- Adjusted EBITDA Growth: 6% year-over-year.
- Adjusted EPS Growth: 12% year-over-year.
- Adjusted Free Cash Flow: Over $170 million year-to-date.
- Shareholder Returns: Over $250 million returned to shareholders year-to-date.
- Room Openings: Over 18,000 rooms in the quarter, 16% more domestically than last year.
- Development Pipeline: Grew by 740 basis points year-over-year to 245,000 rooms.
- US RevPAR Growth: 30 basis points year-over-year.
- International RevPAR Growth: 7% year-over-year in constant currency.
- Fee-Related and Other Revenues: $366 million in the second quarter.
- Adjusted EBITDA Margin: Improved by 350 basis points to 85%.
- Adjusted Diluted EPS: $1.13 in the second quarter.
- Share Repurchases: $131 million in the second quarter, $188 million year-to-date.
- Total Liquidity: Approximately $820 million at the end of the second quarter.
- Net Leverage Ratio: 3.5 times.
- Term Loan B: Upsized to $1.5 billion, maturing in May 2030 with an interest rate of SOFR plus 1.75%.
- Full Year 2024 RevPAR Outlook: Essentially flat year-over-year.
- Full Year 2024 Fee-Related and Other Revenues Outlook: $1.41 billion to $1.43 billion.
- Full Year 2024 Adjusted EBITDA Outlook: $690 million to $700 million.
- Full Year 2024 Adjusted Diluted EPS Outlook: $4.20 to $4.32.
- Full Year 2024 Adjusted Free Cash Flow Conversion: Approximately 60%.
Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Wyndham Hotels & Resorts Inc (WH, Financial) reported strong earnings with a 6% increase in adjusted EBITDA and a 12% rise in EPS.
- The company achieved a 4% system growth and saw significant increases in both US and international royalty rates.
- Wyndham opened over 18,000 rooms in the quarter, a 16% increase in domestic room openings compared to last year.
- The development pipeline grew for the 16th consecutive quarter, reaching a record 245,000 rooms globally.
- Wyndham's new AI-driven guest engagement platform, Wyndham Connect, is enhancing guest experiences and increasing ancillary revenue for franchisees.
Negative Points
- Global RevPAR declined by 1%, impacting overall revenue growth.
- The company revised its full-year 2024 RevPAR growth outlook to be essentially flat year-over-year.
- Marketing fund expenses exceeded revenues by $5 million in the second quarter.
- Higher interest expenses partially offset the benefits from share repurchase activity and a lower effective tax rate.
- The company noted a more gradual return to year-over-year growth than previously anticipated, impacting revenue projections.
Q & A Highlights
Q: Second quarter in a row of about 4% year-over-year net rooms growth and given the continued growth in the pipeline, is this the floor for rooms growth? And with respect to the increase in development advancement notes, is that for new deals or existing pipelines?
A: (Geoffrey Ballotti, CEO) No, it's not the floor. We are seeing lots of deals on the horizon, which is why Michele has taken the guidance up by $20 million on key money. We saw phenomenal openings and pipeline growth in the quarter. Our second quarter 18,000 rooms was the best Q2 openings on record. (Michele Allen, CFO) The increase of $20 million represents pipeline deals, particularly in higher RevPAR markets.
Q: Can you bridge the reduction in RevPAR growth versus the prior outlook, yet you're maintaining the EBITDA range? How much of this is incremental ancillary fees?
A: (Michele Allen, CFO) There are three drivers: our business is getting more efficient, particularly on the technology side; disciplined cost management; and an insurance recovery of about $4 million. These factors combined help us maintain our EBITDA guide despite the RevPAR reduction.
Q: Can you help us understand the growth in fees per room in the core business versus ancillary growth?
A: (Michele Allen, CFO) Ancillary fees are growing at about 8%, and we are currently tracking at 6% in 2024, expecting to get up to 7% on a full-year basis. Royalty rate improvement is also contributing, with a 5 basis points improvement in the US and international on average.
Q: What's driving the increase in royalty rates? Is it new brands like ECHO or contract renewals on legacy brands?
A: (Michele Allen, CFO) The royalty rate improvement reflects the great work of our franchise sales and development teams, bringing in higher fee deals for our brands. Our goal is to sign deals that are accretive to the region or brand average royalty rate.
Q: What do you need to see to go towards the high end of the target leverage?
A: (Michele Allen, CFO) It's a Board decision. We are targeting a 3.5 times leverage for the end of the year, which gives us capital for share repurchases or business investment. For sizable M&A, we are comfortable going above 3.5 times if we have a plan to get back within range in 12 to 18 months.
Q: What's driving the improvement in retention rates, and how high can it get?
A: (Geoffrey Ballotti, CEO) Our longer-term goal is to get to 96%. Retention has improved 50 basis points globally, with good movement internationally. We can continue to make progress both domestically and internationally.
Q: Are you baking in any sort of rebound in US RevPAR growth for the second half?
A: (Michele Allen, CFO) We are expecting some occupancy improvement in the US, consistent with what we're seeing in July, and another point from the infrastructure ramp-up. The US is expected to be up 1% in the second half, driven by occupancy expectations.
Q: How long does it typically take for a property to stabilize and translate to full fee growth?
A: (Michele Allen, CFO) Once the property opens in our system, it typically ramps during the first full year, especially the first nine months. Within a year, you can expect full royalty production.
Q: Are there any brands specifically leading RevPAR index premium gains?
A: (Geoffrey Ballotti, CEO) Brands like Days Inn, Super 8, La Quinta, and Hawthorne Suites are over-indexing. The Wyndham Rewards program is a big driver, with share of occupancy up 250 basis points globally.
Q: How much of the $110 million key money is for ECHO this year? Are those hotels opening up right away?
A: (Michele Allen, CFO) About $10 million is for ECHO this year. Key money is generally funded at opening, so we see immediate royalty improvements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
