Ladies and gentlemen, thank you for standing by. Good morning and welcome to the Choice Hotels International Second Quarter 2016 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session and further instructions will be given at that time. As a reminder, today's call is being recorded. During the course of this call conference call, certain predictive or forward-looking statements will be used to assist you in understanding the company and its results, which constitute as forward-looking statements under the Safe Harbor provisions of the Securities Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as Choice or its management believe, expects, anticipates, foresees, forecasts, eliminates, 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 ended December 31, 2015 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 measures referred to in our remarks as part of our second quarter 2016 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, Chief Executive Officer of Choice Hotels International, Incorporated. Please go ahead, sir.

Thank you. Good morning. Welcome to Choice Hotels' earnings second quarter conference call. Joining me, today is Scott Oaksmith, our Chief Accounting Officer. This morning, we'll update you on our performance for the second quarter of 2016, will also share some news about initiatives design to increase the number of reservations delivered to all franchisees directly from our proprietary distribution channels. Importantly again this quarter all three levers that drive domestic royalty revenue all increase. System size, Revpar and effective royalty rates. We're also seeing international growth in key markets and while still a small part of our overall business, we have some notable accomplishments. So let's start with our distributions strategy. This quarter we continue to drive more reservations through Choice’s proprietary channels helping to increase the number customers to our franchises hotels at lower cost. This is a result of a number of new initiatives. Just a few weeks ago, we announced that visitors to choice hotels.com and on our mobile apps will now be able to access to discounted rates that can't be found anywhere else on the internet. Both existing and new members of Choice Privileges can access these exclusive room rates that are up to a 7% discount off to best available rate. This is in addition to our commitment to stand behind our pricing. If a guest finds a lower price elsewhere or online we will match the price and give the guest a $50 visa gift card. The Choice Privileges member rate is the latest in a series of enhancements to our loyalty program. At beginning of the year we announced the biggest redesign of the Choice Privileges program in our company's history. The changes were so well receive that we already expanded the popular your [ph] extras program where guest can earn…

Thanks Steve. In this morning's press release, we reported adjusted diluted earnings per share of $0.71 a 15% increase over the prior year. Adjusted diluted earnings per share excludes executive determination benefits totaling approximately $2.2 million, which represented approximately $0.03 per share for the quarter. However adjusted and diluted EPS exceed our previous outlook of $0.66 for the quarter by $0.05 per share. Approximately $0.03 of this outperformance is attributable to better than expected operating results. The remaining $0.02 was the result of a lower effective tax rate than we had previously expected. Our operating income results exceeded expectations due to a combination of better than projected hotel franchising revenue performance as well as lower than anticipated SG&A expenses. Our SG&A expenses for the quarter were less than we had anticipated as a result of the delay in the timing of certain expenses that we now expect will occur in the back half of the year. Our adjusted hotel franchising EBITDA for the second quarter increased 7% over the same period of the prior year, and our hotel franchising margins expanded by 60 basis points to 69.2%. Our franchising revenues for the quarter increased 7% over the prior year, driven primarily by growth in our domestic royalties and procurement services revenues. Domestic royalty revenues for the second quarter increased 7% over the prior year to $81.1 million driven by growth in all three of our key levers. We achieved a 4.3% increase in domestic RevPAR in the second quarter which exceeded our previously published outlook of 3% to 4% increase. Our RevPAR increases were driven by 3% increase in average daily rates and 80 basis points increase in occupancy. We were particularly pleased that our RevPAR results exceeded the performance of the overall industry as reported by Smith Travel Research…

Thanks Scott. So to sum it up, again this quarter all three of the levers that drive domestic royalty revenue system size RevPAR and effective royalty rate have increased. Our international growth, while still small part of our overall business, is notable and we’re seeing momentum particularly in Europe and other key markets. We are investing in programs designed to drive more reservations through our central channels, improve guest loyalty and enhance the value of our brand in an effort to drive incremental business to our franchisees. As you can tell, we’re optimistic about our continued long-term growth prospects and our ability to drive excellent results for our company and in particular for our shareholders. Now I am going to open up the call to see if you have any questions.

[Operator Instructions] First question comes from Thomas Allen from Morgan Stanley. Your line is open.

My first question would just be around -- so RevPAR beaten the second quarter but you’re lowering for your guidance. Is it June and July trends that are making you more conservative or anything else? Thanks.

Actually we’re having a good summer and it's kind of holding at the levels, but we’re also seeing like everyone else has discussed, our business results mid-week are less robust than the leisure side, leisure side is holding up strongly. And then as we get into the back end we’ve got -- we still got the impact of oil on our results. Although the impact is lessening, it's about little over a point now, last year it was several points. So, the continued effect of that -- so if we get more recovery the nice thing is, it feels like it will definitely bottom out and it's on its way back up, the question is how quickly do those markets recover. But all in all we’re seeing a very healthy environment and what we’re trying to do is to look at -- we think we're going to between those results and we think actually fourth quarter would probably be a good quarter for us as well. Summer is good because of the leisure side and -- but we are seeing a trend where we think where we’re sort of operating is in that 3.5% to 4% range and it's pretty steady so we feel pretty good about it.

That's helpful and then you gave some interesting stats on your distribution and your direct booking push some of you peers have talked about how they thought like it hadn’t negatively impacted RevPAR growth, but I think Marriott highlighted about 40 basis points of drag. Do you feel like it's impacting your RevPAR growth at all or have you never quantify that? Thanks.

Now we obviously when we start given discounts first you customers, there is a question about what the incrementality of that business is, but we are also benefitting from a significant number of new members joining those privileges the results being that those are probably -- a lot of those are incremental and so we think net-net it’s going to be real positive for us and in the long run when you think about what it cost you to have a booked -- a room booked through on OTA versus through our channel, we can afford to give our customers a discount and through the incremental customers we get that our booking with channels and are dramatically more expensive, we're going to benefit net-net.

So just to follow up on that quickly so long-term you think the business is going to be a benefit short-term it does sound like you're getting a bid of a RevPAR drag just given you are giving your members of discount.

We haven’t seen a RevPAR drag yet we think it's at least being offset.

Okay, that's clear. Thank you.

Thank you. And our next question comes from Shaun Kelley of Bank of America. Your line is open.

In the prepared remarks, I think you guys mentioned that you we're seeing a fairly healthy transaction environment, now its maybe helping to drive some activity, be it on the conversion side or what not. Could you elaborate a little bit there, I think that's a little different then what we've heard from some of the large franchisers this quarter where some of them have actually called out that there fees have been a little light because transaction activity slowed. So is that just mean you could just talk little bit more about?

Yes, well large transactions activity is up both conversions and new builds. We're finding a lot of demand for our product lending is holding up so while we CMBS market was a little lesser active, but what we're seeing in terms of long-term trends is, there are some slide adjustments on the levels of leverage being offered but our franchises tend to put a lot of equity in the deals anywhere they don’t highly lever the deals and I think what's you are seeing on margin is the developers that were used to a very high leverage levels to make their deals happen. Is what's falling off that's not usually our franchise system and so as a result even with the lessening of leverage levels, so think about a lot of times up folks were running in the 70 percentage points now, it's probably drifting more towards 65%. In their view that they -- are a lot of them aren’t levering pass 65 anyway and so I think if you are seeing fall off in developments it's from those higher yield, higher leverage levels deals and that's not our bread and butter.

Then we actually saw an acceleration of the pace that we like to see in our second quarter which increased to 26% and so on a rolling 12 months basis we’ve seen over 8% of our system size relicensed over the last year.

And then the second thing would just be little bit on Cambria as we start to see some new brand launches out there and some new positioning from other people. Just curious on how competitive is it right now to get the new deals signed? And obviously you’re offering some incentives there, but that par for the course when you’re trying to launch and accelerate a new brand. So if you could just talk about the incentives environment and how aggressive it is out there at the moment.

So there is a lot of competition, we are aggressively incenting our development, which is working. In addition to that the developer interest in our product is up significantly as they see how these new urban products perform. We’re getting to very quick ramp rates and running some impressive RevPAR index premiums. White Plains open at 130%, the New York Hotels are going to be premiums within the first 9 months to 12 months of their opening. The hotel lot of our headquarters, while from a location standpoint we’ve got somewhat disadvantages is wanting RevPAR regularly, indexes regularly in the 130s. So people are taking notice of the performance. And the one advantage that we have is some of the others don’t have is because of the vast size of our system, we have enormous number of customers looking for urban locations. So the poster child is New York City where 9 million people contact us looking for a room, 9 million a year. We had 1,500 rooms. We’re not worried about selling our hotels. We’re not immune to a market that is softening. We’re going to fill it, the question is at what rate. But even in New York we’re very happy with the results we’re achieving.

And I should probably know this, this is my last question. But what’s the price point for developer at the moment for one of the new Cambria properties on a per room basis like all in or maybe ex-land is probably the right way to think about since that can vary dramatically?

I think the way you have to think about it is in a Greenfield prototype suburban environment which we’re not doing any of, it would be about 120 to 125 key in land depending on where you are that 5,000 to 10,000 key to that. What we’re doing in our urban products which are all custom in the lot of high-rise and mid-rise. So, the average cost of the urban product is probably running in the 220 to 250 range per key, Manhattan is probably was a little higher than that, but on average if you look at where we’ve been, it's in the low to mid 2s.

Thank you. And our next question comes from Joseph Greff from JPMorgan. Your line is open.

Could you just revisit what’s your expectations for SkyTouch turning profitable or not an EBITDA drag? Thank you.

So we’re obviously -- we put that out there. We are holding to that. It is going to happen. We are in the process right now of evaluating two or three options as to how to get there. We’re hoping that you hear something from us relatively soon. But we believe we’re well on our way to proving that commitment out. And so as we look at the options that we got we were finding some very attractive alternatives. And the question is which one do we end up landing on and making a deal. So our view is that commitment you can still count on and we're actually hoping to do a little better in that.

Thank you.

Thank you. And our next question comes from Anthony Powell from Barclays. Your line is open.

On the union growth to this year I think you tracked me a bit below to 2% or 3% guidance range do you expect the pickup to come from a new construction hotels or conversion is doing back half of the year?

Actually both so we normally and it's [Indiscernible], we have an acceleration of deals towards the fourth quarter. We have done 97 different things to try to spread it out more evenly in the year, but variably our guys going in twice as money deals in November and December it they bring in any other month, so it's just the historical cycle. Yes so we're feeling really good about the environment, our in house apps, the developer interest we had a very strong month for the month of July, ahead of budget, so picked up probably 20 deals I think on that lag. And so barring something unforeseen we're feeling like it's going to be a pretty record deal and I don’t think we put the number out, but it's a significant increase over the last year which is our target. Think of it in terms of approaching almost 700 deals.

And we should think about our commercial opening as typically down pretty strong openings in that November and December time frame as Steve said through the cyclicality of the business.

Got it, thanks. And on the direct booking and initiative does that impact you P&L directly at all or does that just make your franchise as more attractive to developers.

It makes us a lot more attractive to developers because if they know they are going to get 57% of their business from us, that's going to lower their overall cost of customer acquisition a lot and quite frankly we’re tired of the fallacy that the lowest rates are on OTA. It's not true, they spent $2 billion a year saying it, but it's simply not true and we're trying to get the consumer to be aware that the lowest rates achieved are on brand.com sites not in an OTA. And so I think the entire industry is tired of hearing about the OTAs, we particularly don’t want to be elected by the OTAs that how we are going to approach the customers and so I think you are going to see a much more aggressive stance, not just in Choice but across the board.

Alright, that's it from me. Thank you.

Thank you. And our next question comes from Jared Shojaian from Wolfe Research. Your line is open.

So if you were to break out those three buckets of the RevPAR performance, the Leisure, the Comfort refresh, the new rate total, is their one component that's having more of an impact right now than the others and I'm specifically wondering in regards to the Comfort refresh if that's more responsible for what you are seeing right now.

I would say, what’s most responsible is the leisure travel at this point in time. The consumer confidence and kind of unemployment rates being where they are today is really kind of made the leisure traveler much more resilient than the business traveler. So I think that's kind of the lion’s share of the increases there are but we are seeing definitely RevPAR index improvements for the Comfort brand and as well as some of these new tools they’re still in the infancy of rolling them out on the rate and revenue management tools that we think going forward can have a an impact on our RevPAR results.

So the other thing to think about too that we still believe it is upside for us even at this point in the cycle. Is if you look at where we've been with relatively lack luster GDP growth we’ve had some pretty remarkable results. We’ve got a labor participation that is still below 63%, those people that are participating or our customers, if they go back to work that’s continued upside for us. And so as we see it, if we get any descent of work in terms of GDP growth and some real improvement in employment then that will help drive our results further, which is why you hear us being relatively optimistic about not only for this year, but also for ’17 and into ’18, because while we may not post 7% RevPAR results, we think we’re going to post very steady very attractive return in yields for our shareholders and for our overall results.

And then just as a follow question, can you remind me what percentage of your hotels are in these big urban markets right now? And how does that net urban RevPAR growth compared to just your system RevPAR growth right now? I am assuming it's weaker. But do you think that’s more a function of just excess supply in those big markets, or do you think it could be Airbnb share shift?

It's not Airbnb. So we’re not seeing that as an impact. So, the full service folks have seen that in markets where they were full and the Airbnb expands, you’ve seen the results. But we’re not seeing any result, any impact on our side, which is in fact -- but we like the business which is why we launched vacation rental. So, we actually kind of think that was a pretty smart idea I think the only thing about those guys is they’re going to have to pay taxes and worry about life safety and zoning over time. But we think that’s an attractive business. Getting back to your main point, we’re probably less than 10% in urban markets and the performance is varying, but anywhere we’ve got Cambria, it's obviously a very up RevPAR growth cycle because they’re relatively new and they’re increasing in every case every year. And then we’ll start to see the results that we’ve been hoping for like Tuesday week ago we sold out almost every Cambria in the system. So we’re starting to see the results that we thought were available to us over market because of the excess demand we’ve got, because our product is simply a newer and better product than anything else out there, consumers re act to it in a way that I’ve never seen with another brand. So we know we’ve got a winning formula, we just need to continue to accelerate the distribution of them. We’re looking to have a significant number of hotels open and operating by ’18 and once we have that in a firmly established space then we think we’re going to have a brand to be reckoned with.

Thank you. And our next question comes from David Katz from Telsey Group. Your line is open.

I congratulate you on a good quarter because I think the core of your business is very straight forward and its merits are relatively clear. So I’ll apologize for asking about SkyTouch again, but among the range of options that it sounds like you’re considering. Would those include situations where you don’t own it, or all of it anymore? I mean is that a fair question about whether this should be part of what is otherwise a very clean and straight forward business and this while its related is something a bit different. Do you think that's fair?

Yes, it is different but we actually we like the opportunity a lot. And the answer to your question is absolutely that's one of the likely outcomes we’ll see, we've got several different alternatives we're evaluating with different approaches. But it's not lost on us that's SkyTouch is better off not being seen a Choice entity, because as they sell to industry and other brands which we're in deep conversations on all over the number of major brands it is a factor they got to consider there is no risk to their data or anything else so are going to be sure they are in almost every way that they are going to benefit from having that system, but quite frankly in the discussions it's a point that gets raised, we think we never intended to hold it long-term the idea was to build it up and then launch into some vehicle where it would on its own and you should expect to see probably something to like that from us.

We're excited about what we're seeing from the customer base. We've seen the 25% increase in the pace of the timings to create our Tier 2 and Tier 3 customer segments and I think Stephen said in the past calls were in all the conversations we need to be with the bigger Tier 1 customers.

So it is if I would just ask sort of why the drag still exists or what is it that the businesses would benefit from -- in a partnership is it broader distribution, is with a sales force, is it a marketing -- more of a marketing strategy, what is that it at needs that will cause it to turn the corner?

Well, okay. Let me give you a slightly different ones from a tech company launch this is about as good as I've seen what we we're talking about profitability in year three. So my lens is a little different, I think this has been a really good adventure. If you look at any basis from a tech startup which literally is three years old, we're at 37 million to 38 million [ph] revenue run rate and we've attracted significant numbers of customers in Tier 2 and Tier 3, we’re talking with several Tier 1 opportunities and our view is based on that performance and based on what we're going to do that granted this is my first tech company I've launched, but being profitable by year three from what I understand is a pretty good results. And we think we can accelerate that to one of these options. So we actually feel really good about the investments we've made because if you think about it. Our overall investment has been $50 million to $60 million if we were put on that balance sheet and that was in investment that we could capitalize, which we can’t, we wouldn’t even -- you guys wouldn’t even want to talk about it. So we see it as that -- we know that investment has creating real value for us real value and so will see as we go to figure out the next stage in the life cycle of that company but we're feeling pretty good about it.

Understood so not to repeat it, but then in the motion is that you have the tech company that, okay mission accomplished, its losing -- it's getting distribution, but its losing money and combining it with this core business that does nothing but make money, and you sort of understand the confusion or the conflict that that creates, and that’s how you’re thinking about its options going forward?

See that’s what I meant with different lens, we’re not losing money, we’re making an investment in something that’s going to pay off. So if you look at it from investment standpoint you would say -- and by the way we’re not going to lose money next year. So, our view is very different. Our view is we’ve had invested money in an asset that has significantly more value than we put into it. And we believe it's going to continue to return value to us. So we don’t view it as money losing, we look it as investing.

Thank you [Operator Instructions]. This concludes today’s Q&A session. I would now like to turn the call back over to Stephen Joyce for closing remarks.

Thanks for joining us. As always, we obviously appreciate your interest in Choice Hotels. We’re very excited about where we’re going and where our opportunities are. And that concludes our call for today. We’ll see you next quarter.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Everyone, have a great day.