Business Context and Reporting Period
The filing is a Form 10-Q for Gaylord Entertainment Company and subsidiaries, covering the three months ended March 31, 2012, with comparison to March 31, 2011. The request metadata identifies Ryman Hospitality Properties, Inc.; however, the filing text identifies the registrant as Gaylord Entertainment Company, so the issuer identity should be verified.
Continuing operations comprised Hospitality, Opry and Attractions, and Corporate and Other. Hospitality generated 94.6% of total revenue and included Gaylord Opryland, Gaylord Palms, Gaylord Texan, Gaylord National, and the Radisson Hotel at Opryland.
Key Financial Metrics
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue | $238.9 million | $220.7 million | 8.2% |
| Operating income | $21.7 million | $14.7 million | 47.2% |
| Operating margin | 9.1% | 6.7% | Up 240 bps |
| Income from continuing operations | $6.0 million | $(2.0) million | Improved |
| Net income | $6.0 million | $(2.0) million | Improved |
| Diluted earnings per share | $0.12 | $(0.04) | Improved |
| Operating cash flow | $13.9 million | $(8.0) million | Improved |
| Capital expenditures | $29.7 million | $37.5 million | Down 20.7% |
Total operating expenses were $217.2 million, or 90.9% of revenue, compared with $206.0 million, or 93.3%, in the prior-year quarter. Depreciation and amortization was $32.4 million, and selling, general and administrative expense was $49.3 million.
Hospitality revenue increased 8.0% to $226.0 million, while Hospitality operating income increased 35.9% to $40.0 million. Hospitality occupancy was 69.9%, ADR was $169.89, RevPAR was $118.82, Total RevPAR was $306.99, and net definite room nights booked were 306,000.
At March 31, 2012, unrestricted cash was $19.9 million and restricted cash was $1.2 million. Current assets were $131.3 million versus current liabilities of $154.2 million, resulting in a $22.8 million working-capital deficit. Management stated that deferred revenue, primarily advance hotel bookings, comprised $53.6 million of current liabilities and does not require future cash payments.
Total debt and capital lease obligations were $1.062 billion, including $585.0 million outstanding under the $925 million credit facility, $322.6 million carrying value of convertible notes, and $152.2 million of senior notes. The company reported $332.0 million of availability under the credit facility and compliance with all debt covenants.
Material Changes Versus the Prior Comparable Period
- Revenue increased $18.2 million, primarily from Hospitality growth at Gaylord Opryland and Gaylord Palms, and increased Opry and Attractions revenue.
- Operating income improved by $7.0 million as revenue growth exceeded expense growth.
- Net income shifted from a $2.0 million loss to $6.0 million of income. The improvement included a $6.4 million reduction in net interest expense, principally from the refinanced credit facility.
- The effective tax rate was 43% in 2012 versus 33% in 2011; the prior period included a tax benefit because of the pretax loss.
- Hospitality occupancy was broadly stable overall, while ADR increased 3.3%, RevPAR increased 3.8%, and Total RevPAR increased 4.9%.
- Gaylord Opryland revenue increased 17.2%, with ADR up 12.0% and Total RevPAR up 15.8%. Gaylord Palms revenue increased 13.3%, with occupancy up 4.8 percentage points and ADR up 8.7%.
- Gaylord Texan revenue declined 4.1%, primarily because the prior-year quarter benefited from the Super Bowl in the Dallas area.
- Attrition declined to 4.5% of bookings from 6.1%, and cancellations decreased 57.2% year over year.
- Corporate and Other operating loss increased to $18.6 million from $14.1 million, including $3.1 million of non-recurring expenses related to evaluating opportunities to unlock shareholder value.
- Cash decreased by $24.5 million to $19.9 million, primarily because of capital expenditures and a $15.0 million repayment under the credit facility.
Outlook, Commentary, Risks, and Unusual Items
Management reported stabilization in the hospitality industry and increased group travel, outside-the-room spending, occupancy, rates, future bookings, and lower attrition and cancellations. Management cautioned that continued improvement depends on economic conditions and that group pricing may lag transient pricing because group bookings are made well in advance.
The company expected 2012 investment to focus on maintenance capital expenditures, completion of the Gaylord Palms rooms renovation and resort pools, and design work for the proposed Aurora, Colorado resort. Management stated that cash on hand and operating cash flow should fund normal operations, interest, lease obligations, and planned 2012 commitments, with the credit facility available if needed.
The proposed Aurora resort was expected to cost approximately $800 million, include 1,500 rooms and 400,000 square feet of meeting and exhibition space, and potentially open in early 2016. The project remained subject to governmental approvals, incentives, joint-venture funding, and board approval, and had no material financial commitments at the filing date.
A proposed 50/50 Dollywood joint venture contemplated an approximately $50 million water and snow park adjacent to Gaylord Opryland, with expected groundbreaking in early 2013 and opening in summer 2014. The project remained contingent on infrastructure agreements. A potential Mesa, Arizona development also remained subject to entitlements, incentives, and approvals.
- Debt maturities were concentrated in 2014 and 2015. Contractual obligations totaled $1.810 billion, including $1.097 billion of long-term debt commitments and $642.9 million of operating leases.
- A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $5.9 million based on credit-facility borrowings at March 31, 2012.
- The company estimated potential exposure of $23.8 million under contribution agreements related to guarantees of certain Hawaii joint-venture debt; no liability was recorded.
- Unrecognized tax benefits were $13.9 million, with approximately $13.1 million expected to decrease over the following twelve months, primarily from statute expirations.
- The company recorded $0.2 million of casualty loss related primarily to Nashville flood-related repairs and $0.3 million of preopening costs related primarily to the Gaylord Palms sports bar.
- Management identified risks related to refinancing debt, economic conditions, group-hospitality demand, labor and benefits costs, development approvals and financing, geographic concentration, and construction costs.
- The company stated that there were no material changes to previously disclosed risk factors and that disclosure controls were effective.
Investor Verification Checklist
- Verify the issuer identity, because the supplied metadata names Ryman Hospitality Properties, Inc., while the filing names Gaylord Entertainment Company.
- Confirm the company’s ability to refinance or repay the 2014 convertible and senior notes and manage the 2015 credit-facility maturity.
- Reconcile unrestricted cash of $19.9 million, credit-facility availability of $332.0 million, and the $22.8 million working-capital deficit.
- Assess whether improving group demand, ADR, RevPAR, and booking trends continued after March 31, 2012.
- Evaluate the funding, approvals, timing, and potential capital requirements of the Aurora resort, Dollywood water and snow park, and Mesa development.
- Review the $3.1 million of non-recurring corporate expenses and determine whether additional shareholder-value initiatives could affect future results.
- Monitor interest-rate exposure, contractual obligations, Hawaii joint-venture guarantee exposure, tax contingencies, and potential dilution from convertible notes and warrants.