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Text: They will be joined by Scott Oaksmith, Senior Vice President, Real Estate and Finance.
We appreciate you taking the time to join us.
I'm pleased to report that Choice Hotels continued to deliver strong RevPAR growth in the third quarter that once again significantly outperformed the industry.
We also continue to gain share across all segments in which we compete.
As a result of these performance trends, we expect to surpass 2019 RevPAR and adjusted EBITDA levels for full year 2021.
By continuing to implement our long-term strategy, we have positioned Choice Hotels to further benefit from post-pandemic trends that favor leisure travel, limited service hotels and longer stays.
Additionally, our business traveler demand has returned to levels similar to the third quarter of 2019.
The third quarter was exceptional, our strongest quarter of the year.
Our RevPAR increased 11.4% compared to the third quarter of 2019, surpassing our prior quarterly RevPAR guidance.
In fact, RevPAR has now exceeded 2019 levels for five consecutive months, with trends continuing into the fourth quarter.
For over 1.5 years, we've maintained significantly higher RevPAR index share gains against the competition compared to 2019.
We continued this trend in the third quarter, increasing RevPAR index versus our local competitors by nearly four percentage points as compared to 2019, reflecting continued growth in both weekday and weekend RevPAR index as reported by STR.
Choice's ability to continue to gain share even as the broader industry recovers, demonstrates that our strategic investments are paying off and gives us further confidence in our future revenue trajectory.
Because of our strategic investments, both before and during the pandemic, we are in a stronger position today to capitalize on outsized growth opportunities over the long term, which we expect will create value and drive our performance to new levels.
What's most impressive is that we continue to drive strong performance through both rate improvement and occupancy share gains.
Choice's average daily rate growth has been stronger than the industry in the third quarter due to our new revenue management tool and broader capabilities.
In addition, our robust merchandising strategy has allowed us to drive occupancy share gains versus our local competitors.
We continue to make major investments that are enhancing our owners' performance and contributing to our brand's outperformance.
Earlier this year, we launched our new revenue management capability designed to improve the ability of our franchise owners to effectively drive top line revenue.
This tool marks a step change improvement that we were able to put in the hands of our franchisees at a critical juncture in the recovery.
As the first mobile-enabled revenue management app, it allows our franchisees to more effectively manage their channels rates and inventory by adapting to local market trends in real time through repricing and competitive rate shopping multiple times during the day, and they can do this from virtually anywhere.
This enhanced capability has contributed to choice taking significant RevPAR index share specifically driving average daily rate index gains versus local competitors, and we expect this trend to continue.
The acceptance of rate recommendations by our franchisees has been significantly higher than our prior tool, demonstrating our owners' confidence in the solutions that we are providing.
This tool, combined with expert advice from our experienced revenue management consultants is helping our franchise owners to swiftly execute the right pricing strategy, which is particularly important in an inflationary environment.
At the same time, we continue to improve the unit economics for our franchisees, concentrating on investments like housekeeping upon request that lower their cost of ownership while driving continued performance improvements.
Recently, we deployed a new digital registration capability, which is integrated with our property management system.
This cost-effective cloud-based solution is designed to simplify the hotel registration process for front desk staff, save on labor, speed up check-in and improve our guests' overall experience.
Moreover, our recent brand investments are designed to appeal to the guest of tomorrow while providing a compelling return on investment for our franchisees.
Just a few weeks ago, we introduced a new Cambria hotel prototype option designed for secondary and leisure markets.
We're excited about the future growth opportunity for Cambria as we expect this prototype will allow developers the flexibility to build at a reduced cost, expanding the markets available for growth while retaining our design forward experience.
I will now provide a brief update on our key segments, where 11 out of our 12 brands achieved RevPAR index gains versus their local competitors in the third quarter as compared to 2019.
Our strategic investments in the extended-stay segment allowed us to quadruple the size of the portfolio over the past five years to reach 467 domestic units with a domestic pipeline of nearly 310 hotels.
This segment, a significant growth engine for the company, expanded by over 45 hotels in the third quarter year-over-year and now represents over 10% of our total domestic rooms.
In addition to strong unit growth, we've also driven impressive RevPAR growth across our extended stay brands.
Specifically, when compared to the third quarter of 2019, our extended-stay portfolio grew RevPAR a by over 18%, driven by occupancy levels of 82% and a 9% increase in average daily rate.
And outperformed the industry's RevPAR change by over 20 percentage points.
The WoodSpring Suites brand celebrated a key milestone with the recent opening of its 300th hotel.
The brand's pipeline expanded by over 20% year-over-year as of the end of September, reaching nearly 160 domestic hotels which further exemplifies developer demand for this brand, given its cycle resilience.
We expect that WoodSpring's robust pipeline will provide a strong platform for future growth of the brand.
Broadly speaking, we are pleased with the significant increase in developers' interest in extended stay projects.
In the third quarter, we executed two dozen extended-stay domestic franchise agreements, an 85% increase year-over-year and a 20% increase compared to 2019 levels.
In addition, the first hotel for our newest extended-stay brand, Everhome Suites is currently under construction and scheduled to open next summer, with nearly 20 additional projects already in the pipeline.
Our mid-scale brands, which represent over 2/3 of our total domestic room portfolio and approximately half of the total domestic pipeline continued to outperform the segment's RevPAR growth.
Our mid-scale and upper mid-scale portfolio grew RevPAR by nearly 10%, driven by average daily rate growth of over 9% and outpaced the industry's mid-scale and upper mid-scale segment growth by nearly seven percentage points when compared to third quarter 2019.
Our flagship brand, Comfort, recently celebrated the highest number of conversion hotel openings since 2014, while increasing new construction agreements threefold in the third quarter year-over-year.
The Comfort brand's domestic unit growth of over 2% and and RevPAR index outperformance versus local competitors demonstrate the attractiveness of this iconic brand to hotel developers and guests alike.
Our upscale portfolio achieved impressive growth in the third quarter year-over-year as we increased our domestic room count by nearly 22%, driven by both Cambria and the Ascend Hotel Collection.
The upscale portfolio also achieved a record for domestic openings in the first three quarters of the year.
The Cambria brand continued its positive momentum, growing by over 9% to 58 units year-over-year with 17 projects under active construction at the end of September, and five additional hotels planned to open this year.
In August, we celebrated the Cambria opening in the heart of one of the world's premier wine regions, Napa Valley.
Our upscale portfolio increased its RevPAR index relative to its local competitive set and outperformed the industry's RevPAR change by 15 percentage points while increasing the average daily rate by 11% when compared to the third quarter of 2019.
This progress shows the attractiveness of Choice Hotels value proposition in the upscale segment for current and prospective owners.
The strong performance across our entire brand portfolio confirms our focus on growing in our strategic segments which we believe will further fuel the long-term revenue intensity of our system.
Turning now to demand trends.
We continue to achieve gains in our weekday occupancy index share during the third quarter compared to 2019.
As discussed on our prior calls, we believe that these share gains are partially driven by long-term consumer trends, such as remote work and an increase in early retirements, which afford Americans flexibility as to when and where they travel for leisure.
In fact, we observed our guests extending their trips into shoulder days of the weekend, giving us further optimism about future travel trends following the historically busy summer travel season.
In addition, we continue to observe a greater share of revenue coming from longer stays as compared to 2019.
Similar to our broader occupancy share gains, these weekday demand gains were achieved through our merchandising capabilities and strategy with targeted promotions at the right time of the week, during the right time of the year and for the right customer.
The investments we've made have allowed us to capitalize on demand that historically propelled our core business while attracting and capturing an even larger share of leisure demand.
While our most loyal Choice Privileges members continue to spend more at our hotels during the third quarter, we were also successful in appealing to those who are new to our brands, increasing their revenue contribution as compared to 2019 levels.
We also see continuing momentum in our business travel trends, with anticipated additional runway for growth.
We've continued to witness sequential quarter-over-quarter increases in our business travel bookings in the third quarter of 2021, with overall business performance similar to 2019 levels.
As a company with a strong emphasis on a customer-first approach, Choice is always looking for innovative ways to better serve the changing needs of today's consumers and anticipate the expectations of the guest of tomorrow.
For example, we are the first lodging company to launch a collaboration with Bakkt a trusted digital asset marketplace, enabling us to cater to guests with more currency options and more ways to redeem this currency.
Our more than 50 million Choice Privileges loyalty members can now unlock new redemption opportunities by converting their rewards points to cash and then use it to buy Bitcoin, transfer their points to a friend or even redeem them online or in-store anywhere, Apple Pay or Google Pay is accepted.
Turning now to our franchisee business delivery and demand for our brands.
In addition, we drove growth as compared to 2019 and 2020 through increased revenue contribution in the third quarter from choicehotels.com and other proprietary digital channels.
Business delivery through these channels significantly improves our owners' profitability as they deliver strong rates at the lowest cost.
As a result, these channels remain a key focus area for enhancing our value proposition.
With such a powerful value proposition, it is no surprise why Choice maintains an industry-leading franchisee voluntary 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 and our record outperformance, we also continue to experience demand for new franchise contracts.
In the third quarter, we awarded 89 new domestic franchise agreements, a 10% increase over the same period of 2020.
Specifically, we're very pleased to see that demand for our new construction brands in the third quarter increased by over 50% year-over-year.
And we are also excited to announce that our WoodSpring brand expanded internationally at the end of October, entering the Canadian market with a more than 15 unit commitment from a well-known developer and operator.
In addition, a team within our development and franchise service departments that is fully dedicated to driving diverse ownership of Choice franchise hotels among underrepresented and minority owners has awarded 18 franchise contracts year-to-date through September, bringing the total agreements executed to over 280 since the program began over 15 years ago.
I'm proud to say that more than half of the 18 agreements this year were awarded to women entrepreneurs.
None of these accomplishments would have been possible without the resilience and hard work of our dedicated associates.
We are committed to continuing to invest in and support our associates, and we are proud to be the hotel industry's only company to recently earn recognition as a Best Work-life Balance Employer by Comparably.
In closing, I'm confident in our continued ability to create value and deliver results for our owners and shareholders through our effective strategic investments, impressive performance and award-winning culture centered around diversity, equity and belonging.
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 some additional insights on our third quarter results, update you on our liquidity profile and capital allocation and share our thoughts on the outlook for what lies ahead.
As we discussed in the previous quarter, we are comparing our financial performance and RevPAR results to 2019, which we believe offers a more meaningful basis for analyzing trends as the prior year's quarterly results were significantly impacted by the pandemic.
For third quarter 2021 as compared to the same period of 2019, total revenues, excluding marketing and reservation system fees, were $166.5 million, an 8% increase.
Adjusted EBITDA rose 18% and to $133.2 million, driven by improving RevPAR performance, revenue intense unit growth and strong effective royalty rate growth, coupled with continued cost discipline.
Our adjusted EBITDA margin expanded to 80%, a rise of seven percentage points.
And as a result, our adjusted earnings per share were $1.51 in for the third quarter, an increase of 10% versus 2019.
Let's now turn to our three key revenue levers beginning with royalty rate.
Our effective royalty rate remains a significant source of our revenue growth.
The company's domestic effective royalty rate increased by eight basis points year-over-year to approximately 5% compared to the third quarter of 2020.
This performance reflects the continued strengthening of the value proposition we provide to our franchise owners, their continued interest in being affiliated with our proven brands and the promising prospects in our pipeline.
It also provides further validation of our long-term past, current and future investments on behalf of our franchisees.
We expect to maintain the current growth trajectory of this lever for full year 2021 and grow at our historical rate in the future as owners continue to seek Choice Hotels' proven capabilities of delivering strong top line revenues that maximize return on investment while helping them reduce their total cost of ownership.
Our domestic systemwide RevPAR outperformed the overall industry by 16 percentage points for the third quarter, increasing 11.4% over 2019.
Specifically, our average daily rate grew by nearly 9%, and our occupancy levels increased by nearly two percentage points compared to the same quarter of 2019.
Our third quarter results showed that we continue to outpace the primary chain scale segments in which we compete as reported by STR by six percentage points versus 2019.
Importantly, our strong RevPAR trends have continued into the fourth quarter.
As you know from our prior calls, 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.
The investments we've made continue to pay off as these strategic segments have enabled us to materially outperform the industry in RevPAR growth and achieve gains versus our local competitors.
Let me highlight just a few impressive performance achievements for our brands in the third quarter.
Just a reminder, we're comparing the growth figures with the same period of 2019.
Our WoodSpring brand achieved 23% RevPAR growth, reaching an average occupancy rate of nearly 86% and experiencing an 11% increase in average daily rate.
Ascend Hotels saw their growth in average daily rate of over 17% and outperformed the upscale segment's RevPAR growth by over 20 percentage points.
At the same time, the Comfort family grew RevPAR by over 8% on reflecting a 9% increase in average daily rate.
Finally, both our Cambria and MainStay Suites brands captured 12 percentage points in RevPAR index gains versus their local competitors.
More specifically, our average daily rate and occupancy improved from the prior quarter, and our average daily rate index and occupancy index continue to increase compared to 2019 as a result of our investments in revenue management tools for our franchisees and the merchandising capabilities and strategy we have put in place.
Our third revenue lever is units and rooms growth, which benefits from the absolute size of our portfolio and the revenue intensity of the totals.
To ensure the quality of our brand portfolio over the long term, we continue to terminate underperforming economy hotels at the bottom end of the portfolio as well as quality hotels that are unable to maintain the standards of a mid-scale brand.
We believe that these actions will not only ensure an even stronger brand portfolio over the long term, but we also expect these targeted terminations to be an opportunity for royalty revenue growth as we plan to replace these hotels with higher quality and more revenue-intense units.
Nevertheless, we continue to grow the overall size of our domestic franchise system.
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 by 2% and rooms by 2.6% year-over-year.
Our developers are increasingly optimistic about the long-term fundamentals of the lodging industry.
In fact, 1/3 of total domestic franchise agreements awarded in the third quarter were for new construction contracts representing an increase of more than 50% versus the same quarter of the prior year.
At the same time, demand for our conversion brands year-to-date through September increased by 25% year-over-year.
Let me share a few highlights on specific brands.
The Ascend Hotel Collection leads the industry as the first launch and today, the largest soft brand expanding its domestic room count by 27% year-over-year.
At the same time, Clarion Point has nearly doubled its portfolio year-over-year ending the third quarter with nearly 35 hotels open in the U.S. and 15 additional hotels awaiting conversion this year.
Our MainStay Suites mid-scale extended-stay brand portfolio expanded to nearly 100 domestic hotels open, representing more than 30% unit growth year-over-year.
And finally, our suburban extended stay portfolio of 70 domestic hotels open experienced 13% year-over-year unit growth.
Now a few words about our liquidity profile and an update on capital allocation.
As a result of our strong performance, the company has an even stronger liquidity position.
More specifically, at the end of the third quarter of 2021, the company had over $1 billion in cash and available borrowing capacity through its revolving credit facility.
We are also pleased to report cash flow from operations of $142.8 million for the third quarter 2021, a 53% increase versus the third quarter 2019.
Today, our gross debt-to-EBITDA leverage levels remains at the low end of our target range of three to 4 times.
At the end of third quarter 2021, our net debt-to-EBITDA leverage level was at 1.8 times.
These impressive results combined with our strong liquidity and confidence in our ability to generate strong levels of cash, leave us well positioned to continue to grow our business and return excess cash flow to shareholders well into the future.
Year-to-date through October, we have returned over $35 million back to our shareholders in the form of cash dividends and repurchases of our common stock.
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.
Finally, let's turn to our expectations for what lies ahead.
We currently expect full year domestic RevPAR to surpass 2019 levels and grow at approximately 1% as compared to full year 2019.
Assuming the broader RevPAR and economy recovery trends continue, we now expect to see our 2021 adjusted EBITDA exceed 2019 levels and range between $382 million and $387 million, even with planned incremental investments in the fourth quarter.
Our view is reinforced by our third quarter results which extend our strong year-to-date financial performance, broader macro trends 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 February during our next earnings call.
In closing, we remain confident in our long-term strategic approach and resilient business model, coupled with our disciplined capital allocation strategy and strong balance sheet, we believe these strengths will allow us to further capitalize on growth opportunities and drive outsized returns for years to come.

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q3 adjusted earnings per share $1.51 excluding items.
q3 revenue rose 4 percent to $323.4 million.
domestic revpar for 2021 expected to surpass 2019 levels and grow at approximately 1%, as compared to full-year 2019.
adjusted ebitda for 2021 is expected to exceed 2019 levels and range between $382 million and $387 million.

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