Welcome to the Wyndham Hotels & Resorts Third Quarter 2023 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for your questions following the presentation. [Operator Instructions] 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 Steve Holmes, our Chairman; 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 also be referring to a number of non-GAP measures. Corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP metrics are provided in our earnings release and investor presentation, which will be 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, this morning we posted an investor presentation containing information with respect to our board's rejection of Choice’s unsolicited offer. 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, filing submitted with the SEC, and any public conference calls or webcasts. With that, I will turn the call over to Steve.

Thanks, Matt. As all of you are aware, last week Choice Hotels announced that they made unsolicited overtures to acquire our business. With no organic growth, a less vibrant loyalty program, and virtually no international capabilities in Choice's platform, we are frankly not surprised. Our business offers a medicine cabinet full of remedies. Our board has taken its fiduciary duties very seriously with respect to shareholders and other stakeholders, including franchisees, employees and guests. We strongly believe that Wyndham’s standalone plan and multiple levels -- levers of growth provide a more compelling proposition compared to Choice’s offered. Our board is also highly confident in our management team's capability to execute on the plan and create significant value for our stakeholders. We have received multiple inputs from key constituents over the past week, providing us with further confidence in our decision to reject the offer. The team will be providing further insight into our decision-making rationale after we review our strong third quarter performance. I'll now hand the call over to Geoff.

Thanks, Steve. And thanks everyone for joining us today. We're very pleased to report another strong quarter of operating performance. Globally RevPAR grew 3% in constant currency, led by international growth of 16%. While US RevPAR declined by 1%, our economy brands continued to gain market share, outperforming their competitors by another 100 basis points this quarter, driven in part by revenue growth from our general infrastructure-related business accounts. We grew our system for the 11th consecutive quarter up 1% sequentially and 3% year-over-year on an organic basis. Our teams opened over 14,500 new rooms in the third quarter with 5,900 of those rooms opening in the US. Year-to-date through September 30, we've opened over 42,600 rooms across 326 hotels, opening more than one hotel each and every day. We improved our retention rate by another 20 basis points from where it stood at the same time last year, as our industry leading brands maintained the highest overall franchisee retention rates in the US Economy segment. Our pipeline grew for the 13th consecutive quarter, up 4% sequentially and 12% versus prior year, including 2% sequential growth in the US and 16% year-over-year. Our teams awarded more than 230 contracts for over 26,000 rooms with 15% of our pipeline now representing our Echo Suites extended stay by Wyndham brand and an additional 7% of our pipeline now in the higher RevPAR mid-scale, upscale, upper upscale and luxury segments. Our owner first philosophy was on full display last month in Anaheim where we held the largest global conference we've ever assembled with over 6,000 registered attendees and more than 150 sponsors. The conference provided our franchisees an opportunity to connect with their colleagues and learn firsthand how to unlock the power of recent investments we've made in next generation technologies, sales and marketing initiatives, and hotel-level operating efficiencies. Our owners have never been more engaged with our teams and the superior value proposition that our brands today deliver. Before Michele takes us through the financials, we'd like to take a moment to acknowledge our team members. The incredible success of our owner first operating philosophy would not be possible without their unwavering commitment and support. And we're thrilled about our most recent ranking at number 8, up from number 11 last year on Newsweek's Top 100 Most Loved Workplaces for 2023. We thank all of our team members around the world who put our owners at the very center of everything it is that we do and who remain enthusiastic about the opportunities ahead for us and confident in our ability to deliver the outstanding value day in and day out to our shareholders, our guests, and our franchisees. I'll now turn the call over to Michele. Michele?

Thanks, Geoff, and good morning, everyone. During the third quarter, fee-related and other revenues grew 7% reflecting global RevPAR and net room growth, as well as higher license and ancillary fees and pass-through revenues in our marketing, reservation, and loyalty funds due to our global franchisee conference in September, which was held for the first time since 2019. Adjusted EBITDA grew 5%, primarily reflecting higher fee-related and other revenues as well as marketing fund variability. Marketing fund revenues exceeded expenses by $17 million this quarter versus $12 million a year ago. Our adjusted EBITDA margin remained consistent at 83%. Third quarter adjusted diluted EPS improved 8%, reflecting our adjusted EBITDA growth, as well as benefits from our share repurchase activity and a lower effective tax rate which were partially offset by higher interest expense. We generated $67 million of free cash flow in the third quarter and $225 million year-to-date. We remain on track to achieve our goal of converting 50% to 55% of full year adjusted EBITDA to free cash flow, which at the adjusted net income line translates to approximately 100%. We returned $134 million to our shareholders during the third quarter through $105 million of share repurchases and $29 million of common stock dividends. Year-to-date, we have repurchased 3.8 million shares of our stock for $270 million. We ended the quarter with approximately $710 million in total liquidity, and our net leverage ratio of 3.3 times was in the lower half of our target range. We are reaffirming our adjusted EBITDA guidance of $654 million to $664 million and raising our adjusted diluted EPS outlook to $3.94 to $4.08 to reflect our continued strong performance as well as our third quarter share repurchase activity. That concludes our prepared remarks on our third quarter results. Geoff will now walk you through the rationale behind our board's rejection of Choice's unsolicited offer.

Thanks, Michelle. As Steve referenced in his opening remarks and consistent with its fiduciary responsibility, our board, along with its third-party advisors evaluated Choice's proposals. Our board begins from the premise that as a public company with a well distributed shareholder base, we're open to any and to all avenues to create value for our shareholders. Many of these value creation opportunities are driven from organic growth initiatives, some are from inorganic growth initiatives, and some are initiated by third parties. Our board has deep experience and has always provided oversight on our major strategic initiatives and opportunities. With respect to the offer made by Choice in August, our board determined for several specific and well-substantiated reasons focusing on both transaction risk allocation and valuation that the proposal was not in the best interest of Wyndham shareholders and rejected the offer. We've been consistent with Choice from their initial inbound that our concerns would need to be satisfactorily addressed, something they have not done to date. In our press release last Tuesday, we provided initial rationale and insight into our board's decision to reject the offer. Today, we'll go through greater detail around that decision and walk you through our significant standalone growth prospects. This morning, we posted an investor presentation to our website, and we'll be referencing that throughout this discussion. We start by level setting who Wyndham is today on Slide 2. Not only are we the largest hotel franchisor in the world, but we're also the only public hotel company of scale that is truly asset light, generating significant free cash flow which allows us flexibility on how we choose to allocate our capital whether it be for investment in growth initiatives with attractive ROIs or whether it be returning capital directly to our shareholders. Since our…

The floor is now open for questions. [Operator Instructions] Thank you. Our first question comes from Joe Greff of JP Morgan.

Good morning, everybody. [indiscernible] my question is probably best directed to Steve. Interpreting the totality of your comments since last week, I'm interpreting them as Choice’s offer and maybe any modest tweaks to what the most recent offer is, is dead on arrival. That's not my question, if that's a correct interpretation or not. My question is this to Steve. Have you talked to Stuart or Pat since last week? And have there been any more current discussions and I'll leave it broadly open to any kind of risk mitigants that you've eloquently referred to today, whether that is sort of a creative breakup fee or collar or tipping fees, more cash, suggesting to them maybe how they can raise cash through equity issuance that would then wouldn't be given to you guys or equity transferred to you guys to take on all the risks that you referred to today. And that's -- those are my questions. Thanks.

Well, thanks, Joe. There was a lot packed in there and I haven't done these calls for six years, so it's good to hear your voice. I used to always say Joe that I don't comment on M&A rumors, because that used to be what always came up. But this one is not a rumor, and it also is not really M&A. It seems like a desperate grab to try to solve problems that the company has. We have been responsive every step of the way. I have not heard from Choice since we sent them -- since we told them. I called and spoke to Stuart and told him that we're disengaging. This is an amazing distraction for the businesses, not only ours, for theirs. A bigger distraction for ours probably than theirs. And just to give you a little bit of history, 25 years ago, 20 years ago, I negotiated a deal to buy Choice. And I never talked about it because it's not appropriate, but we negotiated a deal. The capital markets turned on us, and the credit was not available to make an all cash offer, which is what was desired from the other side. We disengaged as soon as I called and said I've never turned -- I've never walked away from a deal before, I've done 40 plus deals but this one just isn't going to work because the capital markets aren't attractive. Never said anything about it just kind of went our merry way. Choice has contacted us multiple times over the years, and we've told them, we've looked at it, we've decided what's in the best interest of our shareholders, and nothing has been done about it. This time is different. Now, I'm not sure what is different other than the fact that they're not growing. They have some serious issues within their organization. They're trying to address that by making us the elixir for their problems. And so, to answer your question directly, Joe, I'm going a little bit off the topic here, but I have not heard from them. And we put up multiple ideas of what they could do, none of which were available to them. So I don't -- we weren't looking to sell the company. They called us, but they called us and they don't have a plan. So their plan seems to be to put out repetitive press releases and see if they can churn the water enough to make it interesting for us. I just don't see that as a plan. That's a bit of a desperate plan. Did I answer the question, Joe?

Our next question comes from David Katz of Jefferies.

Hi. Good morning, everyone. Steve, good to have you back. I wanted to just talk about some commentary that has come up this week about taking share and market share within the limited service and economy segments. It came up yesterday with a peer and was discussed. And in that context, you make some points in your deck this morning about the suspension of development activities for an extended period and what the potential impact of that is. If you could talk about, broadly speaking, Geoff, the notion of where you think you are in terms of the share of opportunities out there. And more importantly within the context of this deal, it's come up with investors about whether there are change of control provisions within any of the contracts, particularly the one with Echo that's top of mind and current, and whether there could be any impact to the existing franchisee base if this were to get to a place where it went somewhere. And I realize there's about eight questions in there, too. Thanks.

Well, thank you. Thank you, David. And I loved your chorus of upside arguments today, the headline in terms of continuing net room growth and pipeline growth and flying acceleration and long-term [nudge] (ph) that we couldn't agree with you more. We're certainly seeing that. I mean, certainly there was no slowdown in the third quarter. Q3 was a huge quarter for us with some really great momentum to your point, your note today. In terms of brands gaining share, to your question, we're gaining on both the conversion side and the new construction side. If you look at our brands on the new construction side, the one you mentioned that was talked about, I guess, in the deck in a bit yesterday, has had significant momentum to date with Echo Suites. We executed another 60 contracts in the quarter with multi-unit developers. And to date, there is no impact yet on any of the planned 2023 ground breaks. But to what was in our investor presentation today, certainly questions and concerns come up longer term as developers who have not yet broken ground are wondering are they building on Echo Suites by Wyndham Extended Stay Economy brand for Wyndham, or are they building it for Choice. And that's certainly what we're concerned about. But the quarter was tremendous from an opening standpoint. We opened -- 15,000 rooms was above our openings level back in the third quarter of 2019, where we hit that 3% net room growth. We saw great growth in our mid-scale, great growth in our international direct franchising business. And our pipeline is sitting at a record level of 13 consecutive quarters. And we want to keep that up. We want to keep that going. And we don't want the distraction that we talked about in our prepared remarks to impact it in any way.

Our next question is from Stephen Grambling of Morgan Stanley.

Hey, thanks. This is a question for either Steve or Goeff. A lot of the comments focus on Choice standalone business, and Wyndham's standalone business. But given the prior dialogue you've had, I'm sure you've had time to think about the strategic merits of a combination and potential synergies. So I'd love to have you just help us understand how you think about the strategic rationale from a combination, particularly as we look longer term through industry dynamics where it seems like competition is ramping for the mid-scale space and perhaps that ultimately kind of comes down through economy. Thanks.

Sure. Yes. In the economy space, I mean, we are -- as we've said all along, Choice has been very open that they do not want to be in the economy space. We certainly do, Steve. And I mean, it is why we've said all along, we're so excited about what we're doing with our Echo Suites by Wyndham product in the economy space. It's just a huge, huge market. There's 9,500 branded economy hotels. There's 22,000 non-branded hotels in the economy space. And certainly there are synergies in scale and size and scope. We've always said that M&A is in our DNA. 19 of our 24 brands have been acquired since Steve put this company together back in the HFS days. And we'll continue to continue to look for all of those reasons for immediately accretive tuck-in acquisitions that are both EPS and net room growth accretive, brands of high quality, but also brands that don't create displacement issues for any of our other brands. I mean, this is less about the industrial logic and way more about the risks that we discussed. I mean, certainly there have been things out there on the benefits of a loyalty program combination. And we will not argue that Wyndham Rewards is a better loyalty program than Choice Privilege is. And it's the best program out there for five or six years with USA Today and US News and World Report. But I don't think our Days Inn or Super 8 owners on any street corner in America would want to share those guests with a Choice [indiscernible] or a roadway owner across the street who they compete with. So we understand the industrial logic, but it's less about that and more about the risk, as we said in our prepared remarks.

Our next question comes from Dan Wasiolek of Morningstar.

Hey, good morning, guys. Thanks for taking the questions. Just wondering if there's any more context maybe you can give on how your conversations have gone thus far with franchisees? And then this might be, I guess, hard to quantify. Or maybe you can talk about, are there already in your negotiations some third-party owners that are waiting to see what the outcome of this transaction or potential transaction is? Or what percent, I guess, and that might be hard to quantify, what percent might have issues with the change in control that might impact future retention rate or [NUG] (ph)?

Yes, it's a fair question, Dan. And we can't give you a percentage. As we mentioned in the script, we did see an immediate negative reaction from Choice’s press release last Tuesday in terms of what they put out and actually began feeling the impact from the Wall Street Journal leak as far back as May from both existing franchises and prospective franchisees who've been expressing uncertainty and concern over what a change in ownership would mean. There are not change of control provisions in our contracts. But franchisees are choosing us more so than they're choosing Choice’s. You've seen over the last few years and they're doing business with us because we say all the time to our teams, they know us, they like us, and they trust us. And they're very concerned about losing that culture that we've built. They value our team's approachability and accessibility and flexibility. I think COVID was a great example of that in terms of how throughout that pandemic and crisis we supported them. And so, it's been very empowering for our teams to hear the stories of why our franchisees want to stay with us and it is really what defines our culture. I mean, our franchisees, two-thirds of our franchisees and two-thirds of Choice’s franchisees are [AHOA] (ph) members and we have a very long history supporting AHOA. We believe in the power of dialogue and we are standing with our franchisees and are for all the reasons we talked about not in favor of the deals currently proposed.

Our next question is from Patrick Scholes of Truist Securities.

Hi. Good morning everyone. [indiscernible] for Steve. And I asked if you could be as granular as possible in your answer here. Clearly you've outlined that Wyndham Hotels & Resorts would be materially harmed if an offer was made and then it was rejected by the Department of Justice for antitrust reasons or whatever. Could you be as granular as possible? What do you think would be a fair compensation or breakup fee to Wyndham if you were to agree to an offer?

Well, Patrick, it's good to hear from you. I haven't heard your voice in a while. But the answer is, no. I cannot be more granular because I don't think that's any -- there's no reason for us to discuss that on this call. We have tried to raise it with Choice at one point. They've been in denial for quite some time. Initially, they didn't think the antitrust issue was even an issue. Then they came back and said, well, maybe it'll take three months to clear it. And it took us many, many meetings with our professionals meeting with theirs for them to acknowledge that no, this could be a 12 to 18 month process. So what do you think the odds are of us getting them to understand the impact it could have on our business? They have no risk. This is -- they're playing with house money here. And frankly, they'd be playing with our money if they can get a deal done, because that's how they would finance the purchase. We don't need them to do that. And so I think it's just -- I think it's inappropriate for me to try to address your question on this call. And I haven't heard from them, so I don't know what their ideas are.

Our next question is from Brandt Montour of Barclays.

Hey, good morning, everybody. Thanks for taking the question. Just following up along those lines. The risks that you listed out here of the combination doesn't necessarily address culture risk, right? Which is something that thematically seems to be coming up in a lot of these discussions today, which is that, in a combination situation, given that your culture with your owners seems to be a primary driver of your organic growth, do you think that would be at risk in a combination outside of -- on top of the leverage and extended balance sheet?

Yes, I think it absolutely is, Brandt, a concern and risk of our team. I mean, we've made tremendous progress over the last several years improving our retention rate. And retention rates, we feel, are really the best measure of franchisee engagement. Our economy retention rates are several hundred basis points ahead of Choice’s. And again, it gets back to the comment I made in terms of how our franchisees feel about our teams in terms of wanting to do business with us, in terms of the way we conduct business with them, and that would be at risk.

Our next question is from Michael Bellisario of Baird.

Thanks. Good morning, everyone. Just want to revisit your comment on the third-party opportunities. I guess sort of two parts, maybe one, why haven't you, or two, maybe when will you run a more formal process to proactively evaluate potential transactions with either financial or strategic partners that could maybe maximize value in a more attractive risk-adjusted manner.

Well, thanks for that question. I'll take it and then Goeff or Michele can add in if they think they need to add anything. But we did not run a process. They approached us. There was first a leak. Not sure where that came from, but there was a leak. So this has been out there for a while. And if anybody had a great idea that they wanted to bring to the table, we're all ears. I mean, when I first heard from the other side, their question was, are you prepared to transact? And I said, well, I'm always prepared to transact if it's in the best interest of our shareholders. I'm transactional if that's the right thing for our shareholders. But there hasn't been anything that I consider really close to transactional. So yes, I don't know what to add to that to answer your question. Goeff or Michele, if you have anything, feel free to weigh in there. They're shaking their heads, no.

Yes. No, nothing to add, Steve. Thanks.

Okay.

Our next question is from Dany Asad of Bank of America.

Good morning, everybody. The -- I mean, thank you for all the details on the deck. In there, you did kind of lay out like an outlook, an EBITDA outlook of $690 million to $700 million in 2024, and that's about 7% to 8% growth. Can you help us walk through the building blocks of how we get there? And then translating that into the $700 million to $750 million of capital allocation capacity, what forms could that take of realizing that $8.50 a share of value that you kind of lay out?

Sure. Good morning. Thank you. Thank you for the question. Good morning. So for 2024, the outlook implies 7% to 8% organic growth, and our business is already growing at 6%. So the only change there really is we're expecting 1 point to 2 points from growth initiatives that are currently underway and for which we have significant momentum built. That includes the infrastructure bill benefit, as well as the royalty rate improvements we've been discussing, continued momentum on our retention rate, and then some occupancy recovery as well. With respect to the $700 million to $750 million number, which is just a 2024 illustrative example of how much cash we would have available to deploy at the midpoint of our target leverage range. And I would note that that goes up to $1 billion at the four-time high end of our target leverage range. I think we're just trying to show that is capital we have available to invest to drive future growth at the EBITDA line or obviously to return to shareholders at the EPS line should no growth initiatives present themselves as compelling opportunities.

We'll take a question from Meredith Jensen of HSBC. Your line is open.

Yes, good morning. I was just trying to look ahead and explain to people what sort of happens next and what we could look for. And just in terms of what we see from you all in reporting, would we look at retention rates to see how some of the franchisees are reacting to this? What can we kind of take a look at to feed into beyond all the great information you've given us today. Thanks.

Well, I guess I'll -- this is Steve, I'll start that one. Right now it's a confusing time. As you can imagine, the sales forces out there are not just sitting idly by and not trying to take advantage of this disruption. So we know that the other side is out there saying a lot of things that are not attractive to us and that make it more difficult to transact business. So I don't know that I would necessarily look at just retention in the short term. In the long term, absolutely. Our owner first philosophy that Goeff has continued to push hard is all about us delivering more value for our owners. Do you want to talk about that anymore, Goeff?

Yeah, Meredith, I think it's not, as Steve said, only about retention. It's really about how our franchisees feel about us, how -- as you follow the threads through all of the AHOA chatter that's out there in terms of why Wyndham is a great company to do business with. It's also about, as Steve said, what's happening on the execution front. I mean, despite -- if you look at year to date, transaction volume is still down 50% to prior year and down 30% to 2019, our teams were able in the third quarter to sign 10% more deals year-on-year with this rumor out there and 60% more deals versus 2019. And it's not just Echo, those signings were up without Echo and Echo still are -- everybody in that Echo campus is calling us and saying, we hope this deal doesn't happen, and we're with you folks. But I think it's as importantly what happens to that continued pipeline that has marched on to an historic high right now. Yes, I guess I'll leave it at that.

Yes, Meredith, it's Steve again. I'm thinking back to your question. You started the question, what are the next steps? And that's actually a very good question, because it's hard for us to say no more than we've already said no. And really they have to decide that they want to lay down their pen and their PR machine and let's all get back to business. We can't force that to happen. It's not attractive what they're doing. It's not -- I don't think it's very friendly. So if you want a friendly deal done, you don't approach it the way they've approached it. God only knows how they can get a deal through the FTC where we are not a willing participant. I don't get it. I don't get why they would even release this. And they threatened to do it and I just thought, well, they're smarter than that, they won't do it. But they made a different decision. So, it's very hard for us to say what's next. The ball is really in their court.

[Operator Instructions] And it appears that we have no further questions at this time. I would now like to turn the call over to Geoff Ballotti for any closing remarks.

Okay. Thanks, Leo. And we appreciate everyone's continued interest in Wyndham. And we thank you for joining this morning's call. Michele, Matt, and I look forward to talking to many of you today and in the weeks and months ahead at many of the upcoming investor conferences that we'll all be attending. Thanks again, everybody, and have a happy Halloween next week.

Thank you. This does conclude today's Wyndham Hotels & Resorts Third Quarter 2023 Earnings Conference Call. Please disconnect your line at this time and have a wonderful day.