Wyndham Hotels & Resorts has reported its Q1 2024 earnings.
Highlights include:
• Global RevPAR grew 1 per cent in constant currency and ancillary revenues grew 8 per cent compared to first quarter 2023.
• System-wide rooms grew 4 per cent year-over-year.
• Opened over 13,000 rooms, representing a year-over-year increase of 27 per cent.
• Awarded 171 development contracts, an increase of 8 per cent year-over-year.
• Development pipeline grew 1 per cent sequentially and 8 per cent year-over-year to a record 243,000 rooms.
• Entered upscale extended stay segment through a strategic relationship with WaterWalk Extended Stay by Wyndham.
• Net cash provided by operating activities of $76 million and adjusted free cash flow of $102 million.
• Returned $89 million to shareholders through $57 million of share repurchases and quarterly cash dividends of $0.38 per share.
“We’re thrilled to announce another strong quarter of progress in our executions, openings, franchisee retention and net room growth around the world,” says Geoff Ballotti, president and chief executive officer. “Increased interest from hotel owners in our brands has propelled our development pipeline to a record 243,000 rooms, marking an impressive 8 per cent increase. Our strong balance sheet and cash flow generation capabilities provide significant opportunity to continue to enhance returns to our shareholders over both the short and long-term, as evidenced by our board of directors’ approval of a $400 million increase in our share repurchase authorization.”
The Company’s global system grew 4 per cent, reflecting 1 per cent growth in the U.S. and 8 per cent internationally. As expected, these increases included strong growth in both the higher RevPAR midscale and above segments in the U.S. and the direct franchising business in China, which grew 3 per cent and 13 per cent, respectively. The Company remains solidly on track to achieve its net room growth outlook of 3 to 4 per cent for the full year 2024, including an increase in its retention rate compared to 2023.
On March 31, 2024, the Company’s global development pipeline consisted of nearly 2,000 hotels and approximately 243,000 rooms, representing another record-high level and an 8 per cent year-over-year increase. Key highlights include:
• 15th consecutive quarter of sequential pipeline growth
• 5 per cent growth in the U.S. and 9 per cent internationally
• Approximately 69 per cent of the pipeline is in the midscale and above segments, which grew 4 per cent year-over-year
• Approximately 58 per cent of the pipeline is international
• Approximately 79 per cent of the pipeline is new construction, of which approximately 35 per cent has broken ground
First quarter global RevPAR increased 1 per cent in constant currency compared to 2023, reflecting a 5 per cent decline in the U.S. and growth of 14 per cent internationally.
In the U.S., the Company lapped the most difficult year-over-year comparisons during the first quarter, resulting in a decline of 440 basis points in occupancy and 50 basis points in ADR. Notably, the Company saw improving trends in March with RevPAR improving 240 basis points compared to February. This improvement marks a significant pivot toward growth, preceding the peak leisure travel season.
Internationally, the Company generated year-over-year RevPAR growth for the first quarter in all regions primarily driven by continued pricing power, with ADR up 12 per cent and occupancy up 2 per cent. The largest contributors to first quarter growth were its Latin America and EMEA regions.
First Quarter operating results
• Fee-related and other revenues were $304 million compared to $308 million in first quarter 2023, reflecting a decline of $5 million in royalty and franchise fees, partially offset by an 8 per cent increase in ancillary revenue streams. The decline in royalties and franchise fees was primarily driven by the decline in U.S. RevPAR and the lapping of our highest quarter of other franchise fees, partially offset by global net room growth and higher international RevPAR.
• The Company generated net income of $16 million compared to $67 million in first quarter 2023. The decrease primarily reflects transaction-related expenses resulting from the unsuccessful takeover attempt by Choice Hotels, an impairment charge primarily related to development advance notes and higher interest expense.
• Adjusted EBITDA was $141 million compared to $147 million in first quarter 2023. This decrease included a $10 million unfavorable impact from marketing fund variability, excluding which adjusted EBITDA grew 3 per cent primarily reflecting favourable timing of expenses to better match revenue seasonality.
• Diluted earnings per share was $0.19 compared to $0.77 in first quarter 2023. This decrease reflects lower net income, partially offset by the benefit of a lower share count due to share repurchase activity.
• Adjusted diluted EPS was $0.78 compared to $0.86 in first quarter 2023. This decrease included $0.09 per share related to expected marketing fund variability (after estimated taxes). On a comparable basis, adjusted diluted EPS increased 1 per cent year-over-year as comparable adjusted EBITDA growth and the benefit of share repurchase activity were largely offset by higher interest expense.
• During first quarter 2024, the Company’s marketing fund expenses exceeded revenues by $14 million, in line with expectations; while in first quarter 2023, the Company’s marketing fund expenses exceeded revenues by $4 million, resulting in $10 million of marketing fund variability. The Company continues to expect marketing fund revenues to equal expenses during full-year 2024.
Balance Sheet and Liquidity
The Company generated $76 million of net cash provided by operating activities and adjusted free cash flow of $102 million in first quarter 2024. The Company ended the quarter with a cash balance of $50 million and over $580 million in total liquidity.
The Company’s net debt leverage ratio was 3.4 times at March 31, 2024, within the lower half of the Company’s 3 to 4 times stated target range.
During the first quarter of 2024, the Company executed $275 million of new forward starting interest rate swaps on its Term Loan B Facility, which will begin in fourth quarter 2024 and expire in 2027. The fixed rate of the new swaps is 3.4 per cent. As a result, nearly all the Company’s Term Loan B Facility now has a fixed rate through the end of 2027.
Share Repurchases and Dividends
During the first quarter, the Company repurchased approximately 719,000 shares of its common stock for $57 million. The Company’s board of directors recently increased the Company’s share repurchase authorization by $400 million.
The Company paid common stock dividends of $32 million, or $0.38 per share, during first quarter 2024.
Full-Year 2024 Outlook
The Company is updating its outlook as follows to reflect the impact of first quarter share repurchase activity:
Year-over-year growth rates for adjusted EBITDA, adjusted net income and adjusted diluted EPS are not comparable due to full-year 2023 marketing fund revenues exceeding expenses by $9 million, which substantially completed the recovery of the $49 million support the Company provided to its owners during COVID. The Company continues to expect marketing fund revenues to equal expenses during full-year 2024 though seasonality of spend will affect the quarterly comparisons throughout the year.
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