Wyndham 4Q23 earnings match expectations

PARSIPPANY, New Jersey – Wyndham Hotels & Resorts today reported 4Q23 earnings mostly in line with expectations and revealed system-wide organic net room growth to a record-level 3.5%, including 1% growth in the U.S. and 7% internationally. These increases included growth in both the higher RevPAR midscale and above segments in the U.S. and the direct franchising business in China, which grew 3% and 13%, respectively.

With an ongoing backdrop of the attempted hostile takeover by Choice Hotels, Wyndham reported 4Q23 earnings of $50 million and $0.60 per share profit. Earnings, adjusted for non-recurring costs, came to 91 cents per share, which just topped Street expectations. Revenue of $321 million (-3.9% YOY) also beat most analyst predictions.

Wyndham grew comparable adjusted EBITDA by 6% for the quarter and the full year, and returned over half a billion dollars to shareholders for the full year through dividends and share repurchases. The Board authorized a 9% dividend increase to $0.38 per share.

Despite the distraction, uncertainty and misperceptions caused by Choice and their slanted and constant communications to our franchisee base, room openings accelerated, and our global development pipeline grew by 10% to an all-time high of 240,000 rooms.

Geoff Ballotti

Share this quote

For the year, the company reported profit of $289 million, or $3.41 per share. Revenue was reported as $1.4 billion. Wyndham expects full-year earnings in the range of $4.11 to $4.23 per share.

Fourth quarter global RevPAR declined 1% in constant currency compared to 2022, reflecting a 4% decline in the U.S. and growth of 7% internationally. For the full year, global RevPAR grew 5% in constant currency compared to 2022, reflecting a 1% decline in the U.S. and growth of 21% internationally.

The company had achieved record-breaking RevPAR in the U.S. during the preceding year due to COVID-impacted travel patterns. Comparing to 2019 to neutralize for COVID-impacted travel patterns, U.S. RevPAR grew 10% in fourth quarter - a 120 basis point acceleration from third quarter 2023 growth - and 9% for the full year. Internationally, year-over-year RevPAR growth for both the fourth quarter and the full-year was primarily driven by higher occupancy levels. Compared to 2019, international RevPAR grew in fourth quarter and full-year by 44% and 36%, respectively, on a constant-currency basis.

“Despite the distraction, uncertainty and misperceptions caused by Choice and their slanted and constant communications to our franchisee base, room openings accelerated, and our global development pipeline grew by 10% to an all-time high of 240,000 rooms,” stated Wyndham President and CEO Geoff Ballotti. “Our team opened 27% more rooms than last year in the fourth quarter, and we welcomed 500 new hotels to our system in 2023.”

At the start of the 4Q23 earnings call on Wednesday, Ballotti made a statement about the ongoing bid by Choice Hotels. Included in his statement: "The potential value destruction that could arise from this ongoing and elongated process remains significant. Choice continues to try to take advantage of the uncertain timeline and outcome to exploit franchisee uncertainty for its own competitive advantage. Choice's unsolicited offer also has significant real dollar costs for our shareholders, currently estimated at approximately $75 million, which includes approximately $15 million related solely to the FTC review."

He added that Choice is still not addressing Wyndham's main concerns and that the risk-laden offer continues to be rejected by shareholders.

We will report more on the conference call dialogue about the Choice deal tomorrow.

Digging deeper into results

During 4Q23, on a comparable basis, fee-related and other revenue grew 3% (6% full-year). Adjusted EBITDA grew 6% in both the fourth quarter and full-year, and adjusted diluted EPS was unchanged and grew 8% in the fourth quarter and full-year, respectively.

Wyndham generated free cash flow of $339 million in full-year 2023, converting adjusted EBITDA at a rate of 51%, in line with their expectations. The company ended the year with approximately $650 million of total liquidity and a net leverage ratio of 3.2 times, at the lower end of its stated target range.

Approximately 70% of Wyndham's pipeline is in the midscale and above segments, which grew 6% year-over-year, and about 58% is international. Approximately 79% of the pipeline is new construction, of which approximately 34% has broken ground.

Share this quote

Wyndham also noted that the sale of two owned hotels and the exit of its select-service management business unfavorably impacted the year-over-year comparability of fee-related and other revenues and adjusted EBITDA by $50 million and $18 million, respectively, for the full-year. In addition, variability in marketing funds favorably impacted quarter-over-quarter comparability of adjusted EBITDA by $21 million in fourth quarter and unfavorably impacted year-over-year comparability of adjusted EBITDA by $11 million for the full-year.

For the full year, Wyndham reported opening a record 66,000 organic rooms, representing a year-over-year increase of 3%. It grew its development pipeline by 10% year-over-year to a record-level 240,000 rooms, the 14th consecutive quarter of sequential growth. Wyndham grew ECHO Suites pipeline nearly 60% year-over-year with nearly 100 new contract signings. It also signed 766 contracts for legacy brands, an increase of 8% year-over-year.

Fully, 8% of the growth was in the U.S. and 11% internationally. Approximately 70% of the pipeline is in the midscale and above segments, which grew 6% year-over-year, and about 58% is international. Approximately 79% of the pipeline is new construction, of which approximately 34% has broken ground.

The company awarded 766 new contracts for its legacy brands in full-year 2023, an increase of 8% compared to full-year 2022. Additionally, Wyndham awarded 98 additional new contracts for its ECHO Suites brand and, as of December 31, 2023, it had awarded 268 contracts, or over 33,000 rooms, for the brand.

In providing a full-year 2024 outlook, which were, again, mostly in line with Street expectations, Wyndham stated the following:

• Net rooms growth of 3% to 4%
• Year-over-year global RevPAR growth of 2% to 3%
• Fee-related and other revenues of $1.43 billion to $1.46 billion
• Adjusted EBITDA of $690 million to $700 million, unchanged from October
• Adjusted net income of $341 million to $351 million
• Adjusted diluted EPS of $4.11 to $4.23, based on a diluted share count of 83.0 million that excludes any potential share repurchases
• Free cash flow conversion before development advances to approximate 60% 
• Development advance spend to increase to $90 million

Year-over-year growth rates for adjusted EBITDA, adjusted net income and adjusted diluted EPS are not comparable due to full-year 2023 marketing fund revenues exceeding expenses by $9 million, which substantially completed the recovery of the $49 million support Wyndham provided to its owners during COVID. It expects marketing revenues to equal expenses during full-year 2024 though seasonality of spend will affect the quarterly comparisons throughout the year.