Choice Hotels International, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Choice Hotels International first quarter 2021 earnings call. At this time, all lines are in listen-only mode. Please note, this call is being recorded. I would now like to turn the conference 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 10-Q, 10-K, 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 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 first quarter 2021 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 first quarter operating results and financial performance. They'll 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, Ali, and good morning, everyone. Thank you for joining our first quarter 2021 earnings call, and I hope you are all well. As you'll hear today, We believe that the deliberate set of strategic decisions we've made in recent years and our targeted actions during the pandemic, along with the dedication and hard work of our franchise owners to navigate the impact of the pandemic, drove impressive results that position us well to further capitalize on growth opportunities in 2021 and beyond. Throughout my remarks today, I'll provide comparisons not only to prior year, but also to 2019, which we believe are more meaningful in analyzing performance trends as the prior year's quarter results were impacted by the pandemic. In the first quarter of 2021, we once again delivered results that significantly outperformed the industry, our chain scale segments, and local competition. And we expanded our adjusted EBITDA margins to 69 percent. Our domestic system-wide year-over-year REVPAR change surpassed the industry by 23 percentage points, declining 4.4 percent and 18.7 percent as compared to the same quarters of both 2020 and 2019, respectively. And we continued to achieve sequential quarter-over-quarter improvement. In addition, we generated steady month-over-month growth in our choicehotels.com and other proprietary digital channels revenue contribution mix throughout the quarter. We also benefited from our most loyal customers, Choice Privileges Diamond Elite members, who contributed an even higher percentage of overall revenue for the quarter as compared to 2020 and 2019. These results have helped us increase REVPAR index versus our local competitors by over six percentage points in the first quarter as compared to 2019. We achieved that through notable lifts in both weekday and weekend REVPAR index and up significantly across all location types as reported by STR. For over a year, we've observed significant RevPar share gains against the competition as compared to 2019, giving us further optimism about our future revenue trajectory. Further, our April RevPar results are truly remarkable, marking near returns to 2019 levels. Aided by our strong value proposition and continued outperformance, demand for new franchise contracts grew significantly in the first quarter. Likewise, our franchise owners are remaining with choice, as seen in our industry-leading voluntary franchisee retention rate. And owners who choose to build and develop hotels in the current environment increasingly seek our brands. For the first quarter, we awarded nearly 90 new domestic franchise agreements. and over 50% increase over the same period of 2020. Of the total new domestic agreements, over 80% were for conversion hotels. These hotels historically opened about three to five months after contract execution. Throughout the first quarter, we also continued to grow our effective royalty rate, a reflection of the continued strengthening of the value proposition we provide to our franchise owners. These results and our optimism for the future led us to reinstate the dividend at the pre-pandemic level and resume our share repurchase program. Underpinning our first quarter success are the deliberate decisions and strategic investments that we've made in our product portfolio, our value proposition, our platform capabilities, and other franchisee-facing tools. These investments allowed us to not only capitalize on demand that historically has driven our core business, but also enabled us to attract new travel demand to new market locations and our key segments, such as extended stay and upscale. In fact, we believe we are now better positioned to increase our share of travel demand in the years to come than we were prior to the onset of the pandemic. We pride ourselves on investing in our high-quality, well-segmented portfolio of brands, and this sets us apart with our franchise owners. We constantly monitor changing consumer preferences and strategically manage our portfolio to ensure we are building the brands of tomorrow in key strategic segments that provide a compelling return on investment. Last year, we launched our newest mid-scale extended stay brand, EverHome Suites, to provide franchisees with another opportunity to capitalize on this fast-growing segment in the hotel industry and help drive returns in practically any economic environment. As hotel financing starts to rebound, we anticipate developers' increased demand for this new product In fact, in April, we met with over 25 developers and toured the new model room for this exciting brand, and interest is very high. We also proactively reinvested into the future of our product portfolio with Comfort's Move to Modern Refresh program, which has been recently completed, and the launch of the new Comfort prototype this quarter to help the brand family maintain its leadership position in the upper mid-scale segment for years to come. And we remain focused on growing our strategic conversion brands. Specifically, Clarion Point, a relatively new brand extension to the Clarion brand, has experienced a five-fold increase of its portfolio. And the Ascend Hotel Collection has increased the number of its domestic rooms by over 25% since the end of 2019. Based on our strong track record of organic growth, we believe these internal investments will continue to drive attractive returns for years to come. At the same time, we continue to invest in our value proposition capabilities. We enhanced our pricing and merchandising tools to further enable our franchise owners to reach their target customers and effectively drive top line revenue to their hotels while reducing their total cost of ownership. These tools are contributing to the outperformance our brands are experiencing. We also provided our guests with additional travel options by signing strategic agreements with new travel partners such as Penn National Gaming. Finally, The decisions we've made to better align our cost structure in the post-pandemic environment that are here to stay position us well to capitalize on opportunities as travel demand recovers while allowing us to continue to invest for the long term. We have maintained competitive share gains since the onset of the pandemic, and we expect our momentum to continue. While uncertainty remains, we are observing positive signs of recovery that give us confidence for 2021 and beyond. With the vaccine rollout pace accelerating and consumer confidence at its highest level since the pandemic began, Americans are feeling more optimistic about the prospect of traveling again. Indeed, recent studies point to a significant uptick in consumers' intent to travel in the next six months. We've observed that throughout the first quarter, and particularly in the month of April, our customers are planning their travel further in advance as witnessed by the lengthening of average booking windows. We are also pleased to see that our first quarter experienced over 400 basis points weekday occupancy index share gains as compared to 2019. As discussed on our prior calls, we believe these share gains are partially driven by long-term consumer trends, such as remote work, virtual learning, and early retirement, which afford more Americans flexibility in where and when they travel for leisure. Additionally, we are seeing sequential quarter-over-quarter improvements in our business travel booking trends. As a matter of fact, even our group travel is showing signs of recovery with the sports segment bookings expectations for this year already exceeding 2019 levels. We continue to observe positive trends and rising outlooks across most key domestic economic indicators. Additionally, stimulus checks from the recent financial relief package, high household savings, and business reopenings all point to a continued recovery for our small business franchise owners and middle class consumers, our core customers. I'll now provide a brief update on our key segments, where all of our brands achieved REVPAR index gains as compared to 2019 versus their local competitors through the first quarter. Our extended stay segment is a significant growth engine for the company. The acquisition of the WoodSpring Suites brand in 2018 and our strategic investments in the Extended Stay segment allowed us to nearly quadruple the size of the portfolio over the past five years, with the segment now representing 10% of our total domestic rooms. In the first quarter, the Extended Stay segment rapidly expanded by 44 units year over year from the first quarter of 2020 and now stands at nearly 455 domestic hotels with a domestic pipeline of 310 hotels. We expect this extended stay unit growth rate to further accelerate in the future. Once again, our purpose-built brand, tailored for long-term guests, outperformed the competition in this cycle-resilient segment. The WoodSpring Suites brand is our first brand to experience REVPAR levels that exceeded our 2019 results. For the first quarter as compared to 2019, WoodSpring reported over 3% REVPAR growth driven by a more than 4% increase in average daily rate and an average occupancy rate of 74%, a truly remarkable achievement. The brand's pipeline continues to expand year-over-year and reached nearly 150 domestic hotels at the end of March 2021. Our suburban extended stay brand experienced 10% year-over-year domestic unit and pipeline growth. At the same time, our mainstay suite's mid-scale extended stay brand captured over 13 percentage points in REVPAR index gains versus its local competitors as compared to 2019. The brand's portfolio expanded to over 90 domestic hotels open, a 26% increase year over year. The increased developer interest we're seeing reaffirms that our strategic commitment and continued investments in this highly cycle-resistant segment are driving a competitive advantage. Given these results, we remain optimistic about the growth potential of our extended stay portfolio. Our mid-scale brands represent over two-thirds of our total domestic portfolio and over half of the total domestic pipeline. As we celebrate Comfort's 40th anniversary this year, the brand's continued growth and performance success is proof positive that we invest for the long term. Our efforts to transform the brand are paying off. Specifically, the Comfort family achieved rev par index gains versus its local competitors of nearly 10 percentage points and a rev par change that was nearly 11 percentage points more favorable than the upper mid scale change scale in the first quarter as compared to 2019. In March, We officially launched the much anticipated Rise and Shine prototype, which maintains Comfort's low cost to build advantage over its competition and is designed to meet guest expectations for an elevated experience. The Comfort brand family reached over 260 hotels in its domestic pipeline, over one quarter of which are hotels awaiting conversions, which we believe will fuel the brand's growth in the near term. And finally, Clarion Point ended the first quarter by achieving a milestone of the 30th hotel open in the United States and more than 20 additional hotels awaiting conversion in the near term. Our upscale portfolio achieved impressive year-over-year growth in the first quarter where we increased our domestic upscale room count by 22% and marked the highest number of openings in a given quarter matching the company's all-time record. In addition, developer interest in our upscale brands remained high, as we more than quadrupled the number of domestic franchise contracts in the first quarter year over year. The Ascend Hotel Collection leads the industry as the first and largest soft brand. The brand grew its domestic room count by nearly 26% year over year, and expanded to nearly 380 hotels open around the globe. Ascend Hotels achieved the following performance in the first quarter as compared to the same period of 2019. The brand outperformed the upscale segment Revpar Change by 19 percentage points. It achieved Revpar index gains of 12 percentage points against its local competitors and it recorded average daily rate index gains of 11 percentage points. This performance further enhanced the brand's attractiveness to developers looking for a smart conversion opportunity, which was showcased in the brand's strong franchise agreements activities for the quarter. Our upscale Cambria Hotels brand continues its positive momentum, growing its portfolio size by 14% to 57 units with 18 projects under active construction at the end of March. The brand continues to build on its success with four hotels already opened year-to-date and five additional planned to open through the end of the summer. Consumer confidence in Cambria Hotels drove the brand's RevPar share gains versus its local competitors to 16 percentage points in the first quarter as compared to 2019. These results are proof of Choice Hotel's value proposition in the upscale segment for our current and prospective owners. We're also committed to enhancing our value proposition by growing our platform business. In the first quarter, we further expanded our attractive upscale platform and successfully onboarded 22 Penn National Gaming casino resort properties, representing nearly 7,000 rooms joining our Ascend Hotel collection. This strategic agreement will offer our more than 48 million Choice Privileges members the opportunity to earn and redeem points at these Penn properties by booking their stays directly on choicehotels.com. We're proud of everything we've accomplished this quarter, but we certainly could not have done it without the dedication of our associates, and the strength of our award-winning culture focused on diversity, equity, and belonging. I'm especially pleased to say that Choice was recently named by Forbes as one of the best employers for diversity and one of America's best midsize employers, as well as one of the best places to work by comparably. In closing, I'm confident that thanks to the investments we've made over the long term, and our targeted actions amid the pandemic, we are in a stronger position as a company to successfully capitalize on the recovery. Our strategic approach, resilient business model, high-quality, well-segmented portfolio 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.