Choice Hotels International Inc

NYSE:CHH

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Choice Hotels International Inc. Q1 2023 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, Senior Director for Choice Hotels.

[Allie Summers, Senior Director-Investor Relations]

Good morning, and thank you for joining us today. Before we begin, we’d 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 a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our first quarter 2023 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.

[Pat Pacious, President & Chief Executive Officer]

Thank you, Allie and good morning everyone. We appreciate you taking the time to join us. It's been a rewarding and successful start to the year. We generated impressive earnings, exceeding the top end of our prior guidance, delivered strong RevPAR growth and are ahead of plan, integrating the Radisson Hotels Americas business unit. This robust performance has enabled us to invest in our business to drive long-term growth and return a meaningful amount of capital to our shareholders.

Today, I want to outline four business value drivers that we believe are propelling the future success of our company. First, we drove our adjusted EBITDA performance to record levels and we have carried our strong momentum into 2023. Second, we are executing a distinct strategy that is strengthening our competitive position. Third, we've positioned the company to capitalize on long-term consumer and travel trends that are favorable to our brands. And finally, we are excited to onboard the Radisson Americas brands on to Choice Hotels' world-class business delivery platform, which we expect will further accelerate our transformative growth.

Let me start with the momentum we have created in both our adjusted earnings and top line performance growth. Building on our record 2022 earnings results, our distinct growth strategy and proven franchising business engine drove our first quarter 2023 adjusted EBITDA to over $106 million which exceeded the top end of our previous guidance and was 10% higher than prior year. These impressive financial results were fueled by our ongoing RevPAR and effective royalty rate growth.

Last year, our first quarter RevPAR increased 10.4% from the same quarter 2019. This year, we are building on that growth with our first quarter RevPAR increasing by an additional 5.9% year-over-year and we drove this performance through both rate and occupancy gains. What's most impressive is that we also grew our first quarter effective royalty rate by six basis points year-over-year, a reflection of the strengthening value proposition we provide to our franchise owners.

We expect to carry our momentum through the rest of 2023, as we grow our franchise business with hotels that generate higher royalties per unit, while leveraging the new capabilities we have built to improve the profitability of each franchise. As such, I'm pleased to report that we are raising our outlook for full year 2023 net income and adjusted EBITDA.

Franchising has always been the cornerstone of our distinct strategy. And in the last five years, we have launched or acquired a number of distinct, incremental brand opportunities to expand the reach of our franchise business in more revenue-intense segments. Most importantly, these additional franchise opportunities were in the extended stay, upper mid-scale and upscale segments, which currently have the highest developer and guest demand.

The new franchises in these segments are also more accretive to our earnings and a key driver of our future earnings algorithm. By expanding our scope, network of franchisee relationships and customer reach, we have significantly increased our market opportunities and accelerated our growth.

At the same time, we are improving our existing business, making our legacy portfolio stronger and more accretive to our earnings with new hotels added within a brand generating higher royalty revenue than hotels leading it. Clearly, we have transformed Choice Hotels into a company that is in a stronger competitive position and has significant long-term growth potential. Our selective unit growth strategy is delivering results and improving the attractiveness of our brands.

In the first quarter, we grew the number of franchises across our more revenue-intense segments by approximately 10% year-over-year and saw a material increase in royalties driven by this growth. Adding to our optimism is the 5% domestic unit and 11% domestic rooms pipeline growth we drove in the first quarter year-over-year, which we expect to fuel our revenue-intense unit growth for years to come.

Importantly, the versatile business model we have built, has historically delivered stable returns and provided diversified avenues of growth throughout both expanding and contracting economic cycles. A case in point is the significant RevPAR index gains versus local competition we achieved during the pandemic due to our established operational excellence and the strategic investments we have made.

Additionally, during times when hotel supply growth is challenged, our diverse portfolio of brands allows us to lean on our core competency, a best-in-class hotel conversion capability that fuels our unit growth, attracting hoteliers looking to affiliate with brands that can deliver strong top line revenues and profitability to their hotels.

Our strategy is tailored to capitalize on the long-term fundamental trends impacting travel. We are confident that the changes we are observing in leisure and business travel behavior, which favor our brands, will enable us to maximize growth opportunities well into the future.

As discussed on our prior calls, we've been highlighting consumer and industry trends that are driving a significant uptick in travel demand and we've been making deliberate investments over the past several years to position our franchisees to reap the benefits from them.

Specifically, we are capitalizing on rising wages, retirements, remote work and the rebuilding of American manufacturing and infrastructure. Let me begin with rising wages. The middle class, which is a key customer segment for our franchise business, has received a significant pay raise over the last few years. In fact, the American median salary was 6.4% higher at the end of the first quarter than it was a year ago. While the cost of living adjustment for social security was up 8.7% last year year-over-year.

Retirement trends, which accelerated during the pandemic, are also reinforcing our optimism. Over 3.5 million people are reaching retirement age every year in the US. These baby boomers, one of our core customer segments, are living longer, have more time and disposable income to travel for leisure and seek brands like ours that provide value for their money. And the pool of these retired travelers is only expanding with more than one in five Americans expected to be over age 65 by 2030.

Remote work, which affords people of all ages greater flexibility as to when, where and for how long they travel will also continue to fuel the strong performance of our brands. Despite the historically softer first quarter for leisure travel, our guests are extending their trips into shoulder days of the weekend.

In fact in the first quarter, we drove nearly two percentage points of occupancy growth on Thursdays and Sundays compared to 2019. The trend of leisure travel demand spreading more evenly throughout the months of the year, and into weekend shoulder days, benefits our brands and allows us to attract, and capture an even larger share of an expanding leisure demand segment.

And finally, we expect business travel in our key industry verticals such as transportation, logistics and construction to increase driven by the significant reshoring of American manufacturing and infrastructure investments across the country. Industry experts estimate that these investments will generate between 50 million and 100 million room nights over the next decade and that's great news for our brands and in particular our extended stay segment.

Likewise, we anticipate additional tailwinds from business travelers in sectors such as health care and financial and professional services, especially in the context of the Radisson Americas acquisition. In fact, in the first quarter we have already driven a 9% increase year-over-year in business travel bookings across Radisson Americas brands.

As consumers prioritize travel, we believe our business will experience outsized benefits from additional travel demand to our segments and locations. We see all these trends as strong tailwinds for our company's long-term growth. The strong franchise relationships we've established over the years have been a key differentiator for Choice Hotels, and this unwavering commitment to enhancing our value proposition by maximizing our franchisees' return on investment is what truly energizes our Radisson Americas franchisees.

In fact, just two weeks ago, I had a chance to speak with our Radisson Americas hotel franchise owners and general managers at our 67th annual convention. Radisson Americas franchisees have shared with me their enthusiasm for becoming part of the Choice family. Specifically, the opportunity to leverage our proprietary cutting-edge technologies, and world-class franchisee success system designed to drive owner performance, and reduce their cost of hotel ownership.

Our franchisees left the event energized by how we are growing and evolving our family of brands, and by the new promising opportunities for investment with the addition of our newest Radisson Americas franchising business. The excitement generated by our new business unit is further underlined by Radisson America's brand's great start to the year. In the first quarter, the Radisson Americas portfolio-wide RevPAR increased 11.2% year-over-year. Specifically, the Radisson upscale brand itself grew nearly 27% year-over-year, outperforming the upscale segment by over six percentage points.

And once all Radisson Americas hotels are fully integrated with Choice Hotels systems and employing our tools, we expect to help drive their top line performance and profitability to the next level. Thanks to the expertise of our integration team, we are ahead of plan and expect to complete full integration by the end of the year.

In fact, we are on pace to complete the onboarding of Radisson Americas properties onto our business platform and merge our two award-winning loyalty programs by the end of the third quarter. At the same time, we remain ahead of plan in delivering Radisson Americas adjusted EBITDA of over $60 million in 2023, growing to over $80 million EBITDA in 2024. Another way we are enhancing our value proposition is through our new co-branded credit card program launched last month under a multiyear agreement with Wells Fargo and Mastercard. The program is intended to further grow our Choice Privileges membership and deepen member engagement and loyalty.

Just in time for the busy summer travel season, the new card portfolio will add value for our guests to enhance rewards and benefits as well as faster and easier ways to earn even more points beyond hotel stays.

We expect this partnership to drive incremental revenue significantly above our prior arrangement and provide an additional tailwind for our Platform business segment in 2023 and beyond.

Our impressive results demonstrate that the deliberate decisions and strategic investments we've made in our value proposition and franchisee tools, brand portfolio, and platform capabilities are paying off across our segments.

First, we strengthened our Upscale franchise business. In first quarter 2023, our domestic Upscale units grew by 29% year-over-year. At the same time, we increased the number of domestic Upscale franchise agreements awarded by 13% year-over-year and expanded our Upscale domestic pipeline to over 120 hotels, a 16% increase year-over-year.

We expect that the Radisson Americas acquisition will enable us to build on our momentum in the Upscale segment, accelerating the growth of our Cambria and Ascend brands, while also broadening the Radisson portfolio.

Next, we further invested in the Extended Stay franchise business and expanded our domestic pipeline for our Extended Stay brands to 475 hotels, a 28% increase year-over-year.

We remain very optimistic about our Extended Stay franchise business growth and expect the number of our Extended Stay units to increase at an average annual growth rate of more than 15% over the next five years.

At the same time, we reinforced our core portfolio of brands by growing our Upper Midscale franchise business by 24% year-over-year, reaching approximately 2,300 domestic hotels in the first quarter.

Finally, by strengthening the value proposition we deliver to our franchise owners in the economy transient franchise business, we grew our effective royalty rate for that segment by 11 basis points in the first quarter year-over-year.

I also want to recognize the efforts we are making to increase our sustainability and diversity commitments. For the first time, we reported our Scope 1 and Scope 2 greenhouse gas emissions. We are also making progress implementing a system-wide energy collection and measurement program that will make it easier for our franchised hotels to identify opportunities for energy, water, and waste conservation. And we are strengthening our long-standing commitment to diversity, equity, and belonging with new goals for fostering diverse representation amongst our associates.

Further details regarding key measures being undertaken by Choice to reduce franchisees operating costs, while benefiting the environment as well as integrating new standards and principles into our long-term decision-making are outlined in our recently published annual ESG report.

The results we achieved in the first quarter of 2023 confirm the effectiveness of our thoughtful deliberate approach of growing our franchise business with hotels that generate higher royalties per unit and reinforce our confidence in our ability to drive exceptional results in the coming years.

We look forward to completing the integration of Radisson Americas with the Choice franchisee success system this year and to accelerating the growth of these brands by leveraging Choice's scale, network of owner and franchisee relationships and best-in-class digital platforms. 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 2023 and beyond.

In closing, I would like to take a moment to thank our associates, who work day in and day out to drive our company's success. Just two weeks ago, we gathered with over 5000 of our franchise owners and general managers at our annual convention. We celebrated their success, examined the trends ahead and revealed our plans to keep the momentum going. The level of enthusiasm was remarkable and it is due in large part to the deep relationships our associates have built with them over the years.

With that, I'll hand it over to our CFO. Dom?

[Dom Dragisich, Chief Financial Officer]

Thanks, Pat and good morning, everyone. Today, I'd like to provide additional insights on our impressive first quarter results, update you on our balance sheet and capital allocation approach and share expectations for what lies ahead. Throughout my remarks today, I would like to note that all figures are inclusive of the Radisson Americas portfolio and exclude certain one-time items including Radisson Hotels Americas integration costs, which impacted first quarter reported results.

For first quarter 2023, compared to the same period of 2022, revenues excluding reimbursable revenue from franchise and managed properties increased 34% to $175 million. Our adjusted EBITDA exceeded the top end of our previous guidance and grew 10% to $106.4 million, driven by our continued RevPAR and more revenue-intense unit growth, strong effective royalty rate growth, successful execution of the Radisson Americas integration and the robust performance of the platform and procurement business. Our adjusted earnings per share were $1.12, an increase of 9%. This growth builds on our record results in 2022.

Let me turn to our key revenue levers beginning with RevPAR. Please note that our RevPAR results assume that the Radisson Americas portfolio was part of the Choice family of brands for the comparable period of 2022 and 2019. Our domestic RevPAR increased 5.9% for the first quarter versus the same period of 2022, which represents 15.1% growth versus 2019. Our growth was driven by average daily rate growth of 5.2% and a 34 basis point increase in occupancy levels compared to the same quarter of 2022.

Our first quarter RevPAR performance is inclusive of the Radisson Americas business unit, which increased 11.2% from the same quarter of 2022. Importantly, the Radisson upscale brand itself outperformed the segment's RevPAR growth by over 6 percentage points in the first quarter year-over-year.

Based on our strong first quarter results, we are maintaining our guidance for full year domestic RevPAR growth and expect it to increase approximately 2% as compared to full year 2022, representing an approximately 15% increase compared to full year 2019. Our effective royalty rate also continues to be a significant source of our revenue growth. Our total domestic system effective royalty rate for first quarter 2023 increased 6 basis points year-over-year including a 6 basis point increase for the Choice legacy brands to 5.11%.

Given the attractiveness of our proven brands, the strengthening of our value proposition to franchise owners and our long-term investment strategy on behalf of our franchisees, we are confident in our ability to continue growing our effective royalty rate both for the legacy Choice brands and the Radisson Americas portfolio.

Inclusive of Radisson America's brands, we are maintaining our outlook for our full year 2023 effective royalty rate to grow on a comparable basis in the mid-single digits year-over-year from a 4.93% baseline in 2022.

The third revenue lever I'd like to discuss is unit growth, where our portfolio's absolute size and the royalty revenue per hotel are key advantages. Our strategic goal has been to accelerate quality room growth in more revenue-intense segments and markets, which ultimately results in an outsized increase in royalties.

In addition to our mix-shift strategy for the broader portfolio, our revenue maximization strategy is also evident at the individual hotel and brand level. In fact, for first quarter 2023, new hotels we added within a brand generated on a comparable basis an average of 20% higher royalty revenue than hotels exiting the brand.

For first quarter 2023, our domestic system size of more revenue-intense upscale, extended-stay and mid-scale segments grew by 9.5% year-over-year highlighted by a more than 40% increase in the number of new hotel openings compared to first quarter 2022. Adding to our optimism is the nearly 10% international rooms growth, we drove in the first quarter year-over-year as well as a 14% year-over-year increase in the number of rooms in our global pipeline.

Among the milestones for some of our key brands, the Cambria brand grew by 14% year-over-year reaching 66 units with an additional 69 domestic properties in the pipeline, 20 of which are projects under active construction as of the end of the first quarter. 2023 is shaping up to be another great year for Cambria, as we expect eight additional hotels to open across the country. Our newest extended stay brand, Everhome Suites is off to a strong start this year, gaining impressive traction across the development community with 62 projects in the pipeline.

Just last month, we celebrated breaking ground on the fourth Everhome hotel. At the same time, WoodSpring Suites pipeline reached 311 domestic properties as of the end of March, a 49% increase year-over-year, and we expect the brand's openings this year to exceed 2022 levels.

Finally, since its successful refresh, the Comfort brand has now registered 13 straight quarters of unit growth year-over-year. In the first quarter alone, we opened nearly three times as many Comfort hotels year-over-year and we expect the brand's openings for 2023 to accelerate beyond 2022 levels.

For full year 2023, we expect our domestic system size of the more revenue-intense segments, which include upscale, extended-stay and mid-scale to grow by approximately 1% and approach our historical growth rate by 2024. Thanks to our deliberate strategy of adding more revenue-intense hotels, while terminating underperforming economy transient hotels and driving a higher effective royalty rate, we expect to maintain 2023 royalty revenue associated with the economy transient segment at the same level as 2022 royalty revenue.

Aided by our strong value proposition and RevPAR performance, developers are choosing our brands versus the competition as they seek to improve their operations and boost the long-term value of their hotels. In fact, nearly eight in 10 of the agreements awarded in the first quarter were for conversion hotels, which are expected to open more quickly than our new construction projects.

Importantly, we also continue to expand our platform business segment through strategic partnerships that drive incremental revenue to our existing portfolio. As previously mentioned, we are very excited about the new co-brand credit card agreement, which we expect will deliver over $5 million of incremental adjusted EBITDA in 2023 ramping to over $10 million of incremental adjusted EBITDA in 2024.

Furthermore, through our strategic focus and investments, we see additional opportunities in 2024 and beyond. In the first quarter, we also increased our platform and procurement services fees by 18% to $13.8 million, compared to the same period of 2022. We believe that we can drive the strong revenue growth in the years ahead, as we increase the number of products and services to over 7,400 hotels, guests and other travel partners while expanding our platform.

I'd like to now turn to the strength of our balance sheet, which we believe will be another driver of our growth for years to come. Even after the completion of the Radisson Americas acquisition and recent significant share repurchases, we have been able to reinforce our strong liquidity position through our impressive performance and effective allocation of resources. We maintain a best-in-class balance sheet with a gross debt-to-EBITDA leverage ratio of under 2.9x below the low-end of our targeted range of 3x to 4x as of the end of the first quarter 2023.

In the first quarter, we returned over $173 million to our shareholders. These returns came in the form of approximately $13 million in cash dividends and over $160 million in share repurchases. The company's Board of Directors also announced during the first quarter, a 21% increase in the annual dividend rate to $1.15 per common share outstanding. With our strong cash flow and debt capacity, we are well positioned to build on our record of making strategic investments growing the business and returning excess cash to shareholders well into the future. In 2023, we plan to continue to leverage all pillars of our capital allocation strategy.

Before opening up to questions, I'd like to turn to our expectations for what lies ahead for the remainder of the year. I am pleased to report that we are raising our outlook for full year 2023 adjusted EBITDA and now expect it to range between $525 million and $540 million representing over 11% growth at the midpoint year-over-year and approximately 43% growth compared to full year 2019.

We are committed to driving meaningful results for owners and franchisees and are excited about the value creation we expect from Radisson Americas. Given our ongoing integration of the Radisson Americas portfolio into the Choice franchise success system this year, we anticipate to incur approximately $21 million in adjusted SG&A expenses related to the Radisson Americas business unit in 2023. We expect to eliminate nearly $15 million of these adjusted SG&A expenses upon completion of the integration resulting in a run rate of $6 million in adjusted SG&A costs beginning next year.

For full year 2023, we expect adjusted diluted earnings per share to range between $5.70 and $5.90 per share representing 10% growth at the midpoint of our guidance year-over-year. Today's results are a testament that our strategy is working and we intend to keep investing in the core growth vectors across the more revenue-intense segments. We look forward to providing you with further updates in August during our next earnings call.

At this time, Pat and I would be happy to answer any questions. Operator?

[Operator]

Thank you. [Operator Instructions] Your first question comes from the line of Michael Bellisario from Baird. Please go ahead.

[Michael Bellisario, Baird]

Thank you. Good morning. Just first on the development front it's a two-parter here maybe Pat can you tell us what did hear from franchisees at your convention two weeks ago and maybe more recently, what have you seen so far in terms of any impact on new construction signings and starts in particular?

[Pat Pacious, President & Chief Executive Officer]

Yeah. Sure, Michael. It's I guess two weeks ago today we kicked off our 67th convention and it was a very optimistic vibe at the convention. A lot of our franchisees are interested in the segments where we have introduced new brands or where we have strong brands. So a lot of interest around extended stay a significant amount of interest for country and in suites and the new Radisson brands that we've now added to our portfolio. So -- and then just general interest as usual in Comfort Inn and quality on our kind of key large brands.

I think from a financing perspective, if you look at our pipeline over half of it is financed at this point. So you look at the -- obviously everything that's going to open this year is financed. And as you know about 75% of our contracts in Q1 were conversions. Last year it was closer to 80%. So a lot of those conversions the franchisees are just having to finance a PIP. And in general, they self-finance that. So that's a positive. And so, as we look at kind of the future growth of our pipeline turning into open hotels, we feel pretty good. You also look at the new construction side of the house, a lot of our brands the owners are getting a -- their lending from their local lenders or friends and families. So, they have a lot of funding sources.

So as we've talked to them about kind of their future plans, there's interest in our brands and they have a variety of ways to fund their new development, for new construction. So we feel pretty good about the sense of optimism, that we're seeing from our franchisees. And it really gives us during that week, an opportunity to hear from all parts of the country, and all segments that we participate in, but we left the convention and our franchisees did as well, with a pretty optimistic outlook for future growth.

[Michael Bellisario, Baird]

Got it. And then, just one more for me. Maybe can you provide some color on March and then April trends, if possible particularly as we're now fully passed the easy Omicron comps, from last year that would be helpful? Thank you.

[Pat Pacious, President & Chief Executive Officer]

Yes. I think, if you look at what we've put out today, we're reaffirming our full year guidance for RevPAR growth, which is really positive when you consider it's coming off significant quarterly growth last year between 15% and 20%, above 2019 levels. So we're on track, as we stated to see that incremental growth above those levels. We're guiding to around a 2%, RevPAR growth. We feel pretty confident that that's going to be the likely outcome.

[Michael Bellisario, Baird]

Thank you.

[Operator]

Thank you. Your next question comes from the line of Shaun Kelley from Bank of America. Please go ahead.

[Shaun Kelley, Bank of America]

Hi. Good morning, everyone. Thanks for taking my question. Pat, just to go back to development, if we look at the pipeline statistics, I believe sequentially pipeline declined from if I got it right, about 100,000 units to only about 89,000. Were there some onetime movements that drove that? Can you just talk about that change? And then maybe, how we would expect that progression to move throughout the year?

[Pat Pacious, President & Chief Executive Officer]

Yes, Shaun, it's a great question. And we've always emphasized the importance, of velocity through our pipeline. When you look at the Q4 into Q1, you see a lot of hotels that open particularly conversion hotels that want to get opened before December 31. So as you get into the first quarter, you generally see a tick down that's more seasonal than it is anything else. But I think, when you look at the broader pipeline growth, that we look at on a rolling 12, we are seeing that growth in both units and rooms.

[Dom Dragisich, Chief Financial Officer]

Yes, Shaun. The only thing I'd add is, if you just look at the pipeline broadly speaking at 925 units, I think what you're seeing is this concept of the revenue intensity, that we tend to preach on all these calls, our unit growth is -- our units are up about 5%, year-over-year. So obviously, given the seasonality the better comp is year-over-year in our opinion, but the rooms growth is actually 11%. So it's kind of showing that, the bigger boxes are coming into the pipeline. So we feel very good about that.

The secondary aspect, that we often we'll talk about is, just the strength of the international pipeline where we saw the international pipeline actually, up quarter-over-quarter about 70% in terms of units and up about 50% year-over-year. So, we did see some softness obviously, during COVID on the international side of the house, but we're starting to see that development environment pick up again for us as well.

[Shaun Kelley, Bank of America]

Got it. Thank you. And then, just as my follow-up going back to the -- to kind of the RevPAR guide and outlook. Obviously, coming in strong in the first quarter, up 6% still probably lapping a little bit of Omicron, in certain markets at least. But I guess, if we think about 2% for the balance of the year, it does imply a pretty meaningful deceleration either in the back half or possibly even starting in Q2. We have seen some softness particularly in the economy chain scale.

So just any more color, you could provide about sort of maybe your expectation, at some of the different price points here? So are you seeing differing performances or drivers at in some of those more revenue intense or extended stay areas, relative to maybe more softness in economy RevPAR where we have actually seen it just like the broad Star data, turn negative in I think certainly for April maybe even before that?

[Pat Pacious, President & Chief Executive Officer]

Yes. So Shaun, just as a reminder, Q1 of last year was up 10% over 2019, so a 6% gain on top of that is pretty strong performance coming into Q1. But as we roll into Q2, Q3 and Q4, the comps get much tougher as those quarters grew anywhere from 15% to close to 20% last year. So, what that is a little bit of this is trying to beat an already strong quarter that we saw last year.

I think when you look at the various segments that we're seeing certainly upscale took longer to come back. The economy segment really came back and beat the 2019 levels in the early part of 2021. So, we really saw sort of the different segments recover at different rates. And so you're seeing a significant amount of growth right now in upscale, where we have a lot of growth, but we don't have yet a large footprint as we're primarily mid-scale from where our footprint stands.

[Dom Dragisich, Chief Financial Officer]

Yes, Shaun, the only thing I'd add there is just when you look at the impact that Q1 has on the full year, not as heavily weighted, right? So, at the end of the day, Q1 is our lightest volume quarter. So you see a pretty significant uptick in both Q2 and Q3. Q3 being the heaviest volume quarter for us. So just the impact that 6% has on the full year guide does imply that you're still guiding to about 1% to 2% at least for the remainder of the year. To Pat's point, in Q3 last year, we were up 15%. In Q4, we were up about 20% versus 2019 levels. And so the comp just becomes that much tougher.

Specifically on your question about just where in the chain scale, we are seeing much stronger performance upper mid-scale and above, anywhere from 7% up to 13% when you kind of get to that upscale segment when you think about the Q1, so obviously an economy in particular you mentioned fairly flat. We were up about 1% on the -- in the economy segment specifically. But when you look at that as a percentage of your revenue that flows through, we feel very confident about the guide for the remainder of the year, just especially given this revenue intensity concept.

[Shaun Kelley, Bank of America]

Thanks, so much.

[Dom Dragisich, Chief Financial Officer]

Thank you.

[Operator]

Thank you. Your next question comes from the line of Stephen Grambling from Morgan Stanley.

[Stephen Grambling, Morgan Stanley]

Hi, thanks. I'm not sure if you mentioned this in your opening remarks, but I was just curious if you could provide a little more color on how we should think about the co-brand credit card agreements that you just extended as we think about this multiyear contribution? Is that a step up this year? And then how do we think about that beyond?

[Pat Pacious, President & Chief Executive Officer]

Yes, Stephen. So the card -- it's actually -- yes to your point it's multiple cards as a fee-based card and a non-fee-based card. It's a long-term agreement that builds with a different set of partners and a different distribution network. And it also adds a number of features to allow for point earning with effectively gas and groceries, so things outside of a hotel stay. And in the early days here of the launch, we're really impressed with -- we're ahead of plan actually on sort of the metrics. I think what we have guided to in the past is a $5 million incremental EBITDA benefit this year growing to $10 million next year and then there is opportunity above that in the out years.

[Stephen Grambling, Morgan Stanley]

And then maybe as an unrelated follow-up, I would love to hear just some of the puts and takes to cash conversion this year and then how to think about it longer term?

[Dom Dragisich, Chief Financial Officer]

Yes. So broadly speaking, we're pretty much right on forecast where we thought we would be in Q1 Stephen. I think apples-to-apples revenue for the quarter was up over 11%-or-so on the legacy business. Obviously we had strong results as a result of the Radisson integration. We're still seeing the strength and the effective royalty rate. RevPAR was essentially in line with our expectations. We have this 2x multiplier impact that we've been talking about as well. So really if you think about Q1 we have maintained our forecast for Q2 through Q4 which was already pretty aggressive forecast especially with the Radisson integration really flowed through the beat the beat that we saw in Q1 through the remainder of the year.

On the SG&A side of the house, I think we were pretty much spot on in terms of analyst expectations there and we expect to see kind of maintaining that in Q2 and beyond. I think the biggest component that you're going to see towards the end of the year is that Radisson SG&A obviously a $21 million contributor to the SG&A line item this year once we complete the integration by the end of the year, we're going to see that dip to about $6 million. So just from a run rate perspective obviously feeling very good about that. There were some timing elements just from a net working capital perspective that pushed the cash down slightly in Q1. And so between that and then just a slightly elevated key money and that was a good thing because we got some really quality product open in the first quarter as well. Broadly speaking, on the balance sheet, a lot of that is just timing related. So again, P&L, I think we're maintaining for the remainder of the year. Balance sheet, obviously, depressed a little bit just given timing of certain net working capital items, but we're going to see that normalize in both Q2 and Q3.

[Stephen Grambling, Morgan Stanley]

But you don't anticipate any further key money or changes to how you think about driving room growth because of either the credit environment or otherwise?

[Dom Dragisich, Chief Financial Officer]

No. I think what we've talked about last year just we would see probably key money slightly up year-over-year from 2022 into 2023. I think that's a good thing, if our development team continues to be successful. When you think about kind of that two times value per contract that we talk about publicly that includes the impacts of normalizing for key money as well. So again, just from an earnings algorithm perspective, we anticipate seeing kind of business as usual versus what we saw in 2022.

[Stephen Grambling, Morgan Stanley]

Got it. Thanks so much.

[Dom Dragisich, Chief Financial Officer]

Thank you.

[Operator]

Thank you. Your next question comes from the line of Gregory Miller from Truist Securities. Please go ahead.

[Gregory Miller, Truist Securities]

Thank you very much. Good morning.

[Pat Pacious, President & Chief Executive Officer]

Good morning.

[Gregory Miller, Truist Securities]

First question I have -- hey, good morning. First question I have, just hoping to get some clarification looking at the international rooms from 4Q 2022 to 1Q 2023. It looks like you gained eight hotels but the number of rooms declined modestly. I was hoping you could provide a little context on that?

[Pat Pacious, President & Chief Executive Officer]

So Greg, I think what -- when we look at the international unit growth, we're really looking at like an 8%, which is inclusive of the Radisson International acquisition, because there's a significant number of hotels that we acquired down in the Latin America region. So we actually saw, from a unit growth perspective, in Q1 an 8% growth and then a rooms growth of almost 9.6%, I think it was. So, I'm not sure, if you're...

[Dom Dragisich, Chief Financial Officer]

The only thing I'd add to that Greg is, I just think in Q4 you tend to have just as you get close to the end of the year, you see some termination activity, maybe some hotels that aren't paying, et cetera. I think that this is just a phenomenon a couple law of smaller numbers in the international portfolio where we did have a couple larger boxes that we terminated for a variety of different reasons that we obviously can't speak to when it comes to just credits and things like that.

But when you look at the outlook for international, even without the Radisson acquisition, we're feeling very good about that portfolio is now very stabilized. We're expecting to see kind of mid-single-digits unit growth in our international portfolio, even ex Radisson for the full year. So again, I think that this was really a timing element from Q4 into Q1 with again, a little bit of a law of smaller numbers in a couple of the larger boxes that we termed. Again, not high revenue-producing assets, so we don't feel like it's going to have any impact on the financials.

[Gregory Miller, Truist Securities]

Okay. Understood. The second question I had relates to your own hotels. I'm curious now that you have more time under ownership for the Twin Cities hotels. I'm curious how you would recommend we think through the performance of these hotels under your ownership compared with legacy Radisson?

[Pat Pacious, President & Chief Executive Officer]

So with the Radisson acquisition, we acquired Radisson Blue, and then the country in the suites and then Park Plaza. They were all effectively Radisson-owned assets that are all in that location near Mall of America. It's actually been a pretty strong market for international inbound from Canada, in particular, there's a lot of draw at the Radisson Blue that's attached to the mall actually picks up on. So, it's been a pretty good initial start for us with that brand.

We do expect the latter part of this year, into Q3 we will have those three hotels actually on our platform and integrate it with the loyalty program. We do expect to see, not only a benefit to the top line revenue and the royalties coming from those hotels, but also from a GOP perspective and actual asset level performance as well.

[Gregory Miller, Truist Securities]

Thank you both. Appreciate it.

[Operator]

Thank you. Your next question comes from the line of Dan Wasiolek from Morningstar. Please go ahead.

[Dan Wasiolek, Morningstar]

Hey. Good morning, guys. Thanks for taking the questions. So first one, just you mentioned, your revenue-intense unit growth looking at 2024 returning to historical rates. Can you remind us what that historical rate is? And then also, looking 2024 and I guess, beyond, what we might expect from the economy segment?

[Dom Dragisich, Chief Financial Officer]

Yeah. Dan, so when you look at just kind of the legacy portfolio in the first quarter that revenue-intense unit growth is already up about a little more than 1%. So we've talked about publicly is we expect next year for that ring portfolio to approach those two -- those historical levels which is right around 3%-or-so.

Now, when we look at 2025 obviously, I don't have a crystal ball in terms of the development environment, but we do expect to see an acceleration beyond that approaching 3% into 2025.

Historically speaking, our portfolio has grown around 3% to 4%-or-so again, dependent on the development environment overall we feel very good about where we are today with seeing that portfolio return to growth on an apples-to-apples basis already in Q1 accelerating in the back half of this year and then approaching that 3% next year.

[Pat Pacious, President & Chief Executive Officer]

And Dan, I think on the economy segment, what we would -- we've been seeing is the hotels we're bringing in are performing better than the hotels that have left. So as we've guided to in the past our plan there is to keep the royalty contribution from the economy segment steady even though the units have been declining.

What I would expect to see, if we see an economic slowdown is those independent hotels are looking for a loyalty program and proprietary contribution delivery from a large brand. We generally tend to attract those hotels during times when the economy segment is more challenged. So if that in fact happens that could be an additive benefit to us of more unit growth in the economy segment.

[Dan Wasiolek, Morningstar]

Okay. Understood. And then, just as a follow-up with Radisson, looks like you guys are reiterating your synergy guidance for this year and next year. Are there still opportunities you're looking into that could provide additional incremental synergies moving forward, just curious?

[Dom Dragisich, Chief Financial Officer]

Yeah. I think we talked about that in the last quarter, Dan. When you think about just where we were last year in the stub period, we were at about $18 million which implies annualized about $50 million in terms of EBITDA contribution. The integration team has just done a phenomenal job.

Candidly, we're very much ahead of plan of where we thought we would be. So, kudos to them on that, but when you think about just from $50 million stepping up to $60 million I do think that we'll exceed that $60 million this year.

So there's probably a couple of million dollars of upside. And then looking into next year we basically said we expect to still see kind of that over $80 million so call it somewhere between $80 million and $85 million-or-so.

But obviously a lot depends on once you plug it into the system there's some value prop opportunities in terms of revenue lift as well that a lot of times integration teams don't underwrite. So do we see upside to those figures? Absolutely, but again, just versus where we were last year we're feeling great about where the integration is.

[Dan Wasiolek, Morningstar]

Okay. Understood, great. Thanks guys.

[Dom Dragisich, Chief Financial Officer]

Thank you.

[Operator]

Thank you. Your next question comes from the line of Joe Greff from JPMorgan. Please go ahead.

[Joe Greff, JPMorgan]

All right. Good morning, guys. Thank you for taking my questions. You may have mentioned this and I may have missed it so sorry to make you repeat yourself if you did. Have you talked about what RevPAR growth has been to Q-to-date? And could you break that out between upper mid-scale and above and then the balance of the portfolio the lower tier chain-scale segments?

[Dom Dragisich, Chief Financial Officer]

No. Yeah. So we did not give kind of where we were in April. Obviously the entire industry saw a much softer April. A lot of it was due to some of the calendar shifts. It's really difficult to look at one month in isolation.

I think the best way to look at it Joe is when you just think about where we were last year we were up over 13% versus 2019, last year's Q2. So we expect to see RevPAR growth above that. It would be modest. Obviously, the guide implies somewhere in that call it 1% to 2% range. What we did talk about is kind of the trends that we saw in Q1 upper mid-scale was essentially a little more than 7% up all the way up to kind of the upscale segment which is call it anywhere from 13% to 16% up depending on the brand. And so again you would expect to see those trends probably continue versus 2019 levels. But just given the tougher comp you saw a slightly more modest RevPAR lift on -- or would see a slightly more modest RevPAR lift in Q2.

[Joe Greff, JPMorgan]

Great. And then, I guess, just directionally the cadence of RevPAR growth for the balance of this year. Is your thinking that 2Q's growth rate would be in excess of the 3Q and the 3Q would be in excess of the 4Q just given the year-year comparisons you've been highlighting or do you see it more evenly balanced?

[Dom Dragisich, Chief Financial Officer]

I would say more evenly Joe. That's what we're forecasting right now. More evenly. Obviously, Q4 last year was a fantastic quarter. It was up 20% versus Q4 of 2019. So obviously that's the toughest comp. But right now what we're seeing is kind of call it anywhere in that 1% to 2% range or so for the remainder of the year.

[Joe Greff, JPMorgan]

Okay. And then again you may have mentioned it I didn't catch it but the domestic rooms pipeline was down sequentially not an insignificant 11% quarter-over-quarter. Can you talk about what's been driving that or what drove that? And what your expectations are going forward for domestic rooms pipeline trend change?

[Dom Dragisich, Chief Financial Officer]

Yes Joe what we talked about is just the pipeline. When you look at the pipeline just the timing between Q4 and Q1 in particular there's just a lot of noise there because you have a very strong velocity in terms of openings kind of towards the end of that -- end of the month of December where hotel owners are trying to get those hotels open at the end of the day. And so you typically do see kind of a decline quarter-over-quarter from Q4 into Q1, especially, given the conversion engine that we do have.

So year-over-year we were up about 5%. And then what's even more -- what makes us even more bullish is that the rooms growth was up about -- or rooms were up about 11% year-over-year as well. Again kind of Q4 openings there is a lot of pipeline cleanup activity that happens at the end of the year as well. So Pat mentioned earlier on that we have more than 50% of our pipeline today has financing secured at this point. So essentially if we feel like a hotel is not going to open we term them from the pipeline as part of that year end cleanup. And then obviously just the conversion and the velocity of openings is a bigger driver as well. And so I think between -- you'll see kind of more historical growth return to the pipeline kind of for the remainder of the year just given that turn from Q4 into Q1.

[Joe Greff, JPMorgan]

Great. Thank you very much.

[Dom Dragisich, Chief Financial Officer]

Thank you.

[Operator]

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Pat Pacious for any closing remarks.

[Pat Pacious, President & Chief Executive Officer]

Well thank you operator and thanks everyone for your time this morning. We will talk to you again in August when we announce our second quarter results. I hope you all have a great day. Take care.

[Operator]

Thank you , sir. Ladies and gentlemen this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.