Choice Hotels International, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International first quarter 2022 earnings call. At this time, all lines are in 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 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. 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 first quarter 2022 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 Dom Dragozic, our Chief Financial Officer, will speak to our first quarter operating results and financial performance. 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 your taking the time to join us. It's been a rewarding and successful start to the year. Choice Hotels generated record earnings, continued our industry-leading RevPar growth, and attracted significant new developer interest in our portfolio of proven hotel brands. Consumer trends such as remote work, rising wages, retirements, and road trips are all expected to fuel future demand. I'm pleased to report that we generated $96.6 million of adjusted EBITDA in the first quarter, a 53% year-over-year increase and a 28% increase when compared to the same quarter in 2019. At the same time, we expanded our adjusted EBITDA margins to 74% year-over-year. These exceptional financial results were fueled by continued REVPAR growth that materially outperformed the industry by 13 percentage points for the first quarter as we gained share across every segment in which we compete. For over two years, our REVPAR gains as compared to 2019 have been significantly higher than the competition's. This continued impressive performance is driving high demand for our brands from the franchise community. In fact, in the first quarter, we saw a 46% year-over-year increase in new applications for domestic franchise agreements. We have always had a strong relationship with our franchisees and the past two years have only reinforced this bond. Last week, We hosted more than 5,000 franchisees, hotel general managers, and industry suppliers at our 66th annual convention. This was the first time in three years that our entire Choice community has been together for an in-person event, and the level of enthusiasm around the future of our brands was remarkable. We spent the week sharing our long-term brand growth plans, and listening to our hotel owners and operators. It was also an important opportunity for our franchisees to learn about the exciting new investments we have made in tools and resources that can further improve their businesses. Our franchisees left the event energized and optimistic that they can drive the profitability of their hotels to new levels. Of course, the success of the event was only possible thanks to the hard work of all of our choice associates. Throughout the remainder of our remarks, we'll provide REVPAR comparisons to 2019, which we believe are more meaningful in analyzing trends given the pandemic's impact on the industry's prior year performance. Our first quarter REVPAR growth was impressive. with domestic system-wide rev par increasing 10.4% from the same quarter of 2019. Even with the Omicron variant, demand during the first quarter surpassed 2019 levels. Combined with our hotel's ability to drive room rates, we have now exceeded our 2019 rev par levels for 11 consecutive months. and we expect our momentum to continue into the second quarter. Our April REVPAR results exceeded 2019 levels by approximately 16%. We remain very optimistic about our growth prospects because of the long-term investments we have made and will continue to make in our business. These investments are designed to capitalize on the consumer trends that have accelerated during the past two years and are expected to continue, trends that favor leisure travel, limited service hotels, and longer lengths of stay, all of which are key strengths of our business. We believe that remote work, which affords Americans greater flexibility as to when, where, and for how long they travel, will continue to fuel the strong performance of our brands. We expect these trends to continue to be strong tailwinds for our company's long-term growth. Consumers who have built up their savings during the pandemic and are experiencing rising wages are pivoting towards spending more on experiences than on durable goods. In fact, this year, research shows that Americans are expected to budget more on domestic leisure travel compared to pre-pandemic levels. Consumer preferences also are shifting as to how and where they choose to travel. A recent study shows that domestic road trips are now more popular than they were pre-pandemic, a trend that is particularly beneficial for our portfolio of over 4,000 hotels located within a mile of an interstate exit. And with over 2,000 domestic hotels near beaches and national parks, our hotels are in the right locations to capture growing demand from travelers who continue to discover the great American outdoors. All of these trends highlight the potential for choice to further increase our share of consumer travel demand. Even with rising inflation and gas prices, we continue to expect strong consumer demand, especially as we enter the busy summer leisure travel season. Based on our focus group research and current projections, we do not expect to see an impact on aggregate travel demand through the summer travel season. It is worth noting that gas prices historically have had little to no impact on travel. Rather, consumers indicate that rising fuel costs could mean adjustments in how they spend their money, such as traveling shorter distances, choosing destinations closer to home, or not dining out as often. But they are going to travel. Indeed, recent studies point to a significant year-over-year uptick in consumers' intent to travel in the next six months. Nine out of 10 American travelers surveyed are saying they are ready to travel, the highest levels we've seen over the last two years. Likewise, we are continuing to see the return of customers who were once hesitant to travel. In addition to leisure travel, we are also observing business travel trends that are favorable for our brands. In the first quarter, we witnessed sequential quarter-over-quarter increases in our business travel bookings, with demand continuing the steady progression back to 2019 levels. We expect business travel in our key industry verticals to increase, fueled by the additional onshoring of the U.S. supply chain and investments from the infrastructure bill. The strengthening of group travel demand we expect this year will also serve as a catalyst for our portfolio. By establishing our strong foundation within the small group travel segment, we positioned Choice to benefit from the recent demand shift towards smaller size meetings. In addition, our recent partnership with the industry's leading provider of group travel booking platforms makes us one of the few companies able to provide travel planners with instant booking capability for our group rates. This new capability positions us well to capture additional share of group travel as it bounces back. We are also investing to drive demand from all travelers through a new nationwide advertising campaign centered on choice hotels serving as the base for our guests to have great experiences at their destinations. With so many people returning to travel following a two-year hiatus, the campaign encourages our guests to take advantage of spontaneous trips after months of lockdowns and travel restrictions. Now that we have exceeded our pre-pandemic performance levels and are encouraged by the long-term fundamental shifts in consumer behavior, we will continue to invest in our brands as well as our franchisee and guest value propositions. Underpinning our first quarter success are the deliberate decisions and strategic investments we have made in our brand portfolio, value proposition, platform capabilities, and other franchisee-facing tools. Our results show that our longstanding strategy continues to work and has put Choice Hotels in a stronger position than we were in 2019. As we have noted before, We believe the key strategic building blocks we have established will drive our sustained growth in the years to come. Let's take a closer look at some of the accomplishments for this quarter. First, we continue to strengthen our core portfolio of brands. The transformation of our Comfort brand is a prime example of our long-term investment approach. Since its successful refresh, the Comfort brand has registered nine consecutive quarters of unit growth year over year and has continued to generate Rev Park index gains versus its local competitors, demonstrating the attractiveness of this iconic brand to hotel developers and guests alike. Now we're starting the next chapter of our flagship brand with a new competitive prototype that we introduced last year. This has driven a 45% year-over-year increase in domestic franchise agreements awarded in the first quarter. Our quality in-brand, with over 1,600 hotels open in the United States, continues to be a leader in the mid-scale segment with strong developer demand and an 8.4% increase in REVPAR, outperforming the segment during the first quarter versus the same period of 2019. Our Clarion Point brand has also continued to grow. In the three and a half years since its launch, Clarion Point has expanded to 45 open hotels, with another 32 hotels awaiting conversion this year. We also further invested in the extended stay segment, which continues to be a significant driver of our unit and RevPar growth. Our current extended stay domestic pipeline expanded to 350 hotels, and we expect the number of our extended stay units to grow by double digits over the next five years. These results reflect investors' confidence in committing their capital to our extended stay brands. Specifically, in the first quarter, we awarded 29 extended stay domestic franchise agreements, a three-fold increase year-over-year, and a twofold increase compared to 2019 levels. Our investments in the WoodSpring Suites brand's marketing and distribution capabilities enabled us to achieve over 27% rev par growth in the first quarter of 2022 compared to the same period of 2019. WoodSpring Suites pipeline reached nearly 190 domestic properties as of the end of March a 26% increase year-over-year, with over 30 construction projects started, and we expect the brand's ground breaks this year to exceed 2021 levels. Our newest extended stay brand, Everhome Suites, is off to a strong start this year, and its first hotel is scheduled to open this summer. The appeal for this mid-scale new construction option in the development community continues to grow, with nearly 30 additional projects already in the pipeline and a significantly higher number of domestic contracts expected for 2022 as compared to last year. And finally, we recently introduced Suburban Studios, an innovative transient hotel to extended stay hotel conversion model to provide growth-minded hotel owners a quick, low-cost opportunity to reposition their existing properties into the high-performing economy extended stay segment. The first Suburban Studios property is already underway and set to open this summer. And interest is high among owners and developers to join the portfolio of 70 open suburban hotels. We're also pleased with our upscale portfolio, where our focus, efforts, and investments continue to drive a healthy payoff. The Cambria brand continued its positive unit growth momentum, expanding to 58 units with an additional 68 domestic properties in the pipeline, including 19 projects under active construction at the end of March. The recently introduced Cambria Hotel prototype designed for secondary and leisure markets has been enthusiastically received by the developer community with 10 new prototype agreements signed as of the end of the first quarter. 2022 is shaping up to be another great year for Cambria. We expect to open over 10 additional hotels across the country this year, further fueling the revenue intensity of our system. In addition, consumer confidence in our upscale products continues to drive the brand's REVPAR index gains versus their local competitors and underlines the attractiveness of Choice Hotel's value proposition in the upscale segment for current and prospective owners. Another key contributor to our success has been our economy brand portfolio. Developers and our franchise owners have taken note of our economy brand segments RevPAR index gains versus local competitors and its 17% RevPAR growth in the first quarter compared to the same period of 2019. Specifically, our Econolodge brand experienced an increase in domestic franchise agreements awarded in the first quarter of 2022 compared with 2021 and 2019, contributing to the brand's 14% year-over-year domestic pipeline expansion as of the end of March. As we emerge from the pandemic, we also continue to improve the value proposition that we deliver to our franchise owners. Thanks to our pricing optimization and merchandising capabilities, our owners are able to effectively capture additional market share, drive top line revenue, and reach their target customers. The award-winning tools we've introduced and new enhancements we recently deployed are contributing to our brand's outperformance. In fact, for over two years, our RevPar gains, as compared to 2019, have been significantly higher than the competition's. What's most impressive is that we continue to drive strong performance through both rate and occupancy share gains. In addition, our franchisees are benefiting from our strong business delivery to their hotels. Thanks to our enhancements in our distribution capabilities, we drove growth as compared to 2021 and 2019 through increased revenue contribution in the first quarter of 2022 from choicehotels.com. Business delivery through this channel significantly improves our owner's profitability as it brings more guests into their hotels at the lowest cost. Owners are seeing the increasing value in our brands interacting upon it, as evidenced by existing owners renewing their agreements to remain in our system and new owners buying existing choice flag hotels. In fact, the first three months of 2022 marked the highest quarter over the past five years for franchise relicensing and renewal revenue and contracts. This is true for new hotel development as well, as nearly 7 out of 10 franchise agreements awarded this quarter were with existing or returning owners. And finally, our franchise owners are remaining with choice, as seen in our industry-leading voluntary franchisee retention rate. At the same time, we continue to improve the unit economics for our franchisees, concentrating on investments like housekeeping upon request that lower their total cost of ownership while providing them with resources to operate more efficiently. As a result of our progress, we are well positioned for stronger profitability in the future with ample runway as we execute our strategy. The results we achieved this quarter confirm that our long-term strategy is working. We are further improving our revenue delivery to our franchisees while focusing on growth in more revenue-intense segments and locations. This is what gives us such high confidence in our ability to continue to drive exceptional results in the coming years. I want to now spend a moment on the efforts we're making to live up to our ESG commitments, which, like our strategy, are focused on the long term. Among our recent actions was the creation of a dedicated role to lead our environmental, social, and governance efforts across the Choice Hotels community. This is a testament to our commitment to raise Choice's sustainability and corporate social responsibility efforts to the next level, and bring a fresh perspective on how to expand and reinforce our award-winning ESG programs. We recently rolled out Choice's Commitment to Green program that signals our growing focus on how we can contribute to a more sustainable future for our planet, while also being mindful of our owner's bottom line. In this regard, we're making progress with our cloud-based property management dashboard that will enable our franchisees to track utilities usage at the hotel level, allow us to benchmark our system, and help identify opportunities for additional energy, water, and waste conservation. This is a win-win because it reduces franchisees' operating costs while benefiting the environment. A central focus of our ESG efforts is our commitment to fostering an environment supportive of diversity and inclusion. Our fully dedicated Franchise Development and Service Team continues to drive diverse ownership of choice franchised hotels among underrepresented women and minority owners, with over 300 franchise contracts awarded since the program began over 15 years ago. As part of our efforts to raise the level of women's hotel ownership, I'm pleased to say that last week we announced our newly enhanced program, Pertels by Choice. The program builds on our legacy and will provide dedicated training, education, mentorship, and financial assistance to advance and empower the industry's female entrepreneurs and ensure they thrive as a Choice Hotels franchisee. As part of this initiative, we've met with well over 100 current and potential women owners and are committed through Hotels by Choice to make their dream of owning their hotel a reality. In closing, I'm confident that our effective strategic investments and commitment to our franchisees' profitability will continue to create value and deliver results for our owners and shareholders. We believe that we are well positioned to build on the success achieved this quarter and that our increased earnings power will enable us to further capitalize on growth opportunities in 2022 and beyond. With that, I will hand it over to our CFO. Dom?