Earnings call transcript: Choice Hotels Q1 2025 misses EPS forecast, stock dips

Choice Hotels International Inc. reported its first-quarter results for 2025, revealing an adjusted earnings per share (EPS) of $1.34, slightly below the forecast of $1.38. Revenue for the quarter reached $333 million, also missing the anticipated $348.15 million. This underperformance contributed to a pre-market stock decline of 3.87%, with shares dropping by $4.87 to $120.91. According to InvestingPro analysis, the company maintains impressive gross profit margins of 89.49% and has consistently paid dividends for 22 consecutive years, demonstrating operational efficiency despite short-term challenges.

Key Takeaways

• Adjusted EPS of $1.34, a 5% increase year-over-year, but below forecast.
• Revenue fell short of expectations, leading to a stock decline.
• Strong growth in domestic RevPAR and extended stay segments.
• New product innovations and expanded loyalty program.
• Guidance for full-year 2025 EPS between $6.90 and $7.22.

Company Performance

Choice Hotels demonstrated resilience in Q1 2025, with a 4% increase in adjusted EBITDA to $129.6 million and a 5% rise in adjusted EPS to $1.34 compared to the previous year. The company reported a 3.9% growth in global rooms and a notable 2.3% increase in domestic revenue per available room (RevPAR). InvestingPro data shows the company trading at a P/E ratio of 18.98, suggesting reasonable valuation relative to its near-term earnings growth potential. Despite these gains, the company faced challenges in meeting revenue forecasts, which impacted market sentiment. Get access to 8 more exclusive InvestingPro Tips and comprehensive financial analysis with an InvestingPro subscription.

Financial Highlights

• Revenue: $333 million, below the $348.15 million forecast.
• Adjusted EPS: $1.34, a 5% increase year-over-year but below the $1.38 forecast.
• Adjusted EBITDA: $129.6 million, up 4% year-over-year.
• Domestic RevPAR: +2.3% year-over-year.
• Domestic extended stay RevPAR: +6.8% year-over-year.

Earnings vs. Forecast

Choice Hotels’ Q1 2025 EPS of $1.34 fell short of the $1.38 forecast, marking a 2.9% miss. Revenue also missed expectations by 4.4%, coming in at $333 million against a forecast of $348.15 million. The earnings miss is notable given the company’s consistent performance in previous quarters, where it generally met or exceeded expectations.

Market Reaction

The pre-market trading session saw Choice Hotels’ stock decline by 3.87%, with shares dropping to $120.91. This movement reflects investor concerns over the missed earnings and revenue forecasts. The stock is now trading closer to its 52-week low of $109.22, compared to a high of $157.86, indicating a cautious market outlook. Based on InvestingPro’s Fair Value analysis, the stock appears undervalued at current levels, with a Financial Health Score rated as GOOD. Discover detailed valuation metrics and access the comprehensive Pro Research Report, available for over 1,400 US stocks, to make more informed investment decisions.

Outlook & Guidance

Choice Hotels has set a full-year 2025 adjusted EPS guidance between $6.90 and $7.22, with adjusted EBITDA expected to range from $615 million to $635 million. The company anticipates domestic RevPAR to remain stable, with expectations ranging from -1% to +1%. Growth is projected from international markets, partnership fees, and an effective royalty rate.

Executive Commentary

CEO Pat Pacias emphasized the company’s strategic transformation, stating, "We have transformed the company to be future ready." CFO Scott Oaksmith highlighted the company’s versatile business model, asserting, "Our versatile business model provides multiple drivers to grow our business." These statements underscore management’s confidence in navigating current challenges and achieving long-term growth.

Risks and Challenges

• Macroeconomic uncertainty could impact travel demand.
• Increased competition in the hospitality sector.
• Potential supply chain disruptions affecting operations.
• Fluctuations in business travel demand.
• Dependence on economic conditions in key markets.

Q&A

During the earnings call, analysts inquired about the impact of macroeconomic uncertainties and consumer resilience. The company addressed its strong performance in business and extended stay segments and discussed conversion velocity and development opportunities. International expansion strategies were also a focal point, highlighting the company’s efforts to diversify its revenue streams.

Full transcript - Choice Hotels International Inc (CHH) Q1 2025:

Conference Operator: Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International’s First Quarter twenty twenty five Earnings Call. At this time, all lines are in a listen only mode. I’ll now turn the conference over to Ali Summers, Investor Relations Senior Director for Choice Hotels.

Ali Summers, Investor Relations Senior Director, Choice Hotels International: Good morning and thank you for joining us today. Before we begin, we would like to remind you that during this conference call, certain predictive or forward looking statements will be used to assist you in understanding the company and its results. Actual results may differ materially from those indicated in the forward looking statements, and you should consult the company’s Form 10 Q, 10 ks and other SEC filings for information about important risk factors affecting the company that you should consider. These forward looking statements speak as of today’s date, and we undertake no obligation to publicly update them to reflect subsequent events or circumstances. You can find a reconciliation of our non GAAP financial measures referred to in our remarks as part of our first quarter twenty twenty five earnings press release, which is posted on our website at choicehotel.com under the Investor Relations section.

This morning, Pat Pacias, President and Chief Executive Officer, will speak to our first quarter operating results and update on our strategic priorities, while Scott Oaksmith, Chief Financial Officer, will discuss our financial performance and outlook for the remainder of the year. Following our prepared remarks, we’ll be glad to answer your questions. And with that, I will turn the call over to Pat.

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: Thank you, Ali, and good morning, everyone. We appreciate you taking the time to join us. It has been a successful start to the year as the momentum we’ve created from our strategic investments has carried forward into the first quarter driving our adjusted EBITDA 4% higher and our adjusted earnings per share 5% higher year over year. The investments in our business delivery engine have increased the attractiveness of our brands, resulting in a 3% year over year net increase in global rooms in the first quarter, including a 4% net increase for our more revenue intense rooms. We also continue to excel at what we do best, delivering guests to our franchisees.

In the first quarter, we outperformed our chain scales in domestic RevPAR performance, captured demand across multiple regions of the country and achieved RevPAR index share gains versus competitors. These results reflect the improved mix of guests that we are now delivering. Today, approximately 40% of our overall mix is business travelers, which we believe is well balanced between business and leisure travel. Importantly, Choice’s business travelers have a relatively resilient profile. These are guests whose job cannot be accomplished without traveling.

They comprise key categories such as construction, regional sales, utilities, and medical staffing, and we are now capturing additional longer term opportunities from companies involved in the substantial infrastructure investments required by GenAI and the push towards the reshoring of American manufacturing. We anticipate these trends will continue to accelerate. And through our deliberate strategic positioning of our portfolio, Choice is poised to capture this demand. Our business travel segment grew 10% year over year in the first quarter driven by both group and business transient travel and supported by our expanding upscale and extended stay portfolio of hotels. Notably, we achieved an impressive year over year revenue increase of over 50% from group travel business in the first quarter.

We delivered these strong results despite increased macro uncertainty, demonstrating that our strategy continues to succeed and reinforcing our confidence in our long term outlook and ability to create value through our strategic investments. As we look to the future, our global pipeline provides a strong platform for long term growth. With 98% of the rooms within our more revenue intense brands. This means that our pipeline should generate significantly higher revenue compared to our existing portfolio driven by a substantial RevPAR premium, a higher average effective royalty rate and a larger room count per hotel. The versatile business model we have built has allowed us to deliver stable returns and provide diversified avenues of growth throughout different economic cycles.

Historically, in periods of economic uncertainty, our differentiated positioning has enabled us to outperform our peers, gain market share and emerge stronger. Choice has an increasingly diverse portfolio of well segmented brands across a wide variety of price points to suit the needs of a broad array of consumers and hotel developers. We have made tremendous progress since we embarked on our distinct strategy to strengthen the company’s position in more revenue intense segments and markets. We have added brands in our strategic growth segments over the past several years and have expanded our domestic mix of more revenue generating rooms by 11 percentage points to 88% of our system over that period. Notably, the revenue generated by an average hotel in our portfolio has increased 17% over that period.

The addition of these new brands expands our opportunities to grow our hotel franchise system in all market conditions as they offer both new construction and conversion opportunities for developers to grow their portfolio with us depending on their needs. In addition, all of our hotels realize the benefits of our increased scale, including our technology investments, more valuable rewards program and expanded partnerships. Diversification has also made our business more resilient, particularly with our continued growth in the cycle resilient extended stay segment. We have increased the size of our extended stay portfolio by 19% over the past five years to approximately 53,000 rooms with the segment’s pipeline now representing half of the total domestic rooms pipeline. An increased extended stay footprint gives us even more confidence in the resilience of our business because in times of uncertainty, we have historically seen demand remain relatively strong for our extended stay hotels.

We have also strengthened the entire business by attracting higher income, more resilient customers who have the means to keep spending and traveling through economic cycles. And that means we’re delivering customers with a greater lifetime value to our franchisees. In fact, half of our customers now have annual household incomes exceeding $100,000 which means they are more than 24% higher than the median national household income and nearly 20% surpass $200,000 At the same time, we expanded our rewards program to over 70,000,000 members, an 8% year over year increase as of the end of the first quarter. These loyal customers are six times more likely to book direct through Choice channels and stay an average of 90% more room nights per year than our non rewards members. Growth in our membership is the direct result of us creating a more compelling program, including introducing new aspirational hotels and exciting new experiences such as music, racing, and college sport event redemption options as well as adding new rewards program features.

We are seeing the results with a more engaged customer base as demonstrated by a 28% year over year increase in the number of global reward night redemptions during the first quarter. With gas prices trending lower and approximately 90% of our domestic portfolio within one mile of a highway, we provide value seeking travelers the opportunity to travel and take vacations in a more affordable way closer to home. This is particularly compelling for our customer base, which is comprised primarily of domestic travelers. Additionally, our strong portfolio of midscale hotels offers an affordable, high quality option for travelers who might be seeking to trade down. Likewise, we see attractive tailwinds coming from one of our core customer segments, baby boomers.

Over 4,000,000 people are expected to reach retirement age this year in The U. S. And they have more time and disposable income to travel for leisure and seek brands like ours that provide value for their money. And the pool of these retired travelers continues to expand with more than one in five Americans expected to be 65 years old or over by 02/1930. Just last week, we hosted our sixty ninth annual convention.

The level of enthusiasm and support we heard from our thousands of franchisees about the ways we are driving growth and the future of our brands was remarkable. The convention is also a significant business development opportunity for us to sign new franchise agreements. During the event, we highlighted some of our recent investments, specifically our new Choice Hotels website and mobile apps, which have helped drive improved performance through strong year over year increases in booking conversion rates across all of our chain scales, including double digit increases for our upscale properties our targeted hotel profitability tools, which continue to drive potential cost savings of up to 20% on the franchisee level and our recently launched one stop owners platform, which makes it even easier for our franchisees to access actionable intelligence to run their businesses. Our larger scale has allowed us to invest more in technology to enhance the guest experience and the value we bring to our franchisees. This is one of the key reasons our existing owners choose to expand their hotel portfolio with Choice Hotels and contributes to our industry leading voluntary franchisee retention rate.

As we look to grow our brand portfolio, we remain very well positioned. In addition to our proven strength in the midscale segment, the company has well established brands with significant growth potential in the two segments with the highest developer and guest demand, extended stay and upscale limited service. These segments are more accretive to our earnings and continue to be a key driver of our future growth. Continuing to innovate has contributed to us further expanding our lead in the extended stay segment as we added more than 5,000 extended stay rooms domestically in the first quarter. For seven consecutive quarters, we have grown our domestic extended stay room system size by double digits year over year and we expect this higher than industry average growth to continue With nearly half of the economy and mid scale extended stay segment rooms currently under construction being Choice Hotels brands, we are well positioned for future growth.

We also continue to strengthen our core brand portfolio, which outperformed overall mid scale RevPAR chain scale and attracted strong development growth in the first quarter. Importantly, we recently introduced new value engineered prototypes for the Comfort brand family and the Country Inn and Suites by Radisson brand that provide more revenue driving spaces for owners and achieve a 10% to 15% reduction in construction costs. We are already realizing returns from these investments. In fact, during the first quarter, our Country Inn and Suites by Radisson brands RevPAR outperformed the upper midscale segment by nearly two percentage points. In the upscale segment, we continue to expand our presence, increasing the global room system size by 16 year over year to over 110,000 rooms, now representing 17% of our overall system.

With nearly 27,000 more upscale global rooms in the pipeline, an 8% increase over the prior quarter, we will be providing our guests even more aspirational locations to visit. We’ve often spoken about a key differentiator for our business, the velocity with which we move hotels through our pipeline. I’m pleased to say that velocity in the first quarter accelerated versus the prior quarter. Of the domestic franchise agreements we executed for conversion hotels for the 12 ending March 31, we opened 170 within that timeframe, a 26% increase compared to the same period of the prior year. This conversion capability benefits Choice as we capture royalties in the system faster and it benefits our franchise owners who can quickly join our distribution platform and start generating revenues.

We are encouraged by the continued traction for our conversion brands and we expect this hotel conversion core competency to be a key growth driver this year. I’d now like to turn to another growth area, our international business, where in the first quarter, we expanded our rooms portfolio by over 4% year over year. And with a rooms pipeline that has increased by 13% compared to the prior quarter, we continue to see a significant opportunity to further gain international market share in the coming years. In closing, by successfully executing our strategy, we have transformed the company to be future ready and have established a strong foundation for near term stability and long term growth. Our proactive investments and a versatile asset light fee based model have meaningfully enhanced our company’s growth profile and allow us to generate multiple avenues of growth throughout various economic cycles.

We continue to grow our significant free cash flow annually and our priority use of this capital is to create long term value as we remain focused on enhancing our value proposition and driving organic growth while returning excess cash to shareholders. I will now turn the call over to our CFO. Scott?

Scott Oaksmith, Chief Financial Officer, Choice Hotels International: Thanks, Pat, and good morning, everyone. Today, I will discuss our first quarter results, update you on our balance sheet and capital allocation, and comment on our outlook for the remainder of 2025. We are pleased with the first quarter results we delivered, which were in line with our expectations, despite a weaker than anticipated macroeconomic environment. We drove adjusted EBITDA to a first quarter record of $129,600,000 representing a 4% year over year increase, highlighted by a combination of global rooms growth, strong RevPAR, robust effective royalty rate growth and the impressive performance of fees from our partnership programs. Our first quarter adjusted earnings per share also reached a first quarter record of $1.34 per share, a 5% increase year over year.

Let me first discuss our key drivers of royalty fee growth, which include unit growth, RevPAR performance and our royalty rate. In the first quarter, our global rooms grew 3.9% year over year across our more revenue intense upscale, extended stay and midscale portfolio, and our total worldwide rooms grew by 2.8%. We continue to see strong developer interest in our brand portfolio, with particular demand for our extended stay and midscale segments. We also recently announced a partnership with the innovative Bridge platform, which helps optimize the loan search process, providing access to a wider range of affordable financing solution for hotel owners and developers. We believe this new partnership will expand access to capital sources and accelerate the timeline to secure financing that will support the development of both new construction and the conversion of hotels into our franchise system.

Our deliberate decisions and strategic investments in our franchisee tools, brand portfolio and partnerships are delivering results across all our brand segments. First, we grew our domestic extended stay room system size by 11% year over year, highlighted by a 14% increase in domestic openings. At the same time, we saw a 14% increase in domestic franchise agreements awarded year over year. The Everhome Suites brand is gaining strong traction with 11 hotels now open and 62 domestic projects in the pipeline, including 18 under construction as of today. Second, we further strengthened our presence in the midscale segment, highlighted by a 10% increase in midscale domestic franchise agreements executed year over year.

Our flexible and low cost conversion Clarion Point brand portfolio continues to grow with a 10% increase in global rooms in the first quarter compared to the prior year. And third, we are continuing to expand our upscale portfolio with a 16% increase in global rooms year over year. Specifically, our Ascend Hotel Collection, a leading global soft brand, reported a 13% year over year increase, reaching nearly 59,000 rooms worldwide. Turning now to our RevPAR performance. Our first quarter domestic RevPAR outperformed our chain scales by 60 basis points, increasing 2.3% year over year.

This was driven by a 30 basis point improvement in occupancy levels and a 1.7% year over year increase in average daily rates. Our domestic extended stay segment performed exceptionally well, achieving first quarter RevPAR growth of 6.8% over prior year and outperformed the industry by over four percentage points. At the same time, our domestic overall midscale segment achieved first quarter RevPAR growth of 1.7% over the prior year, outperforming its chain scale by 30 basis points. While our Domestic Economy segment achieved first quarter RevPAR growth of 7.1% over the prior year, outperforming its chain scale by over four percentage points. Turning to our third royalty growth lever, our effective royalty rate also continues to be a significant source of revenue growth.

Our domestic system effective royalty rate for the first quarter increased eight basis points year over year. This performance demonstrates the positive impact of our strategy to drive the growth of our revenue intense brand portfolio and our enhanced value proposition to franchise owners. We are optimistic about the ongoing upward trajectory of our effective royalty rate for years to come as the contracts in our domestic pipeline have a significantly higher effective royalty rate than those in our current portfolio of open hotels. We continue to build on the strong momentum of our partnership business. Our partnership services and fees encompass revenues from our strategic partners and vendors, including licensing and co brand credit card fees.

These revenues increased 28% year over year in the first quarter and benefited from both an increase in revenues from our qualified vendors and co brand credit card fees. Continuing to expand our partnership services and fees is one of our key initiatives, and we believe that we can drive strong revenue growth in the years ahead. In the three months ended 03/31/2025, we generated $36,000,000 in adjusted free cash flows, a 30% year over year increase. Our business continues to produce strong cash flow, which coupled with our well positioned balance sheet allows us to execute our capital allocation priorities, including investing in the growth initiatives while also returning significant capital to shareholders. Year to date through April, we’ve returned $115,000,000 to shareholders, including $27,000,000 in cash dividends and $88,000,000 in share repurchases.

We had 3,200,000.0 shares remaining in our authorization as of the April. We remain well positioned with a strong cash position, leverage levels at the low end of our targeted range and total available liquidity of $594,000,000 as of 03/31/2025. Before discussing our outlook, I want to note a few changes we made to our income statement. During the first quarter, we reclassified select items to classify revenue and expenses based on the nature of the underlying activities and also reclassified corresponding prior year amounts for comparability. These reclassifications have no effect on previously reported total revenues, expenses or net income amounts.

For additional information on these reclassifications, please see our earnings release and Form 10 Q. Finally, I’d like to discuss our expectations for the remainder of the year. Reflecting the more uncertain macroeconomic backdrop, which is impacting the lodging industry, we are updating our full year 2025 outlook. While January and February domestic RevPAR performed in line with our expectations, we started to observe a softening in late March when a broader macro uncertainty intensified. As a reminder, April saw the significant impact of the Easter shift and a tougher comparison as we benefited from eclipse related travel in 2024.

When normalizing for these impacts and accounting for the hurricane benefit, April RevPAR performance was down approximately 1% year over year. Given these recent trends, we are adjusting our domestic RevPAR expectations to negative 1% to positive 1%. The high end of our range assumes our RevPAR performance for the remainder of the year is largely in line with the outlook we provided in February. The midpoint of this range assumes that the current trends we have seen from late March through April continue for the remainder of the year, and the low end implies that conditions softened modestly. For the full year 2025, we now expect our adjusted EBITDA to be in the range of $615,000,000 and $635,000,000 and adjusted diluted earnings per share to be in the range of $6.9 and $7.22 This guidance adjustment reflects a more moderate domestic RevPAR growth expectation offset by effective cost management.

We now anticipate our guidance for full year adjusted SG and A to be at the lower end of our growth range of low to mid single digits from the 2024 base of $276,000,000 Additionally, to align with the revenue reclassifications that I discussed, we are now providing guidance for these reclassified line items. For full year 2025, we expect our partnership services and fees to grow in the mid single digits from the 2024 base of $99,000,000 While we recognize the broad macro uncertainty, we remain confident in the resilience of our portfolio, the versatility of our model and the strength of our fee based business. We anticipate growth will be driven by organic growth across more revenue intense hotels and markets, robust effective royalty rate growth, growth from our partnership revenue streams, strong international business and incremental revenue generating opportunities from our expanded scale. This outlook does not account for any additional M and A, repurchase of the company’s stock after April 30 or other capital markets activity. Today’s results are a testament that our strategy is working and that we are benefiting from our expanded scale and versatile business model.

We intend to keep investing in those areas of our business that will generate the highest return on our capital. At this time, Pat and I would be happy to answer any of your questions. Operator?

Conference Operator: Session. Should you wish to decline from the polling process, please press star followed by the two. If you are First question comes from Shaun Kelley with Bank of America. Please go ahead.

Shaun Kelley, Analyst, Bank of America: Hi, good morning everybody. Thank you for taking my questions. Pat or Scott, maybe we could just start with your big picture on consumer and the macro. Pat, you talked a little bit about how you’re well positioned for trade down. But what’s sort of unique as we’ve moved through earnings season here is we’ve seen the softness primarily in leisure and lower end chain scales relative to the industry and the high end has been hanging in a little bit better.

So kind of when or how do you expect to see a little bit of that trade down? And why do you think that the softness we’ve seen so far has been so acute in kind of the lower end travel segment right now?

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: Yes. So let me start, Sean, with the just over the macro. I mean, you look at our q one results, it really demonstrates that our strategy is continuing to deliver. If you look at our 3% to 4% net rooms growth, record EBITDA, RevPAR outperforming our chain scales, RPI increases, we’ve got an increased international footprint. Scott talked about our extended or our expanded partnership streams, and most importantly, probably is our rewards program growth.

So, you know, what we really wanted to make sure everybody understands in our remarks is is the change in the consumer profile that we now have in our business. You look at the diversified places where our consumers are coming from now, we’ve got a higher income consumer today than we’ve had in the past. That average consumer is reporting that they’ve got 24% higher national median household income than the, you know, US average and 20% are over 200,000. So we’ve got a stronger consumer in our business. We talked about we’ve got more business travelers.

40% of our business in the q one is now business travel. And, you know, I think when you look at trade down, what we’re not seeing is trade down in our system. We are seeing though market share gains in our in our system. And I wanna particularly point to our economy segment, which was up 7%, which is 4% higher than the chain scale, and extended stay, which was also up 7%, which is 4% higher than the chain scale did. So we are taking share.

That’s clearly what we saw in the early part of the quarter here or the early part of the year that is. And then I would just say, with what we’re seeing through April and then even into looking at last week, you know, we again saw RevPAR index gains primarily in occupancy, which is really, really a positive signal for us. So, you know, when you look at this sentiment out there that that leisure is softening, we’re not actually being impacted in a meaningful way by that because I think what’s happening is, which happens in these times when things get softer, we are taking share, and that has historically happened. So while we’re in the early days of this sort of softening cycle, we’re pretty optimistic that the way we’ve repositioned our brands, the way our consumer has gotten that much more resilient from an income perspective, And then the diversification between business and leisure travel, I think, is really going to benefit us as we move throughout the rest of the year.

Shaun Kelley, Analyst, Bank of America: Great. And then just as a follow-up on the net unit growth side of the equation, could we just talk about sort of ex Westgate, your organic growth expectations as we move through the balance of the year? Is the implication that net rooms accelerates? And sort of why would we see a pattern there relative to kind of what you saw in the first quarter?

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: Yeah. I think let me just start. I mean, I think we’re really confident in our guidance of about 1% worldwide rooms growth. International continues to be a key driver of that growth. International is now expected to be in that kind of high single digits.

And then I think the second piece of it is our historical competency around conversions. The real focus, as we mentioned in our remarks, is the velocity with which we’re able to move projects from pipeline into our system. As we mentioned, we opened 170 hotels within that last twelve month time frame, which is actually a 26% increase. So we’re seeing the velocity improving. And we’re in a world right now where 73% in Q1 of our openings were from conversion hotels.

Scott Oaksmith, Chief Financial Officer, Choice Hotels International: Yes. And I also just point out, if you think about it, historically, our first quarter has been more of a higher of a termination rate for us. But as the year goes on, those tend to go down. It’s just the timing and the cycle of when our contracts are executed and when we make our portfolio management decisions. But as Pat said, a great news is our brands remain in high demand and still seeing a great activity on the executed contract front, with people wanting to affiliate with our strong brands, especially in times of uncertainty.

Shaun Kelley, Analyst, Bank of America: Thank you both.

Conference Operator: Your next question comes from Michael Bellisario with Baird. Please go ahead.

Michael Bellisario, Analyst, Baird: Thanks. Good morning, everyone.

Patrick Scholes, Analyst, Truist Securities: Good morning. Good morning.

Michael Bellisario, Analyst, Baird: A question for you just on guidance. Just trying to walk through the math here, right? If RevPAR is roughly flat, unit growth is 1%, you get a little bit from royalty rate growth, call that 2% fee growth. I think you’re saying ancillary fees are going to be plus 5%. Is that spread, call it, three percentage points?

Is one, is that the right math? And then sort of for how long do you think that ancillary fee growth can outpace sort of the organic growth rates, they’ll call it plus or minus 3% or more going forward?

Scott Oaksmith, Chief Financial Officer, Choice Hotels International: Yeah. Sure. Thanks, Michael. You know, as we as we’ve previously discussed, you know, the versatility of our business model really provides us a lot of multiple drivers to grow our business. When you think about our guidance, our domestic royalty rate growth is expected to contribute about 1% to 2% growth to our EBITDA.

That’s despite a flat RevPAR environment because we are growing our revenue intense brands as well as continuing to grow the effective royalty rate at that mid single digits. Our partnership service and fees and our franchisee platform ancillary services, which include things like our co brand credit card, continues to be accretive to our EBITDA and is expected to be about a 2% growth, to our EBITDA, for 2025. And then we have our international business and owned hotel portfolio, which we think will add about 1% growth to the EBITDA results. And these will be slightly offset by very small increases in our SG and A. So that’s how you get to kind of the midpoint of our guidance.

In terms of our ability to grow those ancillary revenues, for us, we really think that’s a huge opportunity for us. You know, they’re not not dependent on RevPAR. It certainly can be, accelerated by the growth of our franchise system, but, you know, we’ve got a lot of different, avenues to to monetize our franchise system, whether that’s through selling value added services to our franchisees to help drive the performance of their hotel, whether it’s connecting, third party partners with, you know, the vast amount of guests and our loyalty members that come through our channels. So so we believe that that that that could continue to grow at an accelerated pace for the long term, even potentially at a higher rate than the core franchising royalty fees.

Michael Bellisario, Analyst, Baird: Okay. That’s helpful. And then just as my follow-up, just on the topic of development. Pat, any commentary, that you could share maybe from franchisees either recently or, from your convention last week? Just maybe what they’re seeing and are they asking for anything differently today?

And that’s all for me. Thank you.

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: Yeah. Yeah. No. It’s it’s great. We we literally last week spent, about four days with, between five and six thousand of our franchisees and and our vendors as well.

So we we got a really good, take on sort of what the the inputs to to development look like as well. But let me just start with the franchisees. I would I would say we were really happy with how optimistic they were relative to everything that you’re reading in the headlines. So that was a key positive. And what they were telling us is what we saw in q one, which is their hotels are doing better than their peers in the market, which I think reflects the investments we made in the back half of twenty twenty four, Things like our loyalty program, our website, and our revenue optimization service, those three things in particular, they’re really responding to.

And so that’s flowing then into development. Clearly, stay continues to be a very sought after segment for us. When you look at the brands that we have there, you have a proven prototype, you have a proven operating model, and you have a proven exit. And that segment continues to be very attractive to owners. I think it’s also interesting to note because when times get uncertain, people want certain brands, and that’s really where Choice has excelled over the years.

We have brands with very high brand awareness and a long history of and track record of success. So we have a lot of owners who are I say when it starts to rain, people who are independent hotels or maybe in a different brand, we tend to attract more hotels during times of uncertainty because we have those proven brands. And so we had a lot of interest, I think, in our soft brand and upscale. We’ve got a lot of interest, obviously, in core enterprise, which we know primarily conversion brands. So the development team was pretty optimistic coming out of our convention.

And so I think from that standpoint, owners are they particularly are ownership based. Many of them have been with us for decades. They know that in a period where we’re in right now, where supply really hasn’t grown much over the last three years, you know, it’s been sub 1%, and you see this really strong consumer, you know, that’s a really healthy environment to start developing hotels in so that by the time you do open your hotel, you’re into a significant uptick in in RevPAR. So I would say we were pretty pleased by the optimism that our owners were showing. Just on the trade show side of the house, it was also very interesting to talk to our vendors.

Many of them have gotten ahead of the whole tariff impact by bringing inventory here sooner. And then secondly, many of them told us they have figured out ways not to pass that cost on to the owners. So anybody who was talking about a price increase, it was usually 10%. That seemed to be the number we were hearing, which is very absorbable in the way our franchisees are thinking about development moving forward.

Michael Bellisario, Analyst, Baird: Thank you.

Conference Operator: Your next question comes from Patrick Scholes with Truist Securities. Please go ahead.

Scott Oaksmith, Chief Financial Officer, Choice Hotels International: Great. Thank you. Good morning, everyone. Good Good morning. On the economy and mid scale significant outperformance versus the average in the Smith Travel results.

I hear what you said, certainly taking market share. Was there anything else above and beyond market share, such as your low where your locations are concentrated, such as anything such as a hurricane tailwind helping you in the quarter? Thank you. And then I have a follow-up.

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: Yes. I think, Patrick, in the short term, it’s the things that we’ve been talking about for quite some time, you know, things like road trips. Gas prices are the lowest they’ve been in three years. So we are seeing those hotels that are in more drive to locations, you know, performing well. You know, what’s interesting is we have the ability today to pulse our travelers.

So we did a survey as this whole sort of economic uncertainty began to develop in late March and April. And 90% of them told us they were gonna travel as much or more than they did last year. And they said that they see prices arising, but they said they’re gonna find ways to cut back by basically driving instead of flying, taking vacations in more affordable places, and traveling domestically as opposed to internationally. So that’s our customers, not not industry survey. These these are our abilities to actually talk to our to our existing customer base, and that’s what they’re telling us.

And then I think the long term trends we’ve been talking about as well, the reshoring of American manufacturing, those are the things that are driving more extended stay and mid scale stayers. And so we are beginning to see some of that as well. And then we’ve also talked about the retirees, the 4,000,000 additional people reaching retirement age this year. Our brands are well positioned for those who are traveling and looking for an affordable option where they’re no longer working and they’re living on more of a limited income. So those are all areas that I think as we’ve looked into what’s driving our Q1 performance and why we’re taking share, those are some of the key drivers.

Scott Oaksmith, Chief Financial Officer, Choice Hotels International: Yeah. The only thing I’ll add to that, Patrick, is just when you look at our business travel, Pat mentioned earlier in our remarks that it’s up to 40% of our mix. We saw really strong growth in our business travel, which was up 10%. And I think what’s great about our business travel, it’s really, business travelers that where their job can’t be accomplished without traveling. So we’ve been making investments in our capabilities to drive, more business travel with an expanded sales force going after new segments and verticals, and really improving the effectiveness of our sales tools.

Really saw that come to fruition here. I mean, last in the fourth quarter and carrying into the first quarter. So I would point to that as another reason for our outperformance. Okay. Yes.

Thank you. Now my final question, I do have to ask, while you certainly, excelled in the midscale economy, when I look at the upscale and above RevPAR, that did seem to be significantly lower than what would be implied in the Smith Travel. Can you give a little bit of color on that? Is there something idiosyncratic on that? How we should think about upscale and above?

Thank you. Yeah. Really, for that, we report our RevPAR results on a full system basis, so it’s not a same store sales basis. So really, the decline was due to a few properties leaving as well as some newer properties ramping. So when we look at it on a same store sales basis, actually our upscale was slightly positive for the quarter.

So a little bit of noise and just some of the shift of the portfolio that will even out here as the year goes on. And then just quickly follow-up. On a same store basis for your outperforming, is that apples to apples as well with that outperformance? Apples to apples in what regard? Apples to apples, just how the upscale underperformance wasn’t really an underperformance.

Is is the outperformance in your economy, midscale, is that an apples to apples outperformance? Yes. I under understand. Okay. Yes.

Yes. It is. Just with upscale, it’s just a little bit of smaller portfolio. A few hotels can move the numbers a little bit more than our broader portfolio. Next

Conference Operator: question comes from Robin Farley with UBS.

Robin Farley, Analyst, UBS: Great. Thank you. Just looking at the rooms in your pipeline at the end of the quarter, it seems like it ticked down each quarter for the last four quarters. Is the unit growth that you’re looking for, is that mostly that there’s an acceleration in conversions or something that so it may not be showing up in the pipeline, but or just how should we think about that sort of kick down? Thank you.

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: Yeah. Robin, I mean, when you look at our our global pipeline, you know, it’s about 83 is domestic, about 70% is international. And then when you when you when you tease out new construct versus conversion, it’s like, like, two thirds new construct, one third conversion. But as we talked about, it’s the velocity of the hotels on the conversion side that moved through very quickly. You know, on on average, it’s it’s like three months.

So in in many cases, we have hotels that just don’t sit in our pipeline. You know, as we look across the industry, a lot of these pipelines are getting bigger and bigger, but they’re not resulting in in actually open hotels. And so what we saw in the first quarter actually was a significant amount of openings kind of getting through that pipeline as well. And I think as Scott may have mentioned earlier, Q1 is a period where we generally do some pipeline cleanup as well. It doesn’t make sense for us to have, you know, a proposed hotel coming into a market when we have another owner who’s ready to to develop in that market.

So that’s really, I think, a reflection of what you’re seeing there.

Robin Farley, Analyst, UBS: And when you talk about the two thirds new construction, one third conversions, is that did I did I hear that right, the in terms of your pipeline?

Scott Oaksmith, Chief Financial Officer, Choice Hotels International: Yeah. That’s within the pipeline. That’s really a reflection of fact that, you know, a new construction hotel will will be in your pipeline longer just given the longer time from contract execution to actually construction and opening the hotel. So as Pat mentioned, that velocity of our conversions pipeline, even though that’s 73% of our

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: openings during the first quarter

Scott Oaksmith, Chief Financial Officer, Choice Hotels International: are conversions. We open a hotel within a three to six month period if it’s conversion, so they don’t sit in our pipeline very long. And we even have instances where something could be sold and opened in the same quarter. So historically, while our openings have been more two thirds conversions, one third new construction, the pipeline actually is the inverse of that just given the time to open.

Robin Farley, Analyst, UBS: And do you have that mix sort of compared to twelve months ago, that two thirds new construction, one third conversion? That’s my last one.

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: It’s probably the same, Robin. I mean that’s been a pretty consistent mix for us for quite some time.

Conference Operator: Next question comes from Meredith Jensen with HSBC. Please go ahead.

Meredith Jensen, Analyst, HSBC: Yes, thanks. Good morning. I was wondering, given you were speaking about the strong business demand and also how that might feed into length of stay because business may stay shorter, then you offset that with extended stay having longer. So I was wondering if you might speak to kind of the trends and length of stay and how some of those segments are booking in terms of also the booking window. That would be great.

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: Yeah. Just briefly on the booking window, I think in what we’ve seen is the window has contracted somewhat, and that’s that’s a reflection of this sort of uncertain environment because that that contraction was was within the last six weeks or so. That being said, the business is showing up. As I as I mentioned last week, our year over year pace actually increased. So the the people are not booking as far out in advance, but they are they are ending up at the end of the day traveling.

I think when you look at our business mix within the segments, and then maybe Scott can speak the length to say, You know, extended stay, the business travel and group business was up 7% in the quarter. Upper midscale was up 4%. Upscale was up 22%. So we’re seeing a lot more group and business travel in our segments. When you look at extended stay, the length of stay is actually much longer, so it’s not actually a shorter business trip.

And and I I would say that likely that the business travelers that we’re getting today, given the types of industry verticals we’re pulling from construction, logistics, medical staffing, these are more longer length of stay than our traditional leisure travelers.

Scott Oaksmith, Chief Financial Officer, Choice Hotels International: Yeah. I think I’ll add, obviously, the length of stay is really, driven by our focus on extended stay. We are the market leaders now in extended stay. We’ve been growing that segment, our rooms growth by over 10% for the last couple of years, we really believe we can continue to grow that for the next several years, if not longer. And really so you’re seeing the mix of our, length of stay increase given our focus on extended stay as well as what I mentioned earlier is our focus on that traveler.

So really the two nicely dovetail together. So we actually saw about quarter over Q1 versus Q1 of last year, about a five percentage point increase in our average length of stay of nights that are over 14 plus nights. So really, really good acceleration kind of the the type of business we’re going after and and the the increase in our portfolio size and extended stay.

Meredith Jensen, Analyst, HSBC: No. That’s super helpful because I tend to think of the business demand staying in the upper upscale, but I, understandably, they’re staying in the extended stay for for your for your area, that would make it longer. Very quickly, if you wouldn’t mind touching upon international, and how sort of you look at expansion opportunities there, conversion, consolidation, m and a? Any any kind of color there would be great. Thank you very much.

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: Yeah. I think our international, opportunity is is is really pretty exciting. You know, we’ve been talking about that’s a, a key growth area for us. And if you look at our kind of recent performance results, it’s an area that we’re improving both in development and openings perspective as well. So I think we feel pretty good about the opportunities we have.

The Radisson acquisition really opened up and then kinda created a new focus for us on the international segment. We’re making significant progress in what we call CALA, the Caribbean and Latin America, particularly the Radisson brands themselves. They have a much very high brand awareness down there. And I think now being attached to our business delivery engine, we’re getting a lot of really significant interest there. Yeah.

I was just up in Canada on Monday, Tuesday at our Canadian Hotel Investment Conference up there. And, you know, we’ve we’ve been in that market for seventy years. So we have very well established brands there. We have about 362 hotels. But that is another area that is really ripe for extended stay growth.

And, you know, with our presence there, a long history of of operating performance, we do see opportunity there. And Canada has got very similar sort of supply and demand characteristics as here in The U. S. So there’s a lot of real interesting opportunity for us from a growth perspective on the international front.

Robin Farley, Analyst, UBS: Thanks so

Conference Operator: Your next question comes from Dan Waziak with Morningstar. Please go ahead.

Patrick Scholes, Analyst, Truist Securities: Good morning, guys. Thanks for taking the question. Maybe just one. With the April normalized RevPAR being down 1%, wondering if you could maybe talk about how leisure group business performed in that month relative

Shaun Kelley, Analyst, Bank of America: to kind

Patrick Scholes, Analyst, Truist Securities: of March and then how those three groups are kind of being viewed in your updated RevPAR guidance? Thank you.

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: Yeah, Dan. I think the challenge with April was the Easter shift and the eclipse. And and we had a number of hotels that were right in the a line of the eclipse, and they were, you know, con lodges in the middle of the country were were going for 700, you know, dollars a night in in in rooms. So the, April’s been really hard to sort of tease out. Can you see any specific patterns with regard to to leisure travel?

And then, obviously, the Easter shift, which which we deal with, you know, on on a on a continuous basis every year made it made a little bit more challenging. So I’m not sure there’s anything in specific we can read through on on leisure in the month of April that that is indicative. So we’ve really kinda looked more at the long term. You know, we’ve looked at the reasons for optimism for the summer are really the key reasons that that have always driven our business, which is employment remains high, gas prices are low, and consumers appear to be saying they’re gonna drive too as opposed to fly. And so that generally does really well for our hotels that are right next to the highway, 1,500 hotels near the national parks.

Like, these are these are the things that as consumers dial back on their spend, but not on their travel, they tend to go to these types of locations. So that’s really when we look at when we surveyed our customers and we look at talking to our franchisees last week who are in some of those markets, that’s what gives us sort of the optimism around being able to perform at the top or at the upper end of our range.

Patrick Scholes, Analyst, Truist Securities: Okay. Fair enough. And then just clarification question on the business being 40% of your business. Is that revenue? Is that room nights?

Does that include group or group would group be separate?

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: It’s revenue, and group is a mix of both business and leader. So group overall is about 10% of our of our total delivery in the quarter. So, yeah, business is a it’s a it’s a revenue number.

Scott Oaksmith, Chief Financial Officer, Choice Hotels International: There

Conference Operator: are no further questions. Please continue.

Pat Pacias, President and Chief Executive Officer, Choice Hotels International: Well, thank you, operator, and thanks, everyone, again for your time this morning. We will talk to you again in August when we announce our second quarter of twenty twenty five results. Have a great rest of your day.

Conference Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

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