WYNDHAM HOTELS & RESORTS, INC. quarterly report, Q3 FY2021

Wyndham Hotels & Resorts, Inc. — Q3 2021 Form 10-Q Summary

Business Context and Reporting Period

Wyndham Hotels & Resorts 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 nine months ended September 30, 2021, with comparisons to the corresponding 2020 periods.

Travel demand continued to recover from the COVID-19 downturn. The system included approximately 802,600 rooms at September 30, 2021, broadly unchanged year over year. The development pipeline exceeded 1,450 hotels and approximately 193,000 rooms, up 440 basis points year over year.

Financial Performance and Key Metrics

Metric	Q3 2021	Q3 2020	9M 2021	9M 2020
Net revenues	$463 million	$337 million	$1,173 million	$1,004 million
Operating income/(loss)	$161 million	$71 million	$358 million	$(67) million
Net income/(loss)	$103 million	$27 million	$195 million	$(125) million
Diluted EPS	$1.09	$0.29	$2.08	$(1.34)
Adjusted EBITDA	$194 million	$103 million	$459 million	$278 million
Cash flow from operations	Not separately provided	Not separately provided	$327 million	$57 million

• Q3 net revenues increased 37%, operating income increased 127%, net income increased 281%, and adjusted EBITDA increased 88% year over year.
• Nine-month net revenues increased 17%, while adjusted EBITDA increased 65%. The 2020 comparison was affected by $206 million of impairment charges, $29 million of restructuring costs, and $13 million of transaction-related expenses that did not recur in 2021.
• Calculated margins were approximately 34.8% operating and 22.2% net in Q3 2021, compared with 21.1% and 8.0%, respectively, in Q3 2020. Nine-month 2021 operating and net margins were approximately 30.5% and 16.6%.
• Global RevPAR increased 57% in Q3 and 45% for the nine months. Q3 U.S. RevPAR exceeded Q3 2019 by 7%, while global RevPAR reached 97% of 2019 levels and international RevPAR remained 25% below 2019.
• Hotel Franchising Q3 revenue increased 43% to $337 million and adjusted EBITDA increased 62% to $193 million. Hotel Management revenue increased 25% to $126 million and adjusted EBITDA increased to $16 million from $2 million.

Cash Flow, Debt, Liquidity and Capital Allocation

• Operating cash flow was $327 million for the nine months, versus $57 million in the prior-year period. Investing cash flow was $(21) million, including $23 million of capital expenditures. Financing cash flow was $(606) million.
• Cash, cash equivalents and restricted cash declined to $193 million at September 30, 2021 from $493 million at December 31, 2020, primarily reflecting debt repayment and shareholder returns.
• Total debt was $2.088 billion, including a $1.544 billion term loan, $492 million of 2028 senior notes, and $52 million of finance leases. The Company redeemed its $500 million of 5.375% senior notes due 2026 in April 2021, recording an $18 million early-extinguishment charge.
• The revolving credit facility had $750 million of total capacity, $15 million of letters of credit, and $735 million of available capacity. Management reported approximately $930 million of total liquidity and compliance with debt covenants.
• The first-lien leverage ratio was 1.9 times at September 30, 2021 versus a 5.0-times maximum covenant.
• The Company paid $53 million of dividends and repurchased $27 million of common stock during the first nine months. Approximately $164 million remained available under the repurchase program.
• Management expected approximately $40 million of 2021 capital expenditures and approximately $40 million of development advances.

Material Changes Versus the Prior Comparable Period

• Results improved substantially as travel demand recovered, particularly in U.S. economy and midscale lodging.
• Marketing, reservation and loyalty revenue increased with RevPAR, while related expense increased more slowly in Q3. Hotel Franchising adjusted EBITDA also benefited from a $29 million timing benefit in the marketing, reservation and loyalty funds during Q3 and a $54 million benefit for the nine-month period.
• Interest expense declined by $7 million in Q3 and $10 million for the nine months following the debt redemption.
• Cash flow from operations increased by $270 million year over year, but total cash declined because 2021 financing activities included substantial debt repayment, dividends and share repurchases, whereas 2020 included pandemic-related borrowings.
• Hotel Management rooms declined 21% year over year, primarily due to CorePoint Lodging asset sales, although management RevPAR increased significantly.
• The quarterly dividend increased to $0.24 per share in Q3. In October 2021, the Board authorized a 33% increase to the pre-pandemic $0.32 per share level, beginning with the expected Q4 2021 declaration.

Outlook, Risks, Contingencies and Unusual Items

The filing does not provide formal numerical revenue or earnings guidance. Management stated that it expected existing cash, operating cash flow, financing access and revolver availability to fund operations, capital expenditures and growth needs. Management also stated that it did not anticipate the pandemic to materially further affect operations, while acknowledging that a resurgence, new restrictions or slower travel recovery could adversely affect results, liquidity and asset values.

• International recovery continued to trail the U.S.; international RevPAR reached 75% of pre-pandemic levels in Q3, compared with 56% in Q2.
• COVID-19 resurgence, travel restrictions, economic conditions, hospitality operating risks, franchisee and owner financial health, foreign currency movements and interest rates remain significant risks.
• Approximately 40 pending lawsuits related to alleged sex trafficking incidents at franchised or managed hotels named the Company or subsidiaries. Recorded legal reserves were $5 million, and potential aggregate exposure was estimated at up to approximately $11 million above recorded accruals, although management did not expect a material impact on financial position or liquidity.
• An IRS audit involving entities formerly associated with La Quinta could reduce tax attributes used in later years if the IRS prevails. CorePoint Lodging has agreed to indemnify the Company for specified related obligations; no liability was recorded.
• The Company had $1.1 billion of term-loan exposure hedged with interest-rate swaps. Variable-rate borrowings net of swaps were $452 million; a one-percentage-point change in underlying rates was estimated to affect annual interest expense by approximately $5 million.
• The interim financial statements received a review, not an audit. Deloitte reported that it was not aware of material modifications required for conformity with U.S. GAAP.

Important Facts for Investors to Verify

• Whether RevPAR recovery, especially in international markets, continues without renewed COVID-19 restrictions.
• The sustainability of the Q3 marketing, reservation and loyalty fund timing benefit and the resulting adjusted EBITDA margin.
• Cash generation, debt amortization requirements, the 2025 term-loan maturity and continued covenant compliance.
• The effect of resumed share repurchases and the planned return of the dividend to $0.32 per share on liquidity and leverage.
• Developments in sex-trafficking litigation, the IRS audit and the unresolved hotel-management guarantee dispute.
• Potential impairment of goodwill, trademarks and other intangible assets if travel recovery weakens.