Choice Hotels International, Inc.

Good day, ladies and gentlemen, and welcome to your Q3 2020 Choice Hotels International, Inc. Earnings Conference Call. All lines have been placed in a listen-only mode, and the floor will be open for questions following the presentation. If you should require assistance throughout the conference, please press star zero to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Allie Summers. Ma'am, the floor is yours.

Good morning and thank you for joining us today. Before we begin, we would 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 10Q, 10K, and other SEC filings for information about important risk factors affecting the company that you should consider. Moreover, we'd like to acknowledge that there continues to be significant uncertainty as to the duration and severity of the impact of the COVID-19 pandemic on our occupancy levels and future results. 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 the first quarter 2020 earnings press release, which is posted on our website at choicehotels.com. under the Investor Relations section. This morning, Pat Patience, our President and Chief Executive Officer, and Don Dragovich, our Chief Financial Officer, will speak to our first quarter and year-to-date operating results and financial performance. They will be joined by Scott Oaksmith, Senior Vice President, Real Estate and Finance. Following Pat and Don's remarks, we'll be glad to take your questions. And with that, I will turn the call over to Pat.

Thanks, Allie, and good morning, everyone. We're glad you could join us and hope you are all well. Our company, like the hotel industry overall, continues to be significantly impacted by the COVID-19 pandemic, which is far from over. The response of our franchisees, their hotel staff, and Choice Associates has been remarkable. To them, I say thank you for your incredible dedication to serving our guests during these trying times. Despite the pandemic, I'm pleased to report that Choice Hotels has continued to drive results that significantly outperform the industry in the third quarter. System-wide domestic REVPAR outperformed the industry by nearly 20 percentage points, declining only 28.8% from the third quarter of 2019. All of our limited service brands had significant REVPAR index gains against their local competitors. We continued to grow our effective royalty rate, a reflection of the continuously improving value proposition to our franchisees. and we grew our total system size, especially in our more revenue-intense upscale, midscale, and extended stay segments. We attribute this success to CHOICE's key differentiators, including our diversified brand portfolio, the geographic footprint of our domestic system, the profile of our core customer, and our franchise-focused business model. These core strengths have positioned us well to capture the shifts in consumer demand that occurred over the last eight months. We believe that the strategy of growing our limited service brands in the right segments and the right locations will allow us to continue to increase our share of travel demand over the long term. And now that we're entering the ninth month of the pandemic, we are beginning to see trends emerge that are likely to have a long-term impact on the travel industry. Let me begin with the trend of remote work and virtual learning. The significant investment in remote access technology by businesses, schools, and consumers is creating more options in where and when traditional activities take place. In a post-pandemic world, this may afford Americans even more flexibility in their schedules to travel for leisure. For the last several years, we've seen a trend in leisure travel demand spreading more evenly throughout the month of the year, which we attribute in part to school schedules shifting over the years, as well as the increase in baby boomers retiring and having more time and disposable income to travel. More employees can now work from anywhere with an internet connection while their children attend virtual schooling. For the past two months, we saw continued leisure demand extending into weekdays. A second trend is the increase in road trips, which we're benefiting from with our high concentration of hotels in drive-to markets. Road trips have been on the rise for the past five years, thanks in part to low gas prices, which have been trending down for several years. Consumers' appetite for road trips has only accelerated since the onset of the pandemic, as Americans are showing a clear preference for trips that are closer to home. Destinations that may have been overlooked before the onset of COVID-19 are getting fresh consideration. With over 4,000 domestic hotels located within a mile of an interstate exit, our hotels are well positioned to serve travelers as they hit the open road. And with over 2,000 domestic hotels near beaches and national parks, our hotels are also located in the right markets to capture growing demand from travelers who, increasingly, are looking to rediscover the great American outdoors. Another emerging trend is the economic disruption brought on by the pandemic and its effect on consumers as the recovery takes place. We believe that in uncertain times, as in previous down cycles, consumers will be looking for more moderately priced, limited service hotel offerings, presenting an opportunity for our portfolio to capture this demand. Another anticipated economic effect of the pandemic is higher relocation rates. As people shift jobs and industries, demand for longer-term hotel stays rises, a trend we believe will benefit our brands, particularly those in the moderately priced extended stay segment. And finally, there are signs that consumers' risk tolerance is climbing, even before a vaccine is available. According to a recent survey, the perception of travel safety is up and Americans' likelihood to take a domestic leisure trip and stay in a hotel during the next six months is the highest since mid-March. As a result of these trends, we've seen a rise in our weekday occupancy quarter over quarter on top of the existing base of weekend leisure demand we've historically enjoyed. In fact, Our weekday RevPar index is up 8 percentage points year-over-year in the third quarter. Our year-over-year RevPar change continued to improve month-over-month in the third quarter. At this time, we remain optimistic that we will see sequential month-over-month improvements related to our year-over-year RevPar change. Our loyalty program has remained a key driver of our business throughout the pandemic, enhancing our ability to drive franchisees' top-line revenue. We particularly benefited from Choice Privileges Diamond Elite members, our best customers, who contributed an even higher percentage of overall revenue year-to-date versus last year. We expect this bedrock of loyalty business to deliver even higher value going forward as more Americans return to travel and enrollments in our award-winning Choice Privileges loyalty program continues to climb. Our long-term strategy of growing the right brands in the right segments in the right markets allowed Choice Brand hotels to continue to outperform the competition. Throughout the third quarter, we generated significant month-over-month increases in our proprietary revenue contribution to our hotels. More specifically, our website contribution increased by 400 basis points and our loyalty contribution increased by 120 basis points quarter over quarter. This has helped drive RevPAR index share gains versus our local competitors across all location types as reported by STR. For the past 34 weeks, Through October 31st, we observed significant REVPAR share gains against the competition. In the third quarter, all of our select service brands achieved material REVPAR index gains versus their local competitors, with each of our upscale and extended stay brands experiencing share gains of over 10 percentage points. I'll now provide a brief update on our segments. Our upscale portfolio once again achieved impressive year-over-year growth in the third quarter, where we increased our domestic upscale room count by 33%. The Ascend Hotel Collection is the industry's first and largest soft brand. Now with nearly 300 hotels around the globe and fast approaching its 200th domestic location, Ascend Hotels achieved the following performance in the third quarter. Revpar changed outperformance by over 26 percentage points versus the upscale segment. Revpar share gains against local competitors of nearly 19 percentage points. And average daily rate index gains of approximately 9 percentage points. In fact, for the past six months, Ascend has significantly outperformed the upscale soft brands, as well as the segment as a whole, in terms of year-over-year RevPar change. Our upscale Cambria Hotels brand continues to benefit from leisure travel demand thanks to being affiliated with our system, achieving RevPar share gains versus local competitors of nearly 15 percentage points in the third quarter. Our extended stay hotels are purpose-built for long-term guests. Joyce Hotels brands in this cycle resilient segment continue to outperform in this unprecedented environment and our portfolio of over 420 extended stay hotels grew 6% year over year in the third quarter. Our WoodSpring Suites brand achieved an average occupancy rate of 77% in the third quarter and the brand's monthly occupancy levels have remained north of 75% since the last week of June. Our suburban extended stay brand experienced year-over-year occupancy gains in the third quarter, further enhancing the brand's attractiveness to developers looking for a smart extended stay conversion opportunity. At the same time, our mainstay suite's mid-scale extended stay brand gained more than 16 percentage points in REVPAR Index versus its local competitors in the third quarter. We remain optimistic about the growth potential of our Extended Stay portfolio, whose pipeline increased by 9% year-over-year in the third quarter. Year-to-date, through September, Choice has awarded over 40 Extended Stay franchise agreements, demonstrating sustained interest in both new construction and conversion opportunities during a challenging time for the industry. I'd now like to turn to our mid-scale segment, whose brands represent two-thirds of our total domestic portfolio and over half of the franchise agreements executed year-to-date. All of our select service mid-scale brands achieved year-over-year REVPAR index and average daily rate index gains versus their local competitors through the third quarter. The Comfort brand captured RevPar share gains of over 7 percentage points versus local competitors in the third quarter. And Clarion Point, a conversion brand extension of Clarion that launched less than two years ago, recently opened its 20th hotel in the U.S. and now has over 50 hotels open or in the pipeline, demonstrating its strong growth as the brand continues its coast-to-coast expansion. Demand for choices brands continues despite the challenging environment aided by our strong value proposition and recent outperformance. Developers choose our brands as they seek to boost the value of their hotels. We have a conversion brand to fit most developers price points, which has driven our development growth through past downturns. Year to date through the end of September, we have awarded over 230 new domestic franchise agreements, nearly 70% of which were for conversion hotels. In the third quarter alone, we executed over 80 domestic agreements, of which nearly three quarters were for conversions and over 40% of which were executed in the month of September. We have a long history of enhancing the diversity of our ownership base through our one-of-a-kind emerging markets development team, which helps underrepresented individuals, such as minority and veteran entrepreneurs, enter the rewarding business of hotel franchising. Nearly 70% of our hotels have minority ownership. Despite the pandemic, we have awarded and financially supported 17 franchise contracts with Black and Hispanic entrepreneurs year-to-date. Most recently, we entered into the largest minority-owned multi-unit franchise agreement in the program's history. Our long-standing commitment to diversity and further details regarding our efforts to improve the communities we serve will be outlined in our forthcoming ESG report. While this year's challenges have been unique, the cyclical nature of our industry is known. It's something our experienced and disciplined management team, many of whom have led the company through previous down cycles, plan for. Our resilient franchisee base also has deep experience leading their small businesses through down cycles, and they are at the center of everything we do. Over the course of the pandemic, we have supported our franchisees in a number of ways. First, by reducing costs through extending brand program deadlines, implementing cost-saving operational initiatives, reducing certain fixed fees, implementing a tailored fee deferral program, and modifying brand standards. Second, by capturing business through our global sales efforts aimed at first responders and other essential travel, a multi-channel, multi-brand marketing campaign, and tailored promotional programs. Finally, by leveraging hygiene and infection prevention experts like Ecolab in launching our Commitment to Clean initiative, helping to make sure their hotels are clean and safe. We also have been advocating and will continue to advocate with policymakers for additional relief measures aimed at assisting small businesses to provide targeted help for the travel industry. Specifically, we've been urging enactment of a second draw loan program for existing Paycheck Protection Program borrowers, greater accommodation and more streamlining for borrowers to obtain forgiveness, and liability protections for hotel owners who comply with health and safety protocols during the pandemic. We've also called for additional stimulus to support Americans' discretionary spending including in areas such as travel. In closing, Choice Hotels is positioned to emerge from these trying times stronger, just as we have before in our 80-year history. Our proven portfolio of well-segmented brands, geographic footprint, and asset-light business model position us well to benefit from current consumer trends as they continue to evolve. I'll now invite our CFO to provide his update. Dom?