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Text: They will be joined by Scott Oaksmith, Senior Vice President, Real Estate & Finance.
We appreciate you taking the time to join us and hope you are all well.
This week we lost a leader who had a major impact on our industry and on the lives of many who call the travel industry their home.
On behalf of all of us at Choice Hotels, I'd like to express our deepest condolences to Arne Sorenson's family and to the many people across our industry who are inspired by his personal and professional leadership.
We will all miss him.
As we look back, 2020 was a year unlike any other, a year that challenged leaders and companies around the globe and Choice Hotels was no exception.
But it was the collective response, dedication and resilience of our franchise owners, their hotel staff and Choice associates that made all the difference for our Company and franchise system.
During a year of significant challenges brought upon the industry by the pandemic, Choice Hotels achieved a number of key milestones that demonstrate our long-term strategy of growing our presence in more revenue-intense segments and locations is working.
2020 was the year that our flagship Comfort brand returned to unit growth after its successful transformation, increasing its domestic system size by 2%.
As we celebrate Comfort's 40th anniversary this year, the success of the brand is proof positive that we invest for the long term.
And as you can see by both unit growth and impressive RevPAR performance, those investments are paying off and position the brand for growth into the future.
2020 was also the year our extended stay segment rapidly expanded by 44 units to nearly 450 domestic hotels and the domestic pipeline for that segment alone reached over 315 hotels.
The segment now represents nearly 8% of our total domestic portfolio and strong developer interest reaffirms that our strategic commitment and continued investments in this highly cycle-resilient segment are driving a competitive advantage.
And finally, 2020 was a year of continued growth for our upscale portfolio, highlighted by an 8% growth of Cambria Hotels.
The brand now has a pipeline of nearly 80 hotels and is expected to accelerate its unit growth in 2021.
Consumer confidence in our upscale products drove the brand's outperformance versus their local competitors and is a proof point to current and prospective owners of Choice Hotels' value proposition in the upscale segment.
The results we achieved confirm our strategic focus to grow in these segments, which will further fuel the long-term revenue intensity of our system.
I'm also pleased to report that we have continued to drive RevPAR results that significantly outperformed the industry in the fourth quarter and 2020 as a whole.
Our domestic, systemwide year-over-year RevPAR change surpassed the industry by nearly 17 percentage points for the full year, declining 30.7% from 2019.
Since the onset of the pandemic in mid-March, our performance has achieved sequential quarter-over-quarter improvement with our fourth quarter domestic systemwide RevPAR declining 25.1% from the same quarter of 2019.
Our results continued to outpace the overall industry and our chain scales segments.
In fact our outperformance expanded in the fourth quarter.
In 2020 Choice Hotels grew RevPAR faster than our local competitors, increasing RevPAR index by over 5 percentage points through notable lifts in weekday and weekend RevPAR index.
Our RevPAR index growth strengthened in the fourth quarter of 2020 and continued to improve through year-end.
Throughout 2020 we also continued to grow our effective royalty rate, a reflection of the improving value proposition we deliver to our franchise owners.
Our success is highlighted by Choice Hotels' key differentiators, including the strength of our proven and well-distributed brands, our customer profile and the continued resilience of leisure travel demand, our powerful reservations delivery system and loyalty program and our franchise-focused business model.
These four attributes, along with our relative outperformance versus the industry, reaffirmed our confidence in our strategy.
Therefore, in the fourth quarter we decided to accelerate certain strategic investments in our product portfolio and value proposition capabilities to position the Company for continued success in the future.
Consumer and developer demand for our products encouraged us to invest in new prototype development and brand initiatives in our key strategic segments.
We also advanced our pricing optimization and merchandising capabilities to further enable our owners to reach their target customers and effectively drive top line revenue to their hotels.
Turning to 2021, we expect our momentum to continue into the first quarter, allowing Choice Hotels to further outperform the industry in the current environment.
We recognize that a high degree of uncertainty remains and our Company, like the hotel industry overall, continues to be significantly affected by the pandemic.
Nevertheless, we are observing positive signs that give us confidence for 2021 and beyond.
First, given the vaccine rollout we believe consumers are beginning to feel more optimistic about future travel prospects.
In fact, we've observed that our customers are beginning to plan their travel further in advance as noted by improvements in our 31-day-plus bookings since November.
Furthermore, we expect the trend of American vacationing domestically and taking road trips will continue.
Second stimulus checks from the December federal relief package, the prospect of additional government aid this year and high household savings point to a continued recovery for our small business owners and middle class consumers, our core customers.
Finally, and as discussed on our last call, we believe that long-term consumer trends such as remote work and virtual learning will likely continue to provide Americans flexibility in where and when they travel for leisure.
We feel confident that our core strengths, combined with the tactics we deployed in response to the pandemic, have positioned us well to continue to capture and increase our share of travel demand over the long term.
Our long-term strategy of growing the right brands in the right segments in the right locations, while enhancing our distribution capabilities, continues to pay off.
In the fourth quarter, we generated significant quarter-over-quarter growth in our proprietary revenue contribution mix which drove our full-year results to match our prior year's strong performance.
More specifically, our website contribution increased by 150 basis points, ending the year with the three strongest months in 2020 while our loyalty program increased its contribution by 280 basis points quarter-over-quarter.
In addition, we continued to benefit from our most loyal customers Choice Privileges Diamond Elite members who contributed an even higher percentage of overall revenue for full year 2020 as compared to the prior year.
These results have helped drive RevPAR index share gains of over 600 basis points in the fourth quarter versus our local competitors, up significantly across all location types as reported by STR.
In the past 46 consecutive weeks through mid-February, we've observed significant RevPAR share gains against the competition, giving us further optimism about our future revenue trajectory.
I'll now provide a brief update on our key brand segments.
Our mid-scale brands represent two-thirds of our domestic portfolio, nearly half of the franchise agreements executed last year and over half of the total domestic pipeline.
All of our select service mid-scale brands achieved year-over-year RevPAR index gains driven by occupancy and average daily rate index gains versus their local competitors through the fourth quarter and full year.
We're especially pleased with the performance of our Comfort portfolio where our efforts to transform the brand have led to RevPAR index gains versus its local competitors of nearly 9 percentage points and a RevPAR change that was over 10 percentage points more favorable than the upper mid-scale chain scale in the fourth quarter.
At the same time, we continue to add new construction hotels to the Comfort pipeline and attract high quality franchise conversion agreements to the brand that will fuel revenue intense growth in the near term.
And finally, Clarion Pointe, a relatively new conversion brand extension to our Clarion portfolio, ended the year by opening the doors of its 25th hotel in the US, a fourfold increase of its portfolio since the prior year.
The brand now has over 50 domestic hotels open or in the pipeline.
Moving onto our extended stay segment where we nearly quadrupled the size of the portfolio during the last five years.
Once again, our purpose-built brands tailored for long-term guests outperformed the competition in this cycle-resilient segment.
Our WoodSpring Suites brand achieved an average occupancy rate of 72% for full year 2020 and experienced year-over-year RevPAR growth of 2% in the month of December, a truly remarkable achievement given the current environment.
The brand's pipeline continues to expand and reached 150 domestic hotels at the end of 2020.
At the same time our Suburban extended stay brand experienced year-over-year occupancy gains in the fourth quarter and an over 40% increase in franchise agreements activity for the full year.
Our MainStay Suites mid-scale extended stay brand captured more than 20 percentage points in RevPAR index gains versus its local competitors both in the fourth quarter and full year and developer interest is growing.
Most recently we signed and on-boarded the largest multi-unit transaction in MainStay's history, 15 units which significantly increased the brand's presence in the segment.
Last year alone, the brand's portfolio expanded to 90 domestic hotels open and over 20% increase year-over-year and its pipeline has swelled to more than 140 domestic properties.
For full year 2020 Choice Hotels awarded nearly 110 extended stay franchise agreements, validating our strategic focus on this segment for both new construction and conversion opportunities.
Given these results, we remain optimistic about the growth potential of our extended stay portfolio.
I'd now like to turn to our upscale portfolio whose choicehotels.com contribution increased by nearly 500 basis points year-over-year in the fourth quarter and marked the strongest quarterly revenue share in 2020.
Our upscale Cambria Hotels brand continues its ongoing momentum, growing its portfolio size by 8% and its pipeline to nearly 80 domestic hotels, 19 of which were already under construction at year-end.
Developer interest in the brand remains high with 16 franchise agreements executed for the full year, including one-third of those awarded in the fourth quarter.
The Ascend Hotel Collection continues to lead the industry as the first and largest soft brand.
With nearly 300 hotels open around the globe Ascend Hotels outperformed the upscale segment in year-over-year fourth quarter RevPAR change by over 20 percentage points.
The brand also achieved RevPAR index gains of nearly 13 percentage points against its local competitors for the full year, further enhancing the brand's attractiveness to developers looking for a smart conversion opportunity.
Choice Hotels brands remain in demand despite the challenging environment aided by our strong value proposition and continued outperformance.
Developers continue to choose our brands as they seek to improve their operations and boost the long-term value of their hotels.
For full year 2020 we awarded 427 new domestic franchise agreements of which over 70% were for conversion hotels.
Demand continued to accelerate throughout the year with over one quarter of the total agreements executed in the month of December.
In the fourth quarter alone, we executed 195 domestic agreements, of which over 70% were for conversions.
Additionally, our developers remain optimistic about the long-term fundamentals of lodging industry.
In fact, nearly 30% of total domestic franchise agreements we awarded in 2020 were for new construction contracts.
Our emerging markets development team, which is dedicated to driving diverse ownership of Choice franchised hotels among underrepresented minority owners awarded two dozen franchise contracts in 2020 including the largest minority owned multi-unit franchise agreement in the program's history.
These results and critical initiatives are major drivers for our optimism in the years ahead.
We're also committed to enhancing our value proposition by growing our platform business.
We recently announced the further expansion of our attractive upscale platform with the addition of 22 Penn National Gaming casino resort properties, representing nearly 7,000 rooms joining our Ascend Hotel Collection.
This strategic agreement will offer more than 47 million Choice Privileges members the opportunity to earn and redeem points at these Penn properties by booking their stay directly on choicehotels.com.
Our focus remains centered on franchisee profitability through reducing the cost of ownership at the hotel level and driving top line outperformance versus competitors.
Our franchisees are at the core of everything we do and we are committed to helping them along the road to economic recovery.
Throughout 2020 we conducted 49,000 individual consultations with hotel owners and operators that helped our franchisees remain open and continue serving guests.
We've also rolled out offerings like grab-and-go breakfast, housekeeping on-demand and contactless check in that further lowered franchisees' total cost of ownership, while ensuring appropriate safety precautions for our owners, hotel staff and guests.
We are particularly pleased that legislation we advocated for became law in December, providing additional relief and stimulus to small businesses like our franchisees.
Specifically, we supported the establishment of a second draw loan program for existing Paycheck Protection Program borrowers that were hit hard by the pandemic, the extension and improvement of the program itself and increased flexibility for lenders.
We will continue to advocate with the new Congress and administration for additional relief measures aimed at assisting small businesses and providing targeted help for the travel industry.
In closing, I'm confident that these trying times have made us even more resilient and agile as a company.
Looking beyond the crisis, I am convinced we will emerge even stronger over the long term.
Our long-term view, resilient business model, proven brands and strong balance sheet will help us to further capitalize on growth opportunities in 2021 and beyond.
With that, I'll hand it over to our CFO.
I hope that you and your families are all well and healthy.
Today, I'd like to provide additional color around our fourth quarter and full year results and share updates regarding our balance sheet, liquidity and approach to capital allocation.
I'll close with our thoughts on the outlook for the road ahead.
Taking a closer look at our results, for full year 2020 total revenues, excluding marketing and reservation system fees, were $371.5 million, $88 million of which was generated in the fourth quarter and adjusted EBITDA totaled $241.1 million, $54.7 million of which was generated in the fourth quarter.
And our adjusted EBITDA margin for full year 2020 was 65%.
As a result, our adjusted earnings per share were $2.22 and $0.51 for full year 2020 and the fourth quarter respectively.
Let me now dive into our three key revenue levers, beginning with RevPAR.
Our domestic systemwide RevPAR outperformed the overall industry by nearly 17 percentage points for the full year, declining 30.7% from the prior year.
Our fourth quarter 2020 domestic systemwide RevPAR surpassed the industry by nearly 26 percentage points, declining 25.1% from the same period of the prior year and improved by 370 basis points from the third quarter.
In addition, our results exceeded the primary chain scale segments in which we compete as reported by STR by over 5 percentage points for full year 2020 and nearly 8 percentage points for the fourth quarter.
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.
In the fourth quarter these strategic segments helped us achieve material year-over-year RevPAR outperformance against our respective industry chain scales and drove gains versus our local competitors.
Specifically, our upscale portfolio increased relative to its local competitive set by over 12 percentage points.
Our extended stay portfolio outperformed the industry's RevPAR change by an impressive 49 percentage points and grew versus its local competitive sets by 14 percentage points.
And finally the RevPAR change for our mid-scale and upper mid-scale portfolio exceeded these segments by 10 percentage points.
For full-year 2020 all of our select service brands achieved significant RevPAR index gains versus their local competitors with each of our upscale and extended stay brands experiencing share gains of more than 10 percentage points.
In fact, we were able to increase our overall RevPAR index against local competitors by over 600 basis points in the fourth quarter through notable lifts in both continued occupancy gains and our franchisees' ability to maintain rate integrity.
More specifically, our average daily rate index increased 2.4 percentage points.
We expect that our recent investments in these capabilities will further enhance revenue management for our franchisees.
Despite the unprecedented circumstances, we experienced positive unit and room growth year-over-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 by 1.8% year-over-year.
We expect our unit growth rate of these key segments to accelerate beyond 2020's growth rate.
We're especially pleased to report that following the completion of its brand transformation the Comfort brand family returned to growth in 2020, increasing the number of domestic units by 2% year-over-year.
The brand reached over 260 hotels in its domestic pipeline one quarter of which are hotels awaiting conversion, which we believe will fuel the brand's growth in the near term.
Demand for our conversion brands has only increased, aided by our strong value proposition and recent outperformance.
In fact, the number of our conversion agreements executed and opened in 2020 was more favorable than we previously projected when accounting for the impact of the pandemic.
And additionally we awarded a higher number of conversion agreements in the month of December than previously expected.
These trends give us further optimism for continued growth in 2021 and beyond.
Our 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 increased 7 basis points year-over-year to 4.98% in the fourth quarter and grew 8 basis points for full year 2020 compared to the prior year.
We expect to maintain the historical growth trajectory of this lever in 2021 as owners seek Choice Hotels proven capabilities of delivering strong top line revenues to their hotels while helping them maximize return on investment.
I'd now like to turn to our balance sheet and our capital allocation strategy.
Throughout 2020, we transformed our cost structure, exercised prudent discipline around capital allocation and effectively allocated resources to drive top line outperformance, all of which allowed us to improve our cash position and further bolster our liquidity.
We successfully navigated the impact of the pandemic without having to renegotiate debt covenants.
We refinanced a portion of debt to extend our debt maturity profile and capitalized on favorable credit markets to significantly reduce the effective cost of our borrowings.
In fact, we reduced our net debt by approximately $50 million during the fourth quarter and are pleased to report cash flow from operations of over $115 million for 2020, over $45 million of which was generated in the fourth quarter alone despite the historically lower seasonal demand environment.
Our cash and liquidity profile continued to be strong.
At the end of last year, the Company had approximately $835 million in cash and available borrowing capacity through its revolving credit facility.
Our strong results relative to the industry and the chain scales in which we compete since the onset of the pandemic as well as our adjusted SG&A cost savings of 21% realized throughout 2020 gave us confidence to make certain investments in the fourth quarter to position the Company for success in 2021 and beyond.
We will maintain our disciplined approach to managing operating expenses while investing for the long term and capitalizing on opportunities as travel demand recovers.
Our capital allocation philosophy remains unchanged, meaning we will continue to be disciplined stewards of capital and take steps that we believe maximize value for our shareholders.
Choice's primary objective has always been to increase organic growth by strategically investing back into the business.
In particular, our capacity and strong cash flows will allow us to strategically invest in capabilities to further strengthen our presence in more revenue-intense segments, enhance our franchisee value proposition and drive top line revenue through value-added programs and services we offer to our franchisees, guests and other travel partners.
We put a premium on balance sheet flexibility and we expect to continue to utilize our strong leverage position to invest in these growth opportunities.
Based on our demonstrated track record of success in our organic growth, we believe these internal investments will drive attractive returns for years to come.
We will continue to monitor the environment and evaluate capital returns to shareholders in the context of other investment opportunities, our leverage levels, market conditions and our overall capital allocation strategy.
The ultimate and precise impact of the pandemic on our business for 2021 and beyond remains largely unknown as is the exact trajectory of our industry's recovery.
While we are not issuing formal guidance today, we currently expect to see a sequential quarter-over-quarter improvement in RevPAR change in the first quarter 2021 versus both 2020 and 2019.
Our view is based on the following.
First, we are observing continued resilience of leisure demand, especially in drive-to locations and the Company continues to experience stronger year-over-year RevPAR change performance versus the industry and the chain scales in which we compete.
Second, despite entering an historically lower demand season, we are pleased that our first quarter domestic RevPAR change has continued the pattern of sequential quarterly improvement through mid-February.
In fact, our year-to-date 2021 RevPAR has declined by approximately 18% from the same period of 2020.
Finally, to date, we have seen little correlation between the rising COVID-19 cases in the fourth quarter and RevPAR change trajectory for our Company.
This along with optimism and consumer sentiment reflected by our 31-day-plus booking trends even before vaccines were widely distributed signals that consumers' desire to travel is climbing.
We will continue to evaluate the impact of COVID-19 across the business and we'll provide further updates in May during our next earnings call.
In closing, we remain optimistic that Choice Hotels is well positioned to succeed in 2021 and beyond and are confident in how we are managing the Company for the long term.
We continue to benefit from our resilient, primarily asset-light franchise-focused business model, which has historically delivered stable returns throughout economic cycles and provided a degree of cushion from market risks.
While we are not immune to the pressures faced by the industry, we believe that our long-term view, disciplined capital allocation strategy and strong balance sheet will allow us to continue to capitalize on opportunities during the recovery and drive outsized returns for years to come.
At this time, Pat and I would be happy to answer any questions.

user
q4 adjusted earnings per share $0.51.
domestic systemwide revpar decreased 25.1% for q4 2020.
not providing formal guidance for q1 or full year 2021 at this time.
choice hotels international - expects to see a sequential q-o-q improvement in revpar change for quarter ending march 31, 2021.

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