Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International First Quarter 2022 Earnings Call. At this time, all lines are in a listen-only mode. I will now turn the conference over to Allie Summers, Investor Relations Director for Choice Hotels.

Good morning, and thank you for joining us today. Before we begin, we would like to remind you that during this conference call, certain predictive or forward-looking statements will be used to assist you in understanding the company and its results. Actual results may differ materially from those indicated in forward-looking statements, and you should consult the company's Forms 10-Q, 10-K and other SEC filings for information about important risk factors affecting the company that you should consider. These forward-looking statements speak as of today's date, and we undertake no obligation to publicly update them to reflect subsequent events or circumstances. You can find the reconciliation of our non-GAAP financial measures referred to in our remarks as part of our first quarter 2022 earnings press release, which is posted on our website at choicehotels.com under the Investor Relations section. This morning, Pat Pacious, our President and Chief Executive Officer; and Dom Dragisich, our Chief Financial Officer, will speak to our first quarter operating results and financial performance. Following Pat and Dom's remarks, we'll be glad to take your questions. And with that, I'll turn the call over to Pat.

Thanks, Allie, and good morning, everyone. We appreciate your taking the time to join us. It's been a rewarding and successful start to the year. Choice Hotels generated record earnings, continued our industry-leading RevPAR growth and attracted significant new developer interest in our portfolio of proven hotel brands. Consumer trends such as remote work, rising wages, retirements and road trips are all expected to fuel future demand. I'm pleased to report that we generated $96.6 million of adjusted EBITDA in the first quarter, a 53% year-over-year increase and a 28% increase when compared to the same quarter in 2019. At the same time, we expanded our adjusted EBITDA margins to 74% year-over-year. These exceptional financial results were fueled by continued RevPAR growth that materially outperformed the industry by 13 percentage points for the first quarter as we gained share across every segment in which we compete. For over two years, our RevPAR gains as compared to 2019 have been significantly higher than the competition. This continued impressive performance is driving high demand for our brands from the franchise community. In fact, in the first quarter, we saw a 46% year-over-year increase in new applications for domestic franchise agreements. We have always had a strong relationship with our franchisees, and the past two years have only reinforced this bond. Last week, we hosted more than 5,000 franchisees, hotel general managers, and industry suppliers at our 66th Annual Convention. This was the first time in three years that our entire Choice community has been together for an in-person event, and the level of enthusiasm around the future of our brands was remarkable. We spent the week sharing our long-term brand growth plans and listening to our hotel owners and operators. It was also an important opportunity for our franchisees to learn about the exciting new investments we have made in tools and resources that can further improve their businesses. Our franchisees left the event energized and optimistic that they can drive the profitability of their hotels to new levels. Of course, the success of the event was only possible thanks to the hard work of all of our Choice associates. Throughout the remainder of our remarks, we'll provide RevPAR comparisons to 2019, which we believe are more meaningful in analyzing trends given the pandemic's impact on the industry's prior year performance. Our first quarter RevPAR growth was impressive with domestic system-wide RevPAR increasing 10.4% from the same quarter of 2019. Even with the Omicron variant, demand during the first quarter surpassed 2019 levels. Combined with our hotels' ability to drive room rates, we have now exceeded our 2019 RevPAR levels for 11 consecutive months, and we expect our momentum to continue into the second quarter. Our April RevPAR results exceeded 2019 levels by approximately 16%. We remain very optimistic about our growth prospects because of the long-term investments we have made and will continue to make in our business. These investments are designed to capitalize on the consumer trends that have accelerated during the past two years and are expected to continue, trends that favor leisure travel, limited service hotels and longer lengths of stay, all of which are key strengths of our business. We believe that remote work, which affords Americans greater flexibility as to when, where, and for how long they travel, will continue to fuel the strong performance of our brands. We expect these trends to continue to be strong tailwinds for our company's long-term growth. Consumers, who have built up their savings during the pandemic and are experiencing rising wages, are pivoting towards spending more on experiences than on durable goods. In fact, this year, research shows that Americans are expected to budget more on domestic leisure travel compared to pre-pandemic levels. Consumer preferences also are shifting as to how and where they choose to travel. A recent study shows that domestic road trips are now more popular than they were pre-pandemic, a trend that is particularly beneficial for our portfolio of over 4,000 hotels located within a mile of an interstate exit. And with over 2,000 domestic hotels near beaches and national parks, our hotels are in the right locations to capture growing demand from travelers who continue to discover the great American outdoors. All of these trends highlight the potential for Choice to further increase our share of consumer travel demand. Even with rising inflation in gas prices, we continue to expect strong consumer demand especially as we enter the busy summer leisure travel season. Based on our focus group research and current projections, we do not expect to see an impact on aggregate travel demand through the summer travel season. It is worth noting that gas prices historically have had little to no impact on travel. Rather, consumers indicate that rising fuel costs could mean adjustments in how they spend their money such as traveling shorter distances, choosing destinations closer to home or not dining out as often, but they are going to travel. Indeed, recent studies point to a significant year-over-year uptick in consumers' intent to travel in the next six months. Nine out of ten American travelers surveyed are saying they are ready to travel, the highest levels we've seen over the last two years. Likewise, we are continuing to see the return of customers who were once hesitant to travel. In addition to leisure travel, we are also observing business travel trends that are favorable for our brands. In the first quarter, we witnessed sequential quarter-over-quarter increases in our business travel bookings with demand continuing the steady progression back to 2019 levels. We expect business travel in our key industry verticals to increase, fueled by the additional onshoring of the U.S. supply chain and investments from the infrastructure build. The strengthening of group travel demand we expect this year will also serve as a catalyst for our portfolio. By establishing our strong foundation within the small group travel segment, we positioned Choice to benefit from the recent demand shift towards smaller size meetings. In addition, our recent partnership with the industry's leading provider of group travel booking platforms makes us one of the few companies able to provide travel planners with instant booking capability for our group rates. This new capability positions us well to capture additional share of group travel as it bounces back. We are also investing to drive demand from all travelers through a new nationwide advertising campaign centered on Choice Hotels serving as the base for our guests to have great experiences at their destinations. With so many people returning to travel following a two-year hiatus, the campaign encourages our guests to take advantage of spontaneous trips after months of lockdowns and travel restrictions. Now that we have exceeded our pre-pandemic performance levels and are encouraged by the long-term fundamental shifts in consumer behavior, we will continue to invest in our brands as well as our franchisee and guest value propositions. Underpinning our first quarter success are the deliberate decisions and strategic investments we have made in our brand portfolio, value proposition, platform capabilities and other franchisee-facing tools. Our results show that our long-standing strategy continues to work and has put Choice Hotels in a stronger position than we were in 2019. As we have noted before, we believe the key strategic building blocks we have established will drive our sustained growth in the years to come. Let's take a closer look at some of the accomplishments for this quarter. First, we continue to strengthen our core portfolio of brands. The transformation of our Comfort brand is a prime example of our long-term investment approach. Since its successful refresh, the Comfort brand has registered nine consecutive quarters of unit growth year-over-year and has continued to generate RevPAR index gains versus its local competitors, demonstrating the attractiveness of this iconic brand to hotel developers and guests alike. Now we're starting the next chapter of our flagship brand with a new competitive prototype that we introduced last year. This has driven a 45% year-over-year increase in domestic franchise agreements awarded in the first quarter. Our Quality Inn brand, with over 1,600 hotels opened in the United States, continues to be a leader in the mid-scale segment with strong developer demand and an 8.4% increase in RevPAR, outperforming the segment during the first quarter versus the same period of 2019. Our Clarion Pointe brand has also continued to grow. In the 3.5 years since its launch, Clarion Pointe has expanded to 45 open hotels with another 32 hotels awaiting conversion this year. We also further invested in the extended-stay segment, which continues to be a significant driver of our unit and RevPAR growth. Our current extended-stay domestic pipeline expanded to 350 hotels, and we expect the number of our extended-stay units to grow by double digits over the next five years. These results reflect investors' confidence in committing their capital to our extended-stay brands. Specifically, in the first quarter, we awarded 29 extended-stay domestic franchise agreements, a threefold increase year-over-year and a twofold increase compared to 2019 levels. Our investments in the WoodSpring Suites brand marketing and distribution capabilities enabled us to achieve over 27% RevPAR growth in the first quarter of 2022 compared to the same period of 2019. WoodSpring Suites pipeline reached nearly 190 domestic properties as of the end of March, a 26% increase year-over-year with over 30 construction projects started, and we expect the brand's ground breaks this year to exceed 2021 levels. Our newest extended-stay brand, Everhome Suites, is off to a strong start this year, and its first hotel is scheduled to open this summer. The appeal for this mid-scale new construction option in the development community continues to grow with nearly 30 additional projects already in the pipeline and a significantly higher number of domestic contracts expected for 2022 as compared to last year. And finally, we recently introduced Suburban Studios, an innovative transient hotel to extended-stay hotel conversion model to provide growth-minded hotel owners a quick, low-cost opportunity to reposition their existing properties into the high-performing economy extended-stay segment. The first Suburban Studios property is already underway and set to open this summer. And interest is high among owners and developers to join the portfolio of 70 open Suburban hotels. We're also pleased with our upscale portfolio, where our focus, efforts, and investments continue to drive a healthy payoff. The Cambria brand continued its positive unit growth momentum expanding to 58 units with an additional 68 domestic properties in the pipeline, including 19 projects under active construction at the end of March. The recently introduced Cambria Hotel prototype designed for secondary and leisure markets has been enthusiastically received by the developer community with 10 new prototype agreements signed as of the end of the first quarter. 2022 is shaping up to be another great year for Cambria. We expect to open over 10 additional hotels across the country this year, further fueling the revenue intensity of our system. In addition, consumer confidence in our upscale products continues to drive the brand's RevPAR index gains versus their local competitors and underlines the attractiveness of Choice Hotels' value proposition in the upscale segment for current and prospective owners. Another key contributor to our success has been our economy brand portfolio. Developers and our franchise owners have taken note of our economy brand segment's RevPAR index gains versus local competitors and its 17% RevPAR growth in the first quarter compared to the same period of 2019. Specifically, our Econo Lodge brand experienced an increase in domestic franchise agreements awarded in the first quarter of 2022 compared with 2021 and 2019, contributing to the brand's 14% year-over-year domestic pipeline expansion as of the end of March. As we emerge from the pandemic, we also continue to improve the value proposition that we deliver to our franchise owners. Thanks to our pricing optimization and merchandising capabilities, our owners are able to effectively capture additional market share, drive top-line revenue, and reach their target customers. The award-winning tools we've introduced and new enhancements we recently deployed are contributing to our brand's outperformance. In fact, for over two years, our RevPAR gains as compared to 2019 have been significantly higher than the competition. What's most impressive is that we continue to drive strong performance through both rate and occupancy share gains. In addition, our franchisees are benefiting from our strong business delivery to their hotels. Thanks to our enhancements in our distribution capabilities, we drove growth as compared to 2021 and 2019 through increased revenue contribution in the first quarter of 2022 from choicehotels.com. Business delivery through this channel significantly improves our owners' profitability as it brings more guests into their hotels at the lowest cost. Owners are seeing the increasing value in our brands and are acting upon it, as evidenced by existing owners renewing their agreements to remain in our system and new owners buying existing Choice flag hotels. In fact, the first three months of 2022 marked the highest quarter over the past five years for franchise relicensing and renewal revenue and contracts. This is true for new hotel development as well, as nearly seven out of ten franchise agreements awarded this quarter were with existing or returning owners. And finally, our franchise owners are remaining with Choice as seen in our industry-leading voluntary franchisee retention rate. At the same time, we continue to improve the unit economics for our franchisees, concentrating on investments like housekeeping upon request that lower their total cost of ownership while providing them with resources to operate more efficiently. As a result of our progress, we are well positioned for stronger profitability in the future with ample runway as we execute our strategy. The results we achieved this quarter confirm that our long-term strategy is working. We are further improving our revenue delivery to our franchisees while focusing on growth in more revenue-intense segments and locations. This is what gives us such high confidence in our ability to continue to drive exceptional results in the coming years. I want to now spend a moment on the efforts we're making to live up to our ESG commitments, which, like our strategy, are focused on the long term. Among our recent actions was the creation of a dedicated role to lead our environmental, social, and governance efforts across the Choice Hotels community. This is a testament to our commitment to raise Choice's sustainability and corporate social responsibility efforts to the next level and bring a fresh perspective on how to expand and reinforce our award-winning ESG programs. We recently rolled out Choice's Commitment to Green program that signals our growing focus on how we can contribute to a more sustainable future for our planet while also being mindful of our owners' bottom line. In this regard, we're making progress with our cloud-based property management dashboard that will enable our franchisees to track utilities usage at the hotel level, allow us to benchmark our system, and help identify opportunities for additional energy, water, and waste conservation. This is a win-win because it reduces franchisees' operating costs while benefiting the environment. A central focus of our ESG efforts is our commitment to fostering an environment supportive of diversity and inclusion. Our fully dedicated franchise development and service team continues to drive diverse ownership of Choice franchised hotels among underrepresented women and minority owners with over 300 franchise contracts awarded since the program began over 15 years ago. As part of our efforts to raise the level of women's hotel ownership, I'm pleased to say that last week we announced our newly enhanced program, HERtels by Choice. The program builds on our legacy and will provide dedicated training, education, mentorship, and financial assistance to advance and empower the industry's female entrepreneurs and ensure they thrive as a Choice Hotels franchisee. As part of this initiative, we've met with well over 100 current and potential women owners and are committed through HERtels by Choice to make their dream of owning their hotel a reality. In closing, I'm confident that our effective strategic investments and commitment to our franchisees' profitability will continue to create value and deliver results for our owners and shareholders. We believe that we are well-positioned to build on the success achieved this quarter and that our increased earnings power will enable us to further capitalize on growth opportunities in 2022 and beyond. With that, I will hand it over to our CFO. Dom?

Thanks, Pat, and good morning, everyone. I'm very pleased to be with you today to report our impressive first quarter financial performance. Specifically, I will provide additional insights on our first quarter results, share expectations for what lies ahead, and update you on our liquidity profile and capital allocation approach. Throughout my remarks today, I'll be making financial performance comparisons to 2021. Just a reminder, Choice's full year 2021 adjusted EBITDA exceeded 2019 levels. And as a result, we are focused on building on last year's record performance. However, for RevPAR growth, I will continue to make these comparisons to 2019, which we believe are more meaningful in analyzing the industry's trends. For RevPAR comparisons to 2021, please refer to our press release. For the first quarter of 2022 compared to the same period of 2021, total revenues, excluding marketing and reservation system fees, were $131.1 million, a 43% increase. And adjusted EBITDA grew 53% to $96.6 million driven by impressive RevPAR performance, strong effective royalty rate growth, and disciplined cost management. Our adjusted EBITDA margin expanded to 74%, an increase of nearly 5 percentage points. And as a result, our adjusted earnings per share were $1.03 for the first quarter, an increase of 81% versus the same period of 2021. I'd like to now turn to our three key revenue levers, beginning with RevPAR. Our domestic system-wide RevPAR outperformed the overall industry by 13 percentage points for the first quarter, increasing 10.4% versus the same period of 2019. Specifically, our average daily rate grew by over 9%, and our occupancy levels increased by 60 basis points compared to the same quarter of 2019. As you will remember from our prior calls, our brand strategy is focused on driving growth across the higher-value and more revenue-intense upscale, extended-stay, and mid-scale segments. Through our investments in these strategic segments, we have materially outperformed the industry in RevPAR growth and continue to gain share versus our local competitors across all segments in which we compete in the first quarter versus the same period of 2019. For first quarter, we increased RevPAR index versus our local competitors by over 3 percentage points as compared to the same period of 2019, reflecting continued growth in both weekday and weekend RevPAR index. Specifically, we continue to gain average daily rate and occupancy index share versus local competitors and achieved average daily rate and occupancy growth stronger than the industry. Contributing to this performance are the key investments we continue to make during the pandemic, including our award-winning revenue management tool, which successfully rolled out across our system last year. Expert advice from our revenue management consultants, along with the tools and capabilities we provide, are enabling our franchise owners to quickly determine and execute the right pricing strategy, which is increasingly critical in this inflationary environment. We believe that the new enhancements we are currently deploying to our revenue management tool will allow us to further drive rate growth in 2022 and beyond. Also giving us confidence as we look ahead are positive consumer and macro demand trends that we expect will continue to drive outperformance within our brand segments. For full year 2022, we currently expect domestic RevPAR to surpass 2019 levels and increase between 10% and 13% as compared to full year 2019. Our effective royalty rate also continues to contribute to our strong revenue growth. Our domestic effective royalty rate once again exceeded 5% for the quarter, increasing 3 basis points for the first quarter of 2022 compared to the same period of the prior year. This performance is further validation of our long-term investment strategy on behalf of our franchisees and reflects the continued strengthening of our value proposition to our franchise owners and the attractiveness of our proven brands. With hotel owners continuing to seek Choice Hotels' proven capabilities to consistently deliver strong top line revenues that maximize return on investment while reducing total cost of ownership, we expect our effective royalty rate to grow approximately 5 basis points for full year 2022 year-over-year. The third revenue lever I'd like to discuss is unit growth, where we are able to leverage our portfolio's absolute size and the revenue intensity of its hotels. For the first quarter, our revenue-intense brands grew by nearly 1% year-over-year, excluding last year's departures of 17 AMResorts from our Ascend Collection and the exit from our portfolio of just over 40 underperforming assets that we discussed last quarter. For full year 2022, we expect the unit growth of the more revenue-intense segments to accelerate and range between 1% and 2%. Furthermore, we expect the broader revenue intensity trends of our overall portfolio seen in 2021 to continue with a new unit entering the Choice system generating, on average, twice the revenue as a unit exiting our system. Aided by our strong value proposition and continued RevPAR performance, demand for new franchise contracts has continued to build since the beginning of the year with nearly two-thirds of the total domestic agreements executed in the month of March alone. For the first quarter, we awarded over 90 domestic franchise agreements, a 39% increase year-over-year, excluding last year's Penn National Gaming multiunit transaction. Nearly 90% of all domestic contracts awarded in the quarter were for our revenue-intense segments. Our developers share our increasing optimism regarding the long-term fundamentals of the lodging industry. Specifically, we are very pleased to see that demand for our new construction brands in the first quarter more than doubled year-over-year. In fact, more than 40% of total domestic franchise agreements awarded in the first quarter were for new construction contracts. At the same time, demand for our flagship Comfort brand conversions increased by 56% year-over-year driven by the brand's strong value proposition and performance. Developers continue to choose our brands versus the competition as they seek to improve their operations and boost their hotel's long-term value. A 46% year-over-year increase in new applications for domestic franchise agreements in the first quarter further reinforces our confidence in our continued growth prospects through 2022 and beyond. Let me now turn to our balance sheet, the strength of which is one of the major reasons we believe we are an even stronger company today than in 2019. Our strong performance, effective allocation of resources to drive top line outperformance and margin expansion has further bolstered the company's liquidity position, despite the first quarter being historically our lowest cash flow period. More specifically, at the end of first quarter 2022, the company had more than $1.1 billion in cash and available borrowing capacity through its revolving credit facility. We are pleased to report a significant year-over-year increase in cash flow from operations from nearly flat to $64 million for the first quarter 2022. We continue to maintain a best-in-class balance sheet with a gross debt-to-EBITDA leverage level below our target range of 3x to 4x and net debt-to-EBITDA leverage at 1.2x as of the end of first quarter 2022. This lower leverage reflects our improved profitability and means we have the flexibility to utilize our balance sheet as needed for additional growth. Year-to-date through April, we returned over $41 million back to our shareholders in the form of cash dividends and repurchases of our common stock. During the first quarter of 2022, we increased the quarterly dividend to a level higher than pre-pandemic, and we expect to pay dividends this year of $53 million, more than double the level of 2021. 2022 will continue to be an investment year for us. We will utilize our strong leverage position to further invest in the core business, especially in our product portfolio and deploy capital for ancillary growth opportunities. In doing so, we are building upon the successful investments we have made in our key strategic segments over the last few years such as the new brand launches of Clarion Pointe and Everhome Suites, the strategic redesign of Suburban Studios and development of new prototypes for our Comfort brand family and Cambria Hotels. In addition, we have been making significant investments in our value proposition capabilities, including the introduction of our new revenue management tool and enhancements to our merchandising capabilities. These investments are providing the tailwinds driving our brand's RevPAR outperformance, increased developer demand for our products, and the industry-leading voluntary franchisee retention rate. Today's results are a testament that our investments are working. And we are committed to continue to invest and drive attractive returns for years to come. As such, we expect to incur higher adjusted SG&A expenses year-over-year in 2022 with the majority of investment activity planned for the second half of the year. We anticipate adjusted SG&A expenses to revert to historical growth rates thereafter. Despite these planned elevated investments, we expect to drive continued growth in adjusted EBITDA for full year 2022 compared to full year 2021 and grow our adjusted EBITDA margin above 2019 levels. Our confidence in our ability to generate strong levels of cash combined with ample liquidity and debt capacity position us well to continue to grow the business and return excess cash flow to shareholders for the remainder of the year and well into the future. As you can see, Choice Hotels once again had a strong start to the year, and we remain optimistic that our performance will continue as we drive results guided by our long-term focus. Accordingly, we will continue to adjust the level of our investments as we monitor the broader environment and its recovery trends. We look forward to providing you with further updates in August during our next earnings call. In closing, I want to reinforce the confidence we have in our long-term strategic approach and the resilience of our business model, which allow us to deliver strong operating results and generate substantial cash flow through multiple growth levers. We believe these strengths, combined with our disciplined capital allocation strategy and strong balance sheet, will allow us to further capitalize on growth opportunities and drive outsized returns in the years ahead. At this time, Pat and I would be happy to answer any questions.

The first question today comes from Shaun Kelley with Bank of America.

I appreciate all the color and detail, Dom, especially in the outlook. Just wondering if we could get a bit more color on sort of either what you're implying or expecting to see on overall net unit growth. So it looks like there may be some additional drag here from either hotels you're proactively letting go out of the system or maybe some other moving pieces. But can you maybe just give us a little color on overall system-wide NUG because it sounds like there's probably an offset from higher-value hotels, but help us think about maybe some of the puts and takes there.

Yes, Shaun, let me start, and then Dom can fill in some of the detail. I mean, I think the most important thing we want to be focused on is the hotels that we're expecting to open this year are going to deliver twice the royalty revenue as those that are leaving. And that's reflective of our strategy of focusing on these more revenue-intense hotel segments and hotel locations. So that's the most critical piece of this. And because of that, our unit growth is accretive to our earnings. The growth in our revenue-intense segments we are projecting this year to be between 1% and 2%. And that's consistent with what we're seeing in the marketplace. I would say on the terminations, we did clean up, particularly the Quality Inn brand last year. And a lot of that was due to owners last year had a number of months of really positive performance. And if they weren't investing back in their hotels, we sort of made the decision to eliminate some of those hotels. Right now, we don't see that for this year as far as taking additional terms to improve the quality of the brands. But I'll pitch it over to Dom here for any additional additions there.

Yes, Shaun. Looking at the results for the current quarter, excluding AMR in strategic terms for Q4, the unit growth in revenue was about 1%. Pat mentioned that we anticipate those brands will accelerate over the rest of the year, ranging between 1% and 2%. The other aspect of the broader portfolio's unit growth is mainly from the economy brands. We expect those economy brands to continue their trends similar to 2021. In fact, we see some positive signs in the first quarter as well. Therefore, we expect those trends to either remain steady or improve somewhat in the next three quarters. Regarding terminations, we do not anticipate any significant spikes like Q4 of last year. In fact, we expect to see a return to the more historical 4% termination rate, with most of those being involuntary terminations executed by Choice, aligning with our historical levels.

Great. And maybe just as a quick follow-up if I could. Would love to just talk about, obviously, you're continuing to see super strong rates throughout the balance of this quarter, it seems like heading into second quarter as well. Obviously, you have some mix shift these around as we think about the types of hotels that you're opening and ramping. Can you help us just think about either same-brand ADR growth? Basically, how much tailwind are you experiencing from some of the new brands that you're opening relative to that overall kind of ADR gains? How much is mix shift versus how much is sort of kind of core same brand to same brand ADR growth.

Let me just start, Shaun. I mean, last week, as I mentioned, we were with over 5,000 of our owners. A lot of the rate gain that we're seeing is just more effective pricing. So we rolled out our revenue management tool last summer, at the beginning of the summer. And the effectiveness of that and helping them price their rooms multiple times a day, and that system is getting a significant amount of input on what's going on in the marketplace. And these owners are able to sit on their account at 10:00 o'clock at night and get a recommendation on their phone that they might want to up their rates. So the response time has really improved. And so I think that's part of what we're seeing. As far as additional runway, we look at our ADR index, meaning how much we are setting our rates relative to competition. We see significant runway, and then on top of that, we're still gaining occupancy. So when you look at these cycles, it's sort of once occupancy sort of taps out, that's where the rate pressure comes in. But we're still seeing occupancy gains along the way. So just talking to owners about what they're seeing and what they're experiencing and their ability to set their rates multiple times a day using our new tools, we feel really confident about the strength of our rate setting as we move into the second half of the year here.

Yes. I would add that when you look at Exhibit 5 in the release, the average daily rate increase is quite consistent across all brands, with most seeing increases in at least the mid-single digits, if not higher. This indicates a positive impact from the growth of revenue-generating units. With that in mind, the overall unit growth for the entire portfolio is more likely around 3% to 4%. Additionally, the average daily rate gains are also consistent across the board, which is illustrated by how the 9.3% rate increase is distributed by brand in Exhibit 5.

The next question comes from Robin Farley with UBS.

I wanted to acknowledge the various factors influencing unit growth. You noted that deletions are expected to return to more typical levels. I understand that growth is primarily concentrated in the extended-stay and upscale segments. However, if we consider both the economy segment and look at the company on a whole, how do you expect unit numbers in 2022 to compare to 2021? Will they remain flat, or might there be a slight decrease? I'm trying to estimate that figure.

Robin, I would say it's probably close to flat or slightly positive. When you look at the revenue-intensive unit growth, I would mention that 1% to 2% that we talked about. I think the best way to model the brands would be to consider what the unit growth was for that portfolio in 2021, if not slightly better year-over-year. So when you factor that into the model, I would guess it implies somewhere around flat to slightly positive for the broader portfolio.

And what was the unit growth in economy in '21?

Down about 4% or so.

Okay. Lastly, I know you mentioned the new revenue management tool, which you mentioned was rolled out at the end of last summer. Was that implemented across the entire portfolio? I'm curious if it took a few quarters to fully roll out or when we can expect to see the complete impact of that. Would it be considered a full 12 months starting from the end of last summer, or did the rollout take some time?

We started it, Robin, at the beginning of the summer, and we were rolling out probably a couple of hundred hotels per week. And I would say, by the end of the summer, we had 5,000 of our 6,000 hotels on the system by the end of the summer. So you can kind of look at it that way. The hotels that are not on it yet are extended-stay brands. We're working on that solution as we speak. And then for our economy hotels, they have the ability to opt in to whether or not to use the system. And I think about 1/3 do opt in. And I would guess after last week's convention, when they talk to other owners who are really benefiting from the system, we're going to see a higher uptake from owners who can opt in. For the rest of our brands, it's a mandatory requirement, and our owners are really pleased with the results.

And do you get a greater percent of revenue from when it's booked? Is that why 2/3 of the economy wouldn't be opting in? Is it an incremental basis points of revenue?

Many of the economy hotels are smaller properties located in markets where they may be the only hotel available. In such cases, they effectively represent the entire market, making it less practical for them to adopt certain standards. This is why we haven't mandated those standards for our economy hotels. However, hotels like Econo Lodge situated in urban or secondary markets typically face more competition and have a greater incentive to keep current with market trends. Owners are experiencing rapid inflation, and since we can adjust pricing multiple times a day, it becomes advantageous for them to stay informed about what consumers are willing to pay at any given time.

The next question comes from Patrick Scholes with Truist.

First question is regarding your balance sheet, obviously, arguably underlevered and potential capital allocation. I recall about, I think it's roughly 10 years ago, the last time the balance sheet was at these healthy levels, you folks paid out a sizable surprise special dividend. Would you rule that out as a possibility for the use of your balance sheet?

Sure, Patrick. Let me address that. I was part of the decision made 10 years ago. We continually evaluate whether we have sufficient capital capacity to invest in our core business. Reflecting on those past decisions, it was indeed around 10 years ago when we considered whether our balance sheet had enough capacity to support Cambria's growth and invest in our brands, which included the early considerations for upgrading Comfort Inn. The first steps we take involve determining the capital capacity necessary for our business growth. We prefer to keep some capital available for potential opportunities, which is another important factor in our decision-making. Ultimately, if these conditions are satisfied and we have surplus capital capacity, that’s how decisions were made a decade ago. Currently, it's fascinating to engage with our owners, as we are not just interacting with small business owners but also with our vendor community and various international partners from the Middle East and Europe. The world is undergoing significant changes, including rising interest rates, inflation, and ongoing conflicts. These factors may present opportunities for a cash-generating business like ours. We take all these variables into account when deciding how to allocate our capital. As we have discussed previously, our primary focus is on investing in our core operations. As Dom and I mentioned today, this includes launching new brands, refreshing our prototypes, enhancing our value proposition, and developing technology tools. These investments align with our long-term focus, with expected returns in a 5- to 10-year time frame. We also look for acquisition opportunities and return capital to shareholders through dividends and share repurchases. Our capital allocation priorities remain unchanged, and these are the considerations we keep in mind regarding the optimal use of our balance sheet.

Okay. Makes sense. And then a technical question on your guidance where you talked about RevPAR growth expectations versus 2019. As I look at your historical dollar RevPAR in 2019 from your earnings releases and also in FactSet, Bloomberg, I mean, it has it at $51.20. Just so we're modeling apples-to-apples, what is the correct base RevPAR from 2019 that we should be modeling that 10% to 13% around? Again, is $51.20 the right number to use?

Well, just give me a moment on that, Patrick. We can check the exact number. However, regarding the RevPAR we provided in the exhibits of the press release, it's now presented on a consistent basis. We compared 2022 to 2019, so the RevPAR number you should refer to from the exhibit is $40.29.

Okay. So $40.29 is the base number to grow that 10% to 13% off of, correct?

Correct. That's correct.

The next question comes from Eric Field with Jefferies.

This is Eric Field on for the team in Jefferies. We're curious about the Everhome Suites brand, which I believe I heard correctly, the signings are already at 30 hotels. If you can just elaborate maybe a little bit more on the strategy here. And maybe should we compare that to Cambria brand, which is certainly adding properties but albeit maybe at a slightly slower pace and how you're contemplating growing that brand as well?

We examined our expertise in both the mid-scale and extended-stay segments and concluded that there hasn't been a new brand launched in that price point for over 10 years. Additionally, we analyzed supply and demand, finding that roughly 9% of the available supply is specifically designed for extended stay, while pre-pandemic consumer demand for this type of accommodation was at 18%. This indicates a strong demand-supply imbalance. We also considered the costs associated with unit growth and hotel construction. By collaborating with our existing owners, we've developed a prototype that can achieve the gross operating profit margins seen in our other successful extended-stay brands. This collaboration is fostering owner interest, driven not only by macro trends but also by our engagement in developing Everhome. We are currently collaborating with several multi-unit developers, which gives us confidence in the significant number of contracts we plan to award this year. So far, we've awarded 30 contracts, and the first one will open in a few months, with many more groundbreakings occurring as the brand gains traction.

Yes. The only thing I would mention is that when you look at that pipeline, what you see are actual individual signed agreements. Those master development agreements, which we referenced in the release and commit the developer to future development, are not included in the pipeline. Therefore, if you were to include those master development agreements, the pipeline would actually be even larger than what is shown in the release.

The next question is a follow-up from Robin Farley with UBS.

Great. I'm sorry if you addressed this in your introductory comments, as I may have missed it due to overlapping calls. In the past, you have mentioned potential mergers and acquisitions or specific market segments you might be interested in. Can you share your thoughts on any opportunities you are still seeing in that area?

Yes, Robin. I mean, we've always looked at tuck-in acquisitions. So we look for opportunities where we have white space in our portfolio. We've looked at opportunities on the international front, where direct franchising is a viable model. And then we have a litmus test. As I've said multiple times before, we look for opportunities where we can improve the return on investment for the franchisees and where we can grow the system size for the benefit of our shareholders. So those are the criteria that we use. And I would just say we are always looking at the marketplace to see what might fit into our portfolio. And that's sort of the mindset that we have around potential M&A.

Okay. Thank you.

And just as a follow-up on a previous question, Patrick's question on the RevPAR to model. The $40.29 was the RevPAR for Q1. So the right modeling assumption for full year is $40.29. So I just wanted to clarify that point as well. The $40.29 was the Q1 figure.

This concludes our question-and-answer session. I would like to turn the conference back over to Pat Pacious, President and Chief Executive Officer, for any closing remarks.

Well, thank you, operator. And thanks again, everyone, for your time. Enjoy your summer, and we'll talk to you all again in August. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.