Good day and welcome to the Wyndham Hotels & Resorts Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be opened for your questions following the presentation. [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 Securities and Exchange Commission, and any subsequent reports filed with the SEC. We will also be referring to a number of non-GAP measures. Corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP metrics are provided in our earnings release and investor presentation, which will be 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, filing submitted with the SEC, and any public conference calls or webcasts. We have also created a separate website at staywyndham.com to provide additional information relating to the ongoing situation with Choice Hotels. With that, I will turn the call over to Geoff.

Thanks Matt and thanks everyone for joining us this morning. 2023 was an exceptional year for Wyndham, marked by outstanding operational achievements and a series of record-breaking performance metrics. But before delving into our results, we want to take a moment to discuss the ongoing matters with Choice. As we shared in our public response, Choice has nominated directors with the sole purpose of advancing its inadequate, hostile, and risk-laden offer, an offer which our Board has unanimously determined is not in the best interest of our shareholders. Our Board is well constituted combining decades of experience in areas critical to overseeing the execution of our strategy including hospitality and more specifically, global hotel franchising, M&A, governance, and risk oversight. As we've consistently communicated, Choice's offer fails to address three principal concerns; FIRST, the inadequacy of the value of the offer compared with our future growth prospects; second, the significant amount of Choice stock included in the consideration mix, which would expose our shareholders to an over-levered pro forma company with slower long-term growth prospects; and third, the asymmetrical risks to Wyndham and our shareholders resulting from a prolonged and an uncertain regulatory review. On the regulatory topic, our concerns regarding the unique risks of this transaction have only increased as the process has unfolded, starting with the Federal Trade Commission's unsolicited outreach to us in subsequent investigation even before Choice launched its exchange offer. Moreover, State Attorneys General from Washington, Colorado, Kansas, and Vermont have also now opened their own separate investigations. The expansive second request we received from the FTC on January 11th is requiring us to provide virtually every communication and every piece of data that relates in any way to our competition with Choice. To put this into context, second requests are issued for only around…

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 longer term growth prospects, and finally, our 2024 outlook. As Geoff mentioned, we were delighted with our operational progress in 2023. At the same time, we're pleased to put the tough year-over-year financial reporting comparisons behind us since 2023 was our first year of reporting without the inclusion of the lower-margin select service managed business and owned hotels and was also impacted by lapping the revenge travel that occurred in 2022 following COVID. In the fourth quarter, we generated $320 million of fee-related and other revenues and $154 million of adjusted EBITDA. Fee-related and other revenues increased 3% year-over-year, reflecting global net room growth as well as higher license and ancillary fees, partially offset by a year-over-year RevPAR decline. Adjusted EBITDA increased $28 million, including a favorable marketing fund timing impact of $21 million as expected. On a comparable basis, adjusted EBITDA grew 6%, primarily reflecting our revenue growth. Fourth quarter adjusted diluted EPS was $0.91, reflecting the adjusted EBITDA growth as well as benefits from our share repurchase activity, which were partially offset by higher interest expense. For the full year, we generated $1.38 billion of fee-related and other revenues, in line with our expectations compared to $1.35 billion last year, which included $50 million from the sold, managed and owned businesses. On a comparable basis, fee-related and other revenues increased 6% year-over-year, reflecting global RevPAR and net room growth as well as higher license and ancillary fees. Adjusted EBITDA was also in line with our expectations at $659 million in full year 2023 compared to $650 million last year, which included an $18…

Thank you. The floor is now open for questions. [Operator Instructions] And speakers at this time, we currently are waiting for Mr. Ballotti to dial back in. We are trying to reconnect him. We'll pause just a moment. We now have Mr. Ballotti back in conference. [Operator Instructions] We'll go first to Joe Greff with JPMorgan. Please go ahead.

Good morning everybody. Geoff, just trying to get a sense of maybe how disruptive the Choice offer is in the developer community. Obviously, not an issue in the fourth quarter with pipeline and actual room openings. But here in the fourth quarter, are you seeing an impact in either elongated construction time lines or interest in partnering with you, particularly maybe with the Echo brand? Maybe asked differently, would your net rooms growth be higher were it not for maybe this perceived distraction on the part of developers with this Choice offer? And would -- how much of the $90 million in development advances is a function of you're having to do that to grow because of maybe a distraction with Choice and maybe that impact there? Any color would be helpful. Thank you.

Yes. Thanks Joe. We could assign deals in the fourth quarter to your question. We've seen both deals and groundbreaks pause. Many of these small business owners have experience with Choice and they want to see this resolved certainly before moving forward. I mean with Echo, we were thrilled with the 268, I believe, we executed in 2023, that was 90% of what we committed to do last year. Our focus has shifted on Echo from the large multiunit developers to individuals. And we certainly had some progress. I think we executed three in the quarter. But we could have executed more. But look, we're thrilled with the tremendous success in selling through this uncertainty. I mean it really began back in May with the Wall Street Journal leak, and we expect to continue to do the same in 2024. Our franchise sales teams around the world, I could tell you, are fired up. Fourth quarter, as you say, was a record of openings, but more deal noise, to your point, certainly creates a more challenging sales environment, which really comes in two forms. Owners, as I said, moving more slowly on committing to deals with us. And a second sort of increased competitive deal landscape, to your point on Dan's is becoming more prevalent as Choice pushes through, really reverse its declining system. But yes, we know our record Q4 could have been better, both domestically and internationally without the noise.

Yes. And to your last question, Joe -- to the last part of your question, Joe, I would say pushing through Choice is probably less than 10% of the total $90 million budgeted for 2024.

Thank you.

Thank you. Our next question will come from David Katz with Jefferies. Please go ahead.

Hi good morning everyone. Thanks for taking my question. I do want to talk about sort of the NUG [ph] environment in a broader sense. Obviously, there's a lot of discussion out there about conversions and conversion competitiveness. If you could color in for us just a little bit sort of where you fit in that landscape. And obviously, we look at this through a public company lens. But give us a sense for just how competitive that conversion environment is as well as sort of new builds like in your segments, given the Street's perception, right, that it's become much more competitive.

Sure. I think if you were talking to our Chairman, Steve Holmes would tell you, David, it's always been competitive. But the biggest question aside from the strength of our brands and how our franchisees are feeling about us, and they're certainly feeling great about us with our attention at record highs. We have a saying that people do business with us because they know us, they like us and they trust us. It's really when it comes down to competition, it's all about the size and the strength of our franchise sales team. And our franchise sales team has never been larger, and it's never been stronger, and that's really around the world, whether we're in Europe, Africa, Middle East, Asia-Pacific, down in Latin America. They are, as I said, putting up record numbers right now. On the conversion front, we had a great year. We had a great quarter. We didn't slow down. Our quarter was up 60% versus 2019. And in conversion signings with transaction volumes, as we pointed out in the script, were a lot lower. And on the new construction side, look, our pipeline grew 8% to prior year. We have a record 1,400 new construction hotels in our pipeline. And we saw no slowdowns in new construction starts. Those were also up year-to-date. Developers are seeing very strong ROIs despite higher interest rates, our in-ground percentage improved. It was up, I think, 90 basis points from the third quarter. So, projects are still getting built. And yes, developer advance notes are being used on competitive deals. But we're really pleased with our brand offerings, how our brands are performing. And from a competitive standpoint, just how our franchisees are feeling and our sales teams are selling our products.

Thank you. And look, as my follow-up, yesterday, Choice did put out a preliminary proxy, which has some commentary in there just in an open-ended way. Anything -- any thoughts, perspectives or comments you can share about that? I'm sure we'd all be interested in hearing.

Yes. No surprise. To your question, it was completely expected by our team and really just a procedural moment and a nonevent. I mean this was Choice's first step, of course, to hold a preliminary proxy for a special meeting of the shareholders, required to approve the issuance of Choice's shares in connection with a deal that they believe they could do. The filing didn't change the offer. It didn't remove any of the numerous conditions to it like the financing contingency or, I don't know, their due diligence out or most importantly, their need for FTC clearance to name just a few. Their offer, David, remains highly conditional and it still does not address adequately our Board's three key issues that we talked about in the script.

Got it. Thank you very much.

Thanks David.

Our next question comes from Patrick Scholes with Truist Securities. Please go ahead.

Hi, good morning Geoff and Michele.

Good morning Patrick.

Two questions. My first one, Geoff, you briefly touched on the feedback you had been receiving from your large or top shareholders. Can you just give us a little bit more color what specifically the feedback has been?

Sure. I mean we -- Michele and I, there's not a day that goes by we're not talking to our large shareholders. And the feedback consistently has been from them, and I'm sure we'll be on the phone with many of them this afternoon is that they're generally supportive of the risks, the asymmetrical risks that are out there that we've been talking about that our Board has objected to certainly would want to see addressed before continuing discussions.

Okay. Secondly, a question regarding the 2% to 3% RevPAR growth for this year. How would you break that out between international and domestic? And again, you noted you expect a sizable acceleration. Certainly, I wouldn't say January for domestic. And domestic hotels, especially economy, midscale has been spectacular. What -- I guess, what you mentioned about what drives that acceleration domestically, but what's your expectations for international to get to those numbers? Thank you.

Sure Patrick. I would say international is definitely going to grow faster than the U.S. in the full year. And we see that in January as well, right? International is up about 4%, and the domestic system is certainly down. January's results, not a surprise to us given how difficult the comps were this year. January last year, RevPAR was up 6%. So, it's -- it was always going to be our most difficult month to compare against. And then as you move throughout the quarter, the comp gets progressively easier by the end of -- by the end of the quarter. And in March, I think RevPAR had only grown 1%. So, we started 6%, we go all the way down to 1%. And then obviously, as you move out of the first quarter, the comps get tremendously easier for the remainder of the year. So, when we think about the full year forecast at 2% to 3%, specifically answering your question with respect to domestic, we're expecting really three movements. We're expecting to see some benefits from the infrastructure pickup. That's the continued momentum we have coming out of 2023, and we know projects -- new projects are getting approved every day. We are also expecting to see some impact from occupancy tailwinds. We're still trailing 2019 levels by about 9 points. So, we're only assuming a very small impact, maybe a point, a little bit less of that coming back into the 2024 results. And then -- and then from an ADR perspective, it's just really modest growth across the globe. We continue to see ADR trail the rate of inflation in the US by 3 points and a couple of points internationally as well. And we're still in this very limited new supply environment in economy and midscale, which generally favors pricing. And overall, RevPAR growth is highly correlated to GDP, and that's still expected to grow 2% to 3%. And then finally, I'd say fundamentals remain strong. Despite kind of the headlines, we still see our middle income cohort consumers growing way just faster than the rate -- than the ADR growth. We're seeing savings still elevated probably about 30% versus their pre-pandemic levels, and unemployment still remains really low. And very importantly, I'd say the intent to travel and the prioritization of travel spend continues to increase. And we were just looking at a recent survey by [Indiscernible] that showed 60% of the respondents are expecting are expecting to take one to four additional trips this year. So, that's pretty meaningful. Of course, we're not seeing any of that in the January results, but like I said, that is the toughest comp we have year-over-year. So, when we put it all together and with the international, we see multiple paths to that two to three-year full year assumption -- 2% to 3% full year assumption.

Okay, Michele. Thank you for the detail. I'm all set.

Thank you.

Thank you, Our next question comes from Michael Bellisario with Baird. Please go ahead.

Thanks everyone. Good morning. First question, just can you help us understand what is the FTC asking for? How long is the list? Maybe any examples on customer-facing or franchisee-facing type questions and requests would be helpful.

Sure. The list is long, Michael. We are complying expeditiously with the second request, which we predicted all along would occur and which happens in less than, as we said, 1% of FTC reviews. And of course, we're also working with four State Attorney Generals who we mentioned who are also now investigating it. It is a tremendous effort. It has over 300 different work streams and data requests generated by a 44-page letter that we received from them. Boy, in terms of examples, Michele, can you think of a good one from your side?

Yes. I most certainly can. I'm living it every day. Maybe just to give some flavor, one of the 300 work streams is asking for a listing of every bid we've ever provided for any franchise service. And that would be -- they want it over the past five years. They want to fight brand. It must include a bunch of details, including whether there was a prior brand affiliation across the industry, the details of each state to the negotiation, so the initial interim and final bids for each deal. It's so broad. It's asking for all factors considered in establishing the pricing for those bids and then our cost around those negotiating activities, whether those costs are fixed or variable, the part of the chain scale that the hotel switched to, who we were competing against, on and on and on. That's one of the 300 work streams, so multiple parts in that one request. So, as Geoff points out, it's a tremendous effort.

Helpful. And then just my follow-up, maybe a clarification on sort of the spending commentary. Are you putting more dollars into the same number of deals? Or are you having to put more dollars into more deals? And then is it really just Echo or is it across the brand portfolio? Thank you.

Sure. When we look at the 2024 budget versus 2023, it really is Echo and -- but we did see the increase in 2023 versus our budget. And that's where we saw an opportunity to invest more heavily in the business. We did have over 500 hotels that we opened this year, but I would say, more importantly, it's the type of hotels we're bringing into the system and the type of hotels that we're bringing into the pipeline. You know that we grew our midscale above pipeline another 6% this year. A good part of that is the ability to use key money to attract those hotel owners into the system. We're also gaining more exposure to top 25 MSAs in line with our strategy of increasing our footprint in higher RevPAR and fee PAR markets and brands. And so this year, we added cities like Chicago, San Diego, Phoenix, for example. And we're able to do that because we're deploying more dollars per key in those high RevPAR markets. And then I'd also say we are putting a little bit of money to work in the existing system to improve the quality of the product and franchisee engagement and franchisee retention. One example is we doubled the number of renovated rooms through our capital support programs, including Days Inn, where we renovated nearly 5,000 rooms. So, we're doing all of this while targeting above WACC returns. So, more hotels, but probably more impactful, the higher fee PAR hotels coming into the system.

Helpful. Thank you.

Thank you.

Thanks Mike.

Thank you. Our next question comes from Dany Asad with Bank of America. Please go ahead.

Hi, good morning Geoff and Michele. I just wanted to touch on the three-year EBITDA CAGR target of 7% to 10% through 2026. So, if EBITDA is going to grow, let's call it, 5% to 6% for this year, can you help us piece the parts of the business that would help drive the acceleration from the 5% to 6% to 7% to 10% kind of for the full three-year period?

Sure. So, we ended 2023 with 6%. I think we're expecting to get to 6% to 8% in 2024, and then that 6% to 8% moves to 7% to 10% over the planned period. So, if you just think about where we ended in 2023, it's really only 1 additional point at the low end, 6% to 7% and then 2.5% probably at the midpoint, moving from 6% in 2023 to 8.5% at the midpoint of the 7% to 10% growth. Again, three categories, Dany. The first one we'll start with is net room growth. We have a high degree of visibility into this number. We know the pipeline has been expanding up 10% year-over-year. We've got Echo starting to come into the system this year. You can see in our IP, some of the progress that we're making there. And we've got momentum now for three consecutive years on the retention rate having improved a total of 80 basis points over those three years. So, we feel confident that we're going to continue to be able to improve retention. Yet we're only assuming another 0.5 point of net room growth at the midpoint of the cable, right? So, net room growth in 2023 was 3.5%. And in the 7% to 10%, CAGR is moving to 4% at the midpoint, right? It's a 3% to 5%. So, that's a pretty conservative estimate given the multiple avenues of growth I just laid out there. On the RevPAR side, our assumption is 2% to 3% growth over the planned period. That's consistent with industry projections and with historical performance. But that growth might not be linear over the years. It will -- we are expecting it would average out over the planned period. And then there's additional opportunity when you put that…

Super helpful. Thank you so much.

Thank you.

Thank you. Our next question comes from Ian Zaffino with Oppenheimer. Please go ahead.

Hi, thank you. I picked up a lot of the comments on the infrastructure bill. Can you maybe tell us how that plays out? Have you started to see anything yet? What areas? Is it mainly extended? Is it select? Where are you seeing that? And then are you also may be seeing some trends in leisure related to that as well? Or is it pretty predominantly midweek?

It is predominantly midweek. And, Ian, we're absolutely seeing benefit. And it's not only extended, it's also transient. I mean that is -- when you look at the top six states of where this infrastructure spending will be spent, and you think about a state like Texas where we have 700 hotels, I mean, those are our Days Inns, those are our Super 8s, those are our La Quintas that are really beginning to benefit and gain share. When you look at some of the CHIPS Act in terms of how that spending is being spent, I mean, there are dozens of hotels and they're not only Extended Stay hotels around the Intel site in Chandler, Arizona or the Samsung plant being built, we've talked about in Taylor, Texas, which is a $17 billion bill with 2,000 jobs over the next five or so years. And we're placing millions of dollars of contracted business into both transient hotels and new build hotels like our Hawthorn Suites, which is extended and the La Quinta nearby. But I mean the investment that we're making that we're so excited about is, first and foremost, we've got, we feel, the best field sales team out there. We've increased our sales force that's selling to these infrastructure accounts by 25%. So, that's first and foremost. Secondly, we are doing a lot on the technology front. We've got, we think, the best IT team out there. Our teams have rolled out some really robust technology that's identified 3,600 projects within 10 miles of markets, which have multiple transient and extended stay Wyndham Hotel so far. And that's just a sliver of the 40,000 infrastructure projects that have been announced to-date by the Federal government, including -- we're really big on the Federal rail infrastructure bill that our teams are following. That's estimated at a $26 billion spend, dozens of new accounts already and growing, both on the East Coast and the West Coast. And we're excited today about the announcement on the airport terminal grants to, I think, it's 40-plus states. So, yes, we're excited. It's early days, and -- but we are seeing a double-digit uptick, not only in infrastructure bookings but more importantly, leads from those projects with a 20% increase in new accounts so far this year.

Okay. Thank you. And then just as a follow-up, maybe a little bit higher level, but then we're hearing a lot of that Echo, but then we're hearing a lot about sort of moving upscale a little bit. So, if we look out three years or something along those lines, how does the portfolio mix look? And what type of either M&A that you need to get there? Maybe just broadly speaking. Thank you.

Yes, sure. So, Echo obviously, will make up a bigger portion of the system as it comes in. Remember, though, it is coming in at an accretive RevPAR to where we are today. So, when we think about our 70% pipeline in the midscale and above and how that's going to come into the system and then how Echo comes in the system, obviously, will be a lot less dependent on just the economy itself, which has been in a very limited new supply environment for quite a long time.

All right. Thank you very much.

Thanks Ian.

Thank you. Our last question comes from Meredith Jensen with HSBC. Please go ahead.

Good morning. Thanks for taking my questions. I wondered, I know you've spoken about the growth possibilities and in the ancillary fee streams. I think on Page 19, there's a nice discussion of it. Could you talk just a little bit more about the co-brand credit card opportunity and some of the other partnerships you're looking into? So, maybe we can build that out a little bit more because I know there's a lot there. Thanks.

Sure. Meredith, we've seen multiple opportunities that are currently underway for which, again, we have a really good line of sight for ancillary fee stream. To name a few, we're working to tap the significant potential in the credit card suite of products, and that's going to include new products. It's going to include expansion internationally. Right now, the card is US-centric, so there's a lot of opportunity as we think about the potential to leverage Wyndham Rewards and the Wyndham Rewards Loyalty across the 95 countries and in which we operate. On the partnership opportunity side, I won't get into specifics for competitive reasons. But again, we're working to leverage our global footprint and expand beyond just again, the US-centric partnerships that we have in the house today. And then, of course, we're going to continue to focus on our relationship with T&L and helping them grow their business. including through the use of the Wyndham Rewards points currency. So, there's many levers here on the ancillary side.

Super. Thanks. One quick expansion on the international side in terms of the direct franchise business, which I see, again, the presentation is great. On Page 13, it talks about the increase in the direct franchise business rising again. Is there more to be done there? Or how much left of the transition from the master franchise to direct? And should we build in any particular changes, lifts to fees there? And maybe just a little on China too, if you don't mind. Thanks so much.

Yes, I'll start with China and then maybe you could talk about how to model it, Michele. I mean we are going to continue, Meredith, to be seeing more direct franchising in terms of percentage growth. Now, remember, it is a -- I think Michele could correct me here, but it's about one-third of our China system, but it has been growing double-digit as it did this quarter, as it did this year. And it's growing, as Michele has pointed out, at three times the license fees our master. So, going forward, I think we'll continue -- we're not selling master license agreements any longer. I mean that was something that we did 15, 20 years ago. Our growth and if you take China as an example, is much faster on the direct franchising basis than it is on the master. I think our overall net room growth in China was 6%. It was something like 2% for the master and 13% from the direct and that's consistent elsewhere. And we don't have a lot of masters left, but our focus is really direct. What would you add to that, Michele?

Yes, Geoff, I think you covered it all. I mean at three times the royalty rate coming out of the direct franchising business versus the master franchising business and the vast majority of the growth in China coming out of that direct franchising business, we are going to see royalty rate expansion for sure. You can see that already showing up in some of the 30 basis points improvement in 2023, and we'll continue to see that show up as we move forward. Overall, I'd say, in addition to moving from masters to direct, the other thing we're benefiting from in international is just scaling the footprint so that we can continue to take advantage of pricing opportunity for brands that have scale in specific regions.

That’s super helpful. Thanks again for the color.

Thanks Meredith.

Thanks Meredith.

Thank you. At this time, I will turn the floor back over to Geoff Ballotti for closing remarks.

Thank you, Todd and thanks everyone for your questions, for your interest in Wyndham Hotels & Resorts and or most importantly, your support and our ability to realize our future growth potential. Michele, Matt and I look forward to talking to and seeing many of you in the weeks and the months ahead. We wish everyone a happy President's Day weekend coming up and we look forward to seeing you soon.

Thank you. This does conclude today's Wyndham Hotels & Resorts fourth quarter and full year 2023 earnings conference call. Please disconnect your line at this time and have a wonderful day.