Choice Hotels International, Inc.

ladies and gentlemen thank you for standing by welcome to choice hotels international second quarter 2023 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 senior 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. 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 2023 earnings press release, which is posted on our website at choicehotel.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 Don's remarks, we'll be glad to take your questions. And with that, I'll turn the call over to Pat.

Thank you, Ali, and good morning, everyone. We appreciate you taking the time to join us. I'm pleased to report that Choice Hotels once again generated impressive earnings, fueled by our best-in-class hotel conversion capability and our exceptional success in rapidly integrating Radisson Americas ahead of schedule. At the same time, J.D. Power ranked two of our fastest-growing brands number one in guest satisfaction, Cambria Hotels in the upscale segment and WoodSpring Suites in the economy extended stay segment. Our strong performance and the velocity at which we are executing have enabled us to further invest in our business to drive significant long-term earnings growth and return a meaningful amount of capital to our shareholders. Let me start with the momentum we have created in our adjusted EBITDA growth. Our distinct growth strategy and best-in-class franchising business engine drove our second quarter 2023 adjusted EBITDA to $153 million, which was 18% higher than the prior year and marked a new quarterly record. Fueling our success is our commitment to strengthening the value proposition we provide to our franchise owners, allowing us to convert independent and competitor brands to our flags while growing our effective royalty rate, which increased by six basis points for the first six months of 2023, year over year. We expect to carry this strong momentum through the rest of 2023 as we grow our franchise business with hotels that generate higher royalties per unit while leveraging the stronger business delivery engine we have built to improve the profitability of each franchise. What gives us even more optimism is the significant scale-driven platform and ancillary revenue growth opportunities we expect to realize from the integration of the Radisson Americas brands. This acquisition has created a step function change in the size of our business, expanded our loyalty program, extended our co-brand credit card opportunity, and increased our footprint in the Americas region. At the same time, we were also able to leverage learnings from the Radisson Americas business division which we believe will create significant value for our franchisees and guests. Specifically, we are very pleased with the new co-brand credit card agreement, which is already exceeding our initial earnings expectations. We believe this strategic partnership will provide an additional tailwind for our platform business segment for the remainder of 2023 and beyond. At the same time, and as a result of our strong organic growth and the acquisition of Radisson Americas, we have more than doubled the EBITDA contribution of our international portfolio. Our international division's performance has exceeded our expectations, with second quarter REVPAR significantly above 2019 levels. Our international portfolio-wide REVPAR increased on a comparable basis 16%, with the Americas region growing 23% compared to the same period of 2019. We see this trend as a strong enhancement to our company's future growth. Over the past year, our strategy has enabled us to achieve remarkable financial results, complete a strategic acquisition, and return over $655 million to shareholders through our share repurchase program, representing 10% of the shares outstanding and significantly outpacing our historical share repurchases. Our future growth is now enhanced by the addition of the Radisson Americas brand to our best-in-class business delivery engine, and we are excited about the new growth vectors we are now able to unlock. As such, I'm pleased to report that we are raising our outlook for full year 2023 adjusted EBITDA. The versatile business we have built provides diversified avenues of growth throughout various economic environments. We attribute this success to our diverse portfolio of well-segmented brands across a wide variety of price points, to suit the needs of a broad array of consumers and hotel developers. These brands represent a healthy mix of conversion and new construction properties, allowing us to grow in all economic cycles. In today's higher interest rate environment, our diverse portfolio of brands allows us to leverage our core competency, a best in class hotel conversion capability that fuels our current earnings growth. These conversion projects move through the pipeline at significant velocity and have a higher opening success rate than new construction projects, reflecting their lower upfront capital and risk exposure. We expect conversion activity to remain robust for the foreseeable future, a trend we believe we are uniquely positioned to capitalize on due to our established operational excellence and the strategic investments we have made in our portfolio of 19 conversion brands spanning all of our segments. This is one of the reasons we are so confident that we can further build on the annual double-digit adjusted EBITDA growth we have delivered for the past five years, excluding pandemic impacted 2020, And it's why we expect to deliver approximately 10% adjusted EBITDA growth year over year in 2024. Franchising has always been the cornerstone of our distinct strategy. And in the last five years, we have launched or acquired a number of incremental conversion and new construction brands to expand the reach of our franchise business in more revenue-intense segments. The new franchises in these segments are more accretive to our earnings and a key driver of our future earnings algorithm. By expanding our scope, network of franchisee relationships, and customer reach, we have significantly increased our market opportunities and accelerated our growth. our selective unit growth strategy is delivering results and improving the attractiveness of our brands. In the second quarter, we grew the number of domestic franchises across our more revenue-intense segments by 10% year over year and saw a material increase in royalties driven by this growth. Adding to our optimism is the strong openings momentum across all of our segments, with the company executing on average of more than four hotel openings per week for a total of 107 hotel openings, a 39% increase year over year. In addition, we grew our international rooms by 12% and expanded our international rooms pipeline by 29% in the second quarter year over year. Importantly, We are delivering this growth while improving our guest satisfaction scores and enhancing our brand's value proposition to consumers. We are very proud that two of our brands ranked number one for guest experience among upscale and economy extended stay hotel brands in the recently released J.D. Power 2023 North America Hotel Guest Satisfaction Index Study. According to the study, Cambria was recognized as the top upscale brand, outperforming 19 other brands, with the highest score in all six of the study's upscale guest satisfaction factors. At the same time, WoodSpring Suites earned top honors in the economy extended stay category, scoring highest in all five of the study's guest satisfaction factors for the segment. This recognition is a testament to not only our strong portfolio, but also our franchisees hard work and dedication to customer service, underscoring the success we've had in providing our franchisees with the best in class tools and solutions that enable them to deliver exceptional guest experiences. Let me provide more details about our core hotel conversion expertise. Attracted by our strong value proposition, hoteliers are choosing our brand versus the competition as they seek to improve their operations, deliver strong top-line revenues, and lower their costs, thereby boosting the long-term value of their hotels. In fact, in the second quarter, we drove a 28% increase in our domestic rooms pipeline growth for conversion hotels quarter over quarter, and we expect more than 60 conversion projects to open within the next three months. In addition, nearly 80% of the domestic agreements awarded in the first half of the year were for conversion hotels. Of the 126 domestic franchise agreements we executed for conversion hotels in the first half of 2023, two-thirds have already opened or are expected to open by the end of this year. Through our superior speed to market conversion processes and best in class franchisee support, we are able to move projects quickly through the pipeline. In fact, we are opening the doors of our economy and mid-scale properties as royalty generating hotels in just under 100 days on average. The velocity of our conversion openings has been so quick that some conversion hotels never appeared in our quarterly pipeline numbers. This momentum we see in conversion activity gives us further confidence in the prospects for our continued growth in 2023 and beyond. Let me now turn to the incredible success we have achieved in the integration of the Radisson Americas brands. The speed with which we have integrated Radisson Americas is truly remarkable. And our ability to rapidly drive synergies and quickly integrate brands is key to our long-term success. Thanks to our integration expertise and strategic investments in state-of-the-art proprietary technologies, we have already achieved $80 million of annual recurring synergies, exceeding our original target sooner than expected. At the same time, we anticipate unlocking additional future costs and revenue synergies now that the hotels have begun transitioning onto our business delivery engine. Our deliberate efforts enabled us to return the Radisson America's business unit to profitability in 2022, our first year of ownership. This year, we are ahead of schedule in delivering Radisson America's adjusted EBITDA, and next year, we project this number to grow to over $80 million. As a result of our speed of execution, our guests and franchisees across the entire portfolio of brands are already reaping substantial benefits from the integration. Just two weeks ago, we completed key integration milestones. Specifically, we onboarded the nearly 600 Radisson Americas hotels onto our world-class reservations delivery engine, and integrated the two award-winning loyalty programs, all within less than a year of acquisition. We also provided Radisson America's franchisees with access to key resources and tools, such as Choice University, the most widely awarded learning platform in the hospitality industry. This month, we started migrating eligible Radisson America's hotels to our proprietary cloud-based best-in-class property management and revenue management systems. And by year end, with all Radisson Americas hotels fully integrated with Choices Systems and employing our tools, we expect to help drive their top-line performance and reduce their operating costs to bring their profitability to the next level. Radisson America's franchisees have shared with us their enthusiasm for becoming part of the Choice family, specifically the opportunity to leverage our proprietary, cutting-edge technologies and world-class franchisee success system. The excitement generated by our new business unit is further underlined by Radisson America's performance. In the second quarter, the Radisson America's portfolio-wide REVPAR increased 3.8% year-over-year. Specifically, the Radisson upscale brand itself grew nearly 13% year-over-year, outperforming the upscale segment by 7 percentage points. Our impressive results demonstrate that the deliberate decisions and strategic investments we've made in our value proposition and franchisee tools brand portfolio, and platform capabilities are paying off across our segments. First, we strengthened our upscale franchise business. In the first half of 2023, we grew our domestic upscale units by approximately 32% year over year, highlighted by a nearly doubling in the number of new hotel openings. At the same time, we increased the number of domestic upscale franchise agreements awarded for conversion hotels by 44% year-over-year and expanded our domestic pipeline to 127 hotels, a 27% increase year-over-year. We expect that the Radisson Americas acquisition will enable us to build on our momentum in the upscale segment, accelerating the growth of our Cambria and Ascend brands, while also broadening the Radisson portfolio. Next, we further invested in the extended stay franchise business and grew our domestic pipeline by 17% year-over-year at mid-year, and in May, executed the highest number of openings for a single month in over two years. We remain very optimistic about our extended stay franchise business growth, and expect the number of our extended stay units to increase at an average annual growth rate of more than 15% over the next five years. At the same time, we reinforce our core portfolio of brands by growing our domestic upper mid-scale franchise business by 24% year over year, reaching approximately 2,300 domestic hotels in the first half of 2023. Finally, by strengthening the value proposition we deliver to our franchise owners in the economy transient franchise business, we grew our effective royalty rate for that segment by seven basis points in the second quarter year over year. The results we achieved in the second quarter of 2023 confirm the effectiveness of our thoughtful, delivered approach to growing our franchise business with hotels that generate higher royalties per unit and reinforce our confidence in our ability to drive exceptional results in the coming years. We look forward to completing the integration of Radisson Americas with the Choice Franchisee Success System and accelerating the growth of these brands by leveraging choices scale, network of owner and franchise relationships, and best-in-class digital platforms. We believe we are well positioned to build on the success achieved this quarter, and our powerful earnings algorithm and speed of execution will enable us to further capitalize on growth opportunities in 2023 and beyond. In closing, I would like to take a moment to thank our associates for their invaluable contributions and hard work to achieve our results. In addition to growing our core business, this incredible group of dedicated experts across our business also achieved something truly remarkable. The integration of the Radisson Americas hotels ahead of schedule and less than one year since we closed the transaction. Thanks to them, our business is now stronger. The value we are bringing to our franchisees and guests is increasing. and our shareholders are better positioned to benefit well into the future. With that, I will hand it over to our CFO. Dom?

Thanks, Pat, and good morning, everyone. Today, I'd like to provide additional insights on our impressive second quarter results, update you on our balance sheet and capital allocation approach, and share expectations for what lies ahead. Throughout my remarks today, I would like to note that all figures are inclusive of the Radisson America's portfolio and exclude certain one-time items, including Radisson America's integration costs, which impacted the second quarter reported results. For second quarter 2023, compared to the same period of 2022, revenues excluding reimbursable revenue from franchised and managed properties increased 28% to $227.8 million. Our adjusted EBITDA grew 18% to $153.1 million, driven by strong unit and effective royalty rate growth, successful execution of the Radisson Americas integration, the robust performance of our platform, procurement, and international businesses, and continued comparable margin expansion. and our adjusted earnings per share were $1.75, an increase of 22%. Let me turn to our key revenue levers, beginning with our unit growth, where our portfolio's absolute size and the royalty revenue per hotel are key advantages. Our strategic goal has been to accelerate quality room growth in more revenue-intense segments and markets while simultaneously growing our effective royalty rates, which ultimately results in an outsized increase in royalties. In addition to our mixed shift strategy for the broader portfolio, our revenue maximization strategy is also evident at the individual hotel and brand levels. In fact, for second quarter 2023, new hotels we added within a brand continue to generate an average of 20% higher royalty revenue than hotels exiting the brand. For second quarter 2023, our domestic system size of the more revenue-intense upscale, extended stay, and mid-scale segments grew by 10%, while rooms grew by 12% year over year, highlighted by an over 50% increase in the number of new hotel openings compared to second quarter 2022. We also increased our international system size by 9% while rooms grew by 12% year over year. Our domestic and international unit and rooms growth represents an acceleration versus the first quarter of this year. Reinforcing our optimism is our domestic and international rooms pipeline, which grew 9% and 29% respectively in the second quarter year over year, and which we expect will drive our revenue-intense unit growth for years to come. At the same time, by leveraging our best-in-class conversion capability, we expanded our global rooms pipeline for conversion hotels in the second quarter by 25% compared to the first quarter of this year, and 14% year over year. We are very optimistic about our growth prospects across all of our key segments. For example, the Cambria brand grew by 15% year over year, reaching 69 units with an additional 71 domestic properties in the pipeline. In addition, the number of domestic franchise agreements for our Ascend Hotel Collection, which ranks as the largest global soft brand with over 360 hotels worldwide, increased by 44% through the end of June, year over year. Our newest extended stay brand, Everhome Suites, is gaining impressive traction across the development community with over 60 domestic projects in the pipeline. At the same time, WoodSpring Suites pipeline reached nearly 300 domestic properties as of the end of June, a 32% increase year over year. And since its successful refresh, the Comfort brand has now registered 14 straight quarters of unit growth year over year. We are pleased with the accelerated net unit growth trends we are driving. Midway through the year, our domestic system growth of the more revenue intense segments is tracking slightly above our guidance of approximately 1% for full year 2023. Our effective realty rate also continues to be a significant source of revenue growth. Our domestic system effective realty rate for the first half of 2023 increased six basis points year over year including a six basis point increase for the legacy choice brands to 5.11%. Given the attractiveness of our proven brands, the strengthening of our value proposition to our franchise owners, and our long-term investment strategy on behalf of our franchisees, we are confident in our ability to expand the overall size of our portfolio, as well as grow our effective royalty rate for both the legacy choice brands and the Radisson Americas portfolio. Inclusive of Radisson America's brands, we are maintaining our outlook for our full year 2023 effective royalty rate to grow on a comparable basis in the mid single digits year over year from a 4.93% baseline in 2022. The third revenue lever I will discuss is our rep part performance. Last year, our second quarter rep part increased 13% from the same quarter of 2019. This year, we are building on that growth with our second quarter RevPar increasing by an additional 50 basis points year over year. This RevPar growth was driven by both a 3.8% increase in Radisson America's performance and continued growth in our legacy choice portfolio year over year. Importantly, the Radisson upscale brand itself outperformed the segment's RevPar growth by seven percentage points in the second quarter. We are maintaining our guidance for full year domestic REVPAR growth and continue to expect domestic REVPAR growth to increase approximately 2% compared to full year 2022. This represents an approximately 15% increase compared to full year 2019. As Pat mentioned, we continue to build on the strong momentum of our platform business. Specifically, in the second quarter, we increased our platform and procurement services fees by 32% to $28.8 million compared to the same period of 2022. We believe that we can drive this strong revenue growth in the years ahead as we increase the number of products and services we offer to nearly 7,500 hotels, millions of guests, and other travel partners while expanding our platforms. I'd like to now turn to the strength of our balance sheet, which we believe will be another driver of our growth for years to come. We maintain a best in class balance sheet with a growth debt to EBITDA leverage ratio of 2.7 times, which continues to be below the low end of our targeted range of three to four times as of the end of second quarter 2023. Year to date through July, we returned approximately $290 million to our shareholders. These returns came in the form of approximately $28 million in cash dividends and $262 million in share repurchases. And as Pat mentioned, we have now repurchased 10% of our outstanding shares through our share repurchase program, returning over $655 million to shareholders over the last year alone. With our strong cash flow and debt capacity, we are well positioned to build on our record of making strategic investments, growing the business, and returning excess cash to shareholders well into the future. We plan to continue to leverage all pillars of our capital allocation strategy for the remainder of the year. Before opening up for questions, I'd like to turn to our expectations for what lies ahead for the remainder of the year. Since publishing our July business update, we refined our outlook for the remainder of the year, given more favorable than initially expected June financial results, stronger forecasted platform and international revenue, and additional approved investments to drive long-term growth. I am pleased to report that we are raising the midpoint of our outlook range for full year 2023 adjusted EBITDA and now expect it to range between $530 million and $540 million. Representing approximately 12% growth at the midpoint year over year and 43% growth compared to full year 2019. As we look into 2024 we expect to generate adjusted EBITDA growth of approximately 10% year over year, driven by incremental contribution from Radisson Americas, as well as organic growth in the more revenue intense segments and markets, strong effective royalty rate growth, and other factors. For full year 2023, we expect adjusted diluted earnings per share to range between $5.86 and $6.01 per share, representing a 13% growth at the midpoint of our guidance year over year. Today's results are a testament that our strategy is working, and we intend to keep investing in the core growth vectors across the more revenue intense segments. At this time, Pat and I would be happy to answer any questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to remove yourself from the queue, please press star 2. If you are using a speakerphone, please lift the hands up before pressing any keys. One moment, please, for your first question. First question comes from Michael Bellisero of Baird. Please go ahead.

Thanks. Good morning, everyone. Good morning, Mike. Just the first question. Good morning. Just the first question on the 2024 expectations. Can you maybe help us understand your underlying assumptions to get to the 10 plus percentage growth rate and then some of the building blocks in terms of dollars that get you there in 2024? That would be helpful. Thank you.

Yeah, sure, Michael. Let me just start. I mean, I think if you look at the organic growth of our business, it's just been exceptional over the last several years. I mean, if you look at this year and the years going back all the way to 2017, we've grown EBITDA at greater than 10%. And that trend continues this year. You know, you look at the last year in itself, we grew our earnings organically by 10%, completed a strategic acquisition, bought back 10% of our shares outstanding. And today we sit, you know, with a business that's got multiple avenues of growth. You look at our brand mix, it's a mix of revenue intense, new construction and conversion hotels from the upscale segment all the way down to the economy segment. segment, plus extended stay. Our international business is now much more robust, as we talked on the prepared remarks. We've effectively doubled the size of that business. And what's really exciting is the scale advantages now that are going to allow us to really monetize the credit card co-brand opportunity and a lot of the platform revenue opportunities we have with our travel partners. All of those are factors that are really giving us a lot of confidence in our ability to keep this double-digit EBITDA growth going into the future.

Any other specific building blocks in terms of underlying REVPAR growth, royalty rate expectations? I know you've provided some Radisson commentary.

Yeah, if you think about if you wanted to create a little bit more of a tactical bridge, I mean, in the past, we guided to the fact that, you know, Radisson would be increasing from $60 million, you know, or more of EBITDA contribution this year to over $80 million. So that's about a 4% growth in terms of the overall EBITDA of the business going forward. Talked about, you know, our revenue intense unit growth starting to approach those historical levels. So call it, you know, 2% to 3%, you know, in a more stabilized environment. And so maybe you're getting closer to that 2%, which would represent another 2% overall EBITDA growth. Talked about our platform business, especially just when you think about the co-branded credit card contributing another $5 million or so heading into next year. And then our effective royalty rate, we expect to continue to maintain that in the mid-single digits. So there's really a path to get to that 10%, even in a REVPAR environment that is essentially flat. Obviously, we expect to continue to maintain our share, if not grow our share, just from an RPI perspective in the future. So the industry rev par grows at those historical rates, you would expect to see another couple percentage points of contribution there as well. But to Pat's point, I think the most important thing is this business has a ton of revenue levers at its disposal, and there's a path to get there in any sort of rev par environment.

Got it. That's helpful. Thanks for that detail. And then just follow up on the development pipeline. You mentioned conversions are up, I think it's 25% versus just the prior quarter, but the overall pipeline is down. So Presumably, that's all under construction hotels, correct? And then if that's correct, maybe what's driving that and when do you see that sort of bottoming out looking forward? Thank you.

Yeah, part of the pipeline is obviously timing. Obviously, we are focused on higher quality franchise agreements that are being awarded. we're really targeting those more revenue intense franchise agreements that we anticipate having a higher opening success rate. So maybe the development results when you think about it kind of year over year are down slightly. So there is an element there. Pat mentioned the strong openings and the velocity in which these are moving through our pipeline. We do continue to terminate those assets out of our pipeline when we feel like there's a lower likelihood of success. But when you look at the pipeline itself, Michael, Very healthy, greater than 50% of our domestic pipeline is either under construction, is a conversion hotel, or has financing secured. About 30% of our pipeline is essentially conversion hotels, which have a very high opening success rate you know when you get back to the you know the back half of the year that's when you tend to see your development results spike up pretty significantly so you tend to see uh quarter over quarter growth in the pipeline you know in in quarter four in particular uh that's significantly higher than what we've seen over the course of the last couple quarters thank you that's all thank you

Thank you. The next question comes from Danny Assad of Bank of America. Please go ahead.

Hi, good morning, everybody. You're just at a higher level. You know, your fees grew in the quarter like meaningfully ahead of what REVPAR plus unit growth would give you. So something to the tune of like, you know, 6%. And so can you maybe just talk about that and, you know, how we should expect that spread to kind of perform as we look at the back half of this year as well?

Yeah, Danny, so when you think about just the fees overall, obviously the contribution from Radisson are now in those royalty and revenue line items. But on an apples to apples basis, the way that I would kind of describe the business right now is your adjusted revenue for choice grew at about 9% year over year. Pat mentioned the fact that kind of on an apples to apples basis, our EBITDA is up almost 10%. So we feel very good about the organic growth prospect of this business. I think going forward, you're going to continue to see strength in some of those ancillary fees platform. We talked about the co-branded credit card, other programs and services that we'll be offering our franchisees. But when you look at the core royalty line item itself, We expect, like I said in the last question, our effective royalty rate will likely grow in the mid-single digits. Every one basis point is about a million dollars. We think that that revenue-intense unit growth is going to continue to kind of approach those historical levels, and each 1% is about $4.5 million. And then obviously we talked about REVPAR, and we do expect to continue to maintain or steal share. I think what's core to the outsized royalty performance is really the fact that we're focusing on higher royalty per unit hotels. We are starting to continue to see that mix shift into the more revenue intense segments, but the 20% higher royalty per hotel, even within a brand or a location itself is really driving that earnings algorithm.

Got it. Thank you. And then, you know, just on room, like if I'm just looking at room counts, you know, your domestic room counts are about 5%. less than the third quarter of last year for Radisson specifically. And, you know, it's sort of natural for there to be some level of churn when there's brand M&A. But I guess my question is, when would you expect that to slow down? And then when would you expect, you know, along with that, any one-time integration costs and all these, like the add-backs, when would you expect that to fade?

Yeah, Dan, let me start, and then Don can jump in. I mean, when we looked at buying this business, it was a business that was, you know, effectively underinvested in, and I think a lot of the, you know, terminations that we've seen were things we expected. We did a pretty significant deep dive into their pipeline and into their existing franchise agreements and, you know, which franchisees were at risk of leaving. So that was all written into the underwriting of the of the transaction. It's the reason why we've really sped up the integration here. We want to bring the value prop to these owners quickly and demonstrate the significant upside that they are going to get. We are already seeing it. We're seeing traffic to the hotels that are now integrated onto our systems increase beyond our expectations. We're seeing the look to book ratios go up in the Radisson brands versus where they were prior to being integrated. So we are achieving what we expected to achieve, which is bringing that business delivery and those customers, um, to our, to our franchisees. What we now that they're on the platform, um, you know, we have the ability to now you're not just selling the future potential, you're selling reality. And so our development team has been focused on really looking at what is the opportunity now to take that value proposition as we move into the back half of the year here and begin to grow these products. We say all along, we look at M&A, we want to grow the ROI for the franchisee. Certainly we're doing that. But we also want to grow these brands for the benefit of our shareholders. And that's what's coming. If you look at what we've already done with some of the key wins we've had on both new Radisson inns and some Radisson retention efforts that we put in place, we've been pretty successful, actually more successful than our expectations were going in. So we feel pretty confident. about our ability to get these brands on our platform, get the value proper it needs to be, and get them growing into the future.

Yeah, Danny, just to go ahead, sorry.

No, no, no, go ahead.

No, just saying, you know, when you think about the 5% or so, you're talking about 20 assets in particular. And, you know, Pat mentioned that, obviously, in many cases, these were ones that were comfortable letting go. We've been even more successful on, you know, relics and renewals, you know, close to 30 hotels. So, When it is a higher quality asset, they're making that decision. I think to your point on when you expect to see the portfolio stabilize, I think we're expecting that to pass point going forward into 2024. I think that you would expect to see stabilization and growth. I think the Radisson legacy brand or the core brand itself is more of a conversion brand. So I think we would expect to see that grow faster in the short term. And then I think Country Inn and Suites is more of a new construction brand. You would start to see that more in 2025, but we would expect to see that portfolio stabilize. Your question specifically on the integration cost, we did make the decision to Pat's point to invest and accelerate the integration, and we're happy we did. I think the results speak for themselves. You've been tracking much higher than expectations. We would expect these costs, I think, to slow significantly for the remainder of the year. And then at the end of this year, you know, when you look at it on a comparable basis, it would essentially be pretty immaterial. Now, a few, you know, single-digit millions maybe could trickle into 2024. But broadly speaking, we think the heavy lift is kind of now behind us, and you're going to start to see those decelerate heading into the back half of the year.

Great. Got it. And then if I could just sneak in one last one. So, so given that success, at least we've seen this far with Radisson, you know, how are you thinking about M&A opportunities going forward? And is Radisson giving you like an execution playbook from here on out?

Yeah, I think Danny, we've, you know, with the WoodSpring acquisition five years ago, which was not really a synergy deal, you know, that was a lift and shift and invest and it turned out to be a very successful deal. really a home run for us with regard to kind of reinvigorating the extended stay segment for us and really getting out in front of the rest of the industry. You know, Radisson is different. Radisson is bringing us a higher rent par, more revenue accretive, bringing us more of a business traveler, a younger demographic, but a significant amount of synergy as we talk about that $80 million. So, you know, we don't always look at these acquisitions from an execution perspective as the same. but we've certainly developed a pretty strong capability within the company to rapidly integrate brands. I think the playbook is the same for a lot of the underlying key factors, but in all of these things, you have to look at what the value drivers are. In the case of WoodSpring, we had a very strong pipeline, a very strong prototype. What it needed was the growth engine and the development capabilities that we had, and we certainly brought that to market. What Radisson needed was business delivery. It needed a bigger loyalty program. It needed a bigger platform for reservations. It needed all the tools that we bring on revenue management, Choice University, and the like. So each of these is a little bit different, but I would say we've developed a pretty strong capability as a company to rapidly integrate and realize the value of an acquisition in a pretty rapid timeframe. Got it. Thank you very much.

Thank you. The next question comes from Steven Grambling of Morgan Stanley. Please go ahead.

Hey, thanks. Just want to follow up both on the 2024 commentary and that discussion of M&A. I mean, is there any additional M&A incorporated in the 10% growth through 2024? And then how are you weighing best uses of capital given leverage levels are still Below the targets that you laid out, it looks like the buyback was a little bit slower in 2Q versus 1Q. Is that a reflection of maybe there's better opportunities for either bolt-ons or other M&A activity? Thank you.

Yeah, Steve, we're always looking for M&A that fits the two litmus tests that we've talked about, improving the ROI for the owners and growing the brands for the shareholders. I think as we look forward, there's still some white space in our portfolio. There's a lot of potential opportunities on the international front. So those are probably the areas that we'll continue to look at. I would say right now, I mean, there is the additional boost in 2024. There's still more to come from Radisson, as we mentioned. There's another 20 million of EBITDA in our expected benefit to come in the 2024 number from the Radisson acquisition. Remember, Radisson also brought an upper upscale brand, Radisson Blue. It brought Radisson Individuals. So there's some other brands that we acquired that are going to give us, I think, some longer-term opportunities to continue to grow in segments that we aren't in today so we can do it organically. But there's also, you know, M&A also provides an opportunity potentially to do some bolt-on when those opportunities arise. I mean, I think if I look at, you know, the shareholder or share repurchase, During the Radisson acquisition last summer, we were effectively blacked out from buying our own shares in. So back in August, when the window opened, we were playing a little bit of catch up. And then I think it's a reflection of the fact that we believe that, and it's the reason we did our business update in early July, we just didn't believe that the market was understanding the true growth potential that we had. I mean, I think consensus for next year was at like 4% EBITDA growth. So It gave us an opportunity to get out and talk about that growth. And when we see our shares at a discount to intrinsic value, we've been pretty aggressive on the share purchase front. So I think you'll continue to see that so long as the shares remain at a discount to intrinsic value.

Got it. And then one other quick follow-up. I think you mentioned this a little bit, but where are you finding conversions are generally focused as we think about brand or chain scale? And do you typically have line of sight to this kind of shorter duration segment of growth on royalty contribution versus the base? Thank you.

Yeah, I think when you look at the opportunity out there, you know, as our value proposition gets better, as our franchisees and our franchisee retention rate stays, you know, best in class, you know, franchisees own other brands and own independent hotels. So a lot of the prospecting we do is within our own franchisee base. There are 26,000 independent hotels in the United States that are in the upscale and below segments. So there's There's ample opportunity for independent hotels as well for conversions. And this is a company that's been doing, you know, the conversion game here for 20 years. 19 of our brands are conversion brands. So we have a lot of opportunity. And it's one of the reasons why we wanted to highlight that. You know, the market where we are today with interest rates being where they are and likely to stay there, you know, the opportunity is going to shift towards more conversions, and this has always been a strength of choice. We've proven it during previous points in the economic cycle when interest rates were high. So, you know, it's something that we know how to do well, and we have a really strong track record of achieving, you know, conversion growth rates in our pipeline and ultimately in our hotel openings numbers.

Thank you.

Thank you.

Thank you. The next question comes from Robin Farley of UBS. Please go ahead.

Great. Thanks. Most of my questions have been covered already, but I did just want to clarify. I know you said there are a couple of different ways to get to your 24 guidance, but did you or maybe could you clarify that you're not counting on any acquisitions to get to that? Thanks.

No, to Pat's point, obviously the $20 million of additional contribution from Radisson is included in that 10%, but no acquisitions outside of the Radisson integration.

Okay, great. Thank you.

Thank you.

Thank you. The next question comes from David Katz of Jefferies. Please go ahead.

Hi, good morning. Two things, if I may. One is, I just want to be clear, Patrick, earlier you, you know, indicated white space and international opportunities. Is the white space and the international opportunities the same thing, or are those concentric opportunities, right, where you see white space, you know, here in the U.S. in addition to international? And then I have one quick follow-up, please.

Yeah, I think, David, it's both. So there's white space domestically. I mean, if you think about where we are in extended stay, we're having a lot of success with Everhome in the mid-scale extended stay segment, but we don't have a product in upscale extended stay. So that's an opportunity for us. Certainly, we just have a little bit of a toe in the water with upper upscale with the Radisson Blues in the Radisson collection that we have. So there's some opportunity there. But when you look internationally, you see the same thing. You see significant Radisson blue opportunity internationally in the Americas, where we have the opportunity to grow. And I would say when we look at the international markets, Um, there's a lot of different product type that, that doesn't play well in the America's region. Um, so when you look at a lot of potential acquisitions outside of the U S the product type may be different. It may not be something that you see here in the U S. So there's, you know, there's, there's shorter stay there. There's, there's, um, rooms where they convert from a business traveler to a leisure traveler. So there's some different models out there on the international front that really work for certain international markets. So I would say when we're looking across the landscape, there's certainly white space in the U.S. and international, but there's also different product types that are lodging alternatives in the international side as well. So that's effectively what we see when we look across the landscape. And when we see we can bring value, that's where we look for opportunities to maybe bring that into our portfolio. Understood.

And if I may, I wanted to circle back on the conversion opportunity. And I think, Patrick, in your prepared remarks, you sort of referenced uniquely positioned opportunities. And there's no question that you have a sizable scale platform and track record, et cetera. But from the position where many of us sit, we're hearing more and more larger entities also talking about pursuing conversion opportunities. What are you able to do to just remain competitive? and protect the opportunities that you've had in the past and continue to capture those as you have.

Yeah, I think when you get into the conversion market, you're dealing with a lot of different issues as a company than you might if you don't do that on a regular basis. So everything from brand overlap to making sure that PIPs are tailored to the right product, the right market, the right owner, and effectively making sure that those PIPs get completed. And a PIP conversation is not a sale of a franchise. A sale of a franchise is rather uniform. A PIP conversation is rather complex and detailed and involves a lot of back and forth, I would say, And you really have to make sure that you're achieving what you expect from that hotel in that market for that brand. So it's a different approach to the owner. And it's something, as I said, we've been doing for over 20 years. We do it in multiple brands. And it's a core competency that we've built. So, you know, when I think about being best in class and being uniquely qualified, a lot of it comes from experience. And, you know, that experience drives lessons learned for you on what works and what doesn't. So that's why we're fairly confident in, not fairly, but we're highly confident in our ability to continue to be, you know, a growth leader on the conversion front because it's what we do as our core competency and it's what's driven a lot of our brand equity and brand growth over the past 20 years.

David, when you look at the numbers, historically speaking, our churn has been somewhere in that 4% to 5% range. The vast majority of that is essentially your involuntary churn. So it's a choices discretion. It's our discretion to terminate that particular franchisee. When you take a look at where the churn has been year to date and where we expect the churn to be by year end, we're actually tracking at the lower end of that 4% to 5% range. So again, from a voluntary perspective, you're still in that historical, call it 1% to 2% or so range. So we're feeling pretty good about where we stand from a terms perspective.

Understood. Thank you. Thank you.

Thank you. The next question comes from Brant Montour of Berkley's. Please go ahead.

Hey, good morning, everybody. Thanks for squeezing me in. I just want to ask if you could give us the exact Radisson EBITDA and baked into the full year 23. And I guess we can just add 20 million onto that number to get to the new number for 24. Yeah, Brent.

So, broadly speaking, we've talked about greater than $60 million, I would expect maybe there's an opportunity to be slightly below that $65 million or so. Obviously, that could create a little bit of a winner's curse. So part of this is timing of the synergy. So I think it's safe to assume for the time being that when you look at the 2024 EBITDA, just over $80 million for Radisson is what you should expect.

Okay. Thank you for that. And then You guys reaffirmed for your guidance just a few weeks ago in a pre-announcement, and then obviously you raised it today. What changed over the last three weeks?

Yeah, so when you think about just how things have shifted, obviously when we reaffirmed guidance, we felt pretty good about being within the range, obviously. We moved up that lower end of the range from the 525 up to, you know, the 530 million. The financials came in, you know, obviously once we closed the books, the financials came in a little bit better than we expected. Really the drivers there, you know, effective royalty rate continues to trend above expectations. We talked about the platform business, you know, some of those other fee streams, the co-branded credit card. And what we're really seeing is a lot more green shoots in terms of the international portfolio as well, both from an actual perspective The rebound internationally has been pretty impressive as well. You know, when you take a look at the portfolio, higher room counts, etc. And when you think about where Revpar is in our portfolio internationally, I mean, we're tracking, you know, 15 to 20% above 2019 levels, which is pretty remarkable when you think back to where we were just about 12 to 18 months ago. So, I think it just gave us more optimism that we were going to meet that higher end of the adjusted EBITDA guidance. And when you flow all those puts and takes through, we made the decision to make some additional investments off of the marketing and RES fund, which had a slight impact on the as reported net income. Obviously, from an adjusted perspective, that's removed. So broadly speaking, we're pretty bullish on that 530 to 540. And if all the chips fall into place, I think we could see a scenario where we're tracking to the high end of that guidance. Great. Thanks so much.

Thank you.

Thank you. The next question comes from Patrick Schultz of Truist Securities. Please go ahead.

Hi. Good morning, everyone. Good morning. Good morning. Good morning. When I think about some of the large public to public transformative, and I would say keyword transformative M&A in the past, I think about Marriott and Thurwood. Pat, are you of the view that bigger or materially bigger and transformatively bigger can, in fact, be better at this point for your company? Thank you.

Patrick, I think, as you know, our policy is not to comment on market rumors, if that's kind of where you're going. Obviously, and we talk a lot about this, and you saw in our script today, the scale benefits of the Radisson acquisition, bringing another 10 million loyalty program members, bringing in 10% more hotels, bringing in more revenue, accretive hotels, all of those things are creating a a bigger business that is not just a royalty and rev par and unit growth story, but it's providing more of the ancillary revenue opportunities for us that have been unlocked by doing an M&A transaction like that. So certainly scale matters. And we have scale today. And we have scale in the upscale segment. We have scale in the extended stay segment. We certainly have scale in our core mid-scale and economy segments. You know, I think if your question is does scale matter, absolutely it does. You know, we've done two acquisitions in the past that have been very successful from the standpoint of expanding our presence in key markets where we were underrepresented. So, yeah, there's definitely benefits to M&A that bring that scale advantage to you.

Okay. Thank you. Along those lines, hypothetically for the right acquisition, What net debt to EBITDA level would you feel comfortable going up to? Thank you.

Patrick, I don't think there's a word to comment on that. I think at the end of the day, you've got to look at it from all of your different stakeholder groups and any acquisition. Publicly speaking, our targeted range is that three to four times. I think for any sort of investment that would really drive long-term value for all those constituencies, could you see it as kind of that high end of that leverage ratio or a little bit higher? Sure. But broadly speaking, our stated policy is that three to four times.

Okay. I'm all set. Thank you. Thank you.

Thank you. The next question comes from Joe Griff of J.P. Morgan. Please go ahead.

Good morning, guys. I have another question on your comments on 2024. Of the 50 to 55 million of incremental EBITDA in 2024 versus this year, how much of that comes from royalty fees versus lower adjusted SG&A? I have a couple of quick follow-ups.

Yeah, I mean, I think what you would expect on the SG&A line item in the future, obviously what we talked about, and I think it was maybe one or two quarters ago, that you would see the Radisson SG&A, which is slightly above $20 million, drop to somewhere in that $6 to $7 million range. So we're feeling very good about heading into 2024 that kind of the integration and the synergies would be behind us. So portfolio-wide, Joe, you would expect to see SG&A grow in line with your historical averages, which have trended to kind of the low single digits. Obviously, for the right investments, we would bring that up to maybe mid-single digits. So kind of puts and takes, I think, ring the revenue-intense unit growth. We talked about close to that 2%, which would be about $9 million ERR in the mid-single digits. And then obviously, I think it's too early to tell in terms of guiding to any sort of REVPAR in 2024. I think you're going to see where the industry is going to be heading as we head into the back half of this year. But I think the point on that 10% is even in a flat REVPAR environment that there was still a path to get there.

And maybe I'll put words in your mouth and then you can sort of paraphrase me on how you're thinking about royalty fees for next year. But if you're assuming... portfolio blended REVPAR that's flat, and even with modest rooms growth next year, you're assuming you can grow royalty fees just based on better mix of upscale and higher price point hotels. Is that how you're broadly thinking about next year?

Well, I think you can grow your royalty rate very much in line with what we're I think from a RevPAR perspective, even a mixed, so I think you're going to get some benefits of a mixed shift story without a doubt as you continue to deliver more royalty in the higher revenue intense segments. I think broadly speaking, I think there's absolutely still a path, even if that royalty or that RevPAR rate was muted, that you could still get to that 10% with your other two levers that you have. So the revenue intense unit growth, especially the fact that higher rooms will probably come with that revenue intense unit growth. and your effective royalty rates.

Great. And then a follow-up. With respect to operating, restructuring, due diligence, and transition costs and what you have implied for the second half, and I know it sort of gets adjusted, gets added back to adjusted EBITDA, how much of that falls into the 3Q versus the 4Q? I'm assuming most of it is in the 3Q. And then my last question is, are there any reasons presently that precludes you from buying back stock here in the 3Q and 4Q. And that's all for me.

No, I think broadly speaking, I think Pat hit on me. I'll hit your second question first. As it pertains to the stock buybacks, we would expect to continue to repurchase our shares. I think when you look at I know there's some commentary around a slight deceleration from Q1 to Q2, but when you look at the 76 million, that's still well above what we've done historically. And to Pat's point, I think we're playing a little bit of catch-up coming out of the blackout from Radisson. Plus, we're still at a point where we feel like our shares continue to trade at a discount. So at a 2.7 times leverage ratio, we certainly have capacity to continue the share repurchase program. I think when you look at the Radisson integration costs in particular, you would just see a sequential quarter-over-quarter deceleration from Q2 into Q3, from Q3 into Q4, as I mentioned. Probably some immaterial, you know, some residual integration, you know, that may slip into 2024, just some of the modest scope that may have gotten deferred. But I think from a broad perspective, I think 2024 integration costs would be immaterial when you compare it to what the 2023 cost was. Thank you.

Thank you.

Thank you. There are no further questions. I will turn the call over to Pat Pacious for closing remarks.

Well, thank you, operator.

Thanks again, everyone, for your time this morning. We'll talk to you again in November when we announce our third quarter results. I hope you all have a great day.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.