Choice Hotels International Exceeds Top End Of Full Year Guidance For EPS And Expands Domestic Upscale Room Portfolio By Over 40%

Choice Hotels International, Inc. (NYSE: CHH) today reported its results for the three months and year ended December 31, 2019. Highlights include:

• Net income was $42.2 million for the fourth quarter 2019 and $222.9 million for the full year, representing diluted earnings per share (EPS) of $0.75 and $3.98, respectively.
• Full year adjusted net income, excluding certain items described in Exhibit 6, increased 9% over the prior full year period to $242.0 million.
• Full year adjusted EPS increased 11% over the prior full year period to $4.32, while fourth quarter adjusted EPS increased 5% over the prior year fourth quarter to $0.92.
• The company exceeded the top end of its full year 2019 adjusted EPS guidance by $0.05 per share and the top end of its fourth quarter adjusted EPS guidance by $0.06 per share.
• Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the full year were $364.9 million, a 7% increase from the same period of 2018, achieving the top end of the company's full year 2019 adjusted EBITDA guidance. Adjusted EBITDA for the fourth quarter were $81 million, a 6% increase from the fourth quarter 2018.
• The company's domestic upscale, midscale, and extended stay segments reported a 3.1% aggregate increase in units and a 4.3% growth in rooms since December 31, 2018.

Additionally, during 2019, the company continued to strengthen its presence in the higher growth and more revenue intense upscale, midscale and extended stay chain scale segments. In particular, the company:

• Achieved a record 11 Cambria hotels opened in key markets and grew the number of rooms by 28%; the brand reached a milestone of 50 open hotels with 27 additional hotels under active construction as of year end 2019.
• Expanded the number of domestic rooms in its upscale brands, Cambria Hotels and the Ascend Hotel Collection, to over 29,000 for full year 2019, representing a 44% increase from the prior year and inclusive of 17 properties associated with the company's strategic partnership with AMResorts, an Apple Leisure Group brand known for its portfolio of luxury, all-inclusive resorts.
• Surpassed 400 domestic hotels in its extended stay portfolio at year end 2019, a 10% increase since December 31, 2018. The company also increased its extended stay domestic pipeline by 13% to 315 hotels over the same period. The WoodSpring Suites brand continued its expansion, achieving over 8% growth in the number of domestic hotels open and a 23% increase in the domestic pipeline of hotels awaiting conversion, under construction, or approved for development. In January 2020, the company further strengthened its extended stay presence by introducing Everhome Suites, an all-new construction midscale brand in the extended stay segment, with multiple developers having already committed to build 13 Everhome Suites hotels.
• Continued its leadership in the midscale segment by opening an average of more than one Comfort hotel per week in 2019, the highest number of Comfort openings in eight years. Comfort's domestic pipeline reached 290 hotels, approximately 80% of which are new construction. The brand's domestic franchise agreements awarded for the full year increased by 20% over the prior year and are expected to generate higher revenues over the life of the contracts, compared to domestic franchise agreements awarded in 2018.

"In 2019, Choice Hotels drove impressive results in the revenue-intense segments where we operate – upscale, extended stay, and midscale – with proven brands supported by a strong value proposition for our franchisees. Growth in these higher value segments, the continued expansion of our platform business through key partnerships, new technology, and other key franchisee resources have enabled us to drive our top-line revenue and deliver tangible, value-added solutions to our hotel owners and customers," said Patrick Pacious, president and chief executive officer, Choice Hotels. "Our results are a testament to the success of our long-term growth strategy to invest in brands built for the customer of tomorrow."

Additional details for the company's fourth quarter 2019 and full year results are as follows:

Revenues

• Total revenues increased by 7% to $1.1 billion for full year 2019 and by 9% to $268.1 million for the fourth quarter from total revenues reported for the same periods of 2018.
• Total revenues, excluding marketing and reservation system fees, grew 8% for the full year over the prior year to $537.4 million and increased 10% to $130.2 million for the fourth quarter over the prior year comparable period.
• Full year domestic royalties totaled $366.6 million, a 3% increase from the same period of 2018 and reached $82.3 million for the fourth quarter, a 2.5% increase over the prior year comparable period.
• Domestic systemwide revenue per available room (RevPAR) decreased 0.9% and 2.1% for full year and the fourth quarter 2019, respectively, compared to the same periods of the prior year. In the fourth quarter, Comfort hotels that completed renovations experienced the third consecutive quarter of RevPAR share gains versus their local competition.
• The company's effective domestic royalty rate for the full year 2019 increased 11 basis points over the prior year to 4.86% and grew 10 basis points for the fourth quarter of 2019 over the prior year fourth quarter, the fourth consecutive year of double-digit basis-point growth.
• Procurement services revenue grew 18% for the full year 2019 to $61.4 million and increased 9% in the fourth quarter of 2019 to $13.8 million, compared to the same periods of the prior year.

Development

• The company awarded 307 domestic franchise agreements in the fourth quarter of 2019, a 7% increase compared to the same period of the prior year.
• New domestic franchise agreements for the company's upscale brands totaled 94 for full year 2019, a 27% increase over 2018, 43 of which were awarded in the fourth quarter, a 30% increase over the same period of 2018. Additionally, the Ascend Hotel Collection executed 151 global contracts in 2019, the largest number in the brand's history.
• The company's total domestic pipeline of hotels awaiting conversion, under construction, or approved for development, as of December 31, 2019, increased to over 1,050 hotels and nearly 85,000 rooms, representing the largest domestic pipeline in the company's history. Over 75% of the pipeline represents new construction projects.
• The company's total international pipeline of hotels awaiting conversion, under construction, or approved for development totaled 83 as of December 31, 2019, a 48% increase from December 31, 2018.
• International hotels and rooms as of December 31, 2019, increased 3.5% and 7.4%, respectively, from the comparable period of 2018.
• The number of domestic hotels and rooms, as of December 31, 2019, increased 1.6% and 2.9%, respectively, from December 31, 2018.

Use of Cash Flows

Dividends
During full year 2019, the company paid cash dividends totaling approximately $48 million. During the fourth quarter of 2019, the company's board of directors announced a 5% increase to the annual dividend rate to $0.90 per common share outstanding. The company expects to pay dividends totaling approximately $50 million during 2020.

Stock Repurchases
During full year 2019, the company repurchased approximately 0.6 million shares of common stock for approximately $50.6 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. As of December 31, 2019, the company had 3.9 million shares remaining under the current share repurchase authorization.

Hotel Development & Financing
The company has allocated up to $725 million to its program that encourages growth of the upscale Cambria Hotels brand. Investments under this program may include joint-venture investments, forgivable key-money loans, senior mortgage loans, development loans and mezzanine lending, as well as hotel development and ownership and the operation of a land-banking program. With respect to lending, hotel ownership and joint-venture investments, the company generally expects to recycle these investments within a five-year period.

As of December 31, 2019, the company had approximately $582 million reflected on its consolidated balance sheet pursuant to the Cambria Hotels financial support activities.

Outlook
The adjusted numbers in the company's outlook exclude the net surplus or deficit generated from the company's marketing and reservation system activities, as well as other items. See Exhibit 7 for the calculation of adjusted forecasted results and the reconciliation to the comparable GAAP measures.

• Net income for full year 2020 is expected to range between $201 million and $208 million, or $3.57 to $3.69 per diluted share.
• Adjusted diluted EPS for full year 2020 is expected to range between $4.22 to $4.33. The company's first quarter 2020 adjusted diluted EPS is expected to range between $0.80 to $0.84. The company expects full year 2020 adjusted net income to range between $237 million and $244 million.
• Adjusted EBITDA for full year 2020 is expected to range between $378 million and $385 million.
• The company's outlook for adjusted EBITDA and adjusted EPS is based on the current number of shares of common stock outstanding and, therefore, does not reflect any subsequent changes that may occur due to new equity grants or further repurchases of common stock under the company's stock repurchase program.
• Net domestic unit growth for 2020 is expected to range between 1.5% and 2.5%.
• Domestic RevPAR is expected to be between flat and a decline of 2% for the first quarter and full year 2020 versus the same periods of the prior year.
• The company's domestic effective royalty rate is expected to increase between 4 and 8 basis points for full year 2020, as compared to full year 2019.
• The recurring tax rate before discrete items is expected to be 22.5% for both the first quarter and full year 2020.

About Choice Hotels
Choice Hotels International, Inc. (NYSE: CHH) is one of the largest lodging franchisors in the world. With more than 7,000 hotels, representing over 590,000 rooms, in over 40 countries and territories as of December 31, 2019, the Choice^® family of hotel brands provide business and leisure travelers with a range of high-quality lodging options from limited service to full-service hotels in the upscale, midscale, extended-stay and economy segments.