Wyndham Hotels & Resorts, Inc.

Welcome to the Wyndham Hotels and Resorts Second Quarter 2020 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star and 1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Matt Capuzzi, Senior Vice President of Investor Relations.

Thank you, Keith. Good morning, and thank you for joining us. With me today are Jeff Pilotti, our CEO, and Michelle 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 and 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 To the extent there are non-GAAP measures discussing future impact, 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. With that, I will turn the call over to Jeff.

Thanks, Matt. Good morning and thanks everyone for joining us. Our comments today will be focused on the impact that COVID-19 is having on our business and how we believe our actions are best positioning us to emerge from this pandemic as a stronger company. But first, I'd like to remind you why we believe we're uniquely positioned to outperform not just during the crisis and the recovery, but also for the longer term. Our business is fueled by leisure travelers, representing 70% of our bookings. Yet the other 30%, coming from guests for whom travel is essential to their job, is predictable and dependable. Our portfolio of hotels is not reliant on air travel. Rather, it's predominantly drive-to, with about 90% of our US hotels located in suburban interstate, or small metro markets. With these destinations primarily appealing to domestic travelers, the vast majority of our portfolio is also not reliant on international travel. We lead the select service space. 99% of our U.S. hotels are select service, and these hotels fare much better in turbulent times than in higher-end chain scales. We have a proven track record of growing our unit base even during times of economic difficulty. We do this by focusing our efforts on conversion opportunities and by leveraging the significant breadth and depth of benefit we could provide to potential owners in being associated with the world's largest hotel franchise system driven by a strong brand and strong value proposition. Finally, our business model is low risk. With over 95% of our hotels franchised, we have limited exposure to operating costs and capital requirements associated with owned assets. We require less than 50 million in annual capex spend, and we have minimal to no exposure to incentive fees. Our revenue and cash flows are highly predictable and reliable. And it is due to these strengths that nearly all of our hotels were able to remain open throughout this crisis, even during the softest days of late March and early April when occupancy across the industry fell to nearly 20%. While downtown, urban, group, and meeting destination hotels were forced to close, our hotels remained open, hosting essential frontline emergency, medical, government, transportation, and other workers who travel for a living, no matter the circumstances. During the second quarter, our economy brands outperformed their competitive set by over 300 basis points. and our mid-scale brands outperformed their competitive set by over 1,000 basis points. These results were also fueled by our recovery efforts. We established the building blocks of the first phase of our recovery plan, with a campaign in April launching our Everyday Heroes initiative, honoring essential frontline workers while at the same time reinforcing our flexible booking policies, loyalty member enhancements, and loyalty partnership benefits to drive direct bookings. In the second phase of our recovery plan, which kicked off in early June, we shifted our messaging to highlight our cleanliness and enhance safety policies. We rolled out new brand standards requiring the use of EPA-approved hospital-grade cleaning and disinfecting supplies, and we began drop shipping face masks and alcohol-based hand sanitizer and disinfectant wipes to our franchisees providing guests with visible reassurance that they are in a safe and clean environment at a time when health and social distancing is their number one priority. The third or welcome back phase of our recovery plan is currently reinforcing our direct booking benefits across our omnichannel platforms, targeting high-value customer segments with a high propensity to travel. With nearly 90% of our U.S. hotels in drive-to markets near key leisure destinations and locations, we know we are best positioned to capture leisure demand as it returns. This type of travel has always been core to who we are in the basis of our prior, you're about 10 minutes away from a hotel by Wyndham marketing campaign. With our new national and regional marketing campaign that builds on this prior positioning, we will continue to give guests the confidence that Wyndham is ready to welcome them back with our count on us, safety first commitment, our booking and cancellation flexibility, our Wyndham Rewards member perks, including our relaxed requirements for earning member levels, our extension of premium status for our most important members, and the largest and most trusted portfolio of economy and mid-scale branded properties and drive-to locations of any loyalty program. The campaign targets summer travel attenders with a focus on Wyndham's everyday traveler and the locations that are currently showing demand by engaging with them at the moment they're looking to book. providing the opportunity to scale up or scale down with our marketing dollars as travel demand dictates. For the last six weeks, the campaign has been running across all of our global sales, marketing, and PR channels, showcasing a value-added promotion offering Wyndham Reward members with 2,000 bonus points for every qualified stay. And we also just launched a new Stay Two Nights and Get One Free Night offer through September that rewards our members for booking direct, and staying now while giving them a reason to come back in the fall. Our recovery plan is already showing meaningful results. Direct channel web bookings are up 80% since the April-May timeframe. Volume into our call centers is trending near pre-COVID levels, and loyalty member occupancy has increased by over 400 basis points year to date compared to 2019. and as volumes have increased and demand has begun to recover, we have been able to welcome back thousands of team members to our managed properties, and we have been able to bring back all furloughed team members to our corporate offices. Drive-to leisure demand to our thousands of hotels near beaches and national parks or to our hotels along the interstate on the way to get there remains strong. Weekend occupancy has outperformed weekday occupancy for the last 14 consecutive weeks and July month-to-date weekend occupancy is averaging 10 points higher than weekdays. Overall occupancy continues to show sequential improvement in our economy and mid-scale brands in the U.S. and our month-to-date occupancy is averaging almost 50% in the U.S. and recently reached a high point of nearly 60% reflecting strength in drive-to leisure destinations. Today, over 99% of our 6,300 domestic hotels are open. And while we are seeing some plateauing in the harder hit larger markets like Florida, Texas, and California, we are seeing continued occupancy improvement in the smaller markets like Colorado Springs, Lake Michigan, and the Texas Gulf Coast. Aside from leisure travel, we are seeing consistent demand from guests who have to travel in the transportation, in the utility, logistics and infrastructure industries with project and construction work coming back to near business as usual levels. We are also seeing increasing demand from the military, from the government, medical and small social segments like family reunions, birthdays, anniversaries and small weddings. We of course continue to keep a close eye on the impact of certain reopening plan rollbacks and we are very well aware that leisure travel may abate somewhat in the fall. Nevertheless, we are encouraged by continued consumer confidence and drive-to getaways. We're pleased to welcome guests back to our hotels, and we're relieved that the majority of our franchisees were able to generate positive operating cash flow during June and July. And it's important to note that our leisure mix does not change dramatically from quarter to quarter. Less than 1% of our franchisees' room nights are generated by group business, and we are no more reliant on corporate or contracted business in the third and fourth quarters than we are in the second quarter. In 2019, Leisure made up 70% of our business in the second quarter, 71% in the third quarter, and 69% in the fourth. Moving to other parts of the globe, all of our international regions are experiencing occupancy improvement. In Asia Pacific, where 93% of our system is now open, occupancy is now running over 60% in China. In Canada, 98% of our system is open, and occupancy is now in the 40s. And in the Europe, Middle East, and Africa region, where two-thirds of our system is open, occupancy is running over 30%. Latin America remains our most challenged region, with around 100 hotels still closed, and occupancy levels at less than 30%. We finished the quarter with 813,000 rooms, which was flat to prior year. And despite our franchise sales and operations teams being sequestered at home and unable to travel for most of the quarter, we nevertheless opened 5,700 rooms. While we were only able to open 300 rooms in April, we opened 1,100 rooms in May and 4,300 rooms in June as our teams began to travel again, and independent economy and mid-scale hotel owners began to look towards the future in search of a brand that could generate rev par premiums, operating cost savings, lower distribution costs, and increased market share, all of which we could offer as the world's largest hotel franchising company. Conversions improved dramatically in June as well, representing over 70% of our volume versus 57% a year ago. We were pleased with the pickup and conversion activity as the quarter progressed, both on the signings and on the openings front. We expanded our soft branded trademark collection by Wyndham, the fastest growing brand in our portfolio, with independent hotel conversions across the United States, across Canada, and Germany. In China, we added six new hotels to our armada by Wyndham brand, five new construction and one conversion, further strengthening our presence in that country. Additionally, we were thrilled with our continued international expansion of La Quinta, adding two high-quality independent conversions in Turkey, the La Quinta Bodrum off the shores of the Aegean Sea and the La Quinta Gerasun on the coast of the Black Sea, both coming from new owners on the heels of the opening of the highly rated La Quinta Istanbul. Earlier this year, we announced plans to open two new La Quinta hotels in New Zealand, marking the arrival of of La Quinta in our Asia Pacific region, and just last month we expanded on that by signing our first La Quinta in China, the La Quinta by Wyndham Guilin, which is scheduled to open later this year. Turning to franchisee health and retention, with the termination of the dilutive 9,000 master franchise rooms in China that we previewed on our last earnings call, Our international retention rate over the last 12 months was, as anticipated, 92%. Our domestic retention rate held steady at 95%. Now, while recent data is showing spikes in CMBS delinquencies, less than 10% of our 6,300 domestic hotels are reliant on the CMBS market and are instead financed by local and regional lenders who are largely working with our franchisees on forbearance plans. Approximately 90% of our franchisees have also benefited from a Paycheck Protection Program loan, and approximately 40% have received an economic injury disaster loan. Nearly 70% of our U.S. franchisees are operating above 40% occupancy. Even so, we know hotel owners across the industry are suffering, and we know it's inevitable that there will be some that cannot stay afloat. We expect well-capitalized franchisees with reasonable debt service to navigate successfully through the crisis with the support provided through the CARES Act, along with the support that their banks, vendors, and Wyndham are providing to them. However, owners whom are more thinly capitalized with higher debt service levels are unfortunately more likely going to fail. Michelle will walk you through our plan to assist as many owners as we possibly can throughout this crisis. At the end of June, our global development pipeline was 180,000 rooms, a decrease of 4% or 8,000 rooms year over year. The decline reflects the soft April and May sales activity as the world remained on pause as so many were under stay-at-home orders. The pipeline was also impacted by the deliberate removal of deals that no longer meet our recently increased hurdle rates, coupled with a higher degree of conservatism applied to new construction and development projects that have not yet secured financing. Our review, we believe, prudently reflects a more accurate picture of deals in our pipeline that have the highest likelihood of opening in a post-COVID environment. Despite the ongoing impacts of the pandemic, there remains opportunity in the market, especially in conversions, as owners evaluate the best way to manage their future And as noted on our last call, we believe that conversions will become an even more important growth vehicle for us over the next several years. Finally, we'd like to recognize and thank our friends and colleagues who we had to say goodbye to and their positions were eliminated. We will never forget their many contributions and we'll be forever grateful for their service. Additionally, words can't express how much we appreciate the patience the understanding and the loyalty of those team members who were placed on furlough. While 2020 has not been the year any of us expected it to be, the actions we have taken in response to the pandemic will allow us to emerge as a stronger company financially and operationally, intensely committed to the survival and the success of our most engaged franchisees and owners. Of course, none of these efforts could have been accomplished without are incredibly talented team members who have been working harder and more efficiently than ever across every function and in every corner of our world. They've been bringing Wyndham's Count On Me culture to life every single day. And with that, I'd like to turn the call over to Michelle. Michelle?