Welcome to the Wyndham Hotels and Resorts Third Quarter 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode. And the floor will be open for a question following the presentation I would now like to turn the call over to Matt Capuzzi, Senior Vice President of Investor Relations.

Thank you, operator. Good morning, and thank you for joining us. With me today are Geoff Ballotti, our CEO; and Michele Allen, our CFO. Before we get started, I want to remind you that our remarks today will contain forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission and any subsequent reports filed with the SEC. We will also be referring to a number of non-GAAP measures. Corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP metrics are provided in our earnings release, which is available on our Investor Relations website at investor.wyndhamhotels.com. We are providing certain measures discussing future impact on a non-GAAP basis only because without unreasonable efforts, we are unable to provide the comparable GAAP metric. In addition, last evening, we posted an investor presentation containing supplemental information on our Investor Relations website. We may continue to provide supplemental information on our website in the future. Accordingly, we encourage investors to monitor our website in addition to our press releases, filings submitted with the SEC and any public conference calls or webcasts. With that, I'll turn the call over to Geoff.

Thanks, Matt, and thanks, everyone, for joining us this morning. With the continued market share outperformance of our brands, our global RevPAR increasing 56% versus last year, and our domestic RevPAR surpassing 2019 by 7%, we were very pleased with our third quarter performance. We delivered another strong quarter with $194 million of adjusted EBITDA, which was nearly 90% more than last year and 1% more than what we delivered in Q3 of 2019. We generated $141 million of free cash flow, our highest cash flow quarter ever. And with all of our key drivers now tracking ahead of expectations, our Board has restored our quarterly dividend to pre-pandemic levels in addition to recommencing our share buyback program earlier in the quarter. We opened 15,000 rooms, which was over 50% more than we opened in the third quarter of last year, and 4% more rooms than we opened in the third quarter of 2019. Year-to-date additions are trending at nearly 80% of 2019 levels and 50% higher than last year. With year-to-date terminations 47% below 2020 and 15% below 2019, we are now guiding to 1.5% to 2% full year net room growth. We awarded 151 new contracts globally in the quarter or 3% more than we signed in 2019. Here in the United States, we awarded 10 more contracts than we did in 2019, bringing our year-to-date domestic development activity to a level which is now on par with 2019. Global conversion activity is up 9% versus 2019, while new construction efforts in the quarter were consistent with 2019 levels. New construction continues to perform better than expected, with almost 460 deals signed since the onset of the pandemic and the number of projects in our new construction pipeline is now over 1,000 hotels for the first time in…

Thanks, Geoff, and good morning, everyone. I'll begin my remarks today with a detailed review of our third quarter results. I'll then review our cash flows and balance sheet, followed by our updated 2021 outlook. We generated $377 million of fee-related and other revenues in the third quarter and $194 million of adjusted EBITDA. Third quarter RevPAR has now recovered to 97% of 2019 levels, up 7% domestically and down 25% internationally on a constant currency basis. Our economy brands here in the U.S. continue to lead the recovery with third quarter RevPAR exceeding 2019 levels by 14% while RevPAR for our mid-scale brands also continued their sequential climb surpassing 2019 levels by 4%. In the U.S., occupancy recovered strongly this quarter. Now trailing 2019 by only 2%. In fact, our economy brands drove occupancy to 103% of 2019 levels. Our mid-scale brands were at 94%, and our higher-end chain scale brands with a heavier urban concentration averaged 76%. Our franchisees capitalized on this demand by yielding rate. Overall, ADR in the U.S. surpassed 2019 by 10%, led by our economy and mid-scale brands as leisure demand drove up weekend rates and bled into Sunday nights. These trends continued into October, where month-to-date economy RevPAR is again 14% higher than 2019 and mid-scale RevPAR is again 4% above 2019. Similar to second quarter, we saw particular strength in National Park and outdoor locations over the third quarter. The South Atlantic region where 22% of our U.S. system is concentrated, grew RevPAR by 16% and National Park destinations, where 4% of our U.S. system is located, grew 13%. Internationally, RevPAR improved to 75% of 2019 levels, up from 56% in the second quarter. Apart from Asia-Pacific, our international regions all experienced significant sequential improvement from the second quarter as travel restrictions…

We will take our first question from Stephen Grambling with Goldman Sachs.

Maybe I'll start off with -- I know it's probably early to really be giving a whole lot of detail about 2022, but I'd love to just hear your initial thoughts across maybe some of the different trends, whether you think about the strength in leisure trends and the sustainability there, recovery in some of the business trends and where the growth could be maybe even beyond 2019 at some point? And then also what are the some of the major moving pieces to think through as it relates to net unit growth and that acceleration you've been discussing?

Well, I'll start, Michele on, I guess, the -- just the leisure trend, the first piece of that question. Yes, look, I think the industry, all of us were positively surprised as kids went back to school. I mean to look at our economy RevPAR, Stephen, up 14% in the quarter and 14% as Michele reported October month-to-date. And to see that strength continue. I mean it just keeps getting better. We all saw Smith Travel come out last week with the week ending October 23. STR economy was up 17%. Wyndham Hotels and Resorts economy was up 20%, 3 points over the industry. And I think the demand out there that is despite being out of the peak leisure season to see economy is so far ahead of '19, midweek occupancies now mid-week occupancies near 2019. But ADRs, midweek continue to 2019 levels just continues to speak to that demand. And we think that, that demand certainly is going to continue throughout this fall as it's been and into next year. And from a business travel standpoint, as we talked about in our script, I mean it keeps picking up our infrastructure and construction, and transportation business just keeps chugging along, and we do not expect that to slow down at all. On the net unit growth, we're just so pleased on so many different fronts with what happened in the quarter, just a monster quarter on executions, especially when it comes to conversions. I mean to think that our franchise sales and development teams around the world awarded over 100% more conversion rooms domestically than they did in '19 and 20% more internationally than they did in '19 gives us just great strength as we added 6% more, as Michele mentioned in our pipeline.

And maybe an unrelated follow-up. You mentioned mobile bookings up 50%. I guess where is that penetration now? How does that compare across different types of customers? And how are you trying to leverage mobile to drive consumer engagement and perhaps incremental partnerships in the future?

Well, our partnerships are critical to us. I mean, the partnerships that we have with Wyndham Rewards. And what we're doing. In fact, our team is out there today meeting with one of our strategic partners in Las Vegas with Caesars is really important. And as we talk about what's going on, on the mobile front, I think the thing that we're just most excited to see is that we're attracting younger consumers that we haven't had before into the program. It is driving a real improvement in our marketing ROIs on the digital front to your point, I mean, we've been able to take our conversions from sub-10% to over 40% and cut our social costs and booking in almost half. I mean we know now more about who is staying with us, where they're coming from. And look, the investments couldn't have come at a better time. I mean with Google, we're moving their third-party cookies in chrome and pressuring all of those that use Chrome and Google for marketing, what we're doing now on the digital front is to really improve the precision of our communications and provide those younger consumers with more relevant offers. -- and get them to book into our hotels.

We will take our next question from Dany Asad with Bank of America. Your line is now open.

My question is just a follow-up on the NUG piece on the net unit growth piece. So just with all the headlines around China, and there's been some issues on the development front. Are you or your developers on the ground seeing any ripple effects that could be causing any concern on your end for the hotel development side for Wyndham?

In China, no, Dany, I mean new construction has especially for us and our developers on the ground return to normal. I mean we're all seeing the numbers that Elena are reporting. I mean pipeline numbers in China on the new construction front continue to explode. Our new construction pipeline increased 5% in the quarter. We're continuing to introduce new brands like Wingate, Wyndham Garden. You might have seen the release that Microtel is going to have 20 new hotels under development. And look, our net unit growth in China is on the direct franchising side running double digit. I think it's 11% year-to-date to where it was last year. And overall, with our masters blended in, we're back in that high single-digit range.

And then on that topic of the sustainability of leisure strength, is there maybe like 1 or 2 either macro trends or data points that you're looking at, whether it's consistently or not, but just something that you're looking at to kind of being like, okay, well, it will give you more confidence that this is a trend that has some legs that will keep coming for, keep going for the coming months and quarters?

Well, I think the biggest trend that gives us that confidence is just, again, that what happened on the execution front in the conversion space. I mean, for our pipeline to grow 6% and toward 2 times the number of conversion rooms domestically and 20% more internationally. I think the other data point in terms of our confidence moving forward, in how we get moving that 2% to 4% to 3% to 5% is just how happy our teams are that we completed throughout 2020, that sizable restructuring we talked about on the last 2 calls, I mean, we're moving over 20,000 unprofitable and noncompliant franchise rooms that are no longer going to be an issue for us moving forward is something that gives us great confidence in terms of continuing to grow the NUG. And then I think our value proposition would be the third point I would add to that. I mean, to see our RevPAR indices of our brands where they are. I mean, we've talked about what we publicly reported back in April, we've never had a Super 8 FTD reported 103% fair market share, days in at 108% or great new brands like La Quinta at 109%, which continues to impress, gives us just a lot of momentum as our engagement with our franchisees is stronger, we think, than it's ever been given the support we've shown them. And then, I guess, finally, as we've discussed, moving that retention up as we continue to do is another really important piece of the puzzle.

We will take our next question from Joe Greff with JPMorgan. Your line is now open.

I don't think these questions were asked. I had some problems with the operator. When we think about your RevPAR to EBITDA sensitivity heading into next year, is it fair to say that the RevPAR sensitivity in 2019 is what you would expect next year in terms of what 1 point of RevPAR equates to sort of incremental EBITDA or fees? And then if there are differences, what would be the puts and takes in '22 versus that relationship in 2019?

No, I think you're absolutely right. The 2019 RevPAR sensitivity will hold likely material fashion for 2022. I don't expect there to be any real differences there. Of course, when we're talking about the EBITDA line, we will have some puts and takes, some headwinds with respect to the license fee and then maybe some inflationary cost increases as we move 3 years beyond the 2019 cost levels. But otherwise, I expect it would hold.

And then, Geoff, you mentioned all these positive data points on the development front. To what extent or how much is there a gross room addition headwind going into next year and beyond from 2020 and 2021 delayed or elongated construction cycles that gives you some almost low-risk EV health and accelerating that net rooms growth?

Yes. I think it's a great question, Joe, that our teams are looking at. I mean our new construction opens and what we're adding to the pipeline continues to give us, again, just great confidence in terms of being able to continue to see the new construction opens continue. I mean we opened another 27 new construction hotels this quarter. I think we opened about -- or executed, we awarded about 20 new -- 70, I believe, new construction contracts which was right about on the same level that we opened that we awarded back in the third quarter of in 2019. And over half of these deals are being signed with existing franchisees. As we mentioned in the script, it's the first time we've had over 1,000 hotels, to your point, in our new construction pipeline. That's up 6% or 60 hotels from last year. Another 15, I believe, broke ground this quarter, which is up 30% from last year. And I think there's a real belief out there that there is confidence to initiate among our franchisees where they can new construction. I mean it's not just in China that we're seeing significant uptick in projects in the early planning stages. I mean, in this country, Elena is also reporting, there's more new construction hotels to open in '22 than there was back in '21. And that same number, I believe, their reporting is going to open in '23. So where we're finding conversations happening daily with our small business owners and franchisees is how do I build a select service hotel as efficiently as I possibly can at the highest ROIs and they're looking at new construction prototypes like Microtel and La Quinta, and that's where we're seeing the growth.

Yes. And I would just add, Joe, we have about 50,000 rooms in the ground right now and half that we would expect -- about half of that we would expect to open in 2022.

And we will take our next question from David Katz. And David your line is now active.

Can you hear me?

Sorry Yes, David, sorry for the delay.

Not at all. But I wanted to just go a little farther if you can, on net unit growth. And I know you've talked about it a fair amount, but I'd love to take just a kind of a longer-term view and talk about the puts and takes that can get you to a higher perspective domestic NUG level, right? Is there a long-term vision of getting to that mid-single-digit level? And what has to happen for that to occur? And I mean specifically in the United -- in the domestic markets.

Sure. Yes. Great question, David. We -- of course, we always have the goal of improving our net room growth driving that higher and particularly in the U.S. because those are very profitable rooms for us. We have talked about returning to our annual rate of 2% to 4% and then driving that higher to 3% to 5%. That is still a goal. And then even beyond that. So what we need to do are 2 things. We need to improve our retention rate, and we are showing great momentum toward that goal in 2021, and we expect to continue to show momentum toward that goal in 2022 and beyond. And then we need to restore the edition side. Right now, we're tracking about 85% of our 2019 levels in 2021. So we want to get that back to 100% and potentially even a little bit more than 100%. And same thing on the international side. But since you're specifically talking about the domestic side of the portfolio, we would expect our economy brands would maybe be kind of flattish. And this is a very large system bunch of legacy large brands in there, and then we would expect some incremental growth, much larger incremental growth coming out of our mid-scale and above chain scale. So when we talk about the domestic portfolio, it's really about driving the development activity through those mid-scale and above chain scales.

All right. And if I can just follow -- I appreciate all that. If I can just follow that up, is a 2-, 3-, 5-year time horizon to get to those aspirational levels. Is that a reasonable way to think about it? Or is that something that you feel like could happen sooner than that?

I think we will step our way into those aspirational goals over the next 2 to 3 years. So you should expect to see some momentum towards those goals.

And we will take our next question from Michael Bellisario with Baird. Your line is now open.

A big picture question, you're sort of tying together a few of the prior points you made in the prior questions. But I want to go back to 2018, turn the clock back here and that growth algorithm that you guys provided post-spin, 8% to 14% EPS growth, not asking you for a number here unless you don't want to give one. But maybe big picture now that your portfolio, and you've made it through the pandemic, what do you think that growth algorithm looks like going forward? What are the puts and takes versus your pre-pandemic expectations? And then maybe where do you think that growth rate should settle out on a forward-looking basis?

Yes, sure. I think it's a pretty simple business model, right, Michael. It's net room growth plus our RevPAR growth and maybe a point from scale a little bit as well from driving the royalty rate higher, particularly as we focus more on the midscale and above brands in the U.S. and as well as the direct franchising business, international, which carries a much higher royalty rate than the than the master relationships do. And then dropping to the EPS line, we would apply the effects of cash deployment. So to the extent that we can find a compelling business opportunity to invest, we would drive it through EBITDA. And to the extent that we can't, it would obviously come through the share repurchase line item. So I think we're still committed to that high single-digit, low-teens EPS growth rate over time. And as we can continue to improve our net room growth, obviously, that algorithm can continue to improve.

And then just kind of as a follow-up, your targeted leverage range is still 3 times to 4 times. I mean do you think operating in maybe the upper half of that range is more appropriate now versus closer to the midpoint of what you had been doing pre-pandemic given everything you've learned from the pandemic and the cash flow sensitivity of the business model?

Yes. We have evaluated this and 3 times to 4 times leverage range did provide us maximum flexibility during the pandemic to be able to support our franchisees the way we felt was necessary. And then also the right level of security, right, from a bank relationship perspective. So somewhere in that midrange, yes, I'm perfectly comfortable in the high end of that 3 times to 4 times. And I would say we would be willing to even step out of that range for a compelling investment opportunity, of course, with the expectation that we're able to get back within the range within a short period of time.

We will take our next question from Patrick Scholes with Truist. Your line is now open.

Just a couple of quick questions. I wondered if Were you active in the share repurchase market so far in 4Q?

Yes. So we were on our 10b5-1 plan for the month of October.

And then just a little more specifically on the small bump-up in the net room growth for the year. Was that increase mostly attributable to the all-inclusives? Or was there anything specific? Or was it just a combination of kind of everything you've discussed so far?

Little of all inclusive, obviously, but it's really been a combination of everything. And as we've been talking about, I mean, we're seeing continued concentrated growth in the higher revenue-generating segments, and that was certainly reflective of our openings and what you saw going into the pipeline.

We will take our next question from Alton Stump with Loop Capital. Your line is now open.

Congrats on what was obviously a great quarter. Certainly, everything pretty much beat your expectations across the board. I was surprised in particular, as to how much deletions were down year-over-year, and I think you mentioned even versus 3Q '19. I guess what is key driver of that, given the fact that there's obviously a lot of moving parts going on, upcoming of the pandemic. And that trend of lower dilution if that could continue going forward?

Retention year-to-date is tracking about 50 basis points better than 2019. We don't look at it so much on a quarterly basis because there can be some noise from one quarter to the next. I would not look at it compared to 2020 as we know we were driving some rooms out of the system that year in connection with COVID and kind of resetting our portfolio. So really the baseline would be 2019, and we're running about 50 basis points favorable. That really reflects all the investments we're making in the value proposition and our level of owner satisfaction, which is at -- for our field team, which is interacting mostly with our franchisee base, that's a 99% rate right now.

And then just I just kind of think about unit count growth, obviously, for school is to get that to your long-term algorithm? Any kind of timing could that happen next year? Or is it more like a 2023 '24 story? Or kind of how do you see that playing out over the next couple of years?

Yes. So we're not going to provide guidance for 2022. We're not prepared to do that yet. But what I can say is we would expect to see continued improvement toward our longer-term goals of driving net room growth above the 3% to 5% range.

And we will take our next question from Ian Zaffino with Oppenheimer. Your line is now open.

A couple of questions here. I guess the first one would be, just given how well your kind of higher-end brands have done, is there a greater desire to me to push deeper into that? I know you have some initiatives, but maybe kind of doubling down on those or kind of sticking to our knitting of the mid-range or upper mid-range?

Sure. Thanks, Ian. I mean, we will stick to our knitting and we're really happy again to just see how strong the growth has been in both our openings and our pipeline in that mid-scale and that upscale. I mean I think if you look at the investor presentation that we have, you see that reflected there. You do see on that same page that we do have 2 new higher-end brands, which were we're thrilled with the partnership that we have with Playa with the Wyndham Altra brand. And we think all inclusive is a segment right now that is going to be in great demand from developers, both in the Caribbean and Mexico with Playa, but also internationally, and we're starting to see some pickup there as we referenced in terms of our pipeline. And then while we talked a little bit about on the last call, the launch of our registry collection, I mean, just a remarkable identity brand with today, 240 5-star resorts around the world on 5 continents with some of the most recognizable resorts in their market. We're starting to see some traction there. But when it comes to our -- where we're getting the growth, in our upper mid-scale brand. It's La Quinta and our upscale brand. It's Wyndham, it's Wyndham Grand, and it's Dolce actually internationally, those brands will continue to grow for us.

And I think also, Ian, if you just -- if you believe that leisure is going to continue to be the primary driver during the early stages of this new lodging cycle, then we would expect to see some higher growth rates in our upscale in our upscale segment as our distribution platform is really poised to benefit from that leisure demand.

And then I know we're still in kind of 2021, but if we were to look at 2022 and think about CorePoint, if a sale happened sort of before year-end, how do we think about that into next year?

Yes. It would not be appropriate for us to comment on any potential transaction for CorePoint. I'm sure they're going to update on their status on their call, and then we will provide a fulsome update on what that means to R-22 and beyond when we have information regarding whether or not they actually are going to be selling their portfolio.

And we will take our final question from Dan Wasiolek with Morningstar. Your line is now open.

So I'm wondering what you guys are thinking as far as the ability for some of these international markets in 2022 to maybe catch up to the RevPAR demand recovery that we've seen in the U.S., whether that can maybe occur next year and kind of supplement the sustainable leisure demand that you guys are expecting in the U.S. next year?

Yes. I think if there is one thing, Dan, that's been true throughout this pandemic, it's as travel restrictions are opening up, or easing that RevPAR comes back quickly. I mean it was just great to see Europe, Canada and Latin America this quarter, all gaining more than 20 points of RevPAR since Q2. And it's great to see after the most recent lockdowns, steadily improving RevPAR in China, as Michele referenced back to nearly 90% of '19 levels. I think the best example out there is Canada. It was down 40% before. It's now -- it was down 10% in September, and I think it's running October month to date ahead of where it was in October. And so look, as one of the great things as airlines have added capacity, I mean we saw that in Europe. I mean the European lift just created a really strong quarter for us in October. I mean our big markets over there. Germany came back. U.K. came back the demand for vacation travel. I think this fall, we talked about earlier this week, adding 12 great new resorts that we just opened this quarter with our CLC relationship countries like Spain, Tenerife, the Canaries, which are sun-seeking destinations for Europeans. I think there's a real ability for us to continue to see RevPAR recovery as those restrictions are lifted.

We have no further questions on the line at this time. I will turn the program back over to Geoff Ballotti for any additional or closing remarks.

Well, thank you, Brittany, and thanks again, everyone, for your time today. Michele, Matt and I very much look forward to speaking with many of you in the weeks ahead. And more importantly, hopefully, seeing more of you face-to-face. Have a great weekend ahead, and happy Halloween on Sunday.

Thank you. This does conclude today's Wyndham Hotels & Resorts third quarter 2021 earnings conference call. Please disconnect your lines at this time, and have a wonderful day.