EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

LOGO

 

Contact: John Hawkins       Joseph M. Squeri
Tel: (301) 592-5075       Executive Vice President
        and Chief Financial Officer
        Tel: (301) 592-5006

 

For Immediate Release

 

CHOICE HOTELS REPORTS 1st QUARTER

2005 DILUTED EPS OF $0.36, UP 20%

 

Domestic Unit Growth Rises 4.9%; New Domestic Hotel Franchise Contracts Up 27%;

Company Now Has More Than 5,000 Hotels Open Worldwide

 

SILVER SPRING, Md. (April 27, 2005) – Choice Hotels International, Inc. (NYSE:CHH) today reported the following highlights for the first quarter of 2005:

 

  •   Diluted earnings per share for first quarter 2005 were $0.36 compared to $0.30 for the same period in 2004, a 20% increase;

 

  •   Royalty revenues up 10% and franchising revenues up 11% for first quarter 2005;

 

  •   Initial and relicensing fees increased 27%;

 

  •   Domestic unit growth of 4.9%;

 

  •   Domestic system-wide revenue per available room increased 5.5% for first quarter 2005 compared to prior year results;

 

  •   Year-to-date new domestic hotel franchise contracts up 27% to 103;

 

  •   First quarter operating income up 18% to $22.3 million;

 

  •   Company increases full year 2005 guidance to $2.39 to $2.44; announces 2005 second quarter guidance of $0.58 to $0.60 diluted earnings per share.

 

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“Choice Hotels is off to a very good start for 2005,” said Charles A. Ledsinger, Jr., president and chief executive officer. “We recently added the 5,000th open & operating hotel to our worldwide system, a significant milestone.”

 

He added, “We are seeing clear evidence that demand by hotel owners and developers for our brands remains strong, given the 27% growth in initial and relicensing fees and high developer interest in our newest brand, Cambria Suites. We are optimistic that for 2005 growing consumer demand for our brands and the range of lodging choices they represent, as well as increasing satisfaction of our franchisees with our services and support will allow us to sustain the momentum reflected in our first quarter results.”

 

First Quarter 2005 Performance

 

Choice reported first quarter 2005 net income of $12.0 million, or $0.36 diluted earnings per share (EPS), a 20% increase in diluted EPS over the same period for 2004.

 

Operating income for first quarter 2005 increased 18% from $18.9 million to $22.3 million. Franchising margins for the first quarter increased to 53.6% from 50.6% for the same period a year ago.

 

The company also reported total revenues of $91.2 million for first quarter 2005, compared to $87.2 million in first quarter 2004, an increase of 4.6%. Franchising revenues, which include royalty revenues, initial and relicensing fees, partner services and other revenue, increased 11% for first quarter 2005 to $41.2 million from $37.1 million reported for the same period a year ago.

 

Royalty revenues for first quarter 2005 were $33.6 million, compared to $30.7 million for first quarter 2004, an increase of 10%.

 

System-wide domestic revenue per available room (RevPAR) was $28.54 for first quarter 2005, compared to $27.04 for the same period in 2004, a 5.5% increase.

 

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For first quarter 2005, the effective royalty rate increased six basis points from 4.02% to 4.08%.

 

2005 Unit Growth

 

The number of domestic Choice hotels on-line grew by 4.9% to 3,868 (312,630 rooms on-line) as of March 31, 2005 from 3,688 (299,359 rooms on-line) as of the same date a year ago. Net domestic franchise additions in first quarter 2005 were 34 compared to 52 for the same period in 2004.

 

Choice executed 103 new domestic hotel franchise contracts representing 8,806 rooms in first quarter 2005, compared to 81 new contracts representing 6,893 rooms for the same period a year ago, both increases of better than 27%. These increases in executed new franchise contracts and an increase in the number of existing franchise relicensings contributed to a 27% increase in initial franchise and relicensing fees for the three month period ended March 31, 2005, compared to the same period in 2004.

 

For first quarter 2005, 34 contracts for new construction hotel franchises, representing 2,426 rooms were executed, compared to 27 contracts, representing 1,910 rooms for the same period a year ago, representing increases of approximately 26% and 27%, respectively.

 

As of March 31, 2005, Choice had 399 hotels under development in its domestic hotel system, representing 30,090 rooms, compared to 372 hotels and 28,671 rooms at the same date in 2004, increases of 7% and 5%, respectively.

 

As of March 31, 2005, the number of Choice hotels on-line worldwide grew 3.2% to 5,008 from 4,854 as of the same date a year ago. This growth represents an increase of 3.3% in the number of rooms open to 407,309 from 394,238. As of March 31, 2005, Choice had 503 hotels under development worldwide, representing 39,246 rooms, compared to 454 hotels, representing 36,392 rooms at the same date in 2004.

 

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Use of Free Cash Flow

 

The company has consistently used the free cash flow (cash flows from operations less capital expenditures) generated from its operations to return value to its shareholders. This is primarily achieved through share repurchases and dividends.

 

For the three months ended March 31, 2005, the company purchased 0.2 million shares of its common stock at an average price of $59.87 for a total cost of $13.5 million. The company has remaining authorization to purchase up to 1.6 million shares. Since Choice announced its stock repurchase program on June 25, 1998, the company has purchased 32.8 million shares of its common stock at an average price of $20.65 per share and a total cost of $677 million, through March 31, 2005. Total shares outstanding as of March 31, 2005 are 32.5 million.

 

During the first quarter of 2005, the company paid $7.2 million of cash dividends to shareholders. The current annual dividend rate on the company’s common stock is $0.90 per share.

 

The company expects to continue to return value to its shareholders through a combination of share repurchases and dividends.

 

Second Quarter & Full-Year 2005

 

The company’s second quarter 2005 diluted EPS is expected to be $0.58 to $0.60. These second quarter estimates assume the existing share count and RevPAR growth of approximately 5% to 6%. Full year 2005 diluted EPS is expected to be $2.39 to $2.44. These estimates assume the existing share count and RevPAR growth of approximately 5% to 7%.

 

Non-GAAP Financial Measures

 

Franchising revenues, franchising margins and free cash flow are non-GAAP financial measurements. These financial measurements are presented as supplemental disclosures because they are used by management in reviewing and analyzing the

 

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company’s performance. This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States (GAAP), such as total revenues, operating income margins and cash flows from operations. The company’s calculation of these measurements may be different from the calculation used by other companies and therefore comparability may be limited. The company has included exhibits accompanying this release which reconcile these measures to the comparable GAAP measurement.

 

Conference Call

 

Choice will conduct a conference call on Thursday, April 28, 2005 at 10 a.m. Eastern time to discuss the first quarter 2005 results. The call-in number to listen to the call is 1-877-209-0397. The conference call also will be Webcast simultaneously via the company’s Web site, www.choicehotels.com.

 

The audio of the call will be archived and available on the company’s Web site and also available for replay until May 28, 2005 by calling 1-800-475-6701. The access code for the replay is: 776115.

 

Choice Hotels International franchises more than 5,000 hotels, representing more than 400,000 rooms, in the United States and more than 40 countries and territories. As of March 31, 2005, 399 hotels are under development in the United States, representing 30,090 rooms, and an additional 104 hotels, representing 9,156 rooms, are under development in more than 20 countries and territories. Its Cambria Suites, Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn and MainStay Suites brands serve guests worldwide.

 

# # #

 

Certain matters discussed in this press release may constitute forward-looking statements within the meaning of the federal securities law. Such statements are based on management’s beliefs, assumptions and expectations, which in turn are based on information currently available to management. Actual performance and results could differ from those expressed in or contemplated by the forward-looking statements due to a number of risks, uncertainties and other

 

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factors, many of which are beyond Choice’s ability to predict or control. For further information on factors that could impact Choice and the statements contained therein, we refer you to the filings made by Choice with the Securities and Exchange Commission, including its Form 10-K for the period ended December 31, 2004.

 

Additional corporate information may be found on the Choice Hotels’ Internet site, which may be accessed at www.choicehotels.com.

 

Cambria Suites, Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn and MainStay Suites are registered trademarks, service marks and trade names of Choice Hotels International, Inc.

 

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Choice Hotels International, Inc.

Consolidated Statements of Income

(Unaudited)

 

     Three Months Ended
  

(In thousands, except per share amounts)

 

    March 31,
2005
     March 31,
2004
  

REVENUES:

                 

Royalty fees

    $ 33,642     $ 30,709  

Initial franchise and relicensing fees

      4,311       3,388  

Partner services

      2,640       2,267  

Marketing and reservation

      49,123       49,311  

Hotel operations

      920       813  

Other

      612       747  
    
 

Total revenues

      91,248       87,235  

OPERATING EXPENSES:

                 

Selling, general and administrative

      16,780       15,801  

Depreciation and amortization

      2,325       2,534  

Marketing and reservation

      49,123       49,311  

Hotel operations

      721       690  
    
 

Total operating expenses

      68,949       68,336  

Operating income

      22,299       18,899  

OTHER INCOME AND EXPENSES:

                 

Interest expense

      3,607       2,548  

Interest and other investment loss (income)

      131       (312 )

Equity in net income of affiliates

      (199 )     (186 )

Gain on sale of property

      (133 )     —    
    
 

Total other income and expenses

      3,406       2,050  
    
 

Income before income taxes

      18,893       16,849  

Income taxes

      6,894       6,255  
    
 

Net income

    $ 11,999     $ 10,594  
    
 

Weighted average shares outstanding-basic

      32,070       34,273  
    
 

Weighted average shares outstanding-diluted

      33,321       35,639  
    
 

Basic earnings per share

    $ 0.37     $ 0.31  
    
 

Diluted earnings per share

    $ 0.36     $ 0.30  
    
 

Choice Hotels International, Inc.

Consolidated Balance Sheets

 

(In thousands)

 

    March 31,
2005
     December 31,
2004
  
     (Unaudited)        

ASSETS

                 

Cash and cash equivalents

    $ 28,623     $ 28,518  

Accounts receivable, net

      36,616       34,611  

Deferred income taxes

      2,252       2,252  

Other current assets

      5,509       4,212  
    
 

Total current assets

      73,000       69,593  

Fixed assets and intangibles, net

      137,808       140,214  

Receivable — marketing and reservation fees

      31,027       21,683  

Other assets

      34,414       31,862  
    
 

Total assets

      276,249       263,352  
    
 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

                 

Current portion of long-term debt

      446       10,146  

Other current liabilities

      95,808       91,909  
    
 

Total current liabilities

      96,254       102,055  

Long-term debt

      332,334       318,557  

Deferred income taxes

      8,516       6,974  

Other liabilities

      42,679       38,819  
    
 

Total liabilities

      479,783       466,405  
    
 

Total shareholders’ deficit

      (203,534 )     (203,053 )
    
 

Total liabilities and shareholders’ deficit

    $ 276,249     $ 263,352  
    
 

 

 

Choice Hotels International, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

     Three Months Ended
  

(In thousands)

 

    March 31,
2005
     March 31,
2004
  

CASH FLOWS FROM OPERATING ACTIVITIES:

                 

Net income

    $ 11,999     $ 10,594  

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Depreciation and amortization

      2,325       2,534  

Gain on sale of property

      (133 )     —    

Provision for bad debts

      15       119  

Non-cash stock compensation

      1,182       873  

Non-cash interest and other investment loss (income)

      289       (126 )

Equity in net income of affiliates

      (199 )     (186 )

Changes in assets and liabilities:

                 

Receivables

      (2,021 )     131  

Receivable — marketing and reservation fees, net

      (7,396 )     3,366  

Accounts payable

      4,820       (1,305 )

Accrued expenses and other

      (1,572 )     (563 )

Income taxes payable

      3,597       4,188  

Deferred income taxes

      1,542       158  

Other assets

      (1,297 )     (97 )

Other liabilities

      3,716       2,828  
    
 

NET CASH PROVIDED BY OPERATING ACTIVITIES

      16,867       22,514  
    
 

CASH FLOWS FROM INVESTING ACTIVITIES:

                 

Investment in property and equipment

      (2,993 )     (1,617 )

Proceeds from disposition of property

      1,706       —    

Issuance of notes receivable

      (264 )     (612 )

Purchases of investments, net

      (2,663 )     (1,922 )

Other items, net

      (266 )     (279 )
    
 

NET CASH USED IN INVESTING ACTIVITIES

      (4,480 )     (4,430 )
    
 

CASH FLOWS FROM FINANCING ACTIVITIES:

                 

Principal payments of long-term debt

      (36 )     (4,830 )

Net borrowings (repayments) persuant to revolving credit facility

      4,097       29,500  

Purchase of treasury stock

      (14,052 )     (39,095 )

Dividends paid

      (7,235 )     (6,861 )

Proceeds from exercise of stock options

      4,944       2,818  
    
 

NET CASH USED IN FINANCING ACTIVITIES

      (12,282 )     (18,468 )
    
 

Net change in cash and cash equivalents

      105       (384 )

Cash and cash equivalents at beginning of period

      28,518       20,714  
    
 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

    $ 28,623     $ 20,330  
    
 

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL OPERATING INFORMATION BY BRAND

DOMESTIC HOTEL SYSTEM

(UNAUDITED)

 

     Three Months Ended
  
     March 31,
2005
     March 31,
2004
  

COMFORT INN

                 

Hotels

      1,430       1,413  

Rooms

      112,461       111,133  

Avg. Daily Rate

    $ 63.34     $ 60.25  

Occupancy %

      49.5 %     48.3 %

RevPAR

    $ 31.37     $ 29.08  

COMFORT SUITES

                 

Hotels

      393       370  

Rooms

      31,021       29,208  

Avg. Daily Rate

    $ 73.50     $ 70.67  

Occupancy %

      55.5 %     54.0 %

RevPAR

    $ 40.77     $ 38.17  

QUALITY

                 

Hotels

      594       526  

Rooms

      60,545       54,562  

Avg. Daily Rate

    $ 59.22     $ 58.54  

Occupancy %

      43.7 %     43.6 %

RevPAR

    $ 25.87     $ 25.53  

CLARION

                 

Hotels

      154       147  

Rooms

      23,058       22,054  

Avg. Daily Rate

    $ 69.98     $ 68.27  

Occupancy %

      41.8 %     41.1 %

RevPAR

    $ 29.24     $ 28.05  

SLEEP

                 

Hotels

      316       307  

Rooms

      24,133       23,573  

Avg. Daily Rate

    $ 57.69     $ 54.87  

Occupancy %

      50.1 %     48.6 %

RevPAR

    $ 28.90     $ 26.68  

MAINSTAY

                 

Hotels

      27       26  

Rooms

      2,150       2,063  

Avg. Daily Rate

    $ 60.62     $ 57.24  

Occupancy %

      54.3 %     53.1 %

RevPAR

    $ 32.92     $ 30.39  

ECONO LODGE

                 

Hotels

      788       742  

Rooms

      49,043       45,887  

Avg. Daily Rate

    $ 46.16     $ 44.12  

Occupancy %

      38.8 %     39.3 %

RevPAR

    $ 17.92     $ 17.32  

RODEWAY

                 

Hotels

      166       157  

Rooms

      10,219       10,879  

Avg. Daily Rate

    $ 45.34     $ 46.91  

Occupancy %

      39.4 %     37.8 %

RevPAR

    $ 17.87     $ 17.72  

TOTAL CHOICE - DOMESTIC

                 

Hotels

      3,868       3,688  

Rooms

      312,630       299,359  

Avg. Daily Rate

    $ 61.21     $ 58.87  

Occupancy %

      46.6 %     45.9 %

RevPAR

    $ 28.54     $ 27.04  

Effective Royalty Rate

      4.08 %     4.02 %

 

 

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL INFORMATION

CALCULATION OF FRANCHISING REVENUES AND FRANCHISING MARGINS

(UNAUDITED)

 

     Three Months Ended
  

(dollar amounts in thousands)

 

    March 31,
2005
     March 31,
2004
  

Franchising Revenues:

                 

Total Revenues

    $ 91,248     $ 87,235  

Adjustments:

                 

Marketing and Reservation Revenues

      (49,123 )     (49,311 )

Hotel Operations

      (920 )     (813 )
    
 

Franchising Revenues

    $ 41,205     $ 37,111  
    
 

Franchising Margins:

                 

Operating Margin:

                 

Total Revenues

    $ 91,248     $ 87,235  

Operating Income

    $ 22,299     $ 18,899  
    
 

Operating Margin

      24.4 %     21.7 %
    
 

Franchising Margin:

                 

Franchising Revenues

    $ 41,205     $ 37,111  

Operating Income

    $ 22,299     $ 18,899  

Less: Hotel Operations

      199       123  
    
 
     $ 22,100     $ 18,776  
    
 

Franchising Margins

      53.6 %     50.6 %