Good day, and welcome to the Wyndham Hotels & Resorts First Quarter 2019 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.

Thanks, Keith. 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 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-K filed with the SEC on February 14, 2019. 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. With that, I will turn the call over to Geoff.

Thanks, Matt. Good morning, and thanks everyone for joining us today. We're pleased to report a strong start to the year with first quarter growth in all of our key metrics. Despite tough comps, we grew RevPAR in the U.S. and globally. We grew our international footprint 7% year-over-year. We had our fourth consecutive quarter of positive net rooms growth domestically and our adjusted EBITDA grew 21%. Today, David and I would like to cover the progress, our teams have been making on our strategic objectives of driving net rooms growth, improving the quality and market share for our brands and fostering a values driven culture. But first, a key deliverable for us in the first quarter was finalizing the integration of La Quinta and being able to again raise our estimate on synergy savings. Our entire organization became immediately focused on integrating La Quinta, the moment we acquired it less than a year ago. And we're thrilled to report that on April 3rd, we successfully completed the last major milestone of this integration by moving La Quinta off of its legacy property management and central reservation systems and onto our state-of-the-art distribution platform. The migration proceeded exactly as planned, and in what may be one of the largest same day migrations in the history of the hospitality industry, La Quinta is now operating entirely on our cloud-based central reservation, property management, digital, loyalty, reporting and call center platforms. The benefits of this move are substantial. La Quinta owners now have a more stable property management system that provides a fully integrated credit card interface with more secure tokenization. They have a fully integrated central reservation system that now provides real time single image ARI, availability rate in inventory with remote access control and remote management capabilities. And most importantly,…

Thanks Geoff, and good morning everyone. Today, I'll discuss our first quarter results and full year outlook as well as review our inter synergies, our balance sheet, capital allocation and the investment opportunity that our stock represents. 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. We believe that the adjusted figures we provide are helpful in understanding how our business performed and how it will look on a go forward-basis. Our revenues grew 55% in the first quarter to $468 million, including a $169 million of incremental revenues from La Quinta. Adjusted EBITDA increased 21% to $111 million in the first quarter, including approximately $33 million from La Quinta. As we discussed on our last call, we elected to incur a higher proportion of our marketing spend in the first quarter this year to support our new by Wyndham marketing campaign, and our Wyndham rewards loyalty program. This timing difference depressed first quarter organic growth by 16 points. Further, the absence of net hurricane related insurance proceeds that we received in the first quarter of 2018 suppressed EBITDA growth by an additional four points. As a result, our adjusted EBITDA excluding our 2018 acquisitions and divestitures declined 13% in constant currency but it would have increased 8% if not for those two items. Royalty and franchise fee revenues increased $19 million or 23%, largely due to the inclusion of La Quinta. License fees, primarily from Wyndham destinations were $29 million compared to $17 million during the first quarter of 2018. Our global RevPAR grew 9% in constant currency in the first quarter, including seven percentage points from La Quinta, one point from the divestiture of Knights Inn and one point…

Thanks, David. Thanks again for joining us today with a strong start to the year, our teams feel good about our momentum. We’re successfully executing our business objectives were expanding our strong market position and we’re strengthening our industry-leading loyalty program. We remain focused on driving shareholder value and were very excited about the future ahead of us. And with that David and I would be pleased to take your questions and I'll turn it over you. Keith.

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

Good morning everybody. With respect to your upping your LQ synergy target 4 million kind of at the lower end and your EBITDA guidance for this year remained unchanged versus three quarters ago. Are you being conservative there or you giving yourselves a cushion there a corresponding offset, or are these synergies that you don't realize in 2019 and really hit in 2020? And get clarification on La Quinta I think, Geoff when you're going through La Quinta commentary that the RevPAR performance. You mentioned quarterly RevPAR growth is 9.9%. Are we talking about the 4Q or the 1Q in the RevPAR and what might that…

Okay, I'll let David talk about the synergies. The reference was to the 2018 quarter and full year in my remarks. La Quinta overall did have RevPAR growth in the quarter and grew share in the quarter, but I'll let David talk about the synergies.

Yes, with respect to the synergies where we are really excited about how the integration has proceeded and the progress we've made so far. By moving the range up by $4 million at the low end, $2 million at the midpoint. I think that's an indication that we're probably going to do $1 million or $2 million better than we had anticipated at the beginning of the year. But it's not enough of a change in our estimate to move our overall EBITDA projection for the year.

Great. And so that I did here though, I think David in your comments that La Quinta grew to 10% or Canada 10% of the 13% growth in the 1Q implying that La Quinta same-store grew 10%, is that how I heard comments, or can you clarify?

Got you. The point -- we made with the RevPAR was up 13% overall, 10 points of that comes from the inclusion of La Quinta this year, compared to last year in the first quarter where we didn't own La Quinta yet.

So [Multiple Speakers] year-over-year growth rate. Okay.

Yes, right. With La Quinta having a higher RevPAR then our pre-existing business, that's what brings rate up. So it's more of the inclusion of La Quinta year-over-year that's driving that then it is the any change in La Quinta's RevPAR.

Great. And then switching over to my follow-up question, nice job on the U.S. room deletions or overall deletions improving versus a year ago. And you talked about your retention rate approximating 95% on both domestic and the non-domestic side of things. How much more room is there to go, what inning are you in? And maybe you can share with us any updated targets on deletions, churn, retention as you say it and that's all for me. Thank you.

Okay. Thanks, Joe. I'd say we're midway through the innings and we were ecstatic with what we saw with 53% more openings domestically in our tradition to continue to take down. As we've talked about before, to the extent that we could begin to grow our domestic system size, and I think we're up about 50 bps in the quarter and get that growth moving. That comes on the heels of pushing our attention from 93 to 94 to 95 as we've done, moving retention up and other 100 bps should begin to see domestic turn continue stabilize and domestic room growth move to that to that 1% to 2% range overtime.

Thank you very much.

We'll take our next question from Stephen Grambling with Goldman Sachs. Please go ahead.

Hi, thanks. Can you just talk a bit more about the elevated marketing expenses and whether that is driven simply by calendar/timing, as you said, or is that maybe even response to trends you're seeing in the market or maybe strategically investing behind the combined business the integration?

Good morning, Stephen. It's -- we -- you may have seen our ads that have been out there. We're very proud of the ads that that launched a few weeks ago. In a big way and in terms of TV advertising across the United States. So those ads were produced in the first quarter and it was very strategic for us for both the by Wyndham umbrella advertising. And also the La Quinta advertising, La Quinta franchisees have been used to seeing their advertising on TV earlier in the year. And we're feeling very good about launching them earlier in the year, this year than we did last year.

And maybe turning to free cash flow. What are some of the puts and takes to think about for the fiscal '19 free cash flow generation given transaction related and separation related impacts the 1Q as we think about going forward. Are those largely behind us?

Yes. We do think that the transaction and separation related costs are majority behind us for the year at this point was to have a little bit in the second quarter. But again, those are majority behind us and from a free cash flow perspective, we actually have some anticipated proceeds from Wyndham destinations associated with our sale or their sale of the European Vacation Rentals business. So when we look at the year as a whole, we actually expect that the cash inflows that we're going to get tied to that will essentially offset the noise if you will associated with outflows for separation related and transaction related free cash flow. So that when you put aside the peace we get from Wyndham destinations and what we have going out for separation and transaction related expenses. When you put those two things aside, I'm sort of expecting it to look like a pretty normal free cash flow year where our adjusted net income translates into the generation of free cash flow.

Great. And just to be clear that Wyndham proceeds or payment will be our outside as a traditional free cash flow measure?

It will be, and that's why I referred to normalize free cash flow in my comments. Because I sort of view those two items that I mentioned as offsetting each other. And our call it normal free cash flow being in line with adjusted net income.

Perfect, helpful. Thanks. I'll jump back in the queue.

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

Hi good morning, everyone. I think most of the commentary and detail about the businesses pretty clear. What I wanted to ask about is the prospect of acquisitions. And some detail around where those boundaries might be in terms of size and whatever thoughts you can share about where you are at the moment where we might be this year?

Sure, good morning, David. We expect to grow the business and focus on growing the business or organically by growing our franchisee base, as well as through acquisitions over time. I think the good news is that with like into integration largely behind us, we're again position to be able to look at brand acquisitions. We intend to approach this area with real -- it's a prudence and discretion. And we don't want anyone to be disappointed if we don't add a brand this year, after having completed our largest acquisition ever in 2018. We believe our own stock represents a particularly attractive way to deploy capital. So we don't need a brand acquisition this year to enhance shareholder value. And as we look going forward at potential acquisitions, expect our principal focus will be in the Select service space, but we're not completely limited to that. And then geographically I expect us to look across regions, whether it's in the Americas or in Europe and or other parts of the world for attractive global brands.

Thank you very much. Nice quarter.

Thank you.

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

Hi, good morning. A couple questions here. Last quarter, you had pulled out strengthen the leader customer segment. Did you continue to observe that in 1Q and then how it's initial indications of summer shaping up for you?

Thanks, Patrick. We still feel that way. We had as you saw a really solid Q1 RevPAR for both our economy and our mid-scale brands which outperform the industry. And we're looking at RevPAR growth which was consistent with prior quarters, we're called that as David mentioned 1Q last year was 5% with the hurricanes. So we're very pleased with the 1%, which showed continued occupancy gains across the board and continued weekend strength which we feel from a leisure standpoint to your question sets us up very well for the busy summer leisure travel season ahead.

Okay, thank you. And then my second question, when I'm looking at the royalty rates for the total company and just for the U.S. it does imply that international royalty rate was down slightly, how much is that is due to terminations? How is the mix shifting as far as combinations in new bill? Thank you.

Our overall royalty in the quarter grew from 363 to 365. And was up slightly internationally. And in the U.S. it was it was it was flat at 454, four. I think our ability to continue to grow our royalty rate, Patrick, internationally as we take back master license agreements as we have in China with days in. And as we continue to drive our direct business internationally, stronger than any other piece of it will allow us to continue to, or set us up to continue to grow that international royalty rate as I believe we did in the quarter slightly. And again, our international direct business in the quarter we were thrilled with it. We grew 17% and we saw strong growth in our international direct business, not only in China, but wherever we had wherever we had masters in country.

That's right Geoff and just directly to the table one of our earnings release that I think that footnotes there are helpful where average royalty rate, excluding our transactions was up a couple of basis points in on a total company basis and unchanged in the in the U.S.

Got you. Thank you for the clarification on that. That's it. Thank you.

Thanks.

Thanks, Patrick.

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

Hey, good morning, everyone. Thanks for taking my question. So just going back to your unit growth here for a second, it looks like you added about 2200 net rooms in the first quarter, versus where you're at your end. So if I analyze that, that's about 1% growth. In your guidance, you're calling for 2% to 4% growth for the year, which implies there's going to be a sizable step up and the remaining three quarters. Can you just helped me understand where that's coming from is it more additions as is it less deletion is it both and, and why you're confident that you'll capture that growth?

Sure. The 2,000 you're referred to or 0.5% growth in the United States is added with a 7% international growth which we saw. So we were 3% charity, excluding all of our M&A in the quarter rate, in the middle of our guidance. So we're running at 3% year over year and I would say one of the reasons we're particularly happy about the growth we had in the first quarter is a Q1 is typically a seasonally slower quarter for us to be adding rooms. And you've seen that in the -- over the past few years. So having net rooms growth, organic net rooms, growth in the U.S. in the in the first quarter is a is a real positive for us, because we do tend to have more additions in the fourth quarter. And historically more terminations in the first quarter, just due to the seasonality associated with it the primarily the conversion portion of our business.

Got it. Okay, that that makes sense. And Jeff, I was referring to the 812,000 rooms versus the 810,000, roughly that you ended last year. So I think what you're referring to year-over-year is talking more, more sequentially. But I guess that the seasonal perspective, I think that that makes sense. So just shifting gears here, then to the synergies. Can you maybe help me understand what looking at this run rate GMA was when you close the acquisition. And is your expectation that that's going to completely go away to zero?

The short answer is yes. So when we looked at our synergies when we were doing our diligence and building our integration plan, we ended up building up by line item, the various synergies that we anticipated including significant G&A savings, having the most or substantially all of that go away. And then they check we ended up running on this was looking at the incremental royalties and fee revenues that come in from like into, and seeing what the drop through on that is. And essentially what we saw was that our integration plan takes us over the course of a year or so, to a place where the income where the addition of like -- business ends up having the same impact on our financials, as if we had organically added 87,000 rooms to our system and added the royalty fees so that we have a little bit of incremental or remaining costs associated with La Quinta but essentially the same amount of costs that we would have if we had gone out in an otherwise added 87,000 rooms. So that’s kind of the story around it and in the effective it is exactly what you said that virtually all of the G&A goes away and marketing expenses, the variable one stay but the fixed ones largely go away and then the operating expenses become more efficient as well.

Thank you, David. And if I may just follow-up on that real quick as what ultimately trying to get at, my understanding was La Quinta didn’t even have G&A over 60 million. When you close the acquisition so it sounds like some of those costs are the marketing you talk about might be passed through cost but correct me if I'm wrong on that and I’m just trying to understand exactly how that flows through like if there passed through cost do you get to keypad or how does that work exactly.

It's not solely G&A savings as I mentioned, so we generate savings for us and the operating expense side as well, which is a portion of it and yes we're were able to generate a small amount of benefits for us on the marketing side as well.

We will take our next question from Ian Zaffino with Oppenheimer. Please go ahead.

Just holding in on the international side of it, you mentioned that you want to go more direct. I know you have some MLA still out there, how might you still have and what sort of the process for keep them out there, what you're going to do with those things.

Thanks, Ian. There are six master license agreements that that are left out there are the largest of course that the we talked about a lot being are super eight master license in China, which is roughly 1100 hotels but after that they fall off dramatically. We have a master license in Canada, master license in Argentina and then some much smaller ones in Saudi Arabia and the Philippines which are individual brand. And you state that any of those individual brands present themselves as an opportunity to acquire multiple lower than what we're trading at and it make sense for us to buy then back as it did in the days and example and that's the way we will look at it.

Thank you. And then as far as we discussed some M&A with La Quinta kind of in the rearview mirror is far us on the M&A front how you're going to balance out M&A versus buybacks and uses of cash flow. Thanks.

Sure, I think on the M&A front. It really depends on the opportunities that present themselves, as well as our ability to execute transactions in a way that's going to add value relative both to where are our stock is currently trading and where we expect it to trade over time and we tend to look at that, primarily on a boost synergy basis. So it also ends up being very much dependent on how much in synergies, we can generate from a particular transaction and generally speaking I would expect our ability to deliver synergies would be relatively larger in the Americas and North America where we already at huge scale and then it may be in some other parts of the world. But I think given our presence virtually everywhere now we have the potential for some synergies in almost every region out there.

And we will take today's final question from Alton Stump with Longbow Research. Please go ahead.

Two quick question, I guess first one as far as pace of independent conversion is that picking up at all this time last year given cost labor, etcetera cost to build have all going up or is that change versus last year.

It is. Alton. thanks for the question. We see it as a tremendous opportunity. If you think about Smith travel and how they track hotels around the world 63% of those hotels are independent. So the extent that we have an offering as we do with our take trademark by Wyndham Brent, brand which didn't exist year ago, and that today is now over 100 hotels were able to convert independence to our system because of our lower cost of distribution, because of our technology platform and our ability to drive more contribution to these independence at a much lower cost.

Great, thanks. And then just lastly. If you update us on how the by Wyndham conversion is going how what percentage, I made that conversion and how way you see that going forward, it's 12 to 18 months?

Sure. We couldn't be happier with the job, our marketing team. And I'm sure is listening to this as has been doing with the whole by Wyndham, whether it's the umbrella by Wyndham campaign that you'll see airing on every major network across the country this quarter, whether it's the by Wyndham signage, which we now have -- I believe over 1,000 of our hotels displaying. And we'll have 500 La Quinta by Wyndham displaying across this summer. But or more importantly, the by Wyndham branding digitally anytime Wyndham is searched any one of our 20 brands are searched anytime of days in or a super rated search it is now searched across any channel as by Wyndham. And we're seeing search volume up considerably search volume in the quarter for by Wyndham was up 6% and I hats off to the to the digital teams that have put that together for us.

Okay. Thanks.

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

Thanks, Keith and thanks everyone for your time this morning. We appreciate your attention and your interest in Wyndham Hotels & Resorts. And we look forward to seeing you soon. Have a great weekend and take care.

And this does conclude today's Wyndham Hotels & Resorts first quarter 2019 earnings conference call. Please disconnect your lines at this time. Have a wonderful day.