Choice Hotels International Reports a 10% Increase in Third Quarter EBITDA from Franchising Activities

ROCKVILLE, Md., Oct. 30, 2015 /PRNewswire/ -- Choice Hotels International, Inc. (NYSE:CHH) today reported the following highlights for the third quarter 2015:

• Revenues for the three months ended September 30, 2015 totaled $241.5 million, an increase of 12 percent from the same period of 2014.

• Earnings before interest, taxes, depreciation and amortization ("EBITDA") from franchising activities for the three months ended September 30, 2015, totaled $81.1 million, an increase of 10 percent from the same period of 2014.

• Franchising margins for the three months ended September 30, 2015, were 74.6 percent, an increase of 230 basis points from the same period of 2014.

• Domestic royalty fees for the three months ended September 30, 2015, totaled $84.7 million, an increase of 6.5 percent from the same period of 2014.

• Domestic system-wide revenue per available room ("RevPAR") increased 5.8 percent in the third quarter of 2015, as occupancy and average daily rates increased 120 basis points and 4 percent, respectively from the same period of 2014.

• Domestic units increased 0.2 percent from September 30, 2014.

• Effective royalty rate for the three months ended September 30, 2015 increased 3 basis points to 4.27 percent from the same period of 2014.

• Initial and relicensing fees for the three months ended September 30, 2015, totaled $6.2 million, an increase of 44 percent from the same period of 2014.

• Domestic hotel executed franchise agreements totaled 129 for the three months ended September 30, 2015, an increase of 14 percent from the same period of 2014.

• Executed 9 new domestic franchise agreements during the three months ended September 30, 2015 for the Cambria hotels & suites brand including 2 conversion projects in Chicago, Illinois and Atlanta, Georgia.

• Domestic relicensing and contract renewal transactions totaled 119 for the three months ended September 30, 2015, an increase of 40 percent from the same period of 2014.

• The company's new construction domestic pipeline of hotels under construction or approved for development increased 29 percent from September 30, 2014, and the total pipeline increased 28 percent.

• Diluted earnings per share ("EPS") from continuing operations for the three months ended September 30, 2015, totaled $0.72, an increase of 7 percent from the same period of 2014.

• The company purchased 1.0 million shares of common stock under its share repurchase program during the three months ended September 30, 2015, at a total cost of approximately $50 million.

"We are very pleased with our performance in the third quarter, with double-digit percentage growth in both total revenues and EBITDA. We were pleased with our year-over-year increase in domestic royalty revenue driven by growth in all 3 critical levers – RevPAR, system-size and effective royalty rate. We had a terrific quarter on the development front with improvements in domestic franchise contracts for both new construction and conversion hotels demonstrating that the demand for our brands is strong," said Stephen P. Joyce, president and chief executive officer, Choice Hotels. "The fundamental strength of our operating model enables us to generate strong free cash flows, which allows us to return value to our shareholders through a disciplined and prudent capital allocation strategy."

Discontinued Operations

During 2014, the company entered into and completed a plan to sell its three owned hotels operated under the MainStay Suites brand. The company determined that the sale of these hotels met the definition of a discontinued operation since the operations and cash flows of these components have been eliminated from the on-going operations of the company and the company does not have significant continuing involvement in the operations of the hotels after the transaction. As a result, the company's consolidated statement of income for the three and nine months ended September 30, 2014, reflects these three company-owned hotels as discontinued operations.

Summarized financial information related to these discontinued operations is presented in Exhibit 9 of this press release.                  

Outlook

The company's consolidated 2015 outlook reflects the following assumptions:

Franchising

• EBITDA from franchising activities for full-year 2015 are expected to range between $255 million and $257 million;
• Net domestic unit growth for 2015 is expected to be approximately 1%;
• RevPAR is expected to increase approximately 5.5% and 7% for fourth quarter and full-year 2015, respectively; and
• The effective royalty rate is expected to increase 2 basis points for full-year 2015 as compared to full-year 2014.

SkyTouch

• Net reductions in EBITDA relating to our investment in the SkyTouch division for full-year 2015 are expected to be approximately $17 million.

Other Items

• The effective tax rate for continuing operations is expected to be approximately 31% and 32% for the fourth quarter and full-year 2015, respectively; and
• All figures assume no further repurchases of common stock under the company's share repurchase program.

Consolidated Outlook

The company's fourth quarter 2015 diluted EPS is expected to be at least $0.47. The company expects full-year 2015 diluted EPS to range between $2.18 and $2.20 and full year 2015 EBITDA to range between $237 million and $241 million.

Conference Call

Choice will conduct a conference call on Friday, October 30, 2015 at 10:00 a.m. EDT to discuss the company's third quarter 2015 results. The dial-in number to listen to the call is 1-855-638-5678, and the access code is 52809803. International callers should dial 1-920-663-6286 and enter the access code 52809803.  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 Friday, October 30, 2015 through Friday, November 6, 2015 by calling 1-855-859-2056 and entering access code 52809803. The international dial-in number for the replay is 1-404-537-3406 and the access code is 52809803. 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 6,300 hotels franchised in more than 35 countries and territories, we represent more than 500,000 rooms around the globe. As of September 30, 2015, 638 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 24 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.

Additional corporate information can be found on the Choice Hotels International, Inc. 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 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; or 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, Operating Income, EBITDA, SG&A and Margins:  The company reports franchising revenues, operating income, 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.

© 2015 Choice Hotels International, Inc.  All rights reserved.