Choice Hotels International, Inc. (CHH)

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Choice Hotels International, Inc. (CHH)

Q2 2011 Earnings Call

August 2, 2011 10:00 a.m. ET

Executives

Stephen P. Joyce – President, CEO

David L. White – CFO

Analysts

Harry Curtis – Nomura

Steven Kent – Goldman Sachs

Ryan Meliker - Morgan Stanley

Felicia Hendrix – Barclays Capital

Joseph Greff – JP Morgan

Shaun Kelley – Bank of America – Merrill Lynch

Christopher Agnew – MKM Partners LLC

David Loeb – W. Baird & Co., Inc

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Good morning and welcome to the Choice Hotels International Second Quarter 2011 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later there will be a question-and-answer session and further instructions will be given at that time. As a reminder, today's call is being recorded.

During the course of this conference call certain predictive or forward-looking statements will be used to assist you in understanding the company and its results which constitute forward-looking statements under the Safe Harbor provision of the Securities Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as choice or as management beliefs, expects, anticipates, foresees, forecasts, estimates or other words or phrases of similar importance. Such statements are subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Please consult the company's Form 10-K for the year ended December 31, 2010, and other SEC filings for information about important risk factors affecting the company that you should consider.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We caution you do not place undue reliance on forward-looking statements, which reflect our analysis only and speak only as of today's date. We undertake no obligation to publicly update our forward-looking statements to reflect subsequent events or circumstances.

You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our second quarter 2011 earnings press release which is posted on our website at www.ChoiceHotels.com under the Investor Information section.

With that being said, I would now like to introduce Steve Joyce, President and Chief Executive Officer of Choice Hotels International Incorporated. Please go ahead, sir.

Stephen P. Joyce

Thank you. Good morning and welcome to Choice Hotels second quarter 2011 earnings conference call. With me this morning, as always, is Dave White, our Chief Financial Officer.

As we noted last night in our release, we are pleased with our second quarter results which we published and hopefully you received it. We're excited by the positive momentum we are seeing on a number of fronts, including RevPAR growth, both domestically and abroad, in our development area, particularly our domestic conversion franchise sales results, which continued to accelerate during the second quarter and in the area of growing our central reservations contribution to our franchised hotels.

Our EBITDA and diluted earnings per share for the second quarter exceeded our outlook because of better than anticipated revenues driven by domestic RevPAR and international revenue growth. Considering these results and improved visibility into the second half of this year, we are raising our full year outlook for both EBITDA and diluted earnings per share as well as RevPAR.

On the macroeconomic front, however, the key fundamentals, employment, consumer confidence and GDP growth that impact our results have not changed significantly since our last earnings conference call in April. The bottom line is, we still expect a gradual, but steady recovery.

Turning to RevPAR during the second quarter, our domestic RevPAR increased 6.6%, which was approximately 130 basis points better than we were expecting. Importantly, the RevPAR increases we experienced during the quarter were broad as every one of our brands experienced positive RevPAR growth, which were driven by nearly across the board occupancies and average daily rate gains.

In June and July, the first two months of our third quarter, despite more challenging comps when compared to the same period of 2010, we saw RevPAR continuing to grow in the mid-single digit percentage range consistent with our outlook for the third quarter. Considering our second quarter and more recent results from the past two months, we are increasing our full year RevPAR growth outlook to 5% from the outlook we shared with you in our last earnings call.

Another highlight of the second quarter was our franchise sales results. For the quarter, we executed 69 domestic hotel franchise contracts, up 11% compared to the 62 deals executed in the second quarter of 2010. Our second quarter franchise sales results marked the fourth consecutive quarter of year-over-year growth in domestic conversion franchise sales agreements with conversion franchise sales contracts executed during the second quarter increasing 22% from 50 to 61.

The development in franchise sales environment for new construction remains challenging, which is not surprising at this point in the cycle and is consistent with our company's experience in the early recovery stage of the last lodging cycle.

Historically, our net unit growth has been more heavily dependant on conversion hotel openings and on new construction, and therefore, the building trend in conversion franchise sales is encouraging and we are optimistic that the continuation of those trends will enable us to return the unit growth lever to a much bigger contributor to our long-term growth.

Another highlight on the development front for the quarter was our continuing success with the Ascend Collection membership program. The Ascend Collections is an upscale network of hotels that are either historic, boutique or unique-type properties. They are located in the United States, Canada and the Caribbean. We just brought online our largest Ascend Collection Hotel, the 430-room Xona Resort Suites in Scottsdale, Arizona, represented – Ascend Collection hotels include the District Hotel in New York City, The Gold Hotel in Golden Colorado and The Inn of Chicago on the Magnificent Mile.

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