Choice Hotels International's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Choice Hotels International Inc. (

CHH

)

Q4 2011 Earnings Conference Call

February 21, 2012, 09:30 AM ET

Executives

Stephen Joyce - Chief Executive Officer, President and Director

David White - Chief Financial Officer, Senior Vice President and Treasurer

Analysts

Sule Sauvigne - Barclays Capital

Andrew – Bank of America

Patrick Scholes - FBR Markets

Tim Wengerd - Deutsche Bank

Presentation

Operator

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Good morning and welcome to the Choice Hotels International Fourth Quarter and Full Year 2011 Earnings Conference Call. (Operator Instructions) As a reminder, today's call is being recorded.

During the course of this conference call, certain predictive or forward-looking statements will be used to assist you in understanding the company and its result, which constitute forward-looking statements under the Safe Harbor provision of the Securities Reform Act of 1995. These forward-looking statements generally can be identified by such phrases at Choice or its management believes, expects, anticipates, foresees, forecasts, estimates or other words or phrases of similar import. Such statements are subject to risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such statements. Please consult the company's Form 10-K of the year ended December 31, 2010, and its other SEC filings for about information risk factors that about the company that should be considered.

Although, we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We caution you, do not place undue reliance on forward-looking statements, which reflect our analysis only, and speak only as of today's date. We undertake no obligation to publicly update our forward-looking statements to reflect subsequent events or circumstances.

You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as a fourth quarter 2011 earnings press release, which is posted on our website at choicehotels.com, under the Investor Information section.

With that being said, I would now like to introduce Steve Joyce, President and Chief Executive Officer of Choice Hotels International, Inc. Please go ahead, sir.

Stephen Joyce

Thank you very much. Good morning, and welcome to Choice Hotels Fourth Quarter 2011 Earnings Conference Call. With me this morning as always is Dave White, our Chief Financial Officer.

I am very pleased to report a strong fourth quarter and another strong year for Choice Hotels in 2011. We wrapped up the year on a high note with excellent results on many fronts and we are well positioned to improve on those results in 2012. Our franchising revenues increased by 9% last year with notable acceleration in the fourth quarter of 2011 when franchising revenues increased by 10% compared to the fourth quarter of 2010.

Our adjusted earnings before interest, taxes, depreciation and amortization increased by 8% in 2011 and as we highlighted in our outlook for 2012 we are positioned to grow EBITDA between 8% and 10% this year compared to our 2011 adjusted EBITDA result.

During 2011, we generated nearly 135 million of operating cash flows and we built on our long history of exceptional capital stewardship by returning nearly a 100 million to shareholder through dividends and share repurchases during the year. We are pleased that our financial performance exceeded our expectations and our previously published fourth quarter and full year 2011 outlooks on all fronts. These results were achieved despite a tough economy and I would emphasize that we continue to grow our market share during a period where overall industry supply was actually contracting. I’ll talk in a minute about some other exciting achievements last year in our operations, but I want to briefly touch on our take on the economic backdrop we are expecting this coming year.

The global economy remains challenging with the recovery that is predicted to be slow, prolonged and uncertain and our industry still faces significant headwinds including flat-to-slow supply growth, low consumer confidence and high unemployment. Despite the economic backdrop we continue to see positive momentum in a number of key areas that drive our success including RevPAR improvement, global system growth, central reservations contribution to our franchised hotels and recent development results.

During the fourth quarter our domestic system wide RevPAR accelerated and grew by 7.8% and exceeded our guidance for the quarter which contemplated a 6.5% increase. More recently despite progressively more challenging comps we have not seen signs of a slow down in the RevPAR environment. In fact, we have seen just the opposite trend with domestic system wide RevPAR for December, January and February to date, the three months of RevPAR data included in our first quarter 2012 results showing acceleration of the RevPAR growth rate trend towards a high single-digit percentage growth rate for the quarter.

We believe recent employment gains in the US bode well for leisure demand, which is closely tied to US employment levels and also consumer confidence. We are optimistic that we should have another good year in 2012 on the RevPAR front.

On the franchise development front for the fourth quarter we executed a 128 domestic hotel franchise contracts which was fewer than we were targeting. Since yearend we have adjusted our sales strategy and strengthened our value proposition for the right conversions and new construction hotel opportunities and as a result we expect to see improvement in franchise sales this year. The preliminary franchise sales results we received in January and what we have seen in February so far have exceeded last year’s results and recent developer feedback is very encouraging.

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