Ladies and gentlemen, thank you for standing by. Good morning, and welcome to the Choice Hotels International 2Q 2013 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. During the course of this conference call, certain predictive or forward-looking statements will be used to assist you in understanding the company and its results, which constitute forward-looking statements under the Safe Harbor provision of the Securities Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as Choice or its management's beliefs, expects, anticipates, foresees, forecasts, estimates or other words or phrases of similar import. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Please consult the company's Form 10-K for the year ending December 31, 2012, and other SEC filings for information about important risk factors affecting the company that you should consider. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We caution you, do not place undue reliance on forward-looking statements, which reflect our analysis only and speak only as of today's date. We undertake no obligation to publicly update our forward-looking statements to reflect subsequent events or circumstances. You can find a reconciliation of our non-GAAP financial results referred to in our remarks as part of our second quarter 2013 earnings press release, which is posted on our website at choicehotels.com, under the Investor Information section. With that being said, I would now like to introduce Steve Joyce, President and Chief Executive Officer of Choice Hotels International Incorporated. Please go ahead, sir.

Thank you. Good morning. Welcome to Choice Hotels' second quarter 2013 earnings conference call. With me this morning is Dave White, as always, our Chief Financial Officer. I'm pleased to report and share our second quarter results. This morning we will update you on the financial performance of the core hotel franchising business and on the progress we're making with our key strategic growth initiatives. This includes the new mobile innovation that we announced this week, as well as the progress of our SkyTouch Technology initiative, a separate business division that we announced earlier this year. To preempt this, though, we are very satisfied with the core business results and they will continue to improve, along with our new growth initiatives for Cambria, Bluegreen, SkyTouch, and the reimaging of Sleep and Comfort, those brands, we believe leads to a very bright future for Choice. Overall, we're pleased with the performance of the quarter. The economy continues to grow at a modest but steady pace, and our business continues to grow as well. We're executing on our strategy and it is working. Several factors contribute to our results for the second quarter, as reflected in the key indicators we use to measure the performance of our lodging business. Franchising revenues increased 6%, driven primarily by an increase in our domestic royalties and a 39% increase in our initial and relicensing revenues, a very positive sign. Domestic royalty growth for the quarter was driven primarily by a 3.5% increase in RevPAR, a 1.9% growth in the number of domestic hotels under franchise and a 3-basis point increase in our effective royalty rate. Initial and relicensing fee revenue reflects the execution of 104 new domestic hotel franchise contracts during the second quarter compared to 106 new domestic hotel franchise contracts for last year.…

Thanks, Steve. As you read in this morning's press release, we reported diluted earnings per share of $0.48, which exceeded our previously published outlook for the quarter by $0.03 per share. Most of our earnings per share outperformance for the quarter or $0.02, is attributable to better-than-expected operating income results. These results were driven by higher revenues from initial and relicensing fees and from procurement services. Together, the revenue outperformance in those 2 areas more than offset lower-than-anticipated domestic royalties attributable to a slower-than-contemplated RevPAR growth rate. In addition to exceeding our expectations at the franchising revenue line, our SG&A expenses for the quarter were less than we had anticipated as a result of a delay in the timing of certain expenses that we now expect will occur in the back half of this year. The remainder of earnings per share outperformance or approximately $0.01 per share is attributable to a lower effective tax rate than we had previously expected. Our franchising revenues for the quarter increased by 6% to appropriately $83 million for the quarter, which represents an acceleration of the pace of franchising revenue growth from the 4% growth rate we achieved in the first quarter of this year. Included within franchising revenues, our domestic royalty revenues increased by 4% to $62.2 million due to a combination of increases in RevPAR, our system size and our average effective royalty rate. Domestic RevPAR growth for the quarter was 3.5%. This result was 50 basis points less than our guidance for the quarter, which was for 4% domestic RevPAR growth. And as a reminder, our RevPAR results for the second quarter reflect our franchisees' gross room revenue performance for the months of March, April and May. Our RevPAR results were lower than our guidance as industry RevPAR growth was slightly…

Thanks, Dave. Overall, we're pleased with the results this quarter. It continues to be slow, but steady improvement in the economy that is reflected in the consistent growth of our businesses. I want to thank you for your interest in Choice Hotels. We believe we are successfully implementing our strategy in our core business and other growth strategies such as SkyTouch, and feel optimistic about our continued long-term growth and our ability to drive excellent results for shareholders. With that, I'm going to open it up to questions and answers.

[Operator Instructions] The first question comes from Ms. Robin Farley of UBS.

It's actually Arpine on behalf of Robin. I just wanted to ask about the EBITDA guidance. It seems like even with RevPAR guidance down, EBITDA guidance x SkyTouch is up? Could you walk us through what's driving that? I understand unit growth is up, but profitability per unit looks like outlook is down?

Yes, overall, I would say that the SkyTouch outlook on the cost side is unchanged. We're modeling, I think, $12 million to $14 million. The overall, which I think when you back into it, actually you would see that it's kind of a midpoint, our EBITDA outlook came down by about the amount of the RevPAR decline. We narrowed the range a little bit, just given the fact that we're about halfway through the year. So I would say, we've only got another 6 months to go rather than where we were at the end of the first quarter. That's kind of -- but at the end of the day, I think the primary thing is being driven by the RevPAR impact. So I think when you back -- when you go through that model, that's kind of where you'll come out.

Okay. And then on SkyTouch, do you have more clarity to share in terms of customers and general sort of revenue streams? How many hotels you're in discussion with outside the Choice system?

Yes. So in terms of the pipeline for SkyTouch, as we mentioned, we have executed our first few contracts and we're excited about that. We brought our first customer online, and it's pretty early still, obviously, in the process because the High Tech Conference where we announced this was really just last month. But the interest from multiple tiers of customers, the hotel, individual hotel owner/operators, as well as kind of the smaller brands and some larger brands has been very positive. But I think it's premature to kind of publish pipeline numbers at this point. But as the course of this year progresses and the next couple quarter, we'll give you a little more detail in that area.

But you can assume that we're in discussion with folks that represent thousands of hotels.

The next question is from the line of Ms. Felicia Hendrix of Barclays.

It's actually Anthony Powell here for Felicia. Just a quick question on unit growth. Your unit growth results and your guidance were both impressive. How promotional is the new-build and conversion markets, how are both of them right now? Are you seeing any of your competitors increase the amount of incentives given for new contracts --

Well, yes, in the overall business, on both sides, both new construction and on the conversion side, we're seeing people being pretty aggressive on the development side, including incentives. But they're still the typical types of incentives that we're doing, which is an increased ramp-up type activity. So -- but we are seeing people being more aggressive in the marketplace. The encouraging thing about the new-build market is it, particularly in some of the markets we're most interested in, you're starting to see a nice upswing from a number of the other hotel companies as well. And so we're encouraged not only by our results, but also by theirs in the sense that it appears that the financing market is coming back. And that because we're typically looking at more tertiary markets, we'll benefit from that on somewhat of a lag. But based on the overall volume that we're seeing from other companies and from our own, we're pretty encouraged about it's finally moving.

Yes, I think the other thing I would add is just on the conversion side of things. If you think about where we are now in terms of development incentives, we're definitely -- while there's definitely -- it's a competitive marketplace and there are -- every one of our competitors has some form of incentive program in place. On a relative basis for us, we're relatively less discounting, I would say, than we were 2 years ago, which I think is a positive sign as you think about the future and how that should play out in our royalty streams. And then another thing that I think is pretty exciting is on the Ascend Collection. So that brand, as Steve mentioned, has grown very rapidly. And you've probably heard us talk on previous calls about growing brands to scale and getting to meaningful scale. That brand is, in our mind, now at a pretty meaningful scale, which starts to position us to be able to be more aggressive and more assertive on pricing as we move forward with that brand. And we think that's a really strong brand given what we're delivering to the hotels into that the system. If we look at the Rev contribution, it's the top brand on our platform in terms of Rev contribution, at a very high rate. So just kind of to tie back to your point, ultimately we're trying to continue to improve the overall pricing of our brands over time, and Ascend's in the real bright spot there. And I think, generally speaking on our conversion brands, we're having to discount less than we did a couple of years ago to move sales.

The next question is from the line of Thomas Allen from Morgan Stanley.

I thought it interesting in your outlook, you talked about your extracted growth to be moving forward at a moderate pace into 2014 when talking about RevPAR. How good a read do you think you have into 2014 and kind of why did you put that language in?

We -- actually, we're relying more on the forecasters that are out there and what they're saying about it. Our booking window's actually, as I think most people know, very short. So it is more based on what we're seeing from the industry experts than it is from ourselves.

Yes, the Smith Travel Research and PWC for '14 are, as an industry level, around 6% RevPAR growth. They haven't published kind of segment-level forecast at this point.

And I'd also add to that. I think in general, most people are expecting '14 to start showing real signs of economic recovery and improved employment. And if you get those, those are -- that really -- that drives our business significantly. So I think most of us here are a believer that that's the trend that we think is most likely and that, therefore, that portends well for our performance.

Okay. And then just a follow-up. I read an article recently, I think it was by STR, suggesting that when the new-build market really does pick up, there could be some risk to conversion kind of being -- the conversion opportunity being offset, so that declining. Your recent or your historical data kind of suggest otherwise. Any thoughts on this?

Yes, it's just the opposite for us because what happens is when the other brands start building, they start pruning their inventory. That's an opportunity for us as well. That's one of the areas that's still missing in large part from our conversion activity. Because the other brands, because they weren't adding, they stopped pushing out their hotels that weren't meeting expectations. So when they start building again, they'll start pushing brands out, that gives us opportunity to flag a lot of those properties and that will add to our conversion activity. So we're actually -- we actually think it's exactly the opposite of that.

And the next question is from the line of Nikhil Bhalla from FBR. Nikhil Bhalla - FBR Capital Markets & Co., Research Division: Steve, just a question on the lending environment right now that you're seeing, both for conversions as well as for new development right now. How are new sort of hotel developers being helped by this environment? If you could just give a little bit more color.

Yes, sure. So there's a couple of things going on. One, we talked over the last year last about the improving environment that we saw in the more urban markets. That's clearly now spreading more to the regional and local areas. And we're hearing a lot of stories about regional and local lenders calling up franchisees and saying, we've finally gotten an allocation for hotel lending, and if you guys are ready to build, we'd like to lend to you as well. So that's finally coming, albeit still slowly developing, but it's definitely moving that direction. The other real positive for us has been the SBA program. So we've got a lot of our folks using a lot of SBA funding, either as first and/or a part of the cash stack as a second, and they are -- we're obviously helping them do that. We've been active, actually lobbying the administration and the SBA, to make sure that they keep high levels of funding available and they try to limit sort of the amount of red tape and the limitations around doing that. And that's another very positive sign. Because that's sort of -- a lot of the projects that are going were today were in part SBA supported. And then there's some other activity out there, EB-5 financing with some other things that are also contributing somewhat. But generally, you're seeing the lenders getting back into the markets. It's actually getting competitive in the denser markets. And in the regional markets, in the local secondary, tertiary markets, they're finally beginning to see those local lenders kind of coming back to the table and starting to allocate dollars for hotel development. And that would include both new construction, as well as conversion. Actually, the conversion, as would be expected, was a little ahead of the new development. Nikhil Bhalla - FBR Capital Markets & Co., Research Division: And are these mostly sort of community banks at this point?

Yes, for our guys, it is. Our guys, they range -- our bigger franchisees will do more on a regional or national level. But most of our rank and file folks are -- it's local lending institutions they're working with. Nikhil Bhalla - FBR Capital Markets & Co., Research Division: Got it. And then just a follow-up question on your second quarter performance. What is any specific sectors that were a little bit weaker than others?

Well, we kind of highlight in the exhibits, like from a RevPAR performance perspective. I mean generally speaking, we highlighted kind of that Sleep Inn kind of brand, the position where that's in that mid-tier space, I mean, that performed well for us. And then in the upscale side of things with the Ascend Collection on the RevPAR side of things. So otherwise, the rest of the brands were generally within a fairly narrow range in kind of that mid-single-digit percentage area RevPAR growth-wise. So other than the upscale and the Sleep Inn, I'd say most of the other brands were reasonably close together in terms of the RevPAR growth rate for the quarter.

Yes, I think some of the other positive signs, if you look at the contracting that we're doing for negotiated rates and for others, that's -- the rates are up for that. That's a good sign. And so it's clearly -- while it's moving slower than we would all hope, it's clearly coming around and all the signs of sort of that recovery are there. And then, I guess, the other conventional wisdom in the industry is because it's coming slower, there's a sense then that the recovery will last longer and be extended further out. And so the issue of new construction, for example, that keeps getting pushed past dates where people are saying, okay now, we're going to start to seeing a lot of inventory coming in. But right now, even with what's under construction, it's not that significant. So you're really looking at no real big supply increases probably until '16. And so as a result, people are pretty bullish about the performance of existing hotels going forward, barring something unforeseen.

[Operator Instructions].

All right. Well, that will conclude our call. We appreciate your time and attention. Enjoy the rest of the summer.