WYNDHAM HOTELS & RESORTS, INC. Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended.
These statements include, but are not limited to, statements related to our
expectations regarding our strategy and the performance of our business, our
financial results, our liquidity and capital resources, share repurchases and
dividends and other non-historical statements. Forward-looking statements
include those that convey management's expectations as to the future based on
plans, estimates and projections at the time we make the statements and may be
identified by words such as "will," "expect," "believe," "plan," "anticipate,"
"intend," "goal," "future," "outlook," "guidance," "target," "objective,"
"estimate," "projection" and similar words or expressions, including the
negative version of such words and expressions. Forward-looking statements
involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. You are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date of this report.
Factors that could cause actual results to differ materially from those in the
forward-looking statements include without limitation general economic
conditions; the continuation or worsening of the effects from the coronavirus
pandemic, ("COVID-19"); its scope, duration, resurgence and impact on our
business operations, financial results, cash flows and liquidity, as well as the
impact on our franchisees and property owners, guests and team members, the
hospitality industry and overall demand for and restrictions on travel; the
success of our mitigation efforts in response to COVID-19; our continued
performance during the recovery from COVID-19, and any resurgence or mutations
of the virus; actions governments, businesses and individuals take in response
to the pandemic, including stay-in-place directives (including for instance,
quarantine and isolation guidelines and mandates), safety mitigation guidance,
as well as the timing, availability and adoption rate of vaccinations, booster
shots and other treatments for COVID-19; concerns with or threats of other
pandemics, contagious diseases or health epidemics, including the effects of
COVID-19; the performance of the financial and credit markets; the
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economic environment for the hospitality industry; operating risks associated with the hotel franchising and management businesses; our relationships with franchisees and property owners; the impact of war, terrorist activity, political instability or political strife; risks related to restructuring or strategic initiatives; the Company's ability to satisfy obligations and agreements under its outstanding indebtedness, including the payment of principal and interest and compliance with the covenants thereunder; risks related to our ability to obtain financing and the terms of such financing, including access to liquidity and capital; and the Company's ability to make or pay, plans for and the timing and amount of any future share repurchases and/or dividends, as well as the risks described in our most recent Annual Report on Form 10-K filed with theU.S. Securities and Exchange Commission (the "SEC") and subsequent reports filed with theSEC . The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, subsequent events or otherwise. We may use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Disclosures of this nature will be included on our website in the "Investors" section, which can currently be accessed at www.investor.wyndhamhotels.com. Accordingly, investors should monitor this section of our website in addition to following our press releases, filings submitted with theSEC and any public conference calls or webcasts.
References herein to "
BUSINESS AND OVERVIEWWe operate in the following segments:
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RESULTS OF OPERATIONS
Discussed below are our key operating statistics, consolidated results of
operations and the results of operations for each of our reportable segments.
The reportable segments presented below represent our operating segments for
which discrete financial information is available and used on a regular basis by
our chief operating decision maker to assess performance and to allocate
resources. In identifying our reportable segments, we also consider the nature
of services provided by our operating segments. Management evaluates the
operating results of each of our reportable segments based upon net revenues and
adjusted EBITDA. Adjusted EBITDA is defined as net income/(loss) excluding net
interest expense, depreciation and amortization, early extinguishment of debt
charges, impairment charges, restructuring and related charges, contract
termination costs, transaction-related items (acquisition-, disposition- or
separation-related), gain/(loss) on asset sale, foreign currency impacts of
highly inflationary countries, stock-based compensation expense, income taxes
and development advance notes amortization. We believe that adjusted EBITDA is a
useful measure of performance for our segments and, when considered with U.S.
Generally Accepted Accounting Principles ("GAAP") measures, gives a more
complete understanding of our operating performance. We use this measure
internally to assess operating performance, both absolutely and in comparison to
other companies, and to make day to day operating decisions, including in the
evaluation of selected compensation decisions. Adjusted EBITDA is not a
recognized term under U.S. GAAP and should not be considered as an alternative
to net income or other measures of financial performance or liquidity derived in
accordance with U.S. GAAP. Our presentation of adjusted EBITDA may not be
comparable to similarly-titled measures used by other companies.
We generate royalties and franchise fees, management fees and other revenues
from hotel franchising and hotel management activities, as well as fees from
licensing our "Wyndham" trademark, certain other trademarks and intellectual
property. In addition, pursuant to our franchise and management contracts with
third-party hotel owners, we generate marketing, reservation and loyalty fee
revenues and cost reimbursement revenues that over time are offset,
respectively, by the marketing, reservation and loyalty costs and property
operating costs that we incur.
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OPERATING STATISTICS
The table below presents our operating statistics for the three months ended
March 31, 2022 and 2021. "Rooms" represent the number of hotel rooms at the end
of the period which are either under franchise and/or management agreements, or
are Company-owned, and properties under affiliation agreements for which we
receive a fee for reservation and/or other services provided. "RevPAR"
represents revenue per available room and is calculated by multiplying average
occupancy rate by average daily rate. "Average royalty rate" represents the
average royalty rate earned on our franchised properties and is calculated by
dividing total royalties, excluding the impact of amortization of development
advance notes, by total room revenues. These operating statistics are drivers of
our revenues and therefore provide an enhanced understanding of our business.
Refer to the section below for a discussion as to how these operating statistics
affected our business for the periods presented.
As of March 31,
2022 2021 % Change
Rooms
United States 491,900 486,000 1%
International 321,400 311,200 3%
Total rooms 813,300 797,200 2%
Three Months Ended March 31,
2022 2021 Change
RevPAR
United States $ 42.11 $ 30.62 38%
International (a) 21.95 15.83 39%
Global RevPAR (a) 34.06 24.90 37%
Average Royalty Rate
United States 4.6 % 4.6 % -
International 2.3 % 2.0 % 30 bps
Global average royalty rate 4.0 % 4.0 % -
______________________(a)Excluding currency effects, international RevPAR increased 46% and global RevPAR increased 39%.
As of
Excluding currency effects, global RevPAR for the three months endedMarch 31, 2022 increased 39% compared to the prior year period, including 38% growth in theU.S. and 46% internationally. The increase was driven by approximately two-thirds of stronger pricing power and one-third from higher occupancy levels. 20
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THREE MONTHS ENDED MARCH 31, 2022 VS. THREE MONTHS ENDED MARCH 31, 2021
Three Months Ended March 31,
2022 2021 Change % Change
Revenues
Fee-related and other revenues $ 316 $ 232 $ 84 36 %
Cost reimbursement revenues 55 71 (16) (23 %)
Net revenues 371 303 68 22 %
Expenses
Marketing, reservation and loyalty expense 104 92 12 13 %
Cost reimbursement expense 55 71 (16) (23 %)
Gain on asset sale (36) - (36) n/a
Other expenses 88 77 11 14 %
Total expenses 211 240 (29) (12 %)
Operating income 160 63 97 154 %
Interest expense, net 20 28 (8) (29 %)
Income before income taxes 140 35 105 300 %
Provision for income taxes 34 11 23 209 %
Net income $ 106 $ 24 $ 82 342 %
Net revenues for the three months ended
•$32 million of higher royalty and franchise fees primarily due to higher RevPAR;
•$26 million of higher marketing, reservation and loyalty fees, primarily reflecting the RevPAR increase; and
•$16 million of higher management and other fees primarily reflecting the RevPAR increase and strong operating performance at our owned hotels; partially offset by
•$16 million of lower cost-reimbursement revenues in our hotel management
business as a result of
Total expenses for the three months ended
• a
•$16 million of lower cost-reimbursement expenses consistent with the revenue decline discussed above; partially offset by
•$12 million of higher marketing, reservation and loyalty expenses primarily as a result of the higher marketing revenues; and
•$8 million of higher operating expenses, primarily associated with higher volume-related expenses at our owned hotels.
Interest expense, net for the three months endedMarch 31, 2022 decreased$8 million , or 29%, compared to the prior-year period as a result of the redemption of our$500 million senior notes inApril 2021 . Our effective tax rates were 24.3% and 31.4% during the three months endedMarch 31, 2022 and 2021, respectively. During 2022, the lower effective tax rate was primarily related to a higher tax benefit associated with stock based compensation. During 2021, the higher effective tax rate was primarily related to the remeasurement of net deferred tax liabilities as a result of changes in certain state tax rates and non-deductible separation costs.
As a result of these items, net income for the three months ended
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The table below is a reconciliation of net income to adjusted EBITDA.
Three Months Ended March 31,
2022 2021
Net income $ 106 $ 24
Provision for income taxes 34 11
Depreciation and amortization 24 24
Interest expense, net 20 28
Stock-based compensation expense 8 5
Development advance notes amortization 3 2
Gain on asset sale (36) -
Separation-related expenses - 2
Foreign currency impact of highly inflationary countries - 1
Adjusted EBITDA $ 159 $ 97
Following is a discussion of the results of each of our segments and Corporate
and Other for the three months ended March 31, 2022 compared to the three months
ended March 31, 2021 :
Net Revenues Adjusted EBITDA
2022 2021 % Change 2022 2021 % Change
Hotel Franchising $ 272 $ 209 30% $ 155 $ 105 48%
Hotel Management 99 94 5% 20 5 300 %
Corporate and Other - - n/a (16) (13) (23 %)
Total Company $ 371 $ 303 22% $ 159 $ 97 64%
Hotel Franchising
Three Months Ended March 31,
2022 2021 % Change
Total rooms 793,200 748,700 6%
Global RevPAR (a) $ 33.08 $ 24.02 38%
______________________
(a) Excluding currency effects, global RevPAR increased 40%.
Rooms increased 6% from the prior year period primarily due toU.S openings and the conversion of managed properties to franchise due to the completion of the exit from our select-service hotel management business.
Excluding currency effects, global RevPAR increased 40% from the prior year
period due to a 38% increase in the
Net revenues increased
•$28 million of higher royalty and franchise fees; and
•$26 million of higher marketing, reservation and loyalty revenues.
Adjusted EBITDA increased
Hotel Management Three Months Ended March 31, 2022 2021 % Change Total rooms 20,100 48,500 (59%) Global RevPAR (a)$ 56.55 $ 38.17 48% ______________________
(a) Excluding currency effects, global RevPAR increased 49%.
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Rooms declined 59% from the prior year period, driven by
Global RevPAR increased 48% from the prior year period primarily due to a 63%
increase in
Net revenues increased
•$17 million of higher owned hotel revenues due to improved operating performance; and
•$4 million of higher termination fees primarily due to
•$16 million of lower cost-reimbursement revenues as discussed above, which have no impact on adjusted EBITDA.
Adjusted EBITDA increased
Corporate and Other
Adjusted EBITDA was unfavorable by
DEVELOPMENT
We awarded 165 new contracts this quarter, including 50 new construction
projects for our new extended-stay brand, compared to 112 in the first quarter
2021. On March 31, 2022 , our global development pipeline consisted of
approximately 1,600 hotels and approximately 204,000 rooms. Our pipeline grew 9%
year-over-year, including 12% domestically and 7% internationally. Approximately
63% of our development pipeline is international and 79% is new construction, of
which approximately 35% has broken ground. Approximately 80% of our global
development pipeline is in the midscale and above segments, including nearly 70%
in the U.S.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
March 31, 2022 December 31, 2021 Change
Total assets $ 4,292 $ 4,269 $ 23
Total liabilities 3,133 3,180 (47)
Total stockholders' equity 1,159 1,089 70
Total assets increased $23 million from December 31, 2021 to March 31, 2022
primarily due to an increase in cash as a result of $202 million in net proceeds
from asset sales, partially offset by an $87 million reduction in assets held
for sale due to the completed sale of our owned hotel Wyndham Grand Bonnet Creek
Resort and an $84 million reduction in intangible assets related to CorePoint.
Total liabilities decreased $47 million from December 31, 2021 to March 31, 2022
primarily due to a reduction in deferred income taxes and in the value of our
interest rate swap. Total equity increased $70 million from December 31, 2021 to
March 31, 2022 primarily due to our net income for the period, partially offset
by $38 million of stock repurchases and $30 million of dividends.
Liquidity and Capital Resources
Historically, our business generates sufficient cash flow to not only support our current operations as well as our future growth needs and dividend payments to our stockholders, but also to create additional value for our stockholders in the form of share repurchases or business investment. As ofMarch 31, 2022 , our liquidity approximated$1.2 billion . Given the minimal capital needs of our business, the flexible cost infrastructure and the mitigation measures taken, we believe that our existing cash, cash equivalents, cash generated through operations and our expected access to financing facilities, together with funding through our revolving credit facility, will be sufficient to fund our operating activities, anticipated capital expenditures and growth needs. As ofMarch 31, 2022 , we were in compliance with the financial covenants of our credit agreement and expect to remain in such 23
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compliance with no additional waivers or amendments required. As ofMarch 31, 2022 , we had a term loan with an aggregate principal amount of$1.5 billion maturing in 2025 and a five-year revolving credit facility maturing in 2023 with a maximum aggregate principal amount of$750 million , of which none was outstanding and$9 million was allocated to outstanding letters of credit. The interest rate per annum applicable to our term loan is equal to, at our option, either a base rate plus a margin of 0.75% or LIBOR plus a margin of 1.75%. Our revolving credit facility is subject to an interest rate per annum equal to, at our option, either a base rate plus a margin ranging from 0.50% to 1.00% or LIBOR plus a margin ranging from 1.50% to 2.00%, in either case based upon the total leverage ratio of the Company and its restricted subsidiaries. InApril 2022 , we amended our$750 million revolving credit facility, extending the maturity fromMay 2023 toApril 2027 on similar terms as the previous facility, and issued a new$400 million senior secured term loan A facility, which matures inApril 2027 . The proceeds from the term loan A were used to repay a portion of our existing$1.5 billion term loan facility, which is scheduled to mature inMay 2025 . There was no increase in rates from the existing$1.5 billion term loan facility to the new term loan A. As ofMarch 31, 2022 ,$1.1 billion of our term loan is hedged with pay-fixed/receive-variable interest rate swaps hedging our term loan interest rate exposure. The aggregate fair value of these interest rate swaps was an$18 million asset as ofMarch 31, 2022 . TheFederal Reserve has established the Alternative Reference Rates Committee to identify alternative reference rates for when theU.S. dollar LIBOR ceases to exist afterJune 2023 . Our credit facility, which includes our revolving credit facility and term loan, gives us the option to use LIBOR as a base rate and our interest rate swaps are based on the one-monthU.S. dollar LIBOR rate. In the event that LIBOR is no longer published, the credit facility allows us and the administrative agent of the facility to replace LIBOR with an alternative benchmark rate, subject to the right of the majority of the lenders to object thereto. InApril 2022 we amended and extended the revolving credit portion of the credit facility and the Secured Overnight Funding Rate ("SOFR") will be utilized as the new benchmark rate. In addition, theInternational Swaps and Derivatives Association issued protocols to allow swap parties to amend their existing contracts, though the Company's existing swaps will continue to reference LIBOR for the foreseeable future. As ofMarch 31, 2022 , our credit rating was Ba1 from Moody's Investors Service and BB+ from Standard and Poor'sRating Agency . A credit rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal by the assigning rating organization. Reference in this report to any such credit rating is intended for the limited purpose of discussing or referring to aspects of our liquidity and of our costs of funds. Any reference to a credit rating is not intended to be any guarantee or assurance of, nor should there be any undue reliance upon, any credit rating or change in credit rating, nor is any such reference intended as any inference concerning future performance, future liquidity or any future credit rating. Our liquidity and access to capital may be impacted by our credit ratings, financial performance and global credit market conditions. We believe that our existing cash, cash equivalents, cash generated through operations and our expected access to financing facilities, together with funding through our revolving credit facility, will be sufficient to fund our operating activities, anticipated capital expenditures and growth needs. CASH FLOW
The following table summarizes the changes in cash, cash equivalents and
restricted cash during the three months ended
Three Months Ended March 31,
2022 2021 Change
Cash provided by/(used in)
Operating activities $ 135 $ 64 $ 71
Investing activities 192 (5) 197
Financing activities (82) (21) (61)
Net change in cash, cash equivalents and restricted cash
Net cash provided by operating activities increased
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Net cash provided by investing activities increased$197 million compared to the prior-year period primarily due to the proceeds from the sale of theWyndham Grand Bonnet Creek Resort and the termination fee received fromCPLG in connection with the exit of our select-service management business in the first quarter of 2022.
Net cash used in financing activities increased
Capital Deployment
Our first priority is to invest in the business. This includes deploying capital to attract high quality assets into our system, investing in select technology improvements across our business that further our strategic objectives and competitive position, brand refresh programs to improve quality and protect brand equity, business acquisitions that are accretive and strategically enhancing to our business, and/or other strategic initiatives. We also expect to maintain a regular dividend payment. Excess cash generated beyond these needs would be available for enhanced stockholder return in the form of stock repurchases.
During the three months ended
In addition, during the three months endedMarch 31, 2022 , we spent$7 million on development advance notes. During 2022, we anticipate spending approximately$55 million on development advance notes. We may also provide other forms of financial support such as enhanced credit support to further assist in the growth of our business.
We expect all our cash needs to be funded from cash on hand and cash generated through operations, and/or availability under our revolving credit facility.
Stock Repurchase Program
InMay 2018 , our Board approved a share repurchase plan pursuant to which we were authorized to purchase up to$300 million of our common stock. InAugust 2019 , the Board increased the capacity of the program by$300 million and inFebruary 2022 , increased an additional$400 million . Under the plan, we may, from time to time, purchase our common stock through various means, including, without limitation, open market transactions, privately negotiated transactions or tender offers, subject to the terms of the tax matters agreement entered into in connection with our spin-off. Due to our confidence in our ability to generate significant cash flow, the resiliency of our business model and the ongoing recovery of travel demand, we resumed our share repurchase program in August of 2021. Under our current stock repurchase program, we repurchased approximately 0.5 million shares at an average price of$83.72 for a cost of$38 million during the three months endedMarch 31, 2022 . As ofMarch 31, 2022 , we had$443 million of remaining availability under our program.
Dividend Policy
We declared cash dividends of
The declaration and payment of future dividends to holders of our common stock
is at the discretion of our Board and depends upon many factors, including our
financial condition, earnings, capital requirements of our business, covenants
associated with certain debt obligations, legal requirements, regulatory
constraints, industry practice and other factors that our Board deems relevant.
LONG-TERM DEBT COVENANTS
Our credit facilities contain customary covenants that, among other things,
impose limitations on indebtedness; liens; mergers, consolidations, liquidations
and dissolutions; dispositions, restricted debt payments, restricted payments
and transactions with affiliates. Events of default in these credit facilities
include, among others, failure to pay interest, principal and fees when due;
breach of a covenant or warranty; acceleration of or failure to pay other debt
in excess of a threshold amount; unpaid judgments in excess of a threshold
amount, insolvency matters; and a change of control. The credit facilities
require us to comply with a financial covenant to be tested quarterly,
consisting of a maximum first-lien leverage ratio of 5.0 times. The ratio is
calculated by dividing consolidated first lien indebtedness (as defined in the
credit agreement) net of consolidated unrestricted cash as of the measurement
date by consolidated EBITDA (as defined in the credit agreement), as measured on
a trailing four-fiscal-quarter basis preceding the measurement date. As of March
31, 2022 , our annualized first-lien leverage ratio was 1.8 times which was
unusually low due to the higher than normal cash balance as a result of the
proceeds from the sale of
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theWyndham Grand Bonnet Creek Resort and the termination fee received fromCPLG in connection with the exit of our select-service management business in the first quarter of 2022. The indenture, as supplemented, under which the senior notes due 2028 were issued, contains covenants that limit, among other things, our ability and that of certain of our subsidiaries to (i) create liens on certain assets; (ii) enter into sale and leaseback transactions; and (iii) merge, consolidate or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications.
As of
SEASONALITY
While the hotel industry is seasonal in nature, periods of higher revenues vary
property-by-property and performance is dependent on location and guest base.
Based on historical performance, revenues from franchise and management
contracts are generally higher in the second and third quarters than in the
first or fourth quarters due to increased leisure travel during the spring and
summer months. Our cash from operating activities may not necessarily follow the
same seasonality as our revenues and may vary due to timing of working capital
requirements and other investment activities. The seasonality of our business
may cause fluctuations in our quarterly operating results, earnings, profit
margins and cash flows. As we expand into new markets and geographical
locations, we may experience increased or different seasonality dynamics that
create fluctuations in operating results different from the fluctuations we have
experienced in the past.
COMMITMENTS AND CONTINGENCIES
We are involved in claims, legal and regulatory proceedings and governmental
inquiries related to our business. Litigation is inherently unpredictable and,
although we believe that our accruals are adequate and/or that we have valid
defenses in these matters, unfavorable results could occur. As such, an adverse
outcome from such proceedings for which claims are awarded in excess of the
amounts accrued, if any, could be material to us with respect to earnings and/or
cash flows in any given reporting period. As of March 31, 2022 , the potential
exposure resulting from adverse outcomes of such legal proceedings could, in the
aggregate, range up to approximately $4 million in excess of recorded accruals.
However, we do not believe that the impact of such litigation should result in a
material liability to us in relation to our financial position or liquidity. For
a more detailed description of our commitments and contingencies see Note 12 -
Commitments and Contingencies to the Condensed Consolidated Financial Statements
contained in Part I, Item 1 of this report.
CRITICAL ACCOUNTING POLICIES
In presenting our financial statements in conformity with U.S. GAAP, we are
required to make estimates and assumptions that affect the amounts reported
therein. Several of the estimates and assumptions we are required to make relate
to matters that are inherently uncertain as they pertain to future events.
However, events that are outside of our control cannot be predicted and, as
such, they cannot be contemplated in evaluating such estimates and assumptions.
If there is a significant unfavorable change to current conditions, it could
result in a material impact to our consolidated results of operations, financial
position and liquidity. We believe that the estimates and assumptions we used
when preparing our financial statements were the most appropriate at that time.
These Condensed Consolidated Financial Statements should be read in conjunction
with our 2021 Consolidated and Combined Financial Statements included in our
most recent Annual Report on Form 10-K filed with the U.S. Securities and
Exchange Commission (the "SEC") and any subsequent reports filed with the SEC ,
which includes a description of our critical accounting policies that involve
subjective and complex judgments that could potentially affect reported results.
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