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 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
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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 the U.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:
•
•
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 sales, 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 and nine months
ended September 30, 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 September 30,
2022 2021 % Change
Rooms
United States 492,900 486,800 1%
International 343,100 315,800 9%
Total rooms 836,000 802,600 4%
Three Months Ended September 30,
2022 2021 Change
RevPAR
United States $ 59.15 $ 57.73 2%
International (a) 34.79 27.15 28%
Global RevPAR (a) 49.17 45.80 7%
Average Royalty Rate
United States 4.6 % 4.6 % -
International 2.1 % 2.2 % (10 bps)
Global average royalty rate 3.9 % 4.1 % (20 bps)
Nine Months Ended September 30,
2022 2021 % Change
RevPAR
United States $ 52.32 $ 45.64 15%
International (b) 28.19 20.66 36%
Global RevPAR (b) 42.58 35.94 18%
Average Royalty Rate
United States 4.6 % 4.6 % -
International 2.1 % 2.2 % (10 bps)
Global average royalty rate 4.0 % 4.1 % (10 bps)
______________________
(a)Excluding currency effects, international RevPAR increased 46% and global
RevPAR increased 12%.
(b)Excluding currency effects, international RevPAR increased 50% and global
RevPAR increased 22%.
As of September 30, 2022 , global rooms grew 4% compared to the prior year,
reflecting 1% growth in the U.S. and 9% growth internationally. These increases
included strong growth in both the higher RevPAR midscale and above segments in
the U.S. and the direct franchising business in China , which grew 6% and 8%,
respectively, as well as 80 basis points of growth globally and 200 basis points
internationally from the acquisition of the Vienna House brand in the third
quarter of 2022.
Excluding currency effects, global RevPAR for the three and nine months ended
September 30, 2022 increased 12% and 22%, respectively compared to the prior
year periods, including U.S. growth of 2% and 15%, respectively and
international growth of 46% and 50%, respectively. The increases were primarily
driven by stronger pricing power.
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THREE MONTHS ENDEDSEPTEMBER 30, 2022 VS. THREE MONTHS ENDEDSEPTEMBER 30, 2021 Three Months Ended September 30, 2022 2021 Change % Change Revenues Fee-related and other revenues$ 375 $ 377 $ (2) (1 %) Cost reimbursement revenues 32 86 (54) (63 %) Net revenues 407 463 (56) (12 %) Expenses Marketing, reservation and loyalty expense 147 130 17 13 % Cost reimbursement expense 32 86 (54) (63 %) Other expenses 68 86 (18) (21 %) Total expenses 247 302 (55) (18 %) Operating income 160 161 (1) (1 %) Interest expense, net 21 22 (1) (5 %) Income before income taxes 139 139 - - % Provision for income taxes 38 36 2 6 % Net income$ 101 $ 103 $ (2) (2 %) Net revenues for the three months endedSeptember 30, 2022 decreased$56 million , or 12%, compared to the prior-year period, primarily driven by$92 million of lower revenues associated with our select-service management and owned hotel businesses which were exited in the first half of 2022 and, of which$58 million represented cost-reimbursement revenues that have no impact on net income; partially offset by
•$13 million of higher royalty and franchise fees primarily due to higher RevPAR;
•$10 million of higher marketing, reservation and loyalty fees, primarily reflecting the RevPAR increase;
•$8 million of higher license and other fees;
•$4 million of higher cost-reimbursement revenues related to our remaining managed properties, which have no impact on net income; and
•$3 million of higher other revenues.
Total expenses for the three months ended
•$20 million of higher marketing, reservation and loyalty expenses primarily as a result of the increase in marketing revenues as well as timing of spend;
•$4 million of higher cost-reimbursement expenses related to our remaining managed properties;
•$3 million of higher variable expenses primarily associated with the improvement in travel demand due to the COVID-19 recovery; and
•$3 million of higher costs due to inflation, as expected.
Interest expense, net for the three months ended
Our effective tax rates were 27.3% and 25.9% during the three months endedSeptember 30, 2022 and 2021, respectively. The change was primarily due to the mix of earnings and losses between theU.S. and foreign jurisdictions in which we operate that have different tax rates from theU.S. statutory rate.
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 September 30,
2022 2021
Net income $ 101 $ 103
Provision for income taxes 38 36
Depreciation and amortization 18 23
Interest expense, net 21 22
Stock-based compensation expense 8 7
Development advance notes amortization 3 3
Separation-related expenses 1 -
Foreign currency impact of highly inflationary countries 1 -
Adjusted EBITDA $ 191 $ 194
Following is a discussion of the results of each of our segments and Corporate
and Other for the three months ended September 30, 2022 compared to the three
months ended September 30, 2021 :
Net Revenues Adjusted EBITDA
2022 2021 % Change 2022 2021 % Change
Hotel Franchising $ 367 $ 337 9% $ 201 $ 193 4%
Hotel Management 40 126 (68%) 7 16 (56 %)
Corporate and Other - - n/a (17) (15) (13 %)
Total Company $ 407 $ 463 (12%) $ 191 $ 194 (2%)
Hotel Franchising
Three Months Ended September 30,
2022 2021 % Change
Total rooms 816,300 758,600 8%
Global RevPAR (a) $ 48.61 $ 44.67 9%
______________________
(a) Excluding currency effects, global RevPAR increased 13%.
Rooms increased 8% from the prior year period primarily due to:
•Organic growth of 4%;
•The conversion of managed properties to franchise in connection with the exit of our select-service management business and the sales of our two owned hotels; and
•The acquisition of the Vienna House brand in the third quarter of 2022.
Excluding currency effects, global RevPAR increased 13% from the prior year
period due to a 4% increase in the
Net revenues increased
•$11 million of higher royalty and franchise fees, primarily reflecting the RevPAR increase;
•$10 million of higher marketing, reservation and loyalty revenues, primarily reflecting the RevPAR increase; and
•$8 million of higher license and other fees.
Adjusted EBITDA increased$8 million , or 4%, compared to the third quarter of 2021, primarily driven by the revenue increases discussed above, partially offset by (i) a lower marketing underspend in the third quarter of 2022 versus third quarter of 2021 primarily reflecting the timing of spend and (ii)$1 million of higher costs due to inflation, as expected. 24
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Table of ContentsHotel Management Three Months Ended September 30, 2022 2021 % Change Total rooms 19,700 44,000 (55%) Global RevPAR (a) $ 71.54$ 64.63 11% ______________________
(a) Excluding currency effects, global RevPAR increased 16%.
Rooms declined 55% from the prior year period, driven by the conversion of managed properties to franchise in connection with the exit of our select-service management business and the sale of our two owned hotels.
Excluding currency effects, global RevPAR increased 16% from the prior year period primarily due to the impact of the exit from our select-service hotel management business.
Net revenues decreased
•$92 million of lower revenues associated with our select-service management and owned hotel businesses which we exited in the first half of 2022, of which,$58 million represented cost-reimbursement revenues, that have no impact on adjusted EBITDA; partially offset by
•$4 million of higher cost-reimbursement revenues related to our full-service managed properties, that have no impact on adjusted EBITDA.
Adjusted EBITDA decreased$9 million compared to the prior-year period primarily driven by the revenue decreases discussed above (excluding cost reimbursements), partially offset by$24 million of lower expenses associated with our select-service management and owned hotel businesses, which we exited in the first half of 2022. Corporate and Other
Adjusted EBITDA was unfavorable by
NINE MONTHS ENDEDSEPTEMBER 30, 2022 VS. NINE MONTHS ENDEDSEPTEMBER 30, 2021 Nine Months Ended September 30, 2022 2021 Change % Change Revenues Fee-related and other revenues$ 1,045 $ 931 $ 114 12 % Cost reimbursement revenues 119 242 (123) (51 %) Net revenues 1,164 1,173 (9) (1 %) Expenses Marketing, reservation and loyalty expense 384 327 57 17 % Cost reimbursement expense 119 242 (123) (51 %) Gain on asset sale, net (35) - (35) n/a Other expenses 231 246 (15) (6 %) Total expenses 699 815 (116) (14 %) Operating income 465 358 107 30 % Interest expense, net 60 73 (13) (18 %) Early extinguishment of debt 2 18 (16) (89 %) Income before income taxes 403 267 136 51 % Provision for income taxes 104 72 32 44 % Net income$ 299 $ 195 $ 104 53 % Net revenues for the nine months endedSeptember 30, 2022 decreased$9 million , or 1%, compared to the prior-year period, primarily driven by$173 million of lower revenues associated with our select-service management and owned hotel businesses (which we exited in the first half of 2022) of which$137 million represented cost-reimbursement revenues which have no impact on net income; partially offset by 25
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•$62 million of higher marketing, reservation and loyalty fees primarily reflecting a 18% increase in global RevPAR;
•$59 million of higher royalty and franchise fees primarily due to the RevPAR increase;
•$15 million of higher other revenues primarily due to favorable co-branded credit card activity;
•$15 million of higher cost-reimbursement revenues related to our full-service managed properties that have no impact on net income; and
•$14 million of higher license and other fees.
Total expenses for the nine months endedSeptember 30, 2022 decreased$116 million , or 14%, compared to the prior-year period, primarily driven by$178 million of lower expenses associated with our select-service management and owned hotel businesses, of which$137 million represented cost-reimbursement expenses as discussed above; and
•a
•$61 million of higher marketing, reservation and loyalty expenses primarily as a result of the increase in marketing revenue and the timing of spend;
•$15 million of higher cost-reimbursement expenses related to our full-service managed properties;
•$15 million of higher variable expenses primarily associated with the improvement in travel demand due to the COVID-19 recovery; and
•$7 million of higher costs due to inflation, as expected.
Interest expense, net for the nine months endedSeptember 30, 2022 decreased$13 million , or 18%, compared to the prior-year period as a result of the redemption of our$500 million senior notes inApril 2021 . Early extinguishment of debt of$2 million in 2022 relates to the amendment of our credit agreement and$400 million partial pay down of our term loan B, while the$18 million in 2021 relates to the redemption of our$500 million senior notes. Our effective tax rates were 25.8% and 27.0% during the nine months endedSeptember 30, 2022 and 2021, respectively. The change was primarily due to the mix of earnings and losses between theU.S. and foreign jurisdictions in which we operate that have different tax rates from theU.S. statutory rate, as well as the remeasurement of net deferred tax liabilities as a result of changes in certain state tax rates.
As a result of these items, net income for the nine months ended
The table below is a reconciliation of net income to adjusted EBITDA.
Nine Months Ended September 30,
2022 2021
Net income $ 299 $ 195
Provision for income taxes 104 72
Depreciation and amortization 58 70
Interest expense, net 60 73
Early extinguishment of debt 2 18
Stock-based compensation expense 25 20
Development advance notes amortization 9 7
Gain on asset sale, net (35) -
Separation-related expenses - 3
Foreign currency impact of highly inflationary countries 2 1
Adjusted EBITDA $ 524 $ 459
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Following is a discussion of the results of each of our segments and Corporate and Other for the nine months endedSeptember 30, 2022 compared toSeptember 30, 2021 : Net Revenues Adjusted EBITDA 2022 2021 % Change 2022 2021 % Change Hotel Franchising$ 974 $ 829 17%$ 541 $ 464 17% Hotel Management 190 344 (45%) 33 38 (13%) Corporate and Other - - n/a (50) (43) (16%)Total Company $ 1,164 $ 1,173 (1%)$ 524 $ 459 14% Hotel Franchising Nine Months Ended September 30, 2022 2021 % Change Total rooms 816,300 758,600 8% Global RevPAR (a) $ 41.94$ 34.88 20%
______________________
(a) Excluding currency effects, global RevPAR increased 24%.
Excluding currency effects, global RevPAR increased 24% from the prior year
period primarily due to a RevPAR increase of 16% in the
Net revenues for the nine months ended
•$63 million of higher marketing, reservation and loyalty revenues, primarily reflecting the RevPAR increase;
•$54 million of higher royalty and franchise fees, primarily reflecting the RevPAR increase;
•$14 million of higher other revenues primarily due to favorable co-branded credit card activity; and
•$14 million of higher license and other fees.
Adjusted EBITDA for the nine months ended
•$61 million of higher marketing, reservation and loyalty expenses primarily as a result of the increase in marketing revenue and the timing of spend;
•$6 million of higher costs primarily reflecting variable expenses associated with the improvement in travel demand due to the COVID-19 recovery; and
•$3 million of higher costs due to inflation, as expected.
Hotel Management Nine Months Ended September 30, 2022 2021 % Change Total rooms 19,700 44,000 (55%) Global RevPAR (a) $ 63.02$ 52.67 20% ______________________
(a) Excluding currency effects, global RevPAR increased 23%.
Excluding currency effects, global RevPAR increased 23% from the prior year period primarily due to the impact of the exit from our select-service management business.
Net revenues for the nine months ended
•$173 million of lower revenues associated with our select-service management and owned hotel businesses which we exited in the first half of 2022 and, of which$137 million represented cost-reimbursement revenues, that have no impact on adjusted EBITDA; partially offset by
•$15 million of higher cost-reimbursement revenues related to our full-service managed properties; and
•$2 million of higher management fees driven by the increase in RevPAR.
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Adjusted EBITDA for the nine months ended
Corporate and Other
Adjusted EBITDA for the nine months endedSeptember 30, 2022 was unfavorable by$7 million compared to the prior-year period primarily due to inflationary cost pressures, as expected. DEVELOPMENT We awarded 214 new contracts this quarter compared to 151 in the third quarter 2021. OnSeptember 30, 2022 , our global development pipeline consisted of over 1,600 hotels and over 212,000 rooms, of which approximately 76% is in the midscale and above segments (61% in theU.S. ). Our pipeline grew 10% year-over-year, including 24% in theU.S. and 2% internationally. Approximately 60% of our development pipeline is international and 80% is new construction, of which approximately 36% has broken ground. Our pipeline includes 120 new contracts awarded for our new extended-stay brand since its launch inMarch 2022 . FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Financial Condition September 30, 2022 December 31, 2021 Change Total assets $ 4,210 $ 4,269$ (59) Total liabilities 3,154 3,180 (26) Total stockholders' equity 1,056 1,089 (33) Total assets decreased$59 million fromDecember 31, 2021 toSeptember 30, 2022 primarily due to a$154 million reduction in assets held for sale due to the completion of the sales of our two owned hotels and an$84 million reduction in intangible assets related to theCorePoint Lodging transaction, partially offset by a$115 million increase in cash primarily related to the aforementioned transactions and the$44 million addition to intangible assets for theVienna House acquisition. Total liabilities decreased$26 million fromDecember 31, 2021 toSeptember 30, 2022 primarily due to a reduction in liabilities held for sale as a result of the completion of the owned hotel sales. Total equity decreased$33 million fromDecember 31, 2021 toSeptember 30, 2022 primarily due to$312 million of stock repurchases and$88 million of dividend payments, partially offset by our net income and a$50 million increase in accumulated other comprehensive income primarily associated with the change in fair value of our cash flow hedges.
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 ofSeptember 30, 2022 , our liquidity approximated$1.0 billion . Given the minimal capital needs and flexible cost structure of our business, 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. 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 then existing$1.5 billion term loan facility, which is scheduled to mature inMay 2025 . There was no increase in rates from the then existing$1.5 billion term loan facility to the new term loan A. As ofSeptember 30, 2022 , we were in compliance with the financial covenants of our credit agreement and expect to remain in such compliance. As ofSeptember 30, 2022 , we had a term loan B with a principal outstanding balance of$1.1 billion maturing in 2025, term loan A with a principal outstanding balance of$400 million maturing in 2027 and a five-year revolving credit facility maturing in 2027 with a maximum aggregate principal amount of$750 million , of which none was 28
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outstanding and
Our revolving credit facility and term loan A are 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 the Secured Overnight Funding Rate ("SOFR") plus a 0.10% SOFR
adjustment, 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.
As of September 30, 2022 , $1.1 billion of our term loan B 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 a $54
million asset as of September 30, 2022 .
The Federal Reserve has established the Alternative Reference Rates Committee to
identify alternative reference rates for when the U.S. dollar LIBOR ceases to
exist after June 2023 . Our credit facility, as amended in April 2022 , includes
our revolving credit facility and term loans A and B. The revolver and term loan
A are both based on SOFR. For the pre-existing term loan B, the credit facility
gives us the option to use LIBOR as a base rate and our interest rate swaps are
based on the one-month U.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. In addition, the
International Swaps and Derivatives Association issued protocols to allow swap
parties to amend their existing contracts, though our existing swaps will
continue to reference LIBOR for the foreseeable future.
As of September 30, 2022 , our credit rating was Ba1 from Moody's Investors
Service and BB+ from Standard and Poor's Rating 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 nine months ended
Nine Months Ended September 30,
2022 2021 Change
Cash provided by/(used in)
Operating activities $ 349 $ 327 $ 22
Investing activities 190 (21) 211
Financing activities (420) (606) 186Effects of changes in exchange rates on cash, cash equivalents and restricted cash
(4) - (4)
Net change in cash, cash equivalents and restricted cash
Net cash provided by operating activities increased
Net cash provided by investing activities increased$211 million compared to the prior-year period primarily due to the proceeds from the sales of our two owned hotels and the termination fee received fromCorePoint Lodging in connection with the exit of our select-service management business in the first quarter of 2022, partially offset by$44 million of cash used for the acquisition of the Vienna House brand inSeptember 2022 . Net cash used in financing activities decreased$186 million compared to the prior-year period primarily due to the absence of cash used for the redemption of our$500 million 5.375% senior unsecured notes in 2021, partially offset by increases of$287 million in stock repurchases and$35 million in dividend payments. 29
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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 nine months endedSeptember 30, 2022 , we spent$28 million on capital expenditures, primarily related to information technology, including digital innovation. During 2022, we anticipate spending approximately$40 million on capital expenditures.
In addition, during the nine months ended
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. Under our current stock repurchase program, we repurchased approximately 1.9 million shares at an average price of$66.58 for a cost of$132 million during the three months endedSeptember 30, 2022 . As ofSeptember 30, 2022 , we had$169 million of remaining availability under our program. InOctober 2022 , our Board increased the capacity of the program by an additional$400 million .
Dividend Policy
We declared cash dividends of$0.32 per share in each of the first, second and third quarters of 2022 ($88 million in aggregate), which is consistent with our pre-pandemic quarterly dividend per share. 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 ofSeptember 30, 2022 , our annualized first-lien leverage ratio was 2.0 times which was unusually low due to our higher than normal cash balance as a result of the proceeds from the sale of our two owned hotels and the termination fee received fromCorePoint Lodging in connection with the exit of our select-service management business in the first half 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. 30
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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 September 30, 2022 , the
potential exposure resulting from adverse outcomes of such legal proceedings
could, in the aggregate, range up to approximately $3 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 13 - 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 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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