Ladies and gentlemen, thank you for joining us. Welcome to Choice Hotels International's Third Quarter 2025 Earnings Call. I will now turn the call over to Allie Summers, Senior Director of Investor Relations. Please proceed.

Good morning, and thank you for joining us. Before we begin, please note that today's discussion includes forward-looking statements as defined under U.S. securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information, please refer to our filings with the SEC, including our most recent Forms 10-K and 10-Q. These statements speak only as of today, and we undertake no obligation to update them. A reconciliation of any non-GAAP financial measures referenced in today's remarks is included in our earnings press release available on the Investor Relations section of choicehotels.com. Today's remarks also include projected non-GAAP adjusted EBITDA contributions from our international operations. We are unable to provide a reconciliation to comparable net income projections without unreasonable effort as the necessary adjustments cannot be reasonably estimated for the period. The impact of this unavailable information could be significant relative to our expectations due to the inherent difficulty in forecasting certain items. Joining me this morning are Pat Pacious, our President and Chief Executive Officer; and Scott Oaksmith, our Chief Financial Officer. Pat will discuss our business performance and strategic progress, and Scott will review our financial results and outlook. And with that, I will turn the call over to Pat.

Thank you, Allie, and good morning, everyone. We appreciate you joining us today. In the third quarter, we drove adjusted EBITDA 7% higher to $190 million, reflecting the strength of our higher revenue brand mix, a surge in our small and medium business traveler and group's business revenue, continued momentum across our partnership revenue streams, and the accelerating earnings contribution now coming from our expanding international business. The strength of these earnings drivers allows us to raise the midpoint of our full year earnings outlook and tighten the range, reinforcing our confidence in the growth of our global business going forward. During the quarter, we increased our net global rooms by nearly 2.5% year-over-year and growth was led by continued expansion in higher revenue segments, where we grew by nearly 3.5%, along with higher revenues per hotel across all segments. Today, 90% of our global portfolio consists of those higher revenue-generating rooms, further strengthening the value we deliver to guests, franchisees, and shareholders. The future growth of our portfolio is compelling, fueled by robust developer interest with global franchise agreements awarded up 54% year-over-year. And today, 98% of rooms in our global pipeline are in higher revenue brands. As shown in our investor supplementary materials, these hotels are expected to be 1.7x more accretive than our current portfolio, driven by their RevPAR premium, higher effective royalty rates, and larger average room counts. This pipeline strength underscores our ability to continue to elevate our earnings per unit by adding accretive hotels to our platform. Our pipeline is important not only for its size but also for the quality of the hotels within it and the velocity at which we are able to convert signings into openings. In fact, the number of hotels that opened over the past year without ever appearing in our global pipeline accounted for approximately 1% of the system-wide unit growth. As we look ahead, we're optimistic about the next phase of the U.S. lodging cycle and its impact on new construction openings. In the U.S., we expect last week's lowering of interest rates, continued investments in the build-out of AI infrastructure, and a constructive regulatory environment will drive stronger demand especially for our travelers. Combined with low industry supply growth, continued favorable demographic trends, and significant demand catalysts such as the 2026 World Cup, the U.S. 250th anniversary, and the Route 66 Centennial, these tailwinds are expected to generate incremental travel across our markets and set the stage for stronger RevPAR growth in the years ahead. Backed by the strength of our core travel base, retirees, road trippers, and America's blue and gray collar workforce, our purpose-built hotel portfolio is well positioned for sustained growth. As we look for signs as to when the cycle in the U.S. may turn positive for our business, two indicators are moving in the right direction. First, our economy transient segment occupancy performance has begun to improve year-to-date and has shown year-over-year growth in each of the last two quarters excluding the impact of the third quarter 2024 hurricane. This segment was also the first to recover after the last period of demand softening, followed by the midscale segment. Second, occupancy index across our entire U.S. portfolio is up slightly year-to-date, a constructive early indicator that in prior cycles, has preceded broader U.S. RevPAR growth. Turning to our business outside the U.S. 2025 has been the year that we put the final pieces of our growth foundation in place, and we're very excited about the future. Our international business, which represents $3 billion in gross rooms revenue, is now our highest growth opportunity. As highlighted in our supplemental investor materials, our teams have made incredible progress in improving the value proposition of our brands. They've delivered higher earnings per hotel, higher royalties, and higher operating margins for our business internationally. We've built a scalable global platform and successfully repositioned the business towards a higher-value direct franchising business model, which has grown by 22 percentage points over the past three years, and now represents 40% of our international rooms portfolio. Over that same period, our international EBITDA margins have expanded to 70% and per unit EBITDA has tripled. The foundation we've built gives us high confidence in our ability to capture rising demand across markets where our brands have a meaningful runway for growth and a significant opportunity for continued royalty rate expansion. With this momentum, we expect to generate more than $50 million in international adjusted EBITDA by 2027, doubling from our 2024 baseline. In the third quarter alone, we achieved 35% growth in adjusted international EBITDA, and we expanded our international portfolio by over 8% year-over-year surpassing 150,000 rooms outside the U.S. That growth was fueled by a 66% year-over-year increase in hotel openings. In EMEA, our portfolio grew to nearly 64,000 rooms, up 7% year-over-year. We're especially encouraged by the progress in France, where we expect to onboard over 4,800 mid-scale rooms under direct franchise agreements by year-end, nearly doubling our presence. This milestone highlights our ability to continue to scale our direct franchising markets. We also recently entered Africa with our first development agreement, including a flagship property in Kenya's Maasai Mara game reserve, marking the start of broader expansion across Central and Southern Africa. In the Caribbean and Latin America, we expanded our footprint by nearly 50% over the past three years to more than 25,000 rooms across more than 20 countries. Just two weeks ago, we hosted our first Choice Hotels CALA convention in Mexico, where we saw tremendous enthusiasm for our upscale and mid-scale brands. Our targeted business travel strategy is reshaping the guest mix. With about 60% of stays in the region now business-related, driving weekday demand, higher spend, and long-term loyalty. We also entered a new direct market, Argentina, with the opening of the Radisson Blu in Patagonia and recently signed an agreement for a new upscale Radisson RED. This follows the successful opening of the Radisson RED Sao Paulo a couple of months ago, further strengthening our upscale and upper upscale presence in the region. Elsewhere in the Americas, following the full consolidation of Choice Hotels Canada, we've transitioned to a direct franchising model and are already seeing impressive results from the 355 Canadian hotels with third quarter Canadian RevPAR up 7% year-over-year and growing franchisee interest across our brands. In Asia Pacific, since launching our Ascend Collection in China just five months ago, we've already onboarded nearly 80% of the more than 9,500 anticipated upscale rooms with the remainder expected by year-end. We are on track to add roughly 10,000 mid-scale rooms over the next five years, significantly expanding our reach among Chinese travelers and driving valuable outbound traffic to our hotels in the rest of Asia and beyond. We also successfully launched our mid-scale extended stay brand, MainStay Suites, in Australia marking the first expansion outside North America. This direct franchise agreement adds nearly 600 rooms and marks the first step in extended stay growth across the region. All of this exciting progress around the world has positioned our international business as our fastest-growing segment. Our second fastest earnings growth segment is extended stay in the U.S. Over the past five years, we've expanded our U.S. extended stay portfolio by more than 20%, now exceeding 55,000 rooms. We've delivered nine consecutive quarters of double-digit system size growth outpacing the industry. Today, this cycle-resilient segment represents nearly half of our U.S. pipeline offering longer average days, higher margin, and stable revenue streams. Despite a challenging new construction environment for the industry, our Everhome Suites brand continues to gain traction. We now have 23 hotels open, 16 of which opened this year and 40 more U.S. projects in the pipeline, including 12 under construction. In the third quarter, we more than doubled Everhome openings year-over-year, expanding into fast-growing markets like San Antonio, Texas, a key emerging data center hub. Nationwide, the manufacturing and data center build-out is fueling strong long-term demand for extended stay. And with 40% of all economy and mid-scale extended stay rooms under construction belonging to Choice brands, we're exceptionally well positioned to maintain segment leadership. Our strategic expansion into higher revenue-generating segments is also strengthening our economy transient brands. Through deliberate portfolio optimization, we've been replacing lower-performing assets with higher quality, more profitable hotels, lifting guest satisfaction and brand equity. As a result, our economy transient hotels are outperforming comparable hotels within their chain scale in RevPAR growth and gaining RevPAR index share. This strong performance is attracting developer interest, driving a 35% year-over-year increase in our U.S. economy transient rooms pipeline and a 27% year-over-year rise in U.S. franchise agreements awarded in the third quarter. Importantly, the new hotels entering our system are expected to generate, on average, higher royalty revenue than those we strategically exited. In our mid-scale segment, developer interest remained strong with our global pipeline up 5% year-over-year. The redesigned Country and Inn Suites by Radisson prototype engineered for cost efficiency and ease of conversion has reinvigorated the brand. In the third quarter, we doubled the U.S. franchise agreements awarded and grew the U.S. pipeline by 15% year-over-year, reflecting renewed developer confidence, and we remain on track to deliver year-over-year growth in brand openings in 2026. In our upscale category, we continue to expand rapidly increasing our global system size by 21% year-over-year to 118,000 rooms and driving a 33% increase in U.S. franchise agreements executed during the quarter. As I mentioned earlier, the velocity with which we move hotels through our pipeline remains a key differentiator. On average, our conversion hotels open within 3 to 6 months, about 80% faster than new construction, allowing both Choice and our franchisees to capture revenue earlier. Choice remains the leader in the share of conversion hotels in its segments. In the third quarter, our U.S. conversion franchise agreements increased 7% year-over-year, and we expect conversions to remain a core growth driver through year-end and to account for approximately 80% of total U.S. openings in 2025. Now let's turn to the exciting investments we are making in our franchisee success system. Choice continues to have the best technology team in the business. We're especially proud that Forbes recently recognized Choice as one of America's best employers for tech workers, a testament to our culture of innovation and talented teams shaping the future of travel through technology. Today, we're building on our leadership in cloud computing and data to evolve Choice's technology stack into an intelligent, always-on ecosystem one where autonomous agents continuously help franchisees optimize rate and revenue management, streamline operations, and free franchisees to focus on delivering exceptional guest experiences. Our systems are advancing from a tool to a true teammate, reflecting Choice's long-standing commitment to helping owners succeed from day one. Backed by our $60 million technology investment program now nearing completion and on track to conclude next year, this transformation will mark a pivotal step forward in how our platforms empower franchisees to achieve more. These next-generation systems will understand intent, reason across data sources, and take action autonomously, equipping our owners with predictive insights, automated workflows, and real-time decision support to unlock new levels of efficiency, profitability, and growth. As part of our technology investment program, we're also expanding our reach in business travel and deepening guest loyalty, driving higher customer lifetime value and further strengthening our competitive edge. The transformation is designed to deliver durable RevPAR growth, expand RevPAR index share, and support long-term rooms expansion. We're already seeing measurable impact with year-to-date occupancy share gains versus competitors through September. In business travel, we strengthened our position by expanding and elevating our global sales capabilities. Business travelers now represent roughly 40% of stays, creating a balanced mix that supports rate stability across economic cycles. In the third quarter, group revenue rose 35% year-over-year while small and medium business revenue grew 18%. Importantly, Choice's U.S. business traveler base continues to provide steady demand made up of guests whose jobs require travel, representing industries such as construction, utilities, health care staffing, logistics, and manufacturing. Today, we manage more than 1,600 global business accounts and serve a strong SMB and SMERF base, underscoring our role as a trusted partner for business, group, and event travel. Next year, we'll launch a dedicated digital platform for small and medium businesses tapping into a $13 billion opportunity to grow midweek occupancy and extend our corporate reach. In addition, we're developing new AI-enabled RFP management and sales tools designed to streamline group sales, accelerate responsiveness, and drive more high-value bookings. Let me now turn to the exciting progress we're making in the types of guests we serve. Across our portfolio, the quality of our guests continues to rise. Half of our U.S. guests now have household incomes above $100,000 and 1 in 5 exceed $200,000, representing an increasingly attractive customer base for both our franchisees and partners. Recent enhancements in 2025 are delivering results. Loyal members stay nearly twice as many nights, spend more per stay than nonmembers, and are 7x more likely to book direct, driving greater customer lifetime value for Choice and our franchisees. Just yesterday, we announced new benefits launching in January. This meaningful transformation of our program is designed to accelerate member growth, increase co-brand card revenue, and strengthen direct bookings, further deepening engagement and fueling demand. The last time we revamped the program, we achieved a 700 basis point increase in loyalty contribution, giving us strong confidence in this next evolution. The enhancements in our rewards program are designed to further activate the expanding core demographic that we expect will drive demand well into the future, retirees and near retirees. This growing demographic now represents nearly 30% of our revenue and continues to be among the most valuable and active travelers on the road. They spend more at our hotels and are twice as likely to be members of our rewards program. This year alone, more than 4 million Americans are reaching retirement age, the largest cohort in U.S. history, entering their peak leisure travel years with record levels of disposable income. By 2030, 1 in 5 Americans will be 65 or older, representing an expanding base of affluent, travel-ready consumers who spend more on travel than younger generations. Studies show that spending by this golden generation is expected to increase by 70%, reaching nearly $15 billion over this time period. With gas prices at multiyear lows and expected to go lower next year, Choice is uniquely positioned to serve these travelers, supported by our extensive portfolio of convenient drive-to locations that appeal to the millions of road trippers hitting the open road for new experiences. Our next-generation loyalty program is built to capture this growing demand, giving these high-value guests even more reasons to stay with Choice. And in an AI-driven world, travelers will gravitate towards brands they know and trust and those they have real relationships with. That's why our loyalty evolution is focused on deepening those connections, positioning Choice to capture this next wave of demand. Together, these initiatives are driving greater demand and creating higher customer lifetime value for our franchisees. We're confident these investments and those still to come will expand our growth opportunities and create meaningful long-term shareholder value. Importantly, we're positioning Choice for enhanced performance and sustained growth. Our technology forward strategy and disciplined execution, combined with an asset-light fee-based model, have meaningfully strengthened our growth trajectory even in the dynamic macroeconomic environment. We continue to generate substantial free cash flow, enabling us to reinvest in high-return initiatives that fuel growth while delivering sustainable value to our shareholders. We are confident that our strategy will continue to unlock scalable growth opportunities, expand market share, and drive long-term returns. With that, I will now turn the call over to our CFO. Scott?

Thanks, Pat, and good morning, everyone. Today, I will cover three key areas: our third quarter financial results, our balance sheet and capital allocation, and our outlook for the remainder of 2025. We delivered record third quarter adjusted EBITDA of $190 million, up 7% year-over-year despite a softer U.S. RevPAR environment. This performance underscores the strength of our diversified revenue streams and the early returns from our strategic investments. Our record quarterly performance was driven by system-wide rooms growth and our higher revenue extended-stay and upscale segments, a higher average royalty rate, the continued expansion of our international business, including the introduction of our brands in new markets, and strong partnership revenue. Let's turn to the three drivers of royalty fee growth: unit growth, RevPAR performance, and royalty rate. In the third quarter, we grew our global rooms 2.3% year-over-year, led by a 3.3% growth across our higher revenue segments: upscale, extended-stay, and mid-scale. Each segment delivered strong results in the third quarter, reflecting the benefits of our deliberate investments and disciplined portfolio focus. Our U.S. extended stay room system size grew 12% year-over-year, highlighted by a 14% increase in openings. At the same time, we awarded 30% more franchise agreements in the U.S. year-over-year. We strengthened our position in the mid-scale segment with our global pipeline increasing 5% year-over-year. Specifically, our flagship Comfort brand saw U.S. new construction franchise agreements double year-over-year with the new construction U.S. pipeline accelerating quarter-over-quarter. In the upscale segment, we expanded our global rooms portfolio by 7% quarter-over-quarter and attracted strong developer demand. Our SEM collection, now exceeding 72,000 rooms worldwide, saw a sixfold increase in global openings and twice as many franchise agreements awarded in the U.S. versus last year. Even in a challenging construction environment, we awarded more U.S. new construction franchise agreements than last year and opened 15% more U.S. new construction hotels in the third quarter, year-over-year. Our focus remains on elevating the quality of our portfolio. We continue to strategically exit select assets that under-index our portfolio and fail to meet our requirements while maintaining system-wide growth, clear evidence that our portfolio optimization strategy is working. Turning to our RevPAR performance, our global RevPAR for the third quarter was flat compared to the prior year, led by strong performance from our international markets. We achieved third quarter RevPAR growth across every region outside the U.S., with overall international RevPAR up 9.5% year-over-year. On a constant currency basis, international RevPAR growth was led by the EMEA region, which delivered an 11% year-over-year increase. The Americas and Asia Pacific regions each posted 5% year-over-year RevPAR growth. We were particularly pleased with the performance of our Canadian operations, where RevPAR increased 7% in the third quarter. Our U.S. third quarter RevPAR declined 3.2% year-over-year, primarily reflecting softer government and international inbound demand. Even so, we achieved year-to-date occupancy share index gains versus our competitors driven by strategic investments that enhance customer lifetime value for our franchisees. Our extended stay segment of the United States outperformed the industry RevPAR by 20 basis points in the quarter and delivered a 1.4% year-to-date growth through September. At the same time, our U.S. transient economy segment outperformed its chain scale RevPAR by 310 basis points and gained RevPAR index share versus competitors year-to-date through September. Looking ahead, we remain confident in our ability to deliver sustained RevPAR growth and expand our RevPAR index share. This confidence is grounded in our disciplined high-return investments that broaden our business travel base, deepen loyalty engagement, and position us to capture long-term demand supported by favorable demographic trends, particularly the expanding retiree leisure segment and America's blue and gray collar workforce. Moving to royalty rate, our third lever of royalty fee growth. In the third quarter, the average U.S. royalty rate increased by 10 basis points year-over-year, reflecting our continued strategic focus towards higher revenue brands and a stronger franchisee value proposition. We remain confident in the future growth trajectory of our system-wide royalty rates, supported by ongoing investments that improve reservation delivery to our franchisees and a robust development pipeline. This pipeline reflects contracts with higher royalty rates, larger average room counts, and a RevPAR premium, all of which provide a clear path for long-term revenue growth. Turning to our partnership business. Our focus remains on strengthening relationships with our strategic partners and suppliers, which was evidenced in a 19% year-over-year increase in revenues this quarter. Growth was driven by strong co-brand credit card fees as well as increased supplier and strategic partnership fees. As we've enhanced our franchisee-facing service offerings, adoption has continued to rise, driving steady growth in our non-RevPAR-related franchise fees across the broad range of services we provide. Expanding our partnership revenue streams and non-RevPAR franchise fees remains one of our key priorities and represents a meaningful opportunity for continued earnings diversification and growth. We continue to focus on driving our top line growth while enhancing associate productivity and operational efficiency. We see meaningful opportunities to deploy labor-saving technologies that will deliver significant productivity gains across the enterprise and help mitigate SG&A growth. As a result, we continue to expect adjusted SG&A to increase at a low single-digit rate from our 2024 base of $276 million. Finally, our adjusted earnings per share were $2.10 for the third quarter 2025 compared to $2.23 in the prior year quarter. The year-over-year comparison reflects the impact of our acquisition of the remaining 50% interest in the Choice Hotels Canada joint venture, which resulted in higher amortization expenses related to the acquired intangible assets, a temporary increase in income tax expense expected to reverse in the fourth quarter, the reevaluation of our previously held ownership interest in the joint venture, and unrealized foreign currency adjustments across our broader operations. Excluding these items, third quarter adjusted EPS would have been $2.27 representing a 2% year-over-year increase. Now let's move to the balance sheet and capital allocation. As of September 30, we generated $185 million in operating cash flow through September, including $69 million in the third quarter. This strong cash generation and the healthy balance sheet underpin our capital allocation priorities, investing in growth initiatives and accretive acquisitions while returning capital to shareholders. Year-to-date through September, we returned $150 million to shareholders in dividends and share repurchases. We continue to deploy capital selectively to scale Cambria Hotels and Everhome Suites while maintaining a disciplined approach to recycling that capital at the right time. In the third quarter, we generated $25 million in net proceeds from recycling activities, and year-to-date, our hotel development-related net outlays and lending declined by $53 million. We expect 2025 to be the final year of developing new company-owned Cambria hotels, followed by Everhome Suites in 2026, with investments expected to be completed in 2027. As the interest rate environment continues to improve and the hotel transaction market recovers, we also expect our capital recycling activity to accelerate. We ended the quarter with a net debt to trailing 12-month EBITDA of 3x and a liquidity of $564 million. Finally, I'd like to discuss our outlook for the remainder of the year. For the full year, we now expect U.S. RevPAR to range between -3% and -2%. As a reminder, fourth quarter comparisons will be impacted by elevated hurricane-related demand in the prior year and we continue to monitor potential impacts related to the government shutdown. We are tightening our full year adjusted EBITDA with the midpoint up by $1 million. We now expect adjusted EBITDA to range between $620 million and $632 million. We are adjusting our full year adjusted EPS guidance to range from $6.82 to $7.05, primarily reflecting additional amortization expense related to the intangible assets from the Choice Hotels Canada acquisition, which was not included in prior guidance, as well as lower equity earnings from joint ventures due to the timing of hotel openings. Our fourth quarter recurring effective income tax rate is expected to be approximately 21%, reflecting the timing of tax recognition between the third and fourth quarters, as previously discussed. Our full year effective recurring rate guidance remains at approximately 25%. We now expect full year 2025 franchise agreement acquisition costs to be lower than in 2024. Our outlook excludes any additional M&A, share repurchases after September 30, or other capital markets activity. Our third quarter results demonstrate the success of our strategy and highlight the benefits of our expanded scale and diversified business model, even in a softer U.S. RevPAR environment. We'll continue to invest in high-return areas that enhance our long-term trajectory and drive meaningful shareholder value. Looking ahead, we remain confident in the durability and strength of our fee-based business model. We expect growth to be driven by higher revenue hotels, average royalty rate growth, expanding partnership revenues, sustained international momentum, and strategic initiatives designed to enhance customer lifetime value for our franchisees.

Your first question comes from Michael Bellisario with Baird.

First on this Everhome joint venture that you guys announced in July, I think just in the past, you had mentioned that you were going to recycle owned assets. I know, Scott, you provided some comments there, too. I think we all assume that means those assets get sold to a third party and you get cash. But in this joint venture deal, you still own 80% and you're sort of committing to owning and developing hotels for longer or at least more of a medium-term holding period? I guess, help us understand the motivation, thought process here, and how the economics of this deal are maybe better or different than previously owning and developing assets on your own balance sheet?

Yes. Our preferred vehicle has been to develop hotels through the joint ventures that we have. So what you saw in this transaction was really more of a timing of the transaction. So we had started a few hotels on our own balance sheet, owning them, that were always intended to go into the joint venture, just it had not been fully set up at the time. So when you take a look at the overall transaction, there were some sales from an accounting perspective that were treated as proceeds from sales. But ultimately, the way that transaction worked netted us about a $25 million recycling. This doesn't change in terms of our long-term viewpoint on holding assets. As I've always said, we're in the moving business, not the storage business. And we have developed Everhome really to launch that brand to get it to scale so that it's 100% franchised brand. So even in this joint venture, we either expect our JV partner to buy out our interest at some point in time or to go to market and sell those to additional third parties encumbered with long-term franchise agreements. As we talked about in the remarks, we're towards the tail end of our capital investment in both Cambria and Everhome. We expect to wrap up with no new development in Cambria after this year and then finishing the Everhome development in 2026, where our net capital outlays will be significantly lower. In fact, if you look at our Q3 results this year, we're actually about $50 million less in capital being used on our development of hotels. So we're at the tail end of that. And as the transaction environment and interest rate environment improve, we do expect to be sellers of those hotels, whether they're on our owned assets or in these JVs.

Okay. That's helpful. And then just similarly, on capital allocation, what was the rationale for not buying back stock during the quarter, especially when it was down so much versus levels where you had previously been repurchasing stock? And that's all for me.

Yes, Michael. We prioritize our capital allocation to invest in the business, engage in strategic acquisitions, and return capital to shareholders through dividends and share buybacks. We completed the acquisition of the remaining half of Canada that we didn't own in the third quarter, which reflects our commitment to activities that enhance long-term value for shareholders. Looking at our capital deployment, we have been consistent through the third quarter with both the acquisition and share repurchases made earlier in the year. It is indeed an attractive price point now, and that was how we allocated our capital during the third quarter.

The next question comes from Lizzie Dove with Goldman Sachs.

I just wanted to ask about the longer-term outlook for rooms growth, particularly in the U.S. It's been tracking down year-over-year, at least when you kind of strip out Westgate from there. And so, as we move forward over the next year or two, what's the kind of base case expectation? And what are you kind of seeing in the development environment or the conversion environment really in the U.S. to drive that?

Sure. So if you look at our pipeline and where we've been focused really for the last five years is on bringing higher-quality product into the pipeline and therefore, moving that into the system. And that is going to continue. If you look at the makeup that we talked about in our remarks about 98% of what's in the pipeline today is in those higher-value segments. What we've been opening, and as we've mentioned in the remarks, there's actually because we're doing a lot more conversions, they open anywhere between 3 and 6 months on average. But that also means we're opening hotels in less than 3 months. And so many of those show up as openings, but never even show up in the pipeline. And that's really, as we mentioned in the remarks, about 1% of our unit growth came from the hotels that opened that quickly. So when you look at the pipeline, it's not only the size of it, but it's also the quality of the hotels that are in there. But as importantly as the velocity with which because we've been doing conversions as a company for so many years, we're able to get these hotels open quickly for owners, and that allows them to capture revenue early and us as well. And so as I think as we look into next year, just given the limited supply growth that's been going on in the U.S. from a new construction perspective, I would expect that trend to continue well into 2026. So that's sort of probably how we would think about the setup for the conversions coming out of the pipeline and the net rooms growth in the U.S.

Got it. That's helpful. And then on to the RevPAR environment, I appreciate the comments you made with some of the green shoots and also World Cup and whatnot next year. I'm curious how you would think about just how much of what's going on at the lower end is structural or cyclical, especially in terms of competition from conversion brands like Spark, premium economy, things like that, the K-shaped recovery. Anything you can share there or then how you think about the long-term trajectory to be able to potentially grow domestic RevPAR again longer-term.

From our perspective, this is a cyclical business. I've been at Choice for 20 years, and this is probably the third cycle we've experienced. One of the early indicators we look for is when occupancy levels stop declining, as that gives owners the confidence to set prices. We are starting to observe some positive signs in our chain scales, segments, and brands, especially in the economy segment, which typically leads us out of cyclical downturns. We feel optimistic about what we're seeing. On the consumer side, regarding the K-shaped recovery, it's important to note that a significant portion of the workforce—75%—is employed by small and medium-sized businesses. The surge in SMB business at our hotels corresponds with a shift in the labor force toward travel types that align with our offerings, such as construction, utilities, and medical staffing like traveling nurses. This is a notable advantage for us from the business traveler perspective. Additionally, around 30% of our current clientele consists of individuals aged 60 and older, who generally have substantial wealth in their homes, strong stock portfolios, discretionary income, and time to travel. We are seeing this demographic on the road and anticipate an increase in their numbers. The investments we're making in our loyalty programs, set to launch on January 1, are aimed at attracting more of these travelers. We know that these guests spend more at our hotels, stay more frequently, and prefer to book directly, all of which positively impacts our hotel economics. Given this setup for 2026 and focusing on core demographics like road trippers and retirees, along with blue and gray collar workers, we expect these groups to drive demand. These are the guests currently in our hotels, and we believe we will capture an even larger share of this market moving forward.

The next question comes from David Katz with Jefferies.

Yes. Two things, if I may. I just wanted to get whatever early perspectives you can share with us regarding 2026. I know I understand your business, obviously, and the booking window is short. But any thoughts on how we might use 2025 as a platform off of which to measure 2026? And then I have one quick follow-up, please.

Yes, David, I would look at the two things I just spoke about. I mean, I think when you look at our share, and we talked about that in the remarks, of those 60-year-old travelers and above. The research shows they call them the golden travelers because they've got all this time and they've got all this wealth, and they are traveling more this year. And that number that cohort is going to grow. We've talked about by 2030, 1 in 5 Americans is going to be at retirement age. And so over the next 5 years, that cohort only continues to grow. And we over-index for that type of traveler in our portfolio today, and we intend to bring in on that. And then I think on the business travel side, when you look at our business traveler mix, I know you've been around the stock a long time, we used to be 70-30 leisure business. We're now 60-40. And that small business traveler is a much more resilient traveler because they have to travel for their jobs. And what we're seeing, particularly with what AI is doing to the workforce, we're going to see more people who are in that sort of blue and gray travel segment when you look at the job gains and you look at the small business formation that's occurring, they're in the segments that travel in our hotels. And so when we look at that overall total available market for small and medium business, it's about $13 billion of travel on an annual basis. And I think our ability to capture more and more of that share is another positive that we're looking forward to. So on top of that, I would just add our group's business revenue, which again is up 35% this year. That's a function of the fact that we have put more sellers out there. We have about 20% more sellers who are selling into our business category and our group's business. And so those are the things that I would point to as opportunities that Choice is leaning into where the TAM is getting larger.

And David, what I'd add to that is when you step back and look at the broader business for 2026, obviously, we're still working through our planning process. But as we talked about in our remarks, our international business, we feel really strong about continued growth there and believe we're on pace to double that EBITDA contribution with the base year of 2024. So we do expect strong growth from international next year. In addition from both our partnerships and services business and our platform and ancillary revenues, as we've talked in the past, we do think we have a very good base to grow off in that mid- to high single-digit growth on those. And we also believe that we can continue to keep our cost relatively contained, especially with all the new tools and AI tools that are really driving cost efficiency throughout the business. So we're very optimistic on 2026.

Understood. And if I can just ask 1 follow-up. So much of the industry has evolved in terms of growth on ancillary fees, non-RevPAR fees, particularly around cards. And I know that you have some. Can you just elaborate on what the strategy or the vision for that is over time?

Yes. When considering the size of our business, which includes 7,500 hotels, we have approximately 36 million room nights each year, with many guests utilizing those room nights. This presents a substantial opportunity to enhance the range of services we offer to our customers and guests at our hotels. This includes everything from co-branding to what we provide in terms of timeshare and gaming. We recognize this as a significant growth opportunity. The trends we are observing indicate growth, which is evident in our financial results. On the franchisee side, we are expanding our service offerings, and we are seeing an increase in the adoption of these services. These factors are influencing both the owner side and the franchisee side of our business. The growth trends in consumer engagement and franchisee support, along with our ability to introduce additional services to both customer segments, are central to our strategy. These initiatives have contributed positively to our earnings over recent years, and we anticipate they will continue to do so in the future.

The next question comes from Stephen Grambling with Morgan Stanley.

I know it's early to be putting pen to paper for 2026 expectations. But with all the moving parts on expenses, and I know you talked about AI opportunities. How should we be thinking about the run rate or baseline for SG&A this year and then what the growth rate might look like next year, particularly if RevPAR does start recovering?

Yes, we continue to believe we can keep SG&A growth at a low single-digit rate. Looking at our results so far this year, SG&A has increased by about 3%. Excluding the acquisition of our Canadian joint venture, the increase is around 2.5%. We have been discovering numerous labor-saving efficiencies through the AI tools we have integrated into our system. Therefore, I would say we anticipate modeling SG&A growth in the low to mid-single-digit range moving forward.

Yes, Stephen, it's pretty exciting that the tools we've already deployed across our workforce and the things that we are working on today, we implemented a new ERP system that went live a couple of months ago. But the intelligence in that system is reducing a huge amount of manual processes and helping our folks in the finance group, for instance, they don't have to do as much exception reporting and that type of stuff because the system is providing that information to them. We're seeing it in our software development group. We're seeing significant productivity gains for our folks who build these tools that we deploy to our franchisees. And so it's a pretty exciting time for workforce productivity. And you're going to see that number reflected in lower SG&A growth, I would expect as we move forward in the coming years.

That's helpful. And maybe one follow-up on AI. Are you currently providing any inventory to AI partners or large language models such as Gemini, ChatGPT, or others? And maybe how do you think about the opportunity to partner from some of these channels and what maybe the cost of that channel looks like versus things like Google Ads or OTA or others?

Yes, Stephen, it's a great question. And I think at this point, when we look at the distribution landscape and AI's impact on it, the players are still taking the field right now. And so there's a lot of testing and learning, and we are doing some of that with some of these partners behind the scenes really to kind of say, is this going to work for us? To be successful in this new world, you've got to have two things, and we have both of them. The first is all your systems need to be in the cloud. And the second is you need to have control of and a high-quality level of your data. And most companies don't have that. Choice Hotels does. It's an area that we've invested in significantly. All of our systems are in the cloud now. We don't have any data centers anymore that are company-owned. And all of our data is accessible through the cloud as well. And so those are the two things that these LLMs are looking for. If you build the right scaffolding around your data, which we have done, you then have the ability to communicate with these LLMs and work through the ways that consumers who are starting their search for hotels if that's where they're going to start, we want to be able to provide our inventory rates and availability through those models as well. And so I would say at this point, the answer is we are exploring, as I'm sure many others are. But I feel like it's a pretty exciting opportunity for us because of the investments we've made over the last 3 or 4 years, in particular, to make ourselves AI ready. And we've actually been using AI in our tools for our franchisees for about 10 years. It used to be called robotic process automation and that was called machine learning. We're using it in a number of our franchisee-facing tools already. But this next step function change that we're working on, I think, is going to be really exciting because the tools that they have today effectively help them record what they're doing. Where we're moving to is a world where the tools that they will be using are going to help them understand what's the recommended next best action I should take with regard to my rate, with regard to my channel management, whatever it might be, and we're really excited about the future for that because that Choice, we've always kept the sort of franchisee-facing systems in-house. So we're able to sort of take the benefits of AI, the productivity gains and the tools that are available and really bring them to our owners in a meaningful way. And so we've got some interesting things we're going to be launching with them in the coming months. And so from an excitement perspective, we really feel like the AI boom is going to help our owners make more money, and it's going to help our shareholders do so as well.

The next question comes from Dan Politzer with JPMorgan.

Pat, Scott, I was wondering if you could talk about the key money environment. It sounds like you're taking the expectations there for 2025 to be a little bit lower year-over-year. But maybe puts and takes into 2026, as it seems like other competitors are still looking to increasingly grow their presence in the mid-scale segment in particular?

Yes. As we mentioned on the call, we do expect our key money to be lower than where we were in 2024. Really, I think that's a reflection of just the quality of our brands in terms of the competition. So we believe that we're driving top line revenue to our franchisees and our brands are very valuable. So when people are looking to convert, we're seeing that we don't need to use as much key money as some of our competitors to win those contracts. In fact, average key money per deal was down about 11% for the first nine months of the year. So yes, it is a competitive environment, but we do believe that our brands, especially in that mid-scale and upper mid-scale space where really Choice has been a leader for many years. We do understand what our franchisees need, what it takes to run a very successful business and capture those customers that Pat talked about a little bit earlier. So we're optimistic that the key money environment should be kind of hitting a peak here as interest rates come down, and hopefully, we'll see a turnaround on the RevPAR front where that will be needed less to win deals.

Yes. And I would just add, since Labor Day, I've been out at five franchisee events that collectively probably represent about 1,500 hotels. So these are all owner meetings that we do for a couple of days. And without fail, our owners are telling us that they value our brands, and some of them who moved to try these other brands have come back and said, 'We made a mistake, our performance is down.' When you look at the value of a brand that has the awareness of a Quality Inn or Comfort Inn, those things are driving guests, and we own those guests. We own those mid-scale travelers. So the need for key money in the ability to win these contracts is not as necessary when you have strong powerful brands, particularly in the mid-scale segment.

Got it. Was there anything specific about the free cash flow conversion in the quarter? Also, how should we assess the full year '25 in terms of the level of conversion you might achieve?

Yes, there were some temporary timing differences in the quarter that drove the free cash flow a little bit lower, particularly as you'll see in our 10-Q, we did purchase some investment tax credits during the quarter that will have a reduction of our federal tax rates going forward. But the timing of the payment of those versus the realization of the taxes will be between the third and the fourth quarter. So as I mentioned in my remarks, our third quarter rate was a little bit higher than where it will be for the full year, but that caused a little volatility. So we would generally believe that we'll be in a free cash flow conversion more similar to where our percentages were last year in that 60% to 65% range.

The next question comes from Dany Asad with Bank of America.

Pat and Scott, it seems your international growth strategy is gaining momentum. Could you provide an estimate of the room growth we might expect internationally in the coming year? Additionally, any insights on the key regions driving that growth would be greatly appreciated.

Yes. To begin, our current business generates approximately $3 billion in annual gross room revenue outside of the U.S. This indicates a substantial opportunity for us to increase our fees by enhancing our value proposition. We've made significant progress in transforming the business over the past couple of years, now operating a 40% direct franchising business—a 20% increase. We have moved about 1,400 hotels, which is an increase of about 200 hotels since 2022, and our EBITDA margin is now above 70%. These are all positive metrics. We have the right talent, brands, and business model to succeed in all three regions globally. Focusing on the Americas, bringing the remaining half of Canada into our platform represents a significant opportunity. We currently operate 355 hotels there, and this allows us to unlock more value. It's essential to recognize the quality of the products; for example, in the case of Clarion and Quality Inn, these are 3- and 4-star hotels, resulting in significantly higher RevPAR outside the U.S. Recently, I was in Mexico with our Caribbean and Latin American teams, where around 110 franchisees attended our event. We have expanded our rooms portfolio in that region by 60% over the last four years, and we are now present in 21 countries. There's considerable excitement around our brands, particularly the Radisson brand in that area. In the EMEA region, we're focusing on two key markets: France and Spain. Our teams have done an outstanding job of increasing the number of new direct franchise agreements. This year, we have doubled our presence in France, a healthy market, and we continue to grow in Spain. Additionally, we've entered several new markets in EMEA. In the Asia Pacific region, we've maintained a strong business in Australia through direct franchising. We've just launched the Mainstay Suites brand, with seven hotels opening and more planned in collaboration with the developers of Australia’s largest extended stay brand. This presents a considerable opportunity for expanded stay in Australia and New Zealand. In China, we have partnered with a significant upscale hotel company, likely the fifth largest in the country, and have already onboarded about 80% of the 9,800 rooms under a long-term agreement to grow our mid-scale brands. Overall, we feel very positive about our global foundation. Now, our focus is on execution. With the talent, the new business model in various markets, and our brand strength, we believe achieving our goals is very much within reach.

The next question comes from Robin Farley with UBS.

My question is about the growth in international units. What should we anticipate for fee revenue in 2026, considering you will have a full year of these units? I understand that China's master franchise and many other countries operate as direct franchises. Are the franchise fee percentages consistent across these? Also, when you mention the increase in royalty rates, I believe that applies only to your domestic properties. Will you begin to include international data or provide it separately so we can assess the international franchise fee program and see if the fees per room differ from those in the U.S.?

Yes, Rob, moving forward, around February, we will provide a global RevPAR number for you to consider. The growth we have experienced this year is not a one-time occurrence; it reflects an ongoing trend in our business. We are noticing that many international travelers are opting to stay home and travel within their own countries. Our focus in various markets, whether Canada, Mexico, France, or Spain, has always been on domestic travelers, so we believe we are well positioned to align with the trends we foresee for the future. Regarding the royalty fee, this presents an opportunity for us as the value proposition improves. In the U.S., our effective royalty rate is above 5%, while in our direct franchise markets, it is slightly lower, and even smaller in the MFA market. As we transition from MFA to direct franchises, we are capturing gains in the effective royalty rate, which we anticipate will increase as we enhance our value proposition. I mentioned in our remarks that we are nearing completion of a $60 million investment, much of which has a global scope. This includes capabilities such as rate management and revenue management tools, along with platforms designed for capturing small and medium business travelers. These resources are not limited to the U.S. market; they were created with a global perspective. As we implement these in various regions, we expect to enhance the value proposition, which will positively influence our ability to raise franchise fees.

And just to add to that, Robin, I look at our direct franchising business internationally, the effective royalty rates there are around 2.7% for direct franchising. And that's really where we've been focused, as we talked about, we've seen a 21 percentage point increase in the percentage of our business that's direct versus master franchise agreements. So certainly an area that we're focused on. And really what I look at, as Pat mentioned, really focusing on continuing to improve our value proposition in Canada, which we recently acquired. It's probably where we're the most advanced in terms of our capabilities in terms of delivering business, and that royalty rate is closer to 4%. So we have a lot of opportunity across the other markets as we continue to increase our business delivery to be able to raise the effective royalty rates on those contracts.

Okay. That's very helpful. As a follow-up, you mentioned significant increases for the U.S. economy pipeline. However, it seems there isn't much new construction happening in that segment. Is the large percentage change due to a small base, or what are you observing about new construction for U.S. economy rooms that we might not be seeing overall?

Yes. The economy segment has been a conversion market for several years. The value proposition has improved for the entire system, and this includes the economy segment. Some may have misunderstood our revenue intent strategy as a lack of focus on the economy segment, but that's not the case at all. We are enhancing product quality within the economy segment. As we exit hotels that do not adhere to brand standards, owners recognize that we are not allowing our economy brands to decline; instead, we are improving the likelihood of recommendations and overall product quality. This is crucial for the guests we serve, as maintaining product quality in the right direction is key. This improvement is driving owner interest, leading to more franchise agreements and a growing pipeline.

And that's really illustrated by the RevPAR performance we saw both in the quarter for the economy segment as well as the full year. We outpaced the STR economy segment by 180 basis points in the quarter and were up 310 basis points year-to-date. It really speaks to the quality of that segment for us.

The next question comes from Brandt Montour with Barclays.

So just a quick question on some of the accounting and on the revenue side. You guys talked about ancillary and credit card being helpful. And I was just hoping you could help us with some of the geography because the partnership line grew 20%. I think that I thought that was with credit card, but the other revenue line sort of doubled year-over-year on a restated basis. And I just wanted to understand what was in that, if there's anything onetime that we need to think about on that other line.

Brandt, regarding your question, our co-branded credit card, procurement businesses, and timeshare business are all included in the partnership revenue section of our financial statement. This is where you see the significant revenue growth. The other revenue category includes some event-driven, one-time items, which had some timing recognition during the quarter. Additionally, there were items categorized as pass-through expenses and revenue. Consequently, about $3.5 million of the other revenue was offset by an increase in selling, general, and administrative expenses for the quarter. Our SG&A was slightly higher, primarily due to these pass-through items. Overall, the increase in other revenue is attributed to these pass-throughs and some one-time event-driven revenues. However, we remain on track to meet our full-year forecast.

That's really helpful. I have another question regarding business travel. You mentioned that it accounts for 40% on a global basis, and SMB grew by 18%, which is a significant revenue number. Can you help me reconcile that with the overall decline of more than 2% in RevPAR in the U.S.? The only way I can see it is if SMB represents a very small part of business travel overall. Perhaps you can clarify that for us.

I believe part of this is due to the shift in our business and product mix. We are focusing more on products that appeal to business travelers. It's not just that we're attracting more business travelers; the mix has changed significantly, especially with the growth in the extended stay segment in the U.S. Many business travelers stay in those hotels for weeks at a time, which is a key factor. Overall, our business travel increased by about 2.5%, with SMB experiencing a notable growth of 18%. We are concentrating on these travelers because of our current product offerings and locations, which are aligned with their needs. They are traveling to secondary and tertiary markets. Considering the significant total available market of $13 billion, we have not yet captured our fair share, but we anticipate growth as we improve our sales tools and enhance the quality of our RFP responses from our owners. I expect to see continued percentage growth in the future.

And the other thing I would just add to that is when you think about the headwinds, the two areas that are offsetting that are really government travel, which was down about 20% for us during the quarter. And then inbound travel from the Canadian travel continued to be down since the first quarter. So that was down about 30%. So those two things have brought down RevPAR even though we've seen tremendous success in growing our business travel.

The next question comes from Meredith Jensen with HSBC.

I was hoping you might speak a little bit more on the international growth side. I know you've spoken a lot about it. But in terms of building sort of the support infrastructure for this really strong growth that we expect. Could you help us walk through some of the associated investments that might be necessary or how to view that expense ramp? And relatedly, as you weigh those kind of investments that need to be made in certain complex regions. Again, I know you've discussed direct versus master franchise metrics before. But given the investments you may need to make, just sort of how that may evolve over time?

Yes, Meredith, I want to highlight that most of our investments have occurred over the past four years. The exhibit we posted on our investor website shows the margin growth we've achieved during this period. These investments are not focused on increasing personnel or systems, as many systems are already in place. The investment I mentioned, which will begin deploying in early '26 and continue throughout next year, is largely behind us. Our focus now is on executing internationally. There's a significant opportunity ahead, especially with the integration of the other half of Canada into our operations. This allows us to apply our U.S. strategies to Canadian hotels. We have a long history in Canada, having operated there for 70 years and worked with a solid joint venture partner for 30 of those years. We understand these markets well, including Canada, Australia, New Zealand, Mexico, Korea, and Latin America, with our development teams established in these regions. We treat these markets as domestic, which enables them to grow without relying on U.S. support. This autonomy has allowed them to develop talent and safeguard our brands. It's also crucial for shareholders to realize that outside the U.S., the mix of business travelers is about 60% business and 40% leisure in many of our markets, providing a more resilient and higher-paying customer base. Our brands, notably Quality Inn and Clarion, are generally higher quality, being 3 and 4-star hotels. So, our business dynamics outside the U.S. are quite different, presenting significant growth opportunities that we need to capitalize on. This is an opportunity for us to enhance our value proposition and increase the effective royalty rates we can achieve in those markets.

That's super helpful. And one other quick addition to sort of follow on to what Lizzie asked about. We've been following the cost pressures on the franchisees. And I have noticed that some of the brands, notably Hyatt, I think, are working to sort of evolve brand standards so that they have more flexibility to take on limited service brands with sort of less ability to invest at this point. Are you seeing any of that in the market raising the competitive environment, especially as you up-level your franchisee base? Or if you're seeing any of that dynamic or if it's different in terms of PIPs than in the past?

Yes. No, it's a great question. And I think when we talk about the Country and the Suites brand, in particular, we redid that prototype with that franchisee margin compression in mind to make sure that the hallmarks of the brand are being preserved. But as you think about the types of changes that we would need an owner who's converting or a new build to build one of our brands, we are constantly looking at that. It's the reason why Choice has always been the leader in conversion hotels. The flexibility to make sure that a PIP is affordable for the owner makes sense for the market and preserves the brand hallmarks. Those are the three things that we look to do. That's something that we always do as a matter of course. It's not new for Choice. So I think when you look at our ability to continue to grow our business in good times and bad, that's a key factor in driving all of that.

There are no further questions at this time. I will now turn the call over to Pat Pacious for closing remarks. Please go ahead, sir.

Well, thank you, operator, and thanks, everyone, for joining us this morning. We look forward to speaking with you again in February when we report our fourth quarter results. Have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.