Q2 2024 Choice Hotels International Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Operator: 2nd Quarter 2024 Earnings Call. At this time, all lines are in a listen-only mode. I will now turn the conference over to Allie Summers, Investor Relations Senior Director for Choice Hotels.
Allie Summers: Welcome to Choice Hotels International's second quarter 2024 earnings call. At this time, all lines are in a listen-only mode. I will now turn the conference over to Allie Summers, Investor Relations Senior Director for Choice Hotels.
Allie Summers: Good morning, and thank you for joining us today. Before we begin, we would like to remind you that during this conference call, certain predictive or foreshadowing statements will be used to assist you in understanding the company and its results. 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 FCC filings for information about important risk factors affecting the company that you should consider.
Allie Summers: Good morning, and thank you for joining us today. Before we begin, we would 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.
Speaker Change: 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.
Allie Summers: These four 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 second quarter 2024 earnings press release, which is posted on our website at choicehotels.com under the investor relations section. This morning, Pat Pacious, President and Chief Executive Officer, will speak about our second quarter operating results, while Scott Oaksmith, Chief Financial Officer, will discuss our financial performance and 2024 outlook. Following our prepared remarks, we'll be glad to answer your questions. And with that, I'll turn the call over to Pat.
These forth-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 second quarter 2024 earnings press release, which is posted on our website at choicehotels.com under the investor relations section.
This morning, Pat Pacious, President and Chief Executive Officer, will speak to our second quarter operating results, while Scott Oaksmith, Chief Financial Officer, will discuss our financial performance and 2024 outlook.
Speaker Change: Following our prepared remarks, we'll be glad to answer your questions. And with that, I will turn the call over to Pat.
Pat Pacious: Thank you, Allie, and good morning, everyone. We appreciate you taking the time to join us. I'm pleased to report that in the second quarter, Choice Hotels drove our adjusted EBITDA to $162 million, our adjusted EPS 5% higher year over year, and we raised our full year adjusted EPS guide. Over the past several years, we have created a stronger, more versatile company with multiple earnings drivers and a proven growth strategy. The increased versatility of our business model, combined with projected unit growth acceleration, provides us with the confidence to achieve our expected adjusted EBITDA growth of 9% at the midpoint of our outlook range for 2024, even as the domestic REVPAR environment has started to normalize.
Pat Pacious: Thank you, Allie, and good morning, everyone. We appreciate you taking the time to join us.
Pat Pacious: I'm pleased to report that in the second quarter Choice Hotels drove our adjusted EBITDA to $162 million.
Pat Pacious: our adjusted EPS 5% higher year-over-year and raised our full-year adjusted EPS guidance.
Pat Pacious: Over the past several years, we have created a stronger, more versatile company with multiple earnings drivers and a proven growth strategy.
Pat Pacious: The increased versatility of our business model
Pat Pacious: Combined with projected unit growth acceleration,
provides us the confidence to achieve our expected adjusted EBITDA growth of 9% at the midpoint of our outlook range for 2024, even as the domestic REVPAR environment has started to normalize.
Pat Pacious: By increasing our system size, network of franchisee relationships, and customer reach, we have significantly increased our future growth opportunities. Importantly, we continue to grow our portfolio of revenue-intensive hotels, with domestic franchise agreements up 8% year over year. These agreements are expected to continue to fuel a significantly higher REVPAR premium in our pipeline compared to our existing base of hotels. Our global pipeline of approximately 115,000 rooms set a record for the second quarter and represents a 22% increase year over year.
By increasing our system size, network of franchisee relationships, and customer reach, we have significantly increased our future growth opportunities.
Speaker Change: importantly we continue to grow our portfolio of revenue intense hotels
with domestic franchise agreements up 8% year-over-year.
Speaker Change: These agreements are expected to continue to fuel a significantly higher REVPAR premium in our pipeline.
Pat Pacious: compared to our existing base of hotels.
Speaker Change: Our global pipeline of approximately 115,000 rooms set a record for the second quarter and represents a 22% increase year-over-year.
Pat Pacious: We also accelerated the velocity of moving hotels from our pipeline to open hotels, executing 20% more global openings year over year in the second quarter. At the same time, we expanded our international portfolio by increasing the number of rooms by 1.6%. As we had anticipated, we saw a sequential improvement in domestic RevPAR performance in the second quarter versus both the prior year and the pre-pandemic level. However, in line with industry, the pace of acceleration was slightly slower than we had previously expected.
Speaker Change: we also accelerated the velocity of moving hotels from our pipeline to open hotels
Speaker Change: executing 20% more global openings year-over-year in the second quarter.
Speaker Change: At the same time, we expanded our international portfolio by increasing the number of rooms by 1.6 percent.
Pat Pacious: As we had anticipated, we saw a sequential improvement in domestic RevPAR performance in the second quarter versus both the prior year and pre-pandemic levels.
Speaker Change: In line with industry, the pace of acceleration was slightly slower than we had previously expected.
Pat Pacious: And therefore, our outlook for the remainder of the year has moderated, because as the travel trends normalize. When compared to 2019 levels, we expect our domestic REVPAR performance for the second half of the year to maintain the pace with the first six months of the year and exceed 2019 levels by approximately 10 percentage points at the midpoint of our guidance. Importantly, long-term business and leisure trends remain favorable. Our proactive, strategic investments and more versatile business model have meaningfully enhanced our company's growth profile, and we remain confident in our ability to deliver sustained growth. The successful execution of our strategy continues to drive strong earnings, and I'm pleased with the progress we have made on each of our key priorities during the second quarter. In terms of driving more valuable growth,
Pat Pacious: And therefore, our outlook for the remainder of the year has moderated.
Pat Pacious: As the travel trends normalize...
Pat Pacious: when compared to two thousand and nineteen levels we expect our domestic repar performance for the second half of the year to maintain the pace with the first six months of the year
Pat Pacious: and exceed 2019 levels by approximately 10 percentage points at the midpoint of our guidance.
Speaker Change: importantly long term business and leisure trends remain favorableour proactive strategic investments and more versatile business model have meaningfully enhanced our company's growth profile and we remain confident in our ability to deliver sustained growth
Speaker Change: The successful execution of our strategy continues to drive strong earnings, and I'm pleased with the progress we have made on each of our key priorities during the second quarter.
Pat Pacious: Since we embarked on our distinct unit growth strategy of enhancing our franchise business with more revenue-intense hotels five years ago, we have expanded our mix of higher revenue-generating hotels by six percentage points. This mixed shift now comprises 87% of our domestic hotel room portfolio, and we expect it to continue to increase in the coming year. These new revenue-intense franchises are more accretive to our earnings and have resulted in an upscaling of our portfolio.
Speaker Change: In terms of driving more valuable growth,
Speaker Change: since we embarked on our distinct unit growth strategy of enhancing our franchise business with more revenue intense hotels five years ago we have expanded our mix of higher revenue generating hotels by six percentage points
Speaker Change: This mixed shift now comprises 87% of our domestic hotel room portfolio, and we expect it to continue to increase in the coming years.
Speaker Change: These new revenue-intense franchises are more accretive to our earnings and have resulted in an upscaling of our portfolio.
Pat Pacious: Importantly, they are a key driver of future growth as hotels within a brand, on average, generate royalty revenue more than 20% higher than hotels exiting the brand. Our strategic focus on more revenue-intense hotels means that the pipeline continues to be of significantly higher value than the current hotel portfolio. This higher revenue contribution is driven by a few factors. For example, the hotels in our domestic pipeline represent a REVPAR premium of more than 30% compared to our existing portfolio. 2.
Speaker Change: Importantly, they are a key driver of future growth, as hotels within a brand, on average, generate royalty revenue over 20% higher than hotels exiting the brand.
Speaker Change: Our strategic focus on more revenue-intense hotels means that the pipeline continues to be of significantly higher value than the current hotel portfolio.
Speaker Change: This higher revenue contribution is driven by a few factors.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: One, the hotels in our domestic pipeline represent a REVPAR premium of more than 30% compared to our existing portfolio.
Pat Pacious: They have higher average effective royalty rates driven by our strengthened value proposition to franchises. And three, they have, on average, more than 40% higher room count per hotel than our current domestic system. With this positive momentum, we are very encouraged by our existing and future portfolio prospects. In the current hotel development environment, our core competency of a best-in-class hotel conversion capability, which moves projects rapidly through the pipeline, is a key differentiator for winning new franchising. In fact, the domestic franchise agreements we executed for conversion hotels over the trailing 12 months. We opened 134 during the same period, a 14% increase over the same period of the prior year.
Speaker Change: to they have higher average effective royalty rates driven by our strengthened value proposition to franchisees
Speaker Change: And three, they have, on average, more than 40% higher room count per hotel than our current domestic system.
Speaker Change: With this positive momentum, we are very encouraged by our existing and future portfolio prospects.
Speaker Change: In the current hotel development environment, our core competency of a best-in-class hotel conversion capability, which moves projects rapidly through the pipeline, is a key differentiator for winning new franchise agreements.
Speaker Change: In fact, of the domestic franchise agreements we executed for conversion hotels over the trailing 12 months,
Speaker Change: We opened 134 during the same period.
Speaker Change: a 14% increase over the same period of the prior year.
Pat Pacious: Our conversion competency also allows us to successfully and quickly launch new brands. This is evidenced by our recent relaunch of Park Inn by Rattiff, an innovative conversion brand that delivers a premium value lodging option at a low affiliation cost, with a compelling value proposition relative to peer offerings and a focus on ensuring the franchisee's success. We have had a strong initial reception. Specifically, we have already executed 19 global franchise agreements, of which five are open across the U.S. and Canada as of the end of June.
Speaker Change: Our conversion competency also allows us to successfully and quickly launch new brands.
Speaker Change: This is evidenced by a recent relaunch of Park Inn by Radisson.
Speaker Change: an innovative conversion brand that delivers a premium value lodging option at a low affiliation cost.
Speaker Change: With a compelling value proposition relative to peer offerings and a focus on ensuring the franchisee's success, we have had a strong initial reception.
Speaker Change: Specifically, we have already executed 19 Global Franchise Agreements, of which 5 are open across the U.S. and Canada as of the end of June .
Pat Pacious: With a total addressable market of more than 20,000 potential conversion properties for this brand, we believe there is a meaningful opportunity for this offering in the coming year. We expect this conversion core competency to continue to be a key growth driver throughout this year. In fact, as of the end of June, we grew our global rooms pipeline for conversion hotels by 5% quarter over quarter. In addition to the continued momentum and conversions, we are pleased to see increasing developer interest for our extended stay and mid-scale new construction. We are very proud that for the second year in a row, J.D.
Speaker Change: With a total addressable market of more than 20,000 potential conversion properties for this brand, we believe there is a meaningful opportunity for this offering in the coming years.
Speaker Change: We expect this conversion core competency to continue to be a key growth driver throughout this year.
Speaker Change: In fact, as of the end of June , we grew our global rooms pipeline for conversion hotels by 5% quarter over quarter.
Speaker Change: In addition to the continued momentum and conversions, we are pleased to see increasing developer interest for our extended stay and mid-scale new construction brands.
Pat Pacious: Power ranked our Woodspring Sweets brand number one in Guess Satisfaction among Economy Extended Stay Hotel Brands. This strong guest reception is translating into increased interest from developers and attractive unit growth, as the Witzbring Sweets brand grew nearly 10% in units year over year in the second quarter. In fact, the Wood Spring Suites brand represents over two-thirds of all the rooms under construction in the Economy Extended Stay segment. Additionally, we are seeing particularly strong traction with our newest extended stay brand, Ever Home Suite, with four hotels now open and 65 domestic projects in the pipeline, including over 20 under construction.
Speaker Change: We are very proud that for the second year in a row, J.D. Power ranked our Woodspring Suites brand number one in guest satisfaction among economy extended stay hotel brands.
Speaker Change: This strong guest reception is translating into increased interest from developers and attractive unit growth, as the WoodSprings Suites brand grew nearly 10% in units year-over-year in the second quarter.
Speaker Change: In fact, the Wood Spring Suites brand represents over two-thirds of all the rooms under construction in the economy extended stay segment.
Speaker Change: Additionally, we are seeing particularly strong traction with our newest extended stay brand, Ever Home Suites.
Speaker Change: with four hotels now open and 65 domestic projects in the pipeline, including over 20 under construction.
Pat Pacious: This ongoing demand reaffirms our belief that our strategic commitment and continued investments in this cycle-resistant segment are driving a competitive advantage. In the mid-scale space, we increased the number of new construction projects in the pipeline for our Country Inn & Suites by Radisson brand by over 1,800 rooms, while applications for new construction Comfort brand hotels grew 25% year over year in the second quarter, with construction costs starting to normalize. Our footers poured for new hotels are higher than expected. If interest rate cuts occur in the near future, as anticipated, we expect a return to a more robust new construction and transaction environment, which will translate to acceleration in our development pipeline.
Speaker Change: this ongoing demand reaffirms our belief that our strategic commitment and continued investments in this cycle resistance segment are driving a competitive advantage
Speaker Change: in the mid-scale space we increaseed the number of new construction projects in the pipeline for our country in and ssuets by radison brand by over one thousand eight hundred rooms
Speaker Change: while applications for new construction comfort brand hotels grew 25% year-over-year in the second quarter.
Speaker Change: With construction costs starting to normalize, our footers poured for new hotels are higher than expected.
Speaker Change: If interest rate cuts occur in the near future, as anticipated, we expect a return to a more robust new construction and transaction environment, which will translate to acceleration in our development pipeline.
Pat Pacious: Fueling our success is our ongoing commitment to strengthening the value proposition we provide to our franchise owners. This is supported by our investments in creating and continuing to enhance our best-in-class franchise success. The enhanced value proposition we continue to deliver is among the reasons why our existing owners choose to expand their hotel portfolio with Choice Hotels and contributes to our industry-leading voluntary franchisee retention rate. In the past two years, we have grown the direct online contribution to our franchisees by over 8% in the first half of the year.
Speaker Change: Fueling our success is our ongoing commitment to strengthening the value proposition we provide to our franchise owners.
Speaker Change: This is supported by our investments in creating and continuing to enhance our best-in-class franchisee success system.
Speaker Change: The enhanced value proposition we continue to deliver is among the reasons why our existing owners choose to expand their hotel portfolio with Choice Hotels and contributes to our industry-leading voluntary franchisee retention rate.
Speaker Change: Over the past two years, we have grown the direct online contribution to our franchisees by over 8% in the first half of the year.
Pat Pacious: And for Radisson Americas Hotels, we continue to drive higher traffic and conversion rates, which translates to lower customer acquisition costs and higher margins for our franchisees. Specifically, since the digital integration back in August last year through June of this year, we drove an over 30% increase in reservations through our domestic direct online channels for the Radisson Americas brands year over year, with particularly strong results for the country Inn & Suites by Radisson, which grew by over 40%.
Speaker Change: And for Radisson Americas Hotels, we continue to drive higher traffic and conversion rates, which translates to lower customer acquisition costs and higher margins for our franchisees.
Speaker Change: specifically
Speaker Change: Since the digital integration back in August last year, through June of this year, we drove an over 30% increase in reservations through our domestic direct online channels for the Radisson Americas brands year over year.
Speaker Change: with particularly strong results for the country Inn & Suites by Radisson Brand, which grew by over 40%.
Pat Pacious: Thanks to our portfolio being better positioned and the more compelling value we now offer to our guests, we have meaningfully grown the size of our rewards program. Over the past five years, we have added nearly 25 million Choice Privileges members, reaching over 66 million in total at quarter end.
Speaker Change: thanks to our portfolio being better position and the more compelling value we now offer to our guests
Speaker Change: We have meaningfully grown the size of our rewards program.
Speaker Change: Over the past five years, we added nearly 25 million Choice Privileges members.
Speaker Change: reaching over sixty six million in total at quarter end
Pat Pacious: Specifically, subsequent to the Radisson Americas acquisition, our elevated hotel portfolio has enabled us to realize incremental organic growth in our rewards program, which was 9% higher this quarter. We also continue to enhance our Rewards Program's Redemption Office. Our partnership with the world's largest independent hotel brand, Preferred Hotels and Resorts, is now providing expanded opportunities for our Rewards members to redeem their Choice Privileges points at a number of luxury domestic and international Virgin Hotels properties. Also, for the first time, we're offering our rewards members the ability to exchange their loyalty points for airline miles with several key international airlines, including Air France, KLM, and Turkish Airlines.
Speaker Change: specifically subsequent to the radison america's acquisition our elevated hotel portfolio has enabled us to realize incremental organic growth of our rewards program which was nine percent higher this quarter
Speaker Change: We also continue to enhance our Rewards Program's redemption offerings.
Speaker Change: Our partnership with the world's largest independent hotel brand, Preferred Hotels & Resorts.
Speaker Change: is now providing expanded opportunities for our rewards members to redeem their choice privileges points at a number of luxury domestic and international virgin hotels properties
Operator: to Choice Hotels International's second quarter, 2024 earnings call. At this time, all lines are in a lesson only mode.
Allie Summers: I will now try to conference over to Allie Summers, Investor Relations, Senior Director for Choice Hotels. Good morning, and thank you for joining us today. Before we begin, we would like to remind you that during this conference call, certain predictives or forzuling statements will be used to assist you in understanding the company and its results. Act short results may differ materially from those indicated in forzuling statements, and you should consult the company's forms in Q, TNK and other SEC filing for information about important factors affecting the company that you should consider. These forms of the statement speak as of today's date, and we undertake no obligation to padwically update them through like subsequent events or circumstances.
Speaker Change: Also, for the first time, we're offering our rewards members the ability to exchange their loyalty points for airline miles with several key international airlines, including Air France-KLM and Turkish Airlines.
Pat Pacious: Another benefit of our broader and higher-quality portfolio hotels is that it allows us to attract more blue-chip national travel brands, and it strengthens our existing strategic partnership. As we announced last quarter, we are excited about the long-term prospects of our partnership with Triple A. In particular, AAA members now have the opportunity to automatically earn Choice Privileges Gold status, which expands our reward membership base with our most loyal travelers.
Speaker Change: Another benefit of our broader and higher quality portfolio hotels is that it allows us to attract more blue-chip national travel brands and it strengthens our existing strategic partnerships.
Speaker Change: As we announced last quarter, we are excited about the long-term prospects of our partnership with AAA.
Speaker Change: In particular, AAA members now have the opportunity to automatically earn a Choice Privileges Gold status, which expands our reward membership base with our most loyal travelers.
Pat Pacious: Additionally, with more than 5,000 Choice Hotels within 2 minutes of a highway, we are ideally positioned to benefit from the ongoing affinity for drive-to-vacations and the exposure to a 64 million AAA and its Canadian counterpart, CAA, member base. Another tailwind is our recently revamped partnership with AARP, which allows us to better tap into an attractive demographic that represents over 70% of all wealth in the United States. Since the relaunch of our partnership in September last year, through the end of June this year, we have driven a seven-fold increase in stays booked with the AARP rate.
Allie Summers: You can find a reconciliation of our non-gap financial measures referred to in our remarks, as part of our second quarter, 2024 earnings press release, which is posted on our website at choyshotels.com under the Investor Relations section.
Speaker Change: Additionally, with more than 5,000 Choice Hotels within two minutes of a highway, we are ideally positioned to benefit from the ongoing affinity for drive-to vacations.
Speaker Change: and the exposure to a 64 million AAA and its Canadian counterpart DAA member base.
Allie Summers: This morning, Pat Pace's president and chief executive officer will speak to our second quarter operating results, but it's called Oak Smith Chief Financial Officer will discuss our financial performance in 2024 outlook. Following our prepared remarks, we'll be glad to answer your questions, and with that, I'll turn the call over to Pat.
Speaker Change: another tailwind is our recently revamped partnership with a p which allows us to better tap into an attractive demographic that represents over seventy percent of all wealth in the united states
Speaker Change: Since the relaunch of our partnership in September last year, through the end of June this year, we have driven a seven-fold increase in stays booked with the AARP rate.
Patrick Pacious: Thank you, Allie, and good morning, everyone. We appreciate you taking the time to join us. I'm pleased to report that in the second quarter, choyshotels drove our adjusted EBITDA to $162 million, our adjusted EPS 5% higher year over year, and raised our full year adjusted EPS guidance. Over the past several years, we have created a stronger, more versatile company with multiple earnings drivers and a proven growth strategy. The increased versatility of our business model, combined with projected unit growth acceleration, provides us the confidence to achieve our expected adjusted EBITDA growth of 9% at the midpoint of our outlook range for 2024, even as the domestic rev-par environment has started to normalize.
Pat Pacious: I'd like to turn now to our international business, where we have more than doubled our international EBITDA over the past two years. We delivered another strong quarter with a 3% increase in RevPAR performance year over year, including 5% growth in the EMEA region.
Speaker Change: I'd like to turn now to our international business, where we have more than doubled our international EBITDA over the past two years.
Speaker Change: we delivered another strong quarter with a three percent increase in revpar performance year-over-year including a five percent growth in the emea region
Pat Pacious: At the same time, we expanded our international rooms portfolio by 1.6% year over year, highlighted by a two-fold increase in open. And we continue to see a significant opportunity to further gain international market share in the coming years as evidenced by our room pipeline, which has more than tripled compared to the prior year. We are making progress in onboarding more than 4,000 rooms in France under our franchise agreement with Zenitude Residential Hotels.
Speaker Change: At the same time, we expanded our International Rooms portfolio by 1.6% year-over-year, highlighted by a two-fold increase in openings.
Speaker Change: And we continue to see a significant opportunity to further gain international market share in the coming years, as evidenced by our rooms pipeline, which has more than tripled compared to the prior year.
Speaker Change: We are making progress in onboarding the more than 4,000 rooms in France under our franchise agreement with Zenitude Residential Hotels.
Pat Pacious: In fact, just in time for the Olympics, we opened a 400-plus room property at Paris Charles de Gaulle Airport. This strategic agreement will double our hotel footprint in the country. We're also pleased to have recently executed an agreement in Japan for over 2,200 rooms to be converted to our flagship Comfort Brand portfolio. We expect all of them to be onboarded in the next two months as inbound demand in Japan is at an all-time high.
Patrick Pacious: By increasing our system size, network of franchise e-relationships, and customer reach, we have significantly increased our future growth opportunities. Importantly, we continue to grow our portfolio of revenue-intense hotels with domestic franchise agreements up 8% year over year. These agreements are expected to continue to fuel a significantly higher rev-par premium in our pipeline compared to our existing base of hotels. Our global pipeline of approximately 115,000 rooms set a record for the second quarter, and represents a 22% increase year over year.
Speaker Change: In fact, just in time for the Olympics, we opened a 400-plus room property at Paris Charles de Gaulle Airport.
Speaker Change: This strategic agreement will double our hotel footprint in the country.
Speaker Change: We're also pleased to have recently executed an agreement in Japan for over 2,200 rooms to be converted to our flagship Comfort Brand portfolio.
Speaker Change: We expect all of them to be onboarded in the next two months, as inbound demand in Japan is at an all-time high.
Pat Pacious: In closing, even in the normalizing domestic RETPOR environment with our multiple levers, we believe we have positioned Choice to deliver sustained earnings growth and create long-term value. We continue to generate attractive free cash flow annually, and our priority use of this capital is to reinvest in our organic growth, particularly in initiatives tied directly to driving the revenue-intense growth of our brand portfolio while returning excess cash to shareholders. We have positioned the company to capitalize on favorable long-term trends propelling travel, including an increasing number of retirees.
Speaker Change: In closing, even in the normalizing domestic REP-POR environment, with our multiple levers, we believe we have positioned Choice to deliver sustained earnings growth and create long-term value.
Patrick Pacious: We also accelerated the velocity of moving hotels from our pipeline to open hotels, executing 20% more global openings year over year in the second quarter. At the same time, we expanded our international portfolio by increasing the number of rooms by 1.6%. The initial improvement in domestic rev-part performance in the second quarter versus both the prior year and pre-pandemic levels. In line with industry, the pace of acceleration was slightly slower than we had previously expected and therefore our outlook for the remainder of the year has moderated.
Speaker Change: We continue to generate attractive free cash flow annually, and our priority use of this capital is to reinvest in our organic growth.
Speaker Change: particularly in initiatives tied directly to driving the revenue intense growth of our brand portfolio while returning excess cash to shareholders
Speaker Change: we have positioned the company to capitalize on favorable long-term trends for pelling travel including the increasing number of retirees the continuation of flexible work arrangements and the rebuilding of american manufacturing and infrastructure
Pat Pacious: Continuation of Flexible Work Arrangements, and the Rebuilding of American Manufacturing and Infrastructure, all of which expand the pool of our target travel. We are confident that these long-term trends that favor our brands will allow us to attract and capture an even larger share of leisure and business travel demand and enable us to maximize growth opportunities well into the future. I'll now turn the call over to our CFO, Scott.
Speaker Change: all of which expand the pool of our target travelers
Speaker Change: We are confident that these long-term trends that favor our brands will allow us to attract and capture an even larger share of leisure and business travel demand and enable us to maximize growth opportunities well into the future.
Patrick Pacious: As the travel trends normalize, when compared to 2019 levels, we expect our domestic rev-part performance for the second half of the year to maintain the pace with the first six months of the year and exceed 2019 levels by approximately 10 percentage points at the midpoint of our guidance. Importantly, long-term business and leisure trends remain favorable. Our proactive strategic investments and more versatile business model have meaningfully enhanced our company's growth profile and we remain confident in our ability to deliver sustained growth.
Speaker Change: I'll now turn the call over to our CFO.
Scott Oaksmith: Thanks Pat, and good morning everyone. Today I will discuss our second quarter results, update you on our balance sheet and allocation of capital, and comment on our outlook for the remainder of 2024. For the second quarter of 2024, compared to the same period of 2023, revenues, excluding reimbursable revenue from franchised and managed properties, increased 14% to $258.9 million, and our adjusted EBITDA grew 6% to a record $161.7 million. This was driven by a combination of the successful integration of the Radisson Americas portfolio, Organic Growth, and More Revenue-Intense Segments and Markets. Strong Effective Rurality Rate Growth and the Robust Performance of our Non-REVPAR Dependent. Our second quarter adjusted earnings per share also reached a record, reporting $1.84 per share.
Speaker Change: Scott?
Scott Oaksmith: Thanks, Pat, and good morning, everyone. Today, I will discuss our second quarter results, update you on our balance sheet and allocation of capital, and comment on our outlook for the remainder of 2024.
Scott Oaksmith: For second quarter 2024 compared to the same period of 2023, revenues, excluding reimbursable revenue from franchised and managed properties, increased 14 percent to $258.9 million.
Scott Oaksmith: and our adjusted EBITDA grew 6% to a record $161.7 million.
Patrick Pacious: The successful execution of our strategy continues to drive strong earnings and I'm pleased with the progress we have made on each of our key priorities during the second quarter. In terms of driving more valuable growth, since we embarked on our distinct unit growth strategy of enhancing our franchise business with more revenue intense hotels five years ago, we have expanded our mix of higher revenue generating hotels by six percentage points. This mix shift now comprises 87% of our domestic hotel room portfolio and we expected to continue to increase in the coming years.
Scott Oaksmith: This was driven by a combination of the successful integration of the Radisson Americas portfolio, organic growth in more revenue-intense segments and markets,
Patrick Pacious: These new revenue intense franchises are more accretive to our earnings and have resulted in an upscaling of our portfolio. Importantly, they are a key driver of future growth as hotels within a brand on average generate royalty revenue over 20% higher than hotels exiting the brand. Our strategic focus on more revenue intense hotels means that the pipeline continues to be of significantly higher value than the current hotel portfolio. This higher revenue contribution is driven by a few factors.
Speaker Change: strong effective royalty rate growth, and the robust performance of our non-REVPAR-dependent programs.
Speaker Change: our second quarter adjusted earnings pershare also reached a record reporting a dollar eighty four per share
Scott Oaksmith: 5% increase year-over-year. But let me first discuss our key levers for franchise fee growth, which include our unit growth, royalty rate, and REV PAR performance. In terms of unit growth, our strategic goal has been to accelerate quality room growth across more revenue-intense brands and markets while simultaneously growing our effective royalty rates, which ultimately results in an outsized increase in royalties. For the second quarter, we reported domestic unit growth of 1% year-over-year across our more revenue-intense upscale, extended stay, and mid-scale portfolio.
Speaker Change: a five percent increase year-over-year
Speaker Change: let me first discuss our key levers for franchise fee growth which include our unit growth royalty rate and redbpar performance
Speaker Change: In terms of unit growth, our strategic goal has been to accelerate quality room growth across more revenue intense brands and markets, while simultaneously growing our effective royalty rates, which ultimately results in an outsized increase in royalties.
Speaker Change: For the second quarter, we reported domestic unit growth of 1% year-over-year across our more revenue-intense upscale, extended stay, and mid-scale portfolio.
Scott Oaksmith: Supported by our expanded domestic pipeline, which has increased 11% year-over-year, we expect to see an acceleration of our growth for the remainder of the year and continue to anticipate achieving our full-year growth target of approximately 2%. At the same time, we increased the number of domestic franchise agreements for our revenue-intense brands awarded in the second quarter by 8% over the prior year. We also executed new hotel openings at an impressive pace. Through June, we averaged over four openings per week in the U.S.
Speaker Change: Supported by our expanded domestic pipeline, which has increased 11% year over year, we expect to see an acceleration of our growth for the remainder of the year and continue to anticipate achieving our full year growth target of approximately 2%.
Speaker Change: At the same time, we increased the number of domestic franchise agreements for our revenue-intense brands, awarded in the second quarter by 8% over the prior year. We also executed new hotel openings at an impressive pace. Through June , we averaged over four openings per week in the U.S.
Patrick Pacious: One, the hotels in our domestic pipeline represent a rev par premium of more than 30% compared to our existing portfolio. Two, they have higher average effective royalty rates driven by our strengthened value proposition to franchise ease. And three, they have on average more than 40% higher room count per hotel than our current domestic system. With this positive momentum, we are very encouraged by our existing and future portfolio prospects. In the current hotel development environment, our core competency of a best-in-class hotel conversion capability, which moves projects rapidly through the pipeline, is a key differentiator for winning new franchise agreements.
Scott Oaksmith: This resulted in a 10% increase in domestic openings year-over-year, with 118 hotel openings. Our deliberate decisions and strategic investments in our franchisee tools, brand portfolio, and platform capabilities are delivering solid results across our company. First, we strengthened their upscale franchise. For the second quarter, we nearly doubled our upscaled domestic room pipeline year over year. We expect to see continued strength in this segment over the coming years, fueled by strategic investments in transforming our upscale brand.
Speaker Change: This resulted in a 10% increase in domestic openings year-over-year, with 118 hotel openings.
Speaker Change: our delired decisions and strategic investments in our franchisee tools brand portfolio and platform capabilities are delivering solid results across our company
Speaker Change: First, we strengthen their upscale franchise business.
Speaker Change: For the second quarter, we nearly doubled our upscale domestic rooms pipeline year-over-year. We expect to see continued strength in this segment over the coming years, fueled by strategic investments in transforming our upscale brands.
Patrick Pacious: In fact, of the domestic franchise agreements we executed for conversion hotels over the trailing 12 months, we opened 134 during the same period, a 14% increase over the same period of the prior year. Our conversion competency also allows us to successfully and quickly launch new brands. This is evidenced by a recent relaunch of Park Inn by Radisson, an innovative conversion brand that delivers a premium value lodging option at a low affiliation cost.
Scott Oaksmith: Second, we accelerated our growth across the extended stay brands portfolio. For the second quarter, we grew our domestic extended stay unit system size by 14% year over year, and we remain on track to achieve a long-term average annual growth of 15%. And third, we continue to invest in our mid-scale portfolio. For the second quarter, we increased the number of domestic franchise agreements for our mid-scale brands by 27% year-over-year and opened 30 new domestic mid-scale hotels. Our overall domestic mid-scale rooms pipeline increased 7% quarter over quarter, reaching over 23,000 rooms.
Speaker Change: second we accelerated our growth across the extended stab brands portfolio
Speaker Change: For the second quarter, we grew our domestic extended stay unit system size by 14% year-over-year, and we remain on track to achieve a long-term average annual growth of 15%.
Speaker Change: And third, we continue to invest in our mid-scale portfolio. For the second quarter, we increased the number of domestic franchise agreements for our mid-scale brands awarded by 27% year-over-year and opened 30 new domestic mid-scale hotels.
Speaker Change: Our overall domestic mid-scale rooms pipeline increased 7% quarter-over-quarter, reaching over 23,000 rooms.
Scott Oaksmith: Our effective royalty rate also continues to be a significant source of revenue growth. Our domestic system effective royalty rate for second quarter 2024 increased five basis points to over 5% year-over-year, representing approximately $5 million of incremental royalties on an annual basis. We continue to expect our full-year effective royalty rate to increase in the mid-single digits, driving significant growth in our overall adjusted EBITDA. This performance demonstrates the positive impact of our strategy to drive the growth of our revenue-intense brand portfolio and our enhanced value proposition to franchise owners.
Speaker Change: our effective roytyrate also continues to be a significant source of revenue growth our domestic system effective royalty rate for second quarter two thousand and twenty four increased five basis points to over five percent year-over-year representing approximately five million dollars of incremental royalties on an annual basis
Patrick Pacious: With a compelling value proposition relative to peer offerings, and a focus on ensuring the franchise's success, we have had a strong initial reception. Specifically, we have already executed 19 global franchise agreements of which five are open across the U.S, and Canada as of the end of June. With a total addressable market of more than 20,000 potential conversion properties for this brand, we believe there is a meaningful opportunity for this offering in the coming years.
Speaker Change: We continue to expect our full-year effective royalty rate to increase in the mid-single digits, driving significant growth in our overall adjusted EBITDA.
Speaker Change: This performance demonstrates the positive impact of our strategy to drive the growth of our revenue-intense brand portfolio and our enhanced value proposition to franchise owners.
Scott Oaksmith: We are optimistic about the continued upward trajectory of our effective royalty rate for years to come, given that the contracts in our domestic pipeline have, on average, a 70 basis point higher effective royalty rate than those in our current portfolio of open hotels. The third revenue lever I will discuss is our REVPAR performance.
Speaker Change: We are optimistic about the continued upward trajectory of our effective royalty rate for years to come, given that the contracts in our domestic pipeline have, on average, a 70 basis point higher effective royalty rate than those in our current portfolio of open hotels.
Patrick Pacious: We expect this conversion core competency to continue to be a key growth driver throughout this year. In fact, as of the end of June, we grew to our global rooms pipeline for conversion hotels by 5% quarter over quarter. In addition to the continued momentum in conversions, we are pleased to see increasing developer interest for our extended stay and mid-scale new construction brands. We are very proud that for the second year in a row, JD Power ranked our Woodspring-Sweets brand number one in guest satisfaction among economy extended stay hotel brands.
Scott Oaksmith: Our domestic REBPAR growth accelerated in the second quarter, improving 540 basis points sequentially for the portfolio, and has meaningfully exceeded our pre-pandemic levels. In fact, compared to 2019, the company increased REBPAR by 11 percent, improving average daily rates by 15.1 percent, and achieved domestic occupancy levels of 96 percent of pre-pandemic performance. While our second quarter domestic REBPAR accelerated from the first quarter, the pace of acceleration was slower than it was... And as a result, our REB PAR was down 50 basis points year over year, reflecting a 10-basis point increase in our occupancy levels offset by a 60-basis point decline in average daily rate.
Speaker Change: The third revenue lever I will discuss is our REBPAR performance.
Speaker Change: Our domestic RevPAR growth accelerated in the second quarter, improving 540 basis points sequentially for the portfolio, and has meaningfully exceeded our pre-pandemic levels.
Speaker Change: In fact, compared to 2019, the company increased REBPAR by 11%, improving average daily rates by 15.1%, and achieving domestic occupancy levels of 96% of pre-pandemic performance.
Patrick Pacious: This strong guest reception is translating into increased interest from developers and attractive unit growth, as the Woodspring-Sweets brand grew nearly 10% in units year over year in the second quarter. In fact, the Woodspring-Sweets brand represents over two-thirds of all the rooms under construction in the economy extended stay segment. Additionally, we are seeing particularly strong traction with our newest extended stay brand ever home suites with four hotels now open and 65 domestic projects in the pipeline, including over 20 under construction.
Speaker Change: our second quarter domestic repar accelerated for first quarter the pace of acceleration was slower than anticipated
Speaker Change: And as a result, our REB PAR was down 50 basis points year-over-year, reflecting a 10-basis point increase in our occupancy levels, offset by a 60-basis point decline in average daily rates.
Scott Oaksmith: For the second quarter, our overall domestic upscale portfolio delivered red part growth led by our Radisson upscale brand increasing 12.2% year over year. Notably, our Radisson upscale brand outperformed STR's upscale segment by 9 percentage points and achieved Red Part Index share gains versus competitors. Based on the recent trends of normalizing domestic travel and in line with the industry, we are lowering our U.S. REVPAR guidance and now anticipate full year domestic REVPAR to be in the range of negative 1.5% to negative 3.5%.
Speaker Change: For the second quarter, our overall domestic upscale portfolio delivered red part growth led by our Radisson upscale brand increasing 12.2% year-over-year.
Speaker Change: Notably, our Radisson Upscale brand outperformed STR's Upscale segment by 9 percentage points.
Speaker Change: and achieve Red Part Index share gains versus competitors.
Speaker Change: based on the recent trends of normalizing domestic travel and in line with the industry we are lowering our u s revpar guidance and now anticipate full year domestic rerepparar to be in the range of negative one point five percent to negative three point five percent
Patrick Pacious: This ongoing demand reaffirms our belief that our strategic commitment and continued investments in this cycle-resistant segment are driving a competitive advantage. In the mid-scale space, we increase the number of new construction projects in the pipeline for our country in and suites by Radisson Brand by over 1,800 rooms. While applications for new construction comfort brand Hotels grew 25% year over year in the second quarter. With construction costs starting to normalize, our footers poured for new hotels are higher than expected.
Scott Oaksmith: We continue to build on the strong momentum of our platform. Our ancillary fees benefit from expanded offerings to our franchisees and guests, increased transaction volume with our qualified vendors, and the broader reach of our industry. These fees more than doubled year-over-year in the second quarter.
Speaker Change: We continue to build on the strong momentum of our platform business.
Speaker Change: Our ancillary fees benefit from expanded offerings to our franchisees and guests, increased transaction volume with our qualified vendors, and the broader reach of our initiatives.
Speaker Change: fe is more than doubled year-over-year in the second quarter
Scott Oaksmith: Continuing to expand our platform business and increase the number of products and services we offer is one of our key initiatives, and we believe that we can drive this strong revenue growth in the years ahead. In terms of capital allocation, we will continue to prioritize investing in our growth while also returning capital to shareholders. Our well-positioned balance sheet and growth trajectory, coupled with a significant valuation discount, provide us with a very attractive return opportunity through the repurchase of shares.
Speaker Change: Continuing to expand our platform business and increase the number of products and services we offer is one of our key initiatives and we believe that we can drive this strong revenue growth in the years ahead.
Speaker Change: In terms of capital allocation, we will continue to prioritize investing in our growth while also returning capital to shareholders.
Patrick Pacious: If interest rate cuts occur in the near future as anticipated, we expect a return to a more robust new construction and transaction environment which will translate to acceleration in our development pipeline. Fuelling our success is our ongoing commitment to strengthening the value proposition we provide to our franchise owners. This is supported by our investments in creating and continuing to enhance our best in class franchisee success system. The enhanced value proposition we continue to deliver is among the reasons why our existing owners choose to expand their hotel portfolio with Choice Hotels and contributes to our industry leading voluntary franchisee retention rate.
Speaker Change: Our well-positioned balance sheet and growth trajectory, coupled with a significant valuation discount, provide us a very retractive return opportunity through the repurchase of shares.
Scott Oaksmith: During the six months ended June 30, 2024, we generated nearly $114 million in operating cash flow, inclusive of franchise agreement acquisition costs, providing significant cash flow to both invest in profitable growth opportunities and provide substantial returns to shareholders. Year-to-date through July, we returned $347 million to shareholders, including approximately $43 million in cash dividends and over $304 million in share repayments. We repurchased 2.5 million shares, representing over 5% of our outstanding shares.
Speaker Change: During the six months ended June 30, 2024, we generated nearly $114 million in operating cash flow, inclusive of franchise agreement acquisition costs.
Speaker Change: providing significant cash flow to both invest in profitable growth opportunities and provide substantial returns to shareholders.
Speaker Change: Year to date through July , we returned $347 million to shareholders, including approximately $43 million in cash dividends and over $304 million in share repurchases.
Speaker Change: We repurchased 2.5 million shares, representing over 5% of our outstanding share count, and we had approximately 4.3 million shares remaining in our authorization as of the end of July .
Patrick Pacious: Over the past two years we have grown the direct online contribution to our franchisee by over 8% in the first half of the year. And for Radisson America's Hotels, we continue to drive higher traffic and conversion rates, which translates to lower customer acquisition costs and higher margins for our franchisees. Specifically, since the digital integration back in August last year through June of this year, we drove an over 30% increase in reservations through our domestic direct online channels for the Radisson America's Brands year over year, with particularly strong results for the country in and suites by Radisson Brand, which grew by over 40%.
Scott Oaksmith: And we had approximately 4.3 million shares remaining in our authorization as of the end of July. In addition to the significant cash flows generated by our operating model, in July, we closed on a $600 million 10-year senior unsecured notes offering, which allowed us to pay down our $500 million term loan that was maturing at the end of the year. And a portion of the barrings when our revolving credit is pursuant, thereby reducing the effective cost of our borrowing.
Speaker Change: In addition to the significant cash flows generated by our operating model, in July , we closed on a $600 million, 10-year, senior unsecured notes offering.
Speaker Change: which allowed us to pay down our $500 million term loan that was maturing at the end of the year and a portion of the borrowings on our evolving credit facility.
Scott Oaksmith: Importantly, we achieved the tightest credit spread in the company's history, and Upside is our offering from $500 million to $600 million. The offering was oversubscribed by 4.6 times, a powerful endorsement of our business model and its performance. We further enhanced our liquidity by upsizing our revolving credit facility to $1 billion and extending our maturity date to 2029. Subsequent to quarter end, we also fully divested the remainder of our holding in Wyndham Hotels and Resorts.
Speaker Change: Reducing the effective cost of our borrowings.
Speaker Change: Importantly, we achieved the tightest credit spread in the company's history and upsized our offering from $500 million to $600 million.
Speaker Change: The offering was oversubscribed by 4.6 times, a powerful endorsement of our business model and its performance.
Speaker Change: We further enhanced our liquidity by upsizing our revolving credit facility to $1 billion and extended our maturity date to 2029.
Patrick Pacious: Thanks to our portfolio being better position and the more compelling value we now offer to our guests, we have meaningfully grown the size of our rewards program. Over the past five years we added nearly 25 million choice privileges members reaching over 66 million in total at quarter end. Specifically, subsequent to the Radisson America's acquisition, our elevated hotel portfolio has enabled us to realize incremental organic growth of our rewards program, which was 9% higher this quarter.
Speaker Change: Subsequent to a quarter end, we also fully divested the remainder of our holding in the Wyndham Hotels and Resorts.
Scott Oaksmith: With a strong cash position and total available liquidity of approximately $530 million at the end of the second quarter, our capital allocation priorities remain unchanged. We intend to build on our long record of delivering outsized value by accretively investing to further expand our. I'd like to now turn to our expectations for the remainder of the year. For the full year 2024, we are maintaining our adjusted EBITDA guidance while lowering REBPAR expectations, reflecting primarily discipline, discretionary investment spend, as well as better than expected performance from our ancillary revenue.
Speaker Change: With a strong cash position and a total available liquidity of approximately $530 million at the end of the second quarter, our capital allocation priorities remain unchanged.
Speaker Change: We intend to build on our long record of delivering outsized value by accretively investing to further expand our business.
Speaker Change: I'd like to now turn to our expectations for the remainder of the year.
Speaker Change: For the full year 2024, we are maintaining our adjusted EBITDA guidance while lowering REBPAR expectations.
Speaker Change: reflecting primarily disciplined discretionary investment spend as well as better than expected performance from our ancillary revenues.
Patrick Pacious: We also continue to enhance our rewards program's redemption offerings, our partnership with the world's largest independent hotel brand, preferred hotels and resorts, is now providing expanded opportunities for our rewards members to redeem their choice privileges points at a number of luxury domestic and international virgin hotels proper, activities. Also, for the first time, we're offering our rewards members the ability to exchange their loyalty points for airline miles with several key international airlines, including Air France KLM and Turkish Airlines.
Scott Oaksmith: In addition, we are raising our Adjusted Earnings per Share guidance to range between $6.40 and $6.65 per share, which is 7% year-over-year growth at the midpoint, to reflect our increased share repurchase activity and lower-than-expected interest rates. Our ability to continue to deliver attractive earnings growth in light of the normalizing REBPAR environment demonstrates the increased versatility of our model. This outlook does not account for any M&A, repurchase of the company's stock after July 31st, or other capital markets activities.
Speaker Change: In addition, we are raising our Adjusted Earnings Per Share guidance to range between $6.40 and $6.65 per share, which is a 7% year-over-year growth at the midpoint, to reflect our increased share repurchase activity and lower-than-expected interest expense.
Speaker Change: and
Speaker Change: Our ability to continue to deliver attractive earnings growth in light of the normalizing RevPAR environment demonstrates the increased versatility of our model.
Speaker Change: This outlook does not account for any M&A, repurchase of the company's stock after July 31st, or other capital markets activity.
Scott Oaksmith: We remain confident in the long-term growth of our franchise, with continued organic growth across more revenue-intense hotels and markets, the incremental contribution from Radisson Americas, robust effective royalty rate growth, continued earnings stream from our co-branded credit card, international business expansion, and other factors. We have made notable progress in executing on our strategic plan and creating a company with an expanded scale, a versatile model, and a compelling value proposition for franchisees and guests. With this enhanced growth profile, we remain confident in our ability to deliver value for all of our stakeholders over time. At this time, Kat and I would be happy to answer any of your questions. Operator
Patrick Pacious: Another benefit of our broader and higher quality portfolio hotels is that it allows us to attract more blue-chip national travel brands and its strengthens our existing strategic partnerships. As we announce last quarter, we are excited about the long-term prospects of our partnership with AAA. In particular, AAA members now have the opportunity to automatically earn a choice privileges gold status, which expands our reward membership base with our most loyal travelers. Additionally, with more than 5,000 choice hotels within two minutes of a highway, we are ideally positioned to benefit from the ongoing affinity for drive-to vacations and the exposure to a $64 million AAA and its Canadian counterpart, CAA, member base.
Speaker Change: We remain confident in the long-term growth of our franchise business.
Speaker Change: with continued organic growth across more revenue-intense hotels and markets, the incremental contribution from Radisson Americas, robust effective royalty rate growth, continued earnings stream from our co-branded credit card, international business expansion, and other factors.
Speaker Change: We have made notable progress in executing on our strategic plan and creating a company with an expanded scale, a versatile model, and a compelling value proposition for franchisees and guests.
Speaker Change: With this enhanced growth profile, we remain confident in our ability to deliver value for all of our stakeholders over time.
Speaker Change: At this time Pat and I would be happy to answer any of your questions. Operator?
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number on your touchtone phone. You will hear a prompt that your hand has been raised. Questions will be taken in the order they are answered. Should you wish to cancel your request, please press the star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any key.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised.
Patrick Pacious: Another tailwind is our recently revamped partnership with AARP, which allows us to better tap into an attractive demographic that represents over 70% of all wealth in the United States. Since the relaunch of our partnership in September last year, through the end of June this year, we have driven a 7-fold increase in stays booked with the AARP rate.
Speaker Change: Questions will be taken in the order received.
Speaker Change: If you wish to cancel your request, please press the star followed by the 2.
Speaker Change: If you are using a speakerphone, please lift the handset before pressing any keys.
Dany Asad: Once again, that is store one should you wish to ask a question. Your first question is from Dany Asad from Bank of America. Please ask your question.
Speaker Change: Once again, that is all I want you to wish to ask a question.
Speaker Change: Your first question is from Dani Asad from Bank of America. Please ask your question.
Dany Asad: Hi, good morning, Pat and Scott. Guys, I just wanted to start with the outlook change. So if we just look at your back half implied REF PAR based on the new guide, it kind of implies a sequential downtick from the REF PAR growth we saw in Q2. So can we maybe just start by walking through the puts and takes of what got you to this new outlook?
Patrick Pacious: I'd like to turn out our international business, where we have more than doubled our international EBITDA over the past two years. We delivered another strong quarter with a 3% increase in rev-par performance year over year, including a 5% growth in the AMEA region. At the same time, we expanded our international room portfolio by 1.6% year over year, highlighted by a two-fold increase in openings. And we continue to see a significant opportunity to further gain international market share in the coming years, as evidenced by a room's pipeline, which has more than tripled compared to the prior year.
Dani Asad: Hi, good morning, Pat and Scott.
Speaker Change: Thank you.
Dani Asad: Guys, I just wanted to start with the Outlook change. So if we just look at your back half implied REF PAR based on the new guide, it kind of implies a sequential downtick from the REF PAR growth we saw in Q2. So can we maybe just start by walking through the puts and takes of what got you to this new Outlook, please?
Pat Pacious: Sure. Thanks, Dany.
Speaker Change: Sure. Thanks, Danny. When you look at our second half of the year, you know, we're effectively looking, it's going to be very similar to the first half. We're going to see sequential improvement.
Pat Pacious: When you look at our second half of the year, you know, we're effectively looking, it's going to be very similar to the first half. We're going to see sequential improvement from Q3 into Q4. But because we're seeing travel behaviors in the first half of the year that look pretty similar to what we saw in 2019, our expectations for the second half of this year are pretty much influenced by that pattern.
Speaker Change: from q three and a q four
Dani Asad: But because we're seeing the travel behaviors in the first half of the year that looks pretty similar to what we saw in 2019, our expectations for the second half of this year are pretty much influenced by that pattern.
Patrick Pacious: We are making progress in onboarding the more than 4,000 rooms in France under our franchise agreement with Zenitude residential hotels. In fact, just in time for the Olympics, we opened a 400-plus room property at Paris Charles-Deval Airport. This strategic agreement will double our hotel footprint in the country. We're also pleased to have recently executed an agreement in Japan for over 2,200 rooms to be converted to our flagship comfort brand portfolio. We expect all of them to be onboarded in the next two months, as inbound demand in Japan is at an all-time high.
Pat Pacious: So, when we step back and look at kind of the long-term trend of what performances look like since 2019, we're really right in line with that long-term historical trend of an average, call it, you know, yearly red part growth of between 2 and 3 percent. And that's really a factor of the normalization that we talked about in our remarks. You know, the day-of-week travel that we've seen over the last couple of years with the pandemic has sort of reverted back to the normalization that we saw in 2019.
Dani Asad: So, when we step back and look at kind of the long-term trend of what performances look like since 2019, we're really right in line with that long-term historical trend of an average, call it, you know, yearly red part growth of between 2 and 3 percent.
Dani Asad: And that's really a factor of the normalization that we talked about in our remarks.
Dani Asad: You know, the day-of-week travel that we are seeing over the last couple of years with the pandemic has sort of reverted back to the normalization that we saw in 2019. The booking window is closer in, similar to what it looked like in 2019. And we're really seeing a reversion of...
Pat Pacious: The booking window is closer in, similar to what it looked like in 2019. And we're really seeing a reversion of locations where urban was sort of the last market to come back, and that has come back significantly. And that's just an area that we under-index in our portfolio. We're also seeing some different regions of the country that outperformed where we under-indexed. So, a lot of it's driven by what we saw in the first half of the year and the similarities we see to the 2019 travel patterns that consumers were exhibiting back then. And that's why we sort of describe this as more of a normalization back to what it looked like prior to the pandemic and the sort of ups and downs we've seen over the subsequent years.
Dani Asad: locations where urban was sort of the last market to come back and that has come back significantly and that's just an area that we our portfolio under indexes.
Patrick Pacious: In closing, even in the normalizing domestic rev-par environment with our multiple levers, we believe we have positioned choice to deliver sustained earnings growth and create long-term value. We continue to generate attractive free cash flow annually, and our priority use of this capital is to reinvest in our organic growth, particularly in initiatives tied directly to driving the revenue intense growth of our brand portfolio, while returning excess cash to shareholders. We have positioned the company to capitalize on favorable long-term trends for preling travel, including the increasing number of retirees, the continuation of flexible work arrangements, and the rebuilding of American manufacturing and infrastructure, all of which expand the pool of our target travelers.
Dani Asad: We're also seeing some different regions of the country that outperformed where we under-indexed. So a lot of it's driven by what we saw in the first half of the year and the similarities we see to the 2019 travel patterns that consumers were exhibiting back then. And that's why we sort of describe this as more of a normalization back to what it looked like prior to the pandemic and the sort of ups and downs we've seen over the subsequent years.
Pat Pacious: Thank you very much. And in your prepared remarks, when you talk about the international conversion agreements that you've been signing, can you maybe just give an outline of the unit economics there, and how do these contracts look relative to your existing contracts that you have?
Patrick Pacious: We are confident that these long-term trends that favor our brands will allow us to attract and capture an even larger share of leisure and business travel demand and enable us to maximize growth opportunities well into the future.
Speaker Change: Thank you very much. And in your prepared remarks, when you're talking about the international conversion agreements that you've been signing, can you maybe just dig on the unit economics there, and how do these contracts look relative to your existing contracts that you have?
Pat Pacious: Yeah, so I think, as you're well aware, we go to market with two models, a direct franchise business, which has really changed since the Radisson acquisition. We have a much larger footprint and a new capability in the Americas region. We have a direct business now in Canada, which we didn't have before. It was just a joint venture. We still have that as well.
Speaker Change: Yeah, so I think as you're well aware, we go to market with two models, a direct franchise business, which has really changed since the Radisson acquisition, we have a much larger footprint and a new capability.
Speaker Change: in the Americas region. We have a direct business now in Canada, which we didn't have before was it was just a joint venture. We still have that as well. And then we have a much more robust direct
Scott Oaksmith: I'll now turn the call over to our CFO. Got? Thanks, Pat, and good morning, everyone.
Pat Pacious: And then we have a much more robust direct franchise business in the rest of the Caribbean and Latin America. The unit growth that we're seeing there and then the unit growth that we mentioned in France, these are direct franchise markets that are driving some of that growth. We're also seeing in our MFAs, and we mentioned the Japanese partnership, which has been a longstanding, really successful partnership for us over the years, adding units there as well. So it's really coming in both flavors. But I would say the vast majority of the weight of that is coming directly from the government.
Scott Oaksmith: Today, I will discuss our second-quarter results, update you on our balance sheet and allocation of capital, and comment on our outlook for the remainder of 2024. For second-quarter 2024, compared to the same period of 2023, revenues, excluding reimbursable revenue from franchised and managed properties, increased 14% to $258.9 million. And our adjusted EBITDA grew 6% to a record $161.7 million. This was driven by a combination of the successful integration of the Radisson-America's portfolio, organic growth in more revenue-intense segments and markets, strong effective royalty rate growth, and the robust performance of our non-rev park-dependent programs. Our second-quarter adjusted earnings per share also reached a record, reporting $1.84 per share, a 5% increased year-over-year.
Speaker Change: franchise business, and the rest of the Caribbean and Latin America.
Speaker Change: The unit growth that we're seeing there, and then the unit growth that we mentioned in France.
Speaker Change: These are direct franchise markets that are driving some of that growth. We're also seeing in our MFAs, and we mentioned the Japanese partnership, which has been a longstanding, really successful partnership for us over the years, adding units there as well. So it's really coming in both flavors, but I would say the vast majority of the weight of that is coming in the direct markets.
Dany Asad: Got it. And just one last follow-up. But can you just remind us of the current mix of your projects in your pipeline today? What's new build versus conversion? For me, thank you. Yeah, I think that's really a pretty room.
Speaker Change: Got it and just one last one follow-up but can you just remind us of the current mix of your in your pipeline today what's new build versus conversion?
Dany Asad: That's it for me. Thank you.
Speaker Change: that's for me
Speaker Change: Yeah, I think that's really a pretty remarkable story. I mean, if you look at our current pipeline, about 36% of the domestic pipeline is conversion.
Speaker Change: And that's really been the key driver during a time where interest rates are elevated. Eighty percent of our openings this year, year-to-date, have been conversions. Eighty-four percent of the agreements we sold in Q2 were for conversion. And when you look at the conversion agreements in mid-scale in particular,
Scott Oaksmith: Let me first discuss our key levers for franchised fee growth, which include our Unicrow, royalty rate, and rev park performance. In terms of Unicrow, our strategic goal has been to accelerate quality room growth across more revenue-intense brands and markets, while simultaneously growing our effective royalty rates, which ultimately results in an outsized increase in royalties. For the second quarter, we reported domestic unicrow of 1% year-over-year across our more revenue-intense upscale, extended stay, and mid-scale portfolio.
Pat Pacious: Yeah, I think that's really a pretty remarkable story. I mean, if you look at our current pipeline, about 36% of the domestic pipeline is conversion. And that's really been the key driver during a time when interest rates are elevated. 80% of our openings this year, year-to-date, have been conversions. 84% of the agreements we sold in Q2 were for conversion. And when you look at the conversion agreements in mid-scale, in particular, those agreements are up 31% year-to-date. So it's a pretty significant driver.
Speaker Change: Those agreements are up 31% year-to-date, so it's a pretty significant driver. And that's why we really want investors to understand the importance of velocity, because a lot of these hotels, they might stay in the pipeline for three months.
Speaker Change: because we have a pretty good capability of getting new conversion agreements into our pipeline and then ultimately open them in a very, very quick period of time. We're seeing that also, as we mentioned in the remarks, in the Park Inn by Radisson, you know, with five open already when we effectively relaunched that in May. And that's five open in the quarter, by the way. It's really a reflection of the speed of the velocity we can push through there. The exciting thing about the remainder, the other 64% of the pipeline, the new construction is, as we said in our remarks, you know, we are seeing some green shoots. We're seeing interest in getting new construction contracts.
Scott Oaksmith: Supported by our expanded domestic pipeline, which has increased 11% year-over-year, we expect to see an acceleration of our growth for the remainder of the year, and continue to anticipate achieving our full-year growth target of approximately 2%. At the same time, we increased the number of domestic franchise agreements for our revenue-intense brands, awarded in the second quarter by 8% over the prior year. We also executed new hotel openings at an impressive pace. Through June, we averaged over 4 openings per week in the US. This resulted in a 10% increase in domestic openings year-over-year, with 118 hotel openings.
Pat Pacious: And that's why we really want investors to understand the importance of velocity, because a lot of these hotels stay in the pipeline for three months because we have a pretty good capability of getting new conversion agreements into our pipeline and then ultimately opening them in a very, very short period of time. We're seeing that also, as we mentioned in the remarks, in the Park Inn by Radisson, with five open already when we effectively relaunched that in May. And that's five open in the quarter, by the way. It's really a reflection of the speed of the velocity we can push through there.
Pat Pacious: The exciting thing about the remainder, the other 64% of the pipeline, the new construction is, as we said in our remarks, we are seeing some green shoots. We're seeing interest in getting new construction contracts. We're seeing construction costs starting to moderate, and the last piece that needs to fall into place is hotel financing, which is a function of interest rates coming down. So if we do see that in the coming months, we do expect we'll see that new construction pipeline start to move more rapidly than we've seen over the last 18 months.
Speaker Change: We're seeing construction costs starting to moderate, and the last piece that needs to fall into place
Scott Oaksmith: Our deliberate decisions and strategic investments in our franchisee tools, brand portfolio, and platform capabilities are delivering solid results across our company. Company. First, we've strengthened their upscale franchise business. For the second quarter, we nearly doubled our upscale domestic rooms pipeline year-to-year. We expect to see continued strength in this segment over the coming years, fueled by strategic investments in transforming our upscale brands.
Speaker Change: is hotel financing, which is a function of interest rates coming down. So if we do see that in the coming months, we do expect we'll see that new construction pipeline start to move more rapidly than we've seen over the last 18 months.
Speaker Change: Thank you very much.
Stephen Grambling: Thank you. Your next question is from Stephen Grambling from Morgan Stanley. Please ask your question.
Speaker Change: throughout
Scott Oaksmith: Second, we accelerated our growth across the extended state brand's portfolio. For the second quarter, we grew our domestic extended state unit system size by 14% year-to-year, and we remain on track to achieve a long-term average annual growth of 15%.
Speaker Change: Thank you. Your next question is from Stephen Grambling from Morgan Stanley . Please ask your question.
Stephen Grambling: Hey, thanks. I guess I'd love to have a little bit more color on free cash flow and how investors should be thinking about some of the discrete factors that might be impacting it in the first half. And then I guess an unrelated or maybe it is related comment is just really around, I think you have affiliate sales in your mind. Is there still capital that's outstanding that can be recycled or sold? And is that, or should there be any expectation in the second half for that to come to fruition?
Stephen Grambling: Hey, thanks. I guess I'd love to have a little bit more color on free cash flow and how investors should be thinking about some of the discrete factors that might be impacting that in the first half.
Scott Oaksmith: And third, we continue to invest in our mid-scale portfolio. For the second quarter, we increased the number of domestic franchise agreements for our mid-scale brands awarded by 27% year-to-year and opened 30 new domestic mid-scale hotels. Our overall domestic mid-scale rooms pipeline increased 7% quarter of our core, reaching over 23,000 rooms. Our effective royalty rate also continues to be a significant source of revenue growth. Our domestic system effective royalty rate for second quarter 2024 increased five basis points to over 5% year-to-year, representing approximately $5 million of incremental royalties on an annual basis. We continue to expect our full year effective royalty rate to increase in the mid-single digits, driving significant growth in our overall adjusted EBITDA.
Speaker Change: and then i guess an unrelated or in maybe-is related comment is just really around i think you have affiliate sales in your
Speaker Change: My name, I guess, is there still capital that's outstanding that can be recycled or sold and is that, should there be any expectation in the second half for that to come to fruition?
Scott Oaksmith: Thanks, Stephen. I'll take that one.
Speaker Change: Thanks, Stephen. I'll take that one. In terms of free cash flow, we were really pleased with what we saw in the second quarter. So our operating cash flow for the full year was about $114 million in a strong second quarter delivering that. We still feel we're on target on our general free cash flow conversion that we talked about on our last call, excluding key money the way we measure it, which is operating cash flows, less our maintenance capex,
Scott Oaksmith: In terms of free cash flow, we were really pleased with what we saw in the second quarter. So our operating cash flow for the full year was about $114 million, with a strong second quarter delivering that. We still feel we're on target on our general free cash flow conversion that we talked about on our last call, excluding key money the way we measure it, which is operating cash flows, less our maintenance capex. The last couple of years, we've been about 65%, and we're still targeting that for the full year of 2024.
Speaker Change: the last couple of years we've been about about sixty five percent and we're still targeting that for the full year of two thousand and twenty four in terms of recyclable capital
Scott Oaksmith: In terms of recyclable capital, when you look at those numbers, we had about $74 million gross investments in that during the quarter in terms of some of the hotel development we're doing, JV investments, and mezzanine financing. And as you mentioned, we did recycle about just under $18 million for the sale of one of our joint venture interests. Currently supporting both the Cambry and the Everhome programs, we have about a half a billion dollars outstanding in a mix of owned assets, joint ventures, and loans.
Scott Oaksmith: This performance demonstrates the positive impact of our strategy to drive the growth of our revenue and 10th brand portfolio and our enhanced value proposition to franchise owners. We are optimistic about the continued upward trajectory of our effective royalty rate for years to come, given that the contracts in our domestic pipeline have won average a 70 basis point higher effective royalty rate than those in our current portfolio of open hotels.
Speaker Change: when you do look at those numbers we had about seventy four million dollars gross investments in that during the quarter
Speaker Change: in terms of some of the hotel development we're doing, JV Investments and mezzanine financing.
Speaker Change: And as you mentioned, we did recycle just under $18 million for the sale of one of our joint venture interests.
Stephen Grambling: currently supporting both the Cambry and the Ever Home program. We have about a half a billion dollars outstanding.
Scott Oaksmith: The third revenue lever I will discuss is our red-par performance. Our domestic red-par growth accelerated in the second quarter, improving 540 basis points sequentially for the portfolio and has meaningfully exceeded our pre-pandemic levels. In fact, compared to 2019, the company increased red-par by 11% improving average daily rates by 15.1%, and achieving domestic occupancy levels of 96% of pre-pandemic performance. While our second quarter domestic red-par accelerated from first quarter, the pace of acceleration was slower than anticipated.
Scott Oaksmith: And as we have been doing since we started those programs, we are active recyclers of that capital. In fact, since we started the program, we've recycled over $300 million. So we're opportunistic in that recycling. We are not long-term holders of that real estate.
Stephen Grambling: in a mix of owned assets joint ventures in loans and as we have been doing since we talked to start of those programs you know we areactiverecyclers of that capitalin fact as we started the program we recycled over three hundred million dollars
Stephen Grambling: So we're opportunistic in that recycling. We are not long-term holders of that real estate. Really, the idea of those programs is to accelerate the growth of our brands.
Scott Oaksmith: Really, the idea of those programs is to accelerate the growth of our brands, and so as those opportunities come available, we will look to recycle those. Typically, our whole periods are three to five years. Some of them have been a little bit elongated given the impacts of the pandemic and some of the financing environment. But we are seeing, as Pat mentioned, some green shoots in the financing environment, and if that happens, we will find more opportunities to recycle that capital.
Stephen Grambling: and so as those opportunities come available we will look to recycle that typically our whole periods orare three to five years some of thembeen a little bit along gated given the impact of the pandemic in some of the financing environmentbut we are see to mention green shoots on the financing environment and if that occurs will find more opportunities to recycle that capital
Scott Oaksmith: And as a result, our red-par was down 50 basis points year-over-year, reflecting a 10 basis point increase in our occupancy levels offset by a 60 basis point decline in average daily rates. For the second quarter, our overall domestic upscale portfolio delivered red-par growth led by our Radisson upscale brand increasing 12.2% year-over-year. Notably, our Radisson upscale brand outperformed STR's upscale segment by 9 percentage points and achieved red-par index share gains versus competitors.
Stephen Grambling: And I think you touched on this a little bit, but as a follow-up, just to be clear, I guess, since free cash flow is excluding key money, what are you seeing in terms of key money, both for new development and conversion deals? And what's the expectation as we go forward throughout this year and maybe even longer term into next year?
Speaker Change: And I think you touched on this a little bit, but as a follow-up, just to be clear, I guess since free cash flow, you're excluding key money, what are you seeing in terms of key money both for new development and conversion deals, and what's the expectation as we go forward throughout this year, and maybe even looking longer term into next year?
Speaker Change: as we' talked our money is slightly year but really more reflection of openingings are so money is up about thirteen percent year to date openings are up pretty similar to that it's really reflection of openings accelerating we talked in our previous calls about our key money being slightly higher than where we were last year less about ninety million will be slightly over one hundred million this year we are seeing more opportunities as we tal more developers as develop environment throughve so to extent that there opportunities in the backhalf of the year that could go up but at this point time we're still in line with the guidance we previously
Scott Oaksmith: As we've talked, our key money is up slightly year over year, but it's really more a reflection of where openings are. So our key money is up about 13% year to date, and our openings are up pretty similar to that. So it's really a reflection of openings accelerating.
Scott Oaksmith: Based on the recent trends of normalizing domestic travel and in line with the industry, we are lowering our US red-par guidance and now anticipate full-year domestic red-par to be in the range of negative 1.5% to negative 3.5%.
Stephen Grambling: We talked in our previous calls about our key money being slightly higher than where we were last year. Last year, we were about $98 million. We think we'll be slightly over $100 million this year. We are seeing more opportunities as we talk to more developers, and as the development environment improves. So to the extent that there are opportunities in the back half of the year, that could go up. But at this point in time, we're still in line with the guidance we previously gave. Okay, great.
Scott Oaksmith: We continue to build on the strong momentum of our platform. Business. Our Ancillary fees benefit from expanded offerings to our franchisees and guests, increased transaction volume with our qualified vendors and the broader reach of our initiatives. These fees more than doubled year over year in the second quarter.
Stephen Grambling: Okay, great. We'll jump back into Q.
Speaker Change: great 'lljump back m ke thank you
Scott Oaksmith: Continuing to expand our platform business and increase the number of products and services we offer is one of our key initiatives and we believe that we can drive this strong revenue growth in the years ahead.
Operator: Thank you. Thank you. Your next question is from David Katz from Jeffreys. Please ask your question. Good morning, everybody. Thanks for taking my question.
David Katz: Thank you. Your next question is from David Katz from Jefferies. Please ask your question.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is from David Katz from Jefferies. Please ask your question.
Scott Oaksmith: In terms of capital allocation, we will continue to prioritize investing in our growth while also returning capital to shareholders. Our well-positioned balance sheet and growth trajectory, coupled with a significant valuation discount, provide us a very retractive return opportunity through the repurchase of shares. During the six months ended June 30, 2024, we generated nearly $114 million in operating cash flow, inclusive of franchise agreement acquisition costs, providing significant cash flow to both invest in profitable growth opportunities, and provide substantial returns to shareholders.
David Katz: Morning, everybody. Thanks for taking my question.
David Katz: I wanted to just go back to the, you know, international-domestic split.
David Katz: And if you could color in just a little bit more around the, you know, sort of fee intensity or revenue intensity of international versus domestic, you know, becoming more important, you know, with international growing, seemingly growing a bit more. Thanks.
David Katz: Yeah, it's an area that we're, I would just say we've renewed our focus post Radisson acquisition, David. And it's, I think the one thing that's a key differentiator in the revenue intensity of the international hotels versus domestic is that the room size of what we have internationally is generally larger hotels. So that sort of revenue intensity, as we've mentioned before in our domestic business, and we talk about what's in the domestic pipeline, 40% higher rooms versus the current system base. We're definitely seeing that on the international front as well.
Speaker Change: Yeah, it's a, it's a.
Speaker Change: in an area that we i would just say we've renewed our focus post ratisson acquisition david and it's
Scott Oaksmith: Year-to-date through July, we returned $347 million to shareholders, including approximately $43 million in cash dividends, and over $304 million in share repurchases. We repurchased 2.5 million shares representing over 5% of our outstanding share count, and we had approximately 4.3 million shares remaining in our authorization as of the end of July. In addition to the significant cash flows generated by our operating model, in July, we closed on a $600 million 10-year, senior, unsecured notes offering, which allowed us to pay down our $500 million term loan that was maturing at the end of the year, and a portion of the borrowings when our evolving credit facility, reducing the effective cost of our borrowings.
Speaker Change: I think the one thing that's a key differentiator in the revenue intensity of the international hotels versus domestic is the room size.
Stephen Grambling: of what we have internationally. These are generally larger hotels.
Stephen Grambling: So that sort of revenue intensity, as we've mentioned before in our domestic business, and we talk about what's in the domestic pipeline, 40% higher rooms.
Stephen Grambling: versus the current system base.
Pat Pacious: So whether it's our direct markets or our master franchise markets, those hotels are generally sort of larger hotels. The effective royalty rate really depends on the direct market versus MFA. And I think the mix, Scott, is currently at- Yeah, MFA is about two-thirds of it is MFA, and about a third of it's direct. When you think about the effect of the royalty rate on those direct...
Stephen Grambling: we're definitely seeing that on the international front as well so whether it's our direct markets or our master franchise markets
Speaker Change: those hotels are generally sort of larger hotels. The effective royalty rate really depends on direct market versus MFA. And I think the mix, Scott, is currently at- Yeah, MFA is about, now two-thirds of it is MFA and about a third of it's direct for us. Yeah.
Scott Oaksmith: Importantly, we achieved the tightest credit spread in the company's history, and outsiders are offering from $500 million to $600 million. The offering was oversubscribed by 4.6 times, a powerful endorsement of our business model and its performance. We further enhanced our liquidity by upsizing our evolving credit facility to $1 billion, and extended our maturity date to 2029.
Scott Oaksmith: When you think about the effect of royalty rate on those direct...
Pat Pacious: When you think about the effect of relative rate on those direct markets, it's about a percentage or so below where we are in the US. I think the other thing I'll point out is when you look at the portfolio mix of where we are in terms of chain scale segments, the international portfolio is much heavier weighted to our revenue-intensive brands. So really, about 96% of the portfolio is in the mid scale and above.
Scott Oaksmith: When you think about the effect of royalty rate on those direct...
Speaker Change: markets, it's about a percentage or so below where we are in the US. I think the other thing I'll point out is when you look at the portfolio mix of where we are in terms of chain scale segments, the international portfolio is much heavier weighted to our revenue intense brands. So really, about 96% of the portfolio is in the mid scale and above.
Scott Oaksmith: Sub-swinter quarter-end, we also fully divested the remainder of our holding in the Wyndham Hotels and Resorts. With a strong cash position and a total available liquidity of approximately $530 million at the end of the second quarter, our capital allocation priorities remained unchanged.
David Katz: It's very helpful. Thank you. Thank you. Your next question is from Daniel Hogan from BIRD.
Speaker Change: Very helpful. Thank you.
Daniel Hogan: Thank you. Your next question is from Daniel Hovind from BIRD. Please ask your question. All right, thanks for taking my question. Um, so I guess just looking into 2025, um, were
Scott Oaksmith: Welcome.
Scott Oaksmith: We intend to build on our long record of delivering outsized value by accretively investing to further expand our business.
Speaker Change: Thank you. Your next question is from Daniel Hogan from BIRD. Please ask your question.
Scott Oaksmith: I'd like to now turn to our expectations for the remainder of the year. For the full year 2024, we are maintaining our adjusted EBITDA guidance while lowering REBPAR expectations, reflecting primarily discipline discretionary investment spend, as well as better than expected performance from ourcillary revenues. In addition, we are raising our adjusted earnings per share guidance to range between $6.4 and $6.65 per share, which is a 7% year-over-year growth at the midpoint, to reflect our increased share repurchase activity and lower than expected interest expense. Our ability to continue to deliver attractive earnings growth in light of the normalizing REBPAR environment demonstrates the increased versatility of our model.
Daniel Hogan: Thanks for taking my question.
Daniel Hogan: So I guess just looking into 2025, were the drivers there, I know it's early to talk about, but in terms of, you know, controllables besides changes in REVPAR,
Speaker Change: what looking out whether for the ratison lift crrecard fees what controllables are there that could be growth tillingss
Pat Pacious: Yeah, I mean, as you mentioned, it's kind of early; we just kick off our planning process here in the coming weeks. But when I look at the macro, you know, we did see US GDP growth last quarter, and REBPAR usually has a bit of a kind of, you know, six month lag on that. So a positive GDP result in the second quarter generally translates into a healthy REBPAR environment.
Speaker Change: Yeah, I mean, as you mentioned, it's it's kind of early. We just kick off our planning process here in the coming weeks. But when I look at the macro,
Speaker Change: You know, we did see in the U.S. GDP growth last quarter and REBPAR reflect usually has a bit of a kind of, you know, six-month lag on that, so a positive GDP result in the second quarter generally translates into a healthy REBPAR environment.
Scott Oaksmith: This outlook does not account for any M&A repurchase of the company's stock after July 31st or other capital markets activity. We remain confident in the long-term growth of our franchise business, with continued organic growth across more revenue-intense hotels and markets, the incremental contribution from Raditz and Americas, robust effective royalty rate growth, continued earning stream from our cobra and a credit card, international business expansion, and other factors. We have made notable progress in executing on our strategic plan and creating a company with an expanded scale, a versatile model, and a compelling value proposition for franchise use and guess. With this enhanced growth profile, we remain confident in our ability to deliver value for all of our stakeholders over time.
Pat Pacious: I think secondly, and this is so interesting, because a lot of people focused on last week's jobs report. The really positive news in there was that the labor force participation rate went up. So again, this is reverting back to the norm. When we look at our consumers, you know, when consumers have a job, they tend to travel, they have more confidence to travel, sometimes they travel for business, but, but they definitely drive leisure travel.
Speaker Change: I think, secondly, and it's so interesting because a lot of people focused on last week's jobs report. The really positive news in there was labor force participation rate went up.
Speaker Change: So, again, this is reverting back to the norm. When we look at our consumers, you know, when consumers have a job, they tend to travel. They have more confidence to travel. Sometimes they travel for business, but it definitely drives leisure travel. And labor force participation rate is one of the most highly correlated factors we look at with regard to REBPAR lift. So, as we are thinking about 2025, so long as those trends continue, I do think you're going to continue to see the REBPAR and the travel environment continue to be supported.
Pat Pacious: And the labor force participation rate is one of the most highly correlated factors we look at with regard to REBPAR lift. So as we were thinking about 2025, so long as those trends continue, I do think you're going to continue to see the REBPAR and the travel environment continue to be supported.
Operator: At this time, Pat and I would be happy to answer any of your questions. Operator? Thank you.
Speaker Change: Great, thank you. And then just quickly then on the follow-up, for 2Q, it looks like G&A was hiring the queries to adjust to G&A. Was there any one time in that, any drivers there?
Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Questions will be taken into order received. To do this to cancel your request, please press the star followed by the two. If you are using a speaker phone, please look the handset for pressing any case. Once again, that a star wants you to wish to ask a question.
Scott Oaksmith: In terms of our SG&A, we're still on track for our full-year target of being up about mid-single digits. In terms of year-over-year comps, we did have some credit recoveries in the prior year quarter, which made SG&A look a little elevated quarter-over-quarter. We also, during the second quarter, have our annual franchisee convention. Costs were a little bit elevated for that, but they were offset by additional revenues during the quarter. So, really, just a comp issue. We still remain on track for our full-year targets for SG&A.
Speaker Change: In terms of our SG&A, we're still on track for our full-year target of being up about mid-single digits.
Speaker Change: In terms of year-over-year comps, we did have some credit recoveries in the prior year quarter, which made SG&A look a little elevated quarter-over-quarter. We also, during the second quarter, have our annual franchisee convention. Costs were a little bit elevated on that, but they were offset by additional revenues during the quarter. So, really just a comp issue. We still remain on track for our four-year targets for SG&A.
Dany Asad: Your first question is from Donnie Asald from Bank of America. Please ask your question. Hi, good morning, Pat and Scott. Guys, I just wanted to start with the outlook change. So, if we just look at your back half implied ref par based on the new guide, it kind of implies a sequential downtick from the ref par growth we saw in Q2. So, can we maybe just start by walking through the puts and takes of what got you to this new outlook, please.
Speaker Change: Great. Appreciate that. That's all for me. Thanks for your time.
Robin Farley: Thank you. Your next question is from Robin Farley from UBS Securities. Please ask your question.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is from Robin Farley from UPS Securities. Please ask your question.
Robin Farley: Great, thanks. I just wanted to understand a little bit better the REVPAR Guided Down and EVA.UNCHANGED. You mentioned some non-REVPAR drivers. If you could give a little bit more color on that, thanks.
Robin Farley: Great, thanks. I just wanted to understand a little bit better with the REVPAR Guided Down and EVA.UNCHANGED. You mentioned some non-REVPAR drivers. If you could give a little bit more color on that, thanks.
Pat Pacious: Robin, I'll start and then Scott can kind of fill in the color. I mean, effectively, a lot of this is really just a reflection of the versatility of the business model that we have created and its ability to drive growth. The key driver here is effectively the unit growth in these more revenue-intensive brands is accelerating. On top of that, you add the effective royalty rate growth that we talked about, and the robust performance of our non-REBPAR-dependent programs.
Patrick Pacious: Sure. Thanks, Danny. When you look at our second half of the year, we effectively look at it's very going to be very similar to the first half. We're going to see sequential improvement from Q3 and to Q4. But because we're seeing the travel behaviors in the first half of the year, it looks pretty similar to what we saw in 2019. Our expectations for the second half of this year are pretty much influenced by that pattern.
Speaker Change: Sure Robin, I'll start and then Scott can kind of fill in the color.
Speaker Change: I mean effectively a lot of this is really just a reflection of the versatility of the business model that we have created and its ability to drive growth.
Scott Oaksmith: The key driver here is effectively the unit growth in this more revenue-intense.
Scott Oaksmith: Brands is accelerating.
Patrick Pacious: So, when we step back and look at kind of the long-term trend of what performance has looked like since 2019, we're really right in line with that long-term historical trend of an average call it, you know, yearly ref par growth between two and three percent. And that's really a factor of the normalization that we talked about in our remarks. You know, the day of week travel that we are seeing over the last couple of years with the pandemic has sort of reverted back to the normalization that we saw in 2019.
Pat Pacious: And then effectively, the outperformance that we're seeing or the above-expected performance that we're seeing on the revenue synergies that we are realizing from the Radisson integration. And those things are really now embedded across the company. So they're showing up in our co-brand credit card; they're showing up in some of our strategic partnerships as well. So we've created a business that's effectively less reliant on US REBPAR only. The business or the system mix, from the standpoint of larger room count hotels and higher effective royalty rate hotels, is really a factor that's continuing to sort of support the financial performance of the company and making us as a business less sensitive to US REBPAR. It's still a key factor, but it's not as large of a factor as it has been.
Scott Oaksmith: On top of that, you put the effective royalty rate growth that we talked about, the robust performance of our non-REBPAR dependent programs.
Speaker Change: And then effectively, the outperformance that we're seeing, or above expectation performance that we're seeing on the revenue synergies that we are realizing from the Radisson integration. And those things are really now embedded across the company. So they're showing up in our co-brand credit card. They're showing up.
Speaker Change: in some of our strategic partnerships
Speaker Change: as well. So it's we've created a business that's effectively
Patrick Pacious: The booking window is closer in similar to what it looked like in 2019. We're really seeing a reversion of locations where urban was sort of the last market to come back and that has come back significantly. And that's Rossi seeing some different regions of the country that outperformed where we under index. So, it's a lot of it's driven by what we saw in the first half of the year and the similarities we see to the 2019 travel patterns that consumers were exhibiting back then.
Speaker Change: less reliant on U.S. RedPAR only. The business or the system mix from the standpoint of larger room count hotels, higher effective royalty rate hotels, is really a factor that's continuing to sort of support the financial performance of the company and making us as a business less sensitive to U.S. RedPAR. It's still a key factor, but it's not as large of a factor as it has been in the past.
Scott Oaksmith: Yeah, just to add to that, as Pat mentioned, we've shared with you our building blocks before how we got to that midpoint of our guidance of being around 9% growth. And really, you know, everything other than RevPAR had remained intact, and we've seen the acceleration, as Pat mentioned.
Speaker Change: Yeah, just to add to that, as Pat mentioned, we shared with you our building blocks before how we got to that midpoint of our guidance of being around 9% growth.
Patrick Pacious: And that's why we still have described this as more of a normalization back to what it looked like prior to the pandemic and the sort of ups and downs we've seen over the subs, in the last couple of years.
Pat Pacious: And really, everything other than REBPAR had remained intact, and we've seen the acceleration, as Pat mentioned. So on the core royalty fees, we still are growing our effective royalty rate in mid-single digits, and our unit growth at 2%. So that's effectively driving about 3% of EBITDA growth.
Robin Farley: So on the, you know, core royalty fees, we still are growing our effective royalty rate in the mid-single digits and our unit growth at 2%. So that's effectively driving about 3% of EBITDA growth. Our platform and procurement businesses on our core business, which includes our co-branded credit card, continue to perform well. That's producing about 2% growth in EBITDA. Our international and owned hotel portfolio continues to be aligned with our original targets of growth of about 2%.
Dany Asad: Thank you very much.
Dany Asad: And you're prepared remarks when you're talking about the international conversion agreements that you've been signing. Can you maybe just dig on the unit economics there, and how do these contracts look relative to your existing contracts that you have? Yeah, so I think as you're well aware, we go to market with two models, a direct franchise business, which has really changed since the radicine acquisition. We have a much larger footprint and a new capability in the America's region.
Speaker Change: Our platform and procurement businesses on our core business continue, which this includes our co-branded credit card, continue to perform well. That's producing about a 2% growth in EBITDA.
Speaker Change: Our international and owned hotel portfolio continues to be aligned with our original targets of growth of about 2%.
Robin Farley: And really, where we've seen the outperformance to offset the RevPAR is really the acquisition of Radisson. It continues to provide significant growth to our EBITDA. In our initial guidance, we had thought that that would be about a $20 million lift, which would be accretive to our EBITDA by about 4%. Given our success in unlocking some of those revenue synergies, we're now revising that estimate up to contributing about 6% to EBITDA. So that outperformance there is offsetting anything on the RevPAR side.
Speaker Change: And really, where we've seen the outperformance to offset the red bars is really the acquisition of Radisson. It continues to provide significant growth to our EBITDA. In our initial guidance, we had thought that that would be about a $20 million lift, which is accretive to our EBITDA by about 4%.
Dany Asad: We have a direct business now in Canada, which we didn't have before was it was just a joint venture. We still have that as well. And then we have a much more robust direct franchise business in the rest of the Caribbean and Latin America. The unit growth that we're seeing there, and then the unit growth that we mentioned in France, these are direct franchise markets that are that are driving some of that that growth.
Speaker Change: Given our success in unlocking some of those revenue synergies, we're now revising that estimate up to contributing about 6% to EBITDA. So that outperformance there is offsetting anything on the REVPAR side.
Scott Oaksmith: Great. That's very helpful. Thanks. And then just one quick follow-up. Just looking at the adjustments you make to get to adjusted EBITDA, it looks like more franchise agreement acquisition costs compared to last year. Is there anything you'd call out there that's different than what you said about key money? Now, it's really just a reflection, as we said earlier.
Speaker Change: Great, that's very helpful. Thanks. And then just one quick follow-up. I'm just looking at the adjustments you make to get to adjusted EBITDA. It looks like more franchise agreement acquisition costs compared to last year. Is there anything you'd...
Dany Asad: We're also seeing in our MFA's, and we mentioned the the Japanese partnership, which has been a longstanding really successful partnership for us over the years, adding units there as well. So it's really coming in both flavors, but I would say the vast majority of the weight of that is coming in the direct markets. Got it. And just one last one follow up, but can you just remind us of the current mix of your in your pipeline today, what's new build versus conversion? That's it for me. Thank you.
Speaker Change: Call out there. It was different than what you said about key money.
Scott Oaksmith: Now, it's really just a reflection, as we've talked about, since the pandemic, I'm seeing openings return to more pre-pandemic levels, as our key money is tied to the opening of hotels. So as we see that increase, the key money gets issued, you know, to match the fee stream. So that amortization just follows the flow of the cash flow. That's Okay. Thank you. Your next question is from Joe Graf from J.P. Morgan. Please ask your question. Good morning.
Speaker Change: Now, it's really just a reflection, as we've talked about, since the pandemic, seeing openings return to more pre-pandemic levels, as our key money is tied to opening of hotels. So, as we see that increase, the key money gets issued to match the fee stream. So, that amortization just follows the flow of the cash flow that's been going out.
Patrick Pacious: Yeah, I think that's really a pretty remarkable story. I mean, if you look at our current pipeline about 36% of the domestic pipeline is conversion. And that's really been the key driver during a time where interest rates are elevated 80% of our openings this year, year to date have been conversions 84% of the agreements we sold in Q2 for conversion. And when you look at the conversion agreements in mid scale in particular, those agreements are up 31% year to date, so it's a pretty significant driver.
Speaker Change: Okay, thank you.
Joe Graf: Thank you. Your next question is from Joe Graf from J.P. Morgan. Please ask your question. Good morning.
Speaker Change: Thank you. Your next question is from Joe Graf from JP Morgan. Please ask your question.
Joe Graf: Good morning. You'd mentioned that the the reduction in REF PAR growth in the guidance
Speaker Change: and its impact in EBITDA was offset, I think you mentioned left discretionary investment spend.
Patrick Pacious: And that's why we really want investors to understand the importance of velocity. Because a lot of these hotels, they might stand the pipeline for three months, because we're we have a pretty good capability of getting new conversion agreements in into our pipeline and then ultimately open in a very, very quick period of time. We're seeing that also as we mentioned in the remarks in the park in by Madison, you know, with five open already when we effectively relaunch that in May.
Joe Graf: and Better Ancillary Revenues. I was hoping you can quantify that amount of incremental EBITDA benefit from those two items. And then, you know, how sustainable are those levels of lower investment spend and ancillary fee generation?
Speaker Change: how sustainable they are going into next year.
Joe Graf: Yeah, so as I was just saying with Robin's question, when you think about that, taking about 4% of EBITDA growth on the Radisson piece up to 6%, really, you know, that's about, you know, 10 to $12 million there of what we're seeing better flow through from being able to plug the Radisson franchisees into our overall services and things like growing our co-branded credit card. So really, we should be able to continue to grow those revenue streams as we continue to grow the size of the portfolio.
Speaker Change: Yeah, so as I was just saying with Robin's question, so when you think about that taking about 4% EBITDA growth on the Radisson piece.
Patrick Pacious: And that's five open in the quarter, by the way, it's really a reflection of the speed of the velocity we can push through there. The exciting thing about the remainder of the other 64% of the pipeline, the new construction is as we said in our remarks, you know, we are seeing some green shoots, we're seeing interest in getting new construction contracts. We're seeing construction costs starting to moderate and the last piece that needs to fall into place is hotel financing, which is a function of interest rates coming down.
Speaker Change: Up to 6%. Really, that's about $10 to $12 million there of what we're seeing better flow through from being able to plug the Radisson franchisees into our overall services and things like growing our co-branded credit card.
Patrick Pacious: So if we do see that in the coming months, we do expect we'll see that new construction pipeline start to move more rapidly than we've seen over the last 18 months. Thank you very much. You're welcome. Thank you.
Stephen Grambling: Your next question is from Stephen Grahamling from Morgan Stanley.
Joe Graf: So I would expect those to kind of grow in line with both, you know, RedPAR and unit growth going forward. In terms of the discretionary investments, it was a small amount of discretionary investments. As I mentioned, we're still on track for the mid-single digits. So given the little bit softer environment, we trimmed a few discretionary investments we had. If the market gets better in RedPAR returns, we can add those back. But really, the majority of it was the better performance on the synergies we're seeing from the Radisson integration. Great, thank you. Thank you. Your next question is from Patrick Shum.
Joe Graf: So, really, we should be able to continue to grow those revenue streams as we continue to grow the size of the portfolio. So, I would expect those to kind of grow in line with both, you know, REBPAR and unit growth going forward. In terms of the discretionary investments, it was a minor amount of discretionary investments. As I mentioned, we're still on track for the mid-single digits. So, given the little bit softer environment, we've trimmed a few discretionary investments we had. I have to mark it.
Speaker Change: The market gets better in red part returns. We can add those back, but really the majority of it was the
Stephen Grambling: Please ask her a question. Hey, thanks. I guess I'd love to have a little bit more color on pre-cash flow and how and that's just to be taking about some of the discrete factors that might be impacting that in the first half. And then I guess an unrelated, or maybe it is related to comment, it's just really around, I think you have the affiliate sales in your, my name, I guess is there still capital that's outstanding that can be recycled or sold and is that, there should there be any expectation in the second half for that to come to fruition?
Speaker Change: the better performance on the synergies we're seeing from the Radisson integration.
Speaker Change: Great, thank you.
Patrick Shum: Thank you. Your next question is from Patrick Scholes from Truist Securities. Please ask your question. I thank you.
Speaker Change: Thank you. Your next question is from Patrick Scholes from Truist Securities. Please ask your question.
Patrick Scholes: Thank you. I know in the past you've talked about...
Speaker Change: expectations for high single digits
Speaker Change: ebitda growth i believe next year and possibly beyond still feel comfortable with that expectation thank you
Stephen Grambling: If that next, thanks, Stephen, I'll take that one. In terms of free cash flow, we were really pleased with what we saw in the second quarter. So our operating cash flow for the, for the full year was about $114 million and a strong second quarter delivering that. We still feel, we're on target on our general pre-cash flow conversion that we talked about on our last call, you know, excluding key money, the way we measure it, which is operating cash flows, you know, less our maintenance cap ex.
Pat Pacious: Yeah, Patrick, I think at this point, it's kind of too early to start talking about 2025. You know, when we look at the back half of the year and the sort of uncertainties in the economy and uncertainties in the forecasting that you see from both economic forecasters, STR, and the like. We kind of want to get a read on how the next six months is going to play out. You know, I mentioned some of the key factors that will be drivers at the macro level of new development, particularly as everybody knows, its interest rates will eventually lead to more hotel financing.
Speaker Change: Yeah, Patrick, I think at this point it's kind of too early to start talking about 2025. Yeah, I think when we look at the back half of the year and the sort of
Speaker Change: Uncertainties in the economy and uncertainties in the forecasting that you see from both economic forecasters, STR, and the like.
Speaker Change: We kind of want to get a read into how the next six months is going to play out. You know, I mentioned some of the key factors that will be drivers at the macro level.
Stephen Grambling: The last couple of years, we've been about about 65% and we're still targeting that for the full year of 2024. In terms of recyclable capital, when you do look at those numbers, we had about $74 million gross investments in that during the quarter, in terms of some of the hotel development we're doing, JV investments and mezzanine financing. And as you mentioned, we did recycle about just under $18 million of the sale of one of our joint venture interests.
Speaker Change: of new development, particularly, as everybody knows, its interest rates will eventually lead to more hotel financing. But that's really the kind of key question, I think, that we'll get a lot more clarity between now and the end of the third quarter.
Pat Pacious: But that's really the kind of key question, I think, that we'll get a lot more clarity between now and the end of the third quarter. Okay, I guess a little bit of pushback. I mean, I understand that. But that was a forecast that, you know, I gave several quarters ago. I mean, do I sense that there's some hesitation to maintain that?
Speaker Change: Okay, I mean, I guess a little bit of pushback, I mean, I understand that, but that was a forecast that, you know.
Stephen Grambling: Currently, supporting both the Canberra and the EverHome program, we have about a half a billion dollars outstanding in a mix of owned assets, joint ventures and loans. And as we have been doing since we started those programs, you know, we are active recyclers of that capital. In fact, since we started the program, we recycled over $300 billion. So we're opportunistic in that recycling. We are not long-term holders. That real estate, really the idea of those programs is to accelerate the growth of our brands.
Pat Pacious: No, I would just say we haven't, you know, I'm not sure we've given you 2025 before. But if you look at the long-term trends, as we've spoken about in the past, we do expect to kind of continue to deliver the type of EBITDA growth that we've delivered in the past, which has been that sort of high single-digits. You know, there have been years where we've taken investment years to kind of accelerate that growth and had, you know, double digit EBITDA growth percentage years, like we did in the last couple of years as well. But our long-term strategy, and we look at our long-term strategic plan, it's expected to drive that sort of, you know, high single digit EBITDA growth in the coming years.
Speaker Change: No, I would just say we haven't, you know, I'm not sure we've given you 2025 before, but if you look at the long-term trends as we've spoken about,
Speaker Change: In the past, we do expect to kind of continue over time to deliver the type of EBITDA growth that we've delivered in the past, which has been that sort of high single digits.
Stephen Grambling: And so as those opportunities come available, we will look to recycle that. Typically, our whole periods are three to five years. Some of them have been a little bit elongated, given the impacts of the pandemic in some of the financing environment. But we are seeing as Pat Medjus and Green shoots from the financing environment, and if that occurs, we will find more opportunities to recycle that capital.
Speaker Change: you know there are been years or we've takenan investment years to kind of accelerate that growth and had you know double-digit ebitda growth percentage year is like the like we've done it in the last couple of years as well but our long-term strategy and we look at our long term
Speaker Change: strategic plan, it's expected to drive that sort of, you know, high single-digit EBITDA growth in the coming years.
Scott Oaksmith: And I think you touched on this a little bit, but as a follow-up, just to be clear, I guess, since pre-cashable, you're excluding key money. What are you seeing in terms of key money, both for new development and conversion deals? And what's the expectation as we go forward throughout this year and maybe even looking longer term into next year? Yeah, as we've talked, our key money is up slightly year over year, but it's really more a reflection of where openings are.
Speaker Change: Okay, fair enough. Thank you.
Operator: Thank you. Your next question is from Brandt Montour from Barclays. Please ask your question.
Speaker Change: Yep.
Speaker Change: Thank you. Your next question is from Brent Montour from Barclays. Please ask your question.
Brandt Montour: Hi. Good morning, everybody.
Brent Montour: Hi, good morning everybody. Thanks for taking my question.
Scott Oaksmith: So our key money is up about 13% year-to-date, and our openings are up pretty similar to that. So it's really a reflection of openings. Accelerating, we talked in our previous calls about our key money being slightly higher than where we were last year. Last year, we were about 90 million, I think it'll be slightly over 100 million this year. We are seeing more opportunities as we talked to more developers as the development environment proves. So to the extent that there were opportunities in the back half of the year, that could go up, but at this point in time, we're still in line with the guidance we previously gave.
Brandt Montour: Thanks for taking my question. So, one clarification: in the actual 2Q report, if we look at the marketing and reservation system revenue and expenses and see the delta there, and then look at that line and the adjusted EBITDA walk, it applies like a $15 million good guy for the quarter. You had $12 million for last quarter. So, that step up, I'm assuming, is what you're calling out in terms of the better ancillary, which is what improved.
Brent Montour: so one clarification in the actual two q report if we look at the marketing and reservation system revenue and expenses and see the delta there and then look at the that line in the icvity bitda get applies
Stephen Grambling: Okay, great. We'll jump back in the key. Thank you.
Speaker Change: like a fifteen million good guy for the quarter you had twelve million
Speaker Change: for last quarter. So that step up, I'm assuming, is what you're calling out in terms of the better ancillary, which is what improved. So I guess my question is, is that...
Brandt Montour: So, I guess my question is, is that for all, is that Revenues Ancillary Services for all of your system, or is that just specific to Radisson, and anything else you can tell us about that line because that is higher than, I think you were looking for $10 to $12 million for the rest of the year and that quarterly for that line.
Speaker Change: Is that for all, is that Revenues Ancillary Services for all of your system or is that just specific to
Speaker Change: And anything else you can tell us about, you know, that line, because that is higher than I think you were looking for $10 to $12 million for the rest of the year in that quarterly for that line.
David Todd: Your next question is from David Todd's from Jeffries. Please ask your question. Good morning, everybody. Thanks for taking my question. I wanted to just go back to the international domestic split. And if you could color in just a little bit more around the sort of fee intensity or revenue intensity of international versus domestic becoming more important with international growing, continually growing a bit more. Thanks.
Scott Oaksmith: It's reflective of the entire system, but I would say the growth that we're seeing is that plugging the Radisson hotels into that, our system has outperformed where we had thought. So, as we talked about in the previous calls, you know, being able to integrate the Choice and Radisson platforms at the beginning of the fourth quarter of 2023, we had that opportunity to unlock some ancillary incremental revenue streams. And so, as we kind of work those in and take a look at how those roll out, we have been able to drive more revenue than we expected. You have to admit, it's not quite 15 million.
Speaker Change: it's a reflective of the entire system but i would say the growth that we're seeing is that plggging the radison hotels into that our system as outperformmed where we had thought so as we talkedabout inthe previous call you have being able to integrate the choice and ratison platforms at the beginning of the fourth quarter of two thousand andtwentythree we had that opportunityto unlock some
Speaker Change: ilar incremental revenue streams
Speaker Change: And so as we kind of work those in and take a look at how those roll out, we have been able to drive more revenue than we expected.
Patrick Pacious: Yeah, it's an area that we're, I would just say we've renewed our focus, post-Ratison acquisition, David, and it's, I think the one thing that's a key differentiator in the revenue intensity of the international hotels versus domestic is the room size of what we have internationally. These are generally larger hotels. So that sort of revenue intensity, as we've mentioned before in our domestic business, and we talk about what's in the domestic pipeline, 40% higher rooms versus the current system base.
Speaker Change: It's not quite $15 million, there are a couple of puts and takes to that, but it is slightly higher than where we thought when we gave the guidance of $8 to $10 million in the last quarter. So probably this quarter we were closer to about $12 million on that, and we would expect something similar in the future.
Brandt Montour: There are a couple of puts and takes on that, but it is slightly higher than where we thought when we gave the guidance of 8 to 10 million in the last quarter. So, probably this quarter, we were closer to about 12 million on that, and we would expect something similar in the third quarter. And then we did start this program change in the fourth quarter of last year. So, we'll then start lapping the comps in Q4.
Speaker Change: And then we did start this program change in the fourth quarter of last year, so we'll then start lapping the comps in Q4.
Pat Pacious: Okay, that's super helpful. And then your share repurchase is accelerated to a pretty meaningful number in the 2Q. Can we, should we read into that as sort of like a signal that the large M&A isn't something that's immediately available to you? Or, and or, just a reflection of what is out there that you think you can go after on the M&A front?
Speaker Change: Okay, that's super helpful. And then your share repurchase is accelerated to a pretty meaningful number.
Patrick Pacious: We're definitely seeing that on the international front as well. So whether it's our direct markets or our master franchise markets, those hotels are generally sort of larger hotels. The effective royalty rate really depends on direct market versus MFA. And I think the mixed Scott is currently at MFA is about, not two thirds of it is MFA and about a third of it's direct for us. When you think about the effect of royalty rate, when you think about the effective royalty rate on those direct markets, it's about about a percentage or so below where we are in the US.
Speaker Change: In the 2Q, can we, should we read into that as a, as sort of like a signal that large M&A
Speaker Change: isn't something that's immediately available to you and or a just a reflection of what is out there that you think you can go after on the M&A front?
Pat Pacious: I think it's a reflection of the attractiveness of the shares, you know, historically, and this continues to be our policy. We've been more opportunistic in share purchases. We effectively look to buy in shares when we see a market dislocation. And certainly we believe that's been the case for the first seven months of the year.
Speaker Change: I think it's a reflection of the attractiveness of the shares, you know, historically, and this is...
Speaker Change: This continues to be our policy. We've been more opportunistic in share purchases.
Speaker Change: We effectively looked to buy in the shares when...
Patrick Pacious: I think the other thing I'll point out is when you look at the portfolio mix of where we are in terms of chain scale segments, the international portfolio is much heavier weighted to our revenue intense brands. So really about 96% of the portfolio is in the mid-scale and above. Very helpful. Thank you. You're welcome. Thank you.
Speaker Change: We see a market dislocation and certainly we believe that's been the case.
Brandt Montour: I would say from an M&A perspective, everything we look at comes with EBITDA, so its ability to be financed and is something that we, you know, We're not looking to actually go out and purchase something that we then have to start from scratch and grow. I mean, if you look at the two acquisitions we've done in the last five years, we've gotten them at very attractive prices, and we've certainly returned a lot to shareholders in significant growth as a result of both. But I'd look at the health of our balance sheet, Scott mentioned and walked everybody through in his remarks.
Speaker Change: for the first seven months of the year.
Speaker Change: I would say, from an M&A perspective,
Speaker Change: everything we look at comes with ebitda so it's ability to be financed and and
Speaker Change: is something that we, you know.
Speaker Change: We're not looking to actually go out and purchase something that we then have to, you know, start from scratch and grow. I mean, if you look at the two acquisitions we've done in the last five years, we've gotten them at very attractive prices, and we've
Daniel Hoven: Your next question is from Daniel Hoven from Bird. Please ask your question. Hi. Thanks for taking that question. So I guess just looking into 2025, were the drivers there, I know it's really talking about, but in terms of, you know, controllables besides changes in rev-part, what looking out, you know, whether it be for their radison lift, credit card fees, were controllables are there that could be growth tillings.
Speaker Change: certainly returned a lot to shareholders in significant growth as a result of both. But I'd look at the health of our balance sheet, Scott mentioned and walked everybody through in his remarks.
Pat Pacious: It puts us in a very healthy place at the lower end of the three to four times, which gives us dry powder to do acquisitions. There's not a lot of transformational acquisitions out there that are of significant size. Mostly, what's out there are things that we could either do on our balance sheet or do it in a very measured way with regard to leverage. OK.
Scott Oaksmith: It puts us in a very healthy place in the lower end of the three to four times, which gives us dry powder to do acquisitions. There's not a lot of transformational acquisitions out there that are insignificant size. Mostly what's out there are things that are things we could either do on our balance sheet or do it in a very measured way with regard to leverage.
Patrick Pacious: Yeah, I mean, as you mentioned, it's kind of early, we just kick off our planning process here in the coming weeks. But when I look at the macro, you know, we did see in the US GDP growth last quarter. And rev-part usually has a bit of a kind of, you know, six-month lag on that. So a positive GDP result in the second quarter generally translates into a healthy rev-part environment. I think secondly, and it's so interesting because a lot of people focused on last week's job support, the really positive news in there with labor force participation rate went up.
Brandt Montour: Okay, thanks so much.
Speaker Change: Okay, thanks so much.
Dan Wasiolek: Thank you once again. Please press star 1 should you wish to ask a question. Your next question is from Dan Wasiolek from Morningstar. Please ask your question.
Speaker Change: Sure.
Speaker Change: Thank you once again. Please press star 1 should you wish to ask a question. Your next question is from Dan Wasiolek from Morningstar. Please ask your question.
Dan Wasiolek: And good morning, guys. Thanks for taking my question. So kind of what intermediate-term question here as we're entering a more normalized REPPAR growth of that 2 to 3% historically, anything different this cycle with the industry or your competitive positioning, U.S. infrastructure, your revenue-intensive mix that otherwise we should think about from an intermediate-term standpoint, like where, you know, maybe you guys might end up within that two to 3% range, positive drivers, maybe headwinds, just to think about.
Dan Wasiolek: Good morning, guys. Thanks for taking my questions.
Patrick Pacious: So again, this is reverting back to the norm. When we look at our consumers, you know, when consumers have a job, they tend to travel. They have more confidence to travel, sometimes they travel for business, but they definitely drive leisure travel. And labor force participation rate is one of the most highly correlated factors we look at with regard to rev-part lifts. So as we were thinking about 2025, as long as those trends continue, I do think you're going to continue to see the rev-part and the travel environment continue to be. [inaudible] Supported.
Dan Wasiolek: Kind of an intermediate term question here, as we're entering a more normalized Red Park growth of about 2-3% historically. Anything different this cycle with the industry or your competitive positioning, U.S. infrastructure, your revenue in terms of mixed bet?
Daniel Hoven: Great, thank you.
Speaker Change: otherwise that we should think about from an intermediate term standpoint like where you know maybe you guys might
Speaker Change: end up within that two to three percent range, you know, positive drivers, maybe headwinds, just to think about. Thanks.
Pat Pacious: Yeah, I think one of the positive drivers, and it's really reflected in sort of when you look at the revenue intensity of the brands that we're selling, it's beyond RevPAR. It's the effective royalty rate, and the room counts in these hotels are driving higher royalties as a result. So I think you have to be thoughtful about kind of where the mix shift is going.
Scott Oaksmith: And then just quickly down on the asphalt for 2Q, it looks like GNA was hiring the queries of just GNA. Was there any one time in that, any drivers there? Yes, in terms of our SGNA, we're still on track for our full-year target of being up about mid-single digits. In terms of year-of-year accounts, we did have some credit recoveries in the prior year quarter, which made the SGNA look a little elevated quarter over quarter.
Speaker Change: Yeah, I think one of the positive drivers, and it's really reflected in sort of when you look at the revenue intensity of the brands that we're selling,
Speaker Change: It's beyond RevPAR. It's the effective royalty rate and the room counts.
Scott Oaksmith: We also, during the second quarter, have our annual franchise e-convention costs were a little bit elevated on that, but they were offset by additional revenues during the quarter. So, really just a comp issue, we still remain on track for our full-year targets for SGNA.
Speaker Change: in these hotels are driving higher
Scott Oaksmith: Great, appreciate that.
Speaker Change: World Tea's.
Speaker Change: As a result, so I think you have to be thoughtful about kind of where the mixed shift is going. It's why we're super excited and Scott walked through the numbers about the extended stay segment. There is a huge amount of supply and demand imbalance there, where purpose-built supply is, you know,
Pat Pacious: It's why we're super excited, and Scott walked through the numbers about the extended stay segment. There is a huge amount of supply and demand imbalance there where purpose-built supply is, you know, significantly under the demand for extended stay room nights. And, you know, we talked in our remarks about how the Wood Spring Suites brand is effectively 70% of the new construction that's going on across the industry in that economy extended stay segment.
Scott Oaksmith: significantly under the demand for extended stay room nights and, you know, we talked in our remarks, you know, the WoodSprings Suites brand is effectively 70 percent.
Daniel Hoven: It's all for me. Thanks a ton.
Operator: Thank you.
Speaker Change: of the new construction that's going on across the industry in that economy extended stay segment. So we feel really good about the
Pat Pacious: So we feel really good about the value proposition we have there, the brand we have there, which is a proven model, a proven prototype, proven operating performance, and proven exit for a developer. So those are the things that we see long-term trends continuing to fuel growth in extended stay. And then secondly, upscale continues to be a real positive trend line for us, both in our development pipeline and in the openings that we're seeing.
Robin Farley: Your next question is from Robin Farley from UBS Securities. Please ask your question. Great, thanks. I just wanted to understand a little bit better with the Ruff Park guided down, and he's a dot-unchanged. You mentioned some non-Ruff Park drivers. If you could give a little bit more color around that, thanks.
Speaker Change: The value prop we have there, the brand we have there, which is a...
Speaker Change: proven model, proven prototype, proven operating performance, and proven exit for a developer. So those are the things that we see long-term trends continuing to fuel.
Patrick Pacious: Sure, Robin, I'll start, and Scott can kind of fill in the color. I mean, effectively, a lot of this is really just a reflection of the versatility of the business model that we have created and its ability to drive growth. The key driver here is effectively the unique growth in this more revenue-intense brands is accelerating. On top of that, you put the effective royalty rate growth that we talked about the robust performance of our non-Ruff Park dependent programs.
Speaker Change: growth in extended stay. And then secondly, upscale continues to be a real positive trend line for us, both in our development pipeline and in our openings that we're seeing. And I think the Radisson acquisition is going to really help fuel that growth, because those are brands that are sought after in the upscale segment and above. So as we look at the next five years of growth, those two growth vectors, in addition to our traditional core segment, give us a lot of confidence that we're really playing into.
Pat Pacious: I think the Radisson acquisition is going to really help fuel that growth because those are brands that are sought after in the upscale segment and above. So we're as we look at it. So the next five years of growth, those two growth vectors, in addition to our traditional core segment, give us a lot of confidence that we're really playing into the areas that are going to grow from a consumer demand perspective in the next five years.
Patrick Pacious: And then, effectively, the outperformance that we're seeing or above, you know, expectation performance that we're seeing on the revenue synergies that we are realizing from the Rattleson integration. And those things are really now embedded across the companies that are showing up in our Cobra and Credit Card. They're showing up in some of our strategic partnerships as well. So, we've created a business that's effectively less reliant on U.S. Rev Park only. The business or the system mix from the standpoint of larger room count hotels, higher effective royalty rate hotels is really a factor that's continuing to sort of support the financial performance of the company and making us as a business less sensitive to U.S. Rev Park. It's still a key factor, but it's not as large of a factor as it has been in the past.
Speaker Change: the areas that are going to grow from a consumer demand perspective in the next five years.
Dan Wasiolek: Okay, thanks for that color.
Speaker Change: Okay, thanks for that color.
Alex Brignall: Thank you. Your next question is from Alex Brignall from Redbird. Please ask your question.
Speaker Change: Thank you. Your next question is from Alex Brignall from Redbird. Please ask your question.
Alex Brignall: Good morning. Thank you very much for taking the question. Just two, please.
Alex Brignall: Good morning. Thank you very much for taking the question. Just two, please. Firstly, on the Japan deal, could you talk about the royalty rates you...
Alex Brignall: We expect to get there, if they're broadly aligned with your international business, or if there's anything special or different about it. And then in your comments, you talked about...
Alex Brignall: Firstly, on the Japan deal, could you talk about the royalty rates you expect to get there, broadly in line with your international business, or if there's anything special or different about it? And then in your comments, you talked about not doing some discretionary cost spends this year, and that sort of helped protect EBITDA. Discipline tends to mean just not doing the costs yet. So could you just talk about what they are and whether we should then think about them being part of the cost base the next year, instead of being pushed back? Thank you very much.
Speaker Change: not doing some discretionary cost spends this year, and that sort of helped protect the EBITDA. Discretionary tends to mean you're not doing the cost yet. So could you just talk about what they are and whether we should then think about them being part of the cost base?
Scott Oaksmith: Yeah, just to add to that, as Pat mentioned, we shared with you are building blocks before how we got to that midpoint of our guidance of being around 9% growth. And really, you know, everything other than Rev Park had remained intact and we've seen the acceleration as Pat mentioned. So, on the, you know, Cobra royalty fees, we store growing our effective royalty rate in its single digits in our unit growth at 2%.
Speaker Change: for next year for sort of being pushed back. Thank you very much.
Scott Oaksmith: So on the Japan deal, those are part of our master franchise agreement. So when we have those deals, the way a master franchise partnership works is we sub-license our brands to local partners and then grow them.
Speaker Change: It's on the Japan deal. Those are part of our Master Franchise Agreement.
Scott Oaksmith: So, that's effectively driving about 3% of EBITDA growth. Our platform and procurement businesses on our core business continue, which this includes our Cobra and Credit Card continue to perform well. That's producing about a 2% growth in EBITDA. Our international and owned hotel portfolio continues to be aligned with our original targets of growth about 2%. And really, where we've seen that the outperformance to offset the Rev Park is really the acquisition that continues to provide significant growth to our EBITDA.
Speaker Change: When we have those deals, the way a master-franchise partnership works is we do sub-license our brands to local partners and then grow them. So the royalty rates will be slightly lower than where you would see both in the US and the direct-to-franchising market, but there are no costs to support it. So the EBITDA flow-through is quite higher. So think in kind of the 1% to 2% range on the royalty rates for those hotels. As I mentioned, no cost, so straight to EBITDA flow-through on those.
Scott Oaksmith: So the royalty rates will be slightly lower than what you would see both in the U.S. and the direct-to-franchising market, but there are no costs to support it. Hence the EBITDA flow-through is quite higher. So think in kind of the 1 to 2 percent range on the royalty rates for those hotels. But, as I mentioned, there is no cost, so straight to EBITDA flow-through on those. On the SG&A piece, really, it wasn't, as I mentioned earlier, a material trim on SG&A, really just matching up some of the initiatives that we had to the environment we're in.
Scott Oaksmith: In our initial guidance, we had thought that that would be about a $20 million lift, which is a creative door EBITDA, about 4%. Given our success in unlocking some of those revenue synergies, we're now revising that estimate up to contributing about 6% to EBITDA. So, that outperformance there is offsetting anything on the Rev Park side.
Speaker Change: on the SG&A piece.
Speaker Change: Really, it wasn't, as I mentioned earlier, a material trim on the SG&A, really just matching up some of the initiatives that we had to the environment we're in. As Pat mentioned, we do see some green shoots on new construction.
Scott Oaksmith: As Pat mentioned, we do see some green shoots on new construction and think that's coming up. That's probably a little bit longer to come back than we thought earlier in the year, so it just paired some of our spending related to when hotels are going to open, and our opportunities are to sell more deals. I would say if there are more SG&A coming in future periods, they'll be offset by incremental revenue, so shouldn't affect the margins of any incremental spend, but largely, we remain in line with where our overall SG&A targets were for the year.
Scott Oaksmith: Great, that's very helpful, thanks. And then just one quick follow-up, just looking at your, the adjacency make to get to the adjusted EBITDA. If there, it looks like more franchise agreement acquisition costs, like that compared to last year, is there anything you'd call out there that's different than what you've said about key money? No, it's really just a reflection as we talked about since the pandemic, seeing openings returned to more pre-pandemic levels as our key money is tied to opening of hotels. So as we see that increase, the key money gets issued, you know, to match the fee stream. So that amortization just follows the flow of the cash flow that's been going out. Okay, thank you.
Pat Pacious: And I think that's coming up, that's probably a little bit longer to come back than we thought earlier in the year. So we've just paired some of our spending related to when hotels are going to open, how our opportunities are to sell more deals. So I would say if there are more SG&A coming in the future periods, they'll be offset by incremental revenue, so it shouldn't affect the margins of any incremental spend. But largely we remain in.
Pat Pacious: in line with where our overall SG&A targets were for the year.
Alex Brignall: Okay, thank you. Maybe as a follow-up, the... Net Unigrowth on a sort of total reported basis was a little low. I know that's not a focus of yours, but do you kind of have any idea of where that might end up and how we should model it? And then part of that is obviously Radisson, where the number of rooms just dropped down again quarter on quarter and what we should expect for that. Thank you.
Speaker Change: Okay, thank you. Maybe as a follow-up, the...
Speaker Change: And that unigrowth on a sort of total reported basis was a little low. I know that's not a focus of yours, but do you kind of have any idea of where?
Speaker Change: That might end up in how we should model existing, and then part of that is obviously Radisson where the number of rooms just drop down again quarter on quarter, and what we should expect for that. Thank you.
Joe Graf: Thank you, your next question is from Joe Graf from JP Morgan. Be fast or question?
Pat Pacious: Yeah, I'll start with Radisson, and Scott can speak to the broader net unit growth trends. You know, you look at Radisson, as we've said on prior calls, we underwrote into the acquisition a number of hotels that either were already on a path to terminate or ones that we looked at and said they didn't fit with the brand anymore. What we've said in past calls, and we continue to stick to that guidance, is we expect the Radisson Greensign brand to return to unit growth next year, and Country Inn & Suites, which is primarily a new construction brand, to be a 2026 unit growth story.
Speaker Change: Yeah, I'll start with Radisson and Scott can speak to the broader net unit growth trends.
Scott Oaksmith: Good morning. You'd mention that the reduction in ref-par growth in the guidance and it's impact in EBITDA was offset, I think you mentioned less discretionary investments than in better ancillary revenues. Those, oh, but you can quantify that amount of incremental EBITDA benefit from those two items. And then, you know, how sustainable are those levels of lower investment spend and inflary fee generation? How sustainable they are going into next year? Yeah, so as I was just saying with Robin's question, so when you think about that, taking about 4% EBITDA growth on the Radisson piece up to 6%, really, you know, that's about, you know, 10 to 12 million dollars there of what we're seeing, you know, better flow through from being able to plug the Radisson franchisees into our overall services and things like growing our co-branded credit card.
Scott Oaksmith: You know, you look at Radisson, as we've said on prior calls, we underwrote into the acquisition a number of hotels that either were already
Scott Oaksmith: on a path to terminate or ones that we looked at and said they don't fit with the brand anymore. and we continue to stick to that guidance.
Pat Pacious: We're seeing, as we mentioned in our remarks, the applications and the interest in the brand and the value prop improvement attracting developer interest. So we feel pretty good when we look at what's in our pipeline and what we're seeing from an application perspective to stick to those two timeframes for both the Radisson Greensign and the Country Inn & Suites by Radisson brands. I also would include Park Inn, which is a Radisson brand we acquired, and that's just in its early stages. I think as we get to 2025 and start putting out guidance there, we'll have a clearer picture of what kind of contribution that brand can deliver on unit growth.
Pat Pacious: to return to unit growth next year, and Country Inn & Suites, which is primarily a new construction brand, to be a 2026 unit growth story. We're seeing the, as we mentioned in our remarks, the applications and the interest in the brand and the value prop improvement.
Speaker Change: Attracting developer interest.
Pat Pacious: So we feel pretty good when we look at what's in our pipeline
Pat Pacious: Timeframes for both the Radisson Green Sign in the country and in suites by Radisson brand. I also would include Park Inn, which is a Radisson brand we acquired, and that's just in its early stages. I think as we get to 2025 and start putting out guidance there, we'll have a clearer picture of what kind of contribution that brand can deliver on unit growth.
Scott Oaksmith: So really, we should be able to continue to grow those revenue streams as we continue to grow the size of the portfolio. So I would expect those to kind of grow in line with both, you know, red par and unit growth going forward. In terms of the discretionary investments, it was a minor amount of discretionary investments. As I mentioned, we're still on track for the mid single digits. So given the little bit softer environment, we trimmed a few discretionary investments we had. If the market gets better in red par returns, we can add those back. But really, the majority of it was the better performance on the synergies we're seeing from the Radisson integration.
Scott Oaksmith: Great.
Scott Oaksmith: In terms of the pace of overall net unit growth, we're right along the plan that we had for the year. We had expected more of our openings to come in the back half of the year. So we're still feeling very confident in the approximately 2% of our revenue-intense brands that we talked about. And as a reminder, every 1% growth on those revenue-intense brands is about $4.5 million of incremental royalties to us. So we're pleased with what we're seeing there and in line with what we thought. But it was always a more back-end weighted openings throughout the year.
Pat Pacious: In terms of the pace of overall net unit growth, we're right along the plan that we had for the year. We had expected more of our openings to come in the back half of the year, so we're still feeling very confident in our approximately 2% of our revenue-intense brands that we talked about. And as a reminder, every 1% growth on those revenue-intense brands is about $4.5 million of incremental royalties to us.
Scott Oaksmith: Thank you.
Pat Pacious: So, we're pleased with what we're seeing there and in line with what we thought, but it was always a more back-end weighted of those openings throughout the year.
Alex Brignall: Fantastic
Alex Brignall: Fantastic. Thank you so much.
Speaker Change: Fantastic, thank you so much.
Patrick Pacious: Your next question is from Acric Shows from Truist Secreties. Please ask your question. Thank you. I know in the past, you talked about expectations for high single digits. Even our growth, I believe next year and possibly beyond still feel comfortable with that expectation. Thank you.
Pat Pacious: Thank you. There are no further questions at this time. I will now hand the call back to Pat Pacious for her closing remarks.
Speaker Change: Thank you.
Speaker Change: Thank you. There are no further questions at this time. I will now hand the call back to Pat Pacious for the closing remarks.
Operator: Well, thank you, operator. Thanks again, everyone, for your time this morning. We'll talk to you again in November when we announce our third quarter results. Have a great rest of your day.
Pat Pacious: Thank you, operator. Thanks again, everyone, for your time this morning. We'll talk to you again in November when we announce our third quarter results. Have a great rest of your day.
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining in on my all-disconnecter lines.
Patrick Pacious: Yeah, Patrick, I think at this point it's kind of too early to start talking about 2025. Yeah, I think when we look at the back half of the year and this sort of, and uncertainties in the economy and uncertainties in the forecasting that you see from both economic forecasters, STR, and the like. We kind of want to get a read into how the next six months is going to play out. I mentioned some of the key factors that will be drivers at the macro level of new development, particularly as everybody knows, its interest rates will eventually lead to more hotel financing.
Speaker Change: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining in with all these connector lines.
Patrick Pacious: But that's really the kind of key question I think that will get a lot more clarity between now and the end of the third quarter. Okay, I mean, I guess a little bit pushback to me and I understand that, but that was a forecast that gave several quarters ago. I mean, do I sense that there's some hesitation in maintaining that? No, I would just say we haven't, you know, I'm not sure we've given you 2025 before.
Patrick Pacious: But if you look at the long term trends as we've spoken about in the past, we do expect to kind of continue over time to deliver the type of EBITDAG growth that we've delivered in the past, which has been that sort of high single digits. You know, there have been years where we've taken investment years to kind of accelerate that growth and had, you know, double digit EBITDAG growth percentage years, like we've done it in the last couple of years as well, but our long term strategy, and we look at our long term strategic plan, it's expected to drive that sort of, you know, high single digits EBITDAG growth in the coming years.
Patrick Pacious: Okay, there are no. Thank you.
Mark: Your next question is from Branch Montor. Mark, please ask your question. Hi, good morning, everybody. Thanks for taking my question. So one clarification in the actual 2Q report, if we look at the marketing and reservation system revenue and expenses, and see the delta there, and then look at that line in the EBITDAG, well, okay, it applies like a 15 million good guy for the quarter. You had 12 million for last quarter, so that step up, I'm assuming, is what you're calling out in terms of the better ancillary, which is what improved.
Mark: So I guess my question is, is that for all, is that revenue, ancillary services, and for all of your system, or is that just specific to radison? And anything else you can tell us about, you know, that line, because that is higher than I think you were looking for 10 to 12 million for the rest of the year, and that is quarterly for that line. Yeah, it's reflective of the entire system, but I would say the growth that we're seeing is that plugging the radison hotels into that our system is outperform where we had thought.
Mark: So as we talked about in the previous calls, being able to integrate the choice in radison platforms at the beginning of the 4th quarter of 2023, we had that opportunity to unlock some ancillary incremental revenue streams. And so as we kind of work those in and take a look at how those roll out, we have been able to drive more revenue than we expected. You have to, it's not quite 15 million.
Mark: There are a couple puts in takes that, but it is slightly higher than where we thought when we gave the guidance of 8 to 10 million on the last quarter. So probably this quarter we were closer to about 12 million on that, and we would expect that's a bit similar in the in the 3rd quarter. And then we did start this program change in the 4th quarter of last year, so we'll then start lapping the comps in Q4.
Scott Oaksmith: Okay, that's super helpful. And then your share repurchases accelerated to a pretty meaningful number in the 2Q. Should we read into that as a sort of like a signal that large M&A isn't something that's immediately available to you or a reflection of what is out there that you think you can go after on the M&A front? I think it's a reflection of the attractiveness of the shares, you know, historically and this continues to be our policy.
Scott Oaksmith: We've been more opportunistic in share repurchases. We effectively looked by in the shares when we see a market dislocation and certainly we believe that's been the case for the first seven months of the year. I would say from an M&A perspective, everything we look at comes with EBITDA, so it's ability to be financed and is something that we're not looking to actually go out and purchase something that we then have to start from scratch and grow.
Scott Oaksmith: I mean, if you look at the two acquisitions we've done in the last five years, we've gotten them at very attractive prices and we've certainly returned a lot to shareholders in significant growth as a result of both. But I'd look at the health of our balance sheet, Scott mentioned and walked through in his remarks. It puts us in a very healthy place in the lower ends of the three to four times, which gives us a dry powder to do acquisitions.
Scott Oaksmith: There's not a lot of transformational acquisitions out there that are in significant size, mostly what's out there are things that are things we could either do on our balance sheet or do it in a very measured way with regard to leverage. Okay. Thanks so much. Sure. Thank you. Once again, please press star. One should wish to ask a question.
Patrick Pacious: Your next question is from Denim Azulek from Morningstar. Please ask your question. Good morning, guys. Thanks for taking my question. So kind of intermediate term question here as we're entering a more normalized rep part growth of that two to three percent historically. Anything different this cycle with the industry or your competitive positioning, US infrastructure, your revenue, intense mix that otherwise that we should think about from an intermediate term standpoint, like where, you know, maybe you guys might end up within that two to three percent range, you know, positive drivers maybe had one's just to think about.
Patrick Pacious: Thanks. Yeah, I think one of the positive drivers and it's really reflected in sort of when you look at the revenue intensity of the brands that we're selling, it's beyond rev part. It's the effective royalty rate and the room counts in these hotels are driving higher royalties as a result. So I think you have to be thoughtful about kind of where the mix shift is going. It's why we're super excited and and Scott walked through the numbers about the extended stay segment.
Patrick Pacious: There is a huge amount of supply and demand imbalance there where purpose built supply is, you know, significantly under the demand for extended stay room nights. And, you know, we talked in our remarks, you know, the wood spring sweet brand is effectively 70% of the new construction that's going on across the industry in that economy extended stay segment. So we feel really good about the value prop we have there, the brand we have there, which is a proven model proven prototype proven operating performance and proven exit for a developer.
Patrick Pacious: So those are the things that that we see long term trends continuing to fuel growth in extended stay. And then secondly, upscale continues to be a real positive trend line for us both in our development pipeline and in our openings that we're seeing. And I think the rat us an acquisition is going to really help fuel that growth because those are brands that are sought after in the in the upscale segment and above.
Patrick Pacious: So we're as we look at so the next five years of growth, those two growth vectors in addition to our traditional core segment. Give us a lot of confidence that we're really playing into the areas that are going to grow from a consumer demand perspective in the next five, years. Okay, thanks for that color.
Alex Brignall: Thank you.
Alex Brignall: Your next question is from Alex Brignall, from Oredford. Feast ask your question. Good morning. Thank you very much for taking the question.
Scott Oaksmith: Just to be firstly on the Japan deal, could you talk about the royalty rates you expect to get there, that's a board in line with your international business or if there's anything special, or different about it? And then in your comments, you talked about not during some discretionary cost spend this year and that's of help protect the EBITDA, discretion attempts, I mean, you're not doing a cost yet. So could you just talk about what they are and whether we should then think about them being called to the call space.
Scott Oaksmith: The next yes, that's sort of being pushed back. Thank you very much. It's on the on the Japan deal. Those are part of our master franchise agreement. So, you know, they're, when we have those deals, you know, way master franchise partnership works is, we do sub license our brands to local partners and then grow them. So the royalty rates will be slightly lower than where you would see both in the US and the direct to franchising market, but there are no costs to support it.
Scott Oaksmith: So the EBITDA flow through is quite higher. So if you know, think in kind of the one to two percent range on the, on the royalty rates for those, those hotels, but as I mentioned, no costs. So straight to straight to an EBITDA flow through on those. One of the SGNA piece really it wasn't as I mentioned earlier a material trim on the SGNA really just matching up some of the initiatives that we had to the environment, and as Pat mentioned, we do see some green shoots on new construction and think that's coming up.
Scott Oaksmith: That's probably a little bit longer in the, to come back than we thought earlier in the year. So we've just paired some of our, our spending related to when hotels are going to open. And our opportunities are to, to sell more deals. So I would say if there are more SGNA coming in the future periods, they'll be offset by incremental revenue. So shouldn't affect the margins of any incremental spend, but largely we, we remain in, in line with where our overall SGNA targets work for the year.
Scott Oaksmith: Okay, thanks for maybe as a follow up the. That you know, some total reported basis was a little, I know that's not a, not a focus of yours, but do you kind of have any idea of where that might end up and how we should model. And then part of that is obviously radison where the number of numbers just drop down again quarter on quarter and what we should expect for that.
Scott Oaksmith: Thank you. Yeah, I'll start with radison and Scott can speak to the broader net unit growth trends. You know, you look at radison. We, as we said on prior calls, we, we underwrote into the acquisition, a number of hotels that either were already on a path to terminate or ones that we looked at and said they don't fit with the brand anymore. What we said in past calls and we continue to stick to that guidance is we expect the radison green sign brand to return to unit growth next year and country and in suites, which is primarily a new construction brand to be a 2026 unit growth story.
Scott Oaksmith: We're seeing the, as we mentioned in our remarks, the applications and the interest in the brand and the value prop improvement attracting developer interest. So we feel pretty good when we look at what's in our pipeline and what we're seeing from an application perspective to stick to those to time frames for both the radison green sign and the country and suites by radison brand. I also would include park in, which is a radison brand we required.
Scott Oaksmith: And that's, that's just in its early stages. And I think as we get to 2025 and start putting out guidance there, we'll have a clearer picture of what kind of contribution that brand can deliver on. Unit Growth. In terms of the pace of overall in that unit growth, we're right along the plan that we had for the year. We had expected more of our openings to come in the back half of the year.
Scott Oaksmith: So we're still filmed very confident our approximately 2% our revenue intense brands that we talked about as a reminder that those every 1% growth on those revenue intense brands is about $4.5 million of incremental royalties to us. So we're pleased to where we're seeing there and in line with where we thought, but it was always a more back end way to those openings throughout the year.
Scott Oaksmith: Thank you so much. Thank you.
Operator: There are no further questions at this time.
Patrick Pacious: I will now hand a call back to Pat Pacious for the closing remarks. Thank you operator. Thanks again everyone for your time this morning.
Operator: We'll talk to you again in November when we announce our third quarter results. Have a great rest of your day. Thank you.
Operator: Ladies and gentlemen, the conference has now ended. Thank you all for joining you. We all disconnect our lines. Goodbye.