Wyndham Hotels & Resorts, Inc. — 2022 Q1 Form 10-Q Summary
Business context and reporting period
Wyndham Hotels & Resorts 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 months ended March 31, 2022, compared with the three months ended March 31, 2021. The interim financial statements received a review, not an audit, from Deloitte & Touche LLP.
Financial performance and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenues | $371 million | $303 million | +22% |
| Fee-related and other revenues | $316 million | $232 million | +36% |
| Operating income | $160 million | $63 million | +154% |
| Net income | $106 million | $24 million | +342% |
| Diluted EPS | $1.14 | $0.26 | +$0.88 |
| Adjusted EBITDA | $159 million | $97 million | +64% |
| Cash flow from operations | $135 million | $64 million | +$71 million |
Reported operating margin was approximately 43.1%, compared with 20.8% in the prior-year quarter. Adjusted EBITDA margin was approximately 42.9%, compared with 32.0%. The reported margin improvement included a $36 million gain on the sale of the Wyndham Grand Bonnet Creek Resort.
- Global RevPAR increased 37%, or 39% excluding currency effects; approximately two-thirds of the increase reflected higher pricing and one-third higher occupancy.
- Total rooms increased 2% year over year to 813,300, including 491,900 rooms in the United States and 321,400 internationally.
- Hotel Franchising revenue increased 30% to $272 million and adjusted EBITDA increased 48% to $155 million.
- Hotel Management revenue increased 5% to $99 million and adjusted EBITDA increased to $20 million from $5 million.
- Interest expense declined to $20 million from $28 million, primarily following the redemption of $500 million of senior notes in April 2021.
- The effective tax rate was 24.3%, compared with 31.4%, primarily due to a larger tax benefit from stock-based compensation.
Cash flow, balance sheet, debt and liquidity
- Cash, cash equivalents and restricted cash increased to $416 million at March 31, 2022 from $171 million at December 31, 2021.
- Investing cash flow was $192 million, primarily reflecting $202 million of proceeds from asset sales, including the Bonnet Creek sale and the CorePoint Lodging management-contract termination fee.
- Financing cash outflows were $82 million, including $30 million of dividends, $39 million of share repurchases and $4 million of debt principal payments.
- Total debt was $2.079 billion, consisting primarily of a $1.537 billion term loan, $493 million of senior unsecured notes due 2028 and $49 million of finance leases. No borrowings were outstanding under the $750 million revolving credit facility; $741 million was available after letters of credit.
- Liquidity was approximately $1.2 billion. Management stated that cash on hand, operating cash flow and expected financing access should fund operations, capital expenditures and growth needs.
- The company spent $10 million on capital expenditures and $7 million on development advance notes in the quarter. It expects approximately $40 million of 2022 capital expenditures and $55 million of development advance-note spending.
- The company repurchased approximately 0.5 million shares for $38 million at an average price of $83.72, with $443 million remaining under the repurchase authorization. It declared a $0.32-per-share dividend, or $30 million in aggregate.
Material changes versus the prior comparable period
- Results benefited from the recovery in travel demand, higher RevPAR, stronger pricing and occupancy, and 2% growth in total rooms.
- The company completed the sale of the Wyndham Grand Bonnet Creek Resort, recognizing a $36 million gain and receiving $118 million of net proceeds.
- The company exited its select-service hotel management business and received an $84 million CorePoint Lodging termination fee. The related management-contract intangible asset was written off, while franchise agreements remained in place.
- Hotel Management rooms declined 59% to 20,100, primarily because of CorePoint asset sales and the conversion or exit of limited-service managed properties. Hotel Franchising rooms increased 6% in the segment presentation.
- The development pipeline grew 9% year over year to approximately 1,600 hotels and 204,000 rooms. The company awarded 165 new contracts, including 50 extended-stay construction projects.
- Share repurchases resumed and the quarterly dividend returned to the pre-pandemic level of $0.32 per share.
Guidance, outlook, commentary and risks
The filing does not provide clear full-year revenue, EBITDA or EPS guidance. Management expects continued support from travel-demand recovery, hotel development and the asset-light franchising model, but notes that quarterly results are seasonal and generally stronger in the second and third quarters.
In April 2022, the company amended its credit arrangements: the revolving facility maturity was extended from May 2023 to April 2027, and a new $400 million term loan A facility maturing in April 2027 was issued to repay part of the existing term loan. The company reported compliance with its financial 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 asset-sale and termination-fee proceeds.
- Key risks include COVID-19 resurgence, changes in travel demand, general economic conditions, inflationary and operating pressures, war or political instability, franchisee and owner relationships, access to capital, interest rates, foreign exchange and compliance with debt covenants.
- Approximately $1.1 billion of term-loan exposure was hedged with interest-rate swaps. Variable-rate borrowings net of swaps were $444 million; management estimated that a one-percentage-point rate change would affect annual interest expense by approximately $4 million.
- The company was aware of approximately 30 pending sex-trafficking-related matters involving the company or subsidiaries. It had $6 million of legal reserves and estimated aggregate potential exposure of up to approximately $4 million above recorded accruals, while stating that a material liability was not expected.
- Future dividends and repurchases remain subject to board discretion, financial performance, capital needs, debt covenants and legal and regulatory requirements.
Important facts for investors to verify
- Separate the $36 million asset-sale gain and the $84 million CorePoint termination fee from recurring operating performance.
- Assess the sustainability of the 37% global RevPAR increase and the effect of pricing, occupancy, currency and seasonality.
- Review the impact of the sharp decline in Hotel Management rooms and the company’s continuing shift toward franchising.
- Confirm the post-April debt structure, maturities, interest rates, SOFR transition and covenant compliance.
- Monitor the approximately $1.2 billion liquidity position after dividends, repurchases, capital expenditures and development advances.
- Evaluate litigation developments, particularly the approximately 30 sex-trafficking-related matters, as loss estimates may change.
- Verify any subsequent management guidance, dividend decisions or repurchase activity because this filing does not provide clear full-year earnings guidance.