Wyndham Hotels & Resorts, Inc. Common Stock

Welcome to the Wyndham Hotels and Resorts Third Quarter 2024 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 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. 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. Please go ahead.

Thank you, Operator. Good morning, and thank you for joining us. With me today are Jeff Bilotti, our CEO, and Michelle Allen, our CFO and Head of Strategy. 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'll 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 and investor presentation, which are available on our investor relations website at investor.windomhotels.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 and on our social media channels in the future. Accordingly, we encourage investors to monitor our website and our social media channels in addition to our press releases, files 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, everyone, and thanks for joining us today. Q3 illustrates yet another quarter of success in our team's execution against our long-term growth strategy, which we outlined with all of you one year ago this week. Last night, we reported strong earnings with comparable adjusted EBITDA and EPS growth of 7% and 10% respectively. We grew our system 4%. We increased both our U.S. and international royalty rates, and we significantly grew our ancillary fee streams. Year to date, we've generated over $265 million of adjusted free cash flow, and we've returned nearly $380 million to our shareholders. We sustained strong momentum on the development front, opening over 17,000 rooms, bringing our year-to-date total to more than 48,000 rooms globally, up 13% compared to a year ago. We also improved our global franchisee retention rate by 40 basis points year over year. Notably, our franchise sales teams here in the United States signed an impressive 10% more deals in the quarter than they did last year, contributing to the 17th consecutive quarter of growth in our global development pipeline, which increased nearly 5% year over year to a record 248,000 rooms. Domestically, net rooms grew sequentially and year over year, driven by a solid 3% net room growth in our mid-scale and above brands, with new conversions like the Wyndham Bloomington, adjacent to the Mall of America in Minnesota, and the Wyndham Garden Louisville East, near Churchill Downs, the home of the Kentucky Derby. This quarter, we also opened our second new construction, Echo Suites Hotel, located in Plano, Texas, a fast-growing technology hub that's attracted economic investments such as the expansion of Plano's Children's Medical Center, the new Wells Fargo campus, which is expected to create over 4,000 new jobs, and the growing presence of Toyota North America and Frito-Lay's corporate headquarters. We awarded another 10 new Echo Suites contracts this quarter in markets like Huntsville, Alabama, Greensboro and Raleigh, North Carolina, and Myrtle Beach, South Carolina. And we currently have over a dozen Echo Suites hotels under construction across the country. Our Echo Suites owners are telling us that these hotels are performing ahead of their expectations and pro formas. The Spartanburg property, the first Echo Suites to welcome guests last quarter, reached stabilized occupancy levels of over 80% just weeks after opening, while outperforming its competitive set in ADR. Even more promising was that its extended stay occupancy rate, a key metric in this segment, which finished September at a 63% occupancy with a 55-night average length of stay, a clear indicator of the strong demand for this product along with with our ability to generate corporate negotiated business from day one. Internationally, we grew Net Rooms by 2% sequentially and by 8% versus prior year. Our EMEA team grew Net Rooms by 11%, adding several new destinations like the stunning new Dolce by Wyndham Resort in Spain's renowned Penedes wine country outside of Barcelona. and the Days Inn by Wyndham Arnavutkoi near Istanbul's main international airport. Our EMEA team also signed a multi-unit deal to introduce the Microtel brand to India, with plans to open 40 new Microtel hotels by 2031. This represents our eighth Wyndham brand in India, where we currently have 60 hotels and expect double-digit net room growth over the next several years. Our EMEA development pipeline grew 10% year over year and now represents an average fee par 15% above the current portfolio. Our Latin America team, similar to our EMEA team, grew net rooms by 11% in the third quarter and increased its development pipeline by 16% with an average fee par now nearly 20% higher than its current portfolio. It added several new destinations our Wyndham Reward members will want to visit, including the spectacular new construction Wyndham Garden Mazatlan Marina Hotel, located on Mexico's Pacific coast. Our Southeast Asia and Pacific Rim region grew net rooms by 10%, entering several new markets with luxury additions, like the five-star Wyndham Panbil Batam in Indonesia and the upscale La Vidor Hotel in a trademark collection resort adjacent to Samsung and Hyundai's headquarters in the tourism hub of Wangsangxi, South Korea. In China, our direct franchising system grew 13%, with new openings including the Windham Taiyan West nestled at the foot of China's Wohu Mountain, as well as a new La Quinta in Ren Y's booming business district and another new La Quinta on Hainan Island. Development activity across China remained robust, increasing 6% with 37 direct franchise agreements awarded this quarter, bringing the region's direct franchise pipeline to nearly 400 hotels at a fee par 40% higher than that of our current China system. Overall, we expanded our brand presence across the globe, adding five new brands to markets where they hadn't existed previously, including the debut of the newly renovated luxury lifestyle registry collection hotel brand here in the United States with the historic Mining Exchange Hotel in Colorado Springs, the first Wyndham Garden in Malaysia, and the first Wyndham-branded hotel in Cluj, Romania, in the heart of Transylvania and the country's second-largest city. And importantly, these Q3 additions came into the system with a collective average fee park that is expected to be approximately 50% higher than the current system. Now turning to REVPAR. In the United States, REVPAR declined 80 basis points this quarter compared to prior year, while economy REVPAR continues to normalize, up 260 basis points from the first half of this year, gaining 50 basis points of market share this quarter. Importantly, we're seeing positive momentum in infrastructure-related business. weekday performance outpaced weekends, with REVPAR growing about a point, driven by higher demand. This includes an improvement of 250 basis points across our oil and gas markets and sustained year-over-year growth in the five states that have received significant infrastructure funding to date, Texas, California, New York, Illinois, and New Mexico. Our properties in these key markets are well-positioned and when coupled with the efforts by our Wyndham sales team, captured an additional 300 basis points of weekday demand share across our select service chain scales during the quarter. We're encouraged by these results, and we're also encouraged that our brands continue to maintain pricing power. Domestic ADR held steady throughout the quarter at 17% above pre-pandemic levels, which still trails real inflation growth, suggesting that pricing can continue to be flexed in the years ahead. We continue to believe the infrastructure strength we saw in the third quarter, coupled with more favorable comparisons ahead in the fourth quarter, will provide positive domestic RevPAR momentum as we exit 2024. Internationally, RevPAR increased 7% versus prior year in constant currency and accelerated over 1,300 basis points from Q2 to Q3, when compared to 2019. EMEA and Latin America REVPAR were both especially strong this quarter. EMEA grew 9% year-over-year, driven by strength in Greece, Spain, and Turkey, and Latin America grew 52% as a result of strength across Brazil, Mexico, and the Caribbean, as well as the hyperinflationary impact in Argentina, which accounted for 20 points of the region's REVPAR growth. Occupancy, while continuing to recover at varying rates around the globe, now stands at 10% behind where it was in 2019 and remains a significant tailwind as we close out this year and we look towards 2025. One of the key drivers of our ancillary fee growth strategy is the expansion of our suite of co-branded credit card products. Earlier this year, we launched Wyndham Business aimed at streamlining the direct booking process for all types of business travel. This initiative has gained significant traction, driving a double-digit year-to-date increase in our corporate contracted business from infrastructure-related accounts. In addition, our Wyndham Rewards earner business card has seen a 32% year-over-year increase in new accounts and a 70% lift in purchase volumes, contributing to our ancillary fee growth this quarter. We're also leveraging technology as part of Wyndham's owner-first commitment, which is at that very forefront of everything we do. Our recently launched guest engagement platform, Wyndham Connect, is an initiative that was made possible by our best-in-class technology stack with leading partners like Salesforce, Sabre, Oracle, and Amazon, Adobe, Ideas, and Canary. Our technology platform enables personalized guest experiences to boost franchisees' bottom lines while improving guest engagement scores. Franchisees are now digitally and automatically without staff intervention, upselling early check-ins and late check-outs, and they're also pre-selling room upgrades and various in-room amenities online before the guest checks in. More than 4,000 of our hotels in North America have adopted this platform with about 40% of those properties generating over $1,500 in incremental monthly revenue. As we furiously continue to implement guest facing AI tools and services, we're offloading labor intensive tasks from our franchisees. We're reducing their costs and we're increasing their bottom lines while at the same time allowing them to focus on guest service and guest satisfaction. Moreover, Wyndham Connect is simplifying the process of enrolling guests in Wyndham Rewards, helping to drive an increase of more than 2 million new members this quarter to over 112 million members globally at quarter end. Before Michelle takes us through the financials, we want to take a moment to recognize the incredible dedication of our team members around the world. The success of our owner-first operating philosophy and our record owner engagement levels reflects their steadfast commitment and support. And we're thrilled that for the fourth year in a row, we've been named to Newsweek America's Most Loved Workplaces list, earning a spot in the top 10. This achievement is a testament to our team's hard work and commitment that consistently places our owners at the very center of everything it is that we do. In closing, this quarter's results underscore our ability to execute on the key pillars of our long-term growth algorithm, including robust development momentum, continued royalty rate expansion, consistent ancillary fee growth, and the very early innings of a sustained period of growing infrastructure capture. Our value proposition is stronger than ever, powered by our world-class teams around the globe, And we have full conviction that our strategy will create significant value for our shareholders, our guests, our franchisees, and our team members for many years to come. And with that, I'll now turn the call over to Michelle. Michelle?

Thanks, Jeff, 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 outlook. Before we get started, let me briefly remind everyone that the comparability of our financial results is impacted by the timing of our marketing fund spend. In the third quarter of this year, marketing fund revenues exceeded expenses by $12 million as expected compared to revenues exceeding expenses by 17 million in the third quarter of last year. To enhance transparency and provide a better understanding of the results of our ongoing operations, I will be highlighting our results on a comparable basis, which neutralizes the marketing fund impact. In the third quarter, we generated $394 million of fee-related and other revenues and $208 million of adjusted EBITDA. Prior period fee-related and other revenues included $18 million of pass-through revenues from our global franchisee conference conducted in September, 2023. absent which fee-related and other revenues increased 3%, driven by a 5% increase in royalties and franchise fees, and 8% growth in ancillary revenues. The increase in royalties and franchise fees reflects our global system growth, expansion of our domestic, international, and global royalty rates, driven by our higher fee par growth strategy, and higher other franchise fees. Our ancillary revenue growth was primarily driven by higher credit card and partnership fees, as well as increased license fees. This growth continues the trend from the first half of this year, where these fee streams meaningfully outperformed industry rep par levels. Looking ahead, we have exciting new opportunities on the horizon that will build on our momentum and further enhance these ancillary fee streams. Adjusted EBITDA grew 7% on a comparable basis, primarily reflecting our higher royalty and franchise fees, and increased ancillary revenues, as well as margin expansion, which was largely driven by operational improvements this quarter. Third quarter adjusted diluted EPS was $1.39, up 10% on a comparable basis, reflecting our adjusted EBITDA growth, as well as a benefit from our share repurchase activity. These benefits were partially offset by higher interest expense. Adjusted free cash flow was $96 million in third quarter and $267 million year to date, with a conversion rate from adjusted EBITDA of 51%. We continue to expect full year adjusted free cash flow to convert at approximately 60% of adjusted EBITDA. At our current trading levels, our adjusted free cash flow yield of over 6% continues to lead the lodging sector. Our capital allocation strategy remains unchanged. Our first preference is to invest in the business balancing organic growth opportunities with disciplined M&A activity. While we remain focused on pursuing transactions that are creative from both an earnings and net room growth perspective, as well as additive to change scales underrepresented in our portfolio, we are equally committed to driving organic growth through development. To that end demand for our brands remains strong with development advanced spend reaching $24 million in the third quarter, bringing our year to date spend to 88 million. This increased investment is attracting higher value properties, as Jeff mentioned, further strengthening our portfolio. We returned $126 million to our shareholders during the third quarter through 97 million of share repurchases and $29 million of common stock dividends. Year-to-date, we have repurchased 3.8 million shares of our stock for $285 million. From 2019 through the end of the third quarter, we returned 47% of our market cap to shareholders, which continues to be best in class among lodging C-Corps and well above our closest competitor. We closed the quarter with approximately 750 million in total liquidity and our net leverage ratio of 3.5 times remains as expected at the midpoint of our target range. As we previously highlighted, we continue to expect to finish this year with net leverage at this level with any excess leverage capacity or capital to be either invested in the business to support future growth or return to shareholders in the fourth quarter. In September, we opportunistically took advantage of the interest rate environment by successfully executing 350 million of interest rate swap agreements on our existing term loan fee facility. These four-year swaps carry a fixed rate of 3.3% and expire in 2028. As a result of this transaction, we ended the third quarter with approximately 80% of our total debt at a fixed rate and 20% variable. The fixed portion of our debt carries a blended rate of 4.4%, providing certainty around the majority of our interest expense at a very attractive rate, while the remaining 20% affords us an opportunity to capture incremental benefits should the Fed continue to execute further rate cuts over the coming quarter. Finally, turning to our full year outlook. We're increasing our adjusted diluted EPS projection by 2 cents to a range of $4.22 to $4.34 to account for our third quarter share repurchase activity. This outlook is based on a lower diluted share count of 80.1 million shares and, as usual, assumes no additional share repurchases or incremental interest expense associated with any potential borrowing activity to maintain our leverage at 3.5 times. There are no other changes to the remainder of our outlook. We are expecting more favorable REVPAR comparisons in the fourth quarter, and our outlook reflects this dynamic. With Wyndham's stronger concentration in the select service space, you'll recall that domestic REVPAR gradually declined in 2023, starting with a modest 1% decrease in the second quarter, which then deepened to a 4% decline by year end. We expect to last this effect in the fourth quarter, which should support better year-over-year performance, especially when coupled with the recent positive trends Jeff mentioned in our infrastructure-related business. And even though this shift doesn't occur until the last 10 days of October, month to date through the first three weeks, U.S. REVPAR is trending up 3% year-over-year, and the comps only get easier from here. In closing, our third quarter results reflect strong execution across our strategic priorities, from steady system expansion and expanding royalty rates to ancillary fee growth and disciplined capital allocation. We remain confident in our ability to create sustainable value as we capitalize on the best investment opportunities to deliver meaningful returns for our shareholders. With a robust pipeline and REVPAR green shoots, particularly on the infrastructure side, we are excited about the opportunities ahead and look forward to building on this momentum as we close out the year and move into 2025. With that, Jeff and I would be happy to take your questions. Operator?

The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Again, we do ask that you limit yourself to one question and one follow-up. Thank you. Our first question will come from Joe Greff with J.P. Morgan. Please go ahead. Good morning, everybody.

Good morning, Joe. Jeff, I just want to ask a question about how you're thinking about NetRoom's growth for next year. How confident are you that next year's room growth rate could exceed what you end up doing this year, and then when you think about the composition from a brand and geography perspective, obviously, ECHO would be stronger next year, I would think, than this year. How is next year's net rooms growth composition different than what we've seen the last couple of years?

Thanks for the question, Joe. We're very confident about our net room growth driving forward, and I think the most important metric for us to look at is our pipeline. and what's been happening in terms of how that record pipeline has been driven. I mean, we have, we believe, the most talented and experienced franchise sales team out there in the industry. They've been selling directly to these franchisees longer than anyone else in over 95 countries. And when we look at where the breakdown is in terms of what's coming into the pipeline that will translate into net room growth next year, we're seeing just, again, record executions globally. 197 hotel contracts awarded this quarter. That's up 350 basis points versus where we were back pre-COVID. And we've got a record pipeline of 250,000 rooms, 85% of which is in the mid-scale and above are the extended stay segments. In terms of domestically, we're seeing really strong growth. 95 deals executed this quarter. up 10%. Our new construction prototype brands are selling very, very well. Our new construction pipeline is at an all-time high. It was up 300 basis points to nearly 1,500 hotels globally. We're seeing growth in terms of what we'll be seeing coming up and out of the ground in the coming years. We had many new LaQuintas awarded in the quarter. Our pipeline is up 3% for LaQuinta year-on-year. Our dual brands are selling very well. Our Hawthorne Suites pipeline is is up. Our new Wyndham Garden prototype is up. And of course, new brands like Echo Suites, those hotels are just getting started. Conversions have been very strong for us. They're going to be very strong for us throughout the remainder of this year and going into next. Our conversion pipeline was up 30%. And internationally, that high single-digit net room growth, we believe we could continue to drive upwards. 102 deals signed this quarter. great growth really around the world across all regions. And all we need to do this week is look at existing developers like Nile Hospitality, who came in with 40 new microtels in India, to be very, very confident in that 3% to 5% long-term algorithm for net room growth. And the progress we're making, the continued retention rate improvements we're making on a global basis, we feel great. about the year ahead.

Great. Thank you, Jeff. And then, Michelle, your comment about the month-to-date U.S. Rep Part growth being up 3%, which looks like it's maybe 50 to 60 basis points versus what the Smith Travel data would suggest, which is great. And noting that the comparisons do get easier from here, what specifically is embedded for the U.S. economy mid-scale REPPAR performance in the fourth quarter?

Sure. Good morning, Joe. I guess I would start by saying last year in the U.S., our REPPAR declined one point during the third quarter. And then in the fourth quarter, it was down 4%. So we moved from down one to down four. That's a 300 basis point swing. which does create a much easier comparison this year for the fourth quarter. This is a bit unique to our business due to our heavier concentration in economy, which, by the way, was down seven points last year in the fourth quarter compared to only down three in the third quarter. So really large swings here for us and not necessarily for some of the other companies. That is predominantly what is built in to our base case right now for the full year guide. In addition to the infrastructure momentum we saw that we have always expected in the back half of the year, we saw it in the third quarter and obviously have it reflected in the outlook for the fourth quarter. And I'd say there is a favorable holiday calendar built into the outlook as well. which should drive increased leisure demand in the fourth quarter, particularly, again, in contrast to those more reliant on corporate and group business where travel windows are a bit tighter. From a calendar perspective, we have two extra leisure travel days over the Christmas holiday period this year. What's not yet reflected in the outlook and we see as potential upside are the benefits we're seeing from the hurricane, the most recent hurricanes. There was no material impact in the third quarter, given it only impacted the last week of September. But as we moved into October, we have seen much larger impacts with occupancy up over 10% in the impacted states. Right now, it's already a 40 basis point benefit to our fourth quarter REVPAR. And there is potential for more depending on the duration of the relief efforts, which, as we all know, are ongoing. But remember, when you weight that fourth quarter impact, the 40 basis points translates to probably about 10 basis points on a full year basis at the global level. So it's going to be additive, but it's not going to be materially different than what the current outlook implies.

Thank you.

Thank you.

Thank you. Thank you. Our next question will come from Steven Grambling with Morgan Stanley. Please go ahead.

Hey, thank you. So on slide six of the deck, you have the 2026 walk on EBITDA. And you mentioned confidence in the 3% to 5% net room growth. Sounds like REVPAR building back to that 2% to 3% range. But we'd love to get a scorecard of where you feel you're running ahead, where you may be behind on this trend line. for some of the other buckets, if there's any other factors to consider for 2025 that might impact that March to that 2026 number.

That's a loaded question. Let me start by saying we're very confident in the driver assumptions out on page six, particularly with respect to system growth and continued retention improvement. You know, REVPAR, it's still early in our budgeting process for us to be getting specific guidance for 2025. You'll have to wait for the February call for that. But we do expect to exit the year with positive momentum given the fourth quarter inflection point I just discussed. And when we think about the infrastructure, we see that capture just starting to happen in the third quarter. And we're going to continue to see that in the fourth quarter, and it's going to continue to increase as more spend gets out into the economy. What we're really excited about is the ancillary revenue opportunities. We're exactly where we wanted to be at this point in our plan, up 8% year-to-date. We have a lot of funding. great things happening on that front, and so we feel highly confident in our ability to continue to deliver that growth rate. So from a long-term perspective, this was a three-year plan capturing 24, 25, and 26. We reaffirmed this guidance on page six, and we have plenty of initiatives planned to be able to bring it to realization, not all of which, by the way, need to hit. We just need a bunch of things to work in our favor, but not everything.

Awesome, and then maybe one unrelated follow-up. Are there any investments needed for Project ECHO to ramp from here, or was there a bit of front-loading, things like the development team and or sales team for the unique demand drivers of that segment?

Yeah, we did air... Go ahead, Michelle. We did earmark about $100 million of capital, which we started to deploy in 2024, and the deployment of that capital will ramp over 2025 and 2026. The more properties we get out of the ground and open and operating, the more of that capital will get deployed. But I think what Jeff was going to comment on is the teams are in place, the operating teams are in place, the sales teams are in place. So that investment is already reflected in our EBITDA.

Exactly. And all the money we spent, Stephen, on the new design prototypes and support operationally that we've given to our franchisees. Obviously, we'll continue to support them, but nothing incremental. Perfect. Thank you. Thanks, Stephen.

Thank you. Our next question will come from Michael Bellisario with Baird. Please go ahead. Thanks.

Good morning, everyone.

Good morning, Michael. We understand from Matt that there's a You thought there was a Cinderella theme going on in your house and that Annie wanted to dress up as Aurora. That is a father of four girls. That's Sleeping Beauty. And the witch she wants you to dress up as is not the Wicked Witch of the North.

Well, last night it was Maleficent for me. So a couple more days to decide. Two unrelated questions there for you on development. Just first on the 10 Echo deals that you signed. Are those deals with franchisees that are new to Wyndham, new to Echo, or are they just more deals that your original developers are doing there, trying to understand the composition of where the signings are now?

Yeah, no, they are new institutional development groups who have not done new construction deals with us previously until now, and it's just great to see as we called out in our script some of the markets, those dozen or so that we signed this quarter.

Got it. So it sounds like it's broadening. That's good to hear. And then just on a related note, Dan, you've historically talked about infrastructure spending. You've mentioned oil and gas a couple of times the last few quarters. Where do data centers fit into all that? And is all the AI spending and build out there, is that incremental to what you've outlined previously? And how might that hit RevPAR and unit growth over the intermediate term? Thanks.

Wow. Yes, data centers are primarily private. There is, obviously, when it comes to energy, some infrastructure overlap. But look, AI is just, as we all know, required increasingly vast amount of data and And as Google, as Amazon, as Meta all expand their infrastructures, what we're seeing, data center construction across the USA is just exploding. Significant new construction pickup in major markets where centers are concentrated today. In states like to the Rev Park West in Texas, you know, especially around the Dallas-Fort Worth area, I think we're With ECHO now, I think we tipped over 700 hotels in Texas. It's our number one state. We're all headed out there this Sunday for HLA's annual hospitality show. I don't know if you're going to be there. We saw you at lodging. But, I mean, what's exciting for us is that our franchise sales team and our corporate contracted sales teams, our GSOs, are seeing expansion of these new data center constructions under construction in so many secondary markets in states like Georgia and You think about Georgia and all the proximity to fiber routes. We have 300 hotels in Georgia, and our franchise sales teams are all over where those centers are being built in. New York and New Jersey, obviously a market really important for data centers, close to the financial markets where we have 250 hotels. Florida, we're seeing a pickup in terms of, you know, around the Miami area. area especially, the gateway to Latin America for AI. We've got 300 hotels in Florida. It's our second largest state, and we're seeing increased demand there. Arizona, another state that people often miss, I mean, just abundant renewable energy supply, which to your infrastructure question, the Arizona data centers we believe will benefit from, and we're actually seeing that from some of the infrastructure areas. bill spending that's starting to be allocated. You know, we've got over 150 hotels in Arizona. So, so much of what's being built new construction-wise, what's attracting our franchise sales teams and GSO teams to these sites will continue, we believe, to drive our brand's weekday market share gains, which we saw and just starting to really pick up this quarter. And we think, as Michelle said, it could accelerate into 2025. And especially to Joe's question, fuel is our record development pipeline with those new construction prototype brands, because there's just a lack of lodging around those centers.

Very helpful.

Thank you.

Thanks, Mike.

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

Hi, morning, everyone. Thanks for all the detail and for taking my question. Firstly, I just wanted to go a little farther. I know, Michelle, you talked about some of the comp benefits that work your way in 4Q. One of your peers talked yesterday about, you know, leisure for 25 being flat or maybe a little down. And I know that that's an important part, but not all leisure is created equal. If you all could just talk about what your kind of leisure expectation is broadly and how that relates to your system, it would be a good place to start.

Yeah, look, if leisure demand were to wane in any way, and we're not seeing that, we're certainly the beneficiaries, as we've been in the past. Our brands have always significantly outperformed the broader market. Lodging market, David, as we've talked about, and slowdowns. But we are not seeing any significant softness or any trade down. As those gaps between the chain scales continue to strengthen, I mean, think about it. There is no signs yet of any discounting or compression. There hasn't been. That $50 gap between the economy segment and the upper mid-scale segment, ADR, is now increased to $60. That $70 gap between the upper mid-scale and the upper upscale is now grown to $80. You know, and all the leading indicators we look at remain positive. Our booking windows continue to tick up, up 5% to last year, year-to-date from 16 to 17 days now. We're seeing longer lengths of stay. We're seeing credit card data spending for September up 200 basis points. And leisure travel sentiments, you know, continuing to improve among these, you know, everyday blue-collar workers who are more employed. Their wages and savings are higher. It's creating a very resilient employment backdrop and It's driving very strong disposable personal income where they've shifted their priorities when coupled with if interest rates do come down, lower mortgage payments and moderating essential spending should drive the improvement in cash flow for our consumers to vacation. And all of the worry around the normalization, I mean, we are seeing things improve. We're right on trend. We're seeing continued growth momentum. That economy rep part continues to normalize. Each quarter of 2024 has improved in economy. Q2 is better than Q1. Q3 was better than Q2. And economy rep part is a full point ahead of the overall domestic rep part growth to 2019. So pricing power is strong. It's still trailing inflation. We're up, I think, 17% to 19% versus 23%. And we think pricing power could continue to be flexed for our franchisees. And as Michelle said, when we look at quarter to date for the first three weeks, economy being up 330 basis points and mid-scale, I think it was up 450 basis points, coupled with a more favorable year-on-year comparable, not only for Q3, but for the next four quarters, we believe that we'll continue to see positive momentum, no waning in leisure travel demand as we head into the Q4 and as we continue through the Q4 and throughout 2025. especially as our economy and mid-scale brands continue to gain market share during the midweek and we pick up on that infrastructure business that we talked about.

Thank you for that. And as my follow-up, I wanted to touch on the ancillary fees. Should we be, you know, I know that we've seen across the industry those fees, even for those that may be just a little more mature with them than you are, they are outgrowing the REVPAR-driven fees. My take is that in your case, you're at a much earlier stage of those. And so the ultimate growth, and we think about terminal valuing those, long-term valuing those, you should be growing at a much higher rate than what kind of the core REVPAR fees would grow at. Is that a fair context? And any color on it would help. Thanks.

Yes, we do expect over the longer term, in the short term and over the longer term, the growth rate for our ancillary fee streams will outpace the growth rate of the compounded franchising model.

Okay.

We can leave it there. Thanks.

Thank you.

Our next question will come from Ian Cefino with Oppenheimer. Please go ahead.

Great. Thank you very much. Just wanted to maybe drill down on the market share gains, you know, and congratulations on that. Maybe to talk to us about, you know, which of the states those were, maybe which brands kind of saw the best traction, you know, and also is that just the function of the location being around infrastructure projects? Are you doing anything different there? And, you know, maybe also, Cicelynn, another one as it relates to this topic is, you know, You know, what's sort of the sustainability of this, do you think? You know, at least the numbers we've seen, less than half of the IIJA spend has been dispersed. So, you know, kind of any comments or color or meat on the bones you could provide there. Thanks.

Yeah, a lot there to unpack, Ian. We have, in terms of where we saw strong by-state gains, REVPAR, We talked a bit about our oil markets coming back, and I just talked about Texas being up 5%, North Dakota being up 6%, Alabama and Louisiana, strong oil markets were up strong double digits. And the infrastructure states that we have always talked about were all pretty much positive, and we're expecting that growth to continue, certainly on the oil and gas side as crews continue to come back into these markets, and absolutely on the infrastructure side. as infrastructure ramps. It is, as we've said before, such early days for us. We are seeing that double-digit uptick in leads from companies bidding on the federal infrastructure work with a 15% increase in corporate contracted accounts that our Wyndham sales teams are contracting with, and that is what has been growing our share gain. Combined infrastructure lifted our overall domestic weekday REVPAR by 100 basis points. Occupancy was most of it, and demand is everywhere. But it's, again, really early days. Less than 20% in terms of how early it is, that $1.2 trillion bill, not including the incremental, has been allocated. So $400 billion has been allocated, but only $300 billion of it has actually been announced to date, and only $100 billion of that $300 billion is outlaid or released to date. So think about that. Only one-twelfth the $1.2 billion is paid out. So it is a very meaningful multi-year driver for our franchisees over the next 10 plus years. And even beyond that, there's still another $100 billion of annual infrastructure spending ongoing, which is not in the incremental. And we're capturing an outside share of that given our investment in technology and tools and teams. To your market share question, Domestically, our largest brands like Super 8, Days Inn, La Quinta, all over-indexing in our most recent FDD filings. Days Inn being the strongest, having jumped from 117 to 120% fair market share. And specifically in the quarter, against their SDR competitive sets, Super 8 gained another 10 basis points. Microtel, another 50 basis points. And Days Inn has been just really screaming another 80 basis points of market share.

Okay, great. And then just as a follow up to that, you know, how do you think about the mix, you know, between, you know, economy mid scale, echo suites, etc. You know, just given that a lot of these kind of new drivers or recent drivers have popped up, is it kind of making you rethink maybe that there's other sources of upside here? So maybe any kind of comments on that? Thanks.

Well, in the economy segment, certainly Echo Suites is another upside for us in terms of just the demand that is out there from an extended stay standpoint. There's not a lot of economy new construction extended stay lodging out there. I mean, extended stay lodging is outpacing existing supply by a three to one margin. And if you look at Q3 STR economy, extended stay rep part was another 200 basis points higher than the overall economy industry. And it's really no surprise that extended stay is 36% of the domestic pipeline supply right now when you look at the STR report. So we're looking at that as certainly incremental.

Okay, great. Thank you very much.

Thanks, Ian.

Thank you. Our next question will come from Patrick Scholes with Truist Securities. Please go ahead.

Hey, good morning, everyone. Good morning, Patrick. Good morning, Patrick. Morning. Jeff, Michelle, can you give an update on continued progress with the retention rate? You know, you're getting close to, I believe, your target of 96%. You know, is there further opportunity beyond that? And then within that retention rate, you know, can you give us a breakout of what that looks like U.S. versus international? Thank you.

Sure, yeah. We're really pleased with the progress we've made on retention thus far, and we do expect to continue to improve it. You can see steady improvement over a number of years now, and it really is reflective of our increasing value proposition, as well as our owner-first We've always said 96% was kind of the first stop, maybe the first base around, and there's room once we get there to continue to push higher. In terms of the breakout, the timing, I'd say, of terminations is dependent upon many, many factors, including contractual terms, notice periods, you know, cures on defaults, all of those things. And some culling of the system is necessary from time to time, especially as we bring in higher value properties. So while retention remains a priority across our portfolio, we don't measure it quarterly, it's measured over time. And our focus this year has been on improving our global retention rate. We've made great progress on that front. Domestically, our primary focus is on overall net room growth. Again, especially as we continue to push into these higher value I think this is the 13th consecutive quarter now. We've seen positive growth in the U.S. Our teams are really proud of that, especially in what has been a limited new supply market.

Thank you. I guess just a bit of a follow-up. When we do think about that blended 96, roughly, retention rate, how does that percentage break out? U.S. versus international, if you can share that.

From an outlook perspective, we definitely don't guide to that level of detail.

I'm sorry, not a guide, but where are you currently at now?

Yeah, we're currently at 95.7%, Patrick. Our attention on a global basis was up 40 basis points, and You know, our teams, I think the most important thing, to Michelle's point, they're successfully swapping these lower-value termination rooms for higher-value new rooms. I mean, for example, you know, the double-digit net room growth that we saw over in Asia Pacific, it's coming in at three times the license fee. And, you know, since then, we've been able to, you know, move that 93, 94 to 95 to 96 to over the last 12 months, which is how we look at this globally, you know, another 40 basis points to 95.7%.

Okay, thank you.

Thanks, Patrick.

Our next question will come from Brant Montour with Barclays. Please go ahead.

Thanks. Good morning, everybody. I wanted to double-click on the hurricane impact, and obviously no one's rooting for this relief effort to drag on or become more agree just from here, but just, you know, objectively speaking, if you could compare, you know, this hurricane season and the devastation with the aftermath of the 2017 hurricanes, Harvey and Irma, and the reason I ask is because those relief efforts trailed into all the way into the second quarter of 2018, and you had a pretty large lift related to that in the order of 200 to 300 basis points in the U.S., So maybe you could just help us sort of understand, compare, contrast, you know, the two situations.

Yeah, absolutely. And you're 100% right. Our select service hotels, they do provide a vital role in accommodating displaced families and emergency workers. And so the impact, though, on Red Park can vary significantly depending on the storm scale and then our footprint and the effect it has. Here we had about 500 hotels that were impacted, but we only have one hotel that currently remains closed. I think it's our Super 8 in Asheville. So, you know, the hotels are open operating and they're accepting emergency crews and displaced families. And that's really, that increased demand is really what's driving the 40 basis points I discussed earlier. If you look specifically at 2017, And we had two major hurricanes hit our two largest footprint states at Florida and Texas. And we did see a two to 300 basis point impact over a two to three quarter period. But in other cases, many other cases, the impacts are not nearly as large and are much shorter duration, typically in the range of 50 to 100 basis points for one quarter only. You know, FEMA has deployed 9,000 personnel into the impacted region. We've got over 100 hotels right now that are running occupancy month to date greater than 90%. So we are seeing a lot of our hotels filled with crews and lots of large pieces of business. Yesterday there was a half a million dollars booked for one specific vendor, and so that's new business coming in today. So we do think there is going to be continued benefit. It's just really hard to say how long that's going to last for.

Okay. That's super helpful. Thanks, Michelle. And then a follow-up question, you know, yesterday Hilton called out a greater impact from the election in November than they had originally expected. I assume that they – well, presumably they were talking about group, and group doesn't really – doesn't affect you guys, but we have heard other smaller operators in different industries call out, in swing states specifically, election distraction, sort of keeping people at home and making them depressed. With all the commercials and whatnot, I was curious, Jeff or Michelle, you know, if there's, and I know you don't have, you know, the visibility for, well, no, we're getting to the point where you probably do have the visibility. Any sort of, you know, distraction on sort of leisure travel or anything you think might be keeping people at home that you're sort of baking in?

You know, I would say, because you referenced Hilton specifically, I would just say, you know, there are a number of, uh, a number of different dynamics between our business, particularly in the fourth quarter and what we're going to see in some of these, um, some of these more business oriented brands. Um, and, and the impact of the presidential election is, um, we are expecting to be, to be one, uh, one of those differences. Um, so, so it's coming up in a few weeks, it often reduces not just group and conference business, but overall corporate travel. But our business traveler is wearing hard hats and work boots, so we're not expecting it to have – it typically would not have an impact on our business. Now, this is not a typical election, so it still remains to be seen. The second is that Christmas holiday period where, again, you're going to see tighter – business travel windows, but longer leisure travel windows. So that's going to be a favorable shift for us in the fourth quarter and maybe unfavorable for some of the peers.

Perfect. Thanks, everyone.

Thanks, Brent. Thank you.

Our next question will come from Lizzy Dove with Goldman Sachs. Please go ahead.

Hi there. Thanks for taking the question. Sounds like you're seeing some really nice green shoots in the economy segment in the fourth quarter. It's a change scale that has been a laggard. Curious to what extent you have seen any impact from some of the newer brands in the premium economy segment taking any share, something like a Spark, for example, or especially with the improvements you've seen, do you see those challenges in an economy over the last 18 months as more cyclical and a function of commerce?

Yeah, I'd say more cyclical and function of comp. I mean, it's been two years, and really none of the new brand launches out there have been slowing our NRG or our accelerating development pipeline, especially in the mid-scale and above segments that really these brands are playing in according to Smith Travel. And where we've been able to accelerate our domestic mid-scale and above net room growth to plus 3%, Lizzie, over the last several quarters since their introduction is We don't view the reflagging of the handful. I think it's 10 of our over 9,200 hotels is incremental in any way to our normal term activity.

That's helpful. Thank you. And then just one follow-up on China, which I guess is a decent chunk of your international rooms. We obviously got the stimulus announcement last month or so. How does that change your outlook at all? Is that something you think can have a meaningful impact for China in 2025?

I don't think it changes our outlook. It definitely makes it a little bit easier, but we'd always been expecting continued recovery in China, and that view has not changed. We just feel a little bit more confident in it with the stimulus coming in. Got it. Thank you. Thank you.

Our next question will come from Steve Pizzello with Deutsche Bank. Please go ahead.

Hey, good morning, everyone. On development, I believe slide 15 noted net room growth pacing ahead of historical performance. Is that just a pull forward of new rooms, or should we expect the same historical seasonal net room as in the 4Q this year?

Yeah. So we are, I think we're pacing well ahead of where we were last year. We were at 70%. I think last year we were about 50%. And the teams have been really productive bringing in deals earlier in the year. But with respect to the fourth quarter, I'd say some of our international teams had pretty large quarter, pretty large quarters bringing in some monster opens and, and, And so we do think this fourth quarter will be a bit lower than it was last year, as a lot of those openings are already captured in the year-to-date. But full year will be up, and we remain confident in our ability to deliver in line with expectations.

Okay, thank you. Then margins continue to show solid year-over-year growth. X the marketing spend, what is driving the expansion from a cost control perspective? Is there any margin benefits embedded in the 2026 algorithm? And how should we think about margins going into next year?

Yes. So what's driving the margin benefits right now are ancillary revenue growth and efficiencies we're gaining there. some of the efficiencies we have from an organizational perspective when we combine our, when we created our commercial organization, and then some AI and technology enhancements that we've been deploying in the back end, the back house of the business. All of those are contributing to the margin impact. Also on a year-to-date basis and on a full year, we did have We did have about $4 million of insurance proceeds that had a small benefit to the margin. Excluding that insurance benefit, the rest of the margin will stick moving forward into 2025 and then with respect to where the margin will be for 2025, hard to say until we get through our budgeting process.

Okay. Thank you.

Thank you.

Our last question will come from Meredith Jensen with HSBC. Please go ahead.

Good morning. Thank you. Quickly on the technology front, I know you spoke quite a bit about your advantage being cloud-based versus competitors who may have to rebuild that tech stack to get there. I was wondering if you have kind of any internal targets on the merchandising front, like how many bookings might add on some of those – sort of build a room options. I do think we got, one of the competitors was saying currently they have low teens percentage of bookings that have some of those additions. So I was wondering if you have any sort of metrics we could follow on that.

I think, Meredith, the investments that we made over the last six years, which has really laid the foundation for us, a $300 million investment, investments and spend in our industry leading tech stack is what is really helping us drive from a direct contribution standpoint and a win and reward standpoint so much of our success. I mean, we're seeing, you know, record enrollments in our loyalty program, which is driving a member occupancy up 240 basis points in the Q3 and is now – 50% over one out of every two check-ins directly for our guests to our franchisees are coming through our technology stack. And that's really important. It's an all-time high for any Q3 that we've had. It's up 600 basis points to where we were in 2019. We're going to continue to invest in that technology stack. We're going to continue to, as we said furiously, execute and implement and speed up all aspects of the operation for our franchisees, which is really reducing the labor load on their front desks. And it's our ability to allow those hotel teams to interact directly with the guests that through our automation of all of the manual processes and seamlessly offering that early check-in and late check-out, that's also helping drive our net room growth. It's one of the biggest points of differentiation our franchise sales teams believe when they're out there selling our value proposition versus our competitor. And so we're huge believers. We're big partners with Salesforce. Mark Benioff on CNBC Mad Money, I don't know if you saw it, but Matt could send you that clip, talked about how our technology and digital teams are really innovating. I mean, coupled with Salesforce's data cloud, we are amalgamating the data. We're delivering a level of automation that, as Mr. Benioff said, has never been envisioned. And we're taking that ebb and flow of the manual tasks and the customer demand and automating every customer touchpoint that we can, really supercharging our 360 strategy with our data and building a much stronger data cloud. And we think the opportunities ahead for us are endless.

That's awesome. Thank you. One very quick addition. On the important ancillary fees, just to dig in a little bit more, you mentioned that the business card had this incredible 70% jump year-over-year in spend. Will you be able to provide some of those trends going forward and some of the breakdown of ancillary growth that we can sort of look to going forward?

Yeah, you know what?

Go ahead, Michelle. We're both excited about it.

We are very. There's a lot to be excited about here. I say, you know, our credit card program will be the largest contributor to our ancillary fee growth, and it has been in 24, will be likely in 25. growth here is accelerating due to a number of initiatives, um, which helped to generate higher cardholders as well as higher, uh, purchase volumes. One of those is, um, is Wyndham Business that we, that Jeff discussed in his, uh, in his prepared remarks. And there are many opportunities to enhance our marketing, um, and, and reach a broader base of consumers to increase the number of cardholders. There's also new product opportunities and international, expansion. Wyndham business itself is just ramping now, so we're expecting to see not just the increased cardholders there, but the elevation in purchase volumes. Outside of the credit card, we've got our blue thread with T&L continuing to drive higher license fees there. We know that consumers value the Wyndham Rewards currency, and we're looking to capitalize upon that in strategic partnerships. And then The investments that Jeff mentioned in our back end and on property technology, those are presenting incremental opportunities, not just for our franchisees who, you know, the 40% of owners that are engaged and opted in to Wyndham Connect are seeing $1,500 a month in incremental revenue. That's sizable for them, but we're earning a portion of that as well. So there are numerous opportunities here, other things that we're working on that we're not talking about, and we're really excited about all the progress we're making on this front, and we'll continue to update as we have more to talk about.

Awesome. Thank you so much.

Thanks, Meredith. Thank you.

Thank you. At this time, I would like to turn the floor back over to Jeff Spallotti for closing remarks.

Well, thanks, Todd, and thanks to everyone who's still with us. We're sorry for going over, but we appreciate everyone's interest in Wyndham Hotels and Resorts. Certainly Michelle and I and Matt look forward to talking to and seeing many of you in the weeks ahead at so many of the upcoming investor conferences that we'll be attending. In the meantime, have a great weekend ahead, and happy Halloween, everyone. Thanks again for joining us today.

Thank you. This does conclude today's Wyndham Hotels and Resorts third quarter 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.