Choice Hotels International Reports Record Revenues, Operating Income and Net Income

ROCKVILLE, Md., Feb. 20, 2015 /PRNewswire/ -- Choice Hotels International, Inc. (NYSE:CHH) today reported the following highlights for the fourth quarter and full-year 2014:

Fourth Quarter Highlights

• Franchising revenues for the three months ended December 31, 2014, totaled $81.4 million, an increase of 12 percent from the same period of 2013.
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") from franchising activities for the three months ended December 31, 2014, totaled $52.7 million, an increase of 15 percent from the same period of 2013. 
• Franchising margins for the three months ended December 31, 2014, were 62.1 percent, an increase of 150 basis points from the same period of 2013.
• Diluted earnings per share ("EPS") from continuing operations for the three months ended December 31, 2014, totaled $0.43, an increase of 7 percent from the same period of 2013.
• Domestic royalty fees for the three months ended December 31, 2014, totaled $59.2 million, an increase of 11 percent from the same period of 2013.
• Domestic system-wide revenue per available room ("RevPAR") increased 11.2 percent in the fourth quarter of 2014, as occupancy and average daily rates increased 370 basis points and 3.8 percent, respectively from the same period of 2013.
• Domestic hotel executed franchise agreements totaled 269 for the three months ended December 31, 2014, an increase of 25 percent from the same period of 2013.
• New construction domestic hotel executed franchise agreements totaled 80 for the three months ended December 31, 2014, an increase of 78 percent from the same period of 2013.
• The company purchased 1.0 million shares of common stock under its share repurchase program during the three months ended December 31, 2014, at a total cost of approximately $54.2 million.
• The company's board of directors authorized an increase in the number of shares for repurchase under the current share repurchase program to 3 million shares.

"Our fourth quarter results exceeded our expectations and we closed out a record year driven by strong RevPAR performance and franchise development results," said Stephen P. Joyce, president and chief executive officer, Choice Hotels. "Domestic RevPAR gains in 2014 improved each quarter culminating with an 11% increase in the fourth quarter which outpaced the gains reported by Smith Travel Research in the chain scale segments in which we compete.  Our efforts and initiatives to strengthen our brands and improve business delivery to our franchisees are illustrated by our RevPAR performance and doubling the number of new construction franchise agreements for our Comfort family of brands. We are optimistic that developers will continue to respond to our program to rejuvenate our iconic Comfort brand and are optimistic that RevPAR performance will continue to be strong in 2015."

Full-Year Highlights

• EBITDA from franchising activities in 2014 totaled $240.0 million, an increase of $25.1 million or 12 percent from 2013.
• Franchising revenues in 2014 totaled $344.8 million, an increase of $27.8 million or 9 percent from 2013.
• Franchising SG&A expenses in 2014 totaled $104.8 million, an increase of 3 percent from 2013.
• Franchising margins for 2014 were 67.2 percent, an increase of 210 basis points from 2013.
• Diluted EPS from continuing operations in 2014 totaled $2.07, an increase of 8 percent from 2013.
• Domestic royalty fees in 2014 totaled $263.0 million, an increase of 8 percent from 2013.
• Domestic system-wide RevPAR increased 8.5 percent in 2014 as occupancy and average daily rates increased 310 basis points and 3.0 percent, respectively, from 2013.
• Domestic units increased 0.8 percent from December 31, 2013. 
• New franchise contracts, executed in 2014 for domestic hotels, totaled 566, a 7 percent increase from 2013.
• Domestic relicensing and contract renewal transactions in 2014 totaled 336 contracts, an increase of 16 percent from 2013.
• The company's domestic pipeline of hotels under construction, awaiting conversion or approved for development increased 21 percent from December 31, 2013.

Discontinued Operations

In the first quarter of 2014, the company entered into a plan to sell its three owned hotels operated under the MainStay Suites brand. The company determined that the disposal of these hotels met the definition of a discontinued operation since the operations and cash flows of these components will be eliminated from the on-going operations of the company and the company will not have significant continuing involvement in the operations of the hotels after the disposal transaction.

At December 31, 2014, the company had disposed of all three hotels and the new owners of each of those hotels had executed new franchise agreements with the company.

The company's consolidated statement of income for the three months and year ended December 31, 2014 reflect these three company-owned hotels as discontinued operations. In addition, the company's statement of income for the three months and year ended December 31, 2013 has been recast to account for these operations as discontinued. 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:

• All figures assume no additional repurchases of common stock under the company's share repurchase program; and
• The effective tax rate for continuing operations is expected to be 31.8% and 31.1% for the first quarter and full- year 2015, respectively.

Franchising

• EBITDA from franchising activities for full-year 2015 are expected to range between $254 million and $259 million;
• Net domestic unit growth for 2015 is expected to be approximately 1%;
• RevPAR is expected to increase approximately 11% for the first quarter and range between 6.5% and 8% for full-year 2015; 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 range between $15 million and $20 million.

Consolidated Outlook

The company's first quarter 2015 diluted EPS is expected to be $0.37. The company expects full-year 2015 diluted EPS to range between $2.14 and $2.21. EBITDA for full-year 2015 are expected to range between $236 million and $241 million.

Conference Call

Choice will conduct a conference call on Friday, February 20, 2015 at 10:00 a.m. eastern to discuss the company's fourth quarter and full-year 2014 results. The dial-in number to listen to the call is 1-877-415-3182, and the access code is 30797718. International callers should dial 1-857-244-7325 and enter the access code 30797718.  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 2:00 p.m. eastern on Friday, February 20, 2015 through Friday, February 27, 2015 by calling 1-888-286-8010 and entering access code 85674062. The international dial-in number for the replay is 1-617-801-6888, access code 8567402. In addition, the call will be archived for approximately one-year and available on www.choicehotels.com via the Investor Info link.

About Choice Hotels

Choice Hotels International, Inc. franchises more than 6,300 hotels, representing more than 500,000 rooms, in the United States and more than 35 other countries and territories.  As of December 31, 2014, 510 hotels, representing more than 39,000 rooms, were under construction, awaiting conversion or approved for development in the United States.  Additionally, 93 hotels, representing approximately 8,700 rooms, were under construction, awaiting conversion or approved for development in more than 15 other countries and territories.  The company's Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria hotels & suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge and Rodeway Inn brands, as well as its Ascend Hotel Collection membership program, serve guests worldwide.

SkyTouch Technology is a division of Choice Hotels International, Inc. 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," "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 reservations systems and other operating systems; or ability to grow our franchise system;  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 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, franchising EBITDA 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 and SkyTouch Technology operations.  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 are excluded since they do not reflect the company's core franchising business but are an adjacent, complimentary line 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.

Choice Hotels, Choice Hotels International, Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria hotels & suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge, Rodeway Inn, Ascend Hotel Collection and SkyTouch Technologyare proprietary trademarks and service marks of Choice Hotels International and its subsidiaries.

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