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CH

CHOICE HOTELS INTERNATIONAL INC /DE (CHH)·Q3 2025 Earnings Summary

Executive Summary

  • Record profitability: Adjusted EBITDA rose 7% to $190.1M; total revenue up 5% to $447.3M; global net rooms +2.3% with 3.3% growth in higher-revenue segments .
  • Mixed EPS optics: GAAP diluted EPS surged to $3.86 on a $100M JV remeasurement gain, while adjusted diluted EPS fell to $2.10 on Canada-related amortization and tax timing; excluding these items, adjusted EPS would have been $2.27 (+2% YoY) .
  • Guidance catalysts: Net income and GAAP EPS raised materially; adjusted EPS tightened/lowered; adjusted EBITDA midpoint raised by $1M; U.S. RevPAR outlook narrowed to -3% to -2%—clear drivers for investor reaction .
  • Strategic momentum: International RevPAR +9.5% (+5.1% cc), portfolio now >150k rooms outside U.S.; U.S. average royalty rate +10 bps to 5.15%; extended stay rooms +12% and pipeline strength (98% higher-revenue) underpin earnings durability .

What Went Well and What Went Wrong

What Went Well

  • International acceleration: Net rooms outside the U.S. +8.3% YoY, RevPAR +9.5% (5.1% cc) with EMEA +11%, Canada +7%, APAC +5% .
    • CEO: “We are especially excited by the accelerating momentum in our international business, where we are on track to double profitability by 2027.”
  • Pricing power and mix: U.S. average royalty rate expanded 10 bps to 5.15%; partnership services and fees +19%, highlighting non-RevPAR revenue diversification .
  • Extended stay leadership: U.S. extended stay net rooms +12% and openings +14%; segment outperformed industry RevPAR by 20 bps in Q3 .

What Went Wrong

  • Domestic softness: U.S. RevPAR -3.2% YoY, primarily softer government and international inbound demand; occupancy declines across several U.S. segments .
  • Adjusted EPS compression: Adjusted diluted EPS fell to $2.10 (from $2.23), reflecting Canada amortization, tax timing, FX and JV revaluation effects—partially reversing in Q4 .
  • SG&A and “Other” line optics: Reported SG&A up YoY with pass-through items; “Other revenue” doubled YoY on one-time/event and gross-up effects, requiring careful normalization .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Total Revenues ($USD Millions)$427.964 $332.860 $426.443 $447.340
Adjusted EBITDA ($USD Millions)$177.586 $129.639 $164.975 $190.088
Diluted EPS ($USD)$2.22 $0.94 $1.75 $3.86
Adjusted Diluted EPS ($USD)$2.23 $1.34 $1.92 $2.10
Revenue Composition ($USD Thousands)Q3 2024Q3 2025
Franchise and Management Fees$188,237 $193,777
Partnership Services and Fees$24,320 $28,868
Owned Hotels$31,936 $33,167
Other$11,647 $22,094
Revenue for Reimbursable Costs$171,824 $169,434
U.S. Hotel System (Quarter)ADR ($)Occupancy (%)RevPAR ($)
Upscale & Above Q3 2024$159.55 64.2% $102.50
Upscale & Above Q3 2025$157.88 62.9% $99.33
Midscale & Upper Midscale Q3 2024$106.50 61.0% $64.97
Midscale & Upper Midscale Q3 2025$104.63 60.1% $62.90
Extended Stay Q3 2024$65.44 73.3% $47.95
Extended Stay Q3 2025$66.78 71.0% $47.39
Economy Q3 2024$75.66 50.4% $38.13
Economy Q3 2025$73.61 50.1% $36.89
Total Q3 2024$102.02 61.1% $62.32
Total Q3 2025$100.03 60.3% $60.33
Consensus vs Actual (Quarter)Q3 2024Q1 2025Q2 2025Q3 2025
Revenue Consensus Mean ($USD Millions)$431.940*$346.633*$429.837*$417.061*
Total Revenues Actual ($USD Millions)$427.964 $332.860 $426.443 $447.340
Primary EPS Consensus Mean ($USD)$1.9133*$1.3669*$1.9016*$2.1965*
Diluted EPS Actual ($USD)$2.22 $0.94 $1.75 $3.86
EBITDA Consensus Mean ($USD Millions)$167.369*$131.329*$165.761*$182.712*
Adjusted EBITDA Actual ($USD Millions)$177.586 $129.639 $164.975 $190.088

Note: *Values retrieved from S&P Global.
Context: Consensus values from S&P Global “Revenue Consensus Mean,” “Primary EPS Consensus Mean,” and “EBITDA Consensus Mean”; adjusted EBITDA reflects company-reported non-GAAP .

Guidance Changes

MetricPeriodPrevious Guidance (Q2)Current Guidance (Q3)Change
Net Income ($M)FY 2025$261–$276 $353–$371 Raised
Adjusted Net Income ($M)FY 2025$324–$339 $320–$331 Lowered/Tightened
Adjusted EBITDA ($M)FY 2025$615–$635 $620–$632 Midpoint +$1M
Diluted EPS ($)FY 2025$5.54–$5.86 $7.52–$7.89 Raised
Adjusted Diluted EPS ($)FY 2025$6.88–$7.20 $6.82–$7.05 Lowered/Tightened
Recurring Effective Tax RateFY 2025~25% 25% Maintained
U.S. RevPAR GrowthFY 2025 vs 2024-3% to 0% -3% to -2% Lowered/Narrowed
U.S. Avg Royalty Rate GrowthFY 2025 vs 2024Mid-single digits Mid-single digits Maintained
Global Net System Rooms GrowthFY 2025 vs 2024~1% ~1% Maintained

Drivers: GAAP EPS and net income raised primarily due to the $100M gain from fair value remeasurement of Choice Hotels Canada JV; adjusted EPS lowered/tightened on added amortization and JV earnings timing .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI/Technology initiativesInvesting in franchisee-facing optimization tools; website/app upgrades; productivity gains (Q2) $60M tech program nearing completion; autonomous agents for rate/revenue ops; AI-enabled SMB and group tools; Forbes tech employer recognition Expanding scope; near-term deployment
International expansionCanada JV acquisition; China MFA/distribution; EMEA direct franchising growth (Q2) Intl rooms >150k; RevPAR +9.5%; EMEA +11%; France +4,800 rooms; Argentina entry; APAC onboarding ~80% of 9.5k rooms Accelerating breadth and earnings
Extended stayU.S. rooms +10–11% YoY; WoodSpring leadership (Q1/Q2) U.S. extended stay rooms +12%; openings +14%; EverHome 23 open, 40 pipeline; segment outperformed industry Continued outperformance
SMB/Group demandSMB revenue +13% (Q2); group revenue +48% (Q2) SMB +18%; group +35%; 1,600 business accounts; SMB digital platform planned Sustained growth
U.S. macro/RevPAR cadenceLowered domestic RevPAR view reflecting gov/inbound softness (Q2) U.S. RevPAR -3.2%; early occupancy improvement; economy segment leads turn historically Bottoming signals developing
Royalty rateEffective royalty rate +8 bps (Q2) U.S. avg royalty rate +10 bps to 5.15%; pipeline supports higher rates Upward bias
SG&A disciplineAdjusted SG&A -4% (Q2); low single-digit growth guide Expect low single-digit growth; AI/ERP driving productivity Efficiency gains continue

Management Commentary

  • CEO on profitability and mix: “90% of our global portfolio consists of higher revenue-generating rooms… 98% of rooms in our global pipeline are in higher revenue brands” .
  • CEO on international growth: “We expect to generate more than $50 million in international adjusted EBITDA by 2027… third quarter alone, we achieved 35% growth” .
  • CFO on adjusted EPS drivers: “Adjusted EPS was $2.10… reflecting higher amortization (Canada), a temporary increase in income tax expense expected to reverse in Q4, reevaluation of JV ownership interest, and unrealized FX” .
  • CEO on AI transformation: “Our systems are advancing from a tool to a true teammate… autonomous agents continuously help franchisees optimize rate and revenue management” .
  • CFO on capital allocation: “Year-to-date we returned $150 million to shareholders… generated $25 million in net proceeds from recycling; net debt/TTM EBITDA 3x; liquidity $564M” .

Q&A Highlights

  • EverHome JV and capital recycling: JV structure nets ~$25M recycling; intent remains to sell assets/JV interests as markets improve; Cambria new development ends in 2025; EverHome ends 2026 .
  • Rooms growth outlook (U.S.): Pipeline quality/velocity favors conversions; many openings bypass pipeline and open in <3 months; limited supply supports 2026 growth .
  • Economy segment dynamics: Management views downturn as cyclical; economy transient often leads recovery; SMB labor trends support demand .
  • SG&A baseline and AI: Low-single-digit SG&A growth targeted; ERP/AI tools reducing manual work and improving development productivity .
  • Key money environment: Average key money per deal down ~11% YTD; strong brand value reduces need for incentives; expected moderation as rates decline .
  • Free cash flow conversion: 60–65% expected (timing effects in Q3 from investment tax credits) .
  • International royalty rates: Direct franchising ~2.7% effective royalty rate; Canada closer to ~4%; strategy to lift rates via value delivery .

Estimates Context

  • Q3 2025 revenue beat consensus: $447.3M actual vs $417.1M consensus*; EBITDA beat: $190.1M adjusted vs $182.7M consensus*; GAAP EPS beat: $3.86 actual vs $2.20 consensus*, with one-time JV gain the driver .
  • Adjusted EPS missed common expectations (company-reported $2.10); analysts may pivot to adjusted measures given non-recurring items .
  • Prior quarters: Q2 revenue $426.4M vs $429.8M consensus*; Q2 adjusted EBITDA $165.0M vs $165.8M consensus*; Q1 revenue $332.9M vs $346.6M consensus* .
    Note: *Values retrieved from S&P Global.

Key Takeaways for Investors

  • International expansion is now a core earnings engine (RevPAR +9.5%; rooms >150k), with direct franchising and royalty rate uplift driving margin expansion .
  • Extended stay scale and pipeline provide cycle resilience; segment continues to outpace industry RevPAR and supports mix shift to higher-value rooms .
  • Non-RevPAR revenues (partnership services/fees) and rising royalty rates diversify and strengthen earnings quality, mitigating domestic RevPAR softness .
  • GAAP EPS optics benefit from one-time JV remeasurement; focus on adjusted EPS/EBITDA and cash generation for core performance trajectory .
  • Guidance reset creates a near-term catalyst: higher GAAP metrics, tighter adjusted ranges, and clearer U.S. RevPAR expectations should recalibrate models .
  • AI/technology investments nearing completion underpin SG&A discipline and revenue capture (SMB and group), offering medium-term operating leverage .
  • Watch Q4 tax rate normalization (to ~21% in Q4, ~25% FY) and Canada amortization impacts; expect positive reversal of Q3 adjusted EPS headwinds .

Appendix: Additional KPIs and Highlights

  • Global pipeline >86,000 rooms; 98% in upscale/extended stay/midscale; expected conversion-driven openings (~80% of 2025 openings) accelerate revenue capture .
  • U.S. average royalty rate: 5.15% (+10 bps YoY) .
  • Liquidity: $564.2M; net debt-to-adjusted EBITDA: 3.0x TTM .
  • Shareholder returns: $150.4M returned YTD through Sept 30; 3.0M shares remaining under repurchase authorization .
  • Loyalty program: Choice Privileges enhancements launching early 2026 to accelerate elite attainment and deepen engagement (Return and Earn; Titanium tier) .
  • International press: Australia MainStay Suites launch (first outside North America); Africa entry; Argentina expansion provide new market vectors .