Operator: Greetings, and welcome to Red Lion's Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Dan Redmond. Thank you, sir. You may begin.

Dan Redmond: Thank you. Welcome to RLH Corporation's third quarter earnings call. With us today are John Russell, Chief Executive Officer; and Gary Kohn, Chief Financial Officer. Before we get started, I want to remind you that our 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 filed with the SEC as well as subsequent filings, including our Form 10-Q to be filed after today's call. 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. We will also be referring to non-GAAP measures. The reconciliations of these measures to their comparable GAAP measures are provided in the tables of our press release. That release is also available on the Investor Relations section of our website. I will now turn the call over to John Russell, Chief Executive Officer.

John Russell: Thank you, Dan. Good morning, all. Thank you for joining us today to review our results for the third quarter of 2020. We hope that you and your loved ones are remaining healthy and safe. The pandemic continued to impact the lodging industry and our business in the third quarter. Despite the dampening effect of the virus, we are pleased with the relative outperformance of hotels in the Red Lion franchise network and with the continued improvement in franchise retention. We also completed a number of important initiatives in the quarter and saw our franchise reputation scores rise. The overall financial health of our franchisees is solid. Nearly all of our franchisees' hotels were opened and welcomed a growing number of leisure travelers as shelter-in-place restrictions were lifted. Our value proposition, drive to locations and exterior carter hotels, which made it easier to travel safely, all contributed to our performance in the quarter. We outperformed the Smith Travel Research RevPAR by nearly 17 points. Our RevPAR index performance also showed that we're taking market share from our competitive set by 5.6%. The performance in market share was driven by our economy brands with a 17% increase. While the improvement in our business was anticipated, we could not be more pleased with the outcome. Occupancy for our brands overall was 51.5%, with our midscale brands at 49.6% and our economy brands at 54.2%. These statistics continue to give us confidence in the performance of both of our economy and midscale franchise portfolios. 70% of our royalty revenue is fixed fee generated from our economy hotels, which are experienced in occupancy well in excess what is required to keep them financially viable. For the other 30% of our royalty revenue, that is from midscale hotels, which is variable gross room revenue. These occupancy rates have been exceeding our expectations in the COVID world. From a corporate perspective, we made progress on a number of different fronts. We went live with our offshore CRO transition and IT help desk, enabling us to realize cost savings. With respect to our ROAR initiatives, once again, we saw a year-over-year improvement in franchise retention, with terminations declining 33% from the third quarter of 2029. In fact, in September, we experienced our lowest number of terminations in over four years. And in October, we experienced equally positive results. We completed 37 franchise signings in the quarter, with four being for new locations. On the brand front, we relaunched GuestHouse International as GuestHouse Extended Stay, targeting efforts to meet demand for the longer-term stays within the economy offering. The current expansion includes six new build opportunities and 15 conversion opportunities. To invigorate growth in our ABVI and Knights Inn brands, we've also launched a new franchise initiative with incentives that we believe can enhance new contract signings. The focus to support our franchisees was further deepened with the broadening of marketing opportunities with additional co-op marketing and digital advertising. We added 20 new accounts to our corporate enterprise program, bringing the total to 150. In addition, we also launched new local sales solutions for our franchised hotels, with three hotels contracted with Knights Inn Corpus Christi being the first. To assist our franchisees on maximizing their revenue potential, we implemented BP360, a scorecard to boost owner participation in revenue-generating programs. We firmly believe that addressing and reducing response times for customer problems and complaints can boost reputation and revenue generation over the long term. To enable our franchisees' ability to improve on response times, we've launched FreshDesk, a customer management tool that can help them improve response times. We also launched an online reputation management platform that allows our franchisees to view and respond quickly to critiques on one easy platform. We believe that all of these efforts will contribute to improved profitability for our franchisees, which, in turn, should translate to stronger retention and the ability to attract new owners to our brands. We know that we are making progress. Our brand reputation scores are improving. Overall, Red Lion Hotel Corporation brands are up 1.4%, Knights Inn up 5.9%, and ABVI up 3.4%. We take great pride in announcing that our ABVI brand was ranked number two nationally for all economy brands by JD Power. We are encouraged by the progress we are making across the brand, but we also recognize that we face continued headwinds from the pandemic. We are singularly focused on supporting our franchisees during this challenging time, and we believe that, if we can show progress during this industry disruption, we will be well positioned to continue our wins as the economy stabilizes. I want to take a moment to thank the Red Lion Hotel Corporation team for their dedication and hard work. It has not gone on notice. I also want to applaud our franchisees for their determination and efforts to welcome our guests safely and give them a positive travel experience in such a trying time. Gary will now review our financial results. Gary?

Gary Kohn: Thanks, John. Good morning, all. We appreciate you joining the call today. Our team achieved a successful third quarter. We delivered positive adjusted and core adjusted EBITDA, driven by the fixed fee revenue base of our economy hotel portfolio, better than industry occupancy rates at our GRR-based midscale properties and our expense reduction actions. Through these positive results and the proactive steps, we have taken, we are maintaining a strong cash balance and a healthy balance sheet. As I go through the results, please bear in mind that year-over-year comparisons remain a function of the impact of the pandemic, franchise terminations over the last 12 months and the effect from having sold the vast majority of our owned hotels as we transition to an asset-light franchise model. In the third quarter, we reported a net loss of $3.1 million or $0.12 per share as compared to last year's net loss of $3.7 million or $0.15 per share. Our third quarter net loss included $860,000 of transaction and integration expenses for advisers engaged to review and respond to inquiries from interested parties who recognize the value of Red Lion. We remain committed to evaluating all inquiries that are credible and that can provide value to our shareholders. Meanwhile, we remain focused on executing our ROAR initiatives and implementing other actions that will continue to support Red Lion with a goal of increasing shareholder value. We earned third quarter adjusted EBITDA of $1.5 million versus $5.9 million last year. The biggest year-over-year decrease came from having sold a significant portion of our owned and operated hotels. In our core franchise segment, which is our primary focus and excludes our owned and operated hotels, we generated core adjusted EBITDA of $1.2 million, which compares to $1.9 million in the third quarter of 2019. The decrease is mostly attributable to fewer franchisees in our portfolio. Our model is relatively resilient to occupancy rates as more than 70% of our royalty revenue is derived from fixed fees on a per room basis, while approximately 30% is from variable gross room revenue. This suggests that as we continue to slow terminations and accelerate new signings, revenue will stabilize, then return to growth. For the royalty revenue generated on occupancy, we also believe we are well positioned to benefit from increasing leisure travel. We saw this trend start with last quarter's results, and it continued through the third quarter. It is important to note that the vast majority of the fixed fee hotels that make up the approximately 70% of our royalty revenue are economy properties. This segment is among the best RevPAR performers and is not experiencing nearly as much COVED impact as those hotels located in major cities, resort areas and airport locations. Our brand's relative outperformance has been generating improving cash flow for our owners, adding to our confidence in our financial health. This financial health has translated into well-performing accounts receivable collections, including collections of the payment deferrals we offered earlier in the year. Our franchisees' strong performance and reputational gains in the third quarter reinforced the benefit of affiliating with Red Lion. We have seen the benefit of our refocused efforts and franchisee engagement through improved retention. Our brand advisory boards have expressed their support of our efforts and are pleased with their brand's performance in the face of the challenging crisis gripping our country. We are keenly aware of how close knit the economy hotel community is and recognize how their success is tied to that of ours. Maintaining and improving franchisee satisfaction and performance translates to exactly what we are achieving, higher retention, increased signings and a more robust deal pipeline. With the introduction of a number of new support services and marketing efforts, we expect to build on the momentum of the successes we have recently achieved. The aggressive cost-saving initiatives instituted in the first quarter have continued to generate benefits. We reduced selling, general and administrative expenses in the quarter by 43% from the previous year to $4.7 million. Turning now to our balance sheet and liquidity. At September 30, we had cash and cash equivalents totaling $34.1 million. This is up $300,000 from June 30 and $2.3 million from year-end 2019. We expect to finish the year with cash on hand of approximately $30 million, assuming no more hotel sales. The projected decline during the fourth quarter includes the normal seasonal dip in revenue with steady expenses, outflows for capital expenditures and key money for new franchise agreements and the payment of transaction fees. Our year-end expectation increased from the previously shared outlook in part due to a deferral of between $2 million and $2.5 million from the previously disclosed California wage settlements and state sales tax payments. The California wage settlement will be approximately $900,000, and the state sales tax payments are estimated to be approximately $1.1 million to $1.6 million. We generated adjusted free cash flow of approximately $3 million in the first nine months of 2020, which compares to $3.8 million in the prior year period. Cash flow from operations was a use of $4.6 million, including negative working capital of $3.7 million. The only debt on our balance sheet is the $5.6 million mortgage on the Hotel RL Olympia. The debt actually sits in a joint venture of which we have a 55% equity interest. The challenges of 2020 for the hospitality industry and the broader economy unfortunately persist. We are taking on these challenges and delivering successes with a laser focus on supporting our employees and franchisees, minimizing cash burn and prudently constraining spending. Our balance sheet remains healthy with a strong cash position and no corporate debt. We will remain focused on increasing the success of our brands, franchisees and ultimately that of Red Lion. That concludes our prepared remarks, and we will now open the call for questions. Operator

Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Alex Fuhrman with Craig-Hallam. Please proceed with your question.

Alex Fuhrman: Great thanks very much for taking my question and congratulations on all the progress that you’ve been making over the summer and the fall. I wanted to ask about the improved churn that you're seeing. Is there anything that you can particularly attribute that to? I know it sounds like your occupancy for your properties, particularly on the economy side, was pretty strong, considering the landscape out there. Has that been a big driver? Just wondering if you can talk about, I guess, the relationship between occupancy of your existing properties and then what you're seeing on the franchisee side in terms of churn and going after new hotels?

John Russell: I think that's – it's John. I think that's definitely a contributing factor. But I think a lot of the initiatives we put in place back in March through our franchise development and operations team, with it – where we actively communicate on a weekly, monthly, quarterly basis with them to be sure we hear what their problems are, their issues are. We also have a program called T-6. With six months out, we contact any of our owners on contracts or end of contract and/or a window opportunity. So I think it's a combination of improved performance for the brand, along with constant communications with our franchise community.

Alex Fuhrman: Okay, that's really helpful. Thanks. And then it looks like some of your trends on a year-over-year basis, things like royalty, revenues and marketing fees are looking better here in the third quarter than the second quarter. I know it's tough to know what the next few months will bring. But given the pipeline you have of franchise agreements and maybe what you've started to see so far here in Q4 on the midscale side. Can you give us a sense of kind of how those trends might play out in the fourth quarter and heading into next year?

John Russell: Yes. I'll start to that, and then maybe Gary might want to opine. We do a very good job on what I call our contract, the contracts that come up for renewals. We're in the high 80% on renewals for those properties. I do see, luckily, a lot of our properties are in secondary tertiary cities along highways and byways and near destination areas. And they are budget and economy. These hotels do very well with the leisure market. And that's what – that's the market that picked up arguably back in June, July, August and through September. We still see pretty strong performance in the leisure market. On the negative side, we see a very slow pickup on corporate travel, virtually nothing in the group segments. So going into 2021, I think you're going to see the same trends until there's a vaccine or substantial progress on that front. So I think – since we're leisurely skewed, and 70% of our income is fixed fees from our franchisees, I think we will continue to have some success in that scope.

Gary Kohn: Yes. The only thing I would – good morning, this is Gary. The only thing I would add is, obviously, the fourth quarter, just from a revenue perspective, is a seasonally low quarter for us. And obviously, we've done a great job managing our SG&A and kind of about $4.2 million, $4.3 million-ish quarterly range. So expect that to be relatively stable. Clearly, looking at our cash projection for the year-end, it implies that we will have a bit of a burn from operations in the fourth quarter, again, seasonally low revenue, relatively flat expenses. So I will remain optimistic about the successes we're having, but probably neutral and a little more patient about the ultimate return to strong, consistent financial profitability and cash generation.

Alex Fuhrman: Great, that makes a lot of sense there. Well I appreciate you answering my questions. And thank you. And congratulations again on the work that you’ve been able to do this year.

John Russell: Appreciated, thank you.

Gary Kohn: Yes, have a great day.

Operator: [Operator Instructions] And since there are no further questions at this time, I'd like to pass the floor back over to management for any closing remarks.

John Russell: Thank you, and we really appreciate everyone being on our third quarter earnings release call. Look forward to talking to you next quarter with maybe some more good news. Please stay healthy and safe. And thank you.

Operator: Thank you for joining us on today's conference call. A replay of today's call will be available shortly after the conclusion. The dial-in number for today's replay is (877) 660-6853. Again the number is (877) 660-6853 and the conference ID is 13698204. Again the number is 13698204. With that, this concludes today's teleconference. You may now disconnect your lines. Thank you for your participation. And have a wonderful day.