CHOICE HOTELS INTERNATIONAL INC /DE Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Financials: Adjusted EBITDA +4% YoY, adjusted EPS +5% YoY; Q1 adjusted EBITDA $129.6M, adjusted EPS $1.34/share.
• Rooms Growth: 3% net global rooms growth YoY, including 4% net increase in more revenue-intense rooms; domestic RevPAR outperformed chain scales, with RevPAR index share gains.
• Customer Profile: ~40% business travelers; average household income 24% higher than national median, 20% over $200,000; rewards program over 70M members, +28% YoY reward night redemptions.
• Strategic Investments: New website/mobile apps improved booking conversion rates; targeted hotel profitability tools drive up to 20% cost savings; one-stop owners platform for franchisees.
• Convention/Development: Sixty-ninth annual convention provided business development opportunities; strong developer interest in extended stay/midscale; 14% increase in domestic extended stay franchise agreements, 10% increase in midscale domestic franchise agreements.

Segment Performance

• Business Travel: Grew 10% YoY in Q1, driven by group and business transient travel; group travel revenue up over 50% YoY. Revenue contribution tied to expanding upscale/extended stay portfolio.
• Extended Stay: System size grew 11% YoY, with 5,000+ domestic rooms added in Q1; 7 consecutive quarters of double-digit domestic room system size growth. Pipeline represents half of domestic rooms pipeline.
• Midscale: Core brand portfolio outperformed midscale RevPAR chain scale. New prototypes for Comfort and Country Inn and Suites reduced construction costs by 10-15%; Country Inn and Suites RevPAR outperformed upper midscale by ~2 pp.
• Upscale: Global room system size up 16% YoY to over 110,000 rooms (17% of total system); Ascend hotel collection reached ~59,000 rooms globally; upscale pipeline up 8% from prior quarter.
• International: Rooms portfolio up over 4% YoY in Q1; rooms pipeline up 13% from prior quarter; strong developer interest in international segments.

Guidance

• 2025 Outlook: Adjusted EBITDA range $615M-$635M, adjusted diluted EPS range $6.90-$7.22; domestic RevPAR expected -1% to +1%; adjusted SG&A at lower end of low to mid single digits growth; partnership services and fees expected mid single digits growth.
• Drivers: Organic growth in revenue-intense hotels, robust effective royalty rate growth, partnership revenue streams, strong international business, and incremental revenue from expanded scale.

Risks

• Macro Uncertainty: Impact on leisure/lower-end chain scales, though diversified portfolio and resilient consumer profile aim to mitigate effects.
• Pipeline Velocity: Q1 pipeline cleanup and adjustments; new construction hotels stay in pipeline longer than conversions.

Question and Answer

Q: Shaun Kelley on consumer and macro, trade down and softness in lower-end travel A: Pat Pacious noted diversified consumer profile, higher income consumers, 40% business travel mix, and market share gains in economy/extended stay despite macro uncertainty.

Q: Michael Bellisario on guidance math and ancillary fee growth A: Scott Oaksmith explained diversified business model drivers, with domestic royalty rate growth, partnership services, and franchisee platform contributing to EBITDA growth, and ancillary fees expected to outpace organic growth.

Q: Patrick Scholes on economy and midscale outperformance, hurricane tailwind A: Pat Pacious and Scott Oaksmith cited factors like low gas prices, road trips, business traveler resilience, retiree growth, and reshoring of manufacturing as drivers of Q1 outperformance.

Q: Robin Farley on pipeline tick down and mix A: Pat Pacious and Scott Oaksmith explained pipeline mix (two-thirds new construction, one-third conversions) and Q1 pipeline cleanup, with conversions having faster velocity to open.

Q: Meredith Jensen on length of stay and international expansion A: Pat Pacious and Scott Oaksmith discussed business traveler mix and extended stay growth contributing to longer length of stay, and international opportunities in Caribbean, Latin America, and Canada with established brands and growth potential.

Q: Dan Wasiolek on April RevPAR and business mix A: Pat Pacious noted challenges in April due to Easter shift and eclipse, but long-term optimism from employment, low gas prices, and consumer travel intentions.