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CH

CHOICE HOTELS INTERNATIONAL INC /DE (CHH)·Q1 2025 Earnings Summary

Executive Summary

  • Record first-quarter adjusted EBITDA of $129.6M (+4% YoY) and adjusted diluted EPS of $1.34 (+5% YoY); GAAP diluted EPS was $0.94 (+52% YoY) .
  • Domestic RevPAR rose 2.3% YoY, outperforming relevant chain scales by 60 bps; extended-stay RevPAR +6.8% YoY, midscale +1.7%, economy +7.1% .
  • Guidance lowered on macro softness: FY25 domestic RevPAR now -1% to +1% (prior +1% to +2%), FY25 adj. EBITDA $615–$635M (prior $625–$640M), adj. EPS $6.90–$7.22 (prior $6.98–$7.24) .
  • Near-term stock narrative hinges on RevPAR trajectory into summer, resilience of business travel (40% mix), and growth in partnership services and fees (+28% YoY), partially offsetting softer leisure trends .

What Went Well and What Went Wrong

What Went Well

  • First-quarter records: adjusted EBITDA $129.6M and adjusted diluted EPS $1.34, both up YoY; net income up 44% to $44.5M; domestic RevPAR outperformance vs chain scales .
  • Mix/segment strength: business travel revenue grew ~10% YoY; group revenue increased >50% YoY; extended-stay RevPAR +6.8% with pipeline >40,000 rooms; effective royalty rate rose 8 bps to 5.11% .
  • Ancillary momentum: partnership services and fees +28% YoY to $25.4M; management sees multi-year runway for partner revenues and co-brand credit card fees to outpace core royalty growth .

Management quotes:

  • “Our unique positioning has enabled us to outperform our peers, gain market share… even in periods of economic uncertainty.” — CEO Patrick Pacious .
  • “Our partnership services and fees… increased 28% year-over-year… and we believe that we can drive strong revenue growth in the years ahead.” — CFO Scott Oaksmith .
  • “Our business travel segment grew 10% year-over-year… supported by our expanding, upscale and extended-stay portfolio.” — CEO Patrick Pacious .

What Went Wrong

  • Guidance cut on macro uncertainty and April softness: normalized April RevPAR down ~1% YoY; FY25 domestic RevPAR lowered to -1% to +1% .
  • Upscale RevPAR appeared weak on a full-system basis due to portfolio churn/ramp; same-store basis was slightly positive, highlighting sensitivity of a smaller sub-portfolio .
  • Cash from operations improved but remained modest for the quarter ($20.5M), reflecting working capital/fee timing dynamics despite higher net income .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Total Revenues ($USD Millions)$428.0 $389.8 $332.9
Revenues excl. reimbursables ($USD Millions)$256.1 $229.0 $209.0
Diluted EPS (GAAP, $)$2.22 $1.59 $0.94
Adjusted Diluted EPS ($)$2.23 $1.55 $1.34
Adjusted EBITDA ($USD Millions)$177.6 $140.4 $129.6

Actual vs S&P Global consensus (Q1 2025):

MetricConsensusActual
Adjusted Diluted EPS ($)1.37*1.34
Total Revenues ($USD Billions)$0.347*$0.333

*Values retrieved from S&P Global.

Revenue composition (Q1 2025 vs Q1 2024):

Line Item ($USD Thousands)Q1 2025Q1 2024
Franchise & Management Fees145,068 143,410
Partnership Services & Fees25,381 19,844
Owned Hotels27,860 24,991
Other11,127 14,717
Reimbursable Costs Revenue123,424 128,987
Total Revenues332,860 331,949

Key KPIs (Domestic system; Q1 2025 vs Q1 2024):

MetricQ1 2025Q1 2024Change
ADR ($)90.78 89.29 +1.7%
Occupancy (%)51.0% 50.7% +30 bps
RevPAR ($)46.28 45.25 +2.3%
Extended-Stay RevPAR ($)45.25 42.36 +6.8%
Effective Royalty Rate (%)5.11% 5.03% +8 bps

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Income ($M)FY 2025$288–$300 $275–$290 Lowered
Adjusted Net Income ($M)FY 2025$333–$345 $324–$339 Lowered
Adjusted EBITDA ($M)FY 2025$625–$640 $615–$635 Lowered
Diluted EPS ($)FY 2025$6.04–$6.29 $5.86–$6.18 Lowered
Adjusted Diluted EPS ($)FY 2025$6.98–$7.24 $6.90–$7.22 Lowered (range narrowed)
Effective Tax Rate (%)FY 202525% 25% Maintained
Domestic RevPAR Growth (%)FY 2025 vs FY 2024+1% to +2% -1% to +1% Lowered
Domestic Effective Royalty Rate GrowthFY 2025 vs FY 2024Mid-single digits Mid-single digits Maintained
Global Net System Rooms GrowthFY 2025 vs FY 2024~1% ~1% Maintained
Quarterly Dividend ($/sh)Next payable—$0.2875 (pay 7/16, record 7/1) Announced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
AI/Technology investmentsScale-enabled digital conversion gains; ChoiceEDGE/ChoiceMAX; pipeline velocity Relaunched website/app; double-digit conversion rate increases for upscale New website/app driving conversion; owner tools; One Stop Owners platform; MasteryX tech summit focused on generative AI and efficiency gains Accelerating
Business travel/groupDomestic occupancy gains; resilience Business transient +14% in Q4; group +45% Business travel +10%; group revenue +50% Strengthening
Extended-stayDouble-digit room growth YoY; leadership position 10% YoY room growth; record WoodSpring/Everhome openings +6.8% RevPAR; +10.8% domestic rooms YoY; ~50% of pipeline rooms Continuing outperformance
UpscaleGlobal rooms +44% YoY (Q4); pipeline ~25k rooms Ascend +43% openings; pipeline building Global upscale rooms +16.2% YoY; pipeline >26k rooms; full-system RevPAR noise, same-store slightly positive Growing, with portfolio mix effects
Tariffs/supply chain——Vendors pulled forward inventory, limiting tariff pass-throughs; expected ~10% price increases manageable Neutral to mild headwind mitigated
Macro/RevPARDomestic RevPAR -2.5% in Q3; improved occupancy Q4 domestic RevPAR +4.5%; hurricane/eclipse benefited comps Late-March/April softness; normalized April RevPAR -~1%; FY25 RevPAR guide lowered Softening vs early-year plan
InternationalRooms +3.8% YoY (Q3) EBITDA +50% (Q4); EMEA agreements; CALA expansion Rooms +4.4% YoY; pipeline +13% QoQ; Canada extended-stay opportunity Expanding

Management Commentary

  • “Approximately 40% of our overall mix is business travelers… capturing longer-term opportunities from genAI infrastructure and reshoring of manufacturing.” — CEO Patrick Pacious .
  • “Our domestic system effective royalty rate… increased 8 basis points year-over-year… pipeline contracts have significantly higher effective royalty rates.” — CFO Scott Oaksmith .
  • “Velocity in the first quarter accelerated… 73% of our openings were conversion hotels.” — CEO Patrick Pacious .
  • “We are updating our full-year 2025 outlook… adjusted EBITDA $615–$635 million and adjusted diluted EPS $6.90–$7.22.” — CFO Scott Oaksmith .

Q&A Highlights

  • Macro/consumer: Management not seeing “trade down” effects; taking share in economy (+7% RevPAR) and extended-stay (+6.8% RevPAR) despite leisure softness; April normalized RevPAR down ~1% YoY on Easter/eclipse timing .
  • Development/pipeline: Conversions drive velocity (3–6 months); openings ~73% conversions in Q1; pipeline mix ~2/3 new construction, 1/3 conversion; domestically slightly positive net rooms; international ~3%+ rooms growth .
  • Ancillary revenues: Partnership services/fees expected to add ~2% to EBITDA growth in 2025; multi-year runway independent of RevPAR .
  • Upscale narrative: Full-system RevPAR noise from portfolio exits/new ramps; on same-store basis upscale slightly positive; small base magnifies swings .
  • Tariffs/vendor mitigation: Vendors pre-stocked inventory; working to avoid passing costs; any increases ~10% and manageable for franchisees .

Estimates Context

  • Q1 2025 adjusted EPS was modestly below S&P Global consensus ($1.34 vs $1.37*) and total revenues were below consensus ($0.333B vs $0.347B*). Expectation resets likely key for revisions given reduced FY25 RevPAR and EBITDA guidance .
  • Note: S&P Global “Primary EPS” aligns with adjusted EPS; revenue consensus may reflect total revenues; classification changes disclosed in Q1 could affect comparability for prior periods .
    *Values retrieved from S&P Global.

Key Takeaways for Investors

  • Resilient fee-based model with multiple growth levers (effective royalty rate, partner services, international) supports earnings even in a flat RevPAR environment; watch royalty rate uplift and partner fee growth cadence for 2H .
  • Extended-stay leadership and conversion velocity (73% of openings in Q1) drive faster revenue capture; pipelines (>95k global rooms, ~79k domestic) and upscale expansion (>26k pipeline) underpin medium-term growth .
  • Near-term risk: leisure softness/macro uncertainty; April normalized RevPAR -~1% suggests cautious 2Q setup; guidance already lowered, creating potential “beat-and-raise” optionality if summer drive-to travel materializes .
  • Business travel mix (+10% YoY, 40% of revenue) and group momentum (>50% YoY) provide ballast; exposure to genAI/data-center/reshoring verticals a differentiated tailwind .
  • Capital returns continue: Q1 buybacks ($64.6M) and dividend ($0.2875/sh) with liquidity ~$594M; leverage at ~3.0x provides flexibility .
  • Monitor upscale RevPAR on a same-store basis and portfolio churn to avoid misreading headline trend; management indicates slight positive on same-store in Q1 .
  • Watch Q2 call for updated demand signals and the trajectory of partnership services and fees (mid-single-digit FY25 growth from $99M base) .