RLH Corp. revealed the resignation of President/CEO Greg Mount today. Effective immediately, Mount is stepping down from both his leadership roles, as well as from the company’s board of directors.
“The board recognizes the operational performance of the company has not progressed as anticipated,” Bob Wolfe, chairman of the board, said in a statement. “Action was necessary, starting with a search for a new CEO.”
The news came the same day the company released its Q3 results, which showed adjusted earnings before interest, tax, depreciation and amortization of $5.9 million. This number marks a $0.1 million year-over-year increase, reflecting the impact of cost controls the company has implemented to offset lower company operated hotel profits and higher bad debt expense.
Despite forecasting full-year adjusted EBITDA to be between $20.5 million and $22.5 million last quarter, RLH now predicts it will land between $11.5 million and $13.5 million. The company attributed this to the underperformance of its remaining owned hotels and the core franchise business as well as the additional expenses due to increases in bad debt and collection costs.
Search for New CEO
RLH’s board of directors plans to engage an executive search firm as soon as possible to conduct a search for a new CEO. The board has appointed a search committee and Frederic (Jake) Brace, an independent director on the company’s board, has been appointed the committee chair.
Until the company appoints a new CEO, a management committee comprised of executives will oversee the operations of the company, reporting to the board, with Brace as board liaison to the management committee. Members of this committee include EVP/COO Gary Sims, EVP/CFO Julie Shiflett and EVP/general counsel Thomas McKeirnan.
“The board is committed to creating shareholder value,” Wolfe continued in his statement. “To that end, the company is focused on delivering superior value and service to our franchisees to stem the pace of terminations, restructuring franchise sales efforts to accelerate franchise growth and right-sizing the cost structure of the business to reflect RLH’s current size, revenue and profitability requirements. The asset sales of the past few years are largely complete. The company now needs to put all its effort into building around a strong business proposition for its franchisees and delivering value to shareholders. This effort will take time and will require the right leadership to navigate the challenges and the opportunities that lie ahead.”
Takeaways From Q3 Report
As of Sept. 30, RLH’s net system size had shrunk by 141 properties since the beginning in the year due to 176 terminations, which were offset by only 35 openings. The company did execute 47 franchise agreements during the quarter, a 57 percent year-over-year increase. Year-to-date, RLH executed 143 agreements, a 43 percent increase from last year. For full-year 2019, RLH plans to execute 175 to 210 contracts, keeping with the projection it provided a quarter ago.
RLH’s royalty fees decreased 9.5 percent, primarily due to terminated agreements with select-service hotels. Marketing, reservations and reimbursables revenue—fees from franchised properties associated with the company’s brands and shared services—increased 9.3 percent due to an increase in transaction and reservation fees.
During the quarter, the company entered nonbinding agreements to sell four company-owned hotels—the Red Lion Atlanta Airport, the Hotel RL Washington D.C., the Hotel RL Salt Lake City and the Red Lion Hotel Anaheim (Calif.)—for gross proceeds of approximately $85 million and net proceeds to the company of $32 million to $36 million. These sales are expected to be completed by the end of Q1 2020.