Choice Hotels International's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Choice Hotels International, Inc. (CHH)

Q2 2012 Earnings Conference Call

July 27, 2012 09:30 ET


Steve Joyce – President and Chief Executive Officer

Dave White – Chief Financial Officer


Jeffrey Donnelly – Wells Fargo

Felicia Hendrix – Barclays

Robin Farley – UBS

Joshua Attie – Citi

Nikhil Bhalla – FBR

Patrick Scholes – SunTrust Robinson Humphrey



Ladies and gentlemen, thank you for standing by. Good morning, and welcome to the Choice Hotels International Second 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 to assist you in understanding the company and its results, 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 phrases, such as choice or as management believes, expects, anticipate, foresee, forecast, estimate or other words or phrases of similar import. Such statements are subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Please refer to the company’s Form 10-K for the year ended December 31, 2011 and other SEC filings or information about important risk factors affecting the company that you should consider. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievement. 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 part of our second quarter 2012 earnings press release, which is posted on our website at 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 Incorporated. Please go ahead, sir.

Steve Joyce

Thank you very much. Good morning. Welcome to Choice Hotels’ second quarter 2012 earnings call. With me this morning, as always, is Dave White, our Chief Financial Officer.

As you know, we put out our press release last night. We are very pleased with the second quarter results. Consumers are traveling. We are driving record traffic to our hotels. We’re seeing both strong RevPAR and global system growth. And we are very excited about accelerating momentum in franchise development world. In fact, this past quarter has been the best travel season we have seen in several years and our franchise development results are very strong with the number of domestic franchise contracts up 54% compared to last year and meaningful gains in both new construction and conversion hotel franchises. All of these factors contributed to a very good quarter. As reflected in the key indicators, we used to measure our performance.

RevPAR is up nearly 8%, which is better than the industry average for the comparable time period and ahead of our own expectations. These results reflect to the mix of occupancy that was up over 250 basis points and an average daily rate increase of 2.8%. Both domestic and global net unit growth increased 1.3% ahead of our target. And these two drivers resulted in strong domestic royalty fee growth of approximately 8% for the quarter. Our EBITDA and diluted earnings per share for the quarter increased 14% and 20% respectively.

We also continue to execute our long-term capital allocation strategy. And last night, we were pleased to announce that our Board of Directors declared a special cash dividend of $10.41 per common share or roughly $600 million in the aggregate. The special cash dividend will be paid on August 23. In this unprecedented and prolonged period of historically low interest rates, this capital structure transaction and significant return to our shareholders is both an appropriate corporate finance decision and the right strategic action for Choice. One of our long stated goals is to deliver increasing value to our shareholders in the most efficient and effective way possible. This transaction achieves this objective in a meaningful way, lowering our overall cost of capital without affecting our ability to grow this company.

The special dividend announced last night reflects management and the Board’s confidence in the future of our brands and their substantial cash generating capabilities. After this transaction, we will continue to have significant financial resources to fund our business operations and to exploit potential and actual business development and growth opportunities in the near-term.

Turning back our quarterly results, we’re especially pleased with the strength and the momentum of our new domestic franchise development activities. During the quarter, we executed 106 new contracts, which is substantially higher than the same period last year. We’re seeing positive momentum in conversions and also notably in new construction activity, which was up nearly three-fold over the last year’s second quarter.

We’re excited about how well developers are responding to the Sleep Inn program with 12 new deals year-to-date and developers liked this Sleep Inn prototype, which is a very efficient building that offers low development costs as well as low operating costs than in comparison to any of the other mid-scale brands and works particularly well in a significant number of secondary and tertiary markets.

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