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Home Inns & Hotels Management Inc. (NASDAQ:HMIN) , a leading economy hotel chain in China, today announced its unaudited financial results for the quarter ended June 30, 2007.
Second Quarter 2007 Highlights
• Total revenues for the quarter increased 67.8 % year-over-year to RMB232.2 million (US$30.5 million).
• Income from operations was RMB37.3 million (US$4.9 million), an increase of 37.4% year-over-year. Excluding share-based compensation expenses, income from operations (non-GAAP) was RMB41.8 million (US$5.5 million), up 50.0% year-over-year.
• Net income for the quarter was RMB22.7 million (US$3.0 million).
• EBITDA (non-GAAP), defined as earnings before interest, taxes, depreciation and amortization, was RMB44.4 million (US$5.8 million), representing a 17.1% increase year-over-year. Excluding foreign exchange losses of RMB12.8 million (US$1.7 million) and share-based compensation expenses of RMB4.5 million (US$0.6 million), adjusted EBITDA (non-GAAP) was RMB61.6 million (US$8.1 million), up 59.7% year- over-year.
• Diluted earnings per share amounted to RMB0.32 (US$0.04), and diluted earnings per ADS were RMB0.64 (US$0.08). Each ADS represents two ordinary shares.
• During the second quarter of 2007, Home Inns opened 26 new hotels. As of June 30, 2007, the Home Inns hotel chain consisted of 171 hotels in operation with an additional 63 hotels under development, covering 66 cities in China.
• The occupancy rate for the Home Inns hotel chain was 95% in the second quarter of 2007, compared with 98% during the same period in 2006 and 86% in the previous quarter.
• RevPAR, defined as revenue per available room, was RMB174 in the second quarter of 2007, compared with RMB182 in the same period in 2006 and RMB151 in the previous quarter.
"We are pleased with our progress this quarter," said Mr. David Sun, Home Inn's Chief Executive Officer. "With a solid strategy and strong execution, we are maintaining our leadership position in the economy hotel market in China. We achieved an impressive occupancy rate and RevPAR in the quarter, even as we increased our penetration into second tier cities."
As of June 30, 2007, the Home Inns hotel chain consisted of 117 leased- and-operated hotels and 54 franchised-and-managed hotels in operation, with an additional 50 leased-and-operated hotels and 13 franchised-and-managed hotels under development, covering 66 cities in China. The average number of rooms per hotel in operation is 120.
Second Quarter 2007 Financial Results
For the second quarter of 2007, Home Inns had total revenues of RMB232.2 million (US$30.5 million), compared with total revenues of RMB138.4 million for the second quarter of 2006, representing a 67.8% increase year-over-year.
Total revenues from leased-and-operated hotels for the second quarter of 2007 were RMB221.8 million (US$29.1 million), compared with RMB134.8 million for the second quarter of 2006, representing a 64.5% increase year-over-year. Home Inns opened 20 new lease-and-operated hotels during the second quarter of 2007.
Total revenues from franchised-and-managed hotels for the second quarter of 2007 were RMB10.4 million (US$1.4 million), compared with RMB3.6 million for the second quarter of 2006, representing a 191.6% increase year-over-year. Home Inns opened 6 new franchised-and-managed hotels during the second quarter of 2007.
Occupancy rate for the entire Home Inns hotel chain was 95% in the second quarter of 2007, compared with 98% in the same period in 2006 and 86% in the previous quarter. The decrease from the same period last year was due to the impact of 27 new hotels opened in the fourth quarter 2006 and 11 new hotels opened in the previous quarter. RevPAR in the second quarter of 2007 was RMB174, compared with RevPAR of RMB182 in the same period in 2006 and RMB151 in the previous quarter.
Total operating costs and expenses for the second quarter of 2007 were RMB181.1 million (US$23.8 million). Total operating costs and expenses excluding share-based compensation expenses (non-GAAP) for the second quarter of 2007 were RMB176.7 million (US$23.2 million), or 76.1% of total revenues, compared to 74.5% in the second quarter of 2006 and 84.6% in the previous quarter. Factors that led to these changes are discussed below.
Total leased-and-operated hotel costs were RMB154.9 million (US$20.3 million), representing 69.8% of the leased-and-operated hotel revenues. Total leased-and-operated hotel costs represented 65.2% of the leased-and-operated hotel revenues for the same quarter in 2006 and 78.0% for the previous quarter. The sequential improvement was due to our increased revenue in the second quarter. The increase in percentage compared to the second quarter of 2006 was primarily due to higher personnel costs as we increased staff level in the second half 2006, as well as larger number of new leased-and-operated hotels, which require some ramp-up time, that we opened over the past two quarters.
Selling and marketing expenses were RMB4.4 million (US$0.6 million), an increase of 97.6% year-over-year and 6.5% sequentially. The increase year- over-year was primarily attributable to more advertising and marketing activities as Home Inns continued to promote its brand and enter new geographic markets.
General and administrative expenses were RMB21.9 million (US$2.9 million). General and administrative expenses excluding share-based compensation expenses (non-GAAP) were RMB17.4 million (US$2.3 million), or 7.5% of the total revenues, compared with 9.4% of the total revenues in the same period of 2006 and 8.0% in the previous quarter. The decrease in percentage this year versus the same period last year resulted from our operating leverage as our revenues grew.
Income from operations for the quarter was RMB37.3 million (US$4.9 million). Income from operations excluding share-based compensation expenses (non-GAAP) was RMB41.8 million (US$5.5 million) or 18.0% of total revenues, compared to 20.1% in the same period of 2006 and 9.6% in the previous quarter. The decrease in operating margin from the same period last year was caused by higher leased-and-operated costs as a percentage of leased-and-operated hotel revenue as described above.
EBITDA (non-GAAP) for the second quarter of 2007 was RMB44.4 million (US$5.8 million). Adjusted EBITDA excluding foreign exchange losses of RMB12.8 million (US$1.7 million) and share-based compensation expenses of RMB4.5 million (US$0.6 million) (non-GAAP) increased 59.7% year-over-year and 82.8% from the previous quarter.
Net income for the quarter was RMB22.7 million (US$3.0 million).
Basic and diluted earnings per share amounted to RMB0.33 (US$0.04) and RMB0.32 (US$0.04), respectively, and basic and diluted earnings per ADS were RMB0.67 (US$0.09) and RMB0.64 (US$0.08), respectively.
Net operating cash flow for the second quarter of 2007 was RMB69.6 million (US$9.1 million). Capital expenditures for the quarter were RMB105.6 million (US$13.9 million).
As of June 30, 2007, Home Inns had cash and cash equivalents of RMB734.6 million (US$96.5 million).
Outlook for Third Quarter 2007
Home Inns expects its total revenues in the third quarter of 2007 to be in the range of RMB 258 million (US$33.9 million) to RMB268 million (US$35.2 million). This forecast reflects Home Inns' current and preliminary view, which is subject to change.
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