What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-04 · 76 added, 205 removed, 244 unchanged (54% of the section changed)

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We are primarily a hotel franchisor operating in 49 states, the District of Columbia, and 46 countries and territories.

As of September 30, 2024, we had 7,515 hotels with 634,952 rooms open and operating, and 970 hotels with 110,380 rooms under construction, awaiting conversion or approved for development, or committed to future franchise development on outstanding master development agreements (collectively, "pipeline") in our global system.

As of March 31, 2025, we had 7,527 hotels with 647,587 rooms open and operating, and 947 hotels with 95,089 rooms under construction, awaiting conversion or approved for development, or committed to future franchise development on outstanding master development agreements (collectively, "pipeline") in our global system.

Our brand names include Radisson Blu®, Park Plaza®, Cambria® Hotels, Ascend Hotel Collection®, Radisson RED®, Radisson Individuals®, Radisson®, Radisson Collection®, Clarion®, Clarion Pointe™, Comfort Inn®, Comfort Suites®, Country Inn & Suites® by Radisson, Radisson Inn & Suites SM , Sleep Inn®, Quality®, Park Inn by Radisson®, Everhome Suites®, WoodSpring Suites®, MainStay Suites®, Suburban Studios™, Econo Lodge®, and Rodeway Inn®.

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For most hotels, demand is typically lower in November through February than during the remainder of the year.

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

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

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 of the year.

Because our primary focus is 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 our operating results by increasing the number of franchised hotel rooms and the effective royalty rates in our franchise contracts resulting in increased initial franchise fees, ongoing royalty and licensing fees, and platform and procurement services fees.

The fee and cost structure of our franchising business provides opportunities to improve our operating results by increasing the number of franchised hotel rooms and the effective royalty rates in our franchise contracts resulting in increased royalty, licensing and other franchise related fees.

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 and other companies with products and services that appeal to our guests.

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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 primarily focus on the Cambria Hotels and Everhome Suites 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 the growth of these brands.

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The ultimate measure of our success will be reflected in the items below.

Results of Operations - Royalty, licensing and management fees, operating income, net income, and diluted earnings per share represent the key measures of our financial performance.

Results of Operations - Franchise and management fees, operating income, net income, and diluted earnings per share represent the key measures of our financial performance.

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

Our discussion of our results of operations excludes reimbursable franchise marketing and reservation system revenues and expenses and the management agreement cost reimbursements and expenses included in the Company's other revenues from franchised and managed properties and other expenses from franchised and managed properties .

Our discussion of our results of operations excludes reimbursable franchise marketing and reservation system revenues and expenses and the management agreement cost reimbursements and expenses included in the Company's revenue for reimbursable costs from franchised and managed properties and reimbursable expenses from franchised and managed properties .

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

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Additionally, the Company's management agreements include cost reimbursements, which is primarily related to payroll costs at the managed hotels where the Company is the employer.

As a result, the Company generally excludes the other revenues and other 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 the franchise operations, quarterly and/or annual deficits may be generated.

During the three months ended September 30, 2024 and 2023, other revenues from franchised and managed properties exceeded other expenses from franchised and managed properties by $20.1 million and $10.3 million, respectively.

During the nine months ended September 30, 2024 and 2023, other revenues from franchised and managed properties exceeded other expenses from franchised and managed properties by $17.7 million and $19.5 million, respectively.

As a result, the Company generally excludes the revenue for reimbursable costs from franchised and managed properties and reimbursable expenses from franchised and managed properties from the analysis of our results of operations.

During the three months ended March 31, 2025 and 2024, reimbursable expenses from franchised and managed properties exceeded revenue for reimbursable costs from franchised and managed properties by $20.4 million and $22.6 million, respectively.

Refer to the Operations Review section in MD&A for additional analysis of our results of operations.

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Operations Review

Comparison of the Operating Results for the Three Months Ended September 30, 2024 and 2023

Comparison of the Operating Results for the Three Months Ended March 31, 2025 and 2024

Three Months Ended

September 30,

(in thousands) 2025 2024

Royalty, licensing and management fees $ 147,151 $ 148,512

Initial franchise fees 5,866 6,194

Platform and procurement services fees 16,178 15,542

Franchise and management fees $ 145,068 $ 143,410

Partnership services and fees 25,381 19,844

Owned hotels 27,860 24,991

Other 11,127 14,717

Other revenues from franchised and managed properties 212,976 217,634

Revenue for reimbursable costs from franchised and managed properties 123,424 128,987

Total revenues 332,860 331,949

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Owned hotels 21,060 19,323

Other expenses from franchised and managed properties 192,916 207,341

Reimbursable expenses from franchised and managed properties 143,811 151,549

Total operating expenses 252,928 271,800

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Interest income (1,559) (1,731)

Loss on extinguishment of debt 331 —

Other (gain) loss (4,013) 1,343

Equity in net gain of affiliates (1,310) (1,801)

Other loss 436 1,336

Equity in net loss of affiliates 51 155

Total other expenses and income, net 20,170 19,941

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Results of Operations

For the three months ended September 30, 2024, the Company recognized income before income taxes of $137.1 million, which is a $15.9 million increase from the same period in the prior year.

The increase in income before income taxes was primarily due to a $16.7 million increase in operating income and a $5.3 million increase in other gains, all of which were partially offset by a $5.8 million increase in interest expense.

Operating income increased $16.7 million primarily due to a $9.8 million increase in the net activity generated from other revenues from franchised and managed properties and other expenses from franchised and managed properties, a $2.5 million increase in other revenues, and a $9.9 million decrease in business combination, diligence and transition costs, all of which were partially offset by a $5.1 million increase in selling, general and administrative expenses.

For the three months ended March 31, 2025, the Company recognized income before income taxes of $59.8 million, which is a $19.6 million increase from the same period in the prior year.

The increase in income before income taxes was primarily due to a $19.8 million increase in operating income.

Operating income increased $19.8 million primarily due to a $5.5 million increase in partnership services and fees, a $15.7 million decrease in business combination, diligence and transition costs, and a $1.7 million increase in franchise and management fees, all of which were partially offset by a $3.6 million decrease in other revenues.

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

Royalty, Licensing and Management Fees

Domestic royalty fees decreased $1.9 million to $131.6 million for the three months ended September 30, 2024 from $133.5 million for the three months ended September 30, 2023.

The decrease in domestic royalty fees is primarily due to a 2.5% domestic system-wide RevPAR decrease as a result of a 1.2% decrease in average daily rates and an 80 basis points decrease in occupancy during the current period, which was partially offset by a system-wide 6 basis points increase in the effective royalty rate from 4.99% for the three months ended September 30, 2023 to 5.05% for the three months ended September 30, 2024.

Franchise and Management Fees

Domestic royalty fees increased $1.7 million to $94.6 million for the three months ended March 31, 2025 from $92.9 million for the three months ended March 31, 2024.

The increase in domestic royalty fees was primarily due to a 2.3% domestic system-wide RevPAR increase as a result of a 1.7% increase in average daily rates and a 30 basis points increase in occupancy during the current period, and a system-wide 8 basis points increase in the effective royalty rate from 5.03% for the three months ended March 31, 2024 to 5.11% for the three months ended March 31, 2025.

A summary of the operating performance for the Company's domestic franchised hotels, organized by chain scale, was as follows:

Three Months Ended Three Months Ended Change

September 30, 2024 September 30, 2023

March 31, 2025 March 31, 2024

Rate Occupancy RevPAR Average

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Total $ 90.78 51.0 % $ 46.28 $ 89.29 50.7 % $ 45.25 1.7 % 30 bps 2.3 %

(1) Includes Ascend Hotel Collection, Cambria, Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.

(2) Includes Clarion, Comfort Inn, Country Inn & Suites, Park Inn, Park Plaza, Quality, and Sleep Inn brands.

(1) Includes Ascend Hotel Collection, Cambria, Park Plaza, Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.

(2) Includes Clarion, Comfort Inn, Comfort Suites, Country Inn & Suites, Park Inn, Quality Inn, and Sleep Inn brands.

(3) Includes Everhome Suites, Mainstay Suites, Suburban Studios, and WoodSpring Suites brands.

(4) Includes Econo Lodge and Rodeway brands.

A summary of the domestic hotels and rooms by brand in our franchise system as of September 30, 2024 and 2023 was as follows:

September 30, 2024 September 30, 2023 Variance

A summary of the domestic hotels and rooms by brand in our franchise system as of March 31, 2025 and 2024 was as follows:

March 31, 2025 March 31, 2024 Variance

Hotels Rooms Hotels Rooms Hotels % Rooms %

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(3) Includes the Clarion family of brand extensions, including Clarion and Clarion Pointe.

International royalty fees increased $0.5 million to $8.4 million for the three months ended September 30, 2024 from $7.9 million for the three months ended September 30, 2023.

The increase in international royalty fees is primarily due to an increase in the international franchise system size by 30 hotels (from 1,207 hotels as of September 30, 2023 to 1,237 hotels as of September 30, 2024) and 5,098 rooms (from 134,660 rooms as of September 30, 2023 to 139,758 rooms as of September 30, 2024), which was partially offset by a decrease in international RevPAR.

Initial Franchise Fees

Initial franchise fees are generally paid to the Company when a franchisee executes a franchise agreement for a new property entering the franchise system, or an existing franchised property at the time of an ownership change (referred to as a relicensing), or a franchise agreement renewal;

however, the recognition of revenue is deferred until the hotel associated with the franchise agreement is open or the franchise agreement is terminated.

Once the hotel opens, revenue is recognized ratably as the services are provided over the enforceable period of the franchise agreement.

If a franchise agreement is terminated, then the previously deferred initial franchise fees are recognized as revenue immediately in the period the franchise agreement is terminated.

Initial franchise fees revenue decreased $0.3 million to $5.9 million for the three months ended September 30, 2024 from $6.2 million for the three months ended September 30, 2023.

The decrease is primarily due to a lower number of domestic franchise agreement terminations as compared to the prior year.

As of September 30, 2024, the Company had 970 hotels with 110,380 rooms in its pipeline.

Approximately 86% of our pipeline is located in the United States and approximately 71% of the domestic portion of the pipeline is new construction.

After the execution of a franchise agreement, new construction hotels typically average 18 to 36 months to open, while conversion hotels typically average three to six months to open.

Fluctuations in its pipeline are primarily due to the timing of hotel openings and the timing of awarding new franchise agreements.

While the 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, including access to liquidity, availability of construction labor and materials, and local governmental approvals and entitlements.

Selling, General and Administrative

Selling, general and administrative expenses, which includes the costs to operate the business, increased $5.1 million to $49.1 million for the three months ended September 30, 2024 from $44.0 million for the three months ended September 30, 2023.

The increase in selling, general and administrative expenses was primarily due to a $3.4 million increase in the Company's deferred compensation liabilities based on increases in the fair value of the underlying investments and a $1.0 million increase in the provisions for credit losses related to the issuance of new notes receivable.

Business Combination, Diligence and Transition Costs

Business combination, diligence and transition costs decreased $9.9 million to $1.0 million for the three months ended September 30, 2024 from $10.9 million for the three months ended September 30, 2023.

The decrease was primarily due to the termination of the Wyndham acquisition pursuit on March 8, 2024.

Interest Expense

Interest expense increased $5.8 million to $22.0 million for the three months ended September 30, 2024 from $16.2 million for the three months ended September 30, 2023.

The increase in interest expense was due to increased borrowings and higher interest rates on the Company's senior unsecured revolving credit facility.

Refer to the discussion in the Liquidity and Capital Resources section in MD&A for more information.

Other (Gain) Loss

Other (gain) loss increased $5.3 million to other gains of $4.0 million for the three months ended September 30, 2024 from other losses of $1.3 million for the three months ended September 30, 2023.

The increase in other gains was primarily due to a $3.5 million increase in the Company's deferred compensation assets based on increases in the fair value of the underlying investments and a net gain of $0.9 million on the sales of equity securities.

Income Tax Expense

The Company's effective income tax rates were 22.9% and 24.1% for the three months ended September 30, 2024 and 2023, respectively.

The effective income tax rates were higher than the U.S.

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

Comparison of the Operating Results for the Nine Months Ended September 30, 2024 and 2023

Nine Months Ended

September 30,

(in thousands) 2024 2023

Royalty, licensing and management fees $ 394,431 $ 396,503

Initial franchise fees 19,133 21,240

Platform and procurement services fees 58,060 58,186

Owned hotels 85,345 74,075

Other 45,251 33,211

Other revenues from franchised and managed properties 592,849 602,554

Total revenues 1,195,069 1,185,769

OPERATING EXPENSES

Selling, general and administrative 162,697 151,387

Business combination, diligence and transition costs 17,723 30,613

Depreciation and amortization 32,623 29,468

Owned hotels 62,370 53,924

Other expenses from franchised and managed properties 575,102 583,095

Total operating expenses 850,515 848,487

Operating income 344,554 337,282

OTHER EXPENSES AND INCOME, NET

Interest expense 66,064 46,522

Interest income (6,557) (5,836)

Loss on extinguishment of debt 331 —

Other (gain) loss (133) (2,752)

Equity in net gain of affiliates (9,088) (1,923)

Total other expenses and income, net 50,617 36,011

Income before income taxes 293,937 301,271

Income tax expense 70,076 71,717

Net income $ 223,861 $ 229,554

Results of Operations

For the nine months ended September 30, 2024, the Company recognized income before income taxes of $293.9 million, which is a $7.4 million decrease from the same period in the prior year.

The decrease in income before income taxes is primarily due to a $2.7 million decrease in other (gain) loss and an increase of $19.6 million in interest expense, all of which were partially offset by a $7.3 million increase in operating income and a $7.2 million increase in equity in net gain of affiliates.

Operating income increased $7.3 million primarily due to a $12.1 million increase in other revenues and a $12.9 million decrease in business combination, diligence and transition costs, all of which were partially offset by a $2.1 million decrease in royalty, licensing and management fees revenue, a $2.1 million decrease in initial franchise fees revenue, a $1.8 million decrease in the net activity generated from other revenues from franchised and managed properties and other expenses from franchised and managed properties, and an $11.3 million increase in selling, general and administrative expenses.

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

Royalty, Licensing and Management Fees

Domestic royalty fees decreased $7.3 million to $349.4 million for the nine months ended September 30, 2024 from $356.7 million for the nine months ended September 30, 2023.

The decrease in domestic royalty fees was primarily due to a 2.7% domestic system-wide RevPAR decrease as a result of a 1.2% decrease in average daily rates and a 90 basis points decrease in occupancy, all of which were partially offset by a 0.4% increase in open and operating domestic hotel rooms and a system-wide 6 basis points increase in the effective royalty rate from 4.99% for the nine months ended September 30, 2023 to 5.05% for the nine months ended September 30, 2024.

A summary of the operating performance for the Company's domestic franchised hotels, organized by chain scale, was as follows:

Nine Months Ended Nine Months Ended Change

September 30, 2024 September 30, 2023

Rate Occupancy RevPAR Average

Rate Occupancy RevPAR

Upscale & Above (1)

$ 153.87 59.1 % $ 91.01 $ 152.59 58.2 % $ 88.82 0.8 % 90 bps 2.5 %

Midscale & Upper Midscale (2)

101.86 57.0 % 58.04 102.90 58.3 % 60.00 (1.0) % (130) bps (3.3) %

Extended Stay (3)

63.84 72.1 % 46.04 64.28 73.5 % 47.24 (0.7) % (140) bps (2.5) %

71.83 47.6 % 34.20 72.65 49.0 % 35.57 (1.1) % (140) bps (3.8) %

Total $ 97.45 57.4 % $ 55.93 $ 98.59 58.3 % $ 57.50 (1.2) % (90) bps (2.7) %

(1) Includes Ascend Hotel Collection, Cambria, Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.

(2) Includes Clarion, Comfort Inn, Country Inn & Suites, Park Inn, Park Plaza, Quality, and Sleep Inn brands.

(3) Includes Everhome Suites, Mainstay Suites, Suburban Studios, and WoodSpring Suites brands.

(4) Includes Econo Lodge and Rodeway brands.

International royalty fees increased $0.8 million to $22.6 million for the nine months ended September 30, 2024 from $21.8 million for the nine months ended September 30, 2023.

The increase in international royalty fees was primarily due to an increase in the size of the international franchise system, which was partially offset by a decrease in international RevPAR.

Initial Franchise Fees

Initial franchise fees revenue decreased $2.1 million to $19.1 million for the nine months ended September 30, 2024 from $21.2 million for the nine months ended September 30, 2023.

The decrease was primarily due to a lower number of domestic franchise agreement terminations as compared to the prior year.

International royalty fees decreased $0.3 million to $6.6 million for the three months ended March 31, 2025 from $6.9 million for the three months ended March 31, 2024.

The decrease in international royalty fees was primarily due to a decrease in international RevPAR, which was partially offset by an increase in the international franchise system size by 33 hotels (from 1,215 hotels as of March 31, 2024 to 1,248 hotels as of March 31, 2025) and 5,954 rooms (from 136,032 rooms as of March 31, 2024 to 141,986 rooms as of March 31, 2025).

Partnership Services and Fees

Partnership services and fees increased $5.5 million primarily due to an increase in the fees generated from the Company's co-branded credit card agreement and qualified vendors.

Other Revenues

Other revenues increased $12.1 million to $45.3 million for the nine months ended September 30, 2024 from $33.2 million for the nine months ended September 30, 2023.

The increase was primarily due to an increase in liquidated damages that resulted from the early termination of franchise agreements and other franchising revenues.

Selling, General and Administrative

Selling, general and administrative expenses, which includes the costs to operate the business, increased $11.3 million to $162.7 million for the nine months ended September 30, 2024 from $151.4 million for the nine months ended September 30, 2023.

The increase in selling, general and administrative expenses was primarily due to a $2.4 million litigation settlement, an increase in the provisions for credit losses on accounts receivable balances, and a $4.2 million increase in the Company's deferred compensation liabilities based on increases in the fair value of the underlying investments.

Other revenues decreased $3.6 million primarily due to a decrease in liquidated damages resulting from the early termination of franchise agreements.

Business Combination, Diligence and Transition Costs

Business combination, diligence and transition costs decreased $12.9 million to $17.7 million for the nine months ended September 30, 2024 from $30.6 million for the nine months ended September 30, 2023.

The decrease was primarily due to the termination of the Wyndham acquisition pursuit on March 8, 2024 and substantially completing the integration of the Radisson Hotels Americas business in the fourth quarter of 2023.

Interest Expense

Interest expense increased $19.6 million to $66.1 million for the nine months ended September 30, 2024 from $46.5 million for the nine months ended September 30, 2023.

The increase in interest expense was due to increased borrowings and higher interest rates on the Company's outstanding borrowings.

Refer to the discussion in the Liquidity and Capital Resources section in MD&A for more information.

Other (Gain) Loss

Other (gain) loss decreased $2.7 million to other gains of $0.1 million for the nine months ended September 30, 2024 from other gains of $2.8 million for the nine months ended September 30, 2023.

The decrease was primarily due to a net loss of $8.3 million on the sales of equity securities, which was partially offset by dividend income of $1.5 million and a $4.0 million increase in the Company's deferred compensation assets based on increases in the fair value of the underlying investments.

Equity in Net Gain of Affiliates

Equity in net gain of affiliates increased $7.2 million to $9.1 million for the nine months ended September 30, 2024 from $1.9 million for the nine months ended September 30, 2023.

The increase was due to a distribution from an unconsolidated affiliate, which sold its underlying assets, so the Company recognized a gain of $7.2 million.

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

Business combination, diligence and transition costs decreased $15.7 million primarily due to the termination of the Wyndham acquisition pursuit on March 8, 2024.

Income Tax Expense

The Company's effective income tax rates were 23.8% for both of the nine months ended September 30, 2024 and 2023.

The Company's effective income tax rates were 25.5% and 22.9% for the three months ended March 31, 2025 and 2024, respectively.

The effective income tax rates were higher than the U.S.

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The Company's short-term and long-term liquidity requirements primarily arise from working capital needs, debt obligations, income tax payments, dividend payments, share repurchases, capital expenditures, and investments in growth opportunities.

As of September 30, 2024, the Company's primary sources of liquidity consisted of $675.6 million in cash and cash equivalents and available borrowing capacity under the senior unsecured revolving credit facility.

As of September 30, 2024, the Company was in compliance with all of its financial covenants under its credit agreements and the Company expects to remain in such compliance.

As of March 31, 2025, the Company's primary sources of liquidity consisted of $593.8 million in cash and cash equivalents and available borrowing capacity under the senior unsecured revolving credit facility.

As of March 31, 2025, the Company was in compliance with all of its financial covenants under its credit agreements and the Company expects to remain in such compliance.

The Company believes that its cash on hand, available borrowing capacity under the senior unsecured revolving credit facility, cash flows from operations, and access to additional capital in the debt markets will provide sufficient liquidity to meet the expected future operating, investing, and financing needs of the business.

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We primarily engage in these financial support activities to encourage acceleration of the growth of our Cambria Hotels and Everhome Suites brands.

With respect to these activities, the Company had approximately $595.4 million in financial support of the Cambria Hotels and Everhome Suites brands reflected in the consolidated balance sheet as of September 30, 2024.

With respect to these activities, the Company had approximately $636.6 million in financial support of the Cambria Hotels and Everhome Suites brands reflected in the consolidated balance sheet as of March 31, 2025.

The Company is generally targeting to recycle these investments within a five year period, and expects our outstanding investments to not exceed $1.2 billion at any point in time based on the current board of directors' authorization.

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On March 11, 2024, the Company's board of directors approved an increase of 5 million shares in the number of shares authorized to be repurchased under its share repurchase program.

As of September 30, 2024, the Company had 4.0 million shares remaining under the current share repurchase authorization.

As of March 31, 2025, the Company had 3.4 million shares remaining under the current share repurchase authorization.

The projected 2025 annual dividend rate is $1.15 per share or approximately $53.6 million in aggregate dividend payments, which is subject to future declarations by our board of directors.

Cash Flows from Operating Activities

During the nine months ended September 30, 2024 and 2023, the net cash provided by operating activities was $236.5 million and $247.2 million, respectively.

Our operating cash flows decreased $10.7 million primarily due to an increase in the franchise agreement acquisition cost payments, an increase in deferred income taxes, and an increase in borrowing costs, all of which were partially offset by the timing of working capital items and a decrease in business combination, diligence and transition costs associated with the timing of the termination of the Wyndham acquisition pursuit during the first quarter of 2024 and the due diligence and transition costs related to the integration of the Radisson Hotels Americas business in 2023.

In conjunction with brand and development programs, we strategically make certain franchise acquisition cost payments to franchisees as an incentive to enter into new franchise agreements or perform-designated improvements to properties under existing franchise agreements.

During the three months ended March 31, 2025 and 2024, the net cash provided by operating activities was $20.5 million and $1.7 million, respectively.

Our operating cash flows increased $18.8 million primarily due to a decrease in business combination, diligence and transition costs associated with the timing of the termination of the Wyndham acquisition pursuit during the first quarter of 2024 and a decrease in the franchise agreement acquisition cost payments, all of which were partially offset by the timing of working capital items.

In conjunction with brand and development programs, we strategically make certain franchise agreement acquisition cost payments to franchisees as an incentive to enter into new franchise agreements or perform-designated improvements to properties under existing franchise agreements.

If the franchisee remains in the franchise system in good standing over the term specified in the incentive agreement, then the Company forgives the incentive ratably.

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

During the nine months ended September 30, 2024 and 2023, the Company's net franchise agreement acquisition costs were $84.1 million and $72.9 million, respectively.

During the three months ended March 31, 2025 and 2024, the Company's net franchise agreement acquisition costs were $26.3 million and $33.5 million, respectively.

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

Additionally, the Company's management agreements include cost reimbursements, primarily related to the payroll costs at the managed hotels where the Company is the employer.

These activities are reflected in other revenues from franchised and managed properties and other expenses from franchised and managed properties.

During the nine months ended September 30, 2024 and 2023, the activity from other revenues from franchised and managed properties exceeded the activity of other expenses from franchised and managed properties by $17.7 million and $19.5 million, respectively.

These activities are reflected in revenue for reimbursable costs from franchised and managed properties and reimbursable expenses from franchised and managed properties.

Cash Flows from Investing Activities

The net cash used in investing activities was $63.4 million and $103.3 million for the nine months ended September 30, 2024 and 2023, respectively.

The net cash used in investing activities was primarily due to the following:

During the nine months ended September 30, 2024 and 2023, investments in owned hotel properties totaled $81.2 million and $45.5 million, respectively.

These investments related to the continued growth of the Cambria Hotels and Everhome Suites brands and the ongoing hotel development efforts.

During the nine months ended September 30, 2024 and 2023, capital expenditures in other property and equipment totaled $33.6 million and $35.9 million, respectively.

These capital expenditures primarily related to leasehold improvements, office equipment, and capitalized software.

The Company has equity method investments in affiliates related to the Company's program to offer equity support to qualified franchisees in order to develop and operate Cambria Hotels and Everhome Suites branded-hotels in strategic markets.

During the nine months ended September 30, 2024 and 2023, the Company invested $47.7 million and $24.6 million, respectively, to support these efforts.

In addition, during the nine months ended September 30, 2024 and 2023, the Company received distributions from these affiliates totaling $15.9 million and $0.9 million, respectively.

During the nine months ended September 30, 2024, the Company received proceeds of $108.1 million from the sale of equity securities.

There were no purchases of equity securities during the nine months ended September 30, 2024.

The Company did not purchase or sell any equity securities during the nine months ended September 30, 2023.

The net cash used in investing activities was $53.0 million and $42.7 million for the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025 and 2024, investments in owned hotel properties totaled $35.5 million and $25.6 million, respectively.

These investments related to the ongoing hotel development efforts to support the continued growth of the Cambria Hotels and Everhome Suites brands.

During the three months ended March 31, 2025 and 2024, investments in other property and equipment totaled $10.5 million and $7.2 million, respectively.

These investments primarily related to leasehold improvements, office equipment, and capitalized software.

The Company has equity method investments in affiliates related to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels and Everhome Suites branded-hotels in strategic markets.

During the three months ended March 31, 2025 and 2024, the Company invested $5.4 million and $9.3 million, respectively, to support these efforts.

The Company provides financing to franchisees for hotel development efforts and other purposes in the form of notes receivable loans.

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

During the nine months ended September 30, 2024, the Company issued $24.4 million in notes receivable loans and received $2.3 million in notes receivable loan repayments.

During the nine months ended September 30, 2023, the Company issued $4.3 million in notes receivable loans and received $9.9 million in notes receivable loan repayments.

During the three months ended March 31, 2025, the Company issued $2.0 million in notes receivable loans and received $1.5 million in notes receivable loan repayments.

During the three months ended March 31, 2024, the Company issued $1.0 million in notes receivable loans and received $0.9 million in notes receivable loan repayments.

Cash Flows from Financing Activities

Cash flows from financing activities primarily relate to the proceeds or payments on the Company's borrowings, treasury stock repurchases, acquisition of shares in connection with the exercise or vesting of equity awards, the payment of dividends, and the payment of debt issuance costs.

Senior Unsecured Revolving Credit Facility

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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.

As of September 30, 2024, the Company maintained a total leverage ratio of 2.85x, including outstanding debt of approximately $379.2 million on the senior unsecured revolving credit facility.

As of March 31, 2025, the Company maintained a total leverage ratio of 2.89x, including outstanding debt of approximately $442.1 million on the senior unsecured revolving credit facility.

The Company was in compliance with all financial covenants under the Restated Credit Agreement.

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2024 Senior Unsecured Notes Due 2034

On July 2, 2024, the Company closed its sale of an aggregate principal amount of $600 million of 5.850% senior notes due 2034 (the "2024 Senior Notes”).

The 2024 Senior Notes bear interest at a fixed rate of 5.850% per year and mature on August 1, 2034.

On July 2, 2024, the Company issued unsecured senior notes with a principal amount of $600 million (the "2024 Senior Notes”) at a discount of $6.4 million, bearing a coupon of 5.85%, with an effective rate of 6.11%, and mature on August 1, 2034.

Interest on the 2024 Senior Notes is payable semi-annually on February 1 st and August 1 st of each year, commencing on February 1, 2025.

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2023 Term Loan Due 2024

On December 18, 2023, the Company entered into a $500 million unsecured term loan with a maturity date of December 16, 2024 (the "2023 Term Loan"), which has an optional one-year extension that can be requested by the Company prior to the initial maturity date.

The extension option is subject to the consent of the lenders and certain customary conditions.

The 2023 Term Loan and all accrued but unpaid interest must be repaid in full on the maturity date.

Upon the occurrence of certain debt issuances and equity issuances, as defined in the 2023 Term Loan's agreement, the Company is required to make certain principal prepayments of the 2023 Term Loan in an amount equal to 100% of the net cash proceeds from those debt and equity issuances.

The Company may elect to have the 2023 Term Loan bear interest at a rate equal to (i) SOFR (subject to a credit spread adjustment of 0.10% and a 0.00% floor) plus a margin ranging from 125 to 175 basis points, or (ii) a base rate plus a margin ranging from 25 to 75 basis points.

In each case, the margin is determined according to the Company’s senior unsecured long-term debt rating.

The term loan agreement requires that the Company comply with various covenants, including restrictions on liens, incurring indebtedness, making dividends, stock repurchases, investments, and completing mergers and/or asset sales.

The term loan agreement has financial covenants which require the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0, and a total leverage ratio of not more than 4.5 to 1.0 which may be increased to 5.5 to 1.0 for up to three consecutive fiscal quarters commencing with the fiscal quarter in which certain material acquisitions are consummated.

As long as the Company maintains an Investment Grade Rating, as defined in the term loan agreement, then the Company will not need to comply with the consolidated fixed charge coverage ratio covenant.

The term loan 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 term loan agreement to be immediately due and payable.

On December 18, 2023, the Company entered into a $500 million unsecured term loan with an effective interest rate of 6.83% and a maturity date of December 16, 2024 (the "2023 Term Loan").

The term loan agreement required that the Company comply with various covenants, including restrictions on liens, incurring indebtedness, making dividends, stock repurchases, investments, and completing mergers and/or asset sales.

The term loan agreement had financial covenants which required the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0, and a total leverage ratio of not more than 4.5 to 1.0 which may have been increased to 5.5 to 1.0 for up to three consecutive fiscal quarters commencing with the fiscal quarter in which certain material acquisitions are consummated.

As long as the Company maintained an Investment Grade Rating, as defined in the term loan agreement, then the Company would not need to comply with the consolidated fixed charge coverage ratio covenant.

The Company was in compliance with all covenants upon the repayment in full of the 2023 Term Loan.

On July 2, 2024, the Company used a portion of the net proceeds from the sale of the 2024 Senior Notes, after deducting underwriting discounts and commissions and other offering expenses, to repay in full the 2023 Term Loan.

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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 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.

Economic Development Loans

The Company entered into economic development agreements with various governmental entities in conjunction with the relocation of its corporate headquarters in April 2013.

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.

The Company has been advanced the full amounts that were due pursuant to these agreements, and these advances bore interest at a rate of 3% per annum.

Repayment of the advances was contingent upon the Company achieving certain performance conditions.

The performance conditions were measured annually on December 31 st and primarily related to maintaining certain levels of employment within the various jurisdictions.

If the Company failed to meet an annual performance condition, then the Company may have been required to repay a portion, or all, of the advances including accrued interest by April 30 th following the measurement date.

Upon the expiration of the Company's previous ten-year corporate headquarters lease agreement in 2023, any outstanding advances would be forgiven in full.

The $4.4 million of advances were previously recognized as debt in the consolidated balance sheets.

Upon the expiration of the Company's previous ten-year corporate headquarters lease agreement in 2023, the Company concluded that it had achieved the performance conditions over the entire term of the agreement and therefore, the Company is not required to repay the advances.

As a result, during the year ended December 31, 2023, the Company derecognized the $4.4 million economic development loans debt from the consolidated balance sheets and recognized a gain on extinguishment of debt in the consolidated statements of income.

In March 2023, the Company's board of directors approved a 21% increase in the quarterly cash dividend to $0.2875 per share, which is the current per share dividend amount that was utilized in each of the dividends that were declared in 2023 and 2024.

During the nine months ended September 30, 2024, the Company paid $42.5 million in cash dividends.

During the three months ended March 31, 2025, the Company paid $13.5 million in cash dividends.

Based on the current per share dividend amount and our outstanding share count, the aggregate annual dividends for the year ended December 31, 2024 is projected to be $1.15 per share or approximately $53.6 million in aggregate dividend payments.

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In accordance with the Restated Credit Agreement, the Company may not declare or make any dividend payments if there is an existing event of default or if the dividend payment would create an event of default.

Share Repurchases and Redemptions

In 1998, we instituted a share repurchase program.

Share Repurchases & Redemptions

The Company has a share repurchase program.

Treasury stock activity is recorded at cost in the consolidated balance sheets.

On March 11, 2024, the Company's board of directors approved an increase of 5.0 million shares in the number of shares authorized to be repurchased under its share repurchase program.

During the nine months ended September 30, 2024, the Company repurchased 2.8 million shares of its common stock under the share repurchase program at a total cost, including accrued excise tax, of $341.2 million.

During the three months ended March 31, 2025, the Company repurchased 0.4 million shares of its common stock under the share repurchase program at a total cost, including accrued excise tax, of $55.3 million.

In total, the Company has repurchased 61.6 million shares of its common stock (including 33.0 million shares prior to the two-for-one stock split effected in October 2005) under the share repurchase program at a total cost of $2.7 billion.

Considering the effect of the two-for-one stock split, the Company has repurchased 94.6 million shares at an average price of $28.45 per share.

As of September 30, 2024, the Company had 4.0 million shares remaining under the current share repurchase authorization.

During the nine months ended September 30, 2024, the Company redeemed 0.1 million shares of common stock at a total cost of $11.7 million from employees to satisfy the option exercise price and the statutory minimum tax-withholding requirements related to the exercising of stock options and the vesting of PVRSUs and restricted stock grants.

As of March 31, 2025, the Company had 3.4 million shares remaining under the current share repurchase authorization.

During the three months ended March 31, 2025, the Company redeemed 0.1 million shares of common stock at a total cost of $9.3 million from employees to satisfy the option exercise price and the statutory minimum tax-withholding requirements related to the exercising of stock options and the vesting of PVRSUs and restricted stock grants.

These redemptions were outside the share repurchase program.

During the nine months ended September 30, 2024, the Company received proceeds of $9.3 million from stock options exercised by employees.

During the three months ended March 31, 2025, the Company received proceeds of $4.8 million from stock options exercised by employees.

Critical Accounting Estimates

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We have discussed the estimates that we believe are critical because they involve a higher degree of judgment in their application and are based on information that is inherently uncertain in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

During the nine months ended September 30, 2024, there were no material changes to the critical accounting estimates that were previously disclosed.

During the three months ended March 31, 2025, there were no material changes to the critical accounting estimates that were previously disclosed.

New Accounting Standards

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These forward-looking statements are based on management's current beliefs, assumptions and expectations regarding future events, which, in turn, are based on information currently available to management.

Such statements may relate to projections of our revenue, expenses, adjusted EBITDA, earnings, debt levels, ability to repay outstanding indebtedness, payment of dividends, repurchases of common stock, and other financial and operational measures, including occupancy and open hotels, revenue per available room, and our liquidity, among other matters.

Such statements may relate to projections of our revenue, expenses, earnings, debt levels, ability to repay outstanding indebtedness, payment of dividends, repurchases of common stock, and other financial and operational measures, including occupancy and open hotels, revenue per available room, and our liquidity, among other matters.

We caution you not to place undue reliance on any such forward-looking statements.

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changes to the desirability of our brands as viewed by hotel operators and customers;

changes to the terms or termination of our contracts with franchisees and our relationships with our franchisees;

our ability to keep pace with improvements in technology utilized for marketing and reservations systems and other operating systems;

changes to the terms or termination of our contracts with franchisees and our

relationships with our franchisees;

our ability to keep pace with improvements in technology utilized for our marketing and reservation systems and other operating systems;

our ability to grow our franchise system;

exposure to risks related to our hotel development, financing, and ownership activities;

exposure to risks related to our hotel development, financing, franchise agreement acquisition costs and ownership activities;

exposures to risks associated with our investments in new businesses;

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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, 2023, filed with the SEC on February 20, 2024.

These and other risk factors are discussed in detail in Item 1A.

Risk Factors 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, 2024, filed with the SEC on February 20, 2025.

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