What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-05-08 · 109 added, 39 removed, 281 unchanged (34% 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 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.

As of June 30, 2025, we had 7,481 hotels with 644,400 rooms open and operating, and 931 hotels with 93,218 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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As a result of our master franchise relationships and international market conditions, our revenues are primarily concentrated in the United States.

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

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

Our Company generates revenues, income, and cash flows primarily from our hotel franchising operations.

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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 surpluses or deficits may be generated.

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.

During the three months ended June 30, 2025 and 2024, reimbursable expenses from franchised and managed properties exceeded revenue for reimbursable costs from franchised and managed properties by $9.0 million and $3.1 million, respectively.

During the six months ended June 30, 2025 and 2024, reimbursable expenses from franchised and managed properties exceeded revenue for reimbursable costs from franchised and managed properties by $29.4 million and $25.7 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 March 31, 2025 and 2024

Comparison of the Operating Results for the Three Months Ended June 30, 2025 and 2024

Three Months Ended

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Interest income (1,456) (2,415)

Other loss 436 1,336

Equity in net loss of affiliates 51 155

Other (gain) loss (5,374) 2,544

Equity in net loss (gain) of affiliates 80 (7,933)

Total other expenses and income, net 15,986 16,041

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Results of Operations

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.

For the three months ended June 30, 2025, the Company recognized income before income taxes of $108.6 million, which is an $8.0 million decrease from the same period in the prior year.

The decrease in income before income taxes was primarily due to an $8.0 million decrease in operating income and an $8.0 million decrease in the equity in net loss (gain) of affiliates, all of which were partially offset by a $7.9 million increase in other (gain) loss.

Operating income decreased $8.0 million primarily due to a $5.9 million increase in the net reimbursable deficit from franchised and managed properties and a $2.7 million decrease in franchise and management fees.

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

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.

Domestic royalty fees decreased $3.7 million to $121.3 million for the three months ended June 30, 2025 from $125.0 million for the three months ended June 30, 2024.

The decrease in domestic royalty fees was primarily due to a 2.9% domestic system-wide RevPAR decrease as a result of a 1.8% decrease in average daily rates and a 70 basis points decrease in occupancy during the current period, which was partially offset by a system-wide 8 basis points increase in the effective royalty rate from 5.04% for the three months ended June 30, 2024 to 5.12% for the three months ended June 30, 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

March 31, 2025 March 31, 2024

June 30, 2025 June 30, 2024

Rate Occupancy RevPAR Average

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(4) Includes Econo Lodge and Rodeway brands.

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

A summary of the domestic hotels and rooms by brand in our franchise system as of June 30, 2025 and 2024 was as follows:

June 30, 2025 June 30, 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 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).

International royalty fees increased $0.5 million to $7.8 million for the three months ended June 30, 2025 from $7.3 million for the three months ended June 30, 2024.

The increase in international royalty fees was primarily due to an increase in the international franchise system size by 48 hotels (from 1,210 hotels as of June 30, 2024 to 1,258 hotels as of June 30, 2025) and 6,858 rooms (from 136,980 rooms as of June 30, 2024 to 143,838 rooms as of June 30, 2025), which was partially offset by a decrease in international RevPAR.

Selling, General and Administrative

Selling, general and administrative expenses increased $0.6 million primarily due to a $2.0 million increase in operating guarantee payments for a portfolio of managed hotels, which was acquired in connection with the Company's purchase of Radisson Hotels Americas, and general increases in costs to operate the franchising business, all of which were partially offset by a $2.4 million litigation settlement that was recognized during the three months ended June 30, 2024.

Other (Gain) Loss

Other (gain) loss increased $7.9 million primarily due to a $3.1 million increase in the Company's deferred compensation assets based on increases in the fair value of the underlying investments, a $1.5 million increase in foreign currency translation gains, and a $3.2 million unrealized loss on investments in equity securities that was recognized during the three months ended June 30, 2024.

Equity in Net Loss (Gain) of Affiliates

Equity in net loss (gain) of affiliates decreased $8.0 million primarily due to a distribution from an unconsolidated affiliate, which sold its underlying assets, resulting in the recognition of a $7.2 million gain during the three months ended June 30, 2024.

Income Tax Expense

The Company's effective income tax rates were 24.7% and 25.3% for the three months ended June 30, 2025 and 2024, 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 Six Months Ended June 30, 2025 and 2024

Six Months Ended

(in thousands) 2025 2024

Franchise and management fees $ 322,154 $ 323,213

Partnership services and fees 52,445 47,207

Owned hotels 58,088 53,409

Other 35,843 38,024

Revenue for reimbursable costs from franchised and managed properties 290,773 305,252

Total revenues 759,303 767,105

OPERATING EXPENSES

Selling, general and administrative 163,508 160,998

Business combination, diligence and transition costs 446 16,739

Depreciation and amortization 27,172 25,652

Owned hotels 43,479 40,027

Reimbursable expenses from franchised and managed properties 320,169 330,918

Total operating expenses 554,774 574,334

Operating income 204,529 192,771

OTHER EXPENSES AND INCOME, NET

Interest expense 43,978 44,026

Interest income (3,015) (4,146)

Other (gain) loss (4,938) 3,880

Equity in net loss (gain) of affiliates 131 (7,778)

Total other expenses and income, net 36,156 35,982

Income before income taxes 168,373 156,789

Income tax expense 42,105 38,644

Net income $ 126,268 $ 118,145

Results of Operations

For the six months ended June 30, 2025, the Company recognized income before income taxes of $168.4 million, which is an $11.6 million increase from the same period in the prior year.

The increase in income before income taxes is primarily due to an $11.8 million increase in operating income and an $8.8 million increase in other (gain) loss, all of which were partially offset by a $7.9 million decrease in equity in net loss (gain) of affiliates.

Operating income increased $11.8 million primarily due to a $5.2 million increase in partnership services and fees and a $16.3 million decrease in business combination, diligence and transition costs, all of which were partially offset by a $3.8 million increase in the net reimbursable deficit from franchised and managed properties, a $2.2 million decrease in other revenue, and a $2.5 million increase in selling, general and administrative expenses.

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

Franchise and Management Fees

Domestic royalty fees decreased $2.1 million to $215.8 million for the six months ended June 30, 2025 from $217.9 million for the six months ended June 30, 2024.

The decrease in domestic royalty fees was primarily due to a 0.7% domestic system-wide RevPAR decrease as a result of a 0.3% decrease in average daily rates and a 20 basis points decrease in occupancy, which was partially offset by a system-wide 7 basis points increase in the effective royalty rate from 5.04% for the six months ended June 30, 2024 to 5.11% for the six months ended June 30, 2025.

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

Six Months Ended Six Months Ended Change

June 30, 2025 June 30, 2024

Rate Occupancy RevPAR Average

Rate Occupancy RevPAR

Upscale & Above (1)

$ 146.63 55.2 % $ 80.91 $ 150.14 56.5 % $ 84.90 (2.3) % (130) bps (4.7) %

Midscale & Upper Midscale (2)

98.52 54.6 % 53.78 99.16 54.9 % 54.45 (0.6) % (30) bps (1.2) %

Extended Stay (3)

66.79 69.5 % 46.44 62.98 71.5 % 45.03 6.0 % (200) bps 3.1 %

70.73 46.9 % 33.19 69.66 46.2 % 32.20 1.5 % 70 bps 3.1 %

Total $ 94.48 55.3 % $ 52.25 $ 94.79 55.5 % $ 52.61 (0.3) % (20) bps (0.7) %

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

(2) Includes Clarion, Comfort Inn, Country Inn & Suites, Park Inn, 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 $0.2 million to $14.4 million for the six months ended June 30, 2025 from $14.2 million for the six months ended June 30, 2024.

The increase in international royalty fees was primarily due to an increase in the size of the international franchise system by 48 hotels (from 1,210 hotels as of June 30, 2024 to 1,258 hotels as of June 30, 2025) and 6,858 rooms (from 136,980 rooms as of June 30, 2024 to 143,838 rooms as of June 30, 2025), which was partially offset by a decrease in international RevPar.

Partnership Services and Fees

Partnership services and fees increased $5.2 million primarily due to an increase in the fees generated from the Company's co-branded credit card agreement and qualified vendors.

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Other revenues decreased $2.2 million primarily due to a decrease in liquidated damages resulting from the early termination of franchise agreements.

Selling, General and Administrative

Selling, general and administrative expenses increased $2.5 million primarily due to a $2.0 million increase in operating guarantee payments for a portfolio of managed hotels, which was acquired in connection with the Company's purchase of Radisson Hotels Americas, and general increases in costs to operate the franchising business, all of which were partially offset by a $2.4 million litigation settlement that was recognized during the six months ended June 30, 2024.

Business Combination, Diligence and Transition Costs

Business combination, diligence and transition costs decreased $16.3 million primarily due to the termination of the Wyndham acquisition pursuit on March 8, 2024.

Other (Gain) Loss

Other (gain) loss increased $8.8 million primarily due to an $8.4 million unrealized loss on investments in equity securities that was recognized during the six months ended June 30, 2024.

Equity in Net Loss (Gain) of Affiliates

Equity in net loss (gain) of affiliates decreased $7.9 million primarily due to a distribution from an unconsolidated affiliate, which sold its underlying assets, resulting in the recognition of a $7.2 million gain during the six months ended June 30, 2024.

Income Tax Expense

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 Company's effective income tax rates were 25.0% and 24.6% for the six months ended June 30, 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 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.

As of June 30, 2025, the Company's primary sources of liquidity consisted of $587.5 million in cash and cash equivalents and available borrowing capacity under the senior unsecured revolving credit facility.

As of June 30, 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 $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.

With respect to these activities, the Company had approximately $667.5 million in financial support of the Cambria Hotels and Everhome Suites brands reflected in the consolidated balance sheet as of June 30, 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 March 31, 2025, the Company had 3.4 million shares remaining under the current share repurchase authorization.

As of June 30, 2025, the Company had 3.0 million shares remaining under the current share repurchase authorization.

The projected 2025 annual dividend rate is $1.15 per share or approximately $53.5 million in aggregate dividend payments, which is subject to future declarations by our board of directors.

Cash Flows from Operating Activities

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.

During the six months ended June 30, 2025 and 2024, the net cash provided by operating activities was $116.1 million and $113.6 million, respectively.

Our operating cash flows increased $2.5 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.

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

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.

During the six months ended June 30, 2025 and 2024, the Company's net franchise agreement acquisition costs were $41.5 million and $52.0 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.

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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 $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.

The net cash used in investing activities was $95.1 million and $62.0 million for the six months ended June 30, 2025 and 2024, respectively.

During the six months ended June 30, 2025 and 2024, investments in owned hotel properties totaled $65.7 million and $50.9 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.

During the six months ended June 30, 2025 and 2024, investments in other property and equipment totaled $18.3 million and $22.7 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.

During the six months ended June 30, 2025 and 2024, the Company invested $9.4 million and $19.5 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 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.

During the six months ended June 30, 2025, the Company issued $3.4 million in notes receivable loans and received $2.8 million in notes receivable loan repayments.

During the six months ended June 30, 2024, the Company issued $1.5 million in notes receivable loans and received $1.7 million in notes receivable loan repayments.

Cash Flows from Financing Activities

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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 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.

As of June 30, 2025, the Company maintained a total leverage ratio of 2.91x, including outstanding debt of approximately $466.8 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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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.

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

During the six months ended June 30, 2025, the Company paid $26.9 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, 2025 is projected to be $1.15 per share or approximately $53.5 million in aggregate dividend payments.

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

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.

During the six months ended June 30, 2025, the Company repurchased 0.7 million shares of its common stock under the share repurchase program at a total cost, including accrued excise tax, of $100.4 million.

In total, the Company has repurchased 62.0 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 95.0 million shares at an average price of $28.81 per share.

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.

As of June 30, 2025, the Company had 3.0 million shares remaining under the current share repurchase authorization.

During the six months ended June 30, 2025, the Company redeemed 0.1 million shares of common stock at a total cost of $9.6 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 three months ended March 31, 2025, the Company received proceeds of $4.8 million from stock options exercised by employees.

During the six months ended June 30, 2025, the Company received proceeds of $6.4 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 three months ended March 31, 2025, there were no material changes to the critical accounting estimates that were previously disclosed.

During the six months ended June 30, 2025, there were no material changes to the critical accounting estimates that were previously disclosed.

New Accounting Standards

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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;

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;

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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