Ladies and gentlemen, thank you for standing by. Welcome to the Choice Hotels International Inc. Q1 2023 Earnings Call. At this time all lines are in a listen-only mode. I will now turn the conference over to Allie Summers, Investor Relations, Senior Director for Choice Hotels.

Good morning, and thank you for joining us today. Before we begin, we’d like to remind you that during this conference call, certain predictive or forward-looking statements will be used to assist you in understanding the company and its results. Actual results may differ materially from those 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. 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. You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our first quarter 2023 earnings press release, which is posted on our website at choicehotels.com under the Investor Relations section. This morning, Pat Pacious, our President and Chief Executive Officer and Dom Dragisich, our Chief Financial Officer, will speak to our first quarter operating results and financial performance. Following Pat and Dom’s remarks, we’ll be glad to take your questions. And with that, I’ll turn the call over to Pat.

Thank you, Allie and good morning everyone. We appreciate you taking the time to join us. It's been a rewarding and successful start to the year. We generated impressive earnings, exceeding the top end of our prior guidance, delivered strong RevPAR growth and are ahead of plan, integrating the Radisson Hotels Americas business unit. This robust performance has enabled us to invest in our business to drive long-term growth and return a meaningful amount of capital to our shareholders. Today, I want to outline four business value drivers that we believe are propelling the future success of our company. First, we drove our adjusted EBITDA performance to record levels and we have carried our strong momentum into 2023. Second, we are executing a distinct strategy that is strengthening our competitive position. Third, we've positioned the company to capitalize on long-term consumer and travel trends that are favorable to our brands. And finally, we are excited to onboard the Radisson Americas brands on to Choice Hotels' world-class business delivery platform, which we expect will further accelerate our transformative growth. Let me start with the momentum we have created in both our adjusted earnings and top line performance growth. Building on our record 2022 earnings results, our distinct growth strategy and proven franchising business engine drove our first quarter 2023 adjusted EBITDA to over $106 million which exceeded the top end of our previous guidance and was 10% higher than prior year. These impressive financial results were fueled by our ongoing RevPAR and effective royalty rate growth. Last year, our first quarter RevPAR increased 10.4% from the same quarter 2019. This year, we are building on that growth with our first quarter RevPAR increasing by an additional 5.9% year-over-year and we drove this performance through both rate and occupancy gains. What's most…

Thanks, Pat and good morning, everyone. Today, I'd like to provide additional insights on our impressive first quarter results, update you on our balance sheet and capital allocation approach and share expectations for what lies ahead. Throughout my remarks today, I would like to note that all figures are inclusive of the Radisson Americas portfolio and exclude certain one-time items including Radisson Hotels Americas integration costs, which impacted first quarter reported results. For first quarter 2023, compared to the same period of 2022, revenues excluding reimbursable revenue from franchise and managed properties increased 34% to $175 million. Our adjusted EBITDA exceeded the top end of our previous guidance and grew 10% to $106.4 million, driven by our continued RevPAR and more revenue-intense unit growth, strong effective royalty rate growth, successful execution of the Radisson Americas integration and the robust performance of the platform and procurement business. Our adjusted earnings per share were $1.12, an increase of 9%. This growth builds on our record results in 2022. Let me turn to our key revenue levers beginning with RevPAR. Please note that our RevPAR results assume that the Radisson Americas portfolio was part of the Choice family of brands for the comparable period of 2022 and 2019. Our domestic RevPAR increased 5.9% for the first quarter versus the same period of 2022, which represents 15.1% growth versus 2019. Our growth was driven by average daily rate growth of 5.2% and a 34 basis point increase in occupancy levels compared to the same quarter of 2022. Our first quarter RevPAR performance is inclusive of the Radisson Americas business unit, which increased 11.2% from the same quarter of 2022. Importantly, the Radisson upscale brand itself outperformed the segment's RevPAR growth by over 6 percentage points in the first quarter year-over-year. Based on our strong…

Thank you. [Operator Instructions] Your first question comes from the line of Michael Bellisario from Baird. Please go ahead.

Thank you. Good morning. Just first on the development front it's a two-parter here maybe Pat can you tell us what did hear from franchisees at your convention two weeks ago and maybe more recently, what have you seen so far in terms of any impact on new construction signings and starts in particular?

Yeah. Sure, Michael. It's I guess two weeks ago today we kicked off our 67th convention and it was a very optimistic vibe at the convention. A lot of our franchisees are interested in the segments where we have introduced new brands or where we have strong brands. So a lot of interest around extended stay a significant amount of interest for country and in suites and the new Radisson brands that we've now added to our portfolio. So -- and then just general interest as usual in Comfort Inn and quality on our kind of key large brands. I think from a financing perspective, if you look at our pipeline over half of it is financed at this point. So you look at the -- obviously everything that's going to open this year is financed. And as you know about 75% of our contracts in Q1 were conversions. Last year it was closer to 80%. So a lot of those conversions the franchisees are just having to finance a PIP. And in general, they self-finance that. So that's a positive. And so, as we look at kind of the future growth of our pipeline turning into open hotels, we feel pretty good. You also look at the new construction side of the house, a lot of our brands the owners are getting a -- their lending from their local lenders or friends and families. So, they have a lot of funding sources. So as we've talked to them about kind of their future plans, there's interest in our brands and they have a variety of ways to fund their new development, for new construction. So we feel pretty good about the sense of optimism, that we're seeing from our franchisees. And it really gives us during that week, an opportunity to hear from all parts of the country, and all segments that we participate in, but we left the convention and our franchisees did as well, with a pretty optimistic outlook for future growth.

Got it. And then, just one more for me. Maybe can you provide some color on March and then April trends, if possible particularly as we're now fully passed the easy Omicron comps, from last year that would be helpful? Thank you.

Yes. I think, if you look at what we've put out today, we're reaffirming our full year guidance for RevPAR growth, which is really positive when you consider it's coming off significant quarterly growth last year between 15% and 20%, above 2019 levels. So we're on track, as we stated to see that incremental growth above those levels. We're guiding to around a 2%, RevPAR growth. We feel pretty confident that that's going to be the likely outcome.

Thank you.

Thank you. Your next question comes from the line of Shaun Kelley from Bank of America. Please go ahead.

Hi. Good morning, everyone. Thanks for taking my question. Pat, just to go back to development, if we look at the pipeline statistics, I believe sequentially pipeline declined from if I got it right, about 100,000 units to only about 89,000. Were there some onetime movements that drove that? Can you just talk about that change? And then maybe, how we would expect that progression to move throughout the year?

Yes, Shaun, it's a great question. And we've always emphasized the importance, of velocity through our pipeline. When you look at the Q4 into Q1, you see a lot of hotels that open particularly conversion hotels that want to get opened before December 31. So as you get into the first quarter, you generally see a tick down that's more seasonal than it is anything else. But I think, when you look at the broader pipeline growth, that we look at on a rolling 12, we are seeing that growth in both units and rooms.

Yes, Shaun. The only thing I'd add is, if you just look at the pipeline broadly speaking at 925 units, I think what you're seeing is this concept of the revenue intensity, that we tend to preach on all these calls, our unit growth is -- our units are up about 5%, year-over-year. So obviously, given the seasonality the better comp is year-over-year in our opinion, but the rooms growth is actually 11%. So it's kind of showing that, the bigger boxes are coming into the pipeline. So we feel very good about that. The secondary aspect, that we often we'll talk about is, just the strength of the international pipeline where we saw the international pipeline actually, up quarter-over-quarter about 70% in terms of units and up about 50% year-over-year. So, we did see some softness obviously, during COVID on the international side of the house, but we're starting to see that development environment pick up again for us as well.

Got it. Thank you. And then, just as my follow-up going back to the -- to kind of the RevPAR guide and outlook. Obviously, coming in strong in the first quarter, up 6% still probably lapping a little bit of Omicron, in certain markets at least. But I guess, if we think about 2% for the balance of the year, it does imply a pretty meaningful deceleration either in the back half or possibly even starting in Q2. We have seen some softness particularly in the economy chain scale. So just any more color, you could provide about sort of maybe your expectation, at some of the different price points here? So are you seeing differing performances or drivers at in some of those more revenue intense or extended stay areas, relative to maybe more softness in economy RevPAR where we have actually seen it just like the broad Star data, turn negative in I think certainly for April maybe even before that?

Yes. So Shaun, just as a reminder, Q1 of last year was up 10% over 2019, so a 6% gain on top of that is pretty strong performance coming into Q1. But as we roll into Q2, Q3 and Q4, the comps get much tougher as those quarters grew anywhere from 15% to close to 20% last year. So, what that is a little bit of this is trying to beat an already strong quarter that we saw last year. I think when you look at the various segments that we're seeing certainly upscale took longer to come back. The economy segment really came back and beat the 2019 levels in the early part of 2021. So, we really saw sort of the different segments recover at different rates. And so you're seeing a significant amount of growth right now in upscale, where we have a lot of growth, but we don't have yet a large footprint as we're primarily mid-scale from where our footprint stands.

Yes, Shaun, the only thing I'd add there is just when you look at the impact that Q1 has on the full year, not as heavily weighted, right? So, at the end of the day, Q1 is our lightest volume quarter. So you see a pretty significant uptick in both Q2 and Q3. Q3 being the heaviest volume quarter for us. So just the impact that 6% has on the full year guide does imply that you're still guiding to about 1% to 2% at least for the remainder of the year. To Pat's point, in Q3 last year, we were up 15%. In Q4, we were up about 20% versus 2019 levels. And so the comp just becomes that much tougher. Specifically on your question about just where in the chain scale, we are seeing much stronger performance upper mid-scale and above, anywhere from 7% up to 13% when you kind of get to that upscale segment when you think about the Q1, so obviously an economy in particular you mentioned fairly flat. We were up about 1% on the -- in the economy segment specifically. But when you look at that as a percentage of your revenue that flows through, we feel very confident about the guide for the remainder of the year, just especially given this revenue intensity concept.

Thanks, so much.

Thank you.

Thank you. Your next question comes from the line of Stephen Grambling from Morgan Stanley.

Hi, thanks. I'm not sure if you mentioned this in your opening remarks, but I was just curious if you could provide a little more color on how we should think about the co-brand credit card agreements that you just extended as we think about this multiyear contribution? Is that a step up this year? And then how do we think about that beyond?

Yes, Stephen. So the card -- it's actually -- yes to your point it's multiple cards as a fee-based card and a non-fee-based card. It's a long-term agreement that builds with a different set of partners and a different distribution network. And it also adds a number of features to allow for point earning with effectively gas and groceries, so things outside of a hotel stay. And in the early days here of the launch, we're really impressed with -- we're ahead of plan actually on sort of the metrics. I think what we have guided to in the past is a $5 million incremental EBITDA benefit this year growing to $10 million next year and then there is opportunity above that in the out years.

And then maybe as an unrelated follow-up, I would love to hear just some of the puts and takes to cash conversion this year and then how to think about it longer term?

Yes. So broadly speaking, we're pretty much right on forecast where we thought we would be in Q1 Stephen. I think apples-to-apples revenue for the quarter was up over 11%-or-so on the legacy business. Obviously we had strong results as a result of the Radisson integration. We're still seeing the strength and the effective royalty rate. RevPAR was essentially in line with our expectations. We have this 2x multiplier impact that we've been talking about as well. So really if you think about Q1 we have maintained our forecast for Q2 through Q4 which was already pretty aggressive forecast especially with the Radisson integration really flowed through the beat the beat that we saw in Q1 through the remainder of the year. On the SG&A side of the house, I think we were pretty much spot on in terms of analyst expectations there and we expect to see kind of maintaining that in Q2 and beyond. I think the biggest component that you're going to see towards the end of the year is that Radisson SG&A obviously a $21 million contributor to the SG&A line item this year once we complete the integration by the end of the year, we're going to see that dip to about $6 million. So just from a run rate perspective obviously feeling very good about that. There were some timing elements just from a net working capital perspective that pushed the cash down slightly in Q1. And so between that and then just a slightly elevated key money and that was a good thing because we got some really quality product open in the first quarter as well. Broadly speaking, on the balance sheet, a lot of that is just timing related. So again, P&L, I think we're maintaining for the remainder of the year. Balance sheet, obviously, depressed a little bit just given timing of certain net working capital items, but we're going to see that normalize in both Q2 and Q3.

But you don't anticipate any further key money or changes to how you think about driving room growth because of either the credit environment or otherwise?

No. I think what we've talked about last year just we would see probably key money slightly up year-over-year from 2022 into 2023. I think that's a good thing, if our development team continues to be successful. When you think about kind of that two times value per contract that we talk about publicly that includes the impacts of normalizing for key money as well. So again, just from an earnings algorithm perspective, we anticipate seeing kind of business as usual versus what we saw in 2022.

Got it. Thanks so much.

Thank you.

Thank you. Your next question comes from the line of Gregory Miller from Truist Securities. Please go ahead.

Thank you very much. Good morning.

Good morning.

First question I have -- hey, good morning. First question I have, just hoping to get some clarification looking at the international rooms from 4Q 2022 to 1Q 2023. It looks like you gained eight hotels but the number of rooms declined modestly. I was hoping you could provide a little context on that?

So Greg, I think what -- when we look at the international unit growth, we're really looking at like an 8%, which is inclusive of the Radisson International acquisition, because there's a significant number of hotels that we acquired down in the Latin America region. So we actually saw, from a unit growth perspective, in Q1 an 8% growth and then a rooms growth of almost 9.6%, I think it was. So, I'm not sure, if you're...

The only thing I'd add to that Greg is, I just think in Q4 you tend to have just as you get close to the end of the year, you see some termination activity, maybe some hotels that aren't paying, et cetera. I think that this is just a phenomenon a couple law of smaller numbers in the international portfolio where we did have a couple larger boxes that we terminated for a variety of different reasons that we obviously can't speak to when it comes to just credits and things like that. But when you look at the outlook for international, even without the Radisson acquisition, we're feeling very good about that portfolio is now very stabilized. We're expecting to see kind of mid-single-digits unit growth in our international portfolio, even ex Radisson for the full year. So again, I think that this was really a timing element from Q4 into Q1 with again, a little bit of a law of smaller numbers in a couple of the larger boxes that we termed. Again, not high revenue-producing assets, so we don't feel like it's going to have any impact on the financials.

Okay. Understood. The second question I had relates to your own hotels. I'm curious now that you have more time under ownership for the Twin Cities hotels. I'm curious how you would recommend we think through the performance of these hotels under your ownership compared with legacy Radisson?

So with the Radisson acquisition, we acquired Radisson Blue, and then the country in the suites and then Park Plaza. They were all effectively Radisson-owned assets that are all in that location near Mall of America. It's actually been a pretty strong market for international inbound from Canada, in particular, there's a lot of draw at the Radisson Blue that's attached to the mall actually picks up on. So, it's been a pretty good initial start for us with that brand. We do expect the latter part of this year, into Q3 we will have those three hotels actually on our platform and integrate it with the loyalty program. We do expect to see, not only a benefit to the top line revenue and the royalties coming from those hotels, but also from a GOP perspective and actual asset level performance as well.

Thank you both. Appreciate it.

Thank you. Your next question comes from the line of Dan Wasiolek from Morningstar. Please go ahead.

Hey. Good morning, guys. Thanks for taking the questions. So first one, just you mentioned, your revenue-intense unit growth looking at 2024 returning to historical rates. Can you remind us what that historical rate is? And then also, looking 2024 and I guess, beyond, what we might expect from the economy segment?

Yeah. Dan, so when you look at just kind of the legacy portfolio in the first quarter that revenue-intense unit growth is already up about a little more than 1%. So we've talked about publicly is we expect next year for that ring portfolio to approach those two -- those historical levels which is right around 3%-or-so. Now, when we look at 2025 obviously, I don't have a crystal ball in terms of the development environment, but we do expect to see an acceleration beyond that approaching 3% into 2025. Historically speaking, our portfolio has grown around 3% to 4%-or-so again, dependent on the development environment overall we feel very good about where we are today with seeing that portfolio return to growth on an apples-to-apples basis already in Q1 accelerating in the back half of this year and then approaching that 3% next year.

And Dan, I think on the economy segment, what we would -- we've been seeing is the hotels we're bringing in are performing better than the hotels that have left. So as we've guided to in the past our plan there is to keep the royalty contribution from the economy segment steady even though the units have been declining. What I would expect to see, if we see an economic slowdown is those independent hotels are looking for a loyalty program and proprietary contribution delivery from a large brand. We generally tend to attract those hotels during times when the economy segment is more challenged. So if that in fact happens that could be an additive benefit to us of more unit growth in the economy segment.

Okay. Understood. And then, just as a follow-up with Radisson, looks like you guys are reiterating your synergy guidance for this year and next year. Are there still opportunities you're looking into that could provide additional incremental synergies moving forward, just curious?

Yeah. I think we talked about that in the last quarter, Dan. When you think about just where we were last year in the stub period, we were at about $18 million which implies annualized about $50 million in terms of EBITDA contribution. The integration team has just done a phenomenal job. Candidly, we're very much ahead of plan of where we thought we would be. So, kudos to them on that, but when you think about just from $50 million stepping up to $60 million I do think that we'll exceed that $60 million this year. So there's probably a couple of million dollars of upside. And then looking into next year we basically said we expect to still see kind of that over $80 million so call it somewhere between $80 million and $85 million-or-so. But obviously a lot depends on once you plug it into the system there's some value prop opportunities in terms of revenue lift as well that a lot of times integration teams don't underwrite. So do we see upside to those figures? Absolutely, but again, just versus where we were last year we're feeling great about where the integration is.

Okay. Understood, great. Thanks guys.

Thank you.

Thank you. Your next question comes from the line of Joe Greff from JPMorgan. Please go ahead.

All right. Good morning, guys. Thank you for taking my questions. You may have mentioned this and I may have missed it so sorry to make you repeat yourself if you did. Have you talked about what RevPAR growth has been to Q-to-date? And could you break that out between upper mid-scale and above and then the balance of the portfolio the lower tier chain-scale segments?

No. Yeah. So we did not give kind of where we were in April. Obviously the entire industry saw a much softer April. A lot of it was due to some of the calendar shifts. It's really difficult to look at one month in isolation. I think the best way to look at it Joe is when you just think about where we were last year we were up over 13% versus 2019, last year's Q2. So we expect to see RevPAR growth above that. It would be modest. Obviously, the guide implies somewhere in that call it 1% to 2% range. What we did talk about is kind of the trends that we saw in Q1 upper mid-scale was essentially a little more than 7% up all the way up to kind of the upscale segment which is call it anywhere from 13% to 16% up depending on the brand. And so again you would expect to see those trends probably continue versus 2019 levels. But just given the tougher comp you saw a slightly more modest RevPAR lift on -- or would see a slightly more modest RevPAR lift in Q2.

Great. And then, I guess, just directionally the cadence of RevPAR growth for the balance of this year. Is your thinking that 2Q's growth rate would be in excess of the 3Q and the 3Q would be in excess of the 4Q just given the year-year comparisons you've been highlighting or do you see it more evenly balanced?

I would say more evenly Joe. That's what we're forecasting right now. More evenly. Obviously, Q4 last year was a fantastic quarter. It was up 20% versus Q4 of 2019. So obviously that's the toughest comp. But right now what we're seeing is kind of call it anywhere in that 1% to 2% range or so for the remainder of the year.

Okay. And then again you may have mentioned it I didn't catch it but the domestic rooms pipeline was down sequentially not an insignificant 11% quarter-over-quarter. Can you talk about what's been driving that or what drove that? And what your expectations are going forward for domestic rooms pipeline trend change?

Yes Joe what we talked about is just the pipeline. When you look at the pipeline just the timing between Q4 and Q1 in particular there's just a lot of noise there because you have a very strong velocity in terms of openings kind of towards the end of that -- end of the month of December where hotel owners are trying to get those hotels open at the end of the day. And so you typically do see kind of a decline quarter-over-quarter from Q4 into Q1, especially, given the conversion engine that we do have. So year-over-year we were up about 5%. And then what's even more -- what makes us even more bullish is that the rooms growth was up about -- or rooms were up about 11% year-over-year as well. Again kind of Q4 openings there is a lot of pipeline cleanup activity that happens at the end of the year as well. So Pat mentioned earlier on that we have more than 50% of our pipeline today has financing secured at this point. So essentially if we feel like a hotel is not going to open we term them from the pipeline as part of that year end cleanup. And then obviously just the conversion and the velocity of openings is a bigger driver as well. And so I think between -- you'll see kind of more historical growth return to the pipeline kind of for the remainder of the year just given that turn from Q4 into Q1.

Great. Thank you very much.

Thank you.

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Pat Pacious for any closing remarks.

Well thank you operator and thanks everyone for your time this morning. We will talk to you again in August when we announce our second quarter results. I hope you all have a great day. Take care.

Thank you , sir. Ladies and gentlemen this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.