Colin said, we are watching the delta variant closely for any impact on our business. Notwithstanding that scenario, we continue to expect third…

Mark, I think for getting through the next few minutes, let's just go straight to Q&A. So Crystal, if you could open up the lines, we look forward to hearing some of the analysts have to say.

Your first question comes from the line of Shaun Kelley with Bank of America.

Maybe, obviously, there's a lot of eyeballs and attention being placed on sort of what's happening very much at the margin here with COVID and the variants out there. So Colin, you obviously touched on this in prepared remarks, and it doesn't sound like there's too much concrete for you to give us. But we've definitely heard a little bit of concern around incremental cancellations in Las Vegas. And I wanted to get your kind of like latest up-to-date thinking. Have you seen either anything at the margin there? And maybe you can give us a little bit of an update around given the group nature of the properties themselves, localized mask mandates or requirements and how you think that would impact business, if they are in place today in any of your properties and what your sort of outlook for that kind of looking forward might be?

Yes. Well, Shaun, we're obviously watching this hour by hour. It's just -- we're watching this with a massive microscope. And Patrick spends a lot of his time talking to the health. And I'll hand over to Patrick in a second here. He spent a lot of time talking to each of the health organizations that sort of govern the jurisdictions that our hotels sit in. We saw in Las Vegas, some mandate that was put back in about wearing masks. And I think probably that's having some impact. But as we talk to communities here in Texas, Nashville, here in Tennessee, we look at what's going on in Florida, Colorado that was fairly aggressive in dealing with COVID in the early early stages. We don't see any major changes in things like mass mandates. We've had 1 or 2 groups come at us, talk to us about potentially not turning up in August, September. But from our perspective, net-net, when you look at what is going on the leisure side of our business, in the year for the year bookings. I mean, look, we booked in July 25,000 room nights in July group room nights for this year in July, and that was Delta variant, it's not something that's occurred in the last week. It's been ongoing here for the last month. So we're not overly concerned about this. We're obviously keeping our BD eyes on it, but that's how I would describe it. Patrick, do you want to weighing on Shaun's question?

Yes. Shaun, it's Patrick. I'll give you 4 data points just to back up what Colin's already told you. On the masking, we are in jurisdictions that may have said we recommend masking, but we're not in any jurisdiction and an operating right now that has mandated masking. So it is an option for both our guests and for our employees on property. Second thing I would tell you is that from a transient perspective to Colin's perspective or Colin's point a moment ago, what we have seen as far as group disruption from the Delta variant. We've seen really strong transient production, and so we think that, that will serve to mitigate any impact from Delta in the short term. Let's talk a little bit about cancellations. We've had a few, but it's pretty minor. If you look across what we've incurred thus far, we've had, let's say, 15,000 room nights canceled. That is really not that significant. It's less than or 3% of what we currently have on the books for Q3 and less than 1% has canceled for Q4, and we're kind of pushing back on those and saying, "Hey, canceling for Q4 at this point would be very premature. The other thing I would tell you

Those contracts are all enforceable.

That's correct.

So there's no force majeure discussion here.

And then to Colin's point around in the year for the year leads, you look at what we produced in July and the lead volume that we're seeing in July in the year for the year, lead volume is up about 21% over where it stood for 2019. So masking remains a choice, transient remains strong. Lead volumes are very encouraging to us and the impact from cancellations has been slight minor at this point. But we continue to watch it, and we'll continue to see how to best respond to it at each of our hotels.

Patrick, the other piece of data that you shared with me yesterday, the afternoon is the lead volume jump we've seen in the last week. It's been what we were expecting to see, Sean, with the constant debate that's going on regarding the delta variant, all of the political issues that are going on around the country do what happens with schools and Tyson Foods, making things mandated now. And all all this rhetoric, we were expecting to see our lead volumes week over week, which we check flat to down. But last week was quite the exception.

Yes, we've watched over the past 2 weeks, a steady recovery. Early in July, we saw the impact of Delta as the media frenzy around that really started. And our lead volumes did start to slow down a bit. But to Colin's point, in the past couple of weeks, we've seen it coming back very strongly, both from an in the year for the year perspective as well as for T plus 1 or in this case, 2022. And those are the 2 years that we're watching most closely right now. So we're watching what's happened in the U.K., and we're watching more and more companies mandating vaccines. And we think these are both very positive bellwethers for where this issue is heading for us.

Yes. As every day goes by with people getting vaccinated, not at the right, any of us would like to see with people contracting the delta variant with the immunity in the community from those that have had it, we're getting nearer and nearer to herd immunity as every day goes by. So we may have a little bit of choppy choppiness here for the next 3 to 4 months, but I feel certain that very soon, this thing is going to be well and truly behind us.

And then just as my follow-up, you guys have given great clarity and disclosure with the investor presentations on what you're seeing on the forward book of business. The last update there was as of July 15. Just any change in effectively sort of how those numbers look today, positive or negative, but just any change at the margin on sort of what was provided back there? Or is it relatively steady as you look at particularly revenues on the books for Q3, the trend into Q4 and then obviously for 2022.

No. I would say that when we push that out that data out in the middle of July, we were pretty excited about what we were seeing. And notwithstanding the massive debate around the Delta area. I think 2 weeks, 3 weeks later when we look at our production for the month of July, which was where we expected it to be. And we look at the organic bookings for July. And we -- in fact, I think in the year bookings in July came in a little stronger than we expected. And so I would say to you that our move as an organization, our belief in where this -- where the organization is going, is a strong -- is as strong today as it was 2 weeks earlier when we put out that release. And we generated in the month of June, we haven't gotten yet the financials for the month of July. We have a good sense of where revenues came in and they came in pretty good in terms of our expectations. But in the month of June, we generated $25 million of EBITDA, up from almost a goose in May and our revenues in the month of July, were indeed stronger than the month of June. So we're moving in the right direction really rapidly, and we're pretty happy with where we are.

Yes. I would tell you that our reforecast in July was increasing essentially every 3 to 5 days. So July just kept getting stronger and stronger through the month to Colin's point. The other thing I would tell you is that what has changed just even since we put the supplement out there is, typically, at this point in the year, our in the year for the year demand kind of falls off a cliff and folks kind of move on to Tplus 1. There's still so much pent-up demand that our in the year for the year continues to be very, very strong. So what that's indicated to us is that the end year for the year booking window has been elongated because of COVID. And so while we have a very good book of business on the books for the second half of this year, there continues to be a lot of strong interest. So if Delta continues to cause disruption and potential cancellations, it's very encouraging to us that there's so much demand looking to book into the second half of the year just in the past few weeks, that's new that we should be able to replace any delta impact with.

Your next question comes from the line of Smedes Rose with Citi.

I just wanted to ask you a little bit about what you're seeing on the margin side? And I guess, specifically about have you been able to restaff at the levels that you would expect? And are you -- would you expect to be able to maintain? When you look at like the run margin in the quarter, it was actually higher than where it was in 2019. I mean I know lower absolute levels but a higher margin. And is that something that you think you can continue with going forward? Or do you have more staff that needs to come back as the levels continue to grow?

Simple question, complicated answer. It really is a complicated answer. There are -- we do have in both our hotel business in some markets. And in our entertainment business here, Scott, we have some labor deficiencies where we're doing job fairs recruiting. And the margins in our business are benefiting from the fact that our customers are returning at a far quicker rate than our employees are returning. And so -- but we're managing through that. And our managers are doing a really good job. The other thing that's going on is that we have made some fairly healthy labor cost increases over the last month to 2 months, both in our hotel and in our entertainment business. But correspondingly, the other part of all of this is we've been able to affect pricing, particularly and surprisingly so on our hotel business. And I'm going to turn it over to Patrick in a second, then I may push this over to Scott to talk a little bit about the entertainment business. But I think there's going to be some rebalancing here through the course of this year as we return to normalized occupancies. Remember, in the month of June, we ran at 57 points of occupancy. We've still got 15 to 20 points of occupancy to go although on our entertainment business, the amount of comfort that we're pushing through and the amount of people we're putting into the seats is as good and as strong as what we saw back in '19. So there will be some shakeout here. There will be some structural changes that will occur through the next 6 months. But we are not moving off of the position that we have been fairly vocal about over the last 6 to 9 months, and that is that when we're through this. We expect to run our businesses with improved margins because when you go through a crisis like this, you learn certain things you learn how to adapt and deal with some of the structural problems that we've had thrown at us. So that would be my 60,000-foot pack. Do you want to talk a little bit about get into the detail a little bit with Smedes.

Yes. Yes. Just to give some additional context to what Tom has already offered up, you're right. Our margins, especially on the room side, are benefiting from the fact that we simply don't have enough folks in-house to fully service to the level we historically would. Yet we have very high occupancies. We're addressing that. There's a labor shortage across the country for us, specifically in rooms, front desk and culinary. Those are the areas where we're trying to get some of the folks staffed up quickly. We are having to increase wages some. We're using referral bonuses to the extent we can, signing bonuses, et cetera. And so we do know that there will be labor expense increases However, to Colin's point, there's a lot of levers that we're pulling to offset that for the future to ensure that we come out of this leaner. From a transient rate perspective, quite honestly, we've been setting records in terms of the transient rate that we've been able to achieve. Each week has been a very pleasant surprise to see how much we're able to push rate. On the transient leisure side, our amenities are very unique. Our pool offerings, our programming and folks have been very clear with us that they're willing to pay higher rates to be able to enjoy our unique offerings. So that's one lever we're pulling. On the group side, I would just refer back to what we saw in July. Our July production ADR grew about 10% for all future years. So we're having great luck and capability and driving rate on the group side for the future. To Colin's point, we're reworking our pricing in food and beverage outlets. We're reworking our menus to make sure that we take advantage of where cost works best of chicken is higher because of something that we're going to move towards beef and back and forth, and we're going to push pricing where appropriate. And then we're looking very hard and having ongoing discussions last month, this month and next month around, which management physicians do we need to invest in higher talent and be able to reduce our numbers across the board. So lots of levers that we are actively pulling to offset the cost and labor increase and very encouraged by what we've been able to achieve so far.

That's a lot of detail, Smedes, but it's not a simple question. Anything on the entertainment side do you want to

Yes, I just think we're seeing the same thing. We're seeing high demand. Obviously, we're taking advantage of some pricing flexibility. We do have some costs that are coming in with increased labor costs. So we're seeing in June, we saw a 6.5% increase versus '19 in terms of margins, that comes down a little bit. But we're obviously taking advantage of some of the opportunity in terms of the consumer demand. And we think that will continue to stay. We also invested during the time of COVID. We knew that we would come out of this, and we wanted to make sure that we didn't come out with the same kind of company that we walked into and made some efficiency decisions during that time, including bringing in some new technology like a new ticketing platform that's going to allow us to be more efficient in the out years.

I'm just going to finish this up with 1 statement, Smede. If you own and run businesses that call iconic where people want to come and spend time, you have a much greater chance of being able to adapt your pricing model. If you run businesses that are vanilla, like everybody else, it's real hard. There's going to be some organizations that struggle through the labor shortages and cohort and pricing increases and inflation that we read about daily. But I think businesses like ours, our hotel businesses, the product, physical product and the state-of-the-art convention facilities that we operate are pretty extraordinary, and it's the same with our entertainment business. So we'll get through this.

Your next question comes from the line of Chris Woronka with Deutsche Bank.

Appreciate all the helpful data points thus far. I was hoping maybe you talk a little bit about the composition of the groups you're seeing in kind of their tendencies and booking as we look out to the back half and into 2022. And you mentioned, I think, the 6% rate growth versus '19. I guess the question is, does that imply that there is a bigger mix of corporate, higher-rated business? Or are you seeing the associations also willing to pay more for next year and beyond?

This is not pushing to sound patronizing. This is a very good question. So Patrick, there's some very good data points to try and address this question. This is very critical to the future of our business.

Yes. Chris, I would -- let's talk a little bit about what we saw travel in Q2 because that's a great starting point. We're very encouraged by the fact that what the groups that traveled in Q2, 40% of those were corporate. I think that's a little surprising to a lot of folks, but very encouraging to us, and I would say a direct result of a lot of our rebooking efforts. Association was about 22%. As we look to the back half of this year, we're seeing association come back stronger even as corporate continues to strengthen as well. We saw in Q2, a lot of our large group customers were returning. About 28% of what traveled in Q2 was a large group, 1,000 plus, which, again, is very, very encouraging. Because I think a lot of folks were looking at Q2 and assuming that it would just be a lot of small group, which it was not. If you look at our mix for 2022, we're encouraged by the fact that as we sit right now, we have a slightly higher percentage or mix of corporate business on the books for 2022 when you compare it to where we stood going into 2019. So that is very, very encouraging to us. Association is very similar to what we looked, how we stood going into 2019. From a rate perspective, because you also added on a question around, are the associations willing to pay. If you look at our July production, Association rate increase for July production was 15%. So some very, very encouraging signs that we're seeing corporate business come back quicker than I think most anticipated. Our mix for 2022 is very similar to what we've seen in our most successful performance years in the past. And we're seeing a willingness not just on the corporate side, but also on the association side to pay higher from a rate perspective going forward.

Patrick, I've heard 1 or 2 analysts sort of make the observation that they don't think that large groups are going to come back as quickly as small groups. I don't know where that data is coming from. But could you give Chris to amplify a little more on his question the actual facts of what is going on with large group.

Yes. To the point I made a moment ago, we are seeing the 1,000-plus definitely traveling already. And if you look at -- because I've been watching this one very carefully what's happening in the lead volume side, I'm very pleased to say that one of the stronger performance in terms of lead volume recovery is on the 1,500 to 2,000 peak room night group size. So they're traveling in greater, greater numbers. I mean if you look at April, May and June, large group was recovering through the second quarter. And from a lead volume perspective, looking towards the future, large group is getting stronger and stronger. So very, very encouraging information for us to see.

Maybe if I can sneak in second one, Colin, you guys have built up this entertainment business over time. Obviously, it took a little bit of a pause for COVID. But maybe thoughts on reaccelerating some of the things you were considering a few years ago in terms of where you want to take that business now that we're, I think, hopefully, on the other side of this thing?

Yes. It's -- look, this business, in our opinion, has only gotten stronger in our minds over the last 12 months. When you see what has been going on with circle, the distribution, the organizations that want to hitch their wagon to this platform. When you look at the inbound inquiries we get from organizations that want to partner with us on this business. If you look at some of the deals that have been done recently in live entertainment. This business is very -- has got a very strong runway. And I suspect, Chris, over the next 2 to 3 months, you will hear us talk about explicit ways to explicit ways in which we're going to expand this business. We're very excited about it. Crystal, maybe one more question.

Your last question will come from Dori Kesten with Wells Fargo.

Can you tell us how attrition changed from April to July versus what was initially booked by the meeting planners?

Yes. Dory, it's Patrick. I would tell you that going into Q2 and as we were preparing for Q2 and Q3 several months ago, we were expecting attrition numbers to be much higher than historical norms. And it's definitely still a component because you still have areas of the country where folks are more hesitant. But I would say from an attrition perspective, we are not seeing the levels that we anticipated. They're higher than historical norms, but they are moving in a positive direction pretty quickly. So we're very encouraged by what we're seeing. Just to give you some perspective, we would normally operate, let's say, 14% to 15% attrition. We're operating at 18% to 19% in the second quarter. So a little elevated, but certainly not the 30% to 35% that we were fearful might occur.

And then other lodging companies are talking about business transient and leisure overlapping as leisure or whatever you want to call it, just adding to the length of stay. Do you think that same concept exists with groups and leisure?

I mean, we've tried to make sure that we built these assets where they have the leisure components to encourage folks to stay. Our length of stay has not materially changed to date. We are attracting a lot more leisure than we have historically. But from a group perspective, we've not seen a material change in the length of stay.

Well, though we are seeing groups that are family-orientated booking into our businesses because of the shift.

Yes, that's fair. I mean you've heard us talk about cheerleading groups and other sports groups where there's a lot more of a family component to it. So to Colin's point, the mix early on in the recovery has favored some of those more family-friendly groups. And I would tell you, sound waves here at Gaylord Opryland has been in a very positive way slammed all summer long. Our pool, Paradise Springs at Texan has been operating at full capacity, our offering at homes, especially with the new river components that we added with the expansion, has stayed busy. So that the pools have been busting at the seams in a very positive way all summer long.

Crystal hey, it is 7 minutes before the top of the hour. We have maybe time for one more question.

No other questions

Okay. Thank you, everyone, for being on the call today. Any questions that you may have offline, you know where we are. Appreciate it very much. Thank you.

This concludes today's conference call. You may now disconnect.