Operator: Greetings, and welcome to the Red Lion's Second Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Redmond. Thank you. You may begin.

Dan Redmond: Thank you. Welcome to RLH Corporation's second 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 Web site, rlhco.com in the Investor Relations section or through the SEC Web site 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 our Investor Relations section of our Web site. 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 second quarter of 2020. We hope that you and your loved ones remain healthy and safe during these challenging times. We would also like to take the opportunity to recognize and thank our team for their hard work, focus and productivity so that RLH can continue to execute its plan and support our franchisee partners. I'm pleased to share that 98% of our franchisees are open for business. Despite the challenges presented by the health care crisis, our franchisees are receiving frontline workers and drive-to travelers with welcoming brands and stringent cleanliness protocols to keep guests safe. The travel industry has been dealt an incredible blow with the coronavirus and is posting large double-digit RevPAR declines across all chain scales. We believe that our brands are positioned to be among the first that come back with our value offering and drive-to locations and we are encouraged by our relative outperformance in the quarter. STR data indicates that our RevPAR exceeded U.S. RevPAR for the second quarter. U.S. RevPAR was down 69.9%, while our hotels posted a 51.8% RevPAR decline. The performance in RevPAR was driven by our economy brands with a 28.5% RevPAR decline as compared to 35.0% for U.S. economy hotels. Given our predominantly drive-to location in secondary and tertiary cities, this performance, albeit early, is both encouraging and in line with our expectations. In fact, in July, we saw a continuation of these positive trends with occupancy of 47.6% for our brands overall, with our midscale brands at 45.2% occupancy and our economy brands at 57.3% occupancy. To assist our franchisees with cash flow and preservation, we initiated royalty and marketing fee deferral programs at the end of the first quarter. While these fee deferrals ended in June 30, other fee reductions and extended deadlines continue. On the corporate front, we remain focused on executing our ROAR initiatives, specifically franchise support and franchise retention efforts. We again are making positive strides with another 23% improvement year-over-year on terminations in the second quarter and a 22% improvement for the first six months of 2020. In the quarter, we signed 22 franchise agreements of which three were for new locations. We see this volume pace as solid, given the headwinds we faced in the second quarter related to COVID, including limitations on travel to meet with prospects and heightened underwriting standards for lodging, making it difficult for new franchisees to access capital. Additionally, we were restricted from entering into contracts for 47 out of the 90 days in the quarter. Sales were disrupted 3x during the quarter. First was our FDD annual review period, which was planned and expected. The second was related to our reduction in force and the departure of the former CFO, and again, with the appointment of Gary Kohn, our current CFO. With that said, for the first half of the year, we signed 92 total franchise agreements, 19 for new locations. This pace of signings, including many early relicenses for longer-term contracts reflects the value that our franchisees sees in our brands and even more exciting when considering the headwinds we faced. We are encouraged by the progress we are making in spite of the challenges posed by the health crises. We look forward to when cases are consistently falling, the economy is fully reopened and travelers can resume their plans. I would like to thank our franchisees and everyone on the RLH team for working tirelessly and I cannot wait to see what we can accomplish together in the days ahead. Gary will now discuss our financial results.

Gary Kohn: Thanks, John. Good morning all. Thanks for joining the call today. We are pleased with several key achievements in the second quarter. We delivered positive adjusted and core adjusted EBITDA. We continued to make progress stemming the tide of terminations and we had another active quarter of signings. Furthermore, the steps we took to reduce expenses and preserve cash kept our balance sheet strong. With that said, the comparison of 2019 to 2020 results include the unusual number of hotel terminations last year, the sale of owned hotels and the effects of COVID-19. In the second quarter, we reported a net loss of $4 million or $0.16 per share. This is a decrease from last year's second quarter net loss of $3 million or $0.12 per share. As a reminder, 2019 results included eight owned and operated hotels, four of which have been sold, so are no longer contributing revenue and income. The sale of these hotels was part of our stated strategy to exit the owned and operated hotel space and to pivot to a full franchise model. The cash generation and debt retirement from the sales served to meaningfully strengthen our balance sheet. We have two hotels remaining to be sold, Olympia and Baltimore. Our second quarter net loss included $1 million in transaction and integration expenses. These costs consist of payments to advisers engaged to review and respond to inquiries from interested parties who recognize the value of our well-positioned franchise network, including our coverage in drive-to markets, which are seeing less impact from COVID and are expected to respond well to an economic recovery. While we remain focused on executing our ROAR initiatives and supporting our franchisees, we are also committed to seriously evaluating all inquiries that are credible and that can provide value to our shareholders. We earned second quarter adjusted EBITDA of $260,000 versus $3.7 million last year. The decline in adjusted EBITDA is a function of us having sold the majority of our owned hotels. Excluding the owned and operated hotels, core adjusted EBITDA was $800,000 in the second quarter compared to $1.1 million in the second quarter of 2019. The comparison includes lower revenue from the smaller portfolio of franchise hotels and fewer travelers. It is important to note that more than 80% of our royalty revenue is derived from fixed fees on a per room basis, while approximately 20% is from the variable gross room revenue. This suggests that as terminations continue to improve and new signings gain traction, revenue will stabilize then return to growth. For the royalty revenue generated on occupancy, we also believe we are well positioned to respond as leisure travel rebounds. The vast majority of the fixed fee hotels that make up the approximately 80% of our royalty revenue are economy properties. This segment is among the best RevPAR performer and is not experiencing nearly as much COVID impact as those hotels located in major cities, resort areas and airport locations. This outperformance should be generating decent cash flows for our owners and provides us comfort in our cash collections and accounts receivables. Additionally, the stronger performance maintains our owners' financial health and overall satisfaction, which reduces terminations and generates more referrals and leads for our sales staff. The economy community is very close-knit, the owners are in close communication and their happiness is paramount to our success in retaining properties and gaining new deals. The other factor in our favor is that per STR, economy brands are performing better than independent brands. This shows that during a downturn in the economy, it makes sense to join a recognizable brand like the ones in the Red Lion family and gaining utilization of our reservation systems, advertising and contracts with group sales organizations and online travel agencies. All of these factors give us confidence and being able to continue promoting ROAR, further reduce terminations and sign new properties, thereby increasing our revenue. We took aggressive actions in the first quarter to reduce expenses and to preserve cash. Through staff reductions, temporary salary cuts across the entire organization, vendor programs and space utilization, we reduced selling, general and administrative expenses in the quarter 28% from the previous year to $4.8 million in the quarter. Turning now to our balance sheet and liquidity, at June 30, we had cash and cash equivalents on hand of nearly $34 million. This is up $2 million from year-end, including net proceeds from the sales of our Anaheim and Washington D.C. hotels. Cash was down $4.1 million on a sequential basis, driven in part by a portion of the $1.1 million in franchise fee payment deferrals, $300,000 of severance and other costs incurred to implement cost savings and a portion of the advisory fees paid in the quarter. We expect to finish this year with cash on hand in the mid $20 million range, assuming no more hotel sales. We are keenly focused on cash collections, given how dependent it is on the health of our franchisees. We offered a payment deferral program to help our franchisees weather the uncertainty. We deferred collections April through June totaling $1.1 million, with this amount now collectible in $125,000 monthly increments from July 2020 through March 2021. We generated adjusted free cash flow of approximately $2 million in the first half of 2020, which compares to $5.4 million in the prior year period. Cash flow from operations in the first half of the year was a use of $5.8 million, including negative working capital of $3.6 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. Certainly, it has been a tough 2020 for many and the hospitality industry has been significantly impacted. During this period of uncertainty, we will continue to focus on minimizing cash burn, constraining spending and investments and offering support to our employees and franchisees. Our balance sheet is solid as we maintain a strong cash position with almost no debt. We believe resilient travelers are returning to the Great American Roadtrip, feeling that automobile travel is safe and a welcome way to create fun for the family and to relive memories. We see the Red Lion brands of hotels as well situated to benefit from this emerging trend, offering exterior corridor, clean places to stay, conveniently located along the way to many destinations. With that, our prepared remarks are concluded and we're open for questions.

Operator: Thank you. [Operator Instructions] We have a question from Alex Fuhrman of Craig-Hallum.

Alex Fuhrman: Congratulations on the strong results, considering the tough environment out there. Wanted to ask about the pace of your franchise terminations and potentially signing new deals. You mentioned that it sounds like in the first half of the year, there was quite a bit of a year that you were unable to sign new deals and it sounds like you signed quite a few even despite that. What's the appetite for reflagging and perhaps independent brands signing up with one of your brands in the back half of the year, I mean, with travel down from historic levels and then the lodging industry not doing very well in general? I mean, is there an appetite for switching brands and moving into the Red Lion family? Can you talk about maybe your expectations for the back half of the year?

John Russell: Yes. Alex, this is John. Good to talk to you again. Yes, we started off very robustly in January, February, first two weeks of March with franchise sales. And of course, COVID hit and then we got to a slowdown and a little bit of an impasse there. We did sell a few in the second quarter. Franchisees, now owners are looking at their liquidity, making sure they can pay their mortgages, pay heat, light and power bills, pay their employees and take care of the family. So it did slow down. But good news is our pipeline is very robust. We did send out quite a few franchise disclosure documents in the second quarter and even this month in July, so things look good that way. As far as reflagging and/or flagging of independents, this is a very difficult time to be out there all alone. So we see a great opportunity to flag independents because they're looking for a support network, they're looking for revenue generation and cost containment. So we think that's a good market. Our renewals are strong. In other words, people want to stay in the family. So I think that looks good. I would tell you that as we get into the third quarter, I do see things picking up. Our franchise sales people can now sell. They can travel. Heretofore, it's been limited, almost nothing. So now they're on the roads again, still got some issues in California, in Texas and Florida but things are picking up and so we see opportunity in the second half of the year.

Alex Fuhrman: Great. That's really helpful. And then would love to just talk about the -- what you're seeing in terms of occupancy and RevPAR. It sounds like you're doing a lot better than the industry overall. Can you give us a sense of kind of what you're seeing for the back half of the year in terms of bookings and in terms of what you're seeing now versus what you would normally see and is there much predictive value there? Have there been more bookings and then cancellations? Just curious to what extent you're able to have visibility into the next few months, and if you have any visibility into the fourth quarter as well based on bookings.

John Russell: The booking pace has picked up. The booking windows are shorter now, particularly for leisure travelers, it's like 24 to 48 hours is the booking window. And typically, that's a lot longer, but today, it's a lot shorter. We are seeing fewer cancellations, particularly on the transient side, transient leisure. So we think that the leisure market will be steady and continue to improve. Certainly, there are still some uncertainties with how long the pandemic is and make sure there are no spikes a little bit out of our control. But as it stands today, we feel bullish on the leisure market. A little different on the corporate travel side and corporate meeting side that's going to be very slow to come back. We will see a little bit of uptick starting in September, October, November but it's going to be a long haul for that business segment. Any other question on that?

Alex Fuhrman: No, that's good. Thanks for that. And then, lastly, if I could just ask your two owned hotels in Baltimore and Olympia. I mean, you've got a lot of cash on the balance sheet, very little debt, so it doesn't seem like there's a huge urgency to monetize those. But is the plan to sell those hotels this year, has the market for hotel assets, I imagine, slowed down a little bit? Has that started to come back at all?

Gary Kohn: Yes. Alex, this is Gary. Good morning. Thanks for the question. Clearly, our strategy remains to sell those two properties. You have it exactly right. There's no urgency. With $33 million, $34 million of cash on the balance sheet, expected to end this year still in the mid $20 million range. My top priority is obviously cash burn and keeping an eye on that. But there's just no urgency to sell those hotels. So we were happy to continue to market them, look for the right opportunity and then buy our time and in hopes of a market and a hospitality recovery be able to realize more net proceeds on the sale of those two properties.

Operator: There are no further questions on the line. I would like to hand back to management for closing comments.

Dan Redmond: Thanks, everybody, for joining us this morning. We're pleased with the results in the second quarter. We're looking forward to continuing on the ROAR path through the back half of the year and look forward to updating everybody at our third quarter call.

John Russell: Thank you very much.

Operator: This concludes today's teleconference. A replay of today's call will be available in approximately 3 hours. You can access the replay by calling 877 660-6853 or 201 612-7415. Those numbers are 877 660-6853 or 201 612-7415 and entering conference ID 13698294. The ID is 13698294. The replay will be available for 2 weeks. Thank you. You may disconnect your lines at this time.