Choice Hotels International's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Choice Hotels International, Inc. (CHH)

Q1 2012 Earnings Call

April 27, 2012 10:00 AM ET

Executives

Steve Joyce – President and CEO

Dave White – SVP and CFO

Analysts

Felicia Hendricks – Barclays

Shaun Kelly – Choice Hotels

Tim Wengerd – Deutsche Bank

Presentation

Operator

Good morning, and welcome to the Choice Hotels International First Quarter 2012 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session and further instructions will be given at that time. 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 regarding the Company's goals, plans and projections. These statements constitute forward looking statements within the meaning of the private securities litigation reform act of 1995 and generally can be identified by words such as believes, expects, anticipates, foresees, forecasts, estimates, plans and other words or phrases of similar import. Such statements are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Please consult the Company's Form 10-K for the year ended December 31, 2010, and its other SEC filings for about information risk factors affecting the Company that you should be consider. 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 or revise any forward-looking statements whether as a result of new information, future events or otherwise. You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our first quarter earnings press release which is posted on our website at choicehotels.com under the Investors Information section.

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

Steve Joyce

Thank you. Good morning and welcome to Choice Hotels first quarter 2012 earnings conference call. With me this morning as always is Dave White, our Chief Financial Officer. As we noted last night in our Press Release we are extremely pleased with our quarterly results and the strong start for Choice Hotels in 2012. We are particularly enthused by our strong franchising revenue growth which was driven by both global systems size expansion and significantly stronger-than-expected domestic RevPAR results.

Our first-quarter RevPAR results and our more recent RevPAR experience in March and so far through April are encouraging and point to continuation of lodging cycle recovery. We're equally excited by the franchise sales results of our development team which drove new domestic franchise sales contracts to a mid-teens percentage growth rate for the quarter.

The positive momentum in RevPAR and franchise sales areas has continued since the quarter ended and we are optimistic that these positive trends will make for a very strong year. Our EBITDA and diluted earnings per share for the first quarter exceeded our expectations due to higher than anticipated revenues driven by domestic RevPAR growth and higher than expected domestic conversion franchise sales results and relicensing transactions.

The growth rate of our franchising revenues continued for the second consecutive quarter to accelerate as first-quarter revenues increased 11% over the prior year compared to a 10% increase in the fourth quarter of 2011. Our franchising revenues were primarily impacted by an 8.6% increase in domestic RevPAR which was approximately a 100 basis points better than we were expecting and exceeded the RevPAR growth rate of the overall lodging industry.

We believe this speaks well of the ongoing strength and appeal of our brands to consumers, our strong central reservation system for franchisees and the continued prowess of our franchisees in effectively managing their hotel assets.

Considering our first quarter RevPAR performance and our preliminary second quarter results, we are increasing our outlook for full-year RevPAR to a range of 5% to 7%. This represents approximately a 100 basis point increase from the outlook we shared with you in our earnings call last time. The increase in our franchising revenues coupled with a disciplined cost management resulted in a 19% increase in our EBITDA in the first quarter of 2012.

As a result of our first-quarter performance as well as our revised RevPAR outlook we are raising our full-year outlook for diluted earnings per share to a range of $2.03 to $2.08 per share. As I mentioned earlier a significant highlight of the first quarter was our franchise sales results.

For the quarter we executed 64 domestic hotel franchise contracts, an increase of 14% compared to the 56 deals we executed in the first quarter of 2011. As the franchise sales environment for new construction remains challenging, the increase in our new domestic hotel franchise contracts was primarily driven by an increase in conversion deals.

Since our net unit growth has historically been more heavily dependent on conversion hotels the building trend in conversion franchise sales is encouraging for our long-term growth prospects because in addition to that these are normally followed by an increase in new construction sales.

The improvement in our franchise sales results reflects adjustments we made in the fourth quarter of last year and the first quarter of 2012 to our sales organization structure, our sales strategy and strengthening the value proposition for the right conversion and new conversion hotel opportunities.

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