Choice Hotels(CHH) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EBITDA increased by 4% year over year, reaching a record of $129.6 million in Q1 2025 [21] - Adjusted earnings per share rose by 5% year over year to $1.34 [21] - Global rooms grew by 3.9% year over year across more revenue-intensive segments [22] Business Line Data and Key Metrics Changes - Business travel segment grew by 10% year over year, driven by group and business transient travel [8] - Extended stay portfolio increased by 19% over the past five years, now representing half of the total domestic rooms pipeline [11] - Domestic extended stay segment achieved RevPAR growth of 6.8% year over year, outperforming the industry by over four percentage points [25] Market Data and Key Metrics Changes - Approximately 40% of the overall guest mix is now business travelers, indicating a balanced approach between business and leisure travel [6] - The economy segment achieved RevPAR growth of 7%, outperforming its chain scale by 4% [38] - International rooms portfolio expanded by over 4% year over year, with a 13% increase in the rooms pipeline compared to the prior quarter [19] Company Strategy and Development Direction - The company is focused on expanding its presence in the extended stay and upscale limited service segments, which are more accretive to earnings [16] - A strong global pipeline is expected to generate significantly higher revenue compared to the existing portfolio, driven by a substantial RevPAR premium [9] - The company aims to continue investing in technology and franchisee tools to enhance guest experience and franchisee value [15] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term outlook despite increased macroeconomic uncertainty, highlighting the resilience of the business model [9] - The company anticipates domestic RevPAR performance to range from negative 1% to positive 1% for the full year 2025, reflecting recent trends [31] - Management noted that the consumer profile has shifted to higher income travelers, which is expected to benefit the company in the current economic environment [37] Other Important Information - The rewards program expanded to over 70 million members, an 8% year over year increase, contributing to a 28% increase in global reward night redemptions [12] - The company returned $115 million to shareholders year to date through dividends and share repurchases [27] - The effective royalty rate for the domestic system increased by eight basis points year over year, indicating a positive trend in revenue growth [26] Q&A Session Summary Question: Consumer and macro outlook - Management noted that the company is taking market share despite softness in leisure travel, with business travel showing resilience [39] Question: Net unit growth expectations - Management expressed confidence in achieving about 1% worldwide rooms growth, with a focus on conversion velocity [40][41] Question: Guidance clarification - Management provided insights on expected growth from various revenue streams, including ancillary fees and international business [50] Question: Development feedback from franchisees - Franchisees expressed optimism about performance and development opportunities, particularly in the extended stay segment [56] Question: Performance of economy and midscale segments - Management highlighted strong performance in these segments, driven by road trips and lower gas prices [63] Question: Upscale segment performance - Management clarified that the decline in upscale RevPAR was due to portfolio shifts and not indicative of overall performance [69] Question: Pipeline and unit growth - Management explained the dynamics of their pipeline, emphasizing the quick conversion of hotels [74][78] Question: Length of stay trends - Management noted an increase in average length of stay, particularly in the extended stay segment [88] Question: International expansion opportunities - Management highlighted significant growth potential in international markets, particularly in the Caribbean and Latin America [92]