What changed in this filing

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Item 1. Financial Statements

2022-08-04 compared with 2022-05-10 · 169 added, 93 removed, 467 unchanged (36% of the section changed)

4 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Royalty fees $ 121,449 $ 106,242 $ 212,188 $ 172,289

12 unchanged sentences

213,905 159,320 372,264 298,269

Gain on sale of asset 29 —

Gain on sale of business and assets, net 3,280 — 3,309 —

Operating income 157,349 119,024 256,746 163,022

2 unchanged sentences

Interest income ( 1,628 ) ( 1,234 ) ( 2,908 ) ( 2,515 )

Other (gains) losses 1,716 ( 1,205 )

Equity in net (gain) loss of affiliates ( 244 ) 5,997

Other loss (gain) 5,559 ( 2,108 ) 7,275 ( 3,313 )

Equity in net loss (gain) of affiliates 40 ( 1,179 ) ( 204 ) 4,818

Total other income and expenses, net 15,223 7,170 26,885 22,458

10 unchanged sentences

(IN THOUSANDS)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Net income $ 106,168 $ 85,882 $ 173,559 $ 108,219

8 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Current assets

39 unchanged sentences

160,000,000 shares authorized;

95,065,638 shares issued at March 31, 2022 and December 31, 2021;

55,770,322 and 55,609,226 shares outstanding at March 31, 2022 and December 31, 2021, respectively

95,065,638 shares issued at June 30, 2022 and December 31, 2021;

55,780,322 and 55,609,226 shares outstanding at June 30, 2022 and December 31, 2021, respectively

Additional paid-in-capital 274,384 259,317

1 unchanged sentence

Treasury stock, at cost;

39,295,316 and 39,456,412 shares at March 31, 2022 and December 31, 2021, respectively

39,285,316 and 39,456,412 shares at June 30, 2022 and December 31, 2021, respectively

( 1,276,090 ) ( 1,265,032 )

7 unchanged sentences

(IN THOUSANDS)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

3 unchanged sentences

Depreciation and amortization – marketing and reservation system 14,608 12,076

Gain on sale of asset ( 29 ) —

Gain on sale and disposal of business and assets, net ( 3,309 ) —

Franchise agreement acquisition cost amortization 7,623 6,294

9 unchanged sentences

Investment in intangible assets ( 1,824 ) ( 2,976 )

Proceeds from sale of asset 8,494 —

Asset acquisitions, net of cash paid ( 856 ) —

Proceeds from sale of business and assets 32,893 —

Contributions to investments in affiliates ( 669 ) ( 1,136 )

Proceeds from sale of equity method investments — 11,830

Purchases of investments, employee benefit plans ( 3,294 ) ( 931 )

5 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Debt issuance costs ( 24 ) —

Purchase of treasury stock ( 15,140 ) ( 5,362 )

1 unchanged sentence

Proceeds from exercise of stock options 2,359 9,115

Net cash used in financing activities ( 25,795 ) ( 2,201 )

Net cash (used in) provided by financing activities ( 39,258 ) 3,753

Net change in cash and cash equivalents 96,100 73,207

9 unchanged sentences

Investment in property, equipment and intangibles acquired in accounts payable and accrued liabilities $ 5,715 $ 4,085

Asset acquisition from extinguishment of note receivable $ 20,446 $ —

The accompanying notes are an integral part of these consolidated financial statements.

19 unchanged sentences

Balance as of March 31, 2021 55,537,836 $ 951 $ 237,538 $ ( 4,594 ) $ ( 1,261,494 ) $ 1,046,834 $ 19,235

Net income — — — — — 85,882 85,882

Other comprehensive income (loss) — — — 71 — — 71

Share based payment activity (1)

111,895 — 9,066 — 3,516 1 12,583

Dividends declared ($ 0.225 per share) (1)

— — — — — ( 12,521 ) ( 12,521 )

Treasury purchases ( 2,738 ) — — — ( 317 ) — ( 317 )

Balance as of June 30, 2021 55,646,993 $ 951 $ 246,604 $ ( 4,523 ) $ ( 1,258,295 ) $ 1,120,196 $ 104,933

Outstanding Common

14 unchanged sentences

Balance as of March 31, 2022 55,770,322 $ 951 $ 265,385 $ ( 4,708 ) $ ( 1,276,348 ) $ 1,329,365 $ 314,645

Net income — — — — — 106,168 106,168

Other comprehensive income (loss), net of tax — — — ( 103 ) — — ( 103 )

Share based payment activity (1)

12,422 — 8,999 — 596 — 9,595

Dividends declared ($ 0.2375 per share) (1)

— — — — — ( 13,242 ) ( 13,242 )

Treasury purchases ( 2,422 ) — — — ( 338 ) — ( 338 )

Balance as of June 30, 2022 55,780,322 $ 951 $ 274,384 $ ( 4,811 ) $ ( 1,276,090 ) $ 1,422,291 $ 416,725

(1) In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, we suspended future, undeclared dividends.

1 unchanged sentence

On December 6, 2021, the Company's board of directors approved a 6 % increase in the quarterly cash dividend and declared a quarterly cash dividend of $ 0.2375 per share of common stock.

On February 24, 2022 the Company's board of directors declared a quarterly cash dividend of $ 0.2375 per share of common stock.

During all periods presented, accumulated dividends were paid to certain shareholders upon vesting of certain performance vested restricted stock units ("PVRSU") which are captured in Share-based payment activity.

During certain periods presented, accumulated dividends were paid to certain shareholders upon vesting of performance vested restricted stock units ("PVRSU") which are captured in Share-based payment activity.

The accompanying notes are an integral part of these consolidated financial statements.

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The Company’s significant accounting policies are detailed in the “Summary of Significant Accounting Policies” section of Note 1 in the Annual Report on Form 10-K for the year ended December 31, 2021.

Recently Adopted Accounting Standards

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08").

ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Topic 606, as opposed to at fair value.

ASU 2021-08 is effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years.

Early adoption is permitted.

The Company has elected to early adopt ASU 2021-08 in the second quarter of 2022.

The adoption has no present impact on the Company's consolidated financial statements, but will impact the accounting for contract assets and contract liabilities acquired in future business combinations.

Recently Issued Accounting Standards

1 unchanged sentence

ASU 2022-02 eliminates the recognition and measurement guidance on troubled debt restructuring for creditors that have adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) ("Topic 326"), requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty, and includes new guidance on current-period gross write-offs presentation.

The guidance is effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years.

ASU 2022-02 is effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years.

Early adoption is permitted.

4 unchanged sentences

Loyalty points are typically redeemed within three years of issuance.

Significant changes in the contract liabilities balances during the period December 31, 2021 to March 31, 2022 are as follows:

Significant changes in the contract liabilities balances during the period December 31, 2021 to June 30, 2022 are as follows:

(in thousands)

2 unchanged sentences

Revenue recognized in the period ( 57,127 )

Balance as of March 31, 2022 $ 179,579

Balance as of June 30, 2022 $ 174,690

Remaining Performance Obligations

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 179.6 million as of March 31, 2022.

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 174.7 million as of June 30, 2022.

This amount represents fixed transaction price that will be recognized as revenue in future periods, which is captured in the consolidated balance sheet as current and non-current deferred revenue.

2 unchanged sentences

Three Months Ended Three Months Ended

March 31, 2022 March 31, 2021

June 30, 2022 June 30, 2021

(in thousands) Over time Point in time Total Over time Point in time Total

8 unchanged sentences

Total revenues $ 367,974 $ 278,344

Six Months Ended Six Months Ended

June 30, 2022 June 30, 2021

(in thousands) Over time Point in time Total Over time Point in time Total

Royalty fees $ 212,188 $ — $ 212,188 $ 172,289 $ — $ 172,289

Initial franchise and relicensing fees 14,624 — 14,624 12,755 — 12,755

Procurement services 31,876 1,610 33,486 22,241 1,042 23,283

Marketing and reservation system 260,382 55,637 316,019 200,995 26,514 227,509

Owned hotels 24,635 4,385 29,020 11,068 2,058 13,126

Other 20,156 — 20,156 12,108 — 12,108

Total Topic 606 revenues $ 563,861 $ 61,632 625,493 $ 431,456 $ 29,614 461,070

Non-Topic 606 revenues 208 221

Total revenues $ 625,701 $ 461,291

Marketing and reservation system and Procurement services point in time revenues represent loyalty points redeemed by members for benefits (with both franchisees and third-party partners), net of the cost of redemptions.

As presented in Note 11, the Corporate & Other segment amounts represent $ 14.3 million and $ 6.0 million for the three months ended March 31, 2022 and 2021, respectively, and are included in the Over time column of Other revenues and the Owned hotels and Non-Topic 606 revenues rows.

As presented in Note 11, the Corporate & Other segment amounts represent $ 19.4 million and $ 10.9 million for the three months ended June 30, 2022 and 2021, respectively, and $ 33.7 million and $ 17.0 million for the six months ended June 30, 2022 and 2021, respectively, and are included in the Over time column of Other revenues and the Owned hotels and Non-Topic 606 revenues rows.

The remaining revenues relate to the Hotel Franchising segment.

Royalty fees and Marketing and reservation system revenues are presented net of intersegment revenues of $ 0.9 million and $ 0.3 million for the three months ended March 31, 2022 and 2021, respectively.

Royalty fees and Marketing and reservation system revenues are presented net of intersegment revenues of $ 1.3 million and $ 0.7 million for the three months ended June 30, 2022 and 2021, respectively, and $ 2.2 million and $ 1.0 million for the six months ended June 30, 2022 and 2021, respectively.

Receivables and Allowance for Credit Losses

3 unchanged sentences

The composition of notes receivable balances by credit quality indicator and the allowance for credit losses is as follows:

(in thousands) March 31, 2022 December 31, 2021

(in thousands) June 30, 2022 December 31, 2021

Senior $ 91,981 $ 108,370

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The following table summarizes the activity related to the Company’s notes receivable allowance for credit losses:

(in thousands) March 31, 2022 December 31, 2021

(in thousands) June 30, 2022 December 31, 2021

Beginning balance $ 16,779 $ 19,484

2 unchanged sentences

Ending balance $ 11,531 $ 16,779

As of both March 31, 2022 and December 31, 2021, two loans with senior and/or subordinated tranches met the definition of collateral-dependent and are collateralized by membership interests in the borrowing entities and either the associated land parcels or an operating hotel.

As of June 30, 2022 and December 31, 2021, one loan and two loans, respectively, with senior and/or subordinated tranches met the definition of collateral-dependent and are collateralized by membership interests in the borrowing entities and either the associated land parcels or an operating hotel.

The Company used a discounted cash flow ("DCF") technique to project cash flows or a market approach via quoted market prices to value the underlying collateral.

2 unchanged sentences

Based on these analyses, the fair value of collateral secures the carrying value of each loan to a significant extent.

Allowances for credit losses attributable to collateral-dependent loans are $ 6.3 million as of both March 31, 2022 and December 31, 2021, respectively.

The write-offs for the year ended December 31, 2021 are associated with a loan previously classified as collateral-dependent that was settled in exchange for an operating hotel on October 1, 2021.

In April 2022, the Company reached a settlement with a borrower holding a loan classified as collateral-dependent, collateralized by an operating hotel.

The key terms of the settlement resulted in a deed in lieu of foreclosure on the operating hotel in exchange for releasing obligations pursuant to the senior and mezzanine loans and the associated franchise agreement.

The property was exchanged in full settlement of the senior and mezzanine loans and will be recorded at fair value as of the acquisition date of April 14, 2022.

The Company will account for the acquisition of the hotel as an asset acquisition in the second quarter of 2022.

Allowances for credit losses attributable to collateral-dependent loans are $ 0.9 million and $ 6.3 million as of June 30, 2022 and December 31, 2021, respectively.

The write-offs for the year ended June 30, 2022 and December 31, 2021 are associated with loans previously classified as collateral-dependent that were settled in exchange for an operating hotel on April 14, 2022 and October 1, 2021, respectively.

Refer to Note 15 regarding the second quarter 2022 asset acquisition accounting.

As a result of the COVID-19 pandemic, the Company extended interest deferral terms on certain notes receivable.

3 unchanged sentences

The Company does not resume interest accrual until all delinquent payments are received based on then current loan provisions.

The amortized cost basis of notes receivable on non-accrual status was $ 44.1 million at both March 31, 2022 and December 31, 2021, respectively.

The Company has identified loans totaling approximately $ 7.5 million as of both March 31, 2022 and December 31, 2021, respectively, with stated interest rates that are less than market rate, representing a total unamortized discount of $ 0.3 million as of both March 31, 2022 and December 31, 2021, respectively.

The amortized cost basis of notes receivable on non-accrual status was $ 18.2 million and $ 44.1 million at June 30, 2022 and December 31, 2021, respectively.

The Company has identified loans totaling approximately $ 7.5 million as of both June 30, 2022 and December 31, 2021, respectively, with stated interest rates that are less than market rate, representing a total unamortized discount of $ 0.2 million and $ 0.3 million as of June 30, 2022 and December 31, 2021, respectively.

These discounts are reflected as a reduction of the outstanding loan amounts and are amortized over the life of the related loan.

6 unchanged sentences

Notes Receivable

As of March 31, 2022

As of June 30, 2022

Senior $ — $ — $ 15,200 $ 15,200 $ 76,781 $ 91,981

7 unchanged sentences

$ — $ — $ 2,209 $ 2,209 $ 135,474 $ 137,683

The Company evaluated its off-balance-sheet credit exposure for loan commitments and determined the likelihood of having to perform is remote as of March 31, 2022.

The Company evaluated its off-balance-sheet credit exposure for loan commitments and determined the likelihood of having to perform is remote as of June 30, 2022.

Refer to Note 12.

Variable Interest through Notes Issued

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 121.6 million and $ 120.2 million as of March 31, 2022 and December 31, 2021, respectively.

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 101.7 million and $ 120.2 million as of June 30, 2022 and December 31, 2021, respectively.

The Company has determined that it is not the primary beneficiary of these variable interest entities ("VIEs").

2 unchanged sentences

Accounts receivable consist primarily of franchise and related fees due from hotel franchisees and are recorded at the invoiced amount.

During the three months ended March 31, 2021, the Company recorded provisions for credit losses on accounts receivable of $ 2.6 million in SG&A expenses and $ 3.9 million in marketing and reservation system expenses.

During three months ended March 31, 2022, the Company recorded reversals of provisions for credit losses on accounts receivable of $ 0.5 million in SG&A expenses and provisions of $ 0.3 million in marketing and reservation system expenses.

During the three months ended March 31, 2021 and 2022, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $ 0.3 million and $ 6.3 million, respectively.

During six months ended June 30, 2022, the Company recorded reversals of provisions for credit losses on accounts receivable of $ 1.1 million in SG&A expenses and $ 0.3 million in marketing and reservation system expenses.

During the six months ended June 30, 2021, the Company recorded reversal of provisions for credit losses on accounts receivable of $ 0.1 million in SG&A expenses and provisions of $ 0.2 million in marketing and reservation system expenses.

During the six months ended June 30, 2022 and 2021, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $ 11.2 million and $ 2.4 million, respectively.

Investments in Affiliates

The Company maintains equity method investments in affiliates related to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets.

The Company has investments in affiliates that represent VIEs totaling $ 24.7 million and $ 25.2 million on the consolidated balance sheets at March 31, 2022 and December 31, 2021, respectively.

The Company has investments in affiliates that represent VIEs totaling $ 24.1 million and $ 25.2 million on the consolidated balance sheets at June 30, 2022 and December 31, 2021, respectively.

The Company has determined that it is not the primary beneficiary of any of these VIEs, however it does exercise significant influence through its equity ownership and as a result the investment in these affiliates is accounted for under the equity method.

For the three months ended March 31, 2022 and 2021, the Company recognized losses totaling $ 0.8 million and $ 6.4 million, respectively, from these investments that represent VIEs.

For the three months ended June 30, 2022 and 2021, the Company recognized losses (gains) totaling $ 0.9 million and $( 0.9 ) million, respectively, from these investments that represent VIEs.

For the six months ended June 30, 2022 and 2021, the Company recognized losses totaling $ 1.7 million and $ 5.5 million, respectively, from these investments that represent VIEs.

The Company's maximum exposure to losses related to its investments in VIEs is limited to its equity investments as well as certain limited payment guaranties described in Note 12 of these financial statements.

The Company recognized no impairment charges related to equity method investments during the three months ended March 31, 2022.

The Company recognized no impairment charges related to equity method investments during the six months ended June 30, 2022.

During the first quarter of 2021, the Company recognized an other-than-temporary impairment of $ 4.8 million related to an equity method investment.

2 unchanged sentences

Based on this analysis, the Company determined that the fair market value declined below the carrying value and the decline is other-than-temporary.

As a result, the Company recorded an other-than-

temporary impairment from the carrying value to the estimated fair value for the investment.

As a result, the Company recorded an other-than-temporary impairment from the carrying value to the estimated fair value for the investment.

The other-than-temporary impairment is classified as equity in net loss of affiliates in the consolidated statements of income and captured in the Hotel Franchising reportable segment in Note 11.

During the second quarter of 2021, the Company sold its ownership interest in three separate equity method investments.

The Company recognized a cumulative gain of $ 2.6 million on the sales of these investments, which is recorded in equity in net loss (gain) of affiliates.

Debt consists of the following:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in thousands)

$ 450 million senior unsecured notes due 2031 ("2020 Senior Notes") with an effective interest rate of 3.86 %, less a discount and deferred issuance costs of $ 5.4 million and $ 5.5 million at March 31, 2022 and December 31, 2021, respectively

$ 450 million senior unsecured notes due 2031 ("2020 Senior Notes") with an effective interest rate of 3.86 %, less a discount and deferred issuance costs of $ 5.2 million and $ 5.5 million at June 30, 2022 and December 31, 2021, respectively

$ 444,775 $ 444,470

$ 400 million senior unsecured notes due 2029 ("2019 Senior Notes") with an effective interest rate of 3.88 %, less a discount and deferred issuance costs of $ 4.6 million and $ 4.8 million at March 31, 2022 and December 31, 2021, respectively

$ 400 million senior unsecured notes due 2029 ("2019 Senior Notes") with an effective interest rate of 3.88 %, less a discount and deferred issuance costs of $ 4.5 million and $ 4.8 million at June 30, 2022 and December 31, 2021, respectively

395,538 395,237

$ 400 million senior unsecured notes due 2022 ("2012 Senior Notes") with an effective interest rate of 6.00 %, less deferred issuance costs of $ 0.1 million and $ 0.2 million at March 31, 2022 and December 31, 2021, respectively (2)

$ 216.6 million senior unsecured notes due 2022 ("2012 Senior Notes") with an effective interest rate of 6.00 %, less deferred issuance costs of $ 0.2 million at December 31, 2021 (2)

216,571 216,351

$ 600 million senior unsecured revolving credit facility (1)

Economic development loans with an effective interest rate of 3.00 % at March 31, 2022 and December 31, 2021, respectively

Economic development loans with an effective interest rate of 3.00 % at June 30, 2022 and December 31, 2021, respectively

Total debt $ 1,061,300 $ 1,060,474

2 unchanged sentences

Long-term debt $ 844,729 $ 844,123

(1) During the third quarter of 2020, the Company utilized excess cash on hand to pay down its senior unsecured revolving credit facility balance in full and the facility remains undrawn as of March 31, 2022 and December 31, 2021.

As there are no outstanding borrowings at March 31, 2022 or December 31, 2021, deferred issuance costs for the senior unsecured revolving credit facility of $ 2.1 million and $ 2.3 million, respectively, are presented in non-current Other assets in the consolidated balance sheets.

(2) The Company's 2012 Senior Notes mature on July 1, 2022 with a principal maturity, net of unamortized deferred issuance costs, of $ 216.5 million.

As there are no outstanding borrowings at June 30, 2022 or December 31, 2021, deferred issuance costs for the senior unsecured revolving credit facility of $ 2.0 million and $ 2.3 million, respectively, are presented in non-current Other assets in the consolidated balance sheets.

(2) The 2012 Senior Notes matured on July 1, 2022.

The outstanding principal of $ 216.6 million was re-paid at maturity.

Refer to Note 12 and the Liquidity and Capital Resources header of "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information.

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2022 and 2021 are as follows:

The changes in accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2022 and 2021 are as follows:

(in thousands)

2 unchanged sentences

Net current period other comprehensive income (loss) ( 237 )

Balance as of March 31, 2022 $ ( 4,708 )

Balance as of June 30, 2022 $ ( 4,811 )

(in thousands)

2 unchanged sentences

Net current period other comprehensive income (loss) 123

Balance as of March 31, 2021 $ ( 4,594 )

The other comprehensive income (loss) before reclassification for both the three months ended March 31, 2022 and 2021 relate to foreign currency items.

Balance as of June 30, 2021 $ ( 4,523 )

The other comprehensive income (loss) before reclassification for both the six months ended June 30, 2022 and 2021 relate to foreign currency items.

Fair Value Measurements

8 unchanged sentences

Unobservable inputs, supported by little or no market data available, where the reporting entity is required to develop its own assumptions to determine the fair value of the instrument.

The Company does not currently have any assets recorded at fair value whose fair value was determined using Level 3 inputs and there were no transfers of Level 3 assets during the three months ended March 31, 2022.

As of March 31, 2022 and December 31, 2021, the Company had the following assets recorded in the consolidated balance sheets measured at fair value on a recurring basis:

The Company does not currently have any assets recorded at fair value whose fair value was determined using Level 3 inputs and there were no transfers of Level 3 assets during the six months ended June 30, 2022.

As of June 30, 2022 and December 31, 2021, the Company had the following assets recorded in the consolidated balance sheets measured at fair value on a recurring basis:

Fair Value Measurements at Reporting Date Using

(in thousands) Total Level 1 Level 2 Level 3

As of March 31, 2022

As of June 30, 2022

Mutual funds (1)

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The fair values of the Company's senior unsecured notes are classified as Level 2, as the significant inputs are observable in an active market.

Refer to Note 5 for further information on debt.

At March 31, 2022 and December 31, 2021, the carrying amounts and fair values are as follows:

March 31, 2022 December 31, 2021

Refer to Note 5 for further information on debt, including the maturity of the 2012 Senior Notes.

At June 30, 2022 and December 31, 2021, the carrying amounts and fair values are as follows:

June 30, 2022 December 31, 2021

(in thousands) Carrying Amount Fair Value Carrying Amount Fair Value

4 unchanged sentences

Settlement of such fair value amounts may not be possible or a prudent management decision.

The effective income tax rates were 23.2 % and 22.2 % for the three months ended March 31, 2022 and 2021, respectively.

The effective income tax rate for the three months ended March 31, 2022 was higher than the U.S.

The effective income tax rates were 25.3 % and 23.2 % for the three months ended June 30, 2022 and 2021, respectively.

The effective income tax rates were 24.5 % and 23.0 % for the six months ended June 30, 2022 and 2021, respectively.

The effective income tax rate for the three and six months ended June 30, 2022 and 2021 was higher than the U.S.

federal income tax rate of 21.0% primarily due to the impact of state income taxes, partially offset by excess tax benefits from share-based compensation.

The effective income tax rate for the three months ended March 31, 2021 was higher than the U.S.

federal income tax rate of 21.0% due to the impact of state income taxes and foreign operations, partially offset by excess tax benefits from share-based compensation.

Share-Based Compensation and Capital Stock

The components of the Company’s pretax share-based compensation activity and associated income tax expense are as follows for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The components of the Company’s pretax share-based compensation activity are as follows for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands) 2022 2021 2022

3 unchanged sentences

Total share-based compensation expense $ 9,545 $ 6,399 $ 16,994 $ 11,200

Income tax expense $ 1,805 $ 1,157

A summary of share-based award activity as of and changes during the three months ended March 31, 2022 are presented below:

A summary of share-based award activity as of and changes during the six months ended June 30, 2022 are presented below:

Stock Options Restricted Stock Performance Vested

11 unchanged sentences

Forfeited ( 1,050 ) 146.68 ( 6,551 ) 104.45 ( 1,460 ) 133.25

Outstanding at March 31, 2022 1,025,664 $ 93.96 6.2 years 400,796 $ 126.12 457,943 $ 135.65

Options exercisable at March 31, 2022 549,980 $ 76.12 4.0 years

(1) PVRSUs outstanding have been increased by 12,280 units in the three months ended March 31, 2022 due to the Company exceeding the targeted performance conditions contained in PVRSUs.

Outstanding at June 30, 2022 1,020,748 $ 94.07 5.9 392,480 $ 128.25 465,678 $ 136.02

Options exercisable at June 30, 2022 546,114 $ 76.29 3.8

(1) PVRSUs outstanding have been increased by 21,281 units in the six months ended June 30, 2022 due to the Company exceeding the targeted performance conditions contained in PVRSUs.

Stock Options

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date of grant.

The service period of restricted stock awards granted during the three months ended March 31, 2022 range from 9 to 60 months.

The service period of restricted stock awards granted during the six months ended June 30, 2022 range from 9 to 60 months.

Performance Vested Restricted Stock Units

3 unchanged sentences

These performance and market conditions affect the number of shares that will ultimately vest.

During the three months ended March 31, 2022, the Company granted PVRSUs with market conditions, PVRSUs with performance conditions and PVRSUs with performance and market conditions with requisite service periods between 9 months and 60 months with award vesting ranges between 0 % and 300 % of the initial units granted.

During the six months ended June 30, 2022, the Company granted PVRSUs with market conditions, PVRSUs with performance conditions and PVRSUs with performance and market conditions with requisite service periods between 9 months and 60 months with award vesting ranges between 0 % and 300 % of the initial units granted.

The fair value of PVRSUs with only internal performance conditions is measured by the market price of the Company's common stock on the date of award grant.

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Refer to the Liquidity and Capital Resources header of "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information.

During the three months ended March 31, 2022 there were 68,486 purchases of common stock under the share repurchase program at a total cost of $ 9.9 million.

During the three months ended March 31, 2021 there were no purchases of common stock under the share repurchase program.

During the three months ended March 31, 2022 and 2021, the Company redeemed 32,426 and 46,499 shares of common stock at a total cost of $ 4.9 million and $ 5.1 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

During the six months ended June 30, 2022, 68,486 shares of common stock were purchased under the share repurchase program at a total cost of $ 9.9 million.

There were no purchases of stock under the share repurchase program during the three months ended June 30, 2022.

During the three and six months ended June 30, 2021, 1,582 shares of common stock were purchased under the share repurchase program at a total cost of $ 0.2 million.

During the three months ended June 30, 2022 and 2021, the Company redeemed 2,422 and 1,156 shares of common stock at a total cost of $ 0.3 million and $ 0.1 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

During the six months ended June 30, 2022 and 2021, the Company redeemed 34,848 and 47,655 shares of common stock at a total cost of $ 5.2 million and $ 5.4 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

These redemptions were outside the share repurchase program.

5 unchanged sentences

The computation of basic and diluted earnings per share of common stock is as follows:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(in thousands, except per share amounts) 2022 2021 2022 2021

12 unchanged sentences

The following securities have been excluded from the calculation of diluted weighted average shares of common stock outstanding as the inclusion of these securities would have an anti-dilutive effect:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(in thousands) 2022 2021 2022 2021

Stock options 155 — 155 —

PVRSUs 76 157 76 157

Reportable Segment Information

10 unchanged sentences

The following table presents the financial information for the Company's segments:

Three Months Ended March 31, 2022 Three Months Ended March 31, 2021

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021

(in thousands) Hotel

6 unchanged sentences

Income (loss) before income taxes $ 165,405 $ ( 23,279 ) $ — $ 142,126 $ 134,025 $ ( 22,171 ) $ — $ 111,854

Six Months Ended June 30, 2022 Six Months Ended June 30, 2021

(in thousands) Hotel

Franchising Corporate &

Other Intersegment Eliminations Consolidated Hotel

Franchising Corporate &

Other Intersegment Eliminations Consolidated

Revenues $ 594,228 $ 33,671 $ ( 2,198 ) $ 625,701 $ 445,310 $ 16,972 $ ( 991 ) $ 461,291

Operating income (loss) $ 272,768 $ ( 16,022 ) $ — $ 256,746 $ 190,753 $ ( 27,731 ) $ — $ 163,022

Income (loss) before income taxes $ 272,969 $ ( 43,108 ) $ — $ 229,861 $ 185,936 $ ( 45,372 ) $ — $ 140,564

Commitments and Contingencies

5 unchanged sentences

The maximum exposure of principal incidental to these limited payment guaranties is $ 5.7 million, plus unpaid expenses and accrued unpaid interest.

As of March 31, 2022 and December 31, 2021, the Company believed the likelihood of having to perform under the aforementioned limited payment guaranties was remote.

As of June 30, 2022 and December 31, 2021, the Company believed the likelihood of having to perform under the aforementioned limited payment guaranties was remote.

In the event of performance, the Company has recourse for one of the transactions in the form of a membership interest pledge as collateral for the guaranty.

The Company has the following commitments outstanding at March 31, 2022:

The Company has the following commitments outstanding at June 30, 2022:

• The Company provides financing in the form of franchise agreement acquisition payments to franchisees for property improvements, hotel development efforts and other purposes.

These payments are typically made at commencement of construction or hotel opening, in accordance with agreed upon provisions in individual franchise agreements.

At March 31, 2022, the Company had commitments to extend an additional $ 277.0 million for these purposes provided the conditions of the payment are met by its franchisees.

At June 30, 2022, the Company had commitments to extend an additional $ 269.4 million for these purposes provided the conditions of the payment are met by its franchisees.

• To the extent existing unconsolidated affiliates proceed to the hotel construction phase, the Company is committed to make capital contributions totaling $ 7.5 million to support their efforts to construct Cambria hotels.

• The Company committed to provide financing in the form of loans or credit facilities to franchisees for Choice brand development efforts.

At March 31, 2022, the Company has remaining commitments of approximately $ 6.2 million, upon certain conditions being met.

At June 30, 2022, the Company has remaining commitments of approximately $ 5.5 million, upon certain conditions being met.

• The Company’s franchise agreements require the payment of franchise fees, which include marketing and reservation system fees.

3 unchanged sentences

In the ordinary course of business, the Company enters into numerous agreements that contain standard indemnities whereby the Company indemnifies another party for breaches of representations and warranties.

Such indemnifications are granted under various agreements, including those governing (i) purchases or sales of assets or businesses, (ii) leases of real estate,

(iii) licensing of trademarks, (iv) access to credit facilities, (v) issuances of debt or equity securities, and (vi) certain operating agreements.

Such indemnifications are granted under various agreements, including those governing (i) purchases or sales of assets or businesses, (ii) leases of real estate, (iii) licensing of trademarks, (iv) access to credit facilities, (v) issuances of debt or equity securities, and (vi) certain operating agreements.

The indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords in lease contracts, (iii) franchisees in licensing agreements, (iv) financial institutions in credit facility arrangements, (v) underwriters in debt or equity security issuances and (vi) parties under certain operating agreements.

5 unchanged sentences

The Company has a management fee arrangement for marketing services with a partner in an unconsolidated affiliate.

For the three months ended March 31, 2022 and 2021, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.4 million and $ 0.2 million, respectively.

For the three months ended June 30, 2022 and 2021, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.6 million and $ 0.3 million, respectively.

For the six months ended June 30, 2022 and 2021, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.9 million and $ 0.5 million, respectively.

The Company has entered into franchise agreements with certain of the unconsolidated affiliates discussed in Note 4.

Pursuant to these franchise agreements, the Company recorded royalty and marketing reservation system fees of approximately $ 4.2 million and $ 2.9 million for the three months ended March 31, 2022 and 2021, respectively.

The Company recorded $ 3.0 million and $ 2.7 million as a receivable due from these affiliates as of March 31, 2022 and December 31, 2021, respectively.

Pursuant to these franchise agreements, for the three months ended June 30, 2022 and 2021, the Company recorded royalty and marketing reservation system fees of approximately $ 6.4 million and $ 4.1 million, respectively.

For the six months ended June 30, 2022 and 2021, the Company recorded royalty and marketing reservation system fees of approximately $ 10.6 million and $ 7.0 million, respectively.

The Company recorded $ 3.6 million and $ 2.7 million as a receivable due from these affiliates as of June 30, 2022 and December 31, 2021, respectively.

Assets Held for Sale

Assets held for sale of $ 91.9 million are recorded within Prepaid expenses and other current assets on the consolidated balance sheets related to an owned Cambria hotel asset.

The hotel met held for sale classification as of May 2022.

No revision to the carrying value was recorded upon reaching held for sale classification.

The building was sold to a third-party franchisee in July 2022, resulting in derecognition from the balance sheet and recognition of a gain on sale of approximately $ 16.0 million in the third quarter of 2022 in the Corporate & Other segment .

A second owned Cambria hotel asset met held for sale classification in April 2022 and sale consummated to a third-party franchisee in June 2022, resulting in derecognition from the balance sheet and recognition of a gain on sale in the second quarter of 2022 in the Corporate & Other segment.

In April 2022, the Company reached a settlement with a borrower holding a senior and mezzanine loan classified as collateral-dependent, collateralized by an operating hotel.

As a collateral-dependent financial asset, the expected credit losses as of March 31, 2022 were determined based on the fair value of the operating hotel.

As of March 31, 2022, the Notes receivable, net of allowance for credit losses, balance was $ 20.4 million.

The property was exchanged in full settlement of the senior and mezzanine loans and recorded at the fair value of $ 20.4 million as of the acquisition date of April 14, 2022.

The fair value was estimated using an income approach valuation method based on discounted cash flows of the

collateralized operating hotel utilizing historical operating performance, industry projections for the market, and comparable sales capitalization rates.

In accordance with the provisions of ASU 2017-01, Business Combinations (Topic 805):

Clarifying the Definition of a Business ("ASU 2017-01"), the purchase represents an asset acquisition based on the concentration of value in the acquired land and building.

The $ 20.4 million was re-characterized from Notes receivable, net of allowance for credit losses, and attributed to each asset class based on a relative fair value allocation to qualifying assets, resulting in $ 3.3 million to land, $ 16.6 million to building and improvements, $ 1.3 million to furniture, fixtures, and equipment, and $( 0.8 ) million to net liabilities assumed.

Subsequent Events

The Company committed to a plan to market two owned hotel assets for sale and executed purchase and sale agreements in April and May 2022.

As a result, each owned hotel is deemed to meet held for sale classification as of May 2022.

Management expects to sell the assets in 2022 and recognize a gain on sale upon consummation of each transaction.

On June 12, 2022, the Company signed a definitive purchase agreement to acquire 100 % of Radisson Hospitality, Inc.

(“Radisson Hotels Americas") for a purchase price of approximately $ 675 million.

As of August 4, 2022, the transaction has not closed.

On July 19, 2022, the Company received a termination notice from an ownership group of approximately 111 open and operating WoodSpring properties.

The termination notice indicates the group's intent to exit the majority of these 111 properties from the Choice system in September 2022 and acknowledges termination fees due pursuant to the associated franchise agreements.

This termination notice will be evaluated in the third quarter of 2022 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements