WYNDHAM HOTELS & RESORTS, INC. quarterly report, Q3 FY2022

Wyndham Hotels & Resorts, Inc. — Q3 2022 Form 10-Q Summary

Business context and reporting period

Wyndham is a global hotel franchisor operating in more than 95 countries through Hotel Franchising and Hotel Management segments. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.

Key financial metrics

Metric	Q3 2022	Q3 2021	Nine months 2022	Nine months 2021
Net revenues	$407 million	$463 million	$1,164 million	$1,173 million
Operating income	$160 million	$161 million	$465 million	$358 million
Net income	$101 million	$103 million	$299 million	$195 million
Diluted EPS	$1.13	$1.09	$3.26	$2.08
Adjusted EBITDA	$191 million	$194 million	$524 million	$459 million
Cash flow from operations	Not separately provided	Not separately provided	$349 million	$327 million

Approximate operating margin was 39.3% in Q3 and 40.0% for the nine-month period, compared with 34.8% and 30.5%, respectively, in the prior-year periods. Approximate net margin was 24.8% in Q3 and 25.7% for nine months.
Global RevPAR increased 7% in Q3 and 18% for nine months; excluding currency effects, increases were 12% and 22%, respectively. Total system rooms increased 4% year over year to 836,000.
Hotel Franchising revenue increased 9% in Q3 and 17% for nine months. Hotel Franchising adjusted EBITDA increased 4% and 17%, respectively.
Hotel Management revenue declined 68% in Q3 and 45% for nine months, primarily because the Company exited its select-service management business and sold its two owned hotels.
Cash and cash equivalents were $286 million at September 30, 2022, versus $171 million at December 31, 2021. Total debt was $2.078 billion, including $15 million current debt; estimated debt fair value was $1.997 billion.
The Company had $741 million of available revolving-credit capacity after $9 million of outstanding letters of credit. Management reported total liquidity of approximately $1.0 billion.
Net cash provided by investing activities was $190 million, reflecting $263 million of asset-sale proceeds, partially offset by the $44 million Vienna House acquisition.
Capital expenditures were $28 million and net development advance-note funding was $36 million through nine months. Management expects approximately $40 million of 2022 capital expenditures and $55 million of 2022 development advance-note funding.
The Company paid $88 million of dividends and repurchased $313 million of common stock through nine months. The quarterly dividend was $0.32 per share, and $169 million remained available under the repurchase authorization at September 30.

Material changes versus the prior comparable period

Nine-month net income rose 53% to $299 million and adjusted EBITDA rose 14% to $524 million, despite a 1% decline in reported net revenue.
The reported revenue decline primarily reflected the exit from select-service management and owned hotels, including lower cost-reimbursement revenue that has little or no effect on earnings. Higher RevPAR, royalty fees, marketing fees, licensing revenue and co-branded credit-card activity substantially offset the impact.
Nine-month operating income benefited from a $35 million gain on the sale of Wyndham Grand Bonnet Creek Resort. The Company also sold Wyndham Grand Rio Mar Resort with no material gain or loss.
Interest expense declined to $60 million from $73 million, largely because of the 2021 senior-note redemption. Early extinguishment costs declined to $2 million from $18 million.
The April 2022 debt amendment extended the $750 million revolver maturity to April 2027 and added a $400 million Term Loan A due April 2027; proceeds were used to repay part of the Term Loan B.
In September 2022, Wyndham acquired the Vienna House brand for $44 million, adding 41 predominantly German franchised hotels. The acquisition was not material to 2022 results.
The development pipeline exceeded 1,600 hotels and 212,000 rooms, up 10% year over year. The Company awarded 214 new contracts in Q3 versus 151 in Q3 2021.

Outlook, commentary, risks and unusual items

Management did not provide a specific revenue, EBITDA or EPS forecast in the filing. It expects available cash, operating cash flow and financing access to fund operations, capital expenditures and growth needs.
Management expects 2022 capital expenditures of approximately $40 million and development advance-note funding of approximately $55 million. Future dividends and repurchases remain subject to Board approval and financial, covenant, regulatory and market considerations.
Management attributed demand improvement to the recovery from COVID-19 and stronger pricing power, while noting inflationary cost pressures and higher variable costs.
The Company was in compliance with its debt covenants. Its annualized first-lien leverage ratio was 2.0x versus a 5.0x maximum, although management noted the ratio was unusually low because of temporary asset-sale and termination-fee proceeds.
Interest-rate exposure remains relevant: $444 million of variable-rate borrowings were unhedged after swaps at September 30. A one-percentage-point change in underlying rates was estimated to affect annual interest expense by approximately $4 million.
Key risks include economic and hospitality-industry conditions, renewed or prolonged pandemic effects, travel restrictions, inflation, interest rates, foreign exchange, franchisee and property-owner performance, access to capital, debt covenant compliance, geopolitical events and litigation.
The Company was aware of approximately 30 pending sex-trafficking-related matters naming it or its subsidiaries. It had $3 million of litigation reserves and estimated aggregate exposure of up to approximately $3 million above recorded accruals; no loss range was otherwise estimable.
Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported.

Important facts for investors to verify

Whether RevPAR growth, pricing power and the 1,600-hotel development pipeline continue to offset currency, inflation and travel-demand risks.
The sustainability of adjusted EBITDA growth after excluding the $35 million asset-sale gain and other non-recurring items.
Debt maturity and refinancing exposure, particularly the approximately $1.17 billion scheduled between two and three years after September 30, 2022 and the Term Loan B maturity in 2025.
The effect of rising SOFR, LIBOR transition and other interest-rate changes on future interest expense and hedge effectiveness.
The pace and valuation of share repurchases and dividends relative to cash generation and leverage.
Potential changes in litigation exposure, including the sex-trafficking-related proceedings, beyond the recorded reserves.