Basis of Presentation and Significant Accounting Policies

6 Months Ended

Jun. 30, 2025

Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of Choice Hotels International, Inc. and subsidiaries (collectively, "Choice" or the "Company") have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments that are necessary to fairly present the Company's financial position and results of operations. Except as otherwise disclosed, all adjustments are of a normal recurring nature.

Certain information and footnote disclosures normally included in the consolidated financial statements presented in accordance with GAAP have been condensed or omitted. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2024 and the notes thereto included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 20, 2025. The interim results are not necessarily indicative of the entire year's results.

Certain prior year amounts in our consolidated financial statements have been reclassified in order to maintain comparability with the current year presentation. The reclassifications were not as a result of any error in our consolidated financial statements.

The Company reclassified certain prior year amounts in the consolidated statements of income in order to maintain comparability with the current year presentation.

•Royalty, licensing and management fees were revised to franchise and management fees in the consolidated statements of income, and now include the revenues previously presented in royalty, licensing and management fees, with the exception of partnership licensing revenues which are now presented in partnership services and fees in the consolidated statements of income, and the addition of the revenues generated from programs, platforms, and services associated with the Company's franchise operations which were previously presented in other revenues from franchised and managed properties in the consolidated statements of income.

•Initial franchise fees, which were previously presented as a standalone financial statement line item, are now presented within franchise and management fees in the consolidated statements of income.

•Platform and procurement services fees were revised to partnership services and fees in the consolidated statements of income, and now include the revenues previously presented in platform and procurement services fees, with the exception of the revenues from the Company’s annual franchisee convention which are now presented in other revenues, the addition of partnership licensing revenues which were previously presented in royalty, licensing and management fees, and the addition of the revenues generated from other non-franchising agreements which are primarily software as a service (“SaaS”) arrangements for non-franchised hoteliers which were previously presented in other revenues in the consolidated statements of income.

•Other revenues from franchised and managed properties were revised to revenue for reimbursable costs from franchised and managed properties in the consolidated statements of income, and now include the revenues previously presented in other revenues from franchised and managed properties, with the exception of the revenues generated from programs, platforms, and services associated with the Company’s franchise operations which are now presented in franchise and management fees in the consolidated statements of income.

•Selling, general and administrative expenses were revised to include the expenses incurred related to programs, platforms, and services associated with the Company’s franchise operations, which were previously presented in other expenses from franchised and managed properties in the consolidated statements of income.

•Depreciation and amortization was revised to include amortization expense from information technology platforms, which was previously presented in other expenses from franchised and managed properties in the consolidated statements of income.

•Other expenses from franchised and managed properties were revised to reimbursable expenses from franchised and managed properties in the consolidated statements of income, and now include the expenses previously presented in other expenses from franchised and managed properties, with the exception of the expenses incurred from programs, platforms, and services associated with the Company’s franchise operations which are now presented in selling, general and administrative expenses, and amortization expense from information technology platforms which is now presented in depreciation and amortization expense in the consolidated statements of income.

The reclassifications had no effect on the Company's previously reported total revenues, total operating expenses, operating income, or net income.

The following table presents the effect of the reclassifications on the three and six months ended June 30, 2024 consolidated statements of income.


	Three Months Ended						Six Months Ended
	June 30, 2024						June 30, 2024
	As previously reported		Reclassification		As reclassified		As previously reported		Reclassification		As reclassified
REVENUES
Franchise and management fees	$	141,813	$	37,990	$	179,803	$	247,280	$	75,933	$	323,213
Initial franchise fees	6,562		(6,562)		—		13,267		(13,267)		—
Partnership services and fees	28,126		(763)		27,363		41,882		5,325		47,207
Owned hotels	28,418		—		28,418		53,409		—		53,409
Other	15,037		8,270		23,307		31,394		6,630		38,024
Revenue for reimbursable costs from franchised and managed properties	215,200		(38,935)		176,265		379,873		(74,621)		305,252
Total revenues	435,156		—		435,156		767,105		—		767,105
OPERATING EXPENSES
Selling, general and administrative	64,995		23,734		88,729		113,620		47,378		160,998
Business combination, diligence and transition costs	895		—		895		16,739		—		16,739
Depreciation and amortization	10,827		2,010		12,837		21,762		3,890		25,652
Owned hotels	20,704		—		20,704		40,027		—		40,027
Reimbursable expenses from franchised and managed properties	205,113		(25,744)		179,369		382,186		(51,268)		330,918
Total operating expenses	302,534		—		302,534		574,334		—		574,334
Operating income	$	132,622	$	—	$	132,622	$	192,771	$	—	$	192,771

The Company also reclassified certain prior year amounts in the consolidated statements of cash flows in order to maintain comparability with the current year presentation. Depreciation and amortization was revised to include amortization expense from information technology platforms, which was previously presented in depreciation and amortization - other expenses from franchised and managed properties in the consolidated statements of cash flows. Depreciation and amortization - other expenses from franchised and managed properties was revised to depreciation and amortization - reimbursable expenses from franchised and managed properties in the consolidated statements of cash flows. Investments in owned hotel properties and investments in other property and equipment, which were previously presented in investments in property and equipment, are now presented within standalone financial statement line items in the consolidated statements of cash flows. Investments in intangible assets, purchases of investments for employee benefits plans, and proceeds from sales of investments for employee benefits plans, which were previously presented in standalone financial statement line items, are now presented within other items, net in the consolidated statements of cash flows. The reclassifications had no effect on the Company's previously reported net cash provided by operating activities, the net cash used in investing activities, or the net change in cash and cash equivalents.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are included in the “Significant Accounting Policies” section of Note 1 in the Annual Report on Form 10-K for the year ended December 31, 2024.

Recently Issued Accounting Standards

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 is designed to provide additional information to financial statement users in regard to how an entity's operations, risks, and planning affect its tax rate, opportunities, and future cash flows. ASU 2023-09 is effective for the annual reporting period beginning after December 15, 2024. Based on the Company's assessment, the adoption of this standard is not expected to have an impact on the Company's consolidated financial statements, but it will require enhanced income tax disclosures in the notes to the consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses ("ASU 2024-03"). ASU 2024-03 requires public entities to provide detailed disclosure of the income statement expenses in the footnotes to the consolidated financial statements. ASU 2024-03 does not require any changes to the expense captions on the face of the consolidated income statement. ASU 2024-03 is effective for the annual reporting period beginning after December 15, 2026 and for the interim periods within the annual reporting period beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the potential impact that ASU 2024-03 will have on the Company's consolidated financial statements.

CHOICE HOTELS INTERNATIONAL INC /DE 10-Q