Q4 2020 Wyndham Hotels & Resorts Inc Earnings Call
Good day and welcome to the Wyndham hotels, <unk> resorts fourth quarter and full year 2020 earnings conference call. At this time, all participants have been placed on a listen only mode and the floor will be opened for your questions. Following the presentation.
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I would now like the chart of the call. It worked on Mac Capizzi Senior Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, and thank you for joining US with me today are Jeff a lot of our CEO and Michele Allen our CFO.
Before 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 in our most recent annual report on form 10-K filed with the Securities and Exchange Commission and any subsequent reports filed with the SEC.
We will also be referring to a number of non-GAAP measures of 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 website at Investor day at Wyndham hotels Dot com.
We are providing certain measures discussing future impact on the non-GAAP basis, only because without unreasonable efforts, we're unable to provide the comparable GAAP metric.
In addition last evening, we posted an 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 many of our web site. In addition to our press releases filings submitted with the SEC and any public conference calls or webcast.
With that I will turn the call over to Jeff.
Thanks, Matt and thanks again, everyone for joining us today.
Before I talk about the fourth quarter I'd like to thank our 9000 global team members, who helped us successfully navigate the tremendous challenges of 2020.
Along with all of our owners, who continue to support and work with our teams in the field as we collectively look to a brighter 'twenty 'twenty one.
The power of Wyndham Academy culture was never more on display than it was the last year and we are tremendously proud of how our teams and franchisees performed for.
The 97 per cent of our nearly 9000 hotels remain open today.
Our fourth quarter continued to demonstrate that our drive to non urban franchise business model can deliver in any environment and we made sequential progress on multiple fronts.
Our adjusted EBITDA and cash flows were both ahead of our expectations our brands in the U S continued to gain market share and our room openings of new hotel contracts signings continued to accelerate.
We also completed the strategic termination plan, we previewed with you on our second quarter call for them.
Moving over 20000, Noncompliant brand, attracting rums from our system along with the removing unprofitable management guarantee deal signed back in 2012.
We're moving these rooms from our system will not only strengthen our long term royalty rate and the quality and performance of our brands. It will open up development tracks in important markets, where we now have teams in place to sell direct franchise agreements for full royalty fee deals Revpar in Q4 finished down 31% domestically down 44%.
Wally and down 35 per cent globally on a constant currency basis.
In China of fourth quarter, Revpar was down only 10% year over year, an improvement of 20 points from the third quarter.
At down 31% Q force domestic Revpar improved sequentially from Q3 is down 32% driven by occupancy as the average daily rate continued to hold steady.
This trend continued in January with Revpar, improving seven points sequentially from down 31% in Q4 to down 24% for the first months of 'twenty 'twenty one.
Cancellation rates of return to prior year levels as overall confidence in the safety of the drive to leisure destinations has continued to improve.
While work from hotel bookings continue to increase in our average length of stay system wide continues to grow.
Demand from our essential everyday business travelers, who travel for a living in for not working from home has also continued to improve.
Driving week day bookings in weekday ADR, especially in our economy hotels would trend average daily week day rates, which were over 500 basis points higher year over year tender of weekend rates, which are typically are higher ADR nights.
Demand from construction crews and utility workers, who comprise so much of our infrastructure segment improved 300 basis points from Q3, while demand from the trucking rail and manufacturing workers in our logistics segment remained stable.
These travelling everyday workers combined with the strength of leisure travel in our sales and marketing efforts boosted market share for our economy and mid scale brands by 210, and 520 basis points, respectively in the fourth quarter.
This performance was aided by targeted digital marketing through our new Wyndham hotels and resorts App the drove an 18% year on year increase in bookings for the quarter.
In fact, all of our brands in the U S gained market share of this year with Laquita again, one of our strongest performing brands, gaining 570 basis points of Revpar index for Q4, and 490 basis points of Revpar index for the full year against its S. T. Our comp sets.
You'll recall on the third quarter, we opened 20 per cent more rooms domestically than we opened in the second.
That momentum continued into our seasonally busiest fourth quarter as we opened over 70% more domestic rooms and over 30% more international rooms than we did in the third quarter.
Conversion activity continued to accelerate.
And drove the majority of our over 14000 room openings in the quarter.
Second half conversion openings increased over 60% versus the first half of the year.
Our most demanded conversion brands. This year domestically had been days Inn Super eight and travelodge and the economy segment.
And Bam on Ramada and trademark in the Midscale segment.
Geographically in the United States, New openings were strongest in Texas, and Florida, and North Carolina.
And internationally, our openings were strongest in our direct franchising business across mainland, China and South East Asia. Our teams were also very successful in again debut of multiple brands and multiple new overseas markets during Q4 <unk>.
Including our first La Quinta in New Zealand, our first trademark in St. Martin Our first Super eight and the United Arab Emirates are first from moderate in the Paul and our first tower Johnson and Cambodia.
Our overall domestic pipeline increased 120 basis points sequentially to 67000 rooms, and 20 basis points globally to 185000 rooms.
Notably our conversion pipeline increased over 600 basis points globally growing faster domestically than it did internationally.
Here in the U S. We signed 108, new hotel agreements in the quarter, nearly 75% higher than in Q3 and remarkably our teams executed only one less day on the fourth quarter of 2020 than they did in the fourth quarter of 2019.
Internationally, we signed 91, new contracts, which was down from the 116, we executed in the fourth quarter of 2019.
As restrictions continue to hamper many of our teams ability to travel cross border in Europe, Latin America and parts of Southeast Asia.
We opened 52, new construction hotels in Q4, including seven new looking to US and we signed 90 for new construction deals in the fourth quarter, which compares to 97, new construction deals signed in the fourth quarter of last year.
In the U S. Our new construction signings increased over 15% versus prior year, driven by our highly efficient microtel, Moda and La Quinta del Sol prototypes combined with growing demand for our new Hawthorn suites extended stay prototype, which is often dual branded with la Quinta.
With 256 hotels currently under construction and expected to open over the next two years.
We've been encouraged to see continued demand for our select service, new construction prototypes, which continue to be added to our pipeline.
Despite the continued global travel restrictions coupled with the continued lack of transaction volume and deal flow. We were very pleased with the sequential progress made throughout the year and our development teams the ability to sign over 500, new direct hotel agreements achieving over 90% of its full year 2019 executions.
Deletions in Q4 reflect the completion of the strategic termination plan, we announced in May coupled with an unforeseen deletion of 5300 rooms triggered by the sale of certain hotels by Caesars Entertainment with whom we have an important and longstanding Wyndham rewards marketing relationship.
The removal of these hotels from our distribution platforms, which we're co branded under our trademark collection will have an immaterial impact on our royalty rate and adjusted EBITDA going forward.
Even the exclusive agreement reserved for certain strategic marketing partners of Wyndham rewards.
When excluding these unusual termination of events in 2020 of our global retention rate was 95%.
Moving forward, we expect our retention rates to normalize and we continue to target the 95% global retention rate achieved in 2019.
With the long term goal of moving our domestic retention rate from 95 per cent to 96%.
With 2020 now in the Rearview mirror our focus for 2021 is three fold.
First to return to positive net rooms growth, we've been investing in multiple strategies tools and technologies to increase not only our franchise sales footprint and capabilities, but also our win rates.
To carry on with the meaningful sales operations marketing and digital investments, we talked to you about on last quarter's call that are contributing so importantly to our guests' evolving travel habits, and our franchisees' market share of premiums and profitability.
And third to remain intensely focused on the guest experience, while continuing to elevate the reputation and the quality of our brands, which globally experienced the 10% improvement in net promoter scores in 2020.
All three of these areas of focus contribute to our goal of strengthening Wyndham franchisee value proposition, which ultimately drives net room growth both domestically and internationally.
With 19 million of hotel rooms track globally by STR 5 million of those rooms are here in the U S and $14 million or overseas, where there are more unbranded hotels than there are branded hotels and where are we now have franchise sales teams in place to sell directly to owners instead of through Master licensees, which was historically, how we would.
The new international market.
With these teams now in place around the world our opportunities are significant as is our ability to continue to add our brands to new markets overseas as we sell the extraordinary value proposition of by Wyndham brand presents the hotel owners working their way back to pre COVID-19 profitability levels. According.
According to STR research brands drive of higher occupancy compared to non branded hotels brands.
Brands deliver more direct bookings through loyalty members, who stay longer and spend more and brands generate significant distribution and operating cost savings through lower procurement technology and labor costs in.
In 2019, Occupancies for branded hotels in our core segments, where 300 basis points higher the non branded hotels and costs were 500 basis points lower.
And perhaps most importantly branded hotels of experienced and will continue to experience lower failure rates and higher net asset values for their owners.
Our teams are out in their markets around the world selling this powerful by Wyndham brand proposition every day to every owner we could talk to.
It's a value proposition of the market share of premiums at the most recognized the economy and Midscale brands in the industry can drive of.
Value proposition of how Wyndham rewards the industry's number one loyalty program when combined with our sales marketing and state of the art distribution platform can normally deliver 70% of an owner's room nights here in the U S at the lowest cost of distribution.
Combined with the significant cash savings of our pricing power can deliver to their bottom lines.
As our owners often tell our sales and operations support 14th they do business with us because they know us they like us and they trust us while all of the brand benefits. Just mentioned are of critical part of our value proposition. So too has the messaging of the cure the support and the guidance. Our teams can provide are small business owners on the road to recovery.
As we look ahead, we have a lots of be proud of in terms of how of supported and will continue to support our franchisees.
Along with what we've achieved corporately is it relatively new team.
Our inclusive count on me culture built on personal accountability on carrying and social responsibility has continued to shine for.
For the third consecutive year, we've received a perfect score on the human rights campaign's 'twenty 'twenty, one corporate equality index measuring LGBTQ workplace of quality and for the second consecutive year, we were recognized with an a minus rating by the carbon disclosure project for our team's actions to mitigate climate risk and <unk>.
Our environment is something that we along with our global franchisees and ownership base will continue to remain focused on in 2021.
We are highly optimistic about what lies ahead, we're encouraged that the vaccines of working and.
We believe that they will help to deliver our multiyear resurgence in leisure travel. Unlike any other in our industry's history, providing an opportunity to grow our brands globally like never before.
And we believe Wyndham hotels and resorts is uniquely positioned to continue to drive superior results for our owners and significant value for our shareholders.
And with that I'll now turn the call over to Michelle Michelle.
Thanks, Jeff Good morning, everyone.
My remarks today with the detailed review of our fourth quarter and full year results.
Our balance sheet on cash flows and provide our best view of certain 2021 projections.
$296 million of revenue and $56 million of adjusted EBITDA in the fourth quarter, which brings our full year revenue to $1 3 billion and full year adjusted EBITDA of $327 million.
Fourth quarter revenue, excluding cost reimbursement revenues decreased $126 million, primarily reflecting a 35% decline in global revpar as well as the $15 million decline in license fees.
Adjusted EBITDA declined $97 million to 56 million in the fourth quarter, reflecting the revenue changes, partially offset by a 15% reduction of cost Asics.
As expected marketing expenses exceeded marketing fund revenues by $26 million.
Adjusted diluted earnings per share was seven cents.
As Jeff mentioned Revpar in Q4 finished down 31% domestically and 35% globally in constant currency.
Our select service portfolio of economy, and Midscale hotels on the U S, which comprise nearly 80% of our pre Covid global royalties in 2019 continued to outperform the higher end chain scales. This core portfolio of economy and mid scale brands saw revpar declines of 28% with nearly two thirds coming.
From occupancy.
Occupancy increased to 48% in the month of October before seasonally adjusted to the lower occupancy months of November and December the fourth quarter was a continuation of the improving sequential trends that we've experienced since our April lows with occupancy down only nine points year over year compare to down 13 points from Q3 and down too.
<unk> six points back in Q2.
In addition that trend has continued into 2021 with January occupancy down only five points year over year.
Edr has also been performing well in the select service space since the low point, we experienced in mid April ADR for our domestic economy and mid scale brands has steadily climbed from down 21% to down only 10% of January and importantly, we continue to see significant enough price differentials between the chain scale segment.
The impact decision, making for a value conscious every day travelers.
Our fourth quarter international constant currency Revpar declined 44% an improvement from down 50% in the third quarter, driven by China, where we have our largest presence.
China of Revpar was down on the 10% on the fourth quarter as occupancy levels improve to 50% while January of results do show a slight pull back in occupancy of 46% as the result of the localized virus outbreaks on travel restrictions China is now beginning to lap the virus from last year and is showing revpar growth of 80% in January the spiked.
The impact on the two year stack basis, China Revpar for January is down, 14%, which is more comparable to the fourth quarter 2020 performance of down 10% and more reflective of the sequential occupancy change.
Turning now to full year results.
Revenues, excluding cost reimbursement revenues decreased $480 million, primarily due to a 40% decline of global revpar as well as of $42 million decline in license fees adjusted EBITDA declined to $327 million from 2020 from 613 million of 2019, reflecting the 286.
The decline or $7 2 million per point of Revpar slightly better than the $7 3 million dollar Revpar sensitivity, we last published in October.
Our adjusted EBITDA margin, which excludes cost reimbursement revenues declined from 43% to 34% predominantly reflecting the excess marketing spend and lower license fees are.
Our franchising margin calculated on the same basis as our peers, which excludes the effects of our marketing funds was 80% in line with 2019, providing another example of the resiliency of our business not on full year adjusted diluted earnings per share was the dollar O three.
On the cash front, we ended the year with $493 million of cash on hand of $242 million decline from September 30th reflecting repayment of all remaining outstanding revolver borrowings free cash flow for the full year was $34 million or $100 million, excluding special item cash outlays.
We've achieved the entire $255 million cash savings, we targeted back in April of this cost containment plan combined with our strong balance sheet entering the crisis positioned us well to support our franchisees with the number of industry, leading financial initiatives not only were we able to provide all of our franchisees with fee waivers and interest free.
The deferrals for the lowest occupancy months of the pandemic. We were also able to subsidize our marketing plans to drive room revenue for our hotel owners throughout the year and we continue to invest in technology to optimize rate drive direct bookings and capture cost efficiencies at the hotel level positioning our brands to gain market share throughout <unk>.
On 'twenty.
To date, we've collected nearly 80% of the vies with deferred in support of our franchisees and expect the remainder to be generally repaid over the next 12 months franchisee collection rates continue to trend within 10% of prior year rates.
We ended the year with over $1.2 billion of liquidity, including our on drawn $750 million revolving credit facility.
Our first lien net debt balance at December 31 was approximately $1 $1 billion and our first lien net leverage ratio was three four times well below the five times limit had we not obtained a waiver for quarterly testing.
Remind you that in 2021 during the second quarter, when the waiver expires as well as in the third and fourth quarters. The ratio calculation will be subject to the annualized <unk> of EBITDA in each quarter, yet even at the second quarter 2020 trough of Revpar and EBITDA levels. Our first lien net leverage ratio would not have exceeded the five times limitation.
Therefore, we believe we will not need to request an extension or second labor, we continue to target and net leverage ratio of three to four times and expect to gradually return to this range primarily through adjusted EBITDA growth over the next few years.
From a capital allocation perspective, we paid $53 million on dividends during 2020 and use the another $50 million of cash for share repurchases before suspending our plan in March.
<unk> of directors continues to demonstrate its confidence in our business model and our ability to generate significant cash flow through its decision earlier this month to authorize the 100% increase in the quarterly cash dividend to 16 cents per share.
Turning now to 2021.
We are optimistic about the decreasing reported weekly COVID-19 cases, the increasing vaccination percentages and the return of leisure travel demand. There are still many near term uncertainties ahead of.
As such we are not providing a full outlook for 2021 at this time.
However, we would like to provide our current view on certain operating statistics and financial metrics.
For the full year, we expect net room growth of one 2%.
Jack discussed we've seen openings momentum in the second half, particularly on the conversion side of the business. We're also expecting to see our retention rates begin to normalize back to the 95 per cent range, we're expecting openings volume will be more back half loaded as transaction volumes for time.
For Revpar, we expect every point of change versus 2020 will drive a coupon of $5 million change in adjusted EBITDA. While this concept of similar to last year of sensitivity. The calculation is a bit different the <unk>.
<unk> now excludes license fees as well as the marketing funds, both of which should be modeled separately as the incremental impacts as they are year over year change will not move linear with Revpar you can find more information in the investor deck, we posted to our website last night, including illustrative examples.
And I are also available to walk you through it in detail.
We expect license fees to be $70 million, reflecting the minimum levels outlined in the underlying agreements and consistent with our 2020 per formats.
We are expecting our marketing funds to breakeven in 2021.
And is that marketing expenses are not expected to exceed marketing revenues and there will be no impact to adjusted EBITDA.
With 2019, we expect the timing of our marketing spend to work against us in the first quarter and then largely reverse in our favor during the remainder of the year due to the seasonality of our business.
As a reminder of our accounting for the marketing funds is not comparable to our peers and that we do not remove the negative effect from our results of operations or cash flows.
Below adjusted EBITDA, we expect stock based compensation expense of 27% to 29 million depreciation and amortization expense, excluding acquisition related amortization expense of $60 million to $62 million interest expense of $113 million to $115 million and an adjusted tax rate of approximately 28%.
We expect the diluted share count to average approximately $94 1 million shares for the year.
From a cash flow perspective, we are expecting capex spend to be approximately $40 million and development of advanced spend which is a component of free cash flow to be approximately $40 million. We do not expect any meaningful special item cash outlays in 2021. Therefore, we expect 2021 free cash flow conversion rates to begin to.
The approach, 50% as we head back toward our normalized range of 55% to 60%.
In closing we are pleased with our 2020 performance given the challenges the industry faced we took difficult the prudent steps to manage our cost and strengthen our liquidity, while providing our franchisees with the support of relief needed during their most challenging times our business continues to be exceptionally well positioned for the recovery that we believe lies ahead with that.
Jeff and I would be happy to take your questions operator.
And at this time, if you have a question of a comment please press star and one on your Touchtone phone.
If at any point of your question has been answered you may remove yourself from the queue by pressing the parrot key we do ask that you limit yourself to one question on one follow up thank you.
We'll take today's first question from David Katz with Jefferies. Please go ahead.
Hi, good morning, everyone and thanks for the detail.
Just if we could you know.
Step back from any sort of near term as we you know look we're all trying to get our models dialed in in the near term and sort of get the quarters right, but taking a step back and looking at the business from 30000 feet.
How do we think about the the the.
Unit growth of the room deletions and how that comes out the other end with a more refined in our.
You know for.
Faster growing or better growing.
You know engine of fees.
How would you help us sort of think about that particularly as it relates to free cash flow.
Thanks, David for the question of absolutely helped.
It helps us longer term in terms of what are.
Our teams are succeeded at with some really strong master license partners overseas, but are in agreement with them our ability to remove 20000 noncompliant brand attracting rooms, both in 2019 of 2020.
Many of these rooms dating back 15, 20 years and no longer current on their payment terms I think does several things for us from a cash generation and on our fee generation standpoint.
Whether these master license rooms were in China, or whether they were in the middle East.
As we said on the script. It is opening up right now for US New development tracks for our franchise sales and development teams to sell direct.
I'll I'll take a city like Riyadh in Saudi Arabia, where we no longer have that master license agreement our teams or are right now in that city.
Trying to sell a of ramada, which we of the ability to directly.
And end of Wyndham and of Wyndham Grand.
We have grown our international direct net room growth in 2018 in 2019.
In the high single digits, where we want to get back to that we had net room growth internationally on a direct basis in 2020 and in the and in every market, but for China.
And now with direct reps.
Representing over 60% of our international rooms at.
At a three to four times higher royalty fee rate than what our master license agreements were at and in that 60% was less than 50% of a while ago. It is it is going to be what continues to to to move our royalty rate internationally and globally, which youre beginning to see.
Over time, and with higher quality product and a newer product.
Got it and as my follow up I know, it's an important concept to just keep track of conversion activity, which is expected to be an important part of unit growth what are you seeing out there.
We're seeing just as we saw.
In the third quarter continued pickup sequentially, we picked up from Q3 Q for conversion rooms, both on the opens and executions in terms of what we added to our pipeline conversion openings in the second half of this year grew 60%.
To the to the first half and in conversion signings grew 70 per cent from the from.
From the first half to the second half and we expect this conversion percentage to grow.
You you think think about our 2000 1970 per cent of our gross adds were conversions. If we look back in a way no nine after the great financial crisis that conversion percentage grew to 90 per cent of openings.
And we could see that happening were out hiring more conversion sellers, both domestically and internationally, where we're deploying more of our new construction sellers both in the U S and internationally to our conversion brands and we're seeing conversion opportunities internationally in the years ahead.
Again, Theres 100000, non branded economy, and Midscale rooms out there globally, we have strong conversion franchise sales and development teams in place and would expect that to continue to pick up.
Thank you very much good luck.
Thanks, David.
And our next question is from Joe Greff with JP Morgan. Please go ahead.
Good morning, everybody.
Jeff just.
So regarding the the 1% to 2% net rooms growth for this year.
The assuming that you retain or approach that 95% retention rate that implies.
The more in the low 50000 net of gross room adds.
I just want to make sure my math is right on that but of that 50000 plus of gross room ads, what's the breakout there between conversions and new construction in the stack.
That's in the new construction bucket, how much of that relates to the construction that was pre COVID-19 versus before the onset of Covid share I think your math is right. Joe we opened 65000 rooms in.
In 2019, we opened 70% of AR in the second half of of 'twenty. What we did in 19. So if we could get to 80% of what we did in 19. That's that's exactly on your map that 50000 opens.
And assuming our teams get back to a 95% normalized retention rate that gets us right to the midpoint you know obviously with.
We're committed to getting back to that 2% to 4% growth in terms of what.
Opens out of our pipeline and what it what percentages is new construction.
As I, just said I think youre going to continue to see that tick up it was.
About 60, 65% and.
In 'twenty 'twenty being of being conversions that debt number.
Could could go obviously higher as we were just talking about it didn't know Ain't no nine but footwear. We're also seeing in our pipeline.
And interest of renewing renewed interest in our.
In our in our new construction rooms, and signing so it's early to break it out exactly but I think youll see conversions continue to pick up.
Yes.
Great and then longer term youre targeting of this 2% to 4% net rooms growth.
How much of of.
That accelerated growth relates to further retention all globally versus gross room acceleration on.
I'm presuming some of it is gross room on.
The acceleration for you to accelerate the gross rooms at some point in the future of how much of the.
Of an increase in the advances and support from Wyndham do you need to support that two to four per cent and they talk about $40 million advances for this year, how much higher would that go to the part of that 2% to 4% path.
Hi, Joe It's Michelle.
I think the 2% to 4% is really just getting back to our 2019 open excuse me opening levels and then any additional pension favorability, we would see would be able to drive us up from the 2% to 4%, which is consistent with them with our pre COVID-19 with our pre Covid plan.
I would also think that from a from a key money perspective. We we are we are putting more capital to work in this particular environment, because we think there's more opportunity to lot to attract deals.
Because of just because of where financing is and so owners are going to be more attracted to the elsewhere. We can participate in and capital stack. That's not always the case on but that is certainly the case right now and and we're hopeful that that that will attract the right hotels on the right markets.
For the brands that we really want to grow and and more importantly conversion opportunities in the near term to help fill the to help fill the gap on the transaction volume side, and then as well to get us back to the 2019 opening slab of.
Great and then one final follow up quick one here.
Looking at your slide 30.
And you've got sort of presentation. The illustrative example, not the <unk>.
Guidance scenario, but if you do end up a net $425 million to $150 million EBITDA range for this year.
Does that put you on the path, where the second half of this year, we could see some resumption of buyback activity.
Okay.
So I would say well so okay. So I will take this opportunity to say that it's definitely not meant to be guidance. It.
It is also a.
Serve it of you because the we didn't know of by putting a hypothetical EBITDA number out there. There are we would run the risk that it would be assumed to be some version of guidance. So it does the math is not going to work as perfectly as you guys would want it to because it definitely has some conservatism.
The built into that.
I would say the I the share buyback is is going to move more in line with on with free cash flow generation, but that will obviously be tied to to EBITDA generation. So.
All of this depending upon how much excess cash that the business is generating that.
When we are ready to resume share repurchases, we continue to place the high level of emphasis on.
On capital.
First you can see that in and the actions we've taken on on the dividend side and the share repurchase will follow at the appropriate time.
Thank you.
Yeah.
And our next question from Patrick shows the true Securities. Please go ahead.
Hi, Yes, good morning, everyone.
Alright, and for a couple of questions. Good morning morning, a couple of questions for you or how should we think about the trajectory of.
G&A growth throughout the year.
And related to that do you see yourselves the hiring staff.
The rebound in the economy hotels or our headquarters in corporate.
Staffing reductions do you see more permanent.
Our cash flow.
I'm, sorry on that well I I'll I'll start and then from cash standpoint of I think.
[laughter], corporately, where where where needed. We've we've made some slight adjustments, but most of what as we've said before we'll we'll stick when when you talk about economy hotels, just to be clear of those arent those are all franchise agreements and they're not our they're they're not our team members in there there are a lot of team members out.
They're in the economy hotels that are out of work that a R.
Our owners I know, we're working very hard at the bringing back to work. The go ahead Michelle.
Yes. Thank you.
Patrick I would say from a G&A perspective of modeling the I.
We can come at it two ways I think we'll probably be around.
5 million of favorable to 2019 levels per quarter. So that's that's about half of the $40 million that we expect that the stick will come through the G&A line item.
On a cash basis, there will be some noncash items that math that we can help you guys reconcile that and then the other half of the $40 million will sit on the operating expense line items I think of the G&A is going to be about probably a 15% reduction to the for the 2019 levels.
Okay. Thank you for the color on that that's helpful.
And getting into the weeds, perhaps a little bit more here I know the historically you've held on annual conference usually in April timeframe, and probably is not going to happen. This year on any special earnings or modeling nuances, we should be aware of around debt assuming my assumptions are correct on that car for.
Yeah.
Yeah, Patrick we're actually not going to be hosting of large annual in person event.
In 2021, it typically would've happened in April I believe this year or potentially in September on we're just not comfortable committing to for that timing them for 6000, plus franchisees to come together in.
And of non virtual setting we are going to we are going to create some opportunity to bring our franchisees together in some whistle stop tour and get our brand leaders N. P. F O us out in a more organized fashion to collect feedback from our franchisees, we do that on a one on one basis.
Throughout the year, but we wanted to do it and and I'm more organized fashion to bring up the Springer group together and so we will do that on a.
On a smaller scale, but none of.
No large conference this year from a modeling perspective.
Okay.
Okay. Thank you very much.
The next question is from Stephen Grambling with Goldman Sachs. Please go ahead.
Yeah.
Hey, Thanks for taking the question one follow up.
Just on the cost side.
Can you just remind us I think you were.
So you talked to some sort of kind of permanent.
Benefits the EBITDA from cost outs can you just maybe update us on what your latest thinking is there and the major buckets and if that's changed at all.
Yeah sure we when we when we implemented our Covid plan of $255 million of cost savings for the for the full year 2020, we expected $40 million of that would flow through EBITDA on a more permanent basis.
In 2021, and beyond and we're expecting to see that and the operating expense and G&A line items of it. The majority of it is is salary and wages and facility costs as a result of our of our restructuring plans.
Our international reorganization.
Great and then NAV.
This.
But can you talk a little bit more about the the guardrails are the the the way that you were trying to think about the $40 million on development advances what why is that the right number how it developers responded to that and then how are you thinking about kind of free cash flow conversion longer term versus the 50%, but the guidance.
Right.
The $40 million is a is the budget right now if there are lots of opportunities, we're happy to spend to spend more than $40 million from our perspective, it's all about the IRR on the deal. So we'll deploy that domestically potentially even internationally to the right deal.
Olson and the right markets are conversions new constructions.
There will be a there will be its from an IRR perspective, it'll hit our hurdle rates, which which is higher than our WAC and also includes some risk adjusted premium for for the specific deal and the specific market, particularly if we were talking about international deals some.
Of those would have higher hurdle rates and and so if there is that there's potential to spend more than 40, we would from a free cash flow conversion rate it'll put a little bit of pressure on us on the conversion.
We don't expect to have an elevated spend into perpetuity right. We think this is we think this is a this is the indirect response to what we're seeing in the marketplace today and and responding reacting to today's opportunities I still.
$40 million level, we would be able to get close to 55% to 60% on free cash flow of free cash flow conversion when when demand against the normalized.
So as I got it that's all on the 22 months.
Awesome jump back in the queue. Thanks.
Sure. Thanks, Steve.
And our next question is from Ian Zaffino with Oppenheimer. Please go ahead.
Alright, great.
It's kind of like the to circle back on 2020.
Look at it.
What brands, where basically you know the biggest drivers of or get the best from a Revpar index.
Perspective.
Throughout your portfolio.
With grants for you the happiest with which brands you know need the much work, maybe just some color there. Thanks.
Thanks, Ian Yes, as we called out in the script.
Looking to is I would say by far and away the brand that we've been.
The happiest with I mean, just thrilled with the how well it's performed through this through.
Through this downturn.
With the nearly 600 basis points of of market share and we saw that market share.
Just grow each of each quarter. So much of it was rate driven which which was great to see I'm thrilled with obviously, what's happening in the extended stay space with with Hawthorne, which which was actually up a lot higher almost two X what are looking to us, but that's just the state of extended stay right now and it's it's that brand is doing very well.
From as we remove brand attracting Hawthorn suites, as we opened new construction Hawthorn suites, new construction Hawthorn suites and the keep the hotels I think we'll continue to see that share growth.
And look on our our days Inn Super eight brands.
Against their chain scales or at a 100% performing really well they've been big big additions to our pipeline.
And our conversion activity.
And on the new construction side I'd say you know our team is thrilled with our with microtel, which against its chain scale. As you know at about 115 per cent an index of just continues to.
Not only gain in market share gain and interest from developers that are looking to us to build an end to sign.
The new hotels, we added.
The conversions in the pipeline.
We continue to to pick up in a big big part of that where we're where we're from the microtel and looking for in Hawthorn suites brand.
Okay.
Okay, great. Thank you and then maybe just another question with the on the dividends I mean glad to see the dividends going way up still.
Still below 19 levels, what do we need to see the kind of get back to those levels.
Thanks.
It is it is below 19 levels and the 16th sense is is the maximum allowed under the credit agreement now on and that doesn't expire until the beginning of the second quarter I would say.
2020 was that was.
About 50% of 2019, EBITDA and so restoring the dividend to the to that same level. We thought was a lots of appropriate and so as EBITDA returns and free cash flow returns, we would expect to see the dividend be further restored we want it to be a obviously sustainable.
Great. Thank you very much.
Thank you Ian.
And our next question comes from Danny Assad with Bank of America of please go ahead.
Hey, good morning, Jeff and Michelle.
My question is on the license fees.
So I know we have the sensitivity of that lays out the minimum.
Of $70 million for 2021 can you maybe help us understand what it would take the clear that minimum threshold this year and maybe clarify anything around the sensitivity for for that line item.
Sure I can I can do that I.
I think that the license fee right now is.
Is tied to the contractual minimum which is about one <unk> one $6 billion in VOI sales.
In 2000, and 2020 Wyndham destinations are the O.
<unk> declined about 60%, so we would need to see an increase of well over 60% in 2021 to exceed that $1 6 billion prudently. We have on we have a we have.
Project debt right now the contractual minimum and should they exceed that $1 6 billion, we will be happy to adjust our projections.
Yeah.
Okay. Thank you very much.
Thank you.
Okay well thanks for the next question from Michael Bellisario with Baird. Please go ahead.
Good morning, everyone.
Hey, Mike.
Good morning, Keith could you update us on your latest thinking on potential M&A opportunities and what you're seeing now that you have a clear path on the balance sheet side of things today.
Well, there's a there's certainly.
Not a lot of activity that the that we're looking at right now there's there's plenty of people that would like to engage in discussions with us both domestically.
Domestically and internationally, but I you know I would say for the for the foreseeable future. Mike This year and next we're going to be focused on on just driving our organic net rooms growth.
Okay. Thank you very much.
And we'll go next to Robert <unk> with the Gordon Haskett. Please go ahead.
Hey, good morning. Thank you Jeff can you just talk about performance in California, how big of a drag was California on the January Revpar and as demand of rebounded sense of staying at home orders were left of it.
Yeah actually California is one of our strongest performing markets I believe California occupancy for us across the state was was north of 60% of them, you know markets like Sacramento, and San Bernardino, and San Diego, California, and Nevada.
Arizona the the worst in January was was surprising surprisingly strong we did not see any drag on.
I believe Michelle on our on our January occupancy, which sort of certainly picked up.
From our December of occupancy and you know for the first few weeks in February where we're seeing about the same trend.
Yeah, and I would say, California is definitely behaving a little differently for us than maybe our peers, because we have been benefiting a little bit from the displacement due to the wildfires to sell it so that had helped our 'twenty or 2020 results.
Got it and then Michele on the $70 million license fee guide, even excluding anything that was included in the $83 million was recognized in 2020.
The 83 million that was recognized in 2020 included point <unk> Pac revenue. So we're just we're just the bifurcated the two subtle where we're giving you the projection for the license fee separate than the points pack projections. So.
So it's worth just kind of the the line item on the P&L has both of them included.
And on the program so expect.
The expected to be flat year over year.
So flat year over year, so there could be upside to the $70 million am I interpreting that correctly.
To the $70 million of to the points pack.
For the points back added on to the 70 million or is it points back of included in that $70 million.
The point in the $70 million guide at the points of pack is not in there. The other points pack revenue would be included in the two and a half million dollar Revpar sensitivity number we provided that would include all the other all the other revenue line items.
That's helpful. Thank you very much beyond just the license fee.
Okay. Thanks.
Yeah.
And it appears we have no further questions I'll turn the floor back to Jeff for routing for closing remarks.
Well. Thank you everybody for your continued interest in Wyndham hotels, and resorts are Matt and Michelle and I look forward to talking to you in the the the weeks ahead.
And most importantly, I'm hopefully seeing you at some point in 'twenty 'twenty, one and happy Valentine's day everybody.
And this will conclude today's Wyndham hotels, <unk> resorts fourth quarter and full year 2020 earnings conference call. You can disconnect at anytime and have a wonderful day.
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