Wyndham Hotels & Resorts, Inc. (NYSE:WH) Q1 2024 Earnings Call Transcript

Wyndham Hotels & Resorts, Inc. (NYSE:WH) Q1 2024 Earnings Call Transcript April 25, 2024

Wyndham Hotels & Resorts, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Please standby, we are about to begin. Welcome to the Wyndham Hotels & Resorts First Quarter 2024 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be opened for your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Mr. Matt Capuzzi, Senior Vice President of Investor Relations. Please go ahead, sir.

Matt Capuzzi: Thank you, Operator. Good morning and thank you for joining us. With me today are Geoff Ballotti, our CEO; and Michele Allen, our CFO and Head of Strategy. Before we get started, I want to remind you that our remarks today will contain forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission and any subsequent reports filed with the SEC. We’ll also be referring to a number of non-GAAP measures. Corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP metrics are provided in our earnings release, which is available on our Investor Relations website at investor.wyndhamhotels.com.

We are providing certain measures discussing future impact on a non-GAAP basis only, because without unreasonable efforts, we are unable to provide the comparable GAAP metric. In addition, last evening we posted an investor presentation containing supplemental information on our Investor Relations website. We may continue to provide supplemental information on our website and on our social media channels in the future. Accordingly, we encourage our investors to monitor our website and our social media channels in addition to our press releases, filings submitted with the SEC and any public conference calls or webcasts. With that, I will turn the call over to Geoff.

Geoff Ballotti: Thanks, Matt, and thanks everyone for joining us this morning. Despite a challenging RevPAR environment here in the United States, we’re pleased to report another strong quarter of progress on our executions, openings, retention and net room growth around the world. In addition, late last week our Board increased our share repurchase authorization by $400 million, demonstrating its confidence in our ability to generate significant cash flow and its commitment to continued shareholder returns in the year ahead. We opened over 13,000 rooms globally, 27% more rooms than we opened last year, our largest first quarter of room openings since going public nearly six years ago. We increased our franchisee retention rate by 30 basis points versus the same time last year to 95.6%.

We delivered a record 3.7% increase in net room growth. And most importantly, for the 15th consecutive quarter, we grew our development pipeline by 8% to a record 243,000 rooms. Here in the United States, we again saw both sequential and year-on-year improvement driven by 3.3% system growth in a more revenue intense mid-scale and above segments. We added 50 hotels domestically, including 11 hotel conversions under the newly created WaterWalk Extended Stay by Wyndham brand. Located in key markets such as Charlotte, Raleigh, Tucson, and Jacksonville. WaterWalk by Wyndham adds higher fee PAR hotels to our system while expanding our portfolio into the upscale Extended Stay segment, complementing our new construction ECHO Suites and mid-scale Hawthorn Suites Extended Stay brands.

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Q&A Session

Internationally, we increased net rooms by 1% sequentially and by 8% versus prior year. Our Latin America team drove over 2% of sequential net room growth and 6% of net room growth versus prior year, adding significant conversions from competitive brands like the 600 room Wyndham Sao Paulo Convention Center Hotel in the financial capital of Brazil, along with a new trip by Wyndham Asunción Steps from the renowned shopping centers of Paraguay’s capital city. Our EMEA team, which added 49% more rooms to its development pipeline than they did in the first quarter of 2023, once again grew net rooms sequentially and by 12% versus prior year, adding aspirational hotels like the Ramada Sapanca Thermal Resort in Turkey and the new trademarked by Wyndham H2 Hotel in downtown Vienna, Austria.

Last month, I had the opportunity to visit with our teams in Singapore and Shanghai and joined the signing ceremonies for 27 of the over 60 hotel contracts awarded to owners this quarter across Asia-Pacific, our Southeast Asia and Pacific Rim region, which increased rooms by 2% sequentially and by 16% versus last year, entered several new markets, including Pattaya, a growing leisure destination in Thailand. In January, we opened the Wyndham Jomtien, an upscale new construction hotel and the first of another eight hotels we expect to open in the Pattaya market over the next five years and our direct franchising team in China, which grew net rooms 1% sequentially and by 13% versus prior year, also had another strong quarter of openings and executions, awarding 38 new contracts to owners, over 3 times what they awarded last year in the first quarter and opening new construction and conversion hotels across the country, like the Wyndham Dalian Jinpu, an upper upscale five-star hotel in the city center of Hainan province.

Globally, our teams awarded 171 contracts for approximately 24,000 room additions. Domestic contracts signed in the first quarter were 50% higher than last year for our mid-scale and above segments and international Q1 signings increased by 80% year-over-year. This acceleration of our development activity grew our pipeline to a record 243,000 rooms and nearly 2,000 hotels. Mid-scale and above brands in the pipeline increased 4% to a record 168,000 rooms and now represent nearly 70% of our pipeline. Our domestic pipeline for mid-scale and above brands increased by 4% and the pipeline for our highest international RevPAR regions of India and Latin America increased by 21%. In the toughest quarterly comp we will face all year, domestic RevPAR finished down 5% compared with 2023.

Domestic occupancy finished at 90% of 2019 levels, down 440 basis points from Q1 of 2023, while pricing power remains strong with ADRs 14% higher than pre-COVID levels, yet still trailing inflation, which has increased 23% over this same period. RevPAR improved 240 basis points from February into March and accelerated into April. Month-to-date through the 20th of April, domestic RevPAR ran 4% ahead of prior year, benefiting from both the Easter shift to Q1 and weekend demand around the solar eclipse on April 8th. And May revenue on the books is pacing 7% higher than it was at the same time last year. International RevPAR increased 14% to prior year in constant currency, driven by strength in Latin America, where RevPAR increased by 41% and across India, where RevPAR increased by over 10%.

And in China, which continues to face deflationary pressures, RevPAR also increased by over 10% year-over-year, driven by both ADR and occupancy, outpacing STR China RevPAR growth by 700 basis points. Ancillary revenues increased 8% during the first quarter, driven by success from our blue thread licensing agreement with Travel and Leisure Group, along with several new product offerings like our paid $95 Wyndham Rewards Earner Business Card, which has garnered acclaim as Forbes Best Business Card for Road Warriors, thanks to its automatic diamond status and its ability to earn a best-in-class 8 points for every $1 spent on hotel stays and gas purchases. And last week, we launched Wyndham Business to streamline the direct booking process for business of all types and all sizes, along with travel planners who are contracting hotel nights for our nation’s 15 million infrastructure workers across the United States of America, offering these planners a comprehensive suite of free tools that guarantee their companies a minimum 10% room discount, easy direct billing and instant group bookings with tailored Wyndham Rewards business to ensure a smooth travel planning process with personalized support from dedicated sales professionals.

We anticipate that Wyndham Business will not only drive additional bookings to our select service hotels, it will also drive additional membership to Wyndham Rewards USA Today’s number one loyalty program for six years running, along with additional cardholders to our suite of co-branded credit card products, providing us a new channel for ancillary fee growth. We’re currently offering four distinct credit card products tied to Wyndham Rewards in the U.S. and we see significant opportunities to expand these products globally as Wyndham Rewards continues to grow in importance both domestically and internationally. Up over 40% since 2019 and up 7% year-over-year to 108 million members strong. Finally, we’d like to thank our franchisees and team members for their unwavering commitment and support over the past months throughout Choice’s, failed takeover attempt of our company.

Through it all, it was no surprise to see Wyndham Hotels & Resorts selected by Newsweek as one of the 2024 Most Trustworthy Companies in America, and as a 4-time honoree as one of the 2024 World’s Most Ethical Companies by Ethisphere. On behalf of our Board, we also want to thank our shareholders for their overwhelming support. We’re confident in our growth strategy and in our ability to create substantial value both in the short-term and in the long-term. And with that, I’ll now turn the call over to Michele. Michele?

Michele Allen: Thanks, Geoff, and good morning, everyone. I’ll begin my remarks today with a detailed review of our first quarter results. I’ll then review our cash flows and balance sheet followed by our outlook. Before we begin, let me remind everyone that the comparability of our quarterly results is impacted by the timing of our marketing fund spend as discussed back on our February call. In the first quarter this year, marketing fund expenses exceeded revenues by $14 million as expected, compared to expenses exceeding revenues by 4 million in the first quarter of last year. To enhance transparency and provide a better understanding of the results of our ongoing operations, I will be highlighting our results on a comparable basis, which neutralizes the marketing fund impact.

In the first quarter, we generated $304 million of fee-related and other revenues, and $141 million of adjusted EBITDA. Fee-related and other revenues declined $4 million year-over-year, reflecting a 4% decline in royalties and franchise fees, and a 3% decline in marketing revenues. These declines were partially offset by an 8% increase in ancillary fee streams. The decline in royalties and franchise fees primarily reflects lower RevPAR in the U.S. and the lapping of our highest quarter of other franchise fees, both of which were partially offset by a larger global system and international RevPAR growth. Ancillary revenues reflect higher license fees and credit card revenues, as well as the effects of strategic marketing partnerships driven by initiatives that harness the power of our Wyndham Rewards Loyalty program.