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CH

CHOICE HOTELS INTERNATIONAL INC /DE (CHH)·Q4 2024 Earnings Summary

Executive Summary

  • Choice Hotels delivered solid Q4 2024 results: revenues $390M, diluted EPS $1.59, adjusted EPS $1.55, and adjusted EBITDA $140M; domestic RevPAR rose 4.5% YoY on +3.1% ADR and +80bps occupancy, outperforming chain scales by 30bps and the broader industry by 90bps .
  • Management issued FY 2025 guidance of net income $288–$300M, adjusted EBITDA $625–$640M, diluted EPS $6.04–$6.29, and adjusted EPS $6.98–$7.24, with domestic RevPAR growth of 1%–2%, effective royalty rate growth mid-single digits, and ~1% global system room growth .
  • Upside narrative: accelerating mix into “revenue‑intense” segments (upscale, extended stay, midscale) and ancillary/platform fees strength; business travel now ~40% of mix with Q4 business transient revenue +14% YoY; group revenue +45% in Q4; co‑brand card revenues +20% YoY in 2024 .
  • Capital and liquidity: $699.5M available liquidity at year-end; 2024 adjusted FCF ~$392.5M and ~65% FCF conversion; returned >$435M via buybacks/dividends; board declared $0.2875/share dividend payable Apr 16, 2025 .

What Went Well and What Went Wrong

What Went Well

  • Domestic RevPAR +4.5% YoY in Q4, with 3.1% ADR and +80bps occupancy; company outperformed industry by 90bps and chain scales by 30bps, benefiting from stronger business and group demand .
  • Strategic growth footprint: net global rooms +3.3%; domestic upscale/extended stay/midscale rooms +4.3%; extended‑stay domestic rooms +9.8%; global upscale rooms +43.9%; pipeline ~97,000 rooms with ~83,000 domestic; 98% of pipeline in more revenue‑intense brands .
  • Management confidence and execution: “Choice Hotels generated another year of strong results… delivering a 4.3% year-over-year net increase in our more revenue-intense domestic rooms portfolio” – CEO Patrick Pacious .

What Went Wrong

  • Sequential moderation vs Q3: Q4 revenues $390M vs Q3 $428.0M and adjusted EBITDA $140M vs $177.6M, reflecting seasonal mix (Q4 heavier business travel but below Q3’s peak) .
  • Continued reimbursable fund deficit management: 2024 system fund deficit ~$18M and 2025 plan to add back ~$50M as a timing element; structural recast planned to clarify nonreimbursable vs reimbursable reporting .
  • Development environment headwinds: new construction muted by rates; FY25 net room growth guided ~1% globally despite strong conversion velocity and international growth .

Financial Results

Headline P&L vs prior quarters

MetricQ2 2024Q3 2024Q4 2024
Total Revenues ($USD Millions)$435.2 $428.0 $390.0
Diluted EPS ($)$1.80 $2.22 $1.59
Adjusted Diluted EPS ($)$1.84 $2.23 $1.55
Adjusted EBITDA ($USD Millions)$161.7 $177.6 $140.4

YoY comparison (Q4 2024 vs Q4 2023)

MetricQ4 2023Q4 2024
Total Revenues ($USD Millions)$358.4 $389.8
Diluted EPS ($)$0.58 $1.59
Adjusted Diluted EPS ($)$1.44 $1.55
Adjusted EBITDA ($USD Millions)$125.0 $140.4

Domestic hotel system KPIs (Q4)

SegmentADR ($) Q4 2023ADR ($) Q4 2024Occupancy Q4 2023Occupancy Q4 2024RevPAR ($) Q4 2023RevPAR ($) Q4 2024
Upscale & Above$146.56 $146.34 52.0% 53.4% $76.21 $78.21
Midscale & Upper Midscale$95.21 $98.09 52.3% 52.8% $49.78 $51.78
Extended Stay$61.20 $65.02 68.9% 68.6% $42.15 $44.62
Economy$68.51 $73.42 44.8% 45.6% $30.70 $33.45
Total$91.49 $94.32 52.8% 53.6% $48.33 $50.51

Other operating metrics

KPIQ4 2024YoY Commentary
Domestic RevPAR growth+4.5% Outperformed industry by 90bps; chain scales by 30bps
ADR growth+3.1% Price leadership aided by business/group mix
Occupancy change+80 bps Hurricane-related demand contributed ~125bps lift to Q4 RevPAR; ~30bps for FY
Effective royalty rate (system-wide)5.09% +6 bps YoY; pipeline contracts above current portfolio rates

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Income ($M)FY 2025N/A$288–$300 New issuance
Adjusted Net Income ($M)FY 2025N/A$333–$345 New issuance
Adjusted EBITDA ($M)FY 2025N/A$625–$640 New issuance
Diluted EPS ($)FY 2025N/A$6.04–$6.29 New issuance
Adjusted Diluted EPS ($)FY 2025N/A$6.98–$7.24 New issuance
Effective Tax RateFY 2025N/A25% New issuance
Domestic RevPAR GrowthFY 2025 vs FY 2024N/A1%–2% New issuance
Domestic Effective Royalty Rate GrowthFY 2025 vs FY 2024N/AMid-single digits New issuance
Global Net System Rooms GrowthFY 2025 vs FY 2024N/A~1% New issuance
Adjusted SG&A growthFY 2025N/ALow to mid-single digits from 2024 base $276M New issuance
Quarterly cash dividendDeclared Feb 26, 2025N/A$0.2875/share payable Apr 16, 2025 Declared

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
AI/technology-driven demandPipeline acceleration; digital revamp underway “Meaningful long-term opportunity to capture demand in technology and energy-related sectors, driven in part by significant infrastructure investments required by Gen AI” Strengthening tech vertical demand
Digital/product upgradesIntroduced longer booking window; platform enhancements Relaunched website/apps; higher booking conversion, double-digit for upscale; franchisee mobile platform deployed Execution on digital conversion
Macro/industry supplyDomestic RevPAR normalizing; industry supply <1% High rates muting new construction; optimism for RevPAR toward high end of guide with muted supply Constructive backdrop, cautious on new builds
Segment performanceExtended-stay growth (WoodSpring #1 J.D. Power) Extended-stay RevPAR +5.9%; domestic extended-stay rooms +9.8%; global upscale rooms +43.9% YoY Continued outperformance in targeted segments
Regional trendsInternational openings doubled; EMEA pipeline expansion EMEA RevPAR +5%; Spain/France franchise deals adding >2,300 onboarded rooms, rest in 2025 International scaling up
Rewards/co-branded credit cardCP members growth, card program ramp CP members reached 69M (+8%); card revenues +20% YoY Strong loyalty economics
Reimbursable vs nonreimbursableRevPAR fee mix; fund balances Q4: ~$161M reimbursable vs ~$39.7M nonreimbursable; 2024 deficit ~$18M; 2025 plan ~$50M add-back in EBITDA reconciliation Greater clarity; timing shifting into FY25

Management Commentary

  • “We exceeded the top end of our guidance with a 12% year-over-year increase in adjusted EBITDA and a 13% year-over-year increase in adjusted earnings per share… 98% of the rooms in our global pipeline are now within our more revenue-intense brands.” – Patrick Pacious, CEO .
  • “Our domestic system effective royalty rate… increased 7 basis points year-over-year… pipeline contracts have significantly higher effective royalty rate than our current portfolio.” – Scott Oaksmith, CFO .
  • “Business travel represented approximately 40% of our overall mix… business transient segment grew 14% year-over-year in the fourth quarter; group sales revenue increased >45% YoY in Q4.” – Patrick Pacious .
  • “We generated over $390 million in adjusted free cash flow… total available liquidity of approximately $700 million at the end of 2024.” – Scott Oaksmith .

Q&A Highlights

  • Reimbursable fund mechanics: Q4 had ~$161M reimbursable vs ~$39.7M nonreimbursable; nonreimbursable produced ~$14.5M EBITDA; FY24 reimbursable deficit ~$18M (better than ~$35M guide) with timing shifting to 2025 .
  • Hurricane benefit quantified: ~125bps lift to Q4 RevPAR; ~30bps for FY24; plus strength in tech, energy, transportation, construction, government segments .
  • FY25 growth build: Domestic levers add ~2.5% to EBITDA, owned/international +1%, platform/ancillary +2%, SG&A −1% → mid-point of guidance; upside tied to RevPAR and unit growth .
  • Capital recycling: ~$600M outstanding recyclable capital; 2025 net outlays $115–$120M; recycling expected 2026+; owned hotels FY24 revenue ~$113M delivering ~$30M EBITDA .
  • Westgate economics: distribution fees “significantly ahead” of average 5% royalties; blended effective rate “a little south” of royalty rate; ~3,000 Bluegreen rooms within Ascend .

Estimates Context

  • S&P Global Wall Street consensus for Q4 2024 (EPS, revenue, EBITDA) was unavailable due to a system retrieval limit, so we cannot formally categorize beat/miss relative to consensus for this quarter [GetEstimates error].
  • Given reported outperformance vs company guidance and strong qualitative drivers (business/group demand, effective royalty rate growth), estimate revisions may bias upward for FY25 EBITDA/EPS if early 2025 RevPAR trends track toward the high end of guidance .

Key Takeaways for Investors

  • Mix shift into “revenue‑intense” brands, higher effective royalty rates, and ancillary/platform fee growth underpins margin durability despite muted new construction supply in 2025 .
  • Business travel and group momentum are tangible and quantifiable (business transient +14% YoY; group +45% YoY), supporting ADR and midweek occupancy into early 2025 .
  • FY25 guide implies steady earnings growth (adj EBITDA $625–$640M; adj EPS $6.98–$7.24) with domestic RevPAR +1%–2% and mid‑single‑digit effective royalty uplift; watch for upside if macro remains supportive and conversions keep pace .
  • Free cash flow conversion (65%) and robust liquidity ($700M) enable continued shareholder returns and targeted brand investments; board declared $0.2875 dividend (Apr 16) .
  • Westgate distribution economics add a high‑fee channel to loyalty flywheel; expect measurable contribution through reservations delivered rather than traditional royalties .
  • Reimbursable fund timing (“deficit” add‑back ~$50M FY25) is accounting‑mechanical; focus on nonreimbursable EBITDA drivers and core fee growth for sustained performance .
  • Near-term trading: positive narrative on business/group demand and loyalty monetization; monitor Q1 trends and management’s May update for guide trajectory and any conversion cadence acceleration .