Changing Course: Choice Hotels and Others

INTERNATIONAL REPORT—As the COVID-19 pandemic continues, companies have taken measures to minimize the effect it has on long-term operations. Here’s a look at some of them:

Choice Hotels International
Choice Hotels International Inc. has provided an update on the impact of the coronavirus pandemic on its business.

“Today, as it has been for more than 80 years, our primary focus remains on the health and well-being of our guests, franchisees and associates,” said Pat Pacious, president/CEO, Choice Hotels. “The resolve of our associates and franchise owners—who are helping healthcare workers, first responders and critical infrastructure travelers with lodging during this trying period—is remarkable.

“Given the broad-based uncertainty of the current environment, we have taken decisive actions over the past several weeks to position the company for changing market dynamics and enhanced our financial flexibility to sustain the long-term health of the business,” he continued. “We are confident in our ability to weather this storm, while supporting our franchisees as they navigate uncharted waters. Choice Hotels has been through challenging times before and, each time, the company has always emerged stronger given its long-term focus, proven brands, high-caliber associates and broad franchisee base.”

Balance Sheet, Liquidity and Mitigation Plans
In recent weeks, the company has adopted mitigation efforts to alleviate the impact of the pandemic on the business. These efforts include improving its cash position, bolstering liquidity and reducing discretionary costs.

The company continues to benefit from its primarily franchise-only business model, which has historically provided a relatively stable earnings stream and low capital expenditure requirements. In addition, the company has $489 million in cash and available borrowing capacity through its revolving credit facility and has additional available options to increase capacity, if needed. As a result, the company expects to withstand the impacts of COVID-19 on its business.

In addition, management and the board of directors have taken steps to adjust the company’s cost structure and increase its financial flexibility, which include, but are not limited to, the following actions:

  • Reduced the compensation of the board, CEO and other executive officers for the remainder of 2020
  • Implemented a hiring freeze except with respect to certain critical positions, suspended associates’ 401(k) match and implemented a temporary furlough for certain positions in Europe, where government-mandated and other closures have been more prevalent
  • Eliminated, reduced or deferred nonessential expenditures, discretionary capital expenditures and investments
  • Suspended the company’s share repurchase plan
  • Determined to suspend future, undeclared dividends for the remainder of 2020

Business Update—Franchisee and Guest Support
The company has taken several measures to support its franchisees and guests during this challenging time. The measures to date include, but are not limited to, the following:

  • Implemented fee-deferral programs for domestic and international franchisees
  • Suspended one-time finance charges, reputation management fees and guest relations handling fees
  • Paused quality assurance reviews, extended capital-intensive brand deadlines and created more flexible brand standard options in line with the current operating environment
  • Successfully advocated to expand the amount of and eligibility requirements for government relief SBA programs and other CARES Act benefits to help franchisees retain employees and service their debt
  • Established a proactive, ongoing multi-channel franchisee outreach and education program that is actively helping thousands of hotel owners access this newly available capital
  • The company also revised its guest cancellation policy to provide travelers greater flexibility during these challenging times and deferred the expiration of loyalty points. Members of the company’s Choice Privileges loyalty program can donate points toward the American Red Cross’ COVID-19 relief efforts and the International Franchise Association’s Franchising Gives Back Program, which provides support to small businesses and local non-profits across the nation.

Marcus Hotels & Resorts
Marcus Hotels & Resorts, a division of The Marcus Corporation, is temporarily closing additional properties across its portfolio. This decision includes all of the following hotels owned by the company that are currently still open: The Pfister Hotel in Milwaukee; The Platinum Hotel in Las Vegas; Hilton Madison Monona Terrace in Wisconsin; and the AC Hotel Chicago Downtown in Chicago. Additionally, with respect to the hotels that it manages for third-parties, the company is working with the owners of those properties to temporarily close the hotels or transition management.

“Our top priority in this unprecedented time, as it has always been through our history, is focused on the safety and well-being of our associates, guests and community. Like so many businesses today, we are presented with difficult decisions. Given the drastic and ongoing challenges facing our industry and business, we are closing additional properties across our portfolio and hope this decision will also help our nation’s efforts to slow the spread of the novel coronavirus,” said Michael R. Evans, president of Marcus Hotels & Resorts. “These continue to be especially trying times, and we remain committed to diligently helping our associates that have been most adversely impacted by this situation. Amidst these challenges, our underlying hope is that we will only be closed for a short period of time and our team will soon be back together welcoming guests through our doors.”

Agilysys Inc.
Agilysys Inc. has put in place a set of actions in response to COVID-19.

“During these extraordinarily challenging times, the health and safety of our employees and customers remain our greatest concern,” said Ramesh Srinivasan, president/CEO of Agilysys. “We are continuing to provide uninterrupted service to our customers. The working-from-home arrangement for practically our entire global workforce has worked out smoothly. We remain healthy and productive.

“We do expect revenue and profitability levels for the fourth quarter of fiscal 2020 and the next fiscal year to be negatively affected by the current significant market headwinds,” he continued. “The extent of the negative effect for the next fiscal year is unpredictable at this time. We will miss the January-March quarter (Q4 of FY20) revenue guidance outlined in our last quarterly earnings release. However, we remain confident that all the competitive advantages we have worked hard to build during the past few years will serve us well once the economic environment starts moving toward normalcy.”

He continued, “We entered these tough times with no bank debt and our highest cash position since June 2017. We ended this fourth quarter with more than $46 million in cash. While we face an uncertain near-term environment, we remain confident we will do well and continue our growth path on the other side of this crisis. We are currently taking significant steps to improve our own financial position while supporting our valued customers over the short, medium and long term. For the next six months, my CEO salary will be reduced to zero and significant salary reductions will be put in place for all our senior employees, including the board of directors and the executive management team. In addition, unfortunately, we are also reducing our staffing levels, both on a permanent and temporary basis, in roles not essential to managing the short term in this current environment. There are several other major cost reduction measures that we have implemented.”

He added, “We are fortunate to be in a business where our recurring revenue is not transaction based, and our software applications are mission critical for our valued customers. We are working to help our customers through these challenging circumstances. We are in a good position to have a significant number of cost dials we can manage as necessary, without slowing down our pace of product innovation. Our next earnings call is currently planned for the second half of May, a few weeks later than a normal quarter since this is our fourth quarter and end of our fiscal year 2020. We look forward to discussing our business in greater detail at that time, and we hope for the continued health and safety of our employees and customers.”