Choice Hotels International, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International third quarter 2021 earnings call. At this time, all lines are in a listen-only mode. I will now turn the conference over to Alice Summers. 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. 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 the reconciliation of our non-GAAP financial measures referred to in our remarks as part of our third 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 Dragosich, 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 Don'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 you taking the time to join us. I'm pleased to report that Choice Hotels continue to deliver strong REVPAR growth in the third quarter that once again significantly outperformed the industry. We also continue to gain share across all segments in which we compete. As a result of these performance trends, we expect to surpass 2019 REVPAR and adjusted EBITDA levels for full year 2021. By continuing to implement our long-term strategy, we have positioned choice hotels to further benefit from post-pandemic trends that favor leisure travel, limited service hotels, and longer stays. Additionally, our business traveler demand has returned to levels similar to the third quarter of 2019. The third quarter was exceptional and our strongest quarter of the year. our REVPAR increased 11.4% compared to the third quarter of 2019, surpassing our prior quarterly REVPAR guidance. In fact, REVPAR has now exceeded 2019 levels for five consecutive months, with trends continuing into the fourth quarter. For over a year and a half, we've maintained significantly higher REVPAR index share gains against the competition compared to 2019. We continued this trend in the third quarter, increasing REVPAR index versus our local competitors by nearly four percentage points as compared to 2019, reflecting continued growth in both weekday and weekend REVPAR index as reported by STR. CHOICE's ability to continue to gain share even as the broader industry recovers demonstrates that our strategic investments are paying off and gives us further confidence in our future revenue trajectory. Because of our strategic investments both before and during the pandemic, we are in a stronger position today to capitalize on outsized growth opportunities over the long term, which we expect will create value and drive our performance to new levels. What's most impressive is that we continue to drive strong performance through both rate improvement and occupancy share gains. Joyce's average daily rate growth has been stronger than the industry in the third quarter due to our new revenue management tool and broader capabilities. In addition, our robust merchandising strategy has allowed us to drive occupancy share gains versus our local competitors. We continue to make major investments that are enhancing our owners' performance and contributing to our brand's outperformance. Earlier this year, we launched our new revenue management capability designed to improve the ability of our franchise owners to effectively drive top line revenue. This tool marks a step change improvement that we were able to put in the hands of our franchisees at a critical juncture in the recovery. As the first mobile-enabled revenue management app, it allows our franchisees to more effectively manage their channels, rates, and inventory by adapting to local market trends in real time through repricing and competitive rate shopping multiple times during the day. And they can do this from virtually anywhere. This enhanced capability has contributed to choice-taking significant RevPar index share, specifically driving average daily rate index gains versus local competitors. And we expect this trend to continue. We are especially encouraged by forward-looking bookings for the Thanksgiving and winter holidays with a projected rate significantly ahead of 2019 levels. The acceptance of rate recommendations by our franchisees has been significantly higher than our prior tool, demonstrating our owners' confidence in the solutions that we are providing. This tool, combined with expert advice from our experienced revenue management consultants, is helping our franchise owners to swiftly execute the right pricing strategy, which is particularly important in an inflationary environment. At the same time, we continue to improve the unit economics for our franchisees, concentrating on investments like housekeeping upon request that lower their cost of ownership while driving continued performance improvements. Recently, we deployed a new digital registration capability, which is integrated with our property management system. This cost-effective, cloud-based solution is designed to simplify the hotel registration process for front desk staff, save on labor, speed up check-in, and improve our guests' overall experience. Moreover, our recent brand investments are designed to appeal to the guest of tomorrow while providing a compelling return on investment for our franchisees. Just a few weeks ago, we introduced a new Cambria Hotel prototype option designed for secondary and leisure markets. We're excited about the future growth opportunity for Cambria, as we expect this prototype will allow developers the flexibility to build at a reduced cost, expanding the markets available for growth, while retaining our design forward experience. I will now provide a brief update on our key segments where 11 out of our 12 brands achieved REVPAR index gains versus their local competitors in the third quarter as compared to 2019. Our strategic investments in the extended stay segment allowed us to quadruple the size of the portfolio over the past five years to reach 467 domestic units with a domestic pipeline of nearly 310 hotels. This segment, a significant growth engine for the company, expanded by over 45 hotels in the third quarter, year over year, and now represents over 10% of our total domestic rooms. In addition to strong unit growth, We've also driven impressive RevPar growth across our extended stay brands. Specifically, when compared to the third quarter of 2019, our extended stay portfolio grew RevPar by over 18%, driven by occupancy levels of 82%, and a 9% increase in average daily rate, and outperformed the industry's RevPar change by over 20 percentage points. The WoodSpring Suites brand celebrated a key milestone with the recent opening of its 300th hotel. The brand's pipeline expanded by over 20% year over year as of the end of September, reaching nearly 160 domestic hotels, which further exemplifies developer demand for this brand given its cycle resilience. We expect that WoodSpring's robust pipeline will provide a strong platform for future growth of the brand. Broadly speaking, we are pleased with the significant increase in developers' interest in extended stay projects. In the third quarter, we executed two dozen extended stay domestic franchise agreements, an 85% increase year over year, and a 20% increase compared to 2019 levels. In addition, the first hotel for our newest extended stay brand, Everhome Suites, is currently under construction and scheduled to open next summer with nearly 20 additional projects already in the pipeline. Our mid-scale brands, which represent over two-thirds of our total domestic room portfolio and approximately half of the total domestic pipeline, continue to outperform the segment's REVPAR growth. Our mid-scale and upper mid-scale portfolio grew RevPAR by nearly 10%, driven by average daily rate growth of over 9%, and outpaced the industry's mid-scale and upper mid-scale segment growth by nearly 7 percentage points when compared to third quarter 2019. Our flagship brand, Comfort, recently celebrated the highest number of conversion hotel openings since 2014, while increasing new construction agreements threefold in the third quarter year over year. The Comfort brand's domestic unit growth of over 2% and RevPAR index outperformance versus local competitors demonstrate the attractiveness of this iconic brand to hotel developers and guests alike. Our upscale portfolio achieved impressive growth in the third quarter, year over year, as we increased our domestic room count by nearly 22%, driven by both Cambria and the Ascend Hotel Collection. The upscale portfolio also achieved a record for domestic openings in the first three quarters of the year. The Cambria brand continued its positive momentum, growing by over 9%, to 58 units year over year, with 17 projects under active construction at the end of September and five additional hotels planned to open this year. In August, we celebrated a Cambria opening in the heart of one of the world's premier wine regions, Napa Valley. Our upscale portfolio increased its REVPAR index relative to its local competitive set and outperformed the industry's REVPAR change by 15 percentage points while increasing the average daily rate by 11% when compared to the third quarter of 2019. This progress shows the attractiveness of Choice Hotel's value proposition in the upscale segment for current and prospective owners. The strong performance across our entire brand portfolio confirms our focus on growing in our strategic segments which we believe will further fuel the long-term revenue intensity of our system. Turning now to demand trends, we continue to achieve gains in our weekday occupancy index share during the third quarter compared to 2019. As discussed on our prior calls, we believe that these share gains are partially driven by long-term consumer trends such as remote work, and an increase in early retirements, which afford Americans flexibility as to when and where they travel for leisure. In fact, we observed our guests extending their trips into shoulder days of the weekend, giving us further optimism about future travel trends following the historically busy summer travel season. In addition, we continue to observe a greater share of revenue coming from longer stays as compared to 2019. Similar to our broader occupancy share gains, these weekday demand gains were achieved through our merchandising capabilities and strategy with targeted promotions at the right time of the week, during the right time of the year, and for the right customer. The investments we've made have allowed us to capitalize on demand that historically propelled our core business while attracting and capturing an even larger share of leisure demand. While our most loyal Choice Privileges members continued to spend more at our hotels during the third quarter, we were also successful in appealing to those who are new to our brands, increasing their revenue contribution as compared to 2019 levels. We also see continuing momentum in our business travel trends. with anticipated additional runway for growth. We've continued to witness sequential quarter-over-quarter increases in our business travel bookings in the third quarter of 2021, with overall business performance similar to 2019 levels. As a company with a strong emphasis on a customer-first approach, Choice is always looking for innovative ways to better serve the changing needs of today's consumers and anticipate the expectations of the guests of tomorrow. For example, we are the first lodging company to launch a collaboration with Bakkt, a trusted digital asset marketplace, enabling us to cater to guests with more currency options and more ways to redeem this currency. Our more than 50 million Choice Privileges loyalty members can now unlock new redemption opportunities by converting their rewards points to cash and then use it to buy Bitcoin, transfer their points to a friend, or even redeem them online or in-store anywhere Apple Pay or Google Pay is accepted. Turning now to our franchisee business delivery and demand for our brands. Our franchisees are benefiting from our strong business delivery. Thanks to our enhancements and our distribution capabilities, we recorded four of our top five all-time highest booking days on choicehotels.com and other proprietary channels in the third quarter. In addition, We drove growth as compared to 2019 and 2020 through increased revenue contribution in the third quarter from choicehotels.com and other proprietary digital channels. Business delivery through these channels significantly improves our owner's profitability as they deliver strong rates at the lowest cost. As a result, these channels remain a key focus area for enhancing our value proposition. With such a powerful value proposition, it is no surprise why Choice maintains an industry-leading franchisee voluntary 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 and our record outperformance, we also continue to experience demand for new franchise contracts. In the third quarter, we awarded 89 new domestic franchise agreements, a 10% increase over the same period of 2020. Specifically, we're very pleased to see that demand for our new construction brands in the third quarter increased by over 50% year over year. And we are also excited to announce that our Woodspring brand expanded internationally at the end of October, entering the Canadian market with a more than 15-unit commitment from a well-known developer and operator. In addition, a team within our development and franchise service departments that is fully dedicated to driving diverse ownership of Choice Franchise hotels among underrepresented and minority owners has awarded 18 franchise contracts year-to-date through September, bringing the total agreements executed to over 280 since the program began over 15 years ago. I'm proud to say that more than half of the 18 agreements this year were awarded to women entrepreneurs. None of these accomplishments would have been possible without the resilience and hard work of our dedicated associates. I want to thank them again for their remarkable efforts and continued commitment to delivering for our franchise owners and guests particularly during the challenging times in which we are living. We are committed to continuing to invest in and support our associates, and we are proud to be the hotel industry's only company to recently earn recognition as a best work-life balance employer by Comparably. In closing, I'm confident in our continued ability to create value and deliver results for our owners and shareholders through our effective strategic investments, impressive performance, and award-winning culture centered around diversity, equity, and belonging. With that, I will hand it over to our CFO. Dom?