Q1 2023 Choice Hotels International Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to choice Hotels International Inc. Q1, 2020 earnings call at this time all lines are in a listen only mode.
I will now turn the conference over to Ali stomach Investor Relations Senior director for choice hotels.
Good morning, and thank you for joining us 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 its results.
Actual results may differ materially from dose indicated in the forward looking statements.
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.
You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our first quarter 2023 earnings press release, which is posted on our website at choice hotels Dot com under the Investor Relations section.
This morning, <unk> patients, our president and Chief Executive Officer.
Dragovich, our Chief Financial Officer will speak to our first quarter operating results and financial performance.
Following patent dance remarks, we'll be glad to take your questions and with that I'll turn the call over to Pat.
Thank you Ali and good morning, everyone. We appreciate you taking the time to join us.
It's been a rewarding and successful start to the year.
We generated impressive earnings exceeding the top end of our prior guidance.
<unk> delivered strong revpar growth.
And are ahead of plan integrating the Radisson Hotel is Americas business unit.
This robust performance has enabled us to invest in our business to drive long term growth and return a meaningful amount of capital to our shareholders.
Today I want to outline for business value drivers that we believe are propelling the future success of our company.
First we drove our adjusted EBITDA performance to record levels.
And we have carried our strong momentum into 2023.
Second we are executing a distinct strategy that is strengthening our competitive position.
Third we have positioned the company to capitalize on long term consumer and travel trends that are favorable to our brands.
And finally, we are excited to onboard the Radisson America's brands onto choice hotels World class business delivery platform, which we expect will further accelerate our transformative growth.
Let me start with the momentum we have created in both our adjusted earnings and topline performance growth.
Building on our record 2022 earnings results, our distinct growth strategy and proven franchising business engine.
Our first quarter 2023, adjusted EBITDA to over $106 million, which exceeded the top end of our previous guidance.
It was 10% higher than prior year.
These impressive financial results were fueled by our ongoing revpar and effective royalty rate growth.
Last year, our first quarter Revpar increased 10, 4% from the same quarter 2019.
This year, we are building on that growth with our first quarter revpar, increasing by an additional five 9% year over year.
And we drove this performance through both rate and occupancy gains.
What's most impressive is that we also grew our first quarter effective royalty rate by six basis points year over year.
A reflection of the strengthening value proposition, we provide to our franchise owners.
We expect to carry our momentum through the rest of 2023 as we grow our franchise business with hotels that generate higher royalties per unit.
While leveraging the new capabilities, we have built to improve the profitability of each franchise.
As such I am pleased to report that we are raising our outlook for full year 2023, net income and adjusted EBITDA.
Franchising has always been the cornerstone of our distinct strategy.
And then the last five years, we have launched or acquired a number of distinct incremental brand opportunities to expand the reach of our franchise business in more revenue intense segments.
Most importantly, these additional franchise opportunities where in the extended stay.
Our midscale and upscale segments, which currently have the highest developer and guest demand.
The new franchises in these segments are also more accretive to our earnings and a key driver of our future earnings algorithm.
By expanding our scope.
Network, a franchisee relationships and customer reach we have significantly increased our market opportunities and accelerated our growth.
At the same time, we are improving our existing business, making our legacy portfolio stronger and more accretive to our earnings with new hotels added within a brand generating higher royalty revenue than hotels, leading it.
Clearly, we have transformed choice hotels into a company that is in a stronger competitive position and has significant long term growth potential.
Our selective unit growth strategy is delivering results and improving the attractiveness of our brands.
In the first quarter, we grew the number of franchises across our more revenue intense segments by approximately 10% year over year.
Saw a material increase in royalties driven by this growth.
Adding to our optimism is the 5% domestic unit and 11% domestic rooms pipeline growth, we drove in the first quarter year over year, which we expect to fuel our revenue intense unit growth for years to come.
Importantly, the versatile business model. We have built has historically delivered stable returns and provided diversified avenues of growth throughout both expanding and contracting economic cycles.
A case in point is the significant Revpar index gains versus local competition, we achieved during the pandemic due to our established operational excellence.
And the strategic investments we have made.
Additionally, during times when hotel supply growth has challenged our diverse portfolio of brands allows us to lean on our core competency.
Best in class hotel conversion capability that fuels, our unit growth <unk>.
Attracting hoteliers looking to affiliate with brands that can deliver strong topline revenues and profitability to their hotels.
Our strategy is tailored to capitalize on the long term fundamental trends impacting travel.
We are confident that the changes we are observing in leisure and business travel behavior, which favor our brands will enable us to maximize growth opportunities well into the future.
As discussed on our prior calls we've been highlighting consumer and industry trends that are driving a significant uptick in travel demand.
And we've been making deliberate investments over the past several years to position our franchisees to reap the benefits from them.
Specifically, we are capitalizing on rising wages.
Retirements.
Remote work.
The rebuilding of American manufacturing and infrastructure.
Let me begin with rising wages.
The middle class, which is a key customer segment for our franchise business has received a significant pay raise over the last few years.
In fact, the American median salary was six 4% higher at the end of the first quarter than it was a year ago.
While the cost of living adjustment for social security was up eight 7% last year year over year.
Retirement trends, which accelerated during the pandemic are also reinforcing our optimism.
Over three and a half million people are reaching retirement age every year in the U S.
These baby boomers, one of our core customer segments are living longer have more time and disposable income to travel for leisure.
And seek brand like ours that provide value for their money.
And the pool of these retired travelers is only expanding with more than one in five Americans expect it to be over age 65 by 2030.
Remote work, which affords people of all ages, greater flexibility as to when where and for how long they travel.
We'll also continue to fuel the strong performance of our brands.
Despite the historically softer first quarter for leisure travel our guests are extending their trips into shoulder days of the weekend.
In fact in the first quarter, we drove nearly two percentage points of occupancy growth on Thursdays and Sundays compared to 2019.
The trend of leisure travel demand spreading more evenly throughout the months of the year and into weekend shoulder days.
Benefits are brands and allows us to attract and capture an even larger share of an expanding leisure demand segment.
And finally, we expect business travel in our key industry verticals, such as transportation logistics and construction to increase driven by the significant re shoring of American manufacturing.
And infrastructure investments across the country.
Industry experts estimate that these investments will generate between 50 and 100 million room nights over the next decade.
And that's great news for our brands and in particular, our extended stay segment.
Likewise, we anticipate additional tailwind from business travelers in sectors, such as healthcare and financial and professional services.
Especially in the context of the Radisson Americas acquisition.
In fact in the first quarter, we have already driven a 9% increase year over year in business travel bookings across Radisson America's brands.
As consumers prioritize travel we believe our business will experience outsized benefits from additional travel demand our segments and locations.
We see all of these trends as strong tailwind for our company's long term growth.
The strong franchise relationships, we've established over the years have been a key differentiator for choice hotels.
And this unwavering commitment to enhancing our value proposition by maximizing our franchisees' return on investment is what truly energizes, our radisson Americas franchisees.
In fact, just two weeks ago I had a chance to speak with our Radisson America's Hotel franchise owners and general managers at our 67th annual Convention.
Radisson America's franchisees has shared with me their enthusiasm for becoming part of the choice family specifically the opportunity to leverage our proprietary cutting edge technologies and world class franchisee success system designed to drive owner performance and reduce their cost.
Of hotel ownership.
Our franchisees left the event energized by how we are growing and evolving our family of brands and by the new promising opportunities for investment with the addition of our newest Radisson Americas franchising business.
The excitement generated by our new business unit is further underlined by Radisson America's brands, great start to the year.
In the first quarter.
Radisson Americas portfolio wide Revpar increased 11, 2% year over year.
Specifically, the Radisson upscale brand itself grew nearly 27% year over year outperforming the upscale segment by over six percentage points.
And once all Radisson Americas hotels are fully integrated with choice hotels systems and employing our tools, we expect to help drive their top line performance and profitability to the next level.
Thanks to the expertise of our integration team. We are ahead of plan and expect to complete full integration by the end of the year.
In fact, we are on pace to complete the Onboarding of Radisson America's properties onto our business platform and merge our two award winning loyalty programs by the end of the third quarter.
At the same time, we remain ahead of plan and delivering Radisson Americas, adjusted EBITDA up over $60 million in 2023.
Growing to over $80 million EBITDA in 2024.
Another way, we are enhancing our value proposition is through our new co branded credit card program launched last month under a multi year agreement with Wells Fargo and Mastercard.
The program is intended to further grow our choice privileges membership and deepen member engagement and loyalty.
Just in time for the busy summer travel season, the new card portfolio will add value for our guests through enhanced rewards and benefits as well as faster and easier ways to earn even more points beyond hotel stays.
We expect this partnership to drive incremental revenue significantly above our prior arrangement and provide an additional tailwind for our platform business segment in 2023 and beyond.
Our impressive results demonstrate that the deliberate decisions and strategic investments, we've made in our value proposition and franchisee tools.
<unk> portfolio and platform capabilities are paying off across our segments.
First we strengthened our upscale franchise business.
And first quarter 2023, our domestic upscale units grew by 29% year over year.
At the same time, we increased the number of domestic upscale franchise agreements awarded by 13% year over year.
And expanded our upscale domestic pipeline to over 120 hotels, a 16% increase year over year.
We expect that the Radisson Americas acquisition will enable us to build on our momentum in the upscale segment accelerating the growth of our Cambria and ascend brands, while also broadening the radisson portfolio.
Next we further invested in the extended stay franchise business and expanded our domestic pipeline for our extended stay brands two 475 hotels, a 28% increase year over year.
We remain very optimistic about our extended stay franchise business growth and expect the number of our extended stay units to increase at an average annual growth rate of more than 15% over the next five years.
At the same time, we reinforced our core portfolio of brands by growing our upper mid scale franchise business by 24% year over year, reaching approximately 2300 domestic hotels in the first quarter.
Finally by strengthening the value proposition, we deliver to our franchise owners in the economy transient franchise business. We grew our effective royalty rate for that segment by 11 basis points in the first quarter year over year.
I also want to recognize the efforts, we are making to increase our sustainability and diversity commitments.
For the first time, we reported our scope, one and scope two greenhouse gas emissions.
We are also making progress implementing a system wide energy collection and measurement program that will make it easier for our franchise hotels to identify opportunities for energy water and waste conservation.
And we are strengthening our long standing commitment to diversity equity and belonging with new goals for fostering diverse representation amongst our associates.
Further details regarding key measures being undertaken by choice to reduce franchisees operating cost while benefiting the environment.
As well as integrating new standards and principles into our long term decision, making are outlined in our recently published annual ESG report.
The results we achieved in the first quarter 2023 confirm the effectiveness of our thoughtful and deliberate approach of growing our franchise business with hotels that generate higher royalties per unit and reinforce our confidence in our ability to drive exceptional results in the coming years.
We look forward to completing the integration of Radisson Americas with the choice franchisees success system this year and to accelerating the growth of these brands by leveraging choices scale network of owner and franchisee relationships and best in class digital platforms.
We believe that we are well positioned to build on the success achieved this quarter and that our increased earnings power will enable us to further capitalize on growth opportunities in 2023 and beyond.
In closing I would like to take a moment to thank our associates.
Who work day in and day out to drive our company's success.
Just two weeks ago, we gathered with over 5000 of our franchise owners and general managers at our annual convention.
We celebrated their success.
Zamin the trends ahead and revealed our plans to keep the momentum going.
The level of enthusiasm was remarkable.
And it is due in large part to the deep relationships our associates have built with them over the years.
With that I'll hand, it over to our CFO Dom.
Thanks, Pat and good morning, everyone today I'd like to provide additional insights on our impressive first quarter results update you on our balance sheet and capital allocation approach and share expectations for what lies ahead.
Throughout my remarks today I would like to note that all figures are inclusive of the Radisson Americas portfolio and exclude certain onetime items, including Radisson hotels, Americas integration costs, which impacted first quarter reported results.
For first quarter 2023, compared to the same period of 2022 revenues, excluding reimbursable revenue from franchised and managed properties increased 34% to $175 million.
Our adjusted EBITDA exceeded the top end of our previous guidance and grew 10% to $106 4 million.
Driven by our continued revpar and more revenue intense unit growth strong effective royalty rate growth successful execution of the Radisson Americas integration and the robust performance of the platform and procurement business.
Our adjusted earnings per share were $1 12, an increase of 9%.
This growth builds on a record results in 2022.
Let me turn to our key revenue levers beginning with Revpar. Please.
Please note that our Revpar results assume that the Radisson Americas portfolio was part of the choice family of brands for the comparable periods of 2022 and 2019.
Our domestic revpar increased five 9% for the first quarter versus the same period of 2022, which represents 15, 1% growth versus 2019.
Our growth was driven by average daily rate growth of five 2% and a 34 basis point increase in occupancy levels compared to the same quarter of 2022.
Our first quarter Revpar performance is inclusive of the Radisson Americas business unit, which increased 11, 2% for the same quarter of 2022.
Importantly, the Radisson upscale brand itself outperformed the segment's revpar growth by over six percentage points in the first quarter year over year.
Based on our strong first quarter results, we are maintaining our guidance for full year domestic revpar growth and expected to increase approximately 2% as compared to full year 2022, representing an approximately 15% increase compared to full year 2019.
Our effective royalty rate also continues to be a significant source of our revenue growth.
Our total domestic system effective royalty rate for first quarter 2023 increased six basis points year over year, including a six basis point increase for the choice legacy brands to five 1%.
Given the attractiveness of our proven brands the strengthening of our value proposition to franchise owners and our long term investment strategy on behalf of our franchisees. We are confident in our ability to continue growing our effective royalty rate both for the legacy choice brands and the Radisson Americas portfolio.
Inclusive of Radisson America's brands, we are maintaining our outlook for our full year 2023 effective royalty rate to grow on a comparable basis in the mid single digits year over year from a 493% baseline in 2022.
The third revenue lever I'd like to discuss is unit growth, where our portfolio is absolute size and the royalty revenue per hotel our key advantages.
Our strategic goal has been to accelerate quality room growth and more revenue intense segments and markets, which ultimately results in an outsized increase in royalties.
In addition to our mixed shift strategy for the broader portfolio. Our revenue maximization strategy is also evident at the individual hotel and brand level in.
In fact for first quarter 2023, new hotels, we added within a brand generated on a comparable basis, an average of 20% higher royalty revenue than hotels exiting the brand.
For first quarter 2023, our domestic system size of more revenue intense upscale extended stay and mid scale segments grew by nine 5% year over year highlighted by a more than 40% increase in the number of new hotel openings compared to first quarter 2022.
Adding to our optimism is the nearly 10% international rooms growth, we drove in the first quarter year over year as well as a 14% year over year increase in the number of rooms in our global pipeline.
Among the milestones for some of our key brands. The Cambria brand grew by 14% year over year, reaching 66 units with an additional 69 domestic properties in the pipeline.
Many of which are projects under active construction as of the end of the first quarter.
2023 is shaping up to be another great year for Cambria as we expect eight additional hotels to open across the country.
Our newest extended stay brand ever home suite is off to a strong start this year gaining impressive traction across the development community with 62 projects in the pipeline.
Just last month, we celebrated breaking ground on the fourth ever home hotel.
At the same time, let's bring suites pipeline reached 311 domestic properties as of the end of March up 49% increase year over year, and we expect the brand's openings this year to exceed 2022 levels.
Finally, since its successful refresh the comfort brand has now registered 13 straight quarters of unit growth year over year in the first quarter alone. We opened nearly three times as many comfort hotels year over year, and we expect the brand's openings for 2023 to accelerate beyond 2022 levels.
For full year 2023, we expect our domestic system size of the more revenue intense segments, which include upscale extended stay and mid scale to grow by approximately 1% and approach our historical growth rate by 2024.
Thanks to our deliberate strategy of adding more revenue intense hotels, while terminating underperforming economy transient hotels and driving a higher effective royalty rate, we expect to maintain 2023 royalty revenue associated with the economy transient segment at the same level as 2022 royalty revenue.
Aided by our strong value proposition and Revpar performance developers are choosing our brands versus the competition as they seek to improve their operations and boost the long term value of their hotels in fact, nearly eight in 10 of the agreements awarded in the first quarter were for conversion hotels, which.
Our expected to open more quickly than our new construction projects.
Importantly, we also continue to expand our platform business segment through strategic partnerships that drive incremental revenue to our existing portfolio.
As previously mentioned, we are very excited about the new co brand credit card agreement, which we expect will deliver over $5 billion of incremental adjusted EBITDA in 2023 ramping to over $10 million of incremental adjusted EBITDA in 2024.
Furthermore, through our strategic focus and investments, we see additional opportunities in 2024 and beyond.
In the first quarter, we also increased our platform and procurement services fees by 18% to $13 8 million compared.
Compared to the same period of 2022.
We believe that we can drive the strong revenue growth in the years ahead as we increase the number of products and services to over 7400 hotels guests and other travel partners, while expanding our platform.
I'd like to now turn to the strength of our balance sheet, which we believe will be another driver of our growth for years to come.
Even after the completion of the Radisson Americas acquisition and recent significant share repurchases, we have been able to reinforce our strong liquidity position through our impressive performance and effective allocation of resources.
We maintain our best in class balance sheet with a gross debt to EBITDA leverage ratio of under two nine times below the low end of our targeted range of three to four times as of the end of the first quarter 2023.
In the first quarter, we returned over $173 million to our shareholders. These returns came in the form of approximately $13 million in cash dividends and over $160 million in share repurchases.
The company's board of Directors also announced during the first quarter, a 21% increase in the annual dividend rate to $1 15 per common share outstanding.
With our strong cash flow and debt capacity, we are well positioned to build on our record of making strategic investments growing the business and returning excess cash to shareholders well into the future in.
In 2023, we plan to continue to leverage all pillars of our capital allocation strategy.
Before opening up to questions I'd like to turn to our expectations for what lies ahead for the remainder of the year.
I am pleased to report that we are raising our outlook for full year 2023, adjusted EBITDA and now expect it to range between $525 million and $540 million, representing over 11% growth at the midpoint year over year, and approximately 43% growth compared to <unk>.
Full year 2019.
We are committed to driving meaningful results for owners and franchisees and are excited about the value creation that we expect from Radisson Americas <unk>.
Given our ongoing integration of the radical in Americas portfolio into the choice franchisee success system. This year, we anticipate to incur approximately $21 million.
And adjusted SG&A expenses related to the Radisson Americas business unit in 2023.
We expect to eliminate nearly $15 million of these adjusted SG&A expenses upon completion of the integration, resulting in a run rate of $6 million and adjusted SG&A costs beginning next year.
For full year 2023, we expect adjusted diluted earnings per share to range between $5 70.
$5 90 per share representing 10% growth at the midpoint of our guidance year over year.
Today's results are a testament that our strategy is working and we intend to keep investing in the core growth vectors across the more revenue intense segments.
We look forward to providing you with further updates in August during our next earnings call at this time, Pat and I would be happy to answer any questions operator.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone Fine again, Thats Star followed by the number one on your Touchtone side, if you would like to advise your request. Please press star one.
On slide number two please standby, while we compile the Q&A roster.
Your first question comes from the line of Michael Bellisario from Baird. Please go ahead.
Thank you good morning.
Good morning, Mike.
Yes.
First on the development front.
Two parter here that.
That impact can you tell us what do you hear from franchisees at your convention two weeks ago, and maybe more recently what have you seen so far in terms of.
Any impact on new construction signing will starts in particular.
Yes sure Michael.
I guess two weeks ago today, we kicked off our 67th convention and it was a very optimistic.
Vive at the convention a lot of our franchisees are interested in the segments, where we have introduced new brands or where we have strong brands. So a lot of interest around extended stay.
Significant amount of interest for our country and suites and the new Radisson brands that we've now added to our portfolio. So.
And then just general interest as usual and comfort Inn and quality of our kind of key large brands I think from a financing perspective, if you look at our pipeline over half of it is financed at this point so.
When you look at.
Obviously, everything Thats going to open this year is financed and as you know about 75% of our contracts in Q1 were conversions last year was closer to 80%. So a lot of those conversions. The franchisees are just having to finance a pip.
And in general they self finance that so that's a positive.
And so as we look at kind of the future growth of our pipeline turning into open hotels, we feel pretty good.
You also look at the new construction side of the house a lot of our brands the owners are getting.
They are lending from their local lenders or friends and family. So they have a lot of funding sources. So as we've talked to them about their future plans. There is interest in our brands and they.
We have.
Variety of ways to fund their new development for new construction, so we feel pretty good about.
The sense of optimism that we're seeing from our franchisees and it really gives us during that week and opportunity to hear from all parts of the country and all segments that we participate in but we left the convention and our franchisees did as well with a pretty optimistic outlook for future growth.
Got it and then just one more for me maybe could you provide some color on March eight.
April trends as possible.
As we are now fully passed the omicron comps from last year that'd be helpful. Thank you.
Yes, I think if you look at that what we've put out today, we are reaffirming our full year guidance for Revpar growth.
As really positive when you consider it's coming off significant quarterly growth last year between 15% and 20% above 2019 levels. So we're on track as we stated to see that incremental growth above those levels. We are guiding to around a 2% revpar growth, we feel pretty confident that.
That's going to be the likely outcome.
Thank you. Thank you.
Your next question comes from the line of Shaun Kelley from Bank of America. Please go ahead.
Hi, Good morning, everyone. Thanks for taking my question.
Pat just to go back to development.
If we look at the.
The pipeline statistics I believe sequentially pipeline declined from if I got it right about 100000 units to only about 89000.
Are there some onetime movements.
That drove that can you just talk about that change and then maybe how we would expect that progression to <unk>.
Move throughout the year.
Yes, Sean it's a great question and we've always emphasized the importance of velocity through our pipeline. When you look at the Q4 into Q1.
A lot of hotels that opened particularly conversion hotels that want to get open before December 31, So as you get into this the first quarter you generally see.
Ticked down that's more seasonal than it is anything else.
But I think when you look at the broader pipeline growth that we look at on a on a rolling 12.
We are seeing that growth in both units and rooms.
The only thing I'd add is if you just look at the pipeline broadly speaking at 925 units I think what you're seeing is this concept of the revenue intensity that we tend to preach on all these calls our unit growth is that our units are up about 5% year over year. So obviously, given the seasonality the better comp of the year over year in our opinion, but the rooms growth is.
11%, so it's kind of showing that the bigger boxes are coming into the pipeline. So we feel very good about that the secondary aspect and we often talk about is just the strength of the international pipeline, where we saw the international pipeline actually up Q quarter over quarter about 70% in terms of units and up about 50% year over year.
So we did see some softness obviously during during COVID-19 on the international side of the house, but we're starting to see that development environment pick up again for us as well.
Got it thank you and then.
Just as my follow up going back to the.
Just to kind of the Revpar guide and outlook, obviously coming in strong in the first quarter up 6% still probably lapping a little bit of omicron in certain markets at least yes, but I guess, if we think about 2% for the balance of the year.
It does imply a pretty meaningful deceleration.
In either the back half or possibly even starting in Q2, we have seen some softness, particularly in the economy chain scale. So just any more color you can provide about sort of maybe your expectation at some of the different price points here. So are you seeing.
Differing performances or drivers at until there is more revenue attached for extended stay areas relative to maybe some more softness in economy, Revpar, where we have actually seen it just like the broad star data.
Turned negative in.
Certainly for April maybe even before that.
Yes, so Sean just as a reminder, Q1 of last year was up 10% over 2019, so a 6% gain on top of that is pretty strong performance coming into Q1, but as we roll into Q2, Q3, and Q4, the comps get get much get much tougher as those quarters grew anywhere from 15 to.
Close to 20% last year, so with that is a little bit of this is trying to beat an already strong quarter that we saw last year.
When you look at the various segments that we're seeing certainly upscale took longer to come back.
The economy segment really came back and beat the 2019 levels.
In the in the early part of 2021, so we really saw some of the different segments recover at different rates and so youre seeing a significant amount of <unk>.
Growth right now in upscale where we have a lot of growth, but we don't have yet.
A large footprint is where primarily mid scale.
From where our footprint stands Sean the only thing I'd add there is just when you look at the impact that Q1 has on the full year not as heavily weighted right at the end of the day Q1 is our lightest volume quarter. So you see a pretty significant uptick in both Q2, and Q3 Q3 being the heaviest volume quarter for us So just the impact that that <unk>.
Percent has on the full year guide it does imply that you are still guiding to about 1% to 2% at least for the remainder of the year to Pat's point in Q3 last year were up 15% in Q4, we were up about 20% year versus 2019 levels and so the comps just becomes that much tougher specifically on your question about just where.
And the chain scale, we are seeing much stronger performance upper midscale and above anywhere from 7% up to 13% when you kind of get to that upscale segment. When you think about the Q1. So obviously an economy in particular you mentioned.
Fairly flat, we were up about 1% on the in the economy segment, specifically, but when you look at that as a percentage of your revenue that flows through we feel very.
Confident about the guide for the remainder of the year, just especially given this revenue intensity concept.
Thank you so much.
Thank you.
Thank you your next.
Next question comes from the line of Stephen Grambling from Morgan Stanley . Please go ahead.
Hi, Thanks.
I'm not sure. If you mentioned this in your opening remarks, but was just curious if you could provide a little more color on how we should think about the co brand credit card agreements that you just.
Extended as we think about this multiyear contribution is that a step up this year and then how do we think about that beyond.
Yeah, Stephen So the card.
Yes to your point, it's multiple cards as our fee based card in our non fee based cards.
It's a.
It's a long term agreement that builds with a different set of partners and a different distribution networks and it also adds a number of features to allow for point, earning.
Actively gas and groceries, so things outside of our hotel stay.
And in the early days here of the launch we're really impressed with we're ahead of plan actually on sort of the metrics I think what we have guided to in the past as a $5 million incremental EBITDA.
Benefit this year growing to $10 million.
Next year, and then there is opportunity above that in the out years.
And then maybe as an unrelated follow up.
Would love to hear just some of the puts and takes to cash conversion. This year and then how to think about it longer term.
Yeah. So broadly speaking, we're pretty much right on forecast, where we thought we would be in Q1, Steven I think apples to apples.
Revenue for the quarter was up over 11% or so on the legacy business, obviously, we had.
Strong result, as a result of the Radisson integration, we're still seeing the strength in the effective royalty rate Revpar was essentially in line with our expectations. We have this two times multiplier impact that we've been talking about as well. So really if you think about Q1, we have maintained a maintained our forecast for Q2.
Two through Q4, and which was already pretty aggressive forecast, especially with the Radisson integration really flowed through the beat.
The beat that we saw in Q1 through the remainder of the year on the SG&A side of the house I think we were pretty much spot on in terms of analysts' expectations, there and we expect to see kind of maintaining that in Q2 and beyond I think the biggest component that youre going to see towards the end of the year is that Radisson SG&A obviously.
Obviously at $21 million contributor to the SG&A line item. This year once we complete the integration by the end of the year, we're going to see that dip to about $6 million. So just from a run rate perspective, obviously feeling very good about that there were some timing elements just from a net working capital perspective that pushed our cash down slightly in Q1.
So between that and then just a slightly elevated key money and that was a good thing because we've got some really quality product opened in the first quarter as well.
<unk> speaking.
On the on the balance sheet a lot of that is just timing related. So again P&L I think we are maintaining for the remainder of the year balance sheet, obviously depressed a little bit just given timing of certain networking capital items, but where we're going to see that normalize in both Q2 and Q3.
But you don't anticipate any further key money or changes to how you think about driving room growth because of either the credit environment or otherwise.
No I think what we've talked about last year just.
We would see probably key money slightly up year over year from 2022 into 2023, I think thats a good thing.
Our development team continues to be successful.
When you think about kind of that two times value per contract that we talk about publicly that includes the impacts of normalizing for key money as well. So again just from an earnings algorithm perspective, we anticipate seeing kind of business as usual versus what we saw in 2022.
Got it thanks, so much.
Thank you.
Thank you.
Our next question comes from the line of Gregory Miller from choice to Chee. Please go ahead.
Thank you very much good morning.
One question that I have hey, good morning.
First question I have just hoping to get some clarification looking at the international rooms.
From <unk> 22 to <unk> 23, it looks like you gained eight hotels, but the number of rooms declined modestly.
Was hoping you could provide a little context.
On that.
So Greg I think what when we look at the international unit growth, we're really looking at that.
8%.
Which is inclusive of the Radisson international.
Acquisition, because there's a significant number of.
Hotels that we acquired down in the Latin America region. So we actually saw from a from a unit growth perspective in Q1 at 8% growth in our rooms growth of 9% almost $9 six I think it was.
Sure if you are there.
Only thing I'd add to that Greg is I just think in Q4, you tend to have just as you.
As you get close to the end of the year you see some termination activity.
Some hotels that are paying et cetera, I think that this is just a phenomenon a couple law of smaller numbers and the international portfolio, where we did have a couple larger boxes that we terminated for a variety of different reasons that we obviously can't speak to when it comes to just credits and things like that but when you look at the outlook for international even without the Radisson Act.
We're feeling very good about that portfolio is now very stabilized we're expecting to see kind of mid single digits unit growth in our international portfolio EBIT ex Radisson for the full year. So again I think that this was really a timing element from Q4 into Q1 with again, a little bit of a law of smaller numbers in a couple of the larger boxes that we termed.
Again, not high revenue producing assets. So we don't feel like it's going to have any impact on the financials.
Okay understood.
The second question I had relates to your owned hotels.
I'm curious now that you have more time under our ownership for the.
Twin cities hotels, I'm curious, how you would recommend we think through the performance of these hotels under your ownership compared with.
Legacy Radisson.
Okay.
So with the Radisson acquisition, we acquired.
Radisson Blu and then.
The country and the suites and Park Plaza.
All they were all effectively radisson owned assets that are all in that location near near mall of America its actually been.
A pretty strong market for international inbound from Canada in particular has a lot of.
Draw that the debt the Radisson Blu that's attached to the mall actually picks up on so it's been a pretty good.
You'll start for us with with that brand when we do expect latter part of this year end of Q3, we will have.
Those three hotels actually on our platform.
And integrated with the loyalty program, we do expect to see not only a benefit to the top line revenue and the royalties coming from those hotels, but also.
From a GOP perspective, and actual asset level performance as well.
Okay.
Thank you Bill I appreciate it.
Okay.
Thank you.
Next question comes from the line of Dan Wafula online Installer. Please go ahead.
Hey, good morning, guys. Thanks for taking the questions. So first one just you mentioned your revenue intense unit growth looking at 2024.
Returning to historical rates can you remind us what that historical rate is and then also looking 2024 and I guess beyond.
What we might expect from the economy segment.
Yeah, Dan So when you look at just kind of a legacy portfolio in the first quarter that ring revenue in terms of unit growth is already up about little more than 1%. So we've talked about publicly is we expect next year for that ring portfolio to approach those 'twenty those historical levels, which is right around 3% or so.
Now when we look at 2025, obviously I don't have a crystal ball in terms of the development environment, but we do expect to see an acceleration beyond that approaching 3% in 2025, historically speaking our portfolio is growing around 3% to 4% or so again dependent on the development environment overall, but we feel very good about where we are today with.
<unk> seen that portfolio returned to growth on an apples to apples basis already in Q1 accelerating in the back half of this year and then approaching that 3% next year.
And Dan I think on the economy and what we would we've been seeing as the hotels were bringing in are performing better than the hotels that have left so as we've guided to in the past our plan. There is to keep the royalty contribution from the economy segment steady even though the units have been declining what I would expect to see if we see them.
And economic slowdown is those independent hotels are who are looking for loyalty program in.
Proprietary contribution delivery from a large brand.
We generally tend to attract those hotels during times when the economy segment is is more challenged so if that in fact happens that could be an additive benefit to us of more unit growth in the economy segment.
Okay understood and then just as a follow up.
With the Radisson it looks like you guys are reiterating your synergy guidance for this year and next year.
Are there still opportunities or looking into that.
That could provide additional incremental synergies.
Moving forward just curious.
Well I think we've talked about that in the last quarter, Dan. When you think about just where we were last year in the stub period, we were at about $18 million, which implies.
Annualized about $50 million.
In terms of EBIT contribution the integration team has just done a phenomenal job candidly. We're very much ahead of plan of where we thought we would be so kudos to them on that but when you think about just from $50 million of stepping stepping up to $60 million I do think that we will exceed that $60 million. This year. So there's probably a couple million dollars of upside and then looking into next year.
Basically said, we expect to still see kind of that over $80 million, so call it somewhere between 80 and $85 million or so, but obviously a lot depends on once you plug it into the system. There is some value prop opportunities in terms of revenue lift as well that that a lot of times integration teams don't underwrite. So do we see upside to those figures absolutely, but again just.
First is where we were last year, we're still feeling great about where the integrations.
Okay understood great. Thanks, guys.
Sure.
Thank you.
Next question comes from the line of Joe Greff from Jpmorgan. Please go ahead.
Yes.
Good morning, guys. Thank you for taking my questions.
You May have mentioned this I may have missed it so.
Yes, sorry to make you repeat yourself. If you did have you talked about what revpar growth has been two Q to date.
Could you break that out between upper Midscale and above and then the balance of the portfolio the lower tier chain scale segments.
So we did not give kind of where we were in April obviously, the entire industry saw a much softer April a lot of that was due to some of the calendar shifts it's really difficult to look at one month in isolation I think the best way to look at it Joe is when you just think about where we were last year, we were up over 13% versus 2019 last.
Years Q2, so we expect to see revpar growth above that it would be modest obviously, the guide implies somewhere in that call. It 1% to 2% range, but we did talk about is kind of the trends that we saw in Q1 upper mid scale was essentially a little more than 7% up all the way up to kind of the upscale segment, which was up call. It.
Anywhere from 13% to 16% up depending on the brand and so again, you would expect to see those trends probably continue versus 2019 levels, but just given the tougher comp you saw slightly more modest revpar lift off or would.
Would see at a slightly more modest revpar lift in Q2.
Great and then I guess, just directionally that the cadence of Revpar growth for the balance of this year.
As youre thinking that <unk> growth rate would be in excess of the <unk> and the <unk> would be in excess of the <unk> just given the year your comparisons you've been highlighting.
What do you see it more evenly balanced.
More evenly Jeff that's what we're forecasting right now more evenly obviously Q4 last year was a fantastic quarter was up 20% versus Q4 of 2019. So obviously, that's the toughest comp, but right now what we're seeing is kind of call it anywhere in that.
1% to 2% range or so for the remainder of the year.
Okay and then.
Again, you May see you may have mentioned in the I didn't catch it but the domestic rooms pipeline was down sequentially.
Not an insignificant 11% quarter over quarter can you talk about what's been driving that or what drove that and what your expectations are going forward for domestic rooms pipeline trenching, yes, Joe.
What we talked about is just the pipeline when you look at the pipeline just the timing between Q4 and Q1 in particular, there is a lot of noise. There because you have a very strong velocity in terms of openings kind of towards the end of that end of the month of December where hotel owners are trying to get those those hotels open at the end of the day and so you typically do see kind of a.
Decline quarter over quarter from Q4 into Q1, especially given the conversion engine that we do have so year over year, we were up about 5% and then what's even more what makes us even more bullish about the rooms growth was up about rooms were up about 11% year over year as well again kind of Q4 openings. There is a lot of pipeline clean up activity.
It happens at the end of the year as well so Pat mentioned earlier on that we have more than 50% of our pipeline today has financing secured at this point. So essentially if we feel like a hotel is not going to open we term them from the pipeline.
As part of that year end clean up and then obviously just the conversion and the velocity of openings is a bigger driver as well and so I think between Youll see kind of more historical growth returned to the pipeline kind of for the remainder of the year just given that turned from Q4 into Q1.
Great. Thank you very much.
Thank you.
Thank you there are no further questions at this time I'd now like to turn the call back over to Mr. Pat patients for any closing remarks.
Well, thank you operator, and thanks to everyone for your time. This morning, we will talk to you again in August when we announce our second quarter results I Hope you all have a great day take care.
Thank you, Sir ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a lovely day.