Choice Hotels(US:CHH)2024-05-08 17:56PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Q1 2024 revenues were $331.9 million, net income $31.0 million, and diluted EPS $0.62, with total assets at $2.48 billion and operating cash flow at $1.7 million Consolidated Statements of Income Q1 2024 total revenues were $331.9 million, operating income decreased to $60.1 million, and net income fell to $31.0 million, with diluted EPS at $0.62 Q1 2024 vs Q1 2023 Income Statement Highlights (amounts in thousands, except per share) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Total Revenues | $331,949 | $332,792 | | Operating Income | $60,149 | $77,851 | | Net Income | $31,009 | $52,820 | | Diluted Earnings Per Share | $0.62 | $1.02 | Consolidated Balance Sheets As of March 31, 2024, total assets were $2.48 billion, liabilities $2.47 billion, and shareholders' equity significantly decreased to $6.7 million Balance Sheet Summary (amounts in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $42,111 | $26,754 | | Total assets | $2,475,078 | $2,394,799 | | Long-term debt | $1,195,730 | $1,068,751 | | Total liabilities | $2,468,351 | $2,359,201 | | Total shareholders' equity | $6,727 | $35,598 | Consolidated Statements of Cash Flows Q1 2024 net cash from operations was $1.7 million, a sharp decline, with net cash used in investing at $42.7 million and net cash from financing at $56.5 million Cash Flow Summary for Three Months Ended March 31 (amounts in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,741 | $12,033 | | Net cash used in investing activities | ($42,736) | ($29,463) | | Net cash provided by financing activities | $56,473 | $7,440 | Notes to Consolidated Financial Statements The notes provide details on accounting policies, revenue recognition, receivables, debt structure, and segment reporting - Business combination, diligence and transition costs were reclassified from SG&A to a standalone line item, with no effect on previously reported operating or net income29 - The company's Hotel Franchising & Management segment generated $94.8 million in operating income, while the Corporate & Other segment had an operating loss of $34.7 million in Q1 2024103 - As of March 31, 2024, total debt consisted of a $500 million term loan due 2024, $450 million senior notes due 2031, $400 million senior notes due 2029, and borrowings on an $850 million revolving credit facility82 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2024 income before taxes decreased by $27.3 million due to lower operating income and higher interest expense, despite strong liquidity and ongoing capital returns Overview Choice Hotels, a hotel franchisor with 7,488 global hotels, focuses on profitable growth, maximizing financial returns, and strategic brand development - As of March 31, 2024, the company's global system included 7,488 hotels (630,128 rooms) open and operating, with a pipeline of 1,012 hotels (115,481 rooms)119 - Strategic priorities include profitable growth, maximizing financial returns for shareholders, and strategic development of owned hotels to accelerate brand growth, which are intended to be sold to franchisees long-term98143121 - On March 8, 2024, the company terminated its exchange offer to acquire Wyndham Hotels & Resorts, Inc. and withdrew its nomination of director candidates126 Results of Operations Q1 2024 income before taxes fell by $27.3 million due to lower operating income and higher interest expense, with domestic royalty fees decreasing due to a 5.9% RevPAR decline - Domestic royalty fees decreased by $5.2 million to $92.9 million in Q1 2024, primarily due to a 5.9% domestic system-wide RevPAR decrease107 - Business combination, diligence and transition costs increased by $5.4 million to $15.8 million due to costs related to the terminated Wyndham acquisition pursuit181 Domestic Franchised Hotels Operating Performance Change (Q1 2024 vs Q1 2023) | Chain Scale | ADR Change | Occupancy Change (bps) | RevPAR Change | | :--- | :--- | :--- | :--- | | Upscale & Above | 2.3% | (50) | 1.3% | | Midscale & Upper Midscale | (2.1)% | (260) | (7.0)% | | Extended Stay | (3.7)% | (190) | (6.2)% | | Economy | (1.6)% | (190) | (5.8)% | | Total | (2.1)% | (200) | (5.9)% | Liquidity and Capital Resources As of March 31, 2024, liquidity was $537.1 million, operating cash flow decreased to $1.7 million, and the company continued capital returns through dividends and share repurchases - Primary sources of liquidity as of March 31, 2024, consisted of $537.1 million in cash and available borrowing capacity under the senior unsecured revolving credit facility155 - In Q1 2024, the company paid $14.7 million in dividends and repurchased 0.4 million shares for $49.2 million. The board increased the share repurchase authorization by 5.0 million shares on March 11, 2024198199224 - The company is engaged in financial support activities to accelerate the growth of its Cambria Hotels and Everhome Suites brands, with approximately $499.4 million in support reflected on the balance sheet as of March 31, 2024155 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risk from variable-rate debt and foreign currency fluctuations, with $855 million in variable debt and a 10% rate change impacting interest expense by $5.7 million - As of March 31, 2024, the company had $855 million of variable interest rate debt outstanding. A hypothetical 10% change in the effective interest rate would increase or decrease annual interest expense by $5.7 million203 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation, the company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2024206 - No material changes were made to the company's internal control over financial reporting during the first quarter of 2024207 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in material litigation outside the ordinary course of business, with no expected material adverse effects on financials - The company states it is not a party to any material litigation outside the ordinary course of business and does not expect current proceedings to have a material adverse effect232 Item 1A. Risk Factors No material changes to risk factors from the 2023 Form 10-K, with Wyndham acquisition-related risks no longer considered material after termination - Risks associated with the acquisition of Wyndham are no longer material. Otherwise, there have been no material changes to the risk factors disclosed in the 2023 Form 10-K233 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2024, the company repurchased 494,910 shares at an average price of $122.39, with 6,381,098 shares remaining for repurchase under the program Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased or Redeemed | Average Price Paid per Share | Shares Purchased Under Program | Remaining Shares for Repurchase | | :--- | :--- | :--- | :--- | :--- | | March 31, 2024 | 494,910 | $122.39 | 382,374 | 6,381,098 | - On March 11, 2024, the board of directors approved an increase of 5.0 million shares to the share repurchase program authorization243 Item 5. Other Information On March 14, 2024, several officers, including the CEO, adopted Rule 10b5-1 trading arrangements for company securities, with plans expiring between December 2024 and February 2026 - On March 14, 2024, four officers, including the CEO, adopted Rule 10b5-1 trading arrangements for the sale of company stock244 Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including corporate governance documents, CEO/CFO certifications, and Inline XBRL data files - Exhibits filed include corporate governance documents, CEO/CFO certifications (Rule 13a-14(a) and 18 U.S.C. Section 1350), and Inline XBRL data files245