• Adjusted EBITDA: Grew 17% year-over-year to a record $124.3 million.

• Adjusted EPS: Increased 14% year-over-year to $1.28 per share.

• Revenue: Excluding reimbursable revenue, rose 16% to $203 million.

• Global Rooms Pipeline: Expanded by 10% quarter-over-quarter to over 115,000 rooms.

• Domestic Pipeline RevPAR Premium: Hotels represent a more than 30% RevPAR premium compared to existing portfolio.

• Domestic Franchise Agreements: For conversion hotels, increased by 43% year-over-year.

• International EBITDA Contribution: Grew to over $9 million in Q1.

• Domestic RevPAR: Increased 8.2% from Q1 2019; however, decreased 5.9% year-over-year.

• Effective Royalty Rate: Increased by 4 basis points year-over-year.

• Share Repurchases: 1.5 million shares repurchased, representing over 3% of outstanding shares.

• Adjusted EBITDA Guidance for 2024: Expected to be between $580 million and $600 million.

• Adjusted EPS Guidance for 2024: Projected to range from $6.30 to $6.60 per share.

• Warning! GuruFocus has detected 4 Warning Sign with CHH.

Release Date: May 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Choice Hotels International Inc (NYSE:CHH) reported a 17% increase in adjusted EBITDA and a 14% increase in adjusted EPS year-over-year, reaching record first quarter levels.

• The successful integration of Radisson Americas has significantly enhanced CHH's growth profile, contributing to a 10% quarter-over-quarter increase in the global pipeline, now totaling over 115,000 rooms.

• CHH has expanded its revenue streams through strategic partnerships and ancillary revenue opportunities, including a new co-brand credit card which exceeded target sign-ups.

• The relaunch of Park Inn by Radisson has generated substantial interest, with hundreds of prospective owners expressing intent to open franchises, indicating strong future growth potential for this brand.

• CHH's international business showed robust performance with key metrics like unit growth, RevPAR, and EBITDA performance all showing positive trends, including a significant franchise agreement in France adding over 4,000 rooms.

Negative Points

• Despite overall positive results, CHH's domestic RevPAR was down 5.9% year-over-year in the first quarter, reflecting challenges such as the timing of the Easter weekend and tough year-over-year comparisons.

• The company's platform and procurement services fees were flat at $13.8 million year-over-year in the first quarter, due to timing issues, which could indicate variability in this revenue stream.

• While CHH has seen growth in revenue-intense brands, there is an expected slight decline in units for Econo Lodge and Rodeway, which could impact the overall unit growth balance.

• The company's capital expenditures and key money investments remain high, reflecting ongoing significant investments in franchise support and development, which could impact free cash flow.

• CHH faces ongoing competitive pressures in the upscale hotel segment, requiring continuous investment and innovation to maintain and grow market share.

Q & A Highlights

Q: Can you discuss the cash flow expectations and investments across the platform? A: Scott E. Oaksmith, CFO, explained that operating cash flow is expected to increase over 2023 levels. Key money was about $98 million last year and is expected to be slightly higher this year, reflecting higher openings. About $130 million is allocated for recycled capital support, mainly for joint venture investing and small mezzanine lending, particularly for the Cambria and Everhome brands. The company aims for a mid-60% to 65% free cash flow conversion from EBITDA for the year.

: What updates can you provide on consumer trends and RevPAR improvements? A: CEO Patrick S. Pacious noted that Q1 was softer as expected, but April showed positive trends, supporting their forecast for RevPAR improvement. He highlighted strong employment numbers and middle-class wage growth outpacing inflation as positive indicators for continued travel demand, particularly in family travel.

Q: Could you clarify the reservation income and the mismatch in reimbursable line items on the income statement? A: CFO Scott E. Oaksmith clarified that the integration of Choice and Radisson platforms unlocked ancillary incremental revenue streams, contributing about $10 million in the first quarter. These are ongoing earnings streams expected to continue at a rate of $8 million to $10 million per quarter.

Q: What is the outlook for RevPAR for the rest of the year, and are there any paused projects or acquisition opportunities post the Wyndham endeavor? A: CEO Patrick S. Pacious expects a positive RevPAR trend, supported by strong seasonal performance in Q2 and Q3. Regarding acquisitions, while nothing specific is pursued currently, the company remains open to opportunities that align with their strategic goals.

Q: Can you discuss the full year expectations for unit growth and the potential of Park Inn by Radisson? A: CEO Patrick S. Pacious confirmed expectations for overall unit growth and highlighted the robust pipeline, particularly in revenue-intense brands. He expressed optimism about Park Inn by Radisson, noting significant market interest and potential in the conversion brand segment.

Q: What are the expectations for royalty fee growth and its composition within revenue-intense segments? A: CFO Scott E. Oaksmith explained that royalty fee growth is expected to be strong, particularly from revenue-intense brands which make up 82% of the hotel portfolio. The company aims for a 2% net unit growth and mid-single-digit increases in effective royalty rates, contributing to overall EBITDA growth.

Q: Are there any plans to adjust financial disclosures to align with industry peers? A: CFO Scott E. Oaksmith acknowledged the suggestion and mentioned that the company might consider providing more detailed guidance on rooms growth and other metrics in future disclosures.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.