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Text: Actual results may differ materially from those indicated in forward looking statements, and you should consult the company's Forms 10-Q, 10-K 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.
He'll be joined by Scott Oaksmith, Senior Vice President, Real Estate and Finance.
We appreciate you taking your time to join us.
I'm pleased to report that Choice Hotels has continued to deliver strong results that once again significantly outperformed the industry and gained share across all segments in which we compete.
Our June and July RevPAR results exceeded 2019 levels by approximately 5% and 15%, respectively.
A truly remarkable achievement.
For almost 1.5 years, we've maintained significant RevPAR index share gains against the competition as compared to 2019.
In fact, this quarter, we increased RevPAR index versus our local competitors by nearly five percentage points as compared to 2019, through notable lift in both weekday and weekend RevPAR index as reported by STR.
Retaining these elevated competitive share gains even as the broader industry recovers illustrates that our strategic investments are working and gives us further optimism about our future revenue trajectory.
Our goal is not simply to return to our 2019 performance levels but rather to capitalize on current and future investments to fuel our long term growth and drive our performance to new levels.
As previously discussed, we were very intentional in our approach to investing prior to the pandemic to drive growth across the more revenue intense hotel segments.
While we reduced our overall spend in 2020 due to the pandemic, we continue to invest in key strategic areas.
More importantly, in today's stronger demand environment, we see an outsized opportunity to continue or even accelerate strategic investments to capture a greater share of travel demand.
What gives us optimism is that the bold investments we've continued to make are paying off.
These include launching and enhancing brands in each of our strategic segments, namely expanding our upscale positioning, strengthening our mid scale leadership role and rapidly growing our extended stay portfolio.
We're also improving our guest delivery at the hotel level, while strengthening our marketing and reservation systems and franchisee tools that have contributed to the outperformance our brands are demonstrating.
We are also bolstering our platform capabilities through the strategic partnerships that drive incremental revenue to our existing portfolio, allowing us to play in nontraditional segments, such as gaming and all inclusive resorts among others.
I will now outline more specifically why we are confident that we can continue to increase our share of travel demand in the years to come.
First, we strengthened our existing brands and launched new brands to appeal to the customer of tomorrow in key segments that provide a compelling return on investment.
Our strategic investments in the extended stay segment allowed us to quadruple the size of the portfolio over the past five years to reach 460 domestic units with a domestic pipeline of over 300 hotels.
Last year, we launched our newest mid scale extended stay brand, Everhome Suites, to provide franchisees an opportunity to capitalize on the best performing segment of the hotel industry.
The interest level from multi-unit developers backed by institutional capital for this new product is high, similar to what we are seeing with our WoodSpring Suites brand.
In our mid scale segment, we have reinvested in the future of our brand portfolio with Comfort moved to modern transformation.
The Comfort portfolio grew its domestic unit count by 2.5% in the second quarter year over year and recently celebrated the highest number of openings since 2014, while achieving RevPAR index gains versus its local competitors in the second quarter.
Clarion Pointe has already experienced a fivefold increase of its portfolio since the end of 2019, ending the first half of the year with over 30 hotels open in the U.S. and more than 20 additional hotels awaiting conversion this year.
At the same time, we rapidly grew our upscale segment.
Specifically, we've increased the number of domestic upscale rooms by nearly 25% since the end of 2019, driven by impressive growth of both Cambria and the Ascend Hotel Collection.
We also continue to invest in capabilities to further enhance our owners' value proposition and drive the bottom line results through value added programs and resources to achieve higher levels of profitability.
Notably, we enhanced our pricing and merchandising tools to further enable our franchise owners to reach their target customers and effectively drive top line revenue.
The company is currently outpacing the rate recovery seen following prior recessions.
And finally, we continue to propel our future forward by expanding our platform capabilities through signing strategic agreements with new travel partners in adjacent business segments.
These platform expansion strategies enabled us to attract new franchisees and guests to the core brand portfolio and supplement investments in strategic brand growth with increases to high margin affiliation fee streams.
As discussed on our prior calls, we've been anticipating long term consumer and demographic trends to drive a significant uptick in travel demand, and we've been making investments to capitalize on them.
Specifically, we are benefiting from trends, such as Americans rediscovering domestic destinations and the continued rise of road trips and increase in workers retiring early and the trend of work from anywhere, which affords Americans flexibility in where and when they travel for leisure.
We now know that the pandemic has only accelerated these trends, and we believe that our business will therefore benefit in an outsized way from additional travel demand coming to our key segments.
The investments we've made allowed us to capitalize on demand that has historically propelled our core business and also enabled us to attract and capture a larger share of leisure demand with customers, who are new to our brands, driving more revenue this year than in 2019.
At the same time, we're benefiting from our most loyal customers, Choice Privileges, Diamond Elite members, who are experiencing our new and refreshed brands and who contributed an even higher percentage of overall revenue for the quarter as compared to 2019.
Not only are our customers planning their travel further in advance, as witnessed by the continued lengthening of average booking windows, but we continue to see a slightly greater share of revenue coming from longer lengths of stay.
While our expectation to capture a larger share of consumers' wallet among leisure travelers is already coming to fruition, we also see continuing momentum in our business travel trends with additional runway for growth.
We have seen sequential quarter over quarter and month over month increases in our business travel booking trends in the second quarter 2021.
Likewise, with our recent refresh of the Comfort brand family and further upscale penetration, we are well positioned not only to recover our existing business customers but to expand our guest base as business travel rebounds.
As a matter of fact, our group travel bookings reached 90% of our 2019 levels in the first half of the year with key segments, strongly rebounding and lead volumes steadily rising close to 2019 levels.
The results we achieved confirm our focus to grow in our strategic segments, which will further fuel the long-term revenue intensity of our system.
I'll now provide a brief update on our key segments where all of our select service brands achieved RevPAR index gains versus their local competitors in the second quarter as compared to 2019.
Our extended stay segment, a significant growth engine for the company, expanded by over 45 hotels in the second quarter year over year and now represents over 10% of our total domestic rooms.
For the second quarter, as compared to 2019, WoodSpring Suites reported 16% RevPAR growth.
And the brand's pipeline continues to expand, reaching 155 domestic hotels.
Our suburban extended stay portfolio expanded to nearly 70 domestic hotels open, representing 15% unit growth year over year.
Additionally, franchise agreements awarded for the brand in the first half of the year exceeded levels reported in the same period of 2019.
At the same time, our MainStay Suites, mid scale extended stay brand, continued to capture nearly 14 percentage points in RevPAR index gains versus its local competitors as compared to 2019 and the brand's portfolio of over 90 domestic hotels open experienced 27% year over year unit growth.
We are especially pleased with a significant increase in developers' interest in new construction extended stay projects year over year as hotel financing begins to rebound.
The high developer activity and interest reaffirm that our strategic commitment and continued investments in this highly cycle resilient segment are driving a competitive advantage.
Our mid scale transient brands represent over two over three of our total domestic room portfolio and over half of the total domestic pipeline.
Specifically, the Comfort family achieved a RevPAR change that was nine percentage points more favorable than the upper mid scale chain scale in the second quarter as compared to 2019.
In the first half of the year, the Comfort portfolio opened the highest number of the brand's conversion hotels in the past decade, while increasing domestic new construction agreements by 20% year over year.
With newly updated properties from coast to coast, a recently refreshed brand identity and the new Rise & Shine prototype revealed this spring, the future is certainly bright for Comfort.
Our upscale portfolio achieved impressive year over year growth in the second quarter, where we increased our domestic room count by 24%, marking a record for domestic openings in the first half of the year for the company, including 22 Penn National Gaming properties.
The Ascend Hotel Collection leads the industry as the first and largest soft brand.
The brand grew its domestic room count by 28% year over year and expanded to nearly 390 hotels open around the globe.
In addition, Ascend Hotels outperformed the upscale segment RevPAR change by 26 percentage points for the quarter as compared to 2019.
Our upscale Cambria Hotels brand continues its positive momentum, growing its portfolio size by 14% to 58 units with 17 projects under active construction at the end of June and approximately 10 additional hotels planned to open this year.
These results are proof of Choice's value proposition in the upscale segment for our current and prospective owners.
The recovery is not just about travelers returning, it's also about continuing to drive forward our efforts to improve the unit economics of our franchises.
I've been traveling a lot since late March across the country.
And every time I speak with our franchise owners, they are optimistic about the progress of their business recovery and the outlook for the remainder of the year.
The close relationship we've had with our franchisees has always been strong, but the pandemic was an opportunity for us to strengthen this bond.
Specifically, our owners are very pleased with the new pricing tool we recently introduced that has helped drive their top line outperformance versus competitors and with several initiatives we launched that reduce their total cost of ownership.
Our franchisees are also benefiting from our strong business delivery.
With such a powerful value proposition, it's no surprise why Choice has an industry leading voluntary franchisee retention rate and our franchise owners continue to seek and develop our brands.
Aided by our strong value proposition for our current and future owners, we also experienced significant demand for new franchise contracts.
In the first half of the year, we awarded 200 new domestic franchise agreements, a 32% increase over the same period of 2020.
Likewise, demand for our conversion brands throughout the first half of the year has increased by over 40% year over year.
In addition, our development and franchise service team that is fully dedicated to driving diverse ownership of Choice franchise hotels among underrepresented and minority owners has awarded nearly a dozen franchise contracts in the first half of the year while growing and cultivating the number of women owners.
We also continued to strengthen our platform business portfolio, which represents a highly revenue intense extension for Choice.
Our guests are increasingly engaging with our travel partners and continuing to benefit with additional travel options, while our more than 49 million Choice Privileges members have the opportunity to earn and redeem points at our travel partners properties by booking their stays directly on choicehotels.com.
In fact, we are seeing an increase in our domestic loyalty program sign-ups in the second quarter 2021 as compared to 2019.
We are committed to enhancing our value proposition by further strengthening the platform portfolio and continuing to establish new strategic partnerships.
In closing, I'm proud to say that our culture centered around diversity, equity and belonging is being recognized.
This year, we've been named one of the best employers for diversity by Forbes, the Best Place to Work for LGBTQ equality by the Human Rights Campaign for the ninth consecutive year and one of the best places to work for people with disabilities, earning a perfect score on the Disability Equality Index for the second year in a row.
With that, I will hand it over to our CFO.
I hope you and your families are all well.
Today, I'd like to provide additional insights around our second quarter results, update you on our liquidity profile and capital allocation and share our thoughts on the outlook for the road ahead.
Throughout my remarks today, I'll provide financial performance and RevPAR comparisons to 2019, which we believe are more meaningful in analyzing trends as the prior year's quarter results were significantly impacted by the pandemic.
For second quarter 2021 as compared to the same period of 2019, total revenues, excluding marketing and reservation system fees, were $142.4 million.
Adjusted EBITDA increased 9% to $111.8 million, driven by improving RevPAR performance and continued cost discipline.
Our adjusted EBITDA margin expanded to 79%, an 8% increase.
And as a result, our adjusted earnings per share were $1.22 for the second quarter, a 3% increase versus the same period of 2019.
Let's now take a closer look at our three key revenue levers beginning with royalty rate.
The continued increases in our effective royalty rate remains a significant source of our revenue growth, which is driven by the attractive value proposition we provide to our franchisees, their continued desire to be affiliated with our proven brands and our pipeline.
The company's domestic effective royalty rate once again exceeded 5% for the second consecutive quarter, growing seven basis points for the second quarter 2021 compared to the same period of 2020, a reflection of the continued strengthening of the value proposition we provide to our franchise owners.
We expect to maintain the historical growth trajectory of this lever for full year 2021 as owners seek Choice Hotels' proven capabilities of delivering strong top line revenues to their hotels while helping them reduce their total cost of ownership and maximize return on investment.
Our domestic system wide RevPAR outperformed the overall industry by 20 percentage points for the second quarter, declining only 1% from 2019, while occupancy increased by 20 basis points as compared to the same quarter of 2019.
At the same time, our second quarter results continue to exceed the primary chain scale segments in which we compete as reported by STR by nearly seven percentage points versus 2019.
We are proud to report that our June RevPAR results exceeded 2019 levels by approximately 5%, driven by a nearly 3% increase in average daily rate and a two percentage point increase in occupancy.
The trends of improving RevPAR performance have continued into the third quarter.
Our July performance was significantly stronger with RevPAR growth of approximately 15%, driven by occupancy levels of 70% and an average daily rate increase of 10% versus 2019 levels.
In fact, July RevPAR for our upscale, extended-stay, upper mid scale, mid scale and economy segments all surpassed 2019 pre-pandemic levels.
And we saw month over month acceleration in performance across all of our segments.
These trends give us continued optimism for the remainder of the year.
As discussed in the past, we've long focused our brand strategy on driving growth across the higher value and more revenue intense, upscale, extended-stay and mid scale segments, and the investments we've made are paying off.
These strategic segments continue to help us achieve material RevPAR change outperformance against our respective industry chain scales and drove gains versus our local competitors.
Specifically, when compared to second quarter 2019, our upscale portfolio increased its RevPAR index relative to its local competitive set and outperformed the industry's RevPAR change by nearly 13 percentage points.
Our extended-stay portfolio grew RevPAR by 10% in the second quarter year over year, driven by occupancy levels of 82% and a 2% increase in average daily rate.
The segment outperformed the industry's RevPAR change by more than 31 percentage points.
And finally, the RevPAR change for our mid scale and upper mid scale portfolio exceeded these segments by eight percentage points.
Let me also highlight just a few impressive performance achievements for our brands in the second quarter as compared to the same period of 2019.
Our WoodSpring brand reported 16% RevPAR growth, reaching an average occupancy rate of nearly 86% and experiencing a nearly 6% increase in average daily rate.
Ascend Hotels grew June RevPAR by nearly 5%, driven by an over 12% average daily rate increase and achieved RevPAR index gains of 11 percentage points against their local competitors, while our Cambria Hotels drove the brand's RevPAR share gains versus their local competitors to 14 percentage points.
Quality, our largest brand in the portfolio, recorded nearly 2% RevPAR growth driven mainly by a 1.2% increase in average daily rate.
And finally, suburban extended-stay grew its occupancy by over four percentage points.
Across the Choice system, we were able to increase our overall RevPAR index against local competitors by nearly five percentage points, driven by both our franchisees' ability to grow rate and occupancy gains.
Finally, we continue to grow the overall size of our domestic franchise system and exceeded 2019 levels for conversion openings through the first half of the year.
Across our more revenue intense brands in the upscale, extended-stay and mid scale segments, we observed stronger unit growth, increasing the number of hotels and rooms by 2.5% and 3.1% year over year, respectively, and increasing the growth rate from the first quarter of 2021.
For full year 2021, we expect our overall unit growth trend to continue.
Furthermore, we continue to expect the unit growth of the more revenue intense segments to accelerate versus 2020 and range between 2% and 3%.
Aided by our strong value proposition and outperformance, demand for our brands continue to gain momentum since the beginning of the year with more than one of three of the total domestic agreements executed in the month of June.
In fact, development activity for our extended-stay and upscale domestic franchise contracts throughout the first half of the year exceeded 2019 levels by nearly 60% and 14%, respectively.
At the same time, our developers are increasingly optimistic about the long-term fundamentals of the lodging industry.
Nearly 40% of total domestic franchise agreements awarded in the second quarter were for new construction contracts, which increased by over 20% in the second quarter year over year.
In fact, demand for our new construction brands continued to accelerate throughout the first half of the year with more than half of the total new construction contracts executed in June alone.
I'd now like to say a few words about our liquidity profile and provide a capital allocation update.
Our strong results have led to an even stronger liquidity position for the company.
At the end of second quarter 2021, the company had approximately $908 million in cash and available borrowing capacity through its revolving credit facility.
We are also pleased to report cash flow from operations of $102.3 million for the second quarter of 2021, a 28% increase versus second quarter 2019.
Today, our gross debt to EBITDA leverage levels remain well within our target range of three times to four times.
Our impressive results, combined with our confidence in continuing to generate strong levels of cash and our optimism for the future led us to reinstate the quarterly dividend at the pre-pandemic level and resume our share repurchase program.
In June and July 2021, we returned over $14 million back to our shareholders in the form of cash dividends and repurchases of our common stock.
These actions reflect our continued commitment to driving long-term shareholder value and returning excess capital to our shareholders.
We will continue to monitor the environment for other investment opportunities and evaluate capital returns in the context of our leverage levels, market conditions and our overall capital allocation strategy.
Before closing, I'd like to offer some thoughts on what lies ahead.
While we are not providing detailed guidance today, we currently expect the third quarter RevPAR to grow in the mid to high single digits as compared to 2019.
Assuming elevated consumer sentiment remains and the broader RevPAR and economic recovery trends continue, we expect to see our 2021 adjusted EBITDA approaching 2019 levels, even with potential incremental investments in the back half of the year.
Our view is reinforced by our strong year to date financial performance, broader macro and consumer trends in our recent domestic June and July RevPAR results and our continued investments to support growth for the remainder of 2021 and beyond.
We will continue to evaluate the impact of COVID-19 across the business, and we'll provide further updates in November during our next earnings call.
In closing, we remain confident that our strategic approach and resilient business model coupled with our disciplined capital allocation strategy and strong balance sheet will help us further capitalize on growth opportunities and drive outsized returns for years to come.
The investments that we have made and will continue to make will allow us to execute on our ambitious long term growth plan.
At this time, Pat and I would be happy to answer any questions.

user
q2 adjusted earnings per share $1.22 excluding items.
choice hotels international -not at this time providing guidance for q3 or fy given precise impact of covid-19 on co's future results is still unknown.

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