SILVER SPRING, Md., Choice Hotels International, Inc., (NYSE:CHH) today reported the following highlights for third quarter 2008:

  • Diluted earnings per share ("EPS") for third quarter 2008 were $0.57, compared to $0.59 for the same period of the prior year.
  • Adjusted diluted EPS for the nine months ended September 30, 2008 were $1.36, a 5% increase compared to $1.30 in the same period of the prior year. Diluted EPS were $1.30 for the nine months ended September 30, 2008 compared to $1.26 for the same period of 2007. Adjusted diluted EPS for the nine months ended September 30, 2008 excludes a $3.8 million after-tax charge (approximately $0.06 diluted EPS) resulting from the previously announced acceleration of the Company's management succession plan. Adjusted diluted EPS for the nine months ended September 30, 2007 excludes a $2.3 million after-tax charge (approximately $0.04 diluted EPS) resulting from termination benefits for certain executive officers.
  • Earnings before interest, taxes and depreciation ("EBITDA") were $63.9 million for third quarter 2008, compared to $64.5 million for third quarter 2007. Operating income for third quarter 2008 was $61.9 million compared to $62.4 million for third quarter 2007.
  • Adjusted earnings before interest, taxes and depreciation ("Adjusted EBITDA") increased 4% to $152.8 million for the nine months ended September 30, 2008, compared to $147.2 million for the same period of 2007. Operating income for the nine months ended September 30, 2008 was $140.5 million compared to $137.1 million for the same period of 2007. Adjusted EBITDA for the nine months ended September 30, 2008 excludes a $6.1 million charge resulting from the acceleration of the Company's management succession plan. Adjusted EBITDA for the nine months ended September 30, 2007 excludes a $3.7 million charge resulting from termination benefits for certain executive officers.
  • Domestic unit and room growth increased 6.0 percent and 5.4 percent, respectively, since September 30, 2007.
  • Domestic system-wide revenue per available room (RevPAR) declined 1.6% for third quarter 2008 compared to the same period of the prior year. The decrease was due to a 280 basis point decline in occupancy, which was partially offset by a 2.7% increase in average daily rate.
  • The effective royalty rate increased 7 basis points to 4.19% for the three months ended September 30, 2008 compared to 4.12% for the same period of the prior year.
  • Franchising revenues increased 1% and total revenues increased 9% for third quarter 2008 compared to the same period in 2007. Year to date franchising revenues and total revenues increased 6% and 9%, respectively, compared to the same period of 2007.
  • Executed 160 new domestic hotel franchise contracts during the third quarter of 2008 compared to 182 for third quarter 2007. Overall, year to date, new domestic hotel franchise contracts executed increased 5% to 491 compared to 469 in the same period of the prior year.
  • The number of domestic hotels under construction, awaiting conversion or approved for development increased 10% from September 30, 2007 to 955 hotels representing 76,269 rooms; the worldwide pipeline increased 13% from September 30, 2007 to 1,074 hotels representing 85,916 rooms.

"The fundamental resiliency of Choice's business model was evident in our third quarter results, as the company grew its franchising revenues and once again demonstrated robust domestic unit and room growth during a period marked by significant industry-wide occupancy declines," said Stephen P. Joyce, president and chief executive officer. "As we continue to face an uncertain economic environment, we are confident that our unrelenting focus on our franchisees' profitability, aided by Choice's strong centralized support systems will position us well to achieve continued long-term profitable growth. We also anticipate benefitting from hotel developers' interest in our portfolio of conversion brands, which are appropriate for the various stages of a hotel asset's long lifecycle. We remain focused on executing our strategy of increasing domestic market share, strengthening our brands, and returning value to our shareholders."

Outlook for 2008

The uncertainty around the current economic environment and credit market conditions and their impact on travel patterns and hotel development activities makes it difficult to predict future results, particularly as it relates to underlying assumptions for RevPAR, new hotel franchise and relicensing sales and interest and investment income and expense.

The company's fourth quarter 2008 diluted EPS is expected to be $0.40. The company expects full year 2008 adjusted diluted EPS of $1.76. Adjusted EBITDA for full-year 2008 are expected to be approximately $197.5 million. These estimates include the following assumptions:

  • The company expects net domestic unit growth of approximately 5.5% in 2008;
  • RevPAR is expected to decline approximately 6% for fourth quarter 2008 and decline approximately 1.5% for full-year 2008;
  • The effective royalty rate is expected to increase 6 basis points for full-year 2008;
  • All figures assume the share count as of October 27, 2008 and an effective tax rate of 36.25% for fourth quarter 2008 and 37% for full year 2008;
  • All figures exclude a $6.1 million charge ($3.8 million after-tax and approximately $0.06 diluted EPS) resulting from the previously announced acceleration of the Company's management succession plan.

Use of Free Cash Flow

The company has consistently used its free cash flow (cash flow from operations less capital expenditures) to return value to shareholders, primarily through share repurchases and dividends.

The annual dividend rate per common share was increased 9 percent by the Board of Directors in September and is now $0.74. During the nine months ended September 30, 2008, the company paid $31.6 million of cash dividends to shareholders.

The company did not repurchase any shares under it share repurchase program during the three and nine months ended September 30, 2008. Subsequent to September 30, 2008 and through October 27, 2008, the Company repurchased 0.5 million shares at a total cost of $12.6 million at an average price of $23.06 per share. The company has authorization to purchase up to an additional 2.6 million shares under the share repurchase program. We expect to continue making repurchases in the open market and through privately negotiated transactions, subject to market and other conditions. No minimum number of share repurchases has been fixed. Since Choice announced its stock repurchase program on June 25, 1998, the company has repurchased 39.1 million shares of its common stock for a total cost of $908.5 million through October 27, 2008. Considering the effect of a two-for-one stock split in October 2005, the company has repurchased 72.1 million shares under the share repurchase program at an average price of $12.60 per share.

Our Board has authorized us to enter into programs which permit us to offer financing, investment and guaranty support to qualified franchisees to incent multi-unit franchise development in top markets. We expect to opportunistically deploy this capital over the next several years. Our current expectation is that our annual investment in these programs would range from $20 to $40 million beginning in 2009 (2008 investment in these programs is not expected to be significant), depending on market and other conditions. In addition to these programs, the company expects to continue to return value to its shareholders through a combination of share repurchases and dividends, also subject to market and other conditions.

Conference Call

Choice will conduct a conference call on Tuesday, October 28, 2008 at 9:30 a.m. EDT to discuss the company's third quarter results. The dial-in number to listen to the call is 1-800-230-1085. International callers should dial 612-288-0329. The conference call also will be Webcast simultaneously via the company's Web site, . Interested investors and other parties wishing to access the call via the Webcast should go to the Web site and click on the Investor Info link. The Investor Information page will feature a conference call microphone icon to access the call.

About Choice Hotels | Choice Hotels International franchises more than 5,700 hotels, representing more than 465,000 rooms, in the United States and more than 35 countries and territories. As of September 30, 2008, 955 hotels are under construction, awaiting conversion or approved for development in the United States, representing 76,269 rooms, and an additional 119 hotels, representing 9,647 rooms, are under construction, awaiting conversion or approved for development in more than 20 countries and territories. The company's Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge and Rodeway Inn brands serve guests worldwide. Additional corporate information may be found on the Choice Hotels Web site, which may be accessed at .

Forward-Looking Statements | Certain matters discussed in this press release constitute forward-looking statements within the meaning of the federal securities law. Generally, our use of words such as "expect," "estimate," "believe," "anticipate," "will," "forecast," "plan," project," "assume" or similar words of futurity identify statements that are forward-looking and that we intend to be included within the Safe Harbor protections provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such 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 and other financial and operational measures, company debt levels, payment of stock dividends, 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; 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 reservations systems and other operating systems; fluctuations in the supply and demand for hotels rooms; and our ability to manage effectively our indebtedness. These and other risk factors are discussed in detail in the Risk Factors section of the company's Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission on February 29, 2008. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Statement Concerning Non-GAAP Financial Measurements

Adjusted diluted EPS, adjusted EBITDA, franchising revenues and adjusted franchising margins are non-GAAP financial measurements. This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States (GAAP), such as diluted earnings per share, operating income, 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. The company has included an exhibit accompanying this release that reconciles these measures to the comparable GAAP measurement. We discuss management's reasons for reporting these non-GAAP measures below.

Earnings Before Interest, Taxes, Depreciation and Amortization: EBITDA reflects earnings excluding the impact of interest expense, tax expense, depreciation and amortization. Our management considers EBITDA to be an indicator of operating performance because it can be used to measure our ability to service debt, fund capital expenditures, and expand our business. EBITDA is a commonly used measure of performance in our industry. In addition, it is used by analysts, lenders, investors and others, as well as by us, to facilitate comparisons between the Company and its competitors because it excludes certain items that can vary widely across different industries or among companies within the same industry.

Franchising Revenues and Margins: The Company reports franchising revenues and margins which exclude marketing and reservations revenues and hotel operations. Marketing and reservation activities are excluded from revenues and operating margins since the Company is contractually required by its franchise agreements to use these fees collected for marketing and reservation activities. Cumulative reservation and marketing fees not expended are recorded as a payable on the Company's financial statements and are carried over to the next fiscal year and expended in accordance with the franchise agreements. Cumulative marketing and reservation expenditures in excess of fees collected for marketing and reservation activities are recorded as a receivable on the Company's financial statements. In addition, the Company has the contractual authority to require that the franchisees in the system at any given point repay the Company for any deficits related to marketing and reservation activities. Hotel operations are excluded since they do not reflect the most accurate measure of the Company's core franchising business. These non-GAAP measures are a commonly used measure of performance in our industry and facilitate comparisons between the Company and its competitors.

Adjusted EBITDA, Adjusted Franchising Margins and Adjusted Diluted EPS: The Company's management also uses Adjusted EBITDA, Adjusted Franchising Margins and Adjusted Diluted EPS which exclude the impact of the acceleration of the Company's management succession plan in the nine months ended September 30, 2008 and the impact of termination benefits incurred related to the separation of certain executive officers in the nine months ended September 30, 2007. The Company utilizes these non-GAAP measures to enable investors to perform meaningful comparisons of past, present and future operating results and as a means to emphasize the results of on-going operations.

Cambria Suites, Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge, and Rodeway Inn are proprietary trademarks and service marks of Choice Hotels International, Inc.

David Peikin
+1-301-592-6361
Choice