Choice Hotels International, Inc. (CHH) Earnings

Management highlights

Bullet points: - Delivered first quarter results in line with expectations, signaling inflection point in underlying trends toward rooms growth, RevPAR improvement, and lower capital intensity. - U.S. net rooms growth inflecting, with gross openings up 32% year over year, first quarter hotel openings at five-year high, exits at lowest level since 2023, and U.S. pipeline expanding sequentially. International portfolio scales as growth engine. - Franchisee unit economics improving due to stronger revenue delivery and lower costs, reflected in strong voluntary franchisee retention rate and expanding average royalty rates. Loyalty program exceeds 75 million members, with loyalty contribution increasing over 300 basis points in March year over year. - Technology is an important differentiator, with AI-enabled tools like EasyBid improving response time to group RFPs and driving incremental group business for franchisees. Partnership business continues to gain adoption, driving over 10% year-over-year revenue growth. - Capital intensity declining as investment in Cambria and Everhome achieves strategic objectives, with development outlays coming down and capital recycling expected to increase.

Guidance

Bullet points: - Maintaining outlook across all key metrics for full year 2026, with adjusted EBITDA expected to be $632 million to $647 million, and adjusted diluted earnings per share expected to be $6.92 to $7.14. - Expecting to repurchase between $175 to $225 million of shares in 2026, with year to date through March 31st having returned $75 million to shareholders, including $62 million in share repurchases. - Outlook reflects continued growth across higher revenue hotels and markets, royalty rate expansion, sustained international momentum, and further contribution from partnership and non-REVPAR revenues, with adjusted SG&A expected to grow in mid-single digits supported by operating efficiencies.

Segment performance

U.S. net rooms growth is inflecting and improving sequentially, with gross openings up 32% year over year, first quarter hotel openings at a five-year high, and exits at their lowest level since 2023. International portfolio continues to scale as an additional growth engine. Revenues excluding reimbursable revenue from franchised and managed properties increased 3% year over year to $217 million, driven by global rooms growth and expansion in average royalty rate. Adjusted EBITDA was $126 million compared to $130 million a year ago, adjusted earnings per share were $1.07 compared to $1.34 a year ago. Global REVPAR declined 80 basis points year over year on a currency neutral basis in the first quarter, while international REVPAR increased 2.6% year over year on a currency neutral basis, and U.S. REVPAR excluding hurricane impact increased 1.8% year over year. U.S. average royalty rate increased by 11 basis points in the first quarter.

Risks & headwinds

Bullet points: - Forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied, as per U.S. securities laws. Need to refer to SEC filings for more information. - Macro uncertainties and unknown unknowns that could impact domestic travel picture and REVPAR performance.

Analyst Q&A

• Q: David Katz with Jefferies asked about aspirational levels of NUG and levers for accelerating NUG.

  A: Pat mentioned net unit growth inflecting, conversion-led model, speed and efficiency of conversion pipeline, and expectation of new construction environment impact on NUG in future.

• Q: Michael Hirsch on behalf of Dan Pulitzer asked about consumer health impact on bookings.

  A: Pat mentioned opposite impact with strong March performance, consumer resilience despite gas prices, affordability trend aligning with value-oriented brands, workforce shifts, and shift in guest expectations supporting extended stay hotels.

• Q: Michael Villisario with Barrett asked about rev par underperformance and market share.

  A: Pat mentioned occupancy strength, ramping of new rooms, and regionalized hurricane impact, with performance outside hurricane states in line with local market segments.

• Q: Patrick Scholes with Truway Securities asked about market share change.

  A: Response was about localized market performance and difficulty in providing overall portfolio market share change without excluding hurricane states.

• Q: Robin Farley with UBS asked about REVPAR outlook and equity/loss of affiliates.

  A: Pat mentioned favorable trends in April, dissipation of hurricane impact, and equity/losses reflective of timing of hotel ramping and step down in capital intensity of investments.

• Q: Steven Grambling with Morgan Stanley asked about international profitability contribution and free cash flow.

  A: Response was about shift to direct franchise model increasing contribution, optimism on Canadian operations, and timing issues and key money disbursement impact on free cash flow.

• Q: Grant Montour with Barclays asked about AI and free cash flow trajectory.

  A: Pat mentioned AI as structural advantage, purposeful approach to drive unit economics, and free cash flow trajectory with timing issues and expected step down in net outflows.

• Q: Meredith Jensen with HSBC asked about AI strategic focus and loyalty program.

  A: Pat discussed AI focus on unit economics, deployment and adoption rates, and loyalty program refresh with rewards within reach leading to increased engagement and revenue per member.

• Q: Trey Bowers with Wells Fargo asked about cash flow dynamics and key money.

  A: Response was about no change to key money spending outlook, deal-by-deal underwriting of key money, and expectation of key money per deal stepping down as new construction and RevPAR environments improve