Q3 2023 Wyndham Hotels & Resorts Inc Earnings Call

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Welcome to the Wyndham hotels, and resorts third quarter 2023 earnings conference call.

At this time, all participants have been placed on a listen only mode and the floor will be opened for your questions. Following the presentation.

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I would now like to turn the call over to Matt Lucey Senior Vice President of Investor Relations.

Thank you operator, good morning, and thank you for joining US with me today are Steve Holmes, our chairman, Jeff Palade, 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, and Investor presentation, which will be 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, this morning, we posted an investor presentation containing information with respect to our board's rejection of choices unsolicited offer.

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 then he public conference calls her webcast.

With that I will turn the call over to Steve.

Thanks, Matt as all of you are aware last week choice hotels announced that they made unsolicited overtures to acquire our business.

No organic growth less vibrant loyalty program and virtually no international capabilities in choices platform. We're frankly not surprise our business offers a medicine cabinet full of remedies.

Our board has taken its fiduciary duties very seriously with respect to shareholders and other stakeholders, including franchisees employees and guests. We strongly believe that Wyndham standalone plan and multiple levels levers of growth provide a more compelling proposition compared to choices offer.

Our board is also highly confident in our management team's capability to execute on the plan and create significant value for our stakeholders.

We have received multiple inputs can she constituents over the past week, providing us with further confidence in our decision to reject the offer.

The team will be providing further insight into our decision making rationale after we review our strong third quarter performance I'll now hand, the call over to Jeff.

Thanks, Steve and thanks, everyone for joining us today, we're very pleased to report another strong quarter of operating performance.

Globally Revpar grew 3% in constant currency led by international growth of 16%.

While U S. Revpar declined by 1% our economy brands continued to gain market share outperforming their competitors by another 100 basis points. This quarter driven in part by revenue growth from our general infrastructure related business accounts, we grew our system for the 11th consecutive quarter up 1% sequentially and 3%.

Sent year over year on an organic basis, our teams opened over 14500, new rooms in the third quarter with 5900 of those rooms opening in the U S.

Year to date through September 30th we've opened over 42600 rooms across 326 hotels opening more than one hotel each and every day we.

We improved our retention rate by another 20 basis points from where it stood at the same time last year as our industry, leading brands maintained the highest overall franchisee retention rates in the U S economy segment.

Our pipeline grew for the 13th consecutive quarter up 4% sequentially and 12% versus prior year, including 2% sequential growth in the U S and 16% year over year.

Our teams are awarded more than 230 contracts for over 26000 rooms, with 15% of our pipeline now representing our echo suites extended stay by Wyndham brand.

And an additional 70% of our pipeline now in the higher Revpar mid scale upscale upper upscale and luxury segments.

Our owner first philosophy was on full display last month in Anaheim, where we held the largest global conference we've ever assembled with over 6000 registered attendees and more than 150 sponsors the.

The conference provided our franchisees an opportunity to connect with their colleagues and learn firsthand how to unlock the power of recent investments. We've made in next generation technologies sales and marketing initiatives and hotel level operating efficiencies our owners have never been more engaged with our teams and the <unk>.

Pierre your value proposition that our brands today deliver.

Before Michel takes us through the financials, we'd like to take a moment to acknowledge our team members.

Accretable success of our owner first operating philosophy would not be possible without their unwavering commitment and support.

And we're thrilled about our most recent ranking at number eight up from number 11 last year on Newsweek's top 100, most loved workplaces for 2023.

We thank all of our team members around the world, who put our owners at the very center of EB.

Everything is that we do and who remain enthusiastic about the opportunities ahead for us and confident in our ability to deliver the outstanding value day in and day out to our shareholders guests and our franchisees I'll now turn the call over to Michelle Michelle.

Thanks, Jeff and good morning, everyone. During the third quarter fee related and other revenues grew 7%, reflecting global Revpar net room growth as well as higher license and ancillary fees and pass through revenues and our marketing reservation and loyalty.

Our global franchisee conference in September which was held for the first time since 2019 adjusted.

Adjusted EBITDA grew 5%, primarily reflecting higher fee related and other revenues as well as marketing fund variability.

Marketing fund revenues exceeded expenses by $17 million this quarter versus $12 million a year ago, our adjusted EBITDA margin remained consistent at 83%.

Third quarter, adjusted diluted EPS improved 8%, reflecting our adjusted EBITDA growth as well as benefits from our share repurchase activity and a lower effective tax rate, which were partially offset by higher interest expense.

We generated $67 million of free cash flow in the third quarter and $225 million year to date.

We remain on track to achieve our goal of converting 50% to 55% of full year adjusted EBITDA to free cash flow, which is the adjusted net income line translates to approximately 100%.

We've returned $134 million to our shareholders. During the third quarter grew $105 million of share repurchases and $29 million of common stock dividend.

We have repurchased three 8 million shares of our stock for $270 million.

We ended the quarter with approximately $710 million of total liquidity and our net leverage ratio of three three times within the lower half of our target range.

We are reaffirming our adjusted EBIT guidance of $654 million to $664 million and raising our adjusted diluted EPS outlook to $3 94.

To $4 <unk> to reflect our continued strong performance as well as our third quarter share repurchase activity.

That concludes our prepared remarks on our third quarter results, Jeff will now walk you through the rationale behind our board's projection of choices unsolicited offer.

Thanks, Michelle as Steve referenced in his opening remarks, and consistent with its fiduciary responsibility our board along with its third party advisors evaluated choices proposals are board begins from the premise that as a public company with a well distributed shareholder base, we're open to any and to all avenues.

To create value for our shareholders. Many of these value creation opportunities are are driven from organic growth initiatives summer from inorganic growth initiatives and some are initiated by third parties. Our board has deep experience and has always provided oversight on our major strategic initiatives and opportunities.

With respect to the offer made by choice in August our board determined for several specific and well substantiated reasons.

<unk> on both transaction risk allocation and valuation.

The proposal was not in the best interest of Wyndham shareholders and rejected the offer.

We've been consistent with choice from their initial inbound that our concerns would need to be satisfactorily addressed something they have not done to date.

In our press release last Tuesday, we provided initial rationale and insight into our board's decision to reject the offer.

He will go through greater detail around that decision and walk you through our significant standalone growth prospects. This morning, we posted an investor presentation to our website.

And we will be referencing that throughout this discussion we.

We start by level setting, who Wyndham is today on slide two.

Not only are we the largest hotel franchisor in the world, but we're also the only public hotel company has scale that is truly asset light <unk>.

<unk> significant free cash flow, which allows us flexibility on how we choose to allocate our capital whether it be for investment in growth initiatives with attractive rois or whether it be returning capital directly to our shareholders.

Since our spinoff from Wyndham worldwide, we've undertaken a series of initiatives as outlined on slide three that lay a strong foundation and provide a runway for sustainable organic growth going forward initiatives like our echo suites by Wyndham brand the fastest growing brand in the underserved economy extended stay space and once we're expecting.

Outsized economic benefits from in the coming years investments, we've made in hotel level sales and marketing to grow our share of existing infrastructure bookings and to capture the opportunities just now emerging from our recent infrastructure Bill and investments we've made in our Wyndham rewards loyalty program with over 105 million members.

A program that's been voted the best Hotel loyalty program by USA today for six consecutive years.

We've also capitalized on the significant growth potential outside of the U S with our direct franchising capabilities now in 95 countries. These growth initiatives and so many others support condoms owner first reputation as the franchisor of preference for hotel owners in the segments we operate in.

And our franchisee retention rates if correspondingly improved.

While some of the benefits of these actions are already reflected in our financial performance. We believe that there will be an even greater benefit from them in the coming years, given the long tail for development retention and new product innovations. We're confident that these initiatives provide a significant runway for outsized growth and enhance shareholder value.

And with that background on our company would now like to detail some facts surrounding the choice offer.

While the offer May have had an initial headline of $90 per share. The proposal is currently worth less and may continue to fluctuate in value over time as it includes a significant amount of stock consideration just last week within a few days of choices public announcement choices stock had decreased by over 9% and the implied value.

The offer was already $4 lower at $86 per share.

And it's important to note. The choice has not offered our shareholders any protection against potential continued downward volatility.

Furthermore, the fixed value of the cash portion offered to our shareholders would not be realized until the conclusion of an extended regulatory process, which our advisors estimate could take 12 to 18 months.

Operator: Please stand by, your program is about to begin. If you need assistance on today's program, please press star zero.

When we consider all of this one point is clear the actual offer is worth materially less to our shareholders if and when they receive it.

Operator: Welcome to the Wyndham Hotels and Resorts, 3rd quarter, 2023 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. Lastly, if you should require operator assistance, please press star zero.

And its core there are three primary reasons why our board has rejected choices offer which you can find on slide four.

First there is asymmetrical risk to Wyndham shareholders associated with an uncertain regulatory timeline and outcome without commensurate protections and compensation provided to our shareholders for taking on these risks.

Second choices proposal does not provide appropriate value for Wyndham standalone growth prospects and exploit short term volatility in Wyndham stock price without a consideration of a broader view of Wyndham is trading levels.

Matt Capuzzi: I would now like to turn the call over to Matt Capuzzi, Senior Vice President of Investor Relations. Thank you operator. Good morning and thank you for joining us.

And third the consideration mix includes a heavy portion of choice stock. Our board has concerns over choices organic growth prospects and those concerns are exacerbated if the pro forma company will be left with an over levered balance sheet the constraints its capital allocation strategy in a.

Matt Capuzzi: With me today, our Steve Holmes, our chairman, Geoff Ballotti, our CEO, and Michele Allen, our CEO. 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 10K. File with the Scariest in Exchange Commission, and any subsequent reports filed with the SEC.

Serial way further limited its growth opportunities.

We will delve into each of these points in more detail and we'll start on slide six.

Upon choices initial approach our board immediately engaged subject matter experts to assess the proposed combination.

Matt Capuzzi: We will also be referring to a number of non-gap measures. Corresponding gap measures and a reconciliation of non-gap measures to gap metrics are provided in our earnings release and investor presentation, which will be available on our Investor Relations website at investor.winamhotels.com. We are providing certain measures discussing future impact on a non-gap basis only, because without unreasonable efforts, we are unable to provide the comparable gap metric. In addition, this morning, we posted an investor presentation containing information with respect to our board's rejection of choices on solicited offer.

Our extensive diligence confirm that the transaction would be subject to any certain prolonged approval process of 12 to 18 months.

Of particular concern is that U S. Antitrust investigations are at historic highs there had been more second request issues by the by the administration and their first fiscal year than in the preceding 20 years combined.

The parties advisers met on multiple occasions and choice eventually acknowledged the probability of an extended regulatory review period of at least 12 months.

Our business would be uniquely exposed to deterioration risks during a long regulatory review period as our business is built on relationships. Our franchisees typically signed 10 to 20 year contracts with us they care very much about who they are doing business with and we believe we offer a differentiated service through the relationships we had foster.

Matt Capuzzi: 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, filing submitted with the SEC, and any public conference calls or webcasts.

Over not years, but over decades relationships that underpin.

Steve Holmes: With that, I will turn the call over to Steve. Thanks, Matt.

Our new business development activity, and our improving franchisee retention rates.

Steve Holmes: As all of you are aware, last week, choice hotels announced that they made unsolicited overtures to acquire our business. With no organic growth, a less vibrant loyalty program and virtually no international capabilities in choices platform, we are frankly not surprised. Our business offers a medicine cabinet full of remedies. Our board has taken its fiduciary duties very seriously with respect to shareholders and other stakeholders, including franchisees, employees, and guests. We strongly believe that WInam's standalone plan and multiple levels of growth provide a more compelling proposition compared to choices offer.

As depicted on slide nine we opened more than 450 hotels annually.

If this uncertainty were to persist for an extended period of time, some portion of our development and openings may not materialize, which compounds over time.

Additionally, developers of our eco suites brand have expressed significant reservations about deploying such large sums of capital with a brand Stuart other than Wyndham jeopardizing the brands future.

Moreover, our considerable momentum and improving franchisee retention rates could also be impacted the longer this drags on as competitors capitalize on franchisee concerns around a potential combination.

Steve Holmes: Our board is also highly confident in our management team's capability to execute on the plan and create significant value for our stakeholders. We have received multiple inputs from key constituents over the past week, providing us with further confidence in our decision to reject the offer.

There are significant business disruption risks that our board believes have potential for irreparable damage to our business and erosion to Wyndham shareholder value. We've made it clear to choice from the very outset that we would need creative and appropriately scoped protections to address these asymmetrical risk to Wyndham shareholders.

Steve Holmes: The team will be providing further insight into our decision making rationale after we review our strong third quarter performance.

Choice, However, dismissed our concerns is unfounded.

As our advisers reviewed high regulatory risk transaction precedents more broadly there was a clear theme of buyers compensating sellers with materially higher offer premiums and significant protections and compensation.

Geoff Ballotti: I'll hand the call over to Geoff. Thanks, Stephen.

Geoff Ballotti: Thanks everyone for joining us today. We're very pleased to report another strong quarter of operating performance. Globally, red part grew 3% in constant currency, led by international growth of 16%. While U.S, red part declined by 1%, our economy brands continued to gain market share, outperforming their competitors by another 100 basis points this quarter, driven in part by revenue growth from our general infrastructure-related business accounts. We grew our system for the 11th consecutive quarter of 1% sequentially and 3% year-over-year on an organic basis.

We have been offered neither.

Moving onto our second concern.

Our board strong belief the choices offer undervalues, Wyndham standalone growth prospects and the opportunistic nature of the offer which does not at all stand up well when looking at our share price more holistically.

As Youll see on slide 11, there are initial offer came at a time when the exchange ratio was the most in their favor over the past 24 months.

Geoff Ballotti: Our teams opened over 14,500 new rooms in the third quarter with 5,900 of those rooms opening in the U.S. Year-to-day through September 30th, we've opened over 42,600 rooms across 326 hotels, opening more than one hotel each and every day. We improved our attention rate by another 20 basis points from where it stood at the same time last year, as our industry meeting brands maintained the highest overall franchise e-retention rates in the U.S, economy segment.

Premium offer is unacceptable for a change of control transaction with the level of asymmetrical risks that we just discussed.

Industry research analysts recognize our strong sustained momentum.

Overwhelmingly believe Wyndham is undervalued and has significant upside as evidenced by their price targets and buy ratings on our stock our management team has consistently been able to execute on our near term goals. While also reinforcing the foundation for long term value creation.

Geoff Ballotti: Our pipeline grew through the 13th consecutive quarter, a 4% sequentially and 12% versus prior year, including 2% sequential growth in the U.S, and 16% year-over-year. Our teams awarded more than 230 contracts for over 26,000 rooms with 15% of our pipeline, now representing our Echo Suites extended today by Windom Brand, and an additional 70% of our pipeline now in the higher rev-car mid-scale, upscale, upper-upscale, and luxury segments. Our owner first philosophy was on full display last month in Anaheim, where we held the largest global conference we've ever assembled with over 6,000 registered attendees and more than 150 sponsors.

As shown on slide 13, we've delivered organic room growth and beat consensus EPS estimates for 11 consecutive quarters.

And as we've outlined on slide 14, we have multiple levers to accelerate net room growth from the current 2% to 4% to 3% to 5%.

Including building on the success of our new Echo suites brand leveraging our best in class International direct franchising capabilities and continuing to enhance our franchisee retention rates, which have already improved 200 basis points since our spinoff.

Geoff Ballotti: The conference provided our franchisees an opportunity to connect with their colleagues and learn firsthand how to unlock the power of recent investments we've made in next-generation technologies, sales and marketing initiatives, and hotel-level operating efficiencies. Our owners have never been more engaged with our teams and the superior value proposition that our brands today deliver.

Beyond system growth and market driven revpar gains, we're pursuing several initiatives that will significantly enhance shareholder value, including those that we've previously discussed with you and others that are taking shape out of the spotlight.

Combined these opportunities set up an achievable path to accelerate organic EBITDA growth, 2% to 7% to 10% compounded annual growth rate through 2026.

In addition, the ability to deploy significant incremental capital through excess free cash flow and leverage capacity will amplify earnings growth for our shareholders.

And you could see this roadmap on slides 15 and.

Geoff Ballotti: Before Michelle takes us through the financials, we'd like to take a moment to acknowledge our team members. The incredible success of our owner first operating philosophy would not be possible without their unwavering commitment and support. And we're thrilled about our most recent ranking at number 8, up from number 11 last year on Newsweek's Top 100 most-loved workplaces for 2023. We thank all of our team members around the world who put our owners at the very center of everything it is that we do, and who remain enthusiastic about the opportunities ahead for us and confident in our ability to deliver the outstanding value day in and day out to our shareholders, our guests, and our franchisees.

In slide 16.

Today, we're introducing the first step on this path with our 2024, adjusted EBITDA outlook of $690 million to $700 million, reflecting year over year organic growth of 7% to 8%.

This outlook includes only a partial earnings benefit from our initiatives with full realization over a longer time horizon and represents our growth potential before capital deployment.

In 2024 alone we estimate our capital allocation capacity at.

At the midpoint of our target leverage range to be between 700, and $750 million, which translates to approximately $8 50 per share.

This is a material amount of capital that can be deployed to accelerate growth above our current outlook.

Michele Allen: I'll now turn the call over to Michelle. Michelle? Thanks, Geoff, and good morning, everyone. During the third quarter, fee-related and other revenues grew 7% reflecting global rep part net room growth, as well as higher license and ancillary fees and pass-through revenues in our marketing, reservation, and loyalty funds due to our global franchisee conference in September, which was held for the first time since 2019. Adjusted either that grew 5%, primarily reflecting higher fee-related and other revenues, as well as marketing fund variability.

Our proven track record capabilities and embedded value drivers give our board confidence that our stand alone plan will deliver superior risk adjusted returns compared to choices proposal.

Finally, the third concern our board has is the substantial equity consideration.

We've consistently made it cleared a choice the stock portion of their offer poses significant risk to our shareholders are.

Michele Allen: Marketing fund revenues exceeded expenses by $17 million dollars this quarter versus 12 million a year ago. Our adjusted EBITDA margin remained consistent at 83%. Third quarter adjusted diluted EPS improved 8%, reflecting our adjusted EBITDA growth, as well as benefits from our share repurchase activity and a lower effective tax rate, which were partially offset by higher interest expense. We generated $67 million of free cash low in the third quarter and 225 million a year to date.

Our concerns are focused on several areas and they are presented on slides 18 through 22.

Well first address the recent performance of the core business and financials of Wyndham versus choice.

We highlight these metrics as investors take them into account for helping to understand the appropriate valuations ascribed by the public markets.

In the first half of 2023 Wyndham grew net rooms, 3% organically.

Michele Allen: We remained on track to achieve our goal of converting 50 to 55% of full-year adjusted EBITDA to free cash low, which is the adjusted net income line translates to approximately 100%. We returned $134 million to our shareholders during the third quarter through 105 million of share repurchases and 29 million of common stock dividends. Year to date, we have repurchased $3.8 million shares of our stock for $270 million. We ended the quarter with approximately 710 million total liquidity and our net leverage ratio of 3.3 times was in a lower half of our target range.

Whereas choices system declined 2% organically.

Wyndham grew first half 2023, EBITDA, 9% organically.

While choices organic EBITA growth was 1%.

Choices future growth prospects are equally challenged given their declining pipeline as shown on slide 19.

In particular, there revenue intense pipeline.

Has declined 38% between year end 2019 and year end 2022.

Michele Allen: We are reaffirming our adjusted EBITDA guidance of $654 to $664 million and raising our adjusted diluted EPS outlook to $3.94 to $4.08 to reflect our continued strong performance as well as our third quarter share repurchased activity. That concludes our prepared remarks on our third quarter results.

And while that level of detail is not available on an interim basis, we can see that their total pipeline has contracted by 12% year to date through June.

These adverse movements.

Raise serious concerns for our board around choices ability to organically grow their system.

Geoff Ballotti: Jeff will now walk you through the rationale behind our board's rejection of choices unsolicited offer. Thanks, Michelle. As Steve referenced in his opening remarks and consistent with its fiduciary responsibility, our board along with its third-party advisors evaluated choices proposals.

Along with their ability to execute their stated revenue intense strategy.

Choices multiple premium historically benefited from organic growth.

However, it's more recent performance, including seven consecutive quarters of negative organic growth combined with its declining pipeline have reduce that premium as depicted on slide 20.

Geoff Ballotti: Our board begins from the premise that as a public company with a well-distributed shareholder base, we're open to any and to all avenues to create value for our shareholders. Many of these value creation opportunities are driven from organic growth initiatives, somewhere from inorganic growth initiatives, and some are initiated by third parties. Our board has deep experience and has always provided oversight on our major strategic initiatives and opportunities. With respect to the offer made by choice in August, our board determined for several specific and well-substantiated reasons focusing on both transaction risk allocation and valuation that the proposal was not in the best interest of windom shareholders and rejected the offer.

And make it susceptible to further valuation multiple contraction in the future.

This challenging growth profile will only be exacerbated should choice be required to operate within the proposed excessive leverage profile.

With this transaction would require.

Prudent leverage and balance sheet flexibility are core tenants of how Wyndham operates.

And as a physician shared by many hospitality peers as shown on slide 21.

We estimate choice would need to secure approximately $6 billion of debt to fund this transaction, including over $4 billion of incremental debt and the remainder to replace Williams' existing debt.

Geoff Ballotti: We've been consistent with choice from their initial end bound that our concerns would need to be satisfactorily addressed, something they have not done to date. In our press release last Tuesday, we provided initial rationale and insight into our board's decision to reject the offer. Today, we'll go through greater detail around that decision and walk you through our significant standalone growth prospects. This morning, we posted an investor presentation to our website, and we'll be referencing that throughout this discussion.

Our financial advisors estimate this leverage level would take three to four years to delever from even if the company were to allocate nearly all of its excess cash flow towards paying down the debt and potentially longer depending on the macro environment.

Choices historically been heavily reliant on its balance sheet to grow its system from 2017 through 2019 choice deployed half of $1 billion to grow their system organically at a 3% CAGR.

Geoff Ballotti: We start by level setting who Wyndham is today on slide two. Not only are we the largest hotel franchise or in the world, but we're also the only public hotel company of scale that is truly asset light. Generating significant free cash flow, which allows us flexibility on how we choose to allocate our capital, whether it be for investment in growth initiatives with attractive ROI, or whether it be returning capital directly to our shareholders.

Conversely from 2020 through the second quarter of this year choices deployed less than $150 million in their system has declined organically at a 1% CAGR.

Choices used M&A to mask its lack of organic growth through the $675 million acquisition of the rights to use the Radisson brand in the Americas, which has accounted for the entirety of their reported system growth since the transaction closed on August of 2022.

Geoff Ballotti: Since our spin-off from Wyndham Worldwide, we've undertaken a series of initiatives as outlined on slide three that lay a strong foundation and provide a runway for sustainable organic growth going forward. Initiatives like our Echo Suites by Wyndham Brand, the fastest growing brand in the underserved economy extended space and one for expecting outside economic benefits from in the coming years. Investments we've made in hotel level sales and marketing to grow our share of existing infrastructure bookings, and to capture the opportunities just now emerging from the recent infrastructure bill.

And choices declining organic growth will only be exacerbated when it cannot use its balance sheet to generate net room growth as it's done in the past.

The higher leverage contemplated for the transaction would drastically shift the pro forma company's focus to deleveraging preventing meaningful investment and growth for multiple years, which could significantly impact the pro forma company's trading multiple.

In addition, the cost of debt required to fund this transaction is materially higher than historical levels of servicing that debt stack to the proposed transaction would require over $200 million of incremental interest cash outflows compared to just two years ago.

Geoff Ballotti: And investments we've made in our Wyndham Awards loyalty program with over 105 million members, a program that's been voted the best hotel loyalty program by USA Today for six consecutive years. We've also capitalized on the significant growth potential outside of the U.S, with our direct franchising capabilities now in 95 countries. These growth initiatives and so many others support Wyndham's owner first reputation as the franchise or preference for hotel owners and the segments we operate in.

This higher cost of financing with further diminish the cash available to invest in the business.

And while the synergies could help delever, we know if they take multiple years to achieve.

And have an initial upfront cost to secure them.

The lack of availability of growth capital is a concern for our board given how reliant choice has been on their balance sheet historically to grow their system and given the significant momentum and success Wyndham has joined today, which may be impaired in a constrained capital environment.

Geoff Ballotti: And our franchisee retention rates have correspondingly improved. While some of the benefits of these actions are already reflected in our financial performance, we believe that there will be an even greater benefit from them in the coming years given the long tail for development retention and new product innovations were confident that these initiatives provide a significant runway for outsized growth and enhance shareholder value.

In conclusion, our board remains open to risk adjusted valuation creation alternatives, whether those are driven from internal initiatives from external capital deployment or from third party opportunities.

And whenever reviewing any of these alternatives our board believes that it is imperative to consider the impacts to our shareholders our franchisees and.

Geoff Ballotti: And with that background on our company would now like to detail some facts surrounding the choice offer. While the offer may have had an initial headline of $90 per share, the proposal is currently worth less and may continue to fluctuate in value over time as it includes a significant amount of stock consideration. Just last week, within a few days of choices public announcement, choices stock had decreased by over 9% and the implied value of the offer was already $4 lower at $86 per share.

And our team members and so after considerable review with our financial and legal advisors. Our board believes that the choice proposal is inadequate on multiple fronts, including its unmitigated asymmetrical risk allocation the confidence our board has in our Standalone growth strategy that is not being considered by choice and it's opportunistic.

Time to offer and a heavy portion of choice stock and the consideration mix that we believe has potential for additional downside risk.

Geoff Ballotti: And it's important to note that choice has not offered our shareholders any protection against potential continued downward volatility. Furthermore, the fixed value of the cash portion offered to our shareholders would not be realized until the conclusion of an extended regulatory process which our advisors estimate could take 12 to 18 months. When we consider all of this, one point is clear. The actual offer is worth materially less to our shareholders if and when they receive it.

We will continue to execute our business model drive growth allocate excess capital appropriately and maintained strong partnerships with our franchisees to drive shareholder value and with that we'd be happy to take your questions. Operator, if you could please open up the line.

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.

Geoff Ballotti: And it's core, there are three primary reasons why our board has rejected choices offer which you could find on slide four. First, there is asymmetrical risk to windom shareholders associated with an uncertain regulatory timeline and outcome without commiserate protections and compensation provided to our shareholders for taking on these risks. Second, choices proposal does not provide appropriate value for Wyndham's standalone growth prospects and exploits short-term volatility in Wyndham stock price without a consideration of a broader view of Wyndham's trading levels.

If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.

We do ask that you please limit yourself to one question.

Geoff Ballotti: And third, the consideration mix includes a heavy portion of choice stock. Our board has concerns over choices organic growth prospects, and those concerns are exacerbated. If the pro forma company will be left with an over levered balance sheet that constrains its capital allocation strategy in a material way, further limiting its growth opportunities.

Thank you.

Our first question comes from Joe Greff of J P. Morgan.

Hi, good morning, everybody.

That surprisingly my question is how do you best directed to Steve.

Interpreting the totality of your comments since last week.

I'm interpreting them as choices offered and maybe any modest tweaks to what the most recent offer is dead on arrival.

My question is that the correct interpretation or not.

Is this to Steve have you talked to steward or Pat.

Since last week and had there been any more current discussions.

I'll leave it broadly open to any kind of risk mitigates that.

Currently.

Geoff Ballotti: We'll delve into each of these points in more detail and we'll start on slide six. Upon choice's initial approach, our board immediately engaged subject matter experts to assess the proposed combination. Our extensive diligence confirmed that the transaction would be subject to an uncertain, prolonged approval process of 12 to 18 months. Of particular concerns that US antitrust investigations are at historic highs, there have been more second-request issues by the Biden administration in their first fiscal year than in the proceeding 20 years combined.

Referred to today.

Whether that is.

That's sort of a creative breakup fee or color or tipping fees.

More cash suggesting to them, maybe how they can raise.

Cash through equity issuance that would then wouldn't be given to you guys or equity transfer to you guys to take on all the risks that you referred to today.

And that's those are my questions. Thanks.

Well. Thanks, Joe then there was a lot packed in there and I haven't done these calls for six years. So it's good to hear your voice.

Yeah, I used to always say, Joe that I don't comment on M&A rumors because that used to be what always came up but this one is not a rumor and it also is not really M&A.

Geoff Ballotti: The party's advisors met on multiple occasions in choice eventually acknowledged the probability of an extended regulatory review period of at least 12 months. Our business would be uniquely exposed to deterioration risk during a long regulatory review period, as our business is built on relationships. Our franchisees typically signed 10 to 20-year contracts with us. They care very much about who they are doing business with, and we believe we offer as differentiated service through the relationships we had fostered over not years, but over decades, relationships that underpin our new business development activity and our improving franchisee retention rates.

It seems like a.

Desperate grabbed to try to solve problems.

The company has.

We have been responsive every step of the way I have not heard from choice since we sent them since we told them I called and spoke to Stuart and told them that we're disengaging. This is an amazing distraction for the businesses not only ours for Theres, a bigger distraction for ours probably than theirs.

And just to give you a little bit of history 25 years ago, 20 years ago, I negotiate a deal to buy choice and I never talked about it because it's not appropriate, but we negotiated a deal the capital markets turned on us and the credit was not available to make an all cash offer which.

Geoff Ballotti: As depicted on slide nine, we open more than 450 hotels annually. If this uncertainty were to persist for an extended period of time, some portion of our development and openings may not materialize, which compounds over time. Additionally, developers of our Echo Suites brand have expressed significant reservations about deploying such large sums of capital with a brand steward other than Wyndham, jeopardizing the brand's future. More over our considerable momentum in improving franchisee retention rates could also be impacted the longer this drags on, as competitors capitalize on franchisee concerns around a potential combination.

Is what was desired from the other side.

We disengaged as soon as I called and said I'd never turned I've never walked away from a deal before I've done 40, plus deals, but this one just isn't going to work as the capital markets arent attractive.

<unk> never said anything about it just kind of what what our Merry way.

Geoff Ballotti: There are significant business disruption risks that our board believes have potential for irreparable damage to our business and erosion to Wyndham's shareholder value. We've made it clear to choice from the very outset that we would need creative and appropriately scope protections to address these asymmetrical risks to Wyndham's shareholders. Choice, however, dismissed our concerns as unfounded. As our advisors reviewed, high regulatory risk transaction precedent more broadly, there was a clear theme of buyers compensating sellers with materially higher offer premiums and significant protections and compensation. We have been offered neither.

Choices contact to this multiple times over the years and we've told them we've looked at it.

Decided what's the in the best interest of our shareholders and nothing has been done about it. This time is different now I'm not sure what is different other than the fact that theyre not growing they have some serious issues within their organization.

We're trying to address that by making us the elixir for their problems.

And so to answer your question directly Joe I'm going a little bit.

It'll go off of the off the topic here, but I have not heard from them.

And we put up multiple ideas of what they could do none of which were available to them. So I don't.

Geoff Ballotti: Moving on to our second concern. Our board's strong belief that choices offer undervalues windows, stand-alone growth prospects, and the opportunistic nature of the offer which does not at all stand up well when looking at our share price more holistically. As you'll see on slide 11, their initial offer came at a time when the exchange ratio was the most in their favor over the past 24 months. The premium offer is unacceptable for a change of control transaction with the level of asymmetrical risks that we just discussed.

We werent looking to sell the company they called us, but they called us and they don't have a plan. So their plan seems to be to put out.

<unk> press releases and see if they can turn the water enough to make it interesting for us I just don't see that as a plan.

That's a bit of a desk or plan.

Did I answer the question Joe.

Hey, Joe.

Our next question comes from David Katz of Jefferies.

Geoff Ballotti: Industry research analysts recognize our strong, sustained momentum, and overwhelmingly believe Wyndham is undervalued and has significant upside as evidence by their price targets and by ratings on our stock. Our management team has consistently been able to execute on our near-term goals while also reinforcing the foundation for long-term value creation. As shown on slide 13, we've delivered organic room growth and beat consensus EPS estimates for 11 consecutive quarters. And as we've outlined on slide 14, we have multiple levers to accelerate net room growth from the current to the 4% to 3% to 5%, including building on the success of our new Echo Suites brand, leveraging our best in-class international direct franchising capabilities, and continuing to enhance our franchisey retention rates, which have already improved 200 basis points since our spin-off.

Hi, good morning, everyone Steve.

Good good good to have you back.

I wanted to just talk about some commentary that has come up this week about.

Taking share and market share within the limited service and economy segments. It came up yesterday with a peer and was was discussed and in that context.

You make some points in your deck. This morning about the suspension of development activities for an extended period in and what the potential impact of that is.

If you could talk about broadly speaking Jeff that the.

The notion of where you think you are in terms of the share of opportunities out there.

And more importantly, within the context of this deal.

It's come up with investors about whether there are change of control provisions within any of the contracts.

Geoff Ballotti: The on-system growth and market-driven redpar games were pursuing several initiatives that will significantly enhance shareholder value, including those that we previously discussed with you and others that are taking shape out of the spotlight. Combined, these opportunities set up an achievable path to accelerate organic EBITDA growth to a 7 to 10% compounded annual growth rate through 2026. In addition, the ability to deploy significant incremental capital through excess free cash flow and leverage capacity will amplify earnings growth for our shareholders.

Particularly the one with echo that's.

Top of mind, and current and whether there could be any impact to the existing.

Franchisee base, if this were to get to a place where it went somewhere.

Realize theres about eight questions in there too.

Thank you. Thank you, David and I loved your chorus of upside arguments today, a headline in terms of continuing net room growth in pipeline growth in flying acceleration and monitoring none that we couldn't agree with you more and were certainly seeing that I mean, certainly there is no slowdown in that in the third quarter Q3 was a huge quarter for us with.

Geoff Ballotti: And you can see this roadmap on slides 15 and slide 16. Today, we're introducing the first step on this path with our 2024 adjusted EBITDA outlook of $690 to $700 million, reflecting year-over-year organic growth of 7 to 8%. This outlet concludes only a partial earnings benefit from our initiatives with full realization over a longer time horizon and represents our growth potential before capital deployment. In 2024 alone, we estimate our capital allocation capacity at the midpoint of our target leverage range to be between $700 and $750 million, which translates to approximately $8.50 per share. This is a material amount of capital that can be deployed to accelerate growth above our current outlook.

Some really.

Really great great momentum to your point you know today in terms of brands gaining share to your question, we're gaining on both the conversion side and the new construction side.

If you look at.

Our brands on on the on the new construction side. The one you mentioned that was talked about I guess in the deck and a bit yesterday.

Has had significant momentum to date with our with Echo suites, we executed another 60 contracts in the quarter with multi unit developers and to date. There is no impact yet on any of the planned.

2023 ground breaks, but to what was in our investor presentation today, certainly questions and concerns come up longer term as developers who have not yet broken ground are wondering are they building on echo suites by Wyndham extended stay economy brand for Wyndham are they building it for choice and that's certainly.

Geoff Ballotti: Our proven track record, capabilities, and EBITDA value drivers give our board confidence that our standalone plan will deliver superior risk-adjusted returns compared to choice's proposal.

Geoff Ballotti: Finally, the third concern our board has is the substantial equity consideration. We've consistently made it clear to choice the stock portion of their offer poses significant risk to our shareholders. Our concerns are focused on several areas and they're presented on slides 18-22. We'll first address the recent performance of the core business and financials of Wyndham versus choice. We highlight these metrics as investors, take them into account for helping to understand the appropriate valuations as described by the public markets.

What we're concerned about but.

The quarter was was that was tremendous from a from an opening standpoint, we.

We opened.

G 15000 rooms was above our openings level back in the third quarter of 19, where we.

Hit that 3% net room growth, we saw great growth in our mid scale great growth in our international direct franchising business and our pipeline is sitting at a record level of 13 consecutive quarters and we want to keep that up we want to keep that going and we don't want the distraction that we talked about in our prepared remarks to what impact it in any way.

Geoff Ballotti: In the first half of 2023, Wyndham grew net rooms 3% organically or as choices system declined 2% organically. Wyndham grew first half 2023 EBITDA 9% organically while choices use organic EBITDA growth was 1%. Choices future growth prospects are equally challenged given their declining pipeline as shown on slide 19. In particular, their revenue-intense pipeline has declined 38% between year end 2019 and year end 2022. While that level of detail is not available on an interim basis, we can see that their total pipeline is contracted by 12% year to date through June.

Okay.

Yeah.

Our next question is from Stephen Grambling of Morgan Stanley.

Hey, Thanks. This is a question for either Steve or Jeff a lot of the comments focus on choice Standalone business and Wyndham Standalone business, but given the prior dialogue you had I'm sure you've had time to think about the strategic merits of a combination and potential synergies should love. It how do you just have.

US understand how you think about the strategic rationale from our combination, particularly as we look longer term through industry dynamics, where it seems like competition is ramping for the midscale space and perhaps that ultimately kind of comes down through economy. Thanks.

Sure Yeah in the economy space I mean, we are as we've said all along choice has been very open that they do not want to be in the economy space. We certainly do Steve and I mean it is it is why we've we've said all along we're so excited about what we're doing with <unk>.

Geoff Ballotti: These adverse movements raise serious concerns for our board around choices ability to organically grow their system along with their ability to execute their stated revenue-intense strategy. Choices multiple premium historically benefited from organic growth. However, it's more recent performance including 7 consecutive quarters of negative organic growth combined with its declining pipeline have reduced that premium as depicted on slide 20 and make it susceptible to further valuation multiple contraction in the future. This challenging growth profile will only be exacerbated should choice be required to operate within the proposed excessive leverage profile that this transaction would require.

With our echo suites by Wyndham product and the economy space. It's just a huge huge market Theres 9500 branded economy hotels, there's 22000 non branded hotels in the economy space and certainly there are synergies and in scale and size and scope. We've always said that M&A is in our DNA 19 of our 24.

Brands have been.

Wired.

Since Steve put this company together.

Can the Hff's days and will continue to continue to look for all of those reasons for immediately accretive tuck in acquisitions that are both EPS and net room growth accretive brands is of high quality, but.

But also brands that don't create displacement issues for any of our other brands.

Geoff Ballotti: Fruit and leverage and balance sheet flexibility are core tenets of how Wyndham operates and is a position shared by many hospitality peers as shown on slide 21. We estimate choice would need to secure approximately $6 billion of debt to fund this transaction including over $4 billion of incremental debt and the remainder to replace Wyndham's existing debt. Our financial advisors estimate this leverage level would take three to four years to deliver from even if the company were to allocate nearly all of its excess cash flow towards paying down the debt and potentially longer depending on the macro environment.

I mean, this is less about the industrial logic and way more about the risks that we discussed I mean, certainly there have been things out there on the.

The benefits of.

Our loyalty program combination and we will not argue that Wyndham rewards is a better loyalty program that choice privileges.

And it's the best program out there for five or six years with USA today and U S News and World report.

But I don't think our days inn or Super eight owners on any street corner in America would want a share of those guests with a choice of con a large or a roadway owner across the street, who they compete with.

Geoff Ballotti: Choices historically been heavily reliant on its balance sheet to grow its system. From 2017 through 2019, choice deployed half a billion dollars to grow their system organically at a 3% keger. Conversely, from 2020 through the second quarter of this year, choice is deployed less than $150 million and their system has declined organically at a 1% keger. Choices used M&A to mask its lack of organic growth through the $675 million acquisition of the rights to use the Radisson brand in the Americas, which is accounted for the entirety of their reported system growth since the transaction closed of August of 2022.

So we're we're we understand the industrial logic, but it's less about that more about the risk as he said in our prepared remarks.

Our next question comes from Dan <unk> of Morningstar.

Hey, good morning, guys. Thanks for taking the questions just wondering if theres any more context, maybe you could give on how your conversations have gone thus far with franchisees.

And then this might be I guess hard to quantify or maybe you can talk about are there already.

And your negotiations some third party owners that are waiting to see what the outcome of this transaction or potential transaction is.

Geoff Ballotti: And choices declining organic growth will only be exacerbated when it could not use its balance sheet to generate net room growth, as it's done in the past. The higher leverage contemplated for the transaction would drastically shift the performance company's focus to deleverging for any meaningful investment in growth for multiple years, which could significantly impact the performance company's trading multiple. In addition, the cost of debt required to fund this transaction is materially higher than historical levels, servicing the debt stack for the proposed transaction would require over $200 million of incremental interest cash outflows compared to just two years ago.

Or what percent.

I guess and that might be hard to quantify what percent might.

Has issues with the change in control that might impact future.

The retention rate or not.

Yeah.

A fair question that and we can't give you a percentage as we mentioned in the script. We did see an immediate negative reaction from choices press release last Tuesday.

In terms of of what they put out and actually began feeling the impact from the Wall Street Journal leak as far back as may from both existing franchisees and prospective franchisees who've been expressing uncertainty and concern over what a change in ownership would mean.

Geoff Ballotti: This higher cost of financing would further diminish the cash available to invest in the business. And while synergies could help deliver, we note they take multiple years to achieve and have an initial upfront cost to secure them. The lack of availability of growth capital is a concern for our board, given how reliant choice has been on their balance sheet historically to grow their system.

There are not change of control provisions in our contracts, but franchisees are choosing us.

More so than they are choosing choices you've seen over the last few years and theyre doing business with us because because we say all the time to our teams they know us they like us and they trust us.

And they're very concerned about losing that culture that we've built.

Geoff Ballotti: And given the significant momentum and success, windomings is joined today, which may be impaired in a constrained capital environment.

Our teams approach ability and accessibility and flexibility I think COVID-19 was a great example of that in terms of.

Geoff Ballotti: In conclusion, our board remains open to risk adjusted valuation creation alternatives, whether those are driven from internal initiatives, from external capital deployment, or from third party opportunities. And whenever reviewing any of these alternatives, our board believes that it is imperative to consider the impacts to our shareholders, our franchisees, and our team members. And so after considerable review with our financial and legal advisors, our board believes that the choice proposal is inadequate on multiple fronts, including its unmitigated asymmetrical risk allocation.

Now throughout that.

The pandemic and crisis, we supported them.

And so it's been very empowering for our teams to hear the stories of why our franchisees want to stay with us and it is really what the bonds are.

Our culture I mean R.

Our franchisees two thirds of our franchisees and two thirds of choices franchisees are a whole of members and we have a very long.

History supporting about Hela, we believe in the power of dialogue in and.

We are we're standing with our franchisees and our our.

Geoff Ballotti: The confidence our board has in our standalone growth strategy that is not being considered by choice in its opportunistically timed offer. And the heavy portion of choice stock in the consideration mix that we believe has potential for additional downside risk. We will continue to execute our business model, drive growth, allocate excess capital appropriately, and maintain strong partnerships with our franchisees to drive shareholder value.

Our for all the reasons, we talked about.

No not in favor of the deal as currently proposed.

Yeah.

Yes.

Our next question is from Patrick Scholes of Truest Securities.

Hi, good morning, everyone.

Promotion for <unk>.

And I ask if you can be as granular as possible.

Operator: And with that, we'd be happy to take your questions. Operators, you could please open up the line.

The answer here.

Clearly.

That's a.

Wyndham hotels and resorts would be materially harmed.

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. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. We do ask that you please limit yourself to one question. Thank you.

And offer was made and then it was rejected by.

The department of Justice for antitrust reasons or whatever.

Could it be as granular as possible what do you think would be a.

Fair.

Compensation or a breakup fee.

Joseph Greff: Our first question comes from Joe Greff of JP Morgan. Good morning, everybody. That's probably my question is probably the best directed to Steve. Interpreting the totality of your comments, since last week. I'm interpreting them as choices offered and maybe any modest tweaks to what the most recent offer is that on arrival. That's not my question, if that's the correct interpretation or not.

To Wyndham.

If you were to agree to an author.

So Patrick it's good to hear from you Havent heard your voice in a while.

Steve Holmes: My question is this to Steve, have you talked to Stuart or Pat since last week and have there been any more current discussions and I'll leave it broadly open to any kind of risk midagence that you've eloquently referred to today, whether that is a sort of a creative break-up fee or a collar or tipping fees or cash, suggesting to them maybe how they can raise cash through equity issuance that would then wouldn't be given to you guys or equity transferred to you guys to take on all the risks that you refer to today and that's those are my questions. Thanks.

But the answer is no I cannot be more granular because I don't think that's any there's no reason for us to discuss that on this call.

We have tried to raise it with choice at one point.

<unk>.

Been in denial for quite some time initially they didn't think the antitrust issue was even an issue then they came back and said well maybe it'll take three months to clear it and it took us many many meetings with our professionals meeting with theirs for them to acknowledge they know this could be a 12 to 18 month process. So what do you think the odds are of us getting them to understand.

And the impact it could have on our business. They have no risk. This is this is they are playing with house money here and frankly there'll be playing with our money if they can get a deal done because that's how they would finance the purchase you know we don't need them to do that.

And so I think it's just I think it's.

Inappropriate for me to try to address your question on this call and and I haven't heard from them. So I don't know what their ideas are.

Our next question is from Brent <unk> of Barclays.

Steve Holmes: Well, thanks Joe. There was a lot packed in there and I haven't done these calls for six years so it's good to hear your voice. You know, you always say Joe that I don't comment on M&A rumors because that used to be what always came up but this one is not a rumor and it also is not really M&A. It seems like a desperate grab to try to solve problems that the company has.

Hey, good morning, everybody. Thanks for taking the question.

Just following up along along those lines.

The risks that you that you listed out here.

The combination doesn't.

Necessarily address.

Culture risk right, which is something that thematic lease seems to be coming up in a lot of these discussions today, which is that in a combination situation.

Given that your culture with your owners seems to be a primary driver of your organic growth do you think that would be at risk in a combination outside of on top of the leverage and extended balance sheet.

Steve Holmes: We have been responsive every step of the way. I have not heard from choice since we sent them, since we told them, I called and spoke to Stuart and told him that we're disengaging. This is an amazing distraction for the businesses, not only ours for theirs, a bigger distraction for ours probably than theirs and just to give you a little bit of history 25 years ago, 20 years ago, I negotiated deal to buy choice and I never talked about it because it's not appropriate but we negotiated deal.

Yes, I think it absolutely is.

<unk>.

Our concern and risk of our team I mean, we've made tremendous progress over the last several years.

Improving our attention rate and retention rates, we feel are really the best measure of franchisee engagement.

Our economy retention rates are or several hundred basis points ahead of choices and again it gets back to the comment I made in terms of how our franchisees feel about about our teams in terms of wanting to do business with us in terms of the way, we conduct business with them in.

Steve Holmes: The capital markets turned on us and the credit was not available to make an all cash offer which is what was desired from the other side. We disengaged as soon as I called and said I've never turned, I've never turned 40 plus deals but this one just isn't going to work because the capital markets aren't attractive. Never said anything about it just kind of went our merry way. Choice is contacted us multiple times over the years and we've told them we've looked at it, we've decided what's in the best interest of our shareholders and nothing has been done about it.

And that would be at risk.

Our next question is from Michael Bellisario of Baird.

Thanks, Good morning, everyone.

So just want to revisit your comment on the third party opportunities I guess sort of a two part one why haven't you or two maybe when will you run a more formal process to.

Steve Holmes: This time is different. Now I'm not sure what is different other than the fact that they're not growing, they have some serious issues within their organization. They're trying to address that by making us the elixir for their problems and so to answer your question directly Joe, I'm going a little bit off the topic here but I have not heard from them and we put up multiple ideas of what they could do, none of which were available to them.

To proactively evaluate potential transactions with either financial or strategic partners that could maybe maximize value in a more attractive risk adjusted manner.

So thanks for that question I'll take it and then Jeff for Michelle can add in if they think they need to add anything but.

We did not run a process, we they approached us.

There was first to leak not sure where that came from but there was a leak. So this this has been out there for a while.

And if anybody had a great idea that they wanted to bring to the table. We're all ears I mean, when I first heard from from the other side.

Steve Holmes: We weren't looking to sell the company, they called us but they called us and they don't have a plan. So their plan seems to be to put out repetitive press releases and see if they can turn the water enough to make it interesting for us. I just don't see that as a plan. That's a bit of a desperate plan. Did I answer the question, Joe?

Their question was are you prepared to transact and I said, well I'm always prepare to transact if it's in the best interest of our shareholders.

Transactional if that's the right thing for our shareholders, but there hasn't been anything that I consider really close to too transactional.

David Katz: Our next question comes from David Katz of Jeffries.

So I don't know I don't know what to add to that to answer your question, Jeff from Michel If you have anything feel free to weigh in there.

Geoff Ballotti: Hi, morning everyone, Steve, good to have you back. I wanted to just talk about some commentary that has come up this week about taking share and market share within the limited service and economy segments. It came up yesterday with a peer and was discussed. In that context, you make some points in your deck this morning about the suspension of development activities for an extended period and what the potential impact of that is.

Theyre shaking their head.

Yes, no nothing nothing to add Steve Thanks.

Okay.

Our next question is from Danny Assad of Bank of America.

Okay.

Hey, good morning, everybody.

Thank you for all the details on the deck.

In there you did kind of lay out.

Like an outlook and EBITDA outlook of $690 million to $700 million in 'twenty, four and Thats about 7% to 8% growth can you.

Geoff Ballotti: If you could talk about broadly speaking, Jeff, the notion of where you think you are in terms of the share of opportunities out there and more importantly within the context of this deal, it's come up with investors about whether there are change of control provisions within any of the contracts, particularly the one with echo that's top of mind and current and whether there could be any impact to the existing franchise e-base if this were to get to a place where it went somewhere and I realize there's about eight questions in there too.

Help us walk through the building blocks of how we get there and then translating that into the 750 700 to 750 of capital allocation capacity.

What forms could that take that of realizing that you know $8 50, a share of value that you kind of lay out.

Thanks, Ryan Good morning, Yeah. Thank you. Thank you for the question good morning. So.

So for 2020 for the outlook.

By that 7% to 8% organic growth in our business is already growing at 6%. So the only change there really is we're expecting one to two points from.

Growth initiatives that are currently underway and for which we have significant momentum built that includes the infrastructure bill benefits as well as the royalty rate improvements we've been discussing with continued momentum on our retention rate and then some occupancy recovery as well with risk.

Geoff Ballotti: Thanks. Well, thank you, David, and I loved your course of upside arguments today headline in terms of continuing net room growth and pipeline growth and finding acceleration in long-term knowledge that we couldn't agree with you more. We're certainly seeing that. Certainly, there was no slowdown in the third quarter, Q3 was a huge quarter for us with some really great momentum to your point in your note today. In terms of brands gaining share to your question, we're gaining on both the conversion side and the new construction side.

For the $700 million to $750 million number which is just a 2024.

Illustrative example of how much cash we would have available to deploy at the midpoint of our target leverage range and I would note that that goes up to $1 billion at the four time high end of our target leverage range. I think we're just trying to show that is that as capital we haven't.

Geoff Ballotti: If you look at our brands on the new construction side, the one you mentioned that was talked about, I guess, in the deck in a bit yesterday, has had significant momentum to date with Echo Suites. We executed another 60 contracts in the quarter with multi-unit developers and to date there is no impact yet on any of the planned 2023 ground breaks, but to what was in our investor presentation today, certainly questions and concerns come up longer term as developers who have not yet broken ground are wondering, are they building an Echo Suites by Windom Expanded State Economy brand for Windom? Are they building it for choice? And that's certainly what we're concerned about.

<unk>.

To drive.

Ro.

At the EBITDA line, or obviously to return to shareholders.

At the EPS line showed no growth.

No growth initiatives present themselves as compelling opportunities.

Yeah.

We'll take a question from Meredith Jensen of HSBC. Your line is open yes, good morning.

I was just trying to look ahead and explain to people what what sort of happens next and what we could look for and just in terms of the what we see from you all and reporting.

Geoff Ballotti: But the quarter was tremendous from an opening standpoint. We opened 15,000 rooms, was above our opening level back in the third quarter of 19, where we hit that 3% net room growth. We saw great growth in our mid-scale, great growth in our international direct franchising business. And our pipeline is sitting at a record level of 13 consecutive quarters, and we want to keep that up. We want to keep that going. And we don't want the distraction that we talked about in our prepared remarks to impact it in any way.

Would we look at retention rates to see how some of the franchisees are reacting to this what what can we kind of take a look at two to feed into beyond all the great information you've given us today. Thanks.

Well I guess I'll Oh this is Steve I'll start that one.

Right now, it's a confusing time.

As you can imagine.

The sales forces are out there are not just sitting idly by and not trying to take advantage of this disruption. So we know that the the other side is out there, saying a lot of things that are not attractive to us and that makes it more difficult to transact business. So I don't know that I don't know that I would necessarily look at.

Stephen Grambling: Our next question is from Stephen Grambling of Morgan Stanley. Hey, thanks. This is a question for you, or Steve, or Geoff. A lot of the comments focus on choice, standalone business, and Wyndham's standalone business. But given the prior dialogue you've had, I'm sure you've had time to think about the strategic merits of a combination and potential synergies. I'd love to have you just help us understand how you think about the strategic rationale from a combination, particularly as we look, you know, longer term through industry dynamics where a team's like competition is ramping for the mid-scale space and perhaps that ultimately kind of comes down through economy.

Just retention in the short term and the long term absolutely.

Our owner first philosophy that Jeff has continued to push hard as is all about us delivering more value for our owners do you want to talk about that any more Jeff.

Yeah, Meredith I think it's.

It's not as Steve said only about retention, it's really about our.

How our franchisees feel about us. So you know as you follow the thread through through all of the chatter that's out there in terms of.

Stephen Grambling: Thanks. Sure, yeah, in the economy space, I mean, you know, we are, as we've said all along, choice has been very open that they do not want to be in the economy space. We certainly do, Steve. And I mean, it is, it is why we've, we've said all along, we're so excited about what we're doing with, with our echo sweeps by Wyndham product in the economy space. It's just a huge, huge market.

Why wouldn't them as a great company to do business with.

It's also about as Steve said, what's happening on the execution front I mean, despite if you look at year to date transaction volume is still down 50% to prior year and down 30% to 19, our teams were able in the third quarter to sign 10% more deals year on year with this rumor.

Stephen Grambling: There's 9,500 branded economy Hotels. There's 22,000 non branded hotels in the economy space. And certainly there are synergies in scale and size and scope. We've always said that MNA is in our DNA 19 of our 24 brands had been acquired. You know, since you put this company together back in the HFS days and we'll continue to continue to look for all of those reasons for immediately accretive tucking acquisitions that are both EPS and net room growth accretive brands of high quality. But also brands that don't create displacement issues for any of our other brands.

We're out there and 60% more deals versus 2019.

And it's not just echo those signings were up without Echo and Echo still are everybody in that Echo campus is calling us and saying you know we we hope this deal doesn't happen and work with you folks, but I think as importantly, you know what happens to that continued pipeline.

That has.

As marched on to an historic high right now.

Yeah, I guess I'll I'll leave it at that.

Geoff Ballotti: I mean, this is less about the industrial logic and way more about the risks that we discussed. I mean, certainly there have been things out there on, you know, the, the benefits of a loyalty program combination. And we will not argue that Wyndham rewards is a better loyalty program than choice privileges. And it's the best program out there for five or six years with USA today and US News and World Report.

Yes, Meredith, it's Steve again, I'm thinking back to your question you started the question what are the next steps and Thats actually a very good question because it's hard for us to say no more than we've already said no.

And really they have to decide that they want to lay down their pen in there and their PR machine and lets get back let's all get back to business, we can't force that to happen.

Geoff Ballotti: But I don't think our days in or super eight owners on any street corner in America would want to share those guests with a choice of catalog or a roadway owner across the street who they compete with. So we're we we understand the industrial logic, but it's it's less about that more about the risk is we've had not prepared marks.

It's not attractive what they're doing it's not I don't think it's it's it's.

That's very friendly.

So if you want a friendly deal done you don't approach it the way they've approached it God only knows how they can get a deal through the FTC, where we are not a willing participant.

I don't get it I don't get why they would even released this and they threatened to do it and I just thought whether they're smarter than that they won't do it but they made they made a different decision. So it's very hard for us to say what's next the ball is really in their court.

Dan Wachelich: Our next question comes from Dan Wachelich of Morningstar. Hey, good morning guys. Thanks for taking the questions.

Geoff Ballotti: Just wondering if there's any more context. Maybe you can give on higher conversations have gone thus far with franchise these. And then this might be I guess hard to quantify or maybe you can talk about are there already in your negotiations, some third party owners that are waiting to see what the outcome of this transaction or potential transaction is. Or 1% I guess and that might be hard to quantify what percent might, has issues with a change in control that might impact future retention rate or not?

And once again to ask a question. Please press star one one moment, while we queue.

Yeah.

Yeah.

And it appears that we have no further questions at this time I would now like to turn the call over to Jeff <unk> for any closing remarks.

Okay. Thanks, Leo and we appreciate everyone's continued interest in Wyndham and we thank you for joining this morning's call Michele Matt and I look forward to talking to many of you today and in the weeks and months ahead at many of the upcoming investor conferences that we will all be attending thanks again, everybody and have a happy Halloween next week.

Geoff Ballotti: Yeah, it's a fair question, Dan, and we can't give you a percentage. As we mentioned in the script, we did see an immediate negative reaction from choices, press release last Tuesday, in terms of what they put out, and actually began feeling the impact from the Wall Street Journal, because far back is as may, from both existing franchisees and prospective franchisees, who've been expressing uncertainty and concern over what a change in ownership would mean.

Okay.

Thank you. This does conclude today's Wyndham hotels <unk> resorts third quarter 2023 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.

Mhm.

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Geoff Ballotti: There are not change in control provisions in our contracts. But franchisees are choosing us more so than they're choosing choices you've seen over the last few years, and they're doing business with us because we say all the time to our teens, they know us, they like us, and they trust us. And they're very concerned about losing that culture that we've built. They value our teens' approachability and accessibility and flexibility. I think COVID was a great example of that in terms of how throughout that pandemic and crisis we supported them.

Hum.

Mhm.

Geoff Ballotti: And so it's been very empowering for our teens to hear the stories of why our franchisees want to stay with us, and it is really what defines our culture. Our franchisees, two-thirds of our franchisees, and two-thirds of the choices franchisees are ahoa members, and we have a very long history supporting Mahoa. We believe in a power of dialogue, and we are, we're standing with our franchisees, and are for all the reasons we talk about, you know, not in favor of the deal's current post.

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Hum.

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Okay.

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Oh.

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Patrick Scholes: Our next question is from Patrick's goals of Truist Securities. Hi, good morning, everyone. Motion for Steve.

Oh.

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Steve Holmes: And I ask if you could be as granular as possible in your answer here. You know, clearly you've outlined that windom hotels and resorts would be, you know, materially harmed, an offer was made and that it was rejected by the Department of Justice for Entry Trust Regents or whatever. Could you be as granular as possible? What do you think would be a fair compensation or a breakup fee to windom if you were to agree to an offer? Oh, Patrick, it's good to hear from you. I haven't heard your voice in a while, but the answer is no.

Yeah.

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Steve Holmes: I cannot be more granular because I don't think that's any, there's no reason for us to discuss that on this call. We have tried to raise it with choice at one point. They've been in denial for quite some time. Initially, they didn't think the antitrust issue was even an issue. Then they came back and said, well, maybe it'll take three months to clear it and it took us many, many meetings with our professionals meeting with theirs for them to acknowledge that no, this could be a 12 to 18 month process.

Okay.

Yeah.

Yeah.

Yeah.

Hum.

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Steve Holmes: So what do you think the odds are of us getting them to understand the impact it could have on our business? They have no risk. They're playing with house money here. And frankly, they'd be playing with our money if they could get a deal done because that's how they would finance the purchase. We don't need them to do that. And so I think it's inappropriate for me to try to address your question on this call and I haven't heard from them, so I don't know what their ideas are.

Hum.

Oh.

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Brandt Montour: Our next question is from Brandt Montour of Barclays.

Geoff Ballotti: Good morning, everybody. Thanks for taking the question. Just following along those lines, you know, the risks that you listed out here of the combination doesn't necessarily address culture risk, right, which is something that dramatically seems to be coming up in a lot of these discussions today, which is that in a combination situation, given that your culture with your owners seems to be a primary driver of your organic growth, do you think that would be at risk in a combination outside of, you know, on top of the leverage and extended balance sheet.

Okay.

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Geoff Ballotti: Yeah, I think it absolutely is Brandt a concern and risk of our team. I mean, we've made tremendous progress over the last several years, improving our attention rate. Retention rates, we feel are really the best measure of franchise engagement. Our economy retention rates are several hundred basis points ahead of choices. Again, it gets back to the common I made in terms of how our franchisees feel about our teams in terms of wanting to do business with us in terms of the way we conduct business with them. And that would be at risk.

Michael Bellasario: Our next question is from Michael Bellasario of Baird. Thanks.

Steve Holmes: Good morning, everyone. You just want to revisit your comment on the third party opportunities. I guess sort of two part maybe one why having you or two maybe when will you run a more formal process to proactively evaluate potential transactions with either financial or strategic partners that could maybe maximize value in a more attractive risk adjusted manner. Well, thanks for that question. I'll take it and then Jeff and Michelle can add in if they think they need that anything, but we did not run a process.

Hum.

Mhm.

Steve Holmes: We they approached us. There was first a leak, not sure where that came from, but there was a leak. So this this has been out there for a while. And if anybody had a great idea that they wanted to bring to the table, we're all years. I mean, when I first heard from from the other side, their question was, are you prepared to transact? And I said, well, I'm always prepared to transact if it's in the best interest of our shareholders.

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Hum.

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Okay.

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Okay.

Yeah.

Steve Holmes: I'm transactional if that's the right thing for our shareholders. But there hasn't been anything that I consider really close to transactional. So, so yeah, I don't know. I don't know what to add to that to answer your question. Jeff or Michelle, if you have anything, feel free to weigh in there. No, yeah, no, nothing to add to you. Thank you. Okay.

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Hum.

Oh.

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Dany Asad: Our next question is from Danny Assad of Bank of America.

Michele Allen: Good morning, everybody. The, I mean, thank you for all the details on the deck. In there, you did kind of lay out, you know, like an outlook, an EBITDA outlook on 690 to $700 million and 24. And that's about, you know, 78% growth. Can you help us walk through the building blocks of how we get there and then translating that into the 750 of capital allocation capacity. You know, what forms could that take that of realizing that, you know, 850 a share of value that you kind of lay out?

Michele Allen: Sure, good morning. Thank you for the questions. Good morning. So for 2024, the outlook implies 78% organic growth and our business is already growing at 6%. So the only change there really is we're expecting one to two points from growth initiatives that are currently underway and for which we have significant momentum. So that includes the infrastructure bill benefits as well as the royalty rate improvement we've been discussing to continue momentum on our retention rate and then some occupancy recovery as well.

Michele Allen: With respect to the 700 to 750 million dollar number which is just the 2024 illustrative example of how much cash we would have available to deploy at the midpoint of our target leverage range and I would note that that goes up to a billion dollars at the four time high end of our target leverage range. I think we're just trying to show that is capital we have available in that to drive future growth at the either the line or obviously to return to shareholders at the EPS line should no growth no growth initiatives present themselves as compelling opportunities.

Meredith Jensen: We'll take a question from Meredith Jensen of HSBC your line is open. Yes good morning I was just trying to look ahead and explain to people what what sort of happens next and what we could look for and just in terms of the what we see from you all in reporting would we look at retention rates to see how some of the franchisees are reacting to this what what can we kind of take a look at to to feed in to beyond all the great information you've given us today thanks well I guess I'll I'll this is Steve I'll start that one the right now it's a confusing time as you can imagine the sales forces are out there are not just sitting idly by and not trying to take advantage of this disruption so we know that the other side is out there saying a lot of things are not attractive to us and that make it more difficult to transact business so I don't know that I don't know that I would necessarily look at just retention in the short term in the long term absolutely our owner first philosophy that Jeff has continued to push hard is is all about us delivering more value for our owners do you want to talk about any more Jeff yeah Meredith I think it's not as Steve said only about retention it's it's really about our how our franchises feel about us how you know as you follow the threads through through all the the ahoa chatter that's out there in terms of why wouldn't it is a great company to do business with it's it's also about as as Steve said what's happening on the execution front I mean despite if you look at year to date transaction volume still down 50% to prior year and down 30% to 19 our our teams were able in the third quarter to sign 10% more deals year on year with this rumor out there and 60% more deals versus 2019 And it's not just Deco.

Meredith Jensen: Those signings were up without Echo and Echo still are everybody in that Echo camp is calling us and saying, you know, we hope this deal doesn't happen and we're with you folks, but I think it's as importantly, you know, what happens to that continued pipeline that has has marched on to an historic high right now.

Steve Holmes: Yeah, I guess I'll leave it that. Yeah, Meredith, it's Steve again. I'm thinking back to your question. You started the question. What are the next steps and that's actually a very good question because it's hard for us to say no more than we've already said no and really they have to decide that they want to lay down their pen and their and their PR machine and let's get back, let's all get back to business.

Steve Holmes: We can't force that to happen. It's not attractive what they're doing. It's not I don't think it's it's it's it's very it's very friendly. So if you want a friendly deal done, you don't approach it the way they've approached it. God only knows how they can get a deal through the FTC where we are not a willing participant. Yeah, I just I don't get I don't get why they would even release this and they threatened to do it and I just thought well they're they're smarter than that.

Steve Holmes: They won't do it. But they made it they made a different decision. So it's very hard for us to say what next the balls really in their court. And once again to ask a question, please press star one. One moment will be cute.

Geoff Ballotti: And it appears that we have no further questions at this time.

Operator: I would now like to turn the call over to Jeff Balotti for any closing remarks. Okay, thanks Leo and we appreciate everyone's continued interest in windom and we thank you for joining this morning's call Michelle Matt and I look forward to talking to many of you today and in the weeks and months ahead at many of the upcoming investor conferences that will all be attending. Thanks again everybody and have a happy Halloween next week. Thank you.

Operator: This does conclude today's windom hotels and resorts third quarter 2023 earnings conference call. Please disconnect your line at this time and have a wonderful day. David Katz, Ian Zaffino, Michael Bellisario, Joseph Greff, David Katz David Katz, Ian Zaffino, Michael Bellisario, Joseph Greff, David Katz, Ian Zaffino, Michael Bellisario, Joseph Greff,[inaudible] Joseph Greff, Ian Zaffino, Michael Bellisario, Joseph Greff, Ian Zaffino, Michael Bellisario, Joseph Greff, Ian Zaffino,[inaudible] Greff, Ian Zaffino, Michael Bellisario, Joseph Greff, Ian Zaffino, Michael Bellisario, Joseph Greff, Ian Zaffino, Michael Bellisario, Joseph Greff David Katz, Ian Zaffino, David Katz[inaudible] David Katz, Ian Zaffino,