Good day, and welcome to the Wyndham Hotels & Resorts Third Quarter 2018 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. [Operator Instructions] I would now like to turn the call over to Matt Capuzzi, Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining us. With me today are Geoff Ballotti, our CEO; and David Wyshner, our CFO. Before we get started, I want to remind you that our remarks today 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 Form 10 and other filings 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, which is available on our Investor Relations website at www.investor.wyndhamhotels.com. Consistent with the information that we shared with you in August, our further adjusted metrics reflect what our results would have looked like if we had completed our spin-off and the acquisition and integration of La Quinta on January 1st. With that, I'd like to turn the call over to Geoff.

Thanks, Matt. Good morning, and thanks for joining us today. In our first full quarter as an independent public company, we reported strong results at the high end of our guidance, with adjusted EBITDA of $166 million and further adjusted EBITDA of $177 million. We delivered organic growth in both Global RevPAR and system size. We grew our development pipeline both sequentially and year-over-year to a record 176,000 rooms. And we continue to strengthen the quality of both our brands and our hotel network. Most importantly, we made significant progress in our integration of La Quinta. We're off to a strong start as the newest public company in the industry and we see tremendous opportunity ahead both domestically and internationally. Going forward, we see Wyndham Hotels & Resorts continuing to grow as the world's largest hotel franchise company and the provider of select service and upscale brands to both owners and guests. In a moment, our CFO, David Wyshner will walk through our financial results and address our capital allocation strategy, which will continue to focus on returning excess capital to shareholders. I'd like to spend my time today discussing the progress we're making on three of our strategic objectives, driving rooms growth, continuing to enhance the strength of our brands and the seamless and successful integration of looking that. First on rooms growth, we continue to expect organic room growth of 2% to 4% this year, more likely in the lower half of the range driven by 6% to 8% of international net room growth and stabilizing domestic system size. Our total system at September 30th was over 900, 798,000 rooms, which represented a 13% increase from a year ago. A 3% increase excluding our 2018 acquisitions and divestitures and a 2% increase, if we further exclude our American…

Thanks, Geoff and good morning everyone. Today, I'd like to discuss our third quarter results which were strong and at the high end of our expectations as well as our balance sheet, capital allocation and our 2018 outlook. My comments will be primarily focused on our adjusted metrics you can find our complete results in our earnings release including reconciliations of adjusted amounts to GAAP numbers and walk downs of adjusted amounts to further adjusted metrics that reflect what our business would look like if our spin off and the acquisition and integration of La Quinta had all occurred on January 1. As we mentioned last quarter, our results reflect our mid-year acquisition of La Quinta and our mid-year spin off from Wyndham Worldwide. In that context, we believe that the adjusted figures we're providing are helpful in understanding how our business performed and how it will look on a go forward basis. Our total revenues grew 74% in the third quarter including $238 million of incremental revenues from La Quinta. Excluding the acquisition, revenues grew 5% primarily due to 4% higher royalties and franchise fees as well as higher license and other fees. Adjusted EBITDA increased 34% or 7% in constant currency and excluding our 2018 acquisitions and divestitures. Royalty and franchise fee revenues increased $31 million or 29% including a 25.0 contribution from La Quinta. License fees from Wyndham Destinations were $30 million compared to $16 million in the third quarter of 2017. The timing of marketing spends muted our EBITDA growth in the third quarter. Excluding La Quinta, marketing and reservation revenues exceeded marketing and reservation expenses by $7 million in the third quarter of 2018, compared to $14 million in third quarter 2017. This timing difference wasn't a surprise to us, but it did suppress our…

Thanks, David. As David said, our results for the third quarter were strong and demonstrate continued progress on our strategic objectives. We have a strong market position with tremendous global brand awareness and industry leading loyalty program, a state-of-the-art technology and distribution platform and a team member based now of 16,000 hard working professionals. These trends position us very well to take full advantage of the opportunities that lie ahead. We will maintain a focus on organic room growth on identifying and integrating accretive acquisitions and on a shareholder friendly approach to capital deployment. Our business model, our recent results, our outlook including the integrations of La Quinta and our growth potential all continue to make us very optimistic about our future. And with that, David and I will be pleased to take your questions. Keith?

[Operator Instructions] We'll take our first question from Joe Greff with JPMorgan. Please go ahead.

Good morning, guys. My first question Geoff is on the rooms growth you commented that the domestic shifting side has been stable, which is great in other words growth room additions and the lesions have been watched which is an improvement relative to the last couple of years. Can you talk about when you think about the level of the lesions of churn domestically over the next couple of years? Can you share with us how you see that trend? And can you remind us maybe what your targets are here? I know that kind of get you more to the 3% to 4% range. But if you could share with us your latest thoughts I think that would be helpful?

Sure. Thanks Joe. As you point out, we have made great progress. And we're very happy with the momentum we're making domestically and also internationally which I'd like to touch on in the second, but domestically to your question, this was the second year really where we're seeing a stabilized domestic system size. And we're opening more rooms than we ever have domestically on a growth from spaces as I mentioned. And that's really help stabilize. We'll be continuing to focus on that bottom 5% to 10% of our portfolio from a quality basis. And our target is to continue to stabilize the system this year and see our domestic system begin to grow on a long-term basis as we're said we'd like to see it move from zero to 1 to 1 to 2. And that will do great things for our overall room's growth. where we're most encouraged right now is the progress we're making internationally, where our room growth as you saw declined in the first and second quarters based on the work we're doing with our master franchises. But when you look at what happened as we expected in the third quarter with 6000 rooms of positive international growth we're really excited about that growth and where we're seeing it overseas.

Great. And then David, my follow up question is in the 4Q what's baked in for U.S. RevPAR growth on sort of a same store ex-M&A adjusted basis?

Joe, the Q4 number is what brings us to a range of approximately 3%. It works out to being slower than where we have been so far this year as we have the lapping of the hurricane issues. I expected to be in the range of 1%.

Thank you, guys.

Thank you. Our next question comes from Stephen Grambling with Goldman Sachs. Please go ahead.

Hey, good morning. I guess first, when you think about the underlying acceleration that you had stated in demand year-to-date. I guess focusing on the U.S., what customer bases, regions or other segments are driving that? And then the second follow up to Joe's question on room growth. As you move from zero to 1 to 1 to 2, what is that actually keep in second. Do you have any line of sight or expectation around what brands or chain scales that growth is likely to come from? Thanks.

Sure. I'll take the second part of that first, Stephen. Our going forward - our room growth will include both American as La Quinta as it will be in there. And as we saw in the quarter, we saw a good growth in both American and La Quinta. And what's driving that is a great franchise sales team, is a great and increasing and growing pipeline. In terms of where that growth is occurring domestically aside from where we're seeing it with American and La Quinta. It's in our brands like Trademark, which has just seen tremendous growth. Last year, we introduced the brand. We opened 50-ish hotels in Europe. We've introduced an open 60 hotels this year in the United States. We're now at over 100 hotels with Trademark. And we have another 70 in our pipeline. We're seeing it in our new construction brands like Hawthorn, like Microtel, like our number one midscale brand rated by JD Power right now, which is seen a great start to the year Wingate by Wyndham. And then internationally, we're seeing great growth as I mentioned overseas. Our China direct business continues to grow, our pipeline was up 16% in China and with our direct franchise business only. We have over 40,000 direct franchise rooms in that country, strong growth in Southeast Asia, and solid pipeline in Europe that we'd like to see a stronger in Latin America as well.

And then in terms of sources of demand. I would say that the demand strength that we've seen, the outpacing versus supply has been fairly broad based. We overcame some calendar challenges and the challenges stated with the Eclipse in the third quarter. And that points to strong leisure demand across a number of different markets. We've also seen particularly strong demand in energy related markets, which really span up from Texas all the way through West Virginia and parts of the upper Midwest. And in energy related or in oil related tracks, demand and RevPAR growth has been particularly strong. But when we look at across the range of geographies and different sources of bookings, we're seeing fairly broad-based strength and more consistency than anything else. And then, I would just point out that our business does tend to more leisure oriented than some other companies with the estimated 75% or so of our business coming from leisure demand.

Helpful. Thanks so much, I'll jump back in the queue.

Our next question comes from David Katz with Jefferies. Please go ahead.

Hi good morning.

Good morning.

I wanted to just talk about specifically La Quinta and the pipeline. I think you indicated there is 24,000 rooms in the pipeline. How would you have us thinking about that starting to accelerate as it becomes integrated into your platform and your sales force. What could that look like as we get into the first half of next year and how many rooms should we be looking for that to become?

I think our guidance at 2 to 4 would be consistent with La Quinta, David. And that's what we saw in the first quarter of having site into the franchise sales efforts. And it's a really strong team. When we took over, the brand or I guess at this time last year, there were at about 880 hotels in there at 911 hotels. We've seen strong pickup as we've talked about in both applications and executions in the pipeline now at 9 executed in the quarter. And what would that it is now at 24,000 rooms, which I believe David is up sequentially 2%.

That's correct. So, our La Quinta pipeline grew 2% in the third quarter alone.

Got it. And if I can just focus on capital allocation for a second please. David you've made some commentary around potential further acquisitions and so forth. Obviously, the share repurchases are ramping up in an obviously weakfish equity market. How do you think about the boundaries so that decision process in the near term and let's say an export 4 to 6 quarters please?

Sure. Starting with the question of acquisitions. Those are hard, they tend to be a little bit lumpy and a little bit hard to predict and to control the timing of. And as a result, it's hard to know exactly when the next brand acquisition for us will occur on average over the last 20 or 30 years. We've averaged about a brand acquisition every 18 months. And we will continue to look for good accretive additions to our brand portfolio. We're obviously cognizant of the pressure that that our stock and our industry have been under recently. And as a result, we're going to look for the opportunity to be more aggressive in terms of share repurchases in the fourth quarter then we have been, and we otherwise might have been. And I don't have a specific number associated with that. But we certainly are cognizant of what's been going on in the market and do view it as an opportunity to use the firepower that we've saved over the course of the year in terms of our free cash flow and to deploy it in the coming months.

Okay. And if I can ask one last detail around the cash payment to core point, I think we had previously indicated was going to be 240 and as of today it's 205. But are we allowed to sort of know, what happened there what caused the reduction in it and is that sort of full and final at this point to 205?

Sure. The reason for the reduction from $240 million to $205 million is that we paid $35 million in the third quarter. So, there's no change in the expectation of the aggregate amount there. They need to pay it has been pushed out a little bit. So, we're getting the benefit of holding that cash a little bit longer than we had initially anticipated. But there's no change in the expectation that it will be $240 million in total. It's just that only $35 million has been paid so far.

Got it. Got it. Okay. Thank you very much.

And our next question comes from Patrick Scholes with SunTrust. Please go ahead.

Good morning.

Good morning.

If I heard correctly, I believe you said domestically you did 2.4% RevPAR in the quarter and as a look at what Smith Travel did for the various chance scale segments that certain looks like you did about a point to a point and half better than Smith Travel would have implied. So, my question is it fair to think that you picked up some market share in the quarter?

Yes, I think we did Patrick in our economy brands. We saw good economy growth and share gain. And I think our mid-scale brands were in line domestically. We're really excited about our global RevPAR was internationally, whereas David mentioned we saw really strong growth across Canada which we track as international and Europe which are performed again.

Okay. And then my follow-up question concerns revenues in the future and talk a lot about cost synergies. And how should we be thinking about the status or what is the latest on progression in revenue synergies with the La Quinta acquisition.

Yeah, I think revenue synergies will show up overtime. First of all, in our ability to add rooms and to grow the system size, as well as in a RevPAR as the benefits of by Wyndham cross branding and the addition of La Quinta returns to the Wyndham Rewards loyalty program take effect. I think some of the systems changes that we're making and the opportunities to improve the websites and digital presence of La Quinta will be helpful as well from a revenue perspective. But just to be clear, the synergies that we've assumed the $55 million to $70 million of synergies are virtually all cost savings and the only revenue synergy that's built into that is tied to adding La Quinta to our credit card program. So, what we think we can do a number of things that will be helpful from a RevPAR and rooms growth perspective overtime. Those are not part of the synergy assumption numbers that we've shared.

Okay. Thank you for the call. That's it.

Our next question comes from Jared Shochange [ph] with Wolfe Research. Please go ahead.

Hi. Good morning, everyone. Thanks for taking my question. Just going back to the domestic growth topic. I think part of the reason you haven't, really had any net growth in recent years is because there really hasn't been much industry development at the low end of the chain scale. So, can you talk about why you think that is, especially in regard to some of the commentary here today about the demand strength you're seeing right now at the lower end? And can you talk about how you see development opportunities trending from here more, more in the economy budget segment domestically over the next few years?

Sure. Thanks Jared. Our issue domestically has been our focus on quality where we've said goodbye, parted ways with the 80,000 or 90,000 economy in mid-scale. Hotels that have not met our quality standards. We see tremendous growth and opportunity in the economy brands. Our ability to convert Independence to our economy brands as continue to be strong. And I think you see that in the pickup in terms of our gross room adds as we part ways with less lower quality hotels in our system. And we're really excited about our growth opportunities and economies and midscale. Both converting from competitors and with Independence where we have growth opportunity even without a lot of construction going on in the economy space as you know.

Okay, thank you. And I'm wondering if you can help me understand the economics for an owner at the lower end of the chain scale a little bit better. Because I think typically owners in the Super A days and system will end up paying all in about 12% of their revenue including royalties and all related marketing fees. So, for branding to make sense, they basically have to cover that 12%. So, maybe you can share what kind of revenue premium economy owners typically get from using the brand. And what kind of cost advantage that usually get from just being part of a bigger system. Whether that's the OTA savings GAAP or procurement or anything else that you can call out?

Sure, yeah. So, the OTA savings, you're spot on with that Jared is the biggest. When you look at an independent or you look at our competitors that's in a brand that's not contributing, the share of occupancy that we are through our central channels, it becomes a pretty easy and compelling value proposition for the franchisee. If you think that most independents are doing roughly half of their business through an OTA at a OTA commission rate, which might be 700-800 basis points higher than what they would be receiving through a Wyndham arrangement with us and more importantly being able to shift that mix from 50% of their business coming through the OTA down to where it should be in the mid-20s that becomes a very compelling value proposition. We're seeing great interest again from independence which explains the launch of and success of Trademark, which went from zero to 100 open hotels with the 70 now opened I believe or 60-ish in the U.S. on just that basis from a value proposition standpoint. And when you think that our central systems domestically deliver 67% of the feed to our economy and midscale hotels it's really powerful.

And I would just add to that. The four, five points of the amounts at a franchise pays are for marketing and reservation activity. And as a result, that something at hotel would need to do anyway and we believe strongly that being part of one of our systems parts of one of our brands and sharing in the scale synergies that we have that we deliver significantly more value for that spending for that marketing and reservation contribution than an independent hotel could on its own.

Okay. Thank you. And just the real quick follow-up Geoff. I think you talked about growing the share of your loyalty members and your occupancy. But I didn't hear the exact percentage. And can you share what percentage of your room nights are occupied by loyalty members?

Sure, yeah. It is our fastest growing share of occupancy Gerard and that was the point we were making at a script. That it's it continues to grow it was up 100 basis points in the quarter. We're approaching for our mid-scale brands roughly 40% share of occupancy and high 30s for our economy brands. Certain brands could trend over 50% in the midscale space, but overall, I think it's fair to say that roughly 40% of the room nights in our midscale brands are coming through the Wyndham Rewards channels.

Great. Thank you very much.

We'll take our next question from Ian [ph] with Oppenheimer. Please go ahead.

Hi, great. Thank you. Question maybe on the direct growth you mentioned in China. Are we seeing an acceleration there because I know we've talked about maybe the opportunity of an accelerating as you move away from the bigger deals? Are we kind of at that point yet? And what should we kind of expect of the mix going forward at least the outlook going forward. Thanks.

Yeah. Ian thank you. It's still a smaller percentage of our total business in China, because of the 17 years we've been there with our master franchise relationships, which are not growing as fast now as our direct business. Our direct business I believe represents roughly about a third - 30% of the rooms today. And our China direct business grew in the quarter 20%, so last quarter had 26,000 rooms and we grew that to 32,000 rooms and where the growth is coming from are of existing brands, that are selling very well, like our Ramada brand, which just opened last week, its 100th hotel in China and most of that is coming direct, we don't have a Ramada franchise relationship over there that's all direct franchise sales. And through the introduction of new brands, we have told you that we've announced new brands to China selectively. This quarter, we introduced two new brands and both of those brands sold. So, I would say we could continue to grow our direct business, but it will be percentage wise, a lower percent than our overall China business. But having said that, I believe our overall system in the quarter grew in China 5%, 20% of that being direct, offset by the master's which grew slower.

Okay. That's really helpful. Thank you very much.

And we'll take today's last question as a follow-up from Stephen Grambling with Goldman Sachs. Please go ahead.

Hey, thanks for letting me jump back on. So, I guess turning to the international segments, I mean given the correction in the market and some signs of softening in China and some of the other industries, are you seeing any change in customer behavior or owner interest as you think about the forward? Thanks.

Stephen, we're really not, where from a consumer standpoint, we're happy to see our RevPAR in China grow, it was up 2% on the direct side, our franchise consumer business was essentially flat. But overall, we saw RevPAR growth on a constant currency basis, and we're certainly not seeing any lack of interest from our developers. Our China team is doing an exceptional job and it is having another really strong year. As we continue to do what we feel is the right thing with couple of long-term master franchisees that were with us for long time and need to focus on the low performing low quality hotel.

Great, thank you so much.

And as it appears we have no further questions, I'll return the floor back to Geoff Ballotti, for any additional or closing remarks.

Well thank you Keith and thanks everybody for spending part of your morning with us, we know it's a busy time of the year, we appreciate your interest in Wyndham Hotels and Resorts and we look forward to seeing you during our travels or talking you again in February. Take care and most importantly Happy Halloween.

And this will conclude today's Wyndham Hotels and Resorts third quarter 2018 earnings conference call. Please disconnect at this time and have a great day.