Choice Hotels International (NYSE: CHH) reported Q2 2026 revenue of $441 million, up about 3% from $426 million a year earlier, while diluted EPS fell to $1.41 from $1.75. Adjusted EBITDA increased 6% to $175 million, but GAAP net income declined as higher franchisee-related investment costs and other expenses outweighed growth in fees, RevPAR, and the hotel system.
Core financial results
Revenue excluding reimbursable costs rose 7%, supported by higher franchise and management fees, partnership services revenue, U.S. RevPAR, and the U.S. royalty rate. However, operating expenses grew faster than total revenue, producing a decline in GAAP operating income and net income.
The contrast between lower GAAP earnings and higher adjusted results was the quarter’s most significant financial feature.
| Metric | Q2 2026 | Q2 2025 | YoY change |
|---|---|---|---|
| Total revenue | $440.8 million | $426.4 million | +3.4% |
| Revenue excluding reimbursable revenue | $277 million | $259 million | +7% |
| Operating income | $104.1 million | $124.6 million | -16% |
| Net income | $64.3 million | $81.7 million | -21% |
| Diluted EPS | $1.41 | $1.75 | -19% |
| Adjusted net income | $92.1 million | $89.8 million | +3% |
| Adjusted diluted EPS | $2.02 | $1.92 | +5% |
| Adjusted EBITDA | $175.4 million | $165.0 million | +6% |
Franchise and management fees increased 6% to $188 million. Partnership services and fees also rose 6% to $29 million, primarily because of higher procurement services revenue.
Hotel demand and system growth
U.S. RevPAR increased 1.3%, reflecting a 0.7% increase in average daily rate and a 40-basis-point improvement in occupancy. Choice attributed the gain mainly to performance in the East North Central, Middle Atlantic, and West South Central regions.
International RevPAR rose 2.1% on a currency-neutral basis, led by the Caribbean and Latin America and supported by Canada and Asia Pacific. Within the U.S. portfolio, extended-stay brands outperformed while economy brands remained under pressure.
| Operating metric | Q2 2026 or June 30, 2026 | YoY change |
|---|---|---|
| U.S. RevPAR | $58.92 | +1.3% |
| International RevPAR | $71.96 | +2.1% currency-neutral |
| U.S. extended-stay RevPAR | $49.37 | +3.7% |
| U.S. economy RevPAR | $35.51 | -0.7% |
| U.S. system rooms | 499,226 | -0.3% |
| International system rooms | 161,863 | +12.5% |
| Global system rooms | 661,089 | +2.6% |
Global net room growth was driven by a 3.6% increase across Choice’s extended-stay, midscale, and upscale brands. U.S. extended-stay net rooms grew 13%, marking a 12th consecutive quarter of double-digit growth.
U.S. room openings increased 27% to approximately 6,400 rooms, the company’s highest second-quarter total since 2019. Global openings rose 16% to approximately 8,300 rooms. Although the total U.S. room count was still down 0.3% year over year, lower exits and faster openings improved the net-room trend for a second consecutive quarter.
Development activity also accelerated. U.S. franchise agreements awarded increased 30% and represented approximately 9,400 rooms, while the U.S. conversion pipeline grew 24% year over year to 24,100 rooms. Choice’s total global pipeline stood at approximately 77,300 rooms, with 96% concentrated in extended-stay, midscale, and upscale brands.
Franchise investments widen the gap between GAAP and adjusted earnings
Reimbursable revenue from franchised and managed properties declined to $163.3 million from $167.3 million, while the related expenses increased to $197.7 million from $176.4 million. That produced a net reimbursable deficit of approximately $34.3 million, compared with about $9.0 million one year earlier.
Choice said the higher deficit reflected investment in franchisee-facing tools and guest-delivery capabilities. Because these programs are intended to break even over time and franchisees are contractually required to cover deficits, the company excludes the quarterly surplus or deficit from its adjusted performance measures.
This accounting treatment helps explain why adjusted net income increased 3% even as GAAP net income fell 21%. GAAP earnings were also affected by the timing of SG&A expenses and higher depreciation and amortization associated with owned hotels and the prior-year acquisition of Choice Hotels Canada. The GAAP operating margin consequently fell to approximately 23.6% from 29.2%.
Cash flow and balance sheet
Cash flow data were reported for the six months ended June 30 rather than for the quarter alone. Operating cash flow declined to $67 million from $116 million, primarily because of higher franchise agreement acquisition costs associated with increased U.S. openings and higher marketing and reservation-system reimbursable expenses.
At the same time, net capital outlays for hotel development and lending activities fell 80% to $15 million from $76 million. Choice ended June with $475 million of available liquidity and a net debt-to-adjusted EBITDA ratio of 3.1 times, within its target range of 3.0 to 4.0 times. Long-term debt was $2.00 billion, compared with $1.91 billion at the end of 2025, while cash and cash equivalents totaled $42.8 million.
Choice returned $139 million to shareholders during the first half, comprising $26 million of dividends and $113 million of share repurchases. The company had 1.8 million shares remaining under its repurchase authorization as of June 30.
2026 operating outlook
Choice raised several operating assumptions for full-year 2026. The revised ranges reflect better U.S. RevPAR trends, faster global net room growth, and a higher U.S. royalty rate.
| Metric | Latest guidance | Prior guidance | Revision |
|---|---|---|---|
| Global RevPAR growth | 0% to 1% | -2% to 1% | Lower bound raised |
| U.S. RevPAR growth | 0% to 1.25% | -2% to 1% | Range raised |
| U.S. royalty-rate growth | 7 to 9 bps | Mid-single-digit bps | Raised |
| Global net system room growth | Approximately 1.5% | Approximately 1% | Raised |
Net capital outlays for hotel development-related activities are expected to be $20 million to $45 million in 2026, down from $103.4 million in 2025.
Management’s perspective
Interim CEO Dom Dragisich said the company’s priorities include improving franchisee economics by delivering more and higher-quality guests while reducing operating costs. He described Choice’s commercial engine and technology platform as established capabilities but said sharper execution is still needed to capture their full potential.
Choice also plans to enter the next phase of its asset-light strategy by recycling capital from owned hotels. As of August 5, it owned 19 operating hotels and had one additional hotel under construction. The first asset sales are expected in the first half of 2027, subject to market conditions.
Risks investors should monitor
- Continued GAAP earnings volatility: Spending on marketing, reservation systems, and franchisee tools created a much larger reimbursable deficit this quarter. Further timing mismatches could continue to pressure reported margins even if adjusted results remain positive.
- Lower operating cash flow: First-half operating cash flow declined as franchise agreement acquisition costs and reimbursable expenses increased. Faster room openings may require cash investment before the associated fee revenue fully develops.
- Uneven U.S. system growth: Total U.S. rooms were still down 0.3% year over year, making continued improvement in openings and exits important to achieving the company’s full-year system-growth objective.
- Economy-brand weakness: U.S. economy RevPAR declined 0.7% in the quarter and 4.4% in the first half, contrasting with growth in extended-stay and higher-tier brands.
- Debt and interest costs: Long-term debt increased from year-end, and management cited higher expected interest expense when revising its outlook. The 3.1-times leverage ratio remains within the company’s target range but leaves earnings exposed to financing costs.
Summary
Choice Hotels’ second quarter combined improving hotel demand and development activity with weaker GAAP profitability and cash flow. RevPAR gains, international expansion, extended-stay growth, and a larger pipeline supported higher adjusted EBITDA, while franchisee-related investments widened the reimbursable deficit and reduced reported net income. The main items to monitor are whether U.S. net room growth turns positive, whether operating cash flow recovers, and how quickly current technology and guest-delivery spending translates into stronger franchise economics.
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