Choice Hotels International, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International's first quarter 2025 earnings call. At this time, all lines are in a listen-only mode. I'll now turn the conference over to Allie 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 the forward-looking statements, and you should consult the company's Form 10-Q, 10-K, and other FCC 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 2025 earnings press release, which is posted on our website at choicehotels.com under the investor relations section. This morning, Pat Patias, President and Chief Executive Officer, will speak to our first quarter operating results and update on our strategic priorities, while Scott Oaksmith, Chief Financial Officer, will discuss our financial performance and outlook for the remainder of the year. Following our prepared remarks, we'll be glad to answer your questions. And with that, I will turn the call over to Pat.

Thank you, Ali, and good morning, everyone. We appreciate you taking the time to join us. It has been a successful start to the year as the momentum we've created from our strategic investments has carried forward into the first quarter, driving our adjusted EBITDA 4% higher and our adjusted earnings per share 5% higher year over year. The investments in our business delivery engine have increased the attractiveness of our brands. resulting in a 3% year-over-year net increase in global rooms in the first quarter, including a 4% net increase for our more revenue-intense rooms. We also continue to excel at what we do best, delivering guests to our franchisees. In the first quarter, we outperformed our chain scales in domestic REVPAR performance, captured demand across multiple regions of the country, and achieved REVPAR index share gains versus competitors. These results reflect the improved mix of guests that we are now delivering. Today, approximately 40% of our overall mix is business travelers, which we believe is well balanced between business and leisure travel. Importantly, CHOICES business travelers have a relatively resilient profile. These are guests whose job cannot be accomplished without traveling. They comprise key categories such as construction, regional sales, utilities, and medical staffing, and we are now capturing additional longer-term opportunities from companies involved in the substantial infrastructure investments required by GenAI and the push towards the reshoring of American manufacturing. We anticipate these trends will continue to accelerate, and through our deliberate strategic positioning of our portfolio, CHOICE is poised to capture this demand. Our business travel segment grew 10% year over year in the first quarter, driven by both group and business transient travel, and supported by our expanding, upscale, and extended stay portfolio of hotels. Notably, we achieved an impressive year-over-year revenue increase of over 50% from group travel business in the first quarter. We delivered these strong results despite increased macro uncertainty, demonstrating that our strategy continues to succeed and reinforcing our confidence in our long-term outlook and ability to create value through our strategic investments. As we look to the future, our global pipeline provides a strong platform for long-term growth, with 98% of the rooms within our more revenue-intense brands. This means that our pipeline should generate significantly higher revenue compared to our existing portfolio, driven by a substantial RevPar premium, a higher average effective royalty rate, and a larger room count per hotel. The versatile business model we have built has allowed us to deliver stable returns and provide diversified avenues of growth throughout different economic cycles. Historically, in periods of economic uncertainty, our differentiated positioning has enabled us to outperform our peers, gain market share, and emerge stronger. Choice has an increasingly 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. We have made tremendous progress since we embarked on our distinct strategy to strengthen the company's position in more revenue-intense segments and markets. We have added brands in our strategic growth segments over the past several years and have expanded our domestic mix of more revenue generating rooms by 11 percentage points to 88% of our system over that period. Notably, the revenue generated by an average hotel in our portfolio has increased 17% over that period. The addition of these new brands expands our opportunities to grow our hotel franchise system in all market conditions, as they offer both new construction and conversion opportunities for developers to grow their portfolio with us, depending on their needs. In addition, all of our hotels realize the benefits of our increased scale, including our technology investments, more valuable rewards program, and expanded partnerships. Diversification has also made our business more resilient. particularly with our continued growth in the cycle resilient extended stay segment. We have increased the size of our extended stay portfolio by 19% over the past five years to approximately 53,000 rooms, with the segment's pipeline now representing half of the total domestic rooms pipeline. An increased extended stay footprint gives us even more confidence in the resilience of our business because in times of uncertainty, we have historically seen demand remain relatively strong for our extended stay hotels. We have also strengthened the entire business by attracting higher income, more resilient customers who have the means to keep spending and traveling through economic cycles. And that means we're delivering customers with a greater lifetime value to our franchisees. In fact, half of our customers now have annual household incomes exceeding $100,000, which means they are more than 24% higher than the median national household income, and nearly 20% surpass $200,000. At the same time, we expanded our rewards program to over 70 million members, an 8% year-over-year increase as of the end of the first quarter. These loyal customers are six times more likely to book direct through Choice channels and stay an average of 90% more room nights per year than our non-rewards members. Growth in our membership is the direct result of us creating a more compelling program, including introducing new aspirational hotels and exciting new experiences such as music, racing, and college sport event redemption options, as well as adding new rewards program features. We are seeing the results with a more engaged customer base, as demonstrated by a 28% year-over-year increase in the number of global reward night redemptions during the first quarter. With gas prices trending lower and approximately 90% of our domestic portfolio within one mile of a highway, we provide value-seeking travelers the opportunity to travel and take vacations in a more affordable way closer to home. This is particularly compelling for our customer base, which is comprised primarily of domestic travelers. Additionally, our strong portfolio of mid-scale hotels offers an affordable, high-quality option for travelers who might be seeking to trade down. Likewise, we see attractive tailwinds coming from one of our core customer segments, baby boomers. Over 4 million people are expected to reach retirement age this year in the U.S., and they have more time and disposable income to travel for leisure, and seek brands like ours that provide value for their money. And the pool of these retired travelers continues to expand, with more than one in five Americans expected to be 65 years old or over by 2030. Just last week, we hosted our 69th annual convention. The level of enthusiasm and support we heard from our thousands of franchisees about the ways we are driving growth and the future of our brands was remarkable. The convention is also a significant business development opportunity for us to sign new franchise agreements. During the event, we highlighted some of our recent investments, specifically our new Choice Hotels website and mobile apps, which have helped drive improved performance through strong year-over-year increases in booking conversion rates across all of our chain scales, including double digit increases for our upscale properties. Our targeted hotel profitability tools, which continue to drive potential cost savings of up to 20% on the franchisee level. And our recently launched one stop owners platform, which makes it even easier for our franchisees to access actionable intelligence to run their businesses. Our larger scale has allowed us to invest more in technology to enhance the guest experience and the value we bring to our franchisees. This is one of the key reasons our existing owners choose to expand their hotel portfolio with Choice Hotels and contributes to our industry-leading voluntary franchisee retention rate. As we look to grow our brand portfolio, we remain very well positioned. In addition to our proven strength in the mid-scale segment, the company has well-established brands with significant growth potential in the two segments with the highest developer and guest demand, extended stay and upscale limited service. These segments are more accretive to our earnings and continue to be a key driver of our future growth. Continuing to innovate has contributed to us further expanding our lead in the extended stay segment. as we added more than 5,000 extended stay rooms domestically in the first quarter. For seven consecutive quarters, we have grown our domestic extended stay room system size by double digits year over year. And we expect this higher than industry average growth to continue, with nearly half of the economy and mid-scale extended stay segment rooms currently under construction being Choice Hotels brands we are well positioned for future growth. We also continue to strengthen our core brand portfolio, which outperformed overall mid-scale REBPAR chain scale and attracted strong development growth in the first quarter. Importantly, we recently introduced new value-engineered prototypes for the Comfort brand family and the Country Inn & Suites by Radisson brand, that provide more revenue-driving spaces for owners and achieve a 10 to 15% reduction in construction costs. We are already realizing returns from these investments. In fact, during the first quarter, our Country Inn & Suites by Radisson Brands RevPar outperformed the upper mid-scale segment by nearly two percentage points. In the upscale segment, we continued to expand our presence increasing the global room system size by 16% year over year to over 110,000 rooms, now representing 17% of our overall system. With nearly 27,000 more upscale global rooms in the pipeline, an 8% increase over the prior quarter, we will be providing our guests even more aspirational locations to visit. We've often spoken about a key differentiator for our business, the velocity with which we move hotels through our pipeline. I'm pleased to say that velocity in the first quarter accelerated versus the prior quarter. Of the domestic franchise agreements we executed for conversion hotels for the 12 months ending March 31st, we opened 170 within that timeframe. a 26% increase compared to the same period of the prior year. This conversion capability benefits Choice as we capture royalties in the system faster, and it benefits our franchise owners who can quickly join our distribution platform and start generating revenues. We are encouraged by the continued traction for our conversion brands, and we expect this hotel conversion core competency to be a key growth driver this year. I'd now like to turn to another growth area, our international business, where in the first quarter, we expanded our rooms portfolio by over 4% year over year. And with a rooms pipeline that has increased by 13% compared to the prior quarter, we continue to see a significant opportunity to further gain international market share in the coming years. In closing, by successfully executing our strategy, we have transformed the company to be future ready and have established a strong foundation for near-term stability and long-term growth. Our proactive investments and a versatile asset light fee-based model have meaningfully enhanced our company's growth profile and allow us to generate multiple avenues of growth throughout various economic cycles. We continue to grow our significant free cash flow annually, and our priority use of this capital is to create long-term value as we remain focused on enhancing our value proposition and driving organic growth while returning excess cash to shareholders. I will now turn the call over to our CFO. Scott?

Thanks, Pat, and good morning, everyone. Today, I will discuss our first quarter results update you on our balance sheet and capital allocation, and comment on our outlook for the remainder of 2025. We are pleased with the first quarter results we delivered, which were in line with our expectations, despite a weaker than anticipated macroeconomic environment. We drove adjusted EBITDA to a first quarter record of $129.6 million, representing a 4% year-over-year increase, highlighted by a combination of global rooms growth, strong REVPAR, robust effective royalty rate growth, and the impressive performance of fees from our partnership programs. Our first quarter adjusted earnings per share also reached a first quarter record of $1.34 per share, a 5% increase year-over-year. Let me first discuss our key drivers of royalty fee growth, which include unit growth, REVPAR performance, and our royalty rate. In the first quarter, our global rooms grew 3.9% year-over-year, across our more revenue-intense upscale, extended stay, and mid-scale portfolio, and our total worldwide rooms grew by 2.8%. We continue to see strong developer interest in our brand portfolio, with particular demand for our extended stay and mid-scale segments. We also recently announced a partnership with the innovative Bridge platform, which helps optimize the loan search process, providing access to a wider range of affordable financing solutions for hotel owners and developers. We believe this new partnership will expand access to capital sources and accelerate the timeline to secure financing that will support the development of both new construction and the conversion of hotels into our franchise system. Our deliberate decisions and strategic investments in our franchisee tools, brand portfolio, and partnerships are delivering results across all our brand segments. First, we grew our domestic extended stay room system size by 11% year over year. highlighted by a 14% increase in domestic openings. At the same time, we saw a 14% increase in domestic franchise agreements awarded year over year. The Everhome Suites brand is gaining strong traction, with 11 hotels now open and 62 domestic projects in the pipeline, including 18 under construction as of today. Second, we further strengthened our presence in the mid-scale segment. highlighted by a 10% increase in mid-scale domestic franchise agreements executed year-over-year. Our flexible and low-cost conversion Clarion Point brand portfolio continues to grow, with a 10% increase in global rooms in the first quarter compared to the prior year. And third, we are continuing to expand our upscale portfolio, with a 16% increase in global rooms year-over-year. Specifically, our Ascend Hotel collection, a leading global soft brand, reported a 13% year-over-year increase, reaching nearly 59,000 rooms worldwide. Turning now to our REVPAR performance. Our first quarter domestic REVPAR outperformed our chain scales by 60 basis points, increasing 2.3% year-over-year. This was driven by a 30 basis point improvement in occupancy levels and a 1.7% year-over-year increase in average daily rates. Our domestic extended stay segment performed exceptionally well, achieving first quarter REBPAR growth of 6.8% over prior year and outperform the industry by over 4 percentage points. At the same time, our domestic overall mid-scale segment achieved first quarter REBPAR growth of 1.7% over the prior year, outperforming its chain scale by 30 basis points. While our domestic economy segment achieved first quarter REBPAR growth of 7.1% over the prior year, outperforming its chain scale by over 4 percentage points. Turning to our third royalty growth lever, our effective royalty rate also continues to be a significant source of revenue growth. Our domestic system effective royalty rate for the first quarter increased eight basis points year over year. This performance demonstrates the positive impact of our strategy to drive the growth of our revenue-intense brand portfolio and our enhanced value proposition to franchise owners. We are optimistic about the ongoing upward trajectory of our effective royalty rate for years to come. as the contracts in our domestic pipeline have a significantly higher effective royalty rate than those in our current portfolio of open hotels. We continue to build on the strong momentum of our partnership business. Our partnership services and fees encompass revenues from our strategic partners and vendors, including licensing and co-brand credit card fees. These revenues increase 28% year-over-year in the first quarter. and benefited from both an increase in revenues from our qualified vendors and co-brand credit card fees. Continuing to expand our partnership services and fees is one of our key initiatives, and we believe that we can drive strong revenue growth in the years ahead. In the three months ended March 31, 2025, we generated $36 million in adjusted free cash flows, a 30% year-over-year increase. Our business continues to produce strong cash flow which coupled with our well-positioned balance sheet allows us to execute our capital allocation priorities, including investing in the growth initiatives while also returning significant capital to shareholders. Year-to-date through April, we've returned $115 million to shareholders, including $27 million in cash dividends and $88 million in share repurchases. We had 3.2 million shares remaining in our authorization as of the end of April. We remain well positioned with a strong cash position, leverage levels at the low end of our targeted range, and total available liquidity of $594 million as of March 31st, 2025. Before discussing our outlook, I want to note a few changes we made to our income statement. During the first quarter, we reclassified select items to classify revenue and expenses based on the nature of the underlying activities, and also reclassified corresponding prior year amounts for comparability. These reclassifications have no effect on previously reported total revenues, expenses, or net income amounts. For additional information on these reclassifications, please see our earnings release and Form 10-Q. Finally, I'd like to discuss our expectations for the remainder of the year. Reflecting the more uncertain macroeconomic backdrop, which is impacting the logic industry, we are updating our full-year 2025 outlook. While January and February domestic REVPAR performed in line with our expectations, we started to observe a softening in late March when a broader macro uncertainty intensified. As a reminder, April saw the significant impact of the Easter shift and a tougher comparison as we benefited from eclipse-related travel in 2024. When normalizing for these impacts and accounting for the hurricane benefit, April REVPAR performance was down approximately 1% year over year. Given these recent trends, we are adjusting our domestic REBPAR expectations to negative one to positive 1%. The high end of our range assumes our REBPAR performance for the remainder of the year is largely in line with the outlook we provided in February. The midpoint of this range assumes that the current trends we have seen from late March through April continue for the remainder of the year. And the low end implies that conditions soften modestly. For the full year 2025, We now expect our adjusted EBITDA to be in the range of $615 million and $635 million, and adjusted diluted earnings per share to be in the range of $6.90 and $7.22. This guidance adjustment reflects a more moderate domestic REBPAR growth expectation, offset by effective cost management. We now anticipate our guidance for full-year adjusted SG&A to be at the lower end of our growth range of low to mid single digits from the 2024 base of $276 million. Additionally, to align with the revenue reclassifications that I discussed, we are now providing guidance for these reclassified line items. For full year 2025, we expect our partnership services and fees to grow in the mid single digits from the 2024 base of $99 million. While we recognize the broad macro uncertainty, We remain competent in the resilience of our portfolio, the versatility of our model, and the strength of our fee-based business. We anticipate growth will be driven by organic growth across more revenue-intense hotels and markets, robust effective royalty rate growth, growth from our partnership revenue streams, strong international business, and incremental revenue-generating opportunities from our expanded scale. This outlook does not account for any additional M&A repurchase of the company's stock after April 30th, or other capital markets activity. Today's results are a testament that our strategy is working and that we are benefiting from our expanded scale and versatile business model. We intend to keep investing in those areas of our business that will generate the highest return on our capital. At this time, Pat and I would be happy to answer any of your questions. Operator?

Ladies and gentlemen, we will now begin question and answer session. Should you have a question, please press star followed by the one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. First question comes from Sean Kelly with Bank of America. Please go ahead.

Hi, good morning, everybody. Thank you for taking my questions. Pat or Scott, maybe we could just start with your big picture on the consumer and the macro. Pat, you talked a little bit about how you're well-positioned for trade down. But what's sort of unique as we've moved through earnings season here is we've seen the softness primarily in leisure and lower-end chain scales relative to the industry, and the high-end's been hanging in a little bit better. So when or how do you expect to see a little bit of that trade down and why do Do you think that the softness we've seen so far has been so acute in kind of the lower end travel segment right now?

Yeah. So let me start, Sean, with just sort of the macro. I mean, if you look at our Q1 results, it really demonstrates that our strategy is continuing to deliver. You look at our 3% to 4% net rooms growth, record EBITDA, REBPAR outperforming our chain scales, RPI increases. We've got an increased international footprint. Scott talked about our extended or expanded partnership streams. And most importantly, probably is our rewards program growth. So, you know, what we really wanted to make sure everybody understands in our remarks is the change in the consumer profile that we now have in our business. You know, you look at the diversified places where our consumers are coming from now. We've got a higher income consumer today than we've had in the past. You know, that, that average consumer is reporting that they've got 24% higher national median household income than the, you know, us average and 20% or over 200,000. So we've got a stronger consumer in our business. We talked about, we've got more business travelers, 40% of our, uh, business in the Q1 is now business travel. And, you know, I think when you look at trade down, what we're not seeing is trade down in our system. We are seeing, though, market share gains in our system. And I want to particularly point to our economy segment, which was up 7%, which is 4% higher than the chain scale, and extended stay, which was also up 7%, which is 4% higher than the chain scale did. So we are taking share. That's clearly what we saw in the early part of the quarter here, or the early part of the year, that is. And then I would just say, you know, with what we're seeing through April and then even into looking at last week, you know, we again saw red part index gains, primarily in occupancy, which is really, really a positive signal for us. So, you know, when you look at this sentiment out there that leisure is softening, we're not actually being impacted in a meaningful way by that because I think what's happening is, which happens in these times when things get softer, We are taking share, and that has historically happened. So while we're in the early days of this sort of softening cycle, we're pretty optimistic that the way we've repositioned our brands, the way our consumer has gotten that much more resilient from an income perspective, and then the diversification between business and leisure travel, I think is really going to benefit us as we move throughout the rest of the year.

Great. And then just as a follow-up on the net unit growth side of the equation, can we just talk about sort of ex-Westgate, your organic growth expectations as we move through the balance of the year? Is the implication that net rooms accelerates and sort of why would we see a pattern there relative to kind of what you saw in the first quarter?

Yeah, I think, let me just start. I mean, I think we're really confident in our guidance of about a 1% worldwide rooms growth. You know, international continues to be a key driver of that growth. International is now expected to be in that kind of high single digits. And then I think the second piece of it is, you know, our historical competency around conversions. The real focus, as we mentioned in our remarks, is the velocity with which we're able to move projects from pipeline into our system. You know, as we mentioned, we opened, you know, 170 hotels within that last 12-month timeframe, which is actually a 26% increase. So we're seeing the velocity improving. And we're in a world right now where, you know, 73% in Q1 of our openings were from conversion hotels.

And can I also just point out, if you think about it, historically our first quarter has been more of a higher of a termination rate for us. But, you know, as the year goes on, you know, those tend to go down. It's just the timing and the cycle of when our contracts are executed and when we make our portfolio management decisions. But as Pat said, you know, the great news is our brands remain in high demand and still seeing great activity on the executed contract front, people wanting to affiliate with our strong brands, especially in times of uncertainty.

Thank you both.

Your next question comes from Michael Belisario with Baird. Please go ahead.

Thanks. Good morning, everyone. Morning. Good morning. Got a question for you just on guidance, just trying to walk through the math here, right? If red part is roughly flat, unit growth's one, you get a little bit from royalty rate growth, you call that 2% fee growth. I think you're saying ancillary fees are going to be plus 5%. Is that spread, call it three percentage points, is one, is that the right math? And then sort of for how long do you think that ancillary fee growth can outpace sort of the organic growth rates. They'll call it plus or minus 3% or more going forward.

Yeah, sure. Thanks, Michael. You know, as we previously discussed, you know, the versatility of our business model really provides us a lot of multiple drivers to grow our business. When you think about our guidance, you know, our domestic royalty rate growth is expected to contribute about 1% to 2% growth to our EBITDA. That's despite a flat REBPAR environment because we are growing our revenue-intense brands as well as continuing to grow the effective royalty rate at that mid-single digits. Our partnership service and fees and our franchisee platform ancillary services, which include things like our co-brand credit card, continues to be accretive to our EBITDA and is expected to be about a 2% growth to our EBITDA for 2025. And then, you know, we have our international business and owned hotel portfolio, which we think will add about 1% growth to the EBITDA results. And these will be slightly offset by very small increases in our SG&A. So that's how you get to kind of the midpoint of our guidance. In terms of our ability to grow those ancillary revenues, you know, for us, we really think that's a huge opportunity for us. You know, they're not dependent on REBPAR. They certainly can be accelerated by the growth of our franchise system. But, you know, we've got a lot of different avenues to monetize our franchise system, whether that's through selling value-added services to our franchisees to help drive the performance of their hotel. whether it's connecting third-party partners with, you know, the vast amount of guests and our loyalty members that come through our channels. So we believe that that could continue to grow at an accelerated pace for the long term, even potentially at a higher rate than the core franchising royalty fees.

Okay. That's helpful. And then just as my follow-up, just on the topic of development, Pat, any commentary that you could share maybe from franchisees either recently or from your convention last week, just maybe what they're seeing and are they asking for anything differently today? And that's all for me. Thank you.

Yeah. Yeah, no, it's great. We literally last week spent about four days with between 5,000 and 6,000 of our franchisees and our vendors as well. So we got a really good take on sort of what the – the inputs to development look like as well. But let me just start with the franchisees. I would say we were really happy with how optimistic they were relative to everything that you're reading in the headlines. So that was a key positive. And what they were telling us is what we saw in Q1, which is their hotels are doing better than their peers in the market, which I think reflects the investments we made in the back half of 2024. Things like our loyalty program, our website, and our revenue optimization service, those three things in particular, they're really responding to. And so that's flowing then into development. Clearly, extended stay continues to be a very sought-after segment for us. You know, when you look at the brands that we have there, you have a proven prototype, you have a proven operating model, and you have a proven exit. And that segment continues to be very attractive to owners. I think it's also interesting to note because when times get uncertain, people want certain brands. And that's really where Choice has excelled over the years. We have brands with very high brand awareness and a long history and track record of success. So we have a lot of owners who are, I say when it starts to rain, people who are independent hotels or or maybe in a different brand, we tend to attract more hotels during times of uncertainty because we have those proven brands. And so we had a lot of interest, I think, in our soft brand and upscale. We've got a lot of interest, obviously, in our core enterprise, which we know primarily conversion brands. So the development team was pretty optimistic coming out of our convention. And so I think from that standpoint, owners are They particularly are ownership-based. Many of them have been with us for decades. They know that in a period where we're in right now where supply really hasn't grown much over the last three years, it's been sub-1%, and you see this really strong consumer, that's a really healthy environment to start developing hotels in so that by the time you do open your hotel, you're into a significant uptick in REVPAR. I would say we were pretty pleased by the optimism that our owners were showing. Just on the trade show side of the house, it was also very interesting to talk to our vendors. Many of them have gotten ahead of the whole tariff impact by bringing inventory here sooner. And then secondly, many of them told us they have figured out ways not to pass that cost on to the owners. Anybody who was talking about a price increase, it was usually 10%. That seemed to be the number we were hearing, which is very absorbable in the way our franchisees are thinking about development moving forward.

Thank you.

Your next question comes from Patrick Scholes with Truist Securities. Please go ahead.

Great. Thank you. Good morning, everyone. Morning. On the economy and mid-scale significant outperformance versus the average in the Smith travel results, I hear what you said, certainly taking market share. Was there anything else above and beyond market share, such as where your locations are concentrated, such as anything, such as a hurricane tailwind helping you? in the quarter? Thank you. And then I have a follow up.

Yeah, I think Patrick, in the short term, it's the things that we've been talking about for quite some time, you know, things like road trips, gas prices are the lowest they've been in three years. So we are seeing those hotels that are in more drive to locations, you know, performing well. You know, what's interesting is we have the ability today to pulse our travelers So we did a survey as this whole sort of economic uncertainty began to develop in late March and April. And 90% of them told us they were going to travel as much or more than they did last year. And they said that they see prices are rising, but they said they're going to find ways to cut back by basically driving instead of flying, taking vacations in more affordable places. Um, and traveling domestically as opposed to internationally. So, um, that's our customer. It's not, it's not a industry survey. These, these are our abilities to actually talk to our, uh, to our existing customer base. And that's what they're telling us. And then I think the long-term trends we've been talking about as well, the reshoring of American manufacturing, um, those are the things that are driving more extended stay and mid-scale, um, stairs. And so we are beginning to see some of that as well. And then we've also talked about the retirees, the 4 million additional people reaching retirement age this year. Our brands are well positioned for those who are traveling and looking for an affordable option where they're no longer working and they're living on more of a limited income. So those are all areas that I think as we've looked into what's driving our Q1 performance and why we're taking share, those are some of the key drivers.

Yeah, I don't think I'll add to that, Patrick. Just, you know, when we look at our business travel, Pat mentioned earlier in our remarks that it's up to 40% of our mix. And we saw really strong growth in our business travel, which was up 10%. And I think what's great about our business travel, it's really business travelers where their job can't be accomplished without traveling. So, you know, we've been making investments in our capabilities to drive, you know, more business travel with an expanded sales force. going after new segments and verticals, you know, and really improving the effectiveness of our sales tools. So really saw that come to fruition here. I mean, you're starting last in the fourth quarter and carrying into the first quarter. So I would point to that as another reason for our outperformance. Okay. Yeah. Thank you. Now, my final question, I do have to ask why you certainly excelled in the mid-scale economy. When I look at the upscale and above rev par, That did seem to be significantly lower than what would be implied in the Smith travel. Can you give a little bit of color on that? Is there something idiosyncratic on that, how we should think about upscale and above?

Thank you.

Yeah, really for that, we report our red part results on a full system basis. So it's not a same store sales basis. So really the decline was due to a few properties leaving as well as some newer properties ramping. So when we look at it on the same store sales basis, actually our upscale was slightly positive for the quarter. So a little bit of noise and just some of the shift of the portfolio that will even out here as the year goes on. And then just quickly follow up, on the same store basis for your outperforming, is that apples to apples as well with that outperformance? Apples to apples in what regard? Apples to apples, just how the upscale underperformance wasn't really an underperformance. Is the outperformance in your economy mid-scale, is that an apples to apples outperformance? Yes, I understand. Yes, it is. With upscale, it's just a little bit of a smaller portfolio. So a few hotels can move the numbers a little bit more than their broader portfolio. Great. Thank you for the clarification. I'm all set.

Next question comes from Robin Farley with UBS. Please go ahead.

Great. Thank you. Just looking at the rooms in your pipeline at the end of the quarter, it seems like it picked down each quarter for the last four quarters. Is the new growth that you're looking for, is that mostly that there's an acceleration in conversions or something that so it may not be showing up in the pipeline, but Or just how should we think about that sort of kick down? Thank you.

Yeah, Robin, I mean, if you look at our global pipeline, you know, it's... About 83% is domestic, about 17% is international. And then when you tease out new construct versus conversion, it's like two-thirds new construct, one-third conversion. But as we've talked about, it's the velocity of the hotels on the conversion side that move through very quickly. On average, it's like three months. So in many cases, we have hotels that just don't sit in our pipeline. As we look across the industry, a lot of these pipelines are getting bigger and bigger, but they're not resulting in actually open hotels. And so what we saw in the first quarter actually was a significant amount of openings kind of getting through that pipeline as well. And I think as Scott may have mentioned earlier, Q1 is a period where we generally do some pipeline cleanup as well. It doesn't make sense for us to have a proposed hotel coming into a market when we have another owner who's ready to develop in that market. That's really, I think, a reflection of what you're seeing there.

And when you talk about the two-thirds new construction, one-third conversions, did I hear that right in terms of your pipeline?

Yeah, that's within the pipeline. That's really a reflection of the fact that a new construction hotel will be in your pipeline longer, just giving the longer time from contract execution to actually construction and opening the hotel. So as Pat mentioned, that velocity of our conversions the pipeline even though that's you know 73 of our openings during the first quarter conversions you know we open a hotel uh within a three to six month period uh if it's a conversion so they don't sit in our pipeline very long and we even have instances where something could be sold and opened in the same quarter so historically while um our openings have been more two-thirds conversions one-third new construction the pipeline actually is the inverse of that just given the time to time to open

Do you have that mix sort of compared to 12 months ago, that two-thirds new construction, one-third conversion? That's my last one. Thanks.

It's probably the same, Robin. I mean, that's been a pretty consistent mix for us for quite some time.

Okay.

Thank you. Next question comes from Meredith Jensen with HSBC. Please go ahead.

Yes, thanks. Good morning. I was wondering, given you were speaking about the strong business demand and also how that might feed into length of stay because business may stay shorter, then you offset that with extended stay having longer. So I was wondering if you might speak to kind of the trends and length of stay and how some of those segments are booking in terms of also the booking window. That would be great.

Just briefly on the booking window, I think what we've seen is the window has contracted somewhat, and that's a reflection of this sort of uncertain environment because that contraction was within the last six weeks or so. That being said, the business is showing up. As I mentioned last week, our year-over-year pace actually increased. So the people are not booking as far out in advance, but they are ending up at the end of the day traveling. I think when you look at our business mix within the segments, and then maybe Scott can speak the length of say, you know, extended stay, the business travel, um, um, and, and, um, and, and group business was up 7% in the quarter upper mid scale is up 4%. Upscale is up 22%. Um, so we're seeing a lot more group and, and, and business travel in, in our segments. Um, when you link, look at extended stay, the length of, of stay is actually much longer. So it's not actually a shorter. shorter business trip. And I would say that likely that the business travelers that we're getting today, given the types of industry verticals we're pulling from construction, logistics, medical staffing, these are more longer length of stay than our traditional leisure travelers.

Yeah, I think obviously the length of stay is really driven by our focus on extended stay. You know, we are the market leaders now in extended stay. We've been growing that segment, you know, our rooms growth by over 10% for the last couple of years. And we really believe we can continue to grow that for the next, you know, several years, if not longer. And really, so you're seeing the mix of our length of stay increase given our focus on extended stay, as well as what I mentioned earlier is our focus on that business traveler. So you know, really the two nicely dovetail together. So we actually saw about, you know, quarter over Q1 versus Q1 of last year, about a five percentage point increase in our average length of stay of nights that are over 14 plus nights. So really, really good acceleration, kind of the type of business we're going after and the increase in our portfolio size and extended stay.

No, that's super helpful because I tend to think of the business demand staying in the upper upscale, but I understandably they're staying in the extended stay for your area, so that would make it longer. Very quickly, if you wouldn't mind touching upon international and how sort of you look at expansion opportunities there, conversion, consolidation, M&A, any kind of color there would be great. Thank you very much.

I think our international opportunity is really pretty exciting. You know, we've been talking about that's a key growth area for us. And if you look at our kind of recent performance results, it's an area that we're improving both in development and openings perspective as well. So I think we feel pretty good about the opportunities we have. The Radisson acquisition really opened up and kind of created a new focus for us on the international segment. We're making significant progress in what we call CALA, the Caribbean and Latin America, particularly the Radisson brands themselves. They have a very high brand awareness down there. And I think now being attached to our business delivery engine, we're getting a lot of really significant interest there. I was just up in Canada on Monday, Tuesday at our Canadian Hotel Investment Conference up there. And, you know, we've been in that market for 70 years. So we have very well established brands there. We have about 362 hotels. But that is another area that is really ripe for extended stay growth. And, you know, with our presence there, a long history of operating performance. We do see opportunity there. And Canada's got very similar sort of supply and demand characteristics as here in the U.S. So there's a lot of real interesting opportunity for us from a growth perspective on the international front.

Thanks so much.

Again, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from Dan Lazulek with Morningstar. Please go ahead.

Good morning, guys. Thanks for taking the question. Maybe just one. With the April normalized red par being down 1%, wondering if you could maybe talk about how leisure group business performed in that month relative to kind of March and then how those three groups are kind of being viewed in your updated red par guidance. Thank you.

Yeah, Dan, I think the challenge with April was the Easter shift and the eclipse. And we had a number of hotels that were right in the line of the eclipse. And they were, you know, con lodges in the middle of the country were going for $700 a night in rooms. So April has been really hard to sort of tease out. Can you see any specific patterns with regard to leisure travel? And then obviously the Easter shift, which we deal with. um you know on on a continuous basis every year made it made a little bit more challenging so i'm not sure there's anything in specific we can read through on on leisure in the month of april that that is indicative so we've really kind of looked more at the long term um you know we've looked at the reasons for optimism for the summer really the key reasons that that have always driven our business which is employment remains high gas prices are low And consumers appear to be saying they're going to drive to as opposed to fly. And so that generally does really well for our hotels that are right next to the highway. Fifteen hundred hotels near the national parks like these are these are the things that as consumers bow back on their spend, but not on their travel. They tend to go to these types of locations that that's really when we look at when we surveyed our customers and we look at talking to our franchisees last week who are in some of those markets. That's what gives us sort of the optimism around being able to perform at the top or at the upper end of our range.

Okay, fair enough. And then just clarification question on the business being 40% of your business. Is that revenue? Is that room nights? Does that include group or would group be separate?

It's revenue and group is a mix of both business and leader. So group overall is about 10%. of our total delivery in the quarter. So, yeah, business is a revenue number. Okay.

Perfect. Thank you.

No further questions. Please continue.

Well, thank you, operator. And thanks, everyone, again, for your time this morning. We will talk to you again in August when we announce our second quarter of 2025 results. Have a great rest of your day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.