DENVER - March 08, 2019 // GLOBE NEWSWIRE // - Red Lion Hotels Corporation (the “Company”) (NYSE: RLH), a growing hospitality company doing business as RLH Corporation that franchises upscale, midscale and economy hotels, today reported full year and fourth quarter 2018 results.
Full Year and Fourth Quarter Highlights
Greg Mount, RLH Corporation President and Chief Executive Officer stated: “2018 was a strategic shift for us as we completed the execution of our strategy of becoming an asset light franchise and branding company. We achieved our objectives in 2018 by selling nine hotels while continuing to grow our franchise revenues by over 20%, and increasing our high margin franchise EBITDA. As high margin franchise business replaces the $14.5 million in EBITDA from our JV assets we are confident in our ability to continue grow our asset light revenue streams as demonstrated by our 27% growth in royalty fees and our 23% unit growth during 2018. In 2019, we are focused on the growth of our upscale and midscale franchise agreement portfolios through organic development and through complementary acquisitions to help accelerate growth and scale the RLH platform. Additionally, we will continue to look for opportunities such as Canvas to further grow our revenue vertically while holding our corporate overhead. Our teams are focused on execution and excited to have the bulk of the asset sales behind us.”
Fourth Quarter 2018 Financial Results
The Company reported a net loss of $7.3 million or ($0.30) per share in the fourth quarter as compared to net income of $1.5 million or $0.06 per diluted share in the prior year period. The year-over-year change in operating results was primarily due to the elimination of profits from nine company-owned hotels sold during 2018, $3.5 million in non-cash impairment charges and a $3.8 million benefit realized in the prior year associated with the Tax Cut & Jobs Act of 2017.
Adjusted EBITDA from continuing operations, which is adjusted for non-cash and certain one-time items, was $2.3 million for the fourth quarter as compared to $3.6 million in prior year period. The change in Adjusted EBITDA primarily reflects the lost EBITDA contribution from the sold hotels, partially offset by growth of the franchise business.
Royalty fees increased 36% to $5.7 million primarily due to the contribution from the Knights Inn acquisition and organic growth.
Marketing, reservations and reimbursables revenue, which are fees from franchised properties associated with the Company’s brands and shared services, increased 6.1% to $6.1 million due to new and acquired franchise agreements.
Other franchise fees, which are primarily charges for services provided to franchised properties for services such as revenue management, brand conference, and quality assurance inspections grew 21% to $3.1 million due to the organic and external growth achieved over the last 12 months.
Selling, general, and administrative expenses which include franchise sales, operations and corporate costs decreased by 3.9% to $8.5 million due to our focus on reductions in corporate overhead and efficiencies of the franchise business.
The Company executed 58 franchise agreements in the fourth quarter comprised of 6 upscale and midscale hotels and 52 select service hotels.
Full Year 2018 Financial Results
Net income for the twelve months ended December 31, 2018 was $2.0 million or $0.08 per diluted share compared to net income of $0.6 million or $0.02 per diluted share in the prior year period.
Adjusted EBITDA from continuing operations, which adjusts for non-cash and certain one-time items, was $15.8 million for 2018 compared to $25.7 million for 2017. The change in adjusted EBITDA reflects the lost EBITDA contribution from the sold hotels, offset by the growth of the franchise business. The nine hotels sold during 2018 contributed $14.5 million in EBITDA during 2017.
Royalty fees increased 27% to $22.3 million primarily due organic growth and the contribution of the Knights Inn acquisition, which added $3.6 million of incremental royalty fees in 2018.
Marketing, reservations and reimbursables revenue fell modestly by 1% to $25.9 million. This was primarily the result of a strategic decision to restructure and enhance the competitiveness of our upscale brand marketing fees.
Selling, general, and administrative expenses increased by 8.0% to $32.1 million. The year over year change primarily reflects incremental costs for severance, the closing of the Florida office, and share based compensation during 2018.
Marketing, reservations and reimbursables expenses rose 5.7% to $26.9 million driven by an increase in transaction and reservation counts, primarily due to more hotels in the system.
The Company executed 167 franchise agreements in 2018, signing 37 upscale and midscale and 130 select service hotels. It also expanded its geographic footprint and scale through the acquisition of the Knights Inn brand which was completed in May 2018.
Balance Sheet And Liquidity
RLH Corporation finished the fourth quarter with cash and restricted cash of $20 million and debt of $44 million comprised of mortgage loans of $25 million, a term loan for $9 million loan and a $10 million revolving line of credit.
During 2018, the Company’s indebtedness declined by approximately 60% with the retirement of mortgages associated with the sold hotels. As of December 31, 2018, the Company had a net debt to trailing 12 months EBITDA ratio of 1.5 times.
Subsequent Events
On January 14, 2019, the Company appointed Julie Shiflett as its Executive Vice President, Chief Financial Officer and Treasurer. Ms. Shiflett has a long history with the Company having been its Chief Financial Officer from September 2011 to October 2014 and a financial consultant to the Company since December 2014.
On March 5, 2019, the Company introduced RLabs, Inc., a travel technology subsidiary of RLH Corporation. RLabs will focus on new revenue verticals and on developing unique technology and system offerings for the hospitality industry including software, robotics, and artificial intelligence. RLabs’ first product, targeted at independent hotel owners, is Canvas Integrated Systems, a cloud-based hospitality management suite featuring a collection of seamlessly-integrated tools designed to drive revenue, secure more revenue opportunities, automate channel management, and reduce costs and friction for independent hotel owners. RLabs will also be able to offer third party management companies the capability to bring brand-level resources, pricing and technology under a white label to independent hotels around the world.
2019 Expectations
The Company is providing expectations for 2019 that do not contemplate incremental sales of the owned hotels. However, the Company expects that sales of the remaining hotels will reduce the Company’s profitability in 2019. As sales are closed, the Company will disclose the material terms of each transaction in 8K filings including the historical Adjusted EBITDA relating to the hotels sold. In addition, the Company will provide updated guidance to account for the sales of the hotels at the time it reports quarterly results.
Conference Call Information
RLH Corporation will conduct a conference call on Friday, March 8th at 12:00 p.m. Eastern Time, to discuss the results for interested investors, analyst and portfolio managers. Hosting the call will be RLH Corporation President & Chief Executive Officer Greg Mount and Executive Vice President, Chief Financial Officer and Treasurer, Julie Shiflett.
To participate in the conference call, please dial the following number 10 minutes prior to the scheduled time: (877) 407-8289. International callers should dial (201) 689-8341.
This conference call will also be webcast live on www.rlhco.com in the Investor Relations section of the website. To listen to the live call, please go to the RLH Corporation website at least 15 minutes prior to the start of the call to register and to download and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available at approximately 3:00 p.m. Eastern Time on March 8 through March 22, 2019 at (877) 660-6853 or (International) (201) 612-7415, using access code 13687348. The replay will also be available shortly after the call on the RLH Corporation website.
Red Lion Hotels Corporation is an innovative hotel company doing business as RLH Corporation and focusing on the franchising, management and ownership of upscale, midscale and economy hotels. The Company strives to maximize return on invested capital for hotel owners across North America through relevant brands, industry-leading technology and forward-thinking services. For more information, please visit the company’s website at www.rlhco.com.
Forward Looking Statements
This press release contains forward-looking statements within the meaning of federal securities law, including statements concerning plans, objectives, goals, strategies, projections of future events or performance and underlying assumptions (many of which are based, in turn, upon further assumptions). The forward-looking statements in this press release are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those expressed. Such risks and uncertainties include, among others, economic cycles; international conflicts; changes in future demand and supply for hotel rooms; competitive conditions in the lodging industry; relationships with franchisees and properties; impact of government regulations; ability to obtain financing; changes in energy, healthcare, insurance and other operating expenses; ability to sell non-core assets; ability to locate lessees for rental property; dependency upon the ability and experience of executive officers and ability to retain or replace such officers as well as other matters discussed in the Company's annual report on Form 10-K for the year ended December 31, 2018, and in other documents filed by the Company with the Securities and Exchange Commission.
To learn more about franchising with RLH Corporation, visit franchise.rlhco.com. We don’t wait for the future. We create it.
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Evelyn Infurna
Investor Relations
203-682-8265
investorrelations@rlhco.com
Dan Schacter
Media Relations
Director, Social Engagement and Public Relations
509-777-6222
dan.schacter@rlhco.com
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A summary of our properties as of December 31, 2018, including the approximate number of available rooms, is provided below:
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(1) Terminated properties include locations at which we ended our franchise relationship because the hotels did not meet RLH Corporation's hotel standards. We continue to focus on maintaining a set of standards at all of our locations.
A summary of our executed agreements for the year ended December 31, 2018 is provided below:
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EXHIBITS
We have two operating segments: franchised hotels and company operated hotels. The "other" segment consists of miscellaneous revenues and expenses, cash and cash equivalents, certain receivables, certain property and equipment and general and administrative expenses, which are not specifically associated with an operating segment. Management reviews and evaluates the operating segments exclusive of interest expense, income taxes and certain corporate expenses; therefore, they have not been allocated to the operating segments. All balances have been presented after the elimination of inter-segment and intra-segment revenues and expenses.
Selected financial information is provided below (in thousands):
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With this presentation of our financial results, we disaggregated and reclassified the presentation of certain items in the Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016 and for the interim periods included in the years ended December 31, 2018 and 2017. We have disaggregated royalty revenues from other franchise revenues, combined revenues from company operated hotels and other revenues from managed properties, combined operating expenses from company operated hotels, other costs from managed properties, and hotel facility and land lease, and reclassified amounts previously allocated as operating expenses for franchised and company operated hotels into selling, general and administrative and marketing, reservations, and reimbursable expenses.
We believe these classifications better reflect our results of operations as we have changed our business model to focus on the franchising of hotels. Additionally, we believe these reclassifications will allow better comparison with financial statements of peer companies. The reclassifications had no impact on total revenue, total operating expenses, operating income, net income, earnings per share, total assets, total equity, or cash flows for any period. The following tables show the impact of the reclassifications on the previously reported financial results for the year ended December 31, 2017 (in thousands):
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The following tables set forth supplementary financial data (in thousands except per share data) for each quarter for the years ended December 31, 2018 and 2017, derived from our unaudited financial statements. The data set forth below should be read in conjunction with and is qualified in its entirety by reference to our consolidated financial statements.
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SOURCE RLH Corporation
Red Lion Hotels Corporation is a hospitality company primarily engaged in the franchising, management and ownership of upscale, midscale and economy hotels.