Choice Hotels International, Inc.,
-- Diluted earnings per share ("EPS") for first quarter 2008 increased 25%
to $0.30 compared to $0.24 in the same period of the prior year. First
quarter 2007 results included termination benefits expense totaling
$3.7 million (approximately $0.03 diluted EPS) resulting from the
separation from service of certain executive officers during that
period.
-- Domestic unit growth increased 6.0 percent in first quarter 2008.
-- Operating income increased 24% to $34.1 million for first quarter 2008
compared to $27.4 million for first quarter 2007. Earnings before
interest, taxes and depreciation ("EBITDA") increased 22% to $36.1
million for first quarter 2008, compared to $29.5 million for first
quarter 2007. Operating income and EBITDA for first quarter 2007 both
include the termination benefits expense described above.
-- Franchising revenues and total revenues both increased 12% for first
quarter 2008 compared to the same period in 2007.
-- Franchising margins for first quarter 2008 were 56.9% compared to 51.0%
for the same period in 2007. First quarter 2007 franchising margins
reflect the impact of the $3.7 million of termination benefits
described above.
-- Domestic system-wide revenue per available room (RevPAR) increased 2.7%
for first quarter 2008.
-- New domestic hotel franchise contracts executed in first quarter 2008
were 133, up 20% over the prior year.
-- The number of domestic hotels under construction, awaiting conversion
or approved for development increased 18% to 986 hotels representing
79,276 rooms; the worldwide pipeline increased 20% to 1,082 hotels
representing 87,597 rooms.
"During our first quarter, the fundamental strength of our business model was evident as robust unit growth drove increased revenues and profitability," said Charles A. Ledsinger, Jr., vice chairman and chief executive officer. "We were also very fortunate to have brought into the organization three experienced executives in Steve Joyce, president and chief operating officer, Chris Malone, chief marketing officer, and Sandy Michel, general counsel, all of whom have significant franchising backgrounds. Their talents, combined with the strength of our current leadership team, position Choice for continued growth and success."
Outlook for 2008
The company's second quarter 2008 diluted EPS is expected to be $0.47. The company expects full year 2008 diluted EPS of $1.87. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for full-year 2008 are expected to be approximately $205.5 million. These estimates include the following assumptions.
-- The company expects net domestic unit growth of approximately 5% in
2008;
-- RevPAR is expected to increase approximately 1.5% for second quarter
2008 and approximately 2% for full-year 2008;
-- The effective royalty rate is expected to increase 4 basis points for
full-year 2008;
-- All figures assume the existing share count and an effective tax rate
of 37% for second quarter 2008 and 36.7% for full year 2008;
Use of Free Cash Flow
The company has consistently used its free cash flow (cash flow from operations less capital expenditures) generated from its operations to return value to shareholders, primarily through share repurchases and dividends.
For the three months ended March 31, 2008, the company paid $10.5 million of cash dividends to shareholders. The annual dividend rate per common share is $0.68.
The company has authorization to purchase up to an additional 3.2 million shares under the share repurchase program. Repurchases will continue to be made in the open market and through privately negotiated transactions subject to market and other conditions. No minimum number of share repurchases has been fixed. Since Choice announced its stock repurchase program on June 25, 1998, the company has repurchased 38.6 million shares of its common stock for a total cost of $895.9 million through April 25, 2008. Considering the effect of a two-for-one stock split in October 2005, the company has repurchased 71.5 million shares under the share repurchase program at an average price of $12.52 per share.
The company expects to continue to return value to its shareholders through a combination of share repurchases and dividends, subject to market and other conditions.
Conference Call
Choice will conduct a conference call on Tuesday April 29, 2008 at 9:30 a.m. EDT to discuss the company's first quarter results. The call-in number to listen to the call is 1-800-230-1951. International callers should dial 612- 332-7514. The conference call also will be Web cast simultaneously via the company's Web site, www.choicehotels.com. Interested investors and other parties wishing to access the call on the Web should go to the Web site and click on the Investor Info link. The Investor Information page will feature a conference call microphone icon to access the call.
The audio of the call will be archived and available on www.choicehotels.com beginning at 11:30 a.m. EDT on April 29 and will be available through May 29, 2008 by calling 1-800-475-6701 and entering access code 918862. The international dial-in for the replay is 320-365-3844, access code 918862. In addition, the call will be archived and available on choicehotels.com via the Investor Info link until May 29, 2008.
About Choice Hotels
Choice Hotels International franchises more than 5,600 hotels, representing more than 455,000 rooms, in the United States and 38 countries and territories. As of March 31, 2008, 986 hotels are under development in the United States, representing 79,276 rooms, and an additional 96 hotels, representing 8,321 rooms, are under development in more than 20 countries and territories. The company's Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge and Rodeway Inn brands serve guests worldwide.
Additional corporate information may be found on the Choice Hotels Web site, which may be accessed at www.choicehotels.com.
Forward-Looking Statements
Certain matters discussed in this press release constitute forward-looking statements within the meaning of the federal securities law. Generally, our use of words such as "expect," "estimate," "believe," "anticipate," "will," "forecast," "plan," project," "assume" or similar words of futurity identify statements that are forward-looking and that we intend to be included within the Safe Harbor protections provided by Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based on management's current beliefs, assumptions and expectations regarding future events, which in turn are based on information currently available to management. Such statements may relate to projections for the company's revenue, earnings and other financial and operational measures, company debt levels, payment of stock dividends, and future operations. We caution you not to place undue reliance on any forward- looking statements, which are made as of the date of this press release. Forward-looking statements do not guarantee future performance and involve known and unknown risks, uncertainties and other factors.
Several factors could cause actual results, performance or achievements of the company to differ materially from those expressed in or contemplated by the forward-looking statements. Such risks include, but are not limited to, changes to general, domestic and foreign economic conditions; operating risks common in the lodging and franchising industries; changes to the desirability of our brands as viewed by hotel operators and customers; changes to the terms or termination of our contracts with franchisees; our ability to keep pace with improvements in technology utilized for reservations systems and other operating systems; fluctuations in the supply and demand for hotels rooms; and our ability to manage effectively our indebtedness. These and other risk factors are discussed in detail in the Risk Factors section of the company's Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission on February 29, 2008. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Statement Concerning Non-GAAP Financial Measurements
Franchising revenues, franchising margins and EBITDA are non-GAAP financial measurements. These financial measurements are presented as supplemental disclosures because they are used by management in reviewing and analyzing the company's performance. This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States (GAAP), such as total revenues, operating margins and operating income. The company's calculation of these measurements may be different from the calculation used by other companies and therefore comparability may be limited. The company has included an exhibit accompanying this release that reconciles these measures to the comparable GAAP measurement.
Cambria Suites, Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge, and Rodeway Inn are proprietary trademarks and service marks of Choice Hotels International, Inc.
Choice Hotels International, Inc.
Consolidated Statements of Income
(Unaudited)
Three Months Ended March 31,
Variance
2008 2007 $ %
(In thousands, except per share
amounts)
REVENUES:
Royalty fees $47,780 $43,328 $4,452 10%
Initial franchise and relicensing
fees 6,044 4,931 1,113 23%
Brand solutions 3,342 2,986 356 12%
Marketing and reservation 68,426 60,787 7,639 13%
Hotel operations 1,042 1,096 (54) (5%)
Other 2,221 1,801 420 23%
Total revenues 128,855 114,929 13,926 12%
OPERATING EXPENSES:
Selling, general and administrative 23,555 23,900 (345) (1%)
Depreciation and amortization 2,057 2,115 (58) (3%)
Marketing and reservation 68,426 60,787 7,639 13%
Hotel operations 765 741 24 3%
Total operating expenses 94,803 87,543 7,260 8%
Operating income 34,052 27,386 6,666 24%
OTHER INCOME AND EXPENSES:
Interest expense 3,837 2,997 840 28%
Interest and other investment
(income) loss 1,068 (601) 1,669 ( 278%)
Equity in net income of affiliates (301) (194) (107) 55%
Total other income and expenses, net 4,604 2,202 2,402 109%
Income before income taxes 29,448 25,184 4,264 17%
Income taxes 10,871 8,869 2,002 23%
Net income $18,577 $16,315 $2,262 14%
Weighted average shares outstanding-
basic 61,751 65,782
Weighted average shares outstanding-
diluted 62,596 67,048
Basic earnings per share $0.30 $0.25 $0.05 20%
Diluted earnings per share $0.30 $0.24 $0.06 25%
Choice Hotels International, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
March 31, December 31,
2008 2007
(Unaudited)
ASSETS
Cash and cash equivalents $51,318 $46,377
Accounts receivable, net 43,243 40,855
Deferred income taxes 2,605 2,387
Investments, employee benefit plans,
at fair value 233 1,002
Other current assets 14,690 15,330
Total current assets 112,089 105,951
Fixed assets and intangibles, net 140,994 141,679
Receivable -- marketing fees 14,517 6,782
Investments, employee benefit plans,
at fair value 32,756 33,488
Other assets 38,054 40,484
Total assets $338,410 $328,384
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable and accrued expenses $77,499 $96,195
Deferred revenue 54,566 48,660
Other current liabilities 5,861 2,661
Total current liabilities 137,926 147,516
Long-term debt 279,195 272,378
Deferred compensation & retirement
plan obligations 44,548 43,132
Other liabilities 18,552 22,419
Total liabilities 480,221 485,445
Common stock, $0.01 par value 625 621
Additional paid-in-capital 83,480 86,243
Accumulated other comprehensive income 808 346
Treasury stock, at cost (788,583) (798,110)
Retained earnings 561,859 553,839
Total shareholders' deficit (141,811) (157,061)
Total liabilities and
shareholders' deficit $338,410 $328,384
Choice Hotels International, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) Three Months Ended March 31,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $18,577 $16,315
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 2,057 2,115
Provision for bad debts 44 (570)
Non-cash stock compensation and
other charges 3,338 4,698
Non-cash interest and other
(income) loss 1,577 (319)
Dividends received from equity
method investees 192 295
Equity in net income of affiliates (301) (194)
Changes in assets and liabilities,
net of acquisitions:
Receivables (2,411) 4,995
Receivable - marketing and
reservation fees, net (9,533) (7,131)
Accounts payable (13,404) (1,046)
Accrued expenses and other (5,365) (11,502)
Income taxes payable/receivable 5,667 3,914
Deferred income taxes 2,371 299
Deferred revenue 5,906 2,586
Other assets (942) 897
Other liabilities 699 5,101
NET CASH PROVIDED BY OPERATING
ACTIVITIES 8,472 20,453
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (2,606) (3,020)
Acquisitions, net of cash acquired - (343)
Purchases of investments, employee
benefit plans (4,405) (4,496)
Proceeds from sales of investments,
employee benefit plans 4,430 961
Issuance of notes receivable (775) (131)
Collections of notes receivable 176 306
Other items, net (101) (300)
NET CASH USED IN INVESTING
ACTIVITIES (3,281) (7,023)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt - (36)
Net borrowings pursuant to revolving
credit facility 6,800 12,000
Excess tax benefits from stock-based
compensation 2,085 1,362
Purchase of treasury stock (1,446) (19,001)
Dividends paid (10,484) (9,895)
Proceeds from exercise of stock
options 2,795 1,679
NET CASH USED IN FINANCING
ACTIVITIES (250) (13,891)
Net change in cash and cash
equivalents 4,941 (461)
Cash and cash equivalents at
beginning of period 46,377 35,841
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $51,318 $35,380
CHOICE HOTELS INTERNATIONAL, INC.
SUPPLEMENTAL OPERATING INFORMATION
DOMESTIC HOTEL SYSTEM
(UNAUDITED)
For the Three Months Ended March
31, 2008
Average Daily
Rate Occupancy RevPAR
Comfort Inn $73.70 50.5% $37.23
Comfort Suites 86.06 54.0% 46.49
Sleep 67.66 50.2% 33.98
Midscale without Food & Beverage 75.65 51.2% 38.76
Quality 66.36 43.3% 28.76
Clarion 79.75 41.4% 33.04
Midscale with Food & Beverage 69.30 42.9% 29.74
Econo Lodge 50.93 38.5% 19.60
Rodeway 49.52 40.9% 20.25
Economy 50.58 39.1% 19.75
MainStay 69.02 58.2% 40.14
Suburban 41.05 59.3% 24.35
Extended Stay 48.12 59.0% 28.39
Total $69.19 46.8% $32.37
For the Three Months Ended
March 31, 2007
Average Daily
Rate Occupancy RevPAR
Comfort Inn $70.59 51.2% $36.11
Comfort Suites 83.28 56.8% 47.29
Sleep 64.17 51.9% 33.28
Midscale without Food & Beverage 72.46 52.4% 37.98
Quality 63.45 43.4% 27.54
Clarion 73.84 41.3% 30.48
Midscale with Food & Beverage 65.95 42.9% 28.27
Econo Lodge 49.42 39.2% 19.36
Rodeway 47.67 38.5% 18.37
Economy 49.06 39.0% 19.15
MainStay 65.90 58.2% 38.35
Suburban 38.67 63.6% 24.59
Extended Stay 44.11 62.4% 27.54
Total $66.18 47.6% $31.52
Change
Average Daily
Rate Occupancy RevPAR
Comfort Inn 4.4% (70)bps 3.1%
Comfort Suites 3.3% (280)bps (1.7%)
Sleep 5.4% (170)bps 2.1%
Midscale without Food & Beverage 4.4% (120)bps 2.1%
Quality 4.6% (10)bps 4.4%
Clarion 8.0% 10 bps 8.4%
Midscale with Food & Beverage 5.1% - bps 5.2%
Econo Lodge 3.1% (70)bps 1.2%
Rodeway 3.9% 240 bps 10.2%
Economy 3.1% 10 bps 3.1%
MainStay 4.7% - bps 4.7%
Suburban 6.2% (430)bps (1.0%)
Extended Stay 9.1% (340)bps 3.1%
Total 4.5% (80)bps 2.7%
For the Quarter Ended
03/31/2008 03/31/2007
System-wide effective royalty rate 4.18% 4.14%
CHOICE HOTELS INTERNATIONAL, INC.
SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA
(UNAUDITED)
March 31, 2008 March 31, 2007
Hotels Rooms Hotels Rooms
Comfort Inn 1,436 112,150 1,421 110,980
Comfort Suites 490 38,128 442 34,649
Sleep 347 25,781 330 24,772
Midscale without Food & Beverage 2,273 176,059 2,193 170,401
Quality 847 80,484 757 74,036
Clarion 169 23,340 161 23,881
Midscale with Food & Beverage 1,016 103,824 918 97,917
Econo Lodge 831 51,104 812 49,202
Rodeway 297 17,628 240 14,930
Economy 1,128 68,732 1,052 64,132
MainStay 32 2,421 30 2,237
Suburban 55 6,739 61 8,088
Extended Stay 87 9,160 91 10,325
Cambria Suites 5 567 - -
Domestic Franchises 4,509 358,342 4,254 342,775
International Franchises 1,111 98,354 1,152 98,481
Total Franchises 5,620 456,696 5,406 441,256
Variance
Hotels Rooms % %
Comfort Inn 15 1,170 1.1% 1.1%
Comfort Suites 48 3,479 10.9% 10.0%
Sleep 17 1,009 5.2% 4.1%
Midscale without Food & Beverage 80 5,658 3.6% 3.3%
Quality 90 6,448 11.9% 8.7%
Clarion 8 (541) 5.0% (2.3%)
Midscale with Food & Beverage 98 5,907 10.7% 6.0%
Econo Lodge 19 1,902 2.3% 3.9%
Rodeway 57 2,698 23.8% 18.1%
Economy 76 4,600 7.2% 7.2%
MainStay 2 184 6.7% 8.2%
Suburban (6) (1,349) (9.8%) (16.7%)
Extended Stay (4) (1,165) (4.4%) (11.3%)
Cambria Suites 5 567 NM NM
Domestic Franchises 255 15,567 6.0% 4.5%
International Franchises (41) (127) (3.6%) (0.1%)
Total Franchises 214 15,440 4.0% 3.5%
CHOICE HOTELS INTERNATIONAL, INC.
SUPPLEMENTAL INFORMATION BY BRAND
DEVELOPMENT RESULTS -- DOMESTIC NEW HOTEL CONTRACTS
(UNAUDITED)
For the Three For the Three
Months Ended Months Ended
March 31, 2008 March 31, 2007 % Change
New New New
Con- Con Con-
struc- Conver- struc- Conver- struc- Conver-
tion sion Total tion sion Total tion sion Total
Comfort Inn 11 9 20 5 3 8 120% 200% 150%
Comfort Suites 15 3 18 14 1 15 7% 200% 20%
Sleep 11 2 13 8 - 8 38% NM 63%
Midscale without
Food & Beverage 37 14 51 27 4 31 37% 250% 65%
Quality - 28 28 1 35 36 (100%) (20%) (22%)
Clarion 1 10 11 2 6 8 (50%) 67% 38%
Midscale with Food
& Beverage 1 38 39 3 41 44 (67%) (7%) (11%)
Econo Lodge 1 19 20 1 13 14 0% 46% 43%
Rodeway 1 18 19 - 11 11 NM 64% 73%
Economy 2 37 39 1 24 25 100% 54% 56%
MainStay 1 - 1 - - - NM NM NM
Suburban 2 - 2 4 1 5 (50%) (100%) (60%)
Extended Stay 3 - 3 4 1 5 (25%) (100%) (40%)
Cambria Suites 1 - 1 6 - 6 (83%) NM (83%)
Total Domestic
System 44 89 133 41 70 111 7% 27% 20%
CHOICE HOTELS INTERNATIONAL, INC.
DOMESTIC HOTEL PIPELINE OF HOTELS UNDER CONSTRUCTION, AWAITING CONVERSION
OR APPROVED FOR DEVELOPMENT
(UNAUDITED)
A hotel in the domestic pipeline does not always result in an open and
operating hotel due to various factors.
March 31, 2008 March 31, 2007
Units Units
New New
Conver- Constr- Conver- Constr-
sion uction Total sion uction Total
Comfort Inn 53 131 184 35 120 155
Comfort Suites 3 275 278 3 232 235
Sleep Inn 2 140 142 - 123 123
Midscale without Food & Beverage 58 546 604 38 475 513
Quality 67 15 82 74 9 83
Clarion 34 7 41 13 4 17
Midscale with Food & Beverage 101 22 123 87 13 100
Econo Lodge 46 3 49 45 5 50
Rodeway 59 2 61 57 2 59
Economy 105 5 110 102 7 109
MainStay 2 45 47 - 30 30
Suburban 3 38 41 5 27 32
Extended Stay 5 83 88 5 57 62
Cambria Suites - 61 61 - 49 49
269 717 986 232 601 833
Variance
New
Conversion Construction Total
Units % Units % Units %
Comfort Inn 18 51% 11 9% 29 19%
Comfort Suites - 0% 43 19% 43 18%
Sleep Inn 2 NM 17 14% 19 15%
Midscale without Food & Beverage 20 53% 71 15% 91 18%
Quality (7) (9%) 6 67% (1) (1%)
Clarion 21 162% 3 75% 24 141%
Midscale with Food & Beverage 14 16% 9 69% 23 23%
Econo Lodge 1 2% (2) (40%) (1) (2%)
Rodeway 2 4% - 0% 2 3%
Economy 3 3% (2) (29%) 1 1%
MainStay 2 NM 15 50% 17 57%
Suburban (2) (40%) 11 41% 9 28%
Extended Stay - 0% 26 46% 26 42%
Cambria Suites - NM 12 24% 12 24%
37 16% 116 19% 153 18%
CHOICE HOTELS INTERNATIONAL, INC.
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
(UNAUDITED)
CALCULATION OF FRANCHISING REVENUES AND FRANCHISING MARGINS
(dollar amounts in thousands) Three Months Ended March 31,
2008 2007*
Franchising Revenues:
Total Revenues $128,855 $114,929
Adjustments:
Marketing and reservation
revenues (68,426) (60,787)
Hotel Operations (1,042) (1,096)
Franchising Revenues $59,387 $53,046
Franchising Margins:
Operating Margin:
Total Revenues $128,855 $114,929
Operating Income $34,052 $27,386
Operating Margin 26.4% 23.8%
Franchising Margin:
Franchising Revenues $59,387 $53,046
Operating Income $34,052 $27,386
Less: Hotel Operations 277 355
$33,775 $27,031
Franchising Margins 56.9% 51.0%
EBITDA Reconciliation
(in millions)
Q1 2008 Q1 2007* Full-Year 2008
Actuals Actuals Outlook
Operating Income $34.1 $27.4 $196.6
Depreciation and amortization 2.0 2.1 8.9
Earnings before interest, taxes,
depreciation & amortization $36.1 $29.5 $205.5
*2007 franchising margins, operating income and EBITDA include
approximately $3.7 million of severance costs related to the separation
from service of certain executive officers during the first quarter of
2007
First Call Analyst:
FCMN Contact: david_peikin@choicehotels.com
SOURCE: Choice Hotels International, Inc.
CONTACT: David White, Chief Financial Officer, +1-301-592-5117, or David
Peikin, Senior Director, Corporate Communications, +1-301-592-6361, both of
Choice Hotels International, Inc.
Web site: http://www.choicehotels.com/
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