Choice Hotels(CHH) - 2024 Q2 - Quarterly Results

Highlights The company reported record Q2 revenues and adjusted EBITDA, with significant growth in its global pipeline and hotel openings, while diluted EPS increased by 9% to $1.80, and the midpoint of its full-year 2024 EPS guidance was raised, alongside significant shareholder returns of $296.2 million in stock repurchases year-to-date Q2 2024 Financial Highlights (vs. Q2 2023) | Metric | Q2 2024 Value | Change vs. Q2 2023 | | :--- | :--- | :--- | | Total Revenues | $435.2 million | +2% | | Net Income | $87.1 million | +3% | | Diluted EPS | $1.80 | +9% | | Adjusted Net Income | $88.8 million | -0.4% | | Adjusted Diluted EPS | $1.84 | +5% | | Adjusted EBITDA | $161.7 million | +6% | - Global growth indicators showed strong momentum as of June 30, 2024: - The global rooms pipeline increased 22% YoY to a record of over 114,000 rooms - The global pipeline for conversion rooms doubled - Global hotel openings increased by 20% YoY for the second quarter[3] - The company repurchased 2.4 million shares of common stock for $296.2 million year-to-date through June 30, 2024, which represents over 5% of the company's market capitalization at the start of the year[4] Financial and Operational Performance The company saw a 14% increase in total revenues excluding reimbursables, driven by a 5 basis point rise in the domestic effective royalty rate, while domestic RevPAR saw a slight year-over-year decrease but showed strong sequential growth and remains significantly above 2019 levels, with the company's portfolio, particularly in extended stay, continuing to expand, supported by a strengthened balance sheet and active shareholder return programs Financial Performance Q2 2024 revenues, excluding reimbursables, grew 14% to $258.9 million, the domestic effective royalty rate rose to 5.04%, domestic RevPAR decreased 0.5% YoY but increased 540 basis points sequentially and is 11% higher than in the same period of 2019, while domestic occupancy increased 10 basis points YoY Q2 2024 Key Financial Metrics (vs. Q2 2023) | Metric | Q2 2024 Value | Change vs. Q2 2023 | | :--- | :--- | :--- | | Total Revenues (ex-reimbursables) | $258.9 million | +14% | | Royalty, licensing, and management fees | $141.8 million | +1% | | Domestic Effective Royalty Rate | 5.04% | +5 bps | | Domestic RevPAR | - | -0.5% | - Domestic RevPAR for Q2 2024 remains 11.0% higher than the same period in 2019, indicating sustained performance above pre-pandemic levels[5] Development The company's development pipeline showed strong momentum, with an 11% increase in the domestic pipeline and a near tripling of the international pipeline since June 2023, with growth driven by conversion hotels, as 82% of new domestic agreements were for conversions, and the domestic extended stay hotel portfolio grew by 14% since June 30, 2023 - The domestic extended stay hotels portfolio grew by 14.0% since June 30, 2023, with the WoodSpring Suites brand alone growing by 10% to 246 hotels[6] - The international rooms pipeline nearly tripled since June 30, 2023, and the domestic pipeline for conversion rooms grew by 65% over the same period[3][6] - Of the total domestic franchise agreements awarded year-to-date, 82% were for conversion hotels, and 118 domestic hotels were opened, a 10% increase from the prior year period[6] Balance Sheet and Liquidity The company enhanced its financial flexibility by increasing its revolving credit facility to $1 billion, extending its maturity to 2029, and issuing $600 million in new senior notes to refinance existing debt, with total available liquidity approximately $530 million as of June 30, 2024, further boosted by a $91 million divestiture of Wyndham shares in July - The company amended its revolving credit facility, increasing commitments from $850 million to $1 billion and extending maturity to 2029[7] - Issued $600 million of new 5.85% senior notes due 2034, using proceeds to repay a $500 million term loan and reduce borrowings under the credit facility[7] - Total available liquidity was approximately $530 million as of June 30, 2024, and in July 2024, the company divested its remaining shares in Wyndham Hotels and Resorts Inc. for approximately $91 million[7] Shareholder Returns In the first six months of 2024, the company returned significant capital to shareholders, paying $28.9 million in cash dividends and repurchasing 2.4 million shares for $296.2 million, with an authorization for an additional 4.4 million shares remaining Shareholder Returns (Six Months Ended June 30, 2024) | Activity | Amount | | :--- | :--- | | Cash Dividends Paid | $28.9 million | | Share Repurchases | $296.2 million (2.4 million shares) | - As of June 30, 2024, the company had 4.4 million shares of common stock remaining under its current share repurchase authorization[8] 2024 Full-Year Outlook The company updated its full-year 2024 outlook, raising the midpoint for its Adjusted Diluted EPS guidance to a range of $6.40 - $6.65, but significantly adjusted its domestic RevPAR growth forecast downward from "Flat to 2%" to a range of "-3.5% to -1.5%", reflecting expectations of a more moderated performance acceleration Full-Year 2024 Outlook Comparison | Metric | Current Outlook (as of Aug 8, 2024) | Prior Outlook | | :--- | :--- | :--- | | Net Income | $260 – $272 million | $260 – $274 million | | Adjusted Net Income | $309.5 – $321.5 million | $306 – $320 million | | Adjusted EBITDA | $580 – $600 million | $580 – $600 million | | Diluted EPS | $5.40 – $5.65 | $5.35 – $5.65 | | Adjusted Diluted EPS | $6.40 – $6.65 | $6.30 – $6.60 | | Domestic RevPAR Growth | -3.5% to -1.5% | Flat to 2% | Financial Statements and Supplemental Data This section provides detailed, unaudited financial statements for the second quarter and six months ended June 30, 2024, including the Consolidated Statements of Income, Balance Sheets, and Cash Flows, along with supplemental operating and supply data and non-GAAP reconciliations Condensed Consolidated Statements of Income (Exhibit 1) Reports revenues, expenses, and net income for the three and six months ended June 30, 2024, compared to the same periods in 2023, with total revenues for Q2 2024 at $435.2 million and a net income of $87.1 million Q2 2024 Statement of Income Highlights (in thousands) | Account | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :--- | :--- | :--- | | Total Revenues | $435,156 | $427,420 | | Operating Income | $132,622 | $124,389 | | Net Income | $87,136 | $84,710 | | Diluted EPS | $1.80 | $1.65 | Condensed Consolidated Balance Sheets (Exhibit 2) Presents the company's financial position as of June 30, 2024, compared to December 31, 2023, detailing assets, liabilities, and shareholders' equity, with total assets increasing to $2.52 billion from $2.39 billion at year-end 2023 Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $60,409 | $26,754 | | Total assets | $2,518,907 | $2,394,799 | | Long-term debt | $1,868,425 | $1,068,751 | | Total liabilities | $2,665,686 | $2,359,201 | | Total shareholders' (deficit) equity | $(146,779) | $35,598 | Condensed Consolidated Statements of Cash Flows (Exhibit 3) Details the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2024, with net cash provided by operating activities at $113.6 million, while financing activities used a net $18.6 million, primarily for share repurchases Cash Flow Highlights (Six Months Ended June 30, in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $113,595 | $125,739 | | Net cash used in investing activities | $(62,032) | $(59,150) | | Net cash used in financing activities | $(18,564) | $(72,128) | | Net change in cash and cash equivalents | $32,999 | $(5,539) | Supplemental Operating Information (Domestic Hotel System) Provides key performance indicators for the domestic hotel system for the three and six months ended June 30, 2024, with total domestic RevPAR for Q2 2024 at $60.00, a 0.5% decrease YoY, driven by a 0.6% decrease in ADR, while occupancy saw a slight increase of 10 basis points Q2 2024 Domestic Operating Statistics by Segment (vs. Q2 2023) | Segment | RevPAR | RevPAR Change | Occupancy | Occupancy Change | | :--- | :--- | :--- | :--- | :--- | | Upscale & Above | $96.99 | +4.4% | 62.0% | +210 bps | | Midscale & Upper Midscale | $62.75 | -0.6% | 60.2% | -20 bps | | Extended Stay | $47.64 | -2.1% | 74.0% | -60 bps | | Economy | $35.93 | -2.1% | 49.6% | -90 bps | | Total | $60.00 | -0.5% | 60.3% | +10 bps | Supplemental Hotel and Room Supply Data (Exhibit 4) Details the number of hotels and rooms by brand for both domestic and international franchises as of June 30, 2024, with the total system size growing to 7,486 hotels and 631,063 rooms, and notable growth in extended stay brands like WoodSpring, MainStay, and Suburban Hotel & Room Supply Growth (as of June 30, 2024 vs. June 30, 2023) | Brand/Region | Hotels | Hotel % Change | Rooms | Room % Change | | :--- | :--- | :--- | :--- | :--- | | WoodSpring | 246 | +9.8% | 29,639 | +9.8% | | Suburban | 110 | +31.0% | 9,332 | +24.9% | | Domestic Franchises | 6,276 | +0.1% | 494,083 | 0.0% | | International Franchises | 1,210 | +0.4% | 136,980 | +1.6% | | Total Franchises | 7,486 | +0.2% | 631,063 | +0.3% | Supplemental Non-GAAP Financial Information (Exhibits 5 & 7) Provides reconciliations of GAAP measures like net income to non-GAAP measures such as EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS for both historical periods and the full-year 2024 outlook, with Q2 2024 Adjusted EBITDA at $161.7 million and Adjusted Diluted EPS at $1.84 Non-GAAP Reconciliation Highlights (Three Months Ended June 30, in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Income (GAAP) | $87,136 | $84,710 | | Adjusted EBITDA | $161,741 | $153,107 | | Adjusted Net Income | $88,783 | $89,112 | Full-Year 2024 Outlook - Net Income to Adjusted Net Income Reconciliation (in thousands) | | Lower Range | Upper Range | | :--- | :--- | :--- | | Net income (GAAP) | $260,000 | $272,000 | | Adjustments (net) | $49,500 | $49,500 | | Adjusted Net Income | $309,500 | $321,500 | Definitions and Disclosures This section contains important information regarding the company's use of non-GAAP financial measures, definitions of key industry terms, and cautionary statements about forward-looking information, which are subject to numerous risks and uncertainties Non-GAAP Financial Measurements and Other Definitions Explains the calculation and rationale for using non-GAAP metrics such as EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS, which management believes provide a clearer view of ongoing core operations, and also defines key operational terms like Occupancy, ADR, RevPAR, and Pipeline - The company uses non-GAAP measures (EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS) to evaluate performance, excluding items like acquisition costs, restructuring, and net surplus/deficit from reimbursable revenues to allow for better period-to-period comparison of core operations[15][16] - Key performance indicators are defined as: - RevPAR: A metric correlated to occupancy and ADR, considered a meaningful indicator of hotel performance - Pipeline: Hotels awaiting conversion, under construction, or approved for development[21][22] Forward-Looking Statements Cautions investors that the report contains forward-looking statements based on current management expectations, which are subject to various risks and uncertainties that could cause actual results to differ materially, including economic conditions, consumer demand, and other factors detailed in SEC filings - The report contains forward-looking statements regarding projections of revenue, earnings, debt levels, and other financial and operational measures, which are not guarantees of future performance[12] - Key risks that could cause actual results to differ include changes in economic conditions, consumer demand, the impact of pandemics, regulatory changes, competition, and the ability to grow the franchise system[13][14] Corporate Information Provides details about the company, including its portfolio of 22 brands, nearly 7,500 hotels worldwide, and information for investors regarding the earnings conference call and webcast scheduled for August 8, 2024 - As of June 30, 2024, Choice Hotels International is one of the largest lodging franchisors with nearly 7,500 hotels, representing over 630,000 rooms, across 45 countries and territories[11] - A live webcast and conference call to discuss Q2 2024 results were scheduled for August 8, 2024, with details available on the company's investor relations website[10]