Q2 2020 Wyndham Hotels & Resorts Inc Earnings Call
Welcome to the Wyndham hotels and resorts second quarter 2020 earnings conference call.
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I would now like to target called <unk> Senior Vice President Investor Relations.
Thank you Keith good morning, and thank you for joining US with me today are just body, our CEO and Michelle Island, our CFO.
Well, we get started I want to remind you that our remarks today will contain forward looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied.
These risk factors are discussed in detail on her most recent annual report on form 10-K filed with the Securities Exchange Commission and any subsequent reports filed with the FCC.
We will also be referring to a number of non-GAAP measures corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP metrics are provided in our earnings release, which is available on our Investor Relations web site at Investor that Wyndham hotels Dot com.
To the extent there a non-GAAP measures discussing future impact.
Well to provide the comparable GAAP metric.
In addition last evening, we posted in Investor presentation containing supplemental information on our Investor Relations website.
We may continue to provide supplemental information on our website in the future. Accordingly, we encourage investors to monitor website. In addition to our press releases filings submitted with the FCC and any public conference calls or webcast with that I will turn the call over to Jeff.
Thanks, Matt Good morning, and thanks, everyone for joining us.
Our comments today will be focused on the impacted koby 19 is having on our business and how we believe our actions our best positioning us to emerge from this pandemic as a stronger company.
But first I'd like to remind you why we believe we're uniquely positioned to outperform not just during the crisis in the recovery, but also for the longer term.
Our business is fueled by leisure travelers, representing 70% of our bookings.
The other 30% coming from guests for whom travel is essential to their job, it's predictable and dependable.
Our portfolio of hotels is not reliant on air travel rather it's predominantly drive to with about 90% of our U.S. hotels located in suburban Interstate or small metro markets.
With these destinations primarily appealing to domestic travelers the vast majority of our portfolio is also not reliant on international travel.
We lead to select service space, 99% of our U.S. hotels are select service.
And these hotels fair much better in turbulent times, then in higher in chain scales.
We have a proven track record of growing our unit base, even during times of economic difficulty.
We do this by focusing our efforts on conversion opportunities and by leveraging the significant breadth and depth a benefit we could provide to potential owners and being associated with the world's largest hotel franchise system driven by a strong brand and strong value proposition.
Finally, our business model is low risk.
With over 95% of our hotels franchise, we have limited exposure to operating cost and capital requirements associated with owned assets.
We require less than 50 million in annual Capex spend.
And we have minimal to no exposure to incentive fees.
Our revenue and cash flows.
Our highly predictable and reliable.
And it is due to these strengths that nearly all of our hotels were able to remain open throughout this crisis.
Even during the softest days of late March in early April when occupancy across the industry fell to nearly 20%.
Well downtown urban group in meeting destination hotels were forced to close.
Our hotels remain open hosting essential frontline emergency medical government transportation and other workers, who travel for a living no matter the circumstances.
During the second quarter, our economy brands.
Outperformed their competitive set by over 300 basis points.
And our Midscale brands outperformed their competitive set by over 1000 basis points.
These results were also fueled by our recovery efforts.
We establish the building blocks of the first phase of our recovery plan with a campaign and April launching our everyday heroes initiative.
Honoring essential frontline workers, while at the same time, reinforcing our flexible booking policies loyalty member enhancements and loyalty partnership benefits to drive direct bookings.
In the second phase of our recovery plan, which kicked off in early June we shifted our messaging to highlight our cleanliness and enhance safety policies.
We rolled out new brand standards, requiring the use of EPA approved hospital grade cleaning and disinfecting supplies and we began drop shipping face masks and alcohol based hand, sanitizer and disinfecting wipes do our franchisees.
Providing gas with visible reassurance that they're in a safe and clean environment at a time when health and social distancing is there number one priority.
The third are welcome back phase of our recovery plan is currently reinforcing our direct booking benefits across our omni channel platforms targeting high value customer segments with a high propensity to travel.
With nearly 90% of our U.S. hotels in drive to markets near key leisure destinations in locations.
We know we're best positioned to capture leisure demand as it returns.
This type of travel has always been quarter, who you are in the basis of our prior you're about 10 minutes away from a hotel by Wyndham marketing campaign.
With our new National and regional marketing campaign that builds on this prior positioning we will continue to give guests the confidence that Wyndham is ready to welcome them back with our count on Us safety first commitment.
Our booking in cancellation flexibility.
Our Wyndham rewards member perks, including our relax requirements for earning member levels.
Our extension of premium status for our most important members.
And the largest and most trusted portfolio of economy in mid scale branded properties and drive two locations of any loyalty program.
The campaign target summer traveling tenders with a focus on wyndhams everyday traveler into locations that are currently showing demand by engaging with them at the moment, they're looking to book.
Providing the opportunity to scale up or scale down with our marketing dollars as travel demand dictates.
For the last six weeks the campaign has been running across all of our global sales marketing and PR channels.
Showcasing a value added promotion offering Wyndham reward members with 2000 bonus points for every qualified today.
And we also just launched a new state two nights and get one free night offer through September that were awards, our members for booking direct and staying now while giving them a reason to come back in the fall.
Our recovery plan is already showing meaningful results.
Direct channel web bookings are up 80% since the April may timeframe.
Volume into our call centers is trending near pre covert levels.
And loyalty member occupancy has increased by over 400 basis points year to date compared to 2019.
And is volumes have increased in demand has begun to recover we have been able to welcome back thousands of team members to our managed properties and we have been able to bring back all furlough team members to our corporate offices.
Drive to leisure demand to our thousands of hotels near beaches and National parks.
Or to our hotels, along the Interstate on the way to get there remains strong.
Weekend occupancy has outperformed weekday occupancy for the last 14 consecutive weeks.
In July month to date weekend occupancy is averaging 10 points higher than weekdays.
Overall occupancy continues to show sequential improvement in our economy in Midscale brands in the U.S. and our month to date occupancy is averaging almost 50% in the U.S. and recently reached a high point of nearly 60% reflecting strength in drive to leisure destinations.
Today over 99% of our 6300 domestic hotels are open.
And why we're seeing some plateaued going into harder hit larger markets like Florida, Texas, and California, We're seeing continued occupancy improvement in the smaller markets like Colorado Springs Lake, Michigan, and the Texas Gulf Coast.
Aside from leisure travel, we're seeing consistent demand from guests to have to travel and the transportation in the utility logistics and infrastructure industries with project in construction work coming back to near business as usual levels.
We're also seeing increasing demand from the military from the government medical and small social segments like family reunions, birthdays, and anniversaries and small weddings.
We of course continue to keep a close eye in the impact of certain reopening plan rollbacks, and we're very well aware that leisure travel may abate somewhat in the fall.
Nevertheless, we are encouraged by continued consumer confidence in drive to get a waste.
I'm pleased to welcome gets back to our hotels and were relieved that the majority of our franchisees were able to generate positive operating cash flow during June and July.
And it's important to note that our leisure mix does not change dramatically from quarter to quarter.
Less than 1% of our franchisees room nights are generated by group business and we are no more reliant on corporate or contracted business in the third and fourth quarters. Then we are in the second quarter.
2019, leisure made up 70% of our business in the second quarter, 71% in the third quarter and 69% in the fourth.
Moving to other parts of the globe all of our international regions are experiencing occupancy improvement.
In Asia Pacific, where 93% of our system is now open occupancy is now running over 60% in China.
In Canada, 98% of our system is open and occupancy is now in the forties and into Europe Middle East in Africa region, where two thirds of our system is open occupancy is running over 30%.
Latin America remains our most challenge region with around 100 hotel still close.
And occupancy levels at less than 30%.
We finished the quarter with 813000 rooms, which was flat to prior year.
Despite our franchise sales and operations teams being sequestered at home and unable to travel for most of the quarter. We Nevertheless opened 5700 rooms.
Well, we were only able to open 300 rooms in April we opened 1100 rooms in May and 4300 rooms in June.
As our teams began to travel again, an independent economy and Midscale hotel owners begin to look towards the future in search of a brand that could generate revpar premiums operating cost savings lower distribution costs and increased market share all of which we could offer is the world's largest hotel franchising company.
Conversions improved dramatically in June as well representing over 70% of our volume versus 57% a year ago.
We were pleased with a pickup in conversion activity as the quarter progressed, both on the signings and on the openings front, we expanded our Sop branded trademark collection by Wyndham the fastest growing brand in our portfolio with independent hotel conversions across the United States across Canada and Germany.
In China, we added six new hotels to our motto by Wyndham brand.
Five new construction and one conversion further strengthening our presence in that country.
Additionally, we were thrilled with our continued international expansion of looking to adding two high quality independent conversions in Turkey.
Keen to Bodrum opt the shores of the GNC and the like Keith the jurist soon on the coast of the Black Sea, both coming from new owners on the heels of the opening of the highly rated lucky into his stumble.
Earlier this year, we announced plans to open two new looking to hotels in New Zealand, marking the arrival of Lucky to in our Asia Pacific Region, and just last month, we expanded on that by signing our first looking to in China. The Lucky to buy Wyndham Whalen, which is scheduled to open later this year.
Turning to franchisee health and retention with the termination of the dilutive 9000 Master franchise rooms in China that we previewed on our last earnings call our international retention rate over the last 12 months was as anticipated 92%.
Our domestic retention rate held steady at 95%.
Now while recent data is showing spikes in CMBS delinquencies less than 10% of our 6300 domestic hotels are reliant on the CMBS market and our instead financed by local and regional lenders, who are largely working with our franchisees on forbearance plans.
Approximately 90% of our franchisees have also benefited from a paycheck protection program loan and approximately 40% have received an economic injury disaster alone.
Nearly 70% of our U.S. frenchie franchisees are operating above 40% occupancy.
Even so we know hotel owners across the industry are suffering.
We know it's inevitable that there will be some that cannot stay afloat.
We expect well capitalized franchisees with reasonable that service to navigate successfully through the crisis with the support provided through the cares act along with the support that their banks vendors and Wyndham are providing to them.
However, owners, whom are more thinly capitalized with higher debt service levels are unfortunately, more likely going to fail.
Michelle will walk you through our plan to assist as many owners as we possibly can throughout this crisis.
At the end of June our global development pipeline was 180000 rooms, a decrease of 4% or 8000 rooms year over year.
The decline reflects this off April and May sales activity as the world remained on pause as so many were under stay at home Motors.
The pipeline was also impacted by the deliberate removal of deals that no longer meet our recently increased hurdle rates, coupled with a higher degree of conservatism applied to new construction and development projects that have not yet secured financing.
Our view, we believe prudently reflects a more accurate picture of deals in our pipeline that have the highest likelihood of opening in a post covert environment.
Despite the ongoing impacts of the pandemic there remains opportunity in the market, especially in conversions as owners evaluate the best way to manage their future.
And as noted on our last call, we believe that conversions will become and even more important growth vehicle for us over the next several years.
Finally, we'd like to recognize and thank our friends and colleagues, who we had to say goodbye to and their positions were eliminated.
We will never forget there are many contributions and will be forever grateful for their service. Additionally, words can express how much we appreciate the patients.
The understanding in the loyalty of those team members who are placed on furlough.
Well 2020 <unk>.
Has not been the or any of us expected it to be the actions we've taken in response to the pandemic.
Will allow us to emerge as a stronger company financially and operationally intensely committed to their survival and the success of our most engaged franchisees and owners.
Of course, none of these efforts could have been accomplished without are incredibly talented team members, who have been working harder in more efficiently than ever across every function in every corner of our world. They have been bringing wyndhams count on me culture to life every single day.
And with that I'd like to turn the call over to Michelle Michelle.
Thanks, Jeff Good morning, everyone I'll begin my remarks today with a detailed overview of our second quarter results. I'll, then review, our cash flows and balance sheet as well as our best current view uncertain operating statistics and financial metrics for 2020.
In the most challenging quarter, our industry has ever experience, we generated $258 million, if revenue and 63 million of adjusted EBITDA. This success with driven by our portfolio of brands that appeals to the mass demographic and by an incredibly flexible cost structure.
We were able to reduce our cost and capital spending in the quarter by $101 million and we use these funds to support our franchisees to fee waivers and deferrals, helping to preserve cash during this critical time.
Comparable revpar, which is in constant currency and excludes hotels temporarily closed due to cope with 19 declined 54% on a global basis in the second quarter, including declined to 51% in the U.S. and 65% internationally.
A little more than two thirds of the decline in the U.S. with due to occupancy.
We're encouraged by the trends we saw through the second quarter, where occupancy is far select service hotels improve sequentially. Each month from a low of 26% in April absolute levels of over 45% in June and continue to push forward to nearly 60% in July as Jeff mentioned.
Pricing perspective, less than one third of our domestic revpar decline was due to rate.
Furthermore, since the trough in mid April HDR for our economy and Midscale brands has increased 15% on average during the weekdays and 32% average during the weekends.
Fortunately the current price differential between economy, and Midscale hotels is roughly $20 and the price differential between Midscale and upscale hotels is roughly $30. Both significant enough gaps we believe in half decision, making for our value conscious everyday travelers.
Internationally occupancy levels for the second quarter average mid Twentys, and China, low Twentys and Canada mid teens in southeast Asia and below 10% in EMEA and Latin America July month to date results are much stronger with occupancy running 15 to over 25 points higher in each region.
Second quarter revenues decreased from $533 million last year to 258 million, including a 94 million dollar declining cost reimbursable revenues, primarily due to property level employee furloughs and assets out my core Pointlogic.
Excluding cost reimbursements revenues decreased $181 million were 49%, reflecting the decline in global Revpar as well as 21 million of lower revenues due to the temporary closure of our two owned hotels in April and May.
12 million of non of royalty fee waivers granted as part of our cobot 19, franchisee relief measures and $11 million of lower license fees from Wyndham destination.
Reduced travel demand.
These revenue declines were partially offset by the noncash recognition of $16 million of previously deferred revenues in our loyalty program unrelated to our Kobe 19th feed deferral relief program.
Our adjusted EBITDA declined $96 million from 159 million to 63 million in the second quarter, reflecting the revenue changes, partially offset by a 39% reduction in cost.
Adjusted diluted EPS declined to 10 cents.
As mentioned on last quarter's call, we've taken a number of steps to mitigate the revenue losses from the cobot 19 travel disruption.
Reduce our expected cash outflows in 2020 by approximately $255 million of which 101 million was achieved in the second quarter and 29 million have been achieved in March about 75% of a second quarter savings our volume related with the remaining 25% being permanent changes to our cost infrastructure.
Second quarter savings will be the highest have any quarter. This year as we expect corporate furloughed employees to return to work on August 3rd and we have reconnect advertising spend to capture the seven summer travel travel demand.
Keep in mind, the 101 million represents cash savings, including Capex, So hi perfectly to the pan out.
As we have previously noted approximately 155 million up at 255 million expected savings represent volume related reductions with the remaining 100 million representing savings from our restructuring actions that are permanent changes to our cost infrastructure and will provide benefits beyond 2020.
This 100 million, we expect about 40 million will drive incremental EBITDA on a continual basis and that 60 million will free up dollars within our marketing reservation and loyalty fines.
That higher ROI marketing programs with the goal of driving increased profits for our franchisees.
In connection with our restructuring we also on our top a detailed review of our portfolio and identified properties that had a history of compliance issues Havington seems significant operational resources over the years, despite reasonably healthy economy.
We have been working with the owners of these properties to develop a path forward, but now with Covance 19 that outcome is far less likely.
Therefore, we have determined the most practical solution is to terminate the existing license agreements rather than to continue to expand additional operational and financial resources that can be redeployed some more engaged franchisees any of our support.
Over the next two quarters, we will take the necessary legal and compliance steps to remove these hotels from our system.
Importantly, all of these hotels are dilutive to the royalty rates within their regions. The annual adjusted EBITDA impact related to removing these 85 hotels, representing 16000 rooms is approximately $3 million, which is more than offset by the savings we are driving from our restructuring initiatives.
These actions will depress our international retention rate by about 500 basis points in the short term, but we expect this impact will be behind us moving into 2021 longer term removing is dilutive properties will free up significant management and operational bandwidth to focus on higher value growth going forward.
[noise] apart from these rooms, we expect approximately 3500 problems primarily relating to the FCC portfolio to leave our system in the third quarter. If this year.
I will tell us where previously under hotel management guaranteed contracts that we exited 2019.
The eight RLJ guarantee contracts that we also reached agreement to exiting 2019 are now fee generating properties that are expected to remain in our system into 2021 on a non guaranteed basis.
Turning to cash.
We ended the quarter of a $664 million that's cash on hand.
Free cash flow for the quarter with a net use of 68 million or 40 million, excluding special items cash outlays related to severance and our 2019 contract terminations.
Cash use reflects a 67 million dollar impact from our Kobe 19, franchisee fee deferral program.
We sell our franchisees utilize this cash conservation measure to defer about 65% of franchise fees until September 1st and as of July 24th the 35% of piece that had been paid has already increased to over 40%.
We have great confidence in our balance sheet liquidity, the resiliency of our business and and our ability to produce significant cash flow and our board of directors shares as confident as Evan evidence by their decision in May which was unique in the industry to approve a quarterly dividend of eight cents per share.
Looking at the balance sheet because of the travel disruption, resulting from called Cobot 19, we were required to conduct a detailed review of the carrying values of our assets shore those balances did not exceed their fair market values.
This review resulted in noncash impairment charges totaling $206 million, primarily related to our most recent brand acquisition Lucky that.
With continued domestic and international net unit growth, our confidence and I'll, let Keith by Wyndham brand remains strong and our projections of the brands future cash flows have not changed materially from our original assumptions. However, given the current environment the discount rate applied cash flows to calculate the fair value is higher than the rate.
At the time of acquisition, we therefore recorded and noncash charge of $155 million to reduce the carrying value of our like him to trademark to its current fair market value.
I can't that there were smaller charges totaling approximately $50 million with respect to three other trademarks and to the goodwill associated with our two owned hotels.
Turning now to outlook, while we remain unable to provide an outlook given the revpar uncertainties ahead, we would like to give you our best current view uncertain operating statistics and financial metrics for 2020.
Even the unusually lower year to date openings combined with a strategic Noncompliant hotels, we expect to remove from our system in the third and fourth quarters. We're not currently anticipating positive net rent growth this year.
As mentioned last quarter, we expect our marketing funds will adversely impact EBITDA in 2020 by meaningful number.
Normally we offset marketing found revenue declined by proportionately, reducing variable expenses. However, given the magnitude of this years to clients and our intention to support our franchisees through this crisis and the recovery, we have decided not to reduce these costs on a one for one basis with a corresponding revenue declines.
On average for every point of Revpar change in 2020, you can expect to see about one and a half million dollars of a marketing fund impact to EBITDA and note that our accounting for our marketing funds not comparable to our peers, we do not rentals to that effect of these funds from our adjusted EBITDA as their germane to our operations and our value proposition.
So our franchisees.
We continue to expect license fee revenues to be at least $70 million, reflecting the minimum levels outlined in the underlying agreements.
We expect cost reimbursement revenues to continue to decline as corporate executes its disposition strategy of noncore assets, which will remain lucky to franchisees under new ownership.
We remind you these revenues have no impact on EBITDA.
Now of the year over year decline is contingent upon the timing of sales Bicuar point.
Below EBITDA, we expect depreciation and amortization expense to be between 60, and 64 million and interest expense to be between 105 and 110 million.
We expect our diluted share count to be 93.4 million for the full year 2020.
We expect capital expenditures to be approximately 30 million and development advanced spend to be in the range of 20 to 25 million last I remind you that we still have another $15 million of special item cash outlays remaining this year, primarily relating to the restructuring charges and we continue to expect special item cash outlays will be behind us.
In 2021.
In closing, while the shape and duration of the recovery remain uncertain. We have demonstrated the resiliency of our drive to L. leisure oriented franchise business model by generating positive adjusted EBITDA in the second quarter and minimizing our cash burn through strong cost management, all I missed the worst crisis in our industry's history, we remain focused.
On driving profitability to enhance margins higher royalty rates and strong free cash flow conversion and and putting that cash to work to drive shareholder return.
With that Jeff and I would be happy to take your questions operator.
And at this time, if you have a question or comment. Please press star one on your Touchtone phone.
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We'll take our first question from Joe Greff with JP Morgan. Please go ahead.
Hi, good morning, everybody and thanks, all this information.
Can you talk about Michele can you talk about what you're anticipating in the second half.
Were working capital Dreads related to third party hotel owners.
Continuing deferred payment of franchise fees I know you talked about maybe the ability to pay from here.
Here's hasn't taken I'm guessing that 70% of us franchisees are at or above 40% occupancy now in July.
And obviously higher than at different points mid to Q their ability to pay franchisees is also higher. So my question is this should there be lifted a quarterly run rate drag into Threeq view and similarly, something in the fourth you that's less than a threeq Q4. Conversely is there this anticipated lags and if so what is that.
Oh, Hi, Joe.
Thanks for question.
Were expecting considerably higher collections and the third quarter event than in the second exactly how much probably depends on how travel demand.
Recovers I would say, yes, we do believe wed see a with the with the majority of our portfolio now above breakeven levels that they have the ability to pay thank I do think.
Some franchisees are a little concerned about what the fourth quarter on quarter holds and so we're going to remain flexible and continue to monitor the situation to make sure that <unk> that we're providing as much as much support as we can to ensure their success.
Pandemic.
Okay.
Well you later, Okay and then.
One question on conversions, obviously, most recent months had a higher level of conversions and maybe some of that age related to the prior two months, which had a lower amount of activity. I mean do you look at the conversion levels that you've seen more recently as a sort of a good run rate here or what are you seeing in terms of the conversion activity.
And whats.
Anticipated in your comments about not being any net rooms growth this year, but what's the gross amount of conversion that we should expect.
Sure Yeah.
It was definitely Joey are really positive momentum throughout the throughout the quarter. The 5700 opens.
You know roughly 2000 of those were conversion and if I just look in the way it picked up.
In terms of our opens domestically we had a 100 in April 400 and May in 2000, we mentioned in June.
85% of those were.
We're conversion rooms, and so many of them opened in the.
A in the same quarter I mean, we were able to open a over.
A dozen hotels in the quarter that a that we're a were picked up in the quarter in brands like days in and Super eight.
And Baymont and travelodge and trademark so.
It was encouraging domestically was also encouraging.
To see the pickup.
Internationally, we had we had great same quarter shown opens and so many of those were.
For conversions I mean, we went a similarly from from a couple of hundred 2000 to 2500 in June So our teams are back out there domestically and internationally.
They're traveling again, and we think we have a big big conversion opportunity ahead.
Great. Thanks, and one quick follow up on them nothing left here given your comments that you know the leisure mix.
Generally in the for acute indistinguishable from that mix percentage in the Twoq or Threeq you.
All things being equal would you expect the lack of an occupancy retrenchment as we shift from Threeq into Fourq, you, all things being equal and I know the all things being equal it's sort of question Mark.
I think Tom all things being equal means that we typically see some retrenchment in the fourth quarter coming off five second and third quarter in leisure and leisure demand right. So I don't expect from a seasonality perspective to see anything different from from back this year. So we will.
The my guess is occupancy.
Equally occupancy levels declined in the fourth quarter compared to <unk> to the summer to the summer travel season, However, our ability to capture that leisure demand does not change right. So as well as we're much more leisure focus and that's just kind of the way, we always do business whatever demand is out.
There, we do feel like we're going to be able to capture that justice effectively or more effectively than than we had pastures.
Thank you very much guys.
Thanks, Jim Thanks, Jeff.
Our next questions from David Katz with Jefferies. Please go ahead.
Hi, good morning, everyone.
And thank you for all the.
Detail.
I wanted to ask about the room deletions that you discussed in our you know in the Investor deck I'm, assuming you know that the the world.
Right and the market.
Remains stable in starts to improve.
Do you have an expectation that you know beyond.
What we've laid out today, there will be more meaningful dilutions and by meaningful I would say you know beyond kind of a normal.
You know bottom wrong about that you know burns off so that you know we're used to seeing.
Across the industry over over a number of years.
Hi, David.
Hi, say [laughter] I would say at this is everything we know at at the present time of course.
We're gonna have some franchisee set struggle for coal bed and what comes next for them remains to be seen but for good operators with a history of brand engagement, we're going to use every tool we have available to them.
We have available to us to help them to help them avoid failure. So so at this point everything that we have in the system has been has that we know what has been identified.
Got it and if I may follow up quickly and apologies if it's if it's in here somewhere and I missed it but.
How many you look cantos did you add to that brand.
In the quarter and if you could just talk about the prospects for growing those units sure I'm looking to David we've been very pleased with the growth looking to.
On the franchise side the system grew 4% 2019 it grew.
It's growing 2% year to date and a quarter on quarter, we added five hotels. So it was up 1% sequentially.
We look we've executed 85, new deals since acquisition and.
The retention rate remained strong at a slightly over 98% since since we acquired the brand.
And the prospects really hinge on our team's ability to sell what's what's just performing so well for this brand right now it is the strongest performing brands.
In our and our lineup.
Revpar index is grown up to 107% both year on year and.
On a two year stack basis and it is a brand that is really outperforming its it's it's also our highest occupancy brand right now I mean, it has been for our entire system Michel talked about two to Joe's question looking ahead, which is tough.
To forecast, but it is has it has been 15 consecutive weeks where occupancy week on week.
Has improved and there's there's no brand, where it has improved a stronger or faster or higher.
And then looking out there looking to Iran, 65% occupancy the Saturday night and that was up for from from the prior Saturday night as it's been for for 15 consecutive weeks. So our franchise sales team feel feel very good about it on both a both the new construction and the conversion standpoint, and I think what would what is.
Also becoming apparent is that it is a brand that a that our teams are excited about growing internationally we.
We have we have added eight executed deals for under construction in the Dominican Republic.
We opened a hotel in Istanbul, Turkey, and we had an opportunity to find to more.
Conversion opportunities and convert those brands to two it can do we talked about that in the script, both in Bodrum and on the Black Sea and.
We've executed two and a in New Zealand and just signed one in China. So.
We're very bullish on on looking to moving forward.
Got it thank you very much.
Hi, guys questions from Stephen Grambling with Goldman Sachs. Please go ahead.
Thanks. Good morning. This is a then a follow up to Joe second question in.
Last question, but I also tightened development I guess, how are the conversations with independents and developers.
Changing as we assess the availability of capital in any need for you to provide support in the form of additional key money or loans and are you seeing any major differences.
As it relates to.
That support by region.
Yeah, no no real differences.
As we've talked about before we joke.
Michelle.
Squeeze is a key money out with an eye drop or and we're not certainly seeing any.
Any need to do anything more than we've done in the past I think as we've talked about so even in the conversion market. There is a a significantly lower.
Need to use or balance sheet, but a the conversion opportunity for US is is as you say and we've talked about are important and.
It's a it's a big opportunity for us domestically and we think it's an even bigger opportunity a internationally. When you look at the the addressable market that Smith travel tracks in the United States with.
With roughly 15000 rooms that are track that we're targeting and recalled it over two times a the independents right now are close today versus a theres versus economy or midscale branded hotels.
And then you look at a the international opportunity, which is even larger.
And unless branded a we don't anticipate the need to use our balance sheet anymore going forward than we have in the past.
Got it and I would just add to that we have earmarked some rescue capital in our plan and so we're happy to put to work where it makes sense of course, we would I would do that on a select basis, and only where it would generate strong ROI for us and four and for our franchisees. We we do we do see.
Now that that financing is a little tighter you know at date the.
The key money could become a more empowered important element of a deal going forward, where our capital stack needs to be needs to be felt so so we are watching we're watching it closely and seeing where and how we can put that rescue capital to work up but as of right now, we're not saying a ton of those.
Opportunities beyond what we would typically see but we are we are hopeful that that they'll come our way.
As a very quick follow up and maybe I missed this new opening remarks, but I guess what percentage of the rooms in the pipeline have secured financing in place and or would be considered already under construction.
I'm sure. We've we've got 180000 rooms in the pipeline and Ah under construction as we point out I think it's on slide seven of the deck 46000.
Our under construction.
Those rooms, obviously have financing in place and to your question on the new construction rooms that are in the pipeline as we've gone through it we estimate that approximately 55% of those rooms that are not yet in the ground have have financing in place.
Super helpful. Thanks, so much.
<unk>.
Our next question is from Anthony Powell with Barclays. Please go ahead.
Hi, good morning.
Question on conversions or our hotel owners kind of willing and able to convert right now or I mean.
There was an increase in June but.
Do you expect burdens or do you mean increase this year or do you think the larger increase would be in 2021.
As for someone is having a better view on kind of medium term fundamentals yeah. Great question. Anthony We do think it will continue to increase and we think the bigger opportunity is a is later this year next year. So so many independence right now or just trying to deal with her banks and with forbearance.
And when they come up to two that deadline, whether its later this year or whether it's a it's next year in Q1 or Q2.
Thanks are gonna be looking for a for a plan they're gonna be looking for a reason that that they should continue to to work with that independent owner and and we want to be part of that plan, we want to be part of that plan because the independent owners is gonna be able to show its bank that our brand delivers a revpar premium that added.
Delivers dramatically lower distribution costs and significant operating cost savings from from procurement from FF any from O us any from FNB from technology from.
The labor related to both of those and when you combine that with what our marketing.
Program Wyndham rewards drives right now and we continue to see an increasing share of occupancy.
And I've just been.
Very pleased to see that a direct cherbak infancy coming up what that does to their overall cost structure lowering.
The amount of rooms that are getting through no T.A. at a much lower cut costs contribution, we think our our value proposition and pitch becomes a lot.
A lot more compelling later this year and and into the first and second quarter next year, but we were pleased with with how much pickup we saw in a in June both domestically and internationally versus what we had in April and May.
Got it thanks.
The topic or would you consider another form on gets you to referral program in the winter. If you could obviously, that's kind of tick down as leisure demand kind of seasonal kind of gets a bit.
Lower in one of them up.
Well I work for we're not prepared to speculate on what I want relief measures, we may or may not provide moving into moving into the fall and winter season. At this point in time, we want to know well wait and see how how this summer months perform and die and you know.
What's the outlook or what the outlook holds for the broader industry as a whole.
Okay. Thank you.
Thanks, and thank you.
Our next question is from Patrick Scholes with Suntrust. Please go ahead.
Probably a good morning, Jeff Michelle.
Good morning, better.
All right no looks like you had a pretty I, what I recall seismic shift in a market share gains for economy in Midscale brands.
But you know, but not a color little bit some color from you folks as to what you think is Ah you know behind that.
Thank you sure Yeah, there is a.
There's so much that that we're proud of that we've been able to to attract and capture. This this this quarter in terms of.
Share gains from a from from business travelers that had been up they're having to travel for work and that was really.
In those and those early months, what I mean are sure sure gain had never been stronger I mean, we just had all of those.
Essential everyday business as usual travelers that oh or not.
Or not per se white colored travelers, but you know are out there because they have to be but you know and we've been certainly picking up a lot of alternative use.
A room nights, we've had great success, our team is a great success on University lodging.
The infield hotels in Pittsburgh in Houston, and New Jersey, and most recently at looking to that in Colorado Springs with with universities that are looking looking to move in but as as leisure travelers picked up.
What would so what's really been driving that that that pickup is that is that drive to business and that's what's driving bookings now seeing tremendous improvement in our direct.
Mobile and call volume leisure bookings drive to bookings.
Our mobile business, which was down you know when we were filled with those essential workers down 80% is now down you know less than 30% and its improved every consecutive week and or direct voice booking channels continues to to improve as well our call center conversion.
Bookings are back up to almost.
Almost pre covert levels the booking windows are expanding Sunday night is has become our busiest period.
We're staffing back to book Getaways for those looking to get away on a drive to vacation and what's most encouraging Patrick is that our 80 are as has been really holding steady would have been.
Within actually seeing a are are 80 or continue to did pick up as occupancy as has continued to pick up now for 15.
Consecutive weeks and it's a it's been doing so.
Every week, we gone we cut across the country because that drive to leisure travel that's that's looking to get away.
Okay Alright. Thank you I'm just another question, you're shifting topics and correct me if I'm wrong here.
I believe that full Marriott and Hyatt hubs.
Instituted requirements that are guess wear masks.
I don't believe that you folks have done that are have done that yet can you tell us your rationale at this 0.4 allawi nor are we mask yeah.
Net mandatory yeah. Thank you know what that thanks for the question Patrick It is by far and away the.
The most important thing that all of us in the industry do and it was the American Hotel in Lodging Association Chip Rogers and his team with with all of the industry on a call a few weeks ago that Ah that that held hands and reach the reach reached the consensus and decision that as part of say stay mandatory.
Mask wearing would be requirement a crisis. This nation I think it was.
It was a.
Well it was all of US that agreed that no one branch and should own safety and we've all been contributing team members to to say stay football been working through our franchise advisory councils and yes. We are announcing this this morning I'm if it hasn't gone out already that after working through our for.
Franchise advisory councils.
And our leaders who speak on behalf of the general managers and small business owners, who who manage these hotels that it is indeed.
Requirement and in all of our hotels as well.
Required for gas to guard board of directors Yep, absolutely okay.
Congratulations that's an excellent <unk> in my opinion. Thank you.
Thank you.
So next to damn wasn't yet with Morningstar. Please go ahead.
Hi, just first a question on the pipeline activity I think you called out.
I don't see hurdles and travel restrictions kind of hindering that in the quarter. Just wondering if you can maybe give some details which of those who had a greater impact in there on the travel restrictions I know you've mentioned that that has improved and June versus April may just wondering if there's any kind of diversions in July.
Yeah, no travel restrictions there and your ability given some state to state quarantine restrictions.
We have not seen it seen it yet we continue to be a encouraged by what we're seeing out there from our.
Franchise sales teams domestically and internationally or I'd say, the best called the weak Michelle and I get to get on it.
It's Friday afternoon, with all our franchise salespeople, obviously, there are some some requirements in terms of where they can and can't drive.
But we have not felt any any significant a slowdown I think moving forward. We we feel good about our prospects and the first part of your question.
Yeah, just you know between the two I guess drivers called out on the pipeline activity the financing hurdles the higher financing hurdles and the travel restrictions earlier in the quarter, which of those had the greater impact I guess, it's partly answered and your first response and travel restrictions or have become less of a hindrance. So absolutely.
Okay, Yes, I would say Oh, I would say the each they travel restrictions at that at the front tops the quarter really did have an impact on the ability to build.
Not to not the pipeline and then and then to hurt the increased hurdle rates.
It's probably probably a little a little less.
Okay, Great and then if I could just that's one question kind of from a longer term perspective, I know you guys. As you know called out some a permanent savings opportunity and just as we get to kind of a more normal travel demand environment post coated how do you guys view the potential for overall operating margins EBITDA.
Margins are those going to be able to you know get back to pre cope with levels, maybe even be stronger with kind of the cost initiatives you have in place and you know if you can kind of I guess include cost reimbursements and that viewpoint that'd be helpful. Thanks.
Yes, sure we are expecting and post cobot world that we would drive higher operating margins because we are driving I at least $40 million of incremental EBITDA through some up that more permanent changes, we made to the cost infrastructure and and then on that what was the second part of that question.
Hmm.
No I was just the yeah, I guess, including the cost reimbursement Oh, yes, yes. There is you know and and you know moving forward longer term.
You guys think that's I guess cost reimbursements those those go up it kind of overall or do they go down because of your ability to.
Utilize the initiatives like.
Hi, Wyndham and have lower marketing costs, you know that were just kind of thoughts I guess as long term how to think about cost reimbursement revenue and expenses.
So so cost reimbursement revenue and expenses on RPM now are related to our managed business and they're predominantly payroll costs that that are funded by the hotel owners, but GAAP requires us to gross it up on RPM now I think what you're referring to are the marketing.
Revenues and marketing expenses and and as we look at those intent in 2020, we are expecting an EBITDA drag related to what we refer to as our marketing funds, which is I would just how how the revenues and expense kind of match each other or in the case of 2020 won't match each other typically.
Lee, we will offset our revenue declined in the marketing funds with with a one for one reduction in expenses were not doing that in 2020, because the revenue declines or so is the VR and and we wanted to keep some marketing spend as well as the G.S. So teams and other teams that are directly supporting.
The our franchisees through through the crisis and through the recovery. So we won't have a one for one decline we are expecting in 2020 that the marketing funds will drag will drive EBITDA by about a point and a half for every point.
Million and a half for every point of Revpar I should say moving forward in 2021, we expected that our marketing funds would again begin to begin to become breakeven with one exception. We will we will be in a position where we can recapture some of the 2020 overspend overtime and Dom and.
We will figure out how to space that in as we move through our budgeting and our strategic planning process.
Okay understood very helpful. Thanks for the clarity.
Our next question from Danny Aside with Bank of America. Please go ahead.
Hey, good morning, everybody.
My question is just on franchisee support so can you give us a sense for the mix of domestic versus international franchisees franchisees that I needed assistance so far.
Yeah, we.
Go ahead and show no. Please Jeff.
No. Okay, I worry I, we have about 65% through the end of the second quarter, which is already decreased to 60% globally that have needed. Some assistance. It we are seeing higher take rates on the deferral program internationally than than in the U.S. it especially for.
For EMEA and die and in China, where we had complete a complete shutdowns for a bunch of our hotels.
Got it and and then just from my follow up.
So for like the 44 30, 40% of collections of them buildings, how did that trend for the peak months of April and May and what's your best guess for what that could be for in July for June and ER and maybe for the quarter. If you have it sometimes for that.
I would say.
Oh, I was actually pleasantly surprised to see to see the collection rate. So high in the month of April given how that was so much uncertainty with respect to the summer summer travel season. So it's improved as we move through the quarter and and as franchisees have I have had been more positive.
Operating cash flow I'm in the months of June and and I would say even July I don't want to speculate.
About how much of how much we're going to collect to and in the third quarter because it really is.
There are really a lot of assumptions that would we would have to make to provide you with die with it with any type of any type of range.
Got it okay, and one more and there's more more of a clarification, but.
When we talk about you know your franchisees, making positive cash flow in June July.
Does that mean, they're making debt service payments or is it just like Ford before that.
Yeah. So so we're seeing positive operating cash flow. So on an operating basis before that service, we feel very confident that that they would be that they would be positive cash flow. The debt service question really depends on how their capitalized for for the majority of our franchisees that are reasonably capitalized at like a 70 per.
Sand or lower LTV at die at 40% occupancy they should be able to cover off that service. If they are higher than 70% levered than not then then they'll have harder and harder time I'm covering off the debt service and will require higher occupancy to be able to do that.
Understood. Thank you so much.
Thank you.
Next question is for Michael Bella scenario with Baird. Please go ahead.
Good morning, everyone.
<unk>.
Just one other clarification question on the few deferrals, maybe help us better understand.
Timing of everything.
<unk>.
Pardon if I'm wrong.
March April may payments were deferred.
But you're saying.
Only 40% plus or minus has been collected through I think July 24th does that mean the June payments that are not being paid in July or those not subject to a deferral program or how should we think about what's being paid was not being paid relative to the three months that you actually deferred.
Yes.
So we deferred you're right April March April may are not due until September 1st what we have seen is that 40% of those have been paid.
Prior to the September 1st due date.
With respect to GE on billings, we haven't provided any any detail around those collections because they June June performance was only build in July and so they're actually not I'm not technically due until August 10th.
Got it that's helpful and then just.
One more quick clarification question I think the comparable Revpar figure includes close I would tell us what would that negative 54% comparable figure be if you included all close hotels for the period.
Oh that would have been reported number which I believe was minus 61%.
Thank you.
You're welcome.
And you can find out on I think we have some supplemental schedule posted to our website that campsite, the comparable and reported revpars for each other regions.
Your next question is from Jared should show June with Wolfe Research. Please go ahead.
Hi, Good morning, everyone. Thanks for taking my question.
So in terms of your comments on units being down this year I apologize if I missed this but if you neutralize for removing all the noncompliant rooms that you did in the second quarter and you talked on the second half would you be expecting unit growth to be positive. This year after neutralizing for that or no.
Hi, Jared I.
Thank God, if we work to neutralize for the.
For the deletions in a second.
Second quarter for the 9000 rooms in China, and as well as the incremental rooms were going to take out in the third and fourth quarter. Yes, I do think we would have expected to see positive net rent growth for the full here.
Okay. Thank you that's helpful. And then it looks like you had been showing pretty consistent improvement in weekly revpar until the most recent week, which took a step back any color you can share there I realize there's week to week noise I don't want to be to near term focus, but I think in this environment right now it's just so fluid Ah I think it.
Is important so any color you can share there.
Sure.
Actually it's been 15 consecutive weeks Jared you. This this past week that just reported to the week of July 25th.
It was EUR 15 consecutive week of occupancy up and rate coming down just a little bit. It certainly has slowed somewhat this past week or 35 states are reporting occupancy up 15 down slightly and I know, there's a lot of focus right now on on tech.
Yes on Florida.
And even in those two markets, which are big markets for us. It both went backwards. They were one of the 15 states that were down slightly.
Less than a a 100 basis points I think to Texas dropped from 49 to 48, and a half Florida dropped from 45 to.
I think something like somewhere in the 40 force.
And it was remarkable for us to see California, improve California actually.
Another important state for us so it's 15th consecutive week. It was one of the 35 states that were up remarkably grow from 56% to 57%.
What's driving.
What's driving the growth in our consecutive week over week occupancy our highest occupancy levels are in those real great Outdoor road trip states that are so important to us where people. Just you know have the have had the desire in the confidence to get out Idaho, Colorado or.
Turning 68% South Dakota in Montana, running 67%, Michigan, we talked about in the script.
Up a consistently at 65% now and we're seeing.
Really steady and fast growth the fastest growing states right now or in the northeast Maine.
Jump from 31 to 36 mass from 40 to 45, Rhode Island from 50% to 55% last week in Vermont from 52 to 56. So when you when you roll all that up and look at where people want to go and want to drive too.
It has been occupancy wise, we've done a week or 15 consecutive weeks up.
Okay. Thanks, Jeff just a follow up in that real quickly. So in the slides July 18th you have revpar down 39%. It it sounds like you have the the new week for July 20, but you know what that comparable revpar number as if you're down 39, joy save and again I apologize for being so near term focus, but they get no no no yeah.
I'm looking at overall occupancy levels, and obviously coming out of the a that the July 4th holiday.
We did we did see both memorial day in July 4th or the weekends drop, which we see generally weak on week and it goes back to what we're comparing it to and prior weaken occupancy.
Michelle I don't have the Revpar down we kind of weak I'm looking at you on zoom, but the occupancy week for July 25th if you look to the right side of that chart on slide five.
Was up from 50 to 51 do you know what the Revpar was.
I might not unless it was flat.
Yeah.
I think oh, well I think its slot at 39% down to prior year occupancy up to two my prior comments.
For the for the 15th consecutive weeks to 51.
Okay, and sorry, just one more quick any reason why the rate is is falling off a little is that just some.
Year over year noise or anything specific franchisees choosing to lower rates a little bit right now what what would you say is driving we're not we're not seeing that Jared we're seeing what might be what is causing it certainly we do have some full service urban hotels that are seeing a rate.
Dropping in the economy, and the and the Midscale segment, our rates been remarkably resilient and has been improving on a on the weekends a little bit for us.
Okay. Thank you very much yeah occupancy was occupancy occupancy excuse me was up about 10 basis points week over week for the weekend Inc. July 25th and were seeing just slight week over week improvement in Revpar about a point still.
We are seeing as Jeff mentioned, some softness in Florida and Texas.
But that's being offset by I week over week improvement in California, Georgia, and and a majority of our of our other top 15 states, such as South Virginia and Pennsylvania.
Okay. Thank you very much.
Next question from Alton Stump with Longbow Research. Please go ahead.
Hi, Good morning, everybody on this particular question I think most my questions have been asked I'm just going to ask from a consumer standpoint, there's often our people are you know hopping on planes. This summer. So I presume you. If they are going on vacation that there has been a course road trip, which obviously is very well you know.
Your model, where we see evidence of that that you know what happened you know trips in the past or were you know.
I'm point are now being done via cars and therefore, you know potentially.
I'm, hoping that you know to drive higher demand for your EPS hotel stays.
Sure. Thanks I'll note, we read every every consumer survey and consumer intent a data point that's out there whether it's a focus wire sabre. The most recent I saw yesterday, which I think is a good one is from a NMG why they've been serving consumers across the country and they just released a I think it was a.
It was this week it was other yesterday the day before I can't remember when I saw it.
They're waves six I believe it was and what it would what they point out is is that.
Continues to be over 50% of consumers in the United States are as likely if not more likely to travel and are saying this fall.
And over 60% I believe the figure was expected to take leisure trip in the next six months, but for us and in our model. What is what is so important for us.
It was great to see is that over 70% continue to be twice as likely to travel by car and they want they want to use their own car their own personal car and another.
Interesting thing that that that has been surveyed and reported that we're certainly hearing and seeing.
From a marketing team is it more consumers are willing to drive further distances.
A third are willing to drive according to them and geoeye over over 300 miles and a fifth now are willing to drive over 500 miles so.
Our advantages is that is that every day traveler that wants to to get out.
And vacation and you know there's plenty of other surveys out there that are saying that what what people most want our and what their most looking for are recognized and trusted brands, where they think they know that that brand has has ah has as a cleanliness and cleaning protocol in place where you know.
If it's a road side.
Or suburban or Interstate hotel, they could feel safe and.
That's something you know for coach episodic I'll hop back in the Q.
Thanks, Phil.
So next to Robert Mollins with Gordon Haskett. Please go ahead.
Hi, Good morning, Jeff can you share what you're seeing in terms of booking windows are consumers beginning to book hotel stays spread route or the majority of the bookings being made for near term stays.
Great.
Great Great question. It was early on really day of and we're certainly.
We're certainly seeing start consumer start to to plan you know my my comment earlier, a Sunday suddenly, becoming our busiest night in the call Center.
Yes, exactly that so it was nearly a 100% of bookings for a same day next day back in April is a is reduced significantly is probably.
You know, 60% now and continues that that booking window continues to lengthen.
And then you also mentioned that you're working with some universities.
Big that opportunity is that and do you have any thoughts around gas being unwilling to stay at hotel that's housing college students.
Yeah, the great thing in so many of these buyouts is is that they're a in a in and for their entirety I mean.
The last one I mentioned the U.S. Air Force as an example of that just recently booked a they're looking to Colorado Springs, North for both the fall in the spring semesters the booked it in its totality. It was it was a $2 million booking.
The a university of Pittsburgh, which booked a the wyndham downtown in Pittsburgh the booked it in its entirety I've seen very few and with it we got numerous other opportunities out in the works or that we're about to sign that I won't mention on this call but.
I've seen very few where it is a piece of the hotel and it's been more.
The hotel in its entirety.
Great and then just one more for Michelle in terms of cost savings what gives you confidence they want me to bring back some of those 440 positions are impacted as demand recovers and 2021 and beyond.
Yeah, It's a great question and it's something that that were always looking at <unk> in reality, we didn't leave a little bit of question. Because we know we wouldn't have got it got net 100% right. So there will be a few positions that we do need to bring back but we have thought we believe that we've reflected that in that 255 million a number we provided.
Great. Thank you very much.
Thank you.
It appears we have no further questions I'll return the floor to watch out for body for closing remarks.
Okay. Thanks, operator, and thanks, everybody for your interest in a Wyndham hotels and resorts.
We can't tell you how much we appreciate it Michel Matt and I look forward to speaking with many of you in the weeks.
To come in but but more importantly, hopefully meeting with you face to face and they're not too distant future.
Good we'd like to remind any of you golf fans to please tune into the Wyndham Championship from August 13 through August 16, which will be airing on both the golf channel and on CBS, where if you have not seen our new advertising yet you'll certainly see it there.
Enjoy the rest of your summer take care and and most importantly, thanks again everybody for dialing in today.
This does conclude todays Wyndham hotels and resorts second quarter 2020 earnings Conference call. Please disconnect your lines it was starting at <unk>.
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