Choice Hotels International Reports First Quarter Results
Domestic Pipeline of Hotels Under Construction, Awaiting Conversion or Approved for Development Increased 12%
ROCKVILLE, Md., May 4, 2016 // PRNewswire // -- Choice Hotels International, Inc. (NYSE: CHH) today reported the following highlights for the first quarter 2016:
- Revenues for the three months ended March 31, 2016 totaled $207.1 million, an increase of 18 percent from the same period of 2015.
- Franchising revenues for the three months ended March 31, 2016 totaled $78.7 million, an increase of 4 percent from the same period of 2015.
- Franchising margins for the three months ended March 31, 2016 were 61.6 percent, an increase of 10 basis points from the same period of 2015.
- Earnings before interest, taxes, depreciation and amortization ("EBITDA") from franchising activities for the three months ended March 31, 2016 totaled $50.3 million compared to $49.0 million for the same period in 2015. EBITDA from franchising activities for the current period were impacted by approximately $2 million in the aggregate or $0.02 per share, net of tax, compared to our expectations for the quarter as a result of lower than expected increases in domestic system-wide revenue per available room ("RevPAR") and higher than anticipated corporate development and litigation settlement costs.
- Domestic RevPAR increased 1.2 percent in the first quarter of 2016. Domestic RevPAR performance for the first quarter of 2016 was in line with the total industry results for the primary chain scale segments in which the company competes. Compared to its focused competitive set, the company's Comfort family of brands achieved a RevPAR index gain estimated at 170 basis points for the three months ended March 31, 2016 compared to the same period in 2015.
- Effective income tax rate for the three months ended March 31, 2016 was 35.5 percent compared to 30.4 percent for the same period of 2015. Excluding discrete items, the effective income tax rates for the three months ended March 31, 2016 and 2015 were 33.5 percent and 31.8 percent, respectively.
- Equity in net loss of affiliates for the three months ended March 31, 2016 totaled $2.2 million, an increase of $1.2 million from the same period of 2015. Equity losses from affiliates primarily reflect losses during the ramp up period of recently opened or under renovation Cambria properties in major urban markets.
- Net income and diluted earnings per share ("EPS") for the three months ended March 31, 2016totaled $19.6 million and $0.35 per share, respectively, compared to $21.6 million and $0.37 per share in the prior year period. Compared to our previously published outlook for earnings per share for the first quarter of 2016 the impact of the discrete tax rate items and hotel equity investment performance was a reduction of approximately $0.02 per share. We anticipate the earnings per share impact of these two items will be mitigated during the balance of 2016 on account of the impact of certain other discrete tax items and performance improvement attributable to seasonality in the specific Cambria property markets.
- Domestic royalty fees for the three months ended March 31, 2016 totaled $60.5 million, an increase of 5 percent from the same period of 2015.
- Domestic and international units as of March 31, 2016 increased 1.1 percent and 2.3 percent, respectively, from March 31, 2015. Excluding the impact of our Comfort rejuvenation strategy, our domestic units under franchise at March 31, 2016 increased 4.6 percent from the prior year.
- Effective domestic royalty rate for the three months ended March 31, 2016 was 4.38 percent, an increase of 7 basis points from the same period of 2015.
- Domestic relicensing and contract renewal transactions totaled 107 for the three months endedMarch 31, 2016, an increase of 7 percent from the same period of 2015.
- The company's domestic pipeline of hotels awaiting conversion, under construction or approved for development as of March 31, 2016 increased 12 percent from March 31, 2015. The new construction domestic pipeline for the company's Comfort family of brands as of March 31, 2016 increased 29 percent from March 31, 2015.
"We are excited about the consumer response to the program enhancements we made to our award-winning Choice Privileges program in the first quarter," said Stephen P. Joyce, president and chief executive officer, Choice Hotels. "As a result of our strong family of brands and our enhancements to the program we now have more than 26 million members and expect to add a record 4 million new members this year. We believe that improving the value of the benefits provided to our guests as well as the strength of our distribution systems will result in continued RevPAR growth for the remainder of the year. We are also optimistic that developers will continue to respond to our brands and that our franchise development results will exceed 2015 levels."
Use of Cash Flows
During the three months ended March 31, 2016, the company paid cash dividends totaling approximately$12 million. Based on the current quarterly dividend rate of $0.205 per common share, the company expects to pay dividends of approximately $46 million during 2016.
The company repurchased 0.1 million shares of common stock under its share repurchase program during the first quarter of 2016, at a total cost of approximately $3.6 million. The company currently has authorization to purchase up to 1.6 million additional shares under this program.
Hotel Development & Financing
Pursuant to its program to encourage acceleration of the growth of our upscale select-service Cambria hotels & suites brand, the company's net advances in support of the Cambria brand totaled $40 millionduring the three months ended March 31, 2016. These advances are primarily in the form of joint venture investments, forgivable key money loans, senior and mezzanine lending and site acquisitions. At March 31, 2016, the company had approximately $167 million reflected in its consolidated balance sheet pursuant to these financial support activities. With respect to lending and joint venture investments, the company generally expects to recycle these loans and investments within a five year period.
The company's consolidated 2016 outlook reflects the following assumptions:
- EBITDA from franchising activities for full-year 2016 are expected to range between $270 million and $274 million;
- Net domestic unit growth for 2016 is expected to be between 2% and 3%;
- RevPAR is expected to increase between 3% and 4% for second quarter and range between 3.75% and 4.50% for full-year 2016; and
- The effective royalty rate is expected to increase between 6 and 8 basis points for full-year 2016 as compared to full-year 2015.
Non-Hotel Franchising Activities
- Net reductions in full-year 2016 EBITDA relating to our non-hotel franchising operations, which primarily relate to SkyTouch and vacation rental activities are expected to range between approximately $16 million and $19 million.
- The effective tax rate for continuing operations is expected to be approximately 32% and 33.5% for the second quarter and full-year 2016, respectively. Effective tax rates assume the adoption of Accounting Standards Update No 2016-09 "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU No. 2016-09") during 2016 which requires that excess tax benefits and tax deficiencies related to stock compensation be recognized as income tax expense or benefit through the company's income statement; and
- Diluted EPS estimates are based on the current number of shares outstanding and thus do not factor in any changes that may occur due to new equity grants or any further repurchases of common stock under the company's share repurchase program.
The company's second quarter 2016 diluted EPS is expected to be at least $0.66. The company expects full-year 2016 diluted EPS to range between $2.30 and $2.35 and full year 2016 EBITDA to range between$252 million and $256 million. The EPS and consolidated EBITDA estimates assume that we incur net reductions in EBITDA related to non-hotel franchising activities at the midpoint of the range for these investments.
Choice will conduct a conference call on Wednesday, May 4, 2016 at 10:00 a.m. EDT to discuss the company's first quarter 2016 results. The dial-in number to listen to the call is 1-855-638-5678, and the access code is 85804726. International callers should dial 1-920-663-6286 and enter the access code 85804726. The conference call also will be webcast simultaneously via the company's website,www.choicehotels.com. Interested investors and other parties wishing to access the call via the webcast should go to the website and click on the Investor Info link. The Investor page will feature a conference call microphone icon to access the call.
The call will be recorded and available for replay beginning at 1:00 p.m. EDT on Wednesday, May 4, 2016through Wednesday, May 11, 2016 by calling 1-855-859-2056 and entering access code 85804726. The international dial-in number for the replay is 1-404-537-3406 and the access code is 85804726. In addition, the call will be archived and available on www.choicehotels.com via the Investor Info link.
About Choice Hotels
Choice Hotels International, Inc.® (NYSE: CHH) is one of the world's largest lodging companies. With more than 6,400 hotels franchised in more than 40 countries and territories, we represent more than 500,000 rooms around the globe. As of March 31, 2016, 685 hotels were in our development pipeline. Our company's Ascend Hotel Collection®, Cambria® hotels & suites, Comfort Inn®, Comfort Suites®, Sleep Inn®, Quality®, Clarion®, MainStay Suites®, Suburban Extended Stay Hotel®, Econo Lodge® and Rodeway Inn®brands provide a spectrum of lodging choices to meet guests' needs. With more than 26 million members and counting, check out our Choice Privileges® rewards program to see how you can reap the benefits of being a member of the Choice Hotels® family. Visit us at www.choicehotels.com for more information.
SkyTouch Technology® is a business division of Choice Hotels that develops and markets cloud-based technology products, including inventory management, pricing and connectivity to third party channels, to hoteliers not under franchise agreements with the company.
Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, our use of words such as "expect," "estimate," "believe," "anticipate," "should," "will," "forecast," "plan," "project," "assume" or similar words of futurity identify such forward-looking statements. These 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 of the company's revenue, earnings and other financial and operational measures, company debt levels, ability to repay outstanding indebtedness, payment of dividends, repurchases of common stock and future operations, among other matters. We caution you not to place undue reliance on any such forward-looking statements. 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; foreign currency fluctuations; 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 marketing and reservations systems and other operating systems; our ability to grow our franchise system; exposure to risks related to development activities; fluctuations in the supply and demand for hotels rooms; our ability to realize anticipated benefits from acquired businesses; the level of acceptance of alternative growth strategies we may implement; operating risks associated with our international operations; the outcome of litigation; and our ability to manage our indebtedness. These and other risk factors are discussed in detail in the company's filings with the Securities and Exchange Commission including our annual reports on Form 10-K and our quarterly reports filed on Form 10-Q. 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 Presented in this Press Release
EBITDA, franchising revenues, franchising SG&A, EBITDA from franchising activities and franchising margins are non-GAAP financial measurements. These measures should not be considered as an alternative to any measure of performance or liquidity as promulgated under or authorized by generally accepted accounting principles in the United States ("GAAP"), such as operating income, total revenues and operating margins. The company's calculation of these measurements may be different from the calculations used by other companies and therefore comparability may be limited. The company has included an exhibit accompanying this release that reconciles EBITDA, franchising revenues, franchising SG&A and franchising margins to the most comparable GAAP financial measures. We discuss management's reasons for reporting these non-GAAP measures below.
Earnings Before Interest, Taxes, Depreciation and Amortization: EBITDA reflects income from continuing operations excluding the impact of interest expense, interest income, provision for income taxes, depreciation and amortization, other (gains) and losses and equity in net income of unconsolidated affiliates. We consider EBITDA to be an indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use EBITDA, as do analysts, lenders, investors and others, to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company's capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.
Franchising Revenues, Franchising EBITDA, Franchising SG&A and Margins: The company reports franchising revenues, EBITDA, SG&A and margins which exclude marketing and reservation revenues, the SkyTouch Technology division, recently acquired operations that provide SaaS technology solutions to vacation rental management companies and revenue generated from the ownership of an office building that is leased to a third-party. Marketing and reservation activities are excluded since the company is required by its franchise agreements to use the fees collected for marketing and reservation activities; as such, no income or loss to the company is generated. Cumulative marketing and reservation system fees not expended are recorded as a liability in the company's financial statements and are carried over to the next year and expended in accordance with the franchise agreements. Cumulative marketing and reservation expenditures in excess of fees collected for marketing and reservation activities are deferred and recorded as an asset in the company's financial statements and recovered in future periods. SkyTouch Technology is a division of the company that develops and markets cloud-based technology products, including inventory management, pricing and connectivity to third party channels, to hoteliers not under franchise agreements with the company. The operations for SkyTouch Technology and our vacation rental technology solutions provider are excluded since they do not reflect the company's core franchising business but are adjacent, complimentary lines of business. These non-GAAP measures are a commonly used measure of performance in our industry and facilitate comparisons between the company and its competitors.
© 2016 Choice Hotels International, Inc. All rights reserved.
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