Q2 2025 Wyndham Hotels & Resorts Inc Earnings Call
Please stand by. We're about to begin.
Speaker Change: Good morning everyone and welcome to the Windham Hotels and Resorts second quarter 2025 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 1 on your telephone keypad and if any point, your question has been answered. You may remove yourself from the queue, by pressing star 2. Lastly, if you should require operator assistance, please press star zero at any time. I would now like to turn the call over to Mr. Matt, capuzzi, senior vice president of investor relations. Please go ahead, sir.
Speaker Change: Thank you, operator. Good morning, and thank you for joining us with me today are Jeff Bellotti, our CEO and Michelle Allen, our CFO and head of strategy.
Speaker Change: Before we get started, I want to remind you that our remarks today will continue forward-looking statements. These statements are subject to risk factors. That may cause our actual results to differ materially from those expressed or implied.
Speaker Change: These risk factors are discussed in detail. In our most, recent annual report on form. 10K filed with the Securities and Exchange Commission, and any subsequent reports filed with the SEC.
Speaker Change: We'll also be referring to a number of non-gaap measures.
Speaker Change: Corresponding Gap measures and a Reconciliation of non-gaap measures to Gap. Metrics are provided in our earnings release and investor presentation, which are available on our investor relations website at investor hotels.com.
Speaker Change: 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.
Speaker Change: In addition last evening, we posted an investor presentation, containing supplemental information on our investor relations website.
Speaker Change: We may continue to provide supplemental information on our website and on our social media channels in the future.
Speaker Change: Accordingly. We encourage investors to monitor our website and our social media channels. In addition to our press releases, filing submitted with the SEC and any public conference calls or webcasts.
Jeff Bellotti: With that, I will turn the call over to Jeff.
Speaker Change: We reported another strong quarter of progress with global system, growth of 4% and sequential net room. Growth across every region we operate in
Speaker Change: We grew comparable, adjusted ibaa by 5%, and we grew EPS by 11%, despite the challenging revpar environment.
Speaker Change: We drove an increase of nearly 20% in our ancillary fee streams.
Speaker Change: And we saw continued expansion in both our us and in our International royalty rates.
Speaker Change: Year to date our resilient highly cash generative. Business model has produced approximately 170 million of adjusted free. Cash flow.
Speaker Change: And we've returned nearly 220 million dollars to our shareholders.
Speaker Change: The second quarter reaffirmed, our team's owner first commitment, as we registered over 6,000 owners and strategic sourcing partners for the Windham Global conference in May.
Speaker Change: As 1 of the largest Gatherings of Hotel years in the world.
Speaker Change: Our conference was designed to empower our owners with major new initiatives, to increase their revenues and guest service.
Speaker Change: To lower their costs and to strengthen their operating performance.
Speaker Change: We unveiled several new Cutting, Edge technology-driven tools, including Windham Gateway, a new centralized Wi-Fi, login system, that creates new ancillary Revenue opportunities. And eliminates loyalty program, enrollment requirements for participating hotels.
Speaker Change: And building on our very successful guest engagement platform. Windom connect, we launched, Windom connect plus an AI driven. Guest engagement platform designed to enhance the guest experience and improve Hotel operations.
Speaker Change: Utilizing automated text messaging, and voice assistance, to facilitate bookings to answer questions, and to provide tailored recommendations. This platform is also designed to drive more direct bookings to reduce front desk workloads and to create personalized guest experiences.
Speaker Change: Since being launched at our conference over 1,100 of our over 5,000 hotels, already on Windham. Connect have now enrolled in Windham, connect Plus
Speaker Change: We introduced Windom marketplace with price IQ to reduce procurement costs access better pricing and simplify supply chain processes. We debuted new strategic FNB partnership, Integrations with GrubHub with Applebee's. And with sbes, Everybody Eats to increase guest Satisfaction by offering chef-driven restaurant quality offerings without the need for extensive equipment or large back of the house operations.
Speaker Change: We launched affordable, high-quality Insurance programs through a partnership with Hub. International to provide, tailored solutions, to improve coverage, and lower costs, at a critical moment for franchisees amidst Rising insurance premiums.
Speaker Change: And we introduced wendam, rewards experiences, leveraging Partnerships with world-renowned sports and entertainment Brands like Madison Square Garden Radio City, Music Hall and minor league baseball allowing our 120 million members to use their points to bid on Premiere Live Events as well as Unforgettable once in a lifetime memories.
Speaker Change: Franchisee satisfaction with what they learned and how they believe this conference will improve their business with higher than in any past conference as was their confidence in the years ahead. And last month we released our first annual Hotel, owner Trends report, a multi-month effort, which surveyed hundreds of developers and owners from the United States Canada, and the Caribbean.
Speaker Change: The results, reveal an industry, full of owners who remain confident in its resilience and long-term growth prospects.
Speaker Change: Nearly all of those surveyed responded that they're open to exploring branded offerings.
Speaker Change: underscoring, the value that strong Brands deliver compared to operating independently,
Speaker Change: When ranking the most critical factors in, selecting a brand, these owners and developers pointed to support and executive leadership as top priorities, followed by a strong loyalty program and access to best-in-class technology.
Speaker Change: More than 90% of response respondents, expressed optimism about the next 5 years. And while they acknowledged the challenges posed by the current macro environment, 4 out of 5 owners. Also indicated plans to expand their portfolios via either new construction or new unit Editions.
Speaker Change: Our owner's confidence in their brands and their future with Windom was once again reflected in our growing openings signings and net room, growth this quarter.
Speaker Change: We opened over 16,000 rooms in. Q2 bringing June year-to-date, new additions to over 30,000 rooms, a record first, half of openings, for our company and 3% higher than last year.
Speaker Change: Q2 contract signings increase 40% to Prior year driving another 5% growth in our Global development pipeline, to a record, 255,000 rooms,
Speaker Change: The 20th consecutive quarter of pipeline growth out of 11 Pipeline with an average fee, par premium that's approximately 30% higher domestically and nearly 15%, higher internationally versus the existing domestic and international rooms in our system.
Speaker Change: Domestically our mid-scale and above Brands grew 3%, with new construction. Openings like the lakita Olive Branch located just minutes from Graceland Elvis Presley's historic home in Memphis Tennessee.
Speaker Change: And strong conversion activity with new additions. Like the Hilo Hawaiian Hotel on the big island and the airport Honolulu Hotel on the island of Oahu both converting to our trademark collection by Windham brand.
Speaker Change: Internationally. We increase net rooms by 8%.
Speaker Change: Emia grew net rooms by 5% with several new construction additions, like the beautiful new Windham Alana Resort on turkey's Mediterranean Coast while also growing their development pipeline by 34%.
Speaker Change: And just last week, we announced the development agreement with gurgaon, based Signet hotels, who will be developing our lakita and registry Brands across India Bangladesh, Sri Lanka, and Nepal.
Speaker Change: Latin America and the Caribbean grew its pipeline by 16% and increased net rooms by 4% with new construction openings like the dazzler by Windom sululta in the Cradle of Argentinian history and folklore and several new high quality conversions like the first HQ Hotel and Residences by SBE a 100 million development on the Northern tip of Antigua hajis Bay Resort and Spa a proud member of our growing registry collection. Brand in the lifestyle luxury segment.
Speaker Change: In Southeast Asia in the Pacific Rim. Net rooms grew by 13% with new build additions, like the Windham Clay daang Resort highlighting our rapid expansion in Vietnam, where our system size now exceeds 7,000 rooms,
Speaker Change: In China, our team grew net rooms by another 16% in our direct franchising system with high quality new conversions and stunning new construction additions like the Days Hotel by Windows Sue, Joe do Lake.
Speaker Change: And the Windom Garden Shanghai Patong. Our 50th Windham Garden in China.
Speaker Change: As we've shared on our last 2 earnings calls, our Super 8 Master Licensing. In China, has struggled to add new units and retain existing ones.
Speaker Change: Following an operational review this quarter, we identified violations of the license agreement, by this master license, e and subsequently issued them a notice of default, a potential outcome of which could include termination.
Speaker Change: As a result, we revised our reporting basis to exclude. The impacts of these rooms from our reporting metrics. And as a reminder, the financial impact of this portfolio is immaterial to our overall results, as Michelle will discuss in a moment.
Speaker Change: As we focus on our development of higher fee, part Brands and geographies on building, scale and markets, where we have a strong footprint and strong growth potential, and on expanding direct franchising, and regions, previously relying on Master license agreements, we're adding hotels with stronger economics that drive meaningful, royalty rate accretion.
Speaker Change: this quarter our royalty rate increased by another 6 basis points domestically and by 13 basis points internationally
Speaker Change: By continuing to focus our development on higher fee, bar properties and geographies or enhancing the continued, long-term earnings potential of our system.
Speaker Change: On a global basis. Revpar declined. 3% in constant currency International rev Park. Grew 1% with strength across all regions except asia-pacific, which was down 9% on continued softness, across China.
Speaker Change: Emia rev Park grew 7% with strength across Europe and the Middle East.
Speaker Change: Latin America, and the Caribbean. Rev Park Group by 18% driven by strong ADR and higher fear additions in Brazil, Mexico and the Caribbean.
Speaker Change: And Canada revpar grew by 7% with lower us outbounds.
Speaker Change: Us revpar declined 4% about 150 basis points. To this decline was driven by the lapping effect of the solar eclipse in April of last year. And the timing of the Easter holiday, which shifted into the second quarter of this year.
Speaker Change: On a normalized basis, our second quarter, rev part declined, approximately 2.3% consistent with our expectations and a 60 basis. Point improvement from the 3% normalized rev party decline. We reported for March
Speaker Change: Dynamics also is expected. We saw significant acceleration in our ancillary fee growth. This quarter given the full quarter of benefit that our renewed co-branded credit card agreement, delivered combined with our growing strategic partnership initiatives and our significant and ongoing technology. Innovations collectively, our ancillary revenues have now grown 13% for the first half of the Year pacing in line with our full year expectations.
Michelle Allen: Before Michelle takes us through the financials. We'd like to take a moment to thank and recognize our teams around the world.
Michelle Allen: The continued success of our owner first operating philosophy, which was on full display at our Windham. Global conferences, quarter is a direct result of their unwavering commitment and dedication.
We're incredibly grateful to our team members, who consistently put our owners at the very heart of everything. It is that we do.
Michelle Allen: Their passion, fuels our momentum and their confidence in the road ahead. Reinforces our ability to deliver exceptional value to our shareholders, our guests, and our franchisees each and every day.
Speaker Change: And with that, I'll now turn the call over to Michelle Michelle.
Michelle Allen: Thanks Jeff and good morning everyone. I'll begin my remarks. Today with a detailed review of our second quarter results. I'll then review our cash flows and balance sheet followed by our Outlook.
Michelle Allen: Before we begin, let me remind everyone that the comparability of our financial results continues to be impacted by the timing of our marketing funds spent
Michelle Allen: In the second quarter of this year, marketing fund revenues exceeded expenses by $3 million, compared to expenses exceeding revenues by 5 million in the second quarter of last year.
Michelle Allen: To enhance transparency and provide a better understanding of the results of our ongoing operations. I will be highlighting, as usual, our results on a comparable basis, which neutralizes the marketing fund impact.
Michelle Allen: Additionally, as Jeff mentioned, beginning this quarter, we've revised our reporting methodology to exclude the full Super 8. China Master license portfolio from our reported system size, repar, royalty rate and related growth metrics. Given the operational challenges of obtaining accurate information from this master licensee and the uncertain outcome of this compliance process.
Michelle Allen: while we work through our compliance actions, we'll continue to recognize fees due to us under the master agreement, which contributed less than $3 million, to our full year 2024 Consolidated, adjusted Ava,
Michelle Allen: We also updated our full year. Net room growth guidance to reflect this reporting change raising the low end of that range by 40 basis points.
Michelle Allen: Historical results for comparability can be found in Table. 6 of our earnings relief with additional background and contacts provided on slide 25 of our investor presentation.
Michelle Allen: Now, moving to second quarter results.
Michelle Allen: In the second quarter, we generated 397 million of fee related and other revenues and 195 million of adjusted. EBA fee related, and other revenues increased 31 million year-over-year, primarily reflecting higher royalties and franchise fees and 19%, increase in ancillary fee streams and higher pass through marketing reservation and loyalty revenues due to our Global franchisee conference. In May, which is held about every 18 months.
Michelle Allen: The increase in royalties and franchise fees, reflects this system, growth of 4% higher other franchise, fees, and royalty rate, improvements partially offset by a 3% decline in global repar.
Michelle Allen: Ancillary Revenue growth, meaningfully accelerated. This quarter as expected driven by the full quarter impact of our renewed long-term co-branded credit card agreement which is also fueling stronger loyalty engagement across our portfolio.
Michelle Allen: Adjusted evab grew 5% on a comparable basis, reflecting our Revenue growth. Partially offset by higher operating expenses, primarily related to the growth, in our credit card program and the absence of insurance. Recoveries recognized in the second quarter of last year,
adjusted diluted EPS for the quarter was 1.33 up, 11% on a comparable basis, driven by our epidemic growth, the benefit of share repurchases, and lower depreciation, and amortization, partially offset by higher interest expense.
Michelle Allen: Adjusted 3. Cash flow is 88 million in the second quarter and 168 million year-to-date with a conversion rate from adjusted ibida of approximately 50%.
Michelle Allen: At our current trading levels are adjusted free cash flow. Yield of 6% Remains the highest in the lodging sector.
Michelle Allen: We continue to see an increased appetite for our brands with global openings up 3%, so far this year and we're happy to put our excess cash to work in order to position Us in key markets and high demand locations. That attract cpar or creative properties into our system.
Michelle Allen: We returned 109 million to our shareholders during the second quarter through 77 million of share repurchases, and 32 million of common stock dividends
Michelle Allen: Year to date. We have now repurchased 1.7 million shares of our stock for 153 million.
We closed the quarter with approximately 580 million in total liquidity and our net leverage ratio of 3.5 times remains as expected at the midpoint of our target range.
Michelle Allen: at this leverage ratio, our current Outlook implies up to 550 million dollars of capital available for deployment this year after dividends,
Of that we've earmarked 110 million for key money leaving nearly 400 million for share repurchases or strategic transactions.
Michelle Allen: Through the first half of the year we've deployed about 200 million largely taking advantage of a depressed. Stock price leaving ample capacity for additional Capital returns or opportunistic investment in the back half.
Michelle Allen: Turning now to Outlook as we've already mentioned our net room, growth Outlook is now 4 to 4.6% up from 3.6 to 4.6% to reflect the removal of our. Super 8 master licensee in China.
Michelle Allen: We are also raising our EPS Outlook to a range of 4.60 to 4.78 to reflect the impact of second quarter share repurchases.
Michelle Allen: This Outlook is based on a lower diluted share count of 77.8 million shares. And as usual assumes, no additional share repurchases or incremental interest expense associated with any potential borrowing activity to maintain our leverage at 3 and a half times.
Michelle Allen: We are reaffirming our expectation that full year constant currency Global, repar growth will range between down 2% to up 1% as we shared last quarter. We purposefully set a wider range to account for ongoing volatility and uneven demand across markets and we continue to believe that range remains appropriate today.
Michelle Allen: When normalized for the headwinds from the solar eclipse and Easter timing, second quarter performance was within that range. Should we see a near-term resolution to global trade tensions, consumer sentiment and demand could recover as quickly as it softened and with our largest volume months, still ahead. We believe this Outlook reflects the range of potential outcomes in today's
Michelle Allen: Environment.
Michelle Allen: There are no changes to the remainder, of our Outlook, nor to our expectations, for the marketing fund, to break, even on a full year basis, give or take a few million dollars.
Michelle Allen: With respect to seasonality, we expect a marketing funds to understand by roughly ten million dollars in each of the third, and fourth quarters in order to land at approximately break, even for the full year.
In closing, our second quarter results, reflect steady execution of key priorities. Growing our system with high quality fee, part of creative rooms accelerating ancillary revenues, expanding our royalty rates, and delivering on our earnings targets, with a strong balance sheet, and highly cash generative, business model. We're well, positioned to navigate near-term headwinds while continuing to invest in long-term value creation, as always, we remain committed to disciplined Capital allocation and generating consistent, meaningful returns for shareholders with that Jeff and I will be happy to take your questions, operator.
Thank you very much, Mr. Allen ladies and gentlemen, the floor is now open for your questions at this time. If you do have a question or comment, please press star 1 on your telephone keypad. If at any point, your question has been answered. You may remove yourself from the queue, by pressing star 2. We ask that you please limit yourself to 1 question. Thank you. We'll go first this morning to David Katz of Jeffrey's.
Morning everybody. Um, thanks for taking my questions, you know, first just a, a quick comment with respect to China. I know we're not going to talk about it but I I know this this has been an issue since 2018 and I hope it works out.
Michelle Allen: You know, in a productive way. Um my question um Jeff and Michelle is is around revpar in your segments. Um you know we we see the weekly numbers um and it's been pressured. My Hope Is that you can help us unpack a bit.
Speaker Change: Walk around on what you're seeing with respect to revpar and, you know, maybe we can when we might start to see some growth. Thank you. Sure, thanks. David is we've always heard you say revpar lasts for a day and and pipeline lasts for a for a lifetime. Um and and uh this has been more than a day Q2 repar was down. 2.3% normalized versus the down 2.9%. We ran in March, so a bit better slide 11 in our investor presentation, lays that out um, July month. Today has been generally consistent with the Str results. With consent continued softness in the Sun Belt states, like Texas, Florida and California, where we have about a quarter of our system. But it's been offset by strength in oil markets, like Ohio, um, up 4% in the quarter and up, uh, up July to date, Oklahoma up double digits, um, and natural gas States like Pennsylvania, which was up 6 and a quarter, um, combined with strengths in the large Midwest, Industrial
Speaker Change: Industrial States. Um, Matt, put a green green chutes chart in an 11th, repar wise, and States like Wisconsin. Michigan, Minnesota, Missouri, all, um, indicating steady demand from our, our Blue Collar everyday Travelers. Um, so softness more Leisure focused and those large Sun, Belt and border states, uh, that, that I just mentioned in, in terms of going forward. Um, the the next 2 weeks of July are, uh, is as you all know, our most important weeks of the year and in August, we'll
Speaker Change: We'll see a stronger summer travel season uh which uh we're happy about giving the the favorable school calendars with more Schools, starting later.
Speaker Change: This year than last year per, uh, per Str and while the demand shift happened very quickly. And and while optimism, certainly abounds for uh, continued resolution of the global trade tensions and improved consumer sentiment, we're not seeing anything. Structurally to your question. That concerns us pricing is holding steady ADR year-over-year was essentially flat in the quarter and is up 17% to 2019, which is trailing inflation by a full 7 points. But we're not seeing any trade down opportunities, uh, or impact. In fact, the gaps between those chain scales. Continue to strengthen with little signs of any discounting or compression. Um, if you just look at the last quarter, $50 gap between economy and upper midscale, it's now over 65 dollars and, and the 80 dollar Gap last quarter between, um, upper mid and upper upscale is has moved up as as well. So,
Speaker Change: Um, nothing structurally, that concerns us, uh, our most booking, um, uh, lead times of late is essentially flat to last year. Uh, the average length of stay are consistent with with last year. Uh, in fact, up about 3 3% to pre-cooling rates have actually improved somewhat over the last, uh, last year by about 60 basis points,
Um economy is is still, you know, humming our guests are more employed, they have healthy balance, sheets, and house, household, incomes, that continue to strengthen.
Speaker Change: Each month. David, we, we run internal research on our guests that point towards more optimism on travel intent. And less concerned about economic worries, than both last year and even last month and we, look at all the research. We get our hands on, um, syndicated research. That's out there. And we continue to see consumers with more plans to travel in X6 months. I think it, it was 94.95% up from 89% in the first quarter.
Speaker Change: Consumer spending on travel is, is continuing despite the macro headlines. And, and we remain optimistic, that that, that revpar long-term 2 to 3 percentage.
Speaker Change: Uh domestic Ari Parker is going to return especially given the historical uh, low levels of Supply that we're that we've been seeing.
Speaker Change: I do say that appreciate the credit and the answer. Thank you. Thank you David.
Speaker Change: Thank you, we'll go next now to Brant Montour of Barclays.
Brant Montour: Um, good morning. Um, thanks for taking my question. Um, so so Jeff. I want to um, or or Michelle. I want to talk a little bit more about net, uni, growth expectations. And and just sort of how your expectations for the year has evolved, um, since the beginning of the year. So we know that, you know, Construction in the US has been challenged and starts have been uh,
Challenge for all reasons, we all know, um, but has has the mix shift, uh, for your expectations changed between starts, uh, on new or sorry, new construction, opening versus, um, versus conversions. And and how are those sort of pieces evolving throughout the year for you?
Speaker Change: Uh, I'll start and then thanks. Brent. Oh.
Speaker Change: To grow from an openings and executions in a pipeline start. Uh, and certainly in that room growth, um, both domestically and internationally, um, and and we are, uh, you know, just just high level on openings. Uh, we we we have
Speaker Change: Been so happy in terms of the accelerating net room growth and the higher fee part segments that that we've continued to see. Uh, there's a good slide in in 9 in the IP that that points to those record openings pacing ahead of Prior year. Um as is the first half of uh NRG and and from an execution standpoint, just thrilled with how our teams have performed. This year of the pipeline's larger, it's stronger than ever and our franchise sales teams really are on the world have been more productive than than they've ever been um and that pipeline continues to skew higher domestically, it's it's been in the last few years growing from about 35% domestic to 42% as you see in our investor presentation. This quarter um driven by really strong domestic executions up 6% to last year and international executions of uh 11,000 rooms up uh significantly 400 basis, points internationally
Speaker Change: Yep. Thank you everybody. And and I I would just add to that brand. Our expectations for net room. Growth. Um, have remained largely consistent throughout the year, um, although, you know, the composition has improved in both quality and visibility, um, as the year has progressed. Um, and at the start of the year, we set the range at, uh, 3.6 to 4.6% which um, which has now been raised to 4 to 4.6% um and that reflects the removal of the Super 8 Master license agreement but again also um the continued strength in uh the development activity and Jeff that Jeff mentioned and the record. Um first half openings as well as the growth in our Pipeline and the 23% year to date increase in execution. Um so we're really pleased with the development. Um, momentum.
Speaker Change: Perfect. Thank you both.
Speaker Change: Thanks Brent.
Speaker Change: Thank you, we go next now to Danny Assad of Bank of America
Danny Assad: Uh, good morning, Jeff and Michelle. Um, so more of a strategic question here, but how does this, um, incident with the Super 8? Master license, e in front in China approach. Um, change your approach to China or other International markets going forward. So, you know, does it accelerate even more the want or need for uh direct franchising.
Danny Assad: Yeah. I mean we've been saying uh, Danny. Thanks for the question consistently that we're no longer signing Master license agreements to grow and that these agreements that were entered into, uh, over 20 years ago, with local developers before we had franchise sales teams located in those markets. As we do today. Um, we're we're why we did it back then. We have very strong teams as we've talked about before on these calls. Uh, in in China. I believe we have the biggest largest most successful franchise sales team, uh, over there today and and so we're we're absolutely committed.
Danny Assad: And, uh, as we've been talking about consistently, we've seen continued development acceleration in our direct franchising. Business to your question, on both the openings, and the executions front. Uh, no slowdown it. It's grown 12%. Uh, on a compounded annual growth rate since 2020. That's our direct franchising business. It's on Pace this year to deliver double digit growth again. And, and we are, we have increased our direct franchising business in China, by over 100% since been to, to nearly 100,000 rooms. And and that is at 3 times the royalty rate. Um, and we have about 400 direct hotels now in our pipeline. Um, Q2 is another great example. We opened 5% more Rooms Direct and, and that drove the 16% net room. Growth, in our direct fee part, A Creative rooms, um, and our teams executed really strong strongly again. Uh, 26 New Deals more than last year.
Danny Assad: With a new, uh, new construction pipeline that's growing. Uh, and these are, these are contracts that are about 3/4 weighted to, uh, new construction, 1 quarter to conversions. Uh, so there is a lot of excitement. There's a lot of development out there. We continue to add new brands to uh, wind Windham Grand Windham Garden, Windgate Ramada. They've all been really performing well for us.
Danny Assad: Thank you very much.
Speaker Change: Thanks Danny.
Speaker Change: We'll go next now to Steve pezzella of Deutsche Bank.
Steve Pezzella: Good morning and thank you for taking our questions. Wanted to focus more on the credit card. You noted ancillary fees through 19% of the 2q. And then the deck, I believe you expect low teens growth for 2025 overall, how should we think about the acceleration of the second half of this year and into 2026?
Speaker Change: Hey Steve. Um, we were really really pleased with uh, the performance um, of our ancillary revenues in the second quarter. They were, as you mentioned up, uh, 19% right in line with the acceleration that we had expected. And a large portion of that growth came from our co-branded credit card program. Um, in the first half, we saw a 5% increase in new accounts, um, alongside a 2% lift in average, spend per card holder, these are really strong indicators of Engagement and we expect that momentum to continue throughout the remainder of the year on a year basis. We're at that 13%, which again is right in line with our low teams, full year expectation. And we expect it back that the back half is going to produce, um, similar results.
Speaker Change: Okay, great. Thank you.
Steve Pezzella: Thank you.
Speaker Change: And we'll go next now to Lizzie Dove of Goldman Sachs.
Lizzie Dove: Hi there, thanks for taking the question. Um, I just wanted to ask about the key money environment. What you've been seeing recently, whether it's gotten more competitive, whether more kind of money per deal. Um, it's been required now. Um, thanks
Lizzie Dove: Hi, Lizzie. I I think it's pretty consistent. Um, we're really pleased with how successful the teams have been penetrating. The midscale, um, and above space bringing in higher fee, part deals, um, strategies working. And and uh, we can't think of a better place. You know, we're really thrilled to be putting some of our excess free cash flow to work here or openings are up 4% year to date. Our contract signings are up again that 23% um, year to date. We're at every table and this tool is helping us, um, win deals. Um, the dance uh the the Dan deals this year. Uh, so far have brought in be part that's 36% higher than our existing system. So there's real value in, um, in this money that uh, that we're deploying. Um, and I I think it's a pretty consistent environment.
Lizzie Dove: Thanks.
Michael Bellisario: Thank you, we'll go next now to Michael Bellisario of beard.
Speaker Change: Thanks. Good morning, everyone.
Speaker Change: We're surprised you're on the spell of Michael. No uh no number 3, no not yet patiently or maybe impatiently waiting.
Speaker Change: You haven't talked about Echo Suites yet, maybe just what's the latest and greatest there in terms of signing and starts for that brand brand. And then also maybe just the the latest update on the growth trajectory uh for the brand with your multi-unit owners who are the initial developers versus maybe thinking about doing more 1-off deals going forward. Thanks sure. Yeah, we're doing more, 1-off deals with the team continues to execute and and when you look at um, the new construction executions which were up if I talk broad pipeline up 9% to Prior year driving that new construction pipeline which I think a lot of folks think is slowing down. It's not for us. Our new construction pipeline is up 4%, year-over-year record 1500 hotels. Echo played a role in that our new construction, Echo pipeline, this quarter grew and other 3% to Prior quarter, we signed 16001600 new rooms with those
Speaker Change: Um, individual, uh, developers. Um, we're at roughly, we're, we're north of 30,000 rooms, um, and and we're growing that pipeline. We've seen recent openings in Texas. Let's see. Tennessee, Virginia, last week. Uh, Reno. Oh and yesterday, we just opened another Echo, Suites, uh, I I I I hear uh, in Katy Texas. Unfortunately, I couldn't be there but we had new signings. This quarter in Oregon in Utah, in Washington. Um, again it was multiple new developers and we've got nearly a dozen, open another dozen or so under construction and another 30 sites in active development and really strong markets. Like, um, yet coming coming soon. Sterling Virginia, Fort Worth Texas? Uh, off the top of my head Pasadena, oh and uh, Naples Florida, great, new unit. Uh, uh, that'll be opening their performance to date is pacing on on track.
Speaker Change: We have several of these hotels already achieving a revpar index.
Speaker Change: Uh levels uh of over 100%. They're not all all there yet. They're ramping towards that. But what is exciting to us is that these developers are putting mid-scale upper mid-scale and in some cases upscale
Speaker Change: Competitors in their Market in their comp sets. Um, as, as they continue to look to push that average daily rate and rep part. And and most importantly, uh, Extended Stay occupancy, uh, levels to, to a level.
Speaker Change: That uh, that we haven't haven't seen um, before in any of our Brands and and we've said all along we have 300 open by 2032 and with over I think now um 200 over 280 executed contracts in our Pipeline and and that interest in in conversations with new developers, both multi-units still interested, but more. So now that the bill big multi-unit territories are are are locked down. Uh continuing to express interest to continue to build on a 1-off basis. We're feeling very good about that number.
Speaker Change: And then just 1 follow up. But I guess, when do you expect to take the brand International? And that's all from me. Thanks.
Speaker Change: Yeah, it we are talking. In fact, we're meeting with our divisional, presidents. Uh, next week, uh, about, uh,
Speaker Change: About Latin America. Perhaps Mexico being the first
Speaker Change: Uh, but probably in the next year.
Speaker Change: And and we already have agreement.
Speaker Change: Oh yeah. Yeah. That is an international country.
Mike: Thanks Mike.
Speaker Change: Thank you. We'll go next now to Patrick Schultz of truist.
Patrick Schultz: Hi. Um, good morning, Jeff and Michelle.
Jeff Bellotti: Hey Patrick. Good morning, sir.
Speaker Change: Good morning.
Speaker Change: Way out, what you see as the range of the various possible outcomes, uh, with the China notice of default. Uh, be clear. I'm not asking, you know what you see, as the most likely or the most uh desirous. But really you know what? What are the possible outcomes? Um, uh that you see? Um, in this, uh, current scenario. Thank you.
Speaker Change: Yeah, you know, Patrick it's um, this is an active compliance process. So I don't think it would be appropriate for us to discuss those details publicly, but we can say, um, of course, this could lead to a variety of outcomes including uh, termination of the master
Speaker Change: Okay, is it possible any of those outcomes, uh, could end up being a net positive for you, folks?
Speaker Change: sure, it's
Speaker Change: A it's just too early to to speculate on um, on potential outcomes, uh, but I can definitely see a few paths. Um, where this could be a positive for um Windom um for uh, for the sub-licenses. And um, and even potentially for the master.
Speaker Change: Okay, um, we'll leave it at that. Thank you.
Speaker Change: Thanks Patrick. Thank you.
Dan Pulitzer: We'll go next now to Dan Pulitzer of JP Morgan.
Speaker Change: Hey, good morning everyone. Thanks for taking my question. Uh, I wanted to touch on the net rooms growth. Um hey as you know obviously this is an area where you do have some visibility. How are you thinking about this? You know, the the kind of growth rate, you know, as you think about 2026 is that level of 4 to 4 and a half percent achievable and then any any kind of assemblance just giving the momentum of echo, Suites that you talked about on how to think about kind of the breakdown of growth um, between us and international and they're just similarly 1 quick housekeeping with the Michelle, for the net rooms growth. Outlook this year, you raised the low end by 40 basis points, but kept the high end, um, were there any kind of changes other than the MFA that just, you know, because it seemed like it would, it would kind of affect both ends of the range. Thanks.
Dan Pulitzer: Our long-term, um, our long-term growth objective has always been 3 to 5% um, and and we're clearly above that 3% in in 2025 and we would expect um that we can continue to deliver um on those growth targets. We've got a record uh, pipeline um, with a significant portion of that, um, of of that new construction pipeline, uh, with already kind of being in the ground and, and under construction, we've got continued momentum and the midscale, um, and Extended Stay, which are really positive. Um, fundamentals and where demand remains strong and financing is um, is still very much available. Um and we've got greater contribution from International markets, but most importantly, higher fee, par International markets. Um, again under that direct franchising base and again, with, um, with more accelerated growth coming out of the higher fee part, um, regions such as, uh, such as emia. So,
Dan Pulitzer: We feel like there's um, you know, really high quality, net room growth um happening here and uh and that should um that should continue well into 2026 and Beyond.
Speaker Change: Thank you, we'll go next now to Stephen Graham of Morgan Stanley.
Hey, thanks so much, 2, 2, quick follow-ups. Uh, first on Lizzy's question, around key money, just given the success here. Do you generally anticipate potentially loosening up the purse strings? Or, I guess in the past, you've talked about it as an eye dropper to deploy more or what what are the guard rails investors should be thinking about with that deployment.
Speaker Change: Oh I hope our development team isn't listening. Um yeah just refer to it as an eye dropper. Um, I
Speaker Change: So, we are always, um, very judicious in how we deploy our capital and um, and we want to make sure that any key money that we're deploying is, um, returning. The, um, proper economic value, uh, to, to our shareholders and any deals would be assessed kind of through, um,
Speaker Change: Through that lens. Uh, I, I, I don't anticipate needing to increase the key money, meaningfully beyond the levels, contemplated in our current Outlook, um, our strategy hasn't changed, right? So we still want, um, we still want to prioritize, um, investment in high-quality growth and make sure that, um, those returns are meeting or exceeding, um, our hurdle rate and, and I think we're fortunate enough to, um, to be able to, um, to be judicious but um, also opportunistic,
Speaker Change: Thank you, we go next now to Ian zapfino of Oppenheimer.
Isaac Sailin: Hey, good morning. This is Isaac, Sailin On for Ian. Thanks for taking all the questions. I think we've covered a lot already, but, um, my question is just on the positive. Rough part Trends. You're seeing in the Midwest and Industrial markets. If you could just touch on, um, you know, if that mix is being driven by both ADR and occupancy, um, or is there anything to call out as far as sizing now I can see uplift from infrastructure. Thanks.
Isaac Sailin: Midwest states that uh, we noted in our in our investor presentation, um, which combines second quarter, Rift bar, uh, growth of I think it was over 500 basis points over a 100 basis points of that was driven by hotels near large infrastructure projects. Um, and so while infrastructure as we've been, uh, talked on the last call on this call slower than what we saw in the 4q.
Isaac Sailin: Um it is similar to what uh we saw more broadly than and we believe that as those National priorities continue to crystallize, that business should should pick up. I mean the
Isaac Sailin: The headlines. And the administration's focus is on, getting the balance of those allocations out and spent and the priority now appears to be certainly faster, faster Highway projects, uh, starts faster bridge and transportation starts. Um,
And, uh, and then on the flip side of that we continue to see very strong public and private, uh, data center construction starts energy, construction starts semiconductor investment starts, um, and that's giving our our teams a lot to go after they've identified, 150 planned data center projects, with within 15 miles of a Windham Hotel. And they're hunting these these projects using a, a combination of of of reporting and technology and networking with contractors.
And and I I believe we have a slide in there for the top 10 data center projects under construction. The RPI, for our hotels within 10 miles of those was up 500 basis points, better year to date than those hotels and markets further away from the project. So you know, every day a new data center project is is being announced and, uh,
Isaac Sailin: We uh, we we still continue to view this as as, as a great multi, multi-year Tailwind for, for our hotels, our owners, and our sales teams.
Michelle Allen: Yeah. And, and in those midwest states, you mentioned Jeff, I think we're up, um, about 100 basis points, um, and reps are on the infrastructure Market, exactly Michelle.
Michelle Allen: Thank you. We got to Alex brigal of Redbarn.
Speaker Change: Thank you very much for taking the question, um, following up on the, on the pipeline question and, and, and the, the no questions that have been asked, could you just give a little bit more on your retention rate? Both in terms of the existing Estates, um, which is obviously been on a positive trajectory as we go through the year. Maybe, looking into outer years, how your how you're thinking about that? If there's any new thoughts and then within within the pipeline,
Speaker Change: um if there's anything you can say on, you know, any dropouts of pipeline projects or whether they're still all proceeding, as you as you would hope, obviously those ones will be for out of years and then
Speaker Change: There are a few questions yesterday, on Hilton's call, um, about the, the positive expectations they had for Q4 now the, the Cadence of of rev files a little different because of, um, the the tier, uh, the URL relative to them. But Q4 seems like a relatively tough compared for, um, in the US. Um, so just any thoughts that you have there, um, on on, on, on your expectations, would be great. Thank you, okay. Alex. Um, I will start and then Michelle could fill in anything that I missed and I'll, I'll let her talk about the Q4 revpar. Uh, expectations. Um, you you, you asked about Pipeline and pipeline fallouts. We're, we're not, uh, seeing anything as as Michelle, uh, rightly, uh, alluded to we're seeing an, an, an increase in, uh, in starts. Um, and, uh, you know, just just great additions to that pipeline. Um, we're, we're our teams from an execution standpoint are, are really, uh, you know, adding to it. Um, as we as we talked about 2,
Speaker Change: 129 contract signed in the quarter 40% up to, to last year. And and
Domestic rooms executed. We're really happy about what's happening in the US. Is now pacing 7% ahead at the same time, uh, last year. Uh, but but no fallouts. You, you asked about, uh, retention and and we're really pleased with the steady progress that we've seen since been, uh, and really nothing, um, different in terms of our narrative on on retention. Uh, we've always said that we've had a long-term retention goal in these segments, we operate in, uh, of about 96% and and, and when we spun out, we were in the 93s, we've moved it to the 94s to 95 last year and right now at 6:30, we're running 95.8%, uh, on our rolling 12-month retention rate, which is is how we look at it. And importantly, we have the highest net promoter scores and quality scores Our Brands have ever seen or enjoyed our overall satisfaction rate with our brands.
Speaker Change: Who are out there across the country every day.
Michelle Allen: Um saying goodbye to franchises that aren't living up to our quality standards after trying to work with them to get their. Uh, but but continually improving the quality and improving along those lines along with everything else we're doing. Especially on the technology front. Uh, our attention rates. Um, Michelle, you want to talk about Q4?
Michelle Allen: Michelle.
Michelle: Leaf efforts, um, you know, elevated demand that we saw in the Gulf Coast and the Southeast Market. Um, it was about 150 basis points. So that is a headwind to the fourth quarter comp in the US. Um, and that's already reflected in um, in our guidance uh, for the, for the full year. And and we're certainly not expecting um, to repeat, uh, at that same level.
Speaker Change: Thank you, and just a quick, reminder, ladies and gentlemen, any further questions today, please press star 1. We'll go next now to Meredith Jensen of HSBC.
Meredith Jensen: Yes. Hi thanks. I was wondering if you might speak to the slide that discusses the 550 million dollars that could potentially go to shareholder returns or Business Development, I know. Um, you mentioned sort of earmarked for key money but sort of what you're thinking in terms of opportunities there and and what that might be
Meredith Jensen: Sure. Um, I think I think that slide, um, it really represents um, the art of the possible uh with respect to this year's Capital um allocation if we look at um, if we look at our excess free cash flow. Um, and then the leverage capacity that we had, we would have a about 550 million dollars to deploy. Um, in the year I think about 110 million of that.
Meredith Jensen: Is earmarked for, um, for key money. And so that leads to considerable amount, uh, remaining for, um,
Meredith Jensen: Whether it's uh, share repurchase or uh, what we call Strategic transactions, uh, further investment, um, in the business and I I think about half of that has uh, has been deployed, um, already including um, including for, um, opportunistic share repurchases. As we've always said, um, investing in our business is our top priority. We are doing that, you know, primarily through the Dan program today. Um, you know, we continue to allocate Capital toward those higher quality deals that help us grow. Um, our system, um, and um, and then increase our, our fear which, um, is a key pillar of our, our long-term strategy. So as we look to the back half of the year, I think you can expect us to continue, um, to balance, uh, an active deal environment. Um, uh with uh with opportunistic, uh, share repurchases. And that's how we would expect to deploy, um, our Capital this year.
Thank you and it appears. We have no further questions. This morning, Mr. Bellotti, I'd like to turn things back to you for any closing comments. Well, thank you very much, Leo and and thanks everyone for your questions and for your interest in Windom hotels and resorts Michelle, Matt. And I look forward to talking to you and hopefully seeing many of you in the weeks and months ahead. In the meantime, we'd like to remind all of you golf fans to tune in to the Windom Championship next week.
Meredith Jensen: Week. It is the final Tournament of the PGA. Tours. Regular season. Before the playoffs begin, it's become a playoff in and of itself where there is an awful lot at stake. Uh coverage begins 1 week from today, uh July 30th. Uh, next Thursday, on the Golf Channel and continues over the weekend on CBS with Jim nanson is incredible crew. And where you'll be able to catch our new linear TV advertising spots where we're very proud of where there's a Windom there's a way uh have a great rest of your summer everyone and thanks again for joining us today.
Meredith Jensen: Thank you Mr. Bloody thanks. Miss Allen again. Ladies and gentlemen, this does conclude today's Windham Hotels and Resorts second quarter 2025 earnings conference. Call. Please disconnect your line at this time and have a wonderful day. Goodbye.
Speaker Change: Thanks B.