Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International's Third Quarter 2025 Earnings Call. [Operator Instructions] I will now turn the call over to Allie Summers, Senior Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us. Before we begin, please note that today's discussion includes forward-looking statements as defined under U.S. securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information, please refer to our filings with the SEC, including our most recent Forms 10-K and 10-Q. These statements speak only as of today, and we undertake no obligation to update them. A reconciliation of any non-GAAP financial measures referenced in today's remarks is included in our earnings press release available on the Investor Relations section of choicehotels.com. Today's remarks also include projected non-GAAP adjusted EBITDA contributions from our international operations. We are unable to provide a reconciliation to comparable net income projections without unreasonable effort as the necessary adjustments cannot be reasonably estimated for the period. The impact of this unavailable information could be significant relative to our expectations due to the inherent difficulty in forecasting certain items. Joining me this morning are Pat Pacious, our President and Chief Executive Officer; and Scott Oaksmith, our Chief Financial Officer. Pat will discuss our business performance and strategic progress and Scott will review our financial results and outlook. And with that, I will turn the call over to Pat.

Thank you, Allie, and good morning, everyone. We appreciate you joining us today. In the third quarter, we drove adjusted EBITDA 7% higher to $190 million, reflecting the strength of our higher revenue brand mix, a surge in our small and medium business traveler and group's business revenue, continued momentum across our partnership revenue streams and the accelerating earnings contribution now coming from our expanding international business. The strength of these earnings drivers allows us to raise the midpoint of our full year earnings outlook and tighten the range reinforcing our confidence in the growth of our global business going forward. During the quarter, we increased our net global rooms by nearly 2.5% year-over-year and growth was led by continued expansion in higher revenue segments, where we grew by nearly 3.5%, along with higher revenues per hotel across all segments. Today, 90% of our global portfolio consists of those higher revenue-generating rooms, further strengthening the value we deliver to guests, franchisees and shareholders. The future growth of our portfolio is compelling, fueled by robust developer interest with global franchise agreements awarded up 54% year-over-year. And today, 98% of rooms in our global pipeline are in higher revenue brands. As shown in our investor supplementary materials, these hotels are expected to be 1.7x more accretive than our current portfolio, driven by their RevPAR premium, higher effective royalty rates and larger average room counts. This pipeline strength underscores our ability to continue to elevate our earnings per unit by adding accretive hotels to our platform. Our pipeline is important not only for its size but also for the quality of the hotels within it and the velocity at which we are able to convert signings into openings. In fact, the number of hotels that opened over the past year without ever appearing…

Thanks, Pat, and good morning, everyone. Today, I will cover 3 key areas: our third quarter financial results, our balance sheet and capital allocation and our outlook for the remainder of 2025. . We delivered record third quarter adjusted EBITDA of $190 million, up 7% year-over-year despite a softer U.S. RevPAR environment. This performance underscores the strength of our diversified revenue streams and the early returns from our strategic investments. Our record quarterly performance was driven by system-wide rooms growth and our higher revenue extended-stay and upscale segments, a higher average royalty rate, the continued expansion of our international business, including the introduction of our brands in new markets and strong partnership revenue. Let's turn to the 3 drivers of royalty fee growth, unit growth, RevPAR performance and royalty rate. In the third quarter, we grew our global rooms 2.3% year-over-year, led by a 3.3% growth across our higher revenue segments, upscale, extended-stay and mid-scale. Each segment delivered strong results in the third quarter, reflecting the benefits of our deliberate investments and disciplined portfolio focus. Our U.S. extended stay room system size grew 12% year-over-year, highlighted by a 14% increase in openings. At the same time, we awarded 30% more franchise agreements in the U.S. year-over-year. We strengthened our position in the mid-scale segment, our global pipeline increasing 5% year-over-year. Specifically, our flagship Comfort brand saw U.S. new construction franchise agreements doubled year-over-year with the new construction U.S. pipeline accelerating quarter-over-quarter. In the upscale segment, we expanded our global rooms portfolio by 7% quarter-over-quarter and attracted strong developer demand. Our SEM collection now exceeding 72,000 rooms worldwide saw a sixfold increase in global openings and twice as many franchise agreements awarded in the U.S. versus last year. Even in a challenging construction environment, we awarded more U.S. new construction franchise…

[Operator Instructions] Your first question comes from Michael Bellisario with Baird.

First on this Everhome joint venture that you guys announced in July, I think just in the past, you had mentioned that you were going to recycle owned assets. I know, Scott, you provided some comments there, too. I think we all assume that means those assets get sold to a third party and you get cash. But in this joint venture deal, you still own 80% and you're sort of committing to owning and developing hotels for longer or at least more of a medium-term holding period? I guess, help us understand the motivation, thought process here and how the economics of this deal are maybe better or different than previously owning and developing assets on your own balance sheet?

Yes. Our preferred vehicle has been to develop hotels through the joint ventures that we have. So what you saw in this transaction was really more of a timing of the transaction. So we had started a few hotels on our own balance sheet, owning them, that we're always intended to go into the joint venture, just it had not been fully set up at the time. So when you take a look at the overall transaction, there were some sales from an accounting perspective that were treated as proceeds from sales. But ultimately, the way that transaction worked that netted us about a $25 million recycling. This doesn't change in terms of our long-term viewpoint on holding assets. As I've always said, we're in the moving business, not the storage business. And we have developed ever homes really to launch that brand to get it to scale so that it's 100% franchised brand. So even in this joint venture, we either expect our JV partner to buy out our interest at some point in time or to go to market and sell those to additional third parties encumbered with long-term franchise agreements. As we talked about in the remarks, we're towards the tail end of our capital investment in both Cambria and Everhome. We expect to wrap up with no new development in Cambria after this year and then finishing the Everhome development in 2026, where our net capital outlays will be significantly lower. In fact, if you look at our Q3 results this year, we're actually about $50 million less in capital being used on our development of hotels. So we're at the tail end of that. And as the transaction environment and interest rate environment improves, we do expect to be sellers of those hotels, whether they're on our owned assets or in these JVs.

Okay. That's helpful. And then just similarly, on capital allocation, what was the rationale for not buying back stock during the quarter, especially when it was down so much versus levels where you had previously been repurchasing stock? And that's all for me.

Yes, Michael, I mean we look at our capital allocation hierarchy to invest in the business to do accretive M&A and then return to capital to shareholders through dividends and share repurchases. We bought the other half of Canada we did not own in the third quarter. So that capital outlay was sort of the kind of -- it rises higher from that standpoint as to what creates more long-term value for shareholders. I would say if you look at our pace of sort of how we've been deploying capital we're effectively on pace through the third quarter with the acquisition and the share repurchases we did in the prior part of the year. But yes, absolutely, it's a very attractive price at this point, but that was the way we deployed our capital in the third quarter.

The next question comes from Lizzie Dove with Goldman Sachs.

I just wanted to ask about the longer-term outlook for rooms growth, particularly in the U.S. It's been tracking down year-over-year, at least when you kind of strip out Westgate from there. And so as we move forward over the next year or 2, what's the kind of base case expectation? And what are you kind of seeing in the development environment or the conversion environment really in the U.S. to drive that?

Sure. So if you look at our pipeline and where we've been focused really for the last 5 years is on bringing higher-quality product into the pipeline and therefore, moving that into the system. And that is going to continue. If you look at the makeup that we talked about in our remarks about 98% of what's in the pipeline today is in those higher-value segments. What we've been opening, and as we've mentioned in the remarks, there's actually because we're doing a lot more conversions they open anywhere between 3 and 6 months on average. But that also means we're opening hotels in less than 3 months. And so many of those show up as openings, but never even show up in the pipeline. And that's really, as we mentioned in the remarks, about 1% of our unit growth came from the hotels that opened that quickly. So when you look at the pipeline, it's not only the size of it, but it's also the quality of the hotels that are in there. But as importantly as the velocity with which because we've been doing conversions as a company for so many years, we're able to get these hotels open quickly for owners, and that allows them to capture revenue early and us as well. And so as I think as we look into next year, just given the limited supply growth that's been going on in the U.S. from a new construction perspective. I would expect that trend to continue well into 2026. So that's sort of probably how we would think about the setup for the conversions coming out of the pipeline and the net rooms growth in the U.S.

Got it. That's helpful. And then on to the RevPAR environment, I appreciate the comments you made with some of the green shoots and also World Cup and whatnot next year. I'm curious how you would think about just how much of what's going on at the lower end is structural or cyclical, especially in terms of competition from conversion brands like Spark, premium economy, things like that, the K-shaped recovery. Anything you can share there or then how you think about the long-term trajectory to be able to potentially grow domestic RevPAR again longer-term.

Yes. Sure, Lizzie, from our perspective, this is a cyclical business. I mean I've been at Choice for 20 years, and this is probably the third one of these we've been through. The green shoots you do look for is when does occupancy stop dropping. That then gives owners confidence when they set price. And so that's the kind of early indicators that we've seen where the cycle starts to turn, and that's -- in fact, what we're starting to see in our chain scales in our segments and our brands. And we're pretty excited with what we're actually seeing in the economy segment, which, again, is the segment that usually leads you out of one of these cyclical downturns. So we feel pretty good about sort of what we're seeing on that front. I'd say on the consumer front, this is -- that sort of question around this K-shaped recovery. I think it's missing the fact that you've got a ton of -- I mean, 75% of the people who work in this country work for a small and medium-sized business. And when we're seeing that surge in the SMB business in our hotels, it's because of the types of travelers that are -- the labor force is effectively shifting towards the types of travels that stay in our hotels, construction, utilities, medical staffing, which is traveling nurses and the like, there's a pretty significant tailwind that we see from a business travelers perspective. The other is what we talked about, which is our retirees and road trippers. And about 30% of our business today are those folks who are 60 years old and older. They're sitting on tremendous wealth in their homes. They're sitting on very attractive stock portfolios, and they've got discretionary income and the time to travel. So we are seeing that traveler on the road, and we expect to see more of them. The investments we're making in our loyalty programs that are going to kick off here on the first of January are really designed to drive more of that business. And we know that those are the folks who spend more in our hotels, they stay more often and they book direct, which is all a real positive from a unit economics within the hotels themselves. So we feel pretty good about how the setup is coming for 2026 and those core demographics, the road trippers and retirees and then those blue and gray collar workers, those are expected to be demand drivers, and those are the folks who are in our hotels today, and we would expect we'll get more of that share as we move forward.

The next question comes from David Katz with Jefferies.

Yes. Two things, if I may. I just wanted to get whatever early perspectives you can share with us regarding 2026. I know I understand your business, obviously, and the booking window is short. But any thoughts on how we might use 2025 as a platform off of which to measure 2026? And then I have one quick follow-up, please.

Yes, David, I would look at the 2 things I just spoke about. I mean, I think when you look at our share, and we talked about that in the remarks, of those 60-year-old travelers and above. The research shows they call them the golden travelers because they've got all this time and they've got all this wealth and they are traveling more this year. And that number that cohort is going to grow. We've talked about by 2030, 1 in 5 Americans is going to be at retirement age. And so over the next 5 years, that cohort only continues to grow. And we overindex for that type of traveler in our portfolio today, and we intend to bring in on that. And then I think on the business travel side, when you look at our business traveler mix, I know you've been around the stock a long time, we used to be 70-30 leisure business. We're now 60-40. And that small business traveler is a much more resilient traveler because they have to travel for their jobs. And what we're seeing, particularly with what AI is doing to the workforce, we're going to see more people who are in that sort of blue and gray travel segment when you look at the job gains and you look at the small business formation that's occurring, they're in the segments that travel in our hotels. And so when we look at that overall total available market for small and medium business, it's about $13 billion of travel on an annual basis. And I think our ability to capture more and more of that share is another positive that we're looking forward to. So on top of that, I would just add our group's business revenue, which again is up 35% this year. That's a function of the fact that we have put more sellers out there. We have about 20% more sellers who are selling into our business category and our group's business. And so those are the things that I would point to as opportunities that Choice is leaning into where the TAM is getting larger.

And David, what I'd add to that is when you step back and look at the broader business for 2026, obviously, we're still working through our planning process. But as we talked about in our remarks, our international business, we feel really strong about continued growth there and believe we're on pace to double that EBITDA contribution with the base year of 2024. So we do expect strong growth from international next year. In addition from both our partnerships and services business and our platform and ancillary revenues, as we've talked in the past, we do think we have a very good base to grow off in that mid- to high single-digit growth on those. And we also believe that we can continue to keep our cost relatively contained, especially with all the new tools and AI tools that are really driving cost efficiency throughout the business. So we're very optimistic on 2026.

Understood. And if I can just ask 1 follow-up. So much of the industry has evolved in terms of growth on ancillary fees, non-RevPAR fees, particularly around cards. And I know that you have some. Can you just elaborate on what the strategy or the vision for that is over time?

Yes. I mean when you look at the scale of our business, David, so you look at 7,500 hotels. We probably have somewhere 36 million room nights every year, and you've got multiple people staying in those room nights. So we have a significant opportunity to provide more services to our customers, to our guests in our hotels. And that is everything from co-brand to what we do on the timeshare side and the gaming side as well. And so that's a real opportunity for us. We do see those trends growing and that's reflected in our numbers. I would say on the franchisee side of the house, we are offering more services to our franchisees and the adoption rate of those services is increasing. So those are the drivers that are impacting the owner side of the house, the franchisee side of the house. So both of those trends, the consumer growth and the franchisee growth and our ability to sell more services into both of those customer bases are what we -- from a strategy perspective, those are things that we're leaning into and have been pretty earnings accretive over the last several years, and we would expect them to be so in the future.

The next question comes from Stephen Grambling with Morgan Stanley.

I know it's early to be putting 10 to paper for 2026 expectations. But with all the moving parts on expenses, and I know you talked about AI opportunities. How should we be thinking about the run rate or baseline for SG&A this year and then what the growth rate might look like next year, particularly if RevPAR does start recovering?

Yes. We -- as I mentioned, we continue to believe we can maintain SG&A at a low single-digit growth rate. If you look at our results so far through this year, year-to-date, SG&A is up about 3%. And when you take out the acquisition of our Canadian joint venture, it's about 2.5%. As we mentioned, we're finding a lot of labor saving tools and efficiencies with the AI tools that we've already brought into the system. And so I would say going forward, we would be able to model something around that low to mid-single-digit SG&A going forward.

Yes, Stephen, it's pretty exciting that the tools we've already deployed across our workforce and the things that we are working on today, we implemented a new ERP system that went live a couple of months ago. But the intelligence in that system is reducing a huge amount of manual processes and helping our folks in the finance group, for instance, they don't have to do as much exception reporting that type of stuff because the system is providing that information to them. We're seeing it in our software development group. We're seeing significant productivity gains for our folks who build these tools that we deploy to our franchisees. And so it's a pretty exciting time for workforce productivity. And you're going to see that number reflected in lower SG&A growth, I would expect as we move forward in the coming years.

That's helpful. And maybe 1 follow-up on AI. Are you currently providing any inventory to AI partners or large language models such as Gemini, ChatGPT or others. And maybe how do you think about the opportunity to partner from some of these channels and what maybe the cost of that channel looks like versus things like Google Ads or OTA or other?

Yes, Stephen, it's a great question. And I think at this point, when we look at the distribution landscape and AI's impact on it, the players are still taking the field right now. And so there's a lot of testing and learning, and we are doing some of that with some of these partners behind the scenes really to kind of say, is this going to work for us? To be successful in this new world, you've got to have 2 things, and we have both of them. The first is all your systems need to be in the cloud. And the second is you need to have control of and a high-quality level of your data. And most companies don't have that. Choice Hotels does. It's an area that we've invested in significantly. All of our systems are in the cloud now. We don't have any data centers anymore that are company-owned. And all of our data is accessible through the cloud as well. And so those are the 2 things that these LLMs are looking for. If you build the right scaffolding around your data, which we have done, you then have the ability to communicate with these LLMs and work through the ways that consumers who are starting their search for hotels if that's where they're going to start, we want to be able to provide our inventory rates and availability through those models as well. And so I would say at this point, the answer is we are exploring, as I'm sure many others are. But I feel like it's a pretty exciting opportunity for us because of the investments we've made over the last 3 or 4 years, in particular, to make ourselves AI ready. And we've actually been using AI in our tools for…

The next question comes from Dan Politzer with JPMorgan.

Pat, Scott, I was wondering if you could talk about the key money environment. It sounds like you're taking the expectations there for 2025 to be a little bit lower year-over-year. But maybe puts and takes into 2026, as it seems like other competitors are still looking to increasingly grow their presence in that mid-scale segment in particular?

Yes. As we mentioned on the call, we do expect our key money to be lower than where we were in 2024. Really, I think that's a reflection of just the quality of our brands in terms of the competition. So we believe that we're driving top line revenue to our franchisees and our brands are very valuable. So when people are looking to convert, we're seeing that we don't need to use as much key money as some of our competitors to win those contracts. In fact, average key money per deal was down about 11% for the first 9 months of the year. So yes, it is a competitive environment, but we do believe that our brands, especially in that mid-scale and upper mid-scale space where really Choice has been a leader for many years. We do understand what our franchisees need, what it takes to run a very successful business and capture those customers that Pat talked about a little bit earlier. So -- we're optimistic that the key money environment should be kind of hitting a peak here as interest rates come down, and hopefully, we'll see a turnaround on the RevPAR front where that will be needed less to win deals.

Yes. And I would just add, since Labor Day, I've been out at 5 franchisee events that's collectively probably about represent about 1,500 hotels. So these are all owner meetings that we do for a couple of days. And without fail, our owners are telling us that they value our brands and some of them who moved to try these other brands have come back and said. We made a mistake, our performance is down. When you look at the value of a brand that has the awareness of a quality in or comfort in, those things are driving guests and we own those guests. We own those mid-scale travelers. So the need for key money in the ability to win these contracts is not as necessary when you have strong powerful brands, particularly in the mid-scale segment.

Got it. And then in terms of the free cash flow conversion, was there anything kind of nuanced in the quarter as it relates to that? And then can we think about -- what's the best way to think about full year '25 at that level that you might be able to convert.

Yes, there was some temporary timing differences in the quarter that drove the free cash flow a little bit lower, particularly as you'll see in our 10-Q, we did purchase some investment tax credits during the quarter that will have a reduction of our federal tax rates going forward. But the timing of the payment of those versus the realization of the taxes will be between the third and the fourth quarter. So as I mentioned in my remarks, our third quarter rate was a little bit higher than where it will be for the full year, but that caused a little volatility. So we would generally believe that we'll be in a free cash flow conversion more similar to where our percentages were last year in that 60% to 65% range.

The next question comes from Dany Asad with Bank of America. .

Pat and Scott. I -- look, your international growth strategy seems to be picking up steam. So my question is just can you give us a sense for how much rooms growth we could expect in the coming year on the international front? And then any color you can give us on key regions that would be driving that growth would be super helpful.

Yes. So let me just start with -- I mean, when you look at our current business as we sit here today, it's about $3 billion in annual gross room revenue outside of the U.S. And so we have a real significant opportunity to capture more of the fees from that from improving our value proposition. And so that's really the upside that we've been experiencing. And if you look at the supplemental materials, that we put in the -- on the website, we've really transformed that business over the last couple of years, moving to now a 40% direct franchising business, which is up 20%, moving about 1,400 hotels, which is about up 200 hotels from 2022 and then getting our EBITDA margin up over 70%. So those are all really positive healthy metrics. And we now have the talent and the brands and the business model to be successful in all 3 regions of the world. So just looking to your question, looking at the Americas, bringing the other half of Canada onto our platform and being owned by us now is a real huge opportunity for us. We have 355 hotels up there. And we now have the opportunity to unlock more value there. And it's important to recognize that the quality of the product up there and this is true throughout the world. But when you look at Clarion and Quality Inn, for instance, you're talking about 3- and 4-star hotels outside of the U.S. So the RevPAR that those hotels are able to generate is significantly higher. I was just down in Mexico a couple of weeks ago with our Caribbean and Latin American teams. We had about 110 franchisees down there who came to the event. And we've grown our rooms portfolio down there…

The next question comes from Robin Farley with UBS.

My question is on the growth in international units. And how should -- what should we expect for fee revenue in 2026, so you have a full year of them? I know China's master franchise, a lot of the other countries are direct franchise. So are the franchise fee percentages the same. And when you give the royalty rate increase, I think that's only for your domestic properties. So will you start including international or giving us international separately just so we can think about the franchise fees program from the international and whether that will look different in kind of fee per room than U.S.

Yes, Rob, we will, going forward, probably we get to February, we'll be giving you more of a kind of a global RevPAR number to look at. The growth we've seen this year is not like an anomaly. The growth is something that has been present in our business. And so what we're seeing with the kind of lack of international inbound is a lot of those travelers are staying home and traveling in their domestic markets. And our presence in a lot of those markets has always been focused on the domestic traveler, whether it be Canada or Mexico or France or Spain. So we feel like the -- we're well set up for the trends that we would expect to see on a go-forward basis. I think when you look at the royalty fee, that's the opportunity for us as the value proposition gets better. In the U.S., we have that sort of effective royalty rate north of 5%. We have in our direct franchise markets, something less than that. And then in the MFA market, it's even smaller. So as we shifted from MFA to direct, we're picking up that effective royalty rate gain. And we would expect that to grow as we invest more in the value proposition. I talked in our remarks, about this $60 million investment that we have, we're almost through the end of it, a lot of that capability is global in nature. So whether it's rate management or revenue management tools or these platforms we have for capturing small and medium business travelers. These are tools not just for the U.S. market. They were built to be global in nature. And we do expect, as we deploy those in these regions, we're going to improve the value prop, which will then be constructive towards moving the franchise fees higher.

And just to add to that, Robin, I look at our direct franchising business internationally, the effective royalty rates there are around 2.7% for direct franchising. And that's really where we've been focused, as we talked about, we've seen a 21 percentage point increase in the percentage of our business that's direct versus master franchise agreements. So certainly an area that we're focused on. And really what I look at, as Pat mentioned, really focusing on continue to improve our value proposition in Canada, which we recently acquired, it's probably where we're the most advanced in terms of our capabilities in terms of delivering business and that royalty rate is closer to 4%. So we have a lot of opportunity across the other markets as we continue to increase our business delivery to be able to raise the effective royalty rates on those contracts.

Okay. Great. That's super helpful. Maybe just as a follow-up, you gave some pretty big increases for U.S. economy pipeline. And it doesn't seem like broadly, there's a lot of new construction going on in the U.S. economy segment. Is there something -- is it just that it's a small base is making a large percent change? Or what is it that you're seeing with new construction for U.S. economy rooms that we're kind of not seeing broadly?

Yes. The economy segment has been a conversion market for a number of years. And so what you're seeing there is the value prop as it has gotten better for the entire system. The value prop within the economy segment has benefited as well. And so I think a lot of people have interpreted our revenue intent strategy means we're not focused on the economy segment far from -- that's very far from the truth. What we've been doing in the economy segment is improving the product quality. And so as owners see that we are exiting hotels that no longer stick up or stick to the brand standards or unable to, they're seeing that we're not letting our economy brands deteriorate that we're actually improving the likelihood to recommend scores, the product quality. And that's important for the types of guests that we serve, that we keep that product quality moving in the right direction. And that's what's increasing the owner interest, and that's what's increasing the franchise agreements being awarded and the pipeline being higher.

And that's really illustrated by the RevPAR performance we saw both in the quarter for the economy segment as well as the full year. We outpaced the STR economy segment by 180 basis points in the quarter and were up 310 basis points year-to-date. It really speaks to the quality of that segment for us.

The next question comes from Brandt Montour with Barclays.

So just a quick question on some of the accounting and on the revenue side. You guys talked about ancillary and credit card being helpful. And I was just hoping you could help us with some of the geography because the partnership line grew 20%. I think that I thought that was with credit card, but the other revenue line sort of doubled year-over-year on a restated basis. And I just wanted to understand what was in that, if there's anything onetime that we need to think about on that other line.

Brandt, to your point, our co-branded credit card as well as our procurement businesses and other -- our timeshare business, those are all on the partnership line item on our financial statement. So that's where you're seeing the significant growth in those revenues. Our other revenues include more kind of event-driven onetime items at times. So there was some timing of recognition during the quarter. In addition, there were some items that really were gross up pass-through type expenses and revenue. So you'll see about $3.5 million of that other revenue line item was offset by the increase in SG&A in the quarter. If you took a look at our SG&A in the quarter, it was a little more elevated mainly due to those pass-through items. So I'd say the other revenue is up due to some pass-through items and some onetime event-driven revenues. But overall, we're still on track to hit the full year forecast.

Okay. That's really helpful. And then another question on business travel, you guys gave some helpful stats, business travel 40%. I think that's a global basis of mix. And SMB grew 18%, which is obviously a huge number for revenue. Could you just square that -- those data points with RevPAR overall in the U.S. being down 2-plus percent. The only way I can really do it is if SMB is a really small piece of business travel overall. But maybe you can just sort of help us square that.

Yes. I think part of this is the business or the product mix that we are shifting towards. So we are shifting towards more products that is appealing to business travelers. So it's not just we're attracting more of them, but the product mix has shifted, particularly with this extended stay segment growth that we have here in the U.S., it's -- there's a lot of business travelers that are in those hotels for weeks. And so that's a key driver of that. Overall, our business travel was up about 2.5%. And within SMB, that, in particular, has grown pretty significantly by 18%. So we're really leaning in on those types of travelers because of the product that we now have and the locations we now have, and that's where they're going. They're going to the secondary and tertiary markets where they have to travel. So when I look at the mix of that and if the significantly higher total available market being $13 billion, we are not yet at our fair share of that, and we expect that to grow as we get better in our sales tools and we get better in our RFP responses that our owners are doing. And so I would expect to see that percentage growth continue into the future.

And the other thing I would just add to that is when you think about the headwinds, the 2 areas that are offsetting that are really government travel which was down about 20% for us during the quarter. And then inbound travel from the Canadian travel continued to be down since the first quarter. So that was down about 30%. So those 2 things have brought down RevPAR even though we've seen tremendous success in growing our business travel.

The next question comes from Meredith Jensen with HSBC.

I was hoping you might speak a little bit more on the international growth side. I know you've spoken a lot about it. But in terms of building sort of the support infrastructure for this really strong growth that we expect. Could you help us walk through some of the associated investments that might be necessary or how to view that expense ramp? And relatedly, as you weigh those kind of investment that needs to be made in certain complex regions. Again, I know you've discussed direct versus master franchise metrics before. But given the investments you may need to make, just sort of how that may evolve over time.

Yes, Meredith, I think what's -- what we want to emphasize here is most of those investments are things we've done in the last 4 years. If you look at the exhibit we put on our investor website today, you can see the margin growth that we've had over that time frame. So the investments are not in adding people or in adding systems. A lot of the systems that we have put in place are already there and the investment I talked about that's going to effectively start deploying in early '26 and throughout next year. Those investments are in the rearview mirror for the most part. So what we have to do international is execute. And so there is a real opportunity here to do that, bringing the other half of Canada into the full company was really an opportunity for us to bring all that we do here in the U.S. to our hotels that are in Canada. And so it's not a new market for us. We've been in Canada for 70 years. We operated as part of those 70 years with a very good joint venture partner for 30 of those years. So we know these markets very well. And whether it's Canada or Australia, New Zealand, Mexico, Korea and Latin America, EMEA, we've got people who've been in those markets for a significant period of time. Our development teams are based in those markets. We run the markets effectively as domestic markets, so they're not relying on U.S. inbound for their growth. And so the autonomy that, that has allowed them to have has given them the opportunity to build the talent and really protect the brands. I think the other thing that's really important for shareholders to understand is outside of the U.S., the business traveler mix is 60% and 40% leisure in many of our markets. So we have a much more resilient and higher-paying customer base. And our brands, the Quality Inn brand, and the Clarion brand, in particular, are of higher quality. They are usually 3 and 4-star hotels. So it's a very different business outside of the U.S. And so the opportunity for us to continue to grow there is significant, but we just have to execute. It's an opportunity for us to grow our value prop and therefore, grow the effective royalty rate, we're able to drive in those markets.

That's super helpful. And one other quick addition to sort of follow on to what Lizzie asked about. We've been following the cost pressures on the franchisees. And I have noticed that some of the brands, notably Hyatt, I think, are working to sort of evolve brand standards so that they have more flexibility to take on limited service brands with sort of less ability to invest at this point. Are you seeing any of that in the market raising the competitive environment, especially as you up-level your franchisee base? Or if you're seeing any of that dynamic or if it's different in terms of PIPs than in the past?

Yes. No, it's a great question. And I think when we talk about the Country and the Suites brand, in particular, we redid that prototype with that franchisee margin compression in mind to make sure that the hallmarks of the brand are being preserved. But as you think about the types of changes that we would need an owner who's converting or a new build to build one of our brands, we are constantly looking at that. It's the reason why Choice has always been the leader in conversion hotels. The flexibility to make sure that a PIP is affordable for the owner makes sense for the market and preserves the brand hallmarks. Those are the 3 things that we look to do. That's something that we always do as a matter of course. It's not new for Choice. So I think when you look at our ability to continue to grow our business in good times and bad, that's a key factor in driving all of that.

There are no further questions at this time. I will now turn the call over to Pat Pacious for closing remarks. Please go ahead, sir.

Well, thank you, operator, and thanks, everyone, for joining us this morning. We look forward to speaking with you again in February when we report our fourth quarter results. Have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.