8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 26, 2013

CHOICE HOTELS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-13393	52-1209792
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification Number)

1 Choice Hotels Circle, Suite 400, Rockville, Maryland	20850
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (301) 592-5000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On July 26, 2013, Choice Hotels International, Inc. issued a press release announcing earnings for the quarter ended June 30, 2013. A copy of the release is furnished herewith as Exhibit 99.1. In addition, the transcript of the earnings call held on July 26, 2013, is attached hereto as Exhibit 99.2.

Item 7.01. Regulation FD Disclosure.

The information set forth under Item 2.02 of this Current Report on Form 8-K is incorporated by reference in this Item 7.01.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit 99.1—Press Release issued by Choice Hotels International, Inc. dated July 26, 2013.

Exhibit 99.2—Edited Transcript of Choice Hotels International, Inc. Q2 2013 Earnings Conference Call.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: July 26, 2013	/s/ David L. White
	David L. White
	Senior Vice President, Chief Financial Officer & Treasurer

EX-99.1

Exhibit 99.1

For Immediate Release

CHOICE HOTELS INTERNATIONAL REPORTS SECOND QUARTER 2013 DILUTED

EPS OF $0.48 PER SHARE

ROCKVILLE, MD. (July 26, 2013) – Choice Hotels International, Inc., (NYSE:CHH) today reported the following highlights for the second quarter of 2013:

• Franchising revenues increased 6% to $82.6 million for the three months ended June 30, 2013 from $77.8 million for the same period of 2012. Total revenues increased 6% to $183.6 million for the three months ended June 30, 2013 compared to the same period of 2012.

• Domestic royalty fees for the three months ended June 30, 2013 increased 4% to $62.2 million from $59.8 million for the three months ended June 30, 2012.

• Domestic system-wide revenue per available room (“RevPAR”) increased 3.5% for the three months ended June 30, 2013 compared to the same quarter of the prior year as occupancy and average daily rates increased 90 basis points and 1.8%, respectively.

• Domestic unit and room growth increased 1.9% and 1.0% from June 30, 2012, respectively.

• The effective domestic royalty rate increased 3 basis points to 4.35% for the three months ended June 30, 2013 compared to 4.32% for the same period of the prior year.

• Initial and relicensing fees for the three months ended June 30, 2013 increased $1.2 million or 39% to $4.4 million from the same period of the prior year.

• The company executed 104 new domestic hotel franchise contracts for the three months ended June 30, 2013 compared to 106 new domestic hotel franchise contracts in the same period of the prior year.

• Domestic relicensing and contract renewal transactions increased from 47 contracts during the three months ended June 30, 2012 to 63 in the current period, a 34% increase.

• The number of worldwide hotels under construction, awaiting conversion or approved for development as of June 30, 2013 was 448 hotels representing 36,487 rooms.

• Selling, general and administrative (“SG&A”) expenses increased $5.6 million to $30.2 million for the three months ended June 30, 2013 compared to the same period of the prior year. SG&A expenses include expenses related to the company’s SkyTouch Technology division totaling $3.2 million and $0.8 million during the three months ended June 30, 2013 and 2012, respectively. In addition, SG&A for the second quarter of 2013 includes approximately $0.7 million of costs that are not expected to recur in

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future periods related to the relocation of the company’s corporate headquarters during the second quarter as well as additional variable expenses totaling approximately $0.5 million related to an increase in initial fees and procurement services revenues.

• The effective income tax rate for the three months ended June 30, 2013 was 29.6% compared to 33.5% for the same period of 2012.

• Diluted earnings per share (“EPS”) for second quarter 2013 were $0.48 compared to $0.55 for the second quarter of 2012. EPS for the second quarter of 2013 reflect $7.3 million of additional interest expense compared to the prior year reflecting the financing transactions entered into during the second and third quarters of 2012 in conjunction with the payment of the $600 million special cash dividend on August 23, 2012.

“We are excited about the growth prospects for our core franchising business. We are seeing particularly strong RevPAR performance for our upscale Ascend Collection, Suburban Extended Stay Hotel brand and our Sleep Inn brand which delivered impressive results as more of our franchisees upgrade their hotels to our new Design to Dream proto-type,” said Stephen P. Joyce, president and chief executive officer. “On the development side of the business, conversion franchise sales for our flagship Comfort brand and our Ascend Collection continued to outpace last year’s results demonstrating that Choice remains a top option for hotel developers.”

“We are also excited to report that we debuted SkyTouch Technology’s cloud based technology products to the hospitality industry in June at the Hospitality Financial and Technology Professional’s HITEC conference and are pleased with the level of interest we received,” said Stephen P. Joyce, president and chief executive officer. “We have executed our first customer contracts for this division and are excited that our new customers will experience the benefits that our cloud based technology products will deliver to their hotels.”

Use of Free Cash Flow

The company has historically used its free cash flow (cash flow from operations less cash flow from investing activities) to return value to shareholders, primarily through share repurchases and dividends.

Dividends

During the six months ended June 30, 2013, the company paid $11.3 million of cash dividends to shareholders. The company’s current quarterly dividend rate per common share is $0.185, subject to declaration by our board of directors. The company’s regular dividend for the first quarter was paid in December 2012.

Share Repurchases

The company did not repurchase any shares of common stock under the share repurchase program during the three and six months ended June 30, 2013 but has authorization to purchase up to an additional 1.4 million shares under this program. We expect we will make repurchases from time to time under our share repurchase program in the open market and through privately negotiated transactions, subject to market and other conditions. No minimum number of share repurchases has been fixed. Since Choice announced its stock repurchase program on June 25, 1998, the company has repurchased 45.3 million shares of its common stock for a total cost of $1.1 billion through June 30, 2013. Considering the effect of a two-for-one stock split in October 2005, the company has repurchased 78.3 million shares through June 30, 2013 under the share repurchase program at an average price of $13.89 per share.

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Other

Our board of directors previously authorized us to enter into a program which permits us to offer financing, investment and guaranty support to qualified franchisees as well as to acquire and resell real estate to incent franchise development for certain brands in strategic markets. Over the next several years, we expect to continue to opportunistically deploy capital pursuant to this program to promote growth of our emerging brands. Our current expectation is that our annual investment in this program will range between $20 million and $40 million per year and we generally expect to recycle these investments over a 5 year period. However, the amount and timing of the investment in this program will be dependent on market and other conditions. Notwithstanding this program, the company expects to continue to return value to its shareholders through a combination of share repurchases and dividends, subject to market and other conditions.

Balance Sheet

At June 30, 2013, the company had gross debt of $866.5 million and cash and cash equivalents totaling $143.8 million resulting in net debt of $722.7 million. At December 31, 2012, the company had gross debt of $855.3 million and cash equivalents totaling $134.2 million resulting in net debt of $721.1 million.

At June 30, 2013 and December 31, 2012, the company had outstanding mezzanine financing, real estate investments and sliver equity investments totaling $69 million and $68 million, respectively pursuant to its program to offer financing and investment support to incent franchise development for the Cambria Suites brand in strategic markets. These investments are reported in other current assets and other assets on the company’s consolidated balance sheet.

Outlook

The company’s third quarter 2013 diluted EPS is expected to be $0.66. The company expects full-year 2013 diluted EPS to range between $1.84 and $1.87. Earnings before interest, taxes and depreciation (“EBITDA”) for full-year 2013 are expected to range between $203.5 million and $206.5 million. These estimates include the following assumptions:

• The company expects net domestic unit growth to increase by approximately 2% in 2013;

• RevPAR is expected to increase approximately 3% for the third quarter of 2013 and increase between 3.5% and 4.25% for full-year 2013; RevPAR growth is expected to moderate in the second half of the year and continue to grow at a moderate pace into 2014;

• The effective royalty rate is expected to increase 2 basis points for full-year 2013;

• All figures assume the existing share count;

• The effective tax rate is expected to be 29.5% and 30.0% for the third quarter and full-year 2013, respectively; and

• Our EBITDA outlook for the full year includes expenses related to the company’s SkyTouch Technology division ranging between $12 million and $14 million for investment in the infrastructure of this division including business development, sales and marketing and other costs as well as continued software development expenditures related to the division’s technology related products and services.

Conference Call

Choice will conduct a conference call on Friday, July 26, 2013 at 10:00 a.m. EDT to discuss the company’s second quarter 2013 results. The dial-in number to listen to the call is 1-877-280-4959, and the access code is 31314907. International callers should dial 1-857-244-7316 and enter the access code 31314907. The conference call also will be Webcast simultaneously via the company’s Web site, www.choicehotels.com. Interested

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investors and other parties wishing to access the call via the Webcast should go to the Web site and click on the Investor Info link. The Investor Information page will feature a conference call microphone icon to access the call.

The call will be recorded and available for replay beginning at 12:00 p.m. EDT on Friday July 26, 2013 through Friday, August 2, 2013 by calling 1-888-286-8010 and entering access code 26118362. The international dial-in number for the replay is 1-617-801-6888, access code 26118362. In addition, the call will be archived and available on www.choicehotels.com via the Investor Info link.

About Choice Hotels

Choice Hotels International, Inc. franchises more than 6,200 hotels, representing more than 500,000 rooms, in the United States and more than 30 other countries and territories. As of June 30, 2013, 365 hotels, representing more than 29,000 rooms, were under construction, awaiting conversion or approved for development in the United States. Additionally, 83 hotels, representing approximately 7,200 rooms, were under construction, awaiting conversion or approved for development in more than 15 other countries and territories. The company’s Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge and Rodeway Inn brands, as well as its Ascend Hotel Collection membership program, serve guests worldwide.

SkyTouch Technology is an initiative of Choice Hotels International, Inc. that develops and markets cloud-based technology products to help industry-wide hoteliers improve their efficiency and profitability.

Additional corporate information can be found on the Choice Hotels International, Inc. web site, which may be accessed at www.choicehotels.com.

Forward-Looking Statements

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, our use of words such as “expect,” “estimate,” “believe,” “anticipate,” “will,” “forecast,” “plan”,” project,” “assume” or similar words of futurity identify such forward-looking statements. These forward-looking statements are based on management’s current beliefs, assumptions and expectations regarding future events, which in turn are based on information currently available to management. Such statements may relate to projections of the company’s revenue, earnings and other financial and operational measures, company debt levels, ability to repay outstanding indebtedness, payment of dividends, and future operations, among other matters. We caution you not to place undue reliance on any such forward-looking statements. Forward-looking statements do not guarantee future performance and involve known and unknown risks, uncertainties and other factors.

Several factors could cause actual results, performance or achievements of the company to differ materially from those expressed in or contemplated by the forward-looking statements. Such risks include, but are not limited to, changes to general, domestic and foreign economic conditions; operating risks common in the lodging and franchising industries; changes to the desirability of our brands as viewed by hotel operators and customers; changes to the terms or termination of our contracts with franchisees; our ability to keep pace with improvements in technology utilized for reservations systems and other operating systems; fluctuations in the supply and demand for hotels rooms; and our ability to manage effectively our indebtedness. These and other risk factors are discussed in detail in the Risk Factors section of the company’s Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on February 28, 2013 and our quarterly reports filed on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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Statement Concerning Non-GAAP Financial Measurements Presented in Exhibit 8

EBITDA, franchising revenues and franchising margins are non-GAAP financial measurements. This information should not be considered as an alternative to any measure of performance as promulgated under generally accepted accounting principles in the United States (“GAAP”), such as operating income, total revenues and operating margins. The company’s calculation of these measurements may be different from the calculations used by other companies and therefore comparability may be limited. The company has included an exhibit accompanying this release that reconciles these measures to the comparable GAAP measurement. We discuss management’s reasons for reporting these non-GAAP measures below.

Earnings Before Interest, Taxes, Depreciation and Amortization: EBITDA reflects earnings excluding the impact of interest expense, interest income, provision for income taxes, depreciation and amortization, other (gains) and losses and equity in net income (loss) of unconsolidated affiliates. We consider EBITDA to be an indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use EBITDA, as do analysts, lenders, investors and others, to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.

Franchising Revenues and Margins: The company reports franchising revenues and margins which exclude marketing and reservation revenues, SkyTouch Technology and hotel operations. Marketing and reservation activities are excluded from revenues and operating margins since the company is required by its franchise agreements to use these fees collected for marketing and reservation activities. Cumulative reservation and marketing system fees not expended are recorded as a liability on the company’s financial statements and are carried over to the next year and expended in accordance with the franchise agreements. Cumulative marketing and reservation expenditures in excess of system fees collected for marketing and reservation activities are recorded as a receivable on the company’s financial statements. In addition, the company has the contractual authority to require that the franchisees in the system at any given point repay the company for any deficits related to marketing and reservation activities. Hotel operations reflect the company’s ownership of three MainStay Suites hotels. SkyTouch Technology is a division of the company that develops and markets cloud-based technology products to help industry-wide hoteliers improve their efficiency and profitability. Hotel and SkyTouch Technology operations are excluded from franchising revenue and margins since they do not reflect the most accurate measure of the company’s core franchising business but are adjacent, complimentary lines of business. These non-GAAP measures are a commonly used measure of performance in our industry and facilitate comparisons between the company and its competitors.

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Contacts

David White, Senior Vice President, Chief Financial Officer & Treasurer

(301) 592-5117

Robin Pence, Vice President, Public Relations

(301) 592-5186

Choice Hotels, Choice Hotels International, Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge, Rodeway Inn, Ascend Hotel Collection and SkyTouch Technology are proprietary trademarks and service marks of Choice Hotels International.

© 2013 Choice Hotels International, Inc. All rights reserved.

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Choice Hotels International, Inc.	Exhibit 1
Consolidated Statements of Income
(Unaudited)

	Three Months Ended June 30,											Six Months Ended June 30,
							Variance											Variance
	2013			2012			$			%		2013			2012			$			%
(In thousands, except per share amounts)
REVENUES:
Royalty fees	$	68,379		$	66,064		$	2,315			4%	$	118,115		$	113,917		$	4,198			4%
Initial franchise and relicensing fees		4,416			3,178			1,238			39%		8,193			5,706			2,487			44%
Procurement services		7,546			6,836			710			10%		11,496			10,151			1,345			13%
Marketing and reservation		99,645			94,633			5,012			5%		176,085			165,562			10,523			6%
Hotel operations		1,334			1,224			110			9%		2,290			2,202			88			4%
Other		2,258			1,686			572			34%		4,271			5,252			(981	)		(19%)
Total revenues		183,578			173,621			9,957			6%		320,450			302,790			17,660			6%
OPERATING EXPENSES:
Selling, general and administrative		30,180			24,554			5,626			23%		57,096			48,903			8,193			17%
Depreciation and amortization		2,520			1,977			543			27%		4,695			3,994			701			18%
Marketing and reservation		99,645			94,633			5,012			5%		176,085			165,562			10,523			6%
Hotel operations		911			867			44			5%		1,786			1,676			110			7%
Total operating expenses		133,256			122,031			11,225			9%		239,662			220,135			19,527			9%
Operating income		50,322			51,590			(1,268	)		(2%)		80,788			82,655			(1,867	)		(2%)
OTHER INCOME AND EXPENSES, NET:
Interest expense		10,807			3,540			7,267			205%		21,577			6,657			14,920			224%
Interest income		(659	)		(394	)		(265	)		67%		(1,303	)		(731	)		(572	)		78%
Other (gains) and losses		147			377			(230	)		(61%)		(563	)		(1,626	)		1,063			(65%)
Equity in net (income) loss of affiliates		(60	)		128			(188	)		(147%)		81			183			(102	)		(56%)
Total other income and expenses, net		10,235			3,651			6,584			180%		19,792			4,483			15,309			341%
Income before income taxes		40,087			47,939			(7,852	)		(16%)		60,996			78,172			(17,176	)		(22%)
Income taxes		11,853			16,077			(4,224	)		(26%)		17,239			26,313			(9,074	)		(34%)
Net income	$	28,234		$	31,862		$	(3,628	)		(11%)	$	43,757		$	51,859		$	(8,102	)		(16%)
Basic earnings per share	$	0.48		$	0.55		$	(0.07	)		(13%)	$	0.75		$	0.89		$	(0.14	)		(16%)
Diluted earnings per share	$	0.48		$	0.55		$	(0.07	)		(13%)	$	0.74		$	0.89		$	(0.15	)		(17%)

Choice Hotels International, Inc.	Exhibit 2
Consolidated Balance Sheets

(In thousands, except per share amounts)	June 30, 2013			December 31, 2012
	(Unaudited)
ASSETS
Cash and cash equivalents	$	143,790		$	134,177
Accounts receivable, net		70,951			52,270
Investments, employee benefit plans, at fair value		377			3,486
Other current assets		40,586			43,537
Total current assets		255,704			233,470
Fixed assets and intangibles, net		147,034			130,937
Receivable – marketing and reservation fees		54,786			42,179
Investments, employee benefit plans, at fair value		14,114			12,755
Other assets		91,074			91,431
Total assets	$	562,712		$	510,772
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable and accrued expenses	$	102,291		$	94,266
Deferred revenue		67,757			71,154
Deferred compensation & retirement plan obligations		2,393			2,522
Current portion of long-term debt		8,205			8,195
Total current liabilities		180,646			176,137
Long-term debt		858,273			847,150
Deferred compensation & retirement plan obligations		20,114			20,399
Other liabilities		23,700			15,990
Total liabilities		1,082,733			1,059,676
Common stock, $0.01 par value		585			582
Additional paid-in-capital		111,580			110,246
Accumulated other comprehensive loss		(6,097	)		(4,216	)
Treasury stock, at cost		(920,355	)		(927,776	)
Retained earnings		294,266			272,260
Total shareholders’ deficit		(520,021	)		(548,904	)
Total liabilities and shareholders’ deficit	$	562,712		$	510,772

Choice Hotels International, Inc.	Exhibit 3
Consolidated Statements of Cash Flows
(Unaudited)

(In thousands)	Six Months Ended June 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES (1):
Net income	$	43,757		$	51,859
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,695			3,994
Provision for bad debts, net		1,420			1,236
Non-cash stock compensation and other charges		5,581			4,868
Non-cash interest and other (income) loss		967			(820	)
Deferred income taxes		4,169			(194	)
Dividends received from equity method investments		535			399
Equity in net (income) loss of affiliates		81			183
Changes in assets and liabilities:
Receivables		(21,156	)		(12,258	)
Receivable – marketing and reservation fees, net		(2,945	)		(2,389	)
Accounts payable		9,893			6,330
Accrued expenses		(18,463	)		(17,659	)
Income taxes payable/receivable		1,729			11,808
Deferred revenue		(3,318	)		(4,404	)
Other assets		(1,664	)		(4,331	)
Other liabilities		7,271			(820	)
NET CASH PROVIDED BY OPERATING ACTIVITIES (1)		32,552			37,802
CASH FLOWS FROM INVESTING ACTIVITIES (1):
Investment in property and equipment		(21,005	)		(6,236	)
Equity method investments		(1,851	)		(6,315	)
Purchases of investments, employee benefit plans		(1,580	)		(969	)
Proceeds from sales of investments, employee benefit plans		3,934			8,969
Issuance of notes receivable		(3,641	)		(5,820	)
Collections of notes receivable		247			210
Other items, net		(304	)		(226	)
NET CASH USED IN INVESTING ACTIVITIES (1)		(24,200	)		(10,387	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings pursuant to revolving credit facilities		15,200			—
Principal payments on long-term debt		(4,095	)		(333	)
Proceeds from the issuance of long-term debt		—			393,444
Purchase of treasury stock		(3,651	)		(22,173	)
Dividends paid		(11,261	)		(21,396	)
Excess tax benefits from stock-based compensation		1,146			641
Debt issuance costs		—			(153	)
Proceeds from exercise of stock options		5,973			445
NET CASH PROVIDED BY FINANCING ACTIVITIES		3,312			350,475
Net change in cash and cash equivalents		11,664			377,890
Effect of foreign exchange rate changes on cash and cash equivalents		(2,051	)		443
Cash and cash equivalents at beginning of period		134,177			107,057
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	143,790		$	485,390

⁽¹⁾  The company is currently reviewing, in consultation with its independent registered public accounting firm, its accounting policies regarding the presentation of its cash flows related to certain of its development advances and collections presented under the captions “Issuance and Collection of Notes Receivable”. The company’s statements of cash flows contained in this press release have been prepared in accordance with the company’s existing accounting policy which is to present these items as cash flows from investing activities, which is consistent with prior audited periods. However, our independent registered public accounting firm has recently questioned the appropriateness of classifying these items as cash flows from investing activities rather than as cash flows from operating activities. If the company determines that it is required to move these items from cash flows from investing activities to cash flows from operating activities in the current statements contained in this press release, its net cash provided by operating activities for the six months ended June 30, 2013 and 2012 will be reduced by $3.6 million and $1.5 million, respectively, with a corresponding adjustment to net cash used in investing activities. Until this review is complete, the company cannot determine if it will reclassify, restate or make other changes to its historical consolidated statements of cash flows, including the information contained in this press release.

CHOICE HOTELS INTERNATIONAL, INC.	Exhibit 4
SUPPLEMENTAL OPERATING INFORMATION
DOMESTIC HOTEL SYSTEM
(UNAUDITED)

	For the Six Months Ended June 30, 2013*							For the Six Months Ended June 30, 2012*							Change
	Average Daily Rate		Occupancy			RevPAR		Average Daily Rate		Occupancy			RevPAR		Average Daily Rate			Occupancy		RevPAR
Comfort Inn	$	79.42		54.2	%	$	43.08	$	77.48		53.6	%	$	41.52		2.5	%		60 bps		3.8	%
Comfort Suites		85.00		58.3	%		50.01		83.15		57.6	%		47.92		2.2	%		70 bps		4.4	%
Sleep		72.06		54.5	%		39.29		69.90		52.0	%		36.32		3.1	%		250 bps		8.2	%
Quality		67.16		48.4	%		32.49		66.29		46.8	%		31.03		1.3	%		160 bps		4.7	%
Clarion		72.04		46.7	%		33.65		71.85		44.6	%		32.07		0.3	%		210 bps		4.9	%
Econo Lodge		53.60		44.1	%		23.64		52.48		44.0	%		23.09		2.1	%		10 bps		2.4	%
Rodeway		50.43		47.0	%		23.70		49.36		46.2	%		22.81		2.2	%		80 bps		3.9	%
MainStay		70.33		63.6	%		44.74		67.02		67.4	%		45.16		4.9	%		(380) bps		(0.9	%)
Suburban		42.15		68.8	%		29.01		40.48		67.3	%		27.24		4.1	%		150 bps		6.5	%
Ascend Collection		120.34		60.6	%		72.90		109.96		59.4	%		65.28		9.4	%		120 bps		11.7	%
Total	$	71.81		51.7	%	$	37.10	$	70.38		50.7	%	$	35.66		2.0	%		100 bps		4.0	%

* Operating statistics represent hotel operations from December through May

	For the Three Months Ended June 30, 2013*							For the Three Months Ended June 30, 2012*							Change
	Average Daily Rate		Occupancy			RevPAR		Average Daily Rate		Occupancy			RevPAR		Average Daily Rate			Occupancy		RevPAR
Comfort Inn	$	81.77		60.8	%	$	49.67	$	79.87		60.2	%	$	48.05		2.4	%		60 bps		3.4	%
Comfort Suites		87.52		64.9	%		56.82		85.71		64.2	%		55.01		2.1	%		70 bps		3.3	%
Sleep		74.30		61.3	%		45.54		72.52		58.7	%		42.56		2.5	%		260 bps		7.0	%
Quality		69.35		54.2	%		37.61		68.43		52.5	%		35.95		1.3	%		170 bps		4.6	%
Clarion		74.43		52.0	%		38.68		74.71		50.2	%		37.53		(0.4	%)		180 bps		3.1	%
Econo Lodge		55.06		49.4	%		27.19		54.14		49.2	%		26.62		1.7	%		20 bps		2.1	%
Rodeway		52.32		51.5	%		26.93		51.10		50.4	%		25.76		2.4	%		110 bps		4.5	%
MainStay		71.71		70.0	%		50.23		69.06		72.9	%		50.32		3.8	%		(290) bps		(0.2	%)
Suburban		43.16		73.9	%		31.90		41.58		71.9	%		29.89		3.8	%		200 bps		6.7	%
Ascend Collection		124.77		64.1	%		79.99		114.40		66.4	%		75.94		9.1	%		(230) bps		5.3	%
Total	$	74.02		57.5	%	$	42.60	$	72.69		56.6	%	$	41.16		1.8	%		90 bps		3.5	%

* Operating statistics represent hotel operations from March through May

	For the Quarter Ended						For the Six Months Ended
	6/30/2013			6/30/2012			6/30/2013			6/30/2012
System-wide effective royalty rate		4.35	%		4.32	%		4.36	%		4.33	%

CHOICE HOTELS INTERNATIONAL, INC.	Exhibit 5
SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA
(UNAUDITED)

	June 30, 2013				June 30, 2012				Variance
	Hotels		Rooms		Hotels		Rooms		Hotels			Rooms			%			%
Comfort Inn		1,311		102,882		1,379		107,895		(68	)		(5,013	)		(4.9	%)		(4.6	%)
Comfort Suites		587		45,339		608		46,903		(21	)		(1,564	)		(3.5	%)		(3.3	%)
Sleep		379		27,478		391		28,327		(12	)		(849	)		(3.1	%)		(3.0	%)
Quality		1,192		99,761		1,082		93,655		110			6,106			10.2	%		6.5	%
Clarion		191		27,184		189		27,534		2			(350	)		1.1	%		(1.3	%)
Econo Lodge		817		49,608		801		49,114		16			494			2.0	%		1.0	%
Rodeway		427		24,782		401		22,671		26			2,111			6.5	%		9.3	%
MainStay		43		3,332		40		3,083		3			249			7.5	%		8.1	%
Suburban		63		7,241		62		7,260		1			(19	)		1.6	%		(0.3	%)
Ascend Collection		90		7,521		52		4,652		38			2,869			73.1	%		61.7	%
Cambria Suites		18		2,094		19		2,221		(1	)		(127	)		(5.3	%)		(5.7	%)
Domestic Franchises		5,118		397,222		5,024		393,315		94			3,907			1.9	%		1.0	%
International Franchises		1,169		104,701		1,175		104,522		(6	)		179			(0.5	%)		0.2	%
Total Franchises		6,287		501,923		6,199		497,837		88			4,086			1.4	%		0.8	%

Exhibit 6

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL INFORMATION BY BRAND

DEVELOPMENT RESULTS – DOMESTIC NEW HOTEL CONTRACTS

(UNAUDITED)

	For the Six Months Ended June 30, 2013						For the Six Months Ended June 30, 2012						% Change
	New Construction		Conversion		Total		New Construction		Conversion		Total		New Construction		Conversion		Total
Comfort Inn		5		18		23		6		12		18		(17%)		50%		28%
Comfort Suites		5		2		7		7		4		11		(29%)		(50%)		(36%)
Sleep		5		—		5		11		1		12		(55%)		(100%)		(58%)
Quality		1		44		45		—		63		63		NM		(30%)		(29%)
Clarion		—		7		7		—		7		7		NM		0%		0%
Econo Lodge		—		31		31		—		18		18		NM		72%		72%
Rodeway		—		24		24		—		31		31		NM		(23%)		(23%)
MainStay		4		—		4		1		1		2		300%		(100%)		100%
Suburban		—		1		1		—		1		1		NM		0%		0%
Ascend Collection		3		36		39		1		4		5		200%		800%		680%
Cambria Suites		1		—		1		2		—		2		(50%)		NM		(50%)
Total Domestic System		24		163		187		28		142		170		(14%)		15%		10%
	For the Three Months Ended June 30, 2013						For the Three Months Ended June 30, 2012						% Change
	New Construction		Conversion		Total		New Construction		Conversion		Total		New Construction		Conversion		Total
Comfort Inn		2		13		15		5		4		9		(60%)		225%		67%
Comfort Suites		3		—		3		6		2		8		(50%)		(100%)		(63%)
Sleep		4		—		4		8		1		9		(50%)		(100%)		(56%)
Quality		1		25		26		—		36		36		NM		(31%)		(28%)
Clarion		—		4		4		—		5		5		NM		(20%)		(20%)
Econo Lodge		—		23		23		—		14		14		NM		64%		64%
Rodeway		—		15		15		—		19		19		NM		(21%)		(21%)
MainStay		3		—		3		1		1		2		200%		(100%)		50%
Suburban		—		—		—		—		1		1		NM		(100%)		(100%)
Ascend Collection		1		10		11		—		2		2		NM		400%		450%
Cambria Suites		—		—		—		1		—		1		(100%)		NM		(100%)
Total Domestic System		14		90		104		21		85		106		(33%)		6%		(2%)

Exhibit 7

CHOICE HOTELS INTERNATIONAL, INC.

DOMESTIC HOTEL PIPELINE OF HOTELS UNDER CONSTRUCTION, AWAITING CONVERSION OR APPROVED FOR DEVELOPMENT

(UNAUDITED)

A hotel in the domestic pipeline does not always result in an open and operating hotel due to various factors.

													Variance
	June 30, 2013 Units						June 30, 2012 Units						Conversion						New Construction					Total
	Conversion		New Construction		Total		Conversion		New Construction		Total		Units			%			Units			%		Units			%
Comfort Inn		34		46		80		25		40		65		9			36	%		6			15%		15			23%
Comfort Suites		2		61		63		2		82		84		—			0	%		(21	)		(26%)		(21	)		(25%)
Sleep Inn		—		44		44		1		40		41		(1	)		(100	%)		4			10%		3			7%
Quality		34		3		37		39		3		42		(5	)		(13	%)		—			0%		(5	)		(12%)
Clarion		8		—		8		14		1		15		(6	)		(43	%)		(1	)		(100%)		(7	)		(47%)
Econo Lodge		26		—		26		20		1		21		6			30	%		(1	)		(100%)		5			24%
Rodeway		24		—		24		31		1		32		(7	)		(23	%)		(1	)		(100%)		(8	)		(25%)
MainStay		—		26		26		1		22		23		(1	)		(100	%)		4			18%		3			13%
Suburban		3		12		15		2		14		16		1			50	%		(2	)		(14%)		(1	)		(6%)
Ascend Collection		14		8		22		8		5		13		6			75	%		3			60%		9			69%
Cambria Suites		—		20		20		—		26		26		—			NM			(6	)		(23%)		(6	)		(23%)
		145		220		365		143		235		378		2			1	%		(15	)		(6%)		(13	)		(3%)

CHOICE HOTELS INTERNATIONAL, INC.	Exhibit 8
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
(UNAUDITED)

CALCULATION OF FRANCHISING REVENUES AND FRANCHISING MARGINS

(dollar amounts in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Franchising Revenues:
Total Revenues	$	183,578		$	173,621		$	320,450		$	302,790
Adjustments:
Marketing and reservation revenues		(99,645	)		(94,633	)		(176,085	)		(165,562	)
Hotel operations		(1,334	)		(1,224	)		(2,290	)		(2,202	)
Franchising Revenues	$	82,599		$	77,764		$	142,075		$	135,026
Franchising Margins:
Operating Margin:
Total Revenues	$	183,578		$	173,621		$	320,450		$	302,790
Operating Income	$	50,322		$	51,590		$	80,788		$	82,655
Operating Margin		27.4	%		29.7	%		25.2	%		27.3	%
Franchising Margin:
Franchising Revenues	$	82,599		$	77,764		$	142,075		$	135,026
Operating Income	$	50,322		$	51,590		$	80,788		$	82,655
SkyTouch Division		3,159			831			5,401			1,338
Hotel operations		(423	)		(357	)		(504	)		(526	)
	$	53,058		$	52,064		$	85,685		$	83,467
Franchising Margins		64.2	%		67.0	%		60.3	%		61.8	%

EBITDA Reconciliation

(in thousands)
	Q2 2013 Actuals		Q2 2012 Actuals		Six Months Ended June 30, 2013 Actuals		Six Months Ended June 30, 2012 Actuals		Full-Year 2013 Outlook Range
Operating Income (per GAAP)	$	50,322	$	51,590	$	80,788	$	82,655	$	193,900	$	196,900
Depreciation and amortization	$	2,520	$	1,977	$	4,695	$	3,994		9,600		9,600
Earnings before interest, taxes, depreciation & amortization (non-GAAP)	$	52,842	$	53,567	$	85,483	$	86,649	$	203,500	$	206,500

EX-99.2

Exhibit 99.2

THOMSON REUTERS STREETEVENTS

EDITED TRANSCRIPT

CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

EVENT DATE/TIME: JULY 26, 2013 / 2:00PM GMT

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JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

Dave White Choice Hotels International, Inc.—CFO

CONFERENCE CALL PARTICIPANTS Anthony Powell Barclays Capital—Analyst Thomas Allen Morgan Stanley—Analyst Michael Barley FBR, Inc.—Analyst

PRESENTATION

Operator

Ladies and gentlemen, thank you for standing by. Good morning and welcome to the Choice Hotels International second-quarter 2013 earnings conference call. At this time all lines are in a listen-only mode. Later there will be a question-and-answer session and further instructions will be given at that time. As a reminder, today’s call is being recorded.

During the course of this conference call certain predictive or forward-looking statements will be used to assist you in understanding the Company and its results, which constitutes forward-looking statements under the Safe Harbor provision of the Securities Reform Act of 1995.

These forward-looking statements generally can be identified by phrases such as Choice or its management believes, expects, anticipates, foresees, forecasts, estimates or other words or phrases of similar import. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Please consult the Company’s Form 10-K for the year ending December 31, 2012 and other SEC filings for information about important risk factors affecting the Company that you should consider. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievement.

We caution you do not place undue reliance on forward looking statements which reflect our analysis only and speak only as of today’s date. We undertake no obligation to publicly update our forward-looking statements to reflect subsequent events or circumstances.

You can find a reconciliation of our non-GAAP financial results referred to in our remarks as part of our second-quarter 2013 earnings press release which is posted on our website at choicehotels.com under the investor information section.

With that being said, I would now like to introduce Steve Joyce, President and Chief Executive Officer of Choice Hotels International, Inc. Please go ahead, sir.

Steve Joyce—Choice Hotels International, Inc.—President & CEO

Thank you. Good morning. Welcome to Choice Hotels’ second-quarter 2013 earnings conference call. With me this morning is Dave White, as always, our Chief Financial Officer.

I am pleased to report and share our second-quarter results. This morning we will update you on the financial performance of the core Hotel Franchising business and on the progress we are making with our key strategic growth initiatives. This includes the new mobile innovation that we announced this week as well as the progress of our SkyTouch Technology initiative, a separate business division that we announced earlier this year.

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2

JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

Overall, we are pleased with the performance of the quarter. The economy continues to grow at a modest but steady pace and our business continues to grow as well. We are executing on our strategy and it is working.

Several factors contribute to our results for the second quarter as reflected in the key indicators we used to measure the performance of our lodging business. Franchising revenues increased 6% driven primarily by an increase in our domestic royalties and a 39% increase in our initial and relicensing revenues — a very positive sign.

Domestic royalty growth for the quarter was driven primarily by a 3.5% increase in RevPAR, a 1.9% growth in the number of domestic hotels under franchise and a 3 basis point increase in our effective royalty rate.

Initial and relicensing fee revenue reflects the execution of 104 new domestic hotel franchise contracts during the second quarter compared to 106 new domestic hotel franchise contracts for last year. In addition the Company also achieved a 34% increase in relicensing and renewal transactions.

Turning to development. We are pleased that development is up 10% systemwide so far this year and we remain optimistic that the development results will continue to outpace last year’s results. Our brands continue to be attractive to franchisees. So far this year, conversion franchise sales have outperformed new construction sales and have consistently outpaced last year’s results.

Year to date, domestic conversions are up 15% systemwide. Since the beginning of the year, we executed 163 domestic conversion contracts compared to 142 during the same time last year. We also see financing and lending continue to improve gradually as lenders and developers show more interest in undertaking new construction projects.

We expect franchise sales activity to increase as we move through the summer and into the fall. There are a number of areas on the development and brand front that we are particularly excited about across our brands.

First of all, Ascend. Our Ascend Hotel Collection continues to be very strong with exceptional upscale properties in great markets affiliating with us. The rate and quality of conversions speak to the power of our industry-leading distribution channels.

Independent upscale hotels are recognizing the value we offer with them and it is particularly evident with the results of our Ascend Hotel Collection. In May, we announced our 100th Ascend Hotel — the Hotel Elan in Calgary, Canada. This is up from less than 20 in a short 2 1/2 years.

During the second quarter, we added a total of 11 new Ascend Hotel membership agreements compared to last year. Ascend Hotels are receiving a reservation contribution close to 50% from Choice Hotels, the highest among the Choice brands. And guest satisfaction is also amongst the highest in our portfolio. Simply put, Ascend is on fire.

Cambria, our Snooze brand, is also doing well. We expect to have about 30 Cambria Suites properties open or under construction by the end of 2013 including high-visibility markets like Chelsea and Times Square in New York City, White Plains in New York, Miami, downtown Washington, DC near the Convention Center, Plano, Texas and one coming out of the ground right next to our new global headquarters in Rockville, Maryland.

New types of markets and a new day for Cambria is going to really push that brand forward.

This quarter, we also announced a major milestone for Cambria Suites. We reached an agreement in principle to create a joint venture with the private investment firm of Fillmore Capital Partners and its affiliates to develop multiple Cambria Suites. This marks the brand’s first institutional investor, underscoring the confidence that developers have already expressed for the emerging brand’s potential.

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3

JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

premiums over the rest of the Sleep properties. It is a remarkable event when they finish their reimaging and immediately see a $10 increase to ADR.

Due in part to the success of Design to Dream, Sleep Inn experienced RevPAR gains of 7% during the second quarter of 2013 compared to the same period last year with a little over the quarter of the system completely done. In addition, guest satisfaction surveys have found that Sleep Inn’s guests are very likely to recommend the brand to their friends. This is also a brand to watch.

Turning to distribution, we have a number of updates. On the reservations front, our central reservation system is on pace to have another record-breaking year. Just last week on July 15, we had our highest revenue date ever at more than $13 million. So far this year, we have exceeded $12 million 12 times compared to three times in 2012, $11 million 28 times versus 19 times last year and $10 million 61 times, only two shy of the 63 achieved for the entire year of 2012.

I am pleased to report that we continue to build the infrastructure to help sustain this type of success. This week, we launched a mobile innovation that greatly simplifies the process of making hotel reservations using a mobile device. The mobile enhancement called Rapid Book makes mobile booking easy. Customers simply enter their information one time when completing their online profile. After that, they are ready to book quickly through the Choice Hotels’ mobile website.

Rapid Book recalls a guest room’s preference — a guest room preference, provides similar rooms for future searches and it recalls payment information.

Guests spend less time entering data on their smart phones, a particular pet peeve, and can complete reservations in a fraction of the time and number of clicks that it previously took.

Today in part because of our mobile innovations, our mobile revenue is up significantly year over year and mobile makes up a rapidly growing portion of the Company’s industry-leading online revenue.

Our guests are constantly changing the way they shop and book for travel. Choice is tracking right along with this trend, leveraging our core information and distribution competencies to provide innovative tools so our franchisees can reach customers who are embracing new mobile and booking technology as it rapidly evolves.

Changing gears, I want to talk about SkyTouch Technology. We are particularly excited about this new division of Choice which we announced earlier this year. SkyTouch develops and markets cloud-based technology products to the hotel industry. The first SkyTouch product that has gone live since the last earnings call was launched to the marketplace at the HITEC conference just a few weeks ago.

The new product, called SkyTouch Hotel OS, is a system for handling reservations, guest stay information, folios and rates. Unlike many other property management systems, it is highly scalable, has comparatively low upfront costs and requires minimal investment in IT hardware and related ongoing maintenance costs due to the fact it is based in the cloud.

SkyTouch Hotel OS was very well-received by the industry during the high-tech conference. And we are very happy to share that the SkyTouch has signed up its first customers and developed a pipeline of strong interest from hotel brands, large and small, and independent hotel owners. We are pleased about SkyTouch’s progress thus far in such a short amount of time and we will keep you updated as the year progresses.

Overall, we are very pleased with the progress during the second quarter on a number of fronts. We continue to be pleased with the performance of our core hotel franchise business and we remain bullish about the possibilities to create value for our shareholders through our core business as well as growth initiatives including SkyTouch.

Let me turn it over to Dave White now who is going to provide more detail on our results. Dave?

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4

JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

Great. Thanks, Steve. As you read in this morning’s press release, we reported diluted earnings per share of $0.48 which exceeded our previously published outlook for the quarter by $0.03 per share. Most of our earnings per share outperformance for the quarter or $0.02 is attributable to better than expected operating income results.

These results were driven by higher revenues from initial and relicensing fees and from procurement services. Together the revenue outperformance in those two areas more than offset lower-than-anticipated domestic royalties attributable to a slower-than-contemplated RevPAR growth rate.

In addition to exceeding our expectations at the franchising revenue line, our SG&A expenses for the quarter were less than we had anticipated as a result of a delay in the timing of certain expenses that we now expect will occur will occur in the back half of this year. The remainder of earnings per share outperformance or approximately $0.01 per share is attributable to a lower effective tax rate than we had previously expected.

Our franchising revenues for the quarter increased by 6% to approximately $83 million for the quarter which represents an acceleration of the pace of franchising revenue growth from the 4% growth rate we achieved in the first quarter of this year.

Included within franchising revenues our domestic royalty revenues increased by 4% to $62.2 million due to a combination of increases in RevPAR, our system size and our average effective royalty rate.

Domestic RevPAR growth for the quarter was 3.5%. This result was 50 basis points less than our guidance for the quarter which was for 4% domestic RevPAR growth. And as a reminder, our RevPAR results for the second quarter reflect our franchisees’ gross room revenue performance for the months of March, April, and May.

Our RevPAR results were lower than our guidance as industry RevPAR growth was slightly softer than expected due to weaker GDP growth than economists had previously forecasted and weaker RevPAR results in interstate and small-town markets with Choice has a comparatively larger share of room supply. Choices’ RevPAR growth in those types of markets was around 2% based on lower demand growth and less pricing power compared to more urban markets.

Our 3.5% domestic RevPAR growth was driven by a combination of 90 basis point increase in systemwide occupancy and a 1.8% increase in our average daily rates. And while we were disappointed with the overall pace of RevPAR growth, at the brand level there were a couple of highlights. We are very encouraged with the RevPAR performance of our Sleep Inn system which continued to generate meaningfully above average RevPAR growth. The Sleep Inn brand RevPAR increased 7% compared to the prior year reflecting the benefit of our Design to Dream program which has been very well-received by developers and guests.

Another brand highlight is with our Ascend Collection where RevPAR results were also encouraging with continued RevPAR growth in excess of 5%, driven by average daily room rate growth of more than 9%. These results reflect the strong contribution of our brand to our hotel owners and highlight the strength of our distribution platform in driving great results for hotel owners in the upscale and midscale segments.

On the supply front, we achieved domestic franchise system growth of approximately 2% over the past 12 months and we expect our full year unit growth for 2013 will exceed our previous expectations.

And finally, our average systemwide effective royalty rates for the domestic hotel system increased 3 basis points to 4.35% from the second quarter of 2013 compared to 4.32% last year, primarily due to the burn off of some of the steeper royalty rate discounts given in conjunction with our franchise development incentives in place during the past several years.

On the franchise development front, another highlight for the quarter was the continued strong growth in initial and relicensing fee revenues. These revenues increased by 39% to $4.4 million for three reasons.

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5

JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

In addition our second-quarter 2013 initial fee revenues reflect a year-over-year increase in revenue recognized related to previously deferred initial fee revenues tied to incentive deals for hotel openings into the system during the quarter.

And finally, we achieved a year-over-year increase in the number of relicensing agreements executed.

During the first quarter of 2013, we executed 104 new domestic franchise sales contracts which overall was less than we had expected, primarily as a result of a still soft new hotel construction environment. And while new contracts executed in the second quarter from new construction hotels were lower than the prior year, keep in mind that we had previously seen seven straight quarters of year-over-year increases in new construction contracts and we are optimistic that this overall trend will continue over time.

We expect actual domestic hotel openings from previously executed new construction franchise sales to increase this year. Our current estimate is that new construction openings will increase 33% from 27 to 36 hotels this year. So we remain optimistic that the new construction environment, while choppy, is continuing to gradually improve.

Conversion franchise sales contracts continued to improve and achieved their sixth straight quarter of year-over-year increases. These contracts increased 6% for the second quarter, primarily due to continued success in growing conversion franchise sales of our flagship upper midscale Comfort brand which more than doubled conversion franchise sales during the quarter.

Our new domestic franchise sales of our upscale Ascend Collection increased fivefold to 11 executed contract for the second quarter compared to two for the comparable perspective of last year and also improved sales of our Economy segment, Econoline and Rodeway brands, whose combined sales increased in the second quarter by more than 15%.

In addition, the number of domestic relicensing and renewal transactions continued to improve increasing 34% to 63 contracts. This represents a positive sign for hotel transactions and that has historically correlated well with franchise sales improvement.

Turning to the cost side of the business, our SG&A costs for the second quarter increased by $5.6 million or 23% compared to the same period last year. This rate of SG&A growth is significantly higher than our long-term SG&A growth expectations for the core business and there are a few items computing to the higher growth rate that are worth pointing out.

As summarized in the release, a few specific items that contributed to our second-quarter SG&A, including the impact of our recently announced SkyTouch Technology division, costs related to our second-quarter headquarter relocation, and variable costs directly related to increased initial fees and procurement services revenues, those three items explain approximately 2/3 of the SG&A expense increase.

Excluding these items, our SG&A increased by approximately 8% for the quarter and 3% for the year-to-date period. We still expect full-year SG&A, excluding these items for the full year, to increase in the mid-single digit percentage range.

Diluted earnings per share were $0.48 for the second quarter of 2013 compared to $0.55 per share for the second quarter of 2012. As a reminder, our second quarter and year-to-date results reflect an increase in borrowing costs resulting from a special cash dividend paid last August of $10.41 per share or approximately $600 million in the aggregate to our shareholders.

As a result of the financing transactions entered into at the end of the second quarter and the beginning of the third quarter of last year, our interest expense increased by approximately $7.3 million during the second quarter of 2013 and nearly $15 million year to date.

Turning to our outlook for the remainder of 2013, we currently expect third-quarter diluted earnings per share to be $0.66 and full-year 2013 diluted earnings per share to range between $1.84 and $1.87 per share. We expect full-year 2013 EBITDA to range between $203.5 million and $206.5

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JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

We have reduced our full-year RevPAR range from our previous guidance of 4.5% to 5.5%, primarily due to the recent downgrade by economists and GDP forecast for the remainder of the year. And in addition recent industry RevPAR has slowed somewhat with Smith Travel Research reporting RevPAR increases in the Midscale and Economy segments at about 3.7% over the past 28 days ending July 20.

Given current forecasts of the economy, we don’t expect to see any significant acceleration in RevPAR growth in the back half of the year, but we expect it to remain positive. We expect our net domestic unit growth for 2013 to increase by approximately 2% and our effective royalty rate to increase by approximately 2 basis points. We also assume an effective tax rate of approximately 29.5% for the third quarter and 30% for full-year 2013.

All figures assume the existing share count which was approximately 58.5 million shares as of the close of business yesterday. Our new full-year EBITDA guidance reflects our expectation that the pace of RevPAR growth for the year will be approximately 100 to 125 basis points [slower] than we previously thought.

As a reminder, each 100 basis point change in RevPAR growth rate represents approximately $2.5 million of EBITDA.

At the same time, we are expecting a higher level of unit growth for 2013 which partially offset — which partially offset by an improved outlook for current year next — for next year’s unit growth.

Finally, as I mentioned earlier, our new EBITDA outlook also reflects the timing of expenses as certain costs that we expect to occur in the second quarter are now anticipated to occur in the second half of this year. The operating assumptions that we are making in our current outlook related to our incremental investment in the SkyTouch Technology division are unchanged from the outlook we provided with our first-quarter earnings release in April.

We continue to believe SkyTouch represents a meaningful growth opportunity for us and a line of business adjacent to our core Hotel Franchising business. And as Steve mentioned we are very pleased with our initial progress with this initiative including the execution of contracts and onboarding of our initial SkyTouch customers.

And now let me turn the call back over to Steve.

Steve Joyce—Choice Hotels International, Inc.—President & CEO

Thanks, Dave. Overall we are pleased with the results this quarter, continues to be slow but steady improvement in the economy that is reflected in the consistent growth of our businesses.

I want to thank you for your interest in Choice Hotels. We believe we are successfully implementing our strategy in our core business and other growth strategies, such as SkyTouch, and feel optimistic about our continued long-term growth and our ability to drive excellent results for shareholders.

With that, I am going to open it up to questions and answers.

QUESTIONS AND ANSWERS

Operator

(Operator Instructions). Robin Farley, UBS.

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JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

Good morning. It is actually [Artie] on the half of Robin. I just wanted to ask about the EBITDA guidance. It seems like even with RevPAR guidance down EBITDA guidance ex-SkyTouch is up. Could you walk us through what is driving that? I understand unit growth is up, but profitability per unit looks like outlook is down.

Steve Joyce—Choice Hotels International, Inc.—President & CEO

Yes, overall, I would say the SkyTouch outlook for on the cost side is unchanged. We are modeling like $12 million to $14 million. The overall, which I think when you back into it, actually you would see that it is kind of a good point. Our EBITDA outlook came down by about of the amount of the RevPAR decline.

We narrowed the range a little bit just given the fact that we are about halfway through the year. So I would say we have only got another six months to go rather than where we were at the end of the first quarter.

That is kind of — but at the end of the day I think the primary thing is being driven by the RevPAR impact. So I think when you back — when you go through that model that is where you will come out.

Unidentified Participant

And then on SkyTouch, do you have more clarity to share in terms of customers in general sort of revenue streams, how many hotels you are in discussion with outside the Choice system?

Steve Joyce—Choice Hotels International, Inc.—President & CEO

Yes. In terms of the pipeline for SkyTouch, as we mentioned we have executed our first few contracts and we are excited about that. We brought our first customer online and it is pretty early still obviously in the process because the HITEC Conference where we announced this was really just last month. But the interest from multiple tiers of customers, the individual hotel owner operators as well as smaller brands and some larger brands, has been very positive. But I think it is premature to publish pipeline numbers at this point. But as the course of this year progresses over the next couple of quarters we will give you a little more detail in that area.

Dave White—Choice Hotels International, Inc.—CFO

But you can assume that we are in discussion with folks that represent thousands of hotels.

Unidentified Participant

Thanks.

Operator

Felicia Hendrix, Barclays.

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JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

How promotional is the new build and conversion to markets, both of them right now? Are you seeing any of your competitors increase the amount of incentives given for new contracts?

Steve Joyce—Choice Hotels International, Inc.—President & CEO

Yes, in the overall business on both sides both new construction and on the conversion side, we are seeing people being pretty aggressive on the development side, including incentives. But there’s still the typical types incentives that we are doing which is an increase ramp-up type activity. So but we are seeing people being more aggressive in the marketplace.

The encouraging thing about the new build market is it — particularly in some of the markets we are most interested in, we are starting to see a nice upswing from a number of the other hotel companies as well. And so we are encouraged not only by our results, but also by theirs in the sense that it appears that the financing market is coming back. And that because of — we are typically looking at more tertiary markets, we will benefit from that on a somewhat of a lag.

But based on the overall volume that we are seeing from other companies and from our own, we are pretty encouraged about that it is finally moving.

Dave White—Choice Hotels International, Inc.—CFO

Yes, I think the other thing I would add is just on the conversion side of things when you think about where we are now in terms of development incentives, we are definitely while there is definitely — it’s a competitive marketplace and there are — every one of our competitors has some form of incentive program in place, on a relative basis for us, we are relatively less discounting, I would say, that we were two years ago which I think is a positive sign as you think about the future and how that should play out in our royalty streams.

And then another thing that I think is pretty exciting is on the Ascend Collection. So that brand, as Steve mentioned, has grown very rapidly.

And you probably heard us talk on previous calls about growing brands to scale and getting to meaningful scale. That brand is in our mind now at a pretty meaningful scale which starts to position us to be able to be more aggressive and more assertive on pricing as we move forward with that brand. We think that is a really strong brand, given what we are delivering to the hotels in that system.

If you look at the res contribution it is the top brand in our platform in terms of res contribution and at a very high rate.

So to kind of tie back to your point, it is ultimately we are trying to continue to improve the overall pricing of our brands over time and it sends a real bright spot there. And I think generally speaking on our conversion brands we are having to discount less than we did a couple of years ago to move sales.

Anthony Powell—Barclays Capital—Analyst

Thank you.

Operator

Thomas Allen, Morgan Stanley.

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JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

talking about RevPAR. How good of a read do you think you have into 2014 and why did you put that language in? Thank you.

Steve Joyce—Choice Hotels International, Inc.—President & CEO

We — it actually — we are relying more on the forecasters that are out there and what they are saying about it. Our booking window is actually, I think as most people know, very short. So it is more based on what we are seeing from the industry experts than it is from ourselves.

Dave White—Choice Hotels International, Inc.—CFO

Yes, [with] Smith Travel Research and [PDBC] for 2014 as an industry level around 6% RevPAR growth. They haven’t published segment level forecast at this point.

Thomas Allen—Morgan Stanley—Analyst Okay. (multiple speakers)

Steve Joyce—Choice Hotels International, Inc.—President & CEO

I would also add to that. I think in general most people are expecting 2014 to start showing real signs of economic recovery and improved employment. And if you get those, those are — that drives our business significantly. So I think most of us here are a believer that that’s the trend that we think is most likely and that therefore that portends well for our performance.

Thomas Allen—Morgan Stanley—Analyst

And then a follow-up. I read an article recently I think it was by STR suggesting that when the new build market really does pick up there could be some risk to conversion being off — the conversion opportunity being offset so that declining. Your recent or your historical data suggests otherwise. Any thoughts on this?

Steve Joyce—Choice Hotels International, Inc.—President & CEO

Yes, it is just the opposite for us. Because what happens is when the other brands start building they start pruning their inventory. That is an opportunity for us as well. That is one of the areas that is still missing in large part from our conversion activity. Because they are the brands because they weren’t adding they stopped pushing out their hotels that weren’t meeting expectations.

So when they start building again, they will start pushing brands out. That gives us opportunity to flag a lot of those properties and that will add to our conversion activity. So we are actually — we actually think it is exactly the opposite of that.

Thomas Allen—Morgan Stanley—Analyst Very helpful clarity. Thank you.

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JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

Michael Barley—FBR, Inc.—Analyst

Steve, just a question on the lending environment right now that you are seeing for — both for conversions as well as for new development right now. How are new hotel developers being helped by this environment? If you could just give it a little bit more color. Thanks.

Steve Joyce—Choice Hotels International, Inc.—President & CEO

Yes. Sure. So there’s a couple of things going on. One, we talked over the last year about the improving environment that we saw in the more urban markets. That is clearly now spreading more to the regional and local areas. And we are hearing a lot of stories about regional and local lenders calling up franchisees and saying, we have finally gotten an allocation for hotel lending and if you guys are ready to build, we would like to lend to you as well.

So that is finally coming, albeit still slowly developing, but it is definitely moving in that direction.

The other real positive for us has been the SBA program. So we have got a lot of our folks using a lot of SBA funding either as first and/or a part of the [cash back] in the second and they are — we are obviously helping them do that. We have been active actually lobbying the administration and the SBA to make sure that they keep high levels of funding available and they try to limit the amount of red tape and the limitations around doing that.

And that’s another very positive sign. Because that is sort of a lot of the projects that are going today were in part SBA-supported.

And then there is some other activity out there, EB-5 financing and some other things that are also contributing somewhat. But generally you are seeing the lenders getting back into the market. It is actually getting competitive in the denser markets, and in the regional markets and the local secondary tertiary market, they are finally beginning to see those local lenders coming back to the table and starting to allocate dollars for hotel development.

And that would include both new construction as well as conversion. Actually, the conversion as we would expect was a little ahead of the new development.

Michael Barley—FBR, Inc.—Analyst And are these mostly community banks at this point?

Steve Joyce—Choice Hotels International, Inc.—President & CEO

Yes, for our guys it is.

Dave White—Choice Hotels International, Inc.—CFO

Our guys, they range — our bigger franchisees will do more on a regional or a national level. But most of our rank and file folks are it is local lending institutions they are working with.

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JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

Dave White—Choice Hotels International, Inc.—CFO

Well, we highlight in the exhibits like from a RevPAR performance perspective. Generally speaking as we highlighted that Sleep Inn brand, the position where that is in that midtier space, I mean that performed well for us and then in the upscale side of thing with the Ascend Collection on the RevPAR side of things. So otherwise the rest of the brands were generally within a fairly narrow range in that midsingle-digit percentage area RevPAR growth wise. So other than the upscale and the Sleep Inn and mostly other brands, we are reasonably close together in terms of the RevPAR growth rate for the quarter.

Steve Joyce—Choice Hotels International, Inc.—President & CEO

Yes, I think — and then some of the other positive signs if you look at the contracting that we are doing for negotiated rates and for others, that’s the rates are up for that. That is a good sign. And so, it’s clearly while it is moving slower than we would all hope, it is clearly coming around and all the signs of that recovery are there.

Then I guess the other conventional wisdom in the industry is because it is coming slower, there is a sense then that the recovery will last longer and be extended further out. So, the issue of new construction, for example, that keeps getting pushed past dates where people are saying, okay, now we are going to start seeing a lot of inventory coming in.

But right now even with what is under construction, it is not that significant. So you are really looking at no real big supply increases probably until 2016. So as a result people are pretty bullish about the performance of existing hotels going forward. Barring something unforeseen.

Operator

(Operator Instructions).

Steve Joyce—Choice Hotels International, Inc.—President & CEO

All right. Well, that will conclude our call. We appreciate your time and attention. Enjoy the rest of the summer.

Operator

Thank you, ladies and gentlemen, for your participation in today’s conference call. You may now disconnect. Have a great day.

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JULY 26, 2013 / 2:00PM, CHH—Q2 2013 Choice Hotels International, Inc. Earnings Conference Call

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