Wyndham Hotels & Resorts Reports Second Quarter 2020 Results
PARSIPPANY, N.J., July 28, 2020 – Wyndham Hotels & Resorts (NYSE: WH) today announced results for the three months ended June 30, 2020. Highlights include:
Diluted loss per share was $1.86, and adjusted diluted earnings per share was $0.10.
Net loss was $174 million for the second quarter and adjusted net income was $9 million.
Adjusted EBITDA was $63 million.
System-wide rooms remained flat year-over-year.
Global comparable RevPAR declined 54% year-over-year.
Paid quarterly cash dividend of $0.08 per share.
“We generated positive adjusted EBITDA in the second quarter, driven by our drive-to and leisure-oriented franchise business model, along with our immediate and concerted cost savings initiatives,” said Geoffrey A. Ballotti, president and chief executive officer. “We were pleased to see a steady improvement in Average Daily Rate, Occupancy and RevPAR over the past three months. Our select-service, small business owners are uniquely positioned to both remain open and capture emerging travel demand, whatever the shape of the recovery may be. Approximately 85% of our hotels have remained open globally throughout the pandemic, and over 99% of our domestic hotels are open today. Importantly, our economy and midscale brands continue to outperform versus their local markets. We remain committed to supporting our owners during this difficult period, while showing our guests and team members that they can “Count on Us” to put their safety first.”
Revenues declined to $258 million in the second quarter of 2020, compared with $533 million in the second quarter of 2019. The decline includes lower pass-through cost-reimbursement revenues of $94 million, which have no impact on adjusted EBITDA, in the Company’s hotel management business. Excluding cost- reimbursement revenues, revenues declined $181 million reflecting a 54% decline in comparable RevPAR and the impact from hotels temporarily closed due to COVID-19.
The Company generated a net loss of $174 million, or $1.86 per diluted share, in the second quarter of 2020, reflecting $1.71 per diluted share in non-cash impairment charges related to certain intangible assets and $0.18 per diluted share in restructuring and transaction-related costs. Net income in the second quarter of 2019 was $26 million, or $0.27 per diluted share, which included a non-cash impairment charge of $0.34 per diluted share and $0.16 per diluted share in transaction-related, separation-related and contract termination expenses. The decline in net income of $200 million, or $2.13 per diluted share, was primarily due to the impact of the non-cash impairment charges and the revenue declines, which were partially offset by lower volume-related expenses as well as cost containment initiatives, including restructuring actions. Full reconciliations of GAAP results to the Company’s non-GAAP adjusted measures for all reported periods appear in the tables to this press release.
Business Segment Discussion
The following discussion of second quarter operating results focuses on revenue and adjusted EBITDA for each of the Company’s segments.
The Company’s franchised system, which included 7,500 rooms transferred from the hotel management segment related to the CorePoint Lodging asset sales, remained flat globally. Excluding the transfer, franchised net rooms declined 50 basis points globally, reflecting the Company’s removal of approximately 9,000 non-compliant master franchise rooms in China.
RevPAR declined 59% globally, or 53% on a comparable basis, due to the impact of COVID-19 on travel demand. In the U.S., RevPAR declined 52%, or 49% on a comparable basis, and internationally RevPAR declined 76%, or 66% on a comparable basis.
Revenues decreased $149 million compared to second quarter 2019 reflecting the impact of COVID-19 on travel demand globally, while a decline in adjusted EBITDA of $79 million was partially mitigated by lower volume-related expenses as well as cost containment initiatives.
The Company’s managed system decreased 11% globally primarily reflecting the transfer of 7,500 rooms to the hotel franchising segment as a result of CorePoint Lodging asset sales. Excluding the transfer of rooms to the hotel franchising segment, the Company’s managed system grew 1%, reflecting 13% growth internationally, partially offset by a 3% decline in the U.S. primarily due to the loss of rooms that were previously covered by unprofitable hotel management guarantees.
RevPAR declined 69% globally, or 63% on a comparable basis, primarily reflecting a 68% decline in the U.S., or 63% on a comparable basis, and a 72% decline internationally, or 60% on a comparable basis.
Revenues decreased $125 million compared to the prior-year period primarily due to $94 million of lower cost- reimbursement revenues, which have no impact on adjusted EBITDA. Absent cost-reimbursements, revenues declined $31 million due to the unfavorable impact of COVID-19 on travel demand globally, while adjusted EBITDA declined $20 million as the RevPAR impacts were partially mitigated by lower volume-related expenses as well as cost containment initiatives.
As of June 30, 2020, the Company’s hotel system of over 9,000 properties and 813,000 rooms remained flat year-over-year. During the second quarter of 2020, the Company opened 62 new hotels totaling 5,700 rooms, a year-over-year decline of 65% as new construction openings were delayed and conversion volumes were lower.
As expected, the Company’s global retention rate over the last twelve months declined to 93.7% compared to 95.2% during the same period last year due to the Company’s removal of approximately 9,000 non-compliant master franchise rooms in China, as previously disclosed.
The Company’s development pipeline consisted of over 1,300 hotels and approximately 180,000 rooms, a 4% year-over-year room decline, or a 5% decline sequentially, as a result of softer sales activity in the second quarter due to travel restrictions, increased hurdle rates and a more conservative probability factor applied to projects in the pipeline which have not yet secured financing. Approximately 64% of the Company’s development pipeline is international and 76% is new construction, of which 34% have broken ground.
The continued disruption to the travel industry resulting from COVID-19 prompted the Company to perform an evaluation and comparison of the carrying value of its assets to their fair value. As a result of this evaluation, the Company recorded a net impairment charge of $206 million ($159 million, net of tax) during the second quarter of 2020 primarily related to the La Quinta tradename. The future cash flows expected to be generated from the La Quinta tradename have not changed materially; rather, the impairment charge was principally attributable to a higher discount rate primarily resulting from increased share price volatility, consistent with the lodging sector and broader equity markets.
In an effort to mitigate the revenue declines resulting from COVID-19 and to further position itself for growth during the recovery period, the Company undertook various restructuring actions that resulted in a charge of $16 million ($13 million, net of tax) during the second quarter. This charge is comprised of $11 million for severance and related benefit costs resulting from the elimination of approximately 180 positions and $5 million of lease-related costs. In combination with the Company’s first quarter COVID-19 related restructuring charge, the Company has now reduced approximately 440 positions and expects to realize $50 million to $55 million of annual savings as a result of these actions.
During the second quarter of 2020, the Company’s cash balance decreased $85 million to $664 million. The impact of the Company’s franchisee fee deferral program was approximately $67 million during the second quarter. In addition, the Company made $28 million of special-item cash outlays, including restructuring payments, during the second quarter.
The Company paid common stock dividends of $8 million, or $0.08 per share, in the second quarter of 2020.
The Company’s ability to assess the impact of COVID-19 on its full-year financial results continues to be limited due to the uncertainty in travel demand during the remainder of 2020.
Conference Call Information
Wyndham Hotels will hold a conference call with investors to discuss the Company’s results and outlook on Wednesday, July 29, 2020 at 8:30 a.m. ET. Listeners can access the webcast live through the Company’s website at www.investor.wyndhamhotels.com. The conference call may also be accessed by dialing 866
342-8591 and providing the passcode “Wyndham”. Listeners are urged to call at least five minutes prior to the scheduled start time. An archive of this webcast will be available on the website for approximately 90 days beginning at noon ET on July 29, 2020. A telephone replay will be available for approximately ten days beginning at noon ET on July 29, 2020 at 800 839-5484.
Presentation of Financial Information
Financial information discussed in this press release includes non-GAAP measures, which include or exclude certain items. These non-GAAP measures differ from reported GAAP results and are intended to illustrate what management believes are relevant period-over-period comparisons and are helpful to investors as an additional tool for further understanding and assessing the Company’s ongoing operating performance. The Company uses these measures internally to assess its operating performance, both absolutely and in comparison to other companies, and to make day to day operating decisions, including in the evaluation of selected compensation decisions. Exclusion of items in the Company’s non-GAAP presentation should not be considered an inference that these items are unusual, infrequent or non-recurring. Full reconciliations of GAAP results to the comparable non-GAAP measures for the reported periods appear in the financial tables section of this press release.
About Wyndham Hotels & Resorts
Wyndham Hotels & Resorts (NYSE: WH) is the world’s largest hotel franchising company by the number of properties, with over 9,000 hotels across approximately 90 countries on six continents. Through its network of 813,000 rooms appealing to the everyday traveler, Wyndham commands a leading presence in the economy and midscale segments of the lodging industry. The Company operates a portfolio of 20 hotel brands, including Super 8®, Days Inn®, Ramada®, Microtel®, La Quinta®, Baymont®, Wingate®, AmericInn®, Hawthorn Suites®, Trademark Collection® and Wyndham®. Wyndham Hotels & Resorts is also a leading provider of hotel management services. The Company’s award-winning Wyndham Rewards loyalty program offers 84 million enrolled members the opportunity to redeem points at thousands of hotels, vacation club resorts and vacation rentals globally. For more information, visit www.wyndhamhotels.com. The Company may use its website as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Disclosures of this nature will be included on the Company’s website in the Investors section, which can currently be accessed at www.investor.wyndhamhotels.com. Accordingly, investors should monitor this section of the Company’s website in addition to following the Company’s press releases, filings submitted with the Securities and Exchange Commission and any public conference calls or webcasts.
This press release contains “forward-looking statements” within the meaning of federal securities laws, including statements related to Wyndham Hotels’ current views and expectations with respect to its future performance and operations, including revenues, earnings, cash flow and other financial and operating measures and dividends, restructuring charges and statements related to the COVID-19 pandemic. Forward- looking statements include those that convey management’s expectations as to the future based on plans, estimates and projections at the time Wyndham Hotels makes the statements and may be identified by words such as “will,” “expect,” “believe,” “plan,” “anticipate,” “intend,” “goal,” “future,” “outlook,” “guidance,” “target,” “estimate,” “projection” and similar words or expressions, including the negative version of such words and expressions. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Wyndham Hotels to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.
Factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, general economic conditions; the continuation or worsening of the effects from the COVID-19 pandemic, its scope, duration and impact on the Company’s business operations, financial results, cash flows and liquidity, as well as the impact on the Company’s franchisees and property owners, guests and team members, the hospitality industry and overall demand for travel; the success of the Company’s mitigation efforts in response to the COVID-19 pandemic; the Company’s performance in any recovery from the COVID-19 pandemic; the performance of financial and credit markets; the economic environment for the hospitality industry; operating risks associated with the hotel franchising and management businesses; the Company’s relationships with franchisees and property owners; the impact of war, terrorist activity or political strife; concerns with or threats of pandemics, contagious diseases or health epidemics, including the effects of the COVID-19 pandemic and any resurgence of the virus and actions governments, businesses and individuals take in response to the pandemic, including stay-in-place directives and other travel restrictions; risks related to the acquisition of La Quinta and the Company’s relationship with CorePoint Lodging; the Company’s ability to satisfy obligations and agreements under its outstanding indebtedness, including the payment of principal and interest and compliance with covenants thereunder; risks related to the Company’s ability to obtain financing and the terms of such financing, including access to liquidity and capital as a result of COVID-19; and the restrictions on share repurchases or the Company’s ability and plans to pay dividends including the timing and amount of any future dividends, as well as the risks described in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and any subsequent reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, subsequent events or otherwise.