Choice Hotels' Q3 2025 Earnings Call: Contradictions Unveiled in RevPAR Recovery, International Growth, and Share Buyback Strategy

Business Commentary:

* Revenue and Earnings Growth: - Choice Hotels International reported record adjusted EBITDA of $190 million for Q3 2025, up 7% year-over-year. - The growth was driven by strength in higher revenue segments, increased occupancy in the economy transient segment, and strong international business performance.

• International Expansion and EBITDA Growth:
• Choice Hotels' international business achieved 35% growth in adjusted international EBITDA for Q3, expanding its portfolio by over 8% year-over-year to surpass 150,000 rooms outside the U.S.

• This growth was fueled by increased hotel openings and the expansion of its direct franchising business model.

• U.S. Extended Stay and Economy Segment Strength:

• The U.S. extended stay portfolio grew by 12% year-over-year, with openings significantly surpassing those of the previous year.

• The strength in this segment is attributed to strong demand from long-term projects, construction, and data center initiatives.

• Revenue Streams and Partnerships:

• Choice Hotels increased its partnership revenue by 19% year-over-year, driven by strong co-brand credit card fees and strategic partnership fees.
• This growth reflects the company's focus on enhancing franchisee-facing service offerings and strategic relationships.
  

Contradiction Point 1

RevPAR Recovery and Structural Issues

It pertains to the expected timeline and nature of RevPAR recovery, which is essential for forecasting the company's future financial performance and understanding the underlying market dynamics.

What is the long-term outlook for U.S. rooms growth adjusted for Westgate? What factors are driving growth or challenges in development and conversion environments? How should we assess the RevPAR recovery, and are structural issues cyclical or permanent? - Elizabeth Dove (Goldman Sachs Group, Inc., Research Division)

2025Q3: The cycle recovery is evident in economy transient Occupancy improvements. We expect robust RevPAR growth in future years, supported by favorable demographic trends and demand catalysts. - [Patrick Pacious](CEO)

What trends are affecting RevPAR guidance, and why is Choice lending to competitors? - Charles Patrick Scholes (Truist Securities)

2025Q2: We expect RevPAR trends to improve as the year progresses and to be back in positive territory for the second half. As we look further out, we're optimistic over the long term. We believe the fundamentals are still there for a strong recovery. - [Patrick S. Pacious](CEO)

Contradiction Point 2

International Rooms Growth and Driver Regions

It pertains to the expectations and drivers behind international rooms growth, which are essential for the company's expansion strategy.

What will drive international rooms growth in 2026, and which regions are key? - Dany Asad (BofA Securities, Research Division)

2025Q3: We expect significant international rooms growth, driven by Canada, Mexico, France, Spain, and China. - [Patrick Pacious](CEO)

What are your thoughts on international expansion opportunities? - Meredith Prichard Jensen (HSBC Global Investment Research)

2025Q1: International expansion is a key growth area, particularly in CALA and Canada. - [Patrick Pacious](CEO)

Contradiction Point 3

Share Repurchase Strategy

It highlights a shift in the company's share repurchase strategy, which impacts investor expectations and financial management.

What was the rationale for forming the Everhome joint venture and the decision not to buy back stock during the quarter despite significant price declines? - Michael Bellisario(Robert W. Baird & Co. Incorporated)

2025Q3: Share repurchases were not pursued due to the acquisition of the other half of Canada, which was deemed a higher priority for long-term value creation. - [Scott Oaksmith](CFO)

Can you provide more details on the other revenues from franchised and managed properties? - David Katz(Jefferies)

2024Q4: As we talked about the strong second quarter performance and it was part of that execution that allowed us to do some opportunistic share repurchases. - [Scott Oaksmith](CFO)

Contradiction Point 4

Economy and Midscale Segment Performance

It involves the performance and trends within the economy and midscale segments, which are crucial for understanding consumer behavior and company strategy.

What is the long-term outlook for U.S. rooms growth after adjusting for Westgate? What factors are driving growth or challenges in development and conversion environments? - Elizabeth Dove (Goldman Sachs Group, Inc., Research Division)

2025Q3: Outperformance is driven by business travel trends, with strong demand from resilient industries. - [Patrick Pacious](CEO)

Can you explain the strong performance in the economy and midscale segments? - Michael Bellisario (Baird)

2025Q1: Outperformance is driven by gendarmerie and national parks, as well as lower gas prices affecting travel choices. - [Patrick Pacious](CEO)

Contradiction Point 5

International EBITDA Contribution and Growth Potential

It involves the percentage contribution of international operations to EBITDA and the growth potential of the international business, which are crucial for understanding the company's global strategy and financial health.

What insights can you share on international rooms growth and which regions will drive it in 2026? - Dany Asad (BofA Securities, Research Division)

2025Q3: Our international business now represents $3 billion in gross rooms revenue, with a focus on improving value propositions and expanding royalty rates. - [Patrick Pacious](CEO)

What are the long-term expectations for international growth and how does the recent Canadian acquisition impact it? What percentage of EBITDA is currently contributed by international operations? - Daniel Brian Politzer (JPMorgan Chase & Co.)

2025Q2: Currently, international operations contribute about 6% to EBITDA, but growth opportunities are significant. - [Patrick S. Pacious](CEO)