On Thursday, Choice Hotels Intl (NYSE:CHH) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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The full earnings call is available at https://events.q4inc.com/attendee/640056043
Summary
Choice Hotels Intl reported first-quarter results in line with expectations, highlighting an inflection point in underlying trends with improvements in rooms growth, RevPAR, and lower capital intensity.
The company emphasized its asset-light growth model, improving franchisee economics, and increased royalty rates, leading to consistent earnings growth and shareholder returns.
U.S. net rooms growth improved, with gross openings up 32% year-over-year and a strong U.S. pipeline providing visibility into future growth.
International operations showed strong performance, with a 13% year-over-year increase in net rooms and significant growth in Canada following a shift to direct franchising.
Choice Hotels Intl is investing in AI and technology to enhance franchisee operations and guest experience, with initiatives like the AI-enabled EasyBid platform increasing group business conversion rates.
The company maintained its full-year guidance, expecting adjusted EBITDA between $632 million and $647 million and adjusted EPS between $6.92 and $7.14, despite macroeconomic uncertainties.
Management highlighted strong franchisee demand for its extended stay and mid-scale brands, with a focus on conversion-led growth and reducing hotel development costs.
Full Transcript
OPERATOR
Ladies and Gentlemen, thank you for standing by. Welcome to Choice Hotels International’s first quarter 2026 earnings call. At this time all participants are in a listen only mode. Following the presentation, we will open up the lines for questions. I will now turn the call over to Ali Summers, Senior Director of Investor Relations. Please go ahead.
Ali Summers (Senior Director of Investor Relations)
Good morning and thank you for joining us. Before we begin, please note that today’s discussion includes forward looking statements as defined under U.S. securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information, please refer to our filings with the SEC and including our most recent Forms 10-K and 10-Q. These statements speak only as of today and we undertake no obligation to update them. A reconciliation of any non GAAP financial measures referenced in today’s remarks is included in our earnings press release available on the Investor relations section of ChoiceHotelsIntl.com joining me this morning are Patrick Pacious, our President and Chief Executive Officer, and Scott Oaksmith, our Chief Financial Officer. Pat will discuss our business performance and strategic progress and Scott will review our financial results and outlook. And with that I’ll turn the call over to Pat.
Patrick Pacious
Thank you Ali and good morning everyone. We appreciate you joining us today. We delivered first quarter results in line with our expectations, signaling an inflection point in underlying trends toward rooms growth, RevPAR improvement and lower capital intensity. The work we have done over the past several years has now positioned us as a more accretive asset light growth model with significantly lower capital intensity and stronger unit economics which is reflected in the continued expansion in our average royalty rate. Taken together, this supports more consistent earnings growth and increasing returns to shareholders at choice. Our strategy is built on a straightforward repeatable model. Improving franchisee economics drives demand and rooms growth which we convert into higher quality earnings and free cash flow. We reinvest that cash in high return capital light opportunities and return excess capital to shareholders in a disciplined and increasingly predictable way. We are now seeing this translate more clearly into our results. First, US Net rooms growth is inflecting and improving sequentially with GROSS Openings up 32% year over year, first quarter hotel openings at a five year high and exits at their lowest level since 2023. Our U.S. pipeline is also expanding sequentially providing greater visibility into future growth. At the same time, our international portfolio continues to scale as an additional growth engine. Second, franchisee unit economics are improving driven by stronger revenue delivery and lower hotel development and operating costs. This is resulting in stronger returns across the system reflected in our strong voluntary franchisee retention rate and continued expansion in our average royalty rates. With improving RevPAR now flowing through a higher quality of more revenue intense system and third, as we move beyond a period of elevated investment that has achieved its strategic objectives, capital intensity is now declining materially with development outlays coming down. As market conditions continue to improve, we intend to accelerate capital recycling further enhancing our ability to return capital to shareholders and drive a more consistent capital return Profile we were pleased with the quarter and in the 46 states not impacted by hurricanes, RevPAR was up 1.8% year over year driven by gains in occupancy. Looking ahead, as we move past last year’s hurricane impact, demand continues to benefit from tax refunds and is expected to be further supported by event driven travel this summer such as the FIFA World cup and the US 250th anniversary. More broadly, we are seeing strength across our core segments supported by several structural trends that are already driving performance today. Affordability remains a key factor in travel decisions, aligning directly with our value oriented brands and core middle income customer and we are seeing continued strength in small and mid sized business travelers and group demand. Employment growth continues in sectors such as healthcare, construction and utilities, driving workforce based travel from customers who rely on our hotels. In addition, repeat stays from the rising number of retirees and road trips provide a stable base of demand. We are also seeing a shift in guest expectations toward accommodations that feel more like home, supporting strong demand for our extended stay portfolio. Importantly, these are not future tailwinds, they are trends we are seeing in the business today contributing to a stable and diversified demand base across cycles. So when you step back the story is clear. Room growth is inflecting, unit economics are improving and capital intensity is declining positioning us to deliver more consistent earnings growth over time. Importantly, we believe we are uniquely positioned to to capture demand in segments where we have a structural advantage. Let me build on that by focusing on what is driving the durability of our room growth. Our growth is driven by a conversion led development model where we have a clear advantage in speed and capital efficiency, a brand portfolio aligned with both guest demand and owner returns, and improving unit level economics that continue to drive developer demand across our core segments. Globally, we grew rooms by 1.7% year over year with growth improving sequentially. In the US developer demand remains strong with franchise agreements awarded up 65% year over year. In the first quarter, we have made meaningful progress in reducing the time from signing to opening enabling faster revenue generation. In the first quarter, US conversion room openings increased 59% year over year and approximately 60% of franchise agreements executed in the quarter are expected to open this year, providing strong near term visibility into growth. Importantly, a meaningful portion of our openings come from conversions that never appear in our quarter end pipeline. Underscoring the speed of our model, we also focus on segments where we are structurally advantaged. Extended stay remains a key growth driver with 11 consecutive quarters of double digit rooms growth and now represents more than 40% of our U.S. pipeline. Supported by strong unit level economics, a dedicated extended stay field organization and a leading hotel pipeline, we are well positioned to extend our leadership in this category. In mid scale and economy transient we are seeing strong developer interest with US franchise agreements awarded up 38% year over year and pipelines continuing to build driven by improving unit level economics and owner returns. As part of our focus on enhancing franchisee returns, we have reduced the cost to build and convert hotels, including lowering prototype costs by up to 25% across key mid scale brands and simplifying property improvement requirements. A clear example is Country Inn and Suites by Radisson where the redesigned lower cost prototype is driving renewed momentum with franchise agreement growth of 50% year over year for the brand. In economy transient, our portfolio strategy continues to improve system quality and guest satisfaction supporting continued developer engagement. With the pipeline increasing 26% sequentially, International continues to scale as an important growth engine with net rooms up 13% year over year in the first quarter. In Canada, we are seeing strong early returns following last year’s transition to a direct franchising model with net rooms growth of over 30%, the strongest performance in more than a decade and a pipeline up 55% year over year alongside improving revenue and guest satisfaction. As we continue to enhance the choice value proposition internationally, we see a meaningful opportunity to drive both system growth and stronger franchise economics over time. Our hotel development pipeline remains a powerful engine for future earnings growth. Importantly, 97% of rooms in our global pipeline are in higher revenue brands which we expect to be approximately 1.7 times more accretive than our current portfolio. Taken together, these trends reinforce our confidence in our ability to deliver durable global net rooms growth supported by a structurally advantaged portfolio, a high quality and more accretive pipeline and a development model that enables consistent capital efficient expansion. Turning to unit economics, our growth is supported by structurally improving franchisee economics driven by enhancements to our revenue generation, engineering and lower franchisee operating costs. Importantly, the mix of customers we are attracting is becoming more valuable over time. The segments where we are growing business travelers and groups generate higher spend per stay while loyalty is driving more repeat stays together, translating into stronger franchisee economics. Loyalty is a key driver of our higher quality demand and customer lifetime value. Our Choice Privileges program now exceeds 75 million members up 7% year over year. Earlier this year we launched the next evolution of the program building on the strong momentum we delivered last year through continued enhancements designed to further strengthen engagement and drive repeat stays. We are already seeing this translate into our results with loyalty contribution increasing over 300 basis points in March year over year as new members generated higher revenue per member than prior year cohorts. In business and group travel, we continue to see strong performance with small and mid sized business revenue up 14% and group revenue up 9% year over year supported by recurring event driven demand such as youth sports. This performance reflects our ability to effectively capture and convert these higher value demand segments across our platform. Technology is an increasingly important differentiator for choice. We have a long standing advantage having been an early mover in migrating both our infrastructure and data to the cloud which underpins how we deploy AI across our business. That foundation enables us to move faster, deploy capabilities at scale and translate innovation into real business outcomes for our franchisees. We are already seeing this in action. For example, our recently launched AI enabled EasyBid platform is improving response time to group RFPs by approximately 30% which is translating into conversion rates that are roughly 250 basis points higher and driving incremental group business for our franchisees. Through our long standing partnership with aws. We are the first major hospitality provider in the US to standardize on a common AI foundation, allowing us to move beyond pilots and rapidly deploy capabilities across our business, embedding them across guest experience, franchise operations and distribution. We are also extending these capabilities through our partnership with Salesforce where we are deploying intelligent agents across our field organization to improve franchisee operations, strengthen how our hotels capture group demand and enable faster, more data driven decisions, giving us the flexibility to rapidly deploy and scale new capabilities across our platform. Together these capabilities are improving franchisee returns and driving continued expansion in our average royalty rates. Looking ahead, Choice is well positioned for continued growth with a clear path to more consistent higher quality cash returns. US Maroon’s growth is inflecting, unit economics are strengthening and capital intensity is declining. With a structurally advantaged higher quality portfolio of hotels, a more accretive pipeline, a capital light model and a differentiated cloud based technology platform, Choice is positioned to deliver durable earnings growth and create long term shareholder value. With that, I’ll turn the call over to Scott.
Scott Oaksmith (Chief Financial Officer)
Thanks Pat and good Morning everyone. Let me start with our first quarter results. For the first quarter, revenues excluding reimbursable revenue from franchise and managed properties increased 3% year over year to $217 million driven by global rooms growth and expansion in our average royalty rate. Of particular note, international performance was strong with revenues excluding reimbursable revenue from franchised and managed properties increasing 63% year over year. Adjusted EBITDA was $126 million compared to $130 million a year ago and adjusted earnings per share were $1.07 compared to $1.34 a year ago. The year over year decline in adjusted EBITDA primarily reflects the timing of certain SG&A costs. The decline in adjusted EPS further reflects a temporary adjustment to our effective income tax rate in the first quarter. These items were anticipated and are expected to normalize over the balance of the year consistent with our full year guidance. As a result, we are maintaining our outlook across all key metrics. Let me now turn to the key drivers of our performance. Three themes shaped our first quarter results. First, US Net rooms growth improved supported by strong openings and lower exits. RevPAR trends improved through the quarter and finally, capital intensity declined as investment in Cambria and Everhome has achieved its strategic objectives and is now being significantly reduced. Let’s start with our net rooms growth. In the first quarter we grew global rooms 1.7% year over year, led by a 2.5% growth in our higher revenue segments and highlighted by a 37% increase in room openings. Developer demand remained robust with global franchise agreements awarded up 72% year over year. Importantly, in the US performance improved meaningfully with nearly 6,000 gross rooms opened in the quarter and net exits declined 52% year over year and improved sequentially, reaching the lowest level in recent years. As the quarter progressed, hotel development momentum accelerated with March accounting for approximately 70% of first quarter US franchise agreements executed. Growth was broad based, led by extended stay and strong momentum in mid scale. Conversion activity remains a key driver of our growth, expected to account for over 80% of openings for the full year. US conversion franchise agreements increased 63% year over year while the US conversion pipeline grew 17% year over year and expanded sequentially, reinforcing our visibility into future openings. Relocancing activity increased significantly year over year, reflecting both brand strength and continued franchisee confidence. Taken together, these trends reinforce our expectation that US net rooms growth returns to positive territory in 2026 with sequential improvement already evident in the quarter. International growth also remains robust. Turning to RevPAR, our global RevPAR declined 80 basis points year over year on a currency neutral basis in the first quarter, primarily reflecting the lapping of hurricane related impacts in the prior year. International RevPAR increased 2.6% year over year on a currency neutral basis led by strong performance in Canada and the Caribbean and Latin American region. In the U.S. excluding a 410 basis point impact from prior year hurricane related demand, first quarter RevPAR increased 1.8% year over year supported by sequential monthly occupancy gains, an important leading indicator for future RevPAR performance. On a comparable basis, REVPAR turned positive in February and remained positive in March. Preliminary April trends remain positive supporting our expectations for continued improvement. Performance continues to trend favorably relative to our expectations supported by constructive underlying demand. Moving to royalty Rate a key driver of our earnings growth in the first quarter, we increased our U.S. average royalty …
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