Q3 2021 Choice Hotels International Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to choice hotels International third quarter 2021 earnings call. At this time all lines are in a listen only mode. I will now turn the conference over to early summer.
Direct Joshua today before we begin we'd like to remind you that during this conference call certain predictive or forward looking statements will be used to assist you in understanding the company and then yourself.
Actual results may differ materially from those indicated in forward looking statements and you should consult the company's forms 10-Q, 10-K, and other SEC filings for information about important risk factors affecting the company that you should consider.
These forward looking statements speak as of today's date, and we undertake no obligation to publicly update them to reflect subsequent events or circumstances.
You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our first quarter 2021 earnings press release, which is posted on our website at choice hotels Dot com under the Investor Relations section.
This morning put patients, our president and Chief Executive Officer, and drug usage, our Chief Financial Officer will speak to our first quarter operating results and financial performance.
Be joined by so called Old Smith, Senior Vice President real estate and finance.
Following Pat and Don's remarks, we'll be glad to take your questions.
And with that I will turn the call over to Pat.
Thanks, Sally and good morning, everyone. We appreciate your taking the time to join us.
I'm pleased to report that choice hotels continued to deliver strong revpar growth in the third quarter that once again significantly outperformed the industry.
We also continued to gain share across all segments in which we compete.
As a result of these performance trends, we expect to surpass 2019, revpar and adjusted EBITDA levels for full year 2021.
By continuing to implement our long term strategy, we have positioned choice hotels to further benefit from post pandemic trends that favor at leisure travel limited service hotels and longer stays.
Additionally, our business traveler demand has returned to levels similar to the third quarter of 2019.
The third quarter was exceptional and our strongest quarter of the year, our revpar increased 11, 4% compared to the third quarter of 2019, surpassing our prior quarterly Revpar guidance.
In fact, Revpar has now exceeded 2019 levels for five consecutive months with trends continuing into the fourth quarter.
For over a year and a half we've maintained significantly higher Revpar index share gains against the competition compared to 2019.
We continued this trend in the third quarter, increasing Revpar index versus our local competitors by nearly four percentage points as compared to 2019, reflecting continued growth in both weekday and weekend Revpar index as reported by S. T.
Sure.
<unk> ability to continue to gain share even as the broader industry recovers demonstrates that our strategic investments are paying off and gives us further confidence in our future revenue trajectory.
Because of our strategic investments both before and during the pandemic. We are in a stronger position today to capitalize on outsized growth opportunities over the long term, which we expect will create value and drive our performance to new levels.
What's most impressive is that we continue to drive strong performance through both rate improvement.
And occupancy share gains.
Choices average daily rate growth has been stronger than the industry in the third quarter due to our new revenue management tool and broader capabilities.
In addition, our robust merchandising strategy has allowed us to drive occupancy share gains versus our local competitors.
We continue to make major investments that are enhancing our owners' performance and contributing to our brand outperformance.
Earlier this year, we launched our new revenue management capability designed to improve the ability of our franchise owners to effectively drive topline revenue.
This tool marks a step change improvement that we were able to put in the hands of our franchisees at a critical juncture in the recovery.
As the first mobile enabled revenue management App.
It allows our franchisees to more effectively manage their channels rates and inventory by adapting to local market trends in real time.
Through repricing and competitive rate shopping multiple times during the day.
And they can do this from virtually anywhere.
This enhanced capability has contributed to choice taking significant Revpar index share spa.
Specifically driving average daily rate index gains versus local competitors and.
And we expect this trend to continue.
We are especially encouraged by forward looking bookings for the Thanksgiving and winter holidays with a projected rate significantly ahead of 2019 levels.
The acceptance of rate recommendations by our franchisees has been significantly higher than our prior tool demonstrating our owners competence in the solutions that we're providing.
This tool combined with expert advice from our experienced revenue management consultants.
Is helping our franchise owners to swiftly execute the right pricing strategy.
It is particularly important in an inflationary environment.
At the same time, we continued to improve the unit economics for our franchisees.
Concentrating on investments like housekeeping upon request that lower their cost of ownership.
While driving continued performance improvements.
Recently, we deployed a new digital registration capability.
Which is integrated with our property management system.
This cost effective cloud based solution is designed to simplify the hotel registration process for front desk staff save.
Save on labor speed.
Speed up check in.
And improve our guest overall experience.
Moreover, our recent brand investments are designed to appeal to the guest of tomorrow, while providing a compelling return on investment for our franchisees.
Just a few weeks ago, we introduced a new Cambria hotel prototype option designed for secondary and leisure markets.
We're excited about the future growth opportunity for Cambria as we expect this prototype will allow developers the flexibility to build at a reduced cost expanding the markets available for growth, while retaining our design forward experience.
I will now provide a brief update on our key segments, where 11 out of our 12 brands achieved Revpar index gains versus their local competitors in the third quarter as compared to 2019.
Our strategic investments in the extended stay segment allowed us to quadruple the size of the portfolio over the past five years to reach 467 domestic units.
With a domestic pipeline of nearly 310 hotels.
This segment has significant growth engine for the company expanded by over 45 hotels in the third quarter year over year and now represents over 10% of our total domestic rooms.
In addition to strong unit growth, we've also driven impressive revpar growth across our extended stay brands.
Specifically when compared to the third quarter of 2019, our extended stay portfolio grew revpar by over 18% driven.
Driven by occupancy levels of 82% and a 9% increase in average daily rate.
And outperformed the industry's revpar change by over 20 percentage points.
The woods bring suites brand celebrated a key milestone with the recent opening of its 300 hotel.
The brand's pipeline expanded by over 20% year over year as of the end of September reaching.
Reaching nearly 160 domestic hotels.
Which further exemplifies developer demand for this brand given its cycle resilience.
We expect that would springs robust pipeline will provide a strong platform for future growth of the brand.
Broadly speaking we are pleased with the significant increase in developers interests in extended stay projects.
In the third quarter, we executed two dozen extended stay domestic franchise agreements and 85% increase year over year, and a 20% increase compared to 2019 levels.
In addition, the first hotel for our newest extended stay brand <unk> suites.
It is currently under construction and scheduled to open next summer.
With nearly 20 additional projects already in the pipeline.
Our midscale brands, which represent over two thirds of our total domestic room portfolio and approximately half of the total domestic pipeline continued to outperform the segments of Revpar growth.
Our midscale and upper Midscale portfolio grew revpar by nearly 10% driven by average daily rate growth of over 9%.
And outpaced the industry's midscale and upper Midscale segment growth by nearly seven percentage points when compared to third quarter 2019.
Our flagship brand comfort recently celebrated the highest number of conversion hotel openings since 2014.
While increasing new construction agreement threefold in the third quarter year over year.
The comfort brands domestic unit growth of over 2% and.
And Revpar index outperformance versus local competitors demonstrate the attractiveness of this iconic brand to hotel developers and guests alike.
Our upscale portfolio achieved impressive growth in the third quarter year over year as we increased our domestic room count by nearly 22%.
Driven by both Cambria and the ascend hotel collection.
The upscale portfolio also achieved a record for domestic openings in the first three quarters of the year.
The Cambria brand continued its positive momentum growing by over 9% to 58 units year over year with 17 projects under active construction at the end of September and five additional hotels planned to open this year.
In August we celebrated a cambria opening in the heart of one of the world's Premier wine regions Napa Valley.
Our upscale portfolio increased its revpar index relative to its local competitive set and outperformed the industry's revpar change by 15 percentage points.
While increasing the average daily rate by 11% when compared to the third quarter of 2019.
This progress shows the attractiveness of choice hotels' value proposition in the upscale segment for current and prospective owners.
The strong performance across our entire brand portfolio confirms our focus on growing in our strategic segments, which we believe will further fuel the long term revenue intensity of our system.
Turning now to demand trends, we continue to achieve gains in our weekday occupancy index share during the third quarter compared to 2019.
As discussed on our prior calls we believe that these share gains are partially driven by long term consumer trends such as remote work and an increase in early retirements.
Which afford Americans flexibility as to when and where they travel for leisure.
In fact, we observed our guests extending their trips into shoulder days of the weekend.
Giving us further optimism about future travel trends following the historically busy summer travel season.
In addition, we continued to observe a greater share of revenue coming from longer stays as compared to 2019.
Similar to our broader occupancy share gains these weekday demand gains were achieved through our merchandising capabilities and strategy with.
With targeted promotions at the right time of the week during the right time of the year and for the right customer.
The investments we've made have allowed us to capitalize on demand that historically propelled our core business.
While attracting and capturing an even larger share of leisure demand.
While our most loyal choice privileges members continue to spend more at our hotels during the third quarter.
We were also successful in appealing to those who are new to our brands.
Increasing their revenue contribution as compared to 2019 levels.
We also see continuing momentum in our business travel trends with anticipated additional runway for growth.
We've continued to witness sequential quarter over quarter increases in our business travel bookings in the third quarter of 2021.
With overall business performance similar to 2019 levels.
As a company with a strong emphasis on our customer first approach choices always looking for innovative ways to better serve the changing needs of today's consumers and anticipate the expectations of the guest of tomorrow.
For example, we are the first lodging company to launch a collaboration with <unk> a.
A trusted digital asset marketplace, enabling us to cater to guests with more currency options and more ways to redeem this currency.
Our more than 50 million choice privileges loyalty members can now unlock new redemption opportunities by converting their rewards points to cash and then use it to buy bitcoin.
Transfer of their points to a friend or even redeem them online or in store anywhere Apple pay or Google pay is accepted.
Turning now to our franchisee business delivery and demand for our brands.
Our franchisees are benefiting from our strong business delivery.
Thanks to our enhancements in our distribution capabilities, we recorded four of our top five all time highest booking days on choice hotels Dot com.
And other proprietary channels in the third quarter.
In addition, we drove growth as compared to 2019 and 2020 through increased revenue contribution in the third quarter from choice hotels Dot com and other proprietary digital channels.
Business delivery through these channels significantly improves our owners' profitability as they deliver strong rates at the lowest cost.
As a result these channels remain a key focus area for enhancing our value proposition.
With such a powerful value proposition. It is no surprise why choice maintained an industry, leading franchisee voluntary retention rate.
And our franchise owners continue to seek and develop our brands.
Aided by our strong value proposition for our current and future owners and our record outperformance. We also continued to experience demand for new franchise contracts.
In the third quarter, we awarded 89, new domestic franchise agreements a 10% increase over the same period of 2020.
Specifically, we're very pleased to see that demand for our new construction brands in the third quarter increased by over 50% year over year.
And we are also excited to announce that our wood spring brand expanded internationally at the end of October entering the Canadian market with a more than 15 unit commitment from a well known developer and operator.
In addition, a team within our development and franchise service departments that is fully dedicated to driving diverse ownership of choice franchised hotels, among underrepresented and minority owners.
Has awarded 18 franchise contracts year to date through September <unk>.
Bringing the total agreements executed to over 280 since the program began over 15 years ago.
I am proud to say that more than half of the 18 agreement. This year were awarded to women entrepreneurs.
None of these accomplishments would have been possible without the resilience and hard work of our dedicated associates.
I want to thank them again for their remarkable efforts and continued commitment to delivering for our franchise owners and guests, particularly during the challenging times in which we are living.
We are committed to continuing to invest in and support our associates and we are proud to be the hotel industry's only company to recently earned recognition as a best work life balance employer by comparably.
In closing I am confident in our continued ability to create value and deliver results for our owners and shareholders through our effective strategic investments.
Impressive performance.
And award winning culture centered around diversity equity and belonging.
With that I will hand, it over to our CFO.
Tom.
Thanks, Pat and good morning, everyone I Hope you and your families are all well.
I'd like to provide some additional insights on our third quarter results.
Outdate you on our liquidity profile and capital allocation and share our thoughts on the outlook for what lies ahead.
As we discussed in the previous quarter, we are comparing our financial performance and Revpar results to 2019, which we believe offers a more meaningful basis for analyzing trends as the prior year's quarterly results were significantly impacted by the pandemic for.
For comparison for 2020, please refer to today's earnings press release.
Our third quarter 2021, as compared to the same period of 2019 total.
Total revenues, excluding marketing and reservation system fees were $166 5 million.
An 8% increase.
Adjusted EBITA rose, 18% to $133 2 million driven by improving Revpar performance revenue intense unit growth and strong effective royalty rate growth coupled with continued cost discipline.
Our adjusted EBITDA margin expanded to 80%.
<unk> of seven percentage points.
And as a result, our adjusted earnings per share were $1 51 for.
For the third quarter, an increase of 10% versus 2019.
Let's now turn to our three key revenue levers beginning with royalty rates.
Our effective royalty rate remains a significant source of our revenue growth.
The company's domestic effective royalty rate increased by eight basis points year over year to approximately 5% compared to the third quarter of 2020.
This performance reflects the continued strengthening of the value proposition, we provide to our franchise owners.
Their continued interest in being affiliated with our proven brands and the promising prospects in our pipeline.
It also provides further validation of our long term past current and future investments on behalf of our franchisees.
We expect to maintain the current growth trajectory our book lover for full year 2021, and grow at our historical rate in the future as owners continue to seek choice hotels proven capabilities of delivering strong topline revenues that maximize return on investment while helping them reduce their total <unk>.
Cost of ownership.
Our domestic system wide revpar outperformed the overall industry by 16 percentage points for the third quarter, increasing 11, 4% over 2019, specifically.
Specifically, our average daily rate grew by nearly 9% and our occupancy levels increased by nearly two percentage points compared to the same quarter of 2019.
Our third quarter results showed that we continue to outpace the primary chain scale segments in which we compete as reported by STR by six percentage points versus 2019.
Importantly, our strong revpar trends have continued into the fourth quarter.
As you know from our prior calls we've long focused our brand strategy on driving growth across the higher value and more revenue intense upscale extended stay and midscale segments.
The investments we've made continue to pay off as the strategic segments have enabled us to materially outperformed the industry and revpar growth and achieved gains versus our local competitors.
Let me highlight just a few impressive performance achievements for our brands in the third quarter.
As a reminder, we're comparing the growth figures with the same period of 2019.
Our <unk> brand achieved 23% revpar growth, reaching an average occupancy rate of nearly 86% and experiencing an 11% increase in average daily rate.
Ascend hotels saw their growth in average daily rate of over 17%.
<unk> outperformed the upscale segments revpar growth by over 20 percentage points at.
At the same time, the comfort family grew revpar by over 8%, reflecting a 9% increase in average daily rate.
Finally, both our Cambria and mainstay suites brands captured 12 percentage points in Revpar index gains versus their local competitors.
Across the choice system, we were able to increase our overall revpar index against local competitors by nearly four percentage points. Thanks to our franchisees' ability to drive both rate and occupancy gains.
More specifically, our average daily rate and occupancy improved from the prior quarter and our average daily rate index and occupancy index continued to increase compared to 2019 as a result of our investments and revenue management tools for our franchisees and the merchandising capabilities and strategy, we have put in place.
Our third revenue lever is units and rooms growth, which benefits from the absolute size of our portfolio and the revenue intensity of its hotels.
45% year over a year.
Let me share a few highlights on specific brands.
Yeah send hotel collection leaves the industry as the first launched and today the largest soft brand expanding its domestic room count by 27% year over a year.
At the same time Clarion point has nearly doubled its portfolio year over year, ending the third quarter with nearly 35 hotels open in the U S and 15 additional hotels awaiting conversion this year.
Our mainstay suites Midscale extended stay brand portfolio expanded to nearly 100 domestic hotels open representing more than 30% unit growth year over a year.
And finally, our suburban extended stay portfolio 70, domestic hotels open experienced 13% year over year unit growth.
Now a few words about our liquidity profile and an update on capital allocation.
As a result of our strong performance the company hasn't even stronger liquidity position more specifically at the end of the third quarter of 2021, the company had over $1 billion in cash and available bar owned capacity the rich revolving credit facility.
We are also pleased to report cash flow from operations of $142.8 million for the third quarter of 2021 53 per cent increase versus the third quarter 2019.
Today or gross debt to EBITA leverage levels remains at the low end of our target range of three to four times at.
At the end of the third quarter of 2021, our net debt to EBITA leveraged level was at 1.8 times.
These impressive results combined with our strong liquidity and confidence in our ability to generate strong levels of cash leave us well positioned to continue to grow our business and returned excess cash flow to shareholders well into the future.
Year to date through October we have returned over $35 million back to our shareholders in the form of cash dividends and repurchases of our common stock.
We will continue to monitor the environment for other investment opportunities and evaluate capital returns in the context of our leverage levels market conditions, and our overall capital allocation strategy.
Finally, let's turn to our expectations for what lies ahead.
We currently expect full year domestic revpar to surpass 2019 levels and grow at approximately 1% as compared to full year 2019.
Assuming the broader revpar and economy recovery trends continue we now expect to see our 2021, adjusted EBITDA exceed 2019 levels and range between $382 million and $387 million, even with plant incremental investments in the fourth quarter.
Our view is reinforced by our third quarter results.
Which extend our strong year to date financial performance brought her macro trends and our continued investments to support growth for the remainder of 2021 and beyond.
We will continue to evaluate the impact of COVID-19 across the business and will provide further updates in February during our next earnings call.
In closing we remain confident in our long term strategic approach and resilient business model.
Bold with our discipline capital allocation strategy and strong balance sheet. We believe these strengths will allow us to further capitalize on growth opportunities and drive outsized returns for years to come.
At this time pattern I would be happy to answer your questions operator.
We will now begin the question and answer session to ask a question. If I start then one on your telephone keypad, if you're using a speaker phone. Please pick up your handset before pressing the keys to wait throw a question. Please press.
Two at this time will pass momentary to assembler roster.
The first question comes from the line of pain, He hasn't with Bank of America. Please go ahead.
A good morning, everybody Oh, yeah.
Maybe this question is for Pat, but maybe too early to talk about next year, but at least directionally or at a high level can you maybe tell us how you're thinking about you know demand and right dynamics and how that's gonna play out in 2022.
Sure. So I think that any of the interesting thing about you know right and Revpar in general is not only been that sort of outperformance that we've seen but we were really seen a one two punch here with both rate and occupancy.
Games above what the average you know change scale is doing and what the overall industry is doing so if you look at right Ah revenue management tool when a revenue management consultants are really helping our franchisees drive higher rate and we believe that's gonna be a sustainable gain that we're gonna see last for the longer term here.
So pushing well into into next year is your is your question sort of is trying to get it and I think the same things through on the other side with occupancy our ability to sort of drive that right merchandising and promotion strategy for the right customer the right time of year for right.
Is really a new capability that we've invested in over the last several years and it's really helped our hotel do well not only during the pandemic, but during the recovery. So if I look at you know Q4, and I look into a Q1 and Q2 of next year. We do believe those are gonna continue to to provide us with a with an outsized opportunities when I look at you know really the the upcoming hot.
<unk> you know I think we've continually outperformed every holiday going back to memorial day, So that expectation that we have on sort of outperformance on the holidays. We we really been surprised each time, what's what's really driving a lot of it is the right aspect to this which I mentioned, but if I.
Look at college football I look at fall foliage I look at some of the areas of the country, where we expected demand.
We have been surprised by how how outside that demand has been and I would expect that to continue a couple of other key drivers that we're seeing international inbound you know they're opening up international flights here on Monday of next week November 8th.
Canadian border, which is a key factor for us for our hotels that sit in our northern states, but also for the snowbirds, who will be coming down to Arizona and Florida.
We missed out on that business last year, but I think the Canadian vaccination rate is up in the 80% range. So those are all key drivers for the winter months.
And you know the other thing that that if we get this infrastructure bill and we get more onshoring a manufacturing when you see a lot of we were with a number of key vendors about a week and a half ago a lot of them in order to get supply are thinking about onshoring and building manufacturing here in the United States. So those are all going to be key drivers for our.
Business travel segments. So when I look at sort of a momentum that we're seeing in some of these key trends that are impacting the travel environment in general they tend to favor our brands they tend to favor our locations and they tend to favor our guests.
That's really helpful. Thank you and and maybe just.
One like clarification follow up.
The you know the revenue management tool and the initiatives that you're rolling out how long do you envision that to you know last into 2022 that tailwind.
Well I think it's a permanent change for us I think in the past some of our hotels were leaving money on the table with regard to rate. This.
This tool is providing them with you know an ability to change their pricing and and it. It it runs dynamic pricing multiple times a day in an environment like we're in right now you've got inflation going on it you've got a lot of.
Surprised hey. This this state is is lifting a restriction or this event is now going to happen.
And the ability to forecast, there's a lot more volatility I guess in the forecast.
For for our owners and this tool is really helping them adjust to those market trends in real time. So this is this is a permanent capability for our hotels going forward and I think it's going to be it.
Again, I think it's a key drivers to wire Revpar index gains have been driven so much higher than I would expect that to be sustainable for the long term.
And Danny one thing to note is that we have 5000 hotels that are currently live today. So there is also a tailwind we expect by the end of the year for all of our hotels to be alive. So we would expect to see an uplift associated with the other remaining rollout as well.
[noise] I think.
The next question comes from the lineup roaming farney with you B S. Please go ahead Oh, great. Thanks, I know you come into it a little bit about distribution I Wonder if you could quantify any changing kind of Oh ta channels verses verses 2019 things.
Yeah, I think it's been a sort of it's really improved I would say from the symbol of our business delivery has improved relative to to what we call Nonproprietary channels. So are are proprietary delivery through our reservation system, our mobile app.
And our our global Salesforce continued to be strong.
You know and I think what's what's really key when you look back at prior recoveries, where the third party providers took share that didn't happen at this time and I think a lot of that is not only choice hotels, but the industry as a whole has gotten smarter about not.
Not putting distress inventory out and trying to to chase occupancy that wasn't there. So we haven't seen any change other than the continued trajectory of our proprietary channels getting stronger that's business through our loyalty program in business through our website and our mobile labs.
Mm interesting cause some of the larger companies shoot granted have more of a ski two business travel. Then then choice does you know.
Did seem more O T distribution because of the Max rate because of shifting weren't too to Alicia from business travel so even for choice, even though you're already more focused on leisure travel you didn't see some of the business travel mix reduction kind of leading to higher O T. A.
But I think in a broader term when you look at it over the long term we have not I think in Q3, where you do see normally that business traveller come back once the summer ends.
It does it does normally ship, but when I look at our Q3 of 2021 versus what we would normally see in Q3 of 2019, the patterns didn't change and I think that's a reflection of the fact that we are strong leisure.
So are the Otas and so we're used to.
Sort of that competitive environment with regard to to customer capture and then ultimately business delivery.
Okay, and then just one quick clarification on the right recommendation system when did that start rolling out.
We really started rolling out at the beginning of the summer.
And essentially got to 5000 hotels here on the platform in September.
And again it was.
A a key sort of investment that we've made this isn't something we dreamed up six months ago. This was an investment we began as a pandemic was actually beginning we began to work on it and the work got completed and as I said in my remarks, you know it really got rolled out at a critical juncture when.
<unk> vaccination rates in the US started to climb and we really started to see that sort of as we mentioned a five consecutive months of return to 2019 levels are exceeding 2019 levels.
And so that the rollout really occurred where we had just the right time for the strong summer demand period that that we traditionally have.
Great. Thank you very much.
The next question comes from a line of Patrick's shows with Trust. Please go ahead.
Hi, good morning patent.
Good morning, a couple of questions here.
Very enviable balance sheet can I just get your latest thoughts on your going forward preferences for share repurchases versus dividends.
Yeah. So overall I would say is our capital allocation strategy continues to remain the same obviously when you talk first and foremost about reinvesting in the business like we always have we're going to continue to evaluate on any opportunities.
Our balance sheet isn't the best plastic or possibly be and frankly, when you take a look at them.
Leverage of one eight times I would say we are certainly underlevered, so returning capital to shareholders and it's going to continue to be a priority. Obviously, we return the dividend back to pre pandemic levels over the first hotel companies do that so we will continue to pay that ordinarily dividend.
But make no mistake I think share repurchases will continue to be a part of that capital allocation of hierarchy in the future with $1 billion of cash available capacity on the balance sheet. Today I think we're going to have the opportunity to pull every lever. Obviously, we wanted to see what that recovery trajectory looked like prior to going very aggressive on the share repurchases. So what you see you are at.
Date, where about $10 million in terms of share repurchases. So.
So we will continue to evaluate in the context of obviously, the overall investment opportunities both organically as well as the M&A landscape.
Okay. Thank you and then.
Shifting gears here it looks like in the in the quarter you had what I would call in and adjusted net.
Gained on the marketing and reservation line about $10 million, how should we talk about those marketing and reservation.
Revenues and expenses and net gains or losses going forward. Thank you.
The reality is when we when we present our adjusted numbers. The good news is that gain is not included in that adjusted EBITDA figure. So that I think that's a really important thing to note. So we're not getting the benefit of the gain on the marketing. Nonetheless, the reality is that marketing and the restaurant has to break even over the life of the fund itself and so we essentially.
Normalized for any gains or losses in that fund on a quarterly basis. What you typically see is Q1 in queue for you typically see that fun running a deficit.
Just the lower demand month months of the year those six months out of the year. When you take a look at Q2 and Q3 in particular, we typically would run a surplus so over over the the the the long term obviously you would see breakevens over the full year, you would get pretty close to break even frankly, but in quarter, you can see certainly surpluses and deficits that we.
Take out about adjusted EBITDA figure. So when you look at that it's an apples to apples calm.
Okay. Thank you I'm good thank you.
Thank you.
Again, if you had a question pretty fresh start then one.
The next question comes from micro mini sorry.
Please go ahead.
Thanks, Good morning, everyone.
Morning, Michael Michael.
Just the first question I Wanna go back to the revenue management and technology that you've been talking about it there any numbers that you guys can provide I mean, I'm thinking specifically, maybe ADR delta for hotels, using a technology versus hotels not using it because it sounds like not every hotel is on the platform yet just trying to quantify.
The technology specific list that you guys saw during the quarter and maybe what that might mean for numbers going forward as you guys get fully rolled out.
Yeah, I want I want to be clear on what what's on the platform today and what's to come we are working on it for the future are extended stay brands.
For a revenue management capability, there really isn't anything out there today.
For those brands that that looks like what we use or what we're using today for a transient brands. So that 10% of our portfolio is not on this platform yet.
That is coming in a in a future phase.
But I think if you look at the the the thing we look at is not necessarily the adult I mean, obviously that shows up in our average daily rate index games that we've seen.
What I'm most pleased by is the adoption of the recommendation by our franchisees.
And that's in that sort of.
90% of the recommendations that come across from the algorithm and from the recommendations are franchisees accepting that today and that's what I mean by a step function change compared to the prior tool that we had there's just a greater belief that this is market specific it is it is up to date in real time and I.
Also the fact that our owners can do it from anywhere on their on their phone. They can monitor what's happening at their hotel, what's happening in their market because they're not always on site.
Those are all key drivers I think as to why this has become more effective and if I look at it if I look at our trends even into October.
In October we saw Revpar gain of about 10.5% like it was 10.6%.
Compared to 2019 levels. So when you look at that final roll out with I think the last hotel of the 5000 was probably went live in the early part of September. So we really are seeing that sort of continued outperformance in a month that traditionally softer than than what we would normally see.
In our in our summer months, so that that those are some of the key items I would point to around the revenue management tool that are driving the outperformance.
[noise] got it that's that's helpful. Thank you and then and.
Just big there were a couple of other questions on the customer.
Focus back, but specifically on on loyalty contribution is already updated percentage figure that you can provide and then maybe more broadly on the same topic that new customers that you mentioned that are coming to your hotels do you know where they were staying before what's the profile of that new customer looked like that you're captured.
<unk> more of today.
So I think on the loyalty contribution.
There were similar to where we were at Prepandemic levels sort.
Sort of that 40% contribution levels of Florida of every 10.
We're excited by the.
Sort of future growth opportunities in loyalty.
Given some of the newer customers as we mentioned I think a lot of the the newer customers that we're seeing our younger customers, which is which is really good for us given our our sort of traditional custom.
Customers more of that sort of baby boomer demographic today that makes up the bulk we're seeing as we would expect a pickup and jenex, we're seeing a pickup and millennials and we're even starting to see incrementally some ginger.
Customers in our in our hotel so.
It's a real positive I keep talking about where our goal here is to build the brands.
For the guest of Tomorrow.
And so we're constantly looking if you look at the refresh of the comfort brand and the new prototype there a lot of that was designed to appeal to that type of consumer are Cambria ops.
Option for leisure markets and secondary markets again is is going to go after a guest that skews a little younger and higher income so.
So we are we are pretty excited about sort of the the trends we're seeing in this sort of posting academic recovery about the types of consumers that are they are shown up in our hotels that he had not seen before.
Yeah, the only thing I would add on the on that one Michael is the four out of every $10 loyalty as it's a portfolio average obviously the further up the up the chain scale. You go the heavier loyalty contribution there is so obviously with our comfort products are Cambria product you see a much higher percentage of loyalty contribution when you shift down to the economy segment, it's much lower obviously economy.
Large and roadway it's a it's a lower loyalty contribution the other really impressive.
That we have is when you take a look back to 2019, we actually are seeing the percentage coming from sepia. Lee are most are most loyal customers actually increasing by almost 300 basis points versus 2019. So we're continuing to see that loyal customer returns. So obviously, that's a really good trend that we're continuing to see and then just in terms of.
There were actually stealing chair when you take a look at every segment, we've actually seen RPI index games or rap or index gains across every segment and so the reality is you're continuing to see local share gains. So that's comparing like for like properties in like location. So feeling very good about not only draw.
Giving that new customer traffic, but also taking share from very similar similarly placed properties.
Yeah.
[noise] understood very helpful. Thanks.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to practice patient friend closing remarks.
Operator, and thanks to everyone for your time. This morning, I Hope you all stay safe and healthy and we will talk to you all again in the new year have a great rest of your day.
The conference. That's now concluded. Thank you for attending today's presentation you may not disconnect.
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Yeah.
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