Wyndham Third Quarter Revenues Up 74 Percent

Wyndham Hotels & Resorts Reports Third Quarter 2018 Results

Wyndham Hotels & Resorts (NYSE: WH) today announced results for the three months ended September 30, 2018.  Highlights include:

  • Revenues increased 74% compared with third quarter 2017, to $604 million.
  • Net income was $58 million for the third quarter; adjusted net income was $85 million, a 39% increase over the prior-year quarter.
  • Diluted earnings per share were $0.58 and adjusted diluted EPS were $0.85.
  • Further adjusted diluted EPS (calculated as if our spin-off and our acquisition and integration of La Quinta had occurred on January 1) were $0.93.
  • Adjusted EBITDA increased 34% compared with the prior-year quarter, to $166 million, and grew 7% in constant currency and excluding our 2018 acquisitions and divestitures.
  • Further adjusted EBITDA was $177 million, compared to our projection of $166 to $176 million.
  • Global RevPAR increased 9% year-over-year and 4% in constant currency and excluding our 2018 acquisitions and divestitures.
  • System-wide rooms grew 13% year-over-year, and 3% excluding our 2018 acquisitions and divestitures.

“We delivered strong results in the third quarter, highlighted by organic and acquisition-related growth in both global RevPAR and our system size,” said Geoffrey A. Ballotti, chief executive officer.  “In addition, we made significant progress in the integration of the La Quinta brand, continued to strengthen the quality of our hotel network, and began to see the favorable impact of the ‘By Wyndham’ endorsement of our global brands.”

Revenues were $604 million, compared with $347 million in the third quarter of 2017.  Results reflect $238 million of incremental revenues from La Quinta.  Excluding the impact from the acquisition of La Quinta, revenues increased 5% primarily due to 4% higher royalties and franchise fees, as well as higher license and other fees.

Net income was $58 million, or $0.58 per diluted share, unchanged from the third quarter of 2017.  Third quarter 2018 results include separation-related and transaction-related costs.

Adjusted net income was $85 million, or $0.85 per diluted share, compared with $61 million, or $0.61 per diluted share, in the third quarter of 2017.  Third quarter earnings benefited from our revenue growth and a lower effective tax rate, partially offset by higher interest and depreciation and amortization expense.  Full reconciliations of GAAP results to our non-GAAP adjusted measures for all reported periods appear in the tables to this press release.

Third quarter adjusted EBITDA was $166 million, compared with $124 million in the third quarter of 2017.  Results reflect approximately $39 million of adjusted EBITDA from La Quinta and exceeded the Company’s projection of $155 million to $163 million of adjusted EBITDA.  Excluding the impact from 2018 acquisitions and divestitures, adjusted EBITDA increased 7% in constant currency, primarily reflecting the growth in revenues, partially offset by $7 million due to the timing of marketing expenses.

The Company estimates that, if it had fully integrated La Quinta prior to July, its further adjusted EBITDA in the third quarter would have been $177 million, and its further adjusted diluted earnings per share would have been $0.93See Tables 5 and 6 for additional information.

As of September 30, 2018, the Company’s hotel system consisted of more than 9,000 properties and over 798,000 rooms, a 13% increase compared with the third quarter of 2017.  Room count is up 3% year-over-year excluding our 2018 acquisitions and divestitures, and is up 2% year-over-year further excluding the October 2017 acquisition of AmericInn.  Our development pipeline increased to nearly 1,400 hotels and over 176,000 rooms, a 20% year-over-year room increase, including over 24,000 La Quinta pipeline rooms and the removal of 2,000 Knights Inn pipeline rooms.  Approximately 54% of our pipeline is international and 71% is new construction.

Business Segment Discussion

The following discussion of third quarter operating results focuses on revenue and adjusted EBITDA for each of our segments.  The Company’s calculation of adjusted EBITDA now excludes the currency effects of highly inflationary countries.

Hotel Franchising

$ millions

2018

2017

% Change

Revenue

$

348

$

258

35

%

Adjusted EBITDA

178

132

35

%

Revenues increased 35% compared to third quarter 2017, including $72 million of incremental revenues from La Quinta.  Excluding the impact of the acquisition of La Quinta, revenues increased 7% primarily due to 6% higher royalties and franchise fees and $16 million of higher license and other fees.  The increase in license and other fees primarily represented incremental license fees from Wyndham Destinations.  Adjusted EBITDA grew 35% to $178 million, including $35 million of incremental adjusted EBITDA from the acquisition of La Quinta.  Excluding the impact from La Quinta, adjusted EBITDA grew 8%, reflecting the growth in revenues, partially offset by the timing of marketing expenses.

Hotel Management

$ millions

2018

2017

% Change

Revenue

$

252

$

89

183

%

Adjusted EBITDA

5

1

NM

Revenues increased $163 million compared to the prior-year period, reflecting $166 million of incremental revenues from La Quinta (including $154 million of cost-reimbursement revenues).  Excluding the impact from the acquisition of La Quinta, revenues declined $3 million.  Adjusted EBITDA increased $4 million compared to the prior-year quarter, reflecting $4 million of adjusted EBITDA from La Quinta.

Other Items

Share Repurchases  – The Company repurchased approximately 778,000 shares of its common stock for $44 million in the third quarter.

La Quinta Integration – As of September 30, 2018, as planned, the Company has completed substantially all of its planned integration actions other than in the areas of information technology and loyalty, and has terminated approximately 60% of the employees ultimately expected to leave the Company in conjunction with the integration.

Outlook

The Company provided the following outlook, which assumes that its spin-off and the acquisition and integration of La Quinta had all been completed on January 1, 2018, for full-year 2018:

  • Further adjusted revenues of $2.06 billion to $2.11 billion.
  • Further adjusted net income of $300 million to $315 million.
  • Further adjusted EBITDA of $594 million to $605 million.
  • Further adjusted diluted EPS of $2.99 to $3.13, based on a further adjusted diluted share count of 100.3 million, which excludes future share repurchases.
  • Rooms growth of 11% to 13%, or 2% to 4% excluding our 2018 acquisitions and divestitures.
  • Constant currency RevPAR growth of 7% to 8%, or approximately 3% excluding our 2018 acquisitions and divestitures.

Wyndham Hotels & Resorts (NYSE: WH) is the world’s largest hotel franchising company, with more than 9,000 hotels across more than 80 countries on six continents.

 

Table 1

WYNDHAM HOTELS & RESORTS

SUMMARY DATA SHEET

($ in millions, except per share and RevPAR data)

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

Change

2018

2017

Change

Income Statement and Other Items

  Net revenues

$

604

$

347

74%

$

1,341

$

967

39%

  Income before income taxes

81

100

(19%)

165

236

(30%)

  Net income

58

58

0%

118

138

(14%)

  Earnings per share – diluted

$

0.58

$

0.58

0%

$

1.19

$

1.39

(14%)

Adjusted Earnings Metrics (non-GAAP)

  Adjusted EBITDA

$

166

$

124

34%

$

382

$

307

24%

  Adjusted pretax income

118

106

11%

290

252

15%

  Adjusted net income

85

61

39%

213

148

44%

  Adjusted earnings per share – diluted

$

0.85

$

0.61

39%

$

2.13

$

1.48

44%

Segment Results

Net Revenues

  Hotel Franchising

$

348

$

258

35%

$

840

$

682

23%

  Hotel Management

252

89

183%

497

285

74%

Total Reportable Segments

600

347

73%

1,337

967

38%

  Corporate and Other

4

NM

4

NM

Total Company

$

604

$

347

74%

$

1,341

$

967

39%

Adjusted EBITDA

  Hotel Franchising

$

178

$

132

35%

$

394

$

321

23%

  Hotel Management

5

1

NM

29

15

93%

Total Reportable Segments

183

133

38%

423

336

26%

  Corporate and Other

(17)

(9)

NM

(41)

(29)

NM

Total Company

$

166

$

124

34%

$

382

$

307

24%

Key Operating Statistics

Total Company(a)

  Number of properties

9,056

8,145

11%

9,056

8,145

11%

  Number of rooms

798,300

708,500

13%

798,300

708,500

13%

  RevPAR(b)

$

48.21

$

44.36

9%

$

41.97

$

38.58

9%

  Average royalty rate

3.88%

3.66%

22 bps

3.77%

3.68%

9 bps

United States(c)

  Number of properties

6,339

5,492

15%

6,339

5,492

15%

  Number of rooms

504,500

426,000

18%

504,500

426,000

18%

  RevPAR

$

54.42

$

49.00

11%

$

46.75

$

42.55

10%

  Average royalty rate

4.56%

4.43%

13 bps

4.52%

4.43%

9 bps

As of September 30, 2018

Balance Sheet Items

Cash(d)

$

387

Debt

2,145

Shareholders’ equity

1,443

(a)  2018 metrics include the impact of the La Quinta acquisition as well as the Knights Inn divestiture. Excluding these transactions, number of properties grew 5% and number of rooms grew 3% 
     from a year earlier, RevPAR grew 2% and 4%, and average royalty rate was unchanged and unchanged for the three and nine months ended September 30, 2018, respectively.

(b)  Amounts reflect currency exchange movements. Excluding such movements, the impact of the La Quinta acquisition and the Knights Inn divestiture, RevPAR increased 4% for three and nine 
     months ended September 30, 2018.

(c)  2018 metrics include the impact of the La Quinta acquisition as well as the Knights Inn divestiture. Excluding these transactions, number of properties grew 6% and number of rooms grew 3% from a 
     year earlier, RevPAR grew 2% and 4%, and average royalty rate was unchanged and unchanged for the three and nine months ended September 30, 2018, respectively.

(d)  Includes $205 million of cash which is expected to be paid in late 2018 or early 2019 to tax authorities and/or CorePoint Lodging Inc. related to the La Quinta acquisition.

See Table 5 for definitions and reconciliations of non-GAAP measures.

See our website (www.investor.wyndhamhotels.com) for further information related to drivers and operating statistics.

Table 2

WYNDHAM HOTELS & RESORTS

INCOME STATEMENT

(In millions, except per share data)

(Unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

2018

2017

2018

2017

Net revenues

Royalties and franchise fees

$

138

$

107

$

332

$

277

Marketing, reservation and loyalty

151

109

359

282

Hotel management

32

22

90

78

License and other fees 

36

20

79

56

Cost reimbursements

219

64

398

199

Other

28

25

83

75

Net revenues

604

347

1,341

967

Expenses

Marketing, reservation and loyalty

139

95

347

269

Operating

51

46

139

135

General and administrative

36

20

85

65

Cost reimbursements

219

64

398

199

Depreciation and amortization

30

19

71

56

Separation-related

17

63

Transaction-related, net

7

1

37

1

Restructuring

1

Total expenses

499

245

1,140

726

Operating income

105

102

201

241

Interest expense, net

24

2

36

5

Income before income taxes

81

100

165

236

Provision for income taxes

23

42

47

98

Net income 

$

58

$

58

$

118

$

138

Earnings per share

Basic

$

0.58

$

0.58

$

1.19

$

1.39

Diluted

0.58

0.58

1.19

1.39

Weighted average shares outstanding

Basic

99.8

99.8

99.8

99.8

Diluted

100.1

99.8

99.9

99.8

Table 3

WYNDHAM HOTELS & RESORTS

CASH FLOWS

(In millions)

Nine Months Ended September 30,

2018

2017

Net cash provided by operating activities

$

101

$

152

Net cash used in investing activities

(1,697)

(47)

Net cash provided by (used in) financing activities

1,924

(90)

Effect of changes in exchange rates on cash and cash equivalents

(1)

Net increase in cash and cash equivalents

$

328

$

14

Free Cash Flow:

We define free cash flow to be net cash provided by operating activities less property and equipment additions which we also refer to as capital expenditures:

Nine Months Ended September 30,

2018

2017

Net cash provided by operating activities (a)

$

101

$

152

Less: Property and equipment additions (b)

(55)

(27)

Free cash flow

$

46

$

125

(a)  Includes $90 million of transaction-related and separation-related cash outlays and $35 million tax payments 
     associated with the La Quinta acquisition in the nine months ended September 30, 2018.

(b) Includes $15 million of capital expenditures in the nine months ended September 30, 2018 at the Company’s owned 
     hotel in Puerto Rico, which are being reimbursed by insurance proceeds that are not considered a component of free 
     cash flow.

 

We believe free cash flow to be a useful operating performance measure to evaluate the ability of our operations to generate cash for uses other than capital expenditures and, after debt service and other obligations, our ability to grow our business through acquisitions, development advances and equity investments, as well as our ability to return cash to shareholders through dividends and share repurchases. A limitation of using free cash flow versus the GAAP measures of net cash provided by operating activities, net cash used in investing activities and net cash provided by financing activities as a means for evaluating Wyndham Hotels is that free cash flow does not represent the total cash movement for the period as detailed in the consolidated statement of cash flows.

Table 4

WYNDHAM HOTELS & RESORTS

SYSTEM SIZE

Nine Months Ended September 30,

2018

2017

Beginning Room Count (January 1)

United States

440,100

429,000

International

288,100

268,600

Total

728,200

697,600

Additions (a)

United States

102,500

14,100

International

21,600

26,500

Total

124,100

40,600

Deletions (b)

United States

(38,100)

(17,100)

International

(15,900)

(12,600)

Total

(54,000)

(29,700)

Ending Room Count (September 30) (c)

United States

504,500

426,000

International

293,800

282,500

Total

798,300

708,500

(a)  Includes 88,900 rooms (86,900 U.S. and 2,000 international) added in connection with the 
     acquisition of La Quinta in May 2018.

(b)  Includes 21,300 rooms (20,100 U.S. and 1,200 international) deleted in connection with the 
     divestiture of Knights Inn in May 2018.

(c)  2018 includes 11,900 rooms in the U.S. added in connection with the 2017 acquistion of 
     AmericInn and 2017 includes 22,400 Knights Inn rooms (21,200 U.S. and 1,200 
     international).

Table 5

WYNDHAM HOTELS & RESORTS

NON-GAAP RECONCILIATIONS AND DEFINITIONS

(In millions)

We believe that Adjusted EBITDA provides useful information to investors about us and our financial condition and results of operations because Adjusted EBITDA is among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions and because Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.

Reconciliation of Net Income to Adjusted EBITDA:

 Three Months Ended September
30,  

 Nine Months Ended September
30, 

2018

2017

2018

2017

Net income

$

58

$

58

$

118

$

138

Provision for income taxes

23

42

47

98

Depreciation and amortization

30

19

71

56

Interest expense, net

24

2

36

5

Stock-based compensation expense

3

2

6

8

Separation-related costs

17

63

Transaction-related costs, net

7

1

37

1

Foreign currency impact of highly inflationary countries *

4

4

Restructuring costs

1

Adjusted EBITDA

$

166

$

124

$

382

$

307

___________________________

Note: Amounts may not add due to rounding.

* Relates to the foreign currency impact from hyper-inflation in Argentina.

Definitions

Adjusted EBITDA: Represents net income excluding interest expense, depreciation and amortization, impairment charges, restructuring and related charges, contract termination costs, transaction-related costs (acquisition-, disposition-, or separation-related), foreign currency impacts of highly inflationary countries, stock-based compensation expense, early extinguishment of debt costs and income taxes.  Beginning withthe third quarter of 2018, our calculation of adjusted EBITDA excludes the currency effects of hyper-inflationary countries. Adjusted EBITDA is a financial measure that is not recognized under U.S. GAAP and should not be considered as an alternative to net income or other measures of financial performance or liquidity derived in accordance with U.S. GAAP.  In addition, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Average Daily Rate (ADR): Represents the average rate charged for renting a lodging room for one day.

Average Occupancy Rate: Represents the percentage of available rooms occupied during the period.

Further adjusted earnings measures: Represents adjusted earnings measures presented as if our spin-off and the acquisition and integration of La Quinta had occurred on January 1, 2018.

Number of Rooms: Represents the number of rooms at hotel group properties at the end of the period which are (i) either under franchise and/or management agreements or Company-owned and (ii) properties under affiliation agreements for which the Company receives a fee for reservation and/or other services provided.

RevPAR:  Represents revenue per available room and is calculated by multiplying average occupancy rate by ADR.

Table 5 (continued)

WYNDHAM HOTELS & RESORTS

NON-GAAP RECONCILIATIONS AND DEFINITIONS

(In millions, except per share data)

The tables below reconcile certain non-GAAP financial measures.  The presentation of these adjustments is intended to permit the comparison of particular adjustments as they appear in the income statement in order to assist investors’ understanding of the overall impact of such adjustments.  In addition to GAAP financial measures, the Company provides adjusted net income and adjusted EPS financial measures to assist our investors in evaluating our ongoing operating performance for the current reporting period and, where provided, over different reporting periods, by adjusting for certain items which may be recurring or non-recurring and which in our view do not necessarily reflect ongoing performance.  We also internally use these measures to assess our operating performance, both absolutely and in comparison to other companies, and in evaluating or making selected compensation decisions.  These supplemental disclosures are in addition to GAAP reported measures.  This non-GAAP reconciliation table should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP.

Reconciliation of Net Income and Diluted EPS to Adjusted Net Income and Adjusted Diluted EPS:

Location on Consolidated Statements of Income

Three Months Ended
September 30, 

Nine Months Ended
September 30, 

2018

2017

2018

2017

Diluted EPS

$

0.58

$

0.58

$

1.19

$

1.39

Net income

$

58

$

58

$

118

$

138

Adjustments:

Separation-related costs(a)

Separation-related

17

63

Transaction-related costs  (b)

Transaction-related, net

7

1

37

1

Restructuring costs(c)

Restructuring

1

Foreign currency impact of highly inflationary
countries (d)

Operating

4

4

Acquisition-related amortization expense

Depreciation and amortization

9

5

21

14

Total adjustments before tax

37

6

125

16

Income tax provision

Provision for income taxes

10

3

31

6

Total adjustments after tax

27

3

94

10

Adjusted net income

$

85

$

61

$

213

$

148

Adjustments – EPS impact

0.27

0.03

0.94

0.10

Adjusted diluted EPS

$

0.85

$

0.61

$

2.13

$

1.48

Diluted weighted average shares outstanding

100.1

99.8

99.9

99.8

Note: Amounts may not add due to rounding.

(a)

Represents costs associated with our spin-off from Wyndham Worldwide.

(b)

Primarily relates to costs incurred in connection with the Company’s acquisition of La Quinta offset by a gain of $23 million associated with the divestiture of the Knights Inn brand.

(c)

Relates to expenses associated with restructuring initiatives primarily focused on realigning our brand operations.

(d)

Relates to the foreign currency impact from the hyper-inflation in Argentina.

Table 5 (continued)

WYNDHAM HOTELS & RESORTS

NON-GAAP RECONCILIATIONS AND DEFINITIONS

(In millions, except per share data)

Reconciliation of Adjusted Net Income and Diluted EPS to Further Adjusted Net Income and Diluted EPS*:

Three Months
Ended
September 30, 

Nine Months
Ended
September 30, 

2018

2018

Adjusted diluted EPS

$

0.85

$

2.13

Adjusted net income

$

85

$

213

Plus: Further adjustments

   Contribution from La Quinta(a)

38

   Not-yet-realized La Quinta synergies(b)

8

38

   Separation adjustments (c)

14

   Corporate costs (d)

3

(6)

   Depreciation expense (e)

(3)

   Interest expense (f)

(37)

Total adjustments before tax

11

44

Income tax provision

3

12

Total adjustments after tax

8

32

Further adjusted net income*

$

93

$

245

Adjustments – EPS impact

0.08

0.32

Further adjusted diluted EPS*

$

0.93

$

2.45

Diluted weighted average shares outstanding

100.1

99.9

Adjustment to reflect full dilution 

0.2

Adjusted diluted weighted average shares outstanding

100.1

100.1

*

Further Adjusted metrics assume that the Company’s spin-off from Wyndham Worldwide and the Company’s acquisition and integration of La Quinta occurred on January 1, 2018.  Such metrics reflect incremental license fees from Wyndham Destinations, incremental costs to be incurred in connection with becoming a separate publicly traded company and expected synergies in connection with the acquisition of La Quinta.  We believe this metric provides useful information to investors. These metrics are not intended to be presented in accordance with Article 11 of Regulation S-X.  

Note: Amounts may not add due to rounding.

(a)

Represents results for the period prior to our acquisition.

(b)

Represents full run-rate of expected synergies less actual synergies realized (or expected to be realized) in 2018.

(c)

Represents incremental license fees and other separation adjustments for the period prior to the spin-off.

(d)

Represents the difference between corporate costs incurred and those expected to be incurred following the spin-off and transition period.

(e)

Represents depreciation expense associated with acquired assets and assets transferred to the Company in connection with the spin-off.

(f)

Represents incremental interest expense on our debt for the period prior to the spin-off.

Table 6

WYNDHAM HOTELS & RESORTS

2018 OUTLOOK

As of October 30, 2018

(In millions, except per share data)

2017 Actual (a)

2018 Outlook 

Further Adjusted *
2018 Outlook

Revenues 

$

1,280

$

 1,810 – 1,860 

$

 2,060 – 2,110 

Adjusted EBITDA 

383

 500 – 510 

 594 – 605 

Depreciation and amortization expense (b)

56

 70 – 72 

 65 – 70 

Stock-based compensation expense

11

 8 – 10 

 19 – 23 

Interest expense, net

6

 61 – 63 

 94 – 98 

Adjusted pretax income

310

 359 – 367 

 410 – 425 

Income tax expense (c)

124

 97 – 99 

 110 – 115 

Adjusted net income 

$

186

$

 262 – 268 

$

 300 – 315 

Diluted earnings per share

$

 2.62 – 2.68 

$

 2.99 – 3.13 

Diluted shares

100.1

100.3

2017 Actual (a)

2018 Outlook

Year-over-Year Growth(d)

Global RevPAR

3%

7% – 8%

Global RevPAR (excluding 2018

     acquisitions and divestitures)

Approx. 3%

Number of rooms

4%

11% – 13%

Number of rooms (excluding 2018  

    acquisitions and divestitures)

2% – 4%

Reconciliation of Adjusted EBITDA to Further Adjusted EBITDA *

2018

Outlook

First Quarter 

Second Quarter 

Third Quarter        

Fourth Quarter

Full-Year

Adjusted EBITDA 

$

92

$

125

$

166

$

 117 -127 

$

 500 – 510 

Plus: Further adjustments

Pre-acquisition contribution from La Quinta (e)

21

17

38

Not-yet-realized La Quinta synergies (f)

16

14

8

7 – 8

 45 – 46 

Separation adjustments (g)

7

7

14

Corporate costs (h)

(5)

(4)

3

3

(3)

Further adjusted EBITDA *

$

131

$

159

$

177

$

 127 – 138 

$

 594 – 605 

*

Further adjusted metrics provided in the 2018 Outlook column assume that the Company’s spin-off from Wyndham Worldwide and the Company’s acquisition and integration of La Quinta occurred on January 1, 2018.  Such metrics reflect incremental license fees from Wyndham Destinations, incremental costs to be incurred in connection with becoming a separate publicly traded company and expected synergies in connection with the acquisition of La Quinta.  We believe this metric provides useful information to investors. These metrics are not intended to be presented in accordance with Article 11 of Regulation S-X.  

(a)

Restated to reflect the required change in revenue accounting.

(b)

Excludes amortization of acquisition-related intangible assets.

(c)

Assumes an effective tax rate of approximately 27%.

(d)

In constant currency. A glossary of terms is included in Table 5.

(e)

Represents results for the period prior to our acquisition.

(f)

Represents full run-rate of expected synergies less actual synergies realized (or expected to be realized) in 2018.

(g)

Represents incremental license fees and other separation adjustments for the period prior to the spin-off.

(h)

Represents the difference between corporate costs incurred and those expected to be incurred following the spin-off and transition period.

SOURCE Wyndham Hotels & Resorts