Patrick Pacious: Yes, really the difference there is really interest expense and a slightly higher tax rate. So, our debt is up about $300 million year-over-year kind of on average about half of that. The combination of higher rates that we incurred during 2023 and a slightly higher debt level as we get back to our targeted leverage levels. And then, our tax rate is at 24.5%. We had a few discrete items on some reversals of reserves in the fourth quarter that lowered our tax rate in 2023 that we don’t expect to incur in 2024.
Stephen Grambling: And then, from a free cash flow standpoint, I mean are there any big puts and takes to think through whether it’s key money that’s going to be coming to fruition or I think there was also some affiliate investments, things like that?
Patrick Pacious: Yes. In terms of the way we define free cash flow, we expect free cash flow to be similar to 2023. Our key money should be generally in the same range that we spent in 2023, so a slight increase in key money. But our free cash flow conversion should be consistent between 2023 and 2024.
Stephen Grambling: Great. Thank you so much.
Operator: Your next question comes from Robin Farley with UBS. Please go ahead.
Robin Farley: Great. Thanks. I wanted to just get a clarification. Your global pipeline you mentioned was up 6% sequentially. Can you tell us what was year-over-year? Just the number is not in the ’22 press release last year, so just to calculate the year-over-year change in global pipeline. And then, also looking at your, what you call the revenue intense segments that that grouping of upscale and extended stay and midscale? It looked like sequentially or there wasn’t really an increase in those sequentially or not a lot of rooms there opening in Q4. Was that just something specific just to that quarter or just something seasonal to keep in mind or maybe just something one-time in Q4? Thanks.
Patrick Pacious: So Robin, you cut out a little bit your second part of the question. In your first part I’ll answer the first part, maybe you could repeat the second part. In terms of the global pipeline, our global pipeline from the end of the year was basically flat, just about 106,000 rooms down to 105,000 rooms. And really that was a reflection of really the strong openings that we had during the year. And I think we talked about this on the last quarterly call, but we did have a cleanup of some of our pipeline in early Q1 of 2023 where we have taken a look at some contracts where, because coming out of the pandemic we didn’t think we’re going to open in our new construction pipeline, knowing that it was a strong conversion environment where we could fill those markets with existing hotels.
We made the one-time decision to terminate some hotels knowing that we could sell into those markets and quickly realize those revenue streams. So, we’ve been focused on the sequential quarter-over-quarter growth, which we talked about was up 6% on a global basis. You made a comment about Q4, but unfortunately the audio cut out a little bit. So, could you repeat that question?
Robin Farley: Sure. Yes, the Q4 was just, your commentary about what you call the revenue intense segments, the extended stay and upscale and midscale, it looked like openings in Q4 were sort of were that there weren’t really openings sequentially in Q4 from Q3 in those groupings. And I’m just wondering if that was seasonal or something just specific to Q4 that just kind of what’s behind that? Thanks.
Patrick Pacious: And actually Q4 is typically our largest openings quarter, quarter-over-quarter. So, when you look at our September 30 results into December 31, we actually saw strong growth in all of our revenue intensive brands. Comfort brand, WoodSpring brand, all of our extended stay brands had quarter-over-quarter growth. So, happy to take offline with what you’re looking at, but we saw strong opening growth, including the full-year growth of 13% in our openings.
Robin Farley: Okay.
Scott Oaksmith: Yes, Robin, I see about 104 Q4 openings. That was a 4% increase year-over-year. So, that’s that we can take it offline.
Robin Farley: Okay. I was just looking at sequential. Okay. Thanks.
Operator: Your next question comes from Joe Greff with J.P. Morgan. Please go ahead.
Joe Greff: Good morning, everybody. Your royalty fees grew just under 9% year-over-year in 2023, actually royalty licensing and management fees that $513 million level. If I reverse engineer your 2024 outlook, I’m getting to something that’s an accelerating level of growth in that line item. Is that how you’re looking at things based on some of the drivers that you’ve given some of the drivers that maybe are underlying that overall assumption for EBITDA growth?
Patrick Pacious: Yes, if you take a look at our drivers this year, so our RevPAR was that increase for the full-year of 0.1%. Our revenue intensive unit growth was about 1.8%. And we grew our effective royalty rate in the mid-single digits. So, we are expecting a slight acceleration of that with RevPAR increasing 1%, our revenue intensive net unit growth being at approximately 2%. And the royalty rate should be effectively about flat year-over-year as far as the terms of growth, but up mid-single digits again. So, there is some acceleration in that. We also — there is a small portion of our corporate credit card that’s in there and the licensing fees that will be driving a piece of that number as we continue to realize the benefits from the co-branded credit card with Wells Fargo. And then, lastly, strong international growth continued in that number should make that number grow a little bit faster pace than it did in 2023.
Joe Greff: Got it. So, that 9% growth rate in royalties and other fees should grow at a faster rate in 2024. Just making sure I’m hearing you correctly.
Patrick Pacious: The overall percentages may not be there. We have some a little bit in the 2023, that royalty rate, that royalty number percentage was against a Radisson acquisition that only had a little over Q4 and a little partial Q3. But if you look at the fundamentals, it’s kind of the year-over-year of our portfolio, the unit growth, the RevPAR, and the effective royalty rate all should grow at a faster pace. That 9% is, again, 2023 compared to 2022 when we acquired Radisson in August of 2022. So, that number would have been higher in 2023 than it will be in 2024.
Joe Greff: Got it. And just going now a couple of questions on the Wyndham proposal, I think it was Pat earlier in your prepared remarks you referenced that you think we have confidence in a deal that could close in a customary time frame. Can you put a little bit more flesh on the bone on that comment and is that thinking different today versus a few months ago after having additional interactions with regulatories?
Patrick Pacious: Yes, sure, Joe. In fact, we’re three months from all of that, so yes, we’re getting actually closer to it. When we say the customary timeframe, we have been saying 12 months, but as I said, now we’re six weeks into the second request on the regulatory front. And that’s going to be the long pole in the tent. And that’s when we look at it from a second request to a final outcome, we’ve been told to expect anything from six to nine months. So, as we’re six weeks into that six to nine month timeframe, that’s getting closer. And that’s actually the thing, when we talk to Wyndham shareholders, they just want to understand not just around the regulatory environment itself, but also the timeframe involved in it. It’s the reason, or one of the reasons we put the exchange offer in place was to get the regulatory process moving, which we did in early December.
So, here we sit late February, we’re getting closer to having some clarity for shareholders around that regulatory question and more importantly, the timing of it. So, that’s what we’ve been told to sort of expect from just precedent and sort of how long these processes take. But if you’re looking at that six to nine-month timeframe from January 12th when the second request began, we’re moving pretty rapidly down that path.
Joe Greff: Great. And then, a follow-up on your work on the pursuit of Wyndham, to what extent are — Pat, are you, management, the board, your advisors working on finding potential buyers of newly issued equity in a pro forma company that helped fund a deal with, say, a greater cash consideration than what you have on the table now and also would then lower pro forma debt. Obviously, that kills two of three concerns, i.e. not regulatory, but two or three concerns get mitigated from Wyndham’s perspective. It’s also hard not to recognize that you brought in Goldman kind of later in the process at the — at some point at the end of last year. So, to what extent is that a priority and to what extent can you share with us conversations on selling new equity and whether Stewart would be potentially involved in investing more into a pro forma company.
Patrick Pacious: Yes, Joe, you’re going to quite imagine I’m not going to negotiate with you, but we’d be happy to have the conversations you just laid out with the Wyndham Board if they would in fact engage with us. I would say from the get-go, we’ve been looking at really three things here, which is what is the price that is the right price to pay? As we said from the beginning, we’re offering Wyndham a premium and an earnings multiple, the implied earnings multiple that they’ve never achieved before. So, we feel like we’re good on that. The mix between equity and cash is something, as we’ve talked to their shareholders, they like the transaction and they like the equity. So, providing the equity and the cash mix is something that we feel like we’re at a good place today.
There’s certainly an opportunity to look at that a second time as we get into an engagement with them. And certainly the leverage that we think both businesses can handle is pretty high given that high free cash flow generating characteristics that we see here. So, there’s opportunity to look at this. So, I can tell you we’ve looked at a lot of different factors to get to the right mix of those three issues. But I think when you look at the offer that we have on the table today, when you look at the feedback we’ve gotten from the Wyndham shareholders with regard to getting a transaction done, there is a high level of confidence that we’re in that range of a good offer that’s on the table. And as I said, that offer can be improved if we get two things, engagement, and due diligence.
Joe Greff: Thank you very much.
Operator: Your next question comes from Meredith Jensen with HSBC. Please go ahead.
Meredith Jensen: Yes, hi. I was wondering if you could speak a little bit more about the retention rate, maybe by chain scale and domestic and international, just sort of breaking it down a little bit and maybe a look over time and what maybe some goals are. And then, I was looking back at something from last quarter you had mentioned, a strategic partnership in Mexico, and I was wondering if that is just part of some of the other discussions or I just wanted to match that up with some of the international growth strategies mentioned today. Thanks.
Patrick Pacious: Sure, Meredith. I think when you look at our retention rate, I mean we’ve historically had a very high retention rate, 97%, 98% is what it sits today. Obviously, we are looking to constantly improve our brands. And there are times when the franchisees are either not willing to invest in a brand or are taking their hotel and making it into an alternative use. So, those are generally high drivers of where we see franchisee churn. And a lot of that is occurring, particularly the non-hotel use conversion is occurring in that economy transient segment. So, that’s where you see a higher churn rate than you do in the other segments that we operate in.
Dominic Dragisich: Yes, in terms of international, I would say our churn rate is similar to the U.S. Most of our brands overseas are ring brands, so don’t have the high churn that we have in the economy segment. So, if you model out this similar churn rate as our revenue-intensive brands, that would be a good starting point. As Pat mentioned, we are guiding to revenue-intensive unit growth of up 2%. And while we will see our economy units decline with the overall industry, we do expect to have positive overall net unit growth for the year in 2024.
Patrick Pacious: And I think with regard to your question for the partnership in Mexico, that’s an opportunity that I would place it more in the category of a platform opportunity, similar to what we do with Bluegreen and what we had with the AMR portfolio several years ago. It’s really an opportunity to have their distribution on our platform and have our customers have an earn and burn opportunity through the loyalty program.
Meredith Jensen: Great. Thanks. And just to — on the Bluegreen point, you had mentioned last quarter that you had anticipated that after the sale, the partnership would continue just as it has, and it seems like from your comments that continues to be the case. We should just assume it goes on despite the change.
Patrick Pacious: That’s correct.
