Company Results

Choice Hotels International Reports A 23% Increase In First Quarter 2014 Diluted EPS

Diluted EPS from continuing operations for the three months ended March 31, 2014 totaled $0.29, an increase of 12 percent from the same period of 2013.

Choice Hotels

Choice Hotels International, Inc. (NYSE: CHH) reported the following highlights for the first quarter of 2014:

  • Diluted earnings per share ("EPS") for the three months ended March 31, 2014 totaled $0.32, an increase of 23 percent from the same period of 2013.
  • Diluted EPS from continuing operations for the three months ended March 31, 2014 totaled $0.29, an increase of 12 percent from the same period of 2013.
  • Earnings before interest, taxes, depreciation and amortization ("EBITDA") from franchising activities for the three months ended March 31, 2014 totaled$40.1 million, an increase of 15 percent from the same period of 2013.
  • Franchising revenues for the three months ended March 31, 2014 totaled $63.2 million, an increase of 6 percent from the same period of 2013.
  • Franchising margins for the three months ended March 31, 2014 were 60.2 percent, an increase of 510 basis points from the same period of 2013.
  • Domestic royalty fees for the three months ended March 31, 2014 totaled $46.5 million, an increase of 5 percent from the same period of 2013.
  • Domestic unit and room growth increased 2.4 percent and 1.6 percent from March 31, 2013, respectively.
  • Domestic system-wide revenue per available room ("RevPAR") increased 5.6 percent in the first quarter of 2014 as occupancy and average daily rates increased 200 basis points and 1.1 percent, respectively from the same period of 2013.
  • The company executed 59 new domestic hotel franchise contracts for the three months ended March 31, 2014 compared to 83 new domestic hotel franchise contracts for the same period of 2013. Domestic hotel contracts executed during the three months ended March 31, 2013 reflect a multi-faceted strategic marketing alliance with Bluegreen Corporation which resulted in the addition of 21 Bluegreen Vacation Club® Resorts to the company's Ascend Hotel Collection. Excluding this transaction, domestic franchise agreements executed during the first quarter of 2014 totaled 59 compared to 62 new domestic hotel franchise contracts in the same period of 2013.
  • Domestic relicensing and contract renewal transactions for the three months ended March 31, 2014 totaled 83 contracts, an increase of 20 percent from the same period of 2013.
  • The company sold two of its three company-owned Mainstay Suites hotels during the three months ended March 31, 2014 resulting in a $2.6 million gain.

"We are very pleased with the first quarter performance of our franchising business which exceeded our expectations and resulted in a 15 percent increase in franchising EBITDA and an expansion of our franchising margins due to our strong RevPAR growth and disciplined cost management," said Stephen P. Joyce, president and chief executive officer. "We are optimistic that we are well positioned to benefit from strong consumer and developer demand for our brands."

Discontinued Operations

In the first quarter of 2014, the company entered into a plan to sell its three owned hotels operated under the MainStay Suites brand. The company determined that the disposal of these hotels met the definition of a discontinued operation since the operations and cash flows of these components will be eliminated from the on-going operations of the company and the company will not have significant continuing involvement in the operations of the hotels after the disposal transaction.

At March 31, 2014, the company had disposed of two of the three owned hotels and expects the third hotel to be sold during the year ended December 31, 2014. The new owners of the two MainStay Suites hotels have executed new franchise agreements with the company and we expect that following the sale of the third hotel the new owner will also execute a new franchise agreement.

The company's consolidated statement of income for the three months ended March 31, 2014 and the company's consolidated balance sheet as of March 31, 2014reflect these three company-owned hotels as discontinued operations. In addition, the company's statement of income for the three months ended March 31, 2013has been reclassified to account for these operations as discontinued. Summarized financial information related to these discontinued operations is presented in Exhibit 9 of this press release.                  

Outlook

The company's consolidated 2014 outlook reflects continued growth of the company's core hotel franchising business, continued investment in and expanded revenue contribution from the SkyTouch division and the sale of the three company-owned Mainstay Suites hotels described below as well as the following assumptions:

  • All figures assume no repurchases of common stock under the company's share repurchase program; and
  • The effective tax rate for continuing operations is expected to be 30.8% for the second quarter and full-year 2014.

Franchising

  • EBITDA from franchising activities for full-year 2014 are expected to range between $227 million and $232 million;
  • Net domestic unit growth for 2014 is expected to increase between 1% and 2%;
  • RevPAR is expected to increase approximately 5% for the second quarter and 4.5% to 5.5% for full-year 2014; and
  • The effective royalty rate is expected to decline 3 basis points for full-year 2014.

SkyTouch

  • Reductions in EBITDA from our investment in the SkyTouch division for full-year 2014 are expected to be approximately $20 million;
  • Execution of third-party contracts results in annualized revenue ranging between $4 million and $6 million with realized revenues for the year endedDecember 31, 2014 totaling approximately $2 million; and
  • SG&A expenses are forecasted to be approximately $22 million related to investment in business development, sales and marketing and continued software development expenditures related to the division's cloud-based hotel operating system technology related products and services.

Discontinued Operations

  • Company EBITDA projections exclude the three company-owned Mainstay Suites hotels which generated EBITDA of approximately $1

Choice Hotels International, Inc.

Exhibit 1

Consolidated Statements of Income

(Unaudited)

Three Months Ended March 31,

Variance

2014

2013

$

%

(In thousands, except per share amounts)

REVENUES:

Royalty fees

$ 51,681

$ 49,736

$ 1,945

4%

Initial franchise and relicensing fees

3,740

3,777

(37)

(1%)

Procurement services

4,778

3,950

828

21%

Marketing and reservation 

84,012

76,440

7,572

10%

Other

3,072

2,013

1,059

53%

      Total revenues

147,283

135,916

11,367

8%

OPERATING EXPENSES:

Selling, general and administrative

26,463

26,916

(453)

(2%)

Depreciation and amortization

2,122

2,041

81

4%

Marketing and reservation

84,012

76,440

7,572

10%

Total operating expenses

112,597

105,397

7,200

7%

Operating income

34,686

30,519

4,167

14%

OTHER INCOME AND EXPENSES, NET:

Interest expense

10,171

10,770

(599)

(6%)

Interest income

(503)

(644)

141

(22%)

Other (gains) and losses

(59)

(710)

651

(92%)

Equity in net loss of affiliates

35

141

(106)

(75%)

Total other income and expenses, net

9,644

9,557

87

1%

Income from continuing operations before income taxes

25,042

20,962

4,080

19%

Income taxes

7,711

5,406

2,305

43%

Income from continuing operations  

17,331

15,556

1,775

11%

Income (loss) from discontinued operations, net of income taxes

1,641

(33)

1,674

(5073%)

Net income

$ 18,972

$ 15,523

$ 3,449

22%

Basic earnings per share

Continuing operations

$    0.30

$    0.27

$  0.03

11%

Discontinued operations

0.03

-

0.03

NM

$    0.33

$    0.27

$  0.06

22%

Diluted earnings per share

Continuing operations

$    0.29

$    0.26

$  0.03

12%

Discontinued operations

0.03

-

0.03

NM

$    0.32

$    0.26

$  0.06

23%

 

 

 

Choice Hotels International, Inc.

Exhibit 2

Consolidated Balance Sheets

(In thousands, except per share amounts)

 March 31, 

 December 31, 

2014

2013

(Unaudited)

ASSETS

Cash and cash equivalents

$    174,878

$           167,795

Accounts receivable, net

59,241

53,521

Other current assets

43,595

37,330

Total current assets

277,714

258,646

Fixed assets and intangibles, net

131,681

141,858

Notes receivable, net of allowances

34,223

31,872

Advances, marketing and reservations activities

18,856

19,127

Investments, employee benefit plans, at fair value

16,852

15,950

Other assets

75,574

72,446

Total assets

$    554,900

$           539,899

LIABILITIES AND SHAREHOLDERS' DEFICIT

Accounts payable and accrued expenses

$       82,037

$              98,288

Deferred revenue

69,155

61,188

Current portion of long-term debt

11,026

10,088

Other current liabilities

6,039

4,774

Total current liabilities

168,257

174,338

Long-term debt

795,497

783,471

Deferred compensation & retirement plan obligations  

22,387

22,527

Other liabilities

23,392

23,808

Total liabilities

1,009,533

1,004,144

Common stock, $0.01 par value

584

586

Additional paid-in-capital

118,020

117,768

Accumulated other comprehensive loss

(5,469)

(6,217)

Treasury stock, at cost

(917,226)

(918,031)

Retained earnings

349,458

341,649

Total shareholders' deficit

(454,633)

(464,245)

Total liabilities and shareholders' deficit

$    554,900

$           539,899

 

 

 

Choice Hotels International, Inc.

Exhibit 3

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three Months Ended March 31,

2014

2013

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$   18,972

$   15,523

Adjustments to reconcile net income to net cash provided 

 by operating activities:

  Depreciation and amortization  

2,122

2,175

  Gain on sale of assets

(2,572)

-

  Provision for bad debts, net

1,182

844

  Non-cash stock compensation and other charges

2,887

2,549

  Non-cash interest and other (income) loss

416

76

  Deferred income taxes

(3)

446

  Dividends received from equity method investments

181

146

  Equity in net loss of affiliates

35

141

Changes in assets and liabilities:

  Receivables

(7,491)

(3,531)

  Advances to/from marketing and reservation activities, net

5,309

(4,101)

  Forgivable notes receivable, net

(3,623)

(1,729)

  Accounts payable

2,080

10,471

  Accrued expenses

(19,861)

(31,145)

  Income taxes payable/receivable

3,160

4,367

  Deferred revenue

7,932

5,160

  Other assets

(3,103)

(3,869)

  Other liabilities

(2,359)

2,622

 NET CASH PROVIDED BY OPERATING ACTIVITIES

5,264

145

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in property and equipment

(3,015)

(13,645)

Proceeds from sales of assets

8,703

-

Equity method investments

(3,379)

(1,000)

Issuance of mezzanine and other notes receivable

(587)

-

Collections of mezzanine and other notes receivable

68

19

Purchases of investments, employee benefit plans

(890)

(1,242)

Proceeds from sales of investments, employee benefit plans

281

3,882

Other items, net

(154)

(101)

 NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES

1,027

(12,087)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net borrowings pursuant to revolving credit facility

15,000

18,000

Principal payments on long-term debt

(2,052)

(2,046)

Dividends paid

(10,784)

(503)

Purchase of treasury stock

(4,530)

(3,634)

Excess tax benefits from stock-based compensation

1,024

952

Proceeds from exercise of stock options

1,547

5,367

 NET CASH PROVIDED BY FINANCING ACTIVITIES

205

18,136

Net change in cash and cash equivalents

6,496

6,194

Effect of foreign exchange rate changes on cash and cash equivalents

587

(146)

Cash and cash equivalents at beginning of period

167,795

134,177

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$ 174,878

$ 140,225

 

 

 

Exhibit 4

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL OPERATING INFORMATION 

DOMESTIC HOTEL SYSTEM

(UNAUDITED)

For the Three Months Ended March 31, 2014*

For the Three Months Ended March 31, 2013*

Change

Average Daily

Average Daily

Average Daily

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Comfort Inn

$          77.34

49.5%

$       38.25

$          76.30

47.5%

$        36.24

1.4%

200

bps

5.5%

Comfort Suites

83.59

54.5%

45.52

81.82

52.6%

43.04

2.2%

190

bps

5.8%

Sleep

70.05

49.8%

34.90

69.07

47.6%

32.85

1.4%

220

bps

6.2%

Quality

65.33

44.2%

28.90

64.20

42.2%

27.08

1.8%

200

bps

6.7%

Clarion

68.61

43.9%

30.14

68.84

41.1%

28.32

(0.3%)

280

bps

6.4%

Econo Lodge

51.49

40.2%

20.70

51.67

38.6%

19.95

(0.3%)

160

bps

3.8%

Rodeway

49.67

45.5%

22.58

47.96

42.2%

20.25

3.6%

330

bps

11.5%

MainStay

69.31

59.7%

41.35

68.55

57.0%

39.05

1.1%

270

bps

5.9%

Suburban

41.56

64.6%

26.85

40.90

63.4%

25.94

1.6%

120

bps

3.5%

Ascend Hotel Collection

104.61

56.3%

58.88

113.87

56.1%

63.84

(8.1%)

20

bps

(7.8%)

Total 

$          69.63

47.5%

$       33.09

$          68.87

45.5%

$        31.34

1.1%

200

bps

5.6%

For the Quarter Ended

3/31/2014

3/31/2013

System-wide effective royalty rate

4.35%

4.39%

* Operating statistics represent hotel operations from December through February

 

 

 

Exhibit 5

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA

(UNAUDITED)

March 31, 2014

March 31, 2013

Variance

Hotels

Rooms

Hotels

Rooms

Hotels

Rooms

%

%

Comfort Inn

1,297

101,099

1,332

104,159

(35)

(3,060)

(2.6%)

(2.9%)

Comfort Suites

590

45,609

597

46,079

(7)

(470)

(1.2%)

(1.0%)

Sleep

381

27,517

382

27,685

(1)

(168)

(0.3%)

(0.6%)

Quality

1,236

102,327

1,172

99,090

64

3,237

5.5%

3.3%

Clarion

191

27,393

190

27,268

1

125

0.5%

0.5%

Econo Lodge

840

51,544

811

49,244

29

2,300

3.6%

4.7%

Rodeway

449

25,077

421

24,269

28

808

6.7%

3.3%

MainStay

43

3,329

41

3,165

2

164

4.9%

5.2%

Suburban

63

7,152

63

7,241

-

(89)

0.0%

(1.2%)

Ascend Hotel Collection

103

9,251

63

5,481

40

3,770

63.5%

68.8%

Cambria Suites

18

2,119

19

2,221

(1)

(102)

(5.3%)

(4.6%)

Domestic Franchises

5,211

402,417

5,091

395,902

120

6,515

2.4%

1.6%

International Franchises

1,153

104,735

1,173

104,474

(20)

261

(1.7%)

0.2%

Total Franchises

6,364

507,152

6,264

500,376

100

6,776

1.6%

1.4%

 

 

 

Exhibit 6

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL INFORMATION BY BRAND

DEVELOPMENT RESULTS -- DOMESTIC NEW HOTEL CONTRACTS

(UNAUDITED)

For the Three Months Ended March 31, 2014

For the Three Months Ended March 31, 2013

% Change

New

New

New

Construction

Conversion

Total

Construction

Conversion

Total

Construction

Conversion

Total

Comfort Inn

3

3

6

3

5

8

0%

(40%)

(25%)

Comfort Suites

1

-

1

2

2

4

(50%)

(100%)

(75%)

Sleep

4

-

4

1

-

1

300%

NM

300%

Quality

1

10

11

-

19

19

NM

(47%)

(42%)

Clarion

-

2

2

-

3

3

NM

(33%)

(33%)

Econo Lodge

-

6

6

-

8

8

NM



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