Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Carter Todd - Executive Vice President and General Counsel

Colin Reed - Chairman and Chief Executive Officer

David Kloeppel - President and Chief Financial Officer

Analysts

Chris Woronka - Deutsche Bank

Kevin Milota - JP Morgan Securities, Inc.

William Marks - JMP Securities

William A. Crow - Raymond James & Assoc.

Napoleon H. Overton - Morgan Keegan and Company, Inc.

William Truelove - UBS Securities

Steve Kent - Goldman Sachs

Gaylord Entertainment Co. (GET) Q4 2008 Earnings Call February 10, 2009 10:00 AM ET

Operator

Welcome to the Gaylord Entertainment Company's Fourth Quarter 2008 Earnings Conference Call. Hosting the call today from Gaylord Entertainment are Mr. Colin Reed, Chairman and Chief Executive Officer; and Mr. David Kloeppel, President and Chief Financial Officer. They're also joined by Mr. Mark Fioravanti, Senior Vice President and Treasurer, and Mr. Carter Todd, Executive Vice President and General Counsel.

This call will be available for digital replay. The number is 800-642-1687 and the PIN number is 81082699. At this time, all participants have been placed on listen-only mode and the floor will be opened for your question following the presentation.

It is now my pleasure to turn the floor over to Mr. Carter Todd. Sir, you may begin

Carter Todd

Good morning. My name is Carter Todd, and I am the General Counsel for Gaylord Entertainment Company. Thank you for joining us today on our fourth quarter 2008 earnings call. You should be aware that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements among others, regarding Gaylord Entertainment's expected future financial performance.

For this purpose, any statements made during this call that are not statements of historical fact maybe deemed to be forward-looking statements. Without limiting the foregoing, words such as believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements maybe affected by the important factors among others, set forth in Gaylord Entertainment's filings with the Securities and Exchange Commission and in our fourth quarter 2008 earnings release. Accordingly, actual operations and results may differ materially from the results discussed or projected in the forward-looking statements. Gaylord Entertainment undertakes no obligation to update publicly any forward-looking statements whether as the result of new information, future events or otherwise.

I'd also like to remind you that in our call today, we will discuss certain non-GAAP financial measures and a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures has been provided as an exhibit to our earnings release and is also available on our website under the Investor Relations section.

At this time, I'd like to turn the call over to our Chairman and Chief Executive Officer, Colin Reed.

Colin Reed

Thank you, Carter. Good morning and welcome everyone. Thank you for joining us today to discuss Gaylord Entertainment's fourth quarter and full year 2008 financial results.

As usual, I will begin the conference call with an overview of our business beginning with their results of 2008 and then I will provide you with some perspective from what we're seeing for 2009. Our Chief Financial Officer and President, Dave Kloeppel will then provide some additional color on the financial results for this quarter-end 2008. Add as well as more detail on the company's outlook for the rest of the year. And then we will open up the call for questions.

I want to mention right upfront that today's call is about reporting our operational highlights for the fourth quarter of the year, and to give you some sense of what we believe to '09 holds for the company. We know that some of you may have question related to our recent announcement that we will be nominating several new independent direct to candidates for our Board of Directors.

We can confirm that we're in discussions with various shareholders on this topic, and then we are fully committed to putting forward a company nominates slate of directors that will act in the best interest of all shareholders.

We will make a public announcement regarding the slate at the appropriate time, but until when we will not be providing any specifics related to our dealings with the shareholders and well before answering questions on this subject, on this call. But of course, we'll update you when we have something concrete to report.

Now let's get into the results. We all know that 2008 was an extremely difficult -- was extremely difficult on the American and global economies. As market forces significantly slowed and consumer and corporate spending was cutback.

In every industry, business and management teams continue to grab with the new and unique challenges that have become part and parcel of this unprecedented environment.

Our business too has been affected by these issues and our management team has been working diligently to develop and execute plans to successfully navigate through these difficult times and we are confident that we have the right strategies and tactics in place.

But before we get into that, what is important to tell you, is that our business held up pretty well in 2008, especially when you compare us to others in hospitality industry.

The following few examples help distinguish our business performance in 2008. For the full year of 2008, our hospitality revenue increased 26.7%. And our same-store hospitality revenue increased 1.4% versus the prior year.

We maintained more than 70 points of occupancy across our same-store hotels during the fourth quarter and nearly 75 points of occupancy for the year. We achieved solid same-store CCF results and we reported a strong 29% same-store CCF margin for the year.

This performance was touchable first because of our unique good centric business model. And second, because of the cost saving measures we began putting in place in early 2008.

This performance also underscored with significance of the brand that we have built and the loyalty we have developed with our customers, the meeting planners.

Now let me remind you, that we have 80% awareness amongst meeting planners, and meeting planners for us really control the lion share of the spend that occurs at that property.

Meeting planners are ranking us best-in-class, primarily because of our attention to service. And our unique culture makes it highly likely our customers leave happy and are anxious to return.

Now because of all of this, we're confident that our business will continue to do well, despite the economy and that we will come out of these volatile times in relatively good shape.

It's important to note that we entered 2009 with roughly 51 points of group occupancy already on the books for the year. While this number is 5 to 7 points down from traditional levels when compared to previous years, because previous years, due to the cancellations we have seen over the last couple of months.

It still provides us with a level of comfort that 2009 will be better for our company relative to the overall lodging industry.

However, one must be realistic and we recognize that we're in for historic times and that visibility into the future, even for our business is more limited than even a few months ago.

Certainly the speed by which things have changed and are changing makes it difficult to provide you with an exact idea of what is to come. To be more specific on the rapid deceleration, our industry experienced beginning in the later half of 2008. Smith Travel recently reported that while the total U.S. lodging industry saw a RevPAR decline of 1.9% for full year, the fourth quarter alone saw RevPAR declines of 9.8%.

This deceleration doesn't seem to be getting much better, preliminary January 2009 date also allow Smith Travel indicates that RevPAR for the total U.S. lodging industry was down 15% to 17%, thus is January 2008.

In our hotels, cancellation and attrition levels were elevated most of the year compared to prior periods. But they rose substantially in November through January, as companies and groups have cut costs and eliminated non-essential spending due to the economic pressure or due to fear of negative optics and increased scrutiny around holding or attending retreats and meetings in the current economic climate.

We're also seeing meeting planners defer decisions, all of which is translated into short of booking windows and less visibility.

Collectively when you put all these factors together, we decided to be prudent and modify our guidance for 2009 to better reflect the issues we know we will face as a business in the next 11 months. I'll let Dave provide a lot more specifics here.

So rather than spending more time looking backwards, let's deal with the central question of the day, what are we doing about all of this?

First, we have been aggressively taking steps to reduce costs and maximize profitability. Now early in the second quarter of 2008, we brought in one of the nation's leading consulting firms to help us to take apart our corporate and SGA -- corporate and SG&A expense in order to right-size their organization given the deteriorating business environment that we're witnessing at that time.

Simultaneously, we embarked on a comprehensive, systematic review of our operating processes with the goal of identifying inefficiencies and waste that could be eliminated. The initial process has yielded several millions of dollars in cost savings across the organization, but more importantly gave us a template to help us manage that cost more aggressively if we experienced significant business deceleration due to the economic environment.

We have witnessed -- we are experiencing lower volumes and are implementing further deeper cost cuts that include among other things salary freezes across our entire management ranks, elimination of certain benefits, staff eliminations, curtailment of travel all of which will result in a -- what we call internally our phase to cost savings initiative of approximately $35 million.

I can assure you that we will not cut cost in areas where it will impact customer service as its one of the fundamental principle that differentiates our company from the big box hotels of other brands.

I know that you're hearing about other companies slashing cost and services in order to stabilize cash flows. Second, we continue to be diligent in collecting attrition and cancellation fees.

As we've mentioned here in the past, the contracted nature of our group business to a large extend protects us from some of the degradation to profitability that normally occurs in transient orientated hospitality businesses as occupancies decline.

In 2008, we were pretty successful in offsetting some of the loss revenue that occurred and we believe that these feeds will again aid us in 2009 in mitigating margin erosion.

Third our cost control measures have not been solely focused on the income statement.

In 2008, we put the brakes on our capital expenditures in order to preserve liquidity and we will continue to do so in 2009 as the economic mess continues to play out.

Finally and very importantly, let me touch on a point that you likely saw in our press release this morning. We're turning our sales efforts to focus aggressively on the short-terms specifically on 2009 and 2010 where group occupancy has fallen off a bit, as I discussed earlier in this call. This is an important shift for our organization, since historically most of our sales efforts have been geared towards booking rooms for many years in advance, as cancellations for 2009 have increased over the last couple of months.

It leaves us with room and space available that we can sell against and we're focusing our efforts to do just that. We're also increasing our marketing efforts to attract more transient leisure business to fill some of the short-term availability less taken by convention and meeting clients.

These efforts will reach and communicate with new transient guests building awareness of that brand and creating leisure demand for our hotels in 2009 and for the years to come. Some of you may think this is a total challenge, but if you look at our same-store transient room solvent 2008 over 2007, we increased by 12.6% due to these types of efforts.

Now, let me quickly turn to Gaylord National. I'm proud of our performance and how this probably is coming along. National continues to gain traction in terms of both transient and group production. And, because we have been able to book the hotel with more than 1.4 million room nights to-date, we're confident that we will continue to see additional success at this property.

Incidentally the National has over 86 Star accounts on the books for 2009. Just to refresh everybody's memory, Star accounts are groups that turn out with 600 plus people. And so because of this, this should be a pretty good year for this hotel.

Moving on to our new development project in Mesa, Arizona, I'll repeat that we remain committed to and exceedingly prudent approach to capital commitments, and don't forget the development of this property is in the very early stages and we won't have any material capital expenditures related to it for quite a while.

In conclusion, let me reiterate that I was pleased with that performance in 2009. I beg your pardon, performance in 2008. But that feels to me like a lifetime ago. We're managing the business to maximize cash flow by minimizing expenses and capital expenditures because this slowdown feels like we will be here for a while.

Fortunately, we have levers to pull and our capital structure is in good condition. 2009 will be a tough year but we will come through this a better company.

With that, what I'd like to do is turn the call over to David to go through some details of the financials. David?

David Kloeppel

Thank you, Colin, and good morning everyone. As I typically do, today I'll walk you through the financial performance of our business for the fourth quarter and for the full year and then I'll provide a more detailed review of the results for each of our properties and share our outlook for the company during the first quarter of '09 and for the first year, and for the full year.

Given the continued unpredictable and challenging trends of the hospitality industry off late, and the concerns about what lies ahead, I recognize the desire to focus on 2009 rather than our recent results.

But before I share our outlook for '09, if you want to make sure, we don't overlook our performance in the last quarter and the full year, which were both fairly good.

Our unique group centric model positioned us relatively well to handle pressures of a normal cyclical downturn in the economy.

Though, we are certainly feeling the effects of the recession, and we'll be very cautious about our outlook for 2009, as a result, our model performed as oppose to in 2008.

We faced significant revenue headwinds in the last part of 2008, as attrition and cancellations among our meeting clients substantially increased. But as it is designed to do, the contractual attrition and cancellation fees inherent to our model, helps to protect our bottom-line.

That's a big reason why we have not seen a significant of an impact on our revenue and margins relative to our peers.

Also as Colin mentioned in early months of '08, we began to take a hard look at what was in our control. The way we commit capital and the way we spend money.

Our management team began focusing on creating a leaner and more efficient operation without sacrificing the industry leading customer service that differentiates us in the minds of guests and meeting planners.

Our efforts paid off and we were successful in managing our cost down as revenue declined. These efforts along with the increase in attrition and cancellation fees enabled us to deliver a 7.4% increase in same-store CCF and drive a 1.6 increase in our same-store CCF for the year when compared to full year of 2007.

Even in the phase of a rapidly decelerating lodging industry late in the fourth quarter, we maintained our same-store CCF margin to achieve a 27.4% for the quarter.

Our efforts were not solely relegated to our hotel business. Though as our focus on cost containment yielded an 18.4% decrease in corporate overhead in the fourth quarter.

And I'll discuss our efforts on costs more, when I get to our guidance for 2009.

Now let me walk you through the performance of our Gaylord National property. After three full quarters, the property continues to impress our guests and has become a destination of choice for meeting planners across the country.

Revenue for the quarter was $51.7 million and RevPAR and total RevPAR were $112.11 and $281.44 respectively.

For the full year, the property generated a $169.2 million in revenue, with CCF slightly below our guidance at $33.1 million.

Those are expected transient room night sales as a result of the construction delays on the completion of National Harbor complex were partially flat (ph).

However, we have made great progress of the property and as evidence; we were able to achieve a solid CCF margin of 19.6% for the year.

We continue to refine our strategy to make additional progress. We remain confident and those property's ability to grow its reputation as a world-class facility.

The property is already achieving impressive customer satisfaction scores that are on par with the industry leading levels we achieve across our portfolio.

It's also important to note that we entered 2009 with roughly 60 points of occupancy on the books for the year, of importance that 9 percentage points higher than we have at the three existing hotels, at the short and the long-term.

Now with that, let's move on to our outlook for 2009 which I'm sure is where you want to focus your attention.

As you know, the market environment is making it increasingly difficult to provide accurate guidance and during the fourth quarter, we began to see significantly more pressure on revenue which had only complicated the matter further.

Given the uncertainty about what's to come, many companies both in and out of the hospitality industry are choosing to refrain from providing any kind of guidance for 2009.

Thus we have said in the past, under normal conditions, our group focus now gives us unique visibility into our performance.

That being said, we are living in unprecedented times and as we took a hard look at our business and began to discuss and debate our prospects for '09, we determined that it was prudent to factor into our guidance several key assumptions.

Our outlook assumes there is no short-term catalyst to change the direction of the economy and all segments of the economy in which our customers are under pressure to reduce expenditures, and we're recognizing this pressure in our outlook.

We're also recognizing the significant cost savings initiative described earlier in the call by Colin which provide a profitability cushion.

Now for the more specific assumptions built into our forecast, first we've assumed that attrition and cancellation levels remain at the elevated levels we have witnessed in the last 90 days.

To give you more color on the subject, we've seen cancellation levels rise for approximately 29,000 room nights that we received cancellations in the fourth quarter of '07 and January of '08, for the '08 year to approximately 55,000 room night cancelled in the same period in '08 and '09. That's a roughly 100 increase in cancellations in that short-term period. That works out to be about three points of occupancy of decline on the same-store hotels.

Probably we've seen the impact of this economic turmoil as group attrition has risen from levels ranging from 9% to 11% during 2008 through the third quarter to a range of 12% to 14% late in the fourth quarter of '08. And these increased levels of attrition are factored into our forecast.

And now second, we believe that our change in tactics to focus on short-term bookings for 2009 will yield the results we're targeting. While many meeting planners appear to be holding off on contractually committing to event and dates, demand is still there. And we're confident that we have the value and service, as well as the properly focused sales team necessary to capture that short-term demand.

That said, our current guidance level does not assume overall (ph) production from in the year meetings.

In fact, the bottom-end of our guidance range assumes that we had no material revenue to that, which is already on the books. In other words, any new bookings only offset cancellations and attrition.

Third, as Colin said a few moments ago, now is not the time for companies to be in denial. Consequently, our cost reduction planning that we put in motion during the second quarter of last year is allowing us to implement an even deeper level of cost reductions that we yield approximately $35 million of savings in '09.

These reductions include among other things, salary freezes across our entire management ranks, elimination uncertain benefits, staff eliminations, curtailment of travel among others.

So should these assumptions hold true, we will achieve RevPAR results that we have projected and as such we'll deliver the results in line with our CCF guidance.

One last point on the subject. We've essentially frozen discretionary capital spending until we see a brighter light at the end of this tunnel. Now getting on to the details of the guidance. Based on the assumptions that I've just outlined, we've recalibrated our outlook for '09, and as a result we expect our same-store RevPAR for the first quarter to decline 18% to 20% when compared to the first quarter of '08. Also in the first quarter, we expect same-store total RevPAR to decrease 17% to 19%.

For the year, we're anticipating same-store RevPAR declines of 9% to 12% and total RevPAR declines of the same level 9% to 12%. You're taking the cost savings and you take into account our elevated collection of attrition and cancellation fees, our margins in 2009 are projected to be at a pretty healthy level. We are however adjusting our same-store CCF guidance to $160 to $170 million.

Despite the negative pressures of the current economic climate, we do continue to see the Gaylord National gain tractions both in terms of transient production and group production in the market.

The National started 2009 with approximately 60 points of group occupancy on the books, which was higher than any other properties. Though National also continues to benefit from the fact that it's fresh and new in the market. Transient room nights increased 25% from the third quarter to the fourth quarter of 2008, and preliminary result for January were positive.

While we're confidence of this properties ability to grow and drive demand, no hotels in -- are rapidly deteriorating economy and we're therefore reducing our guidance for the National to $60 to $70 million from $65 to $75 million.

The operating tractions group has also felt the impact of the substantial slowdown and consumer and group spending, and despite the strength of our unique entertainment offerings traffic has declined thus far in 2009 and we're therefore adjusting guidance modestly $12 to $13 million.

And in light of the successful results of cost cutting initiatives, we discussed previously we're adjusting our corporate, another CCF guidance for the year from a loss of $49 to $46 million to a loss of $40 to $44 million. And consequently, we expect our total company CCF to be between $188 and $213 million.

So that's where we are. But needless to say this is a dynamic time and it require all of us at Gaylord to be nimble and on our toes.

And with that, I'll turn the call back over to Colin.

Colin Reed

Okay, David. Thank you. Julian, we'll open up the lines for questions now, please.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question is from the line of Chris Woronka with Deutsche Bank.

Chris Woronka - Deutsche Bank

Hey, good morning guys.

Colin Reed

Hi, Chris.

Chris Woronka - Deutsche Bank

Colin, I understand your comment upfront, I won't ask you specifically about the Board. But I did want to point out that since the last call, I think we've all seen the number of filings from third-parties. And, I think you guys have been pretty gentlemanly in your kind of written response to those, but I want ask you if you wanted to comment right now kind of on how you feel internally in terms of -- what are these third-parties looking at, doing differently?

I mean you guys have been around for a while. You've seen different cycles, what is it that -- do you think an outsider has that you guys have not considered what that is, is there anything and then what might that might be? Thanks.

Colin Reed

Chris, I'm going to stay true to the comments I made at the beginning of this call. Look, I've learnt a long time ago that all businesses probably can be improved by different eyes and ears on it when you have totally different views and thoughts coming into it.

So we're not adverse to that and that's one of the reasons why our Board, acted the way it did last week to agree that we should put on several new independent directors. If we were entrenched in our views, we wouldn't be doing those types of things.

And so, I think that it's clear from the communications that TRT had the week earlier that, TRT is receipted to talk to us, wait for them. And I think at that stage, we just need to leave it at that and when we have more things to say, we will do so.

Chris Woronka - Deutsche Bank

Okay. Thanks.

Operator

Your next question is from the line of Kevin Milota with JP Morgan.

Kevin Milota - JP Morgan Securities, Inc.

Hey guys. I was hoping you could provide some commentary on where in particular you're experiencing the most weakness in regards the four bookings. Could you give some detail on property type or different types of group, whether it'll be corporate association or different industries where you're seeing the weakness?

Colin Reed

Yes. We're seeing the reticence on behalf of primarily the corporate customers, the corporate customer seems to be going into -- better words of nuclear winter (ph) here.

I think every organization is concerned that, these things could play out and get worse before they get there. So I think everybody in corporate America is being very cautious on continuing to do things the way they've historically done them.

We're still in active engagement with most of the association customers. And frankly, they are corporate customers that are looking to book business. And, if we didn't see that and didn't believe that, we wouldn't have re-focused our meeting, our sales folks to try and deal with the opportunities that are out there today. But it's primarily corporate, but we're still seeing activity on the association. Dave, you have any color on that?

David Kloeppel

I would just echo Colin's comments on, we are still seeing good levels of bookings for periods like 11 and 12. And one reason, we're refocusing the sales force is because as we sit here today, from a pays perspective, if we look at the revenue on the books, 2011, 2012 look pretty healthy.

Colin Reed

That's an important point. That's a very important point. It give the folks some color about pays for 11 and 12.

David Kloeppel

Yeah, I mean as we sit here today and look at 11 and 12 and the revenue on the books, it's running at levels that are well in excess of where we saw, the same period out T plus 3, T plus 4 in the last several years.

So, through the down cycle of '08 and early '09, we still have been successful on putting good business on books for 11 and 12, so consequently late in 2008, we began to look at how we could refocus the sales force and how we could refocus our marketing efforts around generating better and higher qualified leads and being able to process and close those leads from a sales perspective, and so we think those are going to have a nice benefit for us in 2009 and 2010.

But as I said earlier in my comments, we haven't really baked those positive opportunities into the guidance, we've given you.

Kevin Milota - JP Morgan Securities, Inc.

Okay. And just one last thing, the CCF guidance, does that include any assumptions for cancellation or attrition fees?

David Kloeppel

Well, of course we expect to collect cancellation and attrition fees. We were successful in collecting them through all of last year and I think our collection on attrition fees was around 20% higher last year than it was the year prior. We are not assuming that we're going to collect substantially more next year than we did this year, because again it doesn't make -- it doesn't pay for us to be heroic in terms of how strong our assumptions are, but we do believe that our make contracts are strong, and valid, and binding, and we are prosecuting those collections vigorously and continuing to collect that.

Kevin Milota - JP Morgan Securities, Inc.

Yeah you said, we don't expect to collect substantially more next year versus this year. I think you mean 2009 versus 2008?

David Kloeppel

Correct. Look contracts are contracts. There has been a few analysts that have written that it's highly likely that corporations that had contracts to collect fees for cancelled events will probably not get it, because the meeting planner will say if you come after us, we're not going to give you future business. We book typically 250 Star accounts a year, that's 24,000 historically before this turndown that book every year, and a deal is a deal. We've set aside these blocks of rooms literally years in advance and a dealer is a dealer and we have a contract and we don't intend to -- we don't intend to not prosecute us.

Kevin Milota - JP Morgan Securities, Inc.

Okay, I appreciate it. Thanks guys.

Colin Reed

Thank you.

Operator

Your next question is from the line of Will Marks with JMP Securities.

William Marks - JMP Securities

Thank you. Hello, Colin, Dave, and Mark. I had some questions. First of all on the cost cutting, can you give us a sense of where that falls. How much of that would be in the SG&A line?

Unidentified Analyst

Basically all of it, it's corporate and well, no that's not quite right, David.

David Kloeppel

Yeah.

William Marks - JMP Securities

Will you give a pretty significant $30 to $35 million cost reduction, so I assume that fair amount?

Colin Reed

Some of it is you're absolutely right. Some of it is in the direct operations of the business.

David Kloeppel

Well about $20 to $25 million is going to be in the SG&A line, the rest is going to be in operating areas.

William Marks - JMP Securities

And should we assume that -- how should we look at 2008 versus 2007. I assume we don't look at the SG&A line is dropping $20 to $25 million in 2008. So that was kind of 2007 or some will be in 2010?

David Kloeppel

Ask that question again, Will?

William Marks - JMP Securities

Sorry I did not hear correctly. Should I assume that a full $20 to $25 million is cut from the 2008 SG&A of roughly $49 million?

David Kloeppel

You're SG&A and corporate are two different...

William Marks - JMP Securities

Sorry. That's it.

David Kloeppel

The corporate as a component -- if you look at our 10-K, it's broken out revenues direct expenses in the SG&A cost. So of the SG&A cost that are reflected in our 10-K, about $25 million of those savings will hit that SG&A component.

Some of those SG&A cost are corporate expenses. Some of those SG&A cost are property expenses. So...

William Marks - JMP Securities

Okay.

David Kloeppel

As we model -- as we look at 2009 the corporate number that what you're trying to get to, I think we got it was between $40 and $44 million, and there are some kind of ups and downs in that we have to live within the corporate expenses line for instance. We have a frozen pension plan that our management team present in 2001 when we got here, because of the market valuation issues and the pension accounting rules work. We're going to have several -- a couple million dollars more in pension expense this year that can hit the corporate line. But that's offset by cost savings that you'll see on the other side.

So long story short -- long story short, the 40 to 44 is the number we expect for 2009.

William Marks - JMP Securities

Okay. And then different question on, did you mentioned that margins would be roughly flat with 2008 levels at the property level?

Colin Reed

I think Dave has mentioned, margins would be healthy.

Unidentified Analyst

I think it is.

David Kloeppel

Yeah, I think that's right. I think if you kind of work through your model, that kind of RevPAR decline that we described and CCF targets that we targeted, you'll see a margin decline in probably 100 to 150 basis point decline.

William Marks - JMP Securities

And then just the last question. I am little confused on how we should think about the RevPAR calculation and find that to the CCF figure, where -- can you quantify the attrition and cancellation fees. And, I know that's somewhere in the revenue line, you don't have a separate line for it but any kind of help would be appreciated.

Colin Reed

Well I would say last year attrition and cancellation collections were in the neighborhood of $12.5 million. And I think we have a pretty similar assumption for this year, in terms of total attrition and cancellation collections.

Now, we are going to experience elevated levels of cancellations and attrition as described. So we may collect more than that but as I said earlier it doesn't make a whole lot of sense for us to be heroic with assumptions in this environment.

William Marks - JMP Securities

Okay. And while the -- those revenues are not included in the RevPAR calculation, they are included in revenues, correct?

Colin Reed

Correct. (inaudible)

David Kloeppel

Yes.

William Marks - JMP Securities

Great. Thank you.3

Colin Reed

Thanks a lot.

Operator

Your next question is from the line of Bill Crow with Raymond James.

William Crow - Raymond James & Assoc.

Good morning, guys. Couple of questions for you. As you look at the landscape for the next couple of quarters, do you anticipate second quarter there will be worse in the first quarter, given the shift of Easter?

David Kloeppel

No, we think first quarter will be worst than second.

William Crow - Raymond James & Assoc.

Okay.

Colin Reed

And we'd actually planned it that one too.

William Crow - Raymond James & Assoc.

Okay. The second question is you say that you assume attritions stays about 12% to 14% level that you've seen over the last 90 days or so.

You guys had a peak back post 9/11 of your 20% is that correct? And as you just, you think the environment then was dramatically different, given the disruption to air travel et cetera that you don't anticipate getting back to 20%?

David Kloeppel

Yes Bill, if you take a look at the year of 2002, I really -- I guess the last three months of '01 and all of 2002, we did hit about a 20% attrition level in the first six months after 9/11. If you look at all of 2002, we ran an attrition level about 14%.

So, which would say that the second half of 2002 was in the kind of low double-digits. So we're forecasting around a 14% attrition level which we said on the call that factors in a kind of post 9/11 environment where you had major travel disruptions and in economy and recession.

Colin Reed

Folks that are scared about getting on airplanes.

William Crow - Raymond James & Assoc.

Sure. It definitely different than psychological environment. You talked about the 11 and 12 outlook, not outlook, but the bookings what you did. How much of that is depended upon the expansion of existing properties.

You gave a number of 200,000 room nights associated with the expansions, which may or may not occur by 2011.

I guess I want to know how much of that is related to of your optimism -- is related to that. And how much -- if you don't go through with those expansions, you loose the 200,000 room nights, I assume. Could you loose a lot more than that with bigger meetings they're depended upon those additional rooms?

Colin Reed

Yes, Bill, this is Colin. What we've done with these 200,000 room nights is effectively put them over on the side. And then David was talking about the current run rate for those years 11 and 12. They excluded any room nights with any form of expansion necessity. This is same-store apples-to-apples.

William Crow - Raymond James & Assoc.

Thanks. And then one final question. At your Analyst Meeting, I guess it was a couple years ago, you had talked about potentially acquiring additional assets to grow your brand and certainly you looked at that in San Antonio. Is it fair to say that given the debt market environment in your balance sheet. Anything like that is off the table at this point?

Colin Reed

Yes.

William Crow - Raymond James & Assoc.

Okay, terrific. Thank you guys.

Operator

Your next question is from the line of Nap Overton with Morgan Keegan.

Napoleon Overton - Morgan Keegan and Company, Inc.

Yeah, good morning. Dave you addressed this, but could you tell me what the short-term booking improvement that is baked in your 2009 expectations with the guidance you've given now?

David Kloeppel

Well, at the low-end of the range, we assumed we're booked 70% fewer revenues in 2009 than we booked in 2008. So, there is no benefit from kind of the redeployment of the sales force built into this guidance. It's not the low end of the range, the top end of the range assumes that we'll book roughly the same amount of revenues as we booked last year.

Napoleon Overton - Morgan Keegan and Company, Inc.

All right. And then the last time, I remember you're talking about making some more specific determinations about the timing of the expansions that you have outlined previously, that you'd make those decisions kind of spring time maybe May, April-May is what I remember. Is that still correct?

David Kloeppel

We talked about that timeline in, I think it was in the November timeframe of last year, but candidly in that we're sort of right now. We don't believe that we can make any concrete decisions on any of these expansions until at least the end of the third quarter of this year.

Napoleon Overton - Morgan Keegan and Company, Inc.

Okay. All right.

David Kloeppel

And it's just the reality of what we dealing with you, which is quite frankly, I don't think there is a single person on this front that's ever seen anything like this before. And, so we have to be flexible. We have to be nimble on these types of issues.

Napoleon Overton - Morgan Keegan and Company, Inc.

I agree with you. And then what would you say so the RevPAR guidance next year is now down 9% to 12%. That seems in consistent with the general believe that at least I have had and I think some of had that Gaylord's model is better insulated from industry swings than other lodging industry business models. What do you say to that?

David Kloeppel

Well I guess a couple of things. Number one, through the last 12 months, which has been a pretty significant economic slowdown, our business has better than the rest of the industry and we all, the entire industry and the economy has seen a very rapid deceleration in booking trends and in travel trends and top of that now we've got Congress, every executive who tries to take a trip or have a meeting.

So those are negative trends that are directly kind of aimed at our industry. That being said, our RevPAR down 9 to 12. There aren't many good comps out there right now for where the industry is likely to be in terms of other company to have reported, the only one being Star, they're going to account for 15% for the year.

So are we going to be better than the industry? We kind a think we will, and that's what's build in a little bit to our 9 to 12. I think we have a pretty various view on where the industry is going to be.

Colin Reed

But the other thing is this that we can't do anything about stopping corporations, associations whoever canceling the convention. That's not the unique part of that model. People will make -- people will cancel, which they're doing and that affects RevPAR, which is what you just dealt with.

Our model kicks-in as we have these contracts. That says if you cancel them and you walk away from the agreement that you bargained for a year ago, two years ago for a particular period of time this year, you have to pay us a sum of money. That's completely different to the model of the rest of the industry that is far more transient leisure based hotel businesses. And so that revenue comes in the total RevPAR computation and obviously constituently affects the CCF.

The way you see us our model doing well is like in the fourth quarter when -- our levels of profitability were at the same level as they were in the previous year. And so that's the benefit in our model. We could nothing about conventions walking away, but what we can do is we have contracts, and that money comes in and we can scale our business as a convention cancels. We can scale the expense side of our business yet get the benefit of the income from those cancellation fees. So our model is very different.

Napoleon Overton - Morgan Keegan and Company, Inc.

Okay. Thanks.

Operator

Your next question is from the line of William Truelove with UBS.

William Truelove - UBS Securities

Hi, now just getting to a little more focus on that. Could you first give us what the full year attrition rate was for 2008, and I see it was 14% from the fourth quarter, but what was the full year attrition right now?

Colin Reed

Dave do you have that?

David Kloeppel

Full year attrition, I'll get back to you Will, because I was focusing on the quarter, so rather than guess on the call, I'll...

William Truelove - UBS Securities

Would you say it's probably around 11 or 12 maybe. It's going to be less in the 14?

David Kloeppel

I think it's probably around 11.

William Truelove - UBS Securities

Okay.

David Kloeppel

And the first three quarters, it peaked in the fourth. So absolutely was in the 10 to 11 range for the other quarters.

William Truelove - UBS Securities

Okay, let's say call it 11. If you do 11, but now your expecting 14% going forward, so there is 300 basis point increase in the attrition rate plus the fact you got three more months of National in 2009 than in 2008, because in April. I'm little bit surprised that you're not increasing the attrition fee expectations, because if you're pointing out the full year attrition rate, 300 basis points and having three more months of National. It's seems to me that to be pretty logically given your explanation of the business model you just get it to increase the attrition fees in 2009. So that's just a way being conservative with the expectations or what?

Colin Reed

Yeah. Is the way are being conservative with the expectations. Like we've said a couple times on the call, pure optimism is not rewarded in this marketplace and so we're trying to manage the business and manage the expectations of the market in a way that we're very comfortable with that -- we can articulate that we're going to be helping companies to come out of this thing.

William Truelove - UBS Securities

Okay. Let me just move on to something else then. You mentioned -- let's go back to the fourth quarter, which is strange. You talked about Colin that you're very happy with National's performance. I've seen that was really about customer satisfaction, because the financial performance still missed your expectations you've given in the third quarter or slightly high (ph), but I mean 33 million versus $34 to $37 million. Its just as little surprising, still miss it given that -- I would assume back -- I know things were changing rapidly, but given that's its been continually missing. What is your confidence level, and just kind of full year 2009 forecast, I mean I would assume you tried to put everything in the kitchen sync in the 2009 number. Is that what you're trying to do or is there still probably more a downside?

Colin Reed

We don't believe so. You're trying out a lot of comments there. Let me try and tackle them one by one. First and foremost, one of the big issues that we had to deal with in that National -- in National Harbor is the fact that the development is running behind six to nine months from where it should be.

The other transient hotels in that complex have not been performing where they need to be performing, because the project was behind, and so that's one of the issues that we've had to deal with here with the volumes of transient business into that complex. But it continues to build, it continues to get stronger.

The second thing is our customer satisfactions scores continue to rise in that hotel. Third, the level of bookings that we see in National continues to do very well. We booked over 400,000 room nights in that hotel in 2008.

We had a very good production year in 2008. The reality is that as we said on this call, we have over 85 Star accounts booked for this year. That's 60 points of occupancy on the books, and remembers you made a comment about -- you made a comment about where we got three more months of operation. I would argue that probably it's more like five to six, because the first two months of operation of that hotel. I'm being fairly candidly and very honest was not where we needed it to be.

So the whole dynamics of that hotel this year versus last year are vastly different. And as I say today, I am pleased with what the progress that we've made in the hotel. And, I can tell you the letters I get from our customers say just that this is an awesome hotel. Levels of service have gone up and customers want to come back. So, I feel pretty confident about the performance of that. I feel pretty confident about the way that hotel will perform in 2009.

William Truelove - UBS Securities

Great. Thanks so much guys. I appreciate the answers.

Colin Reed

Thank you.

Operator

Your next question is from the line of Steve Kent with Goldman Sachs.

Steve Kent - Goldman Sachs

Hi, good morning. Hey, Colin I know people have tried to get at this a couple different ways, but I just wanted to be for you to answer it with a little bit more color, which is just generally. You're suggesting Q1 RevPAR negative 18 to 20 and then you have the full year negative 12 to 9, and I'm just trying to understand what gets you there just because it's such a big haul that you're in Q1. So how do you get backup to that negative 129 for the full year.

And then on customer retention, I thought maybe you mentioned it or maybe some of your competitors have mentioned it that you don't want people to cancel. They feel the need to get -- to take chicken for dinner just as an example rather than steak that you're willing to work with them and even cut some of the commitment. And then David just one quick question. I don't know maybe I never noticed it before, but on your balance sheet, your cash, and cash equivalents is remarkably low in the fourth quarter when you entered the quarter and your trade receivables went up. I just forgotten what that's might be?

Colin Reed

Okay. Steve let me give you -- try and answer these questions in the order that you asked them. First, why do we believe the annual RevPAR predictions when we have done the first -- when we've guided what we had for the first.

If you look at our performance last year, you'll see that we had a very, very, very strong first quarter. In fact we just the way we have booked for 2009 before we started seeing these cancellations in December and January. We expected our first quarter to be behind the same pace last year not withstanding this change in the economy just, because of the huge volume of business that we had on the books in '08 for the first quarter.

We have relatively easy -- we have very strong bookings for the summer months on our books here, and we have pretty easy comps to deal with in the second, third and fourth quarter this year. So that's how we believe the year will play out for our company. You made a comment about account receivable, could you ask that question again please?

Steve Kent - Goldman Sachs

Yes I guess it's on the balance sheet, it's a surprisingly low amount for cash, it's only $1 million and then the trade receivable is $49 million and I just didn't know what caused that? Maybe it occurred during the year, but it is a low amount of cash on your balance sheet and the year --

David Kloeppel

Yes, Steve we just made the conservative efforts and manage the cash number down to a smaller number at the end of the year. We had paid the bills, we needed to pay, we had bought back some bonds. We had paid of (inaudible) until we decided to keep that cash number as small as possible.

From a receivable perspective, the receivable should be up in the fourth quarter of this year, over last year largely because we have any hotel that was non-operating (ph). In terms of receivable aging and quality receivables in those kinds of items, we haven't seen an appreciable difference and receivable aging and quality over the last 12 months as we saw in the prior 12 months.

Steve Kent - Goldman Sachs

Okay. Thanks and then just Colin there was the question for about customer retention, how you work with your customers in this environment? And, my question about chicken versus steak, sort of what we've heard from other conference planners and I felt from yourself at one point.

Colin Reed

Yes, we do, we have -- look we have a pretty intimate relationship with our meeting planners. So, all of us in the senior management of our company, touch base with their meeting planners. I'm meeting two or three of our best meeting planners in about five hours this afternoon in Washington.

We do all this and our senior sales people are constantly working with and meeting planners to help them navigate through this period of time.

But, from my perspective and we have a General Counsel sitting here, a deal is a deal. We have very strong contracts and I know that there's being two or three of the analyst that have sort of implied that.

We are not going to collect our attrition fees. We had good relationships, we deliver the product and the service we tell our folks and we say to our meeting planners as quick review here is a deal is a deal. If we fall short in that delivery, it's easy for meeting planners to comeback to us and say sorry, the attrition did run high but we can't pay you.

So that's not what's going on here, we're delivering world-class service to these folks. They are all happy when they leave, and we are having I think, I think we have a pretty good relationship with these folks are we are navigating convention by convention by convention right now, I think we will be fine through this period because of the relationships we have with these folks.

Steve Kent - Goldman Sachs

Okay. Thanks very much.

Colin Reed

Thank you, Steve. All right. I think its three minutes too. I think one more question and then any other questions the folks have they can get in touch with David and myself, and Mark over the next few days. One more question if there is one.

Operator

Your next question is from the line of Dennis Feral ph] with Wachovia.

Unidentified Analyst

Good morning, guys. Couple quick ones, I guess from a big picture perspective, we're seeing the convention planning business, there's been the dramatic shift in terms of moving away from resort conventions and I was wondering how you're positioning your sales force to kind of maybe grab some of that business away from markets such as Las Vegas or I know you have a property in Orlando, that markets under pressure, but even New Orleans, I'm just wondering your markets seem to be more regional and potentially not as reliant on air fare, just wanted to get your thoughts on that?

Colin Reed

Dennis, this is Colin. I was wondering when we were going to get a question like that this morning. Dave and I talked about it before the call. As to what after size tactics ships were going to be here. You're skewed, there are a lot of fundamental changes taking place, and of course we are positioning our sales force to take advantage of those things and that's pretty well I want to say. It looks like you want to get into the too much detail as to precisely what we're doing. But your comment is skewed. I saw this morning, one of the other big banks again moved a convention in the last 24 hours from Las Vegas to San Francisco. So we just got be, we got to be on top of that game here and understand the changing times.

Unidentified Analyst

Okay. My last question comes in terms of capital allocation, how are you going to pay for share repurchases versus down repurchases and also what is your restricted payments basket at this point?

Colin Reed

David, you want to deal with the later?

David Kloeppel

Yes Dennis, our view right now is, we need to focus on things that are leverage neutral or leverage positive. So we don't have any plans to do any share repurchases because that's capital that gets allocated and we can't get back.

In terms of how we think about buying back bonds, as we said in our release few weeks ago, we will continue to consider occasionally being in the marketplace to buyback bonds if the price is attractive to us, and that's an opportunity to deal with the balance sheet to some extent.

In terms of the restricted payments basket, I think right now in the neighborhood of $90 million to $100 million. So I think that answers your three questions.

Unidentified Analyst

Thank you very much.

David Kloeppel

Okay.

Colin Reed

All right. Thank you. Julianne, I think that's the end of the call this morning. Thank you everyone. I'd like to thank everyone for joining us.

And again, any other questions you may have please feel free to contact us and if you have something more to say on our meetings with our shareholders, we'll be in communication. Thanks a lot for joining.

Operator

Thank you for participating in today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Gaylord Entertainment Q4 2008 Earnings Call Transcript
This Transcript
All Transcripts