Wyndham Hotels & Resorts(WH) - 2021 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION This part presents the unaudited interim financial statements and management's discussion and analysis of the company's performance Item 1. Condensed Consolidated Financial Statements (Unaudited). This section presents the unaudited condensed consolidated financial statements for the periods ended September 30, 2021, and 2020 Report of Independent Registered Public Accounting Firm This report confirms the review of the interim financial statements by the independent registered public accounting firm - Deloitte & Touche LLP reviewed the interim financial statements for the three-month and nine-month periods ended September 30, 2021 and 2020, and found no material modifications needed for conformity with U.S. GAAP[10] Condensed Consolidated Statements of Income/(Loss) This section details the company's revenues, expenses, and net income for the three and nine-month periods Condensed Consolidated Statements of Income/(Loss) (Three Months Ended September 30) | Metric | 2021 (Millions) | 2020 (Millions) | |---|---|---| | Net revenues | $463 | $337 | | Operating income/(loss) | $161 | $71 | | Income/(loss) before income taxes | $139 | $42 | | Net income/(loss) | $103 | $27 | | Basic EPS | $1.10 | $0.29 | | Diluted EPS | $1.09 | $0.29 | Condensed Consolidated Statements of Income/(Loss) (Nine Months Ended September 30) | Metric | 2021 (Millions) | 2020 (Millions) | |---|---|---| | Net revenues | $1,173 | $1,004 | | Operating income/(loss) | $358 | $(67) | | Income/(loss) before income taxes | $267 | $(150) | | Net income/(loss) | $195 | $(125) | | Basic EPS | $2.09 | $(1.34) | | Diluted EPS | $2.08 | $(1.34) | Condensed Consolidated Statements of Comprehensive Income/(Loss) This statement reports the change in equity from net income and other comprehensive income items Condensed Consolidated Statements of Comprehensive Income/(Loss) (Three Months Ended September 30) | Metric | 2021 (Millions) | 2020 (Millions) | |---|---|---| | Net income/(loss) | $103 | $27 | | Other comprehensive income/(loss), net of tax | $3 | $5 | | Comprehensive income/(loss) | $106 | $32 | Condensed Consolidated Statements of Comprehensive Income/(Loss) (Nine Months Ended September 30) | Metric | 2021 (Millions) | 2020 (Millions) | |---|---|---| | Net income/(loss) | $195 | $(125) | | Other comprehensive income/(loss), net of tax | $22 | $(35) | | Comprehensive income/(loss) | $217 | $(160) | Condensed Consolidated Balance Sheets This statement presents the company's assets, liabilities, and stockholders' equity as of the reporting dates Condensed Consolidated Balance Sheets (As of September 30, 2021 and December 31, 2020) | Metric | Sep 30, 2021 (Millions) | Dec 31, 2020 (Millions) | |---|---|---| | Total assets | $4,310 | $4,644 | | Total liabilities | $3,187 | $3,681 | | Total stockholders' equity | $1,123 | $963 | | Cash and cash equivalents | $193 | $493 | | Long-term debt | $2,067 | $2,576 | Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Nine Months Ended September 30) | Metric | 2021 (Millions) | 2020 (Millions) | |---|---|---| | Net cash provided by operating activities | $327 | $57 | | Net cash used in investing activities | $(21) | $(24) | | Net cash (used in)/provided by financing activities | $(606) | $609 | | Net (decrease)/increase in cash, cash equivalents and restricted cash | $(300) | $641 | | Cash, cash equivalents and restricted cash, end of period | $193 | $735 | Condensed Consolidated Statements of Equity This statement details the changes in the company's equity accounts over the reporting period Total Stockholders' Equity (As of September 30, 2021 and 2020) | Metric | Sep 30, 2021 (Millions) | Sep 30, 2020 (Millions) | |---|---|---| | Total Equity | $1,123 | $963 | | Retained Earnings/(Accumulated Deficit) | $61 | $(66) | | Treasury Stock | $(436) | $(408) | | Additional Paid-in Capital | $1,527 | $1,498 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and supplemental information regarding the company's financial statements 1. BASIS OF PRESENTATION - Wyndham Hotels & Resorts, Inc. is a global hotel franchisor, licensing brands in nearly 95 countries, with financial statements prepared in accordance with U.S. GAAP[30][31] - The company operates in two segments: Hotel Franchising (licensing brands and providing services) and Hotel Management (providing management services)[33][34] 2. NEW ACCOUNTING PRONOUNCEMENTS - The company adopted new FASB guidance on simplifying income tax accounting (ASU 2016-13) on January 1, 2021, with no material impact on its financial statements[33] 3. REVENUE RECOGNITION - Deferred initial franchise fees are recognized over approximately 12 years, while deferred loyalty revenues are recognized based on redemption patterns, with a $16 million cumulative adjustment increasing loyalty revenues in Q2 2020[35][36] Deferred Revenues | Type | Sep 30, 2021 (Millions) | Dec 31, 2020 (Millions) | |---|---|---| | Deferred initial franchise fee revenues | $146 | $136 | | Deferred loyalty program revenues | $78 | $75 | | Deferred other revenues | $19 | $18 | | Total | $243 | $229 | Disaggregation of Net Revenues by Segment (Three Months Ended September 30) | Segment | 2021 (Millions) | 2020 (Millions) | |---|---|---| | Hotel Franchising | $337 | $236 | | Hotel Management | $126 | $101 | | Net revenues | $463 | $337 | Disaggregation of Net Revenues by Segment (Nine Months Ended September 30) | Segment | 2021 (Millions) | 2020 (Millions) | |---|---|---| | Hotel Franchising | $829 | $661 | | Hotel Management | $344 | $343 | | Net revenues | $1,173 | $1,004 | 4. EARNINGS PER SHARE - As of September 30, 2021, the Company had $164 million remaining under its stock repurchase program[44] Earnings Per Share (Three Months Ended September 30) | Metric | 2021 | 2020 | |---|---|---| | Net income/(loss) (Millions) | $103 | $27 | | Basic weighted average shares outstanding (Millions) | 93.6 | 93.3 | | Diluted weighted average shares outstanding (Millions) | 94.1 | 93.4 | | Basic EPS | $1.10 | $0.29 | | Diluted EPS | $1.09 | $0.29 | | Cash dividends declared per share | $0.24 | $0.08 | | Aggregate dividends paid to shareholders (Millions) | $23 | $7 | Earnings Per Share (Nine Months Ended September 30) | Metric | 2021 | 2020 | |---|---|---| | Net income/(loss) (Millions) | $195 | $(125) | | Basic weighted average shares outstanding (Millions) | 93.5 | 93.4 | | Diluted weighted average shares outstanding (Millions) | 93.9 | 93.4 | | Basic EPS | $2.09 | $(1.34) | | Diluted EPS | $2.08 | $(1.34) | | Cash dividends declared per share | $0.56 | $0.48 | | Aggregate dividends paid to shareholders (Millions) | $53 | $45 | Stock Repurchase Activity (Nine Months Ended September 30, 2021) | Metric | Shares (Millions) | Cost (Millions) | Average Price Per Share | |---|---|---|---| | As of December 31, 2020 | 7.7 | $408 | $53.43 | | For the nine months ended Sep 30, 2021 | 0.4 | $27 | $73.13 | | As of September 30, 2021 | 8.0 | $436 | $54.35 | 5. ACCOUNTS RECEIVABLE Allowance for Doubtful Accounts on Trade Accounts Receivables (Nine Months Ended September 30) | Metric | 2021 (Millions) | 2020 (Millions) | |---|---|---| | Balance as of January 1 | $72 | $47 | | Cumulative effect of change in accounting standard | $0 | $12 | | Provision for doubtful accounts | $15 | $32 | | Bad debt write-offs | $(8) | $(17) | | Balance as of September 30 | $79 | $74 | 6. LONG-LIVED ASSETS - Property and equipment, net, decreased from $278 million at December 31, 2020, to $259 million at September 30, 2021, with no impairment in 2021 due to travel demand recovery[48][49][50] - Goodwill for hotel franchising and management units was not impaired in the nine months ended September 30, 2021, though a $14 million charge fully wrote down goodwill for the owned hotel unit in Q2 2020[51][52] - In Q2 2020, the company recorded $191 million in impairment charges for certain trademarks (including La Quinta) due to COVID-19, with no further impairment events indicated in 2021[53][54][55] Intangible Assets (As of September 30, 2021 and December 31, 2020) | Asset Type | Sep 30, 2021 Net Carrying Amount (Millions) | Dec 31, 2020 Net Carrying Amount (Millions) | |---|---|---| | Goodwill | $1,525 | $1,525 | | Trademarks (unamortized) | $1,201 | $1,202 | | Franchise agreements | $388 | $408 | | Management agreements | $96 | $103 | | Other (amortized) | $0 | $1 | | Total Amortized Intangible Assets | $485 | $513 | 7. FRANCHISING, MARKETING AND RESERVATION ACTIVITIES - Net payments of development advance notes to franchisees were $25 million for the nine months ended September 30, 2021, compared to $11 million in 2020[60][62] Initial Franchise Fees (Millions) | Period | 2021 | 2020 | |---|---|---| | Three Months Ended Sep 30 | $4 | $5 | | Nine Months Ended Sep 30 | $11 | $13 | 8. INCOME TAXES - The effective tax rate decrease for Q3 2021 was due to the prior-year impact of COVID-19 on the mix of earnings, while the nine-month change related to non-deductible goodwill impairment charges in 2020[65][66] - The company made net cash income tax payments of $49 million for the nine months ended September 30, 2021, compared to receiving net refunds of $17 million in the prior-year period[64] - La Quinta Holdings, Inc. (LQ) is under IRS audit for tax years 2010-2016, with CorePoint Lodging, Inc. indemnifying the Company for any obligations from 2010-2013[67][68] Effective Tax Rates | Period | 2021 | 2020 | |---|---|---| | Three Months Ended Sep 30 | 25.9% (provision) | 35.7% (provision) | | Nine Months Ended Sep 30 | 27.0% (provision) | 16.7% (benefit) | 9. LONG-TERM DEBT AND BORROWING ARRANGEMENTS - On April 15, 2021, the company redeemed all $500 million of its 5.375% senior unsecured notes due 2026, incurring an $18 million charge for early extinguishment of debt[72] - As of September 30, 2021, the company had $735 million in available capacity under its $750 million revolving credit facility[71] - The company hedges $1.1 billion of its term loan interest rate exposure using interest rate swaps, with an aggregate fair value liability of $42 million as of September 30, 2021[74] Company Indebtedness (Millions) | Debt Type | Sep 30, 2021 Amount | Dec 31, 2020 Amount | |---|---|---| | Term loan (due May 2025) | $1,544 | $1,554 | | 5.375% senior unsecured notes (due April 2026) | $0 | $496 | | 4.375% senior unsecured notes (due August 2028) | $492 | $492 | | Finance leases | $52 | $55 | | Total long-term debt | $2,088 | $2,597 | | Less: Current portion | $21 | $21 | | Long-term debt (net) | $2,067 | $2,576 | Net Interest Expense (Millions) | Period | 2021 | 2020 | |---|---|---| | Three Months Ended Sep 30 | $22 | $29 | | Nine Months Ended Sep 30 | $73 | $83 | 10. FAIR VALUE - The company uses cash flow hedges and foreign currency forward contracts to manage market risks, not for speculative purposes[82][83][84] - The company accounts for Argentina as a highly inflationary economy, with foreign currency exchange losses of $1 million for the nine months ended September 30, 2021[85] Fair Value of Debt (September 30, 2021) | Metric | Carrying Amount (Millions) | Estimated Fair Value (Millions) | |---|---|---| | Debt | $2,088 | $2,116 | 11. COMMITMENTS AND CONTINGENCIES - The company faces legal proceedings, including claims related to sex trafficking, with accruals of $5 million and potential excess exposure up to $11 million[88][89][90] - As of September 30, 2021, the company had no hotel-management guarantee contracts, having terminated its last one on June 30, 2020, due to COVID-19[91][92] - The company assumed one-third of certain contingent and corporate liabilities from its former Parent, totaling $18 million as of September 30, 2021[93][116] 12. STOCK-BASED COMPENSATION - As of September 30, 2021, 5.3 million shares remained available under the Wyndham Hotels & Resorts, Inc. 2018 Equity and Incentive Plan[94] Incentive Equity Awards Activity (Nine Months Ended September 30, 2021) | Award Type | Balance Dec 31, 2020 (Millions) | Granted (Millions) | Vested (Millions) | Canceled (Millions) | Balance Sep 30, 2021 (Millions) | |---|---|---|---|---|---| | RSUs | 0.9 | 0.7 | (0.3) | (0.1) | 1.2 | | PSUs | 0.2 | 0.1 | 0 | 0 | 0.3 | Stock Options Activity (Nine Months Ended September 30, 2021) | Metric | Number of Options (Millions) | Weighted Average Exercise Price | |---|---|---| | Outstanding as of Dec 31, 2020 | 1.4 | $55.57 | | Granted | 0.1 | $65.21 | | Exercised | (0.1) | $55.99 | | Canceled | (0.1) | $55.26 | | Outstanding as of Sep 30, 2021 | 1.3 | $56.12 | | Unvested as of Sep 30, 2021 | 0.7 | $55.47 | | Exercisable as of Sep 30, 2021 | 0.6 | $56.85 | Stock-Based Compensation Expense (Millions) | Period | 2021 | 2020 | |---|---|---| | Three Months Ended Sep 30 | $7 | $5 | | Nine Months Ended Sep 30 | $20 | $15 | 13. SEGMENT INFORMATION - The company evaluates segments based on net revenues and Adjusted EBITDA, with the definition of Adjusted EBITDA modified in Q1 2021 to exclude development advance notes amortization[102][126] Adjusted EBITDA by Segment (Three Months Ended September 30) | Segment | 2021 Net Revenues (Millions) | 2021 Adjusted EBITDA (Millions) | 2020 Net Revenues (Millions) | 2020 Adjusted EBITDA (Millions) | |---|---|---|---|---| | Hotel Franchising | $337 | $193 | $236 | $119 | | Hotel Management | $126 | $16 | $101 | $2 | | Corporate and Other | $0 | $(15) | $0 | $(18) | | Total Company | $463 | $194 | $337 | $103 | Adjusted EBITDA by Segment (Nine Months Ended September 30) | Segment | 2021 Net Revenues (Millions) | 2021 Adjusted EBITDA (Millions) | 2020 Net Revenues (Millions) | 2020 Adjusted EBITDA (Millions) | |---|---|---|---|---| | Hotel Franchising | $829 | $464 | $661 | $315 | | Hotel Management | $344 | $38 | $343 | $14 | | Corporate and Other | $0 | $(43) | $0 | $(51) | | Total Company | $1,173 | $459 | $1,004 | $278 | 14. OTHER EXPENSES AND CHARGES - Separation-related expenses from the spin-off were $3 million for the nine months ended September 30, 2021, compared to $1 million in 2020[107] - The company incurred $29 million in restructuring charges during the nine months ended September 30, 2020, primarily due to COVID-19 responses, with no such charges in 2021[110] - Impairment charges of $205 million were recorded in Q2 2020 due to COVID-19 impacts, with no impairment charges incurred in 2021[111] - Transaction-related expenses for the La Quinta acquisition integration were $13 million for the nine months ended September 30, 2020, with no such expenses in 2021[112] 15. TRANSACTIONS WITH FORMER PARENT - The company assumed $18 million in contingent and corporate liabilities from its former Parent as of September 30, 2021, related to the spin-off[116] - A settlement for post-closing adjustments related to the European Vacation Rentals business sale is immaterial to the company[117] Revenues from Former Parent (Millions) | Source | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | |---|---|---|---|---| | License, development, non-competition agreement | $16 | $16 | $49 | $49 | | Wyndham Rewards program | $3 | $3 | $7 | $10 | | Former affiliate license fees | $1 | $2 | $4 | $4 | 16. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) Components of Accumulated Other Comprehensive Income/(Loss) (Millions) | Metric | Dec 31, 2020 | Mar 31, 2021 | Jun 30, 2021 | Sep 30, 2021 | |---|---|---|---|---| | Foreign Currency Translation Adjustments | $2 | $2 | $3 | $2 | | Cash Flow Hedges | $(54) | $(40) | $(36) | $(32) | | Total AOCI | $(52) | $(38) | $(33) | $(30) | Components of Accumulated Other Comprehensive Income/(Loss) (Millions) | Metric | Dec 31, 2019 | Mar 31, 2020 | Jun 30, 2020 | Sep 30, 2020 | |---|---|---|---|---| | Foreign Currency Translation Adjustments | $(1) | $(4) | $(3) | $(2) | | Cash Flow Hedges | $(26) | $(62) | $(64) | $(60) | | Total AOCI | $(27) | $(66) | $(67) | $(62) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on financial performance, operating results, liquidity, and critical accounting policies Forward-Looking Statements This report contains forward-looking statements regarding business performance and financial results, which are subject to risks - The report contains forward-looking statements regarding strategy, business performance, financial results, liquidity, capital resources, share repurchases, and dividends, which are subject to known and unknown risks and uncertainties[120] - Key risk factors include general economic conditions, the ongoing impact of COVID-19, financial market performance, operating risks, and relationships with franchisees[121] BUSINESS AND OVERVIEW This section provides an overview of the company's business model and revenue generation streams - Wyndham Hotels & Resorts is a leading global hotel franchisor, licensing brands in nearly 95 countries and operating in Hotel Franchising and Hotel Management segments[125][128] - Revenues are generated from royalties, franchise fees, management fees, and licensing, as well as marketing, reservation, loyalty, and cost reimbursement fees[127] RESULTS OF OPERATIONS The company's results show significant recovery driven by increased travel demand, with substantial growth in revenues and operating income COVID-19 Impact - The company's business model, with ~70% leisure bookings and ~90% U.S. domestic business, mitigated the impact of COVID-19, with U.S. RevPAR exceeding 2019 levels in Q3 2021[128][129][130] - International recovery trails the U.S., but international RevPAR recovered to 75% of pre-pandemic levels in Q3 2021, up from 56% in Q2[131] - The company does not anticipate further material impact from the pandemic but acknowledges potential negative impacts if the virus resurges[132] OPERATING STATISTICS - Global RevPAR increased 57% for the three months ended September 30, 2021, with U.S. RevPAR exceeding 2019 levels by 7%[137] Rooms (As of September 30) | Region | 2021 | 2020 | % Change | |---|---|---|---| | United States | 486,800 | 497,700 | (2%) | | International | 315,800 | 306,300 | 3% | | Total rooms | 802,600 | 804,000 | 0% | RevPAR (Three Months Ended September 30) | Region | 2021 | 2020 | % Change | |---|---|---|---| | United States | $57.73 | $36.31 | 59% | | International | $27.15 | $17.72 | 53% | | Global RevPAR | $45.80 | $29.23 | 57% | RevPAR (Nine Months Ended September 30) | Region | 2021 | 2020 | % Change | |---|---|---|---| | United States | $45.64 | $30.99 | 47% | | International | $20.66 | $14.69 | 41% | | Global RevPAR | $35.94 | $24.73 | 45% | THREE MONTHS ENDED SEPTEMBER 30, 2021 VS. THREE MONTHS ENDED SEPTEMBER 30, 2020 - Net revenues increased 37% due to higher fees across all categories, driven by travel demand recovery[138][139] - Total expenses increased 14% due to higher marketing, reservation, loyalty, and operating expenses associated with travel demand recovery[138][139] - Net income increased 281% to $103 million, and Adjusted EBITDA increased 88% to $194 million, reflecting strong recovery[140][141] Consolidated Financial Performance (Three Months Ended September 30) | Metric | 2021 (Millions) | 2020 (Millions) | Change (Millions) | % Change | |---|---|---|---|---| | Net revenues | $463 | $337 | $126 | 37% | | Total expenses | $302 | $266 | $36 | 14% | | Operating income | $161 | $71 | $90 | 127% | | Interest expense, net | $22 | $29 | $(7) | (24%) | | Income before income taxes | $139 | $42 | $97 | 231% | | Net income | $103 | $27 | $76 | 281% | Hotel Franchising - Net revenues increased 43% ($101 million) driven by higher royalty, franchise, marketing, reservation and loyalty revenues, reflecting a global RevPAR increase of 55%[143][144] - Adjusted EBITDA increased 62% ($74 million) due to higher fees and a $29 million timing benefit from marketing, reservation, and loyalty funds[143] Hotel Franchising Performance (Three Months Ended September 30) | Metric | 2021 | 2020 | % Change | |---|---|---|---| | Total rooms | 758,600 | 748,200 | 1% | | Global RevPAR | $44.67 | $28.83 | 55% | | Net Revenues (Millions) | $337 | $236 | 43% | | Adjusted EBITDA (Millions) | $193 | $119 | 62% | Hotel Management - Rooms declined 21% due to CorePoint Lodging asset sales, while Global RevPAR increased 88% due to a 100% increase in U.S. RevPAR[145][146] - Net revenues increased 25% ($25 million) driven by higher owned hotel revenues, cost-reimbursement revenues, and management fees[146][149] - Adjusted EBITDA increased $14 million, partially offset by $7 million higher volume-related expenses at owned hotels[146] Hotel Management Performance (Three Months Ended September 30) | Metric | 2021 | 2020 | % Change | |---|---|---|---| | Total rooms | 44,000 | 55,800 | (21%) | | Global RevPAR | $64.63 | $34.34 | 88% | | Net Revenues (Millions) | $126 | $101 | 25% | | Adjusted EBITDA (Millions) | $16 | $2 | 700% | Corporate and Other - Adjusted EBITDA was favorable by $3 million compared to the prior-year period, primarily due to lower general and administrative expenses[147] NINE MONTHS ENDED SEPTEMBER 30, 2021 VS. NINE MONTHS ENDED SEPTEMBER 30, 2020 - Net revenues increased 17% ($169 million) driven by higher royalty, franchise, marketing, and management fees[149][151] - Total expenses decreased 24% ($256 million) primarily due to a $206 million decrease in impairment charges and lower restructuring and transaction-related expenses[151][154] - Net income increased $320 million to $195 million (from a loss of $125 million), and Adjusted EBITDA increased 65% to $459 million, reflecting a strong turnaround[153][154] Consolidated Financial Performance (Nine Months Ended September 30) | Metric | 2021 (Millions) | 2020 (Millions) | Change (Millions) | % Change | |---|---|---|---|---| | Net revenues | $1,173 | $1,004 | $169 | 17% | | Total expenses | $815 | $1,071 | $(256) | (24%) | | Operating income/(loss) | $358 | $(67) | $425 | n/a | | Interest expense, net | $73 | $83 | $(10) | (12%) | | Early extinguishment of debt | $18 | $0 | $18 | n/a | | Income/(loss) before income taxes | $267 | $(150) | $417 | n/a | | Net income/(loss) | $195 | $(125) | $320 | n/a | Hotel Franchising - Net revenues increased 25% ($168 million) driven by higher fees across all categories, reflecting a 46% increase in global RevPAR[156][160] - Adjusted EBITDA increased 47% ($149 million) due to higher fees and a $54 million timing benefit from marketing, reservation, and loyalty funds[156] Hotel Franchising Performance (Nine Months Ended September 30) | Metric | 2021 | 2020 | % Change | |---|---|---|---| | Total rooms | 758,600 | 748,200 | 1% | | Global RevPAR | $34.88 | $23.92 | 46% | | Net Revenues (Millions) | $829 | $661 | 25% | | Adjusted EBITDA (Millions) | $464 | $315 | 47% | Hotel Management - Global RevPAR increased 50%, and net revenues increased $1 million, driven by higher owned hotel revenues offset by lower cost-reimbursement revenues[158][161] - Adjusted EBITDA increased 171% ($24 million) due to higher owned hotel revenues, partially offset by higher volume-related expenses[158] Hotel Management Performance (Nine Months Ended September 30) | Metric | 2021 | 2020 | % Change | |---|---|---|---| | Total rooms | 44,000 | 55,800 | (21%) | | Global RevPAR | $52.67 | $35.20 | 50% | | Net Revenues (Millions) | $344 | $343 | 0% | | Adjusted EBITDA (Millions) | $38 | $14 | 171% | Corporate and Other - Adjusted EBITDA was favorable by $8 million compared to the prior-year period, primarily due to lower general and administrative costs[159] DEVELOPMENT This section outlines the company's hotel development pipeline and contract activity - The company awarded 151 new contracts in Q3 2021, and the global development pipeline consists of over 1,450 hotels and approximately 193,000 rooms[160] - Approximately 65% of the development pipeline is international, and 76% is new construction[160] FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The company's financial condition improved with strong liquidity and a return to pre-pandemic capital deployment strategies Financial condition - Total assets decreased $334 million and total liabilities decreased $494 million, primarily due to senior notes redemption, while total equity increased $160 million from net income[163] Financial Condition Overview (Millions) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | |---|---|---|---| | Total assets | $4,310 | $4,644 | $(334) | | Total liabilities | $3,187 | $3,681 | $(494) | | Total stockholders' equity | $1,123 | $963 | $160 | Liquidity and capital resources - As of September 30, 2021, liquidity was approximately $930 million, which is considered sufficient to fund operations and growth[165][171] - In 2021, the company increased dividends, redeemed $500 million of senior notes, and resumed its share repurchase program[165][166] - The company's credit rating increased from BB to BB+ from Standard and Poor's Rating Agency[170] CASH FLOW - Net cash from operating activities increased $270 million due to travel demand recovery, while financing activities shifted to a $606 million outflow reflecting debt repayment[172][174] Cash Flow Summary (Nine Months Ended September 30) | Activity | 2021 (Millions) | 2020 (Millions) | Change (Millions) | |---|---|---|---| | Operating activities | $327 | $57 | $270 | | Investing activities | $(21) | $(24) | $3 | | Financing activities | $(606) | $609 | $(1,215) | | Net change in cash | $(300) | $641 | $(941) | Capital deployment - The company prioritizes investing in the business, maintaining regular dividend payments, and using excess cash for stock repurchases[175] - Capital expenditures were $23 million for the nine months ended September 30, 2021, with an anticipated full-year spend of $40 million[176] Stock repurchase program - The company resumed its share repurchase program in August 2021, repurchasing 0.4 million shares for $27 million in Q3 2021, with $164 million remaining available[179] Dividend policy - Quarterly cash dividends increased to $0.24 per share in Q3 2021, with a further increase to the pre-pandemic level of $0.32 per share authorized for Q4 2021[180][181] - Aggregate cash dividends of $53 million were declared for the nine months ended September 30, 2021[42][181] LONG-TERM DEBT COVENANTS This section details the company's compliance with its debt covenants - As of September 30, 2021, the annualized first-lien leverage ratio was 1.9 times, well within the maximum compliance level of 5.0 times[183][184][187] - An amendment in April 2020 waived the leverage covenant until April 1, 2021, but the company never exceeded the maximum ratio during this period[185] SEASONALITY This section describes the seasonal patterns affecting the company's business - Revenues are typically higher in Q2 and Q3 due to increased leisure travel, and the company expects a return to historic seasonality in 2021[188] COMMITMENTS AND CONTINGENCIES (MD&A) This section discusses potential liabilities from legal proceedings - Potential exposure from adverse outcomes in legal proceedings could range up to $11 million in excess of recorded accruals, but is not expected to be material[189] CRITICAL ACCOUNTING POLICIES This section highlights the key accounting estimates and assumptions used in financial reporting - The financial statements involve estimates and assumptions that are inherently uncertain, and a significant unfavorable change could materially impact results[190] Item 3. Quantitative and Qualitative Disclosures About Market Risk. This section details the company's exposure to interest rate and foreign currency exchange rate fluctuations - The company uses interest rate swaps and foreign currency forwards for hedging purposes only, not for speculation[191][192] - A hypothetical 10% change in the effective weighted average interest rate on variable-rate borrowings would result in an immaterial change to annual interest expense[194] - A hypothetical 10% change in foreign currency exchange rates would result in approximately a $4 million change to the fair value of outstanding forward contracts[196][197] - Argentina is considered a highly inflationary economy, with total net assets of $4 million in Argentina as of September 30, 2021[198] Item 4. Controls and Procedures. This section confirms the effectiveness of the company's disclosure controls and internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of September 30, 2021[201] - There have been no material changes in internal control over financial reporting during the period ended September 30, 2021[201] PART II – OTHER INFORMATION This part contains other required information, including legal proceedings, risk factors, and stock repurchase details Item 1. Legal Proceedings. This section states that no legal proceedings are expected to have a material adverse effect on the company - The company is involved in various claims and legal proceedings, but management does not expect any to have a material adverse effect on its financial condition[203] Item 1A. Risk Factors. This section refers readers to the risk factors detailed in the company's Annual Report on Form 10-K - Readers should refer to Item 1A of the Annual Report on Form 10-K for a comprehensive discussion of risk factors that could materially affect the company's business[204] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This section summarizes the company's common stock repurchase activity for the quarter ended September 30, 2021 - The Board authorized a stock repurchase program allowing for up to $600 million in repurchases, with approximately $164 million remaining available as of September 30, 2021[178][205] Common Stock Repurchases (Quarter Ended September 30, 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under Plan | |---|---|---|---| | July | — | $— | $191,258,978 | | August | 109,381 | $71.96 | $183,388,437 | | September | 264,641 | $73.59 | $163,912,383 | | Total | 374,022 | $73.11 | $163,912,383 | Item 3. Defaults Upon Senior Securities. This section confirms that there were no defaults upon senior securities during the reported period - There were no defaults upon senior securities during the period[206] Item 4. Mine Safety Disclosures. This section states that the disclosure requirements for mine safety are not applicable to the company - This item is not applicable to the company[207] Item 5. Other Information. This section indicates that there is no other information to report under this item - There is no other information to report under this item[208] Item 6. Exhibits. This section refers to the exhibit index, which lists documents filed as exhibits to the report - The exhibit index appears on the page immediately following the signature page of this report[209] EXHIBIT INDEX This index lists all documents filed as exhibits with the report - The exhibit index lists various documents filed with the report, including corporate governance documents, certifications, and XBRL interactive data files[217] Signatures This section contains the official signatures of the company's authorized officers certifying the report - The report was signed on October 28, 2021, by the Chief Financial Officer and Chief Accounting Officer on behalf of Wyndham Hotels & Resorts, Inc[212][214]