Wyndham Hotels & Resorts(WH) - 2023 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited). This section presents the unaudited interim financial statements for Q1 2023 and 2022, including auditor's review and detailed notes, highlighting a net income decrease and segment reporting change Report of Independent Registered Public Accounting Firm The independent auditors, Deloitte & Touche LLP, reviewed the interim financial statements and are not aware of any material modifications needed for conformity with U.S. GAAP. They also referenced their unqualified opinion on the audited December 31, 2022 consolidated financial statements[9][10] Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (Q1 2023 vs Q1 2022) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Revenues | $313 million | $371 million | | Operating Income | $113 million | $160 million | | Net Income | $67 million | $106 million | | Diluted EPS | $0.77 | $1.14 | Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $150 million | $161 million | | Total Assets | $4,084 million | $4,123 million | | Long-term debt | $2,051 million | $2,057 million | | Total Liabilities | $3,148 million | $3,161 million | | Total Stockholders' Equity | $936 million | $962 million | Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Q1 2023 vs Q1 2022) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $93 million | $135 million | | Net cash (used in)/provided by investing activities | ($9 million) | $192 million | | Net cash used in financing activities | ($95 million) | ($82 million) | | Net (decrease)/increase in cash | ($11 million) | $245 million | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the financial statements. Key disclosures include a change in segment reporting where the Hotel Management business was aggregated into the Hotel Franchising segment in Q1 2023. The company's primary business is hotel franchising. Details on revenue recognition, debt structure, stock-based compensation, and legal contingencies are also provided. As of March 31, 2023, the company had $381 million remaining under its stock repurchase program and total long-term debt of $2.08 billion - In Q1 2023, the company changed its reportable segments. The remaining hotel management business no longer meets quantitative thresholds and has been aggregated into the Hotel Franchising segment on a prospective basis[30][35][78] - As of March 31, 2023, the company had $381 million of remaining availability under its stock repurchase program[41] Long-Term Debt Composition (as of March 31, 2023) | Debt Instrument | Amount Outstanding | | :--- | :--- | | $400 million term loan A (due 2027) | $399 million | | $1.6 billion term loan B (due 2025) | $1,141 million | | 4.375% senior unsecured notes (due 2028) | $494 million | | Finance leases | $43 million | | Total Long-Term Debt | $2,077 million | - The company has interest rate swaps hedging over 96% of its $1.1 billion term loan B exposure as of March 31, 2023[54] - The company believes it has adequately accrued for legal matters with reserves of $4 million as of March 31, 2023, and estimates potential exposure could range up to approximately $8 million in excess of these accruals[69] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management discusses the company's Q1 2023 performance, highlighting a 9% global RevPAR increase, a 16% net revenue decrease due to business exits, and sufficient liquidity for capital deployment Operating Statistics Key Operating Statistics (Q1 2023 vs Q1 2022) | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Rooms | 844,800 | 813,300 | 4% | | U.S. RevPAR | $43.84 | $42.11 | 4% | | International RevPAR | $27.99 | $21.95 | 28% | | Global RevPAR | $37.20 | $34.06 | 9% | - Excluding currency effects, global RevPAR increased 12% year-over-year, driven by a 4% increase in the U.S. and a 37% increase internationally. Approximately two-thirds of this growth was due to stronger pricing power[97] Results of Operations - Net revenues decreased by $58 million (16%) in Q1 2023 compared to Q1 2022. This was primarily driven by a $67 million reduction from exiting the select-service management business and selling owned hotels, and a $21 million decrease in cost-reimbursement revenues[98][100] - Total expenses decreased by $11 million (5%), mainly due to lower costs associated with the exited businesses, partially offset by the absence of a $36 million gain on an asset sale that occurred in Q1 2022[99][100] Adjusted EBITDA Reconciliation (Q1 2023 vs Q1 2022) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Income | $67 million | $106 million | | Adjusted EBITDA | $147 million | $159 million | - Hotel Franchising segment's Adjusted EBITDA increased by $9 million (6%) to $164 million, driven by higher royalties from RevPAR and rooms growth[103][104] Development - The global development pipeline grew 11% year-over-year to approximately 1,800 hotels and 226,000 rooms. The U.S. pipeline grew 28%[106] - The pipeline for the ECHO Suites Extended Stay by Wyndham brand has reached 205 contracts, with over 25,000 rooms[106] Financial Condition, Liquidity and Capital Resources - As of March 31, 2023, the company's liquidity was approximately $890 million, which is considered sufficient to fund operating activities, capital expenditures, and growth needs[109] - The company was in compliance with all financial covenants as of March 31, 2023, with a first-lien leverage ratio of 2.2 times, well below the maximum of 5.0 times[110][125] - Net cash from operating activities decreased by $42 million year-over-year, primarily due to unfavorable working capital timing and the impact from the sale of owned hotels and exit of the select-service management business[117] - Capital deployment priorities are investing in the business, maintaining a regular dividend, and returning excess cash to shareholders via stock repurchases[119] Item 3. Quantitative and Qualitative Disclosures About Market Risk. The company's principal market risks are interest rate and currency exchange rate fluctuations, managed through debt mix and hedging instruments, with potential impacts quantified - The company's primary market exposures are interest rate and currency exchange rate risks[133] - A hypothetical 10% change in the effective interest rate on the $444 million of net variable-rate borrowings would result in a $2 million change to annual interest expense[134] - The company has exposure to foreign currency fluctuations, particularly the Canadian Dollar, Chinese Yuan, Euro, Brazilian Real, British Pound, and Argentine Peso. A hypothetical 10% change in exchange rates would cause an approximate $10 million change in the fair value of outstanding forward contracts[136][137] Item 4. Controls and Procedures. Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2023, the principal executive and financial officers concluded that the company's disclosure controls and procedures were effective[141] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[141] PART II OTHER INFORMATION Item 1. Legal Proceedings. The company is involved in various legal proceedings in the ordinary course of business, none of which are expected to have a material adverse effect on its financial condition - The company is involved in various claims and legal proceedings, but management does not expect them to have a material adverse effect on its financial condition[143] Item 1A. Risk Factors. This section directs readers to the risk factors detailed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - For a discussion of risk factors, the report refers to Item 1A of the company's Annual Report on Form 10-K for the year ended December 31, 2022[144] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This section details the company's Q1 2023 stock repurchase activity, including 790,165 shares bought for $55.3 million, with $381 million remaining for future repurchases Share Repurchases for Q1 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January | 51,303 | $71.69 | | February | 90,776 | $77.11 | | March | 648,086 | $68.84 | | Total | 790,165 | $69.98 | - As of March 31, 2023, the company had approximately $381 million remaining under its publicly announced share repurchase plan[145] Item 3. Defaults Upon Senior Securities. The company reported no defaults upon senior securities - None[146] Item 4. Mine Safety Disclosures. This item is not applicable to the company - Not applicable[147] Item 5. Other Information. The company reported no other information for this item - None[148] Item 6. Exhibits. This section refers to the exhibit index, which lists all documents filed with the report, including certifications by the CEO and CFO, and various employment agreements - The report includes an exhibit index listing filed documents such as corporate governance documents, employment agreements, and Sarbanes-Oxley certifications[149][156]