Wyndham Hotels & Resorts, Inc. (NYSE:WH), a leading global hotel franchising company, has reported its second-quarter 2024 financial results, showcasing resilience and adaptability in the face of a moderating macroeconomic landscape.

The company's annual net income for the fiscal year 2023 stood at $289 million, while its annual revenue reached $1.397 billion. Wyndham's annual operating cash flow was $376 million, and its annual free cash flow amounted to $339 million.

In the second quarter of 2024, Wyndham generated $367 million in net revenues, a 1.4% increase compared to the same period last year. The company's quarterly net income came in at $86 million, up from $70 million in the prior-year quarter, representing a 23% year-over-year improvement.

Wyndham's quarterly operating cash flow was $77 million, while its free cash flow reached $27 million, down from $67 million in the same quarter of 2023. The decrease in free cash flow was primarily due to higher development advance spending and transaction-related payments.

Geoff Ballotti, Wyndham's President and Chief Executive Officer, commented, "The resilience and highly cash generative nature of our business model was once again on full display this quarter. Despite a softer RevPAR environment, the company remains squarely on track to deliver its adjusted EBITDA target."

Business Overview

Wyndham Hotels & Resorts is a global hotel franchising company, operating in over 95 countries with a portfolio of renowned hotel brands, including Wyndham, Days Inn, Super 8, La Quinta, and Microtel, among others. The company's primary segment is hotel franchising, which involves licensing its brands and providing related services to third-party hotel owners.

Wyndham's business model is highly scalable, with a focus on asset-light operations. The company generates revenue through royalties, franchise fees, marketing and reservation fees, and other ancillary revenue streams. This diversified revenue mix, coupled with a flexible cost structure, has enabled Wyndham to navigate the challenging macroeconomic environment effectively.

Geographic Breakdown

Wyndham's global footprint is well-diversified, with a strong presence in both domestic and international markets. In the second quarter of 2024, the company's U.S. operations accounted for 56% of its total net revenues, while international markets contributed the remaining 44%.

The company's international segment, which includes regions such as Europe, Middle East, and Africa (EMEA), Latin America, and Asia-Pacific, has been a key driver of growth. In the second quarter, Wyndham's international net revenues grew by 7% year-over-year on a constant currency basis, outpacing the performance of its U.S. operations.

Revenue Breakdown and Trends

Wyndham's net revenues are primarily derived from the following sources:

Royalties and Franchise Fees: In the second quarter of 2024, royalties and franchise fees accounted for $144 million, or 39% of total net revenues, representing a 1.4% increase compared to the prior-year period. This growth was driven by a 4% increase in global room count, partially offset by a 1% decline in global RevPAR.

Marketing, Reservation, and Loyalty: This segment generated $150 million, or 41% of total net revenues, in the second quarter, up 3.4% year-over-year. The increase was primarily attributable to the growth in Wyndham's global room count and higher loyalty program fees.

Management and Other Fees: This category contributed $2 million, or 1% of total net revenues, in the second quarter, down from $5 million in the same period last year, primarily due to the exit of the company's U.S. management business.

License and Other Fees: This segment generated $31 million, or 8% of total net revenues, in the second quarter, up 6.9% year-over-year, driven by higher license fees and other ancillary revenue streams.

Other Revenues: The "Other" category, which includes various revenue sources, contributed $39 million, or 11% of total net revenues, in the second quarter, representing a 5.4% increase compared to the prior-year period.

Outlook

For the full year 2024, Wyndham has updated its guidance to reflect the moderating RevPAR environment. The company now expects fee-related and other revenues to be in the range of $1.41 billion to $1.43 billion, down from the previous guidance of $1.43 billion to $1.46 billion.

Despite the RevPAR headwinds, Wyndham has maintained its adjusted EBITDA guidance of $690 million to $700 million, implying a year-over-year improvement in EBITDA margin of approximately 130 basis points at the midpoint of the outlook.

The company has also revised its adjusted net income guidance to $338 million to $348 million, to account for the increase in interest expense due to the upsizing of its Term Loan B. However, Wyndham has increased its adjusted diluted EPS projection to a range of $4.20 to $4.32, reflecting the impact of its share repurchase activity in the second quarter.

Liquidity

Wyndham's balance sheet remains strong, with $820 million in total liquidity as of June 30, 2024. The company's net leverage ratio stood at 3.5 times, within its target range of 3.0 to 4.0 times.

During the second quarter, Wyndham returned $162 million to shareholders through $131 million in share repurchases and $31 million in common stock dividends. The company has repurchased 2.6 million shares year-to-date, representing nearly 45% of its market capitalization since 2019, a best-in-class performance among its peers.

Wyndham also continued to invest in its business, spending $64 million on development advance notes in the first half of 2024, up from $31 million in the same period last year. The company expects to spend approximately $110 million on development advances for the full year, an increase from its previous guidance, to capitalize on attractive investment opportunities in higher RevPAR markets and segments.

Operational Highlights

Wyndham's global room count grew 4% year-over-year in the second quarter, driven by 1% growth in the U.S. and 8% growth internationally. The company's domestic midscale and above segments saw a 3% increase in room count, while its economy segment remained relatively flat.

Wyndham's global RevPAR declined 1% year-over-year in the second quarter, with a 0.3% increase in the U.S. and a 7% increase in international markets on a constant currency basis. The company's domestic economy and midscale segments experienced mixed performance, with the economy segment declining 2% and the midscale and above segments growing 2%.

The company's franchise sales teams continued to perform well, signing 96 domestic deals and 84 international deals in the first half of 2024, representing year-over-year increases of 30% and 11%, respectively. Wyndham's global development pipeline reached a record 245,000 rooms as of June 30, 2024, up 7% year-over-year.

Wyndham's focus on technology and innovation has also been a key driver of its performance. The company's recent rollout of its Wyndham Connect guest engagement platform has been well-received by franchisees, helping to drive increased ancillary revenues and enhance the guest experience.

Risks and Challenges

Wyndham's business is not without its risks and challenges. The company operates in a highly competitive industry, facing competition from other hotel franchisors, as well as alternative accommodation providers. The company is also exposed to macroeconomic factors, such as changes in consumer spending patterns, inflation, and interest rate fluctuations, which can impact its financial performance.

Additionally, Wyndham is subject to various legal and regulatory risks, including litigation related to alleged incidents of sex trafficking at certain franchised and managed hotel facilities. While the company has accrued for these matters, unfavorable outcomes could have a material impact on its financial results.

Conclusion

Wyndham Hotels & Resorts has demonstrated its resilience and adaptability in the face of a moderating macroeconomic environment. The company's diversified revenue streams, disciplined cost management, and strategic investments in technology and innovation have enabled it to navigate the challenges and deliver solid financial results.

Looking ahead, Wyndham remains focused on driving sustainable growth through its global expansion, royalty rate improvements, and the continued development of its ancillary revenue streams. With a strong balance sheet, ample liquidity, and a commitment to shareholder returns, Wyndham is well-positioned to capitalize on the opportunities in the hotel franchising industry and create long-term value for its shareholders.