Choice Hotels International, Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Choice Hotels International's fourth quarter and full year 2020 earnings call. At this time, all lines are in a listen-only mode. I'd like to turn the conference call over to Ali Summers, Investor Relations 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 10Q, 10K, and other SEC filings for information about important risk factors affecting the company that you should consider. Moreover, we would like to acknowledge that there continues to be significant uncertainty as to the impact of the COVID-19 pandemic on our future performance. 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 fourth quarter and full year 2020 earnings press release, which is posted on our website at choicehotels.com under the Investor Relations section. This morning, Pat Pacius, our President and Chief Executive Officer, and Don Dragozic, our Chief Financial Officer, will speak to our fourth quarter and full year operating results and financial performance. They will be joined by Scott Oaksmith, Senior Vice President, Real Estate and Finance. 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.

Thanks, Allie, and good morning, everyone. We appreciate your taking the time to join us and hope you are all well. This week we lost a leader who had a major impact on our industry and on the lives of many who call the travel industry their home. On behalf of all of us at Choice Hotels, I'd like to express our deepest condolences to Arne Sorensen's family and to the many people across our industry who were inspired by his personal and professional leadership. We will all miss him. As we look back, 2020 was a year unlike any other, a year that challenged leaders and companies around the globe, and Choice Hotels was no exception. But it was the collective response, dedication, and resilience of our franchise owners, their hotel staff, and Choice associates that made all the difference for our company and franchise system. I would like to thank them again for everything they've done for our guests and the communities they've impacted. During a year of significant challenges brought upon the industry by the pandemic, Choice Hotels achieved a number of key milestones that demonstrate our long-term strategy of growing our presence in more revenue-intense segments and locations is working. 2020 was the year that our flagship comfort brand returned to unit growth after its successful transformation. increasing its domestic system size by 2%. As we celebrate Comfort's 40th anniversary this year, the success of the brand is proof positive that we invest for the long term. And as you can see by both unit growth and impressive rev part performance, those investments are paying off and position the brand for growth into the future. 2020 was also the year our extended stay segment rapidly expanded by 44 units to nearly 450 domestic hotels. And the domestic pipeline for that segment alone reached over 315 hotels. The segment now represents nearly 8% of our total domestic portfolio and strong developer interest reaffirms that our strategic commitment and continued investments in this highly cycle resilient segment are driving a competitive advantage. And finally, 2020 was a year of continued growth for our upscale portfolio, highlighted by an 8% growth of Cambria Hotels. The brand now has a pipeline of nearly 80 hotels and is expected to accelerate its unit growth in 2021. Consumer confidence in our upscale products drove the brand's outperformance versus their local competitors, and is a proof point to current and prospective owners of Choice Hotels' value proposition in the upscale segment. The results we achieved confirm our strategic focus to grow in these segments, which will further fuel the long-term revenue intensity of our system. I'm also pleased to report that we have continued to drive RevPAR results that significantly outperformed the industry in the fourth quarter and 2020 as a whole. Our domestic system-wide year-over-year RevPAR change surpassed the industry by nearly 17 percentage points for the full year, declining 30.7% from 2019. Since the onset of the pandemic in mid-March, our performance has achieved sequential quarter-over-quarter improvement with our fourth quarter domestic system-wide RevPAR declining 25.1% from the same quarter of 2019. Our results continue to outpace the overall industry and our chain scale segments. In fact, our outperformance expanded in the fourth quarter. In 2020, Choice Hotels grew RevPar faster than our local competitors, increasing RevPar index by over five percentage points through notable lifts in weekday and weekend REVPAR index. Our REVPAR index growth strengthened in the fourth quarter of 2020 and continued to improve through year end. Throughout 2020, we also continued to grow our effective royalty rate, a reflection of the improving value proposition we deliver to our franchise owners. Our success is highlighted by Choice Hotels' key differentiators, including the strength of our proven and well-distributed brands, our customer profile, and the continued resilience of leisure travel demand, our powerful reservations delivery system and loyalty program, and our franchise-focused business model. These four attributes, along with our relative outperformance versus the industry, reaffirmed our confidence in our strategies. Therefore, in the fourth quarter, we decided to accelerate certain strategic investments in our product portfolio and value proposition capabilities to position the company for continued success in the future. Consumer and developer demand for our products encouraged us to invest in new prototype development and brand initiatives in our key strategic segments. We also advanced our pricing optimization and merchandising capabilities to further enable our owners to reach their target customers and effectively drive top line revenue to their hotels. Turning to 2021, we expect our momentum to continue into the first quarter, allowing Choice Hotels to further outperform the industry in the current environment. We recognize that a high degree of uncertainty remains and our company, like the hotel industry overall, continues to be significantly affected by the pandemic. Nevertheless, we are observing positive signs that give us confidence for 2021 and beyond. First, given the vaccine rollout, we believe consumers are beginning to feel more optimistic about future travel prospects. In fact, we've observed that our customers are beginning to plan their travel further in advance. as noted by improvements in our 31-day-plus bookings since November. Furthermore, we expect the trend of Americans vacationing domestically and taking road trips will continue. With 95% of our domestic hotels located outside of dense urban centers and over 80% of our portfolio in the U.S., our hotels are uniquely positioned to welcome travelers as they hit the open road. stimulus checks from the December federal relief package, the prospect of additional government aid this year, and high household savings point to a continued recovery for our small business owners and middle-class consumers, our core customers. Finally, and as discussed on our last call, we believe that long-term consumer trends, such as remote work and virtual learning, will likely continue to provide Americans flexibility in where and when they travel for leisure. We feel confident that our core strengths, combined with the tactics we deployed in response to the pandemic, have positioned us well to continue to capture and increase our share of travel demand over the long term. Our long-term strategy of growing the right brands in the right segments in the right locations while enhancing our distribution capabilities, continues to pay off. In the fourth quarter, we generated significant quarter over quarter growth in our proprietary revenue contribution mix, which drove our full year results to match our prior year's strong performance. More specifically, our website contribution increased by 150 basis points, ending the year with the three strongest months in 2020. while our loyalty program increased its contribution by 280 basis points quarter over quarter. In addition, we continue to benefit from our most loyal customers, Choice Privileges Diamond Elite members, who contributed an even higher percentage of overall revenue for full year 2020 as compared to the prior year. These results have helped drive REVPAR index share gains of over 600 basis points in the fourth quarter versus our local competitors, up significantly across all location types, as reported by STR. For the past 46 consecutive weeks through mid-February, we've observed significant REVPAR share gains against the competition, giving us further optimism about our future revenue trajectories. I'll now provide a brief update on our key brand segments. Our mid-scale brands represent two-thirds of our domestic portfolio, nearly half of the franchise agreements executed last year, and over half of the total domestic pipeline. All of our select service mid-scale brands achieve year-over-year REVPAR index gains, driven by occupancy and average daily rate index gains, versus their local competitors through the fourth quarter and full year. We're especially pleased with the performance of our comfort portfolio, where our efforts to transform the brand have led to REVPAR index gains versus its local competitors of nearly nine percentage points and a REVPAR change that was over 10 percentage points more favorable than the upper mid-scale change scale in the fourth quarter. At the same time, We continue to add new construction hotels to the comfort pipeline and attract high-quality franchise conversion agreements to the brand that will fuel revenue-intense growth in the near term. And finally, Clarion Point, a relatively new conversion brand extension to our Clarion portfolio, ended the year by opening the doors of its 25th hotel in the U.S., a four-fold increase of its portfolio since the prior year. The brand now has over 50 domestic hotels open or in the pipeline. Moving on to our extended stay segment, where we nearly quadrupled the size of the portfolio during the last five years. Once again, our purpose-built brands tailored for long-term guests outperformed the competition in this cycle-resilient segment. Our WoodSpring Suites brand achieved an average occupancy rate of 72% for full year 2020 and experienced year-over-year RevPar growth of 2% in the month of December, a truly remarkable achievement given the current environment. The brand's pipeline continues to expand and reached 150 domestic hotels at the end of 2020. At the same time, our suburban extended stay brand experienced year-over-year occupancy gains in the fourth quarter, and an over 40% increase in franchise agreements activity for the full year. Our mainstay suites, mid-scale extended stay brand captured more than 20 percentage points in rev part index gains versus its local competitors, both in the fourth quarter and full year. And developer interest is growing. Most recently we signed and onboarded the largest multi-unit transaction in mainstays history. 15 units, which significantly increased the brand's presence in the segment. Last year alone, the brand's portfolio expanded to 90 domestic hotels open and over 20% increase year over year, and its pipeline has swelled to more than 140 domestic properties. For full year 2020, Choice Hotels awarded nearly 110 extended stay franchise agreements, validating our strategic focus on the segment for both new construction and conversion opportunities. Given these results, we remain optimistic about the growth potential of our extended stay portfolio. I'd now like to turn to our upscale portfolio whose choicehotels.com contribution increased by nearly 500 basis points year over year in the fourth quarter and marked the strongest quarterly revenue share in 2020. Our upscale Cambria Hotels brand continues its ongoing momentum, growing its portfolio size by 8% and its pipeline to nearly 80 domestic hotels, 19 of which were already under construction at year end. Developer interest in the brand remains high, with 16 franchise agreements executed for the full year, including one-third of those awarded in the fourth quarter. Thanks to being affiliated with our system, the Cambria brand continued to benefit from leisure travel demand, achieving RevPar share gains versus local competitors of nearly 22 percentage points in the fourth quarter. The Ascend Hotel Collection continues to lead the industry as the first and largest soft brand. With nearly 300 hotels open around the globe, Ascend Hotels outperformed the upscale segment in year-over-year fourth quarter RevPar change by over 20 percentage points. The brand also achieved RevPar index gains of nearly 13 percentage points against its local competitors for the full year, further enhancing the brand's attractiveness to developers looking for a smart conversion opportunity. Choice Hotels brands remain in demand despite the challenging environment, aided by our strong value proposition and continued outperformance. Developers continue to choose our brands as they seek to improve their operations and boost the long-term value of their hotels. For full year 2020, we awarded 427 new domestic franchise agreements, of which over 70% were for conversion hotels. Demand continued to accelerate throughout the year with over one quarter of the total agreements executed in the month of December. In the fourth quarter alone, we executed 195 domestic agreements of which over 70% were for conversions. Additionally, our developers remain optimistic about the long-term fundamentals of the lodging industry. In fact, nearly 30% of total domestic franchise agreements we awarded in 2020 were for new construction contracts. Our emerging markets development team, which is dedicated to driving diverse ownership of choice franchised hotels among underrepresented minority owners, awarded two dozen franchise contracts in 2020, including the largest minority owned multi-unit franchise agreement in the program's history. We also recently announced the creation of the Choice Hotels Owners African American Alliance, further underscoring our commitment to strengthen representation, support, and advocacy for Black and African American hoteliers. This builds on our long commitment to diversity in the hospitality industry generally, including, among others, the strong representation of South Asian and Indian American hoteliers in our system. These results and critical initiatives are major drivers for our optimism in the years ahead. We're also committed to enhancing our value proposition by growing our platform business. We recently announced the further expansion of our attractive upscale platform with the addition of 22 Penn National Gaming Casino Resort properties, representing nearly 7,000 rooms joining our Ascend Hotel collections. This strategic agreement will offer more than 47 million Choice Privileges members the opportunity to earn and redeem points at these Penn properties by booking their stay directly on choicehotels.com. Our focus remains centered on franchisee profitability through reducing the cost of ownership at the hotel level and driving top-line outperformance versus competitors. Our franchisees are at the core of everything we do, and we are committed to helping them along the road to economic recovery. Throughout 2020, we conducted 49,000 individual consultations with hotel owners and operators that helped our franchisees remain open and continue serving guests. We've also rolled out offerings like grab-and-go breakfast, housekeeping on demand, and contactless check-in that further lowered franchisees' total cost of ownership while ensuring appropriate safety precautions for our owners, hotel staff, and guests. We are particularly pleased that legislation we advocated for became law in December, providing additional relief and stimulus to small businesses like our franchisees. Specifically, we supported the establishment of a second draw loan program for existing Paycheck Protection Program borrowers that were hit hard by the pandemic. the extension and improvement of the program itself, and increased flexibility for lenders. We will continue to advocate with the new Congress and administration for additional relief measures aimed at assisting small businesses and providing targeted help for the travel industry. In closing, I'm confident that these trying times have made us even more resilient and agile as a company. Looking beyond the crisis, I'm convinced we will emerge even stronger over the long term. Our long-term view, resilient business model, proven brands, and strong balance sheet will help us to further capitalize on growth opportunities in 2021 and beyond. With that, I'll hand it over to our CFO, Dom.