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Choice Hotels International Reports 2018 Second Quarter Results

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Choice Hotels International Reports 2018 Second Quarter Results

New construction franchise agreements increased 36 percent

PR Newswire

ROCKVILLE, Md., Aug. 8, 2018 /PRNewswire/ -- Choice Hotels International, Inc. (NYSE:CHH), one of the world's largest hotel companies, today reported its results for the three months ended June 30, 2018. Highlights include:

  • Net income was $79.8 million, or $1.40 per diluted share, for the second quarter of 2018. Adjusted net income, excluding certain items described in Exhibit 6, increased 49 percent to $63.4 million from the 2017 second quarter.

  • Adjusted diluted earnings per share (EPS) were $1.11 for the second quarter of 2018, a 48-percent increase from the 2017 second quarter.

  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the second quarter 2018 were $94.3 million, an increase of 20 percent from the same period of 2017.

  • Total revenues for the three months ended June 30, 2018 increased 13 percent from the second quarter of 2017 to $295.4 million.

  • The company raised its full-year guidance for adjusted EBITDA to a range between $333 million to $339 million and adjusted EPS to a range between $3.71 to $3.77.

  • The company repurchased 0.4 million shares of common stock for an aggregate cost of $29 million during the second quarter. Year-to-date share repurchases now total approximately $71 million.

  • Choice Privileges, the company's award-winning loyalty program, surpassed 37 million members.

 

Choice Hotels International.  (PRNewsFoto/Choice Hotels International) (PRNewsfoto/CHOICE HOTELS INTERNATIONAL)

"Choice Hotels' long-term strategy of investing in our brands is paying off, as demonstrated by our strong financials, robust development pipeline, and powerful franchisee base," said Patrick Pacious, president and chief executive officer, Choice Hotels. "We are pleased with our first-half development results, which exceeded our 2017 performance by 10 percent. In addition, the continued growth in lodging demand and Choice's strong performance resulted in a 20-percent increase in adjusted EBITDA. We're optimistic that our performance will continue through year-end and into 2019."   

Additional details for the company's hotel franchising business 2018 second-quarter results are as follows:

Overall Results

  • Total hotel franchising revenues for the second quarter increased 14 percent from the second quarter of the prior year to $134.8 million.

  • Adjusted EBITDA from hotel franchising activities for the second quarter increased 18 percent from the second quarter of the prior year to $95.8 million.

  • Adjusted hotel franchising margins for the second quarter increased 90 basis points to 68.2 percent from the second quarter of the prior year.

Royalties

  • Domestic royalty fees for the second quarter totaled $97.6 million, a 13-percent increase from the second quarter of the prior year.

  • Domestic systemwide revenue per available room (RevPAR) increased 2.7 percent compared to the same period of the prior year. Average daily rates and occupancy rates increased 2.4 percent and 20 basis points, respectively, for the second quarter of 2018 compared to the same period of the prior year.

  • Effective domestic royalty rate increased 15 basis points for the second quarter compared to the same period of the prior year.

  • The number of domestic franchised hotels and rooms, as of June 30, 2018, increased 6.5 percent and 8.8 percent, respectively, from June 30, 2017.

Development

  • New executed domestic franchise agreements totaled 188 in the second quarter of 2018, an increase of 7 percent from the same period of the prior year.

  • The company awarded 34 new domestic extended-stay franchise agreements, including 13 WoodSpring franchise agreements, an increase of 143 percent over the same period of the prior year.

  • New construction domestic franchise agreements increased 36 percent in the second quarter of 2018 from the comparable period of 2017.

  • The company's total domestic pipeline of hotels awaiting conversion, under construction, or approved for development, as of June 30, 2018, increased 32 percent to 950 hotels from June 30, 2017.

  • The new-construction domestic pipeline totaled 701 hotels at June 30, 2018, a 34-percent increase from June 30, 2017, and the conversion pipeline increased 26 percent to 249 hotels.

Tax Reform

On December 22, 2017, the "Tax Cut and Jobs Act" ("Act"), was signed into law. The Act, among other changes, reduces the corporate income tax rate to 21 percent. The Act, as well as certain non-recurring discrete tax items, reduced the company's effective income tax rate for the second quarter of 2018 to 20.2 percent compared to 33.7 percent for the same period of the prior year. The effective income tax rate for the six months ended June 30, 2018, was 19.6 percent compared to 32.3 percent for the same period of 2017. 

Use of Cash Flows

Dividends
During the six months ended June 30, 2018, the company paid cash dividends totaling approximately $24 million. Based on the current quarterly dividend rate of $0.215 per share of common stock, the company expects to pay dividends of approximately $49 million during 2018.

Stock Repurchases
During the six months ended June 30, 2018, the company repurchased approximately $71 million in shares of common stock under its stock repurchase program, as well as repurchases from employees in connection with tax withholding and option exercises relating to awards under the company's equity incentive plans. At June 30, 2018, the company had authorization to purchase up to 3.2 million additional shares of common stock under its share repurchase program. 

Hotel Development & Financing
Pursuant to its program to encourage acceleration of the growth of the upscale Cambria Hotels brand, the company advanced approximately $40 million in support of the brand's development during the six months ended June 30, 2018. The company also recycled approximately $8 million of prior investments in Cambria Hotels development projects, resulting in net advances of $32 million for the six months ended June 30, 2018. Advances under this program are primarily in the form of joint-venture investments, forgivable key money loans, senior mortgage loans, development loans, and mezzanine lending as well as through the operation of a land-banking program. As of June 30, 2018, the company had approximately $280 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.

Revenue Recognition

Effective January 1, 2018, the company adopted the new revenue recognition standard ("ASC 606") on a full retrospective basis. As a result, the condensed financial statements for the three and six months ended June 30, 2017, have been recast. The adoption of ASC 606 did not change the timing of cash flows or cash available for return to shareholders but did alter the timing of earnings recognition. In addition, the adoption of ASC 606 resulted in changes in classifications of certain items within the company's financial statements. The provisions of ASC 606 impacted the company's revenue recognition as follows:

  • Initial and relicensing fees earned upon execution of a franchise agreement are recognized as revenue ratably as services are provided over the enforceable period of the franchise license arrangement. This represents a change from prior practice, whereby the company typically recognized revenue for initial and relicensing fees in full in the period of agreement execution.
  • Sales commissions, which are paid upon the execution of a franchise agreement, are recognized ratably over the period a hotel is expected to remain in the company's franchise system rather than expensed as incurred.
  • Amortization of franchise agreement acquisition costs are recognized as a reduction of revenue rather than as a component of depreciation and amortization.
  • Revenue related to the Choice Privileges program, which is reported as a component of marketing and reservation system fees, is deferred as points are awarded and recognized upon point redemption, net of reward reimbursements paid to a third-party. Previously, revenue was recognized on a gross basis at the time the points were issued with a corresponding deferral of revenue equal to the expected future costs of the award. Deferred revenue was then recognized as actual points were redeemed and costs for those redemptions incurred.

ASC 606 also impacted the company's accounting for surpluses and deficits generated from marketing and reservation system activities. The company has historically, consistent with its existing agreements, not earned a profit or generated a loss from marketing and reservation activities, and as a result, the company recorded excess marketing and reservation system revenues or expenses as assets or liabilities on the company's balance sheet prior to the adoption of ASC 606. However, as a result of the adoption of ASC 606, the company is no longer permitted under US GAAP to defer revenues and expenses or records assets and liabilities when system revenues exceed expenses in the current period or vice versa. The company intends to manage these activities to break-even over time but anticipates that net income or loss may be generated quarterly due to the seasonal nature of the hotel industry and annually based on the level of investments needed for new initiatives that benefit the company's franchisees. Given the company's intentions with respect to marketing and reservation system activities and its obligations to franchisees, the company has excluded the financial impact of these programs from its adjusted financial metrics.

Outlook

The company's consolidated 2018 outlook reported below includes the forecasted results of the WoodSpring acquisition from February 1, 2018 through December 31, 2018. In addition, the company's EBITDA and diluted EPS guidance has been prepared based on the impact of the new revenue recognition guidance. The estimate of the allocation of the purchase price of WoodSpring and the impact of ASC 606 on the company's forecasted results is preliminary and subject to change.

The adjusted numbers in the company's outlook exclude the projected impact of integration- and acquisition-related costs as well as the net surplus or deficit generated from the company's marketing and reservation system activities. See Exhibit 7 for the calculation of adjusted forecasted results and the reconciliation to the comparable GAAP measures.

Consolidated Outlook

  • Net income for full-year 2018 is expected to range between $206 million and $210 million, or $3.62 to $3.68 per diluted share.

  • Adjusted diluted EPS for full-year 2018 is expected to range between $3.71 and $3.77. The company expects full-year 2018 adjusted net income to range between $211 million and $215 million.

  • Adjusted EBITDA for full-year 2018 is expected to range between $333 million and $339 million.

  • The effective tax rate is expected to be approximately 22.5 percent for third quarter 2018 and 21 percent for full-year 2018.

  • The company's third-quarter 2018 adjusted diluted EPS is expected to range between $1.13 and $1.17.

  • Adjusted diluted EPS estimates are based on the current number of shares of common stock outstanding and, therefore, do not reflect any subsequent changes that may occur due to new equity grants or further repurchases of common stock under the company's stock repurchase program.

  • The adjusted diluted EPS and consolidated adjusted EBITDA estimates assume that the company incurs net reductions in adjusted EBITDA related to non-hotel franchising activities at the midpoint of the range for these investments.

Hotel Franchising

  • Adjusted EBITDA from hotel franchising activities for full-year 2018 is expected to range between $337 million and $343 million.

  • Net domestic unit growth for 2018 is expected to range between 7 percent and 8 percent.

  • Domestic RevPAR is expected to increase between 0 percent and 1.5 percent for the third quarter and between 1.5 percent and 3.0 percent for full-year 2018.

  • The domestic effective royalty rate is expected to increase between 11 and 14 basis points for full-year 2018 as compared to full-year 2017.

Non-Hotel Franchising Activities

  • Net reductions in full-year 2018 adjusted EBITDA relating to the company's non-hotel franchising operations are expected to range between approximately $3 million and $5 million.

Conference Call

Choice Hotels International will conduct a conference call on Wednesday, August 8, 2018, at 10:00 a.m. ET to discuss the company's 2018 second-quarter results. The dial-in number to listen to the call domestically is 877-870-4263 and the number for international participants is 1-412-317-0790. A live webcast will also be available on the company's investor relations website, http://investor.choicehotels.com/, and can be accessed via the Events and Presentations tab.  

About Choice Hotels
Choice Hotels International, Inc. (NYSE:CHH) is one of the largest and most successful lodging franchisors in the world. With more than 6,800 hotels, representing more than 550,000 rooms, in over 40 countries and territories, the Choice family of hotel brands provide business and leisure travelers with a range of high-quality lodging options from limited service to full-service hotels in the upscale, midscale, extended stay and economy segments. Choice Privileges®, an award-winning loyalty program, offers members benefits ranging from everyday rewards to exceptional experiences. For more information, visit 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, future operations, and expected benefits from the Tax Cuts and Jobs Act, 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 our hotel development and financing 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 report on Form 10-K for 2017 and our quarterly reports filed on Form 10-Q.  Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measurements
The company evaluates its operations utilizing the performance metrics of Adjusted EBITDA, hotel franchising revenues, adjusted hotel franchising SG&A, Adjusted EBITDA from hotel franchising activities, adjusted hotel franchising margins, adjusted net income and adjusted diluted EPS, which are all non-GAAP financial measurements.  These measures, which are reconciled to the comparable GAAP measures in Exhibit 6, should not be considered as an alternative to any measure of performance or liquidity as promulgated under or authorized by GAAP, such as net income, EPS, 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. 

We discuss management's reasons for reporting these non-GAAP measures and how each non-GAAP measure is calculated below.

In addition to the specific adjustments noted below with respect to each measure, the non-GAAP measures presented herein also exclude acquisition related transition and transaction costs to allow for period-over-period comparison of ongoing core operations before the impact of these charges.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization: Adjusted EBITDA reflects net income excluding the impact of interest expense, interest income, provision for income taxes, depreciation and amortization, franchise agreement acquisition cost amortization, other (gains) and losses, equity in net income (loss) of unconsolidated affiliates, mark to market adjustments on non-qualified retirement plan investments and surplus or deficits generated by marketing and reservation system activities. We consider adjusted 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 adjusted 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. Adjusted 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 or amortizing franchise agreement acquisition costs. These differences can result in considerable variability in the relative asset costs, estimated lives and therefore the depreciation and amortization expense among companies. Mark to market adjustments on non-qualified retirement plan investments recorded in SG&A are excluded from EBITDA as the company accounts for these investments in accordance with accounting for deferred compensation arrangements when investments are held in a rabbi trust and invested.  Changes in the fair value of the investments are recognized as both compensation expense in SG&A and other gains and losses.  As a result, the changes in the fair value of the investments do not have a material impact on the company's net income. Surpluses and deficits generated from marketing and reservation activities are excluded as the company's franchise agreements require the marketing and reservation system revenues to be used exclusively for expenses associated with providing franchise services such as central reservation and property management systems, reservation delivery and national marketing and media advertising. Franchisees are required to reimburse the company for any deficits generated from these marketing and reservation system activities and the company is required to spend any surpluses generated in future periods.  Since these activities will be managed to break-even over time, quarterly or annual surpluses and deficits have been excluded from the measurements utilized to assess the company's operating performance.

Adjusted Net Income and Adjusted Diluted Earnings Per Share: Adjusted net income and diluted EPS excludes the impact of surpluses or deficits generated from marketing and reservation system activities.  Surpluses and deficits generated from marketing and reservation activities are excluded as the company's franchise agreements require the marketing and reservation system revenues to be used exclusively for expenses associated with providing franchise services such as central reservation and property management systems, reservation delivery and national marketing and media advertising. Franchisees are required to reimburse the company for any deficits generated from these marketing and reservation system activities and the company is required to spend any surpluses generated in future periods.  Since these activities will be managed to break-even over time, quarterly or annual surpluses and deficits have been excluded from the measurements utilized to assess the company's operating performance.  We consider adjusted net income and adjusted diluted EPS to be an indicator of operating performance because excluding these items allows for period-over period comparisons of our ongoing operations.

Hotel Franchising Revenues, Adjusted Hotel Franchising EBITDA, Adjusted Hotel Franchising SG&A and Margins:  The company reports hotel franchising revenues, adjusted hotel franchising EBITDA, adjusted franchising hotel SG&A and margins which exclude marketing and reservation system activities; the SkyTouch Technology division; vacation rental activities, including operations that provide Software as a Service ("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.  These non-GAAP measures are a commonly used measure of performance in our industry and facilitate comparisons between the company and its competitors. Marketing and reservation system activities are excluded as the company's franchise agreements require the marketing and reservation system revenues to be used exclusively for expenses associated with providing franchise services such as central reservation and property management systems, reservation delivery and national marketing and media advertising. Franchisees are required to reimburse the company for any deficits generated from these marketing and reservation system activities and the company is required to spend any surpluses generated in future periods.  Since these activities will be managed to break-even over time, quarterly or annual surpluses and deficits have been excluded from the measurements utilized to assess the company's operating performance.  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 activities are excluded since they do not reflect the company's core franchising business but are adjacent, complementary lines of business.

© 2018 Choice Hotels International, Inc. All rights reserved.

 

Choice Hotels International, Inc. and Subsidiaries














Exhibit 1

Consolidated Statements of Income

















(Unaudited)






































































Three Months Ended June 30,


Six Months Ended June 30,







Variance






Variance



2018


2017


$


%


2018


2017


$


%

(In thousands, except per share amounts)


































REVENUES


































Royalty fees


$            103,219


$              91,599


$   11,620


13%


$            179,917


$            159,893


$   20,024


13%

Initial franchise and relicensing fees


6,481


5,728


753


13%


12,695


11,534


1,161


10%

Procurement services


17,833


14,372


3,461


24%


27,771


21,735


6,036


28%

Marketing and reservation system


157,347


140,477


16,870


12%


264,348


239,330


25,018


10%

Other


10,561


8,840


1,721


19%


20,104


17,392


2,712


16%

      Total revenues


295,441


261,016


34,425


13%


504,835


449,884


54,951


12%


















OPERATING EXPENSES


































Selling, general and administrative


46,270


44,038


2,232


5%


87,134


77,783


9,351


12%

Depreciation and amortization


3,669


1,659


2,010


121%


6,722


3,385


3,337


99%

Marketing and reservation system


136,568


128,780


7,788


6%


255,796


236,774


19,022


8%

Total operating expenses


186,507


174,477


12,030


7%


349,652


317,942


31,710


10%


















Gain on sale of land and building, net


82


-


82


NM


82


-


82


NM


















Operating income


109,016


86,539


22,477


26%


155,265


131,942


23,323


18%


















OTHER INCOME AND EXPENSES, NET

















Interest expense


11,705


11,280


425


4%


23,014


22,485


529


2%

Interest income


(1,643)


(1,438)


(205)


14%


(3,252)


(2,702)


(550)


20%

Other (gains) losses


(503)


(576)


73


(13%)


(383)


(1,473)


1,090


(74%)

Equity in net (income) loss of affiliates


(567)


859


(1,426)


(166%)


5,401


2,939


2,462


84%

Total other income and expenses, net


8,992


10,125


(1,133)


(11%)


24,780


21,249


3,531


17%


















Income before income taxes


100,024


76,414


23,610


31%


130,485


110,693


19,792


18%

Income taxes


20,185


25,729


(5,544)


(22%)


25,560


35,739


(10,179)


(28%)

Net income 


$              79,839


$              50,685


$   29,154


58%


$            104,925


$              74,954


$   29,971


40%



































Basic earnings per share


$                  1.41


$                  0.90


$      0.51


57%


$                  1.85


$                  1.33


$      0.52


39%



































Diluted earnings per share


$                  1.40


$                  0.89


$      0.51


57%


$                  1.83


$                  1.32


$      0.51


39%

 

 

Choice Hotels International, Inc. and Subsidiaries



Exhibit 2

Consolidated Balance Sheets





(Unaudited)















(In thousands, except per share amounts)

 June 30, 


 December 31, 






2018


2017















ASSETS















Cash and cash equivalents



$              37,148


$         235,336

Accounts receivable, net



186,034


125,870

Other current assets



59,970


39,223


Total current assets



283,152


400,429









Intangible assets, net



248,469


100,492

Goodwill




173,741


80,757

Investments in unconsolidated entities

133,478


134,226

Property and equipment, net


112,567


83,374

Notes receivable, net of allowances


78,921


80,136

Investments, employee benefit plans, at fair value

20,349


20,838

Other assets




72,339


94,939











Total assets


$        1,123,016


$         995,191

























LIABILITIES AND SHAREHOLDERS' DEFICIT












Accounts payable 



$              72,266


$            67,839

Accrued expenses and other current liabilities

73,940


84,315

Deferred revenue



58,190


52,142

Current portion of long-term debt


1,099


1,232

Liability for guest loyalty program


81,178


79,123


Total current liabilities


286,673


284,651









Long-term debt



795,124


725,292

Deferred revenue



103,754


98,459

Liability for guest loyalty program


48,592


48,701

Deferred compensation & retirement plan obligations  

24,866


25,566

Other liabilities




67,959


71,123










Total liabilities



1,326,968


1,253,792










Total shareholders' deficit


(203,952)


(258,601)











Total liabilities and shareholders' deficit

$        1,123,016


$         995,191

 

 

Choice Hotels International, Inc. and Subsidiaries



Exhibit 3

Consolidated Statements of Cash Flows




(Unaudited)














(In thousands)

Six Months Ended June 30,






2018


2017

CASH FLOWS FROM OPERATING ACTIVITIES:








Net income

$                  104,925


$              74,954





Adjustments to reconcile net income to net cash provided




 by operating activities:




  Depreciation and amortization  

6,722


3,385

  Depreciation and amortization - marketing and reservation system 

10,048


10,157

  Franchise agreement acquisition cost amortization

4,375


3,305

  (Gain) loss on sale of assets, net

(82)


4

  Provision for bad debts, net

4,356


1,707

  Non-cash stock compensation and other charges

7,716


8,082

  Non-cash interest and other (income) loss

808


(274)

  Deferred income taxes

3,828


(732)

  Equity in net losses from unconsolidated joint ventures, less distributions received

6,702


3,543

  Franchise agreement acquisition costs, net of reimbursements

(20,326)


(14,108)

  Change in working capital & other, net of acquisition

(65,258)


(25,915)





 NET CASH PROVIDED BY OPERATING ACTIVITIES 

63,814


64,108





CASH FLOWS FROM INVESTING ACTIVITIES:








Investment in property and equipment

(21,611)


(10,687)

Investment in intangible assets

(1,329)


(2,228)

Business acquisition, net of cash acquired

(231,317)


-

Proceeds from sales of assets

3,052


-

Contributions to equity method investments

(7,206)


(42,127)

Distributions from equity method investments

1,210


1,696

Purchases of investments, employee benefit plans

(2,047)


(1,736)

Proceeds from sales of investments, employee benefit plans

1,828


2,094

Issuance of mezzanine and other notes receivable

(19,005)


(14,977)

Collections of mezzanine and other notes receivable

3,505


552

Other items, net

232


110





 NET CASH USED IN INVESTING ACTIVITIES 

(272,688)


(67,303)





CASH FLOWS FROM FINANCING ACTIVITIES:








Net borrowings pursuant to revolving credit facilities

69,000


23,200

Proceeds from the issuance of long-term debt

352


-

Principal payments on long-term debt

(362)


(309)

Debt issuance costs

(914)


-

Purchase of treasury stock

(70,573)


(7,414)

Dividends paid

(24,454)


(24,333)

Proceeds from transfer of interest in notes receivable

173


-

Proceeds from exercise of stock options

38,059


6,590





 NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES

11,281


(2,266)





Net change in cash and cash equivalents

(197,593)


(5,461)

Effect of foreign exchange rate changes on cash and cash equivalents

(595)


955

Cash and cash equivalents at beginning of period

235,336


202,463





CASH AND CASH EQUIVALENTS AT END OF PERIOD

$                    37,148


$            197,957

 

 

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

Exhibit 4

SUPPLEMENTAL OPERATING INFORMATION 

DOMESTIC HOTEL SYSTEM

(UNAUDITED)



















































































For the Six Months Ended June 30, 2018


For the Six Months Ended June 30, 2017


Change























Average Daily






Average Daily






Average Daily








Rate


Occupancy


RevPAR


Rate


Occupancy


RevPAR


Rate


Occupancy


RevPAR





















Comfort Inn


$             93.46


64.3%


$        60.07


$             92.00


64.7%


$       59.48


1.6%


(40)

bps


1.0%

Comfort Suites


97.95


69.8%


68.36


96.16


69.3%


66.65


1.9%


50

bps


2.6%

Sleep


84.64


65.1%


55.10


82.29


65.0%


53.51


2.9%


10

bps


3.0%

Quality


79.09


59.4%


46.98


77.45


58.5%


45.32


2.1%


90

bps


3.7%

Clarion


83.37


57.5%


47.94


82.30


58.9%


48.45


1.3%


(140)

bps


(1.1%)

Econo Lodge


61.73


53.9%


33.25


60.64


53.2%


32.26


1.8%


70

bps


3.1%

Rodeway


62.75


55.8%


35.03


62.61


55.1%


34.51


0.2%


70

bps


1.5%

WoodSpring(1)


45.81


80.0%


36.66


41.42


79.5%


32.95


10.6%


50

bps


11.3%

MainStay


81.40


69.4%


56.46


74.51


67.1%


49.99


9.2%


230

bps


12.9%

Suburban


54.86


76.1%


41.74


51.74


76.2%


39.44


6.0%


(10)

bps


5.8%

Cambria Hotels


143.98


70.8%


101.88


133.34


72.9%


97.16


8.0%


(210)

bps


4.9%

Ascend Hotel Collection


124.97


56.7%


70.86


123.71


54.1%


66.96


1.0%


260

bps


5.8%

Total


$             80.59


62.8%


$        50.58


$             78.65


62.4%


$       49.05


2.5%


40

bps


3.1%







































































































For the Three Months Ended June 30, 2018


For the Three Months Ended June 30, 2017


Change























Average Daily






Average Daily






Average Daily








Rate


Occupancy


RevPAR


Rate


Occupancy


RevPAR


Rate


Occupancy


RevPAR





















Comfort Inn


$             97.22


70.2%


$        68.20


$             95.96


70.6%


$       67.76


1.3%


(40)

bps


0.6%

Comfort Suites


100.38


73.8%


74.07


98.54


73.4%


72.32


1.9%


40

bps


2.4%

Sleep


87.28


70.1%


61.17


84.84


69.9%


59.27


2.9%


20

bps


3.2%

Quality


81.67


64.3%


52.52


80.36


63.6%


51.12


1.6%


70

bps


2.7%

Clarion


86.19


62.6%


53.91


85.70


63.9%


54.76


0.6%


(130)

bps


(1.6%)

Econo Lodge


64.10


58.1%


37.21


63.31


57.6%


36.48


1.2%


50

bps


2.0%

Rodeway


64.92


59.4%


38.59


64.94


58.7%


38.12


(0.0%)


70

bps


1.2%

WoodSpring(1)


46.60


81.6%


38.00


42.31


82.1%


34.75


10.1%


(50)

bps


9.4%

MainStay


84.68


74.9%


63.39


76.88


72.4%


55.62


10.1%


250

bps


14.0%

Suburban


56.23


78.6%


44.22


52.42


78.2%


41.00


7.3%


40

bps


7.9%

Cambria Hotels


155.55


74.6%


115.99


142.23


77.2%


109.78


9.4%


(260)

bps


5.7%

Ascend Hotel Collection


132.25


60.0%


79.39


129.17


56.8%


73.32


2.4%


320

bps


8.3%

Total


$             83.64


67.2%


$        56.23


$             81.67


67.0%


$       54.73


2.4%


20

bps


2.7%

















































































Effective Royalty Rate


































For the Quarter Ended


For the Six Months Ended














6/30/2018


6/30/2017


6/30/2018


6/30/2017
































System-wide(1)


4.74%


4.59%


4.73%


4.58%




















































(1) WoodSpring was acquired on February 1, 2018, however, ADR, Occupancy, RevPAR and effective royalty rate reflect operating performance for the three and six months ended June 30, 2018 and 2017 

     as if the brand had been acquired on January 1, 2017


















 

 

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

Exhibit 5

SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA

(UNAUDITED)






















































June 30, 2018


June 30, 2017


Variance




















Hotels


Rooms


Hotels


Rooms


Hotels


Rooms


%


%


















Comfort Inn


1,071


83,753


1,093


84,956


(22)


(1,203)


(2.0%)


(1.4%)

Comfort Suites


568


44,128


565


43,721


3


407


0.5%


0.9%

Sleep


387


27,579


385


27,574


2


5


0.5%


0.0%

Quality


1,584


122,850


1,493


116,961


91


5,889


6.1%


5.0%

Clarion


166


21,988


163


22,159


3


(171)


1.8%


(0.8%)

Econo Lodge


830


50,568


843


51,757


(13)


(1,189)


(1.5%)


(2.3%)

Rodeway


601


34,292


586


34,085


15


207


2.6%


0.6%

WoodSpring Suites


245


29,386


-


-


245


29,386


NM


NM

MainStay


61


4,263


56


4,074


5


189


8.9%


4.6%

Suburban


52


5,481


59


6,578


(7)


(1,097)


(11.9%)


(16.7%)

Cambria Hotels


37


5,301


31


4,160


6


1,141


19.4%


27.4%

Ascend Hotel Collection


161


13,286


135


10,877


26


2,409


19.3%


22.1%


















Domestic Franchises


5,763


442,875


5,409


406,902


354


35,973


6.5%


8.8%


















International Franchises


1,120


114,077


1,144


113,322


(24)


755


(2.1%)


0.7%


















Total Franchises


6,883


556,952


6,553


520,224


330


36,728


5.0%


7.1%

 

 

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

Exhibit 6

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION


(UNAUDITED)






















HOTEL FRANCHISING REVENUES AND ADJUSTED HOTEL FRANCHISING MARGINS












(dollar amounts in thousands)


Three Months Ended June 30, 


Six Months Ended June 30, 














2018


2017


2018


2017


Hotel Franchising Revenues:




















Total Revenues


$              295,441


$               261,016


$              504,835


$               449,884


Adjustments:










     Marketing and reservation system revenues


(157,347)


(140,477)


(264,348)


(239,330)


     Non-hotel franchising activities


(3,255)


(2,557)


(7,027)


(5,112)


Hotel Franchising Revenues


$              134,839


$               117,982


$              233,460


$               205,442












Adjusted Hotel Franchising Margins:




















Operating Margin:




















Total Revenues


$              295,441


$               261,016


$              504,835


$               449,884


Operating Income


$              109,016


$                 86,539


$              155,265


$               131,942


     Operating Margin


36.9%


33.2%


30.8%


29.3%












Adjusted Hotel Franchising Margin:




















Hotel Franchising Revenues


$              134,839


$               117,982


$              233,460


$               205,442












Operating Income


$              109,016


$                 86,539


$              155,265


$               131,942


Mark to market adjustments on non-qualified retirement plan investments

503


590


386


1,441


Marketing and reservation system reimbursable surplus


(20,779)


(11,697)


(8,552)


(2,556)


Acquisition related transition and transaction costs


720


195


4,956


195


Non-hotel franchising activities operating loss


2,513


3,801


4,777


5,906


 Adjusted Hotel Franchising Operating Income


$                91,973


$                 79,428


$              156,832


$               136,928












  Adjusted Hotel Franchising Margins


68.2%


67.3%


67.2%


66.7%



















































ADJUSTED HOTEL FRANCHISING SELLING, GENERAL AND ADMINISTRATION EXPENSES












(dollar amounts in thousands)


Three Months Ended June 30, 


Six Months Ended June 30, 














2018


2017


2018


2017












Total Selling, General and Administrative Expenses


$                46,270


$                 44,038


$                87,134


$                 77,783


Mark to market adjustments on non-qualified retirement plan investments

(503)


(590)


(386)


(1,441)


Acquisition related transition and transaction costs


(720)


(195)


(4,956)


(195)


Non-hotel franchising activities


(4,779)


(5,415)


(9,774)


(9,095)


Adjusted Hotel Franchising Selling, General and Administration Expenses

$                40,268


$                 37,838


$                72,018


$                 67,052



















































ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA")












(dollar amounts in thousands)












Three Months Ended June 30, 


Six Months Ended June 30, 














2018


2017


2018


2017











Net income 


$                79,839


$                 50,685


$              104,925


$                 74,954


Income taxes


20,185


25,729


25,560


35,739


Interest expense


11,705


11,280


23,014


22,485


Interest income


(1,643)


(1,438)


(3,252)


(2,702)


Other (gains) losses


(503)


(576)


(383)


(1,473)


Equity in net (income) loss of affiliates


(567)


859


5,401


2,939


Depreciation and amortization


3,669


1,659


6,722


3,385


Gain on sale of land and building, net


(82)


-


(82)


-


Marketing and reservation system reimbursable surplus


(20,779)


(11,697)


(8,552)


(2,556)


Franchise agreement acquisition costs amortization


1,265


1,035


2,490


1,854


Acquisition related transition and transaction costs


720


195


4,956


195


Mark to market adjustments on non-qualified retirement plan investments

503


590


386


1,441

Adjusted EBITDA


$                94,312


$                 78,321


$              161,185


$               136,261











Hotel franchising 


$                95,835


$                 81,179


$              163,931


$               140,244

Non-hotel franchising activities


(1,523)


(2,858)


(2,746)


(3,983)




$                94,312


$                 78,321


$              161,185


$               136,261









































ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE (EPS)












(dollar amounts in thousands, except per share amounts)


Three Months Ended June 30, 


Six Months Ended June 30, 














2018


2017


2018


2017











Net income 


$                79,839


$                 50,685


$              104,925


$                 74,954

Adjustments:










Marketing and reservation system reimbursable surplus


(16,951)


(8,202)


(6,876)


(1,730)


Acquisition related transition and transaction costs


559


123


3,796


123

Adjusted Net Income


$                63,447


$                 42,606


$              101,845


$                 73,347





















Diluted Earnings Per Share


$                   1.40


$                     0.89


$                   1.83


$                     1.32

Adjustments:










Marketing and reservation system reimbursable surplus


(0.30)


(0.14)


(0.12)


(0.03)


Acquisition related transition and transaction costs


0.01


-


0.07


-

Adjusted Diluted Earnings Per Share (EPS)


$                   1.11


$                     0.75


$                   1.78


$                     1.29

 

 

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

Exhibit 7

SUPPLEMENTAL INFORMATION - 2018 OUTLOOK


(UNAUDITED)


















Guidance represents the midpoint of the company's range of estimated outcomes for the year ended December 31, 2018

















ADJUSTED EBITDA FULL YEAR FORECAST







(dollar amounts in thousands)










2018 Guidance













Net income 


$           208,400






Income taxes


55,400






Interest expense


47,200






Interest income


(5,900)






Other (gains) losses


(400)






Depreciation and amortization


14,500






Gain on sale of land and building, net


(100)






Franchise agreement acquisition costs amortization


4,900






Equity in net loss of affiliates


4,900






Acquisition related transition and transaction costs


6,900






Marketing and reservation system reimbursable surplus or deficit


-






Mark to market adjustments on non-qualified retirement plan investments


400





Adjusted EBITDA


$           336,200













Hotel franchising 


$           340,200





Non-hotel franchising activities


(4,000)








$           336,200













































ADJUSTED DILUTED EARNINGS PER SHARE (EPS) FULL YEAR FORECAST















(dollar amounts in thousands, except per share amounts)


































2018 Guidance













Net income 


$           208,400





Adjustments








Acquisition related transition and transaction costs


5,451






Marketing and reservation system reimbursable surplus or deficit


-





Adjusted Net Income


$           213,851













Diluted Earnings Per Share 


$                3.65





Adjustments:








Acquisition related transition and transaction costs


0.09






Marketing and reservation system reimbursable surplus or deficit


-





Adjusted Diluted Earnings Per Share (EPS)


$                3.74





 

 

Cision View original content with multimedia:http://www.prnewswire.com/news-releases/choice-hotels-international-reports-2018-second-quarter-results-300693594.html

SOURCE Choice Hotels International, Inc.

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