Choice Hotels International, Inc. · NYSE:CHH
Choice Hotels International — JP Morgan Gaming and Lodging Conference 2005
47 slides from Choice Hotels International's conference presentation, May 4, 2005
Slide 1: JP Morgan Gaming and Lodging Conference
JP Morgan Gaming and Lodging Conference May 4, 2005
Slide 2: Disclaimer
Disclaimer Certain matters discussed in this presentation may constitute forward-looking statements within the meaning of the federal securities law. Such statements are based on management’s beliefs, assumptions and expectations, which in turn are based on information currently available to managem
Slide 3: Company Overview
a Company Overview
Slide 4: Company Profile
Company Profile One of the Largest Hotel Companies in the World More than 5,000 hotels open worldwide representing more than 400,000 rooms 503 hotels under development representing approximately 39,200 rooms Our Brands Cover Many Segments Limited Service Full Service Economy Mid-Price Upscale Source
Slide 5: Company Profile (cont.)
Company Profile (cont.) Our Focus Is Solely on Hotel Franchising Highest returning model in the industry (vs. management or ownership) High margin, high cash flow with low capital requirements Scaleable and predictable Provides profitable growth opportunities Highly skilled in this area
Slide 6: Investment Thesis
Investment Thesis Strong, Stable and Growing System 5.4% increase in domestic hotels in 2004 552 new hotel contracts signed in 2004 (up from 470) 20 year contracts, barriers to exit Strong and Growing Annual Earnings and EBITDA EBITDA—$135 million (8% increase) Adjusted Diluted EPS—$2.16 (16% increa
Slide 7: Investment Thesis (cont.)
Investment Thesis (cont.) Management Focused on Creating Value Share repurchases – 32.8 million repurchased at $20.65 per share as of March 31, 2005; represents more than $676 million since inception of program Dividends – Current quarterly cash dividend of 0.225/share; subject to board approval and
Slide 8: Vision and Mission
a Vision and Mission
Slide 9: Vision and Mission
Vision and Mission Our Vision: To generate the highest return on investment of any hotel franchise Our Mission: Deliver a franchise success system of strong brands, exceptional services, vast consumer reach, and size, scale and distribution that delivers guests, satisfies guests, and reduces costs f
Slide 10: Management Philosophy
Management Philosophy Brand Growth & Equity Guest Satisfaction Increase Business Delivery Reduce Costs Brand and Hotel Performance Strong Brands Vast Consumer Reach Exceptional Services Size, Scale & Distribution Franchise Success System Shareholders Franchisees Guests Employees
Slide 11: 2005 Focus
a 2005 Focus BEESS82 = a
Slide 12: Aggressively Sell Our Brands
Aggressively Sell Our Brands Optimize Development Organization Continue to Align with Brand Strategies Diversify and Develop New Customers
Slide 13: Build Brand Equity
Build Brand Equity Stronger Consumer Focus Strengthen Brand Consistency, Quality, and Guest Satisfaction Bolster Information Systems
Slide 14: Create Opportunities in New Segments
Create Opportunities in New Segments Introduce Cambria Suites Build Capabilities in Extended Stay Build Capabilities in Upscale Segments Grow Internationally
Slide 15: Improve Brand and Hotel Performance
Improve Brand and Hotel Performance Stronger Property-Level Support Marketing and Reservations Programs Bolster Information Systems
Slide 16: Strategy
a Strategy LI Tt TT ttt]
Slide 17: Build Strong Brands
Build Strong Brands Among World’s Most Recognizable Hotel Brands Improved Brand Consistency and Quality Improved ROI for Owners Significantly Enhanced Franchise Sales Capability Brand Growth & Equity Guest Satisfaction Increase Business Delivery Reduce Costs Brand and Hotel Performance Strong Brands
Slide 18: Vast Consumer Reach
Vast Consumer Reach $50+ Million Marketing and Advertising Plan Creates brand awareness and loyalty Drives traffic Enhanced Loyalty Program Over 3.4 million members +$ 1 billion hotel program revenue to date Strong Direct Sales Capability $600 million in revenue Brand Growth & Equity Guest Satisfact
Slide 19: Vast Consumer Reach (cont.)
Vast Consumer Reach (cont.) State-of-the-Art Reservations System – All Channels $1.2 billion room revenue booked in 2004 – 30% delivery Strong Synergies with Internet Distribution Channels New Internet Channels Strengthen Franchise Increase distribution Improve placement Decrease complexity Lower co
Slide 20: Exceptional Services
Exceptional Services Full Complement of Hands-On Services Improve Profitability and Create Loyalty Complete Life-Cycle Service Offering Nationwide Footprint of Field-Based Employees State-of-the-Art Training Capabilities Operational and Yield Management Technology Purchasing Assistance Generates $13
Slide 21: Size, Scale, and Distribution
Size, Scale, and Distribution Lowers Costs and Increases Revenues for Owners Enables Highly-Valued Capabilities Brand awareness National marketing Reservations Services Technologies Franchising Model is Difficult to Duplicate Scale required to generate reasonable returns for shareholders Capital req
Slide 22: Performance
a Performance
Slide 23: Business Focus
Business Focus Profitably Grow Improve brand performance –ROI to owners (business delivery, reduced operating and development costs, products, marketing, services) Introduce new concepts (product design/innovation) Increase distribution (franchise development) Maximize Financial Returns and Create V
Slide 24: Profitably Grow
a Profitably Grow BEESS82 = a
Slide 25: Strong Financial Results: Franchising Revenues
Strong Financial Results Franchising Revenues ($ in millions) CAGR = 5.2% $210.0 $200.0 $190.0 $180.0 $170.0 $160.0 $150.0 2000 2001 2002 2003 2004 $166.2 $170.0 $172.1 $187.1 $203.80 + 9% Source: Choice Internal Data, December 2004. See Supplemental
Slide 26: Unit Growth in Any Environment
Strong Financial Results Unit Growth In Any Environment Domestic System Size CAGR = 4.2% 3,900 3,700 3,500 3,300 3,100 2,900 2,700 2,500 1997 1998 1999 2000 2001 2002 2003 2004 Source: Choice Internal Data, December 2004.
Slide 27: Recurring EBITDA
Strong Financial Results Recurring EBITDA ($ in millions) $140 $135 $130 $125 $120 $115 $110 $105 $100 $95 $90 2000 2001 2002 2003 2004 $104.1 $108.7 $116.0 $125.2 $134.9 CAGR = 6.7% + 8% Source: Choice Internal Financial Data, December 2004. See Supplemental.
Slide 28: Adjusted Diluted EPS
Strong Financial Results Adjusted Diluted EPS $2.25 $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 2000 2001 2002 2003 2004 $1.03 $1.16 $1.52 $1.87 $2.16 CAGR = 20.3% + 16% Source: Choice Internal Financial Data, December 2004. See Supplemental.
Slide 29: Franchise Development
Strong Financial Results Franchise Development (New Contracts Sold) Executed Contracts 600 550 500 450 400 350 300 250 1999 2000 2001 2002 2003 2004 $ in millions $15.0 $13.0 $11.0 $9.0 $7.0 $5.0 Deals Initial Fee Revenue Source: Choice Internal Data, December 2004.
Slide 30: Franchise Sales Improvement
Strong Financial Results 17% Franchise Sales Improvement (470 to 552 deals) 2004 Year End Development Results Number of Executed Deal 0 50 100 150 200 250 300 Limited Service Full Service Economy Service 2003 2004 Source: Choice Internal Data, December 2004.
Slide 31: Year End Development Results
Strong Financial Results Year End Development Results NEW CONSTRUCTION CONVERSION TOTAL 2004 2003 % 2004 2003 % 2004 2003 % Units Units Change Units Units Change Units Units Change Comfort Inn 39 33 18.2% 71 63 12.7% 110 96 14.6% Comfort Suites 78 46 69.6% 5 5 0.0% 83 51 62.7% MainStay 16 3 433.3% 1
Slide 32: 1st Quarter Performance
1st Quarter Performance (Dollars in thousands, except per share amounts) Three-Months Ended March 31, 2005 2004 % Change Financial Franchising Revenues (in thousands) $41,205 $37,111 11.0% Cash Flow From Operations $16,867 $22,514 (25.1%) EBITDA (in thousands) $24,624 $21,433 14.9% Diluted EPS $0.36
Slide 33: Growth Opportunities
Growth Opportunities Many Markets Remain Available Market Share Analysis CHOICE Units Share COMPETITOR Units Clarion 158 4.6% Other Franchised Properties 2,042 Independents 1,232 Comfort Suites 389 4.2% Holiday Inn Express 1,287 Comfort Inn 1,432 15.6% Hampton Inn/Suites 1,234 Other Franchised Prope
Slide 34: Maximize Returns
a Maximize Returns
Slide 35: Maximize Returns
Maximize Returns High Margins, After-Tax Free Cash Flow, and Returns on Capital Year Ended December 31, ($ in millions) 2004 2003 Change Franchising Margins 60.9% 60.4% 5 bps Cash Flow From Operations $107.8 $115.5 (6.7%) CAPEX $6.9 $8.5 (23.2%) After-Tax Free Cash Flow $94.1 $99.3 (5.2%) ROIC 38.2%
Slide 36: Create Value
a Create Value BEESS82 = a
Slide 37: Create Value
Create Value Management Focused on Creating Value Share repurchases – 32.8 million repurchased at $20.65 per share as of March 31, 2005; represents more than $676 million since inception of program Dividends – Current quarterly cash dividend of $0.225/share; subject to board approval and business pe
Slide 38: Closing Comments
Closing Comments Strong Earnings Per Share, EBITDA, and Cash Flow Growth Proven Earnings Stability Even through Industry/ Economic Downturns Pure-Play Franchise Focus, Highest Returning “Model” in the Industry High Operating Margins Significant Free Cash Flow Experienced Management Team Focused on S
Slide 39: Supplemental
a Supplemental BEESS82 = a
Slide 40: Continuing Cash Flow Potential
Continuing Cash Flow Potential Multiple Revenue Levers (Unaudited) Revenue Driver Estimated Estimated Impact on Impact on Royalties Diluted EPS1,2 RevPAR 1% = $1,768,000 $0.03 Improvement 5% = $8,840,000 $0.16 New Franchise 1% (40 units) = $1,768,000 $0.03 Growth 5% (200 units)= $8,840,000 $0.16 Imp
Slide 41: Recurring EBITDA
Recurring EBITDA (Unaudited) March 31, March 31, December 31, December 31, December 31, December 31, December 31, 2005 2004 2004 2003 2002 2001 2000 Operating Income $22,299 $18,899 $125,000 $113,983 $104,700 $73,577 $92,427 Adjustments Depreciation and Amortization 2,325 2,534 9,947 11,225 11,251 1
Slide 42: Adjusted Net Income and Adjusted Diluted EPS
Calculation of Adjusted Net Income and Adjusted Diluted Earnings Per Share (EPS) (Unaudited) (In thousands, except per share amounts) Twelve Months Ended December 31, December 31, December 31, December 31, December 31, 2004 2003 2002 2001 2000 Net Income $74,345 $71,863 $60,844 $14,327 $42,445 Adjus
Slide 43: Franchising Revenues and Margins
Calculation of Franchising Revenues and Margins (Unaudited) (Dollar amounts in thousands) Three Months Ended Twelve Months Ended March 31, March 31, December 31, December 31, December 31, December 31, December 31, 2005 2004 2004 2003 2002 2001 2000 Franchising Revenues and Margins Total Revenues $91
Slide 44: NOPAT and ROIC
Calculation of NOPAT and ROIC (Unaudited) (In thousands) Twelve Months Ended December 31, December 31, 2004 2003 Pre-Tax Income $114,524 $112,407 Depreciation Expense 9,947 11,225 Interest Expense 11,605 11,597 Other Income and Expenses (1,129) (10,021) EBITDA 134,947 125,208 Less: Depreciation Expe
Slide 45: NOPAT and ROIC (cont.)
Calculation of NOPAT and ROIC (cont.) (Unaudited) (Dollar amounts in thousands) Twelve Months Ended December 31, December 31, 2004 2003 Long-Term Assets: PPE $47,492 $54,253 Intangibles 92,722 96,003 Other 53,545 57,784 Total Long-Term Assets: 193,759 208,040 Working Capital: Current Assets 69,593 5
Slide 46: After-Tax Free Cash Flows
Calculation of After-Tax Free Cash Flows (Unaudited) (In thousands) Twelve Months Ended December 31, December 31, 2004 2003 Net Cash Provided by Operating Activities $107,799 $115,485 Investment in property and equipment (6,859) (8,480) Issuance of notes receivable (2,264) (4,433) (Purchases) sales
Slide 47: Non-GAAP Financial Measures
Non-GAAP Financial Measures Recurring EBITDA, adjusted net income, adjusted diluted earnings per share, franchising revenues and margins, net operating profits after taxes (NOPAT), return on invested capital (ROIC) and after-tax free cash flows are non-GAAP financial measurements. These financial me
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