Choice Hotels International, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Choice Hotels International's second quarter 2022 earnings call. At this time, all lines are in a listed-only mode. At this time, I'll turn the conference call over to Ali Summers, Investor Relations Director for Chase Hotels. Ma'am, please begin.

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 a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our second 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 Dragicek, our Chief Financial Officer, will speak to our second 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, Allie, and good morning, everyone. We appreciate your taking the time to join us. The second quarter was a truly remarkable one for our company. We once again outperformed the industry in RevPar growth, accelerated our capital recycling progress, and announced the most significant acquisition in our company's history. In June, we announced the acquisition of Radisson Hotels Americas. Today, I'm pleased to share that we remain on track to close the transaction this month. This transformative acquisition of Radisson Hotels America's nine brands is expected to significantly accelerate CHOICE's long-term asset light strategy of growing our business in higher revenue travel segments and locations. We strongly believe that this transaction will enable us to achieve our dual goals of delivering greater return on investment for franchise owners while growing the newly acquired brands to drive meaningful value creation for our shareholders. As we look forward to closing, we expect the acquisition to create a number of compelling value drivers. First, the acquisition will add over 67,000 rooms that will be REVPAR accretive to our existing platform due to Radisson Hotels America's strength in the upscale and upper mid-scale segments and their hotel's locations in higher REVPAR markets. In 2019, the average REVPAR for this portfolio was 38% higher than the average for Choice's existing system. We also believe our superior business delivery platform, once combined with these brands, will provide additional revenue upside for these franchisees and our shareholders. Next, the acquisition will improve the return on investment for franchise owners who we expect will benefit from the enhanced business delivery capabilities of the combined companies, including our award-winning loyalty program, proprietary tools, and emerging technologies designed to drive owner performance and reduce their cost of hotel ownership. Choice has a deep familiarity with the Radisson Hotels America's franchisee community, many of whom already hold franchise agreements with us. The transaction will also expand our customer reach. to a higher income and younger demographic, as well as with business travelers. The combined loyalty program provides members a new set of attractive loyalty redemption options for guests in upscale and sought-after leisure markets. And finally, it will expand our regional representation in the Upper Midwest and West Coast of the U.S. while growing our presence in Canada, Mexico, the Caribbean, and other key Americas markets. The pending addition of Radisson Hotels Americas marks the next chapter in our higher revenue per room growth trajectory. Our strategic goal has been to open incremental rooms in higher revenue segments and rev par markets, which ultimately results in an outsized increase in royalties. In fact, for the past year and a half, every new unit entering our portfolio has generated twice the revenue as a unit leaving it. Our strategy has not been solely a unit growth strategy. It is a unit growth strategy in the segments that are accretive to our earnings and provide significant future growth for our business. That trend continues with this pending acquisition. Our company has a long track record of establishing mutually beneficial relationships with our franchisees, and we have a history of smart investments in new segments where our world-class franchising engine can spur future growth. A recent example is our off-market acquisition of the WoodSpring Sweets brand. The WoodSpring Suite's results reflect our ability to identify high potential acquisition opportunities and then integrate and grow them successfully. The WoodSpring acquisition also allowed us to successfully accelerate the growth of our entire extended stay portfolio. We see the pending Radisson Hotels America's acquisition expanding CHOICES growth vectors by bringing the company's best-in-class franchising platform to adjacent hotel segments and to a new set of hotel owners, while providing opportunities to further strengthen CHOICE's core upper mid-scale presence. We also expect that this transaction will enable us to further build on our momentum in the upscale segment, accelerating growth for our Cambria hotels and Ascend Hotel Collection brands, and at the same time, allowing us to expand the Radisson portfolio. The addition of the Radisson upscale brands in the Americas will increase the size of Choice's global footprint in the upscale segment to approximately 80,000 upscale rooms. The level of enthusiasm around the acquisition from developers, franchise owners, and the investor community has been remarkable. And importantly, the cultural fit between our two companies could not be more ideal. This unique off-market transaction is the result of a year-long strategic conversation with the sellers and represents a win-win opportunity whereby Choice will bring our track record of brand growth and brand stewardship in the Americas to these well-known global brands. I'm very excited to add this new business and start the next chapter in our company's rich history of success. Now turning to our second quarter results. I'm pleased to report that we generated $129.6 million of adjusted EBITDA in the second quarter, a 16% year-over-year increase and a 26% increase when compared to the same quarter in 2019. These exceptional financial results were fueled by continued REVPAR growth that accelerated from the first quarter and again outperformed the industry. Throughout the remainder of our remarks, we'll provide REVPAR comparisons to 2019. Our second quarter RevPar growth was impressive, with domestic RevPar increasing 13% from the same quarter of 2019. Led by our hotel's ability to drive room rates, we have now exceeded our 2019 RevPar levels for 14 consecutive months, including July RevPar growth results, which surpassed 2019 levels by approximately 14%. and we expect our momentum to continue into the third quarter. Clearly, consumers continue to shift their spend towards travel experiences, and we are seeing that across all segments in which we compete. Not only do we expect these broader leisure trends to continue, but we also have seen continued strengthening of our business transient and group segments. Recent studies indicate that leisure travel remains a high budget priority for American travelers, who are sticking with their travel plans and willing to make tradeoffs to make the trips possible. Faced with high airline ticket prices and flight cancellations, a majority of travelers who responded to our recent survey indicated they would rather switch to driving versus canceling their vacation plans. This trend is particularly beneficial for our portfolio of over 4,000 hotels located within a mile of an interstate exit. In addition to leisure travel, we're also observing business travel trends that are favorable for our brands, especially in the context of the pending Radisson Hotels Americas acquisitions. In the second quarter, we drove sequential quarter-over-quarter increases in our business travel bookings, with demand surpassing 2021 levels. In addition to continued robust leisure travel, the business travel component of our guest mix continues to approach historical levels and accounted for 30% of stays in the second quarter. We continue to 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. Choice remains well-positioned to continue to capitalize on long-term consumer trends and benefits from our resilient business model. which has historically delivered stable returns throughout both expanding and contracting economic cycles. Our second quarter results demonstrate that the deliberate decisions and strategic investments we have made in our brand portfolio, value proposition, platform capabilities, and other franchisee tools are paying off. I'll now provide a brief update on our key segments and some of the accomplishments for this quarter. First, we continue to strengthen our core portfolio of brands. The Comfort brand has now registered 10 straight quarters of unit growth year over year since its successful refresh. And consumer confidence in our updated product has continued to drive the brand's REVPAR index gains versus its local competitors, underlying the attractiveness of this iconic brand to hotel developers and guests alike. Our new comfort prototype is now under development in several locations and marks the next chapter for our flagship brand. Our quality in-brand, with over 1,600 hotels open in the United States, remains a leader in the mid-scale segment. The brand continues to generate strong developer demand, with a 28% increase in franchise agreements awarded year-to-date through June compared to the same period of 2021 and a 10.8% increase in REVPAR during the second quarter versus the same period of 2019. And in the four years since its launch, our Clarion Point brand has reached a key milestone of 50 hotels open as of last month with over 10 additional hotels awaiting conversions still this year. We also further invested in the extended stay segment, which continues to be a significant driver of our unit and RevPAR growth. Specifically, in the second quarter, our extended stay domestic pipeline expanded to over 360 hotels, and we awarded 41 extended stay domestic franchise agreements, a 24% increase year-over-year, and a 78% increase compared to 2019 levels. Our investments in the WoodSpring Suites brand's marketing and distribution capabilities enabled us to achieve RevPAR growth of over 28% in the second quarter of 2022 compared to the same period of 2019. driven by increases in both occupancy and rate. In the first half of the year, we more than doubled the number of WoodSpring Suites domestic agreements executed year over year. Not only has the brand's pipeline expanded by over 30% year over year as of the end of June, reaching over 200 domestic properties, but we also expect the brand's openings this year to significantly exceed 2021 levels. As you may be aware, in the first quarter, Blackstone Real Estate Partners and Starwood Capital acquired a portfolio of 111 Wood Spring Suites hotels from the real estate owner who purchased these hotels at the time that we acquired the Wood Spring Suites brand and operating company. Blackstone and Starwood also own an extended stay brand company. Recently, and not surprisingly, they notified us that they intend to reflag the bulk of these properties in September. This exit scenario would result in a cash benefit amount of approximately five years of future royalty fees to choice. The majority of these exiting hotels represent the older legacy value place hotels and are in markets that are highly attractive to current WoodSpring owners interested in future developments. We see this transition as an opportunity to further strengthen the brand by replacing first-generation hotels with our highly profitable new construction prototype that will provide an improved experience for our guests. I'm also pleased to report that we recently entered into development agreements for 45 new WoodSpring Suites hotels with two of the country's most prominent hotel developers. This brings our commitments to develop Wood Springs to approximately 250 hotels. Our newest extended stay brand, Everhome Suites, is on the cusp of significant growth with its first hotel on track to open next month. The appeal for this mid-scale new construction option in the development community continues to grow. With over 30 additional projects already in the pipeline, and a substantially higher number of domestic contracts expected for 2022 as compared to last year. In addition, we recently secured a commitment with one of the largest extended stay investors in the nation to develop more than 20 new Everhome Suites hotels, bringing the development commitments to this brand to over 50 hotels. Overall, we remain very optimistic about our Extended Stay segment growth and expect the number of our Extended Stay units to increase at an average annual growth rate of more than 10% over the next five years. We're also pleased with our upscale portfolio, where our brands outperform the segment's red part growth by nearly nine percentage points versus the same period of 2019. At the same time, we more than doubled the number of upscale franchise agreements executed in the second quarter year over year. The Cambria brand expanded to 60 units open, with an additional 65 domestic properties in the pipeline, including 21 projects under active construction at the end of June. The recently introduced Cambria Hotel prototype designed for secondary and leisure markets has been enthusiastically received by the developer community, with 14 new agreements signed as of the end of the second quarter. In addition, we expect that the pending Radisson Hotels Americas acquisition will enable us to further penetrate the upscale market, creating an additional catalyst for Cambria's growth. We also continue to improve the value proposition that we deliver to our franchise owners. With our enhanced distribution capabilities, we've been able to drive growth as compared to 2021 and 2019 through increased revenue contribution in the second quarter of 2022 from choicehotels.com. Business delivery through this channel significantly improves our owners' profitability as it brings more guests into their hotels at the lowest cost. Existing owners recognize the increasing value in our brands and are continuing to renew their agreements to remain in our system. In fact, the second quarter of 2022 marked the highest quarter for franchise renewal and relicensing contracts over the past six years. And finally, our franchise owners continue to remain with choice, as seen in our industry-leading voluntary franchisee retention rate. We're proud of everything we've accomplished this quarter, but we certainly could not have done it without the strength of our award-winning culture, centered around diversity, equity, and belonging. I'm especially pleased to report that we recently have been named one of the best places to work for people with disabilities, earning a perfect score on the Disability Equality Index for the third year in a row. In closing, I want to again convey how pleased we are about the prospects ahead for Radisson Hotels America's bright future as a part of CHOICE. We look forward to integrating these hotels into the CHOICE family and accelerating the growth of these brands by leveraging choices scale, network of owner and franchise relationships, and our powerful digital platforms. With that, I will hand it over to our CFO. Dom?