Welcome to the Wyndham Hotels & Resorts Second Quarter 2022 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. I would now like to turn the call over to Matt Capuzzi, Senior Vice President of Investor Relations.

Thank you, operator. Good morning, and thank you for joining us. With me today are Geoff Ballotti, our CEO; and Michele Allen, 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 most recent annual report on Form 10-K filed with the Securities and Exchange Commission and any subsequent reports filed with the SEC. We will 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 investor.wyndhamhotels.com. We are providing certain measures discussing future impact on a non-GAAP basis only because without unreasonable efforts, we are unable to provide the comparable GAAP metric. In addition, last evening, we posted an investor presentation containing supplemental information on our Investor Relations website. We may continue to provide supplemental information on our website in the future. Accordingly, we encourage investors to monitor our website in addition to our press releases, filings submitted with the SEC and any public conference calls or webcasts. With that, I will turn the call over to Geoff.

Thanks, Matt, and thanks, everyone for joining us this morning. We are pleased to report another very strong quarter where global RevPAR grew 23% to last year and 3% to 2019. Here in the United States, RevPAR grew 15% year-over-year and internationally RevPAR grew nearly 60%. July month-to-date domestic RevPAR is running 6% ahead of where it was back in 2019. And internationally, our EMEA, Canada, and LATAM regions are all running ahead. Our guests are staying longer and spending more at our hotels than they did in 2019. And importantly, our booking windows continue to increase. Consumer intent to travel and their willingness and ability to spend remains healthy despite the broader economic concerns. We grew net rooms by 3% and our development pipeline by 9% to a record 208,000 rooms. We delivered $175 million of adjusted EBITDA, more than we delivered in the second quarters of both last year and 2019 generating nearly $100 million of free cash flow and we returned $170 million to our shareholders, bringing our year-to-date capital return to approximately $240 million or 3% of our market cap. We grew our development pipeline this quarter by 2% sequentially and by 9% versus prior year. This marks the eighth consecutive quarter of sequential pipeline growth as we awarded approximately 125 new contracts domestically and over 60 contracts internationally, which in total account for more than 22,000 new rooms. The number of domestic contracts signed was approximately 75% higher than what we awarded both last year and back in the second quarter of 2019. Importantly, we awarded contracts to develop another 22 hotels for our recently launched new construction extended stay brands which brings the total number of project Echo contracts awarded to 72 since its launch four short months ago. We grew our overall system…

Thanks, Geoff, and good morning, everyone. I’ll begin my remarks today with a detailed review of our second quarter results. I'll then review our cash flows and balance sheet, followed by an update to our 2022 outlook. During the second quarter, our fee-related and other revenues grew to $354 million, and our adjusted EBITDA grew to $175 million. Our overall year-over-year results are not comparable due to the sale of our two owned hotels and the exit of our Select Service Management business, which we previously communicated. In an effort to simplify our results, I will provide commentary today about our segment performance. Our Franchising segment grew revenue by 18% year-over-year, primarily reflecting global RevPAR growth of 23% and higher license fees. Adjusted EBITDA grew 11% as these revenue increases were partially offset by an adverse timing impact from our marketing funds. Our franchising margin, which excludes the effects of the marketing funds and is calculated on the same basis as our peers remain consistent year-over-year at 85%. Fee-related and other revenue within our Hotel Management segment declined $19 million since second quarter 2022, while adjusted EBITDA declined $10 million, principally reflecting the select service management and owned hotel sale transactions, which collectively contributed approximately $20 million less in revenue and approximately $8 million less in EBITDA year-over-year. Within our Corporate and Other segments, we saw $2 million of higher expenses due to inflationary cost pressures, a reflection of the current environment. Adjusted diluted EPS improved 13% to $1.07 reflecting the increase in adjusted EBITDA and a benefit from our share repurchase activity which was partially offset by the impact of the sale transactions which collectively reduced EPS by $0.04 or 5 percentage points. Excluding the impact of these transactions, adjusted diluted EPS growth was 18%. Before moving on to…

Our first question comes from Joe Greff of JPMorgan.

Good morning, everybody. Geoff, I'd love to hear what the mood is among your developers, particularly in the U.S., as well as in China, given a more challenging financing market and certainly uncertain macro, how much has changed say, here in July and June versus earlier in the year? And then, sort of the net of all this is, can the pipeline continue to grow sequentially, and if the answer is yes, what gives you that confidence?

Well, the answer is yes. Joe. Thanks for the question. And there is a lot of things that give us confidence. I think, look, I don't think back to the beginning of your question, developers are any less confident than they were at the beginning of the year either here in the U.S. or in China. Our new construction signings very, very strong. We had 100 signings in the quarter. It was up 10% to 2021, and it was up 32% to 2019 and I think what gives us confidence is our economy in mid-scale select service brands are selling right now here in the States at just record levels and it's reflecting developer confidence that now is the good time to be building and the belief is that from all that had a record year last year that still believe they're going to have a very good year this year is that whatever happens in the future, I think the belief is that if you could build now is a good time to build because we are at the very early stages of what they believe in their heart and their core will be a sustained multi-year recovery. And we are seeing that in China as well. I mean, we opened 2,800 rooms in the second quarter and we awarded 25% more contracts in China despite so many of our team members being locked down, I mean, in doing this remotely than they did in the second quarter of 2019. I mean, this was – this was the second quarter, I believe, Michele, that they delivered over a 12% net room growth in our direct franchising business, but the demand for development contracts over there is really, really strong. And we all know that they've got a real good ability to recover quickly coming out of this. Our team has consistently delivered over in China over the last few years, including in the first quarter where – excuse me – where it wasn't easy. But with over 60,000 direct franchise rooms in our pipeline right now, we're very bullish as well over in China.

Great. Thanks. And then Michele, I think it was a quarter ago, you mentioned M&A is in the company's DNA. Can you talk about if there's anything warm? And I know you reminded us of your criteria, but I think a lot of investors were surprised to see that Choice bought Radisson, not that I would expect you and Geoff to talk about why we didn't buy a specific company that a competitor purchased. But if you can talk about the M&A landscape and on our numbers and our numbers even with RevPAR declining next year, we still can get to a point where the current quarterly buyback amount is sustainable going forward? Is that something that you would agree with absent M&A? And that's all for me.

Yes, I will comment, Joe, because we get the question a lot on Radisson and I think it is important, I mean our teams stay very close to everything that's out there, both domestically and internationally, including Radisson, which we've looked at multiple times over the years. It's just never been for us over those years, a strategic fit. I mean I think if you think about Radisson in terms of their portfolio, three quarters of it is here in the Americas and it's the course, Country and its Suites brand, which competes directly with La Quinta, which has two times the footprint and then, of course, the other fourth of that portfolio here domestically is their full-service Radisson and their upper upscale full-service Radisson Blue product, which competes with our upscale Wyndham and upper upscale Wyndham Grand Hotel. So, both Wyndham and Wyndham Grand are two very strong brands for us. They are also performing very well, also with larger footprints. And I think finally, we've been successful in exiting our owned real estate and our management guarantees, which would have come back with an acquisition of Radisson. So again, having looked at it before in the past, it's never been for us strategically. And it's not brands that we've ever felt we could grow more quickly than our brands, which compete with Radisson in those segments. So I'll let Michele touch on our M&A strategy, but it's really to focus on our brands that are accretive to both earnings and net room growth going forward.

Joe, say, from an M&A landscape perspective, we are looking for opportunities, both domestically and internationally, particularly in what we consider to be high growth markets with high demand generators out into the future. And that probably looks more like smaller regional in the mid-scale select service or even upscale space. But I'd also say that not is off the table, if it meets our criteria, we believe that consolidation in the industry is inevitable and size and scale matter. They matter now more than they ever have, and we expect that to continue. And then, I think the last part of your question was respect to the cadence and pace our share repurchase volume. So our Q2 volume was about 3.5 times - higher than 3.5 times the volume purchased in Q1. So there was a significant uptick this quarter compared to prior and as you know, preference is going to be to deploy our capital, to grow the business and we want to give our teams ample time to find those opportunities. But absent those opportunities, I think the Q2 run rate would be a reasonable assumption for the back half of the year and of course, we would look to take advantage of any stock price volatility, which could mean we might see higher volumes in one of the quarters versus the other.

Great. Thank you both.

Thanks, Joe.

We'll take our next question from Patrick Scholes of Truist Securities.

Thank you, operator. Good morning, Goff and Michele.

Hey Patrick.

Morning. A couple of days ago, Walmart called out some pressures on consumer spending. I'm wondering specifically with your economy brands such as Travelodge or Microtel, if you are seeing any similar pressures for those brands, as well or just across your system?

Yeah, we're really not. I think the important differentiation, Patrick, in terms of our customers, they are not lower-end consumers. They are squarely in the middle class. They represent the vast demographic of America. And what we are seeing is they're earning more and they are spending more and certainly, with unemployment in their historic lows and their wage is up from where it was back in 2019, we believe they have ample savings and resources and they are wanting to travel more than ever this year. I mean, they are booking earlier. We know that they are driving further this year than last year. And we are hearing from them anecdotally, we're seeing in our research that they are moving travel and experience up into their hierarchy of needs versus doing anything else with their money in. All the survey research out there, over 70% of them are saying they want to travel the same or more than they did this time last year. And look, last summer was the best summer our franchisees and those two brands are any of our domestic brands ever experienced. And if you talk to our franchisees, most are feeling this year will be even better than last year. Certainly, we are pleased with how the summer shaping is up. July month-to-date RevPAR is up 6% to last July, up until this past Saturday. We know we do have some tough comps that are coming up and those comps are going to get tougher, but we continue to see consumer demand out there and very strong. Our web traffic is running 15% ahead of where it was back in 2019 and still on pace with last year's record summer.

Okay. Great. That’s it for me. Thank you.

Thanks, Patrick.

We'll take our next question from David Katz of Jefferies.

Hi, good morning, everyone. Thanks for taking my questions which I think are a little different versions of ones we've had so far. The first is that you put out some guidance and I am wondering what macroeconomic context are you baking in or factoring into that guidance as we move through the rest of this year? What is your assumption set basically?

Sure, David. Versus our internal estimates, we did have about a $10 million beat in the second quarter, part of that license fees, the other part related to our marketing funds and we raised for license fees, but did not raised for the fund to be given we have not changed our full year expectations for the marketing funds and still expect that beat to reverse in the fourth quarter. With respect to what we are building into our back half assumptions, I'd say, last year, with respect to RevPAR, we saw significant increases beginning in July. So comps get really difficult in the back half of this year. Our outlook has always reflected this dynamic. And as Geoff mentioned, RevPAR thus far, even in July has been performing with our expectations. So, so our back half expectations right now assume some flattening out of RevPAR on the domestic side and then continued recovery internationally and this was always the expectation given the tough comp and we set the range at 12% to 16% to reflect this dynamic.

Perfect. Thank you. And second, I just wanted to ask about the deal environment and whether there is any macro impact that you can identify or register with respect to deal opportunities and I ask it in the context that you've repurchased meaningfully above what we had, above 2019 levels and whether there is a message in that the environment is perhaps less fertile or whether I am reaching with that?

I think it's a fair assumption to say there is not an abundance of deals coming our way in this environment and so, so if we thought we had a better use of the proceeds and investment in the business, we would likely be looking to hold on to that cash to complete a sizable M&A. That doesn't mean there is nothing out there. It just means that the chance of getting something done at any significant level of capital deployment over the next nine to twelve months is probably less likely in today's environment.

Understood. It’s perfect. Thanks.

Thank you.

Thanks, David.

We'll take our next question from Michael Bellisario of Baird.

Thanks. Good morning, everyone. Just one question on the development front and net unit growth. Can you maybe provide the puts and takes in your 2% to 4% net unit growth range? What would need to happen in the back half of the year for you to end up at the low end, maybe versus the high end today?

Sure. I think we would need to see one or two items. Our openings fall significantly below our prior year numbers. So we are expecting to trend in line with the back half last year or we would need to see retention fall significantly below our target 95% retention rate, none of which we see any indications of that happening.

Yeah, in fact, we were really, really pleased with the job all of our retention teams around the world this quarter did, Mike, and continue to do. I mean, it can – our retention continues to improve and our terminations continue to come down. Our key terminations were 2% lower than last year, but 24% lower than they were back in the second quarter of 2019. Our teams retained almost 3,000 more rooms than they did back in the second quarter of 2019 to Michele's point.

Got it. And with those terminations coming down, are you providing any more leniency to owners given the macro environment, maybe particularly internationally or is your view still the same on the termination side as you think about brand quality and clean up going forward?

Yeah, I would say from a brand standard standpoint, it's the same. It's we are doing everything we can, of course, to support owners, but brand standards are coming back.

And important to note, though there is some concern about the environment, we have not yet seen that play out in our business and our franchisees are still performing very strongly.

We'll take our next question from Dany Asad of Bank of America.

Hey, good morning, everybody. So, I wanted to ask a little bit more questions on the consumer. So - you guys are talking about how far along the recovery we are and how we are kind of basically tracking now ahead of 2019, are we also returning to a more traditional kind of seasonality and booking behavior? So kind of can you maybe tell us what you saw around the couple of holidays that we saw in the quarter? And then what does that mean for your booking patterns in August and Labor Day, if you can see that far out?

Yes. Sure, Dany. Look, Memorial Day weekend, which was a kickoff to the summer was our busiest Memorial weekend ever and July 4th. We're still running ahead of 2019. July month-to-date, as we said, is up 6% to 2019 and when it comes to seasonality in the comps to your question and how it compares to last summer's record demand, we continue to see consumer demand running well ahead of 2019 and we believe that will continue throughout the out Q3 and Q4. But yes, the comps do get tougher. I don't think there is any better example of that, Dany, than in Florida. And July month-to-date, this is through Saturday of last week, our Florida RevPAR is actually down by 12% to 2021, but it's running ahead of 2019 by 34% and Florida is one of our biggest states and we just continue to see that demand to 2019 in Florida was our best year ever until last summer. So, as I said, our web traffic demand is up. We continue to see really strong RevPAR performance in so many of our largest markets and think will continue throughout the summer in states like Florida and Georgia and Alabama, which all saw again, big states for us double-digit July month-to-date RevPAR growth, up through last weekend versus 2019. And if you look out into the national park states like oh gosh, Montana, Idaho, Utah, I mean they are all running near to above double-digit RevPAR ahead of where they were back in 2019. In fact, I saw a stat yesterday that 47 of our 52 states are running above 2019 levels, which is, again, all keeping our domestic RevPAR growth growing over 2019 as we expect it to run for the rest of the year. And as our – to Michele's point, international regions start to recover or continue to recover, I mean some of them are actually back to where they were in 2019.

Got it. And July, so, month-to-date it was down 12% for...

Florida.

A big state like Florida.

Yes.

What's offsetting that on the other end that's kind of driving your month-to-date number then?

So many of the states that I just talked about. I mean, we have big states that are doing that just that. I'd say July month-to-date RevPAR is probably 1 to 2 points down right now to last year with ARC down a little bit and ADR. ADR is still really strong to last year.

Got it. I do have one follow-up question on your markets.

Sure.

When we think about kind of the – where we are today with gas prices, but you also have a decent amount of exposure to the oil – like the oil patch in general in terms of hotels. And so, are gas prices where they are today, is that a net headwind or a net tailwind for Wyndham's portfolio?

Well, compared to where they were earlier in the summer, I'd say it's a bit of a tailwind. I mean historically, changes in gas prices has had a – as we've talked about and one-on-one is a very weak correlation to our RevPAR and the last time oil averaged $90 a barrel, our RevPAR back in 2011, 2012, 2013, 2014 it was growing at a 6% CAGR. What does it mean for gas to go from $4 to $5 for us, it adds about $20 in total direct fuel costs for a consumer's trip of about 350 miles. But we are not seeing – we do not believe that factor is materially impacting customers' travel decisions right now.

Understood. Thank you.

Thanks, Dany.

We'll take our next question from Ian Zaffino of Oppenheimer.

Great. Thanks. And Geoff, I just want to go back to some of your prepared comments, I know you commented on that whole booking window getting longer and also longer stays. It sort of kind of stuck out to me, because I know you've always talked about booking windows for your business being very short, now I guess you're seeing them expanded. What necessarily is driving that? What do you think is driving that? And then also maybe why it stays longer? Is it just the customer is better healed and they are staying longer? What is actually driving that?

That's a great question. What's driving it specifically our multi-night bookings those seven and eight night plus bookings, those are significantly up. Obviously, we still have a lot of same day bookings, but those are really the bookings that have pushed that 12 day advanced booking window to 15 days. And people are willing to drive further I mean, with the chaos at the airports this year, they are in their cars. They are looking to vacation. They are willing to drive further. They have the flexibility that they've never had before in the past in terms of checking in on a Thursday and checking out on a Sunday or using all of the unused vacation days that, groups like U.S. Travel, say, are at record levels. I think those are the big things.

Okay. Perfect. And then, maybe for Michele, we talked about some of the comps getting comfortable. But if we look into 2023, can you maybe talk about some of the tailwinds you are expecting into 2023 just as a reminder? Thanks.

And Geoff, I am sure you're going to want to add on here, but I'll get us started and I think from a 2023 perspective going into the year, we are going to be looking at continued recovery internationally. We still have occupancy yet to fully recover and it’s something we are really excited about is that is the growth we've been seeing on the infrastructure side of our business bookings, which I believe are up 10% year-to-date and that's a number we expect to continue to grow with the new infrastructure bill out of the Biden administration just need to get allocated down to the state levels. And Geoff, anything else you that I missed you want to add to that?

Yes, I think that's a huge upside and tailwind as you point out, Michele. I mean, there is just so much significant opportunity for us on the weekdays and if you look at the industry data over the last eight weeks, the weekends are still 20% running ahead of 2019. Week day, there's such an opportunity there at plus 5% versus 2019 through the last eight weeks of Smith data. Our brands are gaining share on the weekends versus 2019, but they are gaining more index during the week day for exactly the reason that Michele pointed out. I mean, we are attracting more of our fair share of that every day business traveler and we're adding more sellers and – or signing more infrastructure-related accounts. There is so much good news out there coming in daily from our global sales offices who are focused first and foremost, on all of those companies contracting for the public work projects first. I mean, that $600 billion of public work project is meaningful. And where our GSOs are finding and identifying the general contractors for airport expansions across the Midwest and they are securing the room nights. So that's going to be a tailwind for us as we head into the fall and we are also picking up a lot of significant private work on the infrastructure side that that we continue to pick up. You mentioned the oil fields and refineries are undergoing maintenance right now, and we're winning bids for that. But look, I think the big tailwind for us is going to be on the net room growth side. I mean, our growing pipeline is I think, where our biggest opportunity lies. Our pipeline composition, as you see in our investor deck that Matt put out on Page 7 has never been stronger. And we think that the reason for that is our franchisee engagement given all the support that we've shown our franchisees and small business owners throughout this pandemic has never been higher. And with the launch of four new By Wyndham brands organically, if you think back to Trademark, which I talked about in my prepared remarks, Altra, who has – we're working very well with Playa, who has a pipeline that's now up 10% registry collection, which just continues to power on with what we announced just last week and Eco. These brands are organically growing and they are under the By Wyndham distribution platform and they are doing really, really well.

And this is great. Thank you very much for the color.

Thanks a lot, Ian.

We'll take our final question from Brandt Montour of Barclays.

Hey. Thanks everyone. Thanks for squeezing me in here. I have two questions. As they are both recession-related, I apologize if they seem pessimistic, but I am just curious on a couple of different views of yours, Geoff or Michele. If we did go into a garden variety recession, I am curious what you think or how you think your retention metric would trend? And what I mean by that is, again a slowdown or a slowdown of fundamentals, brands become dearer right to the owners of your hotels, but at the same time, they might have less cash just to keep up with brand standards. So I am just curious how those two factors could offset each other?

They are great and fair questions, Brandt. And welcome back to the call.

Thank you.

I map through on a slide on, I think it's Slide 26, which talks to how our select service brands have performed in past downturns? I mean, our brands are significantly to your question, less volatile during the recession and we've been more resilient, and we've outperformed during the past two downturns. The RevPAR for our brands declined, I think, 14% in 2009 and but it outperformed the higher segments by 500 basis points and we were also to your question on both the – on both the open and retention side, we were able to grow our system through that downturn by 2% organically, which offset some of the RevPAR growth. So, look, we think that we're there to be a downturn, 80% of our system additions would come from conversions as independents seek distribution support from our brands as we've been doing throughout this pandemic and we believe would still be very well positioned to grow both our revenue and our EBITDA if there were to be any downturn.

Great. Thanks for that. And then my follow-up is regarding rate, which is by all accounts has been very strong and robust across all segments, especially yours versus 2019, curious what you think how the industry would react to a slowdown in leisure demand, if you think talking to your franchisees that they'd be – that they would try and hold rate at the expense of demand or if you think that it would be the other way around? Or do you think that they would probably soften together how you think the industry would sort of react to that?

Yes. It's again, a great question that we talk with our franchisees and small business owners all the time. I think they'll hold rate. I mean, we are - we've been doing such a great job with them driving rate index, and that continues to be our team's focus just equipping those franchisees with the knowledge of the tools to pivot and if demand falls to hold onto to create much more optionality for them around pricing power. I mean, what we're trying to do with all of our all of our state-of-the-art and new inventory revenue management pricing tools is to allow them to just create more optionality around pricing power and to train them to reduce their reliance obviously, on more highly discounted pay rates that might be out there and to realize that what they really should be doing right now, especially as they come into the winter and fall is responding to those RFPs for contracted business where it makes sense. And again, just a significant opportunity for us with those every day business travelers on – during the week day and giving them the pricing that to us to do that. But we believe we're much better positioned than we've ever been and that the travel landscape will be much more resilient than in prior downturns because pricing has just shown to be so considerably more resilient.

Great. Thanks for the thoughts. Congrats on the results.

Thanks, Brandt.

This concludes our question and answer session for today. I'd be happy to return the call to Geoff Ballotti for closing remarks.

Thanks, Leo, and thanks, everyone, for your time this morning. Michele, Matt, and I very much appreciate your continued interest in Wyndham Hotels & Resorts. We look forward to talking with you and seeing you soon. But before we go, we'd like to remind everybody to please tune in to the 83rd Annual Wyndham Championship from August 4th through August 7th, which will be airing on CBS in the golf channel with live coverage beginning on Thursday of next week. Enjoy your summer, everyone.

Thank you. This does conclude today's Wyndham Hotels & Resorts Second Quarter 2022 earnings conference call. Please disconnect your line at this time and have a wonderful day.