What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-04 · 223 added, 172 removed, 386 unchanged (51% of the section changed)

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The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the consolidated financial condition and results of operations of Choice Hotels International, Inc.

and its subsidiaries (together the "Company", "we", "us", or "our") contained in this report.

and its subsidiaries (together "Choice" or the "Company", "we", "us", or "our") contained in this report.

MD&A is provided as a supplement to — and should be read in conjunction with — our consolidated financial statements and the accompanying notes.

Recent Developments

Agreement to acquire Radisson Hotels Americas

On June 12, 2022, the Company entered into a Share Sale and Purchase Agreement, dated June 12, 2022, by and among the Company, Radisson Holdings, Inc., Radisson Hospitality, Inc., Aplite Holdings AB and Radisson Hospitality Belgium BV/SR to acquire 100% of Radisson Hotels Americas for a base purchase price of approximately $675.2 million, adjusted for Disclosed Leakage (as defined in the Share Sale and Purchase Agreement) and certain other prepaid expenses.

The transaction closed on August 11, 2022 for a purchase price of $673.9 million, net of leakage and certain prepaid expenses.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic continues to cause disruptions to the global economy and the hospitality industry, including in the United States, where more than 80% of our franchised hotels are located.

Reduced travel as a result of COVID-19 adversely impacted the hospitality industry generally and the Company, however, the development and distribution of effective vaccines and other containment efforts have been significant positive developments that we believe have contributed to improved operating metrics since the second quarter of 2021.

The extent to which the COVID-19 pandemic will impact the hospitality industry generally and our operations remains uncertain and will depend in part on future developments, including the severity and duration of resurgences or variants of the virus, the effectiveness of actions by government authorities and the public to continue to contain the pandemic, and the potential for adverse changes in consumer sentiment with respect to travel during the pandemic.

Since the time the impacts of COVID-19 on the Company's business were first experienced in March 2020, trends have improved steadily, with the second quarter 2022 domestic RevPAR experiencing an increase of approximately 14.3% and 13.0% relative to second quarter 2021 and second quarter 2019, respectively.

As of both June 30, 2022 and June 30, 2021, less than 1% of Company's domestic hotel system had temporarily suspended operations due to governmental restriction or a franchisee’s election.

The COVID-19 pandemic has caused and continues to cause disruptions to the global economy and the hospitality industry, including in the United States, where more than 80% of our franchised hotels are located.

Reduced travel as a result of COVID-19 initially adversely impacted the hospitality industry generally and the Company, however, the development and distribution of effective vaccines and other containment efforts have been significant positive developments that have contributed to improved operating metrics since the second quarter of 2021.

The extent to which the COVID-19 pandemic will continue to impact the hospitality industry generally and our operations remains uncertain and will depend in part on future developments, including the severity and duration of resurgences or variants of the virus, the effectiveness of actions by government authorities and the public to continue to contain the pandemic, and the potential for adverse changes in consumer sentiment with respect to travel during the pandemic.

Since the impacts of COVID-19 on the Company's business were first experienced in March 2020, trends have improved steadily, with the third quarter 2022 domestic RevPAR experiencing an increase of approximately 3.4% and 15.2% relative to third quarter 2021 and third quarter 2019, respectively.

As of both September 30, 2022 and September 30, 2021, less than 1% of Company's domestic hotel system had temporarily suspended operations due to governmental restriction or a franchisee’s election.

As the industry recovery continues, the Company believes it will continue to benefit from the faster rebound of leisure demand as a result of its higher share of leisure travel mix relative to competitors.

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While the ultimate impact and duration of COVID-19 is uncertain and will depend on future developments, which are difficult to predict, the Company believes that it will continue to benefit in the long-term from its primarily franchise-only business model, which has historically provided a relatively stable earnings stream and low capital expenditure requirements.

Further, as of June 30, 2022, the Company had approximately $1.2 billion in cash and additional borrowing capacity through its senior unsecured revolving credit facility.

Based on our business model and information known at this time, the Company believes that cash flows from operations and available financing capacity are adequate to meet the expected future operating, investing and financing needs of the business, inclusive of the Radisson Hotels Americas transaction, described below.

Further, as of September 30, 2022, the Company had approximately $337.5 million in cash and additional borrowing capacity through its senior unsecured revolving credit facility.

While the Company believes that the long-term fundamentals of the business remain strong, it will continue to adjust business contingency plans as the COVID-19 pandemic evolves.

For additional information, refer to Risk Factors in Part II, and Part I, Item 1A of the 2021 Form 10-K.

Agreement to acquire Radisson Hotels Americas

On June 12, 2022, the Company signed a definitive purchase agreement to acquire 100% of Radisson Hotels Americas for a purchase price of approximately $675 million.

The transaction would add approximately 67,000 rooms to the Company’s portfolio and is expected to close in August 2022.

We are primarily a hotel franchisor with franchise agreements and owned hotels representing 6,970 hotels open comprising 574,888 rooms and 908 hotels under construction, awaiting conversion or approved for development comprising 82,629 rooms as of June 30, 2022, located in 50 states, the District of Columbia and nearly 40 countries and territories outside the United States.

Our brand names include Comfort Inn®, Comfort Suites®, Quality®, Clarion®, Clarion Pointe™, Ascend Hotel Collection®, Sleep Inn®, Econo Lodge®, Rodeway Inn®, MainStay Suites®, Suburban Studios™, WoodSpring Suites®, Everhome Suites®, and Cambria® Hotels (collectively, the "Choice brands").

We are primarily a hotel franchisor with franchise agreements and owned hotels representing 7,458 hotels open comprising 627,183 rooms and 970 hotels under construction, awaiting conversion or approved for development comprising 92,141 rooms as of September 30, 2022, located in 50 states, the District of Columbia and approximately 50 countries and territories outside the United States.

Additionally, through the Radisson Hotels Americas acquisition, our brands expanded to include Radisson Blu®, Radisson RED®, Radisson®, Park Plaza®, Country Inn & Suites® by Radisson, Radisson Inn & Suites SM , Park Inn by Radisson®, Radisson Individuals®, and Radisson Collection® (collectively, the "legacy Radisson brands"), which are located across the United States, Canada, Caribbean and Latin America.

The Company's primary segment is the hotel franchising business.

The Company's domestic operations are conducted through direct franchising relationships and the ownership of six Cambria hotels, while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships.

The Company's domestic operations are conducted through direct franchising relationships, the ownership of 7 Cambria and 3 legacy Radisson Hotels Americas hotels, and the management of 13 legacy Radisson Hotels Americas hotels (inclusive of the owned hotels), while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships.

Master franchising relationships are governed by master franchising agreements which generally provide the master franchisee with the right to use our brands and sub-license the use of our brands in a specific geographic region, usually for a fee.

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As a result of master franchise relationships and international market conditions, our revenues are primarily concentrated in the United States.

Therefore, our description of our business is primarily focused on the domestic operations, which encompasses the United States and Caribbean countries and territories.

Therefore, our description of our business is primarily focused on the domestic operations, which encompasses the United States.

Our Company generates revenues, income and cash flows primarily from our hotel franchising operations and the initial, relicensing and continuing royalty fees attributable to our franchise agreements.

Revenues are also generated from partnerships with qualified vendors and travel partners that provide value-added solutions to our platform of guests hotels, six owned hotels, and other sources.

Revenues are also generated from partnerships with qualified vendors and travel partners that provide value-added solutions to our platform of guests hotels, owned hotels, and other sources.

Historically, the hotel industry has been seasonal in nature.

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Our principal source of revenues is franchise fees based on the gross room revenues or number of rooms of our franchised properties.

The Company’s franchise fees, as well as its owned hotels revenues, normally reflect the industry’s seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters.

The Company’s franchise and managed fees, as well as its owned hotels revenues, normally reflect the industry’s seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters.

With a primary focus on hotel franchising, we benefit from the economies of scale inherent in the franchising business.

The fee and cost structure of our franchising business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial and relicensing fee revenue, ongoing royalty fees, and procurement services revenues.

The fee and cost structure of our franchising business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial fee revenue, ongoing royalty fees, and procurement services revenues.

In addition, our operating results can also be improved through our company-wide efforts related to improving property-level performance and expanding the number of partnerships with travel-related companies.

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To varying degrees, all of these factors have been and may continue to be disrupted by the COVID-19 pandemic.

The key industry standard for measuring hotel-operating

performance is RevPAR, which is calculated by multiplying the percentage of occupied rooms by the average daily room rate realized.

The key industry standard for measuring hotel-operating performance is RevPAR, which is calculated by multiplying the percentage of occupied rooms by the average daily room rate realized.

Our variable overhead costs associated with franchise system growth of our established brands have historically been less than incremental royalty fees generated from new franchises.

Accordingly, over the long-term, any continued growth of our franchise business should enable us to realize benefits from the operating leverage in place and improve operating results.

The effects of the COVID-19 pandemic on our second quarter 2022 results and anticipated trends are discussed above under the heading "Impact of the COVID-19 Pandemic" and below under the heading "Operations Review".

We are required by our franchise agreements to use the marketing and reservation system fees we collect for system-wide marketing and reservation system activities.

effects of the COVID-19 pandemic on our third quarter 2022 results and anticipated trends are discussed above under the heading "Impact of the COVID-19 Pandemic" and below under the heading "Operations Review".

We are required by our legacy Choice franchise agreements to use marketing and reservation system fees we collect for system-wide marketing and reservation system activities.

These expenditures, which include advertising costs and costs to maintain our central reservations and property management systems, enhance awareness and consumer preference for our brands and deliver guests to our franchisees.

Greater awareness and preference promotes long-term growth in business delivery to our franchisees and increases the desirability of our brands to hotel owners and developers, which ultimately increases franchise fees earned by the Company.

The legacy Radisson Hotels Americas franchise agreements have similar provisions regarding marketing fees to be used for marketing activities.

Additionally, the legacy Radisson Hotels Americas management agreements include cost reimbursements, primarily related to payroll costs at managed hotels where the Company is the employer.

Our Company articulates its mission as a commitment to our franchisees’ profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise.

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Our success is dependent on improving the performance of our hotels, increasing our system size by selling additional hotel franchises with a focus on revenue-intense chain scales and markets, improving our effective royalty rate, expanding our qualified vendor programs and travel-related partnerships and maintaining a disciplined cost structure.

We have introduced several temporary measures designed to assist franchisees during the COVID-19 pandemic.

We attempt to improve our revenues and overall profitability by providing a variety of products and services designed to increase business delivery and/or reduce operating and development costs.

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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, which was paid in January 2022.

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

In addition to our hotel franchising business, we have also developed or acquired six Cambria hotels.

On February 24, 2022, May 24, 2022, and September 22, 2022, the Company's board of directors declared a quarterly cash dividend of $0.2375 per share of common stock.

In addition to our hotel franchising business, we have also developed or acquired Cambria and legacy Radisson Hotels Americas hotels.

We intend to continue to strategically develop hotels to increase the presence of our brands in the United States, drive greater guest satisfaction and brand preference, and ultimately increase the number of franchise agreements awarded.

When developing hotels, we seek key markets with strong growth potential that will deliver strong operating performance and improve the recognition of our brands.

Our hotel development and ownership efforts currently focus on the Cambria Hotels and Everhome Suites brands.

For legacy Choice brands, our hotel development and ownership efforts currently focus on the Cambria Hotels and Everhome Suites brands.

We believe our owned hotels provide us the opportunity to support and accelerate growth of our brands.

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The Company also allocates capital to financing, investment and guaranty support to incentivize franchise development for certain brands in strategic markets;

and to explore growth opportunities in business areas that are adjacent or complementary to our core hotel franchising business, which leverage our core competencies and are additive to our franchising business model.

and to explore growth opportunities in business areas that are adjacent or complementary to

our core hotel franchising business, which leverage our core competencies and are additive to our franchising business model.

The timing and amount of these investments are subject to market and other conditions.

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These measurements are primarily driven by the operations of our hotel franchise system and therefore, our analysis of the Company's operations is primarily focused on the size, performance and potential growth of the hotel franchise system as well as our variable overhead costs.

Our discussion of results excludes the Company’s marketing and reservation system revenues and expenses.

The Company's franchise agreements require the payment of marketing and reservation system fees to be used exclusively by the Company for expenses associated with providing franchise services such as central reservation systems, national marketing, and media advertising.

Our discussion of results generally excludes the Company’s other revenues and expenses from franchised and managed properties, which reflect franchise marketing and reservation system revenues and expenses and management agreement cost reimbursements.

The Company's legacy Choice franchise agreements require the payment of marketing and reservation system fees to be used exclusively by the Company for expenses associated with providing franchise services such as national marketing, media advertising, and central reservation systems.

The Company is obligated to expend the marketing and reservation system fees it collects from franchisees in accordance with the franchise agreements.

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Over time, the Company expects cumulative revenues and expenses to break even and, therefore, no income or loss will be generated from marketing and reservation system activities.

As a result, the Company generally excludes the financial impacts of this program from the analysis of its operations.

Due to the seasonal nature of the Company’s hotel franchising business and the multi-year investments required to support franchise operations, in addition to the Company's incremental spend to support franchisees and lower marketing and reservation system fees for certain periods most significantly impacted by the COVID-19 pandemic, quarterly and/or annual deficits may be generated.

During the six months ended June 30, 2022, marketing and reservation system revenues exceeded expenses by $48.5 million.

During the six months ended June 30, 2021, marketing and reservation system revenues exceeded expenses by $16.1 million.

The franchised and management contracts acquired in the Radisson Hotels Americas acquisition have similar terms as those described above with the exceptions of certain contractual elements concerning reservation fees, which are not required to breakeven over time and which are insignificant to overall operating net income.

As a result, the Company generally excludes the other revenues and expenses from franchised and managed properties from the analysis of its operations.

Due to the seasonal nature of the Company’s hotel franchising and management business and the multi-year investments required to support franchise operations, in addition to the Company's incremental spend to support franchisees and lower marketing and reservation system fees for certain periods most significantly impacted by the COVID-19 pandemic, quarterly and/or annual deficits may be generated.

During the nine months ended September 30, 2022, other franchised and managed revenues exceeded expenses by $55.4 million.

During the nine months ended September 30, 2021, other franchised and managed revenues exceeded expenses by $56.7 million.

Refer to MD&A heading "Operations Review" for additional analysis of our results.

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Historically, the Company has generated significant cash flows from operations .

Since our business has not historically required significant reinvestment of capital, we typically utilize cash in ways that management believes provide the greatest returns to our shareholders which include share repurchases and dividends.

The Company completed the acquisition of Radisson Hotels Americas on August 11, 2022 for a purchase price, net of Disclosed Leakage of approximately $673.9 million.

The Company's declaration of quarterly dividends and activity under the share repurchase program were temporarily suspended at the height of the COVID-19 pandemic, as detailed above within the Maximizing Financial Returns and Creating Value for Shareholders section.

We believe the Company’s cash flow from operations and available financing capacity is sufficient to meet the expected future operating, investing and financing needs of the business, inclusive of the pending Radisson Hotels Americas acquisition.

We believe the Company’s cash flow from operations and available financing capacity is sufficient to meet the expected future operating, investing and financing needs of the business.

Refer to MD&A heading Liquidity and Capital Resources for additional analysis.

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We have included a reconciliation of these measures to the comparable GAAP measurement below as well as our reasons for reporting these non-GAAP measures.

Revenues excluding marketing and reservation system activities:

The Company utilizes revenues excluding marketing and reservation system activities rather than total revenues when analyzing the performance of the business.

Marketing and reservation activities are excluded since the Company is contractually required by its franchise agreements to utilize the fees collected specifically for system-wide marketing and reservation activities.

This non-GAAP measure is a commonly used measure of performance in our industry and facilitates comparisons between the Company and its competitors.

Calculation of Revenues excluding marketing and reservation system activities

Three Months Ended June 30, Six Months Ended June 30,

Revenues excluding reimbursable revenue from franchised and managed properties and extraordinary termination fees from franchisee.

The Company’s other revenues from franchised and managed properties financial statement line item reflect franchise marketing and reservation system revenues and management agreement cost reimbursements.

The legacy Choice franchise marketing and reservation activities, legacy Radisson Hotels Americas franchise marketing activities, and legacy management agreement cost reimbursements operate at break-even based on the Company's contractual commitments regarding the manner such fees will be utilized.

The legacy Radisson Hotels Americas reservation revenue, which is also recorded in the other revenues from franchised and managed properties, does not break even, based on the legacy Radisson Hotels Americas franchise contracts.

Additionally, the Company recognized $22.6 million resulting from the exit of 110 WoodSpring units in the third quarter of 2022.

As a result, the Company excludes reimbursable revenue from franchised and managed properties and the extraordinary termination fees from franchisee when analyzing the performance of the business.

A similar non-GAAP measure is a commonly used measure of performance in our industry and facilitates comparisons between the Company and its competitors.

Calculation of Revenues excluding reimbursable revenue from franchised and managed properties and extraordinary termination fees from franchisee

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

Total revenues $ 414,266 $ 323,369 $ 1,039,967 $ 784,660

Marketing and reservation system revenues (189,382) (135,988) (316,019) (227,509)

Revenues excluding marketing and reservation system activities $ 178,592 $ 142,356 $ 309,682 $ 233,782

Reimbursable revenue from franchised and managed properties (190,627) (156,871) (506,646) (384,380)

Extraordinary termination fees from franchisee (22,647) — (22,647) —

Revenues excluding reimbursable revenue from franchised and managed properties and extraordinary termination fees from franchisee

$ 200,992 $ 166,498 $ 510,674 $ 400,280

Operations Review

Comparison of Operating Results for the Three-Month Periods Ended June 30, 2022 and 2021

Summarized financial results for the three months ended June 30, 2022 and 2021 are as follows:

Comparison of Operating Results for the Three-Month Periods Ended September 30, 2022 and 2021

Summarized financial results for the three months ended September 30, 2022 and 2021 are as follows:

(in thousands) 2022 2021

Royalty fees $ 121,449 $ 106,242

Initial franchise and relicensing fees 6,222 7,328

Royalty, licensing and management fees $ 144,020 $ 127,317

Initial franchise fees 7,011 6,149

Procurement services 14,401 13,010

Marketing and reservation system 189,382 135,988

Owned hotels 19,992 11,377

Other 31,432 8,645

Other revenues from franchised and managed properties 197,410 156,871

Total revenues 414,266 323,369

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Depreciation and amortization 8,726 5,883

Marketing and reservation system 153,846 113,285

Owned hotels 13,158 7,054

Other expenses from franchised and managed properties 190,541 116,216

Total operating expenses

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Results of Operations

The Company recorded income before income taxes of $142.1 million for the three-month period ended June 30, 2022, a $30.2 million increase from the same period of the prior year.

The increase in income before income taxes primarily reflects a $38.3 million increase in operating income partially offset by a $7.7 million decrease in other loss (gain) and $1.2 million decrease in equity in net loss (gain) of affiliates from the three-month period ended June 30, 2021.

Operating income increased $38.3 million primarily due to a $15.2 million increase in royalty revenues, a $12.9 million increase in the net surplus generated from marketing and reservation system activities, a $9.7 million increase in procurement services, a $4.2 million increase in other revenues, a $3.3 million net gain on sale of business and assets recognized during the second quarter of 2022, a $2.8 million increase in owned hotels revenues in excess of expenses, partially offset by a $9.4 million increase in SG&A expenses.

The primary reasons for these fluctuations, including the impact of the COVID-19 pandemic, are described in more detail below.

Domestic royalty fees for the three months ended June 30, 2022 increased $13.9 million to $116.7 million from $102.8 million for the three months ended June 30, 2021, an increase of 13.5%.

The increase in domestic royalties reflects a 14.3% increase in domestic RevPAR.

The Company recorded income before income taxes of $136.8 million for the three-month period ended September 30, 2022, a $14.8 million decrease from the same period of the prior year.

The decrease in income before income taxes primarily reflects a $14.1 million decrease in operating income from the three-month period ended September 30, 2021.

Operating income decreased $14.1 million primarily due to a by a $35.1 million increase in SG&A expenses, a $33.8 million decrease in the net surplus generated from other franchised and managed properties activities, and a $2.8 million increase in depreciation and amortization primarily offset by a $22.8 million increase in other revenues, a $16.7 million increase in royalty, licensing and management revenues, a $13.4 million net gain on sale of business and assets recognized during the third quarter of 2022, and a $2.5 million increase in owned hotels revenues in excess of expenses.

The primary reasons for these fluctuations are described in more detail below.

Domestic royalty fees for legacy Choice brands for the three months ended September 30, 2022 increased $3.7 million to $126.7 million from $123.0 million for the three months ended September 30, 2021, an increase of 3.0%.

The increase in domestic royalties for legacy Choice brands reflects a 3.4% increase in domestic RevPAR.

System-wide RevPAR increased due to a 5.8% increase in average daily rates, partially offset by a 150 basis point decrease in occupancy.

The increase in domestic royalties is also due to a 3 basis point increase in the effective royalty rate from 5.01% for the three months ended June 30, 2021 to 5.04% for the three months ended June 30, 2022, partially offset by a 2.9% decrease in the number of domestic franchised hotel rooms in the comparative period.

A summary of the Company's domestic franchised hotels operating information is as follows:

The increase in domestic royalties for legacy Choice brands is also due to a 5 basis point increase in the effective royalty rate from 4.99% for the three months ended September 30, 2021 to 5.04% for the three months ended September 30, 2022, partially offset by a 5.9% decrease in the number of domestic franchised hotel rooms in the comparative period.

A summary of the Company's domestic franchised hotels operating information for legacy Choice brands is as follows.

These operating statistics exclude the acquired legacy Radisson brands.

Three Months Ended Three Months Ended Change

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

Rate Occupancy RevPAR Average

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Total* $ 100.07 63.4 % $ 63.45 $ 94.59 64.9 % $ 61.37 5.8 % (150) bps 3.4 %

A summary of domestic hotels and rooms in our franchise system at June 30, 2022 and 2021 by brand is as follows:

June 30, 2022 June 30, 2021 Variance

* As noted above, the operating statistics presented exclude the legacy Radisson brands acquired.

Additionally, the operating statistics exclude Choice's Everhome brand since the operating statistics are not representative of a stabilized brand which the Company defines as having at least 25 units open and operating for a twelve month period.

A summary of domestic hotels and rooms for legacy Choice brands in our franchise system at September 30, 2022 and 2021 by brand is as follows:

September 30, 2022 September 30, 2021 Variance

Hotels Rooms Hotels Rooms Hotels Rooms % %

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WoodSpring 206 24,890 300 36,112 (94) (11,222) (31.3) % (31.1) %

Everhome 1 99 — — 1 99 NM NM

MainStay 113 7,843 97 6,780 16 1,063 16.5 % 15.7 %

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Total Domestic Franchises (1)

As of both June 30, 2022 and June 30, 2021, less than 1% of the Company's domestic hotel system had temporarily suspended operations due to governmental restriction or a franchisee’s election.

5,742 440,051 5,942 467,473 (200) (27,422) (3.4) % (5.9) %

(1) Prior to 2022, seven properties located in Caribbean territories were classified as domestic.

In 2022, the seven properties were reclassified to international.

As of both September 30, 2022 and September 30, 2021, less than 1% of the Company's domestic hotel system had temporarily suspended operations due to governmental restriction or a franchisee’s election.

These temporarily suspended hotels are included in the summary table above of domestic hotels in our franchise system.

International royalty fees for the three months ended June 30, 2022 increased $1.3 million to $4.8 million compared to the three months ended June 30, 2021 as a result of improvements in RevPAR performance, despite reductions of the international franchise system size by 56 hotels (from 1,156 as of June 30, 2021 to 1,100 as of June 30, 2022) and 12,717 rooms (from 132,164 as of June 30, 2021 to 119,447 as of June 30, 2022).

As of June 30, 2022 and June 30, 2021, approximately 1% and 2%, respectively, of the Company's international branded hotels temporarily suspended operations due to governmental restriction or a franchisee’s election.

International royalty fees for legacy Choice brands for the three months ended September 30, 2022 increased $1.0 million to $5.3 million compared to the three months ended September 30, 2021 as a result of improvements in RevPAR performance, despite reductions of the international franchise system size by 53 hotels (from 1,160 as of September 30, 2021 to 1,107 as of September 30, 2022) and 13,139 rooms (from 134,303 as of September 30, 2021 to 121,164 as of September 30, 2022).

September 30, 2022 and September 30, 2021, approximately 1% and 2%, respectively, of the Company's international branded hotels temporarily suspended operations due to governmental restriction or a franchisee’s election.

As a result of the acquisition of AMResorts®, the Company’s relationship with AMResorts® was terminated during the fourth quarter of 2021 and 17 domestic and 37 international open AMResorts®-branded hotels exited the Ascend Hotel Collection portfolio.

In addition, as noted above in Note 2 to our consolidated financial statements, in July 2022 the Company received notice from an ownership group of their intent to exit 110 WoodSpring properties from the Choice system, which occurred in September 2022.

Royalty fees for the newly acquired Radisson Hotels Americas brands since the acquisition date of August 11, 2022 through September 30, 2022 were $7.7 million, and represent total hotels and rooms of 609 and 65,968, respectively, as of September 30, 2022.

Domestic hotels and rooms accounted for 520 and 53,185, respectively, while international hotels and rooms accounted for 89 and 12,783, respectively.

We expect the uncertainty surrounding the potential duration of the pandemic, including resurgences and new variants, as well as the rate, pace and effectiveness of vaccinations around the world, to continue to have the potential to impact the number of domestic and international hotels that remain open and operating.

Initial Franchise and Relicensing Fees

Initial Franchise Fees

Initial franchise fees are fees paid to the Company when a franchisee executes a franchise agreement;

relicensing fees include fees charged to new owners of a franchised property whenever an ownership change occurs and the property remains in the franchise system, as well as fees required to renew existing franchise agreements.

During the second quarter of 2022, the Company awarded 122 domestic franchise agreements representing 10,787 rooms compared to 111 franchising agreements representing 8,888 rooms for the second quarter of 2021.

Domestic franchise agreements awarded for new construction hotels totaled 45 contracts representing 5,017 rooms during the three months ended June 30, 2022, compared to 41 contracts representing 4,011 rooms for the three months ended June 30, 2021.

Conversion hotel awarded franchise agreements totaled 77 representing 5,770 rooms for the three months ended June 30, 2022, compared to 70 agreements representing 4,877 rooms for the three months ended June 30, 2021.

The Company awarded 110 domestic relicensing contracts during the three months ended June 30, 2022, compared to 128 executed during the three months ended June 30, 2021.

The Company awarded 5 domestic renewal agreements during the three months ended June 30, 2022, compared to 8 awarded during the three months ended June 30, 2021.

Initial franchise and relicensing fees are generally collected at the time the franchise agreement is awarded.

During the third quarter of 2022, the Company awarded 123 domestic franchise agreements to legacy Choice brands representing 10,551 rooms compared to 89 franchising agreements representing 7,640 rooms for the third quarter of 2021.

Domestic franchise agreements awarded to legacy Choice brands for new construction hotels totaled 42 contracts representing 4,060 rooms during the three months ended September 30, 2022, compared to 32 contracts representing 3,178 rooms for the three months ended September 30, 2021.

Conversion hotel awarded franchise agreements to legacy Choice brands totaled 81 representing 6,491 rooms for the three months ended September 30, 2022, compared to 57 agreements representing 4,462 rooms for the three months ended September 30, 2021.

The Company awarded 143 domestic relicensing contracts to legacy Choice brands during the three months ended September 30, 2022, compared to 56 executed during the three months ended September 30, 2021.

The Company awarded 6 domestic renewal agreements to legacy Choice brands during the three months ended September 30, 2022, compared to 6 awarded during the three months ended September 30, 2021.

Since the August 11, 2022 acquisition date through September 30, 2022, the Company awarded 1 franchise agreement to Radisson Hotels Americas brands.

Initial franchise fees are generally collected at the time the franchise agreement is awarded.

However, the recognition of revenue is deferred until the hotel is open or the franchise agreement is terminated.

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Upon the termination of a franchise agreement, previously deferred initial and relicensing fees are recognized immediately in the period the agreement is terminated.

Initial franchise and relicensing fee revenue decreased $1.1 million from $7.3 million to $6.2 million for the three months ended June 30, 2021 and June 30, 2022, respectively.

At June 30, 2022, the Company had 864 franchised hotels with 77,970 rooms under construction, awaiting conversion or approved for development in its domestic system as compared to 884 hotels and 72,312 rooms at June 30, 2021.

The number of new construction franchised hotels in the Company's domestic pipeline decreased from 663 at June 30, 2021 to 647 at June 30, 2022.

Initial franchise fee revenue increased $0.9 million from $6.1 million to $7.0 million for the three months ended September 30, 2021 and September 30, 2022, respectively.

At September 30, 2022, the Company's legacy Choice brands had 861 franchised hotels with 79,313 rooms under construction, awaiting conversion or approved for development in its domestic system as compared to 859 hotels and 71,346 rooms at September 30, 2021.

The number of new construction franchised hotels in the Company's legacy Choice brands domestic pipeline increased from 652 at September 30, 2021 to 629 at September 30, 2022.

New construction hotels typically average 18 to 36 months to open after the franchise agreement is executed.

The number of conversion franchised hotels in the Company's domestic pipeline decreased from 221 hotels at June 30, 2021 to 217 hotels at June 30, 2022.

The number of conversion franchised hotels in the Company's legacy Choice brands domestic pipeline increased from 207 hotels at September 30, 2021 to 232 hotels at September 30, 2022.

Conversion hotels typically open three to six months after the execution of a franchise agreement.

The Company had an additional 44 franchised hotels with 4,659 rooms under construction, awaiting conversion or approved for development in its international system as of June 30, 2022, compared to 60 hotels and 8,108 rooms at June 30, 2021.

The Company had an additional 40 legacy Choice brands franchised hotels with 4,072 rooms under construction, awaiting conversion or approved for development in its international system as of September 30, 2022, compared to 53 hotels and 7,201 rooms at September 30, 2021.

At September 30, 2022, the Company's Radisson Hotels Americas brands had 69 franchised hotels with 8,756 rooms under construction, awaiting conversion or approved for development in its global system.

Fluctuations in the Company’s pipeline are primarily due to the timing of hotel openings and the timing of signing new franchise agreements.

While the Company's hotel pipeline provides a strong platform for growth, a hotel in the pipeline does not always result in an open and operating hotel due to various factors.

Given the uncertainty as to the potential duration of the COVID-19 pandemic and its severity, there is additional uncertainty with respect to the opening of new construction hotels, which are reliant on, amongst other things, access to liquidity, availability of construction labor and materials, and local governmental approvals and entitlements, all of which may be constrained during the duration of the pandemic.

In addition, as noted above in Note 16 to our consolidated financial statements, in July 2022 the Company received notice from an ownership group of their intent to exit 111 WoodSpring properties from the Choice system in September 2022.

Procurement services:

Revenues increased $9.7 million from $12.1 million for three months ended June 30, 2021 to $21.8 million for the three months ended June 30, 2022.

These results reflect an increase in fees generated from travel-related partnerships and qualified vendors resulting from increased occupancy during 2022 at our franchised hotels, and fees generated from the Company's convention, which occurred in 2022 after a two-year hiatus as a result of the COVID-19 pandemic.

While the Company's hotel pipeline provides a strong platform for growth, a hotel in the pipeline does

not always result in an open and operating hotel due to various macroeconomic factors which could impact items such as access to liquidity, availability of construction labor and materials, and local governmental approvals and entitlements.

Owned Hotels:

The Company's revenues, net of expenses, from owned hotels increased $2.8 million from $3.7 million for the three months ended June 30, 2021 to $6.5 million for the three months ended June 30, 2022.

These results reflect improved operating performance at our owned hotels and the net addition of one owned hotel during the comparative period.

The Company's revenues, net of expenses, from owned hotels increased $2.5 million from $4.3 million for the three months ended September 30, 2021 to $6.8 million for the three months ended September 30, 2022.

These results reflect improved operating performance at our owned hotels and the net addition of 4 owned hotels during the comparative period, driven by the Radisson Hotels Americas acquisition.

Other Revenues:

Other revenues increased $4.2 million from $7.7 million for the three months ended June 30, 2021 to $11.9 million for the three months ended June 30, 2022 driven by an increase in termination fees collected and other franchising revenues.

Other revenues increased $22.8 million from $8.6 million for the three months ended September 30, 2021 to $31.4 million for the three months ended September 30, 2022 driven by an increase in termination fees, including $22.6 million resulting from the exit of 110 WoodSpring units in the third quarter of 2022, and other franchising revenues.

Selling, General and Administrative Expenses:

The cost to operate the business is reflected in SG&A on the consolidated statements of income.

SG&A expenses were $43.9 million and $34.5 million for the three months ended June 30, 2022, and 2021, respectively.

SG&A expenses experienced an increase resulting from increases for general corporate purposes and lifting of certain cost mitigation measures related to the COVID-19 pandemic, including compensation, benefits, travel and conventions & meetings.

SG&A expenses were $70.2 million and $35.1 million for the three months ended September 30, 2022, and 2021, respectively.

SG&A expenses experienced an increase resulting from the acquisition of Radisson Hotels Americas, inclusive of severance and transaction-related costs incurred of $24.9 million.

SG&A expenses further experienced increases resulting from general corporate purposes;

lifting of certain cost mitigation measures related to the COVID-19 pandemic, including compensation, benefits, and travel;

and an increase in provision for credit losses in accounts receivable recorded in accordance with Topic 326.

These were partially offset by a $1.4 million decrease in the Company's deferred compensation liabilities based on decreases in the underlying investments.

Depreciation and amortization :

Depreciation and amortization expense was $8.7 million and $5.9 million for the three months ended September 30, 2022 and 2021, respectively, increasing primarily due to the acquisition of Radisson Hotels Americas on August 11, 2022 and associated amortization from the portion of the purchase price allocated to contract asset acquisition costs.

Gain on sale of business and assets, net :

During the second quarter of 2022, the Company recognized a $3.3 million gain primarily related to the sale of an owned hotel asset, in addition to the sale and conversion of an international direct franchising market to a master franchising market.

During the third quarter of 2022, the Company recognized a $13.4 million gain primarily related to the sale of an owned hotel asset of $15.9 million offset by a $2.2 million reduction to the carrying value of an asset held for sale.

Other Loss (Gain):

The Company recorded other net losses of $5.6 million for the three months ended June 30, 2022, compared to other net gains of $2.1 million for the three months ended June 30, 2021.

The Company recorded other net losses of $2.3 million for the three months ended September 30, 2022, compared to other net losses of $0.4 million for the three months ended September 30, 2021.

The current period losses relate to decreases in the Company's deferred compensation assets based on decreases in the underlying investments and foreign currency transaction losses.

Equity in Net Loss (Gain) of Affiliates :

The Company recorded net loss of $40 thousand from its unconsolidated affiliates for the three months ended June 30, 2022, compared to net gain of $1.2 million for the three months ended June 30, 2021.

These investments in affiliates relate to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets.

The activity for the three months ended June 30, 2021 is primarily attributable to the sale of the ownership interest of an affiliate resulting in a gain of $2.6 million in the second quarter of 2021.

Refer to Note 4 to our consolidated financial statements for additional information.

Income Tax Expense:

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 rate for the three months ended June 30, 2022 and 2021 was higher than the U.S.

The effective income tax rates were 24.6% and 23.1% for the three months ended September 30, 2022 and 2021, respectively.

The effective income tax rate for the three months ended September 30, 2022 was higher than the U.S.

federal income tax rate of 21.0% primarily due to the impact of state income taxes.

The effective income tax rate for the three months ended September 30, 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.

Operations Review

Comparison of Operating Results for the Six-Month Periods Ended June 30, 2022 and 2021

Summarized financial results for the six months ended June 30, 2022 and 2021 are as follows:

Comparison of Operating Results for the Nine-Month Periods Ended September 30, 2022 and 2021

Summarized financial results for the nine months ended September 30, 2022 and 2021 are as follows:

(in thousands) 2022 2021

Royalty fees $ 212,188 $ 172,289

Initial franchise and relicensing fees 14,624 12,755

Royalty, licensing and management fees $ 356,208 $ 299,606

Initial franchise fees 21,635 18,904

Procurement services 47,887 36,293

Marketing and reservation system 316,019 227,509

Owned hotels 49,220 24,724

Other 51,588 20,753

Other revenues from franchised and managed properties 513,429 384,380

Total revenues 1,039,967 784,660

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Depreciation and amortization 20,436 18,477

Marketing and reservation system 267,496 211,458

Owned hotels 32,004 16,534

Other expenses from franchised and managed properties 458,037 327,674

Total operating expenses

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Results of Operations

The Company recorded income before income taxes of $229.9 million for the six-month period ended June 30, 2022, a $89.3 million increase from the same period of the prior year.

The increase in income before income taxes reflects a $93.7 million increase in operating income, a $5.0 million increase in equity in net loss (gain) of affiliates, partially offset by a $10.6 million increase in other loss (gain).

Operating income increased $93.7 million primarily due to a $39.9 million increase in royalty revenues, a $32.5 million increase in the net surplus generated from marketing and reservation system activities, a $10.2 million increase in procurement services revenues, a $8.1 million increase in other revenues, a $6.5 million increase in owned hotels revenues in excess of expenses, and a $3.3 million increase from net gain on sale of business and assets, partially offset by a $9.5 million increase in SG&A expenses.

The Company recorded income before income taxes of $366.6 million for the nine-month period ended September 30, 2022, a $74.4 million increase from the same period of the prior year.

The increase in income before income taxes reflects a $79.6 million increase in operating income, a $3.0 million decrease in interest expense, a $2.8 million increase in equity in net loss (gain) of affiliates, a $1.6 million increase in interest income, offset by a $12.5 million increase in other loss (gain).

Operating income increased $79.6 million due to a $56.6 million increase in royalty revenues, a $30.8 million increase in other revenues, a $16.7 million increase from net gain on sale of business and assets, a $11.6 million increase in procurement services revenues, a $9.0 million increase in owned hotels revenues in excess of expenses, a $2.7 million increase in initial franchise fees, offset by a $44.6 million increase in SG&A expenses, a $1.9 million increase in depreciation and amortization, and a $1.3 million decrease in the net surplus generated from other franchised and managed properties activities.

The primary reasons for these fluctuations are described in more detail below.

Domestic royalty fees for the six months ended June 30, 2022 increased $37.8 million to $203.6 million compared to the six months ended June 30, 2021.

The increase in royalties reflect a 22.5% increase in RevPAR.

Domestic royalty fees for legacy Choice brands the nine months ended September 30, 2022 increased $41.5 million to $330.3 million compared to the nine months ended September 30, 2021.

The increase in domestic royalties for legacy Choice brands reflects a 14.2% increase in domestic RevPAR.

System-wide RevPAR increased due to a 12.1% increase in average daily rates and a 110 basis point increase in occupancy.

The increase in domestic royalties is also due to a 2.9% decrease in the number of domestic franchised hotel rooms and a 4 basis point increase in the effective royalty rate from 5.01% for the six months ended June 30, 2021 to 5.05% for the six months ended June 30, 2022.

A summary of the Company's domestic franchised hotels operating information is as follows:

Six Months Ended Six Months Ended Change

June 30, 2022 June 30, 2021

The increase in domestic royalties for legacy Choice brands is also due to a 5.9% decrease in the number of domestic franchised hotel rooms and a 5 basis point increase in the effective royalty rate from 5.00% for the nine months ended September 30, 2021 to 5.05% for the nine months ended September 30, 2022.

A summary of the Company's domestic franchised hotels operating information for legacy Choice brands is as follows.

These operating statistics exclude the acquired legacy Radisson brands.

Nine Months Ended Nine Months Ended Change

September 30, 2022 September 30, 2021

Rate Occupancy RevPAR Average

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Total* $ 93.81 59.3 % $ 55.65 $ 83.70 58.2 % $ 48.71 12.1 % 110 bps 14.2 %

International royalty fees for the six months ended June 30, 2022 increased $2.1 million to $8.6 million compared to the six months ended June 30, 2021 as a result of increases in RevPAR performance, despite reductions of the international franchise system decreasing by 56 hotels (from 1,156 as of June 30, 2021 to 1,100 as of June 30, 2022) and 12,717 rooms (from 132,164 as of June 30, 2021 to 119,447 as of June 30, 2022).

* As disclosed above, the operating statistics presented exclude the legacy Radisson brands acquired.

International royalty fees for legacy Choice brands for the nine months ended September 30, 2022 increased $3.1 million to $13.8 million compared to the nine months ended September 30, 2021 as a result of increases in RevPAR performance, despite reductions of the international franchise system decreasing by 53 hotels (from 1,160 as of September 30, 2021 to 1,107 as of September 30, 2022) and 13,139 rooms (from 134,303 as of September 30, 2021 to 121,164 as of September 30, 2022).

As of September 30, 2022 and September 30, 2021, approximately 1% and 2%, respectively, of the Company's international branded hotels temporarily suspended operations due to governmental restriction or a franchisee’s election.

Domestic hotels and rooms accounted for 520 and 53,185, respectively, while international hotels and rooms accounted for 89 and 12,783, respectively.

We expect the uncertainty surrounding the pandemic, including an increase in the prevalence in variants as well as the rate and pace of vaccinations around the world, to continue to impact the number of domestic and international hotels that temporarily suspend operations.

Initial Franchise and Relicensing Fees

Initial Franchise Fees

Initial franchise fees are fees paid to the Company when a franchisee executes a franchise agreement;

During the six months ended June 30, 2022, the Company awarded 215 domestic franchise agreements representing 22,164 rooms compared to 200 franchise agreements representing 20,668 rooms for the six months ended June 30, 2021.

Domestic franchise agreements awarded for new construction hotels totaled 83 representing 8,734 rooms during the six months ended June 30, 2022 compared to 56 franchise agreements representing 5,293 rooms for the six months ended June 30, 2021.

Conversion hotel awarded franchise agreements totaled 132 representing 13,430 rooms for the six months ended June 30, 2022 compared to 144 franchise agreements representing 15,375 rooms for the six months ended June 30, 2021.

The Company awarded 248 domestic relicensing contracts during the six months ended June 30, 2022, compared to 180 executed during the six months ended June 30, 2021.

The Company awarded 12 domestic renewal agreements during both the six months ended June 30, 2022, compared to 20 executed during six months ended June 30, 2021.

Initial franchise and relicensing fees are generally collected at the time the franchise agreement is awarded.

During the nine months ended September 30, 2022, the Company awarded 338 domestic franchise agreements to legacy Choice brands representing 32,715 rooms compared to 289 franchise agreements representing 28,308 rooms for the nine months ended September 30, 2021.

Domestic franchise agreements awarded to legacy Choice brands for new construction hotels totaled 125 representing 12,794 rooms during the nine months ended September 30, 2022 compared to 88 franchise agreements representing 8,471 rooms for the nine months ended September 30, 2021.

Conversion hotel awarded franchise agreements to legacy Choice brands totaled 213 representing 19,921 rooms for the nine months ended September 30, 2022 compared to 201 franchise agreements representing 19,837 rooms for the nine months ended September 30, 2021.

The Company awarded 391 domestic relicensing contracts to legacy Choice brands during the nine months ended September 30, 2022, compared to 236 executed during the nine months ended September 30, 2021.

The Company awarded 18 domestic

renewal agreements to legacy Choice brands during both the nine months ended September 30, 2022, compared to 19 executed during nine months ended September 30, 2021.

Since the August 11, 2022 acquisition date through September 30, 2022, the Company awarded 1 franchise agreement to Radisson Hotels Americas brands.

Initial franchise fees are generally collected at the time the franchise agreement is awarded.

However, the recognition of revenue is deferred until the hotel is open or the franchise agreement is terminated.

Upon hotel opening, revenue is recognized ratably as services are provided over the enforceable period of the franchise license agreement.

Upon the termination of a franchise agreement, previously deferred initial and relicensing fees are recognized immediately in the period the agreement is terminated.

Initial franchise and relicensing fee revenue increased $1.8 million from $12.8 million during the six months ended June 30, 2021 to $14.6 million during six months ended June 30, 2022.Given the uncertainty as to the potential duration of the COVID-19 pandemic and its severity, there is additional uncertainty with respect to the opening of new construction hotels, which are reliant on, amongst other things, access to liquidity, availability of construction labor and materials, and local governmental approvals and entitlements, all of which may be constrained during the duration of the pandemic.

Upon the termination of a franchise agreement, previously deferred initial fees are recognized immediately in the period the agreement is terminated.

Initial franchise fee revenue increased $2.7 million from $18.9 million during the nine months ended September 30, 2021 to $21.6 million during nine months ended September 30, 2022.

Procurement Services:

Revenues increased $10.2 million from $23.3 million for the six months ended June 30, 2021 to $33.5 million for the six months ended June 30, 2022.

These results reflect a increase in fees generated from travel-related partnerships and qualified vendors resulting from increased occupancy during the first and second quarters of 2022 at our franchised hotels, and fees generated from the Company's convention, which occurred in 2022 after a two-year hiatus as a result of the COVID-19 pandemic.

Revenues increased $11.6 million from $36.3 million for the nine months ended September 30, 2021 to $47.9 million for the nine months ended September 30, 2022.

These results reflect an increase in fees generated from travel-related partnerships and qualified vendors resulting from increased occupancy during the first three quarters of 2022 at our franchised hotels, and fees generated from the Company's convention, which occurred in 2022 after a two-year hiatus as a result of the COVID-19 pandemic.

Owned Hotels:

The Company's revenues, net of expenses, from owned hotels increased $6.5 million from $3.9 million for the six months ended June 30, 2021 to $10.4 million for the six months ended June 30, 2022.

These results reflect improved operating performance at our owned hotels and the net addition of one owned hotel during the comparative period.

The Company's revenues, net of expenses, from owned hotels increased $9.0 million from $8.2 million for the nine months ended September 30, 2021 to $17.2 million for the nine months ended September 30, 2022.

These results reflect improved operating performance at our owned hotels and the net addition of 4 owned hotels during the comparative period, driven by the Radisson Hotels Americas acquisition.

Other Revenues:

Other revenues increased $8.1 million from $12.1 million for the six months ended June 30, 2021 to $20.2 million in the same period of the current year driven by an increase termination fees collected and other franchising revenues.

Other revenues increased $30.8 million from $20.8 million for the nine months ended September 30, 2021 to $51.6 million in the same period of the current year driven by an increase termination fees, including $22.6 million resulting from the exit of 110 WoodSpring units in the third quarter of 2022, and other franchising revenues.

Selling, General and Administrative Expenses:

The cost to operate the business is reflected in SG&A on the consolidated statements of income.

SG&A expenses were $74.2 million for the six months ended June 30, 2022, a increase of $9.5 million from the six months ended June 30, 2021.

SG&A expenses were $144.4 million and $99.8 million for the nine months ended September 30, 2022 and 2021, respectively.

SG&A expenses experienced an increase resulting from the acquisition of Radisson Hotels Americas, inclusive of severance and transaction related-costs incurred of $29.0 million.

SG&A expenses further experienced increases resulting from general corporate purposes;

lifting of certain cost mitigation measures related to the COVID-19 pandemic, including compensation, benefits, travel, and conventions & meetings;

and an increase in provision for credit losses in accounts receivable recorded in accordance with Topic 326.

These were partially offset by a $11.4 million decrease in the Company's deferred compensation liabilities based on decreases in the underlying investments

Gain on sale of business and assets, net :

During the third quarter of 2022, the Company recognized a $13.4 million gain primarily related to the sale of an owned hotel asset offset by a reduction to the carrying value of an asset held for sale.

In addition, during the second quarter of 2022, the Company recognized a gain of $3.3 million related to the sale of an owned asset, in addition to the sale and conversion of an international direct franchising market to a master franchising market.

Other Loss (Gain) :

The Company recorded other net losses of $7.3 million for the six months ended June 30, 2022, compared to other net gains of $3.3 million, an decrease of $10.6 million for the six months ended June 30, 2021.

The Company recorded other net losses of $9.6 million for the nine months ended September 30, 2022, compared to other net gains of $2.9 million, a decrease of $12.5 million for the nine months ended September 30, 2021.

The losses relate to decreases in the Company's deferred compensation assets based on decreases in the underlying investments and foreign currency transaction gains.

Equity in Net Loss (Gain) of Affiliates :

The Company recorded net gain of $0.2 million from its unconsolidated affiliates for the six months ended June 30, 2022 compared to net losses of $4.8 million for the six months ended June 30, 2021.

The Company recorded net gain of $1.3 million from its unconsolidated affiliates for the nine months ended September 30, 2022 compared to net losses of $1.5 million for the nine months ended September 30, 2021.

These investments relate to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets.

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Income Tax Expense:

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 six months ended June 30, 2022 and 2021 was higher than the U.S.

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

The effective income tax rates for the nine months ended September 30, 2022 and 2021 were 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.

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

On February 24, 2022, May 24, 2022, and September 22, 2022, the Company's board of directors declared a quarterly cash dividend of $0.2375 per share of common stock.

Our board of directors authorized a program which permits us to offer financing, investment, and guaranty support to qualified franchisees, and allows us to acquire or develop and resell hotels to incentivize franchise development of our brands in strategic markets.

We deploy capital pursuant to this program opportunistically to promote growth of our brands.

With respect to our hotel development and ownership, affiliate investments, and lending, the Company had approximately $480.1 million in support of the Cambria Hotels and Everhome Suites brands currently reflected on the balance sheet as of June 30, 2022, which it generally targets to recycle within a five year period, and expects our outstanding investment to not exceed $975 million at any point in time based on current board of directors' authorization.

With respect to our hotel development and ownership, affiliate investments, and lending, the Company had approximately $486.4 million in support of the Cambria Hotels and Everhome Suites brands currently reflected on the balance sheet as of September 30, 2022, which it generally targets to recycle within a five year period, and expects our outstanding investment to not exceed $975 million at any point in time based on current board of directors' authorization.

The deployment and annual pace of future financial support activities will depend upon market and other conditions.

The Company also strategically deploys capital in the form of franchise agreement acquisition payments across our brands to incentivize franchise development.

As of 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.

The Company's primary sources of liquidity as of June 30, 2022 consisted of $1.2 billion in cash and available borrowing capacity through its senior unsecured revolving credit facility.

As of June 30, 2022, the Company was in compliance with the financial covenants of its credit agreements and expects to remain in such compliance.

As of September 30, 2022, the Company had commitments to extend an additional $302.5 million for these purposes provided the conditions of the payment are met by its franchisees.

The Company's primary sources of liquidity as of September 30, 2022 consisted of $337.5 million in cash and available borrowing capacity through its senior unsecured revolving credit facility.

As of September 30, 2022, the Company was in compliance with the financial covenants of its credit agreements and expects to remain in such compliance.

Based on our business model and information known at this time, the Company believes that cash, available borrowing capacity, and cash flows from operations will provide sufficient liquidity to meet the expected future operating, investing and financing needs of the business for at least the next 12 months, inclusive of the pending Radisson Hotels Americas transaction.

Operating Activities

During the six months ended June 30, 2022 and 2021, net cash provided by operating activities totaled $159.3 million and $102.4 million, respectively.

During the nine months ended September 30, 2022 and 2021, net cash provided by operating activities totaled $265.2 million and $245.2 million, respectively.

Operating cash flows increased $20.0 million primarily due to an increase in operating income, excluding certain non-cash charges, and timing of working capital items.

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If the franchisee exits our franchise system or is not operating their franchise in accordance with our quality or credit standards and is terminated, the franchisee must repay the unamortized incentive payment plus interest.

During the six months ended June 30, 2022 and 2021, the Company's net advances for these purposes totaled $27.0 million and $18.1 million, respectively.

During the nine months ended September 30, 2022 and 2021, the Company's net advances for these purposes totaled $32.9 million and $28.5 million, respectively.

The timing and amount of these cash flows are dependent on various factors including the implementation of various development and brand incentive programs, the level of franchise sales and the ability of our franchisees to complete construction or convert their hotels to one of the Company’s brands.

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.

At September 30, 2022, the Company had commitments to extend an additional $302.5 million for these purposes provided the conditions of the payment are met by its franchisees.

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

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To the extent revenues collected exceed expenditures incurred, the Company has a commitment to the franchisee system to make expenditures in future years.

Conversely, to the extent expenditures incurred exceed revenues collected, the Company has the contractual enforceable right to recover such advances in future periods through additional fee assessments or reduced spending.

During the six months ended June 30, 2022 and 2021, marketing and reservation system revenues exceeded expenses by $48.5 million and $16.0 million, respectively.

Conversely, to the extent expenditures incurred

exceed revenues collected, the Company has the contractual enforceable right to recover such advances in future periods through additional fee assessments or reduced spending.

During the nine months ended September 30, 2022 and 2021, net surplus generated from other franchised and managed properties activities was $55.4 million and $56.7 million, respectively.

Investing Activities

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We are currently engaged in these financial support activities to encourage acceleration of the growth of our Cambria Hotels and Everhome Suites brands, primarily in strategic markets and locations.

With respect to our hotel development and ownership, affiliate investments, and lending, the Company had approximately $480.1 million outstanding in support of the Cambria Hotels and Everhome Suites brands currently reflected on the balance sheet as of June 30, 2022, which it generally targets to recycle within a five year period, and expects our outstanding investment to not exceed $975 million at any point of time based on current board of directors' authorization.

With respect to our hotel development and ownership, affiliate investments, and lending, the Company had approximately $486.4 million outstanding in support of the Cambria Hotels and Everhome Suites brands currently reflected on the balance sheet as of September 30, 2022, which it generally targets to recycle within a five year period, and expects our outstanding investment to not exceed $975 million at any point of time based on current board of directors' authorization.

We expect to continue to deploy capital in these manners in support of our brands.

The deployment and annual pace of future financial support activities will depend upon market and other conditions, including among others, our franchise sales results, the environment for new construction hotel development and the hotel lending environment, and our assessment of the ongoing impacts of the COVID-19 pandemic.

Cash utilized for investing activities totaled $24.0 million and $33.0 million for the six months ended June 30, 2022 and 2021, respectively.

The change in cash utilized for investing activities for the six months ended June 30, 2022 primarily reflects the following items:

During the six months ended June 30, 2022 and 2021, capital expenditures in property and equipment totaled $49.9 million and $23.4 million, respectively.

The increase in capital expenditures primarily reflects increased costs incurred to support the continued growth of the Cambria Hotels and Everhome Suites brands, including acquisition of land parcels in the first and second quarters of 2022 for hotel development.

During the six months ended June 30, 2022, the Company realized net proceeds of $32.9 million from the sale of one Cambria hotel, one parcel of land, and a sale and conversion of an international direct franchising market to a master franchising market.

Cash utilized for investing activities totaled $483.7 million and $52.6 million for the nine months ended September 30, 2022 and 2021, respectively.

The change in cash utilized for investing activities for the nine months ended September 30, 2022 primarily reflects the following:

On August 11, 2022, the Company acquired 100% of the issued and outstanding equity interest of Radisson Hotels Americas for a purchase price, net of Disclosed Leakage of approximately $673.9 million.

The purchase price, net of cash acquired, was $550.4 million.

With the close of this Transaction, Choice Hotels International has added approximately 67,000 rooms across the United States, Canada, Caribbean and Latin America.

The acquisition expands the Company's footprint in international markets and the upper upscale and upscale full service segments and enhances guest offerings in the core upper-midscale segment.

The acquisition accelerates asset-light strategy of growth in higher revenue travel segments and locations.

The total value consideration, net of cash acquired, was approximately $550.4 million.

To fund the transaction, Choice drew $175 million on the Company's existing $600 million unsecured credit facility (the "Revolver"), and funded the remainder with cash on hand.

On the transaction date, the Company acquired approximately $10.4 million in restricted cash due to the mortgage.

As a result of paying the mortgage, the restrictions were lifted.

Refer to Note 15 to our consolidated financial statements for further discussion.

During the nine months ended September 30, 2022 and 2021, capital expenditures in property and equipment totaled $66.1 million and $46.1 million, respectively.

The increase in capital expenditures primarily reflects increased costs incurred to support the continued growth of the Cambria Hotels and Everhome Suites brands, including ongoing construction and acquisition of land parcels in the first and second quarters of 2022 for hotel development.

During the nine months ended September 30, 2022, the Company realized net proceeds of $140.6 million from the sale of two Cambria hotels, one parcel of land, and a sale and conversion of an international direct franchising market to a master franchising market.

During the nine months ended September 30, 2022, the Company recorded $22.6 million related to the termination of 110 WoodSpring units.

The termination fees recognized represent $67.4 million in consideration less the carrying basis of the related contract intangibles.

During the third and fourth quarters of 2022, the Company received cash of $5.7 million and $61.7 million, respectively.

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.

During the six months ended June 30, 2022 and 2021, the Company invested $0.7 million and $1.1 million, respectively, and received no distributions from these affiliates.

During the nine months ended September 30, 2022 and 2021, the Company invested $4.3 million and $2.2 million, respectively, and received no distributions from these affiliates.

To the extent existing affiliates proceed to the hotel construction phase, the Company is committed to make additional capital contributions totaling $7.7 million to support these efforts.

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

The Company believes the likelihood of having to perform under the aforementioned limited payment guaranties was remote as of June 30, 2022 and June 30, 2021.

The Company believes the likelihood of having to perform under the aforementioned limited payment guaranties was remote as of September 30, 2022 and September 30, 2021.

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 our guaranty.

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These loans bear interest and are expected to be repaid in accordance with the terms of the loan arrangements.

During the six months ended June 30, 2022, the Company advanced $2.0 million and received repayments totaling $0.1 million for these purposes.

For the six months ended June 30, 2021, the Company advanced no amounts and received repayments totaling $0.1 million for these purposes, and acquired a senior note with collateral in an underlying operating hotel for $17.9 million.

At June 30, 2022, the Company had commitments to extend an additional $5.5 million for these purposes provided certain conditions are met by its franchisees.

During the nine months ended September 30, 2022, the Company advanced $5.6 million and received repayments totaling $0.7 million for these purposes.

For the nine months ended September 30, 2021, the Company advanced no amounts and received repayments totaling $0.1 million for these purposes, and acquired a senior note with collateral in an underlying operating hotel for $17.9 million.

At September 30, 2022, the Company had commitments to extend an additional $1.8 million for these purposes provided certain conditions are met by its franchisees.

Financing Activities

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The Restated Credit Agreement provides that the Company may elect to have borrowings bear interest at a rate equal to (i) LIBOR plus a margin ranging from 90 to 150 basis points or (ii) a base rate plus a margin ranging from 0 to 50 basis points, in each case, with the margin determined according to the Company’s senior unsecured long-term debt rating or under circumstances as set forth in the Restated Credit Agreement, the Company’s total leverage ratio in the event that such total leverage ratio is less than 2.5 to 1.0.

On August 11, 2021, we amended the Restated Credit Agreement to provide customary provisions for the replacement of LIBOR with an alternative benchmark rate if it is publicly announced that the administrator of LIBOR has ceased or will cease to provide LIBOR, or if it is publicly announced by the applicable regulatory supervisor that LIBOR is no longer representative.

LIBOR has ceased or will cease to provide LIBOR, or if it is publicly announced by the applicable regulatory supervisor that LIBOR is no longer representative.

The Restated Credit Agreement requires the Company to pay a fee on the total commitments, calculated on the basis of the actual daily amount of the commitments (regardless of usage) times a percentage per annum ranging from 0.075% to 0.25% (depending on the Company’s senior unsecured long-term debt rating or under circumstances as set forth in the Restated Credit Agreement, the Company’s total leverage ratio in the event that such total leverage ratio is less than 2.5 to 1.0).

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The Restated Credit Agreement includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Company under the Restated Credit Agreement to be immediately due and payable.

At June 30, 2022, the Company maintained a total leverage ratio of 2.09x and was in compliance with all financial covenants under the Restated Credit Agreement.

The senior unsecured revolving credit facility was paid down in full during the third quarter of 2020 and remains undrawn as of December 31, 2021 and June 30, 2022.

We expect to draw on the facility for the pending Radisson Hotels Americas transaction.

At September 30, 2022, the Company maintained a total leverage ratio of 2.16x and was in compliance with all financial covenants under the Restated Credit Agreement.

The senior unsecured revolving credit facility was paid down in full during the third quarter of 2020 and remained undrawn as of December 31, 2021.

On August 11, 2022, to fund the Radisson Hotels Americas acquisition, the Company drew $175 million on the Company's existing $600 million unsecured credit facility and funded the remainder with cash on hand.

Debt issuance costs incurred in connection with the Restated Credit Agreement are amortized on a straight-line basis, which is not materially different than the effective interest method, through maturity.

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If the Company redeems the 2019 Senior Notes on or after the 2019 Notes Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.

Additionally, at the option of the holders of the

2019 Senior Notes, the Company may be required to repurchase all or a portion of the 2019 Senior Notes of a holder upon the occurrence of a change of control event at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.

Additionally, at the option of the holders of the 2019 Senior Notes, the Company may be required to repurchase all or a portion of the 2019 Senior Notes of a holder upon the occurrence of a change of control event at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.

Senior Unsecured Notes Due 2022

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In accordance with these agreements, the governmental entities agreed to advance approximately $4.4 million to the Company to offset a portion of the corporate headquarters relocation and tenant improvement costs in consideration of the employment of permanent, full-time employees within the jurisdictions.

At June 30, 2022, the Company had been fully advanced the amounts due pursuant to these agreements.

At September 30, 2022, the Company had been fully advanced the amounts due pursuant to these agreements.

These advances bear interest at a rate of 3% per annum.

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The Company accrues interest on the portion of the advances that it expects to repay.

The Company was in compliance with all applicable current performance conditions as of June 30, 2022.

The Company was in compliance with all applicable current performance conditions as of September 30, 2022.

Acquired Debt and Swap Derivative Asset

On August 11, 2022, in connection with the Radisson Hotels Americas acquisition, the Company also acquired three owned hotel properties, one of which had an encumbered mortgage loan with a mortgage principal in the amount of $53.5 million with

an original maturity date of August 7, 2024.

In addition, the mortgage had an associated interest rate cap agreement (“Interest Swap”) with an effective date of July 30,2021 through August 6, 2024.

On August 12, 2022, at Choice’s election, cash on hand was wired to pay off the outstanding loan principal, outstanding interest, and certain prepayment, exit and related fees in the amount of $56.0 million.

At the same time, several of the loan related escrows were released in the amount of $10.4 million.

On August 16, 2022, the Interest Swap derivative was terminated, which resulted in a payment to Choice in the amount of $1.9 million.

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

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

During the six months ended June 30, 2022, the Company paid $26.5 million in cash dividends.

On February 24, 2022, May 24, 2022, and September 22, 2022, the Company's board of directors declared a cash dividend of $0.2375 per share of common stock.

During the nine months ended September 30, 2022, the Company paid $39.7 million in cash dividends.

We expect that cash dividends will continue to be paid in the future, subject to declaration by our board of directors, future business performance, economic conditions, changes in tax regulations and other matters.

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In May 2021, the Company's board of directors approved resumption of the share repurchase program.

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

Through June 30, 2022, the Company repurchased 51.8 million shares of its common stock (including 33.0 million prior to the two-for-one stock split effected in October 2005) under the program at a total cost of $1.5 billion.

During the nine months ended September 30, 2022, the Company repurchased 2,072,872 shares of its common stock under the share repurchase program at a total cost of $241.2 million.

Through September 30, 2022, the Company repurchased 53.8 million shares of its common stock (including 33.0 million prior to the two-for-one stock split effected in October 2005) under the program at a total cost of $1.7 billion.

Considering the effect of the two-for-one stock split, the Company has repurchased 86.8 million shares at an average price of $19.99 per share.

As of June 30, 2022, the Company had 3.3 million shares remaining under the current share repurchase authorization.

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

On September 14, 2022, the board of directors approved an increase in the number of shares authorized under its share repurchase program by five million shares.

As of September 30, 2022, the Company had 6.3 million shares remaining under the current share repurchase authorization.

During the nine months ended September 30, 2022, the Company redeemed 35,462 shares of common stock at a total cost of $5.3 million from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of PVRSUs and restricted stock grants.

These redemptions were outside the share repurchase program.

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hotel closures or financial difficulties of our franchisees;

operating risks associated

with our international operations, especially in areas currently most affected by COVID-19;

operating risks associated with our international operations, especially in areas currently most affected by COVID-19;

the outcome of litigation;

and our ability to effectively manage our indebtedness and secure our indebtedness.

These and other risk factors are discussed in detail in the Risk Factors section of this quarterly report on Form 10-Q and of the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022.

and our ability to effectively manage our indebtedness and secure our indebtedness, including additional indebtedness incurred as a result of the acquisition of Radisson Hotels Americas.

These and other risk factors are discussed in detail in the Risk Factors section of this Quarterly Report on Form 10-Q of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, filed with the SEC on August 4, 2022, and of the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022.

We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

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 2. Management’s Discussion and Analysis