Business Context and Reporting Period
Wyndham Hotels & Resorts, Inc. is a global hotel franchisor and manager operating in nearly 95 countries through Hotel Franchising and Hotel Management segments. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. The filing was reviewed by Deloitte & Touche LLP, which reported no material modifications were necessary.
Financial Performance and Key Metrics
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Net revenues | $406 million | $258 million | $709 million | $667 million |
| Operating income/(loss) | $133 million | $(194) million | $197 million | $(138) million |
| Net income/(loss) | $68 million | $(174) million | $93 million | $(152) million |
| Diluted EPS | $0.73 | $(1.86) | $0.99 | $(1.63) |
| Adjusted EBITDA | $168 million | $66 million | $265 million | $175 million |
| Operating cash flow | Not separately provided | Not separately provided | $180 million | $(40) million |
- Net revenue increased 57% in the quarter and 6% year to date. Fee-related and other revenue increased 67% in the quarter and 17% year to date; cost-reimbursement revenue declined 19% year to date due primarily to CorePoint Lodging asset sales.
- Q2 operating margin was approximately 32.8%, versus a negative margin in the prior-year period. Six-month operating margin was approximately 27.8%.
- Q2 net margin was approximately 16.7%; six-month net margin was approximately 13.1%. Q2 adjusted EBITDA margin was approximately 41.4%, and six-month adjusted EBITDA margin was approximately 37.4%.
- Global RevPAR increased 113% in Q2 and 38% for the first six months. Compared with 2019, global RevPAR remained down 17% in Q2, including a 5% decline in the United States and a 44% international decline.
- Total rooms were approximately 798,000 at June 30, 2021, down 2% year over year. U.S. rooms decreased 3%, while international rooms increased 1%.
- Cash, cash equivalents and restricted cash declined to $103 million from $493 million at December 31, 2020. Total assets were $4.241 billion and stockholders’ equity was $1.060 billion.
- Total debt was $2.092 billion, including $2.071 billion of long-term debt. The $750 million revolving credit facility had no borrowings, $15 million of letters of credit and $735 million of available capacity.
- Net interest expense was $22 million in Q2 and $51 million year to date. The company reported an $18 million early-extinguishment charge related to redeeming its 5.375% senior notes.
Material Changes Versus the Prior Comparable Period
- Results benefited from the recovery in travel demand, particularly leisure travel and demand for economy and midscale hotels. U.S. Q2 occupancy reached 95% of 2019 levels, according to management.
- Hotel Franchising Q2 revenue increased 55% to $283 million and adjusted EBITDA increased 93% to $166 million. Six-month revenue increased 16% to $492 million and adjusted EBITDA increased 38% to $271 million.
- Hotel Management Q2 revenue increased 62% to $123 million and adjusted EBITDA improved to $16 million from a $4 million loss. Six-month revenue declined 10% to $217 million, largely because of lower cost reimbursements, while adjusted EBITDA increased 69% to $22 million.
- The prior-year periods included $205 million of intangible and goodwill impairment charges, a $4 million receivable impairment, $29 million of restructuring charges and $13 million of transaction-related costs for the six months. None of these comparable major charges recurred in the first half of 2021.
- Operating cash flow improved by $220 million year over year to $180 million, reflecting higher earnings and favorable working capital trends.
- Financing cash flow was $(552) million versus $630 million of cash provided in the prior-year period, primarily because the company repaid the $500 million senior notes and did not repeat the large precautionary revolver borrowings made in 2020.
Guidance, Outlook, Risks and Unusual Items
- Management described travel demand as recovering strongly but stated that the duration and ultimate effects of COVID-19 remain uncertain, especially internationally and in the event of new variants, restrictions or lockdowns.
- Management expects 2021 operating results and cash flow to return toward normal hotel-industry seasonality, but noted that a COVID-19 resurgence could disrupt that pattern.
- Expected 2021 capital expenditures are approximately $40 million, and expected development advances are approximately $40 million. Capital needs are expected to be funded by cash on hand, operating cash flow and revolver availability.
- The company believes existing liquidity and financing access are sufficient for operating needs, capital expenditures and growth. Reported liquidity approximated $840 million at June 30, 2021, and the company was in compliance with its debt covenants. The annualized first-lien leverage ratio was 2.2 times versus a 5.0-times maximum.
- In April 2021, the company redeemed all $500 million of its 2026 notes, primarily with cash on hand. Management expects approximately $27 million of annual cash-interest savings and extended the replaced maturity by approximately 2.5 years at a lower interest rate.
- The quarterly dividend was $0.16 per share in the first and second quarters. In July 2021, the board approved an increase to $0.24 per share. Future dividends remain discretionary and subject to business performance, covenants, liquidity and other factors.
- The share-repurchase program had $191 million of remaining authorization at June 30, 2021; no shares were repurchased during the first half of 2021.
- Approximately 40 pending cases name the company or subsidiaries in litigation alleging sex trafficking incidents at certain franchised or managed hotels. The company has $4 million of recorded legal reserves and cannot estimate a loss range for the matters; potential aggregate exposure was described as up to approximately $6 million above recorded accruals.
- An IRS audit involving La Quinta and former affiliated entities could reduce tax attributes used in later years if the IRS prevails. CorePoint Lodging has agreed to indemnify the company for specified related obligations, and no liability has been recorded.
- The company has $1.1 billion of term-loan interest-rate exposure hedged through swaps. Variable-rate borrowings net of swaps were $456 million; a one-point change in underlying rates would affect annual interest expense by approximately $5 million.
Most Important Facts for Investors to Verify
- Whether the post-pandemic recovery, RevPAR trends and international reopening progress continue without renewed COVID-19 restrictions.
- Whether operating cash flow remains sufficient after the increased dividend, planned capital expenditures and development advances.
- The company’s cash balance, approximately $840 million of stated liquidity, revolver availability and compliance with leverage covenants.
- Debt maturity and refinancing risk, particularly the approximately $1.5 billion maturity between three and four years after June 30, 2021.
- Potential impairment risk for goodwill, trademarks and other intangible assets if travel demand weakens.
- Developments in sex-trafficking litigation, the IRS audit and the unresolved former-parent European Vacation Rentals matter.
- The distinction between GAAP earnings and adjusted EBITDA, including the absence of unusually large 2020 impairment, restructuring and transaction charges from the 2021 comparison.