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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________
FORM 10-Q
_____________________________________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 001-13393
_____________________________________________
CHOICE HOTELS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________

Delaware |  | 52-1209792
(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
1 Choice Hotels Circle |  | 20850
Suite 400 |
Rockville, | Maryland |
(Address of Principal Executive Offices) |  | (Zip Code)

(Registrant’s telephone number, including area code): (301) 592-5000
(Former name, former address and former fiscal year, if changed since last report): N/A
________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class |  | Trading Symbol(s) |  | Name of Each Exchange on Which Registered
Common Stock, Par Value $0.01 per share |  | CHH |  | New York Stock Exchange

_____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ |  | Accelerated filer | ☐
Non-accelerated filer | ☐ |  | Smaller reporting company | ☐
|  |  | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock outstanding o n October 31, 2022 was 53,299,203.

Table of Contents
CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX

| PAGE NO.
PART I. FINANCIAL INFORMATION |
Item 1—Financial Statements (Unaudited) | 3
Consolidated Statements of Income -- For the three and nine months ended September 30, 2022 and 2021 | 3
Consolidated Statements of Comprehensive Income -- For the three and nine months ended September 30, 2022 and 2021 | 4
Consolidated Balance Sheets -- As of September 30, 2022 and December 31, 2021 | 5
Consolidated Statements of Cash Flows -- For the nine months ended September 30, 2022 and 2021 | 6
Consolidated Statements of Shareholders' Equity -- For the three and nine months ended September 30, 2022 and 2021 | 7
Notes to Consolidated Financial Statements | 9
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22
Item 3—Quantitative and Qualitative Disclosures About Market Risk | 41
Item 4—Controls and Procedures | 42
PART II. OTHER INFORMATION |
Item 1—Legal Proceedings | 43
Item 1A—Risk Factors | 43
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds | 44
Item 3—Defaults Upon Senior Securities | 44
Item 4—Mine Safety Disclosures | 44
Item 5—Other Information | 44
Item 6—Exhibits | 45
SIGNATURES | 46

2

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
REVENUES |  |  |  |  |  |  |
Royalty, licensing and management fees | $ | 144,020 |  |  | $ | 127,317 |  |  | $ | 356,208 |  |  | $ | 299,606 |
Initial franchise fees | 7,011 |  |  | 6,149 |  |  | 21,635 |  |  | 18,904 |
Procurement services | 14,401 |  |  | 13,010 |  |  | 47,887 |  |  | 36,293 |
Owned hotels | 19,992 |  |  | 11,377 |  |  | 49,220 |  |  | 24,724 |
Other | 31,432 |  |  | 8,645 |  |  | 51,588 |  |  | 20,753 |
Other revenues from franchised and managed properties | 197,410 |  |  | 156,871 |  |  | 513,429 |  |  | 384,380 |
Total revenues | 414,266 |  |  | 323,369 |  |  | 1,039,967 |  |  | 784,660 |
OPERATING EXPENSES |  |  |  |  |  |  |
Selling, general and administrative | 70,202 |  |  | 35,110 |  |  | 144,414 |  |  | 99,847 |
Depreciation and amortization | 8,726 |  |  | 5,883 |  |  | 20,436 |  |  | 18,477 |
Owned hotels | 13,158 |  |  | 7,054 |  |  | 32,004 |  |  | 16,534 |
Other expenses from franchised and managed properties | 190,541 |  |  | 116,216 |  |  | 458,037 |  |  | 327,674 |
Total operating expenses | 282,627 |  |  | 164,263 |  |  | 654,891 |  |  | 462,532 |
Gain on sale of business and assets, net | 13,379 |  |  | — |  |  | 16,688 |  |  | — |
Operating income | 145,018 |  |  | 159,106 |  |  | 401,764 |  |  | 322,128 |
OTHER INCOME AND EXPENSES, NET |  |  |  |  |  |  |
Interest expense | 9,362 |  |  | 11,638 |  |  | 32,084 |  |  | 35,106 |
Interest income | (2,348) |  |  | (1,202) |  |  | (5,256) |  |  | (3,717) |
Other loss (gain) | 2,303 |  |  | 407 |  |  | 9,578 |  |  | (2,906) |
Equity in net loss (gain) of affiliates | (1,075) |  |  | (3,326) |  |  | (1,279) |  |  | 1,492 |
Total other income and expenses, net | 8,242 |  |  | 7,517 |  |  | 35,127 |  |  | 29,975 |
Income before income taxes | 136,776 |  |  | 151,589 |  |  | 366,637 |  |  | 292,153 |
Income tax expense | 33,696 |  |  | 34,934 |  |  | 89,998 |  |  | 67,279 |
Net income | $ | 103,080 |  |  | $ | 116,655 |  |  | $ | 276,639 |  |  | $ | 224,874 |
Basic earnings per share | $ | 1.87 |  |  | $ | 2.10 |  |  | $ | 4.98 |  |  | $ | 4.05 |
Diluted earnings per share | $ | 1.85 |  |  | $ | 2.08 |  |  | $ | 4.93 |  |  | $ | 4.01 |
Cash dividends declared per share | $ | 0.2375 |  |  | $ | 0.225 |  |  | $ | 0.7125 |  |  | $ | 0.450 |

The accompanying notes are an integral part of these consolidated financial statements.
3

Table of Contents
CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Net income | $ | 103,080 |  |  | $ | 116,655 |  |  | $ | 276,639 |  |  | $ | 224,874 |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |
Foreign currency translation adjustment | (902) |  |  | (57) |  |  | (1,139) |  |  | 66 |
Other comprehensive income (loss), net of tax | (902) |  |  | (57) |  |  | (1,139) |  |  | 66 |
Comprehensive income | $ | 102,178 |  |  | $ | 116,598 |  |  | $ | 275,500 |  |  | $ | 224,940 |

The accompanying notes are an integral part of these consolidated financial statements.
4

Table of Contents
CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

| September 30, 2022 |  | December 31, 2021
ASSETS |  |  |
Current assets |  |  |
Cash and cash equivalents | $ | 52,541 |  |  | $ | 511,605 |
Accounts receivable (net of allowance for credit losses of $21,595 and $34,149, respectively) | 297,628 |  |  | 153,147 |
Income taxes receivable | 508 |  |  | 12,511 |
Notes receivable (net of allowance for credit losses of $4,291 and $4,318, respectively) | 52,381 |  |  | 54,453 |
Prepaid expenses and other current assets | 56,091 |  |  | 29,945 |
Total current assets | 459,149 |  |  | 761,661 |
Property and equipment, at cost (net of accumulated depreciation and amortization of $248,137 and $232,492, respectively) | 417,431 |  |  | 377,367 |
Operating lease right-of-use assets | 70,533 |  |  | 34,183 |
Goodwill | 227,703 |  |  | 159,196 |
Intangible assets (net of accumulated amortization of $188,689 and $195,909, respectively) | 723,617 |  |  | 312,389 |
Notes receivable (net of allowance for credit losses of $7,122 and $12,461, respectively) | 54,492 |  |  | 66,451 |
Investments, employee benefit plans, at fair value | 29,010 |  |  | 33,946 |
Investments in affiliates | 29,694 |  |  | 27,967 |
Deferred income taxes | 90,847 |  |  | 68,643 |
Other assets | 86,507 |  |  | 90,021 |
Total assets | $ | 2,188,983 |  |  | $ | 1,931,824 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |
Current liabilities |  |  |
Accounts payable | $ | 129,856 |  |  | $ | 81,169 |
Accrued expenses and other current liabilities | 125,227 |  |  | 104,472 |
Deferred revenue | 85,863 |  |  | 81,538 |
Current portion of long-term debt | 2,976 |  |  | 216,351 |
Liability for guest loyalty programs | 82,461 |  |  | 86,765 |
Total current liabilities | 426,383 |  |  | 570,295 |
Long-term debt | 1,155,142 |  |  | 844,123 |
Long-term deferred revenue | 134,171 |  |  | 105,785 |
Deferred compensation and retirement plan obligations | 43,053 |  |  | 38,690 |
Income taxes payable | 15,482 |  |  | 20,642 |
Operating lease liabilities | 70,564 |  |  | 35,492 |
Liability for guest loyalty programs | 49,113 |  |  | 41,785 |
Other liabilities | 10,564 |  |  | 9,130 |
Total liabilities | 1,904,472 |  |  | 1,665,942 |
Commitments and Contingencies |  |  |
Common stock, $0.01 par value; 160,000,000 shares authorized; 95,065,638 shares issued at September 30, 2022 and December 31, 2021; 53,773,667 and 55,609,226 shares outstanding at September 30, 2022 and December 31, 2021, respectively | 951 |  |  | 951 |
Additional paid-in-capital | 284,092 |  |  | 259,317 |
Accumulated other comprehensive loss | (5,713) |  |  | (4,574) |
Treasury stock, at cost; 41,291,971 and 39,456,412 shares at September 30, 2022 and December 31, 2021, respectively | (1,507,423) |  |  | (1,265,032) |
Retained earnings | 1,512,604 |  |  | 1,275,220 |
Total shareholders’ equity | 284,511 |  |  | 265,882 |
Total liabilities and shareholders’ equity | $ | 2,188,983 |  |  | $ | 1,931,824 |

The accompanying notes are an integral part of these consolidated financial statements.
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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

| Nine Months Ended
| September 30,
| 2022 |  | 2021
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |
Net income | $ | 276,639 |  |  | $ | 224,874 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization | 20,436 |  |  | 18,477 |
Depreciation and amortization – marketing, reservation, and system | 23,237 |  |  | 18,364 |
Gain on sale and disposal of business and assets, net | (16,688) |  |  | — |
Amortization - franchise agreement acquisition cost | 11,558 |  |  | 9,734 |
Stock compensation and other charges | 28,621 |  |  | 24,277 |
Interest and investment loss (income) | 9,135 |  |  | (11,039) |
Deferred income taxes | (22,402) |  |  | (34,285) |
Equity in net loss of affiliates, less distributions received | 2,451 |  |  | 8,421 |
Franchise agreement acquisition costs, net of reimbursements | (32,947) |  |  | (28,466) |
Change in working capital and other | (34,838) |  |  | 14,887 |
Net cash provided by operating activities | 265,202 |  |  | 245,244 |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |
Investment in property and equipment | (66,084) |  |  | (46,098) |
Investment in intangible assets | (3,247) |  |  | (3,113) |
Asset acquisitions, net of cash paid | (856) |  |  | — |
Proceeds from sale of business and assets | 140,554 |  |  | — |
Proceeds from termination of intangibles | 5,698 |  |  | — |
Business acquisition, net of cash acquired | (550,431) |  |  | — |
Contributions to investments in affiliates | (4,264) |  |  | (2,150) |
Proceeds from sale of equity method investments | — |  |  | 15,554 |
Purchases of investments, employee benefit plans | (3,719) |  |  | (1,279) |
Proceeds from sales of investments, employee benefit plans | 1,896 |  |  | 2,487 |
Issuance of notes receivable | (5,617) |  |  | (17,918) |
Collections of notes receivable | 701 |  |  | 63 |
Other items, net | 1,708 |  |  | (115) |
Net cash used in investing activities | (483,661) |  |  | (52,569) |
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |
Payments to extinguish acquired debt | (55,975) |  |  | — |
Proceeds from acquired derivative | 1,943 |  |  | — |
Net borrowings pursuant to revolving credit facilities | 315,000 |  |  | — |
Principal payments on 2012 senior notes | (216,571) |  |  | — |
Debt issuance costs | (24) |  |  | (365) |
Purchases of treasury stock | (246,530) |  |  | (10,039) |
Dividends paid | (39,697) |  |  | (12,528) |
Proceeds from exercise of stock options | 2,361 |  |  | 10,817 |
Net cash used in financing activities | (239,493) |  |  | (12,115) |
Net change in cash and cash equivalents | (457,952) |  |  | 180,560 |
Effect of foreign exchange rate changes on cash and cash equivalents | (1,112) |  |  | (223) |
Cash and cash equivalents at beginning of period | 511,605 |  |  | 234,779 |
Cash and cash equivalents at end of period | $ | 52,541 |  |  | $ | 415,116 |
Supplemental disclosure of cash flow information: |  |  |
Cash payments during the period for |  |  |
Income taxes, net of refunds | $ | 81,479 |  |  | $ | 58,229 |
Interest, net of capitalized interest | $ | 36,691 |  |  | $ | 36,519 |
Non-cash investing and financing activities |  |  |
Dividends declared but not paid | $ | 12,776 |  |  | $ | 12,517 |
Investment in property, equipment and intangibles acquired in accounts payable and accrued liabilities | $ | 5,352 |  |  | $ | 6,920 |
Asset acquisition from extinguishment of note receivable | $ | 20,446 |  |  | $ | — |

The accompanying notes are an integral part of these consolidated financial statements.
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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(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, 2020 | 55,535,554 |  |  | $ | 951 |  |  | $ | 233,921 |  |  | $ | (4,646) |  |  | $ | (1,260,478) |  |  | $ | 1,024,500 |  |  | $ | (5,752) |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 22,337 |  |  | 22,337 |
Other comprehensive income (loss), net of tax | — |  |  | — |  |  | — |  |  | 52 |  |  | — |  |  | — |  |  | 52 |
Share-based payment activity(1) | 48,781 |  |  | — |  |  | 3,617 |  |  | — |  |  | 4,030 |  |  | (3) |  |  | 7,644 |
Dividends declared(1) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Treasury purchases | (46,499) |  |  | — |  |  | — |  |  | — |  |  | (5,046) |  |  | — |  |  | (5,046) |
Balance as of March 31, 2021 | 55,537,836 |  |  | $ | 951 |  |  | $ | 237,538 |  |  | $ | (4,594) |  |  | $ | (1,261,494) |  |  | $ | 1,046,834 |  |  | $ | 19,235 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 85,882 |  |  | 85,882 |
Other comprehensive income (loss) | — |  |  | — |  |  | — |  |  | 71 |  |  | — |  |  | — |  |  | 71 |
Share based payment activity(1) | 111,895 |  |  | — |  |  | 9,066 |  |  | — |  |  | 3,516 |  |  | 1 |  |  | 12,583 |
Dividends declared ($0.225 per share)(1) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (12,521) |  |  | (12,521) |
Treasury purchases | (2,738) |  |  | — |  |  | — |  |  | — |  |  | (317) |  |  | — |  |  | (317) |
Balance as of June 30, 2021 | 55,646,993 |  |  | $ | 951 |  |  | $ | 246,604 |  |  | $ | (4,523) |  |  | $ | (1,258,295) |  |  | $ | 1,120,196 |  |  | $ | 104,933 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 116,655 |  |  | 116,655 |
Other comprehensive income (loss) | — |  |  | — |  |  | — |  |  | (57) |  |  | — |  |  | — |  |  | (57) |
Share based payment activity (1) | 23,757 |  |  | — |  |  | 6,757 |  |  | — |  |  | 1,045 |  |  | 6 |  |  | 7,808 |
Dividends declared ($0.225 per share) (1) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (12,517) |  |  | (12,517) |
Treasury purchases | (40,046) |  |  | — |  |  | — |  |  | — |  |  | (4,676) |  |  | — |  |  | (4,676) |
Balance as of September 30, 2021 | 55,630,704 |  |  | $ | 951 |  |  | $ | 253,361 |  |  | $ | (4,580) |  |  | $ | (1,261,926) |  |  | $ | 1,224,340 |  |  | $ | 212,146 |

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| 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, 2021 | 55,609,226 |  |  | $ | 951 |  |  | $ | 259,317 |  |  | $ | (4,574) |  |  | $ | (1,265,032) |  |  | $ | 1,275,220 |  |  | $ | 265,882 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 67,391 |  |  | 67,391 |
Other comprehensive income (loss), net of tax | — |  |  | — |  |  | — |  |  | (134) |  |  | — |  |  | — |  |  | (134) |
Share-based payment activity(1) | 262,008 |  |  | — |  |  | 6,068 |  |  | — |  |  | 3,486 |  |  | 4 |  |  | 9,558 |
Dividends declared ($0.2375 per share)(1) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (13,250) |  |  | (13,250) |
Treasury purchases | (100,912) |  |  | — |  |  | — |  |  | — |  |  | (14,802) |  |  | — |  |  | (14,802) |
Balance as of March 31, 2022 | 55,770,322 |  |  | $ | 951 |  |  | $ | 265,385 |  |  | $ | (4,708) |  |  | $ | (1,276,348) |  |  | $ | 1,329,365 |  |  | $ | 314,645 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 106,168 |  |  | 106,168 |
Other comprehensive income (loss), net of tax | — |  |  | — |  |  | — |  |  | (103) |  |  | — |  |  | — |  |  | (103) |
Share based payment activity(1) | 12,422 |  |  | — |  |  | 8,999 |  |  | — |  |  | 596 |  |  | — |  |  | 9,595 |
Dividends declared ($0.2375 per share)(1) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (13,242) |  |  | (13,242) |
Treasury purchases | (2,422) |  |  | — |  |  | — |  |  | — |  |  | (338) |  |  | — |  |  | (338) |
Balance as of June 30, 2022 | 55,780,322 |  |  | $ | 951 |  |  | $ | 274,384 |  |  | $ | (4,811) |  |  | $ | (1,276,090) |  |  | $ | 1,422,291 |  |  | $ | 416,725 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 103,080 |  |  | 103,080 |
Other comprehensive income (loss), net of tax | — |  |  | — |  |  | — |  |  | (902) |  |  | — |  |  | — |  |  | (902) |
Share based payment activity(1) | (1,655) |  |  | — |  |  | 9,708 |  |  | — |  |  | 55 |  |  | — |  |  | 9,763 |
Dividends declared ($0.2375 per share)(1) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (12,767) |  |  | (12,767) |
Treasury purchases | (2,005,000) |  |  | — |  |  | — |  |  | — |  |  | (231,388) |  |  | — |  |  | (231,388) |
Balance as of September 30, 2022 | 53,773,667 |  |  | $ | 951 |  |  | $ | 284,092 |  |  | $ | (5,713) |  |  | $ | (1,507,423) |  |  | $ | 1,512,604 |  |  | $ | 284,511 |

(1) In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, the Company suspended future, undeclared dividends. In May 2021, the Company resumed the payment of quarterly dividends, subject to future declarations by the Company's board of directors, and declared a quarterly cash dividend of $0.225 per share of common stock. On December 6, 2021, the Company's board of directors approved a 6% increase in the quarterly cash dividend and declared a quarterly cash dividend of $0.2375 per share of common stock. During certain periods presented, accumulated dividends were paid to certain shareholders upon vesting of performance vested restricted stock units ("PVRSU") which are captured in Share-based payment activity.
The accompanying notes are an integral part of these consolidated financial statements.
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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
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 its subsidiaries (together "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 consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at 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 financial statements presented in accordance with GAAP have been omitted. Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021 and notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 24, 2022. Interim results are not necessarily indicative of the entire year results.
Acquisition of Radisson Hotels Americas
On August 11, 2022, the Company completed the acquisition (the "Transaction") of (1) all of the issued and outstanding shares of Radisson Hospitality, Inc. and (2) certain trademarks held by Radisson Hospitality Belgium BV/SRL (collectively referred to as "Radisson Hotels Americas"). With the close of this Transaction, Choice Hotels International has added approximately 67,000 rooms across the United States, Canada, Caribbean and Latin America. The Transaction expands the Company's footprint in international markets and the upper-upscale and upscale full-service segments and enhances guest offerings in the core upper-midscale segment. It also accelerates our asset-light strategy of growth in higher revenue travel segments and locations.
The Company has determined it is the accounting acquirer of Radisson Hotels Americas and has accounted for the Transaction as a business combination using the acquisition method of accounting. Accordingly, assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date.
Other revenues and expenses from franchised and managed properties
In conjunction with the third quarter acquisition of Radisson Hotels Americas, Inc., which resulted in the Company acquiring certain management contracts, the Company has revised its historical presentation of marketing, reservation and system fees and expenses to include fees and expenses related to the acquired management contracts.
The presentation of Other revenues from franchised and managed properties represents amounts contractually reimbursable by, or amounts billed and collected in advance from, owners of franchised and managed properties, relating to certain costs and expenses paid by us in support of the operations of these properties. Indirect and direct reimbursements are as follows:
•Direct reimbursements include payroll and related costs and certain other operating costs of the managed and franchised properties' operations, which are contractually reimbursed to us by the property owners as expenses are incurred. Revenue is recognized based on the amount of expenses incurred by Choice, which are presented as other expenses from managed and franchised properties in our consolidated statements of operations, that are then reimbursed to us by the property owner typically on a monthly basis, which results in no net effect on operating income or net income.
•Indirect reimbursements include marketing, reservation, system and other expenses associated with our brand programs and shared services, which are paid from royalties and program fees collected by Choice from the managed and franchised properties. Indirect reimbursements are typically billed and collected monthly, based on the underlying hotel's sales or usage (such as gross room revenue or number of reservations processed), and revenue is generally recognized as services are provided. The expenses incurred by Choice to operate the marketing and brand programs
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and shared services are recognized as incurred and presented as Other expenses from managed and franchised properties in our consolidated statements of income and are expected to equal the revenues earned from indirect reimbursements over time.
Royalty, licensing and management fees
In conjunction with the Transaction, the Company has revised its historical presentation of Royalty fees to Royalty, licensing and management fees to reflect current and future period activity, which includes revenue associated with the acquired management contracts.
Initial franchise fees
The Company has revised its historical presentation of Initial franchise and relicensing fees to Initial franchise fees.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are detailed in the “Summary of Significant Accounting Policies” section of Note 1 in the Annual Report on Form 10-K for the year ended December 31, 2021.
Recently Adopted Accounting Standards
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"). ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Revenue from Contracts with Customers (Topic 606), as if the acquirer had originated the contracts at the date of the business combination. ASU 2021-08 is effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted.
The Company elected to early adopt ASU 2021-08 in the second quarter of 2022. There was no retrospective impact to our consolidated financial statement as a result of the adoption. ASU 2021-08 was applied in the accounting for the acquisition of Radisson Hotels Americas, and accordingly, the Company determined that the carrying value of the contract assets and contract liabilities of Radisson Hotels Americas reflects fair value (see Note 15).
Recently Issued Accounting Standards
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses ("ASU 2022-02"). ASU 2022-02 eliminates the recognition and measurement guidance on troubled debt restructuring for creditors that have adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) ("Topic 326"), requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty, and includes new guidance on current-period gross write-offs presentation. ASU 2022-02 is effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the potential impact that ASU 2022-02 will have on the consolidated financial statements and disclosures.
2. Revenue
Contract Liabilities
Contract liabilities relate to (i) advance consideration received, such as initial franchise fees paid when a franchise agreement is executed and system implementation fees paid at time of installation, for services considered to be part of the brand intellectual property performance obligation and (ii) amounts received when loyalty points are issued, but for which revenue is not yet recognized since the related loyalties points have not been redeemed.
Deferred revenues from initial fees and system implementation fees are typically recognized over a five- to ten-year period, unless the franchise agreement is terminated and the hotel exits the franchise system whereby remaining deferred amounts are recognized to revenue in the period of termination. Loyalty points are typically redeemed within three years of issuance.
Significant changes in the contract liabilities balances during the period December 31, 2021 to September 30, 2022 are as follows:

(in thousands) |
Balance as of December 31, 2021 | $ | 175,425 |
Assumption of contract liabilities from Radisson Hotels Americas acquisition | 30,031 |
Increases to the contract liability balance due to cash received | 84,356 |
Revenue recognized in the period | (86,473) |
Balance as of September 30, 2022 | $ | 203,339 |

Remaining Performance Obligations
The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $203.3 million as of September 30, 2022. This amount represents fixed transaction price that will be recognized as revenue in future periods, which is captured in the consolidated balance sheet as current and non-current deferred revenue.
Based on 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 software as a service ("SaaS") agreements), (ii) variable consideration for which we recognize revenue at the amount to which we have the right to invoice for services performed, or (iii) contracts with an expected original duration of one year or less.
Disaggregation of Revenue

| Three Months Ended |  | Three Months Ended
| September 30, 2022 |  | September 30, 2021
(in thousands) | Over time |  | Point in time |  | Total |  | Over time |  | Point in time |  | Total
Royalty, licensing and management fees | $ | 143,987 |  |  | $ | 33 |  |  | $ | 144,020 |  |  | $ | 127,317 |  |  | $ | — |  |  | $ | 127,317 |
Initial franchise fees | 7,011 |  |  | — |  |  | 7,011 |  |  | 6,149 |  |  | — |  |  | 6,149 |
Procurement services | 13,628 |  |  | 773 |  |  | 14,401 |  |  | 12,285 |  |  | 725 |  |  | 13,010 |
Owned hotels | 14,854 |  |  | 5,115 |  |  | 19,969 |  |  | 9,614 |  |  | 1,652 |  |  | 11,266 |
Other | 31,432 |  |  | — |  |  | 31,432 |  |  | 8,645 |  |  | — |  |  | 8,645 |
Other revenues from franchised and managed properties | 178,349 |  |  | 19,061 |  |  | 197,410 |  |  | 145,216 |  |  | 11,655 |  |  | 156,871 |
Total Topic 606 revenues | $ | 389,261 |  |  | $ | 24,982 |  |  | 414,243 |  |  | $ | 309,226 |  |  | $ | 14,032 |  |  | 323,258 |
Non-Topic 606 revenues |  |  |  |  | 23 |  |  |  |  |  |  | 111 |
Total revenues |  |  |  |  | $ | 414,266 |  |  |  |  |  |  | $ | 323,369 |
| Nine Months Ended |  | Nine Months Ended
| September 30, 2022 |  | September 30, 2021
(in thousands) | Over time |  | Point in time |  | Total |  | Over time |  | Point in time |  | Total
Royalty, licensing and management fees | $ | 356,175 |  |  | $ | 33 |  |  | $ | 356,208 |  |  | $ | 299,606 |  |  | $ | — |  |  | $ | 299,606 |
Initial franchise fees | 21,635 |  |  | — |  |  | 21,635 |  |  | 18,904 |  |  | — |  |  | 18,904 |
Procurement services | 45,503 |  |  | 2,384 |  |  | 47,887 |  |  | 34,526 |  |  | 1,767 |  |  | 36,293 |
Owned hotels | 39,490 |  |  | 9,500 |  |  | 48,990 |  |  | 20,683 |  |  | 3,709 |  |  | 24,392 |
Other | 51,588 |  |  | — |  |  | 51,588 |  |  | 20,753 |  |  | — |  |  | 20,753 |
Other revenues from franchised and managed properties | 438,734 |  |  | 74,695 |  |  | 513,429 |  |  | 346,211 |  |  | 38,169 |  |  | 384,380 |
Total Topic 606 revenues | $ | 953,125 |  |  | $ | 86,612 |  |  | 1,039,737 |  |  | $ | 740,683 |  |  | $ | 43,645 |  |  | 784,328 |
Non-Topic 606 revenues |  |  |  |  | 230 |  |  |  |  |  |  | 332 |
Total revenues |  |  |  |  | $ | 1,039,967 |  |  |  |  |  |  | $ | 784,660 |

Other revenues from franchised and managed properties and Royalty, licensing and management fees point in time revenues represent loyalty points redeemed by members for benefits (with both franchisees and third-party partners), net of the cost of redemptions. Other revenues include contract termination fees of $22.6 million related to the termination of 110 WoodSpring units. The termination fees recognized represent the $67.4 million in consideration less the carrying basis of the related contract intangibles.
As presented in Note 11, the Corporate & Other segment revenue amounts represent $29.7 million and $13.5 million for the three months ended September 30, 2022 and 2021, respectively, and $63.4 million and $30.5 million for the nine months ended September 30, 2022 and 2021, respectively, and are included in the Over time column of Other revenues and the Owned hotels and Non-Topic 606 revenues rows. The remaining revenues relate to the Hotel Franchising segment.
Royalty, licensing and management fees and Other revenues from franchised and managed properties are presented net of intersegment revenues of $1.6 million and $0.9 million for the three months ended September 30, 2022 and 2021, respectively, and $3.7 million and $1.9 million for the nine months ended September 30, 2022 and 2021, respectively.
3. Receivables and Allowance for Credit Losses
Notes Receivable
The Company has provided financing in the form of notes receivable loans to franchisees to support the development of properties in strategic markets. The Company's credit quality indicator is the level of security in the note receivable.
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The composition of notes receivable balances by credit quality indicator and the allowance for credit losses is as follows:

(in thousands) | September 30, 2022 |  | December 31, 2021
Senior | $ | 95,501 |  |  | $ | 108,370 |
Subordinated | 17,406 |  |  | 27,801 |
Unsecured | 5,379 |  |  | 1,512 |
Total notes receivable | 118,286 |  |  | 137,683 |
Total allowance for notes receivable credit losses | 11,413 |  |  | 16,779 |
Total notes receivable, net of allowance | $ | 106,873 |  |  | $ | 120,904 |
Current portion, net of allowance | $ | 52,381 |  |  | $ | 54,453 |
Long-term portion, net of allowance | $ | 54,492 |  |  | $ | 66,451 |

Amortized cost basis by year of origination and credit quality indicator are as follows:

(in thousands) | 2022 |  | 2021 |  | 2020 |  | Prior |  | Total
Senior | $ | — |  |  | $ | 7,838 |  |  | $ | — |  |  | $ | 87,663 |  |  | $ | 95,501 |
Subordinated | — |  |  | — |  |  | — |  |  | 17,406 |  |  | 17,406 |
Unsecured | 424 |  |  | 2,109 |  |  | 1,131 |  |  | 1,715 |  |  | 5,379 |
Total notes receivable | $ | 424 |  |  | $ | 9,947 |  |  | $ | 1,131 |  |  | $ | 106,784 |  |  | $ | 118,286 |

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

(in thousands) | September 30, 2022 |  | December 31, 2021
Beginning balance | $ | 16,779 |  |  | $ | 19,484 |
Provision for credit losses | 303 |  |  | 709 |
Write-offs | (5,669) |  |  | (3,414) |
Ending balance | $ | 11,413 |  |  | $ | 16,779 |

As of September 30, 2022 and December 31, 2021, one and two loans, respectively, with senior and/or subordinated tranches met the definition of collateral-dependent and are collateralized by membership interests in the borrowing entities and either the associated land parcels or an operating hotel. The Company used a discounted cash flow ("DCF") market approach via quoted market prices 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 three of the fair value measurement hierarchy, as there are unobservable inputs which are significant to the overall fair value. Based on these analyses, the fair value of collateral secures substantially all of the carrying value of each loan. Allowances for credit losses attributable to collateral-dependent loans are $0.9 million and $6.3 million as of September 30, 2022 and December 31, 2021, respectively.
The write-offs for the year ended September 30, 2022 and December 31, 2021 are primarily associated with loans previously classified as collateral-dependent that were settled in exchange for an operating hotel on April 14, 2022 and October 1, 2021, respectively, as well as one loan that was settled under negotiated terms. Refer to Note 15 regarding the second quarter 2022 asset acquisition accounting.
The Company considers loans past due and in default when payments are not made when due in accordance with then current loan provisions or terms extended to borrowers, including loans with concessions or interest deferral. The Company suspends the accrual of interest when payments on loans are more than 30 days past due or upon a loan being classified as collateral-dependent. The Company applies payments received for loans on non-accrual status first to interest and then to principal. The Company does not resume interest accrual until all delinquent payments are received based on then current loan provisions. The amortized cost basis of notes receivable on non-accrual status was $18.2 million and $44.1 million at September 30, 2022 and December 31, 2021, respectively.
The Company has identified loans totaling approximately $4.8 million and $7.5 million as of September 30, 2022 and December 31, 2021, respectively, with stated interest rates that are less than market rate, representing a total unamortized discount of $0.1 million and $0.3 million as of September 30, 2022 and December 31, 2021, respectively. These discounts are reflected as a reduction of the outstanding loan amounts and are amortized over the life of the related loan.
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The past due balances by credit quality indicator of notes receivable are as follows:

(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 September 30, 2022 |  |  |  |  |  |  |  |  |  |  |
Senior | $ | — |  |  | $ | — |  |  | $ | 15,188 |  |  | $ | 15,188 |  |  | $ | 80,313 |  |  | $ | 95,501 |
Subordinated | — |  |  | — |  |  | 2,209 |  |  | 2,209 |  |  | 15,197 |  |  | 17,406 |
Unsecured | 20 |  |  | 40 |  |  | 20 |  |  | 80 |  |  | 5,299 |  |  | 5,379 |
| $ | 20 |  |  | $ | 40 |  |  | $ | 17,417 |  |  | $ | 17,477 |  |  | $ | 100,809 |  |  | $ | 118,286 |
As of December 31, 2021 |  |  |  |  |  |  |  |  |  |  |
Senior | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 108,370 |  |  | $ | 108,370 |
Subordinated | — |  |  | — |  |  | 2,209 |  |  | 2,209 |  |  | 25,592 |  |  | 27,801 |
Unsecured | — |  |  | — |  |  | — |  |  | — |  |  | 1,512 |  |  | 1,512 |
| $ | — |  |  | $ | — |  |  | $ | 2,209 |  |  | $ | 2,209 |  |  | $ | 135,474 |  |  | $ | 137,683 |

The Company evaluated its off-balance-sheet credit exposure for loan commitments and determined the likelihood of having to perform is remote as of September 30, 2022. Refer to Note 12.
Variable Interest through Notes Issued
The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $102.3 million and $120.2 million as of September 30, 2022 and December 31, 2021, respectively. The Company has determined that it is not the primary beneficiary of these variable interest entities ("VIEs"). These loans have stated fixed and/or variable interest amounts.
Accounts Receivable
Accounts receivable consist primarily of franchise and related fees due from hotel franchisees and are recorded at the invoiced amount.
During the nine months ended September 30, 2022, the Company recorded reversals of provisions for credit losses on accounts receivable of $0.4 million in SG&A expenses and provisions of $0.5 million in marketing and reservation system expenses. During the nine months ended September 30, 2021, the Company recorded reversal of provisions for credit losses on accounts receivable of $2.2 million in SG&A expenses and provisions of $4.2 million in marketing and reservation system expenses. During the nine months ended September 30, 2022 and 2021, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $12.9 million and $5.5 million, respectively. The Company assumed $33.0 million of trade accounts receivable as a result of the Radisson acquisition.
4. Investments in Affiliates
The Company maintains equity method investments in affiliates related to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets. The Company has investments in affiliates that represent VIEs totaling $24.4 million and $25.2 million on the consolidated balance sheets at September 30, 2022 and December 31, 2021, respectively. The Company has determined that it is not the primary beneficiary of any of these VIEs, however it does exercise significant influence through its equity ownership and as a result the investment in these affiliates is accounted for under the equity method. For the three months ended September 30, 2022 and 2021, the Company recognized losses (gains) totaling $1.1 million and $(2.5) million, respectively, from these investments that represent VIEs. For the nine months ended September 30, 2022 and 2021, the Company recognized losses totaling $2.7 million and $3.0 million, respectively, from these investments that represent VIEs. The Company's maximum exposure to losses related to its investments in VIEs is limited to its equity investments as well as certain limited payment guaranties described in Note 12 of these financial statements.
The Company recognized no impairment charges related to equity method investments, nor did we sell an ownership in a joint venture during the nine months ended September 30, 2022.
During the first quarter of 2021, the Company recognized an other-than-temporary impairment of $4.8 million related to an equity method investment. The Company assessed the estimated fair value of the investment from comparable market transactions of the investment, which was a key judgment in the fair value determination. This nonrecurring fair value measurement was classified as level three of the fair value measurement hierarchy, as the Company utilized unobservable inputs which are significant to the overall fair value. Based on this analysis, the Company determined that the fair market value declined below the carrying value and the decline is other-than-temporary. As a result, the Company recorded an other-than-
temporary impairment from the carrying value to the estimated fair value for the investment. The other-than-temporary impairment is classified as equity in net loss (gain) of affiliates in the consolidated statements of income and captured in the Hotel Franchising reportable segment in Note 11.
During the second quarter of 2021, the Company sold its ownership interest in three separate equity method investments. The Company recognized a cumulative gain of $2.6 million on the sales of these investments, which is recorded in equity in net loss (gain) of affiliates.
During the third quarter of 2021, a joint venture for which the Company maintains an ownership interest sold its underlying assets. The Company received a distribution and recognized a gain of $4.3 million, which is recorded in equity in net loss (gain) of affiliates.
5. Debt
Debt consists of the following:

| September 30, 2022 |  | December 31, 2021
| (in thousands)
$450 million senior unsecured notes due 2031 ("2020 Senior Notes") with an effective interest rate of 3.86%, less a discount and deferred issuance costs of $5.1 million and $5.5 million at September 30, 2022 and December 31, 2021, respectively | $ | 444,927 |  |  | $ | 444,470 |
$400 million senior unsecured notes due 2029 ("2019 Senior Notes") with an effective interest rate of 3.88%, less a discount and deferred issuance costs of $4.3 million and $4.8 million at September 30, 2022 and December 31, 2021, respectively | 395,688 |  |  | 395,237 |
$216.6 million senior unsecured notes due 2022 ("2012 Senior Notes") with an effective interest rate of 6.00%, less deferred issuance costs of $0.2 million at December 31, 2021 (1) | — |  |  | 216,351 |
$600 million senior unsecured revolving credit facility with an effective interest rate of 3.89% less deferred issuance costs of $1.9 million and $2.3 million at September 30, 2022 and December 31, 2021, respectively | 313,087 |  |  | — |
Economic development loans with an effective interest rate of 3.00% at September 30, 2022 and December 31, 2021, respectively | 4,416 |  |  | 4,416 |
Total debt (2) | $ | 1,158,118 |  |  | $ | 1,060,474 |
Less current portion (1) | 2,976 |  |  | 216,351 |
Long-term debt | $ | 1,155,142 |  |  | $ | 844,123 |

(1) The 2012 Senior Notes matured on July 1, 2022. The outstanding principal of $216.6 million was re-paid at maturity.
(2) As part of the Transaction, we assumed debt that was subsequently paid off. For additional details refer to Note 15.
Refer to Note 12 and the Liquidity and Capital Resources header of "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information.
6. Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss, net of tax, for the nine months ended September 30, 2022 and 2021 are as follows:

(in thousands) |  |  |
Balance as of December 31, 2021 |  |  | $ | (4,574) |
Other comprehensive income (loss) before reclassification |  |  | (1,139) |
Net current period other comprehensive income (loss) |  |  | (1,139) |
Balance as of September 30, 2022 |  |  | $ | (5,713) |

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(in thousands) |  |  |
Balance as of December 31, 2020 |  |  | $ | (4,646) |
Other comprehensive income (loss) before reclassification |  |  | 66 |
Net current period other comprehensive income (loss) |  |  | 66 |
Balance as of September 30, 2021 |  |  | $ | (4,580) |

The other comprehensive income (loss) before reclassification for both the nine months ended September 30, 2022 and 2021 relate to foreign currency items.
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 marketable securities (primarily mutual funds) held in the 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 whose fair value was determined using Level 3 inputs and there were no transfers of Level 3 assets during the nine months ended September 30, 2022.
As of September 30, 2022 and December 31, 2021, the Company had the following assets recorded in the consolidated balance sheets measured at fair value on a recurring basis:

| Fair Value Measurements at Reporting Date Using
(in thousands) | Total |  | Level 1 |  | Level 2 |  | Level 3
As of September 30, 2022 |  |  |  |  |  |  |
Mutual funds (1) | $ | 26,822 |  |  | $ | 26,822 |  |  | $ | — |  |  | $ | — |
Money market funds (1) | 3,042 |  |  | — |  |  | 3,042 |  |  | — |
Total | $ | 29,864 |  |  | $ | 26,822 |  |  | $ | 3,042 |  |  | $ | — |
As of December 31, 2021 |  |  |  |  |  |  |
Mutual funds (1) | $ | 33,555 |  |  | $ | 33,555 |  |  | $ | — |  |  | $ | — |
Money market funds (1) | 2,520 |  |  | — |  |  | 2,520 |  |  | — |
Total | $ | 36,075 |  |  | $ | 33,555 |  |  | $ | 2,520 |  |  | $ | — |

(1) Included in Investments, employee benefit plans, at fair value and Prepaid expenses and other current assets on 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 rates of the Company's senior unsecured revolving credit facility adjust frequently based on current market rates; accordingly, we believe its carrying amount, when amounts are drawn, approximates fair value.
The fair values of the Company's senior unsecured notes are classified as Level 2, as the significant inputs are observable in an active market. Refer to Note 5 for further information on debt, including the maturity of the 2012 Senior Notes. At September 30, 2022 and December 31, 2021, the carrying amounts and fair values are as follows:

| September 30, 2022 |  | December 31, 2021
(in thousands) | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
2020 Senior Notes | $ | 444,927 |  |  | $ | 371,682 |  |  | $ | 444,470 |  |  | $ | 477,675 |
2019 Senior Notes | 395,688 |  |  | 336,860 |  |  | 395,237 |  |  | 425,984 |
2012 Senior Notes | — |  |  | — |  |  | 216,351 |  |  | 221,702 |

Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement of such fair value amounts may not be possible or a prudent management decision.
8. Income Taxes
The effective income tax rates were 24.6% and 23.1% for the three months ended September 30, 2022 and 2021, respectively. The effective income tax rates were 24.5% and 23.0% for the nine months ended September 30, 2022 and 2021, respectively.
The effective income tax rate for the three months ended September 30, 2022 was higher than the U.S. federal income tax rate of 21% primarily due to the impact of state income taxes.
The effective income tax rate for the three months ended September 30, 2021 was higher than the U.S. federal income tax rate of 21% primarily due to the impact of state income taxes, partially offset by excess tax benefits from share-based compensation.
The effective income tax rates for the nine months ended September 30, 2022 and 2021 were higher than the U.S. federal income tax rate of 21% primarily due to the impact of state income taxes, partially offset by excess tax benefits from share-based compensation.
9. Share-Based Compensation and Capital Stock
The components of the Company’s pretax share-based compensation activity are as follows for the three and nine months ended September 30, 2022 and 2021:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Stock options | $ | 1,216 |  |  | $ | 933 |  |  | $ | 3,445 |  |  | $ | 2,482 |
Restricted stock awards | 3,763 |  |  | 2,285 |  |  | 10,364 |  |  | 7,126 |
Performance vested restricted stock units | 4,887 |  |  | 2,950 |  |  | 13,051 |  |  | 7,760 |
Total share-based compensation expense | $ | 9,866 |  |  | $ | 6,168 |  |  | $ | 26,860 |  |  | $ | 17,368 |

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

| Stock Options |  | Restricted Stock |  | Performance Vested Restricted Stock Units
| Options |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Shares |  | Weighted Average Grant Date Fair Value |  | Shares |  | Weighted Average Grant Date Fair Value
Outstanding at January 1, 2022 | 910,944 |  |  | $ | 83.14 |  |  |  |  | 236,599 |  |  | $ | 92.60 |  |  | 412,642 |  |  | $ | 114.70 |
Granted | 172,441 |  |  | 143.91 |  |  |  |  | 267,206 |  |  | 144.45 |  |  | 111,585 |  |  | 181.91 |
Performance-Based Leveraging (1) | — |  |  | — |  |  |  |  | — |  |  | — |  |  | 27,775 |  |  | 153.75 |
Exercised/Vested | (43,934) |  |  | 53.70 |  |  |  |  | (95,130) |  |  | 87.23 |  |  | — |  |  | — |
Expired | (986) |  |  | 51.49 |  |  |  |  | — |  |  | — |  |  | (78,370) |  |  | 81.15 |
Forfeited | (3,255) |  |  | 131.73 |  |  |  |  | (11,433) |  |  | 106.12 |  |  | (3,819) |  |  | 125.04 |
Outstanding at September 30, 2022 | 1,035,210 |  |  | $ | 94.39 |  |  | 5.7 |  | 397,242 |  |  | $ | 128.38 |  |  | 469,813 |  |  | $ | 136.32 |
Options exercisable at September 30, 2022 | 546,114 |  |  | $ | 76.29 |  |  | 3.5 |  |  |  |  |  |  |  |

(1) PVRSUs outstanding have been increased by 27,775 units in the nine months ended September 30, 2022 due to the Company exceeding the targeted performance conditions contained in PVRSUs.
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Stock Options
The stock options granted by the Company had an exercise price equal to the market price of the Company's common stock on the date of grant. The fair value of the options granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

| 2022 Grants
Risk-free interest rate | 2.01 | %
Expected volatility | 29.46 | %
Expected life of stock option | 5.9 years
Dividend yield | 0.66 | %
Requisite service period | 4 years
Contractual life | 10 years
Weighted average fair value of options granted (per option) | $ | 42.66 |

Restricted Stock Awards
The Company grants two types of restricted stock awards: i) shares of restricted stock and ii) restricted stock units ("RSU"). Shares of restricted stock provide the participant a non-forfeitable right to dividends, if declared, and the right to vote as a shareholder while the shares are unvested. RSUs provide the participant declared dividends that are contingent upon vesting of the award. Restricted stock awards generally vest ratably over the service period beginning with the first anniversary of the grant date. The fair value of restricted stock awards is measured by the market price of the Company's common stock on the date of grant. The service period of restricted stock awards granted during the nine months ended September 30, 2022 range from 9 to 60 months.
Performance Vested Restricted Stock Units
The Company grants three types of PVRSU awards: i) PVRSUs with performance conditions based on internal performance conditions, including earnings per share ("EPS") relative to Company established targets, ii) PVRSUs with market conditions based on the Company's total shareholder return ("TSR") relative to a predetermined peer group, and iii) PVRSUs with both performance and market conditions. The vesting of PVRSU awards is contingent upon the Company achieving internal performance and/ or TSR targets over a specified period and the employees' continued employment for a service period. These performance and market conditions affect the number of shares that will ultimately vest.
During the nine months ended September 30, 2022, the Company granted PVRSUs with market conditions, PVRSUs with performance conditions and PVRSUs with performance and market conditions with requisite service periods between 9 months and 60 months with award vesting ranges between 0% and 300% of the initial units granted.
The fair value of PVRSUs with only internal performance conditions is measured by the market price of the Company's common stock on the date of award grant. Compensation expense is recognized ratably over the requisite service period based on the Company's estimate of the achievement of the performance conditions. Management monitors current results and forecasts of the relevant internal performance and, as necessary, adjusts the performance-based leveraging of unvested PVRSUs.
The fair value of PVRSUs with market conditions is estimated using a Monte Carlo simulation method as of the date of award grant. Compensation expense is recognized ratably over the requisite service period, regardless of whether the market conditions are achieved and the awards ultimately vest.
The fair value of PVRSUs with both performance and market conditions is estimated using a Monte Carlo simulation method as of the date of award grant. Compensation expense is recognized ratably over the requisite service period based on the Company's estimate of the achievement of the performance conditions, with subsequent adjustments made for performance-based leveraging of unvested PVRSUs, as necessary.
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Share Repurchases and Redemptions
In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, the Company suspended activity under the Company's share repurchase program. In May 2021, the Company's board of directors approved resumption of the share repurchase program. On September 14, 2022, the Company’s board of directors approved an increase in the number of the shares authorized under its share repurchase program by five million shares, bringing the total program to approximately 6.7 million shares authorized as of that date. Refer to the Liquidity and Capital Resources header of "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information.
During the three months ended September 30, 2022, 2,004,386 shares of common stock were purchased under the share repurchase program at a total cost of $231.3 million. During the nine months ended September 30, 2022, 2,072,872 shares of common stock were purchased under the share repurchase program at a total cost of $241.2 million. During the three and nine months ended September 30, 2021, there were 34,746 and 36,328 purchases of common stock under the share repurchase program at a total cost of $4.0 million and $4.2 million, respectively. During the three months ended September 30, 2022 and 2021, the Company redeemed 614 and 5,300 shares of common stock at a total cost of $0.1 million and $0.7 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants. During the nine months ended September 30, 2022 and 2021, the Company redeemed 35,462 and 52,955 shares of common stock at a total cost of $5.3 million and $5.8 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants. These redemptions were outside the share repurchase program.
10. Earnings Per Share
The Company’s shares of restricted stock contain rights to receive nonforfeitable dividends and thus are participating securities requiring the computation of basic EPS using the two-class method. As the shares of restricted stock are both potential shares of common stock and participating securities, the Company calculates diluted earnings per share by the more dilutive of the treasury stock method or the two-class method. The calculation of EPS for net income available to common shareholders excludes the distribution of dividends and undistributed earnings attributable to participating securities from the numerator. The diluted earnings weighted average shares of common stock outstanding includes stock options, PVRSUs and RSUs.
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The computation of basic and diluted earnings per share of common stock is as follows:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
(in thousands, except per share amounts) | 2022 |  | 2021 |  | 2022 |  | 2021
Numerator: |  |  |  |  |  |  |
Net income | $ | 103,080 |  |  | $ | 116,655 |  |  | $ | 276,639 |  |  | $ | 224,874 |
Income allocated to participating securities | (614) |  |  | (420) |  |  | (1,526) |  |  | (910) |
Net income available to common shareholders | $ | 102,466 |  |  | $ | 116,235 |  |  | $ | 275,113 |  |  | $ | 223,964 |
Denominator: |  |  |  |  |  |  |
Weighted average shares of common stock outstanding – basic | 54,847 |  |  | 55,427 |  |  | 55,233 |  |  | 55,360 |
Basic earnings per share | $ | 1.87 |  |  | $ | 2.10 |  |  | $ | 4.98 |  |  | $ | 4.05 |
Numerator: |  |  |  |  |  |  |
Net income | $ | 103,080 |  |  | $ | 116,655 |  |  | $ | 276,639 |  |  | $ | 224,874 |
Income allocated to participating securities | (614) |  |  | (420) |  |  | (1,526) |  |  | (910) |
Net income available to common shareholders | $ | 102,466 |  |  | $ | 116,235 |  |  | $ | 275,113 |  |  | $ | 223,964 |
Denominator: |  |  |  |  |  |  |
Weighted average shares of common stock outstanding – basic | 54,847 |  |  | 55,427 |  |  | 55,233 |  |  | 55,360 |
Dilutive effect of stock options and PVRSUs | 395 |  |  | 478 |  |  | 520 |  |  | 429 |
Weighted average shares of common stock outstanding – diluted | 55,242 |  |  | 55,905 |  |  | 55,753 |  |  | 55,789 |
Diluted earnings per share | $ | 1.85 |  |  | $ | 2.08 |  |  | $ | 4.93 |  |  | $ | 4.01 |

The following securities have been excluded from the calculation of diluted weighted average shares of common stock outstanding as the inclusion of these securities would have an anti-dilutive effect:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Stock options | 170 |  |  | — |  |  | 154 |  |  | — |
PVRSUs | 75 |  |  | 155 |  |  | 75 |  |  | 155 |

11. Reportable Segment Information
The Hotel Franchising reportable segment includes the Company's hotel franchising operations consisting of its 23 brands and brand extensions. The 23 brands and brand extensions are aggregated within this segment considering their similar economic characteristics, types of customers, distribution channels and regulatory business environments. Revenues from the hotel franchising business include royalty fees, initial franchise fees, marketing and reservation system fees, procurement services revenue and other hotel franchising related revenue. The Company is obligated under its hotel franchise agreements to provide marketing and reservation services appropriate for the operation of its systems. The revenues received from franchisees that are used to pay for part of the Company's ongoing operations are included in hotel franchising revenues and are offset by the related expenses paid for marketing and reservation system activities to calculate hotel franchising operating income. Equity in earnings or losses from hotel franchising related investment in affiliates is allocated to the Company's Hotel Franchising segment.
The Company evaluates its Hotel Franchising segment based primarily on the results of the segment without allocating corporate expenses, indirect general and administrative expenses, interest expense, interest income, other gains and losses or income taxes, which are included in the Corporate & Other column. Corporate & Other revenues include owned hotel revenues and revenues related to the Company's SaaS technology solutions division which provide cloud-based property management software to non-franchised hoteliers.
Intersegment revenue adjustment is from the elimination of Hotel Franchising revenue which include royalty fees, marketing and reservation system fees, management fees, payroll costs and other cost reimbursements charged to our owned hotels against hotel operating expenses recognized by our owned hotels in Corporate & Other operating income (loss).
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Our President and Chief Executive Officer, who is our chief operating decision maker, does not use assets by operating segment when assessing performance or making operating segment resource allocations decisions and therefore assets by segment are not disclosed below.
The following table presents the financial information for the Company's segments:

| Three Months Ended September 30, 2022 |  | Three Months Ended September 30, 2021
(in thousands) | Hotel Franchising |  | Corporate & Other |  | Intersegment Eliminations |  | Consolidated |  | Hotel Franchising |  | Corporate & Other |  | Intersegment Eliminations |  | Consolidated
Revenues | $ | 386,124 |  |  | $ | 29,692 |  |  | $ | (1,550) |  |  | $ | 414,266 |  |  | $ | 310,703 |  |  | $ | 13,532 |  |  | $ | (866) |  |  | $ | 323,369 |
Operating income (loss) | $ | 161,084 |  |  | $ | (16,066) |  |  | $ | — |  |  | $ | 145,018 |  |  | $ | 169,516 |  |  | $ | (10,410) |  |  | $ | — |  |  | $ | 159,106 |
Income (loss) before income taxes | $ | 162,162 |  |  | $ | (25,386) |  |  | $ | — |  |  | $ | 136,776 |  |  | $ | 172,338 |  |  | $ | (20,749) |  |  | $ | — |  |  | $ | 151,589 |
| Nine Months Ended September 30, 2022 |  | Nine Months Ended September 30, 2021
(in thousands) | Hotel Franchising |  | Corporate & Other |  | Intersegment Eliminations |  | Consolidated |  | Hotel Franchising |  | Corporate & Other |  | Intersegment Eliminations |  | Consolidated
Revenues | $ | 980,352 |  |  | $ | 63,363 |  |  | $ | (3,748) |  |  | $ | 1,039,967 |  |  | $ | 756,013 |  |  | $ | 30,504 |  |  | $ | (1,857) |  |  | $ | 784,660 |
Operating income (loss) | $ | 433,852 |  |  | $ | (32,088) |  |  | $ | — |  |  | $ | 401,764 |  |  | $ | 360,269 |  |  | $ | (38,141) |  |  | $ | — |  |  | $ | 322,128 |
Income (loss) before income taxes | $ | 435,131 |  |  | $ | (68,494) |  |  | $ | — |  |  | $ | 366,637 |  |  | $ | 358,274 |  |  | $ | (66,121) |  |  | $ | — |  |  | $ | 292,153 |

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 currently ongoing legal proceedings, individually or collectively, will have a material adverse effect on the Company's financial position, results of operations or cash flows.
Contingencies
The Company entered into various limited payment guaranties with regards to the Company’s VIEs supporting their efforts to develop and own hotels 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. The maximum exposure of principal incidental to these limited payment guaranties is $5.7 million, plus unpaid expenses and accrued unpaid interest. As of September 30, 2022 and December 31, 2021, the Company believed the likelihood of having to perform under the aforementioned limited payment guaranties was remote. In the event of performance, the Company has recourse for one of the transactions in the form of a membership interest pledge as collateral for the guaranty.
Commitments
The Company has the following commitments outstanding at September 30, 2022:
•The Company provides financing in the form of franchise agreement acquisition payments to franchisees for property improvements, hotel development efforts and other purposes. These payments are typically made at commencement of construction or hotel opening, in accordance with agreed upon provisions in individual franchise agreements. At September 30, 2022, the Company had commitments to extend an additional $302.5 million for these purposes provided the conditions of the payment are met by its franchisees.
•As part of the acquisition of Radisson Hotels Americas, the Company entered into a long-term management arrangement, with an expiration date of July 31, 2031, to manage eight hotel properties owned by a third-party. In conjunction with the management arrangement, the Company entered into a guarantee with the third-party to fund any shortfalls in the payment of the third-party owner’s priority stipulated in the management agreement up to a maximum amount of $46 million. On November 1, 2021, an amended and restated management agreement was executed between the Company and the third party. The maximum guarantee under the agreement is $22 million. There are no potential guaranteed payments until January 2023 and future performance is expected to be sufficient to cover the terms of the
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agreement. Accordingly, no liability was recorded as of September 30, 2022 in accrued liabilities within the consolidated balance sheets.
•To the extent existing unconsolidated affiliates proceed to the hotel construction phase, the Company is committed to make capital contributions totaling $7.7 million to support their efforts to construct Cambria hotels.
•The Company committed to provide financing in the form of loans or credit facilities to franchisees for Choice brand development efforts. At September 30, 2022, the Company has remaining commitments of approximately $1.8 million, upon certain conditions being met.
•The Company’s franchise agreements require the payment of franchise fees, which include marketing and reservation system fees. In accordance with terms of our franchise agreements, the Company is obligated to use the marketing and reservation system revenues it collects from the current franchisees comprising its various hotel brands to provide marketing and reservation services appropriate to support the operation of the overall system. To the extent revenues collected exceed expenditures incurred, the Company has a commitment to the franchisee system to make expenditures in future years. Conversely, to the extent expenditures incurred exceed revenues collected, the Company has the contractual enforceable right to assess and collect such amounts.
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 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 future payments to be made under these indemnifications as the triggering events are not subject to predictability. With respect to certain of the aforementioned indemnities, such as indemnifications of landlords against third-party claims for the use of real estate property leased by the Company, the Company maintains insurance coverage that mitigates potential liability.
13. Transactions with Unconsolidated Affiliates
The Company has a management fee arrangement for marketing services with a partner in an unconsolidated affiliate. For the three months ended September 30, 2022 and 2021, fees earned and payroll costs reimbursed under this arrangement totaled $0.8 million and $0.6 million, respectively. For the nine months ended September 30, 2022 and 2021, fees earned and payroll costs reimbursed under this arrangement totaled $1.7 million and $1.1 million, respectively.
The Company has entered into franchise agreements with certain of the unconsolidated affiliates discussed in Note 4. Pursuant to these franchise agreements, for the three months ended September 30, 2022 and 2021, the Company recorded royalty and marketing reservation system fees of approximately $8.9 million and $8.0 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded royalty and marketing reservation system fees of approximately $19.5 million and $15.0 million, respectively. The Company recorded $4.8 million and $2.7 million as a receivable due from these affiliates as of September 30, 2022 and December 31, 2021, respectively.
As part of the acquisition of Radisson Hotels Americas as discussed in Note 15, the Company has a management fee arrangement with an investment in an unconsolidated affiliate accounted for under the cost method. For the three and nine months ended September 30, 2022, fees earned and payroll costs reimbursed under this arrangement totaled $0.6 million.
14. Assets Held for Sale
Assets held for sale of $28.3 million are recorded within Prepaid expenses and other current assets on the consolidated balance sheets related to an owned Cambria hotel asset. The hotel met held for sale classification as of September 2022. Based on the fair value of the hotel, less costs to sell, a $2.2 million impairment charge was recorded to offset the Gain on sale of business and assets, net line item on the consolidated statement of income during the third quarter of 2022 within the Corporate & Other segment for reflect the reduction in the asset's carrying value. The building was sold to a third-party franchisee in October 2022, which will result in derecognition from the balance sheet in the fourth quarter of 2022.
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Two separate owned Cambria hotel assets met held for sale classification and had sales consummated to third-party franchisees during the nine months ended September 30, 2022, resulting in derecognition from the balance sheet in the second and third quarters of 2022 and recognition of gains of $2.9 million and $15.9 million respectively, during the nine months ended September 30, 2022 in the Corporate & Other segment.
15. Acquisitions
April 2022 Asset Acquisition
In April 2022, the Company reached a settlement with a borrower holding a senior and mezzanine loan classified as collateral-dependent, collateralized by an operating hotel. As a collateral-dependent financial asset, the expected credit losses as of March 31, 2022 were determined based on the fair value of the operating hotel. As of March 31, 2022, the Notes receivable, net of allowance for credit losses, balance was $20.4 million.
The key terms of the settlement resulted in a deed in lieu of foreclosure on the operating hotel in exchange for releasing obligations pursuant to the senior and mezzanine loans and the associated franchise agreement. The property was exchanged in full settlement of the senior and mezzanine loans and recorded at the fair value of $20.4 million as of the acquisition date of April 14, 2022. The fair value was estimated using an income approach valuation method based on discounted cash flows of the collateralized operating hotel utilizing historical operating performance, industry projections for the market, and comparable sales capitalization rates.
In accordance with the provisions of ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business ("ASU 2017-01"), the purchase represents an asset acquisition based on the concentration of value in the acquired land and building. The $20.4 million was re-characterized from Notes receivable, net of allowance for credit losses, and attributed to each asset class based on a relative fair value allocation to qualifying assets, resulting in $3.3 million to land, $16.6 million to building and improvements, $1.3 million to furniture, fixtures, and equipment, and $(0.8) million to net liabilities assumed.
August 2022 Radisson Hotels Americas Acquisition
On August 11, 2022, the Company completed the acquisition of Radisson Hotels Americas. The accounting purchase price for the Transaction was $673.9 million, which includes the base purchase price of $675.2 million, adjusted for Disclosed Leakage (as defined in the Share Sale and Purchase Agreement) and certain other prepaid expenses. To fund the Transaction, Choice drew $175.0 million on the Company's existing $600.0 million unsecured credit facility (the "Revolver"), and funded the remainder with cash on hand.
Additionally, in connection with the acquisition, we recorded $24.9 million and $29.0 million of transaction, transition, and severance expense, included within Selling, general and administrative, during the three and nine months ended September 30, 2022, respectively.
Preliminary Fair Values of Assets Acquired and Liabilities Assumed
The Company allocated the purchase price based upon a preliminary assessment of the fair value of the assets acquired and liabilities assumed as of August 11, 2022. These preliminary fair values are based on management’s estimates and assumptions, using the best information available at the time of this filing. The final valuation and related allocation of the purchase price will be completed no later than 12 months after the closing date. The final acquisition accounting adjustments may b e materially different and may include (1) changes in fair value of property and equipment and associated salvage values, (2) changes in allocations to intangible assets, such trade names, acquired franchise and management agreements, above and below market leases, as well as goodwill; and (3) other changes to assets and liabilities, such as working capital.
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The preliminary allocation of the purchase price, as presented in our Consolidated Balance Sheet:

Assets acquired | Amount
Cash and cash equivalents | $ | 113,023 |
Restricted cash | 10,403 |
Accounts receivable | 32,972 |
Notes receivables - current | 1,709 |
Prepaid expenses and other current assets | 8,139 |
Property and equipment | 125,441 |
Operating lease right-of-use of assets | 42,315 |
Intangible assets | 447,400 |
Notes receivable - noncurrent | 2,592 |
Investment in affiliates | 471 |
Other assets | 2,129 |
Total assets acquired | $ | 786,594 |
Liabilities assumed |
Accounts payable | 8,295 |
Accrued expenses and other current liabilities | 15,987 |
Deferred revenue - current(1) | 5,745 |
Liability for guest loyalty program - current(1) | 3,542 |
Long-term debt | 55,975 |
Long-term deferred revenue(1) | 26,499 |
Deferred compensation and retirement plan obligations | 9,265 |
Operating lease liabilities | 42,705 |
Liability for guest loyalty program - noncurrent(1) | 10,180 |
Other liabilities | 3,052 |
Total liabilities assumed | $ | 181,245 |
Fair value of net assets acquired | $ | 605,349 |
Goodwill | 68,507 |
Total purchase consideration | $ | 673,856 |

(1) The Deferred revenue (including deferred affiliation fees) and Liability for guest loyalty program balances were assumed at their carrying value at the date of the acquisition pursuant to the application of ASU 2021-08 (see Note 1).
Property and Equipment
The following table presents the preliminary estimates of fair value of the acquired property and equipment, which is primarily concentrated at three acquired hotel properties, and their estimated weighted average remaining useful lives.

| Estimated Useful Life | Estimated Fair Value
| (in years) | (in thousands)
Land | N/A | $ | 7,159 |
Construction in progress | N/A | 3,190 |
Building and leasehold improvements | 24.4 | 93,934 |
Site improvements | 23.1 | 586 |
Furniture, fixtures and equipment | 3.9 | 8,334 |
Computer equipment and software | 2.0 | 12,238 |
Total |  | $ | 125,441 |

We provisionally estimated the value of the property and equipment through a combination of income, cost and market approaches, which are primarily based on significant Level 2 and Level 3 assumptions, such as estimates of future income growth, discount rates, capitalization rates and capital expenditure needs of the hotels. We are continuing to assess the marketplace assumptions and property conditions, which could result in changes to these provisional values.
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Identified Intangible Assets
The following table presents our preliminary estimates of the fair value of the acquired identified intangible assets and their estimated useful lives:

| Estimated Useful Life | Estimated Fair Value
| (in years) | (in thousands)
Trade names | N/A | $ | 223,700 |
Franchise agreements | 15.5 | 220,400 |
Management agreements | 15.5 | 3,300 |
Total |  | $ | 447,400 |

The fair value of the trade names was provisionally estimated using the relief-from-royalty method. This method applies an estimated royalty rate to forecasted future cash flows, discounted to present value. The fair value of the franchise and management agreements was preliminarily estimated using a multi-period excess earnings method, a variation of the income approach. This method uses the present value of incremental after-tax cash flows attributable to the intangible asset to estimate fair value. These valuation methodologies utilize Level 3 assumptions, and we are continuing to assess the assumptions used in estimating these values as well as the respective useful lives, which could result in changes to these provisional values.
Debt Assumed
As part of the Transaction, we assumed a mortgage of $56.0 million related to an acquired hotel property. Subsequent to the acquisition closing date, this amount was repaid in full using cash we acquired. Related to the mortgage, we acquired $10.4 million in restricted cash, for which restrictions were lifted upon repayment.
Operating Leases
The Company measured operating lease liabilities assumed at the present value of remaining payments as of the acquisition date, discounted using Choice's applicable incremental borrowing rate, in accordance with Leases (Topic 842). The corresponding right-of-use assets acquired were measured at the value of the lease liabilities, further adjusted for favorable or unfavorable lease terms as compared to market terms. We are continuing to assess market assumptions, which could change our preliminary estimate.
Income Taxes
Pursuant to the terms of the Transaction, the parties agree to jointly make a valid, timely election under Section 338(h)(10) of the U.S. Internal Revenue Code and under any similar provisions of state or local law with respect to the purchase of the shares of Radisson Hotels Americas. Under this election, the parties agreed to treat the Transaction for federal income tax purposes as if it had been structured as an asset sale and purchase. As a result of this election, the tax basis of the assets acquired and liabilities assumed by Choice were reset to fair value at the time of the acquisition, which results in the elimination of previously established deferred income tax balances and the establishment of new balances that reflect the new tax basis, including tax deductible goodwill. Because the accounting for the Transaction is ongoing, the resulting deferred tax balances are still being finalized.
Pro Forma Results of Operations
The following unaudited pro forma information presents the combined results of operations of Choice and Radisson Hotels Americas as if we had completed the Transaction on January 1, 2021, but using our preliminary fair values of assets acquired and liabilities assumed as of the acquisition date. The unaudited pro forma information reflects adjustments relating to (i) the allocation of purchase price and related adjustments, including incremental depreciation and amortization expense based on the preliminary fair values of the property and equipment assets and intangible assets acquired; (ii) the incremental impact of the Revolver draw on interest expense and amortization of financing costs; (iii) nonrecurring transaction costs; and (iv) income tax impact of the aforementioned pro forma adjustments.
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As required by GAAP, these unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the transaction had occurred at the beginning of the period presented, nor are they indicative of future results of operations.

| Nine Months Ended
| September 30,
(in thousands) | 2022 |  | 2021
Revenues | $ | 1,189,792 |  |  | $ | 928,669 |
Net income | 304,770 |  |  | 173,822 |

Radisson Hotels Americas Results of Operations
The results of Radisson Hotels Americas have been consolidated with the Company since August 11, 2022 and are included in the Company’s Consolidated Statement of Income for the nine months ended September 30, 2022. The following table presents these results of the 51 days from the closing date through September 30, 2022.

(in thousands) | August 11, 2022 - September 30, 2022
Revenues | $ | 40,203 |
Net income (loss) | (1,380) |

Goodwill
The excess value recorded in goodwill is primarily attributable to value we expect to realize from the existing customer base, improvements in RevPAR, cost synergies and new agreements signed with new franchisees and developers. Goodwill for the Transaction is fully attributable to the Hotel Franchising reportable segment and is fully deductible for tax purposes.
The following table details the carrying amount of the Company's goodwill, including goodwill arising from the acquisition of Radisson Hotels Americas, as of September 30, 2022.

(in thousands) | September 30, 2022
Goodwill, excluding goodwill arising from Radisson Hotels Americas acquisition | $ | 166,774 |
Accumulated impairment losses | (7,578) |
Goodwill arising from Radisson Hotels Americas acquisition | 68,507 |
Goodwill, net carrying amount | $ | 227,703 |

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the consolidated financial condition and results of operations of Choice Hotels International, Inc. and its subsidiaries (together "Choice" or the "Company", "we", "us", or "our") contained in this report. MD&A is provided as a supplement to — and should be read in conjunction with — our consolidated financial statements and the accompanying notes.
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Recent Developments
Agreement to acquire Radisson Hotels Americas
On June 12, 2022, the Company entered into a Share Sale and Purchase Agreement, dated June 12, 2022, by and among the Company, Radisson Holdings, Inc., Radisson Hospitality, Inc., Aplite Holdings AB and Radisson Hospitality Belgium BV/SR to acquire 100% of Radisson Hotels Americas for a base purchase price of approximately $675.2 million, adjusted for Disclosed Leakage (as defined in the Share Sale and Purchase Agreement) and certain other prepaid expenses. The transaction closed on August 11, 2022 for a purchase price of $673.9 million, net of leakage and certain prepaid expenses.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has caused and continues to cause disruptions to the global economy and the hospitality industry, including in the United States, where more than 80% of our franchised hotels are located. Reduced travel as a result of COVID-19 initially adversely impacted the hospitality industry generally and the Company, however, the development and distribution of effective vaccines and other containment efforts have been significant positive developments that have contributed to improved operating metrics since the second quarter of 2021. The extent to which the COVID-19 pandemic will continue to impact the hospitality industry generally and our operations remains uncertain and will depend in part on future developments, including the severity and duration of resurgences or variants of the virus, the effectiveness of actions by government authorities and the public to continue to contain the pandemic, and the potential for adverse changes in consumer sentiment with respect to travel during the pandemic.
Since the impacts of COVID-19 on the Company's business were first experienced in March 2020, trends have improved steadily, with the third quarter 2022 domestic RevPAR experiencing an increase of approximately 3.4% and 15.2% relative to third quarter 2021 and third quarter 2019, respectively. As of both September 30, 2022 and September 30, 2021, less than 1% of Company's domestic hotel system had temporarily suspended operations due to governmental restriction or a franchisee’s election.
As the industry recovery continues, the Company believes it will continue to benefit from the faster rebound of leisure demand as a result of its higher share of leisure travel mix relative to competitors. The Company's properties are also well distributed in drive-to markets, which the Company believes will lead in the demand recovery and foreseeable future for the industry. We believe these points are illustrated by the Company's RevPAR results for 2021 and 2022, which reflect growth relative to comparable 2019 periods.
While the ultimate impact and duration of COVID-19 is uncertain and will depend on future developments, which are difficult to predict, the Company believes that it will continue to benefit in the long-term from its primarily franchise-only business model, which has historically provided a relatively stable earnings stream and low capital expenditure requirements. Further, as of September 30, 2022, the Company had approximately $337.5 million in cash and additional borrowing capacity through its senior unsecured revolving credit facility.
Based on our business model and information known at this time, the Company believes that cash flows from operations and available financing capacity are adequate to meet the expected future operating, investing and financing needs of the business, inclusive of the Radisson Hotels Americas transaction, described above.
While the Company believes that the long-term fundamentals of the business remain strong, it will continue to adjust business contingency plans as the COVID-19 pandemic evolves. For additional information, refer to Risk Factors in Part II, and Part I, Item 1A of the 2021 Form 10-K.
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Overview
We are primarily a hotel franchisor with franchise agreements and owned hotels representing 7,458 hotels open comprising 627,183 rooms and 970 hotels under construction, awaiting conversion or approved for development comprising 92,141 rooms as of September 30, 2022, located in 50 states, the District of Columbia and approximately 50 countries and territories outside the United States. Our brand names include Comfort Inn®, Comfort Suites®, Quality®, Clarion®, Clarion Pointe™, Ascend Hotel Collection®, Sleep Inn®, Econo Lodge®, Rodeway Inn®, MainStay Suites®, Suburban Studios™, WoodSpring Suites®, Everhome Suites®, and Cambria® Hotels (collectively, the "legacy Choice brands"). Additionally, through the Radisson Hotels Americas acquisition, our brands expanded to include Radisson Blu®, Radisson RED®, Radisson®, Park Plaza®, Country Inn & Suites® by Radisson, Radisson Inn & Suites SM, Park Inn by Radisson®, Radisson Individuals®, and Radisson Collection® (collectively, the "legacy Radisson brands"), which are located across the United States, Canada, Caribbean and Latin America.
The Company's primary segment is the hotel franchising business. The Company's domestic operations are conducted through direct franchising relationships, the ownership of 7 Cambria and 3 legacy Radisson Hotels Americas hotels, and the management of 13 legacy Radisson Hotels Americas hotels (inclusive of the owned hotels), while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships. Master franchising relationships are governed by master franchising agreements which generally provide the master franchisee with the right to use our brands and sub-license the use of our brands in a specific geographic region, usually for a fee.
Our business strategy is to conduct direct franchising in those international markets where both franchising is an accepted business model and we believe our brands can achieve significant scale. We typically elect to enter into master franchise agreements in those markets where direct franchising is currently not a prevalent or viable business model. When entering into master franchising relationships, we strive to select partners that have professional hotel and asset management capabilities together with the financial capacity to invest in building the Choice brands in their respective markets. Master franchising relationships typically provide lower revenues to the Company as the master franchisees are responsible for managing certain necessary services (such as training, quality assurance, reservations and marketing) to support the franchised hotels in the master franchise area and, therefore, retain a larger percentage of the hotel franchise fees to cover their expenses. In certain circumstances, the Company has and may continue to make equity investments in our master franchisees. As a result of master franchise relationships and international market conditions, our revenues are primarily concentrated in the United States. Therefore, our description of our business is primarily focused on the domestic operations, which encompasses the United States.
Our Company generates revenues, income and cash flows primarily from our hotel franchising operations and the initial, relicensing and continuing royalty fees attributable to our franchise agreements. Revenues are also generated from partnerships with qualified vendors and travel partners that provide value-added solutions to our platform of guests hotels, owned hotels, and other sources. Historically, the hotel industry has been seasonal in nature. For most hotels, demand is ordinarily lower in November through February than during the remainder of the year. Our principal source of revenues is franchise fees based on the gross room revenues or number of rooms of our franchised properties. The Company’s franchise and managed fees, as well as its owned hotels revenues, normally reflect the industry’s seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters.
With a primary focus on hotel franchising, we benefit from the economies of scale inherent in the franchising business. The fee and cost structure of our franchising business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial fee revenue, ongoing royalty fees, and procurement services revenues. In addition, our operating results can also be improved through our company-wide efforts related to improving property-level performance and expanding the number of partnerships with travel-related companies.
The principal factors that affect the Company’s results are: the number and relative mix of hotel rooms in the various hotel lodging price categories; growth in the number of hotel rooms owned and under franchise; occupancy and room rates achieved by the hotels in our system; the effective royalty rate achieved on our franchise agreements; the level of franchise sales and relicensing activity; the number of qualified vendor arrangements and travel-related partnerships and the level of engagement with these partners by our franchisees and guests; and our ability to manage costs. The number of rooms in our hotel system and the occupancy and room rates at those properties significantly affect the Company’s results because our fees are based upon room revenues or the number of rooms at owned and franchised hotels. To varying degrees, all of these factors have been and may continue to be disrupted by the COVID-19 pandemic. The key industry standard for measuring hotel-operating performance is RevPAR, which is calculated by multiplying the percentage of occupied rooms by the average daily room rate realized. Our variable overhead costs associated with franchise system growth of our established brands have historically been less than incremental royalty fees generated from new franchises. Accordingly, over the long-term, any continued growth of our franchise business should enable us to realize benefits from the operating leverage in place and improve operating results. The
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effects of the COVID-19 pandemic on our third quarter 2022 results and anticipated trends are discussed above under the heading "Impact of the COVID-19 Pandemic" and below under the heading "Operations Review".
We are required by our legacy Choice franchise agreements to use marketing and reservation system fees we collect for system-wide marketing and reservation system activities. These expenditures, which include advertising costs and costs to maintain our central reservations and property management systems, enhance awareness and consumer preference for our brands and deliver guests to our franchisees. Greater awareness and preference promotes long-term growth in business delivery to our franchisees and increases the desirability of our brands to hotel owners and developers, which ultimately increases franchise fees earned by the Company. The legacy Radisson Hotels Americas franchise agreements have similar provisions regarding marketing fees to be used for marketing activities. Additionally, the legacy Radisson Hotels Americas management agreements include cost reimbursements, primarily related to payroll costs at managed hotels where the Company is the employer.
Our Company articulates its mission as a commitment to our franchisees’ profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise. We have developed an operating system dedicated to our franchisees’ success that focuses on delivering guests to hotels and reducing hotel operating costs.
The Company has taken and is continuing to take measures to combat the impact of the COVID-19 pandemic on our business and on our franchisees. We believe these measures support and complement our strategic priorities to create value for our shareholders over the long-term. These key long-term goals are as follows:
Profitable Growth. Our success is dependent on improving the performance of our hotels, increasing our system size by selling additional hotel franchises with a focus on revenue-intense chain scales and markets, improving our effective royalty rate, expanding our qualified vendor programs and travel-related partnerships and maintaining a disciplined cost structure. We attempt to improve our revenues and overall profitability by providing a variety of products and services designed to increase business delivery and/or reduce operating and development costs. These products and services include national marketing campaigns, a guest loyalty program, a central reservation system, property and yield management programs and systems, revenue management services, quality assurance standards, qualified vendor relationships and partnerships with other travel-related companies that provide services to our franchisees and guests. We believe that healthy brands, which deliver a compelling return on investment, will enable us to sell additional hotel franchises and raise royalty rates. We have multiple brands that meet the needs of many types of guests, and can be developed at various price points and applied to both new and existing hotels. This ensures that we have brands suitable for creating growth in a variety of market conditions. Improving the performance of the hotels in our system, strategically growing the system through additional franchise sales, and improving franchise agreement pricing while maintaining a disciplined cost structure are the keys to profitable growth. Prior to the second quarter of 2021, the Company's hotels experienced declines in occupancy and RevPAR resulting from the impacts of the COVID-19 pandemic. The declines impacted the profitability of the Company and the negative impact to the Company could return if a resurgence of the COVID-19 pandemic significantly impacts travel.
Maximizing Financial Returns and Creating Value for Shareholders. Our capital allocation decisions, including capital structure and uses of capital, are intended to maximize our return on invested capital and create value for our shareholders. We believe our historically strong and predictable cash flows create a strong financial position that provides us a competitive advantage. We maintain a capital structure intended to generate high financial returns and use our excess cash flow to provide returns to our shareholders primarily through share repurchases, dividends and investing in growth opportunities. In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, we suspended future, undeclared dividends and activity under the Company's share repurchase program. Given our strong liquidity and credit profile, in May 2021, the Company resumed the payment of quarterly dividends, subject to future declarations by our board of directors, and activity under the share repurchase program. On December 6, 2021, the Company's board of directors approved a 6% increase in the quarterly cash dividend and declared a quarterly cash dividend of $0.2375 per share of common stock, which was paid in January 2022. On February 24, 2022, May 24, 2022, and September 22, 2022, the Company's board of directors declared a quarterly cash dividend of $0.2375 per share of common stock.
In addition to our hotel franchising business, we have also developed or acquired Cambria and legacy Radisson Hotels Americas hotels. We intend to continue to strategically develop hotels to increase the presence of our brands in the United States, drive greater guest satisfaction and brand preference, and ultimately increase the number of franchise agreements awarded. When developing hotels, we seek key markets with strong growth potential that will deliver strong operating performance and improve the recognition of our brands. For legacy Choice brands, our hotel development and ownership efforts currently focus on the Cambria Hotels and Everhome Suites brands. We believe our owned hotels provide us the opportunity to support and accelerate growth of our brands. We do not anticipate owning hotels on a permanent basis and expect to target dispositions to a franchisee in the future.
The Company also allocates capital to financing, investment and guaranty support to incentivize franchise development for certain brands in strategic markets; and to explore growth opportunities in business areas that are adjacent or complementary to
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our core hotel franchising business, which leverage our core competencies and are additive to our franchising business model. The timing and amount of these investments are subject to market and other conditions.
We believe our growth investments and strategic priorities, when properly implemented, will enhance our profitability, maximize our financial returns and continue to generate value for our shareholders. The ultimate measure of our success will be reflected in the items below.
Results of Operations: Royalty fees, operating income, net income and diluted EPS represent key measurements of our financial performance. These measurements are primarily driven by the operations of our hotel franchise system and therefore, our analysis of the Company's operations is primarily focused on the size, performance and potential growth of the hotel franchise system as well as our variable overhead costs.
Our discussion of results generally excludes the Company’s other revenues and expenses from franchised and managed properties, which reflect franchise marketing and reservation system revenues and expenses and management agreement cost reimbursements. The Company's legacy Choice franchise agreements require the payment of marketing and reservation system fees to be used exclusively by the Company for expenses associated with providing franchise services such as national marketing, media advertising, and central reservation systems. The Company is obligated to expend the marketing and reservation system fees it collects from franchisees in accordance with the franchise agreements. Furthermore, franchisees are required to reimburse the Company for any deficits generated by these marketing and reservation system activities. Over time, the Company expects cumulative revenues and expenses to break even and, therefore, no income or loss will be generated from marketing and reservation system activities. The franchised and management contracts acquired in the Radisson Hotels Americas acquisition have similar terms as those described above with the exceptions of certain contractual elements concerning reservation fees, which are not required to breakeven over time and which are insignificant to overall operating net income. As a result, the Company generally excludes the other revenues and expenses from franchised and managed properties from the analysis of its operations.
Due to the seasonal nature of the Company’s hotel franchising and management business and the multi-year investments required to support franchise operations, in addition to the Company's incremental spend to support franchisees and lower marketing and reservation system fees for certain periods most significantly impacted by the COVID-19 pandemic, quarterly and/or annual deficits may be generated. During the nine months ended September 30, 2022, other franchised and managed revenues exceeded expenses by $55.4 million. During the nine months ended September 30, 2021, other franchised and managed revenues exceeded expenses by $56.7 million.
Refer to MD&A heading "Operations Review" for additional analysis of our results.
Liquidity and Capital Resources: Historically, the Company has generated significant cash flows from operations. Since our business has not historically required significant reinvestment of capital, we typically utilize cash in ways that management believes provide the greatest returns to our shareholders, which include acquisitions, share repurchases and dividends.
The Company completed the acquisition of Radisson Hotels Americas on August 11, 2022 for a purchase price, net of Disclosed Leakage of approximately $673.9 million. The Company's declaration of quarterly dividends and activity under the share repurchase program were temporarily suspended at the height of the COVID-19 pandemic, as detailed above within the Maximizing Financial Returns and Creating Value for Shareholders section.
We believe the Company’s cash flow from operations and available financing capacity is sufficient to meet the expected future operating, investing and financing needs of the business. Refer to MD&A heading Liquidity and Capital Resources for additional analysis.
Inflation: We believe that moderate increases in the rate of inflation will generally result in comparable or greater increases in hotel room rates. We are monitoring future inflation trends and any resulting impacts on our business.
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Non-GAAP Financial Statement Measurements
The Company utilizes certain measures which do not conform to generally accepted accounting principles accepted in the United States ("GAAP") when analyzing and discussing its results with the investment community. This information should not be considered as an alternative to any measure of performance as promulgated under GAAP. The Company’s calculation of these measurements may be different from the calculations used by other companies and therefore, comparability may be limited. We have included a reconciliation of these measures to the comparable GAAP measurement below as well as our reasons for reporting these non-GAAP measures.
Revenues excluding reimbursable revenue from franchised and managed properties and extraordinary termination fees from franchisee. The Company’s other revenues from franchised and managed properties financial statement line item reflect franchise marketing and reservation system revenues and management agreement cost reimbursements. The legacy Choice franchise marketing and reservation activities, legacy Radisson Hotels Americas franchise marketing activities, and legacy management agreement cost reimbursements operate at break-even based on the Company's contractual commitments regarding the manner such fees will be utilized. The legacy Radisson Hotels Americas reservation revenue, which is also recorded in the other revenues from franchised and managed properties, does not break even, based on the legacy Radisson Hotels Americas franchise contracts.
Additionally, the Company recognized $22.6 million resulting from the exit of 110 WoodSpring units in the third quarter of 2022.
As a result, the Company excludes reimbursable revenue from franchised and managed properties and the extraordinary termination fees from franchisee when analyzing the performance of the business.
A similar non-GAAP measure is a commonly used measure of performance in our industry and facilitates comparisons between the Company and its competitors.
Calculation of Revenues excluding reimbursable revenue from franchised and managed properties and extraordinary termination fees from franchisee

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Total revenues | $ | 414,266 |  |  | $ | 323,369 |  |  | $ | 1,039,967 |  |  | $ | 784,660 |
Adjustments: |  |  |  |  |  |  |
Reimbursable revenue from franchised and managed properties | (190,627) |  |  | (156,871) |  |  | (506,646) |  |  | (384,380) |
Extraordinary termination fees from franchisee | (22,647) |  |  | — |  |  | (22,647) |  |  | — |
Revenues excluding reimbursable revenue from franchised and managed properties and extraordinary termination fees from franchisee | $ | 200,992 |  |  | $ | 166,498 |  |  | $ | 510,674 |  |  | $ | 400,280 |

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Operations Review
Comparison of Operating Results for the Three-Month Periods Ended September 30, 2022 and 2021
Summarized financial results for the three months ended September 30, 2022 and 2021 are as follows:

(in thousands) | 2022 |  | 2021
REVENUES |  |  |
Royalty, licensing and management fees | $ | 144,020 |  |  | $ | 127,317 |
Initial franchise fees | 7,011 |  |  | 6,149 |
Procurement services | 14,401 |  |  | 13,010 |
Owned hotels | 19,992 |  |  | 11,377 |
Other | 31,432 |  |  | 8,645 |
Other revenues from franchised and managed properties | 197,410 |  |  | 156,871 |
Total revenues | 414,266 |  |  | 323,369 |
OPERATING EXPENSES |  |  |
Selling, general and administrative | 70,202 |  |  | 35,110 |
Depreciation and amortization | 8,726 |  |  | 5,883 |
Owned hotels | 13,158 |  |  | 7,054 |
Other expenses from franchised and managed properties | 190,541 |  |  | 116,216 |
Total operating expenses | 282,627 |  |  | 164,263 |
Gain on sale of business and assets, net | 13,379 |  |  | — |
Operating income | 145,018 |  |  | 159,106 |
OTHER INCOME AND EXPENSES, NET |  |  |
Interest expense | 9,362 |  |  | 11,638 |
Interest income | (2,348) |  |  | (1,202) |
Other loss (gain) | 2,303 |  |  | 407 |
Equity in net loss (gain) of affiliates | (1,075) |  |  | (3,326) |
Total other income and expenses, net | 8,242 |  |  | 7,517 |
Income before income taxes | 136,776 |  |  | 151,589 |
Income tax expense | 33,696 |  |  | 34,934 |
Net income | $ | 103,080 |  |  | $ | 116,655 |

Results of Operations
The Company recorded income before income taxes of $136.8 million for the three-month period ended September 30, 2022, a $14.8 million decrease from the same period of the prior year. The decrease in income before income taxes primarily reflects a $14.1 million decrease in operating income from the three-month period ended September 30, 2021.
Operating income decreased $14.1 million primarily due to a by a $35.1 million increase in SG&A expenses, a $33.8 million decrease in the net surplus generated from other franchised and managed properties activities, and a $2.8 million increase in depreciation and amortization primarily offset by a $22.8 million increase in other revenues, a $16.7 million increase in royalty, licensing and management revenues, a $13.4 million net gain on sale of business and assets recognized during the third quarter of 2022, and a $2.5 million increase in owned hotels revenues in excess of expenses.
The primary reasons for these fluctuations are described in more detail below.
Royalty Fees
Domestic royalty fees for legacy Choice brands for the three months ended September 30, 2022 increased $3.7 million to $126.7 million from $123.0 million for the three months ended September 30, 2021, an increase of 3.0%. The increase in domestic royalties for legacy Choice brands reflects a 3.4% increase in domestic RevPAR. System-wide RevPAR increased due to a 5.8% increase in average daily rates, partially offset by a 150 basis point decrease in occupancy. The increase in domestic royalties for legacy Choice brands is also due to a 5 basis point increase in the effective royalty rate from 4.99% for the three months ended September 30, 2021 to 5.04% for the three months ended September 30, 2022, partially offset by a 5.9% decrease in the number of domestic franchised hotel rooms in the comparative period.
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A summary of the Company's domestic franchised hotels operating information for legacy Choice brands is as follows. These operating statistics exclude the acquired legacy Radisson brands.

| Three Months Ended |  | Three Months Ended |  | Change
| September 30, 2022 |  | September 30, 2021 |
| Average Daily Rate |  | Occupancy |  | RevPAR |  | Average Daily Rate |  | Occupancy |  | RevPAR |  | Average Daily Rate |  | Occupancy |  | RevPAR
Comfort | $ | 115.72 |  |  | 67.6 | % |  | $ | 78.26 |  |  | $ | 110.72 |  |  | 67.8 | % |  | $ | 75.03 |  |  | 4.5 | % |  | (20) |  | bps |  | 4.3 | %
Sleep | 100.82 |  |  | 63.9 | % |  | 64.47 |  |  | 95.70 |  |  | 66.4 | % |  | 63.55 |  |  | 5.4 | % |  | (250) |  | bps |  | 1.4 | %
Quality | 97.66 |  |  | 59.6 | % |  | 58.24 |  |  | 94.48 |  |  | 62.2 | % |  | 58.76 |  |  | 3.4 | % |  | (260) |  | bps |  | (0.9) | %
Clarion | 101.35 |  |  | 51.8 | % |  | 52.52 |  |  | 101.17 |  |  | 51.9 | % |  | 52.47 |  |  | 0.2 | % |  | (10) |  | bps |  | 0.1 | %
Econo Lodge | 78.12 |  |  | 54.1 | % |  | 42.26 |  |  | 76.51 |  |  | 57.1 | % |  | 43.66 |  |  | 2.1 | % |  | (300) |  | bps |  | (3.2) | %
Rodeway | 77.99 |  |  | 55.5 | % |  | 43.32 |  |  | 76.21 |  |  | 56.9 | % |  | 43.37 |  |  | 2.3 | % |  | (140) |  | bps |  | (0.1) | %
WoodSpring | 59.26 |  |  | 81.1 | % |  | 48.04 |  |  | 54.11 |  |  | 85.5 | % |  | 46.26 |  |  | 9.5 | % |  | (440) |  | bps |  | 3.8 | %
MainStay | 92.26 |  |  | 67.2 | % |  | 61.99 |  |  | 87.15 |  |  | 69.1 | % |  | 60.18 |  |  | 5.9 | % |  | (190) |  | bps |  | 3.0 | %
Suburban | 61.61 |  |  | 68.4 | % |  | 42.12 |  |  | 59.26 |  |  | 73.5 | % |  | 43.54 |  |  | 4.0 | % |  | (510) |  | bps |  | (3.3) | %
Cambria Hotels | 164.66 |  |  | 70.1 | % |  | 115.42 |  |  | 148.85 |  |  | 62.2 | % |  | 94.15 |  |  | 10.6 | % |  | 790 |  | bps |  | 22.6 | %
Ascend Hotel Collection | 174.63 |  |  | 64.5 | % |  | 112.56 |  |  | 158.37 |  |  | 63.3 | % |  | 98.50 |  |  | 10.3 | % |  | 120 |  | bps |  | 14.3 | %
Total* | $ | 100.07 |  |  | 63.4 | % |  | $ | 63.45 |  |  | $ | 94.59 |  |  | 64.9 | % |  | $ | 61.37 |  |  | 5.8 | % |  | (150) |  | bps |  | 3.4 | %

* As noted above, the operating statistics presented exclude the legacy Radisson brands acquired. Additionally, the operating statistics exclude Choice's Everhome brand since the operating statistics are not representative of a stabilized brand which the Company defines as having at least 25 units open and operating for a twelve month period.
A summary of domestic hotels and rooms for legacy Choice brands in our franchise system at September 30, 2022 and 2021 by brand is as follows:

| September 30, 2022 |  | September 30, 2021 |  | Variance
| Hotels |  | Rooms |  | Hotels |  | Rooms |  | Hotels |  | Rooms |  | % |  | %
Comfort | 1,668 |  |  | 131,140 |  |  | 1,665 |  |  | 131,066 |  |  | 3 |  |  | 74 |  |  | 0.2 | % |  | 0.1 | %
Sleep | 423 |  |  | 29,770 |  |  | 414 |  |  | 29,167 |  |  | 9 |  |  | 603 |  |  | 2.2 | % |  | 2.1 | %
Quality | 1,625 |  |  | 120,708 |  |  | 1,666 |  |  | 125,061 |  |  | (41) |  |  | (4,353) |  |  | (2.5) | % |  | (3.5) | %
Clarion | 185 |  |  | 20,642 |  |  | 183 |  |  | 21,917 |  |  | 2 |  |  | (1,275) |  |  | 1.1 | % |  | (5.8) | %
Econo Lodge | 704 |  |  | 42,323 |  |  | 734 |  |  | 44,112 |  |  | (30) |  |  | (1,789) |  |  | (4.1) | % |  | (4.1) | %
Rodeway | 491 |  |  | 27,569 |  |  | 531 |  |  | 30,657 |  |  | (40) |  |  | (3,088) |  |  | (7.5) | % |  | (10.1) | %
WoodSpring | 206 |  |  | 24,890 |  |  | 300 |  |  | 36,112 |  |  | (94) |  |  | (11,222) |  |  | (31.3) | % |  | (31.1) | %
Everhome | 1 |  |  | 99 |  |  | — |  |  | — |  |  | 1 |  | 99 |  | NM |  | NM
MainStay | 113 |  |  | 7,843 |  |  | 97 |  |  | 6,780 |  |  | 16 |  |  | 1,063 |  |  | 16.5 | % |  | 15.7 | %
Suburban | 73 |  |  | 6,565 |  |  | 70 |  |  | 6,366 |  |  | 3 |  |  | 199 |  |  | 4.3 | % |  | 3.1 | %
Cambria Hotels | 61 |  |  | 8,433 |  |  | 58 |  |  | 8,060 |  |  | 3 |  |  | 373 |  |  | 5.2 | % |  | 4.6 | %
Ascend Hotel Collection | 192 |  |  | 20,069 |  |  | 224 |  |  | 28,175 |  |  | (32) |  |  | (8,106) |  |  | (14.3) | % |  | (28.8) | %
Total Domestic Franchises(1) | 5,742 |  |  | 440,051 |  |  | 5,942 |  |  | 467,473 |  |  | (200) |  |  | (27,422) |  |  | (3.4) | % |  | (5.9) | %

(1) Prior to 2022, seven properties located in Caribbean territories were classified as domestic. In 2022, the seven properties were reclassified to international.
As of both September 30, 2022 and September 30, 2021, less than 1% of the Company's domestic hotel system had temporarily suspended operations due to governmental restriction or a franchisee’s election. These temporarily suspended hotels are included in the summary table above of domestic hotels in our franchise system.
International royalty fees for legacy Choice brands for the three months ended September 30, 2022 increased $1.0 million to $5.3 million compared to the three months ended September 30, 2021 as a result of improvements in RevPAR performance, despite reductions of the international franchise system size by 53 hotels (from 1,160 as of September 30, 2021 to 1,107 as of September 30, 2022) and 13,139 rooms (from 134,303 as of September 30, 2021 to 121,164 as of September 30, 2022). As of
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September 30, 2022 and September 30, 2021, approximately 1% and 2%, respectively, of the Company's international branded hotels temporarily suspended operations due to governmental restriction or a franchisee’s election.
As a result of the acquisition of AMResorts®, the Company’s relationship with AMResorts® was terminated during the fourth quarter of 2021 and 17 domestic and 37 international open AMResorts®-branded hotels exited the Ascend Hotel Collection portfolio. In addition, as noted above in Note 2 to our consolidated financial statements, in July 2022 the Company received notice from an ownership group of their intent to exit 110 WoodSpring properties from the Choice system, which occurred in September 2022.
Royalty fees for the newly acquired Radisson Hotels Americas brands since the acquisition date of August 11, 2022 through September 30, 2022 were $7.7 million, and represent total hotels and rooms of 609 and 65,968, respectively, as of September 30, 2022. Domestic hotels and rooms accounted for 520 and 53,185, respectively, while international hotels and rooms accounted for 89 and 12,783, respectively.
We expect the uncertainty surrounding the potential duration of the pandemic, including resurgences and new variants, as well as the rate, pace and effectiveness of vaccinations around the world, to continue to have the potential to impact the number of domestic and international hotels that remain open and operating.
Initial Franchise Fees
Initial franchise fees are fees paid to the Company when a franchisee executes a franchise agreement; relicensing fees include fees charged to new owners of a franchised property whenever an ownership change occurs and the property remains in the franchise system, as well as fees required to renew existing franchise agreements.
During the third quarter of 2022, the Company awarded 123 domestic franchise agreements to legacy Choice brands representing 10,551 rooms compared to 89 franchising agreements representing 7,640 rooms for the third quarter of 2021. Domestic franchise agreements awarded to legacy Choice brands for new construction hotels totaled 42 contracts representing 4,060 rooms during the three months ended September 30, 2022, compared to 32 contracts representing 3,178 rooms for the three months ended September 30, 2021. Conversion hotel awarded franchise agreements to legacy Choice brands totaled 81 representing 6,491 rooms for the three months ended September 30, 2022, compared to 57 agreements representing 4,462 rooms for the three months ended September 30, 2021.
The Company awarded 143 domestic relicensing contracts to legacy Choice brands during the three months ended September 30, 2022, compared to 56 executed during the three months ended September 30, 2021. The Company awarded 6 domestic renewal agreements to legacy Choice brands during the three months ended September 30, 2022, compared to 6 awarded during the three months ended September 30, 2021.
Since the August 11, 2022 acquisition date through September 30, 2022, the Company awarded 1 franchise agreement to Radisson Hotels Americas brands.
Initial franchise fees are generally collected at the time the franchise agreement is awarded. However, the recognition of revenue is deferred until the hotel is open or the franchise agreement is terminated. Upon hotel opening, revenue is recognized ratably as services are provided over the enforceable period of the franchise license agreement. Upon the termination of a franchise agreement, previously deferred initial and relicensing fees are recognized immediately in the period the agreement is terminated. Initial franchise fee revenue increased $0.9 million from $6.1 million to $7.0 million for the three months ended September 30, 2021 and September 30, 2022, respectively.
At September 30, 2022, the Company's legacy Choice brands had 861 franchised hotels with 79,313 rooms under construction, awaiting conversion or approved for development in its domestic system as compared to 859 hotels and 71,346 rooms at September 30, 2021. The number of new construction franchised hotels in the Company's legacy Choice brands domestic pipeline increased from 652 at September 30, 2021 to 629 at September 30, 2022. New construction hotels typically average 18 to 36 months to open after the franchise agreement is executed. The number of conversion franchised hotels in the Company's legacy Choice brands domestic pipeline increased from 207 hotels at September 30, 2021 to 232 hotels at September 30, 2022. Conversion hotels typically open three to six months after the execution of a franchise agreement. The Company had an additional 40 legacy Choice brands franchised hotels with 4,072 rooms under construction, awaiting conversion or approved for development in its international system as of September 30, 2022, compared to 53 hotels and 7,201 rooms at September 30, 2021.
At September 30, 2022, the Company's Radisson Hotels Americas brands had 69 franchised hotels with 8,756 rooms under construction, awaiting conversion or approved for development in its global system.
Fluctuations in the Company’s pipeline are primarily due to the timing of hotel openings and the timing of signing new franchise agreements. While the Company's hotel pipeline provides a strong platform for growth, a hotel in the pipeline does
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not always result in an open and operating hotel due to various macroeconomic factors which could impact items such as access to liquidity, availability of construction labor and materials, and local governmental approvals and entitlements.
Owned Hotels: The Company's revenues, net of expenses, from owned hotels increased $2.5 million from $4.3 million for the three months ended September 30, 2021 to $6.8 million for the three months ended September 30, 2022. These results reflect improved operating performance at our owned hotels and the net addition of 4 owned hotels during the comparative period, driven by the Radisson Hotels Americas acquisition.
Other Revenues: Other revenues increased $22.8 million from $8.6 million for the three months ended September 30, 2021 to $31.4 million for the three months ended September 30, 2022 driven by an increase in termination fees, including $22.6 million resulting from the exit of 110 WoodSpring units in the third quarter of 2022, and other franchising revenues.
Selling, General and Administrative Expenses: The cost to operate the business is reflected in SG&A on the consolidated statements of income. SG&A expenses were $70.2 million and $35.1 million for the three months ended September 30, 2022, and 2021, respectively. SG&A expenses experienced an increase resulting from the acquisition of Radisson Hotels Americas, inclusive of severance and transaction-related costs incurred of $24.9 million. SG&A expenses further experienced increases resulting from general corporate purposes; lifting of certain cost mitigation measures related to the COVID-19 pandemic, including compensation, benefits, and travel; and an increase in provision for credit losses in accounts receivable recorded in accordance with Topic 326. These were partially offset by a $1.4 million decrease in the Company's deferred compensation liabilities based on decreases in the underlying investments.
Depreciation and amortization: Depreciation and amortization expense was $8.7 million and $5.9 million for the three months ended September 30, 2022 and 2021, respectively, increasing primarily due to the acquisition of Radisson Hotels Americas on August 11, 2022 and associated amortization from the portion of the purchase price allocated to contract asset acquisition costs.
Gain on sale of business and assets, net: During the third quarter of 2022, the Company recognized a $13.4 million gain primarily related to the sale of an owned hotel asset of $15.9 million offset by a $2.2 million reduction to the carrying value of an asset held for sale.
Other Loss (Gain): The Company recorded other net losses of $2.3 million for the three months ended September 30, 2022, compared to other net losses of $0.4 million for the three months ended September 30, 2021. The current period losses relate to decreases in the Company's deferred compensation assets based on decreases in the underlying investments and foreign currency transaction losses.
Income Tax Expense: The effective income tax rates were 24.6% and 23.1% for the three months ended September 30, 2022 and 2021, respectively.
The effective income tax rate for the three months ended September 30, 2022 was higher than the U.S. federal income tax rate of 21.0% primarily due to the impact of state income taxes.
The effective income tax rate for the three months ended September 30, 2021 was higher than the U.S. federal income tax rate of 21.0% primarily due to the impact of state income taxes, partially offset by excess tax benefits from share-based compensation.
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Operations Review
Comparison of Operating Results for the Nine-Month Periods Ended September 30, 2022 and 2021
Summarized financial results for the nine months ended September 30, 2022 and 2021 are as follows:

(in thousands) | 2022 |  | 2021
REVENUES |  |  |
Royalty, licensing and management fees | $ | 356,208 |  |  | $ | 299,606 |
Initial franchise fees | 21,635 |  |  | 18,904 |
Procurement services | 47,887 |  |  | 36,293 |
Owned hotels | 49,220 |  |  | 24,724 |
Other | 51,588 |  |  | 20,753 |
Other revenues from franchised and managed properties | 513,429 |  |  | 384,380 |
Total revenues | 1,039,967 |  |  | 784,660 |
OPERATING EXPENSES |  |  |
Selling, general and administrative | 144,414 |  |  | 99,847 |
Depreciation and amortization | 20,436 |  |  | 18,477 |
Owned hotels | 32,004 |  |  | 16,534 |
Other expenses from franchised and managed properties | 458,037 |  |  | 327,674 |
Total operating expenses | 654,891 |  |  | 462,532 |
Gain on sale of business and assets, net | 16,688 |  |  | — |
Operating income | 401,764 |  |  | 322,128 |
OTHER INCOME AND EXPENSES, NET |  |  |
Interest expense | 32,084 |  |  | 35,106 |
Interest income | (5,256) |  |  | (3,717) |
Other loss (gain) | 9,578 |  |  | (2,906) |
Equity in net loss (gain) of affiliates | (1,279) |  |  | 1,492 |
Total other income and expenses, net | 35,127 |  |  | 29,975 |
Income before income taxes | 366,637 |  |  | 292,153 |
Income tax expense | 89,998 |  |  | 67,279 |
Net income | $ | 276,639 |  |  | $ | 224,874 |

Results of Operations
The Company recorded income before income taxes of $366.6 million for the nine-month period ended September 30, 2022, a $74.4 million increase from the same period of the prior year. The increase in income before income taxes reflects a $79.6 million increase in operating income, a $3.0 million decrease in interest expense, a $2.8 million increase in equity in net loss (gain) of affiliates, a $1.6 million increase in interest income, offset by a $12.5 million increase in other loss (gain).
Operating income increased $79.6 million due to a $56.6 million increase in royalty revenues, a $30.8 million increase in other revenues, a $16.7 million increase from net gain on sale of business and assets, a $11.6 million increase in procurement services revenues, a $9.0 million increase in owned hotels revenues in excess of expenses, a $2.7 million increase in initial franchise fees, offset by a $44.6 million increase in SG&A expenses, a $1.9 million increase in depreciation and amortization, and a $1.3 million decrease in the net surplus generated from other franchised and managed properties activities.
The primary reasons for these fluctuations are described in more detail below.
Royalty Fees
Domestic royalty fees for legacy Choice brands the nine months ended September 30, 2022 increased $41.5 million to $330.3 million compared to the nine months ended September 30, 2021. The increase in domestic royalties for legacy Choice brands reflects a 14.2% increase in domestic RevPAR. System-wide RevPAR increased due to a 12.1% increase in average daily rates and a 110 basis point increase in occupancy. The increase in domestic royalties for legacy Choice brands is also due to a 5.9% decrease in the number of domestic franchised hotel rooms and a 5 basis point increase in the effective royalty rate from 5.00% for the nine months ended September 30, 2021 to 5.05% for the nine months ended September 30, 2022.
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A summary of the Company's domestic franchised hotels operating information for legacy Choice brands is as follows. These operating statistics exclude the acquired legacy Radisson brands.

| Nine Months Ended |  | Nine Months Ended |  | Change
| September 30, 2022 |  | September 30, 2021 |
| Average Daily Rate |  | Occupancy |  | RevPAR |  | Average Daily Rate |  | Occupancy |  | RevPAR |  | Average Daily Rate |  | Occupancy |  | RevPAR
Comfort | $ | 109.50 |  |  | 63.0 | % |  | $ | 68.99 |  |  | $ | 97.74 |  |  | 60.8 | % |  | $ | 59.40 |  |  | 12.0 | % |  | 220 |  | bps |  | 16.1 | %
Sleep | 96.10 |  |  | 60.9 | % |  | 58.56 |  |  | 86.39 |  |  | 59.6 | % |  | 51.45 |  |  | 11.2 | % |  | 130 | bps |  | 13.8 | %
Quality | 91.68 |  |  | 54.9 | % |  | 50.36 |  |  | 83.94 |  |  | 54.5 | % |  | 45.77 |  |  | 9.2 | % |  | 40 |  | bps |  | 10.0 | %
Clarion | 95.66 |  |  | 46.3 | % |  | 44.28 |  |  | 87.91 |  |  | 43.8 | % |  | 38.52 |  |  | 8.8 | % |  | 250 | bps |  | 15.0 | %
Econo Lodge | 72.63 |  |  | 50.5 | % |  | 36.70 |  |  | 68.35 |  |  | 51.1 | % |  | 34.94 |  |  | 6.3 | % |  | (60) | bps |  | 5.0 | %
Rodeway | 73.20 |  |  | 52.0 | % |  | 38.03 |  |  | 68.20 |  |  | 52.0 | % |  | 35.48 |  |  | 7.3 | % |  | — | bps |  | 7.2 | %
WoodSpring | 57.98 |  |  | 79.9 | % |  | 46.30 |  |  | 50.83 |  |  | 81.9 | % |  | 41.63 |  |  | 14.1 | % |  | (200) | bps |  | 11.2 | %
MainStay | 88.01 |  |  | 63.3 | % |  | 55.75 |  |  | 79.84 |  |  | 62.8 | % |  | 50.15 |  |  | 10.2 | % |  | 50 | bps |  | 11.2 | %
Suburban | 62.14 |  |  | 69.2 | % |  | 43.02 |  |  | 54.49 |  |  | 71.5 | % |  | 38.95 |  |  | 14.0 | % |  | (230) | bps |  | 10.4 | %
Cambria Hotels | 159.68 |  |  | 64.7 | % |  | 103.24 |  |  | 129.62 |  |  | 55.1 | % |  | 71.44 |  |  | 23.2 | % |  | 960 | bps |  | 44.5 | %
Ascend Hotel Collection | 155.81 |  |  | 57.7 | % |  | 89.93 |  |  | 138.31 |  |  | 54.4 | % |  | 75.28 |  |  | 12.7 | % |  | 330 | bps |  | 19.5 | %
Total* | $ | 93.81 |  |  | 59.3 | % |  | $ | 55.65 |  |  | $ | 83.70 |  |  | 58.2 | % |  | $ | 48.71 |  |  | 12.1 | % |  | 110 | bps |  | 14.2 | %

* As disclosed above, the operating statistics presented exclude the legacy Radisson brands acquired. Additionally, the operating statistics exclude Choice's Everhome brand since the operating statistics are not representative of a stabilized brand which the Company defines as having at least 25 units open and operating for a twelve month period.
International royalty fees for legacy Choice brands for the nine months ended September 30, 2022 increased $3.1 million to $13.8 million compared to the nine months ended September 30, 2021 as a result of increases in RevPAR performance, despite reductions of the international franchise system decreasing by 53 hotels (from 1,160 as of September 30, 2021 to 1,107 as of September 30, 2022) and 13,139 rooms (from 134,303 as of September 30, 2021 to 121,164 as of September 30, 2022). As of September 30, 2022 and September 30, 2021, approximately 1% and 2%, respectively, of the Company's international branded hotels temporarily suspended operations due to governmental restriction or a franchisee’s election.
Royalty fees for the newly acquired Radisson Hotels Americas brands since the acquisition date of August 11, 2022 through September 30, 2022 were $7.7 million, and represent total hotels and rooms of 609 and 65,968, respectively, as of September 30, 2022. Domestic hotels and rooms accounted for 520 and 53,185, respectively, while international hotels and rooms accounted for 89 and 12,783, respectively.
We expect the uncertainty surrounding the pandemic, including an increase in the prevalence in variants as well as the rate and pace of vaccinations around the world, to continue to impact the number of domestic and international hotels that temporarily suspend operations.
Initial Franchise Fees
Initial franchise fees are fees paid to the Company when a franchisee executes a franchise agreement; relicensing fees include fees charged to new owners of a franchised property whenever an ownership change occurs and the property remains in the franchise system, as well as fees required to renew existing franchise agreements.
During the nine months ended September 30, 2022, the Company awarded 338 domestic franchise agreements to legacy Choice brands representing 32,715 rooms compared to 289 franchise agreements representing 28,308 rooms for the nine months ended September 30, 2021. Domestic franchise agreements awarded to legacy Choice brands for new construction hotels totaled 125 representing 12,794 rooms during the nine months ended September 30, 2022 compared to 88 franchise agreements representing 8,471 rooms for the nine months ended September 30, 2021. Conversion hotel awarded franchise agreements to legacy Choice brands totaled 213 representing 19,921 rooms for the nine months ended September 30, 2022 compared to 201 franchise agreements representing 19,837 rooms for the nine months ended September 30, 2021.
The Company awarded 391 domestic relicensing contracts to legacy Choice brands during the nine months ended September 30, 2022, compared to 236 executed during the nine months ended September 30, 2021. The Company awarded 18 domestic
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renewal agreements to legacy Choice brands during both the nine months ended September 30, 2022, compared to 19 executed during nine months ended September 30, 2021.
Since the August 11, 2022 acquisition date through September 30, 2022, the Company awarded 1 franchise agreement to Radisson Hotels Americas brands.
Initial franchise fees are generally collected at the time the franchise agreement is awarded. However, the recognition of revenue is deferred until the hotel is open or the franchise agreement is terminated. Upon hotel opening, revenue is recognized ratably as services are provided over the enforceable period of the franchise license agreement. Upon the termination of a franchise agreement, previously deferred initial fees are recognized immediately in the period the agreement is terminated. Initial franchise fee revenue increased $2.7 million from $18.9 million during the nine months ended September 30, 2021 to $21.6 million during nine months ended September 30, 2022.
Procurement Services: Revenues increased $11.6 million from $36.3 million for the nine months ended September 30, 2021 to $47.9 million for the nine months ended September 30, 2022. These results reflect an increase in fees generated from travel-related partnerships and qualified vendors resulting from increased occupancy during the first three quarters of 2022 at our franchised hotels, and fees generated from the Company's convention, which occurred in 2022 after a two-year hiatus as a result of the COVID-19 pandemic.
Owned Hotels: The Company's revenues, net of expenses, from owned hotels increased $9.0 million from $8.2 million for the nine months ended September 30, 2021 to $17.2 million for the nine months ended September 30, 2022. These results reflect improved operating performance at our owned hotels and the net addition of 4 owned hotels during the comparative period, driven by the Radisson Hotels Americas acquisition.
Other Revenues: Other revenues increased $30.8 million from $20.8 million for the nine months ended September 30, 2021 to $51.6 million in the same period of the current year driven by an increase termination fees, including $22.6 million resulting from the exit of 110 WoodSpring units in the third quarter of 2022, and other franchising revenues.
Selling, General and Administrative Expenses: The cost to operate the business is reflected in SG&A on the consolidated statements of income. SG&A expenses were $144.4 million and $99.8 million for the nine months ended September 30, 2022 and 2021, respectively. SG&A expenses experienced an increase resulting from the acquisition of Radisson Hotels Americas, inclusive of severance and transaction related-costs incurred of $29.0 million. SG&A expenses further experienced increases resulting from general corporate purposes; lifting of certain cost mitigation measures related to the COVID-19 pandemic, including compensation, benefits, travel, and conventions & meetings; and an increase in provision for credit losses in accounts receivable recorded in accordance with Topic 326. These were partially offset by a $11.4 million decrease in the Company's deferred compensation liabilities based on decreases in the underlying investments
Gain on sale of business and assets, net: During the third quarter of 2022, the Company recognized a $13.4 million gain primarily related to the sale of an owned hotel asset offset by a reduction to the carrying value of an asset held for sale. In addition, during the second quarter of 2022, the Company recognized a gain of $3.3 million related to the sale of an owned asset, in addition to the sale and conversion of an international direct franchising market to a master franchising market.
Other Loss (Gain): The Company recorded other net losses of $9.6 million for the nine months ended September 30, 2022, compared to other net gains of $2.9 million, a decrease of $12.5 million for the nine months ended September 30, 2021. The losses relate to decreases in the Company's deferred compensation assets based on decreases in the underlying investments and foreign currency transaction gains.
Equity in Net Loss (Gain) of Affiliates: The Company recorded net gain of $1.3 million from its unconsolidated affiliates for the nine months ended September 30, 2022 compared to net losses of $1.5 million for the nine months ended September 30, 2021. These investments relate to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets. The fluctuation is primarily attributable to the sales of ownership interests of and distributions from affiliates resulting in gains of $2.6 million in the second quarter of 2021, partially offset by the impairment of an affiliate resulting in a loss of $4.8 million in the first quarter of 2021.
Income Tax Expense: The effective income tax rates were 24.5% and 23.0% for the nine months ended September 30, 2022 and 2021, respectively.
The effective income tax rates for the nine months ended September 30, 2022 and 2021 were higher than the U.S. federal income tax rate of 21.0% primarily due to the impact of state income taxes, partially offset by excess tax benefits from share-based compensation.
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Liquidity and Capital Resources
Our Company historically generates strong and predictable operating cash flows primarily from our hotel franchising operations and the initial, relicensing and continuing royalty fees attributable to our franchise agreements. Our capital allocation decisions, including capital structure and uses of capital, are intended to maximize our return on invested capital and create value for our shareholders, while maintaining a strong balance sheet and financial flexibility. 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.
The Company's 2012 Senior Notes matured on July 1, 2022. The outstanding principal of $216.6 million was re-paid at maturity.
In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, we suspended future, undeclared dividends and activity under the Company's share repurchase program. Given our strong liquidity and credit profile, in May 2021, the Company resumed the payment of quarterly dividends, subject to future declarations by our board of directors, and activity under the share repurchase program. On December 6, 2021, the Company's board of directors approved a 6% increase in the quarterly cash dividend and declared a quarterly cash dividend of $0.2375 per share of common stock, which was paid in January 2022. On February 24, 2022, May 24, 2022, and September 22, 2022, the Company's board of directors declared a quarterly cash dividend of $0.2375 per share of common stock.
Our board of directors authorized a program which permits us to offer financing, investment, and guaranty support to qualified franchisees, and allows us to acquire or develop and resell hotels to incentivize franchise development of our brands in strategic markets. We deploy capital pursuant to this program opportunistically to promote growth of our brands. With respect to our hotel development and ownership, affiliate investments, and lending, the Company had approximately $486.4 million in support of the Cambria Hotels and Everhome Suites brands currently reflected on the balance sheet as of September 30, 2022, which it generally targets to recycle within a five year period, and expects our outstanding investment to not exceed $975 million at any point in time based on current board of directors' authorization. The deployment and annual pace of future financial support activities will depend upon market and other conditions.
The Company also strategically deploys capital in the form of franchise agreement acquisition payments across our brands to incentivize franchise development. As of September 30, 2022, the Company had commitments to extend an additional $302.5 million for these purposes provided the conditions of the payment are met by its franchisees.
The Company's primary sources of liquidity as of September 30, 2022 consisted of $337.5 million in cash and available borrowing capacity through its senior unsecured revolving credit facility. As of September 30, 2022, the Company was in compliance with the financial covenants of its credit agreements and expects to remain in such compliance. Based on our business model and information known at this time, the Company believes that cash, available borrowing capacity, and cash flows from operations will provide sufficient liquidity to meet the expected future operating, investing and financing needs of the business for at least the next 12 months, inclusive of the pending Radisson Hotels Americas transaction.
Operating Activities
During the nine months ended September 30, 2022 and 2021, net cash provided by operating activities totaled $265.2 million and $245.2 million, respectively. Operating cash flows increased $20.0 million primarily due to an increase in operating income, excluding certain non-cash charges, and timing of working capital items.
In conjunction with brand and development programs, we strategically make certain payments to franchisees as an incentive to enter into new franchise agreements or perform designated improvements to properties under existing franchise agreements ("franchise agreement acquisition costs"). If the franchisee remains in the franchise system in good standing over the term specified in the incentive agreement, 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, the franchisee must repay the unamortized incentive payment plus interest. During the nine months ended September 30, 2022 and 2021, the Company's net advances for these purposes totaled $32.9 million and $28.5 million, respectively. The timing and amount of these cash flows are dependent on various factors including the implementation of various development and brand incentive programs, the level of franchise sales and the ability of our franchisees to complete construction or convert their hotels to one of the Company’s brands. At September 30, 2022, the Company had commitments to extend an additional $302.5 million for these purposes provided the conditions of the payment are met by its franchisees.
The Company’s franchise agreements require the payment of marketing and reservation system fees. In accordance with the terms of our franchise agreements, the Company is obligated to use these marketing and reservation system fees to provide marketing and reservation services. To the extent revenues collected exceed expenditures incurred, the Company has a commitment to the franchisee system to make expenditures in future years. Conversely, to the extent expenditures incurred
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exceed revenues collected, the Company has the contractual enforceable right to recover such advances in future periods through additional fee assessments or reduced spending. During the nine months ended September 30, 2022 and 2021, net surplus generated from other franchised and managed properties activities was $55.4 million and $56.7 million, respectively.
Investing Activities
Our board of directors authorized a program which permits us to offer financing, investment, and guaranty support to qualified franchisees, and allows us to acquire or develop and resell hotels to incentivize franchise development of our brands in strategic markets. We are currently engaged in these financial support activities to encourage acceleration of the growth of our Cambria Hotels and Everhome Suites brands, primarily in strategic markets and locations. With respect to our hotel development and ownership, affiliate investments, and lending, the Company had approximately $486.4 million outstanding in support of the Cambria Hotels and Everhome Suites brands currently reflected on the balance sheet as of September 30, 2022, which it generally targets to recycle within a five year period, and expects our outstanding investment to not exceed $975 million at any point of time based on current board of directors' authorization. We expect to continue to deploy capital in these manners in support of our brands. The deployment and annual pace of future financial support activities will depend upon market and other conditions, including among others, our franchise sales results, the environment for new construction hotel development and the hotel lending environment, and our assessment of the ongoing impacts of the COVID-19 pandemic.
Cash utilized for investing activities totaled $483.7 million and $52.6 million for the nine months ended September 30, 2022 and 2021, respectively. The change in cash utilized for investing activities for the nine months ended September 30, 2022 primarily reflects the following:
On August 11, 2022, the Company acquired 100% of the issued and outstanding equity interest of Radisson Hotels Americas for a purchase price, net of Disclosed Leakage of approximately $673.9 million. The purchase price, net of cash acquired, was $550.4 million. With the close of this Transaction, Choice Hotels International has added approximately 67,000 rooms across the United States, Canada, Caribbean and Latin America. The acquisition expands the Company's footprint in international markets and the upper upscale and upscale full service segments and enhances guest offerings in the core upper-midscale segment. The acquisition accelerates asset-light strategy of growth in higher revenue travel segments and locations. The total value consideration, net of cash acquired, was approximately $550.4 million. To fund the transaction, Choice drew $175 million on the Company's existing $600 million unsecured credit facility (the "Revolver"), and funded the remainder with cash on hand. On the transaction date, the Company acquired approximately $10.4 million in restricted cash due to the mortgage. As a result of paying the mortgage, the restrictions were lifted. Refer to Note 15 to our consolidated financial statements for further discussion.
During the nine months ended September 30, 2022 and 2021, capital expenditures in property and equipment totaled $66.1 million and $46.1 million, respectively. The increase in capital expenditures primarily reflects increased costs incurred to support the continued growth of the Cambria Hotels and Everhome Suites brands, including ongoing construction and acquisition of land parcels in the first and second quarters of 2022 for hotel development.
During the nine months ended September 30, 2022, the Company realized net proceeds of $140.6 million from the sale of two Cambria hotels, one parcel of land, and a sale and conversion of an international direct franchising market to a master franchising market.
During the nine months ended September 30, 2022, the Company recorded $22.6 million related to the termination of 110 WoodSpring units. The termination fees recognized represent $67.4 million in consideration less the carrying basis of the related contract intangibles. During the third and fourth quarters of 2022, the Company received cash of $5.7 million and $61.7 million, respectively.
The Company maintains equity method investments in affiliates related to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets. During the nine months ended September 30, 2022 and 2021, the Company invested $4.3 million and $2.2 million, respectively, and received no distributions from these affiliates. To the extent existing affiliates proceed to the hotel construction phase, the Company is committed to make additional capital contributions totaling $7.7 million to support these efforts.
The Company has entered into various limited payment guaranties with regards to the Company’s investments in affiliates. The maximum exposure of principal incidental to these limited payment guaranties is $5.7 million, plus unpaid expenses and accrued unpaid interest. The Company believes the likelihood of having to perform under the aforementioned limited payment guaranties was remote as of September 30, 2022 and September 30, 2021. In the event of performance, the Company has recourse for one of the transactions in the form of a membership interest pledge as collateral for our guaranty. Refer to Note 12 to our consolidated financial statements for further discussion.
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The Company provides financing to franchisees for hotel development efforts and other purposes in the form of notes receivable. These loans bear interest and are expected to be repaid in accordance with the terms of the loan arrangements. During the nine months ended September 30, 2022, the Company advanced $5.6 million and received repayments totaling $0.7 million for these purposes. For the nine months ended September 30, 2021, the Company advanced no amounts and received repayments totaling $0.1 million for these purposes, and acquired a senior note with collateral in an underlying operating hotel for $17.9 million. At September 30, 2022, the Company had commitments to extend an additional $1.8 million for these purposes provided certain conditions are met by its franchisees.
Financing Activities
Financing cash flows relate primarily to the Company's borrowings, open market treasury stock repurchases, acquisition of shares in connection with the exercise or vesting of equity awards, and dividends.
Debt
Restated Senior Unsecured Credit Facility
On August 20, 2018, the Company entered into the Restated Senior Unsecured Credit Agreement (the "Restated Credit Agreement"), which amended and restated the Company’s existing senior unsecured revolving credit agreement, dated July 21, 2015.
The Restated Credit Agreement provides for a $600 million unsecured credit facility with a maturity date of August 20, 2023, subject to optional one-year extensions that can be requested by the Company prior to each of the first, second and third anniversaries of the closing date of the Restated Credit Agreement. The effectiveness of such extensions are subject to the consent of the lenders under the Restated Credit Agreement and certain customary conditions. The Restated Credit Agreement also provides that up to $35 million of borrowings under the Restated Credit Agreement may be used for alternative currency loans and up to $25 million of borrowings under the Restated Credit Agreement may be used for swingline loans. The Company may from time to time designate one or more wholly owned subsidiaries of the Company as additional borrowers under the Restated Credit Agreement, subject to the consent of the lenders and certain customary conditions.
On July 2, 2019, the Company exercised a one-year extension option on the Restated Credit Agreement, extending the maturity date from August 20, 2023 to August 20, 2024. On August 12, 2020, the Company exercised an additional one-year extension on the Restated Credit Agreement for $525 million of the $600 million total capacity in exchange for a fee of $0.3 million. The extended maturity date is August 20, 2025. On August 11, 2021, the Company executed a one-year extension on the senior unsecured credit facility for $540 million of the $600 million total capacity in exchange for fees of $0.4 million. The extended maturity date is August 20, 2026. On May 18, 2022, the remainder $60 million of the $600 million total capacity was extended to August 20, 2026 in exchange for fees of $24 thousand.
There are no subsidiary guarantors under the Restated Credit Agreement. However, if certain subsidiaries of the Company subsequently incur certain recourse debt or become obligors in respect of certain recourse debt of the Company or certain of its other subsidiaries, the Restated Credit Agreement requires such obligated subsidiaries to guarantee the Company’s obligations under the Restated Credit Agreement (the "springing guarantee"). In the event that these subsidiary guarantees are triggered under the Restated Credit Agreement, the same subsidiary guarantees would be required under the Company’s $400 million senior unsecured notes due 2022 and certain hedging and bank product arrangements, if any, with lenders that are parties to the Restated Credit Agreement.
On February 18, 2020, the Company entered into the First Amendment to the Amended and Restated Senior Unsecured Credit Agreement (the "Amendment") among the Company, Deutsche Bank AG New York Branch, as administrative agent and the lenders party thereto. The Amendment, among other things, removes the springing guarantee and other provisions and references in the Restated Credit Agreement related to the potential existence of subsidiary guarantors.
The Company may at any time prior to the final maturity date increase the amount of the Restated Credit Agreement or add one or more term loan facilities under the Restated Credit Agreement by up to an additional $250 million in the aggregate to the extent that any one or more lenders commit to being a lender for the additional amount of such term loan facility and certain other customary conditions are met.
The Restated Credit Agreement provides that the Company may elect to have borrowings bear interest at a rate equal to (i) LIBOR plus a margin ranging from 90 to 150 basis points or (ii) a base rate plus a margin ranging from 0 to 50 basis points, in each case, with the margin determined according to the Company’s senior unsecured long-term debt rating or under circumstances as set forth in the Restated Credit Agreement, the Company’s total leverage ratio in the event that such total leverage ratio is less than 2.5 to 1.0. On August 11, 2021, we amended the Restated Credit Agreement to provide customary provisions for the replacement of LIBOR with an alternative benchmark rate if it is publicly announced that the administrator of
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LIBOR has ceased or will cease to provide LIBOR, or if it is publicly announced by the applicable regulatory supervisor that LIBOR is no longer representative.
The Restated Credit Agreement requires the Company to pay a fee on the total commitments, calculated on the basis of the actual daily amount of the commitments (regardless of usage) times a percentage per annum ranging from 0.075% to 0.25% (depending on the Company’s senior unsecured long-term debt rating or under circumstances as set forth in the Restated Credit Agreement, the Company’s total leverage ratio in the event that such total leverage ratio is less than 2.5 to 1.0).
The Restated Credit Agreement requires that the Company and its restricted subsidiaries comply with various covenants, including with respect to restrictions on liens, incurring indebtedness, making investments and effecting mergers and/or asset sales. With respect to dividends, the Company may not declare or make any payment if there is an existing event of default or if the payment would create an event of default.
The Restated Credit Agreement imposes financial maintenance covenants requiring 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 or, on up to two nonconsecutive occasions, 5.5 to 1.0 for up to three consecutive quarters following a material acquisition commencing with the fiscal quarter in which such material acquisition occurred. The Company maintains an Investment Grade Rating, as defined in the Restated Credit Agreement, and therefore is not currently required to comply with the consolidated fixed charge coverage ratio covenant.
The Restated Credit Agreement includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Company under the Restated Credit Agreement to be immediately due and payable. At September 30, 2022, the Company maintained a total leverage ratio of 2.16x and was in compliance with all financial covenants under the Restated Credit Agreement. The senior unsecured revolving credit facility was paid down in full during the third quarter of 2020 and remained undrawn as of December 31, 2021. On August 11, 2022, to fund the Radisson Hotels Americas acquisition, the Company drew $175 million on the Company's existing $600 million unsecured credit facility and funded the remainder with cash on hand.
Debt issuance costs incurred in connection with the Restated Credit Agreement are amortized on a straight-line basis, which is not materially different than the effective interest method, through maturity. Amortization of these costs is included in interest expense in the consolidated statements of income.
The proceeds of the Restated Credit Agreement are generally expected to be used for general corporate purposes, including working capital, debt repayment, stock repurchases, dividends, investments and other permitted uses set forth in the Restated Credit Agreement.
Senior Unsecured Notes Due 2031
On July 23, 2020, the Company issued unsecured senior notes in the principal amount of $450 million (the "2020 Senior Notes") bearing a coupon of 3.70%. The 2020 Senior Notes will mature on January 15, 2031, with interest to be paid semi-annually on January 15 th and July 15 th beginning January 15, 2021. The Company used the net proceeds of the 2020 Senior Notes, after deducting underwriting discounts, commissions and other offering expenses, to repay in full the $250 million Term Loan entered in April 2020 and fund the purchase price of the 2012 Senior Notes tendered and accepted by the Company for purchase pursuant to the tender offer (discussed below under "Senior Unsecured Notes due 2022").
Interest on the 2020 Senior Notes is payable semi-annually on January 15 th and July 15 th of each year, commencing on January 15, 2021. The interest rate payable on the 2020 Senior Notes will be subject to adjustment based on certain rating events. The Company may redeem the 2020 Senior Notes, in whole or in part, at its option at the applicable redemption price before maturity. If the Company redeems the 2020 Senior Notes prior to October 15, 2030 (three months prior to the maturity date) (the “2020 Notes Par Call Date”), the redemption price will be equal to the greater of (a) 100% of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2020 Senior Notes matured on the 2020 Notes Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 50 basis points, plus accrued and unpaid interest. If the Company redeems the 2020 Senior Notes on or after the 2020 Notes Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. Additionally, at the option of the holders of the 2020 Senior Notes, the Company may be required to repurchase all or a portion of the 2020 Senior Notes of a holder upon the occurrence of a change of control event at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.
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Senior Unsecured Notes Due 2029
On November 27, 2019, the Company issued unsecured senior notes in the principal amount of $400 million (the "2019 Senior Notes") at a discount of $2.4 million, bearing a coupon of 3.70% with an effective rate of 3.88%. The 2019 Senior Notes will mature on December 1, 2029, with interest to be paid semi-annually on December 1 st and June 1 st. The Company used the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, to repay the previously outstanding senior notes in the principal amount of $250 million due August 28, 2020, and for working capital and other general corporate purposes.
The Company may redeem the 2019 Senior Notes, in whole or in part, at its option at the applicable redemption price before maturity. If the Company redeems the 2019 Senior Notes prior to September 1, 2029 (three months prior to the maturity date) (the “2019 Notes Par Call Date”), the redemption price will be equal to the greater of (a) 100% of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2019 Senior Notes matured on the 2019 Notes Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 30 basis points, plus accrued and unpaid interest. If the Company redeems the 2019 Senior Notes on or after the 2019 Notes Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. Additionally, at the option of the holders of the 2019 Senior Notes, the Company may be required to repurchase all or a portion of the 2019 Senior Notes of a holder upon the occurrence of a change of control event at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.
Senior Unsecured Notes Due 2022
On June 27, 2012, the Company issued unsecured senior notes with a principal amount of $400 million (the "2012 Senior Notes") at par, bearing a coupon of 5.75% with an effective rate of 6.00%. The Company utilized the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, together with borrowings under the Company's senior unsecured senior credit facility, to pay a special cash dividend to stockholders totaling approximately $600.7 million paid on August 23, 2012.
On July 9, 2020, the Company commenced the tender offer (the "Tender Offer") to purchase up to $160.0 million aggregate principal amount of the 2012 Senior Notes subject to increase or decrease. The Tender Offer was subsequently upsized to $180.0 million aggregate principal amount of the 2012 Notes. On July 23, 2020, the Company amended the Tender Offer by increasing the aggregate principal maximum tender amount from $180.0 million to $183.4 million. The Tender Offer settled on July 24, 2020 for $197.8 million, including an early tender premium, settlement fees, and accrued interest paid. In combination with the early pay off of the Term Loan, the Company recorded a loss on extinguishment of debt of $16.0 million in the third quarter of 2020.
The 2012 Senior Notes matured on July 1, 2022. The outstanding principal of $216.6 million was re-paid at maturity.
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. At September 30, 2022, the Company had been fully advanced the amounts due pursuant to these agreements. These advances bear interest at a rate of 3% per annum.
Repayment of the advances is contingent upon the Company achieving certain performance conditions. Performance conditions are measured annually on December 31 st and primarily relate to maintaining certain levels of employment within the various jurisdictions. If the Company fails to meet an annual performance condition, the Company may be required to repay a portion or all of the advances including accrued interest by April 30 th following the measurement date. Any outstanding advances at the expiration in 2023 of the Company's current ten-year corporate headquarters lease will be forgiven in full. The advances will be included in debt in the Company's consolidated balance sheets until the Company determines that the future performance conditions will be met over the entire term of the agreement and the Company will not be required to repay the advances. The Company accrues interest on the portion of the advances that it expects to repay. The Company was in compliance with all applicable current performance conditions as of September 30, 2022.
Acquired Debt and Swap Derivative Asset
On August 11, 2022, in connection with the Radisson Hotels Americas acquisition, the Company also acquired three owned hotel properties, one of which had an encumbered mortgage loan with a mortgage principal in the amount of $53.5 million with
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an original maturity date of August 7, 2024. In addition, the mortgage had an associated interest rate cap agreement (“Interest Swap”) with an effective date of July 30,2021 through August 6, 2024. On August 12, 2022, at Choice’s election, cash on hand was wired to pay off the outstanding loan principal, outstanding interest, and certain prepayment, exit and related fees in the amount of $56.0 million. At the same time, several of the loan related escrows were released in the amount of $10.4 million. On August 16, 2022, the Interest Swap derivative was terminated, which resulted in a payment to Choice in the amount of $1.9 million.
Dividends
In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, we suspended future, undeclared dividends. Given our strong liquidity and credit profile, in May 2021, the Company resumed the payment of quarterly dividends, subject to future declarations by our board of directors. On December 6, 2021, the Company's board of directors approved a 6% increase in the quarterly cash dividend and declared a quarterly cash dividend of $0.2375 per share of common stock. On February 24, 2022, May 24, 2022, and September 22, 2022, the Company's board of directors declared a cash dividend of $0.2375 per share of common stock.
During the nine months ended September 30, 2022, the Company paid $39.7 million in cash dividends. We expect that cash dividends will continue to be paid in the future, subject to declaration by our board of directors, future business performance, economic conditions, changes in tax regulations and other matters. Based on our present dividend rate and outstanding share count, aggregate annual regular dividends for 2022 are estimated to be approximately $52.6 million.
The Company may not declare or make any payment if there is an existing event of default under the Restated Credit Agreement or if the payment would create an event of default.
Share Repurchases
In 1998, we instituted a share repurchase program which has generated substantial value for our shareholders.
In April 2020 in light of uncertainty resulting from the COVID-19 pandemic, we suspended activity under our share repurchase program. In May 2021, the Company's board of directors approved resumption of the share repurchase program.
During the nine months ended September 30, 2022, the Company repurchased 2,072,872 shares of its common stock under the share repurchase program at a total cost of $241.2 million. Through September 30, 2022, the Company repurchased 53.8 million shares of its common stock (including 33.0 million prior to the two-for-one stock split effected in October 2005) under the program at a total cost of $1.7 billion. Considering the effect of the two-for-one stock split, the Company has repurchased 86.8 million shares at an average price of $19.99 per share. On September 14, 2022, the board of directors approved an increase in the number of shares authorized under its share repurchase program by five million shares. As of September 30, 2022, the Company had 6.3 million shares remaining under the current share repurchase authorization.
During the nine months ended September 30, 2022, the Company redeemed 35,462 shares of common stock at a total cost of $5.3 million from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of PVRSUs and restricted stock grants. These redemptions were outside the share repurchase program.
Critical Accounting Policies
Our accounting policies comply with principles generally accepted in the United States. Discussion of these policies is included in Note 1 to our consolidated financial statements as of and for the year ended December 31, 2021 included in our Annual Report on Form 10-K, which incorporates description of our critical accounting policies that involve subjective and complex judgments that could potentially affect reported results.
New Accounting Standards
Refer to Note 1 for information related to our evaluation of new accounting standards.
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FORWARD-LOOKING STATEMENTS
Certain matters discussed in this quarterly report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "expect," "estimate," "believe," "anticipate," "should," "will," "forecast," "plan," "project," "assume" or similar words of futurity. All statements other than historical facts are forward-looking statements. 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 the Company's 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, RevPAR, our ability to benefit from any rebound in travel demand, our liquidity, and the impact of COVID-19 and economic conditions on our future operations, among other matters. We caution you not to place undue reliance on any such forward-looking statements. Forward-looking statements do not guarantee future performance and involve known and unknown risks, uncertainties and other factors.
Several factors could cause our actual results, performance or achievements to differ materially from those expressed in or contemplated by the forward-looking statements. Such risks include, but are not limited to, the consummation of the acquisition of Radisson Hotels Americas, including the related incurrence of additional indebtedness; the company’s ability to successfully integrate Radisson Hotels Americas’ employees and operations; the ability to realize the anticipated benefits and synergies of the acquisition of Radisson Hotels Americas as rapidly or to the extent anticipated; the continuation or resurgence of the COVID-19 pandemic, including with respect to new strains or variants; the rate, pace and effectiveness of vaccination in the broader population; changes in consumer demand and confidence, including the impact of the COVID-19 pandemic on unemployment rates, consumer discretionary spending and the demand for travel, transient and group business; the impact of COVID-19 on the global hospitality industry, particularly but not exclusively in the U.S. travel market; the success of our mitigation efforts in response to the COVID-19 pandemic; the performance of our brands and categories in any recovery from the COVID-19 pandemic disruption; the timing and amount of future dividends and share repurchases; changes to general, domestic and foreign economic conditions, including access to liquidity and capital as a result of COVID-19; future domestic or global outbreaks of epidemics, pandemics or contagious diseases or fear of such outbreaks; changes in law and regulation applicable to the travel, lodging or franchising industries; foreign currency fluctuations; impairments or declines in the value of our assets; operating risks common in the travel, lodging or franchising industries; 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; the commercial acceptance of our SaaS technology solutions division's products and services; our ability to grow our franchise system; exposure to risks related to our hotel development, financing, and ownership activities; exposures to risks associated with our investments in new businesses; fluctuations in the supply and demand for hotel rooms; our ability to realize anticipated benefits from acquired businesses; impairments or losses relating to acquired businesses; the level of acceptance of alternative growth strategies we may implement; cyber security and data breach risks; ownership and financing activities; hotel closures or financial difficulties of our franchisees; operating risks associated with our international operations, especially in areas currently most affected by COVID-19; the outcome of litigation; and our ability to effectively manage our indebtedness and secure our indebtedness, including additional indebtedness incurred as a result of the acquisition of Radisson Hotels Americas. These and other risk factors are discussed in detail in the Risk Factors section of this Quarterly Report on Form 10-Q of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, filed with the SEC on August 4, 2022, and of the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and the impact of fluctuations in foreign currencies on the Company's foreign investments and operations. The Company manages its exposure to these market risks through the monitoring of its available financing alternatives including, in certain circumstances, the use of derivative financial instruments. We are also subject to risk from changes in debt and equity prices from our non-qualified retirement savings plan investments in debt securities and common stock, which have a carrying value of $29.9 million and $36.1 million at September 30, 2022 and December 31, 2021, respectively, which we account for as trading securities. The Company will continue to monitor the exposure in these areas and make the appropriate adjustments as market conditions dictate.
At September 30, 2022, the Company had $315.0 million of variable interest rate debt instruments outstanding at an effective rate of 3.89%. A hypothetical change of 10% in the Company’s effective interest rate from September 30, 2022 levels would increase or decrease annual interest expense by $1.2 million. The Company expects to refinance its fixed and variable long-term debt obligations prior to their scheduled maturities.
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The Company does not presently have any derivative financial instruments.
ITEM 4.CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
The Company has a disclosure review committee whose membership includes the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), among others. The disclosure review committee’s procedures are considered by the CEO and CFO in performing their evaluations of the Company’s disclosure controls and procedures and in assessing the accuracy and completeness of the Company’s disclosures.
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as of the end of the period covered by this quarterly report as required by Rules 13a-15(b) or 15d-15(b) under the Exchange Act. Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.
An evaluation was performed under the supervision and with the participation of the Company’s CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022.
Changes in internal control over financial reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2022, that materially affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
The Company is not a party to any material 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 currently ongoing legal proceedings, individually or collectively, will have a material adverse effect on the Company's financial position, results of operations or cash flows.
ITEM 1A.RISK FACTORS
Other than as noted below, there have been no material changes in our risk factors from those disclosed in Part I, "Item 1A. Risk Factors" to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, all of which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Radisson Hotels Americas Acquisition Risks
We may not fully realize the anticipated benefits from the Radisson Hotels Americas acquisition (the "Transaction"), and our integration process may take longer or be more difficult than anticipated.
We have and plan to continue to devote management attention and resources to integrating our and Radisson Hotels Americas’ business practices so that we can fully realize the anticipated benefits of the Transaction, which was completed on August 11, 2022. Notwithstanding these efforts, the business and assets acquired may require greater resources and investments than originally anticipated. The Transaction could also result in the assumption of unknown or contingent liabilities, and because Radisson Hotels Americas operates in the same sector that we do, the Transaction could also exacerbate a number of risks that currently apply to us.
Additional potential difficulties associated with the acquisition that we may encounter include the following:
•the inability to successfully combine our and Radisson Hotels Americas’ businesses in a manner that permits us to realize the full anticipated benefits and value of the Transaction in the time frame currently anticipated;
•the failure to integrate internal systems, technology, programs, and controls;
•the application of different accounting policies, assumptions, or judgments to Radisson Hotel Americas’ operational results that Radisson Hotels Americas applied in the past;
•changes in laws and regulations that may impact our or Radisson Hotels Americas’ business, financial condition, results of operations, and growth prospects;
•the loss of franchises, sales and other commercial relationships;
•performance shortfalls as a result of a diversion of management's attention in integrating the Transaction;
•the complexities associated with integrating a line of business with a history and strategy different to our own;
•the loss of key employees that may be difficult to replace or possess critical institutional knowledge around systems and processes.
Any of these risks, if realized, could adversely affect our future operational results or our ability to maintain relationships with guests, customers, vendors, colleagues, and other commercial relationships. As a result, the anticipated benefits of the Transaction may not be fully realized, may take longer to realize or may cost more than expected.
We have incurred additional expenses and indebtedness related to the Transaction and expect to incur additional integration expenses.
In connection with closing of the Transaction, we incurred $29.0 million expenses through September 30, 2022. We expect to incur additional expenses in integrating aspects of the business, practices, policies, and procedures of Radisson Hotels Americas in connection with the Transaction. While we have assumed that a certain level of integration expenses will be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. In addition, to fund the Transaction, Choice drew $175 million on the Company's existing $600 million unsecured credit facility, and funded the remainder with cash on hand. On the closing date, the Company acquired approximately $10.4 million in restricted cash due to the mortgage.
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We may be deemed to be a joint employer with our franchisees under certain new laws, rules and regulations.
Companies that operate franchise systems may be subject to liabilities and claims relating to the franchisor/franchisee relationship, such as for allegedly being a joint employer with a franchisee. Changes in laws or regulations relating to this relationship could result in a determination that we are a “joint employer” with our franchisees or that our franchisees are part of one unified system subject to joint and several liability. Such a determination could subject us to liability for employment-related and other liabilities of our franchisees and could cause us to incur other costs that have a material adverse effect on our results of operations and profit.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table sets forth purchases and redemptions of Choice Hotels International, Inc. common stock made by the Company during the nine months ended September 30, 2022:

Month Ending |  | Total Number of Shares Purchased or Redeemed |  | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1), (2) |  | Maximum Number of Shares that may yet be Purchased Under the Plans or Programs, End of Period (3)
January 31, 2022 |  | 30,165 |  |  | $ | 145.76 |  |  | 30,165 |  |  | 3,305,976 |
February 28, 2022 |  | 36,592 |  |  | 144.34 |  |  | 36,592 |  |  | 3,274,705 |
March 31, 2022 |  | 1,729 |  |  | 144.56 |  |  | 1,729 |  |  | 3,272,976 |
April 30, 2022 |  | — |  |  | — |  |  | — |  |  | 3,272,976 |
May 31, 2022 |  | — |  |  | — |  |  | — |  |  | 3,272,976 |
June 30, 2022 |  | — |  |  | — |  |  | — |  |  | 3,272,976 |
July 31, 2022 |  | — |  |  | — |  |  | — |  |  | 3,272,976 |
August 31, 2022 |  | 1,073,469 |  |  | 118.63 |  |  | 1,073,469 |  |  | 2,199,507 |
September 31, 2022 (3) |  | 930,917 |  |  | 111.69 |  |  | 930,917 |  |  | 6,268,590 |
Total |  | 2,072,872 |  |  | $ | 116.38 |  |  | 2,072,872 |  |  | 6,268,590 |

(1) The Company’s share repurchase program was initially approved by the board of directors on June 25, 1998. The program has no fixed dollar amount or expiration date. The share repurchase program is discretionary in nature and the board of directors has the ability to modify, suspend, or discontinue the program at any time. Since the program's inception through September 30, 2022, the Company has repurchased 53.8 million shares (including 33.0 million prior to the two-for-one stock split effected in October 2005) of common stock at a total cost of $1.7 billion. Considering the effect of the two-for-one stock split, the Company has repurchased 86.8 million shares at an average price of $19.99 a share.
(2) During the nine months ended September 30, 2022, the Company redeemed 35,462 shares of common stock from employees to satisfy the option price and minimum tax-withholding requirements related to the exercising of options and vesting of restricted stock and performance vested restricted stock unit grants. These redemptions were not part of the board repurchase authorization.
(3) On September 14, 2022, the board of directors approved an increase in the number of shares authorized under its share repurchase program by five million shares.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.MINE SAFETY DISCLOSURES
None.
ITEM 5.OTHER INFORMATION
None.
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ITEM 6.EXHIBITS
Exhibit Number and Description

Exhibit Number |  | Description
3.01(a) |  | Restated Certificate of Incorporation of Choice Hotels Franchising, Inc. (renamed Choice Hotels International, Inc.)
3.02(b) |  | Amendment to the Restated Certificate of Incorporation of Choice Hotels International, Inc.
3.03(c) |  | Amended and Restated Bylaws of Choice Hotels International, Inc.
3.04(d) |  | Amendment to the Amended and Restated Bylaws of Choice Hotels International, Inc.
3.05(e) |  | Amendment to the Amended and Restated Bylaws of Choice Hotels International, Inc.
31.1* |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2* |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32* |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS* |  | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH* |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL* |  | Inline XBRL Taxonomy Calculation Linkbase Document
101.DEF* |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* |  | Inline XBRL Taxonomy Label Linkbase Document
101.PRE* |  | Inline XBRL Taxonomy Presentation Linkbase Document
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* | Filed herewith

(a) Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Registration Statement on Form S-4, filed August 31, 1998 (Reg. No. 333-62543).
(b) Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K filed May 1, 2013.
(c) Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K filed February 16, 2010.
(d) Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K filed April 29, 2015.
(e) Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K filed on January 13, 2016.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| CHOICE HOTELS INTERNATIONAL, INC.
November 9, 2022 | By: | /s/ PATRICK S. PACIOUS
|  | Patrick S. Pacious
|  | President & Chief Executive Officer
| CHOICE HOTELS INTERNATIONAL, INC.
November 9, 2022 | By: | /s/ DOMINIC E. DRAGISICH
|  | Dominic E. Dragisich
|  | Chief Financial Officer

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