Choice Hotels International, Inc. Q3 FY2025 earnings call

Pat Pacious mentioned adjusted EBITDA up 7% driven by higher revenue brand mix, small and medium business traveler/group revenue surge, etc. Net global rooms up ~2.5% YOY, led by higher revenue segments. Global franchise agreements awarded up 54% YOY. $60 million technology investment program near completion. Business travelers ~40% of stays, group revenue up 35% YOY, SMB revenue up 18%. Loyalty program enhancements driving higher customer lifetime value.

In the third quarter, adjusted EBITDA was $190 million, up 7%. International business, representing $3 billion in gross rooms revenue, is the highest growth opportunity. It saw 35% growth in adjusted EBITDA in Q3, with the portfolio expanding over 8% YOY to over 150,000 rooms outside the US. EMEA portfolio grew to nearly 64,000 rooms (+7% YOY), with progress in France and entry into Africa. Caribbean and Latin America expanded to over 25,000 rooms across 20+ countries. Asia Pacific launched Ascend Collection in China, onboarded ~80% of 9,500 upscale rooms, and launched MainStay Suites in Australia. US extended stay has over 55,000 rooms, with Everhome Suites opening 23 hotels. US economy transient is replacing lower-performing assets, with pipeline up 35% YOY. US mid-scale global pipeline up 5% YOY. US upscale global system size up 21% YOY to 118,000 rooms.

Raised full year earnings outlook midpoint. Expect US RevPAR to range -3% to -2%, adjusted EBITDA $620-632 million, adjusted EPS $6.82-7.05. Expect to generate >$50 million in international adjusted EBITDA by 2027. Expect SG&A at low single-digit growth.

Market volatility from macroeconomic factors, interest rates, and regulations. Intense competition in lodging industry. Challenges in international expansion like entering new markets and adapting to regional preferences.

Q: Michael Bellisario on Everhome joint venture motivation and economics A: Scott Oaksmith explained it's a timing of transaction, recycling owned assets, joint venture allows owning 80%, expected JV partner to buy out or sell to third parties, tail end of capital investment in Cambria and Everhome.

Q: Elizabeth Dove on US rooms growth outlook A: Patrick Pacious said pipeline is high-quality, focused on higher-value segments, conversions open quickly, limited new construction supply growth in US, expect conversion pipeline to drive net rooms growth.

Q: David Katz on 2026 outlook and ancillary fees A: Patrick Pacious and Scott Oaksmith mentioned international growth, partnerships/services growth, AI tools driving SG&A efficiency, expected mid-high single-digit growth in partnerships and ancillary fees.

Q: Stephen Grambling on SG&A growth and AI inventory A: Scott Oaksmith said SG&A expected low single-digit growth, AI tools driving labor savings; Patrick Pacious talked about ERP system and productivity gains, exploring AI partnerships for distribution.

Q: Daniel Politzer on key money and free cash flow A: Scott Oaksmith said key money lower due to strong brands, free cash flow conversion expected 60-65% range, temporary timing differences in Q3.

Q: Dany Asad on international rooms growth and regions A: Patrick Pacious discussed growth in Americas, EMEA, Asia Pac, laid foundation for execution, strong talent and business model.

Q: Robin Farley on international fee revenue and royalty rates A: Patrick Pacious and Scott Oaksmith said focusing on direct franchising, improving value prop, effective royalty rates in direct franchising ~2.7%, Canada closer to 4%, expect royalty rate growth.

Q: Brandt Montour on accounting and business travel RevPAR A: Patrick Pacious explained partnership revenue growth from co-branded card and procurement, business travel growth offset by government and inbound travel headwinds.

Q: Meredith Jensen on international growth investments A: Patrick Pacious said investments in systems and talent already made, markets well-known, business traveler mix stronger outside US, opportunity to grow value prop and royalty rates.