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DATE
Thursday, April 30, 2026 at 11:00 a.m. ET
CALL PARTICIPANTS
- President & Chief Executive Officer — Patrick S. Pacious
- Chief Financial Officer — Scott E. Oaksmith
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TAKEAWAYS
- Revenue (excluding reimbursables) -- $217 million, up 3%, driven by global rooms growth and increased average royalty rate.
- International Revenue (excluding reimbursables) -- Up 63%, reflecting strong international expansion.
- Adjusted EBITDA -- $126 million versus $130 million, a decline attributed to timing of SG&A expenses.
- Adjusted Diluted EPS -- $1.07 compared to $1.34, with the decline impacted by a temporary tax rate adjustment.
- U.S. Gross Room Openings -- Nearly 6,000, representing a five-year high and a 32% increase in openings.
- U.S. Franchise Agreements Awarded -- Up 65%, with roughly 60% expected to open within the year, boosting near-term visibility.
- Net Exits (U.S.) -- Down 52%, reaching the lowest level since 2023 and improving sequentially.
- Global Net Rooms Growth -- 1.7% year over year, led by a 2.5% increase in higher-revenue segments and a 37% jump in room openings.
- U.S. Conversion Room Openings -- Increased 59%, with conversions expected to drive over 80% of all 2026 openings.
- International Net Rooms Growth -- 13% year over year, with Canada delivering over 30% growth and a 55% pipeline increase.
- RevPAR (U.S. excluding hurricane-affected states) -- Up 1.8%, driven by occupancy gains; globally, RevPAR declined 80 basis points mainly due to lapping prior-year hurricane impact.
- Extended Stay Segment -- Achieved 11 consecutive quarters of double-digit rooms growth and now comprises over 40% of U.S. pipeline.
- Franchise Agreements in Midscale/Economy Transient -- Up 38%, while the economy transient pipeline rose 26% sequentially.
- Choice Privileges Loyalty Program -- Surpassed 75 million members, up 7%, with loyalty contribution lifting over 300 basis points in March.
- Small and Mid-sized Business Revenue -- Increased 14%, while group revenue advanced 9%.
- U.S. Average Royalty Rate -- Grew by 11 basis points, reflecting mix shift toward higher-revenue brands.
- Development Outlays -- Reduced by 51%, with anticipated net capital outlays of $20 million to $45 million for the full year, about 70% lower at midpoint compared to 2025.
- Operating Cash Flow -- Used $23.2 million, impacted by working capital timing and higher franchise agreement acquisition costs from a 37% increase in room openings.
- Free Cash Flow Conversion Target -- Company reiterated its goal to achieve 60%-65% conversion rate, excluding franchise agreement acquisition cost, “over the next several years.”
- Shareholder Returns -- $75 million returned year-to-date through March 31, including $62 million in share repurchases, with 2.3 million shares remaining under current authorization.
- Full-Year 2026 Guidance Maintained -- Adjusted EBITDA $632 million to $647 million and adjusted diluted EPS $6.92 to $7.14; guidance excludes impact from new M&A or post-March 31 repurchases.
- Capital Recycling -- Generated $25 million of proceeds as capital deployment declined, and net leverage at quarter-end was 3.2 times adjusted EBITDA.
- AI Technology Deployment -- The EasyBid platform improved group RFP response time by approximately 30% and increased conversion rates by roughly 250 basis points; technology platforms are being quickly adopted systemwide.
SUMMARY
Choice Hotels International, Inc. (CHH 15.58%) reported a sequential inflection in U.S. net rooms growth, supported by stronger gross openings and sharply reduced exits, reflecting a rapid acceleration in franchisee demand and conversion activity. The company’s capital intensity declined meaningfully as large-scale investments in Cambria and Everhome wound down, with management projecting a material step-down in 2026 development outlays and an increased focus on capital recycling to support shareholder returns. Extended stay and international segments continued to serve as differentiated growth engines, with Canada delivering its highest net rooms growth in over a decade and Choice Privileges membership rising notably after recent program enhancements. Management attributed weakness in first quarter RevPAR primarily to lapping last year’s hurricane-related impacts, noting positive occupancy trends and reporting preliminary April improvement, and confirmed expectations for U.S. net rooms growth to return to positive territory within the year. Technology innovation—including enterprise-scale AI rollout and cloud infrastructure—delivered measurable gains in franchisee economic performance, accelerated business processes for group bookings, and underpinned ongoing average royalty rate expansion.
- Management stated, “97% of rooms in our global pipeline are in higher-revenue brands, which we expect to be approximately 1.7 times more accretive than our current portfolio.”
- The company expects to repurchase $175 million to $225 million of shares in 2026, supported by anticipated free cash flow and liquidity of $474 million at quarter end.
- Leadership expressed confidence that, as new construction recovers, net unit growth “I think it is possible to get back to those levels that you are talking about when the new construction environment comes back,” emphasizing the conversion-led business model as a current structural advantage.
- Canadian performance post-transition to a direct franchise model included RevPAR up over 5%, rooms growth of 3.5%, and a 55% pipeline increase.
INDUSTRY GLOSSARY
- Conversion-led development: Growth strategy emphasizing the franchising of existing hotels (conversions), rather than new construction, prioritizing speed and capital efficiency in net unit expansion.
- Key money: Capital provided to franchisees or hotel owners as incentive to secure conversions or signings, commonly used in competitive franchise deals.
- Four-wall EBITDA: Property-level EBITDA, referring specifically to earnings performance at the individual hotel level before corporate overhead.
- STR numbers: Industry-standard performance metrics provided by STR, a global hospitality analytics supplier, used for market share and RevPAR benchmarking.
Full Conference Call Transcript
Patrick S. Pacious: Thank you, Allie, and good morning, everyone. We appreciate you joining us today. We delivered first quarter results in line with our expectations, signaling an inflection point in underlying trends toward rooms growth, RevPAR improvement, and lower capital intensity. The work we have done over the past several years has now positioned us as a more accretive, asset-light growth model with significantly lower capital intensity and stronger unit economics, which is reflected in the continued expansion in our average royalty rate. Taken together, this supports more consistent earnings growth and increasing returns to shareholders. At Choice Hotels International, Inc., our strategy is built on a straightforward, repeatable model.
Improving franchisee economics drives demand and rooms growth, which we convert into higher-quality earnings and free cash flow. We reinvest that cash in high-return, capital-light opportunities and return excess capital to shareholders in a disciplined and increasingly predictable way. We are now seeing this translate more clearly into our results. First, U.S. net rooms growth is inflecting and improving sequentially, with gross openings up 32% year over year, first quarter hotel openings at a five-year high, and exits at their lowest level since 2023. Our U.S. pipeline is also expanding sequentially, providing greater visibility into future growth. At the same time, our international portfolio continues to scale as an additional growth engine.
Second, franchisee unit economics are improving, driven by stronger revenue delivery and lower hotel development and operating costs. This is resulting in stronger returns across the system, reflected in our strong voluntary franchisee retention rate and continued expansion in our average royalty rates, with improving RevPAR now flowing through a higher-quality, more revenue-intense system. And third, as we move beyond a period of elevated investment that has achieved its strategic objectives, capital intensity is now declining materially, with development outlays coming down. As market conditions continue to improve, we intend to accelerate capital recycling, further enhancing our ability to return capital to shareholders and drive a more consistent capital return profile.
We were pleased with the quarter, and in the 46 states not impacted by hurricanes, RevPAR was up 1.8% year over year, driven by gains in occupancy. Looking ahead, as we move past last year's hurricane impact, demand continues to benefit from tax refunds and is expected to be further supported by event-driven travel this summer such as the FIFA World Cup and the U.S. 250th anniversary. More broadly, we are seeing strength across our core segments, supported by several structural trends that are already driving performance today. Affordability remains a key factor in travel decisions, aligning directly with our value-oriented brands and core middle-income customer. We are seeing continued strength in small and mid-sized business travelers and group demand.
Employment growth continues in sectors such as healthcare, construction, and utilities, driving workforce-based travel from customers who rely on our hotels. In addition, repeat stays from the rising number of retirees and road trips provide a stable base of demand. We are also seeing a shift in guest expectations toward accommodations that feel more like home, supporting strong demand for our extended stay portfolio. Importantly, these are not future tailwinds. They are trends we are seeing in the business today, contributing to a stable and diversified demand base across cycles. So when you step back, the story is clear.
Room growth is inflecting, unit economics are improving, and capital intensity is declining, positioning us to deliver more consistent earnings growth over time. Importantly, we believe we are uniquely positioned to capture demand in segments where we have a structural advantage. Let me build on that by focusing on what is driving the durability of our room growth. Our growth is driven by a conversion-led development model where we have a clear advantage in speed and capital efficiency; a brand portfolio aligned with both guest demand and owner returns; and improving unit-level economics that continue to drive developer demand across our core segments. Globally, we grew rooms by 1.7% year over year, with growth improving sequentially.
In the U.S., developer demand remains strong, with franchise agreements awarded up 65% year over year in the first quarter. We have made meaningful progress in reducing the time from signing to opening, enabling faster revenue generation. In the first quarter, U.S. conversion room openings increased 59% year over year, and approximately 60% of franchise agreements executed in the quarter are expected to open this year, providing strong near-term visibility into growth. Importantly, a meaningful portion of our openings come from conversions that never appear in our quarter-end pipeline, underscoring the speed of our model. We also focus on segments where we are structurally advantaged.
Extended stay remains a key growth driver, with 11 consecutive quarters of double-digit rooms growth, and now represents more than 40% of our U.S. pipeline. Supported by strong unit-level economics, a dedicated extended stay field organization, and a leading hotel pipeline, we are well positioned to extend our leadership in this category. In midscale and economy transient, we are seeing strong developer interest, with U.S. franchise agreements awarded up 38% year over year and pipelines continuing to build, driven by improving unit-level economics and owner returns.
As part of our focus on enhancing franchisee returns, we have reduced the cost to build and convert hotels, including lowering prototype costs by up to 25% across key midscale brands and simplifying property improvement requirements. A clear example is Country Inn & Suites by Radisson, where the redesigned lower-cost prototype is driving renewed momentum with franchise agreement growth of 50% year over year for the brand. In economy transient, our portfolio strategy continues to improve system quality and guest satisfaction, supporting continued developer engagement with the pipeline increasing 26% sequentially. International continues to scale as an important growth engine, with net rooms up 13% year over year in the first quarter.
In Canada, we are seeing strong early returns following last year's transition to a direct franchise model, with net rooms growth of over 30%—the strongest performance in more than a decade—and a pipeline up 55% year over year, alongside improving revenue and guest satisfaction. As we continue to enhance the Choice Hotels International, Inc. value proposition internationally, we see a meaningful opportunity to drive both system growth and stronger franchise economics over time. Our hotel development pipeline remains a powerful engine for future earnings growth. Importantly, 97% of rooms in our global pipeline are in higher-revenue brands, which we expect to be approximately 1.7 times more accretive than our current portfolio.
Taken together, these trends reinforce our confidence in our ability to deliver durable global net rooms growth, supported by a structurally advantaged portfolio, a high-quality and more accretive pipeline, and a development model that enables consistent, capital-efficient expansion. Turning to unit economics, our growth is supported by structurally improving franchisee economics driven by enhancements to our revenue generation engine and lower franchisee operating costs. Importantly, the mix of customers we are attracting is becoming more valuable over time. The segments where we are growing—business travelers and groups—generate higher spend per stay, while loyalty is driving more repeat stays. Together, this translates into stronger franchisee economics. Loyalty is a key driver of our higher-quality demand and customer lifetime value.
Our Choice Privileges program now exceeds 75 million members, up 7% year over year. Earlier this year, we launched the next evolution of the program, building on the strong momentum we delivered last year through continued enhancements designed to further strengthen engagement and drive repeat stays. We are already seeing this translate into our results, with loyalty contribution increasing over 300 basis points in March year over year, as new members generated higher revenue per member than prior-year cohorts. In business and group travel, we continue to see strong performance, with small and mid-sized business revenue up 14% and group revenue up 9% year over year, supported by recurring event-driven demand such as youth sports.
This performance reflects our ability to effectively capture and convert these higher-value demand segments across our platform. Technology is an increasingly important differentiator for Choice Hotels International, Inc. We have a long-standing advantage, having been an early mover in migrating both our infrastructure and data to the cloud, which underpins how we deploy AI across our business. That foundation enables us to move faster, deploy capabilities at scale, and translate innovation into real business outcomes for our franchisees. We are already seeing this in action.
For example, our recently launched AI-enabled EasyBid platform is improving response time to group RFPs by approximately 30%, which is translating into conversion rates that are roughly 250 basis points higher and driving incremental group business for our franchisees. Through our long-standing partnership with AWS, we are the first major hospitality provider in the U.S. to standardize on a common AI foundation, allowing us to move beyond pilots and rapidly deploy capabilities across our business, embedding them across guest experience, franchise operations, and distribution.
We are also extending these capabilities through our partnership with Salesforce, where we are deploying intelligent agents across our field organization to improve franchisee operations, strengthen how our hotels capture group demand, and enable faster, more data-driven decisions, giving us the flexibility to rapidly deploy and scale new capabilities across our platform. Together, these capabilities are improving franchisee returns and driving continued expansion in our average royalty rates. Looking ahead, Choice Hotels International, Inc. is well positioned for continued growth with a clear path to more consistent, higher-quality cash returns. U.S. rooms growth is inflecting, unit economics are strengthening, and capital intensity is declining.
With a structurally advantaged higher-quality portfolio of hotels, a more accretive pipeline, a capital-light model, and a differentiated cloud-based technology platform, Choice Hotels International, Inc. is positioned to deliver durable earnings growth and create long-term shareholder value. With that, I will turn the call over to Scott.
Scott E. Oaksmith: Thanks, Patrick, and good morning, everyone. Let me start with our first quarter results. For the first quarter, revenues excluding reimbursable revenue from franchise and managed properties increased 3% year over year to $217 million, driven by global rooms growth and expansion in our average royalty rate. Of particular note, international performance was strong, with revenues excluding reimbursable revenue from franchise and managed properties increasing 63% year over year. Adjusted EBITDA was $126 million, compared to $130 million a year ago, and adjusted earnings per share were $1.07 compared to $1.34 a year ago. The year-over-year decline in adjusted EBITDA primarily reflects the timing of certain SG&A costs.
The decline in adjusted EPS further reflects a temporary adjustment to our effective income tax rate in the first quarter. These items were anticipated and are expected to normalize over the balance of the year, consistent with our full-year guidance. As a result, we are maintaining our outlook across all key metrics. Let me now turn to the key drivers of our performance. Three themes shaped our first quarter results. First, U.S. net rooms growth improved, supported by strong openings and lower exits. RevPAR trends improved through the quarter, and finally, capital intensity declined as investment in Cambria and Everhome—having achieved its strategic objectives—is now being significantly reduced.
Starting with net rooms growth, in the first quarter, we grew global rooms 1.7% year over year, led by a 2.5% growth in our higher-revenue segments and highlighted by a 37% increase in room openings. Developer demand remained robust, with global franchise agreements awarded up 72% year over year. Importantly, in the U.S., performance improved meaningfully, with nearly 6 thousand gross rooms opened in the quarter, and net exits declined 52% year over year and improved sequentially, reaching the lowest level in recent years. As the quarter progressed, hotel development momentum accelerated, with March accounting for approximately 70% of first quarter U.S. franchise agreements executed. Growth was broad-based, led by extended stay and strong momentum in midscale.
Conversion activity remains a key driver of our growth, expected to account for over 80% of openings for the full year. U.S. conversion franchise agreements increased 63% year over year, while the U.S. conversion pipeline grew 17% year over year and expanded sequentially, reinforcing our visibility into future openings. Relicensing activity increased significantly year over year, reflecting both brand strength and continued franchisee confidence. Taken together, these trends reinforce our expectation that U.S. net rooms growth returns to positive territory in 2026, with sequential improvement already evident in the quarter. International growth also remains robust.
Turning to RevPAR, our global RevPAR declined 80 basis points year over year on a currency-neutral basis in the first quarter, primarily reflecting the lapping of hurricane-related impacts in the prior year. International RevPAR increased 2.6% year over year on a currency-neutral basis, led by strong performance in Canada and the Caribbean and Latin American region. In the U.S., excluding a 410 basis point impact from prior-year hurricane-related demand, first quarter RevPAR increased 1.8% year over year, supported by sequential monthly occupancy gains—an important leading indicator for future RevPAR performance. On a comparable basis, RevPAR turned positive in February and remained positive in March. Preliminary April trends remain positive, supporting our expectations for continued improvement.
Performance continues to trend favorably relative to our expectations, supported by constructive underlying demand. Moving to royalty rate, a key driver of our earnings growth, in the first quarter, we increased our U.S. average royalty rate by 11 basis points, reflecting continued growth in higher-revenue brands and ongoing improvement in our franchisee value proposition. We remain confident in the trajectory of system-wide royalty rate expansion, supported by a higher-quality pipeline and ongoing investments in demand generation. Turning to our partnership business, which remains a key priority, franchisee-facing service offerings included within our franchise and management fees continue to gain adoption during the quarter, driving over 10% year-over-year revenue growth.
These offerings are also supporting the continued expansion of our non-RevPAR franchise fees. Partnership revenues were $24.7 million in the first quarter, compared to $25.4 million a year ago, primarily reflecting the timing of transactions in certain programs, resulting in some year-over-year variability. We continue to expect partnership service and fees to grow in the mid-single digits for the full year. Together, these revenue streams diversify our earnings base and represent an attractive high-margin growth opportunity over time. Turning to capital, a key component of our strategy is the meaningful reduction in capital intensity as we move beyond the peak investment phase for Cambria and Everhome, both of which have now reached the scale to support ongoing asset-light expansion.
Importantly, large-scale, balance sheet-intensive brand incubation is no longer central to our model as we shift towards more capital-efficient ways to grow and scale our brands. With strategic objectives achieved and peak investment winding down, capital deployment is declining and capital recycling is expected to increase materially. In the first quarter, we generated approximately $25 million of proceeds and reduced development outlays by 51% year over year, and we remain on track for net capital outlays of approximately $20 million to $45 million for the full year, approximately 70% lower at the midpoint than 2025 levels. As hotel transaction activity improves, we expect additional opportunities to accelerate capital recycling, further expanding capital capacity.
We ended the quarter with total liquidity of $474 million and net leverage of 3.2 times adjusted EBITDA, comfortably within our targeted leverage range of three to four times and providing strong financial flexibility. In the first quarter, we used $23.2 million of cash in operating activities, primarily reflecting working capital timing and higher franchise agreement acquisition costs associated with a 37% year-over-year increase in global room openings. Operating cash flow is tracking in line with our expectations, with variability driven by seasonality and timing. Our capital allocation framework remains disciplined and unchanged.
Our first priority is to deploy capital to high-return, capital-light organic investments that strengthen our brands and enhance franchisee economics, including our revenue engine and scalable technology capabilities. We then support a stable dividend. Finally, we return excess free cash flow to shareholders, primarily through share repurchases, supported by our expected free cash flow generation and consistent with our targeted leverage range. As part of our increased focus on shareholder returns this year, we are providing greater visibility into our capital return profile. We expect to repurchase between $175 million to $225 million of shares in 2026, supported by expected free cash flow generation and strong balance sheet capacity.
Year to date through March 31, we returned $75 million to shareholders, including $62 million in share repurchases, with 2.3 million shares remaining under our current authorization. Our disciplined capital allocation approach, together with the strength of our asset-light business model, positions us to improve free cash flow conversion excluding franchise agreement acquisition cost over the next several years, moving towards 60% to 65%. For full year 2026, we are maintaining our guidance across all metrics, including adjusted EBITDA of $632 million to $647 million and adjusted diluted earnings per share of $6.92 to $7.14. Our outlook reflects continued growth across higher-revenue hotels and markets, royalty rate expansion, sustained international momentum, and further contribution from partnership and non-RevPAR revenues.
It also reflects continued cost discipline, with adjusted SG&A expected to grow in the mid-single digits, supported by operating efficiencies across the business, including the scaling of AI-enabled tools. Our outlook excludes the impact of any additional M&A, share repurchases completed after March 31, or other capital markets activity. As we look ahead, we are well positioned to deliver more consistent earnings growth and stronger free cash flow, supporting long-term shareholder value. With that, Patrick and I are happy to take your questions.
Operator: We will now open the call for questions. If you have dialed in and would like to ask a question, please press star-one on your telephone keypad to join the queue. If you would like to withdraw your question, please press star-one again. Your first question comes from the line of David Katz with Jefferies. Please go ahead.
Patrick S. Pacious: Go ahead. You might be on mute.
David Katz: Just getting myself unmuted. Thanks for taking my question. I would like to talk about the aspirational levels of net unit growth out into the future—yours compared to the peer set. What do you think the levers are? What do you think the prospects are? And how do you see Choice Hotels International, Inc. getting to accelerate NUG in the future, please?
Patrick S. Pacious: Well, good morning, David. Great question. When we look at our net unit growth, we saw in the quarter a sequential improvement. As you know very well, we are a conversion-led model, and that has been the driver of growth, and the speed and efficiency with which our conversion pipeline is moving. As we mentioned, the conversion pipeline is up 17%, franchise agreements are up 65% overall, and when we look at that visibility, it gives us a lot of confidence that this inflection point that we are seeing in net rooms growth is happening. Keep in mind, the new construction environment has been very muted given the interest rate environment.
So as we see new construction come back—those brands that rely primarily on that—we can see an acceleration in our net unit growth into the future. We feel really good about the inflection point that we have seen, particularly here in the U.S. We feel good about where the franchise agreements sold last year and again into the first quarter are, and the fact that they are conversions for the most part really gives us a lot of visibility and confidence in getting those openings done this year.
David Katz: And just to double back on a portion of my question, is there a future at some point where NUG is a low- to mid-single-digit number? Or should we look at this conversion-led model in a different context?
Patrick S. Pacious: I think it is possible to get back to those levels that you are talking about when the new construction environment comes back. We are seeing an acceleration in the extended stay segment that has continued to be strong. As new construction comes back, that will only get larger. As an industry, we have been doing much more on the conversion side of the house, and I think the lack of supply growth will incent developers to come back as RevPAR strengthens into the future. So we do see an underlying trend in the future that can get us back to those higher levels.
David Katz: Appreciate it. Thank you very much.
Patrick S. Pacious: Sure.
Operator: And the next question comes from Daniel with JPMorgan. Please go ahead.
Analyst: Hi. This is Michael Hirsch on for Dan today. Thank you for taking my questions. A question on consumer health, especially given the rising fuel prices in the U.S. Have you seen any impact on your bookings, or more broadly to consumer sentiment?
Patrick S. Pacious: Actually, Michael, we have seen kind of the opposite. The consumer has been pretty resilient given the rise in gas prices. We saw higher gas prices back in 2022 and that really did not temper demand. As I said, we have seen in the last two months a continuing strength in the consumer. The other things that give us a lot of positive feeling going forward are really the affordability trend that is going on in the country that aligns very well with our value-oriented brands. We are seeing a shift in the workforce, as we mentioned in the remarks.
You are seeing employment growth in sectors where people have to travel to do their work, and those travelers rely on our hotels. We are also seeing a shift in the way guests want their hotel room to look more like home, and that helps our extended stay hotels. And then, as we have talked on prior calls, we continue to see a rising number of retirees who have discretionary income and discretionary time, and we know we over-index on that type of guest as well. So we feel pretty good about the underlying trends that are supporting the RevPAR projections that we have for this year.
Scott E. Oaksmith: And just to follow up on Patrick’s point, when you really look at our business travel, we were really strong during the quarter. Overall, business travel was up 3%, and particularly, our small and medium business was up 14%, and our groups business was up 9%. So really good performance during the quarter.
Analyst: Thank you. And a quick follow-up on what Patrick mentioned for U.S. RevPAR—understanding the first quarter was impacted by the hurricane comparison—what are your expectations for U.S. RevPAR in the second quarter and second half of the year? And are there any other calendar considerations that we should keep in mind?
Scott E. Oaksmith: We are encouraged by the strengthening trends we saw throughout the first quarter and really saw occupancy strengthen, and that positive momentum continued into April. At the same time, we are still early in the year and being mindful of the broader macroeconomic environment. So while performance has been trending favorably relative to our expectations, we believe it is prudent to remain cautious, and we have upheld our current guidance. But should the economy continue to perform well and these macro risks recede, we think we are well positioned to trend towards the higher end of our forecasted range. For now, we believe a more measured approach is in our best interest.
Operator: And the next question comes from the line of Michael Bellisario with Baird. Please go ahead.
Michael Joseph Bellisario: Good morning, everyone. Thanks for taking my questions. First, on the RevPAR underperformance—and I get that the hurricane impact in retrospect was greater than you thought—but maybe help us with the two-year stack. I presume your hotels lost market share. Why do you think that was the case, and when do you think that ultimately starts to recover for at least those affected hotels?
Patrick S. Pacious: Michael, we look at a couple of things. The first is the key point in all of this is occupancy. We saw strength of that indicator all last year, and that grew again in the first quarter. So we are seeing demand come back into the hotels, and that is a really strong fundamental for the cycle to shift and move in the right direction and make it durable. Then, on top of that, as owners get more comfortable with the demand environment, they raise price. The other thing that is important to note is when you open 6 thousand rooms in a quarter, the ramping of that as well has an impact on RevPAR.
So we are very comfortable with the RevPAR projections that we have for the full year. When you take the hurricanes out—just as a reminder, about 20% of our portfolio sits in the four states that were impacted by the hurricane—so it had a very significant effect on our Q1 numbers last year. As we look into April and beyond, it will be a much easier year-over-year comparison.
Scott E. Oaksmith: Just to put a finer point on that, when you look at the various regions outside of the South Atlantic where those four states are, every region had positive RevPAR throughout the quarter—up about 1.5% to 2%. So it really was a regionalized hurricane impact to our results. As we said in our prepared remarks, if you pull out the hurricane impact, the entire system was up about 1.8% for the quarter.
Michael Joseph Bellisario: That is helpful. And then real time—stock is down 14%—the market does not like surprises; that is what we got today. How do you plan on handling communication better, telegraphing some of the moving pieces in the model on a go-forward basis?
Patrick S. Pacious: We are very happy with the improving underlying trends that we are seeing. We are seeing unit growth inflecting, RevPAR improving, capital intensity declining. These are all things we talked about on the February call. While the financial results were in line with our expectations, the underlying trajectory of the business is much stronger than the quarterly year-over-year comparison suggests. We are going to keep communicating the positive story that we have and the results that we are achieving.
Operator: Alright. Thank you. And the next question comes from the line of Patrick Scholes with Truist Securities. Please go ahead.
Patrick Scholes: Hi. Thank you. Question for you regarding market share. I know when, coming out of COVID, you were pretty vocal and granular when you were receiving market share gains. Along that same line, what was your market share change year over year versus last year in the most recent quarter? Thank you.
Scott E. Oaksmith: In terms of index, if you take out those hurricane states that we mentioned, we were generally in line with the performance in the various local markets that we are in. The heavy skew, as Patrick mentioned, of our portfolio in those four states—about 20% of our product—has skewed our comparisons when you look at the overall STR numbers. On a localized basis, we are in line with the performance of the overall segments we operate in those local markets.
Patrick Scholes: Okay. But let us not take those out. What would it be for the whole portfolio?
Scott E. Oaksmith: As we mentioned, the hurricane had about a 400 basis point impact. So if you look across the chain scales, our performance in those markets certainly pulled down the overall results. Outside of those numbers, we feel really good about the way our hotels are performing against their local comp sets.
Patrick Scholes: So I cannot get a number like you had given before. Is that correct?
Scott E. Oaksmith: It really is by segment, Patrick. In the past, we have provided some other RPI gains against the various segments that we operate in—economy, midscale, upper midscale. We do not have those to provide today, but we are happy to follow up.
Patrick Scholes: Okay. It would be helpful. Thank you.
Operator: And the next question comes from the line of Robin Farley with UBS. Please go ahead.
Robin Margaret Farley: Great, thank you. Two questions. First, looking at the STR numbers and some other companies raising RevPAR guidance for the remainder of the year—understand the hurricane comps were an issue, and it sounds like that would have dissipated by now in April—is there anything else from a geographic perspective, other than the hurricane issues in Q1, that would mean Choice Hotels International, Inc. would not participate in this better outlook than how things looked at the start of the year? And second, on the line for equity and loss of affiliates, some of those losses have been coming in bigger. I understand that Canada is now wholly owned and so there was a shift there.
Is there development spend or what other things are making that line look like a heavier loss than it had been historically?
Patrick S. Pacious: It is important to remember Q1 is one of the lowest contributors from a travel perspective for our type of travelers. That also plays into why we maintained our RevPAR guidance. As we said, we are seeing very positive trends, particularly in March and April. It is occupancy-driven, which is critical from the standpoint of durability, and we feel really good about that. As we get into Q2 and Q3, where we have much more of that summer drive travel—and this year in particular, we have event-driven travel—I think you will see that pick up, and we will be able to give a clearer view into the rest of the year at that point.
Scott E. Oaksmith: Another point on April performance: we are now past the hurricane impact—that dissipated by about March. Our preliminary results in April are positive. Underlying trends that we saw in March outside of the hurricane states have pulled through in April. We are pleased with the underlying trends, and as we said, there is some broader macro uncertainty out there, but absent that, we feel like we are trending towards the higher end of our guidance on RevPAR, assuming this continues. In terms of your question around the equity gains and losses, those are really reflective of some of the development we are doing with the Everhome properties.
We had several properties open over the end of Q4 and the beginning of Q1, so it is really just the timing of ramping of hotels that is reflected there. As we mentioned earlier, we are at the back end of the investments that we have done for Everhome and for Cambria now that both have met their strategic objectives, and you will see a meaningful step down in the capital intensity of our investments there. As those hotels ramp up, those losses will turn to profits.
Operator: Thank you. And the next question comes from the line of Stephen Grambling with Morgan Stanley. Please go ahead.
Stephen Grambling: Thanks. A follow-up on the international front: as that starts to ramp up and becomes a bigger part of the base, how do you think about the contribution from a profitability standpoint? Is there a certain number of rooms or certain pockets that need to get to a certain level before it becomes more meaningful in terms of EBITDA contribution?
Patrick S. Pacious: The significant change was the shift to more of a direct franchise model—taking master franchise agreement markets and turning them into direct franchise markets—where the contribution is significantly higher, the margins are higher, and royalty rates are higher. It is really a story around looking at the markets where it is more strategic for us to be in that geography in a direct franchise world as opposed to what we might have been doing prior to that. We have today about 10% of EBITDA being driven by the international business, and we are starting to scale that up, particularly here in the Americas, so we do see that becoming a much bigger contributor over time.
Scott E. Oaksmith: We are really pleased with that, and the Canadian acquisition that we executed last year showed strong results during the quarter, with RevPAR up a little over 5%, rooms growth about 3.5%, and the pipeline up 55%. We are optimistic on the growth in that market for us.
Stephen Grambling: Maybe one other follow-up: on a free cash flow standpoint, at this point on a TTM basis, it looks like—even including some disposition proceeds—you are at about $50 million. What are some of the one-offs we should be thinking about and how to think through the trajectory of free cash flow? Is there still some spend to get through before we see that accelerate?
Scott E. Oaksmith: We did have some timing issues in the quarter, which pulled down our operating cash flow slightly. Our key money was slightly higher from Q1 2025 to Q1 2026, driven by a 37% increase in room openings compared to the prior year, and the mix of hotels opening really shifted with strong growth in our more accretive segments with strong returns, which contributed to a slightly higher key money disbursement. This is really timing. Our algorithm in terms of free cash flow remains intact for the remainder of the year as we continue to move back towards that historical 60% to 65% free cash flow conversion.
On balance sheet investments, a really strong quarter where net outflows were down 50%, and we were actually net recyclers of capital during the quarter with about $4 million net back to Choice Hotels International, Inc., whereas we spent about $40 million the year before. We expect that to continue to meaningfully step down. We expect net outflows to be down about 70% year over year, and as the transaction market improves, we see opportunities to accelerate the recycling of that capital by selling hotels with long-term franchise agreements.
Operator: And the next question comes from the line of Brent Montour with Barclays. Please go ahead.
Brandt Montour: Great, thanks for taking my questions. I wanted to circle back to AI. It seems like everybody in your space is in a race to roll out apps and other AI-based search technology to enhance direct bookings within the top of funnel and the customer journey overall. Can you give us the state of the union in terms of where you are in rolling out that tangible technology versus your peers?
Patrick S. Pacious: Great question. For us, technology has always been a structural advantage. We are likely the only company that has both our infrastructure and our data all on the cloud—two key ingredients to bring AI to the enterprise at scale. We see it as really driving our franchisee economics. We mentioned EasyBid—it is already providing meaningful results to our franchisees, improving top-line revenue while cutting their costs. Unit economics is where we are placing a big bet. On the customer journey, we are leading in with OpenAI and Google, and we are working with other large language models to make sure our hotels appear in answer engines.
We have taken a direct and purposeful approach to how we are going to use AI to drive the unit economics of our hotels. The deployment is incredible, and adoption rates from our franchisees are enormous—much higher than prior rollouts of tools. Next week we will have our franchisees together in Las Vegas; a lot of time will be spent engaging with these new tools. We are excited by the upside to both hotel-level economics and what we can do corporately to drive higher productivity and lower costs. It is hitting on three levels—the consumer, franchisee economics, and our own efficiency.
Brandt Montour: And a follow-up on demand. You said the reason you did not raise guidance for RevPAR was prudence around macro. You also see the U.S. inflecting. What is the macro tail risk within the domestic travel picture—if anything—or is it the unknown unknowns?
Patrick S. Pacious: I would put it as the unknown unknowns. We have been through a couple of years where nobody had certain things on their bingo card when they put their forecast together. We have seen travel impacted by government shutdowns, tariffs, and other factors not in anyone’s forecast. We look at our business—we have good visibility into April—but rather than get ahead of our skis, we feel good about the RevPAR range we have, which is fairly wide given our trajectory and the close-in booking window. The prudent decision was to keep it where it is.
Operator: The next question comes from the line of Trey Bowers with Wells Fargo. Please go ahead.
Analyst: Hey, thanks for the question. Following up on the cash flow dynamics, the key money outlay in the quarter due to the solid gross additions—should we still expect that to be in the $100 million to $110 million range this year, or will better-than-expected gross additions raise that number? Longer term, should we think about a tie ratio of gross room additions to key money, or could key money come down even with a better NUG environment?
Scott E. Oaksmith: No change to our overall outlook for key money spending for the year. This was timing-related compared to the prior year with strong openings that were in line with our forecast at the beginning of the year as we have been talking about the inflection in U.S. rooms growth. In terms of an algorithm, every key money deal is underwritten on a deal-by-deal basis. It depends on the strength of the deal, where we are putting the brands, and the overall environment. There is not a one-to-one relationship between number of openings and key money.
As the new construction environment rebounds and the RevPAR environment improves over the next couple of years, we think you will see key money per deal step down more meaningfully, as that money is less needed to help defray costs. We monitor this closely and are very pleased with the returns when we do use key money, but it is really a market condition dynamic.
Analyst: That is great color. Thanks, guys.
Operator: And the next question comes from the line of Meredith Jensen with HSBC. Please go ahead.
Meredith Prichard Jensen: Good morning. A quick follow-up on what Brandt asked around AI. Your take seems unique, given your background in technology. Could you unpack your comments about having a more narrow or strategic focus than some others? Is that because you have a view on AI economics over time or that scalability is less knowable now?
Patrick S. Pacious: It is a pivot point companies have to make. At Choice Hotels International, Inc., our history is to invest in technology we can scale to our 7.5 thousand hotels, and AI lets us do that much faster. We have deepened our partnership with AWS because, to deploy at scale, you have to build the scaffolding to do it, and partnering with someone already hosting our infrastructure lets us experiment and improve quickly. We develop proprietary tools, and we see an opportunity to drive higher productivity out of our workforce and bring significant change to franchisee operating models. That is why we have been talking about four-wall EBITDA improving meaningfully because of AI.
Tools are moving from telling you what happened to being teammates that guide the next best action. These tools are delivering meaningful value to our franchisees, so we have focused efforts there. Also, AI is not free—tokens cost money—so you must be measured in deployment. We shared one example already, and it was built and deployed rapidly with significant franchisee adoption. We expect an acceleration of tools that bring meaningful value and drive higher returns.
Meredith Prichard Jensen: That is helpful. And on the loyalty program—you had a refresh earlier in the year. Can you speak more about momentum in engagement, changes in redemption rates with added flexibility, and new opportunities the new card program might unlock?
Patrick S. Pacious: Tapping into affordability, we pursued a counter strategy to make points more valuable, not less—“rewards within reach”—so you get something after five nights instead of ten. That meets our customers where they are. As we said, we saw a 300 basis point increase in loyalty contribution in the first quarter. We are seeing more members and more revenue per member. We are excited about the refresh and the upside it brings. Loyalty members are repeat stayers; they stay more often and spend more. It is the right demographic to keep growing and keep that part of the revenue engine moving in the right direction.
Operator: Thank you. There are no further questions at this time. I would like to turn the call back to Patrick S. Pacious for closing remarks.
Patrick S. Pacious: Thank you, operator, and thanks, everyone, for joining us this morning. We look forward to speaking to you again in August when we report our second quarter results. Have a great rest of your day.
Operator: Thank you, presenters. Ladies and gentlemen, this concludes today’s conference call. Thank you for joining. You may now disconnect.
