Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Choice Hotels International Inc (CHH, Financial) reported a record adjusted EBITDA of $161.7 million for the second quarter, marking a 6% year-over-year growth.
- The company increased its domestic franchise agreements for revenue-intense brands by 8% year-over-year, indicating strong growth potential.
- Choice Hotels International Inc (CHH) achieved a 22% year-over-year increase in its global pipeline, setting a record with approximately 115,000 rooms.
- The company successfully integrated the Radisson Americas portfolio, contributing to a 5% increase in adjusted EPS year-over-year.
- Choice Hotels International Inc (CHH) expanded its international portfolio, doubling its international EBITDA over the past two years and increasing its international rooms by 1.6% year-over-year.
Negative Points
- The company lowered its full-year domestic RevPAR guidance to a range of negative 1.5% to negative 3.5%, reflecting a slower-than-anticipated pace of acceleration.
- Despite strong performance, the domestic RevPAR was down 50 basis points year-over-year, with a 60 basis point decline in average daily rates.
- The pace of acceleration in domestic RevPAR was slower than expected, leading to moderated expectations for the remainder of the year.
- Interest rates remain elevated, impacting the new construction pipeline, with 80% of openings being conversions.
- The company faces challenges in the hotel development environment, with construction costs starting to normalize but hotel financing still constrained by high interest rates.
Q & A Highlights
Q: Can you explain the factors behind the revised RevPAR outlook for the second half of the year?
A: Patrick Pacious, CEO, explained that the revised outlook reflects a normalization of travel patterns similar to 2019. The company expects sequential improvement from Q3 into Q4, but overall, the travel behaviors are aligning with pre-pandemic trends, influencing the RevPAR outlook.
Q: How do the international conversion agreements compare to existing contracts?
A: Patrick Pacious, CEO, noted that the international agreements, particularly in direct franchise markets like France and Japan, are driving growth. The unit growth is primarily coming from direct markets, with a significant portion of the pipeline being conversions.
Q: What is the current mix of new builds versus conversions in your pipeline?
A: Patrick Pacious, CEO, stated that about 36% of the domestic pipeline is conversions, which have been a key driver due to elevated interest rates. The remaining 64% is new construction, with some positive signs in construction costs and financing.
Q: Can you provide more details on the free cash flow and any capital recycling plans?
A: Scott Oaksmith, CFO, mentioned that the company generated $114 million in operating cash flow in the first half of the year. They have about $0.5 billion in outstanding investments and are active in recycling capital, with a focus on accelerating brand growth.
Q: How are you managing key money for new developments and conversions?
A: Patrick Pacious, CEO, indicated that key money is up slightly year-over-year, reflecting an increase in openings. The company expects key money to be slightly over $100 million this year, with potential for more opportunities as the development environment improves.
Q: How does the international business compare in terms of revenue intensity to the domestic market?
A: Patrick Pacious, CEO, highlighted that international hotels generally have larger room sizes, contributing to higher revenue intensity. The international portfolio is heavily weighted towards revenue-intense brands, with about 96% in mid-scale and above.
Q: What are the key growth drivers for 2025 and beyond?
A: Patrick Pacious, CEO, mentioned that macroeconomic factors like GDP growth and labor force participation are positive indicators. The company is also focusing on extended stay and upscale segments, which are expected to drive growth.
Q: How are you offsetting the impact of lower RevPAR guidance on EBITDA?
A: Scott Oaksmith, CFO, explained that the company is seeing outperformance from the Radisson integration and robust performance in non-RevPAR dependent programs. These factors, along with effective royalty rate growth, are helping offset the RevPAR impact.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
