Choice Hotels International, Inc.

What they do

Choice primarily franchises hotel brands in 49 states, the District of Columbia, and 49 countries and territories, collecting affiliation, royalty (typically 5%-6% of gross room revenues) and marketing and reservation fees (typically 3%-4%). It also owns 18 open and operating hotels and manages 13 hotels, inclusive of four owned hotels, and earns partnership services and procurement revenue from vendor and travel partner arrangements. Master development agreements, used for WoodSpring Suites and Everhome Suites, provide developers geographic exclusivity in exchange for non-refundable upfront fees allocable to future affiliation fees.

Revenue drivers

• Franchise and management fees — The principal revenue source, based on gross room revenues or room counts at franchised properties; $188 million in Q2 2026, up 6% year over year.
• Partnership services and fees — $29 million in Q2 2026, up 6%, primarily from growth in procurement services revenue.
• Reimbursable revenues from franchised and managed properties — $163 million in Q2 2026 versus $167 million a year earlier; these marketing and reservation fees are required to be spent on system-wide marketing and reservation activities.
• Owned hotel and other ancillary revenues — Generated from 18 owned hotels including 10 Cambria and four Everhome Suites properties, plus ancillary sources; small relative to franchising.

Recent performance

Second quarter 2026 total revenues were $441 million versus $426 million a year earlier, while revenues excluding reimbursable costs rose to $277 million from $259 million. Net income fell 21% to $64 million, or $1.41 per diluted share, mainly on a higher net reimbursable deficit from franchised and managed properties, SG&A timing, and higher depreciation and amortization. Adjusted EBITDA rose 6% to $175 million and adjusted diluted EPS rose 5% to $2.02. Global net rooms grew 2.6% year over year, U.S. RevPAR rose 1.3%, and the U.S. royalty rate expanded 11 basis points to 5.2%. Year-to-date through June 30, 2026, the company returned $139 million to shareholders via dividends and repurchases.

Strategy

Management describes the biggest opportunity as sharpening execution, using its commercial engine and technology platform to improve franchisee economics by delivering more and better guests while lowering operating costs. The company is investing in franchisee-related tools and guest delivery capabilities, which contributed to the higher reimbursable deficit this quarter. Development efforts are focused on higher-revenue extended stay, midscale and upscale brands, and on conversions, with the U.S. conversion rooms pipeline up 24% to 24,100 rooms. U.S. franchise agreements awarded increased 30% in the second quarter, representing roughly 9,400 new U.S. rooms, and U.S. room openings rose 27% to about 6,400 rooms, the highest second-quarter level since 2019.

Risks

• Franchisee economics and cost pressures — Choice's fees are based on franchisee room revenues, so weak property-level performance or pressure on franchisee operating costs could reduce royalty and marketing fee collections.
• Net reimbursable deficit — The higher net reimbursable deficit from franchised and managed properties tied to investments in franchisee tools and guest delivery lowered Q2 2026 net income versus the prior year.
• System growth and pipeline execution — Global net rooms grew only 2.6% year over year, and master development agreements can be terminated for missed development schedules, affecting future affiliation fees.
• Owned hotel exposure and depreciation — The company owns 18 hotels, including 10 Cambria and four Everhome Suites properties, and increased depreciation and amortization on owned hotels and the prior-year Choice Hotels Canada acquisition weighed on second quarter earnings.

Outlook

The company raised several full-year 2026 guidance ranges in its August 5, 2026 earnings release. Management said U.S. net rooms growth improved for the second consecutive quarter to its strongest first-half performance since 2021, with U.S. RevPAR trends strengthening. It acknowledged there is still work to do but stated the business has significantly more potential and that it is confident in realizing it.