Kicking off Wyndham Hotels & Resorts’ Q2 earnings call, President and CEO Geoff Ballotti noted that the quarter marked the company’s fifth year since its spin off from Wyndham Worldwide in 2019. “Five years later, we’re a significantly stronger company with a much more simplified business model,” he told investors and media on the call. “We've moved from a franchise and managed-hotel company to a pure-play franchise business, having sold our own hotels and exited the U.S. hotel management business, along with all of our management guarantees and performance commitments.”
Second Quarter Financial Results
The comparability of the company's second quarter results is impacted by the sale of its owned hotels and the exit of its select-service management business, both of which occurred in 2022, as well as quarterly timing variances from its marketing funds. The company's reported results and comparable-basis results (adjusted to neutralize these impacts) are presented below to enhance transparency and provide a better understanding of the results of the company's ongoing operations
Second quarter global revenue per available room grew 7 percent in constant currency compared to 2022, reflecting a 1 percent decline in the U.S. and growth of 34 percent internationally. The company had achieved “record-breaking” RevPAR in the U.S. last year due to COVID-impacted travel patterns. Comparing to 2019 to neutralize for these impacts, U.S. RevPAR grew 8 percent, a 30 basis point acceleration from first quarter 2023 growth. The international RevPAR growth was driven equally by stronger pricing power and higher occupancy levels.
The company generated net income of $70 million compared to $92 million in second quarter 2022. The decline in net income was expected and reflective of the marketing fund variability, higher interest expense and transaction-related costs primarily related to the company's refinancing of its Term Loan B Facility.
Adjusted earnings before interest, taxes, depreciation or amortization was $158 million compared to $175 million in second quarter 2022. On a comparable basis, adjusted EBITDA increased 8 percent year-over-year primarily reflecting higher fee-related and other revenues.
System Size
The company's global system grew 4 percent, reflecting 1 percent growth in the U.S. and 9 percent growth internationally. These increases included growth in both the higher RevPAR midscale and above segments in the U.S. and the direct franchising business in China, which grew 4 percent and 13 percent, respectively, as well as 80 basis points of growth globally and 200 basis points internationally from the $44 million acquisition of the Vienna House brand.
According to the earnings statement, the company remains “solidly on track” to achieve its net room growth outlook of 2 to 4 percent for the full year 2023, including an increase in its retention rate compared to 2022.
While Ballotti wouldn’t say if Wyndham was planning any new brands like ECHO Suites or new acquisitions, he did say the company’s leadership would “continue to look for opportunities” as well as acquisition options like the Vienna House deal. “We don't need to acquire but when a deal comes along that’s immediately accretive to where we're trading at today, we'll absolutely look at it.”
Ballotti also declined to comment on May’s rumors that Choice Hotels International was looking to acquire Wyndham. “We never comment on speculative news articles,” he said.
Development
During the quarter, Wyndham signed deals for 24,000 rooms, up 6 percent year over year and 7 percent compared to 2019. As of June 30, the company's global development pipeline consisted of nearly 1,850 hotels and approximately 228,000 rooms, representing a 10 percent year-over-year increase, including 22 percent growth in the U.S.
- Approximately 72 percent of the company's pipeline is in the midscale and above segments.
- Approximately 57 percent of the company's development pipeline is international.
- Approximately 81 percent of the company's pipeline is new construction, of which approximately 35 percent has broken ground.
During second quarter 2023, the company awarded 179 new contracts for its legacy brands, an increase of 8 percent year-over-year. In July, the company awarded 60 additional new contracts for its ECHO Suites Extended Stay by Wyndham brand, including what will be the brand's first hotels in Canada. This brings the total number of contracts awarded for the brand to 265 since its launch, or nearly 33,000 rooms.
Full-Year 2023 Outlook
The company is refining its outlook as follows:
