Choice Hotels International Inc. Files 10-Q for Q1 2024

TL;DR

<b>Choice Hotels International Inc. reported mixed revenue results for Q1 2024, with a slight increase in initial franchise fees but flat royalty and management fees.</b>

AI Summary

CHOICE HOTELS INTERNATIONAL INC /DE (CHH) filed a Quarterly Report (10-Q) with the SEC on May 8, 2024. Total revenue for Q1 2024 was $352 million, a decrease from $352 million in Q1 2023. Royalty, licensing, and management fees were $281 million in Q1 2024, compared to $281 million in Q1 2023. Initial franchise fees were $716 million in Q1 2024, up from $460 million in Q1 2023. Platform and procurement services revenue was not explicitly detailed for Q1 2024 or Q1 2023. Owned hotels revenue was not explicitly detailed for Q1 2024 or Q1 2023.

Why It Matters

For investors and stakeholders tracking CHOICE HOTELS INTERNATIONAL INC /DE, this filing contains several important signals. The increase in initial franchise fees suggests potential growth in new hotel development or conversions, which could drive future revenue streams. Flat royalty and management fees, despite potential increases in hotel occupancy or rates, might indicate slower organic growth or competitive pressures within the existing franchise base.

Risk Assessment

Risk Level: medium — CHOICE HOTELS INTERNATIONAL INC /DE shows moderate risk based on this filing. The company's revenue streams are heavily reliant on franchise fees and royalties, which can be sensitive to economic downturns and competition, as evidenced by the flat royalty revenue in the current quarter.

Analyst Insight

Monitor the company's ability to convert increased initial franchise fees into sustained royalty revenue and assess the impact of competitive pressures on existing franchisees.

Financial Highlights

revenue

352

revenue Growth

0%

Revenue Breakdown

Key Numbers

• 352 — Total Revenue (Q1 2024)
• 281 — Royalty, Licensing, and Management Fees (Q1 2024)
• 716 — Initial Franchise Fees (Q1 2024)
• 460 — Initial Franchise Fees (Q1 2023)

Key Players & Entities

• CHOICE HOTELS INTERNATIONAL INC /DE (company) — Filer
• 915 MEETING STREET (location) — Business Address
• NORTH BETHESDA (location) — Business Address City
• MD (location) — Business Address State
• 20852 (location) — Business Address Zip
• CHOICE HOTELS FRANCHISING INC (company) — Former Company Name
• CHOICE HOTELS INTERNATIONAL INC/DE (company) — Former Company Name

FAQ

Risk Factors

• Dependence on Franchisees [medium — financial]: The company's financial performance is significantly tied to the success and number of its franchisees, making it vulnerable to economic downturns affecting the hospitality industry.
• Competition [medium — market]: The hotel industry is highly competitive, with numerous brands and independent operators, which could impact Choice Hotels' market share and pricing power.
• Brand Standards and Reputation [medium — operational]: Maintaining consistent brand standards across a large franchise network is crucial for customer satisfaction and brand reputation, and failures can negatively impact the business.

Key Dates

• 2024-03-31: End of Q1 2024 — Reporting period for the 10-Q filing.

Key Financial Figures

• $0.01 — ich Registered Common Stock, Par Value $0.01 per share CHH New York Stock Exchange

Filing Documents

• chh-20240331.htm (10-Q) — 1156KB
• chh-ex311x2024x03x31pacious.htm (EX-31.1) — 9KB
• chh-ex312x2024x03x31oaksmi.htm (EX-31.2) — 9KB
• chh-ex32x2024x03x31oaksmit.htm (EX-32) — 5KB
• 0001046311-24-000022.txt (&nbsp;) — 6625KB
• chh-20240331.xsd (EX-101.SCH) — 45KB
• chh-20240331_cal.xml (EX-101.CAL) — 69KB
• chh-20240331_def.xml (EX-101.DEF) — 237KB
• chh-20240331_lab.xml (EX-101.LAB) — 602KB
• chh-20240331_pre.xml (EX-101.PRE) — 426KB
• chh-20240331_htm.xml (XML) — 974KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

- Financial Statements (Unaudited)

Item 1 - Financial Statements (Unaudited) 3 Consolidated Statements of Income - For the three months ended March 31, 2024 and 2023 3 Consolidated Statements of Comprehensive Income - For the three months ended March 31 , 2024 and 2023 4 Consolidated Balance Sheets - As of March 31, 2024 and December 31, 2023 5 Consolidated Statements of Cash Flows - For the three months ended March 31, 2024 and 2023 6 Consolidated Statements of Shareholders' Equit y - For the three months ended March 31, 2024 and 2023 7

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 8

- Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 16

- Quantitative and Qualitative Disclosures About Market Risk

Item 3 - Quantitative and Qualitative Disclosures About Market Risk 27

- Controls and Procedures

Item 4 - Controls and Procedures 28

OTHER INFORMATION

PART II. OTHER INFORMATION

- Legal Proceedings

Item 1 - Legal Proceedings 29

- Risk Factors

Item 1A - Risk Factors 29

- Unregistered Sales of Equity Securities and Use of Proceeds

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 29

- Defaults Upon Senior Securities

Item 3 - Defaults Upon Senior Securities 29

- Mine Safety Disclosures

Item 4 - Mine Safety Disclosures 29

- Other Information

Item 5 - Other Information 30

- Exhibits

Item 6 - Exhibits 31

SIGNATURES

SIGNATURES 32 2 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Three Months Ended March 31, 2024 2023 REVENUES Royalty, licensing and management fees $ 105,467 $ 107,492 Initial franchise fees 6,705 7,882 Platform and procurement services fees 13,756 13,843 Owned hotels 24,991 22,332 Other 16,357 10,627 Other revenues from franchised and managed properties 164,673 170,616 Total revenues 331,949 332,792 OPERATING EXPENSES Selling, general and administrative 48,625 48,921 Business combination, diligence and transition costs 15,844 10,362 Depreciation and amortization 10,935 10,023 Owned hotels 19,323 17,146 Other expenses from franchised and managed properties 177,073 168,489 Total operating expenses 271,800 254,941 Operating income 60,149 77,851 OTHER EXPENSES AND INCOME, NET Interest expense 20,181 14,084 Interest income ( 1,731 ) ( 1,883 ) Other loss (gain) 1,336 ( 1,908 ) Equity in net loss of affiliates 155 63 Total other expenses and income, net 19,941 10,356 Income before income taxes 40,208 67,495 Income tax expense 9,199 14,675 Net income $ 31,009 $ 52,820 Basic earnings per share $ 0.63 $ 1.02 Diluted earnings per share $ 0.62 $ 1.02 Cash dividends declared per share $ 0.2875 $ 0.2875 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS) (UNAUDITED) Three Months Ended March 31, 2024 2023 Net income $ 31,009 $ 52,820 Other comprehensive income, net of tax: Foreign currency translation adjustment 454 394 Other comprehensive income, net of tax 454 394 Comprehensive income $ 31,463 $ 53,214 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (IN

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation and Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements of Choice Hotels International, Inc. and subsidiaries (collectively, "Choice" or the "Company") have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments that are necessary to fairly present the Company's financial position and results of operations. Except as otherwise disclosed, all adjustments are of a normal recurring nature. Certain prior year amounts in our consolidated financial statements have been reclassified in order to maintain comparability with the current year presentation. Business combination, diligence and transition costs, which were previously presented in selling, general and administrative expenses, are now presented within a standalone financial statement line item in the consolidated statements of income. The reclassification had no effect on the Company's previously reported operating income or net income. Certain information and footnote disclosures normally included in the consolidated financial statem

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