Q4 2024 Choice Hotels International Inc Earnings Call

In This Article: Participants Allie Summers; Investor Relations, Senior Director; Choice Hotels International Inc Patrick Pacious; President, Chief Executive Officer, Director; Choice Hotels International Inc Scott Oaksmith; Chief Financial Officer, Principal Accounting Officer; Choice Hotels International Inc David Katz; Analyst; Jefferies Dany Asad; Analyst; BofA Securities Inc Michael Bellisario; Senior Research Analyst, Senior Research Analyst, Hotel Reits & Global Hotel Brands; Robert W. Baird & Co Inc Robin Farley; Analyst; UBS Equities Stephen Grambling; Analyst; Morgan Stanley Patrick Scholes; Analyst; Truist Securities Brandt Montour; Analyst; Barclays Meredith Jensen; Analyst; HSBC Alex Brignall; Analyst; Redburn Atlantic Presentation Operator Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International's fourth-quarter and full year 2024 earnings call.

I will now turn the conference over to Allie Summers, Investor Relations, Senior Director for Choice Hotels. Allie Summers Good morning and thank you for joining us today. Before we begin, we'd like to remind you that during this conference call, certain predictive or forward-looking statements will be used to assist you in understanding the company and its results.



Actual results may differ materially from those in indicated in forward-looking statements, and you should consult the company's Forms 10-Q, 10-K and other SEC filings for information about important risk factors affecting the company that you should consider. Each forward-looking statements speak as of today's date, and we undertake no obligation to publicly update them to reflect subsequent events or circumstances. You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our fourth-quarter and full year 2024 earnings press release and investor presentation, which is posted on our website at choicehotels.

com under the Investor Relations section. This morning, Pat Pacious, President and Chief Executive Officer will speak to our fourth-quarter operating results, whilst Scott Oaksmith, Chief Financial Officer, will discuss our financial performance and 2025 outlook. Following our prepared remarks, we'll be glad to answer your questions.

And with that, I'll turn the call over to Pat. Patrick Pacious Thank you, Allie, and good morning, everyone. We appreciate your taking the time to join us.

Choice Hotel has delivered yet another year of strong results in 2024. We exceeded the top end of our guidance with a 12% year-over-year increase in adjusted EBITDA and a 13% year-over-year increase in adjusted earnings per share. In 2024, we realized a 3.

3% year-over-year net increase in global rooms, including a 4.3% net increase for our more revenue intense domestic routes. We also continued to increase the velocity of moving hotels from our pipeline to open hotels and opened 21% more hotels worldwide in 2024 compared to the prior year.

As we look to our future, long-term growth is expected to continue to be strong because 98% of the rooms in our global pipeline are now within our more revenue intense brands. This means that our pipeline is set to generate significantly higher revenue compared to our existing portfolio, driven by a substantial RevPAR premium, a higher average effective royalty rate and a larger room count per hotel. These results demonstrate that our strategy continues to deliver.

2024 was the year in which we continue to realize the earnings growth from our past investments, both to meaningfully expand the scale of our business and to reposition the company into more revenue intense segment. During the past year, we relaunched for brands adding exciting new brand growth opportunities for our franchisees. We opened our 515 extended stay hotel, continuing our leadership position in that sought after sector.

We meaningfully expanded our partnerships business. We significantly increased our international footprint. We achieved record organic growth in our rewards program, and we unlocked new value through our Radisson Americas acquisition.

All of these important successes have further strengthened our network, enhance both the guest and franchisee experience and created additional ancillary revenue opportunities. We are also excelling at what we do best delivering for our franchisees. In the fourth quarter, we outperformed the industry by 90 basis points in domestic RevPAR performance and achieved RevPAR index share gains versus competitors, with RevPAR increasing 4.

5% year-over-year. We are capturing demand across multiple regions of the country, and our robust sales infrastructure and capabilities are allowing us to secure incremental demand generated by the recent natural disasters. In addition to the positive trends in leisure travel, we are seeing improving strength in our business travel.

In 2024, business travel represented approximately 40% of our overall mix, reflecting the success of our revenue intense strategy. In fact, our business transient segment grew 14% year-over-year in the fourth quarter. Traction in the technology vertical is particularly encouraging, and we believe we have a meaningful long-term opportunity to capture growing demand for both the technology and energy-related sectors, driven in part by the significant infrastructure investments required by GenAI, and we are also driving a year-over-year acceleration in the growth of our group travel business, where we are capturing demand from small corporate and leisure groups.

So far in the first quarter of 2025, our business travel is trending up fueled by both group and business transient travel as we are seeing a pickup in locally negotiated business and year-over-year revenue growth through our digital channel that delivers midweek and corporate managed business. At the same time, we launched exciting new rewards program, features that provide our Choice Privileges members with even more options to maximize their rewards and enhance their overall experience, including an extended booking window for points redemption and the ability to redeem points for upgraded rooms. In just one month since the launch, these enhancements have already led to a significant year-over-year increase in reward redemptions and extended booking windows, which drive occupancy for our properties further out.

This positive momentum in both business and leisure travel, driven by the significant investments made last year gives us increased confidence in our 2025 outlook. It is important to know what is enabling the positive results from these investments, and that is our scale. Today with 22 hotel brands, our scale is significantly larger than it was just three years ago, and the benefits of that scale now extend to all of our hotels.

We have created a step function change the company's positioning, which is not only created additional business development opportunities for franchisees but also enabled us to generate more value for them. Relentlessly enhancing the value we bring to our franchisees is one of the key reasons our existing owners choose to expand their hotel portfolio with Choice Hotels and contributes to our industry-leading voluntary franchisee retention rate. As we grow, we are continuing to invest and enhance our value proposition for franchisees, which we believe will result in expanding our business and taking additional market share.

2024 was the year we began to realize the benefits of our larger scale, which enabled us to make additional investments given our significantly enhanced growth profile. I'm pleased to report that we are already starting to see a positive impact from some of those recent investments. First, we've invested in capturing more group business and business transient demand, leveraging our evolution to a more upscale portfolio.

In 2024, we redesigned and augmented our group sales team, resulting in an impressive year-over-year revenue increase of over 45% from group accounts in the fourth quarter, primarily driven by meetings and events related travel. At the same time, we increased our business transient revenue, supported by our strengthened the upper mid-scale portfolio, where revenues were up by 20% year-over-year in the fourth quarter. The larger scale has also allowed us to invest more in franchisee facing technology.

Specifically, we are excited about our recently relaunched choicehotels.com website and mobile app. This new digital experience has already led to a year-over-year increase in booking conversion rate, including a double digit increase for our upscale properties.

Last quarter, we also successfully deployed a mobile friendly one-stop platform for our franchisees to efficiently manage all of their properties from any location, which in turn helps further reduce their operating costs and allow them to focus on providing an outstanding guest experience. With a strong foundation and a clear direction for our repositioned company, we are focused on continuing to invest in key areas that offer the greatest opportunity to further enhance our value proposition and accelerate our growth in the coming years. In 2025, we will concentrate our investments on improving franchisees' profitability, developing better tools for small and medium-sized business customers and strengthening our rewards program.

We are confident that these investments will significantly increase our future growth opportunities. In addition to our traditional strength in the upper mid-scale and mid-scale segments, the company has well-established brands with significant growth potential in the two segments with the highest developer and guest demand, extended stay and upscale limited service. These segments are more accretive to our earnings, and they have been and will continue to be a key driver of our earnings algorithm and future growth.

We are pleased to be expanding our lead in the cycle resilient extended stay segment by adding more than 4,500 extended stay rooms in 2024. For six consecutive quarters, we have grown our domestic extended-stay room system size by 10% year-over-year, and we expect the higher than industry average growth to continue. With over 70% of all domestic economy extended stay rooms under construction, being Choice Hotels brands, and nearly 43,000 extended savers and our pipeline, we are well positioned for future growth.

In the Upscale segment, we continue to expand our presence, increasing the global room system size by 44% year-over-year to over 110,000 upscale and above rooms, representing 17% of our overall system. Almost 2 times our economy portfolio. Importantly, our rewards program members now enjoy access to over 180,000 upscale, upper upscale and luxury hotel rooms worldwide.

With 17% of our CP members annual household income exceeding $200,000 and with nearly 25,000 more upscale and above global rooms in the pipeline, we will be provided them even more aspirational locations to visit well into the future. Fueling that growth is the momentum we are seeing in the Upscale segment. In 2024, we achieved strong development growth with a 36% year-over-year increase in the number of domestic upscale franchise agreements awarded.

We also continued to strengthen our core brand portfolio. In addition to the success we are seeing with our newest brand, Park Inn by Radisson, our Country Inn & Suites by Radisson brand outperformed [STRs] upper midscale segment by nearly 3 percentage points in the fourth quarter. At the same time, we expanded the iconic quality and brand portfolio in nearly 150,000 global rooms, highlighted by 49 global hotel openings, a 29% year-over-year increase in a year when the brand celebrated its 85th anniversary.

A key addition to our growth story is the performance of the Radisson Americas brands. The significant improvements in digital traffic and booking conversion rates since the integration of driven those brands' RevPAR index gains, which has led to new hotel development commitments. Notably, in 2024, we executed twice as many domestic franchise agreements for the Radisson Americas brands as we did in 2023.

we expect the positive momentum for the Radisson Americas brands to continue. And as of yearend, we had 13% more rooms in the pipeline across the domestic Radisson Americas portfolio compared to the prior year. A key differentiator for winning new franchise agreements continues to be our best-in-class hotel conversion capability, which moves projects rapidly through the pipeline.

In fact, of the domestic franchise agreements we executed for conversion hotels in 2024, we opened 164 within that timeframe, a 22% increase compared to 2023. Over the past two years, we have accelerated our opening speed by nearly 25%. We are encouraged by the continued traction for our conversion brands.

In the fourth quarter, we increased the number of domestic franchise agreements executed for conversion hotels by 7% year-over-year, and we expect our hotel conversion core competency to be a key growth driver this year. I'd now like to turn to our international business. We're in the fourth quarter.

We increased our adjusted EBITDA by 50% and expanded our rooms portfolio by 4.4% year-over-year, highlighted by 58% increase in hotel openings. And with a new construction rooms pipeline that has increased by 14% compared to the prior year, we continue to see a significant opportunity to further gain international market share in the coming years.

In our key strategic region of EMEA, we delivered a 5% increase in RevPAR performance year over year and are attracting strong franchisee interest. Last quarter, our India team executed our first direct franchising agreement in Spain, adding more than 700 rooms. We have already onboarded over 500 rooms to our portfolio and expect the remainder to be open in 2025.

In France, under our direct franchising agreement with Zenitude Residential Hotels, we've already onboarded more than 2,600 rooms and anticipate the remaining 1,600-plus rooms to join the system throughout 2025. Turning now to our customer base. In 2024, we expanded our rewards program to 69 million members, an 8% increase compared to the prior year, which marks the highest number of organic enrollment in a single year.

This growth is a direct result of us creating a more compelling program, including adding exciting new experiences such as music, racing and college sports event redemption options and introducing new aspirational hotels. Another exciting development benefiting our customers is the new strategic partnership with Westgate Resorts, the industry's premier resort operator. This arrangement added more than 14,000 rooms to our domestic portfolio in 2024 and further enhance Choice Hotels rewards program by allowing our members to earn and redeem points at these resort properties.

In closing, by successfully executing our strategy, we've repositioned the company and established a strong foundation for future growth. Our proactive investments and more versatile model have meaningfully enhanced our company's growth profile, and we believe we have positioned toys to deliver sustained earnings growth. We continue to grow our significant free cash flow annually, and our priority use of this capital remain focused on enhancing our value proposition and driving organic growth while returning excess cash to shareholders.

I will now turn the call over to our CFO. Scott?.