Q3 2021 Wyndham Hotels & Resorts Inc Earnings Call
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Welcome to the Wyndham hotels and resorts third quarter 2021 earnings conference call. At this time, all participants have been placed on a listen only mode.
Floor will be open for your questions following the presentation.
I would like to ask a question at that time. Please press star one on your telephone keypad.
If at any point in your question has been answered you may remove yourself from the queue by pressing the pound key.
Lastly, if you should require operator assistance, please press star zero.
I would now like to turn the call over to Matt <unk> Senior Vice President of Investor Relations.
Thank you operator, good morning, and thank you for joining US with me today are Jeff <unk>, 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.
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 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 that Wyndham hotels Dot com, where.
We are providing certain measures discussing future impact on a non-GAAP basis, only because without unreasonable efforts. We are 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 monitor our website. In addition to our press releases filings submitted with the SEC and any public conference calls our webcast.
With that I'll turn the call over to Jeff.
Thanks, Matt and thanks, everyone for joining us this morning, with a continued market share outperformance of our brands, our global Revpar, increasing 56% versus last year.
In our domestic revpar, surpassing 2019 by 7% we were very pleased with our third quarter performance. We delivered another strong quarter with $194 million of adjusted EBITDA, which was nearly 90% more than last year and 1% more than what we delivered in Q3 of 2019.
We generated $141 million of free cash flow.
Our highest cash flow quarter ever.
With all of our key drivers now tracking ahead of expectations.
Our board has restored our quarterly dividend to pre pandemic levels. In addition to Recommencing our share buyback program earlier in the quarter.
We opened 15000 rooms, which was over 50% more than we opened in the third quarter of last year and 4% more rooms that we opened in the third quarter of 2019.
Year to date additions are trending at nearly 80% of 22019 levels and 50% higher than last year.
With year to date terminations, 47% below 2020, and 15% below 2019, we are now guiding to 1.5% to 2% full year net room growth.
We awarded a 151, new contracts globally in the quarter or 3% more than we signed in 2019.
Here in the United States, we awarded 10 more contracts than we did in 2019.
Bringing our year to date domestic development activity to a level, which is now on par with 2019.
Global conversion activity is up 9% versus 2019, while new construction efforts in the quarter were consistent with 2019 levels.
New construction continues to perform better than expected with almost 460 deal signed since the onset of the pandemic and the number of projects in our new construction pipeline is now over 1000 hotels for the first time in our company's history.
With growing interest in our brands, our development pipeline increased 4% domestically and 5% internationally to a 193000 rooms.
Domestically our pipeline growth was heavily weighted towards our higher revpar brands with over 4000 rooms added in our midscale and upscale segments compared with this time last year.
Internationally, where our pipeline continues to be significantly concentrated in our Asia Pacific region. We were pleased to see our Europe Africa, Middle East and Eurasia region, along with our Latin American region, each seeing around a 30% increase in their development pipeline versus 2020 as travel restrictions were lifted and markets began.
To open back up.
The intent to travel among our 70% leisure customer base continues to strengthen.
Same day bookings continue to drop.
Multi night bookings continue to grow and average length of stay continue to surpass 2019 levels.
In this work from anywhere World, we're living in and with the flexible hybrid approach. So many companies are taking to retain talent. We are seeing a strong rebound in consumer leisure travel.
Thursday, and Sunday night occupancy climbed to a historic high this quarter in the United States, including our two highest non holiday Sunday occupancy nights on record.
Weekend in short for Knight brakes increased 300 basis points since the beginning of the summer and continue to generate the largest percentage of leisure stays followed by travel to visit family and friends.
The U S travel association for long estimated that Americans forego $800 million unused vacation days per year we.
We expect that unused vacation days will fall in the months and years ahead fueling incremental demand for both our brands domestically and internationally, while providing more long weekend getaways to our affordable economy and mid scale brands.
In August U S News and World report once again selected Wyndham rewards is the number one hotel loyalty program given its simplicity.
<unk> added benefits and flexibility.
Along with Wyndham rewards scope and breadth of over 50000, aspirational vacation redemption opportunities, including travel and leisure vacation clubs.
Caesars Entertainment hotels, and resorts and vacation homes cottages and village redeemable globally via our unique strategic marketing agreements with partners like <unk>.
And in early October for the fourth consecutive year, the readers of USA today voted Wyndham rewards the number one hotel loyalty program and its 10 best Readers' Choice Awards.
Wyndham rewards enrolled nearly 2 million new members during the third quarter and now stands at over 90 million loyal members.
On a year to date basis, the program's overall share of occupancy for our franchisees grew by another 500 basis points compared to 2019 to nearly 40% globally and by another 400 basis points domestically to nearly one out of every two domestic guests asking for their wyndham rewards points at check in.
Overall direct contribution to our domestic hotels grew by another 120 basis points this quarter versus 2019.
While OTA channel contribution declined over the same period by 100 basis points.
The distribution power of Wyndham rewards and its ability to drive business directly to our hotel owners provided us the opportunity to team up with another very important leisure developer in our industry.
Earlier this month, we announced the launch of our <unk> brand Wyndham Altra, our first brand dedicated entirely to the fast growing all inclusive segment through a strategic alliance with Playa hotels, <unk> resorts, a leading owner and developer in Mexico and the Caribbean.
With our first two resorts in prime beachfront locations, and Ken Kun and Playa del Carma Wyndham Altra provides an entirely new midscale vacation brand for our franchisees to develop and for our members to both earn and redeem their wyndham reward points.
We continue to build on the success of our leading loyalty program is a direct reservation channel for our franchisees by promoting longer long weekend and mid week work from anywhere stays with incentives to nonmembers to enroll in Wyndham rewards.
While theres been so much written about the nearly 2 million newly retired in the United States, who are now more free than ever to travel retirees.
<unk> marketed to through our unique and traditional media channels and strong marketing partnerships with AARP. Our marketing teams are increasingly focused on casting a wider net to attract younger consumers.
Our nations $150 million Gen Z millennial and Gen X travelers represent our number one growth segment from a demand standpoint.
It's a demographic which has grown from 62% of arrivals in 2019 to now 66% of our arrivals year to date and it's up another 100 basis points from the end of Q2.
These next gen consumers shop, and book differently, and our marketing teams are focused on the recency frequency channel and communication preferences of these new guests to ensure that we're reaching them at the right time in the right way and with the right message.
We're reframing of loyalty offers to better suit behaviors preferences and trends, providing more flexibility to our members with more valuable perks and continually innovating to meet rising guest expectations.
While driving more direct bookings to our franchisees.
An example of this is our new mobile booking app, which continues to be our fastest growing direct channel <unk>.
Downloads app users and bookings through the App are each up about 50% compared to 2019.
We're also using Google insights and advanced automation across search display and video mediums to reach travelers where they are.
Introducing them to the significant value that our award winning brands and loyalty program can provide at a price point that can't be beat for the experience our brands deliver.
Another example is a tremendous benefit we're deriving from our new customer data platform.
By deploying our marketing dollars through a targeted audience strategy, we're able to drive more direct bookings at a higher conversion rate and a lower cost of acquisition.
<unk>, our marketing funds further than we ever have before.
We're also leveraging this platform to launch new member acquisition efforts digital campaigns that are driving incremental wyndham reward enrollments, while generating new members, who stay 65% or often.
And spent 84% more than non member guests.
Okay.
Just as Q3 domestic leisure demand outpaced Q3, 2019, so to the demand from our everyday business travel segments, whose office is the road.
Our infrastructure and transportation segments, representing the vast majority of the 30% of our domestic business travelers continue to outperform the broader white collar business transient and group segments by nearly 40 points, increasing by 8% overall versus 2019, driven by growing construction activity utility project work.
In trucking demand from coast to coast.
Corporate transient which represents about 10% of our business travel segment and only 3% of our franchisees total revenues.
Added another 16% of sequential growth since last quarter and is now down less than 30% compared to 2019.
Before handing the call over to Michelle I'd like to take a moment to thank our team members both in the field and at corporate who have been more productive than ever over the past 20 months, we were incredibly proud to be named among the best places to work in New Jersey for the second year in a row.
And just last week, we were named number for Newsweek magazine's most 100 loved workplaces.
And we know that none of this recognition would be possible without our valuable team members around the world.
And with that I'll now turn the call over to Michelle Michelle.
Thanks, Jeff and good morning, everyone I'll begin my remarks today with a detailed review of our third quarter results ill then review our cash flows and balance sheet, followed by our updated 2021 outlook.
We generated $377 million in fee related and other revenues in the third quarter and $194 million of adjusted EBITDA.
Third quarter Revpar has now recovered to 97% of 2019 levels up 7% domestically and down 25% internationally on a constant currency basis.
Tommy brands here in the U S continue to lead the recovery with third quarter Revpar exceeding 2019 levels by 14%.
Revpar for our Midscale brands also continued their sequential climb surpassing 2019 levels by 4%.
And the U S occupancy recovered strongly this quarter now trailing 2019 by only 2% in fact, our economy brands drove occupancy to 103% of 2019 levels. Our mid scale brands were at 94% and our higher end chain scale brands with a heavier urban concentration averaged 76%.
Our franchisees capitalize on this demand by yielding rate overall ADR in the U S surpassed 2019 by 10% led by our economy and mid scale brands as leisure demand drove up weekend rates and bled into Sunday night.
These trends continued into October month to date economy, Revpar is again, 14% higher than 2019, and Midscale Revpar is again, 4% above 2019.
Similar to second quarter, we saw particular strength in National Park in outdoor locations over the third quarter.
The Atlantic region were 22% of our U S system is concentrated grew revpar by 16% and National Park destinations were 4% of our U S system is located grew 13%.
Internationally Revpar improved to 75% of 2019 levels up from 56% in the second quarter Apart from Asia Pacific Our international regions, all experienced significant sequential improvement from the second quarter as travel restrictions were lifted and pent up demand from vacations and leisure travel well until the final candidate.
Proved to 83% of 2019 levels up from 51% in the second quarter and EMEA improved to 75% up from only 32% in the second quarter.
October month to date results indicate continued for Capri with Canada now at 92% of 2019 levels and EMEA at 79%.
Recovery in China stopped during the third quarter as a result of a summer lockdowns, but has steadily improved since mid August October month to date is now over 90% of 2019 levels.
Our domestic royalty rate improved to four 6% this quarter up 13 basis points versus 2019, reflecting the strength of our brand value proposition and the quality of new deals coming into our system.
Our international royalty rate also improved this quarter up 12 basis points due to our greater focus on the more profitable direct franchising business overall, our global royalty rate is up 27 basis points from pre COVID-19 levels back in third quarter 2019.
Adjusted EBITDA increased 1% compared to 2019, including a $12 million favorable impact from the timing of marketing spend.
Marketing revenues exceeded expenses by $19 million in third quarter, 2021, reflecting better than expected revpar performance compared to $7 million in 2019.
Excluding the effects of the marketing funds adjusted EBITDA decreased $10 million or 5% versus 2019, reflecting a 3% global revpar decline and $15 million of lower license fees from travel and leisure.
This was partially offset by organizational changes, we made last year to reduce our overall cost structure.
Adjusted EBITDA margin and our franchising margins, both improved versus 2019, our adjusted EBITDA margin increased approximately 600 basis points, which included approximately 300 basis points of improvement from the changes we made to our cost structure last year as well as another 300 basis points of favorable impact from the timing benefit related to the marketing plans are free.
Rising margin calculated on the same basis as our peers, which excludes the effects of the marketing funds increased approximately 200 basis points to 85% again, reflecting the cost structure changes.
Adjusted diluted earnings per share was $1 16, improving.
Improving 5% from 2019, reflecting the benefit of share repurchase activity 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 the highest ever on record growing to $141 million compared to $92 million in third quarter last year and $136 million in the third quarter of 2019.
Year to date free cash flow was $304 million compared to $34 million last year, and an outflow of $26 million in 2019.
These results are a reflection of our disciplined cost approach as well as strong cash collections and working capital management.
As always our first priority is to invest our excess cash into the business to support future growth year to date, we've deployed $25 million of development of assets, which is about two and a half times. The amount. We spent during the same period in both 2019 and 2020, we are on track to deploy the $40 million, we earmarked at the beginning of the year.
<unk> ended the quarter with approximately $930 million of liquidity and our annualized first lien net leverage ratio was one nine times well below the five times limit imposed by our credit agreement.
Total leverage stands at three seven times.
Within our three to four times target range, which is ahead of where we expect it to be at this point in the year.
As Jeff mentioned management recommended and our board approved another increase to our quarterly cash dividend restoring the quarterly payout to the pre pandemic level of 32 cents per share with a dividend that is expected to be declared in the fourth quarter and.
In addition, we reconnect our share repurchase program during the third quarter purchasing $27 million of shares at a weighted average price of $73 in 13th we paid $23 million in common stock dividends this quarter and combined with our share repurchase activity returned $50 million to shareholders, while year to date, we've returned $79 million.
Moving now to our updated 2021 outlook.
The continued outperformance of our business model and stronger than anticipated third quarter, we are raising our 2021 outlook as follows.
We expect the rooms growth of one 5% to 2% up from our prior guidance of 1% to 2%.
For Revpar, we are projecting a year over year increase of approximately 43% up 300 basis points from our prior guidance versus 2019. This translates to a decline of approximately 14%. Our outlook assumes continued strong trends in the U S with a typical fourth quarter seasonal pullback and importantly continued recovery overseas.
Yes.
Fee related and other revenues are now expected to be one to one to 123 billion up from $1, one six to $1 one nine <unk>.
As is our practice now we've excluded costs reimbursements from our revenue outlook as these revenues have no impact on adjusted EBITDA.
Adjusted EBITDA is now expected to be $560 million to $570 million up from 525 million to $535 million. This guidance represents 90% to 92% of 2019 levels.
Given the accelerated Revpar recovery, we now anticipate we will understand our marketing reservation and loyalty.
<unk> $5 million in 2021.
Year to date through the third quarter revenues have exceeded expenses by $26 million for the fourth quarter. We expect expenses will exceed revenues by about $21 million as of fourth quarter is typically a lower demand period, meaning we have less revenue coming in during the period to offset the cost basis.
We're expecting adjusted net income of 275 million to $285 million up from $2 44 to $2 54.
Adjusted diluted EPS is projected at $2 93 to $3 <unk> up from $2 60 to $2 70 based on a diluted share count of $94 million that excludes fourth quarter share repurchases.
And we expect full year 2021 free cash flow conversion from adjusted EBITDA of approximately 16% up from our prior outlook of approximately 55%.
Note that our 2021 outlook still assumes the minimum level of license fees from travel and leisure as well as other variances versus 2019, which can be found in more detail in the investor presentation posted on our website.
In closing our third quarter results continued to demonstrate the resiliency and significant cash flow generation capabilities of our business model with Revpar recovery tracking ahead of expectations, our dividend now restored to pre pandemic levels and the recommencement of our share repurchase program. This past quarter, we continued to build on our strong track.
Record of driving shareholder return higher we are confident these trends will continue throughout 2022.
With that Jeff and I will be happy to take your questions operator.
The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key.
And we do ask that you limit yourself to one follow up Ed.
One question and one follow up.
We will take our first question from.
Steven Grambling with.
Goldman Sachs. Your line is open.
Hey, good morning, Thanks for taking the questions maybe I'll start off with I know, it's probably early to really be giving a whole lot of detail on 2022, but I'd love to just hear your initial thoughts.
Across maybe some of the different trends what do you think about the strength in leisure trends and the sustainability there recovery.
Some of the business trends.
Growth could be maybe even beyond 2019 at some point and then also what are some of the major moving pieces to think through as it relates to net unit growth in that acceleration you've been you've been discussing.
Okay. Thank you Steven.
Tim.
Well I will start with shell on on I guess, the just the leisure trend. The first piece of that question. Yeah look I think the industry all of US we're positively surprised as kids went back to school I mean to look at our.
Our economy Revpar, Stephen up 14% in the quarter and 14% as Michelle reported October month to date and to see that strength continue I mean, it just keeps getting better we all saw Smith travel come out last week with the week ending October 23rd.
STR economy was up 17% Wyndham hotels and resorts economy was up was up 20% three points over over the industry and I think the demand out there that is <unk>.
Despite being out of the peak leisure leisure season to see.
Economy. So far ahead of 19 midweek occupancy is now midweek occupancy is near two.
2019.
<unk> made we continue to 2019.
Levels, just continues to speak to that demand and we think that that demand certainly is going to continue throughout this fall as it's been.
And into <unk>.
Into next into next year and from a from a business travel standpoint, as we talked about in our script it keeps.
Keeps picking up our infrastructure and construction and transportation.
Business just just keeps.
Chugging, along and we do not expect that to slow down at all.
On the net unit growth.
We're just so pleased on so many different fronts with what happened in the quarter.
Just a monster quarter on executions.
Especially when it comes to conversions.
To think that our franchise sales and development teams around the world awarded over 100% more conversion rooms domestically.
19% and 20% more internationally than it did 19.
It gives us gives us just great strength as we added 6% more as Michel mentioned in our in our pipeline.
Great and maybe an unrelated follow up you mentioned mobile bookings up 50% I guess, where does that penetration now how does that compare across different types of customers and how are you trying to leverage mobile to drive consumer engagement, perhaps incremental partnerships in the future.
Our our partnerships.
Are critical to us I mean, the partnerships that we have with Wyndham rewards and what we're doing in fact, our team is out there.
Today meeting with one of our strategic partners in Las Vegas with.
Caesars is.
Is really important.
As we talk about what's going on on the mobile front I think the thing that were just most excited to see is that we're attracting younger consumers that we haven't had before into the program.
It is it is driving.
A real improvement in our in our marketing Rois on the digital frontier to your point I mean, we've been able to take our conversions from from sub 10% to over 40% and cut our social costs and.
And booking.
And almost half I mean, we know now more about who is staying with us where theyre coming from and the.
The investments Couldnt come at a better time, I mean with with.
With Google or moving their third party cookies.
Chrome and pressuring all of those.
That use.
Chrome and Google for marketing, what we're doing on the digital front is to really improve the precision.
Of our communications and provide those younger consumers with more relevant offers.
And get them to book.
Book into our hotels.
That's excellent. Thank you so much.
Thanks Steven.
We will take our next question from Danny Assad with Bank of America. Your line is now open.
Hey, good morning, guys.
My question is just a follow up on the <unk> piece.
Net unit growth, so just with all the headlines around China.
Some issues on the development side.
Are you where your developers on the ground seeing any ripple effects that could be causing any concern on your end for the hotel development.
Yeah.
In China no.
Danny I mean, new construction has especially.
I'll keep going for the coming months any quarters.
Well I think the biggest.
That gives us that confidence.
It's just again.
What what happened on the execution front in the in the conversion space I mean for our pipeline to grow 6%.
And toward two <unk>, the number of conversion rooms, domestically and 20% more internationally.
I think the other data point in terms of our confidence moving forward.
And how we get moving that two to $4 three to five is just how happy our teams are that we completed throughout 2020 that sizable restructuring we've talked about on these last two calls I mean, removing over 20000 unprofitable and noncompliant franchise rooms that are no longer going to be an issue for us moving forward.
Is it something that gives us.
Great confidence in terms of continuing to grow the Nuggets, and then I think our value proposition would be the third point I would add to that I mean to see our revpar indices of our brands, where they are I mean, we've talked about what we publish publicly reported back in.
In April we've never had a super eight <unk> reported 103% fair market share of days and at a 108 are great new brands like La Quinta at 109%, which.
It continues to.
To impress gives us.
Just just a lot of momentum.
Our engagement with our franchisees is stronger we think than it's ever been given the support we've shown them.
And then I guess finally, as we've discussed moving that retention up.
As we continue to do.
As another really important piece of the puzzle.
Thank you very much.
We will take our next question from Joe Greff with Jpmorgan. Your line is now open.
Good morning, guys.
I think these questions.
Well with the <unk>.
Operator.
When we think about your revpar to EBITDA sensitivity heading into next year is fair to say that.
Revpar sensitivity in 2019, what you would expect next year in terms of what one point of Revpar equates that sort of incremental EBITDA or fees.
And then if there are differences what would be the puts and takes in 'twenty two versus that relationship in 2019.
Hi, good morning.
I think youre, absolutely right the 2019 Revpar sensitivity will.
Likely.
In a material fashion for 2022 I don't expect there to be any real differences. There of course, one we're talking about the EBITDA line. We will have some puts and takes some headwinds with respect to the license fee and.
And then maybe some inflationary cost increases as you know as we move three years beyond 2019 cost levels, but but otherwise I expect it would help.
Great and then.
You mentioned all these.
Poverty.
Data points on the development front.
Yeah.
Or how much is there a gross room additions headwind.
Going into next year and beyond.
From 2020 in 2021 delayed or elongated construction cycle.
Well I'll give you some.
Lower health and accelerating that net rooms growth.
Yeah, I think it's good.
Question, Joe that.
Our teams are looking at are new construction.
Opens and what we're adding to the pipeline continues to give US again, just great confidence in terms of.
Being able to continue to see the new construction openings continue I mean, we opened another 27, new construction hotels this quarter I.
I think we opened about or executed we awarded about 20, New 70, I believe new construction contracts.
Which was right about on the same level that we opened that we actually that was awarded back in the third quarter of 2019 and over half of these deals are being signed with existing franchisees.
We mentioned in the script is the first time, we've had over 1000 hotels to your point in our new construction pipeline.
6% or 60 hotels from last year.
Other 15, I believe broke ground this quarter, which is up.
30% from last year.
I think theres, a real belief out there that that that that you know there is confidence.
<unk> to initiate among our franchisees, where they can new construction.
I mean, it's not just in China that we're seeing.
A significant uptick in.
Projects in the early early planning stages I mean in this country.
LNG is also reporting there's more new construction hotels to open in 'twenty two than there than there was back in 'twenty, one and that same number I believe they are reporting is going to open in 'twenty three so.
We're finding conversations.
Happening daily with our with our.
<unk> business owners and franchisees is how do I build a select service hotel as efficiently as I, possibly can at the highest rois and theyre looking at that new construction prototypes microtel like Lockheed and Thats where were seeing the growth.
Yeah, and I would say.
Joe We have got we have about 50000 rounds in the ground right now and half of that we would expect about half of that we would expect to open in 2020.
Thank you.
And we will take our next question.
David Katz I apologize.
Yeah.
Okay.
Yeah.
And David your line.
No.
Yeah.
Good morning.
Can you hear me yes.
Yeah. Thanks, sorry, if you literally.
No not at all.
But I wanted to just go a little farther.
On net unit growth.
So you talked about it a fair amount, but I'd love to take it.
On a longer term view.
Talk about the puts and takes that could get you to.
Higher.
With respect to the domestic.
Level.
Is there a long term vision of.
Getting to that mid single digit level, and what has to happen for that to occur and I named specifically.
In the domestic markets.
Sure Yeah, great Great question, David Thank you.
Of course.
Please have the equal the interbank, our net room growth driving that higher and particularly in the <unk> because those are those are very profitable for us.
We have talked about returning to our annual rate of two to four and then driving that higher to three to five and that is that is still our goal and and and then even beyond that so what we what we need to do are two things we needed to improve.
Our retention rate and we are showing great momentum towards that goal in 2021, and we can we expect to continue to show momentum towards that goal in 2022 and beyond and then we need to restore the admission side right now we're tracking about 85% of our 2019 levels.
2021, so we want to get that back to 100% and and potentially even a little bit more than 100% and same thing on the international side, but six.
Specifically talking about the domestic side of the portfolio.
We would expect our economy brands, what would maybe be kind of flattish and.
Very large system, a bunch of legacy large <unk>.
And there and then we would expect some.
Some.
Incremental growth to our large much larger incremental growth coming out of our midscale and above chain scale. So when we talk about the domestic portfolio, it's really about driving the development activity through through those midscale and above chain scale.
Alright, if I can just follow up I appreciate all that.
And just following that up.
Yes.
235 year.
Time horizon to get to those aspirational levels is that a reasonable way to think about it or is that something that you feel like could happen sooner than that.
I I think I think we will step our way into those aspirational goals over the next two to three years. So you should expect to see some momentum toward those calls.
Got it perfect nice quarter. Thanks, I appreciate it thanks. Thank you.
And so we will take our next question from Michael with Sally.
The stereo with Baird. Your line is now open.
Thanks, Good morning, John Michelle.
Hey, Mike.
Big picture question here sort of tying together the.
The prior point you made in the prior question, but let.
Let me go back to 2018 and turn the clock back here and that growth algorithm that you guys provided post spin.
It was a 8% to 14% EPS growth not not asking you for a number of you almost don't want to give one but maybe big picture now that your portfolio you've made it through the pandemic. What do you think that growth algorithm looks like going forward. What are the puts and takes versus your pre pandemic expectations and then b, where do you think that growth.
It should settle out on a forward looking basis.
Yeah sure.
I think it's a pretty simple business model right, Michael it's on net room growth plus the <unk> plus that revpar growth and maybe a point from scale and and a little bit as well from driving the royalty rate higher, particularly as we focus more on the B Midtown about France, and the U S and as well as.
The direct franchising business international which carries a much higher.
The royalty rate than the bendy master relationship still and then dropping to the EPS line, we would apply the effects of cash deployment. So to the extent that we can find a compelling business opportunity to invest we would we would drive it through EBITDA and to the extent that we can't it would obviously come through the share.
<unk> line item, so I think we're still.
We're still committed to that high single digit low low teens EPS growth rate over time and.
And as we can continue to improve our net room growth, obviously that algorithm can continue to improve.
Got it that's helpful. And then just kind of as a follow up.
Targeted leverage range is still three to four times.
I think operating in maybe the upper half of that range is more appropriate now versus closer to the midpoint of what you had been doing pre pandemic given everything you've learned from the pandemic and the cash flow sensitivity of the business model.
Yeah, Yeah, we we have evaluated death in three to four times leverage range did provide us maximum flexibility during during the pandemic to be able to support our franchisees. The way. We felt was necessary and then also the right level of security right from from a bank relationship perspective, so some.
Somewhere in that mid at that mid range, Yeah, I'm perfectly comfortable in the high end of that three to four three to four times and and I would say, we would be willing to even step out of that range for <unk>.
For a compelling investment opportunity of course with the expectation that we're able to get back within the range within a short period of time.
Got it very helpful. Thank you.
Thank you.
We will take our next question from Patrick Scholes with truly your line is now open.
Hi, good.
Good morning, everyone. Just a couple of quick questions.
I Wonder if you can just talk can you say or.
I'm sorry.
Were you active.
And the share repurchase market so far in <unk>.
Yes, So we were on our <unk> five one plan for the month of October.
Okay, alright, good so that continues and then.
Almost specifically on the small bump up in the net room growth per year.
The increase mostly attributable to the all.
All inclusive.
Was there anything specific or was it just a combination of kind of everything that's gone so far.
A little of all inclusive, obviously, but it's it's really been a combination of.
Of everything and as we've been talking about I mean, we're seeing continued concentrated growth in the higher revenue generating segments and that was certainly reflective of our openings and what you saw going into the pipeline.
Okay.
Thank you.
Thanks, Patrick Thank you.
Well take our next question from Colton Stumped with loop capital. Your line is now open.
Perfect. Thank.
Hi, good morning, Congrats on what was obviously a great quarter.
Everything pretty much beat our expectations across the board I was surprised that in particular.
How much depletions were down year over year, I think you mentioned you'd.
Versus pre COVID-19, I guess, what is the key driver of that given the fact that there's obviously a lot of moving.
Moving parts going on upcoming calls.
<unk> in New York.
Okay.
You know a trend of lower dilution.
If I could continue going forward.
Hi, good morning.
Attention year to date is talking about 50 basis points better than 2019, we don't look at it so much on a quarterly basis, because there can be some noise from one quarter to the next I would not look at it compared to 2020 as as we know we were driving some rooms out of the system that year in connection with Covid and kind of resetting.
Our portfolio, so really the baseline would be 2019, and we're trending about 50 basis points favorable that really reflect reflects.
All the investments, we're making and the value proposition and our level of <unk>.
Of owner satisfaction, which is at four for our field team, which is interacting mostly with our franchisee base at that time, and then 99% rate right now.
That makes sense. Thanks, so much and then just.
I kind of think about unit count growth obviously.
School is is to get back to work.
Any kind of timing could that happen next year or is it more of a 'twenty 'twenty through 'twenty four.
You know how do you see that playing out over the next couple of years.
Yeah, well, so we're not going to provide guidance for 2022, we're not prepared to do that yet, but what I can say is we would expect to see continued improvement toward our longer term goals of.
Driving net room growth above the 3% to 5% range.
Okay, great. Thanks, so much I'll hop back in the queue.
Thank you thanks.
Thanks, Paul.
And we will take our next question from Ian Zaffino with Oppenheimer. Your line is now open.
Alright, great. Thank you very much couple of questions here I guess, the first one would be.
You know just given how well youre kind of higher end brands have done.
Is there a greater desire to push deeper into that I know you have some initiatives, but maybe kind of.
Doubling down on those or kind of sticking to our knitting in the mid.
Mid range or upper mid range. Thanks.
Sure. Thanks Ian.
We will stick to our knitting and we're really happy again to just see how strong the growth has been and both our openings in our pipeline.
And in that mid scale and upscale I mean, I think if you look at the deck.
The investor presentation that we have you see that reflected there.
On that same page that we do have two new higher end brands, which were.
We're thrilled with that.
The partnership that we have with Playa with the Wyndham Altra brand and we think it.
All inclusive is.
As this segment right now that is.
It's going to be in great demand from developers both.
Both in the Caribbean and Mexico with with Playa, but also internationally and we're starting to see some some some pickup there as we as we referenced in terms of our pipeline.
And then well.
We talked a little bit about on the last call. The launch of our registry collection I mean, just a remarkable identity brand with.
Today 245 star resorts around the world on five continents with some of the most.
Recognizable resorts in their markets.
We're starting to see some traction there, but when it comes to our where we're getting the growth.
In our supplement.
Our mid scale brands La Quinta in our upscale brand its Wyndham Wyndham Grand and it's Dolce actually.
Internationally.
Those those brands will continue to grow for us.
Okay.
I think also Ian if you if you just if you believe that leisure is going to continue to be the primary driver during the early stages of this new lodging cycle. Then then.
We would expect to see some.
Some higher growth rates in our upscale in our upscale segment at.
Our distribution platform is really place to benefit from that leisure demand.
Okay, and then I know.
We're still in kind of 'twenty.
'twenty, one, but if we were to look at 2022 and taking that core point.
The same happened sort of before.
Year end, how do we think about that into next year.
Yeah, it's it would not be appropriate for us to comment on any potential transaction for clarifying Im sure theyre going to update update.
Date on their status on their call and then we will provide a fulsome update on what that means to our 2022 and beyond when we have information regarding.
Whether or not they actually are going to be selling a portfolio.
Okay. Thank you very much guys.
Thanks, a lot.
And we will take our final question from Dan <unk> with Morningstar. Your line is now open.
Alright, thanks for taking the question.
So.
I'm wondering what you guys are thinking as far as the ability for some of these international markets in 2022 to maybe catch up to the Revpar demand recovery that we've seen in the U S. Whether that can maybe occur next year and kind of supplement the sustainable leisure demand that you guys are expecting in the U S.
Next year.
Yeah, I think if there's one thing Dan that's been.
True throughout this pandemic it says travel restrictions are opening up.
Or easing that Revpar comes back quickly I mean, it was just great to see Europe, Canada, and Latin America. This quarter, all gaining more than 20 points of.
Revpar since since Q2.
And.
It's great to see after the most recent lockdowns are steadily improving.
Revpar in China as Michel referenced.
Back to nearly 90% of 19 levels.
I think the Best example out there is Canada.
It was down 40% before it's now it was down 10% in September and I think it's running.
October month to date are ahead of where it was in October.
And so.
Look as is.
And one of the great things as airlines have added capacity I mean, we saw that in Europe, I mean, the inter European lift.
Just created a really strong quarter for us in October.
I mean, our big markets over there, Germany came back U K came back.
The demand for for vacation travel I think this is.
This fall we talked about earlier this week.
Adding 12, great new resorts that we just opened this quarter.
With our CLC relationship in countries like Spain, Tinnery Fe can areas, which are sun seeking destinations for Europeans.
I think theres, a real ability for us to continue to see Revpar recovery.
And as.
Those restrictions are lifted.
Helpful color. Thank you nice quarter guys.
Thanks, a lot.
We have no further questions on the line at this time I.
I will turn the program back over to Jeff <unk> for any additional or closing remarks.
Thank you Britney and thanks again, everyone for your time today, Michele Matt and I very much look forward to speaking with many of you in the weeks ahead.
And more importantly, hopefully seeing more of you face to face.
Great weekend ahead.
And happy Halloween on Sunday.
Thank you. This does conclude today's Wyndham hotels and resorts third quarter 2021 earnings Conference call. Please disconnect. Your lines at this time and have a wonderful day.
Yeah.
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