CHOICE HOTELS INTERNATIONAL INC /DE Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Financial Performance: Adjusted EBITDA was 14% higher, adjusted EPS was 23% higher year-over-year, and full-year adjusted net income and EPS guidance were raised. The midpoint of the adjusted EBITDA range was raised by $5 million to an expected 10% year-over-year growth.
• Pipeline and Growth: The global hotel pipeline of over 110,000 rooms set a record, an 11% year-over-year increase. Global unit growth was accelerated, with 75% more hotels opened globally in Q3 compared to the prior year.
• Brand Performance: The Radisson Americas brands saw improved digital traffic and booking conversion rates, driving a 10% year-over-year increase in pipeline rooms. The extended-stay segment continued to lead in cycle-resilient growth.
• RevPAR and Demand: Domestic RevPAR exceeded expectations, with renewed strength in corporate transient business travel and acceleration in group travel. October RevPAR grew ~5% year-over-year, and full-year U.S. RevPAR guidance was raised.
• Franchisee Support: State-of-the-art tools for franchisees, including a mobile-friendly one-stop platform, contributed to an industry-leading voluntary franchisee retention rate.
• Rewards Program: Choice Privileges expanded to 68 million members, an 8% increase year-over-year, with access to over 1,000 upscale, upper upscale, and luxury hotels.
• Cash Flow and Capital Allocation: Generated strong operating cash flow, with $408 million returned to shareholders year-to-date through October, and a strong cash position with total available liquidity of $676 million at the end of Q3.

Segment Performance:

• Domestic: Delivered strong RevPAR performance. The domestic pipeline of over 110,000 rooms set a record, with 99% of rooms in more revenue-intense brands. Domestic pipeline hotels have a RevPAR premium of over 30% compared to the existing portfolio, higher average effective royalty rates, and over 40% higher room count per hotel. Sequentially, domestic unit growth improved, with a 1.3% year-over-year increase across more revenue-intense segments, and 190 new hotels opened year-to-date through September, a 19% increase in domestic openings year-over-year.
• International: Expanded rooms portfolio by 3.8% year-over-year, with a pipeline increase of over 20% year-over-year. EMEA delivered a 9% year-over-year RevPAR growth, and the company secured first direct franchising agreements in Spain (adding over 700 rooms) and France (onboarding ~2,000 rooms).
• Extended-stay: Grown unit size by over 10% year-over-year for 5 consecutive quarters. With over 350 extended-stay hotels in the pipeline, it is on track for a 15% long-term average annual unit growth rate. There are 500 open domestic extended-stay hotels, and the Everhome Suites brand has 66 domestic projects in the pipeline.
• Radisson Americas: Saw significant improvement in digital traffic and booking conversion rates post-integration, with a 10% year-over-year increase in pipeline rooms, including a 53% increase in new construction rooms.

Guidance:

• Adjusted EBITDA: Expected to be between $590 million and $600 million, reflecting a 10% year-over-year increase at the midpoint.
• EPS: Adjusted earnings per share guidance raised to range between $6.70 and $6.87 per share, an 11% year-over-year growth at the midpoint.
• RevPAR: Full-year U.S. RevPAR guidance raised to range between negative 2% and negative 1%, up from prior expectations of negative 3.5% to negative 1.5%.

Risks:

• Market Uncertainties: Potential impact of economic downturns and changes in travel patterns.
• Natural Disasters: Impact of hurricanes and other natural disasters on hotel operations and guest demand.
• Franchisee Challenges: Dependence on franchisee satisfaction and maintaining voluntary retention rates.
• Regulatory Changes: Impact of changes in lodging regulations on business operations and growth.

Question and Answer:

• Q: What's going on with net reimbursable revenues and lap of Radisson deal? A: Scott Oaksmith explains net reimbursable revenues accelerated, with ~$15 million in Q3, lap of comparisons starting in Q4 2025, and incremental revenue streams from Radisson integration.
• Q: Number of 100% owned hotels and JVs? A: Scott Oaksmith says 10 owned hotels open, handful under construction, 5-7 JVs under construction, with capital support for Cambria and Everhome brands.
• Q: Hurricane benefit and group/business transient percentage? A: Pat Pacious says October RevPAR up ~5%, hurricane benefit not primary driver, business transient back to 2019 levels, business vs leisure mix 35% business.
• Q: SG&A and inflation outlook? A: Scott Oaksmith says SG&A up ~4% in Q3, mid-single digits for full year, expect to maintain mid-single digit growth.
• Q: Free cash flow conversion and capital spend? A: Scott Oaksmith says free cash flow conversion expected similar to 2024, ~$135 million capital spend on recyclable capital, similar in 2025.
• Q: Marketing funds overspend/underspend? A: Scott Oaksmith says marketing funds in surplus, expected to end year ~$25-30 million surplus, focus on 5-year viewpoints for investment.
• Q: Extended-stay competitive pressures? A: Pat Pacious says no significant competitive pressures, WoodSpring brand 2/3 of economy extended-stay new construction projects, strong conversion and new construction opportunities.
• Q: 5-year chain scale outlook? A: Pat Pacious says retirement trends, road trips, remote work, and infrastructure investments will drive chain scale growth, with extended-stay and upscale segments benefiting.
• Q: Hurricane impact on RevPAR and organic improvement? A: Pat Pacious says full-year hurricane impact ~40-50 bps, RevPAR improvement from occupancy and supply growth, not just hurricane-related.
• Q: Ancillary unlock breakdown between Radisson and legacy Choice? A: Scott Oaksmith says mix of both, ~75% Choice, 25% Radisson, with expansion of property management system to extended-stay brands.