Q2 2023 Wyndham Hotels & Resorts Inc Earnings Call
Welcome to the Wyndham hotels and resorts second quarter 20 twenty-three 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 or Jeff Pilati R. C E O and Michelle Alan R. C. S L.
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 F. C C.
Well also be referring to a number of non-GAAP measures corresponding GAAP measures and our record. So you should have not got measures to get metrics are provided in our earnings release, which is available on our investor Relations web site and investor that window hotels Dot com.
We are providing certain measures discussing to tramp packed and a non-GAAP basis, only because without unreasonable efforts. We are unable to provide the comparable got metric.
In addition last evening, we posted in an investor presentation containing supplemental information on our Investor Relations website.
[noise] may continue to provide supplemental information on our website in the future.
We encourage investors to monitor our website. In addition to our press releases filing submitted with the SEC In any public conference calls or webcast with that I'll turn the call over to Jeff.
Thanks, Matt and thanks to everyone for joining us this morning for our second quarter earnings call. This quarter marked our fifth year as a public company since our spinoff from women worldwide in 2018.
Five years later were significantly stronger company with a much more simplified business model. We've moved from a franchise advantage to hotel company to a pure play franchise business, having sold or owned hotels and exited the U S Hotel management business, along with all of our management guarantees and performance commitments.
Is the world's largest hotel franchise company, whose growth continues to accelerate our teams have so much to be proud up over the past five years, we've launched acquired an integrated five new brands, bringing our portfolio to 24 brands globally. In every segment of the industry from economy to luxury.
With the industry number one loyalty program is named by U S News and World report just this week, we never rewards is now driving nearly one out of every two check ins domestically for our franchisees.
Our brands are marketed under the buy when the mind marketing banner that is searched roughly 2 million times, each and every day.
[noise] expanded into over 55, new countries. They doing our branch more than 100 times in countries, where they've never been before while expanding our global development pipeline by over 50 per cent to 228000 rooms, and nearly 1850 hotels.
The impact from Covid with driven gross unit additions at an average annual growth rate of over 7% over these past five years, and we've improved our franchisee retention rate from 93% to over 95% with the industry, leading retention rates in the economy segment.
From an earnings standpoint, we've grown our adjusted EBITDA by over 70 per cent.
And we've improved our franchise margin from 65% to over 80 per cent.
We've proven ourselves as a company dedicated to the long term success of our franchisees team members and shareholders. The latter of whom we'd returned over $1.6 billion of capital too since listing on the N Y S E R.
Proximately 27 per cent of our market cap that's been.
After eight strong quarters of consistent earnings growth coming out of Covid and a very strong first quarter of 2023, our second quarter was no exception.
Globally Red par grew 7% in constant currency net rooms increase 4%.
Our development pipeline grew by 1% sequentially and by 10 per cent to prior year and adjusted EBITDA increased 8% on a comparable basis.
We generated $74 million in free cash flow and we returned another $139 million of capital to our shareholders.
Demand growth and recovery overseas was especially strong.
Occupancy improved 16% year over year and Red par grew 34%.
China is now at 99% of 2019, Revpar levels, driven by strong leisure bookings over the maid Labor day, and Dragon Boat Festival holidays.
U S. Rep par is now normalizing against the record comps, we saw last year, yet growth versus pre Covid levels has remained strong we saw growth of 9% in April moderate to six per cent in may and then rebound to 10 per cent in June and July month today. It stands at 12% at 200 basis point acceleration from June .
Fundamentals remains strong in our select service brands continued to outpace their full service counterparts across the industry by 300 basis points in the second quarter.
Recent economic data continues to build our confidence for future demand and booking trends june's consumer confidence index increased seven points joint positive movements in both the present and future expectation components. While at the same time you S. Unemployment remains at its lowest level since the 19 sixties or middle.
[noise] classic, yes, with average household incomes of over $90000 nearly 30 per cent above the U S median have seen wage in savings growth of approximately 20 per cent and nearly 30 per cent respectively. Since 2019.
With their wage growth outpacing the rate of inflation since the start of 2019, they continue to allocate a higher share of their wallets to travel.
July month date, Google search volume for affordable travel is running 8% ahead of last year.
When combining these strong leisure travel trends with a double digit increases versus 2019 that we continue to generate from the infrastructure accounts, who drive over 20 per cent of our franchisees revenues, we remain bullish about our growth prospects in the quarters and years ahead.
We grew our overall system for the 10th consecutive quarter by 1% sequentially and by 4% versus prior year with strong conversion and solid do construction activity. We opened nearly 18000 rooms in the quarter, which was 23 per cent higher than last year and 10% higher than 2019.
Year to date through June 30th we've opened 198 hotels opening more than one hotel each and every day.
We improved our franchisee retention rate by another 20 basis points from where it stood at the same time last year, which when combined with the consistency of our strong openings performance physician are solidly on track to achieve our full year net room growth outlook about 2% to 4%.
Here in the United States, we grew our system for the eighth sequential quarter, including another 100 basis points of sequential growth in a more revenue intense mid scale and above segments. This quarter, we added over 6400 rooms, including the Hawthorn suites Houston in Kingwood near George Bush Intercontinental Airport.
Keep the Manchester, Tennessee near the Jack Daniels distillery, both new construction openings.
Nationally, we opened 66 hotels 14 per cent more than last year, and we grew net rooms by over at 9%.
Latin America team brunette rooms by 2% sequentially and by 17% versus prior year, adding some fantastic new leisure and new business destinations like the new construction trip I wind up in the heart of Brazil's capital City Brasilia.
R E a region drove over 1% of sequential and over at 9% a year over year organic that real growth with quality second quarter conversions like our first ramada resort in Cyprus, Our first trademark collection in Turkey at symbol Airport and our first registry collection resort on the a G N C.
<unk> in Greece.
In southeast Asia, and the Pacific Rim, which increase their system by 7% sequentially and by 12% year over year, we opened six new hotels this quarter, including the Wyndham Grand Fouke walk a luxurious 1400 rune newly built conversion hotel Vietnam, the largest island in the Gulf.
Thailand, which is seen exponential tourism growth in recent years.
And in China, which experienced a 4% sequential and a 13 per cent growth in our direct franchising system. We opened 10, new construction hotels, along with 30 conversion hotels, which was 19 more than last year, including a beautiful new Wyndham Garden <unk> located in the Central business District next to <unk> World.
Headquarters.
We grew our development pipeline, 1% sequentially and by 10% versus prior year to a record 228000 rooms in nearly 1850 hotels.
Marking women's 12th consecutive quarter of sequential pipeline growth.
Our teams awarded over 175 contracts for approximately 24000 room addition, 6% ahead of last year and seven per cent higher than 2019.
Over 70 per cent of our pipeline as in the higher revenue generating midscale upper mid scale upscale upper upscale and luxury chain segments.
Finally on the Echo sweets extended stay front over the past few weeks, we awarded another 60, new contracts to established and experienced developers.
Including what will be the branch first hotels in Canada.
Alright go sweets by Wyndham brand has now a global pipeline of 265 hotels and approximately 33000 rooms.
And actually our teams that executed 21 per cent more runs in the second quarter than they did in 2019 with similar growth in both conversion in new construction hotels yields led by our Latin America region, and our China direct franchising business.
For the ninth consecutive quarter revenue from our general infrastructure related business accounts increased double digits versus 2019, reflecting both hire a D r's as well as an increase in our capture rate is the earmark span from the infrastructure and chips acts as yet to be deployed into market in a meaningful way.
As we prepare for the acceleration of infrastructure spending in the months and years ahead, we've expanded our sales teams by 25 per cent with enhanced our digital capabilities to drive more leads and we've invested in new technology to enable seamless bookings for these infrastructure workers.
The results were seeing a promising leads generated for our hotels or up 15% year over year and the number of new accounts acquired are up nearly 20 per cent ease.
These investments are paving the way for significant revenue growth from this category over the next handful of years.
In closing Q2 is another strong quarter <unk> continued improvement in global Red Park executions openings retention in that room growth, both domestically and internationally.
The accomplishments that our team members have achieved this quarter and throughout each of the last 20 quarters since becoming a public company. There is no greater accomplishment than fostering a more diverse global community.
Living our core values of integrity accountability inclusivity, Karen and fun, we can now say that at mid year. We had been named for 2023 is what a Newsweek magazines global most loved workplaces, one of atmospheres world's most ethical companies and what a diversity yanks top 50 companies for diversity.
And none of this none of this would be possible without the constant support and engagement of our franchisees and team members and engagement level, which has never been stronger in Windham hotels and resorts last five years as a public company.
And with that I'll turn the call over to our CFO Michelle Allen Michelle.
Thanks, and good morning, everyone.
My remarks today like a detailed review of our second quarter results I'll Bend review, our cash balance sheet, followed by our outlook before we get started let me briefly remind you that the year over year comparison of our financial results is impacted by the sound of our own hotels and the accident at the select service management business as well as the timing of our marketing.
<unk>.
This year I'm marketing spend has returned to a more normal iced tea in contrast last year spending pattern, but significantly dampened by concerns regarding the potential impact at the omicron berrien on demand.
So we have now lastly owned hotel fails and select service management business exit the marketing fund variability will impact the quarterly year over year comparison for the remainder of 2023.
<unk> transparency and provide a better understanding of the results of our ongoing operations consistent with last quarter I won't be highlighting our thoughts on a comparable basis, which neutralizes these impacts.
Regenerate at $358 million a fee related another avenue compared to 354 million last year, which included $12 million from the select service management business and phone telecasts on a comparable basis. So you related another revenues increased 5% year over year, which as expected included and add first tiny impact.
300 basis points relating to wrap any recognition in our loyalty program.
L T as in franchise fees cruise, 7%, while license and ancillary fees crew 10 per cent.
Adjusted EBITDA was $158 million in the second quarter compared to 175 million last year, which included a 3 million dollar contribution from Netflix service management business and onto a couch.
Over your change must also impacted by $27 million of marketing fantastic.
As I mentioned like marketing spend returning some more normalised cadence itchier marketing expenses and a second quarter of 2023 exceeded revenues by $15 million cause I'm marketing revenues exceeded expenses by 12 million in the second quarter last year and.
On a comparable basis, adjusted EBITDA increased 8% year over year, primarily reflecting our revenue growth and our adjusted EBITDA March and improved 40 basis points.
Second quarter adjusted diluted EPS with 93 cents at 10 per cent on a comparable basis, reflecting our adjusted EBITDA growth as well as benefits from our share repurchase activity, which are partially offset by higher interest expense.
And the second quarter of global wrap Parker seven per cent on a constant currency basis, driven by continued ADR crock and strong demand recovery overseas, especially in Asia Pacific anemia.
<unk> car was found 1% year over year end up eight per cent versus 2019, which is at 30 basis points acceleration from first quarter performance.
Second quarter transferring the you asked represented a moderation of the robots leisure travel breath, we saw last year, which largely favorite select service changed out.
Now as travel habits are normal I think we're seeing a revival in cruise center city in international vacation, partially counterbalancing the robust demand our hotels experience last year, particularly in Florida and across the South Atlantic region.
Select service branch continue to be the strongest performing segment and the industry as Jeff mentioned outpacing the full service pregnant by 300 basis points in the second quarter.
Internationally Rat park payment stronger than expected accelerating from a constant currency growth rate of 20 per cent versus 2019 in the first quarter to 33 per cent in the second quarter with over 10, four point of occupancy opportunity ahead for demand to return to pre Covid <unk>.
And China Revpar was at 99 per cent of 2019 levels during the second quarter Southeast Asia and the Pacific Rim was at 97 per cent and email <unk> and Canada for all meaningfully about 2019 that about the.
Sequentially International occupancy improved to 89 per cent of 2019 level from 84 per cent in the first quarter. This improvement was driven by an acceleration of demand in China, which improved to 83 per cent of 2019 level from 76% in the first quarter.
Before I move on to cash, though let me quickly discuss the current financing environment for our franchisee.
Dancing for Awhile established borrowers remains generally available, particularly at the community bank level, where approximately 70% of our new projects dark or finance.
Despite more than a 50% decline year over year, an industry wide byfield transaction value our team's not only open to 23 per cent more around this quarter than they did last year. They also executed six per cent more rooms year over year and seven per cent more than 2019, we continue to monitor the situation and although it has not had a meaningful.
Tacked on our business, we have a variety of programs ready to assist on Earth if necessary.
Onto free cash that we generate a $74 million in the second quarter and $158 million a year to date with a free cash flow conversion great from adjusted EBITDA at 52 per cent. We are solidly on track to achieve our call at confronting 50% to 55% of full ear adjusted EBITDA to free cash flow, which at the adjusted net income line items.
Translate to approximately 100 per cent.
We returned $139 million to our shareholders during the second quarter of 2023 through $109 million, a share repurchases and 30 million of common stock dividends.
Even the depression price in the second quarter, we opportunistically repurchased twice the amount we bought back in the first quarter.
The other day, we have repurchased 2.4 million shares of our stock for $165 million.
In the second quarter, we took advantage of a narrow window to refinance our 1.1 billion dollar term loan beat facility that was set to mature in May 2025.
Statolith replaced with a new time lumpy facility at the same amount, which will now mature in May 2030, and carries an interest rate of self replaced 225 basis points.
As a result of this transaction we moved our next material that maturity to 2027 increased are weighted average maturity from 3.2 to six years and reduced art that payments to only $125 million over the next three years.
R capital allocation strategy is unchanged, we remain disciplined on a core tenets of our M&A strategy and will pursue transactions that are complimentary to our existing brand portfolio and accretive from an earnings in that room growth perspective, we will also continue to incentivize franchisees to invest in new brand prototype design.
Improve our overall brand equity, which in turn helps increase our retention rate and as usual any excess cash will be returned to shareholders.
Now turning to outlook for refining our full year 2023 outlets to reflect the impact of second quarter Sherry purchases as well as higher interest expense, resulting primarily from the term lumpy refinancing first our outlook for rep part in that room cross revenue and adjusted EBITDA all remain unchanged.
We now expect interest expense to be in the range of $100 million to $102 million 6 million higher than our prior outlook and as a result have reduced our adjusted net income outlook to a range of 336 $348 million adjusted.
Just the diluted EPS is projected to be $3.92 to $4.06 unchanged versus our prior outlook as a result of our second quarter share repurchase activity. This outlook is based on a lower diluted share count of 85.8 million Sheriff and as usual exclude any future potential share repurchase activity.
Our outlook for free cash flow conversion rate also remains unchanged as do our expectations for the marketing <unk> contribution at $10 million on a full year basis. However, I do want to provide some color on the projected quarterly impacts we expect revenues will outpace fund expenses by approximately $29 million in the back half of the year.
At approximately 10 to 15 million per quarter to arrive at our estimated full your underspent of $10 million, which will complete our recovery of the 49 million dollar investment that we made it back in 2020.
In closing our business continues to operate at 520 19 level with additional room for improvement get an occupancy levels here in the U S and internationally.
Environment 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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Again, we do ask that you limit yourself to one question and one follow up.
Our first question comes from Patrick Shoals with Truth Securities. Please go ahead.
Hi, good morning, Jacqueline Michelle.
You want a couple of course, good morning <unk>.
Good morning.
Questions. Your first one you certainly over the years made a strong progress where the retention rate stands at about 95 per cent right now you'll juicy further opportunity to improve that or would you think of that as a steady state equilibrium.
No, we certainly see opportunity to improve that right Patrick as you point out it. It has moved both domestically and internationally in the right direction and globally with moved it from 93 to 94 to over 95 per cent and just over the last 12 months, we've seen 20 basis points.
Retention improvement or a longer term stated goal is to move that to 96 per cent.
Okay.
And then just two other quick questions. Here. So you had mentioned about programs to assist potential franchisees without giving away the secret sauce.
If I were a franchisee medium such assistance, what you know what what's at a high level some of those programs fee.
Yeah, well Patrick asked you know our business is highly cash generative and we're always looking for ways to to reinvest at cash back into the business. So we're happy to put more money to work when I'm. When they are why it makes sense for both both us and.
Owner and typically that car that has come in the form of dance, but we could easily adapt that in the current economic environment. We have a newly implemented program with a reputable lender to source construction financing for example, we won't disclose too many details obviously as you know.
<unk> for competitive reasons as you can understand but but the program provides uhm more program that are more programmatic approach to financing, but went down and obviously provides our franchisees very competitive terms.
Okay. Okay fair enough and then just the last quick question drop you certainly have talked about.
Positive tailwind from federal infrastructure spending you know.
Are there any way to quantify for your business you know what what.
That how much that may have helped you so far or possibly you know help you for the rest of your maybe not quantifiable, but you know just curious.
If you have something.
It absolutely we believed helped us in the quarter, Patrick our economy brands 200 basis points of weekday Red part index outperformance and it was a mix of both rate and occupancy wherein as we've talked about before the really early innings of what will play out over the next eight.
Yours and as we've said in our script, we've seen an uptick in inquiries in Leeds and bookings, but again, it's it's really early days the advanced appropriation I think for the first $68 billion becomes available to fund.
Starting later this year. So you know as we've said we size this over the next.
Next five to eight years as a 3 billion dollar revenue opportunity for our franchisees in our owners it.
Can we begin to see it play out as early as this quarter in terms of that mid week RPI outperformance.
Okay. Thank yourself, certainly sounds like a multiyear tailwind for you folks absolutely. Thank you.
Thanks, Patrick.
Thank you. Our next question comes from Joe Grith with J P. Morgan.
Good morning, everybody. My first question is a two parter on development nice to see echo with a chunky hotels timing this month.
We look at that as a distinct positive.
Obviously, it speaks to developer demands amid increasing limited service brand competition, what is the value proposition of echoes today versus these competing brands and are you marketing positioning supporting it differently than say at the initial launch and then my second part.
Michelle is can you talk about China, two developments and usually tell finding activity is it that fully is still in recovery mode from a gentleman perspective, not from a red car perspective, and not back slowly and how much of second half for his room addition, coming out of China.
Okay, I'll start with Echo and the question on competitive extended stay launches in our we marketing it any differently G O or not and we're not seeing any impact. These competitive lunches are not economy extended stay competitors there are much bigger mid scale.
Boxes, there over 20 per cent larger with.
Oh additional elevator banks more larger public spaces hire a minute of your requirements and operating costs are echo developers continue to believe that Echo will drive a higher R. O Y due to a much lower cost per key and that's the way, we're marketing lower ongoing operating costs higher gross operating profits and.
They believe we believe that the 1.8 million companies out there contracting for a combination for their infrastructure workers are going to be seeking economy average daily rates with average length of stay is approaching over 30 nights uhm versus that mid scale and above average daily right. It is a very large and underpenetrated Sir.
And as you know with 15 times fewer hotels.
And and the extended stay space than than transient hotels, and we think there's there's plenty of space for.
For continued room grill, Sir <unk>.
Second part on China in China development, we we're really pleased with the opening of the executions on the development front. We opened another 3000 direct China rooms, this quarter and those came in at three times as you know the license fees of our Master license agreement that drove.
A 4% sequential and a 13% China direct net room growth.
We opened 10, new construction hotels and 30 conversion properties.
And the 65, new China deals that we sign in the second quarter was 50 per cent more than a record 41 deal signed back in the fourth quarter of last year.
And 40 or direct franchise contracts split pretty evenly between new construction and conversion. So we're really pleased with what our teams are seeing there in terms of the pick of a development opportunities in China did I Miss anything Michelle on just a second half.
Yeah, No Jeff I would just say that direct franchising that you quoted the 40 new deals in the second quarter of 90 90 per cent growth.
<unk> you over here.
Yeah that is sufficiently answered it yet, but then my second question and and this one might be a little bit more difficult to answer.
When asked it so might as well be me just over a couple of months ago. The Wall Street Journal reported at that time that choice had.
An interest in you guys.
Jeopardy spoken to you and the and the board about a combination has this potentially generated any other interests.
From other entities they reached out to you and the board.
Somebody back activity accelerating a quarter and some insider selling and maybe that gives us as outside or some indication of how legit. This reporting might be but then we also had this unusual semi pre announcement from choice. This month. So yeah Ah any thoughts there would be helpful. I know it might be tough to answer thing.
Yeah. Thanks, Yeah, we never comment on second of news articles and look we're focused on our business as usual and growing our business and that's all about what we can talk to you about the script driving value for our guests franchisees and our stakeholders.
Thank you.
Thanks, Yeah.
Thank you. Our next question comes from David Cats with Jeffries.
Hi, good morning, everyone.
Morning, So I I wanted to just double back on the pipeline because you know it's a a point of focus you know for all of US and you know just making sure. The deals you know notwithstanding the one larger you know one that you announced.
The deals are entering the pipeline at the same rate that they're passing through the pipeline at the same rate that they're getting financing et cetera. So any color you can give us on you know how that backfill is starting progression for the future would be helpful.
Sure Thanks, David they're entering and exiting the pipeline as as they always have a as we've talked before two thirds of our openings come out of the pipeline each and every year, we're not seeing.
Any issues there are any changes there so a larger pipeline of course gives us confidence into the future on accelerating our network growth as does the improvement as we were just talking about that you continue to make with with retention 80 per cent of the pipeline is now new construction and from signing to opening it usually exits after it enters on average.
Four years and and the other third the conversion Rumsey R.
Are averaging less than a year to come out of the pipeline, but this was the 12th consecutive quarter of sequential growth. We were up 10 per cent to last year. So.
A record 230000 rooms international signings were up very strongly up 70 per cent and five per cent higher than 2019, and not including some multi unit contract Echo deals that you reference we still increase the pipeline, 8% globally 70 per cent of that pipelines in the mid scale and above.
80 per cent of the pipeline in his mid scale and the bugs you take out the new Echo product.
And and we're not seeing any any changes or any slowdown in the new construction pipeline increased the prior year.
And no slowdown in new construction projects starch or any drop off in the percentage of the pipeline rooms now under construction actually we have more rooms now under construction is the pipeline continues to grow sequentially. So good growth in conversion pipeline and just really consistent growth <unk>.
Russ across our international regions with the highest growth.
Coming out if you look back to pre Covid levels Europe Middle East has grown it's pipeline by 60 per cent.
And continues to strengthen in Latin America has grown 70 per cent since before 2019, especially in in Mexico and the D. R.
[noise] understood. Thank you and show them off for my follow up we you know we've all seen the rough part numbers.
Mm No limited service at the lower end chain skills have have shown some revpar weakness relative to the total I just wonder where you fit in to that and are you. You know you feel like you're performing in line, who were able to outperform and and if you are you know how're you doing it.
As much as you can tell I I.
Yeah, I would say I don't I don't think the lower end chain clouds are showing weakness I know that you over your cough might be a little bit more difficult because they had recovered much faster than.
Their counterparts. If you will look actually if you look at it versus 2019 neutralizing for all of that recovery noise I think they're still they are still the best performing segment and in the industry and and I would say in you know in the U S. Specifically, we saw we fell growth versus 2019, and a second quarter consistent with what we saw.
And the first quarter and then Jeff mentioned in his prepared remarks that we're staying July accelerate from it that was a second quarter breath right. So we we feel really confident about travel demand throughout the summer season, all of the leading indicators. We look at remain positive you were seeing a double digit increase in Psa figure.
We're seeing looking windows continue to to advance as well and Google search volumes remain stop remains strong.
So I apologize for for following up but.
Is there do you think that there's some change in how that industry data is being calculated reported that may be part of what we're seeing.
No.
Not at all okay. Okay, alright, thank you very much.
Thank you.
Thanks <unk>.
Thank you. Our next question comes from branch <unk> with a Barclays.
Hey, everybody. Thanks for taking my questions. So.
Uhm, Great day, great to hear those those those May June July staff for the U S. A curious when you Michelle call out the Reacceleration July just if you could maybe I'll unpack that a little bit is it more weekends verse weekdays is there particular strength more on the economy versus.
Is mid scale and above and any extra color there.
I think I think we're seeing <unk> across the board certainly I'm, certainly more weekday strength, continuing and from the second quarter, but uhm, but weekends remain very strong, we're saying pick up an occupancy as well and then continued ADR increases consistent with what we have seen in a second.
Claire.
Okay. That's helpful. And then I wanted to talk about unpacked, the financing com with commentary as well slash slide number nine which is new you know.
You guys called I'm, not seeing a meaningful impact in terms of availability of capital for new construction financing your larger peers have.
Publicly called out a change there are a lack of availability of capital you know your slide it looks like you did some extra work a few over the last three months in terms of mixer community banks in in San Canadian Banks is more cycle Ignostic with which you know their lending practices I guess, if you could just put a finer point on that for US is the smaller footprint is the lower.
Shane scale I guess is do you feel like you know your brands and your business is essentially a competitive advantage right now versus your broader industry set in terms of acquiring capital for construction.
Yeah, I think I think that's an interesting that's an interesting perspective for sure I think what really drives the difference between us and some it appears this the smaller loewenstein now let's have always been more <unk> to a smaller community banks uhm and and those banks. It's all about relationships are franchisees no their bank presidents by me.
These banks have a deep understanding of the local economy and the specific business day is within within their communities, you'll see a community banks use the loan decisions are typically made locally and there are typically made based on a holistic view of the borrowers situation not just one specific.
Mm project and not just based on standardized criteria, which is more prevalent in larger banks that are servicing larger loan size.
Size I'll just give you a quick example, a few weeks ago, one of our echoed developers secured a loan from a community bank I think out in Kansas.
That has a link to have multiple times in the past for different business ventures within and outside of the hotel space and he was able to get five year paper at a 75% loan to cost and a fixed rate of six and three quarters. Sylvia just reading. The headline you wouldn't think that that type of financing exist goodbye, it's very much available at the community Bank.
<unk>.
Excellent. Thank you.
[noise]. Thank you we'll take our next question from Michael Bellisario with Bert.
Thanks, Good morning, everyone.
And they might just one.
One more on the slide deck, a new slide you didn't talk about it I think it's important that you added back the longer term growth algorithm.
Eight to 14 per cent range that's unchanged.
A couple of part question you know how do you think about the drivers today why is the arrange maybe not higher today than it was versus what your last game in 2019, given all the changes you've made.
To the business model, and then lastly to 3% to 5% cash load appointment appointment that that's a big input their maybe so how do you handicap and think about the levers within the socket.
<unk>.
So we've done a lot to simplify the business and and we did put the side back in because we wanted to make sure that everyone understood. We're still looking at high single.
Mm high single digit low double digit growth on the E. P. S line, even though we felt our management, we've exited our management business insult our <unk> our own until account. So it's a more simple story same EPS potential and then we also wanted to show our longer term prospects for that room Brown at the accelerated three.
Five per cent versus the old two to four per cent pre COVID-19 pretty pretty simple application uhm. When you think about the 3% to 5% capital deployment at risk. There I think are really low. This business is highly cash generative you know even in the darkest days of 2020, we were still free cash flow positive and we have a free cash flow positive.
Without having to do any four points out there anything that that was you know taking from our future cash flow uhm generation capabilities. So we feel very confident in our ability to generate cash and redeployed that capital to to generate a sizeable EPS correct.
Got it and then just one follow up on <unk>.
My first run from three to three two if the stock plus or minus remained in the same range.
<unk> are you where would you a ladder up to to continue buying back stock if it spell. It. Thank you you significant an unwarranted discounted level.
We did we did you know you <unk> you here to date leave repurchased $165 million and and the second quarter repurchases, where two times the amount we'd be purchased in the first quarter and that was the cause lieber leaning in as the stock was trading at a significant unwarranted discount.
And if it if we continue to see a trade at a significant unwarranted discount like it did in the second quarter I think it's fair to expect us to to lean in on share repurchases and we certainly have a tremendous amount of flexibility and the leverage ratio, where we ended the quarter I think implies.
Over 300 million of additional capacity before we before we even move into the upper half at the stated target range. So so I'm not gonna make any heart commitment today, but you can be assured that we are willing to lean in further if we continue to see a significant unwarranted discount.
And you'll note in our earnings release that our board just approved another $400 million an authorization.
Thanks for that color.
Thank you.
As a reminder, if you would like to ask a question. Please press star one at this time.
Our next question comes from Steve <unk> with Deutsche Bank.
Good morning, everyone and thanks for taking my questions.
The international royalty rate with a nicely.
Over here I believe growing 30 basis points.
And even the U S. I think it was at 10 basis points quarter over quarter can you talk about some of the drivers there and how we should think about the royalty rate moving forward.
Yeah sure Chekhov start I you know our strategy continues to focus on growing the royalty rate within each region to ensure that we're always building on the branch regional regional equity in the U S that growth on the new construction protostar rant, let cantat microtel and eventually X.
<unk> will help us move our domestic right forward of course, remembering a system the size of ours will always move a little bit more gradually given how how large is internationally you know we see a large opportunity from our royalty rate perspective, we expect a new deals that come into the system will come in at higher royalty rates.
Then the legacy system in that specific region as we continue to build out our footprint in each market and and and as you mentioned, we have seen improvement in our international royalty rate I here today and that is I tried to we would expect to continue to say.
And and there are so many places for us to grow Steve overseas as our branch become more aware and and countries and markets like Turkey. For example, where <unk> was first introduced at a lower royalty rate for sale than it is today now with 60 70 hotels in the country. There's there's.
Tremendous opportunity overseas, we have the most experienced franchise sales team internationally international continues to be a significant opportunity for us there's.
We know roughly 17 million.
<unk> globally in over 50 per cent of those are unbranded, we have a great value proposition and we're continuing to add countries.
To to our lineup, where we did not have brands before and is again a growing awareness. We have an ability continued ability longterm to push that royalty right and we're no longer as we said before looking to do master license agreement deals internationally.
Which where these direct franchise deals are always coming in at three times, the royalty rate than than the masters were years ago.
Okay. Thank you that's helpful. And then you talked about launching in acquiring new brands in your opening remarks with the success of Echo can you talk about how you view that balance moving forward from navy acquiring versus launching in any white space you still see in the Brown line up.
Sure Yeah, you know all of the recent launches we've been really pleased with we we had white space in the all inclusive market and with Playa a great partner launched ultra by Windham <unk>.
And now have a few thousand rooms in our pipeline. There registry collection was a white space for us and without having to go out and acquire a brand. We launched registry collection. We now have 17 hotels open and roughly 3000 rooms in the pipeline.
And NFL Sweet So we will continue to look for opportunities like that but will also where opportunities present themselves, where we have markets that have a talking <unk> opportunity for us as as we saw with the house to to acquire in.
It you know as a brand that we we've got some really good traction on and I'm really really pleased with and is adding.
Some some great opportunities for growth worse through western and Central Europe , along with the Middle East and we don't need to acquire but when a.
A deal comes along it's immediately accretive two two we're trading it today will will absolutely look at it.
Okay, great. Thank you.
Thanks, Steve.
Thank you at this time, we have no further questions in queue I will now turn the floor back to just bolani for any additional are closing remarks.
Well, thanks, everybody for your questions and your interest in Windham hotels and resorts, we were as Michelle said very pleased with our second quarter, where.
Where we delivered adjusted EBITDA growth. It outperformed expectations are teams couldn't be more enthusiastic about the opportunities that lie ahead, and we're very confident in our ability to deliver outstanding value to our shareholders, our guests and our franchisees Michelle Matt and I look forward to talking to and see many of you in the weeks and months ahead at many of the upcoming investor conferences.
That will be attending but before we go we'd like to remind everybody to please tune into the 84th annual Wyndham Championship from August 3rd through August 6th next week, which will be airing on C. B S and the golf channel with live coverage beginning on Thursday of next week.
Again, everybody and have a great day.
Thank you. This does conclude today's Wyndham hotels and resorts second quarter of 2023 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.
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