Choice Hotels(CHH) - 2025 Q2 - Quarterly Results

Executive Summary & Q2 2025 Highlights Choice Hotels International achieved record adjusted EBITDA and diluted EPS in Q2 2025, driven by strategic international expansion and robust operational growth, despite a slight decline in net income Key Financial Highlights Choice Hotels International achieved record growth in adjusted EBITDA and adjusted diluted EPS in Q2 2025, despite a slight decrease in net income Q2 2025 Key Financial Metrics | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Income | $81.7 Million | $87.1 Million | -6.2% | | Diluted EPS | $1.75 | $1.80 | -2.8% | | Adjusted EBITDA | $165.0 Million | $162.0 Million | +1.9% | | Adjusted Diluted EPS | $1.92 | $1.84 | +4.3% | Key Operational & Strategic Highlights The company achieved significant growth in global and international room system size through strategic international expansion and the acquisition of the remaining stake in Choice Hotels Canada - Global net room system size grew by 2.1%, with the upscale, extended stay, and midscale room portfolio increasing by 3.0%[1] - International net room system size increased by 5.0%, with new openings growing by 15%[1] - Accelerated international expansion, including strategic agreements in Brazil, France, and China, and the acquisition of the remaining 50% stake in Choice Hotels Canada, expected to contribute approximately $18 million in EBITDA in 2025[1][2] - Global hotel pipeline exceeded 93,000 rooms as of June 30, 2025, with nearly 77,000 domestic rooms[5] - Domestic extended stay segment net room portfolio grew by 10.5%, with the segment's pipeline reaching nearly 43,000 rooms[5] CEO Commentary CEO Patrick Pacious highlighted record financial results despite a soft domestic RevPAR environment, attributing success to diversified growth, strong international performance, and leadership in the cyclically resilient extended stay segment, delivering long-term stakeholder returns - Choice Hotels achieved another quarter of record financial results despite a soft domestic RevPAR environment, underscoring the successful execution and diversification of our growth strategy[2] - We are particularly pleased with our strong international performance, achieving significant growth and accelerating global expansion through recent strategic acquisitions, key partnership signings, and new market entries[2] - With more diversified growth avenues, enhanced product quality and value propositions driving stronger customer engagement, and a leading position in the cyclically resilient extended stay segment, we remain well-positioned to deliver long-term returns for all stakeholders[2] Financial Performance The company reported a slight decrease in total revenues for Q2 2025, but demonstrated strong underlying profitability with growth in adjusted EBITDA and adjusted diluted EPS, while maintaining solid liquidity and positive operating cash flow Consolidated Financial Results Total revenues slightly decreased to $426 million in Q2 2025 from $435 million in Q2 2024, with year-to-date revenues also showing a minor decline, while net income and diluted EPS decreased quarterly but increased year-to-date Total Revenues | Period | 2025 (Million USD) | 2024 (Million USD) | Change (%) | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $426 | $435 | -2.1% | | Six Months Ended June 30 | $759 | $767 | -1.0% | Net Income | Period | 2025 (Million USD) | 2024 (Million USD) | Change (%) | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $82 | $87 | -5.7% | | Six Months Ended June 30 | $126 | $118 | +6.8% | Diluted Earnings Per Share | Period | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $1.75 | $1.80 | -2.8% | | Six Months Ended June 30 | $2.68 | $2.41 | +11.2% | Key Profitability Metrics Adjusted EBITDA and adjusted diluted EPS showed positive growth both quarterly and year-to-date, reflecting strong underlying operational performance despite a decrease in GAAP net income, with adjusted SG&A also declining Adjusted EBITDA | Period | 2025 (Million USD) | 2024 (Million USD) | Change (%) | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $165 | $162 | +1.9% | | Six Months Ended June 30 | $295 | $286 | +3.1% | Adjusted Diluted Earnings Per Share | Period | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $1.92 | $1.84 | +4.3% | | Six Months Ended June 30 | $3.25 | $3.11 | +4.5% | - Partner services and fees increased by 7% to $27.1 million in Q2 2025 and by 16% to $52.4 million in the first half of 2025[6] - Adjusted selling, general and administrative expenses (SG&A) decreased by 4% to $77.6 million in Q2 2025 (or 6% excluding $2 million in operating guarantee payments)[6][7][50] Balance Sheet and Liquidity As of June 30, 2025, the company maintained strong liquidity with $587.5 million in available liquidity and a net debt leverage ratio of 3.0x, while total assets and liabilities both increased - Total available liquidity was $587.5 million as of June 30, 2025[11] - Net debt leverage ratio was 3.0x as of June 30, 2025[11] Key Balance Sheet Metrics | Metric | June 30, 2025 (Thousand USD) | December 31, 2024 (Thousand USD) | | :--- | :--- | :--- | | Cash and Cash Equivalents | $58,610 | $40,177 | | Total Assets | $2,664,762 | $2,530,527 | | Total Liabilities | $2,691,000 | $2,575,798 | | Shareholders' Deficit | $(26,238) | $(45,271) | Cash Flow Activities Cash flow from operating activities increased by 2% to $116.1 million in the first half of 2025, while net cash used in investing activities significantly increased and net cash used in financing activities decreased Key Cash Flow Metrics (Six Months Ended June 30, Thousand USD) | Metric | 2025 (Thousand USD) | 2024 (Thousand USD) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $116,070 | $113,595 | | Net Cash Used in Investing Activities | $(95,148) | $(62,032) | | Net Cash Used in Financing Activities | $(3,239) | $(18,564) | | Net Change in Cash and Cash Equivalents | $17,683 | $32,999 | Operational Performance & System Growth Choice Hotels achieved significant global and international room system growth, with strong performance in extended stay and upscale segments, alongside strategic international expansion and key brand highlights Global System Size and Development Choice Hotels' global net room system grew by 2.1% year-over-year, driven by strong international growth and significant expansion in upscale, extended stay, and midscale segments, with the global hotel pipeline exceeding 93,000 rooms Global Room System Size (As of June 30) | Category | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Domestic Rooms | 500,562 | 494,083 | 1.3% | | International Rooms | 143,838 | 136,980 | 5.0% | | Global Rooms | 644,400 | 631,063 | 2.1% | - Domestic upscale, extended stay, and midscale net room portfolio grew by 2.3% year-over-year[10] - Global hotel pipeline exceeded 93,000 rooms as of June 30, 2025, with nearly 77,000 domestic rooms[5] Domestic Operating Metrics (RevPAR, ADR, Occupancy) Overall Domestic Performance Domestic RevPAR decreased by 2.9% in Q2 2025, primarily due to macroeconomic uncertainties and a high comparison base from last year's Easter and eclipse-related travel, though the domestic effective royalty rate increased - Domestic RevPAR decreased by 2.9% year-over-year in Q2 2025 (approximately 1.6% excluding the impact of Easter and the eclipse)[9][45] - Domestic effective royalty rate increased by 8 basis points to 5.12% in Q2 2025[9][46] Domestic Hotel System Key Metrics (Three Months Ended June 30) | Metric | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Average Daily Rate (ADR) | $97.65 | $99.40 | (1.8)% | | Occupancy | 59.6% | 60.3% | (70) bps | | Revenue Per Available Room (RevPAR) | $58.22 | $59.95 | (2.9)% | Performance by Segment The domestic extended stay portfolio outperformed the overall hotel industry in RevPAR, as did the economy temporary lodging portfolio within its segment, with WoodSpring Suites showing strong growth and high customer satisfaction - Domestic extended stay RevPAR outperformed the overall hotel industry by 40 basis points in Q2 2025[9] - Economy temporary lodging portfolio RevPAR outperformed economy chain hotels by 320 basis points in Q2 2025[9] - WoodSpring Suites brand grew by 9.7% to nearly 33,000 rooms and ranked 1 in the economy extended stay segment for the third consecutive year in the J.D. Power 2025 North America Hotel Guest Satisfaction Index Study[10] - Upscale brands' global net rooms grew by 14.7% year-over-year, with global pipeline increasing by 7%[10] International Expansion & Acquisitions Choice Hotels accelerated international expansion through strategic agreements and acquisitions, significantly increasing its presence in key markets like Brazil, France, and China, and fully acquiring Choice Hotels Canada - In Brazil, the master franchise agreement with Atlantica Hospitality International was extended for 20 years, adding over 10,000 rooms[1] - In France, the number of rooms nearly quadrupled through a direct franchise agreement with Zenitude Hotel-Residences[1] - In China, a strategic agreement with SSAW Hotels & Resorts is expected to add over 9,500 rooms in 2025 and approximately 10,000 rooms over the next five years[1] - Acquired the remaining 50% stake in Choice Hotels Canada for approximately $112 million in July, expanding the product line from 8 to 22 brands[1][2] Brand Performance Highlights While some brands like Radisson, Comfort, and Quality saw slight decreases in hotels or rooms, brands such as Ascend Hotel Collection, Cambria, Park Inn, WoodSpring, MainStay, Suburban, and Everhome Suites achieved growth in rooms or hotels, with Everhome Suites showing exceptional growth Key Brand Room Count Changes (As of June 30) | Brand | 2025 Rooms | 2024 Rooms | Change (%) | | :--- | :--- | :--- | :--- | | Ascend Hotel Collection | 38,537 | 23,109 | +66.8% | | Everhome Suites | 1,952 | 449 | +334.7% | | WoodSpring | 32,521 | 29,639 | +9.7% | | MainStay | 10,098 | 9,202 | +9.7% | | Radisson | 9,928 | 14,177 | -30.0% | | Econo Lodge | 36,149 | 38,602 | -6.4% | | Rodeway | 24,669 | 25,756 | -4.2% | Shareholder Returns In the first half of 2025, Choice Hotels returned capital to shareholders through cash dividends and significant share repurchases, retaining substantial authorization for future buybacks - Total cash dividends of $26.9 million paid in the first half of 2025[12] - 811,000 shares of common stock repurchased for $110 million in the first half of 2025[12] - 3 million shares of common stock remained under existing share repurchase authorization as of June 30, 2025[12] Outlook The company adjusted its RevPAR outlook to reflect more modest domestic market expectations but maintained its adjusted net income and adjusted EBITDA guidance, incorporating incremental contributions from recent acquisitions Full-Year 2025 Financial Guidance The company adjusted its RevPAR outlook to reflect a more modest domestic market expectation but maintained its adjusted net income and adjusted EBITDA outlook, with the Choice Hotels Canada acquisition expected to provide incremental EBITDA contribution Full-Year 2025 Outlook | Metric | 2025 Full-Year (New Outlook) | Previous Outlook | | :--- | :--- | :--- | | Net Income | $261 – $276 Million | $275 – $290 Million | | Adjusted Net Income | $324 – $339 Million | $324 – $339 Million | | Adjusted EBITDA | $615 – $635 Million | $615 – $635 Million | | Diluted EPS | $5.54 – $5.86 | $5.86 – $6.18 | | Adjusted Diluted EPS | $6.88 – $7.20 | $6.90 – $7.22 | | Effective Income Tax Rate | 25% | 25% | - Domestic RevPAR growth (vs. FY2024): -3% to 0% (adjusted from -1% to 1%)[13] - Global net system room growth (vs. FY2024): approximately 1% (unchanged)[13] Key Outlook Adjustments The company's outlook reflects a more modest domestic RevPAR expectation due to macroeconomic changes and includes approximately $6 million in incremental EBITDA contribution from the Choice Hotels Canada acquisition for the remainder of 2025 - RevPAR outlook adjusted to reflect more modest domestic expectations amid changing macroeconomic conditions[13] - Adjusted EBITDA outlook includes approximately $6 million in incremental contribution from the Choice Hotels Canada acquisition for the remainder of 2025[13] - Adjusted data exclusions include net surplus or deficit from reimbursable revenue from franchised and managed properties, due diligence and transition costs, additional company stock repurchases, and other items[13] Company Information Choice Hotels International is a leading global hotel franchisor with a diverse brand portfolio, providing value to stakeholders, and the report includes forward-looking statements subject to various risks and uncertainties About Choice Hotels Choice Hotels International is a leading global hotel franchisor with nearly 7,500 hotels and over 640,000 rooms across 46 countries and territories, offering 22 brands to meet diverse traveler needs and create value for franchisees and shareholders - One of the largest hotel franchisors globally, with nearly 7,500 hotels and over 640,000 rooms across 46 countries and territories[16] - Features a broad portfolio of 22 brands, ranging from full-service upscale to midscale, extended stay, and economy hotels[16] - Offers the award-winning Choice Privileges® rewards program and co-branded credit card options[16] Forward-Looking Statements The report contains forward-looking statements based on management's current beliefs and expectations, which involve known and unknown risks and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements are identified by words such as “expect,” “estimate,” “believe,” and “forecast”[17] - Based on management's current beliefs, assumptions, and expectations about future events[17] - Do not guarantee future performance and involve known and unknown risks, uncertainties, and other factors, including economic conditions, consumer demand, regulatory changes, and operational risks[17][18][19] - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law[19] Non-GAAP Financial Measures & Other Definitions The company uses non-GAAP financial measures like Adjusted EBITDA and Adjusted EPS to provide insight into core operational performance by excluding specific variable or infrequent items, alongside definitions of key operational metrics Non-GAAP Measures Overview The company utilizes non-GAAP financial measures such as EBITDA, Adjusted EBITDA, Adjusted SG&A, Adjusted Net Income, and Adjusted EPS to assess operations, providing insight into core performance by excluding certain variable or infrequent items - Non-GAAP measures used include EBITDA, Adjusted EBITDA, Adjusted Selling, General and Administrative Expenses (SG&A), Adjusted Net Income, and Adjusted EPS[20] - These metrics are used to evaluate operations and should not be considered substitutes for GAAP measures[20] - Exclusions include restructuring costs, acquisition costs related to business combinations, legal claim expenses, gains or losses on the sale of equity securities, global ERP system implementation costs, and other discrete and infrequent expenses[21] Specific Non-GAAP Definitions This section provides detailed definitions and adjustments for EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and Adjusted SG&A, explaining the rationale for excluding specific items to better reflect ongoing operational performance - EBITDA: Net income excluding interest expense, interest income, provision for income taxes, depreciation and amortization, impairment and gains on asset disposals, other (gains) and losses, equity in net income (loss) of unconsolidated affiliates, and (gains) losses on extinguishment of debt[22] - Adjusted EBITDA: EBITDA further adjusted to exclude mark-to-market adjustments on non-qualified retirement plan investments, stock-based compensation expense (benefit), and the surplus or deficit generated from reimbursable revenue from franchised and managed properties[23] - Adjusted Net Income and Adjusted EPS: Exclude the surplus or deficit generated from reimbursable revenue from franchised and managed properties and gains on extinguishment of debt[25] - Adjusted SG&A: Excludes mark-to-market adjustments on non-qualified retirement plan investments and stock-based compensation expense[26] Operational Definitions This section defines key operational metrics such as Occupancy, Average Daily Rate (ADR), Revenue Per Available Room (RevPAR), and Hotel Pipeline, explaining their calculation and significance in measuring hotel and company performance - Occupancy: Total room nights sold divided by total room nights available at a hotel during a given period, measuring the utilization of a hotel's available capacity[27] - ADR (Average Daily Rate): Hotel room revenue divided by total room nights sold during a given period, measuring the average room price achieved by a hotel[28] - RevPAR (Revenue Per Available Room): Hotel room revenue divided by total room nights available for guests during a given period, a key indicator of hotel performance and the company's royalty and system revenues[29] - Hotel Pipeline: Refers to hotels awaiting conversion, under construction, or approved for development, as well as master development agreements committing to future franchise development[30] Financial Statements Update & Reclassifications In Q1 2025, the consolidated statements of income were reclassified to categorize revenues and expenses based on the nature of underlying activities, without impacting previously reported total revenues, operating expenses, operating income, or net income, aiming to enhance comparability - Reclassification aims to categorize revenues and expenses based on the nature of underlying activities to enhance the comparability of financial statements[31] - The reclassification did not impact the company's previously reported total revenues, total operating expenses, operating income, or net income[31] - Specific reclassifications include: revising “royalties, licensing, and management fees” to “franchise and management fees”; revising “platform and procurement service fees” to “partner services and fees”; revising “other revenues from franchised and managed properties” to “reimbursable revenue from franchised and managed properties”; and reclassifying certain expenses from “other expenses from franchised and managed properties” to “selling, general and administrative expenses” and “depreciation and amortization”[32][34][35][36][37][38] Supplemental Financial Data This section provides comprehensive unaudited condensed financial statements, including income statements, balance sheets, and cash flow statements, along with detailed operating statistics and non-GAAP reconciliations for the periods presented Condensed Consolidated Statements of Income This section presents the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2025, and 2024, detailing revenues, operating expenses, and other income/expenses, culminating in net income Condensed Consolidated Statements of Income Summary (Thousand USD) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $426,443 | $435,156 | $759,303 | $767,105 | | Total Operating Expenses | $301,846 | $302,534 | $554,774 | $574,334 | | Operating Income | $124,597 | $132,622 | $204,529 | $192,771 | | Net Income | $81,734 | $87,136 | $126,268 | $118,145 | Condensed Consolidated Balance Sheets This section presents the unaudited condensed consolidated balance sheets as of June 30, 2025, and December 31, 2024, detailing assets, liabilities, and shareholders' deficit Condensed Consolidated Balance Sheets Summary (Thousand USD) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $2,664,762 | $2,530,527 | | Total Liabilities | $2,691,000 | $2,575,798 | | Shareholders' Deficit | $(26,238) | $(45,271) | Condensed Consolidated Statements of Cash Flows This section provides the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2025, and 2024, outlining cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Summary (Six Months Ended June 30, Thousand USD) | Metric | 2025 (Thousand USD) | 2024 (Thousand USD) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $116,070 | $113,595 | | Net Cash Used in Investing Activities | $(95,148) | $(62,032) | | Net Cash Used in Financing Activities | $(3,239) | $(18,564) | | Net Change in Cash and Cash Equivalents | $17,683 | $32,999 | Supplemental Operating Information - Domestic Hotel System This section provides detailed domestic operating statistics, including Average Daily Rate (ADR), Occupancy, and RevPAR by hotel segment (Upscale & Above, Midscale & Upper Midscale, Extended Stay, Economy), and effective royalty rate, comparing Q2 and H1 2025 with 2024 Domestic RevPAR by Segment (Three Months Ended June 30) | Segment | 2025 RevPAR | 2024 RevPAR | Change (%) | | :--- | :--- | :--- | :--- | | Upscale & Above | $92.24 | $96.88 | (4.8)% | | Midscale & Upper Midscale | $60.64 | $62.71 | (3.3)% | | Extended Stay | $47.62 | $47.63 | — % | | Economy | $35.80 | $35.86 | (0.2)% | | Total | $58.22 | $59.95 | (2.9)% | - System-wide effective royalty rate: 5.12% in Q2 2025, compared to 5.04% in Q2 2024[46] Supplemental Hotel and Room Supply Data This section provides detailed data on domestic and international franchised hotel and room supply by brand as of June 30, 2025, and 2024, highlighting changes in system size Total Franchised Room Count (As of June 30) | Category | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Domestic Franchised Rooms | 500,562 | 494,083 | 1.3% | | International Franchised Rooms | 143,838 | 136,980 | 5.0% | | Total Franchised Rooms | 644,400 | 631,063 | 2.1% | Key Brand Room Count Changes (As of June 30) | Brand | 2025 Rooms | 2024 Rooms | Change (%) | | :--- | :--- | :--- | :--- | | Ascend Hotel Collection | 38,537 | 23,109 | +66.8% | | Everhome Suites | 1,952 | 449 | +334.7% | | Radisson | 9,928 | 14,177 | -30.0% | Supplemental Non-GAAP Financial Information Reconciliations This section provides detailed reconciliation tables for GAAP to non-GAAP financial measures, including Adjusted SG&A, EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS, covering data for the three and six months ended June 30, 2025, and 2024 Adjusted SG&A Reconciliation Summary (Three Months Ended June 30, Thousand USD) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Total Selling, General and Administrative Expenses | $89,298 | $88,729 | | Total Adjustments | $(11,657) | $(8,229) | | Adjusted Selling, General and Administrative Expenses | $77,641 | $80,500 | Adjusted EBITDA Reconciliation Summary (Three Months Ended June 30, Thousand USD) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net Income | $81,734 | $87,136 | | EBITDA | $138,021 | $145,459 | | Adjusted EBITDA | $164,975 | $161,741 | Adjusted Net Income and Adjusted Diluted EPS Reconciliation Summary (Three Months Ended June 30, Thousand USD) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net Income | $81,734 | $87,136 | | Adjusted Net Income | $89,782 | $88,783 | | Diluted EPS | $1.75 | $1.80 | | Adjusted Diluted EPS | $1.92 | $1.84 | Supplemental 2025 Outlook Details This section provides a detailed breakdown of the company's full-year 2025 outlook for EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS, including specific adjustments made to derive non-GAAP guidance Full-Year 2025 Adjusted EBITDA Outlook (Thousand USD) | Range | Lower | Upper | | :--- | :--- | :--- | | Adjusted EBITDA | $615,000 | $635,000 | Full-Year 2025 Adjusted Net Income and Diluted EPS Outlook | Range | Lower | Upper | | :--- | :--- | :--- | | Adjusted Net Income (Thousand USD) | $323,600 | $338,600 | | Adjusted Diluted EPS | $6.88 | $7.20 | - Guidance does not reflect depreciation and amortization of assets and liabilities related to the Choice Hotels Canada acquisition, as the preliminary accounting for the acquisition is not yet complete[55]