☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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1. BASIS OF PRESENTATION

Wyndham Hotels & Resorts, Inc. (collectively with its consolidated subsidiaries, “Wyndham Hotels” or the “Company”) is a leading global hotel franchisor, licensing its renowned hotel brands to hotel owners in approximately 90 countries around the world.

The Condensed Consolidated Financial Statements have been prepared on a stand-alone basis. The Condensed Consolidated Financial statements include Wyndham Hotels’ assets, liabilities, revenues, expenses and cash flows and all entities in which Wyndham Hotels has a controlling financial interest. The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany balances and transactions have been eliminated in the Condensed Consolidated Financial Statements.

In presenting the Condensed Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s 2019 Consolidated and Combined Financial Statements included in its most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and any subsequent reports filed with the SEC.

Business description

Wyndham Hotels operates in the following segments:

•	Hotel Franchising — licenses the Company’s lodging brands and provides related services to third-party hotel owners and others.

•	Hotel Management — provides hotel management services for full-service and limited-service hotels as well as two hotels that are owned by the Company.

2. NEW ACCOUNTING PRONOUNCEMENTS

Recently issued accounting pronouncements

Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In March 2020, the Financial Accounting Standards Board (the "FASB") issued optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. Generally Accepted Accounting Principles ("GAAP") to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the optional expedients provided by the new standard.

Recently adopted accounting pronouncements

Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued guidance to replace the existing methodology for estimating credit losses with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company

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adopted the guidance on January 1, 2020, as required using the modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align the Company’s current processes for establishing an allowance for credit losses with the new guidance. See Note 5 - Accounts Receivable for the impact of adoption.

Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued guidance which simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. The Company adopted the guidance on January 1, 2020, as required. There was no material impact on its Condensed Consolidated Financial Statements and related disclosures.

3. REVENUE RECOGNITION

Deferred revenues

Deferred revenues, or contract liabilities, generally represent payments or consideration received in advance for goods or services that the Company has not yet provided to the customer. Deferred revenues as of March 31, 2020 and December 31, 2019 are as follows:

		March 31, 2020				December 31, 2019
Deferred initial franchise fee revenues		$	138			$	136
Deferred loyalty program revenues		88				86
Deferred co-branded credit card program revenues		28				34
Deferred hotel management fee revenues		1				—
Deferred other revenues		25				27
Total		$	280			$	283

Deferred initial franchise fees represent payments received in advance from prospective franchisees upon the signing of a franchise agreement and are generally recognized to revenue within 12 years. Deferred loyalty revenues represent the portion of loyalty program fees charged to franchisees, net of redemption costs, that have been deferred and will be recognized over time based upon loyalty point redemption patterns. Deferred co-branded credit card program revenue represents payments received in advance from the Company’s co-branded credit card partners primarily for card member activity, which is typically recognized within one year.

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Performance obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The consideration received from a customer is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. The following table summarizes the Company’s remaining performance obligations for the twelve-month periods set forth below:

	4/1/2020- 3/31/2021				4/1/2021- 3/31/2022				4/1/2022- 3/31/2023				Thereafter				Total
Initial franchise fee revenues	$	21			$	10			$	8			$	99			$	138
Loyalty program revenues	54				22				10				2				88
Co-branded credit card program revenues	28				—				—				—				28
Hotel management fee revenues	1				—				—				—				1
Other revenues	17				1				1				6				25
Total	$	121			$	33			$	19			$	107			$	280

Disaggregation of net revenues

The table below presents a disaggregation of the Company’s net revenues from contracts with customers by major services and products for each of the Company’s segments:

	Three Months Ended March 31,
	2020				2019
Hotel Franchising
Royalties and franchise fees	$	84			$	99
Marketing, reservation and loyalty	106				112
License and other revenues from former Parent	21				29
Other	32				29
Total Hotel Franchising	243				269
Hotel Management
Royalties and franchise fees	8				2
Marketing, reservation and loyalty	—				1
Owned hotel revenues	22				26
Management fees	10				13
Cost reimbursements	126				155
Other	1				—
Total Hotel Management	167				197
Corporate and Other	—				2
Net revenues	$	410			$	468

Capitalized contract costs

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4. EARNINGS PER SHARE

The computation of basic and diluted earnings per share (“EPS”) is based on net income divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively.

The following table sets forth the computation of basic and diluted EPS (in millions, except per share data):

	Three Months Ended March 31,
	2020				2019
Net income	$	22			$	21
Basic weighted average shares outstanding	93.7				97.9
Stock options and restricted stock units (“RSUs”)	0.2				0.3
Diluted weighted average shares outstanding	93.9				98.2
Earnings per share:
Basic	$	0.23			$	0.22
Diluted	0.23				0.22
Dividends:
Cash dividends declared per share	$	0.32			$	0.29
Aggregate dividends paid to shareholders	$	30			$	28

Stock repurchase program

The following table summarizes stock repurchase activity under the current stock repurchase program (in millions, except per share data):

	Shares			Cost				Average Price Per Share
As of January 1, 2020	6.8			$	363			$	53.67
For the three months ended March 31, 2020	0.9			45				51.57
As of March 31, 2020	7.7			$	408			$	53.43

The Company had $191 million of remaining availability under its program as of March 31, 2020. On March 17, 2020, the Company suspended its share repurchase activity.

5. ACCOUNTS RECEIVABLE

Allowance for doubtful accounts

The Company generates trade receivables in the ordinary course of its business and provides for estimated bad debts on such receivables. The Company adopted the new accounting guidance, ASU 2016-13, Measurement of Credit Losses on Financial Instruments on January 1, 2020. As a result of adopting the new guidance, the Company recorded a $10 million (net of $2 million of an income tax benefit) cumulative effect adjustment to retained earnings at January 1, 2020. Since adoption, the Company measures the expected credit losses of its receivables on a collective (pool) basis which aggregates receivables with similar risk characteristics and uses historical collection attrition rates for periods ranging from seven to ten years to estimate its expected credit losses. As such, the Company measures the expected credit losses of its receivables by segment and geographical area. Beginning January 1, 2020, the Company provides an estimate of expected credit losses for its receivables immediately upon origination or acquisition and may adjust this estimate in subsequent reporting periods as required. When the Company determines that an account is not collectible, the account is written-off to the allowance for doubtful accounts. The Company also considers whether the historical economic conditions are comparable to current economic conditions. If current or expected future conditions differ from the conditions in effect when the historical

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experience was generated, the Company would adjust the allowance for doubtful accounts to reflect the expected effects of the current environment on the collectability of the Company’s trade receivables which may be material.

The following table sets forth the activity in the Company's allowance for doubtful accounts on trade accounts receivables for the three months ended:

	March 31, 2020
Beginning balance	$	47
Cumulative effect of change in accounting standard	12
Provision for doubtful accounts	12
Bad debt write-offs	(13		)
Ending balance	$	58

Notes receivable

6. LONG-LIVED ASSETS

Property, plant and equipment

 

As a result of the coronavirus pandemic, (“COVID-19”) and the related governmental preventative and protective actions to slow the spread of COVID-19, the travel industry is experiencing a sharp decline in travel demand. As a result, during the first quarter of 2020, the Company temporarily closed its two owned hotels indefinitely. Due to the temporary closure of such hotels, the Company has evaluated the recoverability of its net property plant and equipment associated with its two owned hotels for impairment and believes that it is more likely than not that the carrying value of those assets are recoverable from future expected cash flows, on an undiscounted basis, from such assets.

Although the Company believes that it is more likely than not that the carrying values of its net property, plant and equipment for its two owned hotels are not impaired, the impact of COVID-19 and the ultimate duration remains highly uncertain. Should the current effects of COVID-19 persist for a prolonged duration, the Company's results of operations may continue to be negatively impacted and the property, plant and equipment associated with its owned hotels may be exposed to impairment.

Property, plant and equipment, net as of March 31, 2020 and December 31, 2019 was $299 million and $307 million, respectively.

Intangible assets

As a result of COVID-19 and the significant negative impact it has had on travel demand, the Company performed a qualitative assessment of its intangible assets. The Company has determined through its analysis that it is more likely than not that the fair value of each of its goodwill and trademarks and the future expected cash flows on an undiscounted basis for its franchise agreements and management contracts are in excess of their carrying values. Although the Company believes that such intangible assets are not impaired, the impact of COVID-19 and the ultimate duration remains highly uncertain. Should the current effects of COVID-19 persist for a prolonged duration, the Company's results of operations may continue to be negatively impacted and certain intangible assets may be exposed to impairments at the Company's (i) hotel franchising, (ii) hotel management and (iii) owned hotel reporting units. To the extent estimated market-based valuation multiples and/or discounted cash flows are revised downward, the Company may be required to write-down all or a portion of goodwill, trademarks, franchise agreements and management contracts, which would adversely impact earnings.

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Intangible assets as of March 31, 2020 and December 31, 2019 consisted of the following:

	March 31, 2020												December 31, 2019
	Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount				Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Unamortized intangible assets:
Goodwill	$	1,539											$	1,539
Trademarks	$	1,393											$	1,393
Amortized intangible assets:
Franchise agreements	$	895			$	467			$	428			$	895			$	460			$	435
Management agreements	137				25				112				137				23				114
Trademarks	3				1				2				3				1				2
Other	3				1				2				3				1				2
	$	1,038			$	494			$	544			$	1,038			$	485			$	553

7. FRANCHISING, MARKETING AND RESERVATION ACTIVITIES

Royalties and franchise fee revenues on the Condensed Consolidated Statements of Income include initial franchise fees of $3 million and $4 million for the three months ended March 31, 2020 and 2019, respectively.

In accordance with its franchise agreements, generally Wyndham Hotels is contractually obligated to expend the marketing and reservation fees it collects from franchisees for the operation of an international, centralized, brand-specific reservation system and for marketing purposes such as advertising, promotional and co-marketing programs, and training for the respective franchisees. Additionally, the Company is required to provide certain services to its franchisees, including technology and purchasing programs.

Development advance notes

The Company may, at its discretion, provide development advance notes to certain franchisees or hotel owners in order to assist them in converting to one of Wyndham Hotels’ brands, in building a new hotel to be flagged under one of Wyndham Hotels’ brands or in assisting in other franchisee expansion efforts. Provided the franchisee/hotel owner is in compliance with the terms of the franchise/management agreement, all or a portion of the development advance notes may be forgiven by Wyndham Hotels over the period of the franchise/management agreement, which typically ranges from 10 to 20 years. Otherwise, the related principal is due and payable to Wyndham Hotels. In certain instances, Wyndham Hotels may earn interest on unpaid franchisee development advance notes.

As a result of COVID-19 and the significant negative impact it has had on travel demand, the Company performed a qualitative assessment on its development advance notes and determined that it is more likely than not that the carrying value of those assets are recoverable from future expected cash flows as of March 31, 2020.

The following table sets forth the amounts recorded on the Company's Condensed Consolidated Financial Statements related to development advance notes:

Condensed Consolidated Balance Sheets:	March 31, 2020				December 31, 2019
Development advance notes (a)	$	84			$	84

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(a)	Included within other non-current assets.

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Condensed Consolidated Statements of Income:	Three Months Ended March 31,
	2020				2019
Forgiveness of notes (a)	$	2			$	2
Bad debt expense related to notes	1				1

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(a)	Amounts are recorded as a reduction of royalties and franchise fees and marketing, reservation and loyalty revenues.

8. INCOME TAXES

The Company files income tax returns in the U.S. federal and state jurisdictions, as well as in foreign jurisdictions. Through May 31, 2018, the Company was part of a consolidated U.S. federal income tax return and consolidated and combined state returns with its former Parent. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2015. The Company is no longer subject to state and local, or foreign, income tax examinations for years prior to 2010.

The Company made cash income tax payments, net of refunds, of $3 million and $6 million for the three months ended March 31, 2020 and 2019, respectively.

9. LONG-TERM DEBT AND BORROWING ARRANGEMENTS

The Company’s indebtedness consisted of:

	March 31, 2020							December 31, 2019
Long-term debt: (a)	Amount				Weighted Average Rate (b)			Amount				Weighted Average Rate (b)
$750 million revolving credit facility (due May 2023)	$	734			2.47	%		$	—
Term loan (due May 2025)	1,564				3.50	%		1,568				4.00	%
5.375% senior unsecured notes (due April 2026)	495				5.38	%		494				5.38	%
Finance leases	59				4.50	%		60				4.50	%
Total long-term debt	2,852							2,122
Less: Current portion of long-term debt	21							21
Long-term debt	$	2,831						$	2,101

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(a)	The carrying amount of the term loan and senior unsecured notes are net of deferred debt issuance costs of $17 million and $18 million as of March 31, 2020 and December 31, 2019, respectively.

(b)	Weighted average interest rates are based on period-end balances, including the effects from hedging.

Maturities and capacity

The Company’s outstanding debt as of March 31, 2020 matures as follows:

	Long-Term Debt
Within 1 year	$	21
Between 1 and 2 years	21
Between 2 and 3 years	21
Between 3 and 4 years	756
Between 4 and 5 years	10
Thereafter	2,023
Total	$	2,852

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As of March 31, 2020, the available capacity under the Company’s revolving credit facility was as follows:

	Revolving Credit Facility
Total capacity	$	750
Less: Borrowings	734
Less: Letters of credit	15
Available capacity	$	1

Deferred debt issuance costs

The Company classifies deferred debt issuance costs related to its revolving credit facility within other non-current assets on the Condensed Consolidated Balance Sheets. Such deferred debt issuance costs were $4 million as of March 31, 2020 and December 31, 2019.

Cash flow hedge

In 2018, the Company hedged a portion of its $1.6 billion term loan. As of March 31, 2020, the pay-fixed/receive-variable interest rate swaps hedge $1.1 billion of the Company’s term loan interest rate exposure, of which $600 million expires in the second quarter of 2024 and has a weighted average fixed rate of 2.54% and $500 million expires in the fourth quarter of 2024 and has a weighted average fixed rate of 1.50%. The variable rates of the swap agreements are based on one-month LIBOR. The aggregate fair value of these interest rate swaps was a liability of $82 million and $34 million as of March 31, 2020 and December 31, 2019, respectively, which was included within other non-current liabilities on the Condensed Consolidated Balance Sheets. The effect of interest rate swaps on interest expense, net on the Condensed Consolidated Statements of Income was $2 million of expense for the three months ended March 31, 2020 and not material for the three months ended March 31, 2019. There was no hedging ineffectiveness recognized in the three months ended March 31, 2020 and 2019. The Company expects to reclassify approximately $11 million from accumulated other comprehensive income ("AOCI") to interest expense during the next 12 months.

Interest expense, net

Wyndham Hotels incurred net interest expense of $25 million and $24 million for the three months ended March 31, 2020 and 2019, respectively. Cash paid related to such interest was $17 million and $18 million for the three months ended March 31, 2020 and 2019, respectively.

10. FAIR VALUE

Wyndham Hotels measures its financial assets and liabilities at fair value on a recurring basis and utilizes the fair value hierarchy to determine such fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value driver is observable.

Level 3: Unobservable inputs used when little or no market data is available. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement falls has been determined based on the lowest level input (closest to Level 3) that is significant to the fair value measurement. Wyndham Hotels’ assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The fair value of financial instruments is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques, as appropriate. The carrying amounts of cash and cash equivalents, trade receivables, accounts payable and accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The carrying amounts and estimated fair values of all other financial instruments are as follows:

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	March 31, 2020
	Carrying Amount				Estimated Fair Value
Debt	$	2,852			$	2,627

The Company estimates the fair value of its debt using Level 2 inputs based on indicative bids from investment banks or quoted market prices with the exception of finance leases, which are estimated at carrying value.

Financial instruments

Changes in interest rates and foreign exchange rates expose the Company to market risk. The Company uses cash flow hedges as part of its overall strategy to manage its exposure to market risks associated with fluctuations in interest rates and foreign currency exchange rates. As a matter of policy, the Company only enters into transactions that it believes will be highly effective at offsetting the underlying risk, and it does not use derivatives for trading or speculative purposes. The Company estimates the fair value of its derivatives using Level 2 inputs.

Interest rate risk

A portion of debt used to finance the Company’s operations is exposed to interest rate fluctuations. The Company uses various hedging strategies and derivative financial instruments to create a desired mix of fixed and floating rate assets and liabilities. Derivative instruments currently used in these hedging strategies include interest rate swaps. The derivatives used to manage the risk associated with the Company’s floating rate debt are derivatives designated as cash flow hedges. See Note 9 - Long-Term Debt and Borrowing Arrangements for the impact of such cash flow hedges.

Foreign currency risk

The Company has foreign currency rate exposure to exchange rate fluctuations worldwide, particularly with respect to the Canadian Dollar, the Chinese Yuan, the Euro, the British Pound and the Argentine Peso. The Company uses foreign currency forward contracts at various times to manage and reduce the foreign currency exchange rate risk associated with its foreign currency denominated receivables and payables, forecasted royalties and forecasted earnings and cash flows of foreign subsidiaries and other transactions. Losses recognized in income from freestanding foreign currency exchange contracts were $2 million and $1 million for the three months ended March 31, 2020 and 2019, respectively.

As required, the Company began accounting for Argentina as a highly inflationary economy as of July 1, 2018. Foreign currency exchange losses related to Argentina were not material for the three months ended March 31, 2020 and $1 million for the three months ended March 31, 2019. Such losses are included in operating expenses in the Condensed Consolidated Statements of Income.

Credit risk and exposure

The Company is exposed to counterparty credit risk in the event of nonperformance by counterparties to various agreements and sales transactions. The Company manages such risk by evaluating the financial position and creditworthiness of such counterparties and often by requiring collateral in instances in which financing is provided. The Company mitigates counterparty credit risk associated with its derivative contracts by monitoring the amounts at risk with each counterparty to such contracts, periodically evaluating counterparty creditworthiness and financial position, and where possible, dispersing its risk among multiple counterparties.

11. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is involved, at times, in claims, legal and regulatory proceedings and governmental inquiries arising in the ordinary course of its business, including but not limited to: breach of contract, fraud and bad faith claims with franchisees in connection with franchise agreements and with owners in connection with management contracts, as well as negligence, breach of contract, fraud, employment, consumer protection and other statutory claims asserted in connection with alleged acts or occurrences at owned, franchised or managed properties or in relation to guest reservations and bookings. The Company may also at times be involved in claims, legal and regulatory proceedings and governmental inquiries relating to bankruptcy proceedings involving efforts to collect receivables from a debtor in bankruptcy, employment matters, claims of infringement upon third parties’ intellectual property rights, claims relating to information security, privacy and consumer protection,

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fiduciary duty/trust claims, tax claims, environmental claims and landlord/tenant disputes. Along with many of its competitors, the Company and/or certain of its subsidiaries have been named as defendants in litigation matters filed in state and federal courts, alleging statutory and common law claims related to purported incidents of sex trafficking at certain franchised and managed hotel facilities. These matters are in the pleading or discovery stages at this time. As of March 31, 2020, the Company is aware of approximately 30 cases filed naming the Company and/or subsidiaries. Based upon the status of these matters, the Company has not made a determination as to the likelihood of loss of any one of these matters and is unable to estimate a range of losses at this time.

The Company records an accrual for legal contingencies when it determines, after consultation with outside counsel, that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In making such determinations, the Company evaluates, among other things, the degree of probability of an unfavorable outcome, and when it is probable that a liability has been incurred, its ability to make a reasonable estimate of loss. The Company reviews these accruals each reporting period and makes revisions based on changes in facts and circumstances, including changes to its strategy in dealing with these matters.

The Company believes that it has adequately accrued for such matters with reserves of $6 million and $7 million as of March 31, 2020 and December 31, 2019, respectively. The Company also had receivables of $1 million and $2 million as of March 31, 2020 and December 31, 2019, respectively, for certain matters which are covered by insurance and were included in other current assets on its Condensed Consolidated Balance Sheets. Litigation is inherently unpredictable and, although the Company believes that its accruals are adequate and/or that it has valid defenses in these matters, unfavorable results could occur. As such, an adverse outcome from such proceedings for which claims are awarded in excess of the amounts accrued, if any, could be material to the Company with respect to earnings and/or cash flows in any given reporting period. As of March 31, 2020, the potential exposure resulting from adverse outcomes of such legal proceedings could, in the aggregate, range up to approximately $5 million in excess of recorded accruals. However, the Company does not believe that the impact of such litigation will result in a material liability to the Company in relation to its combined financial position or liquidity.

Guarantees

Hotel-management guarantees

The Company had previously entered into hotel-management agreements that provide the hotel owner with a guarantee of a certain level of profitability based upon various metrics. Under such agreements, the Company was required to compensate the hotel owner for any profitability shortfall over the life of the management agreement up to a specified aggregate amount. For certain agreements, the Company may have been able to recapture all or a portion of the shortfall payments in the event that future operating results exceed targets.

During 2019, the Company determined it would exit two unprofitable hotel-management agreements. In connection with such hotel-management agreements, the Company had a $10 million liability as of December 31, 2019, which was included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheet and was paid in the first quarter of 2020.

As of March 31, 2020, the Company only had one remaining performance guarantee. The maximum potential amount of future payments that may be made under this guarantee was $20 million with an annual cap of $5 million. This guarantee has a remaining life of approximately four years and is subject to recapture provisions in the event that future operating results exceed targets. To reflect these recapture provisions, the Company had a receivable of $4 million as of March 31, 2020, all of which was included in other non-current assets on its Condensed Consolidated Balance Sheet and $5 million as of December 31, 2019, of which $1 million was included in other current assets and $4 million was included in other non-current assets on its Condensed Consolidated Balance Sheet. Such receivable was the result of payments made to date that were subject to recapture and which the Company believes will be recoverable from future operating performance. As a result of the impacts of COVID-19, there are no payments required under the guarantee due to a force majeure provision in the hotel-management agreement.

Separation-related guarantees

The Company assumed one-third of certain contingent and other corporate liabilities of Wyndham Worldwide incurred prior to the spin-off, including liabilities of Wyndham Worldwide related to, arising out of or resulting from certain terminated or divested businesses, certain general corporate matters of Wyndham Worldwide and any actions with respect to the separation plan or the distribution made or brought by any third party.

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12. STOCK-BASED COMPENSATION

The Company has a stock-based compensation plan available to grant non-qualified stock options, incentive stock options, stock-settled appreciation rights (“SSARs”), RSUs, performance-vesting restricted stock units (“PSUs”) and other stock-based awards to key employees, non-employee directors, advisors and consultants. Under the Wyndham Hotels & Resorts, Inc. 2018 Equity and Incentive Plan (“Stock Plan”), which became effective on May 14, 2018, a maximum of 10.0 million shares of common stock may be awarded. As of March 31, 2020, 5.7 million shares remained available.

Incentive equity awards granted by the Company

Wyndham Hotels’ Board of Directors approved incentive equity award grants to employees of Wyndham Hotels in the form of RSUs, stock options and PSUs.

The activity related to the Company’s incentive equity awards for the three months ended March 31, 2020 consisted of the following:

	RSUs							PSUs
	Number of RSUs			Weighted Average Grant Price				Number of PSUs			Weighted Average Grant Price
Balance as of December 31, 2019	0.8			$	55.75			0.1			$	52.44
Granted (a)	0.5			53.40				0.1			53.40
Vested	(0.1	)		53.14				—			—
Canceled	(0.1	)		56.02				—			—
Balance as of March 31, 2020	1.1		(b)	$	55.02			0.2		(c)	$	52.94

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(a)	Represents awards granted by the Company in February 2020.

(b)	RSUs outstanding as of March 31, 2020 are expected to vest over time and have an aggregate unrecognized compensation expense of $53 million, which is expected to be recognized over a weighted average period of 3.2 years.

(c)	PSUs outstanding as of March 31, 2020 are expected to vest over time and have an aggregate unrecognized compensation expense of $10 million, which may be recognized over a weighted average period of 2.4 years.

The activity related to stock options granted by the Company for the three months ended March 31, 2020 consisted of the following:

	Number of Options			Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2019	0.9			$	56.96
Granted	0.6			53.40
Exercised	—			—
Canceled	—			—
Expired	—			—
Outstanding as of March 31, 2020	1.5			$	55.51			6.3		$	—
Unvested as of March 31, 2020	1.2		(a)	$	55.13			6.2		$	—
Exercisable as of March 31, 2020	0.3			$	57.15			6.4		$	—

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(a)	Unvested options as of March 31, 2020 are expected to vest over time and have an aggregate unrecognized compensation expense of $11 million, which is expected to be recognized over a weighted average period of 3.2 years.

The fair value of stock options granted by the Company during 2020 and 2019 were estimated on the date of the grant using the Black-Scholes option-pricing model with the relevant assumptions outlined in the table below. Expected volatility is based on both historical and implied volatilities of the stock of comparable companies over the estimated expected life of the options. The expected life represents the period of time the options are expected to be outstanding. The risk-free interest rate is based on yields on U.S. Treasury strips with a maturity similar to the estimated expected life of the options. The projected

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dividend yield was based on the Company’s anticipated annual dividend divided by the price of the Company’s stock on the date of the grant.

	2020		2019
Grant date fair value	$8.59		$10.46
Grant date strike price	$53.40		$52.44
Expected volatility	24.30%		22.24%
Expected life	4.25 years		6.25 years
Risk-free interest rate	1.21%		2.63%
Projected dividend yield	2.40%		2.21%

Stock-based compensation expense

13. SEGMENT INFORMATION

The reportable segments presented below represent the Company's operating segments for which separate financial information is available and is utilized on a regular basis by its chief operating decision maker to assess performance and allocate resources. In identifying its reportable segments, the Company also considers the nature of services provided by its operating segments. Management evaluates the operating results of each of its reportable segments based upon net revenues and “adjusted EBITDA”, which is defined as net income excluding interest expense, depreciation and amortization, impairment charges, restructuring and related charges, contract termination costs, transaction-related items (acquisition-, disposition- or separation-related), foreign currency impacts of highly inflationary countries, stock-based compensation expense and income taxes. Wyndham Hotels believes that adjusted EBITDA is a useful measure of performance for its segments which, when considered with U.S. GAAP measures, allows a more complete understanding of its operating performance. The Company uses these measures internally to assess operating performance, both absolutely and in comparison to other companies, and to make day to day operating decisions, including in the evaluation of selected compensation decisions. The Company's presentation of adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.

	Three Months Ended March 31,
	2020								2019
	Net Revenues				Adjusted EBITDA				Net Revenues				Adjusted EBITDA
Hotel Franchising	$	243			$	108			$	269			$	113
Hotel Management	167				17				197				16
Total Reportable Segments	410				125				466				129
Corporate and Other	—				(18		)		2				(18		)
Total Company	$	410			$	107			$	468			$	111

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The table below is a reconciliation of net income to adjusted EBITDA.

	Three Months Ended March 31,
	2020				2019
Net income	$	22			$	21
Provision for income taxes	9				5
Depreciation and amortization	25				29
Interest expense, net	25				24
Stock-based compensation expense	4				3
Restructuring costs	13				—
Transaction-related expenses, net	8				7
Separation-related expenses	1				21
Foreign currency impact of highly inflationary countries	—				1
Adjusted EBITDA	$	107			$	111

14. OTHER EXPENSES AND CHARGES

Restructuring

The Company incurred $13 million of charges during the three months ended March 31, 2020, related to restructuring initiatives implemented in response to COVID-19. These initiatives resulted in a reduction of 262 employees and are comprised of employee separation costs. As a result, the Company recorded charges of $7 million to its Hotel Franchising segment, $5 million to its Corporate and Other segment and the remainder to its Hotel Management segment. In addition, during the fourth quarter of 2019, the Company had implemented restructuring initiatives, primarily focused on enhancing its organizational efficiency and rationalizing its operations. Below is the activity for the three months ended March 31, 2020 relating to restructuring activities by plan:

						2020 Activity
		Liability as of December 31, 2019				Costs Recognized				Cash Payments				Other (a)				Liability as of March 31, 2020
2019 Plan - personnel-related		$	8			$	—			$	(5	)		$	(1	)		$	2
2020 Plan - personnel-related		—				13				—				—				13
Total accrued restructuring		$	8			$	13			$	(5	)		$	(1	)		$	15

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(a)	Represents foreign currency impacts.

Transaction-related, net

The Company incurred $8 million and $7 million of transaction-related expenses during the three months ended March 31, 2020 and 2019, respectively, which were primarily related to integration activities for the acquisition of La Quinta.

Separation-related

The Company incurred separation-related costs associated with its spin-off from Wyndham Worldwide of $1 million and $21 million for the three months ended March 31, 2020 and 2019, respectively. These costs primarily consist of severance, stock-based compensation and other employee-related costs.

15. TRANSACTIONS WITH FORMER PARENT

The Company has a number of arrangements with its former Parent for services provided between both parties as described below.

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License agreement and other agreements with former Parent

In connection with the Company’s spin-off, the Company and Wyndham Worldwide entered into long-term exclusive license agreements to retain Wyndham Destinations’ affiliations with one of the hospitality industry’s top-rated loyalty programs, Wyndham Rewards, as well as to continue to collaborate on inventory-sharing and customer cross-sell initiatives.

The Company also entered into several agreements with Wyndham Destinations that govern the relationship of the parties following the spin-off, including a separation and distribution agreement, an employee matters agreement, a tax matters agreement and a transition services agreement. Revenues recorded in connection with these agreements were not material for the three months ended March 31, 2020 and $2 million for the three months ended March 31, 2019. Such revenues are reported within other revenues on the Condensed Consolidated Statements of Income.

In addition, Wyndham Hotels recorded revenues from Wyndham Destinations in the amount of $17 million and $21 million for a license, development and non-competition agreement and $3 million and $6 million for activities associated with the Wyndham Rewards program for the three months ended March 31, 2020 and 2019, respectively. The Company also recorded revenues from a former affiliate for license fees of $1 million and $2 million for the three months ended March 31, 2020 and 2019, respectively. Such fees are recorded within license and other revenues from former Parent on the Condensed Consolidated Statements of Income.

Transfer of former Parent liabilities and issuances of guarantees to former Parent and affiliates

Upon the distribution of the Company’s common stock to Wyndham Worldwide shareholders, the Company entered into certain guarantee commitments with its former Parent. These guarantee arrangements relate to certain former Parent contingent tax and other corporate liabilities. The Company assumed and is responsible for one-third of such contingent liabilities while its former Parent is responsible for the remaining two-thirds. The amount of liabilities assumed by the Company in connection with the spin-off was $21 million and $22 million as of March 31, 2020 and December 31, 2019, respectively, which were included within other non-current liabilities on its Condensed Consolidated Balance Sheets. The Company also had a $2 million liability due to its former Parent which was included within current liabilities on its Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019. In addition, the Company had $4 million of tax-related receivables due from former Parent as of March 31, 2020 and December 31, 2019, which were included within current assets on its Condensed Consolidated Balance Sheets.

16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of AOCI are as follows:

Net of Tax		Foreign Currency Translation Adjustments				Cash Flow Hedges				Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2019		$	(1	)		$	(26	)		$	(27	)
Period change		(3		)		(36		)		(39		)
Balance as of March 31, 2020		$	(4	)		$	(62	)		$	(66	)
Balance as of December 31, 2018		$	(4	)		$	(4	)		$	(8	)
Period change		1				(8		)		(7		)
Balance as of March 31, 2019		$	(3	)		$	(12	)		$	(15	)

17. SUBSEQUENT EVENT

On May 4, 2020, the Company announced workforce reductions approved on April 28, 2020, as part of the Company’s cost cutting measures implemented in response to the negative financial and operational impacts resulting from COVID-19. The Company expects to incur approximately $13 million of severance and related benefits costs and approximately $5 million of lease related costs. The Company expects the total pre-tax charges will be approximately $18 million in connection with this plan, primarily all of which represents future cash expenditures. Under this plan, the Company will eliminate

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approximately 180 positions. The Company expects this plan to be substantially complete in the second quarter of 2020 and to realize annual savings of approximately $21 million to $25 million.

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•	Hotel Franchising — licenses our lodging brands and provides related services to third-party hotel owners and others.

•	Hotel Management — provides hotel management services for full-service and limited-service hotels as well as two hotels that are owned by us.

•	Our Chief Executive Officer has elected to forgo his base salary and our Board of Directors ("Board") has elected to forgo the cash portion of their fees indefinitely;

•	Implemented workforce reductions, including reduced workweeks, reduced salaries and the elimination of 262 team members across the globe;

•	Eliminated all discretionary spend;

•	Temporarily closed our two owned hotels;

•	Reduced advertising spend;

•	Reduced capital expenditures to focus on only the highest priority projects; and

•	Suspended our share repurchase program as of March 17, 2020.

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•	Suspended non-room revenue related fees, such as Wyndham Rewards retraining fees;

•	Deferred property improvement plans and certain non-essential brand standards requiring cash outlays, such as hot breakfast requirements;

•	Partnered with industry associations to advocate for government relief for our franchisees and their employees;

•	Guided owners through the CARES Act and its evolving guidance and urged the government to expand and clarify these loan programs, for which the majority of our owners qualify;

•	Provided payment relief by deferring receivables and suspended interest charges and late fees through September 1, 2020; and

•	Revised cleaning protocols and secured critical cleaning and disinfection supplies pursuant to new U.S. Centers for Disease Control and Prevention ("CDC") guidelines through our procurement network at reduced costs for our franchisees.

(a)	Excluding currency effects, international RevPAR decreased 33% and total RevPAR decreased 23%.

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•	$29 million of lower cost-reimbursement revenues in our hotel management business as a result of CorePoint Lodging asset sales and the termination of unprofitable hotel-management agreements during 2019;

•	$9 million of lower royalty and franchise fees, $7 million of lower marketing, reservation and loyalty fees and $7 million of lower hotel management fees, all reflecting a 24% decline in RevPAR due to lower travel demand as a result of COVID-19; and

•	$8 million of lower license and other revenues from former Parent due to lower travel demand resulting from COVID-19.

•	$29 million of lower cost reimbursement expenses as discussed above;

•	$20 million of lower separation-related costs;

•	$14 million of lower operating expenses and general and administrative costs, primarily due to cost containment efforts in response to COVID-19 and synergies from the La Quinta acquisition;

•	$11 million of lower marketing, reservation and loyalty expenses, primarily due to cost reductions in response to COVID-19; partially offset by

•	$13 million of higher restructuring charges due to cost saving initiatives implemented in response to COVID-19.

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(a)	Excluding currency effects, international RevPAR decreased 34% and total RevPAR decreased 23%.

•	$15 million of lower royalty and franchise fees due to the decline in RevPAR primarily as a result of COVID-19 on travel demand;

•	$7 million of lower marketing, reservation and loyalty revenues due to lower RevPAR; and

•	$7 million of lower license and other revenues from former Parent due to lower travel demand.

•	$11 million of lower marketing, reservation and loyalty expenses primarily due to cost reductions in response to COVID-19; and

•	$9 million of lower operating expenses and general and administrative costs primarily due to cost containment efforts in response to COVID-19 and synergies from the La Quinta acquisition.

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(a)	Excluding currency effects, international RevPAR decreased 25% and total RevPAR decreased 20%.

•	$29 million of lower cost-reimbursement revenues as discussed above, which have no impact on adjusted EBITDA;

•	$4 million of lower owned hotel revenues due to lower travel demand as a result of COVID-19; partially offset by

•	$6 million of higher termination fees related to CorePoint Lodging asset sales.

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(a)

Disclosure Controls and Procedures.  As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13(a)-15(e) of the Exchange Act). Based on such evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures were effective and operating to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

(b)

Internal Control Over Financial Reporting.  There have been no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As of March 31, 2020, we utilized the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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•

Revenues and Expenses: Due to the spread of COVID-19, we have experienced significant decreases in demand and RevPAR. The negative effects of COVID-19 have and will continue to negatively impact our revenues and profitability and the amount of management and franchise fees revenues we are able to generate from our franchised and managed properties. In addition, the impact of COVID-19 is making it difficult for our franchisees and property owners to satisfy operating needs and could make it difficult for them to satisfy their debt obligations or obtain financing on favorable terms, or at all, which could generally impact cost and our ability to increase revenue in the future.

•

Operations: Due to the significant decrease in travel demand, we have taken actions and continue to evaluate opportunities for managing our operating expenses and conserving our financial resources, including the actions described under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Report. Given the uncertainty relating to COVID-19, we may have to take additional actions in the future, which cannot be predicted.

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Financial Condition and Indebtedness: In March 2020, we borrowed $734 million, representing substantially all of our outstanding availability under our revolving credit facility. We do not currently have additional borrowing capacity and our liquidity is limited to cash on hand. In April 2020, we amended our credit facility to, among other things, waive the quarterly-tested leverage ratio financial covenant until the second quarter of 2021 and tighten certain covenants, including with respect to share repurchases and certain investments. In addition, we are subject to a minimum liquidity covenant of $200 million, tested on a monthly basis, during such period, and must use the proceeds from certain asset sales and debt issuances to repay outstanding revolving loans during such period. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and capital resources." An event of default enables our lenders to terminate their commitments and would trigger consequences under other indebtedness or financial instruments. Additionally, any failure to meet required payments of principal and interest under our outstanding indebtedness could result in a default and acceleration of the underlying debt and under other indebtedness that contains cross-default provisions.

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Growth: Our plans for growth may be negatively impacted by COVID-19. This environment could result in difficulties for our franchisees and property owners to obtain financing on reasonable terms. In addition, our development pipeline is subject to a number of risks, including that developers are experiencing construction delays as a result of restrictions on business activity and supply chain interruptions which could cause delays in the completion and development of new hotels, impacting our net rooms growth and/or slowing the rate of our pipeline growth.

•

Capital Markets Impact: The global stock markets have, and may continue to, experience volatility as a result of the COVID-19 pandemic. The price of our common stock has been volatile and has decreased significantly in recent months. The significant uncertainty created by the impact of COVID-19 has caused the global economy, business confidence and consumer confidence to have, and likely continue to have, a significant effect on the market price of securities generally, including on our common stock. In addition, we are restricted in our ability to repurchase shares and limited in our ability to make dividend payments.

•	the scope and duration of the pandemic and its impact on our business operations, financial results, outlook, plans, growth, cash flows and liquidity, as well as the impact on our franchisees and property owners and their operations, our guests and our team members, the hospitality industry and the overall demand for travel;

•	new information which may emerge concerning the severity and impact of COVID-19;

•	the actions necessary to contain COVID-19 or respond to its impact, including the need for us or our franchisees and property owners to quarantine team members, employees of our franchisees or our guests or impacted areas that may be affected;

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•	the timing and availability of vaccinations and other treatments for COVID-19;

•	general economic and competitive conditions;

•	the continuation or worsening of the effects from the COVID-19 pandemic;

•	the success of mitigation efforts in response to the COVID-19 pandemic by our franchisees, property owners, and us, including the actions described under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Report;

•	actions governments, businesses and individuals take in response to the pandemic, including stay-in-place directives and other travel restrictions and the success of those actions;

•	our performance in any recovery from the COVID-19 pandemic;

•	our relationships with franchisees and property owners;

•	continued access to liquidity, capital and financing as a result of COVID-19 and the terms and cost thereof, as well as our credit rating;

•	potential exposure to impairments to certain intangible assets, such as our trademarks and our owned and managed goodwill;

•	our ability to maintain our financial reporting processes and related controls since many team members are working remotely;

•	the diversion of management’s attention from the business if any key team member becomes ill from COVID-19 or unable to work;

•	the size and length of the resulting unemployment rates and changes in consumer preferences, discretionary spending and confidence;

•	the ability of our franchisees and property owners to successfully respond to the adverse effects of the pandemic and our and their ability to comply with our respective agreements;

•	the potential of our franchisees and property owners to declare bankruptcy or cause their lenders to declare a default, accelerate debt or foreclose on the property, which could result in the termination of our franchise or management agreements and impact our financial condition;

•	potential exposure to make payments to third-party lenders to whom we made financial guarantees;

•	the length of the recovery period after the COVID-19 pandemic abates, including the time it takes for demand and pricing to stabilize and normal economic and operating conditions to resume;

•	the impact on our contracts with our partners, including force majeure provisions;

•	labor markets and activities;

•	unexpected costs and expenses incurred by us, franchisees and property owners related to the effects of COVID-19 and steps taken to counteract future outbreaks, including enhanced health and hygiene or social distancing requirements;

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the effects of any steps we take to reduce operating costs as a result of COVID-19, which may affect, among other things, our brand reputation, our ability to operate the company, our ability to attract and retain team members and guest experience and loyalty; and the effect of any steps we, franchisees and property owners take to counteract future outbreaks of COVID-19 or other pandemics and epidemics.

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