CHOICE HOTELS INTERNATIONAL INC /DE 10-Q

ITEM 1. FINANCIAL STATEMENTS CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Three Months Ended March 31, 2025 2024 REVENUES 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 Revenue for reimbursable costs from franchised and managed properties 123,424 128,987 Total revenues 332,860 331,949 OPERATING EXPENSES Selling, general and administrative 74,210 72,269 Business combination, diligence and transition costs 99 15,844 Depreciation and amortization 13,748 12,815 Owned hotels 21,060 19,323 Reimbursable expenses from franchised and managed properties 143,811 151,549 Total operating expenses 252,928 271,800 Operating income 79,932 60,149 OTHER EXPENSES AND INCOME, NET Interest expense 21,242 20,181 Interest income ( 1,559 ) ( 1,731 ) Other loss 436 1,336 Equity in net loss of affiliates 51 155 Total other expenses and income, net 20,170 19,941 Income before income taxes 59,762 40,208 Income tax expense 15,228 9,199 Net income $ 44,534 $ 31,009 Basic earnings per share $ 0.95 $ 0.63 Diluted earnings per share $ 0.94 $ 0.62 Cash dividends declared per share $ 0.2875 $ 0.2875 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS) (UNAUDITED) Three Months Ended March 31, 2025 2024 Net income $ 44,534 $ 31,009 Other comprehensive income, net of tax: Foreign currency translation adjustment 63 454 Other comprehensive income, net of tax 63 454 Comprehensive income $ 44,597 $ 31,463 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED) March 31, 2025 December 31, 2024 ASSETS Current assets Cash and cash equivalents $ 40,054 $ 40,177 Accounts receivable (net of allowance for credit losses of $ 51,657 and $ 45,610 , respectively) 194,269 176,672 Income taxes receivable 4,139 5,419 Notes receivable (net of allowance for credit losses of $ 5,838 and $ 5,805 , respectively) 75,614 75,501 Prepaid expenses and other current assets 44,123 41,317 Total current assets 358,199 339,086 Property and equipment (net of accumulated depreciation and amortization of $ 138,896 and $ 125,903 , respectively) 631,609 604,345 Operating lease right-of-use assets 81,858 83,451 Goodwill 220,187 220,187 Intangible assets (net of accumulated amortization of $ 230,250 and $ 209,037 , respectively) 880,793 884,013 Notes receivable (net of allowance for credit losses of $ 1,543 and $ 1,526 , respectively) 32,832 32,682 Investments for employee benefit plans, at fair value 44,176 47,603 Investments in affiliates 122,116 117,016 Deferred income taxes 107,712 108,308 Other assets 98,106 93,836 Total assets $ 2,577,588 $ 2,530,527 LIABILITIES AND SHAREHOLDERS’ DEFICIT Current liabilities Accounts payable $ 121,627 $ 134,865 Accrued expenses and other current liabilities 100,767 136,729 Deferred revenue 115,785 102,114 Liability for guest loyalty program 89,237 89,013 Total current liabilities 427,416 462,721 Long-term debt 1,874,821 1,768,526 Long-term deferred revenue 131,031 132,259 Deferred compensation and retirement plan obligations 49,869 53,316 Operating lease liabilities 112,254 113,255 Liability for guest loyalty program 40,794 40,607 Other liabilities 5,337 5,114 Total liabilities 2,641,522 2,575,798 Commitments and contingencies (Note 12) Common stock, $ 0.01 par value; 160,000,000 shares authorized; 95,065,638 shares issued at March 31, 2025 and December 31, 2024; 46,589,011 and 46,856,567 shares outstanding at March 31, 2025 and December 31, 2024, respectively 951 951 Additional paid-in-capital 376,014 370,201 Accumulated other comprehensive loss ( 6,130 ) ( 6,193 ) Treasury stock, at cost; 48,476,627 and 48,209,071 shares at March 31, 2025 and December 31, 2024, respectively ( 2,467,209 ) ( 2,411,527 ) Retained earnings 2,032,440 2,001,297 Total shareholders’ deficit ( 63,934 ) ( 45,271 ) Total liabilities and shareholders’ deficit $ 2,577,588 $ 2,530,527 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) Three Months Ended March 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 44,534 $ 31,009 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,748 12,815 Depreciation and amortization – reimbursable expenses from franchised and managed properties 4,887 5,148 Franchise agreement acquisition cost amortization 9,791 6,185 Non-cash share-based compensation and other charges 9,834 10,597 Non-cash interest, investments, and affiliate loss, net 1,515 2,510 Deferred income taxes 626 ( 736 ) Equity in net loss of affiliates, less distributions received 413 1,200 Franchise agreement acquisition costs, net of reimbursements ( 26,287 ) ( 33,486 ) Change in working capital and other ( 38,594 ) ( 33,501 ) Net cash provided by operating activities 20,467 1,741 CASH FLOWS FROM INVESTING ACTIVITIES Investments in other property and equipment ( 10,543 ) ( 7,203 ) Investments in owned hotel properties ( 35,462 ) ( 25,574 ) Contributions to investments in affiliates ( 5,415 ) ( 9,317 ) Issuances of notes receivable ( 1,952 ) ( 1,042 ) Collections of notes receivable 1,487 884 Proceeds from sales of equity securities — 1,230 Other items, net ( 1,067 ) ( 1,714 ) Net cash used in investing activities ( 52,952 ) ( 42,736 ) CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings pursuant to revolving credit facilities 105,500 126,500 Purchases of treasury stock ( 64,624 ) ( 59,459 ) Dividends paid ( 13,471 ) ( 14,728 ) Proceeds from the exercise of stock options 4,803 4,160 Net cash provided by financing activities 32,208 56,473 Net change in cash and cash equivalents ( 277 ) 15,478 Effect of foreign exchange rate changes on cash and cash equivalents 154 ( 121 ) Cash and cash equivalents, beginning of period 40,177 26,754 Cash and cash equivalents, end of period $ 40,054 $ 42,111 Supplemental disclosure of cash flow information: Cash payments during the period for Income taxes, net of refunds $ 3,029 $ 2,327 Interest, net of capitalized interest $ 32,268 $ 19,596 Non-cash investing and financing activities Dividends declared but not paid $ 13,391 $ 14,147 Investments in property, equipment, and intangible assets recognized in accounts payable and accrued expense liabilities $ 17,337 $ 14,020 The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED) Common Stock - Shares Outstanding Common Stock - Par Value Additional Paid-in- Capital Accumulated Other Comprehensive Income (Loss) Treasury Stock Retained Earnings Total Balance as of December 31, 2023 49,526,245 $ 951 $ 330,750 $ ( 5,671 ) $ ( 2,046,791 ) $ 1,756,359 $ 35,598 Net income — — — — — 31,009 31,009 Other comprehensive income, net of tax — — — 454 — — 454 Share-based payment activity (1) 252,869 — 4,862 — 6,323 — 11,185 Dividends declared ($ 0.2875 per share) — — — — — ( 14,147 ) ( 14,147 ) Treasury purchases ( 494,910 ) — — — ( 57,372 ) — ( 57,372 ) Balance as of March 31, 2024 49,284,204 $ 951 $ 335,612 $ ( 5,217 ) $ ( 2,097,840 ) $ 1,773,221 $ 6,727 Common Stock - Shares Outstanding Common Stock - Par Value Additional Paid-in- Capital Accumulated Other Comprehensive Income (Loss) Treasury Stock Retained Earnings Total Balance as of December 31, 2024 46,856,567 $ 951 $ 370,201 $ ( 6,193 ) $ ( 2,411,527 ) $ 2,001,297 $ ( 45,271 ) Net income — — — — — 44,534 44,534 Other comprehensive income, net of tax — — — 63 — — 63 Share-based payment activity (1) 188,586 — 5,813 — 8,945 — 14,758 Dividends declared ($ 0.2875 per share) — — — — — ( 13,391 ) ( 13,391 ) Treasury purchases ( 456,142 ) — — — ( 64,627 ) — ( 64,627 ) Balance as of March 31, 2025 46,589,011 $ 951 $ 376,014 $ ( 6,130 ) $ ( 2,467,209 ) $ 2,032,440 $ ( 63,934 ) (1) During certain periods presented, accumulated dividends were paid to certain shareholders upon vesting of their performance vested restricted stock units ("PVRSU"), which are presented in Share-based payment activity. The accompanying notes are an integral part of these consolidated financial statements. 7 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation and Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements of Choice Hotels International, Inc. and subsidiaries (collectively, "Choice" or the "Company") have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments that are necessary to fairly present the Company's financial position and results of operations. Except as otherwise disclosed, all adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in the consolidated financial statements presented in accordance with GAAP have been condensed or omitted. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2024 and the notes thereto included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 20, 2025. The interim results are not necessarily indicative of the entire year's results. Certain prior year amounts in our consolidated financial statements have been reclassified in order to maintain comparability with the current year presentation. The reclassifications were not as a result of any error in our consolidated financial statements. The Company reclassified certain prior year amounts in the consolidated statements of income in order to maintain comparability with the current year presentation. • Royalty, licensing and management fees were revised to franchise and management fees in the consolidated statements of income, and now include the revenues previously presented in royalty, licensing and management fees, with the exception of partnership licensing revenues which are now presented in partnership services and fees in the consolidated statements of income, and the addition of the revenues generated from programs, platforms, and services associated with the Company's franchise operations which were previously presented in other revenues from franchised and managed properties in the consolidated statements of income. • Initial franchise fees, which were previously presented as a standalone financial statement line item, are now presented within franchise and management fees in the consolidated statements of income. • Platform and procurement services fees were revised to partnership services and fees in the consolidated statements of income, and now include the revenues previously presented in platform and procurement services fees, with the exception of the revenues from the Company’s annual franchisee convention which are now presented in other revenues, the addition of partnership licensing revenues which were previously presented in royalty, licensing and management fees, and the addition of the revenues generated from other non-franchising agreements which are primarily software as a service (“SaaS”) arrangements for non-franchised hoteliers which were previously presented in other revenues in the consolidated statements of income. • Other revenues from franchised and managed properties were revised to revenue for reimbursable costs from franchised and managed properties in the consolidated statements of income, and now include the revenues previously presented in other revenues from franchised and managed properties, with the exception of the revenues generated from programs, platforms, and services associated with the Company’s franchise operations which are now presented in franchise and management fees in the consolidated statements of income. • Selling, general and administrative expenses were revised to include the expenses incurred related to programs, platforms, and services associated with the Company’s franchise operations, which were previously presented in other expenses from franchised and managed properties in the consolidated statements of income. • Depreciation and amortization was revised to include amortization expense from information technology platforms, which was previously presented in other expenses from franchised and managed properties in the consolidated statements of income. 8 Table of Contents • Other expenses from franchised and managed properties were revised to reimbursable expenses from franchised and managed properties in the consolidated statements of income, and now include the expenses previously presented in other expenses from franchised and managed properties, with the exception of the expenses incurred from programs, platforms, and services associated with the Company’s franchise operations which are now presented in selling, general and administrative expenses, and amortization expense from information technology platforms which is now presented in depreciation and amortization expense in the consolidated statements of income. The reclassifications had no effect on the Company's previously reported total revenues, total operating expenses, operating income, or net income. The following table presents the effect of the reclassifications on the three months ended March 31, 2024 consolidated statement of income. Three Months Ended March 31, 2024 As previously reported Reclassification As reclassified REVENUES Franchise and management fees $ 105,467 $ 37,943 $ 143,410 Initial franchise fees 6,705 ( 6,705 ) — Partnership services and fees 13,756 6,088 19,844 Owned hotels 24,991 — 24,991 Other 16,357 ( 1,640 ) 14,717 Revenue for reimbursable costs from franchised and managed properties 164,673 ( 35,686 ) 128,987 Total revenues 331,949 — 331,949 OPERATING EXPENSES Selling, general and administrative 48,625 23,644 72,269 Business combination, diligence and transition costs 15,844 — 15,844 Depreciation and amortization 10,935 1,880 12,815 Owned hotels 19,323 — 19,323 Reimbursable expenses from franchised and managed properties 177,073 ( 25,524 ) 151,549 Total operating expenses 271,800 — 271,800 Operating income $ 60,149 $ — $ 60,149 The Company also reclassified certain prior year amounts in the consolidated statements of cash flows in order to maintain comparability with the current year presentation. Depreciation and amortization was revised to include amortization expense from information technology platforms, which was previously presented in depreciation and amortization - other expenses from franchised and managed properties in the consolidated statements of cash flows. Depreciation and amortization - other expenses from franchised and managed properties was revised to depreciation and amortization - reimbursable expenses from franchised and managed properties in the consolidated statements of cash flows. Investments in owned hotel properties and investments in other property and equipment, which were previously presented in investments in property and equipment, are now presented within standalone financial statement line items in the consolidated statements of cash flows. Investments in intangible assets, purchases of investments for employee benefits plans, and proceeds from sales of investments for employee benefits plans, which were previously presented in standalone financial statement line items, are now presented within other items, net in the consolidated statements of cash flows. The reclassifications had no effect on the Company's previously reported net cash provided by operating activities, the net cash used in investing activities, or the net change in cash and cash equivalents. Summary of Significant Accounting Policies The Company’s significant accounting policies are included in the “Significant Accounting Policies” section of Note 1 in the Annual Report on Form 10-K for the year ended December 31, 2024. Recently Issued Accounting Standards In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 requires public entities to disclose significant segment expenses by reportable segment if they are regularly provided to the chief operating decision maker and 9 Table of Contents included in each reported measure of segment profit or loss on both an annual and an interim basis. ASU 2023-07 was effective for the annual reporting period beginning after December 15, 2023 and the interim periods within the annual reporting period beginning after December 15, 2024. The Company adopted ASU 2023-07 on a retrospective basis effective December 31, 2024 for annual periods and March 31, 2025 for interim periods. The adoption of this standard did not have an impact on the Company's consolidated financial statements, but it did require enhanced segment disclosures in the notes to the consolidated financial statements. Refer to Note 11 for more information. In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 is designed to provide additional information to financial statement users in regard to how an entity's operations, risks, and planning affect its tax rate, opportunities, and future cash flows. ASU 2023-09 is effective for the annual reporting period beginning after December 15, 2024. Based on the Company's assessment, the adoption of this standard is not expected to have an impact on the Company's consolidated financial statements, but it will require enhanced income tax disclosures in the notes to the consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses ("ASU 2024-03"). ASU 2024-03 requires public entities to provide detailed disclosure of the income statement expenses in the footnotes to the consolidated financial statements. ASU 2024-03 does not require any changes to the expense captions on the face of the consolidated income statement. ASU 2024-03 is effective for the annual reporting period beginning after December 15, 2026 and for the interim periods within the annual reporting period beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the potential impact that ASU 2024-03 will have on the Company's consolidated financial statements. 2. Revenue Contract Liabilities Contract liabilities relate to (i) advance consideration received related to services considered to be a part of the brand intellectual property performance obligation, such as initial franchise fees that are paid when a franchise agreement is executed and system implementation fees that are paid at the time of installation, and (ii) amounts received when loyalty points are issued but the associated revenue has not yet been recognized because the related loyalty points have not been redeemed. Deferred revenues from initial franchise fees and system implementation fees are typically recognized over a ten-year period, unless the franchise agreement is terminated and the hotel exits the franchise system whereby the remaining deferred revenue amounts are recognized to revenue in the period of termination. Loyalty points are typically redeemed within three years of issuance. The following table summarizes the significant changes in the contract liabilities balances during the period from December 31, 2024 to March 31, 2025: (in thousands) Balance as of December 31, 2024 $ 216,697 Increases to the contract liability balance due to cash received 29,680 Revenue recognized in the period ( 25,784 ) Balance as of March 31, 2025 $ 220,593 Remaining Performance Obligations The aggregate amount of the transaction price that is allocated to unsatisfied, or partially unsatisfied, performance obligations was $ 220.6 million as of March 31, 2025. This amount represents the fixed transaction price that will be recognized as revenue in future periods, which is presented as current and non-current deferred revenue in the consolidated balance sheets. Based on the practical expedient elections permitted by ASU 2014-09, Revenue From Contracts with Customers (Topic 606) and subsequent amendments ("Topic 606"), the Company does not disclose the value of unsatisfied performance obligations for (i) variable consideration subject to the sales or usage-based royalty constraint or comprising a component of a series (including franchise, partnership, qualified vendor, and SaaS agreements), (ii) variable consideration for which the Company recognizes revenue at the amount to which it has the right to invoice for the services performed, or (iii) contracts with an expected original duration of one year or less. The loyalty points represent a performance obligation attributable to the usage of the points, and thus the revenues are recognized at the point in time when the loyalty points are redeemed by the members for benefits (with both franchisees and third-party partners), net of the cost of redemptions. For both the three months ended March 31, 2025 and 2024, the loyalty net revenues, inclusive of adjustments to the estimated redemption rates, were $ 19.5 million. 3. Receivables and Allowance for Credit Losses Notes Receivable The Company has provided financing in the form of notes receivable loans to franchisees in order to support the development of hotel properties in strategic markets. The Company's credit quality indicator is the level of security in the note receivable. The following table summarizes the composition of the notes receivable balances by credit quality indicator and the allowance for credit losses: (in thousands) March 31, 2025 December 31, 2024 Senior $ 96,520 $ 94,963 Subordinated 15,293 15,433 Unsecured 4,014 5,118 Total notes receivable $ 115,827 $ 115,514 Less: allowance for credit losses 7,381 7,331 Total notes receivable, net of allowance for credit losses $ 108,446 $ 108,183 Current portion, net of allowance for credit losses $ 75,614 $ 75,501 Long-term portion, net of allowance for credit losses $ 32,832 $ 32,682 The following table summarizes the amortized cost basis of the notes receivable by the year of origination and credit quality indicator: (in thousands) 2025 2024 2023 2022 2021 Prior Total Senior $ 1,627 $ 38,554 $ — $ — $ — $ 56,339 $ 96,520 Subordinated — — 3,500 — — 11,793 15,293 Unsecured — 116 — 28 746 3,124 4,014 Total notes receivable $ 1,627 $ 38,670 $ 3,500 $ 28 $ 746 $ 71,256 $ 115,827 The following table summarizes the activity related to the Company’s notes receivable allowance for credit losses: (in thousands) March 31, 2025 December 31, 2024 Beginning balance $ 7,331 $ 8,616 Provision (reversal) for credit losses 50 ( 609 ) Recoveries — ( 676 ) Ending balance $ 7,381 $ 7,331 During the year ended December 31, 2024, the recoveries were primarily associated with cash collections pursuant to a settlement agreement with a borrower. As of March 31, 2025 and December 31, 2024, three and one note receivable loans, respectively, with senior credit quality indicators met the definition of collateral-dependent and are collateralized by the membership interests in the borrowing entities, the associated land parcel, or the operating hotel. The Company used both a market approach that uses quoted market prices and an income approach that uses discounted cash flows to value the underlying collateral. The Company reviewed the borrower's financial statements, economic trends, industry projections for the market, and comparable sales capitalization rates, which represent significant inputs to the cash flow projections. These nonrecurring fair value measurements are classified as Level 3 in the fair value measurement hierarchy because they are unobservable inputs which are significant to the overall fair value. Based on the Company's analysis, the fair value of the collateral secures substantially all of the carrying value of the respective note receivable loan. The allowance for credit losses attributable to the collateral-dependent note receivable loans was $ 3.2 million and $ 2.2 million as of March 31, 2025 and December 31, 2024, respectively. 10 Table of Contents The following table summarizes the past due balances by credit quality indicator of the notes receivable: (in thousands) 1- 30 days Past Due 31-89 days Past Due > 90 days Past Due Total Past Due Current Total Notes Receivable As of March 31, 2025 Senior $ 27,700 $ — $ 15,200 $ 42,900 $ 53,620 $ 96,520 Subordinated — — 2,264 2,264 13,029 15,293 Unsecured — — 384 384 3,630 4,014 $ 27,700 $ — $ 17,848 $ 45,548 $ 70,279 $ 115,827 As of December 31, 2024 Senior $ — $ — $ 15,200 $ 15,200 $ 79,763 $ 94,963 Subordinated — — 2,264 2,264 13,169 15,433 Unsecured — — 784 784 4,334 5,118 $ — $ — $ 18,248 $ 18,248 $ 97,266 $ 115,514 The amortized cost basis of the notes receivable in a non-accrual status was $ 45.2 million and $ 17.5 million as of March 31, 2025 and December 31, 2024, respectively. Variable Interest through Notes Receivable The Company has issued notes receivable loans to certain entities that have created variable interests in the associated borrowers totaling $ 104.5 million and $ 103.1 million as of March 31, 2025 and December 31, 2024, respectively. The Company has determined that it is not the primary beneficiary of these variable interest entities ("VIEs"). For collateral-dependent loans, the Company has no exposure to the borrowing VIE beyond the respective note receivable and the limited commitments which are addressed in Note 12. Transactions with Unconsolidated Affiliates The Company has extended loans to various unconsolidated affiliates or members of our unconsolidated affiliates. The Company had a total principal balance on these loans of $ 66.0 million and $ 66.2 million as of March 31, 2025 and December 31, 2024, respectively. These loans mature at various dates and bear interest at fixed or variable rates. Accounts Receivable Accounts receivable consists primarily of franchise and related fees due from the hotel franchisees and are recorded at the invoiced amount. During the three months ended March 31, 2025, the Company recognized provisions for credit losses on accounts receivable of $ 5.2 million in selling, general and administrative expenses, and $ 4.0 million in reimbursable expenses from franchised and managed properties, in the consolidated statements of income. During the year ended December 31, 2024, the Company recognized provisions for credit losses on accounts receivable of $ 11.0 million in selling, general and administrative expenses, and $ 9.7 million in reimbursable expenses from franchised and managed properties, in the consolidated statements of income. During the three months ended March 31, 2025, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $ 3.1 million. During the year ended December 31, 2024, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $ 14.4 million. 4. Investments in Affiliates The Company has equity method investments in affiliates primarily related to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels and Everhome Suites in strategic markets. As of March 31, 2025 and December 31, 2024, the Company had total investments in affiliates in the consolidated balance sheets of $ 122.1 million and $ 117.0 million, respectively, which included investments in affiliates that represent VIEs of $ 108.8 million and $ 104.2 million, respectively. The Company has determined that it is not the primary beneficiary of any of these VIEs, however the Company does exercise significant influence through its equity ownership and as a result, the investments in these affiliates are accounted for under the equity method of accounting. During the three months ended March 31, 2025 and 2024, the Company recognized losses totaling $ 0.9 million and $ 1.2 million, respectively, from these investments that represent VIEs. The Company's maximum exposure to losses related to its investments in the VIEs is limited to the total of its respective equity investment as well as certain limited payment guaranties, which are described in Note 12 to these consolidated financial statements. During the three months ended March 31, 2025 and 2024, the Company recognized no impairment charges related to its equity method investments. 5. Debt Debt consisted of the following: March 31, 2025 December 31, 2024 (in thousands) $ 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 $ 2.8 million and $ 3.0 million at March 31, 2025 and December 31, 2024, respectively $ 397,192 $ 397,042 $ 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 $ 3.5 million and $ 3.7 million at March 31, 2025 and December 31, 2024, respectively 446,452 446,300 $ 600 million senior unsecured notes due 2034 ("2024 Senior Notes") with an effective interest rate of 6.11 %, less a discount and deferred issuance costs of $ 10.9 million and $ 11.2 million at March 31, 2025 and December 31, 2024, respectively 589,057 588,764 $ 1 billion senior unsecured revolving credit facility with an effective interest rate of 5.73 %, less deferred issuance costs of $ 3.4 million and $ 3.6 million at March 31, 2025 and December 31, 2024, respectively 442,120 336,420 Total Long-term debt $ 1,874,821 $ 1,768,526 Refer to Note 12 and the Liquidity and Capital Resources section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information. 6. Accumulated Other Comprehensive Loss The changes in accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2025 and 2024 were as follows: (in thousands) Balance as of December 31, 2024 $ ( 6,193 ) Other comprehensive income before reclassification 63 Balance as of March 31, 2025 $ ( 6,130 ) (in thousands) Balance as of December 31, 2023 $ ( 5,671 ) Other comprehensive income before reclassification 454 Balance as of March 31, 2024 $ ( 5,217 ) Other comprehensive loss, net of tax, for both the three months ended March 31, 2025 and 2024 relates entirely to foreign currency items, and there were no amounts reclassified from accumulated other comprehensive loss during either period. 7. Fair Value Measurements The Company estimates the fair value of its financial instruments utilizing a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The following summarizes the three levels of inputs, as well as the assets that the Company values using those levels of inputs on a recurring basis. Level 1 - Quoted prices in active markets for identical assets and liabilities. The Company’s Level 1 assets consist of mutual funds held in the Company's Deferred Compensation Plan. Level 2 - Observable inputs, other than quoted prices in active markets for identical assets and liabilities, such as quoted prices for similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable. The Company’s Level 2 assets consist of money market funds held in the Company's Deferred Compensation Plan. Level 3 - 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 on a recurring basis 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, 2025 and during the year ended December 31, 2024. The Company recognized the following assets at fair value on a recurring basis in the consolidated balance sheets: Fair Value Measurements at Reporting Date Using (in thousands) Total Level 1 Level 2 Level 3 As of March 31, 2025 Mutual funds (1) $ 43,434 $ 43,434 $ — $ — Money market funds (1) 4,945 — 4,945 — Total $ 48,379 $ 43,434 $ 4,945 $ — As of December 31, 2024 Mutual funds (1) $ 43,887 $ 43,887 $ — $ — Money market funds (1) 5,439 — 5,439 — Total $ 49,326 $ 43,887 $ 5,439 $ — (1) The current assets at fair value noted above are presented in prepaid expenses and other current assets in the consolidated balance sheets. The long-term assets at fair value noted above are presented in investments for employee benefit plans, at fair value in the consolidated balance sheets. Other Financial Instruments Disclosure 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 rate on the senior unsecured revolving credit facility adjusts frequently based on current market interest rates; therefore, the Company believes the carrying amount approximates the fair value. The fair values of the Company's senior unsecured notes are classified as Level 2 because the significant inputs are observable in an active market. Refer to Note 5 for additional information on debt. As of March 31, 2025 and December 31, 2024, the carrying amounts and the fair values were as follows: March 31, 2025 December 31, 2024 (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value 2019 Senior Notes due 2029 $ 397,192 $ 377,460 $ 397,042 $ 371,600 2020 Senior Notes due 2031 $ 446,452 $ 412,623 $ 446,300 $ 405,351 2024 Senior Notes due 2034 $ 589,057 $ 601,050 $ 588,764 $ 601,836 The fair value estimates are determined at a specific point in time, are subjective in nature, and involve uncertainties and matters of significant judgment. The settlement of such fair value amounts may not be possible or a prudent management decision. 8. Income Taxes 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. federal income tax rate of 21% primarily due to the impact of state income taxes. 9. Share-Based Compensation The components of the Company’s share-based compensation expense were as follows: Three Months Ended March 31, (in thousands) 2025 2024 Stock options $ 1,519 $ 1,346 Restricted stock 3,327 3,477 Performance vested restricted stock units 5,569 4,271 Total share-based compensation expense $ 10,415 $ 9,094 11 Table of Contents A summary of the share-based award activity during the three months ended March 31, 2025 is presented below: Stock Options Restricted Stock Performance Vested Restricted Stock Units Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Outstanding as of January 1, 2025 771,641 $ 111.15 355,405 $ 136.67 467,521 $ 137.74 Granted — — 34,379 143.27 146,539 151.10 Performance-based leveraging (1) — — — — 14,662 120.48 Exercised/vested ( 42,264 ) 109.78 ( 44,073 ) 132.54 ( 116,107 ) 151.76 Expired ( 1,226 ) 81.55 — — — — Forfeited ( 613 ) 134.58 ( 4,378 ) 121.20 ( 6,707 ) 153.53 Outstanding as of March 31, 2025 727,538 $ 111.29 6.0 years 341,333 $ 138.02 505,908 $ 137.61 Options exercisable as of March 31, 2025 582,137 $ 108.03 5.5 years (1) Any revisions to the outstanding PVRSUs during the three months ended March 31, 2025 is based on the Company's performance relative to the targeted performance conditions in the respective PVRSUs. The fair value of the restricted stock and the PVRSUs with performance conditions that were granted during the three months ended March 31, 2025 was equal to the market price of the Company’s common stock on the date of the grant. The fair value of the PVRSUs with market conditions that are 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 date of the grant. The requisite service periods for the restricted stock and the PVRSUs was between 9 months and 48 months. 12 Table of Contents 10. Earnings Per Share The Company’s shares of restricted stock contain rights to receive nonforfeitable dividends and thus are participating securities that require the computation of basic earnings per share using the two-class method. The shares of restricted stock are both potential shares of common stock and participating securities so the Company calculates diluted earnings per share by using the more dilutive of the treasury stock method or the two-class method. The calculation of earnings per share for the net income available to common shareholders excludes the distribution of dividends and the undistributed earnings attributable to the participating securities from the numerator. The diluted earnings per share includes stock options, PVRSUs, and RSUs in the calculation of the weighted average shares of common stock outstanding. The computation of basic and diluted earnings per share was as follows: Three Months Ended March 31, (in thousands, except per share amounts) 2025 2024 Numerator: Net income $ 44,534 $ 31,009 Income allocated to participating securities ( 219 ) ( 158 ) Net income available to common shareholders $ 44,315 $ 30,851 Denominator: Weighted average shares of common stock outstanding – basic 46,494 49,302 Basic earnings per share $ 0.95 $ 0.63 Numerator: Net income $ 44,534 $ 31,009 Income allocated to participating securities ( 219 ) ( 158 ) Net income available to common shareholders $ 44,315 $ 30,851 Denominator: Weighted average shares of common stock outstanding – basic 46,494 49,302 Dilutive effect of stock options, PVRSUs, and RSUs 629 338 Weighted average shares of common stock outstanding – diluted 47,123 49,640 Diluted earnings per share $ 0.94 $ 0.62 The following securities have been excluded from the calculation of the diluted weighted average shares of common stock outstanding because the inclusion of these securities would have an anti-dilutive effect: Three Months Ended March 31, (in thousands) 2025 2024 Stock options 137 231 PVRSUs — 49 11. Reportable Segments The Hotel Franchising & Management reportable segment includes the Company's hotel franchising operations, which consists of its 22 brands and brand extensions and the hotel management operations of 13 hotels (inclusive of four owned hotels). The 22 brands and brand extensions and hotel management operations are aggregated together within this reportable segment because they have similar economic characteristics, types of customers, distribution channels, and regulatory business environments. The revenues from the hotel franchising and management business include royalty fees, initial franchise fees and relicensing fees, cost reimbursement revenues, partnership services and fees, base and incentive management fees, and other hotel franchising and management-related revenue. The Company provides certain services under its franchise and management agreements which result in direct and indirect reimbursements. The cost reimbursement revenues received from the franchisees are included in Hotel Franchising & Management revenues and are offset by the related expenses in order to calculate Hotel Franchising & Management operating income. The equity in the earnings or losses from the hotel franchising-related investment in affiliates is allocated to the Hotel Franchising & Management reportable segment. 13 Table of Contents The Company evaluates its Hotel Franchising & Management reportable segment based primarily on the operating income of the segment without allocating corporate expenses or indirect general and administrative expenses. The Corporate & Other column includes the operations of the Company's owned hotels. Intersegment Eliminations to revenues is the elimination of Hotel Franchising & Management revenue which includes royalty fees, management and cost reimbursement fees charged to our owned hotels against the franchise and management fee expense that is recognized by our owned hotels in Corporate & Other operating income (loss). Our President and Chief Executive Officer, who is our chief operating decision maker ("CODM"), utilizes budgeted and forecasted financial information as well as industry metrics, such as revenue per available room ("RevPar"), occupancy, and average daily room rate ("ADR"), to assess the performance and to make resource allocation decisions. The CODM does not use assets by operating segment when assessing the performance or when making operating segment resource allocation decisions and therefore, assets by segment are not disclosed below. The following tables present the financial information for the Company's segments: Three Months Ended March 31, 2025 (in thousands) Hotel Franchising & Management Corporate & Other Intersegment Eliminations Consolidated Revenues $ 303,184 $ 32,904 $ ( 3,228 ) $ 332,860 Other segment items (1) 192,425 49,983 ( 3,228 ) 239,180 Depreciation and amortization 7,374 6,374 — 13,748 Operating income (loss) 103,385 ( 23,453 ) — 79,932 Reconciliation of segment profit or loss: Interest expense 21,242 Interest income ( 1,559 ) Other loss 436 Equity in net loss of affiliates 51 Income before income taxes $ 59,762 Three Months Ended March 31, 2024 (in thousands) Hotel Franchising & Management Corporate & Other Intersegment Eliminations Consolidated Revenues $ 299,359 $ 35,137 $ ( 2,547 ) $ 331,949 Other segment items (1) 198,373 63,159 ( 2,547 ) 258,985 Depreciation and amortization 6,138 6,677 — 12,815 Operating income (loss) 94,848 ( 34,699 ) — 60,149 Reconciliation of segment profit or loss: Interest expense 20,181 Interest income ( 1,731 ) Other loss 1,336 Equity in net loss of affiliates 155 Income before income taxes $ 40,208 (1) Other segment items for the reportable segment include selling, general and administrative expenses and reimbursable expenses from franchised and managed properties. 12. Commitments and Contingencies The Company is not a party to any litigation other than litigation in the ordinary course of business. The Company's management and legal counsel do not expect that the ultimate outcome of any of its current legal proceedings, individually or in the aggregate, will have a material adverse effect on the Company's financial position, results of operations, or cash flows. 14 Table of Contents Contingencies The Company entered into various limited payment guaranties with regards to the Company’s VIEs in order to support their efforts to develop and own hotels that are franchised under the Company’s brands. Under these limited payment guaranties, the Company has agreed to guarantee a portion of the outstanding debt until certain conditions are met, such as (a) the loan matures, (b) certain debt covenants are achieved, (c) the maximum amount guaranteed by the Company is paid in full, or (d) the Company, through its affiliates, ceases to be a member of the VIE. As of March 31, 2025, the maximum unrecorded exposure of the principal associated with these limited payment guaranties was $ 38.2 million, plus unpaid expenses and accrued but unpaid interest. The Company believes the likelihood of having to perform under these guaranties is remote. In the event of performance, the Company has recourse for certain of the guaranties in the form of partial guaranties from third parties. Commitments The Company had the following outstanding commitments as of March 31, 2025: • As part of the acquisition of Radisson Hotels Americas in August 2022, the Company entered into a long-term management arrangement, with an expiration date of July 31, 2031, to manage hotels owned by a third-party. As of March 31, 2025, the Company managed seven hotels pursuant to the long-term management arrangement. 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 that is stipulated in the management agreement. The maximum guarantee under the agreement is $ 22 million. The Company believes the future performance of the hotels is expected to be sufficient on an annual basis. Accordingly, no liability was recognized as of March 31, 2025 in the consolidated balance sheets. • The Company strategically deploys capital in the form of franchise agreement acquisition cost payments across our brands to incentivize franchise development. These payments are typically made at the commencement of construction or the hotel's opening, in accordance with agreed upon provisions in the individual franchise agreements. The timing and the amount of the franchise agreement acquisition cost payments are dependent on various factors, including the implementation of various development and brand incentive programs, the level of franchise sales, and the ability of our franchisees to complete construction or convert their hotels to one of the Company’s brands. • The Company has committed to provide financing in the form of loans or credit facilities to franchisees for brand development efforts. As of March 31, 2025, the Company had remaining commitments of up to $ 5.8 million, if certain conditions are met. • The Company’s franchise agreements require the payment of franchise fees, which include marketing and reservation system fees. In accordance with the terms of our franchise agreements, the Company is obligated to use the marketing and reservation system revenues it collects from the current franchisees to provide marketing and reservation services that are appropriate to support the operation of the overall system. To the extent the revenues collected exceed the expenditures incurred, the Company has a commitment to the franchisee system to make expenditures in future years. Conversely, to the extent the expenditures incurred exceed the revenues collected, the Company has the contractual enforceable right to assess and collect such amounts from the franchisees. In the ordinary course of business, the Company enters into numerous agreements that contain standard indemnities whereby the Company indemnifies another party for breaches of representations and warranties. Such indemnifications are granted under various agreements, including those governing (i) purchases or sales of assets or businesses, (ii) leases of real estate, (iii) licensing of trademarks, (iv) access to credit facilities, (v) issuances of debt or equity securities, and (vi) certain operating agreements. The indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords in lease contracts, (iii) franchisees in licensing agreements, (iv) financial institutions in credit facility arrangements, (v) underwriters in debt or equity security issuances, and (vi) parties under certain operating agreements. In addition, these parties are also generally indemnified against any third-party claim resulting from the transaction that is contemplated in the underlying agreement. While some of these indemnities extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of the future payments that the Company could be required to make under these indemnities, nor is the Company able to develop an estimate of the maximum potential amount of the future payments that could be made under these indemnifications as the triggering events are not subject to predictability. With respect to certain of the aforementioned indemnities, such as the indemnifications of the landlords against third-party claims for the use of real estate property leased by the Company, the Company maintains insurance coverage that mitigates any potential liability. 15 Table of Contents