Choice Hotels International Reports First Quarter 2024 Results
Choice Hotels International, Inc. reported its first quarter 2024 results, with net income at $31.0 million and adjusted diluted EPS at $1.28, marking a 9% increase from 2023. The company repurchased $196.6 million of common stock year-to-date and relaunched Park Inn by Radisson. The global pipeline increased by 10% to over 115,000 rooms, and the company increased its guidance for diluted EPS for full-year 2024.
Adjusted net income and diluted EPS increased by 9% and 14% respectively from the same period in 2023.
Global pipeline reached over 115,000 rooms, a 10% increase from the previous quarter.
Repurchased $196.6 million of common stock year-to-date through April 30, 2024.
Relaunched Park Inn by Radisson, strengthening the revenue-intense portfolio.
Increase in domestic rooms pipeline highlighted by a 59% increase for conversion rooms.
Total revenues decreased by 0.3% for the first quarter of 2024 compared to the same period in 2023.
Domestic revenue per available room decreased by 590 basis points for the three-month period ended March 31, 2024.
Domestic RevPAR increased by 8.2% for the three-month period ended March 31, 2024 compared to the same period in 2019.
Examining the recent financial performance of Choice Hotels International, several key metrics stand out. Firstly, the repurchase of $196.6 million worth of common stock is a strong indicator of management's confidence in the company's intrinsic value, often seen as a positive signal to the market. Moreover, the increase in adjusted net income by 9% and adjusted diluted EPS by 14% are both reflections of operational efficiency and profitability that can attract investor interest.
However, it's important to consider the overall 0.3% decrease in total revenues and the decrease in domestic RevPAR, potentially red flags about market challenges and the competitive landscape. But the context given, including the impact of Easter weekend timing and tough year-over-year comparisons, can mitigate concern. The outlook for increased EPS guidance also suggests a positive trajectory, yet investors should remain attentive to the consistency of these results and sector-specific headwinds.
The record global rooms pipeline, especially the 36% increase for conversion hotels, marks significant growth potential. This expansion strategy, coupled with the relaunch of the Park Inn by Radisson, can enhance the brand's market presence and cater to a broader base of travelers. However, the success of new brands and the expansion of the pipeline must be monitored against actualized revenue and market penetration. The upscale, extended stay and midscale segments are showing momentum which is encouraging given their higher average daily rates and occupancies.
From a development perspective, the 20% increase in hotel openings signifies aggressive growth, which is important in a competitive industry like hospitality. The focus on conversion hotels, which transform existing properties into franchised hotels, is a strategic move to quickly increase the brand's footprint without the lengthy process of building new hotels from scratch.
The hospitality industry is highly sensitive to economic cycles, consumer preferences and global events. The significant increase in the global pipeline suggests Choice Hotels is proactively scaling its operations. However, one must consider market risks such as economic downturns or shifts in travel behavior which could impact the conversion rate of the pipeline into profitable operations. The relaunch of Park Inn by Radisson positions the company to address a more value-conscious segment, which may prove resilient during economic fluctuations.
It's also noteworthy that the company maintained guidance on net income and adjusted EBITDA, which provides a level of predictability for investors. Nonetheless, the importance of execution in bringing the pipeline to life and effectively managing the expanded portfolio cannot be overstated for long-term success.
Record Global Rooms Pipeline, up
Repurchases
Relaunches Park Inn by Radisson
NORTH BETHESDA, Md., May 8, 2024 /PRNewswire/ -- Choice Hotels International, Inc. (NYSE: CHH), one of the world's leading lodging franchisors, today reported its first quarter 2024 results.
Highlights include:
- Net income was
$31.0 million $0.62 41% and39% lower, respectively, for first quarter 2024 compared to the same period of 2023. - First quarter 2024 adjusted net income, excluding certain items described in Exhibit 7, increased
9% to$63.7 million 14% to a first quarter record of$1.28 - Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for first quarter 2024 grew to
$124.3 million 17% increase compared to the same period of 2023. - Global pipeline as of March 31, 2024, increased
10% to a company record of over 115,000 rooms from December 31, 2023, including a36% increase in the global pipeline for conversion rooms. Domestic rooms pipeline as of March 31, 2024, increased by11% since December 31, 2023, highlighted by a59% increase for conversion rooms. - In March 2024, the company's Board of Directors approved an increase in the number of shares authorized under its share repurchase program by 5 million shares. The company has repurchased 1.5 million shares of common stock for
$196.6 million - In April 2024, the company further strengthened its revenue-intense portfolio by relaunching Park Inn by Radisson, a premium conversion brand for the value-conscious traveler positioned just below the Quality Inn brand, with the brand's first opening expected in third quarter 2024.
- The company increased its guidance for diluted EPS and reiterated its guidance for net income, adjusted EBITDA, and adjusted diluted EPS for full-year 2024.
"Building on our record 2023 financial results, we drove first quarter performance to new levels, with adjusted EBITDA and EPS increasing by
Financial Performance
- Total revenues were
$331.9 million 0.3% decrease compared to the same period of 2023. For first quarter 2024, compared to the same period of 2023, revenues, excluding reimbursable revenue from franchised and managed properties, calculated as total revenues net of reimbursable revenue of$129 million 16% to$203 million - Royalty, licensing, and management fees totaled
$105.5 million $107.5 million - First quarter 2024 domestic effective royalty rate increased 4 basis points to
5.03% compared to the same period of 2023. - Domestic revenue per available room (RevPAR) decreased 590 basis points for the three-month period ended March 31, 2024, compared to the same period of 2023, in part reflecting the timing of Easter weekend and tougher year-over-year comparisons. Domestic RevPAR increased
8.2% for the three month period ended March 31, 2024 compared to the same period of 2019.
Development
- The company's domestic upscale, extended stay, and midscale portfolio reported a
1.2% increase for hotels and0.9% increase for rooms since March 31, 2023. The domestic extended stay hotels portfolio grew by17.4% since March 31, 2023, driven by increases in each of the segment's brands. The company's total domestic system size increased to over 6,200 hotels and over 494,000 rooms as of March 31, 2024. - The international portfolio, as of March 31, 2024, expanded by
1.3% in the number of hotels and by2.3% in the number of rooms from March 31, 2023. As of March 31, 2024, the international rooms pipeline increased by3% from December 31, 2023, and the company more than doubled the number of international rooms in the pipeline since March 31, 2023. - The company opened an average of over four hotels per week for a total of 55 hotel openings in first quarter 2024, a
20% increase compared to the same period of 2023. Of the domestic franchise agreements executed for conversion hotels over the trailing twelve months ending March 31, 2024, 113 opened in the same year, a43% increase over the comparable period of the prior year. - Total domestic franchise agreements for the company's upscale, extended stay, and midscale brands executed in first quarter increased by
7% compared to the same period of 2023 and constituted92% of total domestic franchise agreements awarded in 2024. Of the total domestic franchise agreements awarded in first quarter 2024,80% were for conversion hotels.
Shareholder Returns
During the three months ended March 31, 2024, the company paid cash dividends totaling
During the three months ended March 31, 2024, the company repurchased approximately 0.4 million shares of common stock for
As of April 30, 2024, the company had 5.3 million shares of common stock remaining under the current share repurchase authorization.
Outlook
The outlook information below includes forward-looking non-GAAP financial measures, which management uses in forecasting performance. The adjusted numbers in the company's outlook below exclude the net surplus or deficit generated from reimbursable revenue from franchised and managed properties, due diligence and transition costs, additional repurchases of company stock, and other items:
Full-Year 2024 | Prior Outlook | |
Net Income | ||
Adjusted Net Income | ||
Adjusted EBITDA | ||
Diluted EPS | ||
Adjusted Diluted EPS | ||
Effective Income Tax Rate | 24.5 % | 24.5 % |
Full-Year 2024 | Prior Outlook | |
vs. Full-Year 2023 | ||
Domestic RevPAR Growth | Flat to | Flat to |
Domestic Effective Royalty Rate Growth | Mid-single digits | Mid-single digits |
Domestic Net Unit Growth | Approximately | Approximately |
(upscale, extended stay, and midscale brands) |
Webcast and Conference Call
Choice Hotels International will conduct a live webcast to discuss the company's first quarter 2024 earnings results on May 8, 2024, at 10:00 a.m. on the company's investor relations website, www.investor.choicehotels.com, accessible via the Events and Presentations tab.
A conference call will also be available. Participants may listen to the call by dialing (800) 549-8228 domestically or (646) 564-2877 internationally using conference ID 32373.
A replay and transcript of the event will be available on the company's investor relations website within 24 hours at www.investor.choicehotels.com/events-and-presentations.
About Choice Hotels®
Choice Hotels International, Inc. (NYSE: CHH) is one of the largest lodging franchisors in the world, with nearly 7,500 hotels, representing more than 630,000 rooms, in 45 countries and territories as of March 31, 2024. A diverse portfolio of 22 brands that range from full-service upper upscale properties to midscale, extended stay, and economy enables Choice® to meet travelers' needs in more places and for more occasions while driving more value for franchise owners and shareholders. The award-winning Choice Privileges® rewards program and co-brand credit card options provide members with a fast and easy way to earn reward nights and personalized perks. For more information, visit www.choicehotels.com.
Forward-Looking Statements
Information set forth herein includes "forward-looking statements." Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "expect," "estimate," "believe," "anticipate," "should," "will," "forecast," "plan," "project," "assume," or similar words of futurity. All statements other than historical facts are 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 Choice's revenue, expenses, EBITDA, adjusted EBITDA, earnings, debt levels, ability to repay outstanding indebtedness, payment of dividends, repurchases of common stock and other financial and operational measures, including occupancy and open hotels, RevPAR, and Choice's liquidity, 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, including access to liquidity and capital; the ability to realize the anticipated long-term benefits and synergies of the acquisition of Radisson Hotels Americas as rapidly or to the extent anticipated; changes in consumer demand and confidence, including consumer discretionary spending and the demand for travel, transient and group business; the timing and amount of future dividends and share repurchases; future domestic or global outbreaks of epidemics, pandemics or contagious diseases or fear of such outbreaks, and the related impact on the global hospitality industry, particularly but not exclusively the
Non-GAAP Financial Measurements and Other Definitions
The company evaluates its operations utilizing the performance metrics of EBITDA, adjusted EBITDA, adjusted net income, and adjusted EPS, which are all non-GAAP financial measurements. These measures, which are reconciled to the comparable GAAP measures in Exhibits 6 and 7, 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 and EPS. The company's calculation of these measurements may be different from the calculations used by other companies and comparability may therefore 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 adjusted EBITDA, adjusted net income and adjusted EPS presented herein also exclude restructuring of the company's operations including employee severance benefit, income taxes and legal costs, acquisition related to business combination, due diligence and, transition costs, fluctuations in the market value of equity securities purchased in contemplation of the proposed acquisition of Wyndham Hotels, global ERP system implementation, and related costs to allow for period-over-period comparison of ongoing core operations before the impact of these discrete and infrequent charges.
Earnings Before Interest, Taxes, Depreciation, and Amortization and Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization: EBITDA reflects net income excluding the impact of interest expense, interest income, provision for income taxes, depreciation and amortization, impairments and gains on sale of business and assets, other (gains) and losses, equity in net income (loss) of unconsolidated affiliates and gain on extinguishment of debt. Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including, mark-to-market adjustments on non-qualified retirement plan investments, share based compensation expense (benefit) and surplus or deficits generated by reimbursable revenue from franchised and managed properties. We consider EBITDA and adjusted EBITDA to be an indicator of operating performance because it measures our ability to service debt, fund capital expenditures, and expand our business. We also use these measures, as do analysts, lenders, investors, and others, to evaluate companies because it excludes certain items that can vary widely across 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, and share based compensation expense (benefit) is dependent on the design of compensation plans in place and the usage of them. Accordingly, the impact of interest expense and share based compensation expense (benefit) 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. These measures also exclude 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 and estimated lives and, therefore, the depreciation and amortization expense among companies. Mark-to-market adjustments on non-qualified retirement-plan investments recorded in selling, general and administrative (SG&A) expenses are excluded from adjusted 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 reimbursable revenues from franchised and managed properties are excluded, as the company's franchise and management agreements require these revenues to be used exclusively for expenses associated with providing franchise and management services, such as central reservation systems, hotel employee and operating costs, reservation delivery and national marketing and media advertising. Franchised and managed property owners are required to reimburse the company for any deficits generated from these 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 Earnings Per Share: Adjusted net income and EPS exclude the impact of surpluses or deficits generated from reimbursable revenue from franchised and managed properties and gains on extinguishment of debt. Surpluses and deficits generated from reimbursable revenue from franchised and managed properties are excluded, as the company's franchise agreements require these revenues to be used exclusively for expenses associated with providing franchised and managed services, such as central reservation systems, hotel employee and operating costs, reservation delivery and national marketing and media advertising. Franchised and managed property owners are required to reimburse the company for any deficits generated from 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 EPS to be indicators of operating performance because excluding these items allows for period-over-period comparisons of our ongoing operations.
Occupancy: Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel for a given period. Occupancy measures the utilization of the hotels' available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. The company calculates occupancy based on information as reported by its franchisees. To accurately reflect occupancy, the company may revise its prior years' operating statistics for the most current information provided.
Average Daily Rate (ADR): ADR represents hotel room revenue divided by the total number of room nights sold for a given period. ADR measures the average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the industry, and management uses ADR to assess pricing levels that the company is able to generate. The company calculates ADR based on information as reported by its franchisees. To accurately reflect ADR, the company may revise its prior years' operating statistics for the most current information provided.
RevPAR: RevPAR is calculated by dividing hotel room revenue by the total number of room nights available to guests for a given period. Management considers RevPAR to be a meaningful indicator of hotel performance and therefore company royalty and system revenues as it provides a metric correlated to the two key drivers of operations at a hotel: occupancy and ADR. The company calculates RevPAR based on information as reported by its franchisees. To accurately reflect RevPAR, the company may revise its prior years' operating statistics for the most current information provided. RevPAR is also a useful indicator in measuring performance over comparable periods.
Pipeline: Pipeline is defined as hotels awaiting conversion, under construction or approved for development, and master development agreements committing owners to future franchise development.
© 2024 Choice Hotels International, Inc. All rights reserved.
Choice Hotels International, Inc. | Exhibit 1 | ||||||
Condensed Consolidated Statements of Income | |||||||
(Unaudited) | |||||||
(In thousands, except per share amounts) | Three Months ended March 31, | ||||||
Variance | |||||||
2024 | 2023 | $ | % | ||||
REVENUES | |||||||
Royalty, licensing and management fees | $ 105,467 | $ 107,492 | $ (2,025) | (2) % | |||
Initial franchise fees | 6,705 | 7,882 | (1,177) | (15) % | |||
Platform and procurement services fees | 13,756 | 13,843 | (87) | (1) % | |||
Owned hotels | 24,991 | 22,332 | 2,659 | 12 % | |||
Other | 16,357 | 10,627 | 5,730 | 54 % | |||
Other revenues from franchised and managed properties | 164,673 | 170,616 | (5,943) | (3) % | |||
Total revenues | 331,949 | 332,792 | (843) | — % | |||
OPERATING EXPENSES | |||||||
Selling, general and administrative | 48,625 | 48,921 | (296) | (1) % | |||
Business combination, diligence and transition costs | 15,844 | 10,362 | 5,482 | 53 % | |||
Depreciation and amortization | 10,935 | 10,023 | 912 | 9 % | |||
Owned hotels | 19,323 | 17,146 | 2,177 | 13 % | |||
Other expenses from franchised and managed properties | 177,073 | 168,489 | 8,584 | 5 % | |||
Total operating expenses | 271,800 | 254,941 | 16,859 | 7 % | |||
Operating income | 60,149 | 77,851 | (17,702) | (23) % | |||
OTHER EXPENSES AND INCOME, NET | |||||||
Interest expense | 20,181 | 14,084 | 6,097 | 43 % | |||
Interest income | (1,731) | (1,883) | 152 | (8) % | |||
Other loss (gain) | 1,336 | (1,908) | 3,244 | (170) % | |||
Equity in net loss of affiliates | 155 | 63 | 92 | 146 % | |||
Total other expenses and income, net | 19,941 | 10,356 | 9,585 | 93 % | |||
Income before income taxes | 40,208 | 67,495 | (27,287) | (40) % | |||
Income tax expense | 9,199 | 14,675 | (5,476) | (37) % | |||
Net income | $ 31,009 | $ 52,820 | $ (21,811) | (41) % | |||
Basic earnings per share | $ 0.63 | $ 1.02 | $ (0.39) | (38) % | |||
Diluted earnings per share | $ 0.62 | $ 1.02 | $ (0.40) | (39) % | |||
Choice Hotels International, Inc. | Exhibit 2 | |||||
Condensed Consolidated Balance Sheets | ||||||
(Unaudited) | ||||||
(In thousands) | March 31, | December 31, | ||||
2024 | 2023 | |||||
ASSETS | ||||||
Cash and cash equivalents | $ 42,111 | $ 26,754 | ||||
Accounts receivable, n
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