Q2 2021 Wyndham Hotels & Resorts Inc Earnings Call
We delivered another clean quarter on both the P&L and cash flow fronts with free cash flow of this quarter of $104 million, increasing $264 million from the second quarter of 2019.
We opened 9800 rooms, which was nearly 30% more rooms than we opened in the first quarter and over 70% more rooms.
We opened last year.
With strategic removals of nonprofit of the licensees now behind us the terminations were 57% lower than last year.
We awarded of 150 for New hotel agreements, which was over 30% more than last year and only 10% below the number of contracts we awarded in the second.
Quarter of 2019.
The continued pickup in our development team's successes around the world for.
<unk> and of 170 basis points of sequential pipeline growth and 580 basis points of year over year growth in our development pipeline, which climbed to over 190000 rooms at the end of June.
Homes, the leisure demand for our brands across the United States is robust with 9 out of 10 of our guests driving to our hotels this quarter.
Booking windows continued to expand and average length of stay once again grew for you.
Ruled by several important factors that we believe will propel us not only through 2021, but also for the foreseeable.
Seeable future.
First household savings of hit a 10 year high with most consumers improving their financial situation during the pandemic.
They are also ranking travel is a top priority of discretionary spending.
Second we're also seeing consumers vacation more often.
Survey tracking posted.
June a data revealed at approximately 60% of our customers have already stayed in the hotel in 2021 with nearly 70% planning a trip over the next 90 days.
This intent to travel among our leisure customers is higher than it was a year ago.
Weekend and short for Knight breaks generated the largest percentage.
Post the gas leisure stays.
Followed by travel to visit family and friends.
We also saw sequential growth throughout the second quarter and our over $5 night vacation stays along with stays associated with sporting events and competitions.
The 800 million vacation days that the U S. Travel Association has long reported go on used every year.
You may now actually be consumed and.
And with hybrid work from anywhere flexibility, we believe new consumer travel patterns could disrupt the traditional revenue management models that have historically seen Sunday and Monday is the lowest demand nights in fact.
This is exactly what we're experiencing right now with Sunday and Monday occupancy.
Having picked up 10 points of growth in Q2 versus Q1 as compared to 2019.
The strong demand we saw during spring break of Memorial day weekend did not fall off for slowdown for our brands occupancy in the U S improved nearly 600 basis points in June compared to May.
While June domestic revpar.
<unk> grew nearly 80% to 2020 and was up 1% to 2019.
June was also the third consecutive month of our economy brands exceeded 2019 levels with a 7% revpar increase versus 2019.
The week, leading into the July 4th was our busiest independent holiday week on record.
And for the past 3 weeks domestic Revpar is up 75% month to date versus last year and up the remarkable 7% versus 2019.
Our franchisees are naturally feeling considerably more confident than they were at the end of last year.
For the first time since 2019, we had no.
<unk> of our markets this quarter with occupancies lower than 30%.
And with Sunday, and Thursday nights, now rivaling Friday, and Saturday nights from an occupancy improvement standpoint.
And overall occupancy at or approaching 2019 levels, our franchisees have been driving average daily rate in.
In June domestic ADR exceed.
S. T 2019 by 9% and this is only accelerated in July with month to date, ADR, surpassing 2019 as ADR by 10%.
Our teams of provided more training than ever on the importance of driving average rate over occupancy, particularly in this challenging labor environment and.
Ceded in that our franchisees are taking advantage of the suite of Ala Carte revenue management and technology tools and services that we provide to them.
All of this has helped lead to continued outsized rate gain index that of fuel the market share premiums our brands have continued to deliver.
Market share for the quarter versus 2019 grew.
Ensuring the 300 basis points.
We continue to see our hotels benefiting from a greater share of direct bookings from Wyndham channel as compared to 2019.
The contribution from direct bookings increased from 500 basis points of growth in Q1 to 600 basis points in Q2, once again outpacing the growth of OTI and third party.
By nearly all.
Our award winning Wyndham hotels, and resorts mobile App continues to be our fastest growing direct booking channel with second quarter reservations up approximately 60% versus 2019.
Wyndham rewards is also contributing to the significant growth indirect bookings.
The last month for.
Forest magazine called it quote 1 of the simplest rewards programs, we're studying given its simplicity and share number of redemption opportunities.
Wyndham rewards share of occupancy grew 500 basis points domestically and over 550 basis points globally from where it was at the end of the second quarter 2019.
Channel being the increasing preference for both the program and for our brands with nearly 1 out of every 2 domestic guests asking for their Wyndham rewards points at check in.
We will continue to build on this affinity throughout the remainder of the busy summer season targeting longer weekend, getaways, and midweek leisure vacations with incentives.
The improved to non members to book direct to stay longer and to enrolling Wyndham rewards, we've seen measurable success and tremendous opportunity ahead, and attracting more non members with our nations $150 million Gen Z millennials and Gen ex travelers, who collectively have $350 billion of disposable income.
Come to spend.
These next generation consumers are the most eager to vacation with nearly 40% identifying budget friendly.
A key consideration this younger demographic now represents our number 1 segment from a demand standpoint, and has grown from 62% of arrivals in 2019% to 65% of arrival.
Arrivals year to date.
We believe the continuing to expand our marketing funnels to cast a wider net to target. These younger consumers with data led engagement strategies and closed user group loyalty incentives will allow us to continue to grow member enrollments as we aim to drive more than 50% of the nightly check ins through non OTA Commission of all.
Channels.
Consistent with the boom of leisure travel demand from our infrastructure construction and logistics accounts continue to outperform the broader white color business transient and group segments.
We're seeing increasing demand from our general infrastructure segment, which increased 23% from 2019 are.
Our logistics and trucking segment up 11% from 2019, and we continue to believe that business provided to our hotels from small and medium sized companies in these industries will grow at a faster rate in the coming years in business from corporate group and convention travel, which are small business owners, largely do not rely on and which have historically accounted.
<unk>, 5% of our room nights domestically.
Net room growth continued to be strong, especially in China, where our direct franchising business is now growing 7% on a year to date basis.
This growth included 2 new additions to our Wyndham Garden brand and outstanding conversion from a competitor of the newly constructed Wyndham Garden.
Cheng by Sean Hot Spring resort and the stunning new construction Wyndham Garden, managing airport close to the main tomb and Confucius Temple.
Southeast Asia Pacific Rim, and Latin America of each now grown their respective room counts by 2% year to date, including the launch of our first Ramada Encore, Malaysia, the opening of 2.
The new Remodels, the New Zealand, including our first in its capital city of Wellington and the introduction of our first registry collection hotel, the Grand residences and for Tomorrow, <unk>, Mexico, which converted from a luxury competitor.
And despite the persistent travel restrictions for our developers across many European countries. Our team there has still achieve.
Positive, 1% net room growth in this region year to date, including the opening of our first looking at the in the heart of the United Emirates in Dubai, and our first days in Istanbul.
Here in the United States, our franchise operations and support teams continue to build on the first quarter momentum, adding over 30% more rooms in the second quarter than in the first.
First and nearly 85% more rooms than last year, including the Bay Hotel San Francisco another conversion for the trademark collection located in the heart of the city by the financial District in Union Square.
And the new construction La Quinta Nashville downtown directly across the Street from Nissan Stadium home of the tennis.
<unk> of items.
Year to date additions as expected are now trending at 63% of 2019 levels and 46% higher than last year, while year to date terminations are trending 49% better than last year and 27% better than 2019.
With continued momentum on both the room openings in.
The retention fronts, where seasonally on pace with our full year net rooms growth guidance on.
A domestic pipeline increased 70 basis points sequentially, and 590 basis points year over year.
Internationally, our pipeline grew 230 basis points sequentially, and 580 basis points versus the same time last year with double digit.
Year over year growth in our China, and our Latin America, and in our Europe, Middle East Eurasia, and Africa pipelines as.
As expected conversion activity continues to accelerate we awarded approximately 25% more conversion contracts and rewarded both in the second quarter of 2020 and in the first quarter of this year.
Despite a more muted new construction environment, our team successfully executed over 90, new construction contracts in the quarter.
20% more than we awarded in 2019, bringing the total of new construction contract signed to over 390 <unk> since the onset of the global pandemic.
Before handing the call over to Michele.
To acknowledge our team members for what they've been able to achieve on the ESG front.
ISS has recognized our team's best in class level of disclosure and mitigated risk on both our social and environmental standings with their highest 1 out of 10 quality score rating.
And for the second year in a row diversity, Inc. Is again recognized the Wyndham hotels and resorts.
As a 2021 noteworthy company.
All of US would also like to thank our franchisees of over 850 hotels, who despite the pandemic have increased enrollments by over 75% since last quarter.
And our proprietary online environmental management system, the Wyndham Green toolbox to track to measure and to report the progress they've been making on their energy emissions water and waste diversion efforts.
And with that ill now turn the call over to Michelle Michelle.
<unk>.
Thanks, Jeff and good morning, everyone I'll begin my remarks today with the detailed review of our second quarter results on.
I'll then review of our cash flow on balance sheet, followed by our 2021 outlook for.
During the second quarter, we generated $321 million of fee related and other revenue and $168 million of adjusted EBITDA.
Credit.
Sort of Revpar has now recovered to 83% of 2019 levels down only 5% domestically and down 44% internationally on a constant currency basis.
Remarks today on Revpar will be focused on performance as compared to 2019.
Our economy brands continue to lead the recovery in the U S with the second quarter occupancy.
The levels consistent with 2019 and ADR up 4%.
Our mid scale brands of right behind with second quarter occupancy down only 9% and ADR up 1%.
As Jeff noted domestic revpar for <unk> exceeded 2019 levels and July month to date results have been even stronger with revpar for our economy.
It's now up 12% over 2019 and Revpar for our mid scale brands now, surpassing 2019 levels by 4%.
We saw particular strength in beach of National Park destinations, the South Atlantic region, where 23 per cent of our U S system is concentrated grew revpar by 6% and National Park.
<unk> brand nations for 4% of our U S system is located grew 10%.
In China, our largest international footprint Revpar continued its recovery down the only 7% an improvement from down 25 per cent of the first quarter and near the strongest level of since the start of the pandemic.
Occupancy was within the 10% of 2019.
While the rate was higher by 4%.
In our EMEA region, Revpar was down 68%, reflecting travel restrictions in Germany, Turkey and India.
In Canada travel restrictions continue throughout much of the quarter, leading to a 49% revpar decline.
Despite the slower recovery in these regions. We are encouraged by recent.
Mark the essence as travel restrictions relaxed in July the month to date Revpar decline for EMEA improved 30 points compared to June performance, while Canada improved 20 points.
Our global royalty rate increased 30 basis points on a year to day basis versus 2019, reflecting the strength of our brands and the continued growth in our direct franchising.
I think business internationally.
Versus 2019, adjusted EBITDA was up 4%. These results reflect not only revpar performance during the quarter, but also margin expansion due to the structural changes we made last year as well as the $23 million favorable impact from the timing of marketing spend.
Marketing revenue exceeded expense.
<unk> by $14 million in second quarter, 2021, reflecting better than expected revpar performance for them.
Marketing expenses were higher than revenues in 2019 by $9 million.
Excluding the effects of the marketing funds adjusted EBITDA declined 9% versus 2019 recovering to 91 per cent of its pre pandemic level.
Our.
Adjusted EBITDA margin and our franchising margin each improved compared to 2019.
Our adjusted EBITDA margin increased approximately 900 basis points, including approximately 600 basis points related to the marketing funds, while our franchising margin calculated on the same basis of our peers, which excludes the effects of our marketing funds increased approximately 100.
The 85 per cent.
Adjusted diluted earnings per share was <unk> 95, improving 13% from 2019, primarily due to the impact from share repurchase activity in 2019, and the first quarter of 2020 as well as lower interest expense as a result of the redemption of our $500 million senior notes in April this year.
Free cash flow for the quarter was $104 million compared to a cash use of 68 million in the second quarter of 2020 and of cash use of $160 million in the second quarter of 2019.
Youll recall that both of the prior year's included special items cash outlays, even after normalizing for those amounts we generated nearly 3 times more.
So cash flow over both periods due to strong collections on working capital management.
In addition, we've been successfully executing on our strategy to increase capital deployment to support future growth to date, we spent $17 million of the 40 million of development advances we targeted this year and we remain on track to reach our full year projections.
We.
We ended the quarter with approximately $840 million of liquidity and our annualized the personally net leverage ratio was 2.2 times well below the 5 times limit.
After doubling last year's dividend in the first quarter of this year and with half the year now behind us and exceeding our initial expectations management recommended and our board approved another increase to our.
Quarterly cash dividend, bringing the quarterly per share of pay out to 'twenty for fence from 16th.
Beginning with the dividend that is expected to be declared in the third quarter.
With this increase we have restored our quarterly dividend payout to 75 per cent of pre pandemic levels.
Moving now to outlook with recovery well underway in the U S and China.
We're now able to confidently provide our full outlook for 2021.
On a full year basis, we expect the related and other revenues of 1 point of 1.6 billion for $1, 1.9 billion.
We've excluded cost reimbursements from our revenue outlook as these revenues have no impact on adjusted EBITDA.
We're projecting adjusted EBITDA of 525.
5 million to 535 million, which represents approximately 85% of 2019 levels of.
Adjusted net income is expected to be 244 million to $254 million and adjusted diluted EPS is projected at $2.60.
The $2.70.
Based on a diluted share count of 94.
That excludes any potential future share repurchases.
Consistent with our prior guidance, we expect the rooms for out of 1 to 2 per cent for Revpar. Our outlook reflects an increase of approximately 40% year over year or a decline of approximately 16% compared to 2019. This assumes continued strong trends in the U S.
With the typical seasonal pullback following the peak summer season, and importantly continued improving results overseas at.
At 16% down for the full year Revpar for the back half is implied at approximately 90% of 2019 levels.
Finally, we're expecting free cash flow conversion from adjusted EBITDA of approximately 55%.
Million of full year basis for 2021.
Note that our 2021 outlook still assumes the minimum levels of license fees from travel on leisure as well as other large variances versus 2019, which can be found in more detail in the investor presentation posted on our website.
Our brands continue to demonstrate the strength of capturing market.
<unk> share of premiums to pre pandemic levels. Our development teams are experiencing increased developer interest on both the conversion and new construction fronts and our business model is now showcasing its significant cash generation capabilities with free cash flow conversion from adjusted EBITDA well in excess of 50 per cent year to date with 6 quarters behind us since the pandemic.
Sent on impacted our China operations were very optimistic about what lies ahead.
With that Jeff and I would be happy to take your questions operator.
And at this time, if you would like to ask a question. Please press star 1 on your touched on zone.
Our first question will come from David Katz with Jefferies. Please go ahead your.
On my first opened.
Hi, good morning, everyone.
Congrats on the quarter.
I wanted to start off if I may.
Yes.
The capital returns and the dividend increase when I looked at our model and sort of where are we where we think we should be this year next year.
Your line and beyond.
Getting to sort of of mid twenties.
Again, the free cash flow that we're modeling miss.
Well, if you could just help us think through what might be a reasonable price for that.
Of that dividend.
Maybe we've had a little discussion about.
How you all are thinking about.
The share repurchases over time.
Sure David Good morning.
So from our perspective, the 24 cents per share dividend payment would round out to just just the.
Your mid thirties, I believe when we look at the net income payout ratio. That's the way we're thinking about the dividend.
With these 2 increases we should now be at about 75% of our pre pandemic level and that is right in line with with how our earnings has have been recovering.
From.
Of the from a capital allocation perspective, I would say as always our first preference is to invest in the business for future growth from leverage.
Leverage we target 3 to 4 times, we expect to be back within that range of at the end of this year and and so we don't see any need to allocate capital to debt.
Repayment and then and then it comes down to dividends, whether or not there are any other M&A opportunities out there and then of course share repurchase we feel comfortable with 1 of the dividend is right now and and so that really leaves us with M&A and share repurchase are there are no restrictions on share repurchase today.
The 191 billion of available under our current authorization and we.
We expect we hope to be in the market this quarter.
Perfect.
If I may follow up 1 for Jeff.
On your show your largest franchisee.
<unk>.
I believe exploring alternatives Thursday of announced it is there anything of that Youre able to say about what the could potentially.
I mean, meaning for you.
David It wouldn't be appropriate for us to comment certainly on their process.
The.
The press release last week or the week before noted that they are reporting sequentially improving performance.
And they are on track to sell down to a 105 hotels in terms of what it means for us going forward, we anticipate that those core hotels. They talk about will remain a part of the Wyndham family as managed hotels and franchise agreements as of.
Of all but 1 of the I think it's 135 of 136 hotels that they have sold to date the.
The hotel management agreements do not have any change of control provisions.
And there are no automatic cross term range between our HMA has an F franchise agreements and.
And look there.
There are some of your best hotels in.
In solid locations and we anticipate that they will remain as part of the Wyndham family going forward.
Okay perfect. Thank you very much thanks, David.
Our next question comes from Joe Greff with.
The Morgan. Please go ahead your line is open.
Good morning, Jeff for Michelle and the.
Net.
Want to talk about net rooms growth for the long term targets on the slide deck.
No go on for 1.2 of the 2 to 4 and then over time 3 to 5 but out of a more specific question.
Looking at your current pipeline.
Pipeline.
90000 rooms.
And maybe given what youre seeing on conversions, which probably not completely reflecting the development pipeline given the short term nature of conversion.
Is there a reason why you couldn't open the same number of gross gross rooms in 'twenty 2 debt.
The opened in 2000.
Richard.
There is no reason in 'twenty 2 I mean, 2 in terms of where we are right now on our 1% to 2%.
We're feeling very good as we previewed last call Joe our rooms would be back end loaded.
The 10000 rooms that we opened in the quarter were 30.
<unk> 30 per cent more than we opened.
<unk> opened last quarter, and we're still expecting to open over 50000 rooms, this year, which would be 80% of over 80% of what we opened back in the full.
Full year 2019, when we ran.
3% net room growth and with over a third of that 50000 rooms now achieved we feel as we said in the.
Scripps seasonally on pace with our historical trends.
And in terms of what we're seeing on the conversion front.
You know just continues to pick up conversion rooms, as a percentage of our total continued to increase.
From from 50% of our global room openings last year to 70% this year.
It increased to where we what we opened 500 basis points over what we opened in the second quarter of 2019 and conversion activity. So no. There's no reason in terms of 2022 that are there.
Debt, we couldn't be back.
Great and then.
Right right.
On a question here.
The show you mentioned that the back half of 'twenty, 1 revpar guidance implies getting back 90% of.
2019 second half of Revpar levels, yes the.
3 Q is that much higher the percentage.
End of where I'm going with this.
And I understand sort of the mix between leisure and your business in 3 key led the transition with the <unk> mix, but is that how youre looking at debt as a percentage of 2019 <unk> will be stronger than for you because of the mix or is there something else that is that as the.
That you need to be mindful of when thinking about it as a percentage.
He is kind of in between those 2 quarters.
Hmm.
No Joe I think you have it at the end of third quarter.
Certainly half of our greatest pricing power and so that will be.
That will definitely be of higher overall revpar than than than the fourth quarter I.
As of May not think or actually I know, our business and leisure mix does not change dramatically between the third quarter and the fourth quarter. So it really just comes down to overall demand levels and then the ability to push the price based upon the demand levels. If you think about it from a seasonality perspective like the EBITDA line the 2019.
Do you read it about 30% of our full year revenue.
I'm, sorry, our full year EBITDA in the third quarter on about 22% in the fourth quarter I would expect that the 2021 would follow a similar pattern.
Thank you.
You're welcome.
General and we will take our next question from Stephen Grambling with Goldman Sachs. Please go ahead. Your line is open.
Hey, good morning, Thanks for taking the question.
I guess as you think about the strength of the Revpar index across brands and strength of the loyalty of bookings I guess, where are you thinking about.
Reinvesting back into the system and other opportunities to either change improve of monetize the loyalty program and a recovery.
Sure. Thanks for the question Steven there, there's absolutely opportunity to both the continue to invest in.
Driving our.
Our Revpar index, we think that what we've talked about before in terms of the investments we've made on the technology of the marketing front.
We've talked on the last call I won't go through them again, the for Big investments, we've made on our on the customer data platform on on our sales force.
Lightning rollout on our mobile booking app on our Wyndham direct bill billing solution.
Which is going to be so important moving forward, but we think for <unk>.
Gaining more share from infrastructure accounts.
And the the continued investments we're making on on technology I mean, this quarter, we rolled out new property management cloud options through through op for cloud and we believe saver sabre property level we.
We'll have the fastest check in and check out and will be the first for economy and Midscale hotels with single image inventory not requiring any 2 of interfaces. So those are those are all we believe investments debt.
We have been driving that.
That outsized share gains that we've seen up another 300 basis points this quarter in terms of what.
What we're doing on the Wyndham rewards side, we've talked a lot about how.
We are attracting younger travelers.
We are seeing our marketing teams cast a much wider net as we talked about in our script the target.
Millennials too to really move them up the marketing funnel.
The video players mass of right now in terms of the role it's playing in attracting those those of those travelers and we're really leaning into insights on automation with Google for example across all of their search and display and Youtube channels to get a much clearer picture of where demand is coming.
From.
And on alphabets call yesterday, or 2 days ago of 2 nights ago. They talked about Wyndham driving 2 times the number of direct bookings at a lower cost of ex acquisition, which is generating incremental impressions that millennials are seeing on on their devices. So to the extent that we can roll those millennials.
Into Wyndham rewards, we believe that we could continue to grow and we added another 2 million members this quarter to our Wyndham rewards, we could continue to grow that program and grow that all important share of occupancy, which is now contributing roughly 1 out of every 2 check ins.
Yeah.
Okay. That's helpful.
On all up to the judge.
Go ahead.
I would just I would just add to that where we continuously evaluate the loyalty program to determine the relevance of it given current market dynamics on from an investment perspective, Jeff hit on all the all of the key points for how we're investing.
Capturing greater market share and I would also say we are making investments on the development side of them. You know that we had already increased the amount of money, we allocate to development advances and so we're now earmarking $40 million a year of for that and we are looking at deploying that capital.
Capital not only to not only to attract new new developers, but also to attract <unk>.
Developers that previously had not done business with us before as well as to continue to improve the quality of the overall quality of our brands.
That's helpful and then.
That's a good segue in terms of of fault to Joe's question on net unit growth.
Shimon.
Changes in the financing markets for new construction.
Yeah.
We're finding that the financing is still out there for for.
For the franchisees that are looking to develop we have.
Didn't see.
Any developments in our pipeline fallout, yet because any significant of anything different than anything out of the ordinary for the past.
And there is certainly as we believe still still opportunity out there, especially within our community for for financing it's a.
It's.
A very.
Local much more localized and regionalized lending environment.
And it is an and.
And the more upper upscale markets.
Super helpful. Thanks, so much.
Steven.
And we'll take our next question from Gregory Miller with true sick.
Securities. Please go ahead your line is open.
Thank you good morning, Jeff the Michele I'm on for Patrick Scholes.
I'd like to start off.
With the hopes on staffing and labor costs.
The obviously, a big industry topic can you share on how material of an issue. This is for your franchisees today.
Is that.
Say that the challenge to re hire is less of the headwind for many of your economy and mid scale hotels.
I think it is fair Gregg thanks for the question.
For for our economy and mid scale hotels. It certainly as we talked about on the last call much less of an issue on the select service space are kind.
Kind of mid scale hotels do not have restaurants, they do not have banqueting hall, they do not have.
Convention facilities and look at labor.
Has been an issue in this industry long before the pandemic before COVID-19 back in 19 of.
The industry had 10 million jobs available and only $9 million.
Of the more filled.
But it is certainly at what is estimated to be in the economy segments of 12% of gross operating revenue as from a cost basis to your question versus 35 per cent of gross operating revenue for the overall U S industry, it's still very much an issue and it's been the driver.
So much of what our teams have been working on the elimination of breakfast for our large economy brands, which have reduced our economy breakfast cost for our franchisees by.
Around 50%.
The stay over cleaning on request, which has certainly helped.
And been embraced by our franchise Advisory Council.
And we will continue to focus on I'm trying to eliminate other costs as we can.
Moving to more digital to drive additional savings for our franchisees.
But yeah, I mean, our industry needs more housekeepers, we need more guest service agents, we need more culinary team members.
And our operation support teams are working.
Ever of start educating our owners on on <unk>.
What they can be doing from a day daily labor monitoring basis, we've got a lot of tools and software out there.
What we could be providing 2 to attract.
Employees and associates better benefits work of flexibility and how we could leverage staff among neighboring.
Very hard also.
For our franchisees are small business owners or are.
Or are working very hard.
At recruiting and trying to get the word out on just what a great industry. The Sis.
I appreciate all of the insights and guidance you mentioned the housekeeping.
As my follow up.
How do you anticipate falling when it appears in the in the.
The overnight housekeeping cleaning permanently off the shelf.
For your hotels.
I think that's where the industry setting again working with our franchise Advisory Council, we are providing room queens.
<unk> on our request basis, which has been well received by obviously the franchisees, but also by guests right now in terms of guests not necessarily want it for.
Folks and we're certainly as a standard providing a clean on on longer stay overs on every third day, but.
I think your point's well taken I think that's.
That's probably where where this industry is headed.
Yeah.
Alright, I appreciate all the all of the color. Thanks, Thanks, Craig.
And we'll take our next question from the <unk> with Oppenheimer. Please go ahead. Your line is open.
Hi, great.
Very much.
Despite the question maybe for for Michelle.
Hum.
On the free cash flow generation I guess can you just talk about.
On the roll off of some of the costs and how we're supposed to be looking at free cash flow going forward I know, there's like integration hits there was other onetime of items just help.
You think about going forward the puts and takes.
That's the 1 timers exceptions and match on politics.
Sure.
It's actually it's actually pretty simple all of the special item cash outlays does the 1 timers are behind us so at this point.
The speed converting cleanly from from EBITDA of our guidance implies.
Our guidance is 55, approximately 55% of our adjusted EBITDA will convert to free cash flow and that's what you should expect for for 2021.
Okay.
Then.
Yeah.
The net room growth can you actually disaggregate that maybe between.
Termination Shimon strategic removals.
Gross adds on gas.
And then also just on.
1 of my fault I just rounding there is.
Yeah.
You talked out of your kind of pacing versus your $40 million of cost saves target.
<unk>.
Yes.
Yeah.
On the $40 million of cost saves our outlook assumes full achievement of.
Of that $40 million and we're tracking precisely on target to add to that achievement.
I'll hand.
On the call over to Jeff to talk about net net room growth.
Yes.
We would expect.
Yeah.
In the in the <unk> as always are.
The key.
For for openings in <unk>.
We would expect that we're on we're pacing.
Where we want it to be on the on termination of 60% fewer than last year and over 20% fewer than in the in the second quarter.
So we do believe we're on track to get back to that economy, and mid scale segment, leading 95% retention rate that we've we've always set what we enjoyed in 2018 in 2019 in fact.
Right back in 2019 were heading domestically too to the 96% retention rate. So again, we're pleased with the progress and we think we are in line with the 2021 net room growth expectations.
And there was no additional strategic.
There should be no additional strategic terminations.
Okay, great. Thanks, guys I appreciate that.
Thanks Ian.
We will take our next question from Michael Bellisario with Baird. Please go ahead. Your line is open.
Thanks, Good morning, everyone. Good morning, Michael.
Just wanted to go back to your comment on the development front there are some.
Share that with what Youre seeing in terms of signings, but maybe could you dig a little deeper into what's going on domestically versus internationally.
Maybe youre seeing any relative weakness abroad, given the sluggish recovery there versus the letter of performance that you're seeing.
We've been very pleased.
And surprised.
<unk> actually with the.
Despite what we're seeing in the press.
In terms of sluggishness.
How how the pipelines have built.
Cross across the world.
But to begin domestically our pipeline as we talked about was.
Was up.
Kind of about 6% domestically and 6% internationally year on year and it was.
On a sequential basis more internationally up 230 bps internationally up 70 bps sequentially.
Domestically.
We saw a 6% growth year on year as I said, but.
The 20% growth in conversion, which was great to see our China pipeline year on year was up 11% and.
Our Latin America pipeline was up 15% in.
In Latin America, our conversion pipeline was up 23%.
Europe was was from a conversion standpoint.
Our.
I guess stand out the pipeline was up 16%, but the conversion rooms were up over 75% with Vermont of being a real big beneficiary of it.
So conversion rooms of the pipelines.
Were up both sequentially and year on year.
And I guess, what we were somewhat surprised with we're still of the growth.
The new construction on new construction pipeline group.
4% from 135000 rooms to over 140000 rooms.
And we've been focused internationally on on.
Certainly as we've opened new offices, we've been adding more of franchise sellers they've been focused on direct franchising.
Moving to add.
A lot of new brands to countries that they haven't been in before.
Since our spin we've added brands for 50 countries, where we haven't sold direct franchising agreements before.
We're seeing a lot of a lot of success.
Overseas.
And as we.
Certainly have on the new construction basis here in the U S with.
With our new construction brands like keep the.
Microtel.
And in our dual microtel laquita in Hawthorn suites brand.
Got it that's helpful. And then just 1 more for me.
A lot of Master franchise agreements that you have in China has your view changed at all on that potential investment opportunity and maybe how do you weigh some of the headline risks that seem to have resurfaced recently there.
Well on the head of R&D.
Yeah go ahead Michelle.
No. Please check your price.
Yeah.
We're certainly monitoring the headline risk but.
We are certainly not anticipating or seeing anything that is impacting us on on the development front.
Michelle.
And I would say our view hasn't changed at all we continue to be the logical buyer of that.
A master franchise agreement.
But at this point, we're happy with the with the production and how they're growing the system.
Understood. Thank you.
Thanks, Mike.
Well take on intuition from Danny Assad with Bank of America. Please go ahead. Your line is open.
Yeah.
And Danny Assad with Bank of America. Your line is open.
Hey, good morning, Jeff for Michelle.
Yeah.
I'm just trying to think of the like the undercurrent of below that revpar expectation of being 10% below 19 for the back half of the year.
Can you just help us understand the cadence of.
Like all of that progression.
If the domestic versus international or leisure versus corporate for the balance of the year.
Sure, Yes, I'll start I mean, it's the question on everybody's mind, and then I'll, let Michelle will give her thoughts on cadence and tie it back to the outlook that you talked about.
Look we believe leisure demand Danny is going to stay very strong into the fall for all of the reasons that we've.
<unk> talked about the pent up demand on working for many where longer multi night bookings longer average length of stay.
We believe domestic economy Revpar will continue to outpace all of the other segments as it has for the past for months.
And certainly through the Covid case spikes of last fall if you look at the slide 7 in our.
IR.
Our deck that we sent out last night Youll see that the.
Bikes.
I have not.
Not stalled.
All of that demand.
And we also feel that our type of business travelers, who just never stopped traveling throughout the pandemic will continue to travel and into the fall and could certainly accelerate with the.
The pending.
Part of your package that was.
Approved by the Senate and on where there's still some work to do there, but moving moving along.
But.
When we look at on an overall basis, our domestic revpar, we believe that we will continue to trend.
You know, how it's trending now and internationally, we're certainly seen.
Interest.
Good.
Fundamental pickup.
With China, leading the way and with U S Air lift to Europe picking up then certainly inter European lift picking up from the <unk> and the easy Jets and the Ryan's.
What we're seeing.
Germany improve from down 70 per cent in June.
The down 50% July month to date U K has been the standout which was down 30% in June it's down down only 10% July month to date.
And where we have significant presence in Turkey and in countries like Turkey.
Seeing significant improvement there as well.
Much of that being fed.
But the easier demand.
Very much.
And our final question comes from Alton Stump with Longbow Research. Please go home.
Great. Thank you and good morning, everyone not the.
Quarter I guess.
As a follow up to that last question or go.
To the discussion of course, you mentioned, although it's the only obviously, it's gonna be period, but that we were up 7% domestically.
For the outlook on you know, what's the best the you know could do it for the back half versus 2019 of absolutely No of course, you mentioned downtown overall, but you know.
I would presume that will.
<unk> by the positive domestic.
Domestic growth or for it.
Of all based on that to get you down 10% overall.
Yeah.
I think we will absolutely be stronger domestic performance than what you see in the in the back half of them internationally, although our guidance does guidance assume continued strength in the U S and improving trends.
Probably the overseas. So I. So yes, I think the domestic number will be much stronger than the international number.
Great. Thank you Michele and then just as a quick follow up on that just any kind.
So the occupancy versus ADR.
And integrate it.
No it's the fourth quarter.
Is there anything that you would rather see it grew for.
Or is it just a matter of both the proven that if similar pace.
Yeah, we bought the scene of both improve faster, but we are very very pleased with how our franchisees have been optimizing rate and this growing demand environment and that is something we expect to continue to see throughout the rest of the year.
Okay, great. Thanks, Joe.
Yeah.
Thank you.
And there are no further questions I will turn the call back over to Jeff a lot of you for any closing remarks. Thank you Ashley and thanks, everybody for dialing in we look forward to speaking with many of you in the weeks ahead and hopefully seeing a few of you.
At the Asian American Hotel owners Association Conference next week in Dallas, where of Michelle and I will be on the booth of all week with our franchise sales team and then the following week.
We will be down in Greensboro, North Carolina, with our top customers and develop of prospects at historic Sedgefield country club for.
For the playing of the 15th Wyndham Championship for.
Stopped on the PGA tour before the playoffs.
You could certainly catch it live on the golf channel and CBS from August 12 through the 15th enjoy the rest of your summer everyone and thanks again for your interest in Wyndham hotels and resorts.
Thank you and this does conclude today's program. Thank you for your participation you may disconnect at anytime.
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