Choice posts record quarterly revenue

NORTH BETHESDA, Maryland — Choice Hotels International posted record quarterly revenue despite -2.5% domestic RevPAR growth as part of its third-quarter earnings.

Choice also raised its full-year domestic 2024 RevPAR guidance by 100 basis points at the midpoint (from -2% to -1%), kept its domestic net-unit growth unchanged (approximately 2%) and also increased its guidance on adjusted EPS ($6.70-$6.87) and adjusted EBITDA ($590-$600 million).

Most of the company’s other third-quarter metrics also finished above expectations, including total gross fees ($151.2 million); effective royalty rate (5.05%); adjusted EBITDA ($177.6 million, a quarterly record), adjusted net income ($106.2 million, a quarterly record) and adjusted EPS ($2.23).

“Choice Hotels generated another quarter of record financial performance, demonstrating the successful execution of our growth strategy and giving us the confidence to raise our full-year guidance,” Choice President and CEO Patrick Pacious said in a news release. “We accelerated our unit growth, increased our global pipeline to new levels, expanded our international reach, and significantly grew the size of our rewards program. The positive momentum we have created and the strength of our versatile business model bolsters our ability to continue to deliver sustained top-line and earnings growth while returning significant capital to shareholders.”

Choice’s domestic pipeline increased to nearly 6,300 hotels, representing 495,000 through Q3, including a 1.3% increase for its domestic upscale, extended stay, and midscale portfolio year-over-year. The company’s extended-stay portfolio has grown 11.2% YOY. Choice’s international rooms pipeline increased by 21% YOY.

Conversions also continue to be a major emphasis for the company as its domestic conversions increased 54% YOY and international conversions increased 68% YOY.

Net unit growth was up 1.2% YOY and 0.6% from the previous quarter, with international being the growth driver (+3.8% YOY and +2 % from Q2).

What the analysts said

Analyst Michael Bellisario of R.W. Baird said the third-quarter earnings were beat on all lines.

“Full-year guidance is increasing mostly to reflect the pass-through of the 3Q24 beat, but the implied RevPAR outlook for 4Q24 is well above our forecast (likely includes some hurricane-related boost, in our view),” he said. “Net, net – not the cleanest of “beat and raise” prints, but investor expectations/sentiment remain quite low/negative, in our opinion.”

Other Q3 earnings highlights

• The company repurchased 2.9 million shares of common stock for $352.9 million year-to-date through Q3, representing over 6% of the company’s market capitalization at the beginning of the year.
• Choice opened 190 domestic hotel openings through the third quarter. Of the domestic franchise agreements executed for conversion hotels over the trailing 12 months, there was a 17% increase over the prior year's comparable period.
• Through Q3, Choice had a total available liquidity of $675.6 million, including available borrowing capacity and cash and equivalents. Over the past year, the company generated cash flows from operating activities of $122.9 million and $236.5 million, respectively.