In Q2, RLH Corporation Signals Franchise Growth

DENVER—Red Lion Hotels Corporation’s franchise related revenues grew 8% year-over-year to $14.7 million in the second quarter.

“While still at an early stage, we are pleased with the progress and improvement in our core franchise business. Our full transition to a franchise company with higher quality, sustained and growing cash flow requires time and perseverance,” stated Greg Mount, president/CEO, RLH Corporation, in an earnings report.

The company executed 40 franchise agreements composed of five upscale and midscale hotels and 35 select-service hotels, bringing the total executed franchise agreements for the first half of the year to 96; of these, 30 are for new locations.

“Adjusted EBITDA in our core franchise business grew, and we are on pace to exceed our prior year margins. A highlight in the second quarter was the signing of 40 high-quality franchise license agreements, which allowed us to raise our 2019 expectations,” Mount said.

Franchise license agreement expectations were raised for 2019 to a range of 175 to 210 from the prior guidance range of 160 to 200 license agreements.

Among the highlights:

Net loss attributable to RLH Corporation for the quarter was $2.8 million or ($0.11) per share compared to a net loss attributable to RLH Corporation of $2.3 million or ($0.10) per share in the prior year period, primarily due to the disposition and lost revenue from hotels sold during 2018, partially offset by reductions in selling, general, administrative and other expenses.

Adjusted EBITDA for the second quarter was $3.7 million, as compared to $6.6 million in the second quarter of 2018. The year-over-year change was primarily attributable to the elimination of the $2.6 million of EBITDA from the hotels sold throughout 2018, a $900,000 decrease in year over year hotel segment performance, partially offset by a $100,000 improvement in franchise EBITDA and $500,000 reduction in SG&A.

Franchise Segment Adjusted EBITDA increased 2.4% year-over-year to $4.9 million while the Franchise Segment Adjusted EBITDA margin was 33%.

Corporate selling, general and administrative outlook was revised to a range of $27.5 million to $29.5 million from a range of $29.5 million to $31.5 million, reflecting a decrease in stock-based compensation, increased operating efficiencies and staffing adjustments.

Mount continued, “We have grown our quarterly recurring core franchise revenue at a compound annual growth rate of 44% to over $14.7 million from $2.4 million, since 2014. In addition, Canvas, our cloud-based hospitality management suite product, is meeting early success and we are seeing, as believed a 30% to 50% cost savings for customers and margins to RLH with the potential to rival our franchise business as Canvas grows. We have signed seven agreements thus far and are in discussions to further expand our pipeline of opportunities. This is just one example of another asset-light product that can lead to additional long-term value creation for our stakeholders.”