What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2022-11-09 · 151 added, 305 removed, 494 unchanged (48% of the section changed)

4 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Royalty, licensing and management fees $ 107,492 $ 90,739

Initial franchise fees 7,882 8,402

Procurement services 14,401 13,010 47,887 36,293

Platform and procurement services fees 13,843 11,683

Owned hotels 22,332 12,037

14 unchanged sentences

Interest income ( 1,883 ) ( 1,280 )

Other loss (gain) 2,303 407 9,578 ( 2,906 )

Other (gain) loss ( 1,908 ) 1,716

Equity in net loss (gain) of affiliates 63 ( 244 )

11 unchanged sentences

(IN THOUSANDS)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Net income $ 52,820 $ 67,391

8 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Current assets

39 unchanged sentences

160,000,000 shares authorized;

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

53,773,667 and 55,609,226 shares outstanding at September 30, 2022 and December 31, 2021, respectively

95,065,638 shares issued at March 31, 2023 and December 31, 2022;

51,174,432 and 52,200,903 shares outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in-capital 299,952 298,053

1 unchanged sentence

Treasury stock, at cost;

41,291,971 and 39,456,412 shares at September 30, 2022 and December 31, 2021, respectively

43,891,206 and 42,864,735 shares at March 31, 2023 and December 31, 2022, respectively

( 1,842,913 ) ( 1,694,857 )

7 unchanged sentences

(IN THOUSANDS)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Depreciation and amortization 10,023 6,231

Depreciation and amortization – marketing, reservation, and system 23,237 18,364

Depreciation and amortization – marketing and reservation system 9,276 7,154

Gain on sale and disposal of business and assets, net — ( 29 )

Amortization - franchise agreement acquisition cost 4,637 3,784

Stock compensation and other charges 28,621 24,277

Interest and investment loss (income) 9,135 ( 11,039 )

Non-cash stock compensation and other charges 10,630 7,555

Non-cash interest and investment (income) loss ( 1,442 ) 1,909

Deferred income taxes 7,566 ( 3,119 )

6 unchanged sentences

Investment in intangible assets ( 1,097 ) ( 1,208 )

Asset acquisitions, net of cash paid ( 856 ) —

Proceeds from sale of business and assets — 8,494

Proceeds from termination of intangibles 5,698 —

Business acquisition, net of cash acquired ( 550,431 ) —

Contributions to investments in affiliates ( 3,620 ) ( 268 )

7 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Payments to extinguish acquired debt ( 55,975 ) —

Proceeds from acquired derivative 1,943 —

Net borrowings pursuant to revolving credit facilities 176,000 —

Principal payments on 2012 senior notes ( 216,571 ) —

Debt issuance costs ( 755 ) —

2 unchanged sentences

Proceeds from exercise of stock options 5,504 2,211

Net cash used in financing activities ( 239,493 ) ( 12,115 )

Net cash provided by (used in) financing activities 7,440 ( 25,795 )

Net change in cash and cash equivalents ( 9,990 ) 15,662

9 unchanged sentences

Investment in property, equipment and intangibles acquired in accounts payable and accrued liabilities $ 6,704 $ 4,129

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

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

15 unchanged sentences

262,008 — 6,068 — 3,486 4 9,558

Dividends declared (1)

— — — — — — —

Treasury purchases ( 46,499 ) — — — ( 5,046 ) — ( 5,046 )

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 ($ 0.2375 per share) (1)

1 unchanged sentence

Treasury purchases ( 100,912 ) — — — ( 14,802 ) — ( 14,802 )

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

Net income — — — — — 116,655 116,655

Other comprehensive income (loss) — — — ( 57 ) — — ( 57 )

Share based payment activity (1)

23,757 — 6,757 — 1,045 6 7,808

Dividends declared ($ 0.225 per share) (1)

— — — — — ( 12,517 ) ( 12,517 )

Treasury purchases ( 40,046 ) — — — ( 4,676 ) — ( 4,676 )

Balance as of September 30, 2021 55,630,704 $ 951 $ 253,361 $ ( 4,580 ) $ ( 1,261,926 ) $ 1,224,340 $ 212,146

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

Outstanding Common

13 unchanged sentences

Treasury purchases (2)

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)

( 1,341,520 ) — — — ( 161,553 ) — ( 161,553 )

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

Net income — — — — — 103,080 103,080

Other comprehensive income (loss), net of tax — — — ( 902 ) — — ( 902 )

Share based payment activity (1)

( 1,655 ) — 9,708 — 55 — 9,763

Dividends declared ($ 0.2375 per share) (1)

— — — — — ( 12,767 ) ( 12,767 )

Treasury purchases ( 2,005,000 ) — — — ( 231,388 ) — ( 231,388 )

Balance as of September 30, 2022 53,773,667 $ 951 $ 284,092 $ ( 5,713 ) $ ( 1,507,423 ) $ 1,512,604 $ 284,511

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

In May 2021, the Company resumed the payment of quarterly dividends, subject to future declarations by the Company's board of directors, and declared a quarterly cash dividend of $ 0.225 per share of common stock.

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.

Balance as of March 31, 2023 51,174,432 $ 951 $ 299,952 $ ( 4,817 ) $ ( 1,842,913 ) $ 1,593,835 $ 47,008

(1) During the year ended December 31, 2022, the Company declared cash dividends at a quarterly rate of $ 0.2375 per share of common stock.

In March 2023, the Company's board of directors approved a 21 % increase in the quarterly cash dividend to $ 0.2875 per share, effective with the dividend payable on April 18, 2023 to shareholders of record on April 3, 2023.

This increase will result in a projected 2023 annual dividend rate of $ 1.15 per share, subject to future declarations by the board of directors.

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.

(2) Beginning January 1, 2023, Treasury purchases include excise tax as imposed by the Inflation Reduction Act of 2022.

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

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Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted.

Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021 and notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 24, 2022.

Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2022 and notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 1, 2023.

Interim results are not necessarily indicative of the entire year results.

2 unchanged sentences

and (2) certain trademarks held by Radisson Hospitality Belgium BV/SRL (collectively referred to as "Radisson Hotels Americas").

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 Transaction 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.

It also accelerates our asset-light strategy of growth in higher revenue travel segments and locations.

The Company has determined it is the accounting acquirer of Radisson Hotels Americas and has accounted for the Transaction as a business combination using the acquisition method of accounting.

Accordingly, assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date.

Other revenues and expenses from franchised and managed properties

In conjunction with the third quarter acquisition of Radisson Hotels Americas, Inc., which resulted in the Company acquiring certain management contracts, the Company has revised its historical presentation of marketing, reservation and system fees and expenses to include fees and expenses related to the acquired management contracts.

The presentation of Other revenues from franchised and managed properties represents amounts contractually reimbursable by, or amounts billed and collected in advance from, owners of franchised and managed properties, relating to certain costs and expenses paid by us in support of the operations of these properties.

Indirect and direct reimbursements are as follows:

• Direct reimbursements include payroll and related costs and certain other operating costs of the managed and franchised properties' operations, which are contractually reimbursed to us by the property owners as expenses are incurred.

Revenue is recognized based on the amount of expenses incurred by Choice, which are presented as other expenses from managed and franchised properties in our consolidated statements of operations, that are then reimbursed to us by the property owner typically on a monthly basis, which results in no net effect on operating income or net income.

• Indirect reimbursements include marketing, reservation, system and other expenses associated with our brand programs and shared services, which are paid from royalties and program fees collected by Choice from the managed and franchised properties.

Indirect reimbursements are typically billed and collected monthly, based on the underlying hotel's sales or usage (such as gross room revenue or number of reservations processed), and revenue is generally recognized as services are provided.

The expenses incurred by Choice to operate the marketing and brand programs

and shared services are recognized as incurred and presented as Other expenses from managed and franchised properties in our consolidated statements of income and are expected to equal the revenues earned from indirect reimbursements over time.

Royalty, licensing and management fees

In conjunction with the Transaction, the Company has revised its historical presentation of Royalty fees to Royalty, licensing and management fees to reflect current and future period activity, which includes revenue associated with the acquired management contracts.

Initial franchise fees

The Company has revised its historical presentation of Initial franchise and relicensing fees to Initial franchise fees.

The Company determined it is the accounting acquirer of Radisson Hotels Americas and accounted for the Transaction as a business combination using the acquisition method of accounting.

Accordingly, assets acquired and liabilities assumed were recorded at their fair values as of the August 11, 2022 acquisition date, with the exception of certain asset and liabilities which were accounted for in accordance with provisions of ASU 2021-08, Business Combinations (Topic 805):

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

Refer to Note 14.

Accordingly, our consolidated statements of income include Radisson Hotels Americas' results of operations in the three months ended March 31, 2023, but exclude Radisson Hotels Americas' results of operations in the three months ended March 31, 2022, as this period was prior to the acquisition date of the Transaction.

Summary of Significant Accounting Policies

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 Revenue from Contracts with Customers (Topic 606) , as if the acquirer had originated the contracts at the date of the business combination.

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

There was no retrospective impact to our consolidated financial statement as a result of the adoption.

ASU 2021-08 was applied in the accounting for the acquisition of Radisson Hotels Americas, and accordingly, the Company determined that the carrying value of the contract assets and contract liabilities of Radisson Hotels Americas reflects fair value (see Note 15).

Recently Issued Accounting Standards

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses ("ASU 2022-02").

1 unchanged sentence

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.

The Company is currently assessing the potential impact that ASU 2022-02 will have on the consolidated financial statements and disclosures.

The Company adopted ASU 2022-02 on a prospective basis effective January 1, 2023, and concluded there is no impact to the consolidated financial statements or disclosures for the first quarter of 2023.

Contract Liabilities

2 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 September 30, 2022 are as follows:

Significant changes in the contract liabilities balances during the period December 31, 2022 to March 31, 2023 are as follows:

(in thousands)

Balance as of December 31, 2022 $ 209,359

Assumption of contract liabilities from Radisson Hotels Americas acquisition 30,031

Increases to the contract liability balance due to cash received 24,053

Revenue recognized in the period ( 27,549 )

Balance as of September 30, 2022 $ 203,339

Balance as of March 31, 2023 $ 205,863

Remaining Performance Obligations

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 203.3 million as of September 30, 2022.

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 205.9 million as of March 31, 2023.

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

September 30, 2022 September 30, 2021

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

Royalty, licensing and management fees $ 143,987 $ 33 $ 144,020 $ 127,317 $ — $ 127,317

Initial franchise fees 7,011 — 7,011 6,149 — 6,149

Procurement services 13,628 773 14,401 12,285 725 13,010

Owned hotels 14,854 5,115 19,969 9,614 1,652 11,266

Other 31,432 — 31,432 8,645 — 8,645

Other revenues from franchised and managed properties 178,349 19,061 197,410 145,216 11,655 156,871

Total Topic 606 revenues $ 389,261 $ 24,982 414,243 $ 309,226 $ 14,032 323,258

Non-Topic 606 revenues 23 111

Total revenues $ 414,266 $ 323,369

Nine Months Ended Nine Months Ended

September 30, 2022 September 30, 2021

March 31, 2023 March 31, 2022

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

1 unchanged sentence

Initial franchise fees 7,882 — 7,882 8,402 — 8,402

Procurement services 45,503 2,384 47,887 34,526 1,767 36,293

Platform and procurement services fees 13,239 604 13,843 11,131 552 11,683

Owned hotels 16,893 5,440 22,333 10,040 1,997 12,037

1 unchanged sentence

Other revenues from franchised and managed properties 155,438 15,178 170,616 112,259 14,378 126,637

Total Topic 606 revenues $ 953,125 $ 86,612 1,039,737 $ 740,683 $ 43,645 784,328

Non-Topic 606 revenues 230 332

Total revenues $ 311,571 $ 21,222 $ 332,793 $ 240,800 $ 16,927 $ 257,727

Other revenues from franchised and managed properties and Royalty, licensing and management fees 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.

Other revenues include contract termination fees of $ 22.6 million related to the termination of 110 WoodSpring units.

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

As presented in Note 11, the Corporate & Other segment revenue amounts represent $ 29.7 million and $ 13.5 million for the three months ended September 30, 2022 and 2021, respectively, and $ 63.4 million and $ 30.5 million for the nine months ended September 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, licensing and management fees and Other revenues from franchised and managed properties are presented net of intersegment revenues of $ 1.6 million and $ 0.9 million for the three months ended September 30, 2022 and 2021, respectively, and $ 3.7 million and $ 1.9 million for the nine months ended September 30, 2022 and 2021, respectively.

Owned hotels point in time revenues represent goods and services purchased independently of the hotel stay, such as food and beverage, incidentals, and parking fees.

The remaining 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 revenue amounts represent $ 26.1 million and $ 14.3 million for the three months ended March 31, 2023 and 2022, and are included in the Over time column of Other revenue and the Owned hotels revenue row.

The remaining revenues relate to the Hotel Franchising & Management reportable segment.

Royalty, licensing and management fees and Other revenues from franchised and managed properties are presented net of intersegment revenues of $ 2.3 million and $ 0.9 million for the three months ended March 31, 2023 and 2022, 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) September 30, 2022 December 31, 2021

(in thousands) March 31, 2023 December 31, 2022

Senior $ 98,339 $ 95,466

13 unchanged sentences

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

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

(in thousands) March 31, 2023 December 31, 2022

Beginning balance $ 10,172 $ 16,779

2 unchanged sentences

Ending balance $ 10,358 $ 10,172

As of September 30, 2022 and December 31, 2021, one 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.

As of both March 31, 2023 and December 31, 2022, one loan with a senior tranche met the definition of collateral-dependent and is collateralized by membership interests in the borrowing entities and the associated land parcel.

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

2 unchanged sentences

Based on these analyses, the fair value of collateral secures substantially all of the carrying value of each loan.

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

The write-offs for the year ended September 30, 2022 and December 31, 2021 are primarily 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, as well as one loan that was settled under negotiated terms.

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

Allowances for credit losses attributable to collateral-dependent loans are $ 0.9 million as of both March 31, 2023 and December 31, 2022, respectively.

As of December 31, 2022, two loans had revised provisions as a result of loan repayments being made timely and a favorable reassessment of the underlying collateral's performance.

The write-offs for the year ended December 31, 2022 are primarily associated with a loan previously classified as collateral-dependent that was settled in exchange for an operating hotel on April 14, 2022, as well as a loan that was settled under negotiated terms and therefore written off.

The Company considers loans past due and in default when payments are not made when due in accordance with then current loan provisions or terms extended to borrowers, including loans with concessions or interest deferral.

2 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 $ 18.2 million and $ 44.1 million at September 30, 2022 and December 31, 2021, respectively.

The Company has identified loans totaling approximately $ 4.8 million and $ 7.5 million as of September 30, 2022 and December 31, 2021, respectively, with stated interest rates that are less than market rate, representing a total unamortized discount of $ 0.1 million and $ 0.3 million as of September 30, 2022 and December 31, 2021, respectively.

The amortized cost basis of notes receivable on non-accrual status was $ 18.4 million and $ 18.7 million at March 31, 2023 and December 31, 2022, respectively.

The Company has identified loans totaling approximately $ 4.8 million as of both March 31, 2023 and December 31, 2022, respectively, with stated interest rates that are less than market rate, representing a total unamortized discount of $ 0.1 million as of both March 31, 2023 and December 31, 2022, 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 September 30, 2022

As of March 31, 2023

Senior $ — $ 12,897 $ 15,200 $ 28,097 $ 70,242 $ 98,339

7 unchanged sentences

$ 20 $ 15,240 $ 2,249 $ 17,508 $ 100,707 $ 118,215

The Company evaluated its off-balance-sheet credit exposure for loan commitments and determined the likelihood of having to perform is remote as of September 30, 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 March 31, 2023.

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 $ 102.3 million and $ 120.2 million as of September 30, 2022 and December 31, 2021, respectively.

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 105.3 million and $ 103.2 million as of March 31, 2023 and December 31, 2022, respectively.

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

These loans have stated fixed and/or variable interest amounts.

Accounts Receivable

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

During the nine months ended September 30, 2022, the Company recorded reversals of provisions for credit losses on accounts receivable of $ 0.4 million in SG&A expenses and provisions of $ 0.5 million in marketing and reservation system expenses.

During the nine months ended September 30, 2021, the Company recorded reversal of provisions for credit losses on accounts receivable of $ 2.2 million in SG&A expenses and provisions of $ 4.2 million in marketing and reservation system expenses.

During the nine months ended September 30, 2022 and 2021, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $ 12.9 million and $ 5.5 million, respectively.

The Company assumed $ 33.0 million of trade accounts receivable as a result of the Radisson acquisition.

During the three months ended March 31, 2023, the Company recorded provisions for credit losses on accounts receivable of $ 1.8 million in selling, general and administrative ("SG&A") expenses and $ 2.1 million in marketing and reservation system expenses.

During the three months ended March 31, 2022, the Company recorded reversal 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, 2023 and 2022, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $ 2.8 million and $ 0.3 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 $ 24.4 million and $ 25.2 million on the consolidated balance sheets at September 30, 2022 and December 31, 2021, respectively.

The Company has investments in affiliates that represent VIEs totaling $ 26.1 million and $ 24.5 million on the consolidated balance sheets at March 31, 2023 and December 31, 2022, 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 September 30, 2022 and 2021, the Company recognized losses (gains) totaling $ 1.1 million and $( 2.5 ) million, respectively, from these investments that represent VIEs.

For the nine months ended September 30, 2022 and 2021, the Company recognized losses totaling $ 2.7 million and $ 3.0 million, respectively, from these investments that represent VIEs.

For the three months ended March 31, 2023 and 2022, the Company recognized losses totaling $ 1.4 million and $ 0.8 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, nor did we sell an ownership in a joint venture during the nine months ended September 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.

The Company assessed the estimated fair value of the investment from comparable market transactions of the investment, which was a key judgment in the fair value determination.

This nonrecurring fair value measurement was classified as level three of the fair value measurement hierarchy, as the Company utilized unobservable inputs which are significant to the overall fair value.

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.

The other-than-temporary impairment is classified as equity in net loss (gain) 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.

During the third quarter of 2021, a joint venture for which the Company maintains an ownership interest sold its underlying assets.

The Company received a distribution and recognized a gain of $ 4.3 million, which is recorded in equity in net loss (gain) of affiliates.

The Company recognized no impairment charges related to equity method investments during the three months ended March 31, 2023 and 2022.

Debt consists of the following:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(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 $ 5.1 million and $ 5.5 million at September 30, 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 $ 4.8 million and $ 4.9 million at March 31, 2023 and December 31, 2022, respectively

$ 445,232 $ 445,080

$ 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 $ 4.3 million and $ 4.8 million at September 30, 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 $ 4.0 million and $ 4.2 million at March 31, 2023 and December 31, 2022, respectively

395,989 395,838

$ 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 (1)

$ 600 million senior unsecured revolving credit facility with an effective interest rate of 3.89 % less deferred issuance costs of $ 1.9 million and $ 2.3 million at September 30, 2022 and December 31, 2021, respectively

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

Total debt (2)

$ 850 million senior unsecured revolving credit facility with an effective interest rate of 5.87 % less deferred issuance costs of $ 2.4 million and $ 1.8 million at March 31, 2023 and December 31, 2022, respectively (1)

533,593 358,189

Less current portion (1)

Economic development loans with an effective interest rate of 3.00 % at March 31, 2023 and December 31, 2022, respectively

$ 1,379,230 $ 1,203,523

Less current portion

Long-term debt $ 1,374,814 $ 1,200,547

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

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

(2) As part of the Transaction, we assumed debt that was subsequently paid off.

For additional details refer to Note 15.

(1) On February 14, 2023, the Company entered into a Third Amendment to the Amended and Restated Senior Unsecured Credit Agreement (the "Amendment").

The Amendment provides, among other things, for (i) an increase in the aggregate amount of commitments under the Company's existing $ 600 million unsecured credit facility (the "Revolver") by $ 250 million (the “Increased Commitments”) to an aggregate amount of $ 850 million and (ii) the replacement of the interest reference rate for U.S.

dollar-denominated borrowings under the Revolver from LIBOR to an adjusted Secured Overnight Financing Rate.

The pricing and other terms applicable to the Increased Commitments are the same as those applicable to the existing revolving loan commitments that were in effect prior to the Amendment.

Except as amended by the Amendment, the remaining terms of the unsecured credit facility remain in full force and effect.

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 nine months ended September 30, 2022 and 2021 are as follows:

The changes in accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2023 and 2022 are as follows:

(in thousands)

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Other comprehensive income (loss) before reclassification 394

Net current period other comprehensive income (loss) ( 1,139 )

Balance as of September 30, 2022 $ ( 5,713 )

Balance as of March 31, 2023 $ ( 4,817 )

(in thousands)

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Other comprehensive income (loss) before reclassification ( 134 )

Net current period other comprehensive income (loss) 66

Balance as of September 30, 2021 $ ( 4,580 )

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

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

The other comprehensive income (loss) before reclassification for both the three months ended March 31, 2023 and 2022 relate to foreign currency items, and there were no amounts reclassified from accumulated other comprehensive loss during either period.

Fair Value Measurements

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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 nine months ended September 30, 2022.

As of September 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:

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, 2023 and year ended December 31, 2022.

As of March 31, 2023 and December 31, 2022, 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 September 30, 2022

As of March 31, 2023

Mutual funds (1)

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The Company believes that the fair values of its current assets and current liabilities approximate their reported carrying amounts due to the short-term nature of these items.

In addition, the interest rates of the Company's senior unsecured revolving credit facility adjust frequently based on current market rates;

accordingly, we believe its carrying amount, when amounts are drawn, approximates fair value.

In addition, the interest rates of the senior unsecured revolving credit facility adjust frequently based on current market rates;

accordingly, we believe its carrying amount approximates fair value.

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, including the maturity of the 2012 Senior Notes.

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

September 30, 2022 December 31, 2021

Refer to Note 5 for further information on debt.

At March 31, 2023 and December 31, 2022, the carrying amounts and fair values are as follows:

March 31, 2023 December 31, 2022

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

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2019 Senior Notes 395,989 360,244 395,838 349,368

2012 Senior Notes — — 216,351 221,702

Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment.

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

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 rates were 24.5 % and 23.0 % for the nine 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% 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% primarily due to the impact of state income taxes, partially offset by excess tax benefits from share-based compensation.

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

The effective income tax rates were 21.7 % and 23.2 % for the three months ended March 31, 2023 and 2022, respectively.

The effective income tax rates for the three months ended March 31, 2023 and 2022 were higher than the U.S.

federal income tax rate of 21% primarily due to the impact of state income taxes, 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 are as follows for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Nine Months Ended September 30,

The components of the Company’s pretax share-based compensation activity are as follows for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

(in thousands) 2023 2022

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Total share-based compensation expense $ 9,771 $ 7,449

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

A summary of share-based award activity as of and changes during the three months ended March 31, 2023 are presented below:

Stock Options Restricted Stock Performance Vested

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Performance-Based Leveraging (1)

— — — — 27,775 153.75

Exercised/Vested ( 107,252 ) 52.25 ( 68,432 ) 93.31 ( 120,308 ) 145.41

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Forfeited ( 645 ) 123.71 ( 4,201 ) 106.66 ( 960 ) 139.95

Outstanding at September 30, 2022 1,035,210 $ 94.39 5.7 397,242 $ 128.38 469,813 $ 136.32

Options exercisable at September 30, 2022 546,114 $ 76.29 3.5

(1) PVRSUs outstanding have been increased by 27,775 units in the nine months ended September 30, 2022 due to the Company exceeding the targeted performance conditions contained in PVRSUs.

Stock Options

Outstanding at March 31, 2023 991,483 $ 102.13 6.3 361,827 $ 134.91 420,040 $ 135.78

Options exercisable at March 31, 2023 596,997 $ 90.05 4.8

(1) There has been no change to PVRSUs outstanding in the three months ended March 31, 2023 based on the Company's performance relative to the targeted performance conditions contained in PVRSUs.

The fair value of the restricted stock awards and the PVRSUs with performance conditions granted during the three months ended March 31, 2023 were equal to the market price of the Company’s common stock on date of grant.

The fair value of the PVRSUs with market conditions based on the Company’s total shareholder return relative to a predetermined peer group was estimated using a Monte Carlo simulation method as of the grant date.

The requisite service periods for restricted stock and PVRSUs granted was between 9 months and 48 months.

PVRSU award vesting ranges between 0 % and 230 % of the initial units granted.

The stock options granted by the Company had an exercise price equal to the market price of the Company's common stock on the date of grant.

The fair value of the options granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

The fair value of the options granted during the three months ended March 31, 2023 was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate 4.10 %

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Weighted average fair value of options granted (per option) $ 42.59

Restricted Stock Awards

The Company grants two types of restricted stock awards:

i) shares of restricted stock and ii) restricted stock units ("RSU").

Shares of restricted stock provide the participant a non-forfeitable right to dividends, if declared, and the right to vote as a shareholder while the shares are unvested.

RSUs provide the participant declared dividends that are contingent upon vesting of the award.

Restricted stock awards generally vest ratably over the service period beginning with the first anniversary of the grant date.

The fair value of restricted stock awards is measured by the market price of the Company's common stock on the date of grant.

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

Performance Vested Restricted Stock Units

The Company grants three types of PVRSU awards:

i) PVRSUs with performance conditions based on internal performance conditions, including earnings per share ("EPS") relative to Company established targets, ii) PVRSUs with market conditions based on the Company's total shareholder return ("TSR") relative to a predetermined peer group, and iii) PVRSUs with both performance and market conditions.

The vesting of PVRSU awards is contingent upon the Company achieving internal performance and/ or TSR targets over a specified period and the employees' continued employment for a service period.

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

During the nine months ended September 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.

Compensation expense is recognized ratably over the requisite service period based on the Company's estimate of the achievement of the performance conditions.

Management monitors current results and forecasts of the relevant internal performance and, as necessary, adjusts the performance-based leveraging of unvested PVRSUs.

The fair value of PVRSUs with market conditions is estimated using a Monte Carlo simulation method as of the date of award grant.

Compensation expense is recognized ratably over the requisite service period, regardless of whether the market conditions are achieved and the awards ultimately vest.

The fair value of PVRSUs with both performance and market conditions is estimated using a Monte Carlo simulation method as of the date of award grant.

Compensation expense is recognized ratably over the requisite service period based on the Company's estimate of the achievement of the performance conditions, with subsequent adjustments made for performance-based leveraging of unvested PVRSUs, as necessary.

Share Repurchases and Redemptions

In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, the Company suspended activity under the Company's share repurchase program.

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

On September 14, 2022, the Company’s board of directors approved an increase in the number of the shares authorized under its share repurchase program by five million shares, bringing the total program to approximately 6.7 million shares authorized as of that date.

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 September 30, 2022, 2,004,386 shares of common stock were purchased under the share repurchase program at a total cost of $ 231.3 million.

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

During the three and nine months ended September 30, 2021, there were 34,746 and 36,328 purchases of common stock under the share repurchase program at a total cost of $ 4.0 million and $ 4.2 million, respectively.

During the three months ended September 30, 2022 and 2021, the Company redeemed 614 and 5,300 shares of common stock at a total cost of $ 0.1 million and $ 0.7 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 nine months ended September 30, 2022 and 2021, the Company redeemed 35,462 and 52,955 shares of common stock at a total cost of $ 5.3 million and $ 5.8 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.

Earnings Per Share

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

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

(in thousands, except per share amounts) 2023 2022

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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 Nine Months Ended

September 30, September 30,

Three Months Ended

(in thousands) 2023 2022

Stock options 240 156

PVRSUs 75 155 75 155

Reportable Segment Information

The Hotel Franchising reportable segment includes the Company's hotel franchising operations consisting of its 23 brands and brand extensions.

The 23 brands and brand extensions are aggregated within this segment considering their similar economic characteristics, types of customers, distribution channels and regulatory business environments.

Revenues from the hotel franchising business include royalty fees, initial franchise fees, marketing and reservation system fees, procurement services revenue and other hotel franchising related revenue.

The Company is obligated under its hotel franchise agreements to provide marketing and reservation services appropriate for the operation of its systems.

The revenues received from franchisees that are used to pay for part of the Company's ongoing operations are included in hotel franchising revenues and are offset by the related expenses paid for marketing and reservation system activities to calculate hotel franchising operating income.

Equity in earnings or losses from hotel franchising related investment in affiliates is allocated to the Company's Hotel Franchising segment.

The Company evaluates its Hotel Franchising segment based primarily on the results of the segment without allocating corporate expenses, indirect general and administrative expenses, interest expense, interest income, other gains and losses or income taxes, which are included in the Corporate & Other column.

The Hotel Franchising & Management reportable segment includes the Company's hotel franchising operations consisting of its 22 brands and brand extensions and hotel management operations of 13 Radisson Hotels Americas hotels (inclusive of 3 owned hotels).

The 22 brands and brand extensions and hotel management operations are aggregated within this reportable segment considering their similar economic characteristics, types of customers, distribution channels and regulatory business environments.

Revenues from the hotel franchising and management business include royalty fees, initial franchise fees and relicensing fees, cost reimbursement revenues, procurement services revenue, base and incentive management fees, and other hotel franchising and management related revenue.

The Company provides certain services under its hotel franchise and management agreements which result in direct and indirect reimbursements.

The cost reimbursement revenues received from franchisees are included in hotel franchising and management revenues and are offset by related expenses to calculate hotel franchising operating income.

Equity in earnings or losses from hotel franchising related investment in affiliates is allocated to the Company's Hotel Franchising & Management reportable segment.

The Company evaluates its Hotel Franchising & Management reportable segment based primarily on the results of the segment without allocating corporate expenses, indirect general and administrative expenses, interest expense, interest income, other gains and losses or income taxes, which are included in the Corporate & Other column.

Corporate & Other revenues include owned hotel revenues and revenues related to the Company's SaaS technology solutions division which provide cloud-based property management software to non-franchised hoteliers.

Intersegment revenue adjustment is from the elimination of Hotel Franchising revenue which include royalty fees, marketing and reservation system fees, management fees, payroll costs and other cost reimbursements charged to our owned hotels against hotel operating expenses recognized by our owned hotels in Corporate & Other operating income (loss).

Intersegment revenue adjustment is from the elimination of Hotel Franchising & Management revenue which include royalty fees, management and cost reimbursement fees charged to our owned hotels against franchise and management fee expense recognized by our owned hotels in Corporate & Other operating income (loss).

Our President and Chief Executive Officer, who is our chief operating decision maker, does not use assets by operating segment when assessing performance or making operating segment resource allocations decisions and therefore assets by segment are not disclosed below.

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

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021

(in thousands) Hotel

Franchising Corporate &

Other Intersegment Eliminations Consolidated Hotel

Franchising Corporate &

Other Intersegment Eliminations Consolidated

Revenues $ 386,124 $ 29,692 $ ( 1,550 ) $ 414,266 $ 310,703 $ 13,532 $ ( 866 ) $ 323,369

Operating income (loss) $ 161,084 $ ( 16,066 ) $ — $ 145,018 $ 169,516 $ ( 10,410 ) $ — $ 159,106

Income (loss) before income taxes $ 162,162 $ ( 25,386 ) $ — $ 136,776 $ 172,338 $ ( 20,749 ) $ — $ 151,589

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022

(in thousands) Hotel

Franchising Corporate &

Franchising & Management Corporate &

Other Intersegment Eliminations Consolidated Hotel

Franchising Corporate &

Franchising & Management Corporate &

Other Intersegment Eliminations Consolidated

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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.

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

As of March 31, 2023 and December 31, 2022, 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 September 30, 2022:

The Company has the following commitments outstanding at March 31, 2023:

• 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 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.

At March 31, 2023, the Company had commitments to extend an additional $ 334.6 million for these purposes provided the conditions of the payment are met by its franchisees.

• As part of the acquisition of Radisson Hotels Americas, the Company entered into a long-term management arrangement, with an expiration date of July 31, 2031, to manage eight hotel properties owned by a third-party.

In conjunction with the management arrangement, the Company entered into a guarantee with the third-party to fund any shortfalls in the payment of the third-party owner’s priority stipulated in the management agreement up to a maximum amount of $ 46 million.

On November 1, 2021, an amended and restated management agreement was executed between the Company and the third party.

The maximum guarantee under the agreement is $ 22 million.

There are no potential guaranteed payments until January 2023 and future performance is expected to be sufficient to cover the terms of the

Accordingly, no liability was recorded as of September 30, 2022 in accrued liabilities within the consolidated balance sheets.

The Company believes the future performance is expected to be sufficient on both an annual basis and over the duration of the agreement.

Accordingly, no liability was recorded as of March 31, 2023 in accrued liabilities within the consolidated balance sheets.

• To the extent existing unconsolidated affiliates proceed to the hotel construction phase, the Company is committed to make capital contributions totaling $ 11.6 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 September 30, 2022, the Company has remaining commitments of approximately $ 1.8 million, upon certain conditions being met.

At March 31, 2023, the Company has remaining commitments of approximately $ 0.7 million, upon certain conditions being met.

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

In accordance with terms of our franchise agreements, the Company is obligated to use the marketing and reservation system revenues it collects from the current franchisees comprising its various hotel brands to provide marketing and reservation services appropriate to support the operation of the overall system.

marketing and reservation services appropriate to support the operation of the overall system.

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

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

For the three months ended September 30, 2022 and 2021, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.8 million and $ 0.6 million, respectively.

For the nine months ended September 30, 2022 and 2021, fees earned and payroll costs reimbursed under this arrangement totaled $ 1.7 million and $ 1.1 million, respectively.

For the three months ended March 31, 2023 and 2022, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.7 million and $ 0.4 million, respectively.

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

Pursuant to these franchise agreements, for the three months ended September 30, 2022 and 2021, the Company recorded royalty and marketing reservation system fees of approximately $ 8.9 million and $ 8.0 million, respectively.

For the nine months ended September 30, 2022 and 2021, the Company recorded royalty and marketing reservation system fees of approximately $ 19.5 million and $ 15.0 million, respectively.

The Company recorded $ 4.8 million and $ 2.7 million as a receivable due from these affiliates as of September 30, 2022 and December 31, 2021, respectively.

Pursuant to these franchise agreements, for the three months ended March 31, 2023 and 2022, the Company recorded royalty and marketing reservation system fees of approximately $ 5.8 million and $ 4.2 million, respectively.

The Company recorded $ 4.1 million and $ 3.9 million as a receivable due from these affiliates as of March 31, 2023 and December 31, 2022, respectively.

As part of the acquisition of Radisson Hotels Americas as discussed in Note 14, the Company has a management fee arrangement with an investment in an unconsolidated affiliate accounted for under the cost method.

For the three and nine months ended September 30, 2022, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.6 million.

Assets Held for Sale

Assets held for sale of $ 28.3 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 September 2022.

Based on the fair value of the hotel, less costs to sell, a $ 2.2 million impairment charge was recorded to offset the Gain on sale of business and assets, net line item on the consolidated statement of income during the third quarter of 2022 within the Corporate & Other segment for reflect the reduction in the asset's carrying value.

The building was sold to a third-party franchisee in October 2022, which will result in derecognition from the balance sheet in the fourth quarter of 2022 .

Two separate owned Cambria hotel assets met held for sale classification and had sales consummated to third-party franchisees during the nine months ended September 30, 2022, resulting in derecognition from the balance sheet in the second and third quarters of 2022 and recognition of gains of $ 2.9 million and $ 15.9 million respectively, during the nine months ended September 30, 2022 in the Corporate & Other segment.

April 2022 Asset Acquisition

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 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 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.

For the three months ended March 31, 2023, fees earned and payroll costs reimbursed under this arrangement totaled $ 1.0 million.

August 2022 Radisson Hotels Americas Acquisition

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The accounting purchase price for the Transaction was $ 673.9 million, which includes the base purchase price of $ 675.2 million, adjusted for Disclosed Leakage (as defined in the Share Sale and Purchase Agreement) and certain other prepaid expenses.

To fund the Transaction, Choice drew $ 175.0 million on the Company's existing $ 600.0 million unsecured credit facility (the "Revolver"), and funded the remainder with cash on hand.

Additionally, in connection with the acquisition, we recorded $ 24.9 million and $ 29.0 million of transaction, transition, and severance expense, included within Selling, general and administrative, during the three and nine months ended September 30, 2022, respectively.

To fund the Transaction, Choice drew $ 175.0 million on the Company's existing senior unsecured credit facility, and funded the remainder with cash on hand.

Additionally, in connection with the acquisition, we recorded $ 10.4 million of transaction, transition, and severance expense, included within Selling, general and administrative, during the three months ended March 31, 2023.

Preliminary Fair Values of Assets Acquired and Liabilities Assumed

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These preliminary fair values are based on management’s estimates and assumptions, using the best information available at the time of this filing.

During the fourth quarter of 2022 and first quarter of 2023, the Company recorded net measurement period adjustments that revised goodwill by a $ 9.1 million reduction and $ 1.5 million increase, respectively, as presented in the table below.

The Company made these measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date.

The measurement period adjustments resulted in no impact to our consolidated statements of income.

The final valuation and related allocation of the purchase price will be completed no later than 12 months after the closing date.

The final acquisition accounting adjustments may b e materially different and may include (1) changes in fair value of property and equipment and associated salvage values, (2) changes in allocations to intangible assets, such trade names, acquired franchise and management agreements, above and below market leases, as well as goodwill;

franchise and management agreements, above and below market leases, as well as goodwill;

and (3) other changes to assets and liabilities, such as working capital.

The preliminary allocation of the purchase price, as presented in our Consolidated Balance Sheet:

Assets acquired Amount

The preliminary allocation of the purchase price, including measurement period adjustments, as presented in our consolidated balance sheets:

(in thousands) August 11, 2022 - original Measurement Period Adj - 4th quarter 2022 Measurement Period Adj - 1st quarter 2023 August 11, 2022 - as adjusted

Cash and cash equivalents $ 113,023 $ — $ — $ 113,023

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Accounts receivable 32,972 8,752 ( 1,941 ) 39,783

Notes receivables - current 1,709

Notes receivable - current 1,709 — ( 860 ) 849

Prepaid expenses and other current assets 8,139 — — 8,139

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Total assets acquired $ 786,594 $ 6,436 $ ( 2,801 ) $ 790,229

Liabilities assumed

Accounts payable $ 8,295 $ ( 1,566 ) $ ( 1,941 ) $ 4,788

1 unchanged sentence

Deferred revenue - current (1)

5,745 1,566 — 7,311

Liability for guest loyalty program - current (1)

3,542 3,792 — 7,334

Long-term debt 55,975 — — 55,975

Long-term deferred revenue (1)

26,499 ( 3,915 ) — 22,584

Deferred compensation and retirement plan obligations 9,265 — — 9,265

1 unchanged sentence

Liability for guest loyalty program - noncurrent (1)

10,180 ( 1,443 ) — 8,737

Other liabilities 3,052 543 — 3,595

3 unchanged sentences

Total purchase consideration $ 673,856 $ — $ — $ 673,856

(1) The Deferred revenue (including deferred affiliation fees) and Liability for guest loyalty program balances were assumed at their carrying value at the date of the acquisition pursuant to the application of ASU 2021-08 (see Note 1).

Refer to Note 1.

Property and Equipment

9 unchanged sentences

Total $ 125,441

We provisionally estimated the value of the property and equipment through a combination of income, cost and market approaches, which are primarily based on significant Level 2 and Level 3 assumptions, such as estimates of future income growth, discount rates, capitalization rates and capital expenditure needs of the hotels.

growth, discount rates, capitalization rates and capital expenditure needs of the hotels.

We are continuing to assess the marketplace assumptions and property conditions, which could result in changes to these provisional values.

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These valuation methodologies utilize Level 3 assumptions, and we are continuing to assess the assumptions used in estimating these values as well as the respective useful lives, which could result in changes to these provisional values.

As part of the Transaction, we assumed a mortgage of $ 56.0 million related to an acquired hotel property.

Subsequent to the acquisition closing date, this amount was repaid in full using cash we acquired.

As part of the Transaction, we assumed a mortgage related to an acquired hotel property.

The mortgage had an associated interest rate cap agreement with an effective date of July 30, 2021 through August 6, 2024.

Subsequent to the acquisition closing date, the mortgage, inclusive of the outstanding interest and fees, was repaid in full in the amount of $ 56.0 million using cash we acquired.

Additionally, the interest rate cap agreement was terminated, which resulted in a payment to Choice in the amount of $ 1.9 million.

Related to the mortgage, we acquired $ 10.4 million in restricted cash, for which restrictions were lifted upon repayment.

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The unaudited pro forma information reflects adjustments relating to (i) the allocation of purchase price and related adjustments, including incremental depreciation and amortization expense based on the preliminary fair values of the property and equipment assets and intangible assets acquired;

(ii) the incremental impact of the Revolver draw on interest expense and amortization of financing costs;

(ii) the incremental impact of the

Revolver draw on interest expense and amortization of financing costs;

(iii) nonrecurring transaction costs;

2 unchanged sentences

Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the transaction had occurred at the beginning of the period presented, nor are they indicative of future results of operations.

Nine Months Ended

September 30,

(in thousands) 2022 2021

Three Months Ended

(in thousands) March 31, 2022

Revenues $ 311,469

1 unchanged sentence

Radisson Hotels Americas Results of Operations

The results of Radisson Hotels Americas have been consolidated with the Company since August 11, 2022 and are included in the Company’s Consolidated Statement of Income for the nine months ended September 30, 2022.

The following table presents these results of the 51 days from the closing date through September 30, 2022.

(in thousands) August 11, 2022 - September 30, 2022

The results of Radisson Hotels Americas have been consolidated with the Company since August 11, 2022 and are included in the Company’s Consolidated Statement of Income for the three months ended March 31, 2023.

The following table presents these results.

Three Months Ended

(in thousands) March 31, 2023

Revenues $ 62,383

Net income (loss) ( 1,380 )

The excess value recorded in goodwill is primarily attributable to value we expect to realize from the existing customer base, improvements in RevPAR, cost synergies and new agreements signed with new franchisees and developers.

Goodwill for the Transaction is fully attributable to the Hotel Franchising reportable segment and is fully deductible for tax purposes.

The following table details the carrying amount of the Company's goodwill, including goodwill arising from the acquisition of Radisson Hotels Americas, as of September 30, 2022.

(in thousands) September 30, 2022

Net income 3,273

The $ 61.0 million excess value recorded in goodwill is primarily attributable to value we expect to realize from the existing customer base, improvements in RevPAR, cost synergies and new agreements signed with new franchisees and developers.

Goodwill for the Transaction is fully attributable to the Hotel Franchising & Management reportable segment and is fully deductible for tax purposes.

The following table details the carrying amount of the Company's goodwill, including goodwill arising from the acquisition of Radisson Hotels Americas, as of March 31, 2023.

(in thousands)

Goodwill, excluding goodwill arising from Radisson Hotels Americas acquisition $ 166,774

3 unchanged sentences

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