ROCKVILLE, Md., Nov. 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 September 30, 2018. Highlights include:

• Net income was $80.0 million, or $1.41 per diluted share, for the third quarter of 2018. Adjusted net income, excluding certain items described in Exhibit 6, increased 30 percent to $70.3 million from the same period of the prior year.
• Adjusted diluted earnings per share (EPS) were $1.24 for the third quarter of 2018, a 31-percent increase from the 2017 third quarter.
• Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the third quarter 2018 were $103.6 million, an increase of 11 percent from the same period of 2017.
• The company exceeded the top end of its third quarter EPS guidance by $0.07 per share.
• Full-year guidance for adjusted EBITDA increased to a range between $335 million to $340 million and adjusted EPS to a range between $3.79 to $3.86.

During the third quarter 2018, the company:

• Unveiled Clarion Pointe, a midscale select-service brand extension of Clarion, to meet strong demand from hotel owners for conversion development opportunities in the popular midscale segment and continued guest demand for high-quality and affordable lodging options.
• Completed the refinancing of the company's existing $450 million senior unsecured credit facility with a new five-year, $600 million senior unsecured revolving credit facility.
• Repurchased 0.5 million shares of common stock for an aggregate cost of $39 million. Year-to-date share repurchases now total approximately $109 million.

"Our year-to-date development success and strong financial metrics prove our strategy is working, positioning us for further growth," said Patrick Pacious, president and chief executive officer, Choice Hotels. "As an asset-light franchisor, we excel at helping our owners run profitable hotels by providing them with best-in-class tools, including a proven and expanding brand portfolio, award-winning revenue-enhancing resources, and industry-leading technology systems. We are extremely pleased with the initial reception received by Clarion Pointe, and are optimistic that we'll end the year on a high note with another successful quarter, taking us into 2019 with strong momentum."

Additional details for the company's 2018 third-quarter results are as follows:

Overall Results

• Total revenues for the three months ended September 30, 2018 totaled $291.5 million, an 8 percent increase from the third quarter of 2017.
• Total hotel franchising revenues for the third quarter increased 9 percent from the third quarter of the prior year to $135.4 million.
• Adjusted EBITDA from hotel franchising activities for the third quarter were $105.1 million, an 11 percent increase from the third quarter of the prior year.
• Adjusted hotel franchising margins were approximately 75 percent for the third quarter of 2018.

Royalties

• Domestic royalty fees for the third quarter totaled $105.0 million, an 8-percent increase from the third quarter of the prior year.
• Over 1,000 Comfort hotels are in the process of or have completed their lobby and room renovations, faster than originally expected.
• Domestic systemwide revenue per available room (RevPAR), which was impacted by weather-related events, hotel renovations within the Comfort brand, and the timing of holidays, declined 1.4 percent, compared to the same period of the prior year. Average daily rates increased 0.9 percent and occupancy rates declined 160 basis points for the third quarter of 2018, compared to the same period of the prior year.
• Domestic systemwide RevPAR is expected to increase between 1 percent and 3 percent for the fourth quarter of 2018.
• The effective domestic royalty rate increased 12 basis points for the third quarter, compared to the same period of the prior year.
• The number of domestic franchised hotels and rooms, as of September 30, 2018, increased 6.8 percent and 9.6 percent, respectively, from September 30, 2017.
• The company opened 76 new domestic hotels during the third quarter of 2018, a 27 percent increase over the third quarter of 2017.

Development

• New executed domestic franchise agreements totaled 159 in the third quarter of 2018, an increase of 20 percent from the same period of the prior year.
• New domestic franchise agreements for the company's extended stay brands totaled 27 in the third quarter of 2018, an increase of 200 percent from the comparable period of 2017.
• New construction domestic franchise agreements increased 37 percent in the third quarter of 2018 from the comparable period of 2017.
• The company awarded 111 new conversion domestic franchise agreements in the third quarter of 2018, a 13 percent increase from the comparable period of 2017.
• The company's total domestic pipeline of hotels awaiting conversion, under construction, or approved for development, as of September 30, 2018, increased 29 percent to 968 hotels from September 30, 2017.
• The new construction domestic pipeline totaled 704 hotels at September 30, 2018, a 33 percent increase, and the conversion pipeline increased to 264 hotels, a 19 percent increase from September 30, 2017.

Use of Cash Flows

Dividends

During the nine months ended September 30, 2018, the company paid cash dividends, totaling approximately $37 million. Based on the current quarterly dividend rate of $0.215 per share of common stock, the company expects to pay dividends totaling approximately $49 million during 2018.

Stock Repurchases

During the nine months ended September 30, 2018, the company repurchased approximately $109 million in shares of common stock under its stock repurchase program, as well as through repurchases from employees in connection with tax withholding and option exercises relating to awards under the company's equity incentive plans. At September 30, 2018, the company had authorization to purchase up to 2.7 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 $85 million in support of the brand's development during the nine months ended September 30, 2018. The company also recycled approximately $10 million of prior investments in Cambria Hotels development projects, resulting in net advances of $75 million for the nine months ended September 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 September 30, 2018, the company had approximately $317 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 nine months ended September 30, 2017, have been recast as if the new revenue standard had been adopted on January 1, 2016. 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. A discussion of the revenue recognition changes can be found in the 2017 Form 10-K the company filed on March 1, 2018, which is available on Choice's Investor Relations website at http://investor.choicehotels.com/. You may also refer to Choice's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, which is expected to be filed on the date of this press release, for the effect of the adoption on the company's unaudited condensed financial statements for the three and nine months ended September 30, 2017.

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 adjusted EBITDA and adjusted diluted EPS guidance has been prepared based on the impact of the new revenue-recognition guidance.

The adjusted numbers in the company's outlook exclude the projected impact of integration- and acquisition-related costs, the net surplus or deficit generated from the company's marketing and reservation system activities, as well as other items. 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 $210 million and $214 million, or $3.68 to $3.75 per diluted share.
• Adjusted diluted EPS for full-year 2018 is expected to range between $3.79 and $3.86. The company expects full-year 2018 adjusted net income to range between $216 million and $220 million.
• Adjusted EBITDA for full-year 2018 is expected to range between $335 million and $340 million.
• The effective tax rate is expected to be approximately 18.5 percent for fourth-quarter 2018 and 20.5 percent for full-year 2018.
• The company's fourth-quarter 2018 adjusted diluted EPS is expected to range between $0.78 and $0.85.
• 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 activity under the company's equity incentive plans or 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 $341 million and $346 million.
• Net domestic unit growth for 2018 is expected to range between 7 percent and 8 percent.
• Domestic RevPAR is expected to increase between 1 percent and 3 percent for the fourth quarter and between 1 percent and 2 percent for full-year 2018.
• The domestic effective royalty rate is expected to increase between 12 and 15 basis points for full-year 2018 as compared to full-year 2017.

Non-Hotel Franchising Activities

• Net reductions in full-year 2018 adjusted EBITDA related to the company's non-hotel franchising operations are expected to range between approximately $5 million and $7 million.

Conference Call

Choice Hotels International will conduct a conference call on Thursday, November 8, 2018, at 10:00 a.m. ET to discuss the company's 2018 third-quarter results. The dial-in number to listen to the call domestically is 877-349-0087 and the number for international participants is 1-412-902-6767. 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 6,900 hotels, representing more than 560,000 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, development activities, 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 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 update publicly 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, costs associated with the acceleration of the company's executive succession plan, impairment of below-market lease intangibles, estimated one-time transition taxes on tax legislation enacted into law on December 22, 2017, and debt-restructuring 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 it measures 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 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 and 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 indicators 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 commonly used measures 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 and 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.

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