Company exceeded first quarter net income and adjusted EBITDA guidance and raised full-year expectations

Choice Hotels;

Choice Hotels International, Inc. (NYSE: CHH), one of the world's largest lodging franchisors, today reported its first quarter 2023 results.

Highlights of first quarter 2023 results include:1 

  • Total revenues reached $332.8 million for first quarter 2023, a first-quarter record and a 29% increase compared to the same period of 2022.
  • Net income exceeded the top end of the company's guidance and reached $52.8 million for first quarter 2023, representing diluted earnings per share (EPS) of $1.02. As a result of one-time items, including Radisson Hotels Americas integration costs, and the timing of net reimbursable expenses, net income and diluted EPS were 22% and 15% lower respectively for first quarter 2023, compared to the same period of 2022.  
  • First quarter 2023 adjusted net income, excluding certain items described in Exhibit 6, reached a first-quarter record of $58.2 million, and the company's adjusted diluted EPS increased 9% to a first-quarter record of $1.12, compared to the same period of 2022.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for first quarter 2023 reached $106.4 million, a first-quarter record and a 10% increase compared to the same period of 2022, and exceeded the top end of the company's guidance by $1.4 million. 
  • Domestic revenue per available room (RevPAR) increased 5.9% for first quarter 2023 compared to the same period of 2022, driven by an increase in average daily rate (ADR) of 5.2% and a 34-basis-point increase in occupancy levels.
  • First quarter 2023 domestic effective royalty rate increased 6 basis points to 4.99%, compared to the same period of 2022.
  • During first quarter 2023, the company returned over $173 million to shareholders in the form of cash dividends and share repurchases and announced a 21% increase in its quarterly dividend rate beginning in April 2023.
  • In February 2023, the company signed a multi-year agreement with Wells Fargo and Mastercard to launch a new co-branded credit card, which is expected to drive incremental adjusted EBITDA in 2023 and thereafter.

"Building on our record 2022 earnings results, our distinct growth strategy and best-in-class franchising business engine drove first quarter performance to new levels, with adjusted EBITDA increasing by 10% year-over-year," said Patrick Pacious, president and chief executive officer. "At the same time, we are ahead of plan integrating the Radisson Hotels Americas business unit, which we expect will further accelerate our transformative growth."

Financial Performance 

  • Total revenues, excluding reimbursable revenue from franchised and managed properties, increased 34% to $175 million for first quarter 2023, compared to the same period of 2022.
  • Platform and procurement services fees increased 18% to $13.8 million for first quarter 2023, compared to the same period of 2022.
  • Royalty, licensing, and management fees increased 18% to $107.5 million for first quarter 2023, compared to the same period of 2022.
  • Domestic royalties increased 13% to $98.2 million for first quarter 2023, compared to the same period of 2022.

Development

  • The company's upscale, extended-stay, and midscale segments reported a 9.5% increase in hotels and an 11% increase in rooms since March 31, 2022. The total number of domestic hotels and rooms, as of March 31, 2023, increased 6.5% and 8.2%, respectively, from March 31, 2022.  
  • The total number of international hotels and rooms, as of March 31, 2023, increased 8.2% and 9.6%, respectively, from March 31, 2022.
  • As of March 31, 2023, the domestic system size for the company's upscale and upper-midscale segments grew by approximately 29% and 24%, respectively, since March 31, 2022, driven by an increase in the number of hotels due to the acquisition of Radisson Hotels Americas and the growth of Cambria Hotels and the Comfort family of brands.  
  • Of the total domestic franchise agreements awarded in first quarter 2023, 88% were for the company's upscale, extended-stay, and midscale brands, and 75% were for conversion hotels. The number of domestic franchise agreements awarded for the company's upscale segment for first quarter 2023 increased 13%, compared to the same period of 2022.
  • The company's domestic pipeline as of March 31, 2023 increased 11% to approximately 89,000 rooms, representing 925 hotels, from March 31, 2022. The company's extended-stay domestic pipeline reached 475 hotels as of March 31, 2023, a 28% increase versus March 31, 2022. The company's upscale domestic pipeline as of March 31, 2023 increased 16% from March 31, 2022. The company's global pipeline as of March 31, 2023 increased 14% to over 96,000 rooms, representing 988 hotels, from March 31, 2022.

Shareholder Returns

During the three months ended March 31, 2023, the company paid cash dividends totaling approximately $13 million. During first quarter 2023, the company's board of directors announced a 21% increase in the annual dividend rate to $1.15 per common share outstanding.

During the three months ended March 31, 2023, the company repurchased approximately 1.3 million shares of common stock for over $160 million 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. As of March 31, 2023, the company had 3.4 million shares of common stock remaining under the current share repurchase authorization.

Outlook

The outlook information provided below is inclusive of the Radisson Hotels Americas acquisition unless otherwise noted and includes forward-looking non-GAAP financial measures, which management uses in measuring 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, and other items:

Full-Year 2023

Prior Outlook

Net Income

$255 – $265 million

$245 – $265 million

Adjusted Net Income

$292 – $302 million

–

Adjusted EBITDA

$525 – $540 million

$520 – $540 million

Adjusted Diluted EPS

$5.70 – $5.90

–

Effective Income Tax Rate

24 %

–

Full-Year 2023

vs. Full-Year 2022

Prior Outlook

Domestic RevPAR Growth[2]

Approximately 2%

Approximately 2%

Domestic Effective Royalty Rate Growth[3]

Mid-single digits

Mid-single digits

Domestic Net Unit Growth

(upscale, extended-stay, and midscale segments)

Approximately 1%

Approximately 1%

Choice Hotels International, Inc. (NYSE: CHH) is one of the largest lodging franchisors in the world, with more than 7,400 hotels, representing over 625,000 rooms, in 45 countries and territories as of March 31, 2023. 

1 All figures are inclusive of Radisson Hotels Americas, except where otherwise noted. For comparative purposes, domestic RevPAR and the effective royalty rate assume the Radisson Hotels Americas brands were acquired on January 1, 2022.

2 For comparative purposes, domestic RevPAR baseline for full-year 2022 is inclusive of the Radisson Hotels Americas acquisition. 

3 For comparative purposes, the domestic effective royalty rate 4.93% baseline for full-year 2022 is inclusive of the Radisson Hotels Americas acquisition. 

Choice Hotels International, Inc. and Subsidiaries

Exhibit 1

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended March 31,

Variance

2023

2022

$

%

REVENUES

Royalty, licensing and management fees

$    107,492

$      90,739

$      16,753

18 %

Initial franchise fees

7,882

8,402

(520)

(6) %

Platform and procurement services fees

13,843

11,683

2,160

18 %

Owned hotels

22,332

12,037

10,295

86 %

Other

10,627

8,229

2,398

29 %

Other revenues from franchised and managed properties

170,616

126,637

43,979

35 %

Total revenues

332,792

257,727

75,065

29 %

OPERATING EXPENSES

Selling, general and administrative

59,283

30,324

28,959

95 %

Depreciation and amortization

10,023

6,231

3,792

61 %

Owned hotels

17,146

8,154

8,992

110 %

Other expenses from franchised and managed properties

168,489

113,650

54,839

48 %

       Total operating expenses

254,941

158,359

96,582

61 %

Gain on sale of business and assets, net

—

29

(29)

(100) %

Operating income

77,851

99,397

(21,546)

(22) %

OTHER INCOME AND EXPENSES, NET

Interest expense

14,084

11,470

2,614

23 %

Interest income

(1,883)

(1,280)

(603)

47 %

Other (gain) loss

(1,908)

1,716

(3,624)

(211) %

Equity in net loss (gain) of affiliates

63

(244)

307

(126) %

Total other income and expenses, net

10,356

11,662

(1,306)

(11) %

Income before income taxes

67,495

87,735

(20,240)

(23) %

Income tax expense

14,675

20,344

(5,669)

(28) %

Net income

$      52,820

$      67,391

$    (14,571)

(22) %

Basic earnings per share

$         1.02

$         1.21

$        (0.19)

(16) %

Diluted earnings per share

$         1.02

$         1.20

$        (0.18)

(15) %

Choice Hotels International, Inc. and Subsidiaries

Exhibit 2

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

March 31,

December 31,

2023

2022

ASSETS

Cash and cash equivalents

$                          31,679

$                          41,566

Accounts receivable, net

214,103

216,614

Other current assets

95,306

89,742

Total current assets

341,088

347,922

Property and equipment, net

434,282

427,306

Intangible assets, net

750,179

742,190

Goodwill

220,187

218,653

Notes receivable, net of allowances

56,382

55,577

Investments in affiliates

33,216

30,647

Operating lease right-of-use assets

66,398

68,985

Investments, employee benefit plans, at fair value

34,758

31,645

Other assets

169,733

179,250

Total assets

$                     2,106,223

$                     2,102,175

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable

$                          93,135

$                        118,863

Accrued expenses and other current liabilities

78,842

131,410

Deferred revenue

103,599

92,695

Current portion of long-term debt

4,416

2,976

Liability for guest loyalty program

89,582

89,954

 Total current liabilities

369,574

435,898

Long-term debt

1,374,814

1,200,547

Deferred revenue

132,520

134,149

Liability for guest loyalty program

48,420

47,381

Operating lease liabilities

69,708

70,994

Deferred compensation & retirement plan obligations

40,420

36,673

Other liabilities

23,759

21,873

Total liabilities

2,059,215

1,947,515

Total shareholders' equity

47,008

154,660

Total liabilities and shareholders' equity

$                     2,106,223

$                     2,102,175

Choice Hotels International, Inc. and Subsidiaries

Exhibit 3

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three Months Ended March 31,

2023

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$                       52,820

$                       67,391

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

10,023

6,231

Depreciation and amortization – marketing and reservation system

9,276

7,154

Gain on sale and disposal of business and assets, net

—

(29)

Amortization - franchise agreement acquisition cost

4,637

3,784

Non-cash stock compensation and other charges

10,630

7,555

Non-cash interest and investment (income) loss

(1,442)

1,909

Deferred income taxes

7,566

(3,119)

Equity in net loss of affiliates, less distributions received

421

230

Franchise agreement acquisition costs, net of reimbursements

(28,092)

(12,435)

Change in working capital and other

(53,806)

(14,747)

 NET CASH PROVIDED BY OPERATING ACTIVITIES

12,033

63,924

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in property and equipment

(19,566)

(26,809)

Investment in intangible assets

(1,097)

(1,208)

Contributions to investments in affiliates

(3,620)

(268)

Proceeds from sale of equity method investments

868

—

Purchases of investments, employee benefit plans

(2,670)

(2,818)

Proceeds from sales of investments, employee benefit plans

716

1,853

Issuance of notes receivable

(3,660)

(1,245)

Collections of notes receivable

337

63

Proceeds from sale of business and assets

—

8,494

Other items, net

(771)

(529)

 NET CASH USED IN INVESTING ACTIVITIES

(29,463)

(22,467)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net borrowings pursuant to revolving credit facilities

176,000

—

Purchases of treasury stock

(160,488)

(14,802)

Dividends paid

(12,821)

(13,204)

Debt issuance costs

(755)

—

Proceeds from exercise of stock options

5,504

2,211

 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

7,440

(25,795)

Net change in cash and cash equivalents

(9,990)

15,662

Effect of foreign exchange rate changes on cash and cash equivalents

103

(58)

Cash and cash equivalents at beginning of period

41,566

511,605

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$                       31,679

$                      527,209

Exhibit 4

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

SUPPLEMENTAL OPERATING INFORMATION

DOMESTIC HOTEL SYSTEM

(UNAUDITED)

For the Three Months Ended March 31, 2023

For the Three Months Ended March 31, 2022

Change

Average Daily

Average Daily

Average Daily

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Upscale & Above(1)

$       139.86

51.2 %

$        71.59

$         130.68

47.1 %

$         61.57

7.0 %

407

bps

16.3 %

Midscale & Upper Midscale(2)

95.18

52.2 %

49.70

91.65

51.4 %

47.09

3.9 %

83

bps

5.5 %

Extended Stay(3)

62.79

71.3 %

44.74

59.87

73.9 %

44.24

4.9 %

(264)

bps

1.1 %

Economy(4)

67.71

44.8 %

30.34

65.97

45.7 %

30.16

2.6 %

(89)

bps

0.6 %

Total(5)

$        91.21

52.7 %

$        48.08

$           86.67

52.4 %

$         45.38

5.2 %

34

bps

5.9 %

Effective Royalty Rate

For the Three Months Ended

March 31,

2023

March 31,

2022

System-wide

4.99 %

4.93 %

(1) Includes Cambria, Ascend, Radisson Blu, Radisson Red, Park Plaza, Radisson Individuals and Radisson brands.

(2) Includes Country, Comfort, Clarion, Sleep, Quality and Park brands.

(3) Includes WoodSpring, Mainstay, Suburban and Everhome brands.

(4) Includes Econo Lodge and Rodeway brands.

(5) Radisson Hotels Americas was acquired on August 11, 2022. To enhance comparability, ADR, Occupancy, and RevPAR reflect operating performance for the three

months ended March 31, 2022 as if the legacy Radisson brands were acquired on January 1, 2022.

Exhibit 5

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA

(UNAUDITED)

March 31, 2023

March 31, 2022

Variance

Hotels

Rooms

Hotels

Rooms

Hotels

Rooms

%

%

Ascend Hotel Collection

198

22,528

201

20,639

(3)

1,889

(1.5) %

9.2 %

Cambria Hotels

66

9,000

58

7,996

8

1,004

13.8 %

12.6 %

Radisson(1)

68

15,887

—

—

68

15,887

NM

NM

Comfort(2)

1,684

132,264

1,659

130,644

25

1,620

1.5 %

1.2 %

Country(3)

432

34,494

—

—

432

34,494

NM

NM

Clarion(4)

179

19,707

188

21,464

(9)

(1,757)

(4.8) %

(8.2) %

Quality

1,622

120,136

1,641

122,576

(19)

(2,440)

(1.2) %

(2.0) %

Sleep

425

29,968

416

29,332

9

636

2.2 %

2.2 %

Park

4

363

—

—

4

363

NM

NM

Everhome

1

98

—

—

1

98

NM

NM

MainStay

116

7,956

102

7,072

14

884

13.7 %

12.5 %

WoodSpring

214

25,834

306

36,854

(92)

(11,020)

(30.1) %

(29.9) %

Suburban

75

6,700

70

6,246

5

454

7.1 %

7.3 %

Econo Lodge

690

41,157

726

43,534

(36)

(2,377)

(5.0) %

(5.5) %

Rodeway

494

27,787

521

30,062

(27)

(2,275)

(5.2) %

(7.6) %

Domestic Franchises(5)

6,268

493,879

5,888

456,419

380

37,460

6.5 %

8.2 %

International Franchises(5)

1,199

132,945

1,108

121,295

91

11,650

8.2 %

9.6 %

Total Franchises

7,467

626,824

6,996

577,714

471

49,110

6.7 %

8.5 %

(1) Includes Radisson Blu, Radisson Red, Radisson Individuals and Radisson brands.

(2) Includes Comfort family of brand extensions including Comfort and Comfort Suites.

(3)  Includes Country Inn & Suites and Park Plaza brands.

(4) Includes Clarion family of brand extensions including Clarion and Clarion Pointe.

(5) In 2022, the Company reclassified six properties located in the Caribbean from Domestic Franchises to International Franchises.

Exhibit 6

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

(UNAUDITED)

REVENUES EXCLUDING REIMBURSABLE REVENUE FROM FRANCHISED AND MANAGED PROPERTIES

(dollar amounts in thousands)

Three Months Ended March 31,

2023

2022

Total Revenues

$          332,792

$          257,727

Adjustments:

  Reimbursable revenue from franchised and managed properties

(157,782)

(126,637)

Revenues excluding reimbursable revenue from franchised and managed properties

$          175,010

$          131,090

ADJUSTED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

(dollar amounts in thousands)

Three Months Ended March 31,

2023

2022

Total Selling, General and Administrative Expenses

$            59,283

$              30,324

Mark to market adjustments on non-qualified retirement plan investments

(1,817)

1,725

Operational restructuring charges

(2,258)

—

Share-based compensation

(4,606)

(3,594)

Due diligence and transition costs

(8,104)

—

Adjusted Selling, General and Administrative Expenses

$            42,498

$            28,455

ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA")

(dollar amounts in thousands)

Three Months Ended March 31,

2023

2022

Net income

$              52,820

$              67,391

Income tax expense

14,675

20,344

Interest expense

14,084

11,470

Interest income

(1,883)

(1,280)

Other (gain) loss

(1,908)

1,716

Equity in operating net loss (gain) of affiliates

63

(244)

Gain on sale of business and assets, net

—

(29)

Depreciation and amortization

10,023

6,231

Mark to market adjustments on non-qualified retirement plan investments

1,817

(1,725)

Operational restructuring charges

2,258

—

Share-based compensation

4,606

3,594

Due diligence and transition costs

8,104

—

Net reimbursable surplus from franchised and managed properties

(874)

(12,987)

Franchise agreement acquisition costs amortization

2,661

2,162

Adjusted EBITDA

$          106,446

$            96,643

ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE (EPS)

(dollar amounts in thousands, except per share amounts)

Three Months Ended March 31,

2023

2022

Net income

$            52,820

$            67,391

Adjustments:

Gain on sale of business and assets, net

—

(22)

Operational restructuring charges

1,711

—

Due diligence and transition costs

6,143

—

Net reimbursable surplus from franchised and managed properties

(2,500)

(9,701)

Adjusted Net Income

$            58,174

$            57,668

Diluted Earnings Per Share

$               1.02

$               1.20

Adjustments:

Operational restructuring charges

0.03

—

Due diligence and transition costs

0.12

—

Net reimbursable surplus from franchised and managed properties

(0.05)

(0.17)

Adjusted Diluted Earnings Per Share (EPS)

$               1.12

$               1.03

Exhibit 7

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION - 2023 OUTLOOK

(UNAUDITED)

Guidance represents the midpoint of the company's range of estimated outcomes for the year ended December 31, 2023

ADJUSTED EBITDA FULL YEAR FORECAST

(dollar amounts in thousands)

Midpoint

2023 Guidance

Net income

$           261,700

Income tax expense

82,700

Interest expense

66,900

Interest income

(5,600)

Other gain

(1,300)

Equity in operating net gain of affiliates

(800)

Depreciation and amortization

50,900

Mark to market adjustments on non-qualified retirement plan investments

1,800

Operational restructuring, due diligence and transition costs

39,600

Share-based compensation

18,000

Franchise agreement acquisition costs amortization

10,800

Net reimbursable deficit from franchised and managed properties

7,800

Adjusted EBITDA

$           532,500

ADJUSTED NET INCOME & DILUTED EARNINGS PER SHARE (EPS) FULL YEAR FORECAST

(dollar amounts in thousands, except per share amounts)

Midpoint

2023 Guidance

Net income

$           261,700

Adjustments:

Operational restructuring, due diligence and transition costs

29,400

Net reimbursable deficit from franchised and managed properties

5,900

Adjusted Net Income

$             297,000

Diluted Earnings Per Share

$                  5.10

Adjustments:

Operational restructuring, due diligence and transition costs

0.58

Net reimbursable deficit from franchised and managed properties

0.12

Adjusted Diluted Earnings Per Share (EPS)

$                  5.80

SOURCE Choice Hotels International, Inc.