Q1 2025 Choice Hotels International Inc Earnings Call
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Speaker Change: Ladies and gentlemen, thank you for standing by welcome to choice hotels International first quarter 'twenty 25 earnings call.
This time all lines are in a listen only mode.
I'll now turn the 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'd like to remind you that during this conference call certain predictive or forward looking statements will be used to assist you in understanding the company and its results actual results may differ materially.
Speaker Change: Really from those indicated in the forward looking statements and you should consult the Combi forms 10-Q, 10-K, and other SEC filings for information about important risk factors affecting the company that you should consider.
Speaker Change: These forward looking statements speak as of today's date, and we undertake no obligation to publicly update them to reflect subsequent events or circumstances.
Speaker Change: You can find their own conciliation of our known that's finished you'll measure its referred to in our remarks as part of our first quarter 'twenty to 'twenty five earnings press release, which is posted on our website of choice hotels Dot com under the Investor Relations section.
Speaker Change: This borrowing part spacious president and Chief Executive Officer will speak to our first quarter operating results and update on our strategic priorities, whilst called Oak Smith, Chief Financial Officer will discuss our financial performance and outlook for the remainder of the year.
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.
Thank you Allie and good morning, everyone. We appreciate you taking the time to join us.
Speaker Change: It has been a successful start to the year as the momentum we've created from our strategic investments has carried forward into the first quarter driving our adjusted EBITDA, 4% higher.
Speaker Change: And our adjusted earnings per share, 5% higher year over year.
Speaker Change: The investments in our business delivery engine have increase the attractiveness of our brands.
Speaker Change: All thing and a 3% year over year at net increase in global rooms in the first quarter.
Speaker Change: Including a 4% net increase for our more revenue intense rooms.
Speaker Change: We also continued to excel at what we do best delivering gas to our franchisees.
Speaker Change: In the first quarter, we outperformed our chain scales in domestic revpar performance captured demand across multiple regions of the country.
Speaker Change: And achieved Revpar index share gains versus competitors.
Speaker Change: These results reflect the improved mix of guests that we are now delivering.
Speaker Change: Today, approximately 40% of our overall mix is business travelers.
Speaker Change: Which we believe is well balanced between business and leisure travel.
Speaker Change: Importantly choices business travelers have a relatively resilient profile.
Speaker Change: These are gas, whose job cannot be accomplished without traveling.
Speaker Change: They comprise key categories, such as construction regional sales utilities and medical staffing and.
Speaker Change: And we are now capturing additional longer term opportunities from companies involved in the substantial infrastructure investments required by Jan AI.
Speaker Change: And the push towards the re shoring of American manufacturing.
Speaker Change: We anticipate these trends will continue to accelerate.
Speaker Change: And through our deliberate strategic positioning of our portfolio.
Joyce: Joyce is poised to capture this demand.
Joyce: Our business travel segment grew 10% year over year in the first quarter, driven by both group and business transient travel.
Joyce: And supported by our expanding upscale and extended stay portfolio of hotels.
Joyce: Notably we achieved an impressive year over year revenue increase of over 50% from group travel business in the first quarter.
Joyce: We delivered these strong results despite increased macro uncertainty demonstrating.
Joyce: Demonstrating that our strategy continues to succeed and reinforcing our confidence in our long term outlook and ability to create value through our strategic investments.
Joyce: As we look to the future our global pipeline provides a strong platform for long term growth.
Joyce: With 98% of the rooms within our more revenue intense brands.
Joyce: This means that our pipeline should generate significantly higher revenue compared to our existing portfolio drip.
Joyce: Driven by a substantial revpar premium.
Joyce: A higher average effective royalty rate.
Joyce: And a larger room count per hotel.
Joyce: The versatile business model, we have built has allowed us to deliver stable returns and provide diversified avenues of growth throughout different economic cycles.
Joyce: Historically in periods of economic uncertainty, our differentiated positioning has enabled us to outperform our peers gain market share and emerge stronger.
Joyce: Choice has an increasingly diverse portfolio of well segmented brands across a wide variety of price points.
Joyce: The needs of a broad array of consumers and hotel developers.
Joyce: We have made tremendous progress since we embarked on our distinct strategy to strengthen the company's position in more revenue intense segments and markets.
Joyce: We have added brands that are strategic growth segments over the past several years and have expanded our domestic mix of more revenue generating rooms by 11 percentage points to 88% of our system over that period.
Joyce: Notably the revenue generated by an average hotel in our portfolio has increased 17% over that period.
Joyce: The addition of these new brands expands our opportunities to grow our hotel franchise system in all market conditions.
Joyce: As they offer both new construction and conversion opportunities for developers to grow their portfolio with us depending on their needs.
Joyce: In addition, all of our hotels realize the benefits of our increased scale, including our technology investments more valuable rewards program and expanded partnerships.
Joyce: Diversification has also made our business more resilient.
Joyce: Particularly with our continued growth in the cycle resilient extended stay segment.
Joyce: We have increased the size of our extended stay portfolio by 19% over the past five years to approximately 53000 rooms with the segment's pipeline now representing half of the total domestic rooms pipeline.
Joyce: And increased extended state footprint gives us even more confidence in the resilience of our business.
Joyce: Cause in times of uncertainty we have historically seen demand remained relatively strong for our extended stay hotels.
Joyce: We've also strengthened the entire business by attracting higher income more resilient customers, who have the means to keep spending and traveling through economic cycles.
Joyce: And that means we're delivering customers with a greater lifetime value to our franchisees.
Joyce: In fact half of our customers now have annual household incomes exceeding $100000.
Joyce: Which means they are more than 24% higher than the median national household income and.
Joyce: And nearly 20% surpassed $200000.
Joyce: At the same time, we expanded our rewards program to over 70 million members and 8% year over year increase as of the end of the first quarter.
Joyce: These loyal customers are six times more likely to book direct through choice channels.
Joyce: And stay an average of 90% more room nights per year than our non rewards members.
Joyce: Growth in our membership is the direct result of us, creating a more compelling program <unk>.
Joyce: Including introducing new aspirational hotels.
Joyce: And exciting new experiences such as music racing and college sport event redemption options as.
Joyce: As well as adding new rewards program features.
Joyce: We are seeing the results with a more engaged customer base as demonstrated by a 28% year over year increase in the number of global reward night redemptions during the first quarter.
With gas prices trending lower and approximately 90% of our domestic portfolio within one mile of a highway we provide value seeking travelers the opportunity to travel and take vacations and a more affordable way closer to home.
Joyce: This is particularly compelling for our customer base, which is comprised primarily of domestic travelers.
Joyce: Additionally, our strong portfolio of Midscale hotels offers an affordable high quality option for travelers, who might be seeking to trade down.
Joyce: Likewise, we see attractive tailwind coming from one of our core customer segments Baby boomers.
Joyce: Over 4 million people are expected to reach retirement age this year in the U S and they have more time and disposable income to travel for leisure.
Joyce: And seek brands like ours that provide value for their money.
Joyce: And the pool of these retired travelers continues to expand with.
Joyce: With more than one in five Americans expected to be 65 years old or over by 2030.
Joyce: Just last week, we hosted our 69th annual convention.
Joyce: The level of enthusiasm and support we heard from our thousands of franchisees about the ways, we are driving growth and the future of our brands was remarkable.
Joyce: The convention is also a significant business development opportunity for us to sign new franchise agreements.
Joyce: During the event, we highlighted some of our recent investments.
Joyce: Specifically, our new choice hotel's website and mobile apps.
Joyce: Which have helped drive improved performance through strong year over year increases in booking conversion rates across all of our chain scales, including double digit increases for our upscale properties.
Joyce: Our targeted hotel profitability tools, which continue to drive potential cost savings of up to 20% on the franchisee level.
Joyce: And our recently launched one stop owners platform, which makes it even easier for our franchisees to access actionable intelligence to run their businesses.
Joyce: Our larger scale has allowed us to invest more in technology to enhance the guest experience and the value we bring to our franchisees.
Joyce: This is one of the key reasons are existing owners choose to expand their hotel portfolio with choice hotels.
Joyce: And contributes to our industry, leading voluntary franchisee retention rate.
Joyce: As we look to grow our brand portfolio, we remain very well positioned.
Joyce: In addition to our proven strength in the mid scale segment. The company has well established brands with significant growth potential in the two segments with the highest developer and guest demand.
Joyce: Extended stay and upscale limited service.
Joyce: These segments are more accretive to our earnings and continue to be a key driver of our future growth.
Joyce: Continuing to innovate has contributed to us further expanding our lead in the extended stay segment as.
Joyce: As we added more than 5000 extended stay rooms domestically in the first quarter.
Joyce: For seven consecutive quarters, we have grown our domestic extended stay rooms system size by double digits year over year.
Joyce: And we expect this higher than industry average growth to continue.
Joyce: With nearly half of the economy and Midscale extended stay segment rooms currently under construction being choice hotels brands, we are well positioned for future growth.
Joyce: We also continued to strengthen our core brand portfolio, which outperformed overall midscale revpar chain scale and attracted strong development growth in the first quarter.
Joyce: Importantly, we recently introduced new value engineered prototypes for the comfort brand family.
Joyce: And the country and in suites by Radisson brands that provide more revenue driving spaces for owners and achieve a 10% to 15% reduction in construction costs.
Joyce: We are already realizing returns from these investments.
Joyce: In fact during the first quarter, our country and in suites by Radisson brands Revpar outperformed the upper Midscale segment by nearly two percentage points.
Joyce: In the upscale segment, we continued to expand our presence increasing the global room system size by 16% year over year.
Joyce: Over 110000 rooms.
Joyce: Now representing 17% of our overall system.
Joyce: With nearly 27000 more upscale global rooms in the pipeline and 8% increase over the prior quarter, we will be providing our guests even more aspirational locations to visit.
We've often spoken about a key differentiator for our business.
Joyce: Philosophy, with which we move hotels through our pipeline.
Joyce: I am pleased to say that velocity in the first quarter accelerated versus the prior quarter.
Joyce: Other domestic franchise agreements, we executed for conversion hotels for the 12 months ending March 31.
Joyce: We opened 170 within that timeframe.
Joyce: A 26% increase compared to the same period of the prior year.
Joyce: This conversion capability benefits choice as we capture royalties in the system faster and it benefits our franchise owners, who can quickly join our distribution platform and start generating revenues.
Joyce: We are encouraged by the continued traction for our conversion brands and we expect this hotel conversion core competency to be a key growth driver this year.
Joyce: I'd now like to turn to another growth area, our international business, where in the first quarter, we expanded our rooms portfolio by over 4% year over year.
Joyce: And with our rooms pipeline that has increased by 13% compared to the prior quarter. We continue to see a significant opportunity to further gain international market share in the coming years.
Joyce: In closing by successfully executing our strategy, we have transformed the company to be future ready and have established a strong foundation for near term stability and long term growth.
Joyce: Our proactive investments and a versatile asset light fee based model have meaningfully enhanced our company's growth profile and allow us to generate multiple avenues of growth throughout various economic cycles.
Joyce: We continue to grow our significant free cash flow annually and our priority use of this capital is to create long term value as we remain focused on enhancing our value proposition and driving organic growth, while returning excess cash to shareholders.
Speaker Change: I will now turn the call over to our CFO.
Joyce: Scott.
Scott: Thanks, Pat and good morning, everyone.
Joyce: Today, I will discuss our first quarter results.
Joyce: Date, you on our balance sheet and capital allocation and comment on our outlook for the remainder of 2025.
Joyce: We are pleased with our first quarter results, we delivered which were in line with our expectations, despite a weaker than anticipated macroeconomic environment.
Joyce: We drove adjusted EBITDA to a first quarter record of $129 6 million.
Joyce: Renting a 4% year over year increase.
Joyce: Highlighted by a combination of global rooms growth.
Joyce: Strong revpar robust effective royalty rate growth and the impressive performance of fees from our partnership programs.
Joyce: Our first quarter adjusted earnings per share also reached a first quarter record of $1 34 per share a 5% increase year over year.
Joyce: Let me first discuss our key drivers of royalty fee growth, which include unit growth Revpar performance and our royalty rate.
Joyce: In the first quarter, our global rooms grew three 9% year over year across our more revenue intense upscale extended stay and mid scale portfolio.
Joyce: And our total worldwide rooms grew by two 8%.
Joyce: We continue to see strong developer interest in our brand portfolio with particular demand for our extended stay and mid scale segments.
Joyce: We also recently announced the partnership with the innovative bridge platform.
Joyce: Which helps optimize the loan search process, providing access to a wider range of affordable financing solution for hotel owners and developers.
Joyce: We believe this new partnership will expand access to capital sources and accelerate the timeline to secure financing that will support the development of both new construction and the conversion of hotels into our franchise system.
Joyce: Our deliberate decisions and strategic investments in our franchisee tools brand portfolio and partnerships are delivering results across all our brands segments.
Joyce: First we grew our domestic extended stay room system size by 11% year over year.
Joyce: Highlighted by a 14% increase in domestic openings.
Joyce: At the same time, we saw a 14% increase in domestic franchise agreements awarded year over year.
Joyce: He ever homes suites brand is gaining strong traction with 11 hotels now open and 62 domestic projects in the pipeline, including 18 under construction as of today.
Joyce: Second we further strengthened our presence in the Midscale segment.
Joyce: Highlighted by a 10% increase in mid scale domestic franchise agreements executed year over year.
Joyce: Our flexible and low cost conversion Clarian Pointe brand portfolio continues to grow.
Joyce: With a 10% increase in global rooms in the first quarter compared to the prior year.
Joyce: And third we are continuing to expand our upscale portfolio with a 16% increase in global rooms year over year.
Joyce: Specifically, our ascend hotel collection, a leading global soft brand reported a 13% year over year increase reaching nearly 59000 rooms worldwide.
Joyce: Turning now to our Revpar performance.
Joyce: Our first quarter domestic revpar outperformed our chain scale is by 60 basis points, increasing two 3% year over year.
Joyce: This was driven by a 30 basis point improvement in occupancy levels and a one 7% year over year increase in average daily rates.
Joyce: Our domestic extended stay segment performed exceptionally well achieving first quarter revpar growth of six 8% over prior year and outperformed the industry by over four percentage points.
Joyce: At the same time, our domestic overall Midscale segment achieved first quarter revpar growth of one 7% over the prior year.
Joyce: Outperforming its chain scale by 30 basis points.
Joyce: While our domestic economy segment achieved first quarter revpar growth of seven 1% over the prior year outperforming its chain scale by over four percentage points.
Joyce: Turning to our third royalty growth lever.
Joyce: Our effective royalty rate also continues to be a significant source of revenue growth.
Joyce: Our domestic system effective royalty rate for the first quarter increased eight basis points year over year.
Joyce: 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.
Joyce: We are optimistic about the ongoing upward trajectory of our effective royalty rate for years to come as the contracts in our domestic pipeline have a significantly higher effective royalty rate than those in our current portfolio of open hotels.
Joyce: We continue to build on the strong momentum of our partnership business.
Joyce: Our partnership services and fees encompass revenues from our strategic partners and vendors, including licensing and co brand credit card fees.
Joyce: These revenues increased 28% year over year in the first quarter and benefited from both an increase in revenues from our qualified vendors and co brand credit card fees.
Joyce: Continuing to expand our partnership services and fees is one of our key initiatives and we believe that we can drive strong revenue growth in the years ahead.
Joyce: In the three months ended March 31, 2025, we generated $36 million and adjusted free cash flows a 30% year over year increase our.
Joyce: Our business continues to produce strong cash flow, which coupled with our well positioned balance sheet allows us to execute our capital allocation priorities, including investing in the growth initiatives. While also returning significant capital to shareholders.
Joyce: Year to date through April we've returned $115 million to shareholders, including $27 million in cash dividends and $88 million in share repurchases.
Joyce: We had $3 2 million shares remaining in our authorization as of the end of April.
Joyce: We remain well positioned with a strong cash position leverage levels at the low end of our targeted range and total available liquidity of $594 million as of March 31 2025.
Joyce: Before discussing our outlook I want to note a few changes we made to our income statement.
Joyce: During the first quarter, we reclassified select items to classify revenue and expenses based on the nature of the underlying activities.
Joyce: Also reclassified corresponding prior year amounts for comparability.
Joyce: These reclassifications have no effect on previously reported total revenues expenses or net income amounts.
Joyce: For additional information on these reclassifications, please see our earnings release and Form 10-Q.
Joyce: Finally, I'd like to discuss our expectations for the remainder of the year.
Joyce: Reflecting the more uncertain macroeconomic backdrop, which is impacting the logic industry. We are updating our full year 2025 outlook.
Joyce: While January and February domestic Revpar performed in line with our expectations. We started to observe a softening in late March when a broader macro uncertainty intensified.
Joyce: As a reminder April saw the significant impact of the Easter shift and a tougher comparison as we benefited from eclipse related travel in 2024.
Joyce: When normalizing for these impacts and accounting for the Hurricane benefit April Revpar performance was down approximately 1% year over year.
Joyce: Given these recent trends we are adjusting our domestic revpar expectations to negative 1% to positive 1%.
Joyce: The high end of our range assumes our revpar performance for the remainder of the year is largely in line with the outlook we provided in February.
Joyce: The midpoint of this range assumes that the current trends we have seen from late March through April continue for the remainder of the year.
Joyce: And the low end implies that conditions soften modestly.
Joyce: For the full year 2025, we now expect our adjusted EBITDA to be in the range of $615 million and $635 million and adjusted diluted earnings per share to be in the range of $6 90.
Joyce: And $7 22.
Joyce: This guidance adjustment reflects a more moderate domestic revpar growth expectation offset by effective cost management.
Joyce: We now anticipate our guidance for full year adjusted SG&A to be at the lower end of our growth range of low to mid single digits from the 2024 base of $276 million.
Joyce: Additionally to align with the revenue reclassification that I discussed we are now providing guidance for these reclassified line items for full year 2025, we expect our partnership services and fees to grow in the mid single digits from the 2024 base of $99 million.
Joyce: While we recognize the broad macro uncertainty we remain confident in the resilience of our portfolio the versatility of our model and the strength of our fee based business.
Joyce: We anticipate growth will be driven by organic growth across more revenue intense hotels and markets.
Joyce: Robust effective royalty rate growth.
Joyce: Growth from our partnership revenue streams strong international business and incremental revenue generating opportunities from our expanded scale.
Joyce: This outlook does not account for any additional M&A repurchase of the company's stock after April 30th or other capital markets activity.
Joyce: Today's results are a testament that our strategy is working and that we are benefiting from our expanded scale and versatile business model, we intend to keep investing in those areas of our business that will generate the highest return on our capital.
Joyce: At this time, Pat and I'd be happy to answer any of your questions operator.
Joyce: Yeah.
Speaker Change: Ladies and gentlemen, we will now begin question and answer session should you have a question. Please press star followed by the one on your touch on phone you will hear from that your hand, that's been raised.
Speaker Change: Should you wish to decline from the pooling process. Please press star followed by the two if.
Speaker Change: If you are using a speaker phone please lift the handset before pressing entities.
Speaker Change: First question comes from Shaun Kelly with Bank of America. Please go ahead.
Shaun Kelly: Hi, Good morning, everybody. Thank you for taking my questions.
Speaker Change: Peter Scott, maybe we could just start with.
Speaker Change: Your big picture on the consumer and the macro Pat you talked a little bit about how you are.
Speaker Change: Well positioned for trade down.
Speaker Change: What's sort of unique as we move through earnings season here as we've seen the softness primarily in leisure and lower end chain scales relative to the industry at the high end has been hanging in a little bit better so.
Speaker Change: Winter, how do you expect to see a little bit of that.
Speaker Change: Trade down and why do you think that the softness we've seen so far has been so cute in the kind of the.
Speaker Change: The lower end travel segment right now.
Yeah. So let me start Tom with the just over the macro I mean, if you look at our Q1 results. It really demonstrates that our strategy is continuing to deliver.
Speaker Change: Our $3 to 4% net rooms growth record EBITDA revpar outperforming our chain scales RPI increases, we got an increased international footprint, Scott talked about our extended or expanded partnership streams and most importantly, probably is our rewards program growth. So.
Speaker Change: What we really wanted to make sure everybody understands in our remarks as is the change in the consumer profile that we now have in our business.
Speaker Change: You look at the diversified.
Speaker Change: Places, where our consumers are coming from now we've got a higher income consumer today than we've had in the past.
Speaker Change: That average consumers reporting that they've got 24% higher National median household income than the U S average and 20% or over 200000. So we've got a stronger consumer and our business. We talked about we've got more business travelers, 40% of our business in Q1 is now a business travel.
Speaker Change: And I think when you look at trade down, but we're not seeing it.
Speaker Change: Trade down in our system, we are seeing though market share gains in our system and I want to particularly point to our economy segment, which was up 7%.
Speaker Change: Which is 4% higher than the chain scale and extended stay which was also up 7%, which is 4% higher than than the than the chain scale did so.
Speaker Change: We're taking share that's clearly what we saw in the in the early part of the quarter here or the early part of the year that is.
Speaker Change: And then I would just say you know with what we're seeing through April and then even into looking at last week.
Speaker Change: We again saw Revpar index gains primarily in occupancy, which is really really a positive signal for us. So.
Speaker Change: When you look at this.
Speaker Change: Sentiment out there that leisure is softening.
Speaker Change: We're not actually being impacted.
Speaker Change: Impacted in a meaningful way by that because I think what's happening is which happens in these times when things get softer.
Speaker Change: We are taking share and that has historically happened so while we're in the early days of this sort of softening cycle.
Speaker Change: Pretty optimistic that the way we've repositioned our brands the way our consumer has gotten that much more.
Speaker Change: <unk> resilient from a from an income perspective, and then the diversification between business and leisure travel I think is really going to benefit us as we move throughout the rest of the year.
Speaker Change: Great and then just as a follow up on the net unit growth side of the equation can we just talk about sort of ex Westgate your organic growth expectations as we move through the balance of the year as is the implication that.
Speaker Change: Net rooms, accelerates and sort of why would we see.
Speaker Change: Pattern, there relative to kind of what you saw in the first quarter.
Speaker Change: Yes, I think let me just start I mean, we're really confident in our guidance of about a 1% worldwide rooms growth international continues to be a key driver of that growth.
Speaker Change: International is now expected to be in that kind of high single digits.
Speaker Change: And then I think the second piece of it is you know our historical comp.
Speaker Change: Competency around conversions the real the real focus as we mentioned in our remarks is the velocity with which we're able to move projects from pipeline into our system.
Speaker Change: As we mentioned we opened 170 hotels within that last 12 month timeframe, which is actually at 26% increase so we're seeing the velocity improving and we're in a world right now where you know 73% in Q1 of our of our openings were from conversion hotels.
Speaker Change: So and I'd also just point out is if you think about it our historically our first quarter has been more of a higher or a termination rate for us.
Speaker Change: But.
Speaker Change: As the year goes on.
Speaker Change: Tend to go down it's just the timing in the cycle of when our contracts are executed and when we make our portfolio management decisions, but as Pat said, a great news our brands remain in high demand and still seeing a great activity on the executed contract front people wanting to affiliate with our strong brands, especially in times of uncertainty.
Ross: Thank you Ross.
Speaker Change: Your next question comes from Michael Bellisario with Baird. Please go ahead.
Ross: Yes.
Michael Bellisario: Thanks, Good morning, everyone.
Michael Bellisario: Good morning, good morning.
Michael Bellisario: Just had a question for you just on guidance just trying to walk through the math here right. If revpar is roughly flat unit growths, one you get a little bit from royalty.
Speaker Change: Rate growth you call that 2% fee growth and I think youre, saying ancillary fees are going to be plus 5% is that spread call. It three percentage points is one is that the right math and then sort of for how long do you think that ancillary fee growth can outpace sort of the organic growth rates call. It plus.
Michael Bellisario: Minus 3% or more going forward.
Michael Bellisario: Yes sure. Thanks, Thanks, Michael.
Speaker Change: As we've previously discussed the versatility of our business model really provides us a lot of multiple drivers to grow our business when.
Speaker Change: When you think about our guidance our domestic royalty rate growth is expected to contribute about 1% to 2% growth to our EBITDA. That's despite a flat revpar environment, because we are growing our revenue intense brands as well as continuing to grow the effective royalty rate at that mid single digits, our partnership servicing fees and our franchisee platform ancillary services.
Speaker Change: <unk>, which include things like our co brand credit card continues to be accretive to our EBITDA and is expected to be about a 2% growth to our EBITDA for 2025, and then we have our international business and owned hotel Hotel portfolio, which we think will add about 1% growth to the EBITDA results.
Speaker Change: Slightly offset by a very small increases in our SG&A. So that's how you get to kind of the mid point of our of our guidance in terms of our ability to grow those ancillary revenues for us we really think that's a huge opportunity for us.
Speaker Change: They are not not dependent on revpar.
Speaker Change: It can be accelerated by the growth of our franchise system, but we've got a lot of different avenues to monetize our franchise system, whether that's through selling value added services to our franchisees to help drive the performance of our hotel, whether it's connecting third party partners with the vast amount of guests in our loyalty members that come through.
Speaker Change: Our channels, so we believe that.
Speaker Change: For you to grow at an accelerated pace for the long term even knob.
Speaker Change: Potentially at a higher rate than the core franchise royalty fees.
Speaker Change: Okay. That's helpful. And then just as my follow up just on the topic of development had any commentary.
Speaker Change: That you could share maybe from franchisees either recently or from your convention last week.
Speaker Change: What theyre seeing and are they asking for anything differently today and that's all for me. Thank you yeah, Yeah I know, it's great. We literally last week spent.
Speaker Change: About four days with between five and 6000 of our franchisees and our vendors as well. So we got a really good take on instead of what the.
Speaker Change: The inputs to to development look like as well, but let me just start with the franchisees I would I would say we were really happy with how optimistic they were relative to everything that you're reading in the headlines. So that was a key positive in and what they are telling US is what we saw in Q1, which is their hotels are doing better than their peers in the <unk>.
Speaker Change: Market, which I think reflects the investments we made in the back half of 2020 for things like our loyalty program, our website and our revenue optimization service those three things in particular.
Speaker Change: They're really responding to and so that's flowing then into development.
Speaker Change: Fairly extended stay continues to be.
Speaker Change: A very sought after segment for us.
Speaker Change: When you look at the brands that we have there you have a proven prototype you have a proven operating model and you have a proven exit.
Speaker Change: That segment continues to be a very attractive two to owners I think it's also interesting to note because when times get uncertain people want certain brands.
And that's really where choice has excelled over the years, we have brands with very high brand awareness in our long history and track record of success. So do we have a lot of owners who are.
Speaker Change: Say when it when it starts to rain people, who are independent hotels or or maybe in a different brand. We trend we tend to attract more hotels during times of uncertainty because we have those proven brands and so we had a lot of interest I think in our soft brand and upscale we've got a lot of interest obviously in our core enterprise.
Speaker Change: Which primarily.
Speaker Change: Conversion brands so.
Speaker Change: The development team was pretty optimistic coming out of our convention.
Speaker Change: And so I think from that standpoint owners are.
Speaker Change: Particularly our ownership base many of them have been with us for decades, they know that in a period, where we're in right now where supply really hasn't grown much over the last three years, it's been sub 1% and you see this really strong consumer.
Speaker Change: That's a really healthy environment to start developing hotels in so that by the time you do open your hotel you're into a a significant uptick in in Revpar. So I would say we were pretty.
Speaker Change: Pleased by the optimism that our owners we're showing.
Speaker Change: Just on the trade shows side of the house, but it's also very interesting to talk to our vendors.
Speaker Change: Many of them have gotten ahead of the whole tariff.
Speaker Change: Impact by bringing inventory here sooner.
Speaker Change: And then secondly, many of them told us they have figured out ways not to pass that cost on to the owners. So.
Speaker Change: Who was talking about a price increase that was usually 10% that seem to be the number we were hearing which is very absorbable in the in the in the way our franchisees are thinking about development moving forward.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Patrick shows with <unk> Securities. Please go ahead.
Speaker Change: Great. Thank you good morning, everyone.
Speaker Change: Good morning, good morning.
Speaker Change: On the.
Speaker Change: Yes.
Speaker Change: The economy and mid scale significant outperformance versus.
Speaker Change: The average in the Smith travel results I hear what you said.
Speaker Change: Certainly taking market share was there anything else above and beyond market share such as Europe.
Speaker Change: Are your locations are concentrated such as any things such as a hurricane tailwind helping you in.
Speaker Change: In the quarter. Thank you and then I have a follow up.
Speaker Change: Yes.
Speaker Change: Yeah, I think Patrick on the short term, it's the things that we've been talking about for quite some time things like road trips gas prices are the lowest they've been in three years.
Speaker Change: So we are seeing those hotels that are in more drive to locations.
Speaker Change: <unk> performing well.
Speaker Change: What's interesting is we have the ability today to pulse our travelers. So we did a survey is this whole sort of economic uncertainty began to develop in late March and April.
Speaker Change: And 90% of them told us they were going to travel as much or more than they did last year and they said that they've seen prices are rising, but they said, they're going to find ways to cut back by basically driving instead of flying.
Speaker Change: Taking vacations and more affordable places.
Speaker Change: And travelling domestically as opposed to internationally so.
Speaker Change: That's our customer it's not it's not industry survey. These these are our abilities to actually talk to our to our existing customer base and that's what they're telling us and then I think the long term trends, we've been talking about as well the re shoring of American manufacturing.
Speaker Change: Those are the things that are driving more extended stay and mid scale.
Speaker Change: Stayers and so we are beginning to see some of that as well.
Speaker Change: We've also talked about you know the retirees.
Speaker Change: The 4 million additional people, reaching retirement age this year.
Speaker Change: Our brands are well positioned for those who are traveling and looking for an affordable option.
Speaker Change: Where they are no longer working and they're they're living on more of a <unk>.
Speaker Change: Unlimited income so those are all areas that I think as we've looked into whats driving our Q1 performance and why we're taking share. So those are some of the key drivers yeah. The only thing I'll add to that Patrick just when you look at our business travel.
Patrick: Mentioned earlier in our remarks, it's up to 40% of our mix and we saw really strong growth in our business travel, which was up 10% and I think what's great about our business travel, it's really business travelers that were their job can't be accomplished without without traveling so we've been making investments in our capabilities to drive.
Patrick: More business travel with an expanded sales force going after new segments and verticals.
Patrick: And really improving the effectiveness of our sales tools, so really saw that come to fruition here and youre starting last in the fourth quarter and carrying into the first quarter. So pointed out is another.
Patrick: Reason for our outperformance.
Patrick: Yes. Thank you.
Patrick: Final question is you have to ask.
Patrick: Hi.
Patrick: Certainly.
Patrick: Excelled in the Midscale and economy, when I look at the upscale and above Revpar.
Patrick: That did seem to be significantly lower than what would be implied in the Smith travel.
Speaker Change: Can you give a little bit of color on that is there something idiosyncratic on that how we should think about.
Patrick: Upscale and above thank you.
Patrick: Yeah. It really for that we report our Revpar results on a full system basis. So it's not a same store sales basis. So really the decline was due to a few properties, leaving as well as.
Patrick: Some newer properties ramping so when we look at it on a same store sales basis actually our upscale was slightly positive for the for the quarter, so little bit of noise and just some of the shift of the portfolio.
Been out here as the year goes on and then just quickly follow up.
Patrick: On a same store basis for Youre outperforming is that apples to apples as well with that outperformance.
Patrick: Apples to apples in with regard apples to apples just how the upscale.
Patrick: Underperformance wasn't really an underperformance.
Patrick: The outperformance senior economy mid scale is that an apples to apples outperformance yes.
Patrick: Yes. So yes. It is I just with upscale just a little bit of a smaller portfolio. So a few hotels can move the numbers a little bit more than our broader portfolio great.
Patrick: Great. Thank you for the clarification I'm all set.
Speaker Change: Next question comes from Robin Farley with UBS. Please go ahead.
Robin Farley: Great. Thank you.
Robin Farley: Just looking at the runes in your pipeline at the end of the quarter. It seems like it ticked down each quarter for the last four quarters.
Robin Farley: It is the.
Robin Farley: Growth that Youre looking for is that mostly that.
Speaker Change: D Theres, an acceleration in conversions or something that so it may not be showing up in the pipeline but.
Speaker Change: How should we think about that sort of ticked down.
Speaker Change: Yeah.
Speaker Change: Yes, Robert I mean, when you look at our global pipeline it's about.
Speaker Change: About 83% is domestic about 70% is international.
Speaker Change: When you when you when you tease out new construct versus conversion, it's like two thirds, new construct one third conversion, but as we talked about it's the velocity of the hotels on the conversion side that moved through very quickly.
Speaker Change: On average it's like three months. So in many cases, we have hotels that just don't sit in our pipeline.
Speaker Change: As we look across the industry a lot of these pipelines are getting bigger and bigger, but they're not resulting in and actually open hotels and so what we saw in the first quarter actually it was a significant amount of openings kind of getting through that that pipeline as well.
Speaker Change: I think as Scott had mentioned earlier you know Q1 is a period, where we generally do some pipeline clean up as well.
Speaker Change: It doesn't make sense for us to have a proposed hotel coming into a market. When we have another owner who is ready to develop in that market. So that's really I think a reflection of what you're seeing there.
Speaker Change: And when you talk about the key search new construction, one third conversions.
Speaker Change: Did I hear that right the terms here.
Speaker Change: Brian.
Speaker Change: Yes, that's within the pipeline and that's really a reflection of the fact that new construction hotel will be in your pipeline longer just given the longer time from contract execution to actually construction and opening the hotel so as Pat mentioned that velocity of our conversions and our pipeline, even if thats, 73% of our openings during the first quarter.
Speaker Change: <unk>, we open a hotel within the three to six month period, if its conversion. So they don't sit in our pipeline very long and we even have instances where something could be sold and opened in the same quarter. So historically, while our openings have been more two thirds conversions one third new construction in the pipeline actually is the inverse of that just given the time.
Speaker Change: Time to open.
Speaker Change: Do you have that mix sort of compare to 12 months ago that T shirts, new construction lender conversion. That's my last one thanks.
Speaker Change: It's probably the same Robyn I mean, that's been our.
Speaker Change: Pretty consistent mix for us for quite some time.
Speaker Change: Thank you.
Speaker Change: Next question comes from Meredith.
Speaker Change: <unk> with HSBC. Please go ahead.
Meredith: Yes. Thanks, Good morning, I'm, just wondering given you are speaking about the strong business demand.
Speaker Change: And also.
Speaker Change: How that might feed into length of stay because in our business may stay shorter then you offset that with extended stay having longer. So I was wondering if you might speak to kind of the trends in length of stay.
Speaker Change: And how some of those segments are booking in terms of also.
Speaker Change: King waning now.
Speaker Change: That would be great.
Speaker Change: Yeah, just briefly on the booking window I think in what we've seen is the window has contracted somewhat and that's that's a reflection of this sort of uncertain environment cause that contraction, but it was within the last six weeks or so that being said the business is showing up as I mentioned last week, our year over year pace actually increase.
Speaker Change: So the people are not booking as far out in advance, but they are they are ending up at the end of the day traveling I think when you look at our business mix within the segments and then maybe Scott can speak to length of stay.
Speaker Change: Extended stay the business travel.
Speaker Change: And and group business was up 7% in the quarter Upper Midscale is up 4% upscale is up 22%.
Speaker Change: So we're seeing a lot more group and business travel in our segments.
Speaker Change: When you look at extended stay the length of stay is actually much longer so it's not actually a shorter shorter business trip.
Speaker Change: And I would say that likely that the business travelers that were getting today.
Speaker Change: Given the types of industry verticals, we're pulling from construction logistics.
Speaker Change: Medical staffing these are more of a longer length of stay than kind of than our traditional leisure travelers.
Speaker Change: Yeah, I think I'll add obviously the length of stay is really driven by our focus on extended stay you know we are the market leaders now in extended stay we've been growing that segment, our rooms growth by over 10% for the last couple of years and we really believe we can continue to grow that for the next several years if not longer.
Speaker Change: And really so youre seeing the mix of our length of stay increase given our focus on extended stay as well as what I mentioned earlier is our focus on that business travelers. So really the two nicely dovetail together, so we actually saw about quarter over.
Speaker Change: Q1 versus Q1 of last year about a five percentage point increase in our average length of stay of nights at over 14, 14, plus nights. So really really good acceleration kind of the type of business, we're going after an increase in our portfolio size and extended stay.
No that's super helpful. Because I tend to think of that business demand staying in the upper upscale but understandably. They are staying in the extended stay for your for your area. So that would make it longer very quickly if you wouldn't mind touching upon international.
Speaker Change: And how sort of you look at expansion opportunities there.
Speaker Change: <unk> consolidation M&A any kind of color there would be great. Thank you very much.
Speaker Change: I think our international opportunity is really pretty exciting.
We've been talking about that's a key growth area for us.
Speaker Change: And if you are if you look at our kind of recent.
Speaker Change: Performance results, it's an area that.
Speaker Change: We're improving both in development and openings perspective, as well. So I think we feel pretty good about the opportunities. We have the Radisson acquisition really opened up and kind of created a new focus for us on the international segment.
Speaker Change: We're making significant.
Speaker Change: Progress in what we call Kalla, the Caribbean and Latin America.
Speaker Change: Particularly the Radisson brands themselves they have a much.
Speaker Change: Very high brand awareness down there and I think now being attached to our business delivery engine, we're getting a lot of really significant interest there I was just.
Speaker Change: Up in Canada on a Monday Tuesday at our Canadian Hotel investment conference up there and we've been in that market for 70 years. So we are very well established brands. There we have about 362 hotels.
Speaker Change: But that is another area that is really ripe for extended stay growth.
Speaker Change: And with our presence there our long history of operating performance, we do see opportunity there in Canada has got very similar so the supply and demand.
Speaker Change: Characteristics is here in the U S. So there's a lot of a real interesting opportunity for us from a growth perspective on the international front.
Speaker Change: Thanks, so much.
Speaker Change: Again, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Your next question comes from done, whereas you link with Morningstar. Please go ahead.
Speaker Change: Good morning, guys. Thanks for taking the question maybe just one.
Speaker Change: With the April normalized Revpar being down 1% wondering if you could maybe talk about how leisure group business performed in that month.
Speaker Change: Relative to kind of March and then how those three groups are kind of being viewed in your updated revpar guidance. Thank you.
Speaker Change: Yeah, Dan I think the challenge with April was the Easter shift and the eclipse and and we had a number of hotels that were right in the line of the eclipse and they were con lodges in the middle of the country, where we're going for $700 a night and rooms. So the April it's been really hard to sort of tease.
Speaker Change: Al can you see any specific patterns with regard to to leisure travel and then obviously, the Easter shift with which we deal with.
Speaker Change: On a continuous basis every year it made it made it a little bit more challenging so I'm not sure. There's anything in specific we can read through on on leisure in the month of April that that is indicative. So we've really kind of looked more at the long term.
Speaker Change: We've looked at the.
Speaker Change: The reasons for optimism for the summer are really the key reasons that that have always driven our business, which as employment remains high gas prices are low and consumers appear to be saying, they're going to drive to as opposed to fly.
Speaker Change: And so that generally.
Speaker Change: It does really well for our hotels that are right next to the highway 500 hotels near National Parks. Like these are these are the things that as consumers.
Speaker Change: Dial back on their spend but not on their travel they tend to go to these types of locations. So that that's really when we look at when we surveyed our customers and we look at talking to our franchisees last week, who are in some of those markets.
Speaker Change: That's what gives us the optimism around being able to perform at the top or at the upper end of our range.
Speaker Change: Okay Fair enough and then just clarification question on the business being 40% of your business is that revenue is that room nights.
Speaker Change: Does that include group our group would be separate.
Speaker Change: It's revenue and group is a mix of both business and leisure. So group overall, it's about 10% of our of our total delivery in the quarter.
Speaker Change: So yeah that business is a.
Speaker Change: It's a revenue number.
Speaker Change: Okay perfect. Thank you.
Speaker Change: Okay.
Speaker Change: There are no further questions. Please continue.
Speaker Change: Well, thank you operator, and thanks, everyone again for your time. This morning, we will talk to you again in August when we announce our second quarter of 2025 results have a great rest of your day.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.