SILVER SPRING, Md., Oct 27, 2010 /PRNewswire via COMTEX/ -- Choice Hotels International, Inc., (NYSE: CHH) today reported the following highlights for third quarter 2010:
Adjusted diluted earnings per share ("EPS") for third quarter 2010 were $0.68 compared to $0.56 for the same period of the prior year. Diluted EPS were $0.68 for third quarter 2010 compared to $0.55 for third quarter 2009. Adjusted diluted EPS for third quarter 2009 exclude certain special items, as described below, totaling $0.01.
Excluding special items, adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") were $57.3 million for the three months ended September 30, 2010, compared to $51.7 million for the same period of 2009. Operating income for the three months ended September 30, 2010 and 2009 was $54.9 million and $48.1 million, respectively.
Franchising revenues increased 7% from $74.6 million for the three months ended September 30, 2009 to $79.9 million for the same period of 2010. Total revenues for the three months ended September 30, 2010 increased 11% compared to the same period of 2009.
Domestic unit and room growth increased 1.2% and 0.7%, respectively, from September 30, 2009.
Domestic system-wide revenue per available room ("RevPAR") increased 7.4% for the third quarter of 2010 compared to the same period of 2009 primarily as a result of occupancy rates increasing 420 basis points.
The effective royalty rate increased 7 basis points to 4.30% for the three months ended September 30, 2010 compared to 4.23% for the same period of the prior year.
The company executed 79 new domestic hotel franchise contracts for both the three months ended September 30, 2010 and 2009.
The number of domestic hotels under construction, awaiting conversion or approved for development declined 27% from September 30, 2009 to 545 hotels representing 44,627 rooms; the worldwide pipeline declined 26% from September 30, 2009 to 638 hotels representing 52,723 rooms.
On August 25, 2010, the company completed and issued unsecured senior notes in an aggregate principal amount of $250 million, in an underwritten, registered public offering. The notes will mature in August 2020 and bear a coupon rate of interest of 5.7%. Considering bond issuance and related interest rate hedging costs, the company's effective interest cost is approximately 6.2%. The proceeds from these senior notes were utilized to repay other outstanding indebtedness under the company's unsecured revolving credit facility.
The effective income tax rate for the three months ended September 30, 2010 was 26.4% compared to 35.0% for the same period of the prior year. Excluding discrete items, totaling $3.8 million (approximately $0.06 diluted earnings per share), recorded during the three months ended September 30, 2010, the company's effective income tax rate was approximately 34.7%.
"During the third quarter, we were pleased to see strong gains in RevPAR domestically across every brand in the Choice family, enabling us to post positive year-to-date domestic RevPAR performance," said Stephen P. Joyce, president and chief executive officer. "While the hotel transaction environment and lack of access to financing continues to impact our franchise sales results, our recently launched incentive program for the Quality, Clarion, and Econo Lodge brands has been well-received by developers. With our roster of strong, well-known brands and proven ability to deliver reservations to our franchisees' hotels, we are well-positioned for growth as the hotel development environment improves."
During the three and nine months ended September 30, 2010, the company recorded employee termination benefits charges of approximately $0.3 million and $0.5 million, respectively. These special items did not have an impact on diluted EPS for the three and nine months ended September 30, 2010.
During the three and nine months ended September 30, 2009, the company recorded employee termination benefits of approximately $1.5 million and $2.3 million, respectively. During the nine months ended September 30, 2009, the company also recorded a $1.5 million charge related to the sublease of a portion of its office space. These special items represent diluted EPS of $0.01 and $0.03 for the three and nine months ended September 30, 2009.
Outlook for 2010
The company's fourth quarter 2010 adjusted diluted EPS is expected to be $0.38. The company expects full-year 2010 adjusted diluted EPS to be between $1.77 and $1.79. Adjusted EBITDA for full-year 2010 are expected to be between $168.5 million and $170.5 million. These estimates include the following assumptions:
The company expects net domestic unit growth of approximately 1% in 2010;
RevPAR is expected to increase approximately 7% to 8% for fourth quarter of 2010 and increase approximately 2% for full-year 2010;
The effective royalty rate is expected to increase 6 basis points for full-year 2010;
All figures assume the existing share count and an effective tax rate of 34.7% for the fourth quarter and 32.3% for full-year 2010.
Adjusted EBITDA and adjusted diluted EPS for the fourth quarter and full year 2010 exclude $1.0 million and $1.5 million, respectively of operating expenses related to employee termination benefits which represent approximately $0.01 diluted EPS for both periods.
Use of Free Cash Flow
The company has historically used its free cash flow (cash flow from operations less capital expenditures) to return value to shareholders, primarily through share repurchases and dividends.
For the nine months ended September 30, 2010 the company paid $32.9 million of cash dividends to shareholders. The current quarterly dividend rate per common share is $0.185, subject to declaration by our board of directors.
During the nine months ended September 30, 2010, the company purchased approximately 0.3 million shares of its common stock at an average price of $32.36 for a total cost of $8.7 million under the share repurchase program and has authorization to purchase up to an additional 3.6 million shares under this program. During the three months ended September 30, 2010 the Company purchased approximately 0.1 million shares of its common stock for a total cost of $1.9 million at an average price of $34.85. We expect to continue making repurchases in the open market and through privately negotiated transactions, subject to market and other conditions. No minimum number of share repurchases has been fixed. Since Choice announced its stock repurchase program on June 25, 1998, the company has repurchased 43.2 million shares of its common stock for a total cost of $1 billion through September 30, 2010. Considering the effect of a two-for-one stock split in October 2005, the company had repurchased 76.2 million shares thro gh September 30, 2010 under the share repurchase program at an average price of $13.35 per share.
Our Board previously authorized us to enter into programs which permit us to offer financing, investment and guaranty support to qualified franchisees as well as to acquire and resell real estate to incent franchise development for certain brands in top markets. Recent market conditions have resulted in an increase in opportunities to incent development under these programs. As a result, during the nine months ended September 30, 2010, the Company has advanced approximately $18.9 million pursuant to these programs (of which $5 million has been repaid to the Company).
Over the next several years, we expect to continue to opportunistically deploy capital pursuant to these programs to promote growth of our emerging brands. The amount and timing of the investment in these programs will be dependent on market and other conditions. Our current expectation is that our annual investment in these programs will range between $20 million to $40 million. Notwithstanding these programs, the company expects to continue to return value to its shareholders through a combination of share repurchases and dividends, subject to market and other conditions.
Choice will conduct a conference call on Thursday, October 28, 2010 at 10:15 a.m. EDT to discuss the company's third quarter 2010 results. The dial-in number to listen to the call is 1-866-314-5232, and the access code is 99130444. International callers should dial 1-617-213-8052 and enter the access code 99130444. The conference call also will be Webcast simultaneously via the company's Web site, http://www.choicehotels.com/. Interested investors and other parties wishing to access the call via the Webcast should go to the Web site and click on the Investor Info link. The Investor Information page will feature a conference call microphone icon to access the call.
The call will be recorded and available for replay beginning at 1:15 p.m. EDT on October 28, 2010 through November 28, 2010 by calling 1-888-286-8010 and entering access code 42827909. The international dial-in number for the replay is 617-801-6888, access code 42827909. In addition, the call will be archived and available on http://www.choicehotels.com/ via the Investor Info link.
About Choice Hotels
Choice Hotels International, Inc. franchises more than 6,000 hotels, representing more than 490,000 rooms, in the United States and more than 35 other countries and territories. As of September 30, 2010, more than 540 hotels are under construction, awaiting conversion or approved for development in the United States, representing more than 44,000 rooms, and approximately 90 hotels, representing approximately 8,000 rooms, are under construction, awaiting conversion or approved for development in 20 other countries and territories.The company's Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge and Rodeway Inn brands serve guests worldwide.In addition, via its Ascend Collection membership program, travelers in the United States, Canada and the Caribbean have upscale lodging options at historic, boutique and unique hotels.
Additional corporate information may be found on the Choice Hotels International, Inc. web site, which may be accessed at http://www.choicehotels.com/.
Certain matters discussed in this press releaseconstitute forward-looking statements within the meaning of the federal securities law.Generally, our use of words such as "expect," "estimate," "believe," "anticipate," "will," "forecast," "plan"," project," "assume" or similar words of futurity identify statements that are forward-looking and that we intend to be included within the Safe Harbor protections provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.Such 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 projectionsof the company's revenue, earnings and other financial and operational measures, company debt levels, payment of stock dividends, 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;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; fluctuations in the supply and demand for hotels rooms; andour ability to manage effectively our indebtedness.These and other risk factors are discussed in detail in the Risk Factors section of the company's Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission on March 1, 2010.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
Adjusted diluted EPS, adjusted EBITDA, adjusted SG&A, franchising revenues and adjusted franchising margins are non-GAAP financial measurements. 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 diluted earnings per share, 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 these measures to the comparable GAAP measurement. We discuss management's reasons for reporting these non-GAAP measures below.
Earnings Before Interest, Taxes, Depreciation and Amortization: EBITDA reflects earnings excluding the impact of interest expense, tax expense, depreciation and amortization. Our management considers EBITDA to be an indicator of operating performance because it can be used to measure our ability to service debt, fund capital expenditures, and expand our business. EBITDA is a commonly used measure of performance in our industry. In addition, it is used by analysts, lenders, investors and others, as well as by us, to facilitate comparisons between the company and its competitors because it excludes certain items that can vary widely across different industries or among companies within the same industry.
Franchising Revenues and Margins: The company reports franchising revenues and margins which exclude marketing and reservation revenues and hotel operations. Marketing and reservation activities are excluded from revenues and operating margins since the company is contractually required by its franchise agreements to use these fees collected for marketing and reservation activities. Cumulative reservation and marketing fees not expended are recorded as a payable on the company's financial statements and are carried over to the next fiscal 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 recorded as a receivable on the company's financial statements. In addition, the company has the contractual authority to require that the franchisees in the system at any given point repay the company for any deficits related to marketing and reservation activities. Hotel operations are excluded since they do not reflect the most accurate measure of the company's core franchising business. These non-GAAP measures are a commonly used measure of performance in our industry and facilitate comparisons between the company and its competitors.
Adjusted Diluted EPS, Adjusted EBITDA, Adjusted SG&A and Adjusted Franchising Margins: The company's management also uses adjusted diluted EPS, adjusted EBITDA, adjusted SG&A and adjusted franchising margins which exclude employee termination benefits for the three and nine months September 30, 2010 and 2009 as well as a loss on the sublease of a portion of the Company's office space during the nine months ended September 30, 2009. The company utilizes these non-GAAP measures to enable investors to perform meaningful comparisons of past, present and future operating results and as a means to emphasize the results of on-going operations.