Good day, and welcome to the Wyndham Hotels & Resorts Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to Matt Capuzzi, Senior Vice President of Investor Relations. Please go ahead.

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 Series 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 SEC 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 webcast. With that, I will turn the call over to Geoff.

Thanks, Matt, and thanks, everyone, for joining us this morning. We're thrilled to report that our Q4 results finished stronger than our expectations with full year reported global RevPAR growth of over 16%; net room growth of 4%; and adjusted EBITDA of $650 million. We generated $360 million of free cash flow in 2022 and returned over $560 million to our shareholders, which represented 7% of our market cap. By all accounts, it was an outstanding year for Wyndham Hotels and Resorts. We grew net rooms by 4%, including 80 basis points of growth from the acquisition of our 23rd brand, Vienna House by Wyndham. Excluding Vienna House, we opened 64,000 rooms for the year, more than 1 hotel each and every day. This represents 20% more rooms than we added last year. Here in the United States, we added 27,000 rooms with some great new hotels, like the Stone Hill Lawrence, a AAA 3 diamond hotel outside of Kansas City, who converted to our Trademark Collection brand and the opening of our first two construction, La Quinta Hawthorn Suite hotels in Texas, a combined extended stay and select-service hotel in a mid-scale space designed to streamline development and operational costs by utilizing a share lobby, fitness center, meeting rooms, bar and other amenities. Internationally, we opened 37% more rooms organically in 2022 than we did last year and 2% more than we did back in 2019. Latin America led the way with 14 luxury resort additions to our Registry Collection brand across the Caribbean and Mexico. And in the fourth quarter, our Latin America team welcomed our first Wyndham Grand in Mexico with the opening of the Beach Front, Wyndham Grand Cancun Resort centrally located in Cancun Hotel zone. Our EMEA region also had a tremendous year, opening 57%…

Thanks, Geoff, and good morning, everyone. I'll begin my remarks today with a detailed review of our fourth quarter and full year results. I'll then review our cash flows and balance sheet, followed by our 2023 outlook. We generated $310 million of fee-related and other revenues and $126 million of adjusted EBITDA in the fourth quarter, bringing our full year fee-related and other revenues to $1.35 billion and adjusted EBITDA to $650 million, both above our expectations. Our franchising segment grew fourth quarter revenue by 12% year-over-year, primarily reflecting global RevPAR growth and higher license fees. Adjusted EBITDA increased 8% to $138 million, as the revenue increases were partially offset as expected by the timing of higher marketing spend in the quarter, which unfavorably impacted margin by 200 basis points. Excluding this timing impact, our adjusted EBITDA grew 13% in the fourth quarter, and our adjusted EBITDA margin remained consistent with prior year. In our Hotel Management segment, fourth quarter revenue and adjusted EBITDA declined, reflected the sale of our select-service management and owned hotel businesses, which collectively contributed approximately $38 million in fee-related and other revenue and $12 million in adjusted EBITDA in 2021. Within our Corporate and Other segment, our fourth quarter expenses were in line with expectations or relatively flat compared to 2021. Fourth quarter adjusted diluted EPS was $0.72, a 4% increase year-over-year or approximately 16% on a comparable basis. This increase reflects adjusted EBITDA growth in our Hotel Franchising segment,as well as a benefit from our share repurchase activity. Now turning to full year results. Our franchising segment grew revenue by 16% year-over-year, primarily reflecting global RevPAR growth and higher license fees. Adjusted EBITDA increased 15% to $679 million and our adjusted EBITDA margin was consistent with 2021 despite ongoing inflationary pressures. In our Hotel…

[Operator Instructions]. Our first question comes from Joe Greff with JPMorgan.

Geoff, can you talk about the environment for, I guess, what we characterize as tuck-in acquisitions. How much is out there? Is there anything warm that you're working on? How competitive is the environment today for tuck-in acquisitions versus a year or 2 years ago? And I have a follow-up.

I think the environment will continue and improve, joe. Vienna House is a good example of that, our latest tuck-in acquisition. And I think when you look at -- domestically and internationally, it will continue to pickup and deals will continue to present themselves. And we'll be strategic. We'll be methodical and evaluating the deals as they come along. We're going to be looking for brands that are both EPS and NRG accretive as Vienna House was the brands that are of high quality and brands with high ROI potential. Four of the last 5 brand launches, though, for us, Trademark, Ultra, Registry and ECHO have all been launched organically. And there's no reason we can't continue to do that, but we now have great brands in every segment of the industry. But better than anyone that M&A is always in our DNA, having covered us for as long as you have with 19 of the 24 brands we have, have been acquired, and we do believe that size matters, scale matters. And we'll continue to look for deals. But we're not going to do a deal just to do a deal. We remain disciplined and ensure that any deal that we do in the next year or 2 to have compelling returns for our shareholders as Vienna House had.

And then switching over to ECHO and nice to see the sequential growth to continue here. And I heard both Geoff, your comments and Michele, your comments, it doesn't sound to us that your 2% to 4% 2023 systemwide rooms growth incorporates much from ECHO, is that more of a 2024 contributor? And then is there any pivot, Geoff, on multi-development ECHO deals as yet to single?

Questions you've asked before offline. Yes, there is a pivot. We have not yet offered ECHO to the thousands of individual franchisees, which we expect to do later this year. And to your direct question, there is no impact really much impacted to 2023 net room growth. We will have our first ECHO openings later this year. We have broken ground and just some phenomenal RevPAR markets: Plano, Texas; Sterling, Virginia; Richmond, Virginia. And the team is unbelievably excited. I mean we said on the Q2 call that we have 100 in the pipeline. We're at 170. And those are, as you say, all with multiunit development agreements with some of the nation's most successful extended stay developers because we want to really open these -- develop these, builds these and open these to have as big an impact as we can.

Our next question comes from Stephen Grambling with Morgan Stanley.

This first one, maybe a follow-up to those comments on ECHO and just development more broadly. We just hoping to dig into the components of your loan growth guidance in the context of gross additions and attrition especially in the contract pipeline, I guess, it's now up 13% year-over-year in attrition rate that they continue to improve. So any color you can provide kind of splitting out as we think about the guidance in gross adds, attrition and any nuances by geography?

Yes, sure. So I would say from a net room growth perspective, we don't see significant impact in 2023 from the growth in the pipeline. 80% of the pipeline today is new construction. And in the U.S., construction starts within about a year or 2 of the deal being signed. So on average, there is a 18- to 24-month build from there. So it's typically in the pipeline 4 years. And internationally, it's a little longer. So overall, we would expect the pipeline to be realized over a 4- to 5-year period. So -- and a big part of our pipeline growth is the ECHO brand, and that's not going to have a material impact to 2023, as Geoff just mentioned. Moving our net room growth, that will also then require -- as we've always talked about improvement and the retention rate. And I think if you look back to pre-2019, we were in 93%, 94% range, and we've been steadily improving at 20 to 30 basis points every year since then, and we're marching toward that 96% target. But when you see us get there, that's when you should expect to see our overall net room growth expectations left.

Sounds good for '24 and '25 then. Maybe changing gears. You had some good details on China and the direct component there. Can you provide a bit more color on how the reopening there may not only impact domestic RevPAR in the country, but also the broader region as outbound potentially resumes?

Yes, we see the -- as outbound resumes a big beneficiary, certainly for our hotels were the Chinese are going to be looking to travel. I mean, we're already seeing and hearing from our teams in South Korea, where we have over 10,000 rooms that they're seeing more Chinese arrivals, Thailand, Indonesia, Australia, Singapore. Those are all big beneficiaries. China represented over 150 million international travelers in '19, Stephen. And that number, as we know, dropped to under 20 for the last 2 years. So we're excited to see that. On the ground, we're just encourages all get out to see the strong rebound during the Chinese New Year. Our last 3 weeks of RevPAR were up 60% in China to last year and 8% to 2019, given that pent-up family holiday travel demand. And our resorts in the vacation destinations, we got big resorts in Hainan and Sanya came back really, really strong. I mean through the last 14 days, after Chinese New Year, our Wyndham Sanya was up 30% to last year. Our hotel in Hainan, our big win gate was up 60% to last year, but importantly, they are up over 10% and 30%, respectively, to 2019. And while that was Chinese New Year driven, it was great to see the results that came out last night from Smith Travel, where overall China last week RevPAR was up 1% in what was almost a clean comp week versus '19, with occupancy running around 90% in '19 levels. So we're really, really excited about what we're hearing from our teams over there and just thrilled with everything our team accomplished despite the challenges with that 10% Q4 net room growth in our direct franchising business and how many more hotels they were able to open in a tough quarter than they were last year.

Our next question comes from Dany Asad with Bank of America.

When we look at your 2023 guidance, so if we just look at your unit growth expectations, your RevPAR growth expectations kind of if you combine them, you're looking at like a 6% to 10% fee growth as a whole. But your EBITDA guidance, if we strip out marketing reservation is more like 5% to 6%. So can you maybe just help us understand what's causing a drag on the algorithm for 2023? And how should we think about that dynamic longer term?

Yes, Danny. Your math there is correct. And I think there's two contributing factors: The first one is higher expenses, mostly due to inflation. Some of that we saw roll on in 2022, but we didn't have a full 12 months of it, and we will have a full 12 months in 2023. And then the second impact really is the mix effect of higher RevPAR growth internationally versus RevPAR growth in the U.S., and that really is because the international regions are still in recovery mode in 2023, while the U.S. business had been fully recovered as of the second half of 2021. And how that plays into the long-term growth algorithm? I would say, typically, if all regions are growing at similar rate growth, the algorithm works, but we knew over the last 2 to 3 years with the COVID impact playing out, we knew that there was going to be some differences in the algorithm, which is why when we provide the sensitivities, we provide sensitivity per point of RevPAR for the U.S. business separate and apart from the international business?

Our next question comes from David Katz with Jefferies.

Following through on some of that, one of the themes we've started to focus on largely one of your peers is revenue intensity. And as you build out internationally, I wonder if you can shed some light on the deals that you're making or the signings that you're making in China, where I think the intensity has historically been a bit lower, but in the other areas of the world, how those compare with the U.S.?

And it's good to hear your moms doing better, God bless her. In China, certainly, yes. I mean, where we're growing our rooms. The growth is coming in our direct franchising business, which, as you know, is 3x more revenue-intensive than our master license agreements, which have nowhere near the growth that we're seeing with our direct franchising right now at double digit. And you're correct. And on Slide 9 in the IP that Matt put out last night, you see that over 70% -- 73% of our pipeline are in that higher revenue-generating segments in the midscale and above brands that are driving that. Over 60% of our domestic pipeline are in the midscale and above, and over 85% -- or about 85% of our international pipeline. So what that means for us is that our average deal values per room in the pipeline are increasing there. They're up 800 basis points domestically, which is important and up 240 basis points internationally. And that represents over $100 million of royalty fees for us over the next 4 years. Domestically, as they're more weighted to higher RevPAR, higher segments, upscale brands. And internationally, as they're weighted in higher RevPAR markets, especially notably in Latin America and in Europe with some of our more upper mid-scale brands. Our upscale brands, our Wyndham Hotels and Resorts, full-service brand are Registry Collection, luxury brands. So we're very excited about that.

Understood. And if you could just talk a bit more. I think one of the issues we're altering to process is how people are what people people being -- you are factoring into your guidance with respect to the macro environment as the year progresses?

Sure. I would say what we really are factoring into our guidance is -- well, first, our U.S. business has been fully recovered to pre-COVID levels since the second half of 2021, I mentioned. And finished 2022, 9% above 2019. So we're looking to add another 4% to 6% on top of that growth this year. And I would say from a macro perspective, in the U.S., we began to lap more normalized comps in the second half of 2022. We were seeing about 3% year-over-year growth. So we're expecting a continuation of that trend into 2023. And internationally, where not all markets are yet recovered to the pre-pandemic levels, there's a bigger year-over-year growth opportunity. So we're expecting all of our international regions with the exception of Asia Pac to get pretty close back to 2019 occupancy levels. So overall, we're looking for about half of our growth to come from occupancy recovery and the other half to come from some modest ADR growth.

Our next question comes from Michael Bellisario with Baird.

Michele, just one follow-up there. Just the 4 to 6 sort of system-wide globally. Can you give any more specifics on just what the U.S. expectation is versus international, just the spread in the components of the 4 to 6. I know you sort of touched on it a little bit, but any more specifics would be helpful.

U.S. is certainly going to be lower growth overall compared to international since there still be in recovery mode for sure. So like I said, there's probably in the U.S., there's going to be a few points of occupancy growth and a few points of ADR growth. Whereas internationally, we're expecting to see again some modest ADR growth, but a much bigger lift coming out of occupancy.

Okay. And then, Geoff, for you, you have a big competitor now getting into the economy space, maybe big picture. What are the risks to you on the conversion front? And what are you hearing so far from your franchisees?

Congrats to you and Mary on the birth of Lucy, last Tuesday. Andy need to play made a father of four girls, I wish you two more. We talked about that offline. Yes, we're not seeing any impact to your question on our economy brands. We have the most recognized economy brands in the space, and we've been in this space for over 30 years. We know these customers. We know these owners, and we know it's important to both. The one thing that COVID has demonstrated to our economy owner base is that they wish they own more Wyndham product given just how well our brands performed throughout COVID and how well they performed after 9/11 and the great financial crisis. These everyday essential construction and infrastructure workers never stopped traveling and they were staying in our economy brands in record numbers, which was what allowed our franchisees to never have to close down. So we'll continue to provide the most flexible and the most competitively priced economy brands with a focus on what we know is important to our guests and what we also know is important to our owners. And our renovation and our PIP costs run 3 to 5x less than many of our larger brand peers and our technology stack installation. And our technology stack operating costs remain the lowest at 4 to 6x less with just a continued focus on generating the best cash-on-cash returns in the Economy segment.

Our next question comes from Patrick Scholes of Truist Securities.

One question. You talked in your press release about achieving your goal of retention rate of 95%. Going forward, do you see that as sort of the equilibrium level at this point? Or do you see there's continued opportunity to improve that?

Absolute opportunity to continue to improve it, Patrick. We -- as Michele said, we were in the 94s in '19. We moved that to 95% in 2021, and we've moved it to 95.3% in '22. Our teams are incredibly focused on that. You blend that in with what we're doing on the gross unitization side, which we've also been moving up. We achieved 7% gross additions in '21. We moved that organically, take out Vienna House to an 8% organic growth addition in 2022. An all-time record of organic growth room additions for our system, and you blend those two and it's to Michele's point, how we're confident that we could move over time that 2% to 4% to 3$% to 5%.

Our next question comes from Brandt Montour of Barclays.

So maybe on that same theme, Geoff or Michele, the retention goal of just over 95.3% this year versus 95.3% last year. I'm just curious because it seems to me that a lot of folks in the industry think that this is the year where the brands will start pushing back on owners that maybe have some deferred CapEx during COVID that they held off, and this is the year that the brand sort of-- the rubber meets the road on a lot of hotels having to deal with that, and we saw Marriott guide to higher deletion rate this year versus what they had last year. So just curious what you guys think about your system, about your brands and your owners that you think you'll be able to sort of move in the opposite direction of that?

Well, I think the progress that we've been making, Brandt, from the 93% to 94% to 95% to 95.3% to your point, gives us confidence. I think there's still an opportunity out there with the best brand value proposition in the economy and mid-scale space to pick up on the conversion front. And we think transaction volumes are going to continue to accelerate. The stress sales are expected to increase by the second half of this year. So we saw good movement on the adds, as we've said, and we've been really focused over the last few years. We had significant substandard deletions that were very targeted and very focused in 2018 and 2019 when our retention rates were lower than where they are today. And our brand quality and all of the efforts that we're doing on the quality front continue to give us great confidence that we can move that number higher.

Okay. Okay. Great. And then if we move to the other side of the equation to gross ads because if you say retention might get a little better or stay the same. But if you look at your sort of the midpoint of your net unit growth guidance, would -- maybe we're splitting hairs here, but it would imply not a slight decel versus what you actually did do in '22. So is that just conservatism? Or is there a part regionally? Or part of the chain scales that you would focus on in terms of your gross ads that isn't as strong as last year?

Yes, Brandt, I don't think it's actually a slight decel. I think when you look at the net room growth in 2022, you have to remember, there's 88 basis points of growth in there from the tuck-in acquisition of the Vienna House. So I think we delivered at 3% on an organic basis. And the midpoint of our guide this year would imply 3%. I would say we're looking for 20 to 30 basis points of improvement every year in the retention rate. And then -- and that 3% is a rounded number. So it could be the 3.2%, it could be 3.3%. It could be 2.8%, but we're expecting it to be 3% or better at the midpoint. And so I think if you target a retention rate of, let's say, 95.5% and you're looking at 3% net room growth then that would imply that you're driving somewhere between 8% and 9% in gross opens.

Our next question comes from Ian Zaffino with Oppenheimer.

You had another question on guidance here. When do we expect the impact of the government spending on the infrastructure build, other bills to kind of flow through in 2023? I don't know if you really can do this, but any kind of magnitude you might be able to give us or at least directionally what we should expect?

Sure. We would expect in the back half of the year, if you follow everything that's being put out by the congressional budget office that next round of the $1 trillion will set the fund in late '23. There certainly are many preexisting and time-sensitive projects that have moved forward. The $350 billion highway reauthorization Act is a good example of that with $40 billion already being spent on bridges. In terms of the size, I think we said in our prepared remarks that it's over a $3 billion revenue opportunity for our franchisees over the next 5 to 8 years, which would mean another $150 million-ish of incremental royalties over that period. We're super excited about it. And we have been making investments in people for a while in processes and technologies. We're adding more sellers to win a greater share of these federal and state allocations, and we're creating a dedicated business-to-business sales team to identify the biggest opportunity targets out there. There are 1.8 million infrastructure company businesses in the United States today, and we're leveraging our relationships with our third-party partners. Our travel management companies, like CLC, who have over 1,400 buying centers across the country. And we're sending our teams to events and conventions and conferences that have never been to before like the American Society of Concrete Contractors and calling on companies we haven't called with before. So look, this has been a competitive strength of ours forever. We're continuing to invest heavily in it. The best is yet to come. And for the seventh consecutive quarter, we've seen a pickup in terms of what our franchisees are experiencing. We were up 16% in this business in the third quarter, and that accelerated to 21% in the fourth. So we're really excited about what's to come.

Add to that really quick. We're generating about $17 million a year from this part of our business. So if it just continued to increase in the double-digit category would be about $3 million of incremental EBITDA. And of course, we're not looking just for continued share capture, we're looking for an expansion in the size of the pie once the spend actually hits the market.

That's really good color. And then just as a quick follow-up. On the room growth projections, can you give us any of the puts and takes on like what you're assuming with rates going higher, maybe a softening in the economy. How does that algorithm change with those two factors?

Yes. So let me start by saying half the rooms in the current pipeline of either conversions or new construction projects that are already in the ground. So that's going to significantly reduced our exposure to the current market dynamics and then we're just seeing with the other half of the pipeline. And that, I'd say, the rapid rise in interest rates have impacted all asset levels in Canadian hotels, but hotels are unique and that they are -- they have value rates and can offset cost side of that equation, whether it be inflation or interest on higher pricing, and they have the ability to do that daily, which is what we saw all during 2022. And developers -- our underwriting sustained increases in ADR, which is either partially, or in some cases, fully offsetting the higher interest expense. So we and the well-capitalized developers that we're working with, we all believe this is the best time to build. Even though interest rates are higher than the historic lows that we've seen over the past decade, we're all expecting that they will decrease a bit once inflation is under control and the economic uncertainty that we're facing to pass this over and these select-service hotels have minimal staffing requirements. They're delivering really high ROI for our owners and offering very attractive rates even in this environment.

Our next question comes from Dan Wasiolek with Morningstar.

So maybe wondering if you give update on your loyalty membership where that's at? How that's grown and the engagement of it pertaining to the number of room nights or percentage of room night is being booked by the loyalty base? And then second question, just I think you mentioned that the direct bookings were up 23%. Was that for 2022? And wondering if you could also give a similar figure for the OTA channel?

Sure. Our enrollments, to the first part of that question, grew 8%, Dan, year-over-year. We're at 99 million members globally. And it is what's driving that double-digit year-on-year percentage quote. Our brand.com growth is at the highest level it's ever been. And to the OTA piece, it is outpacing the OTA growth. Our share of occupancy has increased 500 basis points domestically to where it was pre-pandemic, which is pretty remarkable, nearly 1 out of every 2 check-ins to our economy mid-scale, upper mid-scale, upscale brands are coming through the program. But we've got nearly that same percentage now in the economy space. And we have certain brands, like La Quinta and American that are pushing 60% share of occupancy blended. It's about a 50% share of occupancy domestically.

At this time, I show no further questions in queue. I'll turn the call back to Geoff Ballotti for closing remarks.

Thanks, Todd, and thanks, everyone, for your questions and your interest in Wyndham Hotels & Resorts. We'd like to, once again, thank our valued team members for their significant accomplishments around the world and for helping us deliver our eighth sequential quarter of organic net room growth along with a 12% growth and at a development pipeline that's never been stronger than it is today. Domestic and global RevPAR growth accelerated to both prior year and 2019 levels and occupancy continues its recovery, providing a meaningful tailwind for us in the year ahead. With consumer travel demand holding steadfast in our iconic and trusted brands delivering record levels of direct contribution through our brand.com channels, we are very enthusiastic about the opportunities that lie ahead in our ability to deliver outstanding value to our shareholders, our guests, our franchisees and our team members. Michele, Matt and I look forward to talking to and seeing many of you in the weeks and months ahead at many of the upcoming investor conferences will be attending. We wish everyone a happy President's Day weekend and look forward to seeing you soon.

Thank you. This does conclude today's Wyndham Hotels & Resorts Fourth Quarter and Full Year 2022 Earnings Conference Call. Please disconnect your line at this time and have a wonderful day.