SEC Filing | Red Lion Hotels Corporation

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rlh-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-13957

RED LION HOTELS CORPORATION

(Exact name of registrant as specified in its charter)

Washington

91-1032187

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1550 Market St. #425

Denver

Colorado

80202

(Address of Principal Executive Offices)

(Zip Code)

(509) 459-6100

Registrant's telephone number, including area code


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	RLH	New York Stock Exchange

__________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer," "accelerated filer,” and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of August 3, 2020, there were 25,401,421 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS



Item No.	Description	Page No.

	PART I – FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Comprehensive Loss	4
	Condensed Consolidated Statements of Stockholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4	Controls and Procedures	34

	PART II – OTHER INFORMATION

Item 1	Legal Proceedings	34
Item 1A	Risk Factors	35
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3	Defaults Upon Senior Securities	37
Item 4	Mine Safety Disclosures	37
Item 5	Other Information	37
Item 6	Exhibits	38
	Signatures	39

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

RED LION HOTELS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2020		December 31, 2019
	(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents ($972 and $1,819 attributable to VIEs)	$	33,702	$	29,497
Restricted cash ($100 and $2,311 attributable to VIEs)	100		2,311
Accounts receivable ($398 and $1,033 attributable to VIEs), net of an allowance for doubtful accounts of $8,611 and $4,589, respectively	11,463		15,143
Notes receivable, net	286		5,709
Other current assets ($130 and $311 attributable to VIEs)	4,255		5,849

Total current assets	49,806		58,509
Property and equipment, net ($11,296 and $29,848 attributable to VIEs)	34,492		68,668
Operating lease right-of-use assets ($— and $10,810 attributable to VIEs)	5,337		48,283
Goodwill	18,595		18,595
Intangible assets, net	47,081		48,612
Other assets, net ($— and $703 attributable to VIEs)	2,635		3,851
Total assets	$	157,946	$	246,518

LIABILITIES
Current liabilities:
Accounts payable ($134 and $589 attributable to VIEs)	$	4,093	$	5,510
Accrued payroll and related benefits ($90 and $349 attributable to VIEs)	1,031		2,709
Other accrued liabilities ($182 and $455 attributable to VIEs)	4,900		5,469
Long-term debt, due within one year ($5,582 and $16,984 attributable to VIEs)	5,582		16,984
Operating lease liabilities, due within one year ($— and $966 attributable to VIEs)	1,520		4,809
Total current liabilities	17,126		35,481
Long-term debt, due after one year, net of debt issuance costs ($— and $5,576 attributable to VIEs)	—		5,576
Line of credit, due after one year	—		10,000
Operating lease liabilities, due after one year ($— and $11,938 attributable to VIEs)	5,059		46,592
Deferred income and other long-term liabilities ($— and $28 attributable to VIEs)	842		1,105
Deferred income taxes	823		743
Total liabilities	23,850		99,497

Commitments and contingencies (Note 10)

STOCKHOLDERS’ EQUITY
RLH Corporation stockholders' equity:
Preferred stock - 5,000,000 shares authorized; $0.01 par value; no shares issued or outstanding	—		—
Common stock - 50,000,000 shares authorized; $0.01 par value; 25,342,104 and 25,148,005 shares issued and outstanding	254		251
Additional paid-in capital, common stock	179,770		181,608
Accumulated deficit	(48,936)		(36,875)
Total RLH Corporation stockholders' equity	131,088		144,984
Noncontrolling interest	3,008		2,037
Total stockholders' equity	134,096		147,021
Total liabilities and stockholders’ equity	$	157,946	$	246,518

The accompanying notes are an integral part of these condensed consolidated financial statements.

RED LION HOTELS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
	(In thousands, except per share data)
Revenue:
Royalty	$	3,584	$	5,867	$	7,941	$	11,607
Marketing, reservations and reimbursables	4,473		7,603		10,278		14,332
Other franchise	701		1,214		1,475		1,756
Company operated hotels	1,471		14,236		7,800		27,206
Other	—		5		—		8
Total revenues	10,229		28,925		27,494		54,909
Operating expenses:
Selling, general, administrative and other expenses	4,770		6,660		21,035		14,051
Company operated hotels	2,139		12,532		8,817		24,077
Marketing, reservations and reimbursables	3,791		7,847		9,549		15,008
Depreciation and amortization	2,410		4,109		4,947		7,556
Asset impairment	—		—		1,760		—
Loss (gain) on asset dispositions, net	331		38		(7,561)		44
Transaction and integration costs	1,002		173		1,400		235
Total operating expenses	14,443		31,359		39,947		60,971
Operating loss	(4,214)		(2,434)		(12,453)		(6,062)
Other income (expense):
Interest expense	(49)		(1,109)		(555)		(1,991)
Loss on early retirement of debt	—		(164)		(1,309)		(164)
Other income, net	199		44		247		77
Total other income (expense)	150		(1,229)		(1,617)		(2,078)
Loss before taxes	(4,064)		(3,663)		(14,070)		(8,140)
Income tax expense (benefit)	148		108		(604)		190
Net loss	(4,212)		(3,771)		(13,466)		(8,330)
Net loss attributable to noncontrolling interest	250		774		1,405		1,060
Net loss and comprehensive loss attributable to RLH Corporation	$	(3,962)	$	(2,997)	$	(12,061)	$	(7,270)

Loss per share - basic	$	(0.16)	$	(0.12)	$	(0.48)	$	(0.29)
Loss per share - diluted	$	(0.16)	$	(0.12)	$	(0.48)	$	(0.29)

Weighted average shares - basic	25,335		24,856		25,267		24,730
Weighted average shares - diluted	25,335		24,856		25,267		24,730

The accompanying notes are an integral part of these condensed consolidated financial statements.

RED LION HOTELS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


		Red Lion Hotels Corporation Stockholders' Equity
		Common Stock											Retained Earnings (Accumulated Deficit)						RLH Corporation Total Equity			Equity Attributable to Noncontrolling Interest
		Shares		Amount			Additional Paid-In Capital																Total Equity
		(In thousands, except share data)
Balances, December 31, 2018			24,570,158		$	246		$	182,018		$	(17,846)		$	164,418		$	21,164		$	185,582
	Net income (loss)	—		—			—			(4,273)			(4,273)			(286)			(4,559)

	Shared based payment activity	56,301		1			685			—			686			—			686


	Distributions to noncontrolling interests	—		—			—			—			—			(7,431)			(7,431)
Balances, March 31, 2019			24,626,459		247			182,703			(22,119)			160,831			13,447			174,278
	Net income (loss)	—		—			—			(2,997)			(2,997)			(774)			(3,771)

	Shared based payment activity	449,453		4			(1,034)			—			(1,030)			—			(1,030)



Balances, June 30, 2019			25,075,912		251			181,669			(25,116)			156,804			12,673			169,477
	Net income (loss)	—		—			—			(3,672)			(3,672)			(2,980)			(6,652)

	Shared based payment activity	42,600		1			1,054			—			1,055			—			1,055



Balances, September 30, 2019			25,118,512		252			182,723			(28,788)			154,187			9,693			163,880
	Net income (loss)	—		—			—			(8,087)			(8,087)			2,096			(5,991)

	Shared based payment activity	29,493		(1)			(739)			—			(740)			—			(740)

	Reclassification of noncontrolling interest	—		—			(376)			—			(376)			376			—
	Distributions to noncontrolling interests	—		—			—			—			—			(10,128)			(10,128)
Balances, December 31, 2019			25,148,005		251			181,608			(36,875)			144,984			2,037			147,021
	Net income (loss)	—		—			—			(8,099)			(8,099)			(1,155)			(9,254)

	Shared based payment activity	60,978		2			336			—			338			—			338


	Distributions to noncontrolling interests	—		—			(2,376)			—			(2,376)			2,376			—
Balances, March 31, 2020			25,208,983		253			179,568			(44,974)			134,847			3,258			138,105
	Net income (loss)	—		—			—			(3,962)			(3,962)			(250)			(4,212)

	Shared based payment activity	133,121		1			202			—			203			—			203



Balances, June 30, 2020			25,342,104		$	254		$	179,770		$	(48,936)		$	131,088		$	3,008		$	134,096

The accompanying notes are an integral part of these condensed consolidated financial statements.

RED LION HOTELS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	June 30,
	2020		2019
	(In thousands)
Operating activities:
Net loss	$	(13,466)	$	(8,330)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	4,947		7,556
Noncash PIK interest and amortization of debt issuance costs	187		249
Amortization of key money and contract costs	514		459
Amortization of contract liabilities	(301)		(534)
Loss (gain) on asset dispositions, net	(7,561)		44
Noncash loss on early retirement of debt	750		67
Asset impairment	1,760		—
Deferred income taxes	80		98
Stock-based compensation expense	575		1,562
Provision for doubtful accounts	10,328		472

Change in operating assets and liabilities:
Accounts receivable	(1,085)		(820)

Key money disbursements	(329)		(535)
Other current assets	1,299		839
Accounts payable	(1,483)		2,827
Other accrued liabilities	(1,984)		(899)
Net cash provided by (used in) operating activities	(5,769)		3,055
Investing activities:
Capital expenditures	(1,374)		(2,843)


Net proceeds from disposition of property and equipment	36,896		—
Collection of notes receivable	—		242
Advances on notes receivable	—		(90)
Net cash provided by (used in) investing activities	35,522		(2,691)
Financing activities:
Borrowings on long-term debt, net of discounts	4,234		32,935
Repayment of long-term debt and finance leases	(21,958)		(20,283)
Repayment of line of credit borrowing	(10,000)		—
Debt issuance costs	—		(542)

Distributions to noncontrolling interest	—		(7,431)

Stock-based compensation awards canceled to settle employee tax withholding	(81)		(2,131)
Stock option and stock purchase plan issuances, net and other	46		105
Net cash provided by (used in) financing activities	(27,759)		2,653

Change in cash, cash equivalents and restricted cash:
Net increase (decrease) in cash, cash equivalents and restricted cash	1,994		3,017
Cash, cash equivalents and restricted cash at beginning of period	31,808		19,789
Cash, cash equivalents and restricted cash at end of period	$	33,802	$	22,806

The accompanying notes are an integral part of these condensed consolidated financial statements.

RED LION HOTELS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Organization

Red Lion Hotels Corporation ("RLH Corporation," "RLHC," "we," "our," "us," or "our company") is a NYSE-listed hospitality and leisure company (ticker symbol: RLH) doing business as RLH Corporation and primarily engaged in the franchising and ownership of hotels under the following proprietary brands: Hotel RL, Red Lion Hotels, Red Lion Inn & Suites, GuestHouse, Americas Best Value Inn, Canadas Best Value Inn, Signature and Signature Inn, Knights Inn, and Country Hearth Inns & Suites.

2.Summary of Significant Accounting Policies

The unaudited condensed consolidated financial statements included herein were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and in accordance with generally accepted accounting principles in the United States of America ("GAAP"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations.

The Consolidated Balance Sheet as of December 31, 2019 was derived from the audited balance sheet as of such date. We believe the disclosures included herein are adequate; however, they should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2019, filed with the SEC in our annual report on Form 10-K on February 27, 2020.

In the opinion of management, these unaudited condensed consolidated financial statements contain all of the adjustments of a normal and recurring nature necessary to present fairly our Condensed Consolidated Balance Sheets, the Condensed Consolidated Statements of Comprehensive Loss, the Condensed Consolidated Statements of Stockholders' Equity, and the Condensed Consolidated Statements of Cash Flows. The results of operations for the periods presented may not be indicative of that which may be expected for a full year or for any other fiscal period.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments, as amended by multiple subsequent ASUs, which will change how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the current "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For trade and other receivables, held to maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. In October 2019, an update was issued to the standard that deferred the effective date of the guidance to the first quarter of 2023 for smaller reporting companies such as us. We are currently evaluating the effects of this ASU on our financial statements, and such effects have not yet been determined.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which amends the existing guidance related to the accounting for income taxes. The ASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The ASU is effective the first quarter of 2021, with early adoption permitted. We are currently evaluating the effects of this ASU on our financial statements, and such effects have not yet been determined.

We have assessed the potential impact of other recently issued, but not yet effective, accounting standards and determined that the provisions are either not applicable to us or are not anticipated to have a material impact on our consolidated financial statements.

3. Business Segments

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. We allocate selling, general, administrative and other expenses to our 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):


Three Months Ended June 30, 2020	Franchised Hotels		Company Operated Hotels		Other		Total
Revenue	$	8,758	$	1,471	$	—	$	10,229
Operating expenses:
Segment and other operating expenses	5,647		2,426		2,627		10,700
Depreciation and amortization	894		423		1,093		2,410

Loss (gain) on asset dispositions, net	—		111		220		331
Transaction and integration costs	—		21		981		1,002
Operating income (loss)	$	2,217	$	(1,510)	$	(4,921)	$	(4,214)


Three Months Ended June 30, 2019	Franchised Hotels		Company Operated Hotels		Other		Total
Revenue	$	14,684	$	14,236	$	5	$	28,925
Operating expenses:
Segment and other operating expenses	10,084		12,863		4,092		27,039
Depreciation and amortization	1,110		1,917		1,082		4,109

Loss (gain) on asset dispositions, net	(1)		37		2		38
Transaction and integration costs	34		—		139		173
Operating income (loss)	$	3,457	$	(581)	$	(5,310)	$	(2,434)


Six Months Ended June 30, 2020	Franchised Hotels		Company Operated Hotels		Other		Total
Revenue	$	19,694	$	7,800	$	—	$	27,494
Operating expenses:
Segment and other operating expenses	23,187		9,456		6,758		39,401
Depreciation and amortization	1,776		1,289		1,882		4,947
Asset impairment	—		1,760		—		1,760
Loss (gain) on asset dispositions, net	—		(7,781)		220		(7,561)
Transaction and integration costs	—		53		1,347		1,400
Operating income (loss)	$	(5,269)	$	3,023	$	(10,207)	$	(12,453)


Six Months Ended June 30, 2019	Franchised Hotels		Company Operated Hotels		Other		Total
Revenue	$	27,695	$	27,206	$	8	$	54,909
Operating expenses:
Segment and other operating expenses	19,706		25,324		8,106		53,136
Depreciation and amortization	2,024		3,873		1,659