Q2 2025 Choice Hotels International Inc Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels, International second quarter 2025 earnings call at this time. All lines are in lesson only mode. I will now turn the conference over to Miss Alice, investor relations, senior director, for Choice accounts. Thank you, please. Go ahead.

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.

Actual results May differ materially from those indicated and forward-looking statements and you should consult the company's forms. Thank you and K and other SEC filings for information about important risk factors, affecting the company that you could consider.

These forward-looking statements speak as of today's date. And we undertake no obligation to publicly update them, to reflect subsequent events or circumstances.

If you can find a Reconciliation of our non-gaap financial measures referred to in our remarks, as part of our second quarter, 2025 earnings press release, which is posted on our website. At Choice, hotels.com under the investor relations section.

This morning, Pat Pat, Pat patience, and chief executive officer will speak to our second quarter, operating results and update on our strategic priorities. While it's called oaksmith Chief Financial Officer. We'll discuss our financial performance and outlook for the remainder of the year.

Following our prepared remarks, we'll be glad to answer your questions. With that, I'll turn the call over to Pat.

Thank you, Ally. And good morning, everyone. We appreciate you taking the time to join us.

I'm pleased to report that in the second quarter, the ongoing momentum from our strategic Investments, drove our adjusted ebata to 165 million, and our adjusted earnings per share 4% higher year-over-year.

We also achieved a more than 2% year-over-year net increase in global rooms, including a 3% net increase in our more revenue-intensive rooms.

We are particularly pleased with the strong performance of our international business where we drove 10% growth in adjusted Evita and expanded our rooms portfolio by 5% year-over-year highlighted by a 15% increase in hotel openings.

Are more than 140,000 rooms outside of the US and CA significant opportunity to further gain international market, share in the coming years.

We are actively expanding our Global footprint across strategic markets through a recent acquisition.

Strengthening of key Partnerships and entry into new regions.

In the Americas in July, we acquired the remaining 50% interest in Choice. Hotels Canada from our joint venture partner.

This strategic acquisition marks, the next chapter in Choice. Hotels 70-year presence in Canada.

Transitioning us from a master franchising to a fully direct franchising model.

Our Canadian team will now expand their product offering and franchise success system support from the current 8 hotel Brands to our full portfolio of 22.

With particularly strong growth potential for our Extended Stay brands.

Canada presents an attractive opportunity with the lodging Market projected to grow at an average annual rate of more than 5% over the next 5 years, reaching over, 50 billion dollars in total revenues by 2030.

Our teams there have already established a strong base of 30,000 rooms a pipeline. Oh, over 2,500 rooms.

Approximately 9 million customers and over 200. Canadian franchises.

This powerful Foundation. Now, positions us to capture additional market. Share by leveraging, our local market, expertise, and choices, franchisee success system across all 22 brands.

Elsewhere in the Americas. We extended our Master franchise agreement with the largest multi-brand hotel, operator, in South America for an additional 20-year term covering over 10,000 rooms in Brazil. Thereby further, strengthening our presence in the region.

In the Amia region. We are very pleased with our progress and expanding our presence. After successfully onboarding approximately 4,000 rooms under direct franchise agreements. We've grown our room count to over 63,000. Rooms a 7% increase from the prior year.

We also entered a new European market by signing our first franchise agreement in Poland, 1 of the fastest growing markets in Central and Eastern Europe.

Turning to Asia Pac during the second quarter, our team signed a master franchising agreement with a leader in the upscale business Hotel and Resort segment in China.

This relationship is expected to significantly accelerate the growth of our midscale portfolio in China, with approximately 10,000 rooms over the next 5 years, and increase Choice brand awareness among Chinese travelers internationally.

Additionally, we secured a strategic distribution agreement, which will add over 9,500 upscale rooms to the Ascend Hotel Collection by the end of the third quarter, allowing our rewards members to earn and redeem points at these properties.

We believe these agreements Mark the first steps towards a long-term expansion opportunity in the region.

As we look at the domestic business, we continue our growth in the cycle. The resilient Extended Stay segment.

Over the past 5 years, we have expanded our Extended Stay portfolio, by over. 20% to nearly 54,000, rooms with the segments pipeline now, constituting half of the total domestic rooms Pipelines.

In the second quarter, we added over 5,000 rooms domestically compared to the prior year's quarter.

For 8 consecutive quarters, we have grown our domestic Extended. Stay room system size by double digits year-over-year and we expect this higher than industry average growth to continue.

This increased footprint provides us with even more confidence in the resilience of our business given the longer average length of stay and more stable Revenue associated with extended stay hotels.

And as they have in the past our extended stay hotels, continue to outperform the industry during uncertain times.

Hotel brands.

This strong guest recognition is translating into increased interest from developers as demonstrated by a 43% year-over-year increase in the number of woodspring Suites brand domestic franchise agreements awarded in the second quarter.

With half of the industry-wide economy. Extended Stay rooms currently under construction. Being the woodspring Suites brand, we are well, positioned for the future. Now, let me discuss how our strategic expansion in, a more Revenue, intense. Segments is positively, impacting our economy, transient brands,

As part of our portfolio enhancement. We have been delivery exiting underperforming hotels.

This approach allows us to open these markets to new owners and maximize Market potential for more profitable hotels.

Additionally over the past year, we have successfully elevated, Our Guest satisfaction scores in the economy transient segment by delivering enhanced guest experiences through our upgraded product quality.

As a result of these actions our economy, transient hotels are outperforming the economy. Change scale in domestic. Revpar performance while achieving revpar share gains versus competitors.

This improved performance enabled us to expand our domestic economy, Transit of rooms pipeline by 8% and execute 42% more domestic franchise agreements in the first half of 2025 year-over-year with the new hotels, expected to generate higher royalty, Revenue than the hotels, we exited.

We have re-energized. The Country. Inn and Suites by Radisson brand.

Our recently introduced value-engineered prototype for the brand helped drive an 11% increase in the brand's pipeline over the prior year's quarter.

In the upscale segments, we continue to expand our presence. Increasing the global room system size by 15% year-over-year to over 110,000 rooms.

With nearly 29,000, upscale Global rooms in the pipeline a 7%. Increase over the prior quarter, we will be providing our guests with even more aspirational locations to visit.

As we look to the Future, our Global pipeline provides a strong platform for long-term growth.

with 98% of the rooms within our more Revenue intense brands,

This means that our pipeline should generate significantly higher Revenue compared to our existing portfolio.

Driven by revpar premium of more than 30%.

A higher average effective royalty rate, and a larger room count per Hotel.

Our distinct strategy continues to deliver strong results. Reinforcing our competence in the long term Outlook.

Notably, our focused expansion in the revenue. Intense segments has elevated the domestic mix of higher Revenue, generating rooms to 88% of our system.

This improvement in our hotel, portfolio has further strengthened our overall value proposition to our guests.

Our guests strategy is tailored to address the underlying consumer Trends. We are currently seeing and have been focused on for the past several years, such as increasing, retirements

Road trips and domestic infrastructure Investments.

As more of our core customers, reach retirement, age this year, they have increased disposable income and time for leisure travel.

seeking Brands like ours, research shows that 1 in 4 Baby Boomers currently spends 6 times more on travel than the majority of Millennials and gen Z cohorts

with gas prices at their lowest level, since 2021 and approximately 90% of our domestic portfolio. Within 1 mile of a highway

We offer Travelers the opportunity to take more affordable vacations, close to home without the need to fly.

Additionally as we have been noting for some time significant infrastructure. Investments driven by gen Ai and the reshoring of American manufacturing are fueling new business demand, especially for our extended stay hotels.

By making deliberate investments to capitalize on these compelling tailwinds, our enhanced value proposition is driving stronger customer engagement.

And attracting higher value, more resilient Travelers.

We are seeing this in a more favorable guest mix.

Increased Traction in the small and medium business and Group Travel segments.

And the growing strength of our rewards program.

We expect these positive trends to further strengthen in the coming quarters and years, positioning us to capture significant future market opportunities.

Importantly, we achieved, occupancy index, share, gains versus our competitors. In the second quarter, even as the industry faced, macroeconomic uncertainty.

We believe this will contribute to increased loyalty and repeat guests over time.

Today approximately 40% of Our Guest profile. Mix consists of business Travelers, which we believe is a good balance between business and Leisure Travel.

Importantly choices, business Travelers, have a relatively resilient profile, which is particularly evident in our small and medium business. Segment performance, where revenues were up 13% year-over-year in the second quarter. We also see ongoing strength in sectors, such as construction, utilities and high-tech Manufacturing.

In addition our recent investments, in an enhanced group sales team and an expanded upscale Hotel portfolio continue to pay off.

This is demonstrated by the 48% year-over-year increase in revenue from the group travel business. In the second quarter driven in part by small corporate groups and sports travel bookings.

Our Rewards program is also delivering exciting results, benefiting from the Investments. We have made this year.

We expanded our Rewards program to nearly 72 million members and 8% year-over-year increase as of the end of the second quarter.

And I'm especially pleased to share the Choice. Privileges was recently named the top hotel rewards program by US, News and World Report and wallet Hub. A trusted source for personal finance, insights, and consumer rankings.

These recognitions are a testament to our efforts in creating a more compelling rewards program.

Including introducing new aspirational hotels and exciting experiences such as music, racing, and college sports redemption options, along with added program benefits.

Notably, our enhanced Rewards program is driving stronger, customer engagement.

During the first half of the year, we saw a more than 40% year-over-year increase in the booking window for reward night redemptions, which drove occupancy for our properties further out.

Additionally, our Rewards program enhancements contributed to the increase in the overall length of stay at our hotels compared to the previous year.

As we've highlighted previously, our focus on strategic Investments combined with the broader. Adoption of gen, AI is unlocking significant growth opportunities for both choice and our franchisees. Positioning us for long-term margin expansion and enhanced operating Leverage

In particular, our investments in franchisee facing, technology are empowering our franchise owners to maximize Returns on their assets.

Solutions such as advanced Revenue, optimization services and tailored profitability. Tools are designed to help Drive stronger performance of their hotels.

On the gas side we are elevating the customer experience through the launch of a redesigned Choice, hotel's, website, and mobile app.

Intelligent marketing initiatives.

And enhancements to our rewards program.

All of which are contributing to Stronger, customer engagement, and increase customer lifetime value.

I'm also proud that we were recently named to Time magazine's, 2025, America's best midsize companies list

This achievement is a testament to our strong company culture where we prioritize our people Foster Innovation and seek to deliver long-term value for all stakeholders.

In closing by successfully, executing our strategy, we have transformed the company to be future ready and established a strong foundation for both near-term, stability and long-term growth.

We believe that our proactive Investments.

We continue to grow our significant free cash flow annually, prioritizing the creation of long-term value by enhancing our value proposition, driving growth, and returning excess cash to shareholders. 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 capital allocation, and comment on our outlook for the remainder of 2025,

In the second quarter, despite a weaker than anticipated revpar environment, we achieved a record second quarter adjusted Eva of 165 million representing a 2% year-over-year increase.

Our growth was driven by the expansion of our Global rooms. A robust effective, royalty rate, strong international business, and successful expansion of our margins as we Implement technology and provide tools to improve the productivity of our Associates.

When excluding the impact of a $2 million operating guarantee payment for a portfolio of managed hotels, which was acquired with the Radisson Hotels America's acquisition, the adjusted EVA would have increased by 3%.

Our adjusted earnings per share also reached a second quarter record of $1.92 per share, marking a 4% year-over-year increase.

Let me first discuss our key drivers of royalty fee growth, which include unit growth, rebar performance, and our royalty rate.

In the second quarter our Global rooms grew by 3% year-over-year across our more Revenue. Intents upscale extended stay and mid-scale portfolio with total worldwide rooms growing by 2.1%.

Our deliberate decisions and strategic Investments delivered results across all our brands in the second quarter.

First, we grew our domestic Extended Stay room system size by 10% year-over-year.

By a 7% increase in domestic openings.

At the same time, we saw a 6% increase in domestic franchise agreements, awarded year-over-year.

Home, suites brand continues to gain strong traction with 17 hotels. Now, open 11 of which are open this year and 55 domestic projects in the pipeline including 16 under construction as of today.

Second, we further strengthened our presence in the midscale segment.

Our Flagship Comfort brand continues. Its growth trajectory with a 50% increase in global openings and a 23% year-over-year increase in domestic franchise agreements. Awarded

Third, we expanded our Global upscale portfolio and attracted strong developer interest with a 38% year-over-year increase in domestic franchise agreements executed.

Specifically, our Send Hotel Collection, a leading global soft brand, reached over 65,000 rooms worldwide and saw a 29% year-over-year increase in domestic franchise agreements. We were awarded this increase due to the strong demand we continue to receive from developers for our brands. We are focused on continually elevating the strength and quality of our portfolio by exiting select underperforming assets that fail to meet our requirements and standards, which, on average, under-index the rest of our portfolio.

in the second quarter, we achieved Global systemwide rooms growth even as we made some of these strategic exits turning now to our rev part performance,

excluding the tougher comparisons due to the Easter calendar shift to April, as well as the benefit from Eclipse related travel in 2024, domestic rev part declined. 1.6% for second quarter 2025 compared to the same period of 2024. Our overall second quarter results declined 2.9% reflecting reduced government and international travel as well as softer Leisure Transit demand due to the broader economic uncertainty, as well as the Easter and Eclipse impacts.

As Pat mentioned, we were pleased that despite the macroeconomic, headwinds, our strategic Investments to improve our brand portfolio and expand our customer reach, drove occupancy, share index, gains versus our competitors.

In particular our domestic Extended Stay segment outperformed the industry's second quarter revpar by 40 basis points and delivered over 3%. Year-to-date revpar growth through June 30th.

At the same time, our domestic transient economy segment outperformed, the economy change scale by over 3% points, achieving red part index, share gains versus competitors in the second quarter and also increase its year-to-date rev par by over 3%.

moving on to our third role at the growth level, we are pleased to report that the continued expansion of our effective royalty rate, remains a significant source of Revenue growth,

In the second quarter, our domestic system effective royalty rate increased by 8 basis points year over year.

Impact of our strategy to drive the growth of our Revenue, intense brand portfolio and our enhanced value proposition to franchise owners.

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 rates than those in our current portfolio of open hotels. We continue to strengthen our partnership business, which encompasses revenues from our street, strategic partners and vendors.

Excluding a 1-time benefit in 2024 related to our prior credit card partner, this Revenue stream increased 16% in the first half of the year and 7% year-over-year in the second quarter.

Primarily due to higher partnership, fees from our co-brand credit card.

We are also seeing these positive results in our non-rev PAR-related franchise fees for various services we provide, which increased by 6% in the second quarter compared to the prior year.

Expanding our partnership services and fees, as well as our non-rev part related, franchise fees remain one of our key initiatives. We believe that we can drive strong revenue growth in the years ahead.

Finally, we expanded our ibida margins by 120 basis points. During the second quarter as we continue to grow our Top Line while improving the productivity of our Associates and the efficiency of our operations reflected by a 4% decline in our adjusted sgna.

In the 6 months, ended June 30 2025, we generated 116 million dollars in operating, cash flows, including 96 million in the second quarter and our free cash flow conversion was approximately 50%.

Our business continues to produce strong cash flow, which, coupled with our well-positioned balance sheet, allows us to execute on our capital allocation priorities.

These include investing in growth initiatives and Acquisitions while also returning significant Capital to shareholders.

Year to date through June, we've returned 137 million to shareholders, including 27 million, in cash, dividends and 110 million in share purchases.

We had 3 million shares remaining in our authorization, as of the end of June as pad discussed, we acquired the remaining 50% interest in Choice, Hotels Canada from our joint venture partner for approximately 112 million US Dollars subject to customary adjustments for working capital and cash.

For full year. 2025 Choice, Hotels Canada's operations are expected to generate approximately 18 million dollars in ibida, in US Dollars and we anticipate growing this ibida through the realization of cost synergies and driving higher revenues. As we introduce our full array of Brands to this key Market, which offers us significant development growth opportunities.

As a reminder, Choice Hotels Canada franchises over 26,000 rooms in Canada, which were already part of our system before the acquisition.

We remain. Well, positioned with a strong balance sheet with gross debt to trailing 12-month, evaa ratio of 3.1 times as of quarter, end and total available, liquidity of 588 million, as of June 30th 2025.

Furthermore the performer leverage ratio accounting for the Canada joint, venture acquisition remains at the low end of our targeted range. Finally, I'd like to discuss our expectations for the remainder of the year. As a reminder in the fourth quarter, we will face tougher comparisons due to the hurricane related demand. We benefited from last year

Reflecting the more uncertain macroeconomic backdrop which is impacting domestic rebar performance across the lodging industry, particularly the mid-scale and economy segments. We are adjusting our domestic revpar. Expectations to a range of minus 3% to flat.

The midpoint of this range assumes that the current trends we are observing will continue for the remainder of the year.

For the full year. 2025, we are maintaining our adjusted Eva Outlook range of 615 million, and 635 million.

The guidance reflects a more moderate domestic reparations, offset by effective cost management and the additional earnings from the purchase of the remaining interest in Choice, Hotels Canada.

We are updating our full-year guidance for adjusted sgna. Now, expected to grow at the low. Single digit rate from the 2024 base of 276 million.

We maintain strong conviction. In our portfolios, resiliency, our models versatility and adaptability, and the strength of our fee, based business.

We anticipate growth will be driven by more revenue, intense hotels, and robust effective royalty rate growth.

Growth of our partnership revenue streams, strong international business and incremental Revenue generating opportunities from our expanded scale.

This Outlook does not account for any additional m&a. Repurchase of the company's stock after June 30th or other Capital markets activity,

Business model, even in a softer domestic revpar environment.

We intend to keep investing in those areas of our business that will generate the highest return on our capital.

At this time, Pat and I would be happy to answer any of your questions, operator.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star 4 on your telephone keypad. You will hear a prompt indicating that your hand has been raised. Should you wish to cancel your request, please press star 4 to do so. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.

Thank you. And your first question comes from the line of Danny acid from Bank of America. Please go ahead.

Uh hey uh good morning everybody. Um so Pat maybe if we look at your International expansion, just from a strategy perspective, this quarter, you know you're going Direct in Canada, but in other regions like South America and China. They're a master franchising. So, um, how do you decide on Direct versus Master franchise in any given market? And should we expect 1 over the other over time? And then, maybe can you just remind us of the difference in economics between the 2?

Yeah, sure Danny. So, you know, effectively the um if you look at where we are and and in our International growth strategy, a lot of this goes back to the acquisition, we did of our Addison. So we bought that brand at the um,

End of 2022. Effectively back half 2023 was really a focus on the cost synergies. 2024 opened up a number of Revenue Synergy opportunities and now in 2025 we're really leveraging that platform plus our existing business to expand internationally. The way we think about direct versus Master franchisee is really what are the fundamentals in each of those um countries and in markets where small business owners can aggregate capital and there's the correct regulatory environment. Uh, those are generally the 2 things that we look for where direct franchising makes sense. Um, I would add to that the ability for for, uh, owners to actually acquire the land. Um, and so, you know, in certain markets where we are doing direct franchising, so Canada. Now, Mexico, um, Australia and New Zealand Europe, um, a good part of South America. Um, all of those factors are are present there. And if you look at our mix today, um, post

Acquisition of Canada, we're now more, uh, direct franchising than than Master franchising across the International portfolio. So those are the things that we look for. And, you know, as we said in our remarks, the Canadian opportunity, we've been in that market since 1955, um, built a great business there of the 70 year history. We had a 30-year great partnership with, um, with our JV partner. Um, but since we acquired 9 additional brands from Rison, we also have our Cambria brand and our Extended Stay Brands. Bringing all of those to be supported by our existing Canadian team just makes a ton of sense, both from a opportunity perspective but also cost avoidance of going into Market in both in in the prior world, we were doing both direct franchising for those other brands and and the MFA. So uh, it really is a great uh, opportunity for us to consolidate. Um, the operation, their leverage, the talent of our team uh, headquartered out of Toronto and and really grow our business. There

Thank you. And your next question comes from the line of Michael Alissar from Beard. Please go ahead.

Next morning, 2 2, more follow-ups. On Canada. I mean, first things can, you just help us understand the growth Outlook there?

Over the coming year. Coming years. I know that you mentioned sort of the demographic drivers but maybe more specifically how quickly can you open? New hotels are convert hotels and then can you quantify some of the revenue and cost synergies that you referenced maybe kind of on the stabilized basis 2 to 3 years out. Thanks.

Going up sooner. Um, you know, I think when we look at the health of that market, the reason we disclose just some of the the growth trajectories there, you know, 5% Healthy Growth is is, is really positive. But the other thing is the quality of the product in Canada, the rep part there of that system is, um, is pretty significant. So it's it's good quality product and the franchisees up there. We already have an existing base of 200, uh, who are interested in doing more brands with us. So uh, really having that support team up there, supporting all of the brands I think is going to be a um really exciting growth opportunity for us. I think as we get further into uh the ownership structure and and some more details and maybe in the future, we can provide more um unit growth expectations for that market but we're pretty excited by the interest in Our Brands up there. And as I said the long history, uh, we have with existing franchises

Helpful. Thank you.

Thank you. And your next question comes from the line of 10 policy from JP Morgan. Please go ahead.

Hey, good morning everyone. Thanks for taking my questions. Um, another 1 on International, I mean, I think that by our estimate this is about uh, you know 67% of your EA maybe a couple points higher now with Canada. Do you have a a long-term expectation? Uh well 1 I wanted to send you check that but 2, do you have a kind of a long-term goal or expectation for how this could evolve over time in the coming years as maybe you look.

These International deals.

Yeah, I think, you know, for, it's, it's it obviously differs by region. Um, I think if you look at the, um, 7% increase that we saw in AMEA, um, a lot of that is, you know, sort of, um, based off of the, um, existing franchise eBay and the opportunities we have for our Brands, and they differ, they do differ by region. Um, so we do see significant upside there. I think, um, what we'll likely do sometime in the future is sort of lay some of this out in a more detailed, uh, fashion about, uh, where we see those growth opportunities. But as I mentioned in the remarks, some of these are foundational. So what we are seeing in China, uh, for instance, is partnering with a very strong player in that market, um, bringing a couple of our mid-scale Brands there with a pretty significant opportunity. Um, it's really a look into these markets and looking at the right partners that we have on the MFA side and then on the direct franchising. Um, as I said, you know, particularly in the Americas.

Region. Um, we are looking to grow the system size their very similar to what we experienced here in the US. And Dan, to follow up on your question on, just the absolute side. Yeah, you're, you're, you're right it's about 6% of our current e but uh, prior to the acquisition of choice, of tells Canada. And what we're really excited about is we've been able to really grow that ibad during the quarter that was up 10% even before the acquisition. So really a strong opportunity for us a lot of white space or

We think we can grow at a more accelerated fashion, uh, for the company.

Thank you. And if I could just squeeze in a quick follow-up, just in terms of the Rev Park, Cadence, uh, you guys called out and reminded us that, that fourth fourth quarter, hurricane benefit, which we have from the prior year to, to compare against. Is there any way to kind of, think about or frame out? You know, the the Cadence of rev Park growth for the rest of the year. Um, just giving some of the splits and takes

Yeah. Just as a reminder, what we talked about in the fourth quarter of last year is we did see about 125 basis, points lift, um, related to Business Delivery, from FEMA accounts, the Red Cross business, as well as uh increased spending from the restoration Crews um for the rest in terms of the pace for the rest of the year, really where our guidance is in. The midpoint is is to think about our pace for the uh the second quarter to continue through the rest of the year, uh, that would hit about the midpoint of our guidance. Uh, obviously, any Improvement to that would be towards the top end. And, and any softness would be towards the bottom end.

Got it. Thanks so much.

Thank you. And your next question comes from the line of Patrick Schultz from through with security news. Please go ahead.

Hi, uh, good morning everyone.

My first question. Good morning um you know in the prepared remarks uh everything sounded pretty uniformly positive

Um, but then, on the other hand, you're taking your uh, revpar guidance down, um, where you called out?

Uh, basically current trends as the driver for that. I wonder if you can talk a little bit more on, you know, specifically what in those current trends is softer now than your previous expectations. You know, customer segments, geographies, etc. And then I have a follow-up question. Thank you.

The whole industry is experiencing this a really International inbound and government travel. Those are the 2 things that have sort of modestly. Um set back uh rampar expectations. You know I think when we the reason we're positive is if you look at the US consumer, consumer confidence is trending up. You know, credit card delinquencies are flat. Uh we pointed out in our remarks gas, prices are lower, people are driving more than flying, um, and then you've had some, some pretty significant catalysts in the kind of middle of the Year here, you've got certainty. Now on tax reform, you got a solid labor market, the trade policies, sort of settling out, corporate profits are healthy. And then you've got these, you know, catalysts for growth, the significant investments in both infrastructure. Um, with Jen Ai and all of the efforts that we see going on around that and then the reassuring of American manufacturing. So you couple that with the limited social Hotel Supply growth that the industry seen for the last couple of years. And particularly, in our segments,

Um, it gives us a lot of optimism about the future of red Park growth. Um, so that, that's, that's why I think we we're, we've had this sort of very choppy. Uh, first half of the year. Um, the upside case is, is pretty strong when you look at the industry, fundamentals. And so that, that's why, when, when we kind of look at the uh, the red par environment, um, those are the, those are the positive aspects but we are still as as we mentioned seeing, you know, softness from government travel and international inbound,

Okay, thank you. And then my follow-up question. This actually has to do with an article that came out news article a couple weeks ago, uh, regarding a

loan that you had made in San Jose to a Motel 6 property and a Super 8, uh, property. Um, neither of which, I believe are your Brands, um, for 22 million that appears to for the article. Uh, defaulted, I guess my question is, um, why did why is Choice making loans to competitors Brands and secondly are there uh any other uh loans of size similar like this that we should be aware of, thank you.

Yes, so we those, those loans were not to competitor Brands. So, um, they were around, um, some new product that we had brought in, at our park, in brand last year, as we launched it. So, you know, typically we do use our balance sheet to launch new brands. Um, I think you're, well, aware of the, the Investments we've made over the years in Camry and ever home to launch it. We had a previous Motel 6 owner, that was bringing a large amount of properties over to the park in brand to get that brand started. And we did make, um, a loan on 1 of the properties, um, that that owner has had some financial difficulties, but we are working through the collection process on that. Um, we do detail our, um, overall loans which are predominately towards, uh, Cambria and ever home and our financial disclosures, uh, but nothing of significant.

Other than that, that isn't, um, any financial difficulty at this point.

Okay. Um, thank you. Um, any other significant loans of of size that are uh in good standing.

Thank you. That, that's my last question.

Yeah, we we don't typically do lending, you know, typically our our Capital support programs have been more in joint ventures and and building hotels, um, on the books. Today we have just under eighty million dollars of loans on the books spread across multiple properties.

Okay, including thank you. I asked it's just it it seems so unusual. Thank you.

Thank you. And your next question comes from the line of Robin Farley from UBS. Please go ahead.

Great. Thank you. Um, just wanted to make sure I understand looking at your Global. Um, net system rooms. The guidance is for 1 grow this year and that didn't change since last quarter. But it seems like the agreement in China and, um, would already. I, I know the rooms in Canada would have been in your system already, but it does seem like China would have added to that. So just wondering if that's not included in that global net systems guidance yet, or if it's just that, you know, maybe some domestic deletions were were part of that.

Um, to uh, sort of, you know, kind of continue to to, uh, exit out underperforming properties, because we've got such strong demand in that segment, and you saw that in our numbers. So, um, what we're looking at on from a total unit growth is the benefits of the, um, future, uh, contracts that we've got, um, either already awarded or apps that we have received or are in-house and also the Strategic terminations that we're doing along the way. And Robert, I would say we we executed that Chinese agreement towards the, um, beginning of the quarter so that was contemplated in our previous guidance.

Great, thank you. And, and then, um, just also wanted to follow up the there was an operating profit guarantee in this quarter that was a little bit of of an impact. Are you that are there additional operating profit guarantees? Um, just, you know, kind of this year next year, any future years just for us to think about, thanks.

Yeah, as you as you're aware, we the management business is not a large part of our business. We did acquire that with the Rison hotel is America's so we managed 13 hotels, a portion of those are with 1 owner. There is an operating guarantee across a portfolio of hotels um the total amount um that potentially could be paid under that, over the life of the agreement is twenty million dollars. Um, it's an annual um, evaluation of that agreement. So we did um, some softness of some of the markets as well as a renovation of 1, of the hotels, had put us a little bit behind on the performance.

Um, but at this point in time, you know, we evaluate that going forward and and don't expect to pay anything more material than what we've recorded today. But continuing to monitor, uh, the performance of those hotels.

Okay, great. Thank you.

Thank you. And your next question comes from the line of Meredith Jensen from HSBC. Please go ahead.

Yes, good morning, thanks. Um, I know in the past you've spoken about managing the balance between occupancy and rate as part of revenue optimization. And so, I was wondering if you could speak to sort of how you're thinking about driving incremental occupancy, particularly now, um, as you have sort of a different mix of, um, with higher variable service costs associated to, you know, sort of higher, um, revenue-intense brands and sort of how you and the franchisees are approaching this trade-off in this kind of environment. Uh, thank you.

Yeah, Meredith, it's a great question, and it's actually kind of a reflection of how our franchisees, I think, are managing through this uncertainty. Um, the good news for us is that they are hanging on to occupancy and actually taking occupancy share gains. Um, which is a reflection of the primarily limited service nature of our brands. And I think it's really important to understand that fact. So, yes, we are in more revenue-intense segments. Um, but that doesn't necessarily mean the cost per occupied room.

Room is higher. Um, you look at extended stay for instance, where the cost per occupied room is very low, but the revenue intensity of those Brands is higher because of the length of stay, um, and, and the, the, uh, the room count in the hotels. So, um, our owners have been managing this through through this, uh, time of uncertainty. Looking to hold on to customers. Um, and because of the limited service nature of those Brands. Um, the profit margins on each room, make sense for them. So we see it as a positive sign. And if you're, um, well aware of sort of past Cycles, um, you know, you need occupancy in order for rate, gains to return. Um, and so, we're pretty pleased to see that occupancy is not dropping as well as rate. Um, so to have occupancy, be stable or, or slightly up up is a positive sign for the future.

That's that's super helpful. Um,

Uh a color. Thank you very much and very quickly if um I was wondering if you could just uh clarify how many of the ever homes and Cambria you you still have over uh in ownership and how you're thinking about recycling those and lastly sorry to talk 1 more and if you could discuss conversion activity internationally in particular,

Thank you. Yeah, I can, I'll start with the, uh, ownership of hotels. So, today we have, um, 13 hotels that we, um, own and operate. Um, those are 8 Cambria, uh, 3 Rison and and 2 ever homes.

Super, thank you.

Look at latam um you look at Australia and New Zealand, some of those markets. Um the uh conversion and uh new construction mix is very similar to the US

Okay, thank you.

Sure.

Thank you. And your next question comes from the line of Alex mull from row. Child and Co red burn up. Please go ahead

Morning. Thank you very much for for taking the question. Um could we just look at the the US um net unit Evolution uh I guess in that there's a little continued reduction in Madison

But just across the the beginning of the year, it's down over 10,000 rooms. So so maybe you could just give us some detail on how much of that is sort of the intended churn of low Revenue rooms that you've taken out. And whether you could just sort of gross and, and that number within that. Um, and then just on the, the, the 3% that you said, in terms of the higher-end brand growth again, would that include the the China partnership agreement from the Ascend collection, would that be within that number? Because obviously, that that's a relatively, um, big number, thank you.

Yet um, to answer your uh, your your first question on Rison. So, 1 of the things that I think we talked about in the first quarter is skewing the results a little bit is. Um we did have a a more of a distribution agreement that came over with the Rison acquisition with uh the Treasure Island Hotel in Las Vegas. Uh represented close to 3,000 um, rooms. So um, those was just a, uh, loyalty program Arrangement that, you know, paid for loyalty program members that stayed there. So, it was something that when we, um, uh, Acquired ratis and it it was known, um, contract, that was expiring that we knew it was leaving the system. So it has skewed. The room numbers, a little bit, but was not a meaningful Revenue. Contributor, I'd say, in terms of the other declines again. Um, you know, as as we purchased that brand, uh, we understood that there was some underperforming properties and, you know, with the success we've had in upscale, we thought it was the right thing to do is to make sure that we have the right product going forward for our guests. So, uh, the rest of it is all been planned of what we expected. Um for the Rison brand to churn, uh, we do have

Expecting kind of 26/27 to start seeing more growth there. Um, certainly we've seen that on an international basis, um that's a very strong uh brand in the latam. So we've been pleased with um the kind of with the global story looks like for for Rison. Um in terms of your your numbers, I think you're talking about our internet, our, our rooms growth to date, uh that does not include. Um, we have not opened yet the Chinese hotels yet. Um, so that 3%? Um, that's still sitting in the pipe pipeline for the Chinese hotels. And

Not included in the year-over-year. Um, gross rates of our overall portfolio through June 30th.

Okay, that's fantastic. And I guess to follow up on that, the second question then is how much of the growth in the Revenue 10 segments is coming from the international business, where obviously there is a much higher mix of kind of master franchising and lower fee agreements, which of course dilute the overall group?

Royalty rate.

Yeah, I would say outside of the Chinese partnership, you know, most of the growth we have is coming from the direct markets, which are a much higher royalty rate, as we've talked about. So, um, the growth we've had in Europe with our partnership with Zenitude in France. Um, we've signed in with a multi-unit developer in Spain. Um, all those are direct franchise agreements. They're paying on that higher royalty rate. So, outside of the Chinese partnership, um, on the indirect MFAs, uh, it's mainly direct franchising growth.

And it's from a revenue intensive. Our economy brands really aren't represented in a meaningful way. So, it's almost 100% from an international pipeline that is in those revenue and ten segments.

That's really helpful. Thank you so much.

Thank you.

And there are no further questions at this time. I will now hand the call back to Mr. Pat pushes for any closing remarks,

Thank you, operator, and thanks everybody again for your time. This morning, we will talk to you again in November. When we announced our third quarter 2025 results, have a great day.

This concludes today's call, thank you for participating. You may all disconnect.