Q3 2022 Wyndham Hotels & Resorts Inc Earnings Call
Please standby your program is about to begin.
Good day, and welcome to the Wyndham hotels and resorts third quarter 2022 earnings Conference call.
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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.
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 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.
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.
They 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.
Milling submitted with the SEC and any public conference calls our webcast.
With that I will turn the call over to Jeff.
Thanks, Matt and thanks, everyone for joining us. This morning, we're pleased to report another strong quarter, where we delivered $191 million of adjusted EBITDA and generated nearly $100 million of free cash flow.
Hemans trading the continued resiliency and consistency of our business model, while returning over $160 million to shareholders, bringing our year to date capital return to 400 million or 5% of our market cap.
Global Revpar grew 12% to last year, finishing 11% above 2019 levels here.
Here in the United States Revpar for Q3 ran 250 basis points higher than last year's record third quarter.
And finished 10% above 2019.
Hi, its absolute quarterly revpar ever recorded for our brands.
Year to date U S. Revpar closed the quarter, 15% ahead of 2021, and 8% ahead of 2019 and.
And for the first three weeks of October demand for our brands has continued to accelerate with U S. Revpar up 9% to prior year, driven by both rate and occupancy gains.
Internationally Revpar in 46% ahead of last year, and 17% above 2019, driven by our EMEA, Latam and Canada regions, which all generated revpar well in excess of both 2019 in 2021 levels.
International occupancy, which improved from down 23 points last quarter to down 16 points. This quarter to 2019 levels, we will continue.
To provide a meaningful tailwind for us in the coming quarters as demand continues to grow overseas.
Our select service franchisees here in the United States were among the first in the industry to see their business is fully recover from Covid last year.
While the majority of the small business owners have said that 2021 was the best year they've ever experienced financially.
Most of them are again, telling us the 2022 will be an even stronger year than last year from a revenue and margin standpoint, despite the broader macro economic climate.
As our results to date are demonstrating we've seen no signs of any slowdown here in the U S.
The seasonal occupancy declines that historically occur heading into the fall have been significantly less pronounced than in years prior to the pandemic.
On the leisure front, we continue to see year over year double digit increases in our web traffic.
And booking windows continued to increase compared to 2021.
And on the business front, our weekday occupancy was the highest on record for the month of September as we continue to capture new infrastructure related accounts.
As we look beyond 2022 infrastructure bookings represent a significant tailwind for our business is more projects commence and construction ramps up on the largest public work Bill signed into U S law in 70 years.
We grew net rooms by over 4%, including 80 basis points due to the acquisition of R. 23rd brand Vienna House by Wyndham, which added over 40 hotels and more than 6400 rooms under long term franchise agreements predominantly in Germany.
This high quality and accretive brand was acquired from an institutional developer and.
And our current owner of other Wyndham branded hotels, who continues to grow its European network of by Wyndham brands. Our team in Europe is looking to expand the size of the Vienna House portfolio over the next few years.
As we plug the brand into our strong European infrastructure and distribution network.
Excluding the in house, we grew net rooms organically by over 3% and this was the first quarter since the pandemic that all of our regions around the world return to positive sequential net room growth.
We opened some spectacular new hotels this quarter here.
Here in the United States, where we opened more rooms than we opened in Q3 of 2019, we welcomed the grand over resort and Spa, one of North Carolina is best golf and meeting destination resorts to the Wyndham Grand family.
We were also very proud to open our latest la Quinta del Sol prototype the new all construction laquita by Wyndham outside of Denver, Colorado.
Internationally, we opened more rooms than we did in both Q3 of 2021 and back in the third quarter of 2019.
In Latin America, where we grew net rooms by over 25%. We opened 10 more luxury registry collection hotels with the Palladium Hotel group.
Adding 5000 rooms across the Dominican Republic, Jamaica, Mexico and Panama.
Our China direct franchising business grew its system size by another 8% with new days Inn Microtel, Wyndham Garden Wyndham Grand in half a dozen new Romano by Wyndham hotels opening across the country. Despite the sporadic lockdowns and travel restrictions.
And our EMEA region grew net rooms organically by 9% with impressive new additions like the 425 room trademark collection Frankfurt Airport deluxe.
The luxurious wyndham residences on the palm and Dubai.
The new five star Wyndham Grand door, West Bay Beach Hotel with its multiple spot.
Restaurant and pool facilities in the heart of guitars financial district.
We grew our development pipeline by 10% to a record 212000 rooms and.
And over 1600 hotels.
Notably we awarded another 48 project Echo new construction extended stay contracts. This quarter, two established developers and experienced extended stay operators, bringing the total number of contracts awarded to 120 hotels in just six short months.
We had our first project Deco groundbreaking September in Plano, Texas with Gulf Coast Hospitality, who is committed to build 25, new construction project Deco hotels.
And next week, Michelle and I will be visiting Virginia for the first ground break of Sandpiper hospitality twenty-seven project Deco hotels that they have committed to build.
A record development pipeline marks the ninth consecutive quarter of sequential pipeline growth as we awarded 120, new contracts in the United States and approximately 95 contracts internationally, which in total account for more than 30000 new rooms.
Year to date, our teams have signed over 565, new contracts, which is nearly three contracts awarded each and every business day.
The number of contracts signed was 42% higher than what we awarded last year and 47% higher than in the third quarter of 2019.
In the United States, we signed a 114% more contracts than we did in 2019.
Year over year signings of our cost efficient new construction prototypes have increased approximately 40% above 2019.
The percentage of our pipeline that were poured new foundations for new construction increased 250 basis points compared to this point last year and we have more new ground breaks plan for the remainder of 2022 than we did in both Q4 of 2021 and in Q4 of 2019.
Our award winning Wyndham rewards loyalty program has been recognized as the best Hotel loyalty program for the fifth consecutive year by the readers of USA today, along with the Wyndham rewards earner card as its best Hotel credit cards.
Total Wyndham rewards membership grew 8% over the past 12 months and now stands at over 97 million members.
Revenue generated in the U S from direct bookings on our brand dotcom sites grew over 10% in the quarter compared to 2021 outpacing the rate of growth across all third party channels driven in large part by the Wyndham rewards loyalty program with nearly 50% of all U S guests, representing Wyndham rewards members.
As our Wyndham Dot com channels hit an all time record of contribution third party O T. A channels as a percentage of total bookings remained below 2019 levels.
Our commitment to encouraging diverse hotel ownership continues to grow.
Next week bold by Wyndham, which stands for black owners and lodging developers will cohost, a black hotel ownership symposium with our inaugural member at his mixed use development project in Atlanta, Georgia.
We've designed this educational event to help black entrepreneur is get started on their journey to hotel ownership.
And interest in bold along with Wyndham women on the room program continues to exceed our expectations with over a dozen bolt hotels and over 20 women owned the room hotels now in our development pipeline.
From a sustainability perspective, we are very proud that Google is now displaying Wyndham green certified hotels.
With its eco certification badge when searching for accommodations.
We are one of only two hotel programs that Google is recognized for this certification.
Additionally, we added search functionality this quarter, so that our guests can easily identify Wyndham green certified hotels on our brand dot com websites and mobile app.
With our franchising business performing at record levels, and our brands attracting more interest than ever from owners and developers. We are confident in the continued stability of our franchise business model and its ability to deliver outstanding value to our franchisees our customers and our stakeholders in any environment.
This confidence allowed us to raise our full year outlook, which Michele will now cover in further detail Michelle.
Thanks, Jeff and good morning, everyone I'll begin my remarks today with a detailed review of our third quarter results. I will then review our cash flows and balance sheet, followed by an update to our 2022 outlook as Jeff mentioned.
During the third quarter, our fee related and other revenue was $375 million and our adjusted EBITDA was $191 million.
As mentioned on our second quarter call our year over year results are not comparable to the sale of our two owned hotels and the exit of our select service management business in the first half of this year.
In an effort to simplify our results my commentary today will again be centered around our technical department.
Our franchising segment grew revenue by 9% year over year, primarily reflecting constant currency global revpar growth of 12% and higher license fee.
Adjusted EBITDA increased 4% to $201 million.
Revenue increases were partially offset as expected by the timing of higher marketing spend in the quarter, which unfavorably impacted margin by 270 basis points.
Excluding this timing impact our adjusted EBITDA grew 12% in the third quarter and the adjusted EBIT margin.
With prior year.
In our hotel management segment revenue and adjusted EBITDA decline reflected the sale of our select service management owned hotel businesses, which collectively.
<unk> contributed approximately $34 million in revenue and $10 million and adjusted EBITDA last year.
Within our corporate and other segment, we saw $10 million of higher expenses due to inflationary cost pressures as expected and reflection at the current environment.
Adjusted diluted EPS improved 4% to $1 21.
Reflecting our adjusted EBIT growth in the hotel franchising segment as well as the benefit from our share repurchase activity.
This was partially offset by the sale of our select service management business and owned hotels.
Comparable basis, excluding these impacts and neutralizing for the timing differences and the marketing fund.
Adjusted diluted EPS increased 14%.
Before moving on to free cash flow, let me take a moment to discuss current regional Revpar performance and the tailwind we see moving beyond 2022 with occupancy not yet back to pre pandemic levels.
As Jeff mentioned local Revpar continue just surpassed 2019 levels. This quarter by 11% led by U S. Revpar of 110% at 2019 and international at 117%. This was the first quarter, we saw international Revpar surpassed 2019 levels, reflecting strong for copper.
Across Europe and considerably stronger pricing power.
All regions exceeded 2019 with global ADR up 10%.
Occupancy however, still has room to recover across the globe.
U S occupancy reached 96% of 2019 level in EMEA, 93% and in China, 72% overall.
Overall global occupancy improved to 91% of 2019 level again illustrating significant round for kidney continued demand recovery pre COVID-19 level.
Now turning to free cash flow, we generated $97 million during the quarter and $321 million year to date, an increase of 6% compared to 2021, our year to date free cash flow conversion rate now stands at 61% and we remain well on track to achieve our targeted 55% conversion rate.
We returned $161 million to our shareholders. During the third quarter grew $132 million of share repurchases and 29 million of common stock dividend when coupled with the $44 million of cash used to acquire the Haddon house brands, the $205 million of excess cash to point this quarter was 20% higher than the second quarter.
Year to date, we have returned $400 million of capital to shareholders, which as Jeff mentioned represents approximately 5% of our market cap.
As always our first priority is to reinvest in the business and we actively explore both external and organic growth opportunities. The banner Health acquisition is an example of the type of small tuck in deals we're targeting asset light in the higher teens accretive to earnings and our brand work and ability to grow in existing and adjacent markets.
Moving into 2023 and subject to board approval, we expect to continue to maintain our industry, leading dividend payout ratio and share repurchases will continue to be an integral element of our capital allocation strategy earlier. This week, our board increased our share repurchase authorization by $400 million, reflecting its confidence in the businesses ability to.
Generate substantial cash and its continued commitment to shareholder return.
We ended the quarter with approximately $1 billion of total liquidity and our net leverage was two seven times, our ending cash balance of $286 million is above our normal levels due to the portion of the proceeds we received from the select service management and owned hotel sale transaction and its yet to be deployed.
Just a quick cash our net leverage was three times at the low end of our stated target range importantly, only 20% of our long term gross debt is variable rate limiting our exposure to the rising interest rate environment.
Despite the broader economic climate deleveraging or building excess cash on our balance sheet are not consideration given the highly cash generative nature of our business model, our current liquidity profile and the resilience of our demand drivers as demonstrated throughout prior down cycle now.
Now turning to outlook, we're raising our full year 2022 as follows we now expect year over year global Revpar growth of 14% to 16% and global net room growth of approximately 4%.
And other revenues are expected to be 133 billion to $1 3 billion, an increase of $34 million from July outlook, reflecting the higher revpar and net room growth expectation.
Based primarily on the strength of global Revpar trends, we expect our marketing reservation and loyalty plan to contribute approximately $20 million to adjusted EBITDA compared with our previous outlook of $10 million.
These changes combined for an increase of $19 million to our adjusted EBITDA expectation, which is now projected to be 636 million to $644 million we.
We expect adjusted net income of 349 million to $354 million $23 million higher than our prior outlook and our adjusted diluted EPS expectation increases 30 cents per share and is now projected to be $3 84 per share to $3 89 per share based on a diluted share count of 91.
Million, which as usual excludes any fourth quarter share repurchase debt. There is no change to our prior outlook for a free cash flow conversion rate of approximately 55%.
As a reminder, looking towards 2023, we have provided two site in our investor presentation to help with your modeling.
Slide 33 provides the historical financial impact of our select service management business and owned hotels, which will need to be adjusted from Derby.
On slide 35 provides revenue sensitivity.
In closing our third quarter results once again demonstrate the resiliency and strong cash flow capability of our business model. We are deploying our available capital in a disciplined fashion to drive growth in the business and increase shareholder returns, which we believe an asset light business such as ours one.
With our low leverage the expansion of our $750 million revolving credit facility earlier, this year and no maturities until mid 2025, the strength of our balance sheet provides us with tremendous flexibility along with the means to continue to fund strategic growth initiatives over the coming years.
With that Jeff and I would 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 telephone keypad.
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We will take our first question from Patrick Shoals of Truth Securities.
Hi, good morning, everyone.
Good morning, Patrick.
Good morning.
Regarding your full year earnings guidance range, how should we think about.
How much of that is from.
You, beating your internal expectations for Q.
Is any of that from.
For two organic raise versus prior expectations, hopefully that makes sense.
Sure. Good morning, Patrick we raised our full year guidance by $19 million and versus our internal projections. This represents about a 12 million dollar beat in the third quarter and a $7 million raised to our fourth quarter expectations.
Okay. Thank you so so small organic in the fourth quarter.
Our next question on the purchase of the Beata House, Brad can you provide an EBITDA multiple for that.
Yes, sure I believe we I believe we are well.
I believe the EBITDA multiple was calculated based upon a $44 million.
$44 million purchase price and it's going to generate about $4 million of EBITDA and in a stabilized basis for 12 months.
Okay. Thank you and then.
Just last question from Michelle I've noticed that as the year progressed your expectations for the SBC stock.
Stock based comp going down with.
And in today's environment, we don't see a lot of costs going down I'm wondering what's driving that you know something that counting wise I wonder if you could just give some color on that thank you.
Yes, there is that there is a bunch of different accounting and Theyre basically okay. How we recognize the expense between the time that fit and the performance that that portion and then obviously with the rest of the <unk>.
Attrition as well.
Okay was there any.
Major attrition that you'd want to call out.
That was a significant in driving that.
No nothing nothing material or I think important to highlight.
Okay Fair enough that's it for me thank you.
Thanks, Patrick.
Thank you. Our next question comes from Joe Greff of J P. Morgan.
Good morning, everybody.
Jessica Michelle.
Given.
Just general momentum in your development pipeline with a nine.
Quarters of sequential development pipeline growth momentum and project debt go strides in retention rates.
Things like Vienna House.
Do you think going forward that net rooms growth for target is closer to 4% to 2% at this point.
We're not giving guidance on the call Joe, but certainly given how healthy our pipeline our pipeline has never been healthier and it was just explosive obviously in.
In the quarter year over year, we're feeling very good about about where it sits and where we're headed I mean this what our teams have put up not only with a to your point the echo growth, which has just been off the charts in terms of expectations, but also from from so many of our prototype brands.
He's been a fear that new construction slowing we're certainly not seeing that from the demand.
Our new construction prototype brands I mean, we've seen.
Aside from Echo we've seen great growth on.
G just across the board our Moda prototype when we look at where it was versus this time last year and our pipeline up 12%, our Wyndham garden up 20% and we've talked a lot about our Hawthorn suites in our La Quinta brand, which is up sits at a almost 30% over where it was this this year. So we're very confident in terms of our network.
Growth this year, and where we could move it in the future and I'm, just thrilled with what's happening with the pipeline.
Great and then just following up on <unk>.
Project debt that obviously you have.
120.
Projects in the pipeline, maybe more than that given that we're in October .
What did you get to two to three years and maybe the way to answer it or or to think about answering it is what wyndham.
Brand do you benchmark it against in terms of penetration opportunity and following up on project that fell when do you think you start to do single developer single development deals.
Well great trip all great questions Joe.
We've reached multi unit development agreements with seven of the nation's preeminent extended stay developers and that's providing a runway over the next five years for the brand to have.
Over as we've said are what what we'd hope to have this year 100 pipeline by the by the year end. We're now at 120 as you say, we're we're still signing deals we had our first ground break as we talked about in Plano and another ground break next week, we'll we'll exit 2022 with at least four hotels in the ground and that's.
Really laying the foundation for those first two hotels to open late next year.
Less than two years from from when we announced it. So we we expect to accelerate the timeline and seeking out those individual owners that you're asking about.
We would expect it by mid of 2023 Chip Olson, David will never will expand it to the rest of their development team.
And yeah, well will be on our way to benchmark it against other brands. It is tough to do the extended stay demand is just.
Off the charts I mean, we're seeing a 13 point year to date.
Delta between what extended stay is running occupancy wise and what the rest of the industry is rising that's that's a big piece of this and yeah. We're just we're just thrilled that it what we've seen so far.
Great and then maybe one more final up quickly for Michelle.
When you think about buyback going forward is it really.
Using the excess cash and internally generated free cash flow to buy back stock or would you actually lever up to buy back stock.
I think I think it is it is the former at this point in time, given the current interest rate environment, we aren't inclined to lever up above our stated range without a compelling reason to do so so obviously, we had a good use of proceeds something we would.
We would clearly consider.
Thank you guys.
Thanks, Joe Thank you.
Thank you. Our next question comes from David Katz of Jefferies.
Hi, good morning, everyone.
Thanks for taking my question. So look a couple of issues that come up just broadly speaking about Wyndham one.
<unk> sort of outlook for leisure travel.
What your exposure to that is particularly in the moderate and lower end segments.
Second exposure to China.
<unk> Asia broadly speaking and whether either of those pose a risk to your earnings cadence and I'd love to have you just talk about those a little bit I think it would be helpful.
Two great questions David I'll take your last question first which is on Asia.
And specifically, China, but we are incredibly proud of our Asia Pacific and in our China team's given everything that they've.
They have accomplished and how well they're performing it is not.
And in any way shape or form are an issue for us going forward I mean the.
The delivery consistently from these teams over the over the past few years, we're very optimistic about the long term prospects. There. We've got 60000 direct franchising rooms in the pipeline.
Year to date. The team has opened about the same number of rooms as they open back in 2019.
And more impressively the development team in China has awarded the same number of contracts year to date through up through the end of the third quarter as they did back in 2019. So you know as their conversion pipeline has doubled as they've been successful introducing new brands to new markets across mainland China.
And as they've been delivering consistently quarter in quarter out and 8% net room growth in our direct franchising business. Despite all the challenges last quarter.
We're we're feeling very good about our about our long term the prospects over there.
In terms of the you mentioned the lower end consumer I mean, we're clearly middle classes, we talked about on the last call but.
But the demand that we're seeing right now is just more robust than than we would have.
Ever.
Thought possible, we're seeing continued consumer demand or Google search volumes, just keep increasing their up 30% to last year. Our holiday searches are just off the charts for Thanksgiving for Christmas and new year's and it's it's consistent with everything the industry seeing a dorado pulse report out this week was forecasting robust holiday.
Well, that's what we're seeing.
The leisure pickup for October November December is continuing to pace ahead of same time last year and back in August our web traffic is running double digits ahead of where it was back in.
In 19.
And our cancellation rates are down or booking windows as we mentioned we're up.
And I think all we need to do is look at October month to date through these first three weeks to see how this demand.
Continues to accelerate with this mid.
Mid income at mid scale consumer that stays in our hotels were up consistently.
September was the best occupancy that we've ever seen them.
And October month to date is up.
19% over 19, 9% over 2021 ahead of that last year in both rate and occupancy and it's that way in all of our Big States in Texas, Florida, California, Georgia, North Carolina occupancy is running well ahead of where it was not only back in 19, but last year. So I think guests who put off summer vacations.
And in that.
That.
That segment are taking to the roads in record numbers and we're seeing that in our hotels. They are driving further than they ever have.
Understood and if I can just please I think yes, David if I could just to address the last part of the China question, which like ours the risk to our earnings cadence I would say as Jeff mentioned, we are we are super proud of everything the team there has accomplished.
Bye.
The success, we are aware of the economic situation, we have a large team of locals there and we're in touch with them on a daily basis.
The region in 2022 is generating less than 2%.
Of our EBITDA.
Okay.
Understood and if I can just throw one other matter out there for discussion.
Around Jeff your comments on the loyalty program.
We've seen across the industry, where companies are generating fee streams and value outside of the scope of revpar.
From those membership basis is that an opportunity for you. All you know short term long term and any thoughts there would be helpful too and that's it for me. Thanks sure. The best proxy David for our loyalty program is the share of occupancy that it contributes nicely and.
And then occupancy is is very important to our small business owners and our franchisees and it's up five to 600 basis points to where it was pre pandemic I mean, it was just as we said.
Voted the number one hotel loyalty program in the World.
By U S News and World report and that's for the fifth consecutive year.
By by USA today.
And we're really proud of that but.
As as it continues to grow in size our pre pandemic.
We're in the Eighty's were approaching we believe we'll hit our 100 million member this year at some point, we're up 8% year over year.
And the programs up 25% to two to 2019, but the ability to drive that.
That one out of every two check ins to domestically.
Into our hotels as what's most important and and and our teams are doing a phenomenal job and are very focused on continuing to see that share of occupancy for our for our owners, which is really our value proposition in terms of.
What what franchisees are paying for in terms of direct contribution.
Is it was whats nearest and dearest to our hearts.
Yeah.
And do you see opportunities, we do see opportunities beyond just the occupancy. We are we have a co branded credit card with our loyalty program multiple partnerships and we are looking to continue to expand those partnerships to drive incremental value.
Due to our owners as well as incremental earnings.
Turning to Windows.
Okay. Thank you very much.
Thanks, David.
Thank you. Our next question comes from Michael Bellisario of Baird.
Thanks, Good morning, everyone.
Good morning, Michael.
Just a follow up to one of the last question could you maybe.
Give us a timeline or walk us through what you saw in July when you had tough comps domestically and then fast forward to September and month.
Month to date in October so far that that's been much stronger maybe where it was where are the strengths where are the weaknesses and if you could quantify it how much of the uptick is maybe coming from the infrastructure strength that you mentioned earlier sure two great.
Questions, we'll start with <unk>.
What happened throughout the summer and I think it goes back to what we said on our last call. We expected and I think our owners expected that vacation season would not stop on labor day, and it certainly didn't I mean, we're seeing record setting demand for this time of year the month over month.
Seasonal declines are significantly less than they were in years past, meaning that seasonal resorts are seeing no seasonality.
Wyndham Newport for example was talking to the team there September occupancy, 8% ahead of last year.
<unk> down a bit in July October , 21% and occupancy ahead of last year.
With with Revpar in both months September and October up 50% to 2019 and in those Big States again for US are running well ahead of Florida for example.
Which was.
It was up.
19% to 919.
Was up 21% October month to date to last year with ADR up 16% and Revpar up 40% I mean, we're seeing big states like Georgia significantly ahead in occupancy.
The prior year and Revpar to prior year, So again we.
We think that guests too.
Put off those summer vacations, maybe because they just couldn't find space couldn't find availability.
The demand was constrained by just a lack of availability.
We're picking it up and continuing into.
Into the fall and we think that's that's going to continue and in from a leisure standpoint going forward as.
With no more fear of Covid, which was one of the things we were worried about this time last year customers are looking to travel now more than ever and we're seeing it across the industry, whether it's it's the the two big card companies. They put out this data Mastercard spending pulse survey lodging 20 consecutive months of growth has picked up.
From July it was up 30% and.
September it ran 43% significantly stronger than it did in July versus 2019, and I think Visa's report out last night.
They were pretty clear they were getting a boost from from travel payments with no signs of any slowdown.
And consumer demand in the economy and mid scale.
Space, we're certainly not seeing it from an infrastructure standpoint to the second part of your question.
I mean, this was the third consecutive quarter, where our infrastructure account spending increased double digit 2019, I mean, it is not running over 25% year to date and to just try to size how meaningful this is for our brands and in our small business owners.
If you recall, if you step back and you think about us versus many of our competitors, 70% of our business is leisure, which is very strong 30% of it is business, but that business is different it's not white collar business travel. It is it is 70% of that 30% business mix is that infrastructure business.
Yes.
And those are the companies that are being contracted to repair our nation's highways and bridges in ports.
And it's those companies who book these blue collar workers into economy Midscale lodging that is just so attractive for our for our brands and for our hotel owners.
The congressional budget office. The CBO was estimating that only 25 billion of the incremental infrastructure spending will be spent in 2022, there they're estimating that that outlay is going to triple in 2023 to 75 billion and then is going to run.
100 billion $140 billion and 175 billion in 'twenty four 'twenty five 'twenty six so think about that and in this 550 billion that we're all reading about are incremental authorization spending is on top of the $650 billion of the regular reauthorized.
Legislation, which gets us to the the $1 two trillion that's in the news so significant tailwind for our team. We're very excited about it we're adding more sellers to sign accounts and we think.
We continue to win more bids and gained more midweek domestic market share.
Got it that's very helpful and then just out there.
And then Michael I, just had three quick points to that and of course that September October occupancy with it that we had on record and second E. B I, we're still seeing this Sunday occupancies exceeded 2019 levels, which is longer long weekends for leisure as well as some leisure mixing in there and then third the infrastructure accounts as Jack mentioned in his prepared.
Remarks.
Were up by double digits for the third consecutive quarter.
And then just.
Just sort of looking forward not looking for guidance on 'twenty three but it is the calendar flips how are you thinking about where the upside drivers might be and then also where the downside risks might lie as well.
But we.
We think about we think about the occupancy tailwind for 2023 as well as the sustainability of Edr not just now.
Not just in the U S. But also I also internationally, we think about it.
The recovery of the business travel, although that's a small piece of it is still will be incrementally positive for for 2023, and we will have some of our eco hotels opening in contributing something to 2023 and as well as the P&L and then when we think about risk we balance that out.
Obviously with the macro economic trends.
Helpful. Thank you.
Thanks, Mike.
Thank you. Our next question comes from Danny Assad of Bank of America.
Hey, good morning, everybody.
My question is on on pipelines. So how much of your pipeline growth that you saw at 10% in the quarter is from project Echo and I guess I'll ask my follow up.
Like how long would it take for that pipeline bump like the one we're seeing to turn into accelerating unit growth.
Again, not giving guidance Danny on the call, but this is the healthiest our pipeline has ever been and it.
It is the ninth consecutive quarter of sequential growth.
The U S pipeline sequentially increased 7%.
It increased 24% versus last year and a significant piece of that was echo, but taking echo entirely out to your question.
We still saw very strong growth not only from echo but growth from our other new construction prototype brands that are that I had mentioned.
We have a just a record number of hotels in the pipeline right now 1200 hotels up 17% from last year.
You know, it's it's been it's been the brands I talked about a few questions back that have been driving that in addition to echo.
Okay.
Thank you.
Thanks, Danny and good luck with a baby number two here weeks away.
Thank you Eric that you guys got it you got to keep up with the Kellys.
<unk>.
Yes.
Thank you we'll take our next question from <unk> Zaffino of Oppenheimer.
Okay, great. Thank you very much.
Michelle I know you mentioned.
This idea of longer weekends.
You know more Sunday stays.
Is that trend continuing is it accelerating decelerating I'm, just any kind of color there would.
It would be helpful. Thanks.
Yeah, we do we do see it increasing.
And continuing to drive them.
More leisure demand on Thursday Sunday.
And obviously driving overall overall occupancy as well as pricing now that demand is higher on those weekday.
Yeah, that's exactly right, Michelle and specifically when you look at it at a Sunday being being our fastest growing night, it's up in a good six.
600 basis points over where it was back in 2019 levels.
The booking window has continued to increase and we have more visibility we think it will continue to grow.
Okay. Good thank you and then.
I know you touched on the infrastructure piece of it you know if we look at the IRI and just the proliferation of Evs going on does that open up a new revenue source for you.
And what is your franchisees doing now as far as charging vehicles putting in stations.
And any color there would be helpful. Because I know some of the rental car companies are now looking at that as an ancillary revenue stream.
The EV charging so I don't know what you guys are thinking and how.
How you are approaching this thing. It is is it's a great question and it is on our list and it's something we talk a lot with our franchise Advisory Council, we were meeting with them a few.
A few weeks back and it's it's you know it makes the top 10 list, we're partnering with some.
Some of the nation's leading EV charging companies and we've we have a series of models that we've offered to our franchisees.
But it's right up there with with what they're expecting from you know a large sourcing.
A company like ours I mean, it's it's it's important it's it could be measurable and it's a it's something that that we're gonna be very focused on in the years ahead.
Okay.
Okay. Thank you very much.
Thanks Ian.
Yeah.
Thank you we'll take our next question from Stephen Grambling of Morgan Stanley .
Hey, Thanks for sneaking me in just following up on some of the questions regarding leisure can you parse out how the demographics of your leisure customer may be changing in other words are you capturing a higher end or a different age base and you also called out higher web traffic could you give a little more color on the other components of your.
Mixed between Otas on property GDS or other channels versus pre pandemic.
Welcome back Steven It we must do the last few calls.
<unk>.
A few great questions there.
What what we're most.
Think impressed with the marketing team leased to check you in.
And her group are most impressed with is that we're seeing younger travelers continue to gain share on our older older Boomers our share of next generation travelers. The generation X are the whys and disease increased another 200 basis points in the quarter from 62% last year to 64%.
<unk> this year of check ins and so that is that is really important and we're seeing the average age of our Wyndham reward members fall as the program grows and we're seeing the medium in income of our of our members.
Kris as well from around $75000 to $90000 and that's a that's really really important and it's a big piece of what is driving.
The the sheer and.
<unk> of.
Wyndham reward check ins, we believe and what's making the program.
It is as strong as it is and as attractive as it is for.
For our owners from from a contribution standpoint, Wyndham rewards is the fastest growing channel of contribution.
It consistently runs ahead right now of where we were.
Back before the pandemic, where we were last year and and we're seeing it.
Run run from a growth standpoint significantly ahead of our third party channels.
And our contribution in the U S is up about.
140 basis points from 2019.
Great and one unrelated follow up I may have missed this but Michelle how are you thinking about key money usage going forward based on the response that you've been seeing from.
The Eyedropper loosening already should we anticipate this will go up as you continue to stand up the echo brand or is it being used in other other brands. Thank you.
Thank you we were really pleased with what we're seeing from from Mccain. Many perspective, we're at the table today on deals that we hadn't previously been invited to participate in so you think the balance sheet and to incentivize owners to our brands. It is really bearing fruit Brad I do expect.
It will the allocation to key money will increase slightly as we go through.
The feeding of the Echo brand, but nothing that's going to materially draw away from our ability to either invest in inorganic growth opportunities, where our capital allocation to share repurchase.
Helpful. Thanks, so much.
Thank you Steven.
Yeah.
Thank you. Our next question comes from Dan wants a lack of Morningstar.
Hey, good morning, guys. Thanks for taking the question. So thanks for all the color on the call around the occupancy and the improvement you're seeing there just kind of wondering as you now kind of combining that with the.
The infrastructure driver that you guys have you mentioned that U.
U S business occupancy in the weekday had maybe been improving wondering if you could maybe give where that occupancy for weekday in the U S was this quarter versus last quarter and then I guess my follow up question is just any kind of have you seen any incremental headwinds the last several weeks as far as the ability to get financing.
<unk> four.
People looking to enter your pipeline and that's it for me. Thanks.
Yeah.
Michelle.
You're on mute.
I'm sorry.
I had started I started to answer and I was on mute I apologize for that on the financing side, we are not seeing any impact.
At this point in time are our deals are mostly financed.
Local or regional lever level with.
With banks that are developers and owners had a really strong relationships with and so that's the one.
We see obviously higher interest rates.
We also know that that the returns are still really very healthy actually in our investor presentation. We have a slide I believe it's slide 29, where you can see the owner returns and we adjusted those or a 6% cost of debt and the returns are really I'm really still and Andy Heikki. This is napa.
First time that we've seen volatility and interest rates than prior and do you think.
We haven't really seen a meaningful impact to our two our net room growth I think what the market is looking for today is more stability in the rates not necessarily a reversion.
Two the prior interest rate.
While higher rates are going to stress the rois.
And certainly softened by healthy and sustained increase in.
In ADR and from an occupancy perspective in Q3 it was.
It was just about 60%.
Okay and was that do you have the second quarter number for that.
Oh, the second quarter give me two seconds.
Got it.
38% and 58% I'm sorry I'm.
I'm, sorry, what was it.
58%.
It's 60% in the third quarter, yes, okay, very nice quarter congrats guys.
Thank you.
Thank you our final question comes from Brent <unk> of Barclays.
Hey, good morning, everybody. Thanks for taking my questions.
On the maybe you said this is Michelle and I apologize, if I missed it but but the.
Approximately $20 million EBITDA full year raised the full year guidance.
You know you gave us a split between <unk>, but the marketing.
Incremental income from our EBITDA from the marketing fund was about 10 million. So just curious how much of that 10 million hitting a three <unk> to four two.
All of that hit in the third quarter.
Okay, great. Thanks, and then.
Just on the back of.
The comments on infrastructure spending.
And the increase in tailwind that that could be over the next few years. Just curious how you think about revenue management from the perspective of toggling between your capacity.
Past the allocations between leisure and that contract business. So I guess the specific questions are what are the different lead times for bookings between those two broad segments and then.
Are the rates embedded in those in that contract business dilutive to your overall ADR.
Well it could be dilutive to an overall weekend ADR and that's one of the things that are where we're working very diligently with our are small business owners is to convince them that it's better than an O T a rate.
Especially as they as they approach peak occupancy and realizing that this is solid long term contracted business that are that they should be taking that they should be responding to the request for proposals, which are coming in now and we will continue to ramp up over over the next few years I mean look our owners.
You know believe that whatever comes they're still looking at a multi year recovery ahead, and they need to look up.
Both midweek, Brent and on the weekend to to your point to to yield into yield up I mean, we're doing a lot from a tools standpoint, we've partnered with our ideas are there, they're really the leading revenue management provider out there and its available not all 6000 domestic hotels to.
To help them forecast more accurately and price more confidently, we want to make sure that that they're using it and taking that midweek infrastructure business. That's out there I mean, the one thing our owners are continually saying is that they wish they had more Wyndham hotel product based just on how well they are days in or Super eight are the key to.
Performed throughout our throughout this pandemic because of those blue collar workers, who are going to be picking up and in the years ahead I mean, they're more optimistic now about the future I think then there they have ever been there theyre leverages lower there there are.
They are much stronger and much better positioned.
But they should be to your very good question looking at at all the business that's out there and yielding appropriately.
Great. Thanks, so much guys.
Thanks Brent.
Yeah.
Thank you I will now I'll turn the floor back over to Jeff <unk> for closing remarks, well. Thank you Todd and thanks, everyone for your questions and for your interest in Wyndham hotels <unk> resorts.
Just summarize the quarter by saying that our teams again delivered sequential organic net room growth in all regions around the world as well as very strong growth in our development pipeline, our global Revpar. Once again exceeded 2019 levels in occupancy continued its recovery, which we believe will provide U S. Midweek to brad's question in.
Tailwind in the quarters ahead.
And with most importantly like to thank our teams who helped US deliver this top line revenue improvement across the globe.
And the strong free cash flow conversion from adjusted EBITDA that we saw this quarter and have seen all year, we remain very disciplined in our capital allocation and will record a record shareholder returns this year, Michelle Matt and I look forward to talking to and seeing many of you in the weeks ahead at some of the upcoming investor conferences.
We'd like to wish everyone, a happy Halloween on Monday, Thanks, again for joining us.
Thank you.
This does conclude today's Wyndham hotels, <unk> resorts third quarter 2022 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.
Thank you.
Okay.
Thank you.
No.
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