Wyndham Hotels & Resorts, for the three months ended March 31, reported net income of $24 million, an increase of $2 million when compared to Q1 2020’s figure of $22 million. Revenues declined from $410 million in the first quarter of 2020 to $303 million in the first quarter of 2021.
“Wyndham’s select-service franchise business model delivered a strong start to 2021 as leisure customers hit the road at a pace not experienced since the pandemic started and demand from our everyday business travelers continued to accelerate,” said Geoff Ballotti, president/CEO. “We were very pleased to see our development pipelines grow sequentially, both domestically and internationally, and our room openings and deletions improve year-over-year. We were also encouraged to see conversion room openings increase year-over-year, representing over 70% of total openings this quarter.”
First-quarter highlights:
- Diluted earnings per share was $0.26, and adjusted diluted earnings per share was $0.36.
- Net income was $24 million and adjusted net income was $33 million.
- Adjusted EBITDA was $97 million.
- Generated $64 million of net cash provided by operating activities and $59 million of free cash flow.
- Global RevPAR declined 11% compared to first quarter 2020 and 31% compared to first quarter 2019 in constant currency.
- Paid quarterly cash dividend of $0.16 per share.
- Redeemed all $500 million aggregate principal amount of its outstanding 5.375% senior notes due 2026 on April 15, 2021.
The revenue decline of $107 million from Q1 2020 to 2021 includes lower pass-through cost-reimbursement revenues of $55 million in the company’s hotel management business, which have no impact on adjusted EBITDA. Excluding cost-reimbursement revenues, revenues declined $52 million primarily reflecting an 11% decline in constant-currency global RevPAR.
The increase of $2 million, or $0.03 per diluted share, in net income was a result of the company’s COVID-19 cost mitigation plan implemented in April 2020, lower volume-related expenses and the absence of restructuring and transaction-related expenses, which were partially offset by the global RevPAR decline.
System size
During the first quarter of 2021, Wyndham’s global system grew 20 basis points, from 795,900 in Dec. 31, 2020 to 797,200 on March 31, 2021, reflecting strong growth in its direct-franchising business in China, primarily offset by the impact from supply chain delays on new construction openings in the U.S. As expected, terminations normalized in the first quarter and the company remains solidly on track with its goal of achieving a 95% retention rate for the full-year 2021.
RevPAR
Global RevPAR for the first quarter was $24.90, with the U.S. at $30.62 and international at $15.83. Global and International RevPAR began to lap the onset of the COVID-19 pandemic in January while the U.S. began to lap its onset in March. As such, comparisons to 2019 (on a two-year basis) are more meaningful when evaluating trends. On this basis, global RevPAR declined 31% reflecting a 25% decline in the U.S. and a 45% decline internationally. The 25% decline in the U.S. represents continued sequential improvement compared to a decline of 31% in the fourth quarter of 2020. The 45% decline internationally is consistent with the fourth quarter 2020 performance.
Business segment results
Hotel franchising revenues decreased $34 million year-over-year reflecting the global RevPAR decline, while adjusted EBITDA declined $5 million as the impact of the RevPAR decline was almost entirely offset by the company’s COVID-19 cost mitigation plan implemented in April 2020 and lower volume-related expenses.
Hotel management revenues decreased $73 million year-over-year reflecting a $55 million reduction in cost-reimbursement revenues, which have no impact on adjusted EBITDA. Absent cost-reimbursements, hotel management revenues decreased $18 million due to the global RevPAR decline and lower termination fees. Adjusted EBITDA declined $12 million year-over-year reflecting the revenue decrease, partially offset by lower volume-related expenses.
Development
Wyndham awarded 112 new contracts this quarter compared to 115 in first quarter 2020 and 124 in first quarter 2019. At March 31, 2021, the company’s development pipeline consisted of approximately 1,400 hotels and approximately 187,000 rooms, growing sequentially by 120 basis points, 70 basis points domestically and 150 basis points internationally. Approximately 64% of its development pipeline is international and 75% is new construction. Approximately 34% of the new-construction pipeline under development has broken ground.
Cash and liquidity
The company generated $64 million of net cash provided by operating activities in the first quarter of 2021 compared to $17 million in first quarter 2020. Free cash flow was $59 million in the first quarter of 2021 compared to $10 million (which included $15 million of special-item cash outlays) in first quarter 2020.
At March 31, 2021, the company had $531 million of cash on its balance sheet and $1.3 billion in total liquidity. In April 2021, it redeemed all $500 million aggregate principal amount of its outstanding 5.375% senior notes due 2026, which also reduced its total liquidity to approximately $750 million. Wyndham expects this redemption to reduce its annual cash interest expense by approximately $27 million. Coupled with the issuance of 4.375% senior notes in August of 2020, this redemption effectively returns the company to pre-pandemic debt and liquidity levels while extending $500 million of maturity by approximately 2.5 years at a 100 basis point (or 19%) lower interest rate.
2021 projections
Wyndham is not providing a complete outlook for full-year 2021 given the RevPAR uncertainties ahead; however, it is updating the projections provided in February:
- Net rooms growth of 1% to 2%, consistent with February’s projection.
- Every point of RevPAR change vs. 2020 is now expected to generate approximately $2.8 million of adjusted EBITDA change vs. 2020 (increased from $2.5 million per point in February).
- License fees are expected to be $70 million reflecting the minimum levels outlined in the underlying agreements, consistent with February’s projection.
- Marketing, reservation and loyalty expenses are not expected to exceed marketing, reservation and loyalty revenues, consistent with February’s projection. As such, the company expects no meaningful impact to full-year 2021 adjusted EBITDA from the marketing, reservation and loyalty funds.
- The company does not expect any meaningful special-item cash outlays in 2021, consistent with February’s projection.
