Wyndham Hotels & Resorts, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three months ended March 31, 2021. Wyndham is a global hotel franchisor operating in nearly 95 countries through Hotel Franchising and Hotel Management segments. The interim financial statements were reviewed, not audited, by Deloitte & Touche LLP.
The company reported that more than 99% of its domestic portfolio and approximately 98% of its global portfolio remained open. COVID-19 continued to suppress travel demand, although management cited improving leisure travel trends and vaccine rollout progress.
Financial Performance and Key Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net revenues | $303 million | $410 million | Down 26% |
| Operating income | $63 million | $56 million | Up 13% |
| Net income | $24 million | $22 million | Up 9% |
| Diluted EPS | $0.26 | $0.23 | Up $0.03 |
| Adjusted EBITDA | $97 million | $109 million | Down 11% |
| Cash flow from operations | $64 million | $17 million | Up $47 million |
- Operating margin increased to approximately 20.8% from 13.7%; net margin increased to approximately 7.9% from 5.4%.
- Hotel Franchising revenue was $209 million, down 14%, and adjusted EBITDA was $105 million, down 5%.
- Hotel Management revenue was $94 million, down 44%, and adjusted EBITDA was $5 million, down 71%. Cost-reimbursement revenue accounted for $55 million of the segment’s revenue decline but had no adjusted EBITDA impact.
- Global RevPAR declined 10% year over year to $24.90, including a 10% decrease excluding currency effects. Compared with Q1 2019, global RevPAR was down 31%.
- Total rooms declined 4% to 797,200, primarily due to the 2020 strategic termination plan, which removed approximately 26,700 rooms.
- Cash and cash equivalents were $531 million at March 31, 2021, compared with $493 million at December 31, 2020.
- Total debt was $2.592 billion, including $516 million classified as current. The revolving credit facility had $735 million of available capacity after $15 million of letters of credit.
- Capital expenditures were $5 million in the quarter. Management anticipated approximately $40 million of 2021 capital expenditures and approximately $40 million of development advances.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because of lower cost reimbursements, marketing and loyalty fees, royalties and franchise fees, and management fees, all reflecting COVID-19-related travel weakness and certain CorePoint asset sales.
- Expense reductions more than offset the revenue decline. Marketing, reservation and loyalty expenses decreased $26 million; operating and general and administrative expenses decreased $12 million; restructuring costs decreased $13 million; and transaction-related expenses decreased $8 million.
- No restructuring charges were recorded in Q1 2021, compared with $13 million in Q1 2020. Q1 2021 also had no material transaction-related expenses versus $8 million in the prior-year period.
- Operating cash flow improved because of favorable collections and the timing of accounts payable payments. Financing cash flow changed from a $647 million inflow in Q1 2020, largely from pandemic-related borrowings, to a $21 million outflow in Q1 2021.
- The quarterly dividend increased to $0.16 per share from the $0.08 rate adopted during 2020. No shares were repurchased, and $191 million remained available under the repurchase authorization.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide formal full-year revenue or earnings guidance. Management expects existing cash, operating cash flow and access to financing to fund operations, capital expenditures and growth needs.
- Management expressed optimism regarding a recovery in leisure travel, supported by vaccinations, the company’s highway and suburban exposure, and its approximately 70% leisure booking mix. The timing and strength of recovery remain uncertain.
- On April 15, 2021, after quarter-end, the company redeemed its $500 million 5.375% senior notes due 2026 using primarily cash on hand. It expects an $18 million second-quarter interest expense charge, including $13 million of call premiums and $5 million of accelerated financing fees, and approximately $27 million of annual cash-interest savings thereafter.
- Management stated that post-redemption liquidity approximated $750 million and that the company was in compliance with its debt covenants as of March 31, 2021. The April 2020 covenant waiver expired April 1, 2021.
- COVID-19 remains the principal operating risk, including renewed outbreaks, travel restrictions, reduced demand, pressure on franchisees and property owners, and potential impairment of owned-hotel property and equipment, goodwill, trademarks and other intangible assets. No Q1 2021 impairment was recorded.
- Approximately 40 pending cases related to alleged sex trafficking incidents at certain franchised or managed hotels named the company or its subsidiaries. Recorded legal reserves were $4 million, and estimated potential exposure in excess of accruals could reach approximately $6 million, although the company does not expect a material effect on financial position or liquidity.
- An IRS audit involving entities acquired from La Quinta could affect tax attributes used in later years if the IRS prevails. CorePoint has agreed to indemnify the company for specified related obligations and expenses, and no liability was recorded.
Important Facts for Investors to Verify
- Whether RevPAR, occupancy, room count and franchisee health continue to recover from pandemic levels, particularly internationally and in the Hotel Management segment.
- The effect of the April 2021 debt redemption on cash balances, interest expense, leverage, liquidity and covenant compliance.
- Whether the company achieves its approximately $40 million capital expenditure and approximately $40 million development-advance expectations for 2021.
- The sustainability of the increased $0.16 per-share dividend and the timing of any resumption of share repurchases.
- Potential impairment charges if COVID-19 effects persist and developments in the IRS audit, sex-trafficking litigation and other legal contingencies.
- Comparability of adjusted EBITDA, as the company modified its definition in 2021 to exclude development advance-notes amortization; prior periods were recast.