Good day, and welcome to the Wyndham Hotels & Resorts Fourth Quarter and Full-Year 2018 Earnings Conference Call. At this time, all participants have been placed in 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. 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 will 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 Web site at www.investor.wyndhamhotels.com. Consistent with the information that we share with you in October, 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 1 of 2018. With that, I will turn the call over to Geoff.

Thanks, Matt. Good morning, and thanks everyone for joining us today. We capped off our first year as an independent public company by delivering solid full-year growth in rooms, RevPAR, adjusted EBITDA, and adjusted diluted EPS. Just as importantly, we finished 2018 with another strong quarter, where adjusted EBITDA increased 64% to $125 million, and grew 16% in constant currency, excluding our 2018 acquisitions and dispositions. Moreover, we continue to deliver organic room growth, and organic RevPAR growth, and system size, and grew our development pipeline to a record 180,000 rooms. We accomplished a tremendous amount in 2018, and we could not be prouder of all of our team members who seamlessly kept things running through our spin, yet remained very focused on both growing earnings and growing our business. The La Quinta transaction is proceeding very well. La Quinta's results post-acquisition and in the fourth quarter have been solid with RevPAR up 3.2% in Q4, and our integration efforts progressing as planned. We remain impressed by La Quinta's amazing sales, marketing, operations support, revenue management and franchise development teams, who have smoothly transitioned to Wyndham. In the fourth quarter, we signed 30 new franchise agreements, bringing our post-acquisition La Quinta pipeline growth to 6% on an annualized basis. 27 new La Quinta were opened in 2018, and 16 of these were new construction Del Sol prototypes. Retention for the brand ran over 98% in 2018. And in the seven months since our acquisition, the La Quinta brand has seen 140 basis points of average monthly RevPAR index growth. Because of its RevPAR growth, La Quinta has been for the first time in it's over 50-year history moved from the mid-scale to the upper mid-scale segment of the industry by Smith Travel Research, something that our development team believes will…

Thanks, Geoff, and good morning everyone. Today I'll discuss our strong fourth quarter and full-year results as well as our balance sheet, capital allocation and our 2019 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 and further adjusted amounts to GAAP numbers. 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 top line grew 69% in the fourth quarter to $527 million dollars including a $198 million of incremental revenues from La Quinta. Adjusted EBITDA increased 64% in the fourth quarter and was up 16% in constant currency and excluding OUR 2018 acquisitions and divestitures. Royalty and franchise fee revenues increased $23 million or 26% largely due to the inclusion of La Quinta. License fees primarily from Wyndham destinations were $32 million, compared to $19 million during the fourth quarter of 2017. Our global RevPAR grew 10% in constant currency in the fourth quarter including almost 7 points from La Quinta and 2 points of organic growth. U.S. RevPAR grew 13% in the quarter reflecting 9 points from La Quinta and 2 points of organic growth. We saw good demand throughout the quarter with RevPAR up in the U.S. and internationally up for economy and mid-scale brands, up on the coast, and in the middle of the country and excluding hurricane effects up in energy related and non-energy related markets. At the same time our fourth quarter RevPAR growth was dampened by nearly 2 points due to lapping the hurricane related benefit that we had in the fourth quarter of 2017. You'll recall that hurricane impacts were a benefit in the first-half of 2018 and…

Thanks, David, and thank you [technical difficulty]. As David said our results for the fourth quarter and the year were strong and demonstrates sustained progress against our strategic objectives. Our business model, our culture the strength of our brand and our recent results all continue to make us very excited about our future and our ability to capitalize on the opportunities ahead of us. And with that Keith, David, and I would be pleased to take questions.

[Operator Instructions] Thank you. We'll take today's first question from Stephen Grambling with Goldman Sachs. Please go ahead.

Hey, good morning, thanks for taking the questions. I guess, first on free cash flow, I guess maybe can you -- you talk to the net income flowing through over time at about a 100% of free cash flow. What are some of the puts and takes you should think about that relationship in 2019? Is there any chance you can quantify, any outstanding integration spend in the year and any outstanding maybe tax payments that you have coming?

Sure. I think clearly the big item we have is the $205 million cash outflow, the payment of the temporary cash that that will be part of it. As we think about other items, we are expecting a tax payment to us, a tax rebate in the $30 million range to come in this quarter or early next will have a little bit of a tail, but I describe it's fairly small related to transaction and separation-related costs. So, those two should relatively offset with each other. And I think we're going to look to have development advances in the $20 million, $25 million, $30 million, maybe even $35 million range. You may have noted that our development advances were below our longer term average last year. I think we had a few timing issues there that may make them a little bit larger this year, and I think the opportunities to deploy some cash into various projects are relatively attractive for us. So, I think we may see that sort of normalize over that two-year period to the $25 million, $20 million to $25 million average that we expect over time. So, generally speaking, I would look for our free cash flow to be at or modestly above our adjusted net income in 2019.

Super helpful. And then maybe changing gears, the net unit growth there was a bunch of puts and takes there when you kind of include or exclude La Quinta in the U.S, specifically, I guess how should we be thinking about the growth in the year ahead? Should we expect kind of growth in net unit to be up, excluding La Quinta? And what are some of the building blocks between kind of gross adds versus attrition?

Yes. Thanks. Well, on our attrition, Stephen, we've always been targeting that 95% retention rate, and we've been moving towards that. We had improvement in 2018, but the building blocks domestically as well we've seen in the last three years as we've been focused on our North American system quality, we've been moving from down to flat, which we've now achieved for three consecutive quarters to 0% to 1% this year, and I think as we've said, our long-term growth has always been domestically 1% to 2%.

Thanks. I'll jump back in the queue. Good luck this year.

Thanks, Stephen.

We'll take our next question from David Katz with Jefferies. Please go ahead.

Hi. Good morning, everyone.

Good morning, David.

I just wanted to follow-up at that very last question and answer and comment, which is the long-term domestic unit growth of 1% to 2%. Is that something without giving any formal guidance is that something that's reasonably achievable in 2020, or is it something that you think might be longer term?

We think longer term. We think 2020. We're looking -- continuing to look at zero to one as we still have some work to do from a system standpoint in the economy size of our -- and the economy segment of our business with certain brands, but to the extent that we've now had three consecutive quarters of positive net room growth domestically, we feel that moving from zero to one to one to two, excluding La Quinta and America, and which were both performing very nicely for us is achievable.

All right. And if I could just delve into the La Quinta pipeline a bit, is that made up of what we would consider to be the individual franchisee population? Is there any institutional money involved there, or is that a potential focus that could accelerate La Quinta over time? And asked the question in the context that we always check out La Quinta out in our travels when we talk to institutional grade folks, where's that coming from? And where it kind of go?

It's a mix of both, and it could go more towards the institutional. When we look at the 13 opens that we had in the fourth quarter or the 27 La Quinta openings that we had in throughout 2018, it was more individual than institutional, but as our sales teams expand, there's no reason it could not go more institutional.

That's right. To your point, we view that as a significant opportunity for the La Quinta brand and for some of our other brands as well particularly on the new construction site.

Okay. If I can just follow that up with one quickly, which is sometimes we've experienced the need for key money in an upfront investment when approaching institutional grade franchisees. Is that something that's on your consciousness as a possibility?

Absolutely. We haven't had and La Quinta in its history, David, has not had to use key money but we would absolutely be willing to use it and we do use it for the right developer for the right market, historically we've been under 5% -- of our system growth has been generated with the use of key money. And I think it's something we would absolutely look out for the right hotel in the right market.

Got it. Thank you very much.

We'll take our next question from Joe Greff with JPMorgan. Please go ahead.

Good morning, guys. With respect to the $605 million to $620 million of 2019 adjusted EBITDA guidance, what's the absolute dollar amount in that and they are related to La Quinta?

The La Quinta as we said, it's been performing well and the amount of EBITDA that's in there is in $165 million to $170 million range. And what we've seen with the La Quinta is growth from a little under $100 million in 2017 to about $127 million contribution in 2018 to somewhere in the $165 million to $170 million range expected for this year both due to organic growth in the business and the delivery of synergies.

And of that $150 million to $170 million, the synergy amount is at $60 million to $70 million less than $12 million?

Correct.

Is that what…

That's correct. Yes.

And then, David, you mentioned earlier about $75 million of unallocated corporate other expense. Can you talk about that a little bit maybe you said and I didn't quite grasp exactly what that is, but is that a different presentation of the expenses that you've been reporting i.e. relative to the $15 million that you have on table one in the fourth Q, and the $55 million that you have in that same table for the year end number?

Slightly. And as I mentioned in my remarks, we had projected corporate and other costs of $60 million to $65 million in our May presentation. And then as we went through our budget process and with something like La Quinta we have certain costs that that need to be considered corporate costs, because they are now serving multiple segments. And so there's about $10 million of costs that were previously down in the segments that in 2019 get reallocated if you will back up to corporate. So, the $75-ish million that corporate costs that we're projecting for this year are very much the $60 million to $65 million that we had anticipated when we laid out our pro forma in May. And then there's a $10 million reallocation about that.

Great. And then my final question is with respect to the cash payroll tax authorities related to the La Quinta acquisition. Is there a chance that tax liability is lower than $205 million or is that just really a timing issue versus the potential for that to be lower?

There is a potential for that to be lower but that does not benefit us. The $205 million was part of our $1.95 billion purchase price. And whatever does not go to tax authorities goes to CorePoint Lodging, and we're still in the process of working through that. But from our perspective no matter what that $205 million is temporary cash, because it's going either to tax authorities either to the IRS or to CorePoint Lodging.

Great. Thank you, guys.

We'll take our next question from Patrick Scholes with SunTrust. Please go ahead.

Hi. Good morning.

Good morning, Pat.

I saw that you fairly recently you acquired the master license for Days Inn in China. Do you anticipate any other similar acquisitions in the next year or two?

Patrick, we'd love to look at any of our master license agreements which became available for sale or for purchase at the right price. I mean our master license agreements stayed date back to 1992. Our last deal was 10 years ago. We are biggest as we've talked about is our Super 8 master license in China which actually made great progress this year and has begun to grow again. And there are another half-a-dozen that are in Asia and in Canada that would continually look at. But China presented itself in it, it's something we're excited about on Days.

Okay. Thank you. And then my next question is I noticed that the royalty rate was approximately six basis points below the 3Q level. How should we think about the trajectory of the royalty rate for 2019?

I think what we're seeing - there is a little bit of seasonality that will impact the royalty rates. So we tend to look at it on a full-year basis and what we've seen over time is that our royalty rates I think have been fairly consistent and what we have is the opportunity to grow our royalty rates in the international regions as our brands become more and more impactful there and I think the offset to that is that the royalty rates there are right now a bit lower. So, as we grow faster internationally even though we're moving -- we look to move our international rates up, the overall impact due to mix will probably result in royalty rates being relatively steady over time. And that's what we've seen over the last several years pretty consistently is stability in average royalty rate as we grow faster in international markets.

Okay. Thank you. That's it.

And we'll take our next question from Jared Shojaian with Wolfe Research. Please go ahead.

Hey. Good morning, everyone. Thanks for taking my questions. So I want to ask a question on the 2019 guidance. Can you help me understand the 5% to 7% organic growth that you're calling out because if I look at your rooms growth 3%, RevPAR 2%. I would think the EBITDA could grow faster than the 5% to 7% but maybe the mix of room growth more weighted towards master's versus direct. So maybe can you just help me understand how that algorithm works? And then should we be thinking about 5% to 7% is sort of the right way to think about the longer term EBITDA growth going forward.

Sure. I think when you look at the strength of our franchising margin we have significant drop through already from royalty revenues. And as a result the good news is that when royalty revenues increase we get a really good drop through from those. But we don't have a lot of operating leverage that would cause EBITDA growth to be faster than the royalty revenue growth. And as a result that's why we would expect the 2% to 3% the 2% to 4% room's growth call 3% at the middle and the 1% to 3% RevPAR growth, 2% at the middle to produce roughly the 5% to 7% EBITDA growth that we're talking about on an organic basis. What's interesting about that that EBITDA growth is that it does not include any benefits from capital deployment which remember from our May Investor Day presentation we estimated it could be another 3% to 5% a year which will benefit EBITDA if it comes in the form of investments or acquisitions it will benefit EPS if they comes in the form of share repurchases. And when you add that 3% to 5% in our 5% to 7% organic revenue growth it looks more like 8% to 12% on the EPS line whether it's in the form of acquisitions or share repurchases and that 8% to 12% we think is consistent with the 8% to 14% long term earnings growth potential that we have laid out in May.

Okay. Thank you. And just switching gears here just back to the unit growth, couple of questions I mean how much of your international growth in 2018 came from masters versus direct and how do you foresee that trending in the future? And then, separately you talked about getting to target retention rate of 95% can you just talk about why that's the right target, I know as you move up the chain scale some of the other brands are closer to 98% plus, I know there's some structural differences in the lower chain scale but maybe you can just talk about as you clean through and prune through the system why 95% percent is the right number and not something higher than that?

Sure. So, our rooms growth, Jared, was as we said up 11% in the year, it was 2% up excluding all of our acquisitions and internationally it was up 5%. When we look internationally most of the growth in the direct franchising business was in China where we saw that 20% increase in our ability to grow to 33,600 rooms I mentioned earlier, and what's so exciting about that is where that growth is coming from and the brands that's coming from. I mean, we added for example 23 remodels in China, China team had an incredible year and we opened new brands that have never been sold there before, so master growth in China the biggest one I just mentioned and touched on Super 8 was - is the is the brand that we've been focused on. It was not growing in the first few quarters and it began growing in the fourth and grew overall 1% in the year and that's by far and away our largest remaining master license agreement overseas.

And then, with respect to retention as we look at the properties that leave us there -- in the economy in the mid-scale space there is just a -- there are some properties that are on land or in locations where it makes sense eventually for that property to be redeveloped for a different use. And as a result, I think the highest number we could possibly get to, you know, may very well be in the 90s, 98% range. And as a result the key for us is, is the -- that remaining two or three points that's in there that that can be an opportunity for us to get hotels to do the work that's required and necessary either in terms of capital investment or in an investment and operations or both to be able to meet our standards and stay with us. And I think as we look at that potentially two or three points of opportunity there what we want to do is grab one, one to two of that and then keep working on it from there, but that's sort of the way we thought about it and we look very carefully at the properties that are -- that that have left us and what the reasons are. And that's what gives us I think confidence that over time we can move retention rates from a 94% to 95% where we've been running up north of 95% and ideally north of 96% as well.

And also, Jared, when we add brands in the mid-scale as we did with American which last year in a 97.5% percent retention rate 200 or so units, and at an upper mid-scale brand now La Quinta with its Del Sol prototype which ran last year, a 98.5% retention on a thousand units. It's another building block for us moving forward.

Great. Thank you very much.

Thank you.

Our next question is from Ian Zaffino with Oppenheimer. Please go ahead.

Hi, great thank you very much. Just on La Quinta can you maybe help us understand what the or tell us what the RevPar was or at least the trend you saw in the fourth quarter vis-à-vis the whole portfolio or maybe what you're seeing know going forward in 2019? Thanks.

Sure. La Quinta's fourth quarter RevPAR Ian it was up 6% and it was up 5.2% for the full-year. And what excites us the most has been the share growth across the brand to see continued pickup in its Revpar index throughout the year has been something that we've been really excited about.

So going forward, you expect it to outperform the rest of the portfolio?

We do.

Okay. And then also just touching on some M&A activities what are you basically seeing out there right now as far as know tuck ins and how you think about leverage vis-à-vis the opportunities out there. Thanks.

Sure. With respect to opportunities that are out there what it tends to be highest on our radar screen is any opportunities to acquire brands. We're pretty passionate about being asset light and that is that combination is what we look for a good brand in an asset light context is what captures our attention the most as we look at opportunities both in North America and around the world. I would say that from a leverage perspective we're comfortable with our leverage where it is right now 3.3 times. Net leverage on a pro forma basis and our target is 3 times to 4 times for the right transaction we would be willing to move above 4 times but only temporarily I think we'd want to be in a position where we could get that back down into the three times to times range and I would say our preference is being in the lower half of the three times to four times range.

All right. Thank you very much.

Thanks, Ian.

And we'll take our next question from Alton Stump with Longbow Research. Please go ahead.

Good morning and thanks for taking my question. Just wanted to ask with the updated synergy guidance that you gave us for La Quinta I presume still the lions share that it just simply costs synergies as you kind of think about top line energies now that you've of course own the concept here for a -- since last couple of quarters, I mean are there any sort of potential areas that you maybe see now that you didn't see when you bought the brand as far as generating top line synergies as kind of a forward?

Sure. Yes. We're very - we're feeling very good about the synergies, which was why we raised the range - public company synergies, we feel very good about and we've raised from 2017 to 2018. The IT and the sales and marketing synergies are still ahead of us and we're feeling very confident and that was the biggest piece of what drove us to raise the bottom end of that range. We have been conservative on the revenue -- consist on the revenue -- consistently conservative on the revenue synergies but looking ahead both on what we're seeing in terms of growing RevPAR, growing index, growing our system size none of those are yet built-in.

Okay. It's helpful. And then, just on [indiscernible] front obviously you guys have lot more leisure exposure than most of your peers, how are you seeing from the consumer end as kind of look ahead to the rest on that can you…

Sure. We're seeing a great strength which is why we feel our brands outperformed in 2018 and we're continuing to feel that going into 2019 from the strength of the leisure transient market, we're seeing more strength on the weekends than we ever have. We're seeing really strong weekend occupancies, we continue to see strong pickup in not only rate but also in occupancy and we can continue to experience that. We saw in the fourth quarter 50 basis points of occupancy pickup in both our economy and our mid-scale brands. Again, I think pointing back to the strength of the consumer right now in terms of how they're feeling in that segment of the marketplace.

And one of the reasons I walk through the quarterly numbers excluding hurricane effects is really to highlight how consistent that's been over the last year almost every quarter being the 2.5% to 3.1% range without a lot of variability in there, that's really points to the consumer behavior being both relatively strong and remarkably stable over the last 12 months.

Well, thanks so much, Geoff and David.

Thank you.

And next we'll go to a follow-up from Stephen Grambling with Goldman Sachs. Please go ahead.

Hey, thanks for sticking me in. I guess as you look at the upcoming combination of the La Quinta loyalty program and also the integration with your systems with La Quinta, I guess aside from scale is there anything unique about their systems as you transition them over that could make it more difficult or easier relative to prior tuck-ins?

Nothing more difficult or nothing more complex, Stephen, we've done this now for 8,000 of our hotels across 19 brands and we are very confident that what we are going to provide for the La Quinta franchisees in terms of a state-of-the-art and easier to train server less property management system is something that is going to fire on all cylinders.

And has any kind of training begun for the folks in there or do you have to wait until things are on the systems.

Oh gosh, yes, we have been training now and beginning to move, actually La Quinta franchisees who have joined the system in the fourth quarter over to over to our SynXis property management system which will in the short order would be connected to SynXis, but the teams have been training and continue to train and are together today training and our franchise service directors and our directors of franchise operations are all actually together training today.

Great, thanks so much.

And it appears we have no further questions. I return the floor to Geoff Ballotti for any closing remarks.

Thank you, Keith. And again, thanks everybody for your time this morning. David, Matt, and I appreciate your attention and your interest in Wyndham Hotels & Resorts, Inc. and we look forward to talking to you again after our first quarter if our paths don't cross before then which we think they may well take care and have a great Valentine's Day tomorrow and President's Day weekend ahead hopefully traveling with your loved ones.

And this does conclude today's Wyndham Hotels & Resorts fourth quarter and full-year 2018 earnings conference call. Please disconnect your lines at this time, and have a great day.