Wyndham Hotels & Resorts, Inc. — Q2 2022 Form 10-Q Summary
Business Context and Reporting Period
Wyndham is a global hotel franchisor licensing brands to owners in more than 95 countries and operates through Hotel Franchising and Hotel Management segments. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods. The interim financial statements received a review, not an audit.
Key Financial Metrics
| Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 |
|---|---|---|---|---|
| Net revenues | $386 million | $406 million | $757 million | $709 million |
| Operating income | $145 million | $133 million | $305 million | $197 million |
| Net income | $92 million | $68 million | $198 million | $93 million |
| Diluted EPS | $1.00 | $0.73 | $2.13 | $0.99 |
| Adjusted EBITDA | $175 million | $168 million | $334 million | $265 million |
| Cash flow from operations | Not separately provided | Not separately provided | $242 million | $180 million |
Calculated margins were approximately 37.6% operating and 23.8% net in Q2 2022, compared with 32.8% and 16.7%, respectively, in Q2 2021. Six-month operating and net margins were approximately 40.3% and 26.2%, compared with 27.8% and 13.1% in the prior-year period. Adjusted EBITDA margin was approximately 45.3% for Q2 and 44.1% for the six-month period.
- Global RevPAR increased 20% in Q2 and 27% for the six-month period; excluding currency effects, increases were 23% and 29%.
- System rooms totaled approximately 818,900 at June 30, 2022, up 3% year over year, with U.S. rooms up 2% and international rooms up 4%.
- Hotel Franchising revenue increased 18% in Q2 and 23% for the six-month period; segment adjusted EBITDA increased 11% and 25%, respectively.
- Hotel Management revenue declined 59% in Q2 and 30% for the six-month period, primarily because the Company exited its select-service management business and sold two owned hotels. Segment adjusted EBITDA declined 63% in Q2 but increased 18% for the six-month period.
Cash, Debt and Liquidity
- Cash and cash equivalents were $400 million at June 30, 2022, versus $171 million at December 31, 2021.
- Total debt was $2.078 billion, including $399 million of Term Loan A, $1.138 billion of Term Loan B, $494 million of senior unsecured notes and $47 million of finance leases. The estimated fair value of debt was $1.990 billion.
- The Company had $741 million of available revolving-credit capacity after $9 million of letters of credit.
- Six-month cash flow from operations was $242 million. Investing cash flow was $244 million, including proceeds from asset sales and the CorePoint Lodging termination fee. Financing cash flow was negative $256 million, including $404 million of debt principal payments, $179 million of share repurchases and $59 million of dividends.
- In April 2022, the Company extended its $750 million revolving facility to April 2027 and issued a $400 million Term Loan A, using the proceeds to repay part of Term Loan B.
- Management stated that liquidity approximated $1.1 billion and that existing cash, operating cash flow and financing availability should be sufficient for operations, capital expenditures and growth needs.
Material Changes Versus the Prior Comparable Period
- Fee-related revenue increased $33 million, or 10%, in Q2, while net revenue declined $20 million, or 5%, because cost-reimbursement revenue fell $53 million and the Company exited select-service management and owned-hotel operations.
- Six-month net revenue increased $48 million, or 7%, despite $81 million of lower revenue from exited businesses, primarily because of higher franchise royalties, marketing and loyalty fees, other revenue and remaining managed-property reimbursements.
- Six-month net income increased $105 million, reflecting higher franchising performance, a $35 million gain on the sale of Wyndham Grand Bonnet Creek Resort, lower interest expense and lower debt-extinguishment costs.
- The Company completed sales of Wyndham Grand Bonnet Creek Resort and Wyndham Grand Rio Mar Resort. The sales generated net proceeds of approximately $118 million and $61 million, respectively; the Bonnet Creek sale generated a $35 million gain.
- The Company received an $84 million CorePoint Lodging termination fee related to the exit from select-service management; the proceeds were offset by a write-off of the related management-contract intangible asset.
- Share repurchases totaled $180 million for the first six months, including approximately 1.9 million shares repurchased for $142 million in Q2. Remaining authorization was approximately $302 million at June 30, 2022.
- Quarterly dividends were $0.32 per share, or $59 million in aggregate for the first six months, consistent with the pre-pandemic quarterly dividend.
Guidance, Outlook, Commentary and Risks
- The filing does not provide formal full-year revenue, EBITDA or EPS guidance. Management anticipated approximately $40 million of 2022 capital expenditures and approximately $55 million of development advance notes.
- The development pipeline comprised approximately 1,600 hotels and 208,000 rooms, up 9% year over year; approximately 62% was international and 78% consisted of new construction.
- Management cited continued travel-demand recovery, stronger pricing power and a flexible, low-capital business model, while noting inflationary cost pressures and higher variable expenses.
- The Company was in compliance with its debt covenants. Its annualized first-lien leverage ratio was 1.8x versus a 5.0x maximum, although management noted that the ratio was unusually low because of proceeds from asset sales and the CorePoint termination fee.
- Interest-rate exposure remains significant: $444 million of variable-rate borrowings was unhedged after swaps at June 30, 2022. A one-percentage-point change in underlying rates was estimated to affect annual interest expense by approximately $4 million.
- Principal risks include renewed or worsening COVID-19 effects, economic and hospitality-market conditions, inflation, travel demand, geopolitical events, franchisee and owner relationships, access to financing, interest and foreign-exchange rates, debt covenant compliance and the ability to continue dividends and repurchases.
- The Company was aware of approximately 30 pending sex-trafficking-related matters. It had $6 million of litigation reserves and estimated aggregate potential exposure of up to approximately $5 million above recorded accruals, while stating that a material impact on overall financial position or liquidity was not expected.
Most Important Facts for Investors to Verify
- Whether RevPAR gains and franchise-room growth persist as travel demand normalizes and macroeconomic conditions evolve.
- Underlying recurring franchising EBITDA excluding the $35 million asset-sale gain and the nonrecurring CorePoint termination-fee-related items.
- Debt refinancing and interest-rate exposure, particularly the $1.138 billion Term Loan B maturity in 2025 and the use of LIBOR-based swaps.
- Future capital allocation among dividends, share repurchases, development advances, technology investment and potential acquisitions.
- Potential financial exposure from litigation, including sex-trafficking claims, and whether reserves remain adequate.
- The effect of exiting owned hotels and select-service management on future revenue mix, margins and cash flow comparability.