Growing demand through the spring and beginning of summer have given Wyndham Hotels & Resorts a solid financial boost, according to the company’s second-quarter earnings report.
“With continued increasing demand from our leisure and everyday business travelers, our select-service franchise business model generated another strong quarter of adjusted [earnings before interest, taxes, depreciation and amortization] and cash flow, allowing us to increase our dividend by 50 percent,” said Geoffrey A. Ballotti, president and CEO. “Our brands continue to capture market share gains above pre-pandemic levels, while our economy brands here in the U.S. actually exceeded 2019 [revenue per available room] for the quarter.”
Ballotti said the company opened more than 70 percent more rooms than last year while growing its development pipeline 6 percent versus the previous year and 2 percent sequentially to more than 190,000 rooms.
Fee-related and other revenues increased 67 percent to $321 million, compared to $192 million in the second quarter of 2020 primarily reflecting the ongoing recovery in travel demand and its impact on global RevPAR, which has now recovered to 83 percent of 2019 levels, including domestic RevPAR at 95 percent of 2019 levels, according to the company.
Wyndham generated net income of $68 million, or 73 cents per diluted share, compared to a net loss of $174 million, or $1.86 loss per diluted share, in the second quarter of 2020. The increase of $242 million, or $2.59 per diluted share, reflects: the ongoing recovery in travel demand; a $10 million, or 11 cents per diluted share, after-tax benefit from the marketing fund related to timing; and the absence of $176 million, or $1.89 per diluted share, after-tax of special-item charges incurred during second quarter 2020. These results were partially offset by a $14 million, or 15 cents per diluted share, after-tax impact in 2021 related to the early extinguishment of the company's 5.375 percent senior unsecured notes.
Also, for the first time in a year and a half, the company also provided a full-year outlook.
Here are the highlights of the report:
System Size
During the first half of 2021, the company's global system grew 30 basis points primarily reflecting continued growth in the company's direct-franchising business in China. This was partially offset by the anticipated decline in domestic system size as conversion and new construction activities continue to ramp-up following the pandemic and recent supply chain delays. Year-to-date deletions ran 27 percent below 2019 levels, putting the company on track with its goal of achieving a 95 percent retention rate for the full year 2021.
RevPAR
Global and international RevPAR began to lap the onset of the COVID-19 pandemic in January 2021, while the U.S. began to lap its onset in March 2021. As such, comparisons to 2019 (on a two-year, constant currency basis) are more meaningful when evaluating trends. On this basis, global RevPAR declined 17 percent reflecting a 5 percent decline in the U.S. and a 44 percent decline internationally. The 5 percent decline in the U.S. represents continued sequential improvement compared to a decline of 25 percent in the first quarter of 2021. Importantly, RevPAR for the company's economy brands exceeded 2019 levels by 4 percent in the second quarter. The 44 percent international decline primarily represents a 68 percent decline in the company's Europe, Middle East and Asia region and a 7 percent decline in China.
Business Segment Results
Hotel franchising revenues increased 55 percent year-over-year to $283 million, primarily reflecting the global RevPAR increase. Adjusted EBITDA increased 93 percent to $166 million as the growth in revenues and the timing benefit from the marketing fund was partially offset by higher volume-related expenses.
Hotel management revenues increased 62 percent year-over-year to $123 million, reflecting a $19 million increase in cost-reimbursement revenues, which have no impact on adjusted EBITDA. Absent cost-reimbursements, hotel management revenues increased 280 percent to $38 million, primarily due to the global RevPAR increase, as well as improved performance at the company's owned hotels and incremental management contract termination fees resulting from the sale of CorePoint Lodging properties. Hotel management adjusted EBITDA increased $20 million year-over-year reflecting the revenue increases, partially offset by higher volume-related expenses.
During the second quarter 2021, the company's marketing fund revenues exceeded expenses by $14 million; while in second quarter 2020, the company's marketing fund expenses exceeded revenues by $3 million. While Wyndham does not expect the marketing fund to have a significant impact on full-year 2021 adjusted EBITDA, there may continue to be timing differences in quarterly comparisons.
Development
Wyndham awarded 154 new contracts this quarter compared to 116 in second quarter 2020 and 173 in second quarter 2019. On June 30, 2021, the company's global development pipeline consisted of more than 1,400 hotels and more than 190,000 rooms. The pipeline grew 580 basis points year-over-year and 170 basis points sequentially, including 70 basis points domestically and 230 basis points internationally. Approximately 64 percent of the company’s development pipeline is international and 74 percent is new construction, of which approximately 34 percent has broken ground.
Cash and Liquidity
The company generated $116 million of net cash provided by operating activities in the second quarter of 2021 compared to net cash used in operating activities of $57 million in second quarter 2020. Free cash flow increased $172 million year-over-year as Wyndham generated free cash flow of $104 million in the second quarter of 2021 compared to using $68 million in the second quarter 2020 (which included $33 million of special-item cash outlays).
At June 30, 2021, the company had $103 million of cash on its balance sheet and approximately $840 million in total liquidity.
Dividends
Wyndham paid common stock dividends of $15 million, or 16 cents per share, in the second quarter of 2021.
The company's board of directors authorized a 50 percent increase in the quarterly cash dividend to 24 cents per share from 16 per cents share, beginning with the dividend that is expected to be declared in third quarter 2021.
2021 Outlook
The company provided the following outlook for full-year 2021:
- Fee-related and other revenues of $1.16 billion to $1.19 billion.
- Adjusted net income of $244 million to $254 million.
- Adjusted EBITDA of $525 million to $535 million.
- Adjusted diluted EPS of $2.60 to $2.70, based on an adjusted diluted share count of 94.0 million that excludes any future share repurchases.
- Rooms growth of 1 percent to 2 percent.
- A RevPAR increase of approximately 40 percent versus 2020, or a decline of approximately 16 percent compared to 2019.
- Free cash conversion from adjusted EBITDA of approximately 55 percent.