Choice Hotels International, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International's second quarter 2021 earnings call. At this time, all lines are in a listen-only mode. I will now 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 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 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 second 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 Dragicevich, our chief financial officer, will speak to our second 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. We appreciate you taking your time to join us. I'm pleased to report that Choice Hotels has continued to deliver strong results that once again significantly outperformed the industry and gained share across all segments in which we compete. Our June and July REVPAR results exceeded 2019 levels by approximately 5% and 15% respectively, a truly remarkable achievement. For almost a year and a half, we've maintained significant REVPAR index share gains against the competition, as compared to 2019. In fact, this quarter we increased REVPAR index versus our local competitors by nearly five percentage points as compared to 2019 through notable lifts in both weekday and weekend REVPAR index as reported by STR. Retaining these elevated competitive share gains even as the broader industry recovers illustrates that our strategic investments are working and gives us further optimism about our future revenue trajectory. Our goal is not simply to return to our 2019 performance levels, but rather to capitalize on current and future investments to fuel our long-term growth and drive our performance to new levels. As previously discussed, We were very intentional in our approach to investing prior to the pandemic to drive growth across the more revenue-intense hotel segments. While we reduced our overall spend in 2020 due to the pandemic, we continued to invest in key strategic areas. More importantly, in today's stronger demand environment, we see an outsized opportunity to continue or even accelerate strategic investments to capture a greater share of travel demand. What gives us optimism is that the bold investments we've continued to make are paying off. These include launching and enhancing brands in each of our strategic segments, namely expanding our upscale positioning, strengthening our mid-scale leadership role, and rapidly growing our extended stay portfolio. We're also improving our guest delivery at the hotel level while strengthening our marketing and reservation systems and franchisee tools that have contributed to the outperformance our brands are demonstrating. We are also bolstering our platform capabilities through the strategic partnerships that drive incremental revenue to our existing portfolio, allowing us to play in non-traditional segments such as gaming, and all-inclusive resorts, among others. I will now outline more specifically why we are confident that we can continue to increase our share of travel demand in the years to come. First, we strengthened our existing brands and launched new brands to appeal to the customer of tomorrow in key segments that provide a compelling return on investment. Our strategic investments in the extended stay segment allowed us to quadruple the size of the portfolio over the past five years to reach 460 domestic units with a domestic pipeline of over 300 hotels. Last year, we launched our newest mid-scale extended stay brand, Everhome Suites, to provide franchisees an opportunity to capitalize on the best performing segment of the hotel industry. The interest level from multi-unit developers backed by institutional capital for this new product is high, similar to what we are seeing with our WoodSpring Sweets brand. In our mid-scale segment, we have reinvested in the future of our brand portfolio with Comfort's move to modern transformation. The Comfort portfolio grew its domestic unit count by 2.5% in the second quarter year over year, and recently celebrated the highest number of openings since 2014, while achieving REVPAR index gains versus its local competitors in the second quarter. Aquarian Point has already experienced a five-fold increase of its portfolio since the end of 2019, ending the first half of the year with over 30 hotels open in the U.S., and more than 20 additional hotels awaiting conversion this year. At the same time, we rapidly grew our upscale segment. Specifically, we've increased the number of domestic upscale rooms by nearly 25% since the end of 2019, driven by impressive growth of both Cambria and the Ascend hotel collection. We also continue to invest in capabilities to further enhance our owners' value proposition and drive the bottom line results through value added programs and resources to achieve higher levels of profitability. Notably, we enhanced our pricing and merchandising tools to further enable our franchise owners to reach their target customers and effectively drive top line revenue. Thanks to these tools, We were successful in swiftly executing our pricing strategy and optimizing rate delivery, which resulted in significant average daily rate gains. The company is currently outpacing the rate recovery seen following prior recessions. And finally, we continue to propel our future forward by expanding our platform capabilities. through signing strategic agreements with new travel partners in adjacent business segments. These platform expansion strategies enabled us to attract new franchisees and guests to the core brand portfolio and supplement investments in strategic brand growth with increases to high margin affiliation fee streams. As discussed on our prior calls, we've been anticipating long-term consumer and demographic trends to drive a significant uptick in travel demand, and we've been making investments to capitalize on them. Specifically, we are benefiting from trends such as Americans rediscovering domestic destinations and the continued rise of road trips, an increase in workers retiring early, and the trend of work from anywhere. which affords Americans flexibility in where and when they travel for leisure. We now know that the pandemic has only accelerated these trends, and we believe that our business will therefore benefit in an outsized way from additional travel demand coming to our key segments. The investments we've made allowed us to capitalize on demand that has historically propelled our core business, and also enabled us to attract and capture a larger share of leisure demand with customers who are new to our brands driving more revenue this year than in 2019. At the same time, we're benefiting from our most loyal customers, Choice Privileges Diamond Elite members who are experiencing our new and refreshed brands and who contributed an even higher percentage of overall revenue for the quarter as compared to 2019. Not only are our customers planning their travel further in advance, as witnessed by the continued lengthening of average booking windows, but we continue to see a slightly greater share of revenue coming from longer lengths of stay. While our expectation to capture a larger share of consumers' wallet among leisure travelers is already coming to fruition, We also see continuing momentum in our business travel trends with additional runway for growth. We have seen sequential quarter over quarter and month over month increases in our business travel booking trends in the second quarter 2021. Likewise, with our recent refresh of the comfort brand family and further upscale penetration, we are well positioned not only to recover our existing business customers, but to expand our guest base as business travel rebounds. As a matter of fact, our group travel bookings reached 90% of our 2019 levels in the first half of the year, with key segments strongly rebounding and lead volumes steadily rising close to 2019 levels. The results we achieved confirm our focus to grow in our strategic segments. which will further fuel the long-term revenue intensity of our system. I'll now provide a brief update on our key segments, where all of our select service brands achieved REVPAR index gains versus their local competitors in the second quarter as compared to 2019. Our extended stay segment, a significant growth engine for the company, expanded by over 45 hotels in the second quarter, year over year, and now represents over 10% of our total domestic rooms. For the second quarter, as compared to 2019, WoodSpring Suites reported 16% RevPar growth, and the brand's pipeline continues to expand, reaching 155 domestic hotels. Our suburban extended stay portfolio expanded to nearly 70 domestic hotels open, representing 15% unit growth year over year. Additionally, franchise agreements awarded for the brand in the first half of the year exceeded levels reported in the same period of 2019. At the same time, our mainstay suites mid-scale extended stay brand continued to capture nearly 14 percentage points in REVPAR index gains versus its local competitors as compared to 2019, and the brand's portfolio of over 90 domestic hotels open experienced 27% year-over-year unit growth. We are especially pleased with a significant increase in developers' interest in new construction extended stay projects year-over-year, as hotel financing begins to rebound. The high developer activity and interest reaffirms that our strategic commitment and continued investments in this highly cycle-resilient segment are driving a competitive advantage. Our mid-scale transient brands represent over two-thirds of our total domestic room portfolio and over half of the total domestic pipeline. Specifically, the Comfort family achieved a rev par change that was nine percentage points more favorable than the upper mid-scale chain scale in the second quarter as compared to 2019. In the first half of the year, the Comfort portfolio opened the highest number of the brand's conversion hotels in the past decade, while increasing domestic new construction agreements by 20% year over year. With newly updated properties from coast to coast, a recently refreshed brand identity, and the new Rise and Shine prototype revealed this spring, the future is certainly bright for Comfort. Our upscale portfolio achieved impressive year-over-year growth in the second quarter, where we increased our domestic room count by 24%, marking a record for domestic openings in the first half of the year for the company, including 22 Penn National Gaming properties. The Ascend Hotel Collection leads the industry as the first and largest soft brand. The brand grew its domestic room count by 28% year over year and expanded to nearly 390 hotels open around the globe. In addition, Ascend Hotels outperformed the upscale segment RevParChange by 26 percentage points for the quarter as compared to 2019. Our upscale Cambria Hotels brand continues its positive momentum, growing its portfolio size by 14% to 58 units, with 17 projects under active construction at the end of June, and approximately 10 additional hotels planned to open this year. These results are proof of Choice's value proposition in the upscale segment for our current and prospective owners. The recovery is not just about travelers returning. It's also about continuing to drive forward our efforts to improve the unit economics of our franchises. I've been traveling a lot since late March across the country. And every time I speak with our franchise owners, they are optimistic about the progress of their business recovery and the outlook for the remainder of the year. The close relationship we've had with our franchisees has always been strong. but the pandemic was an opportunity for us to strengthen this bond. Specifically, our owners are very pleased with the new pricing tool we recently introduced that has helped drive their top line outperformance versus competitors, and with several initiatives we launched that reduce their total cost of ownership. Our franchisees are also benefiting from our strong business delivery. Thanks to our enhancements in our distribution capabilities, We recorded nine of our top ten all-time highest booking days for choicehotels.com and other proprietary digital channels in the last two months. With such a powerful value proposition, it's no surprise why Choice has an industry-leading voluntary franchisee retention rate, and our franchise owners continue to seek and develop our brands. Aided by our strong value proposition for our current and future owners, we also experienced significant demand for new franchise contracts. In the first half of the year, we awarded 200 new domestic franchise agreements, a 32% increase over the same period of 2020. Likewise, demand for our conversion brands throughout the first half of the year has increased by over 40% year over year. In addition, our development and franchise service team that is fully dedicated to driving diverse ownership of choice franchise hotels among underrepresented and minority owners has awarded nearly a dozen franchise contracts in the first half of the year while growing and cultivating the number of women owners. We also continue to strengthen our platform business portfolio. which represents a highly revenue-intense extension for Choice. Our guests are increasingly engaging with our travel partners and continuing to benefit with additional travel options, while our more than 49 million Choice Privileges members have the opportunity to earn and redeem points at our travel partners' properties by booking their stays directly on choicehotels.com. In fact, we are seeing an increase in our domestic loyalty program signups in the second quarter, 2021, as compared to 2019. We are committed to enhancing our value proposition by further strengthening the platform portfolio and continuing to establish new strategic partnerships. In closing, I'm proud to say that our culture centered around diversity, equity, and belonging is being recognized. This year we've been named one of the best employers for diversity by Forbes, the best place to work for LGBTQ equality by the Human Rights Campaign for the ninth consecutive year, and one of the best places to work for people with disabilities, earning a perfect score on the Disability Equality Index for the second year in a row. I am confident that, thanks to the strategic investments we're making, our impressive performance, and this award-winning culture, we are now in a stronger position than ever as a company to further capitalize on outsized growth opportunities over the long term that will continue to pay off for our owners and shareholders alike. With that, I will hand it over to our CFO. Dom?