Choice Hotels Shares Q3 2023 Results

ROCKVILLE, Maryland—Choice Hotels International, Inc. reported its Q3 2023 results. Highlights include:

• Total revenues were $425.6 million for the third quarter of 2023, a third-quarter record and a 3 percent increase compared to the same period in 2022.
• Total revenues, excluding reimbursable revenue from franchised and managed properties, increased 9 percent to $219.6 million for the third quarter of 2023 compared to the same period of 2022.
• Net income was $92.0 million for the third quarter of 2023, representing diluted earnings per share (EPS) of $1.81. As a result of one-time items, including Radisson Hotels Americas integration costs, gains from the sale of the Cambria Hotel Nashville owned asset and extraordinary franchisee termination fees in the third quarter of 2022, and the timing of net reimbursable expenses, net income, and diluted EPS were 11 percent and 2 percent lower, respectively, for the third quarter of 2023 compared to the same period in 2022.
• Third quarter 2023 adjusted net income, excluding certain items, increased 6 percent to $92.4 million compared to the same period in 2022, and adjusted diluted EPS increased 17 percent to $1.82 compared to the same period in 2022.
• Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the third quarter of 2023 grew to $155.9 million, a third-quarter record and a 12 percent increase compared to the same period of 2022.
• Global rooms pipeline as of September 30, 2023, increased 6 percent to over 99,000 rooms from June 30, 2023. Global rooms pipeline for conversion rooms increased 11 percent from September 30, 2022, and 27 percent from June 30, 2023.
• Expanded international pipeline as of September 30, 2023, nearly doubling rooms count from September 30, 2022, inclusive of over 30 properties representing approximately 6,000 rooms associated with the company’s strategic alliance with one of the largest hotel operators in Mexico known for its portfolio of upscale, upper-upscale, luxury hotels, and resorts in Mexico and the Caribbean.
• Achieved $84 million of annual recurring synergies through the integration of Radisson Hotels Americas, exceeding prior target by 5 percent.
• The company raised its financial guidance for full year 2023.

“We generated another record quarter of impressive financial growth, driven by our best-in-class business delivery engine, the successful integration of Radisson Americas, and organic growth of our brand portfolio focused on hotels that generate higher royalties per unit,” said Patrick Pacious, president and CEO of Choice Hotels. “We believe we are well-positioned to effectively grow our business in the current hotel development environment with a superior hotel conversion capability. We will continue to execute our robust organic earnings growth strategy and pursue inorganic growth to drive long-term shareholder value.”

Pacious continued, “At its core, our proposed combination with Wyndham is about the natural fit of the two companies coming together to accelerate value creation for all stakeholders. We made our proposal public so that all groups could evaluate its benefits. For Wyndham shareholders, we provide a substantial premium and immediate value for their shares with participation in the future value of the combined entity. For Wyndham franchisees, we provide a proven model to lower costs and increase direct revenue to their hotels. We urge the Wyndham Board of Directors to resume discussions for the benefit of both companies’ franchisees, shareholders, associates, and guests.”

Financial Performance

• Platform and procurement services fees increased 8 percent to $15.5 million for the third quarter 2023 compared to the same period in 2022.
• Royalty, licensing, and management fees increased 3 percent to $148.5 million for the third quarter of 2023 compared to the same period in 2022. Excluding the one-time exit of the 110 Woodspring Suites hotels in the third quarter of 2022, royalty, licensing, and management fees for the third quarter increased 6 percent compared to the same period in 2022.
• Domestic revenue per available room (RevPAR) decreased 80 basis points and increased 140 basis points for the three and nine-month periods ended September 30, 2023, respectively, compared to the same periods of 2022. The company’s third-quarter average daily rate increased 1.3 percent compared to the same period in 2022 while occupancy reached 62 percent.
• Domestic effective royalty rate for both the three-month and nine-month periods ended September 30, 2023, increased 6 basis points to 4.99 percent compared to the respective 2022 periods.

Development

• The company executed an average of more than four hotel openings per week, for a total of 159 hotel openings year-to-date through September 30, 2023, a 24 percent increase compared to the same period of 2022. For the first nine months of 2023, the company grew hotel openings across all segments, increasing openings in the upscale segment by 50 percent, the extended-stay segment by 38 percent, the midscale segment by 14 percent, and the economy segment by 27 percent compared to the same period of 2022.
• Of the total domestic franchise agreements awarded in the nine months ended September 30, 2023, 84 percent were for the company’s upscale, extended-stay, and midscale brands, and 72 percent were for conversion hotels. Of the domestic franchise agreements awarded for conversion hotels in the nine months ended September 30, 2023, 67 percent have already opened or are expected to open by December 31, 2023.
• Domestic upscale and extended-stay portfolio grew by 11 percent and 13 percent, respectively, since September 30, 2022, driven by an increase in the number of Cambria Hotels, Ascend Hotel Collection, WoodSpring Suites, MainStay Suites, and Suburban Studios units. The company’s total domestic system size was over 6,200 hotels and 490,000 rooms as of September 30, 2023.
• The total number of international upscale hotels, as of September 30, 2023, increased 13 percent from September 30, 2022. The company’s total international system size approached 1,200 hotels as of September 30, 2023.
• The extended-stay domestic pipeline increased 12 percent to over 47,000 rooms from September 30, 2022. Domestic pipeline reached nearly 86,000 rooms as of September 30, 2023.

Shareholder Returns

• During the nine months ended September 30, 2023, the company paid cash dividends of $42.1 million and $54.8 million over the trailing twelve months ended September 30, 2023.
• During the nine months ended September 30, 2023, the company repurchased 2.5 million shares of common stock for $306.9 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. Over the trailing twelve months ended September 30, 2023, the company repurchased 4.1 million shares of common stock totaling $495.2 million, representing nearly 8 percent of the shares outstanding as of September 30, 2022.
• As of September 30, 2023, the company had 2.3 million shares of common stock remaining under the current share repurchase authorization.