Choice Hotels International, Inc.
"We are pleased that our second quarter results exceeded analysts' expectations, particularly in an economic environment that has challenged us and our strongest competitors," said Charles A. Ledsinger, Jr., president and chief executive officer. "Our franchising business continues to generate strong cash flow and the predictability of our long-term contracts makes Choice much less susceptible to economic cycles than owner-operator competitors."
He continued, "Total revenues grew 10% in the second quarter and have grown 8% so far this year, despite slow industry growth. Our continued emphasis on technology, brand improvement and operational efficiencies has translated into solid financial performance."
The company also announced that it is comfortable with the consensus estimate for 2001 diluted recurring EPS of $1.28, excluding potential equity or impairment losses on its investment in Friendly Hotels plc. Choice also anticipates that third quarter 2001 diluted EPS should reach the consensus estimate of $0.43.
In addition, the company expressed its comfort with the consensus of diluted recurring EPS of $1.44 for 2002, given the current number of shares outstanding.
Ledsinger concluded, "As a service business providing value to our franchisees, we continue to use our size and scale to improve business performance while evaluating other opportunities. We remain keenly focused on generating system growth and driving shareholder value with the goal of leveraging our position as a services company with well-known consumer brands."
Second Quarter Results
Recurring earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $29.4 million for the second quarter and $49.7 million for the first six months of 2001, respective increases of 8.5% and 6.9% over the $27.1 million for second quarter 2001 and $46.5 million for the first half of 2000. EBITDA margins remain consistent at 65% for the second quarter and 63% for the year-to-date through June 30.
The company reported royalty revenues of $36.0 million for second quarter 2001, compared to $34.3 million for second quarter 2000, an increase of 5.0%. The system-wide domestic effective royalty rate increased from 3.79% in second quarter 2000 to 3.94% for the second quarter of 2001. Domestic revenue per available room (RevPAR) was $37.10 for the second quarter of 2001, compared to $37.28 for the same period a year ago.
For the first six months of 2001, Choice reported recurring net income of $23.2 million or $0.51 recurring diluted EPS versus recurring net income of $24.2 million and $0.45 recurring diluted EPS for the first six months of 2000.
Royalty revenues for the first half of 2001 increased 6.4% to $63.0 million from the $59.2 million for the same period of a year ago. The system- wide domestic effective royalty rate increased 10 basis points for the first six months of 2001 to 3.91% from 3.81% for the same period a year ago. Domestic RevPAR also was up 2.0% from $32.17 for the first half of 2000 to $32.82 for the first six months of 2001.
During the three months ended June 30, 2001, the company recorded an equity loss of $0.8 million related to changes in its equity investment in Friendly Hotels plc. The equity loss is excluded from the company's recurring net income and recurring diluted EPS. In the event that Friendly has future liquidity issues, the company does not intend to fund future losses.
Internet Growth
Choice continues to emphasize cost-effective electronic distribution channels for its reservations activity. Total net revenue sold over the Internet was $62.3 million for second quarter 2001, an increase of 53.5% over the $40.6 million sold in second quarter 2000. Choice Hotels' proprietary web site, http://www.choicehotels.com/ , generated more than 53% of the total Internet volume for the quarter.
Internet reservations represented 7.2% of total system sales for second quarter 2001, up from 4.7% for the same period a year ago.
For the year-to-date through June 30, total net revenue sold over the Internet was $111.6 million, an increase of 66% over the $67.2 million for the same period a year ago. Internet reservations year-to-date represent 7.4% of total system sales, up from the 4.6% reported for the same period in 2000. Of this year's total revenues, 4.0% was generated through Choice's proprietary Web site, http://www.choicehotels.com/ .
The average room rate booked through the company's Internet site was up 2.9% for second quarter 2001 to $77.56 from $75.41 for the same period a year ago. This result compares to system-average daily rates of $62.21 for the second quarter 2001 and $60.56 for the same period a year ago. In addition, the Internet is a less expensive channel for booking reservations.
System Growth
Choice signed 68 hotel franchise contracts in second quarter 2001, compared to the 67 contracts signed in the same period a year ago. Through June 30, 2001, the company has signed 125 new contracts, representing 10,781 rooms. The company has signed 72 contracts to convert existing hotels to a Choice brand in the first half of 2001, up from 65 conversions from the same period a year ago.
As of June 30, 2001, the total number of Choice hotels worldwide on-line grew 3.0% to 4,433 from 4,303 as of the same date a year ago. As of the same date, the total number of rooms worldwide increased 3.3% to 354,761 from 343,511 as of the same date a year ago.
The company had 662 franchised hotels with 55,972 rooms either in design or under construction in its worldwide hotel system as of June 30, 2001.
Notable Events
Among the notable company events occurring since the previous earnings report:
* The company announced on July 17 that it has been authorized by its
Board of Directors to repurchase up to an additional five million
shares of common stock. Since Choice announced its stock repurchase
program on June 25, 1998, the company has purchased 19.7 million shares
of common stock at an average price of $14.50 and a total cost of
$285.9 million, as of July 20, 2001. Since January 1, 2001, the
company has purchased 10.6 million shares of common stock. Total
shares outstanding as of July 20, 2001 are 43.0 million.
* Moody's Investor Service confirmed its investment grade debt ratings
for Choice and upgraded its rating outlook from negative to stable.
The company completed refinancing of its credit facility in the amount
of $260 million, with a feature allowing Choice to obtain additional
commitments up to $325 million.
* The company has launched a re-imaging campaign for three of its brands:
Quality, Comfort Suites and Sleep Inn. Under the program, almost 1,400
existing hotels worldwide will adopt new logos and signage for these
brands.
* Choice's Board of Directors was honored by HVS Executive Search as the
industry's top performing board at the 23rd Annual New York University
International Hospitality Industry Investment Conference in June.
Choice Hotels International is the second-largest hotel franchisor in the world with 4,433 hotels open worldwide, representing 354,761 rooms, and another 455 hotels under development in the United States, representing 34,948 rooms. An additional 207 hotels, representing 21,024 rooms, are under development in 42 other countries as of June 30, 2001. Its Comfort, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn and MainStay Suites brands serve guests worldwide.
Certain matters discussed in this press release may constitute forward- looking statements within the meaning of the federal securities law. Such statements are based on management's beliefs, assumptions and expectations, which in turn are based on information currently available to management. Actual performance and results could differ from those expressed in or contemplated by the forward-looking statements due to a number of risks, uncertainties and other factors, many of which are beyond Choice's ability to predict or control. For further information on factors that could impact Choice and the statements contained therein, we refer you to the filings made by Choice with the Securities and Exchange Commission, including its registration statement on Form S-4 and report on Form 10-Q for the period ended June 30, 1999.
Additional corporate information may be found on the Choice Hotels' internet site, which may be accessed at http://www.choicehotels.com/ .
Comfort, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Guest Privileges and ChoiceBuys.com are registered trademarks, service marks and trade names of Choice Hotels International, Inc. Choice Hotels also owns and uses common law marks, including Profit Manager.
Choice Hotels International, Inc.
Consolidated Balance Sheets
(In thousands) June 30, December 31,
2001 2000
(Unaudited)
ASSETS
Cash and cash equivalents $6,998 $19,701
Other current assets 32,862 32,385
Total current assets 39,860 52,086
Fixed assets and intangibles, net 173,388 174,772
Investment in Friendly Hotels plc 31,859 34,616
Note receivable from Sunburst
Hospitality Corp. 36,957 137,492
Advances to marketing and reservation
funds 52,819 57,824
Other assets 28,334 27,330
Total assets 363,217 484,120
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current portion of long-term debt 11,396 50,046
Other current liabilities 46,185 43,782
Total current liabilities 57,581 93,828
Long-term debt 276,400 247,179
Deferred income taxes and other 49,973 53,020
Total liabilities 383,954 394,027
Total shareholders' (deficit)
equity (20,737) 90,093
Total liabilities and
shareholders' (deficit)
equity $363,217 $484,120
Choice Hotels International, Inc.
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share
amounts) Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
Revenues 2001 2000 2001 2000
Royalty fees $36,048 $34,328 $63,003 $59,213
Initial franchise fees and
relicensing fees 3,331 3,435 5,649 6,782
Partner service revenue 3,964 2,088 5,902 4,386
Hotel operations 921 - 1,706 -
Other 943 1,314 2,297 2,429
Total revenues 45,207 41,165 78,557 72,810
Operating expenses
Selling, general and administrative 15,188 14,071 27,676 26,299
Hotel operations 661 - 1,181 -
Depreciation and amortization 3,002 3,053 5,892 5,555
Total operating expenses 18,851 17,124 34,749 31,854
Operating income 26,356 24,041 43,808 40,956
Other
Interest and dividend income (1,023) (3,911) (2,172) (7,776)
Interest expense 3,770 4,609 8,082 9,225
Equity loss-Friendly Hotels plc 763 164 2,921 1,889
Gain on sale of investments (42) - (42) -
Write-off of deferred financing
costs 650 - 650 -
Loss on early prepayment of note - 4,100 - 4,100
Total other 4,118 4,962 9,439 7,438
Income before income taxes 22,238 19,079 34,369 33,518
Income taxes 8,673 7,441 13,404 13,072
Net income $13,565 $11,638 $20,965 $20,446
Recurring net income (a) $14,421 $14,297 $23,167 $24,182
Weighted average shares outstanding 44,349 53,092 44,759 53,038
Diluted shares outstanding 44,778 53,534 45,174 53,688
Diluted earnings per share $0.30 $0.22 $0.46 $0.38
Diluted recurring earnings per share
(a) $0.32 $0.27 $0.51 $0.45
(a) Recurring net income and diluted recurring earnings per share
exclude the impact of the equity loss-Friendly Hotels, gain on sale
of investments and the loss on early prepayment of note, after the
effect of income taxes.
Choice Hotels International, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) Six Months Ended
June 30, June 30,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $20,965 $20,446
Reconciliation of net income to net
cash provided
by operating activities:
Depreciation and amortization 5,892 5,555
Deferred income taxes and other (3,452) 7,779
Equity loss on Friendly Hotels plc 2,921 1,889
Non-cash interest and dividend
income (2,117) (7,668)
Write-off of deferred financing
costs 650 -
Provision for bad debts 124 (433)
Loss on early prepayment of note - 4,100
Changes in assets and liabilities:
Change in income taxes
payable/receivable and other 6,994 (2,417)
Change in accounts payable and
accrued expenses (4,592) (10,115)
Change in receivables (260) 1,499
NET CASH PROVIDED BY OPERATING
ACTIVITIES 27,125 20,635
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from Sunburst Hospitality
Corp. note receivable 101,954 -
Repayments from/(advances to)
marketing and reservation funds, net 10,795 (20,412)
Investment in property and equipment (7,627) (9,321)
Other items, net 33 1,370
NET CASH PROVIDED (UTILIZED) BY
INVESTING ACTIVITIES 105,155 (28,363)
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments of long-term
borrowings (356,461) (31,585)
Proceeds from long-term borrowings,
net of financing costs 344,392 60,300
Purchase of treasury stock (134,552) (16,465)
Proceeds from exercise of stock
options 1,638 1,201
NET CASH (UTILIZED) PROVIDED BY
FINANCING ACTIVITIES (144,983) 13,451
Net change in cash and cash
equivalents (12,703) 5,723
Cash and cash equivalents, beginning
of period 19,701 11,850
CASH AND CASH EQUIVALENTS, END OF
PERIOD $6,998 $17,573
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash payments during the period for:
Income taxes, net of refunds $10,250 $7,989
Interest 10,095 11,446
Non-cash investing activities:
Property assumed through the
restructuring of Sunburst
Hospitality Corp. note receivable 1,475 -
Choice Hotels International
Supplemental Operating Information By Brand
Domestic Hotel System
(Unaudited)
For the Quarter
Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
COMFORT INN
Hotels 1,276 1,265 1,276 1,265
Rooms 100,029 99,124 100,029 99,124
Avg. Daily Rate (ADR) $62.87 $60.51 $61.36 $58.89
Occupancy % 62.7% 65.0% 56.5% 57.6%
RevPAR $39.44 $39.35 $34.68 $33.92
COMFORT SUITES
Hotels 295 250 295 250
Rooms 23,267 20,141 23,267 20,141
Avg. Daily Rate (ADR) $73.54 $71.49 $72.45 $70.29
Occupancy % 66.0% 68.3% 61.0% 62.1%
RevPAR $48.54 $48.85 $44.22 $43.66
QUALITY
Hotels 428 432 428 432
Rooms 48,400 48,990 48,400 48,990
Avg. Daily Rate (ADR) $65.76 $63.60 $63.69 $61.21
Occupancy % 58.1% 59.3% 52.6% 52.4%
RevPAR $38.17 $37.72 $33.49 $32.08
CLARION
Hotels 113 113 113 113
Rooms 17,972 18,892 17,972 18,892
Avg. Daily Rate (ADR) $78.91 $82.09 $77.44 $80.17
Occupancy % 57.1% 62.5% 52.0% 55.6%
RevPAR $45.03 $51.32 $40.28 $44.54
SLEEP
Hotels 274 247 274 247
Rooms 21,171 18,825 21,171 18,825
Avg. Daily Rate (ADR) $57.54 $55.42 $55.78 $53.87
Occupancy % 60.6% 62.3% 54.7% 55.0%
RevPAR $34.89 $34.53 $30.49 $29.64
MAINSTAY
Hotels 38 32 38 32
Rooms 3,372 2,958 3,372 2,958
Avg. Daily Rate (ADR) $64.11 $62.76 $63.78 $60.87
Occupancy % 67.3% 71.6% 63.2% 66.1%
RevPAR $43.13 $44.93 $40.28 $40.21
ECONO LODGE
Hotels 680 682 680 682
Rooms 42,418 42,906 42,418 42,906
Avg. Daily Rate (ADR) $46.47 $45.11 $44.91 $43.64
Occupancy % 52.6% 53.7% 47.7% 47.4%
RevPAR $24.45 $24.24 $21.41 $20.70
RODEWAY
Hotels 145 155 145 155
Rooms 9,558 10,209 9,558 10,209
Avg. Daily Rate (ADR) $47.30 $46.30 $45.57 $44.64
Occupancy % 48.6% 50.8% 44.7% 45.5%
RevPAR $23.00 $23.53 $20.36 $20.31
TOTAL CHOICE - DOMESTIC
Hotels 3,249 3,176 3,249 3,176
Rooms 266,187 262,045 266,187 262,045
Avg. Daily Rate (ADR) $62.21 $60.56 $60.69 $58.88
Occupancy % 59.6% 61.6% 54.1% 54.6%
RevPAR $37.10 $37.28 $32.82 $32.17
Effective Royalty Rate 3.94% 3.79% 3.91% 3.81%
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SOURCE: Choice Hotels International
Contact: John Hawkins, +1-301-592-5075, or Fax: +1-301-592-6177, or
Financial Officer and Treasurer, +1-301-592-5006, both of Choice Hotels
International, Inc.
Website: http://www.choicehotels.com/
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