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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-38432
Wyndham Hotels & Resorts, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | 82-3356232 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | |
22 Sylvan Way | | 07054 |
Parsippany, | New Jersey | | (Zip Code) |
(Address of principal executive offices) | | |
(973) 753-6000
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | WH | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☑ | | | | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | | | | Smaller reporting company | ☐ |
| | | | | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:
88,324,241 shares of common stock outstanding as of September 30, 2022.
TABLE OF CONTENTS
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PART I | FINANCIAL INFORMATION | |
Item 1. | | |
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Item 2. | | |
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Item 3. | | |
Item 4. | | |
PART II | OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Wyndham Hotels & Resorts, Inc.
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of Wyndham Hotels & Resorts, Inc. and subsidiaries (the “Company”) as of September 30, 2022, the related condensed consolidated statements of income, comprehensive income, and equity for the three-month and nine-month periods ended September 30, 2022 and 2021, and of cash flows for the nine-month periods ended September 30, 2022 and 2021, and the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated statements of income, comprehensive income, cash flows, and equity for the year then ended (not presented herein); and in our report dated February 16, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
The interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Deloitte & Touche LLP
New York, New York
October 26, 2022
WYNDHAM HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net revenues | | | | | | | |
Royalties and franchise fees | $ | 152 | | | $ | 144 | | | $ | 394 | | | $ | 344 | |
Marketing, reservation and loyalty | 159 | | | 149 | | | 416 | | | 353 | |
Management and other fees | 3 | | | 32 | | | 54 | | | 82 | |
License and other fees | 28 | | | 20 | | | 74 | | | 60 | |
Other | 33 | | | 32 | | | 107 | | | 92 | |
Fee-related and other revenues | 375 | | | 377 | | | 1,045 | | | 931 | |
Cost reimbursements | 32 | | | 86 | | | 119 | | | 242 | |
Net revenues | 407 | | | 463 | | | 1,164 | | | 1,173 | |
Expenses | | | | | | | |
Marketing, reservation and loyalty | 147 | | | 130 | | | 384 | | | 327 | |
Operating | 20 | | | 33 | | | 85 | | | 92 | |
General and administrative | 29 | | | 30 | | | 88 | | | 81 | |
Cost reimbursements | 32 | | | 86 | | | 119 | | | 242 | |
Depreciation and amortization | 18 | | | 23 | | | 58 | | | 70 | |
Gain on asset sale, net | — | | | — | | | (35) | | | — | |
Separation-related | 1 | | | — | | | — | | | 3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total expenses | 247 | | | 302 | | | 699 | | | 815 | |
Operating income | 160 | | | 161 | | | 465 | | | 358 | |
Interest expense, net | 21 | | | 22 | | | 60 | | | 73 | |
Early extinguishment of debt | — | | | — | | | 2 | | | 18 | |
Income before income taxes | 139 | | | 139 | | | 403 | | | 267 | |
Provision for income taxes | 38 | | | 36 | | | 104 | | | 72 | |
Net income | $ | 101 | | | $ | 103 | | | $ | 299 | | | $ | 195 | |
| | | | | | | |
Earnings per share | | | | | | | |
Basic | $ | 1.13 | | | $ | 1.10 | | | $ | 3.28 | | | $ | 2.09 | |
Diluted | 1.13 | | | 1.09 | | | 3.26 | | | 2.08 | |
See Notes to Condensed Consolidated Financial Statements.
2
WYNDHAM HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income | $ | 101 | | | $ | 103 | | | $ | 299 | | | $ | 195 | |
Other comprehensive income/(loss), net of tax | | | | | | | |
Foreign currency translation adjustments | (7) | | | (1) | | | (9) | | | — | |
Unrealized gains on cash flow hedges | 19 | | | 4 | | | 59 | | | 22 | |
Other comprehensive income, net of tax | 12 | | | 3 | | | 50 | | | 22 | |
Comprehensive income | $ | 113 | | | $ | 106 | | | $ | 349 | | | $ | 217 | |
See Notes to Condensed Consolidated Financial Statements.
3
WYNDHAM HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(Unaudited)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 286 | | | $ | 171 | |
Trade receivables, net | 253 | | | 246 | |
Prepaid expenses | 47 | | | 51 | |
Other current assets | 54 | | | 98 | |
Assets held for sale | — | | | 154 | |
Total current assets | 640 | | | 720 | |
Property and equipment, net | 102 | | | 106 | |
Goodwill | 1,525 | | | 1,525 | |
Trademarks, net | 1,229 | | | 1,202 | |
Franchise agreements and other intangibles, net | 381 | | | 473 | |
Other non-current assets | 333 | | | 243 | |
Total assets | $ | 4,210 | | | $ | 4,269 | |
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Current portion of long-term debt | $ | 15 | | | $ | 21 | |
Accounts payable | 33 | | | 31 | |
Deferred revenues | 82 | | | 70 | |
Accrued expenses and other current liabilities | 270 | | | 258 | |
Liabilities held for sale | — | | | 17 | |
Total current liabilities | 400 | | | 397 | |
Long-term debt | 2,063 | | | 2,063 | |
Deferred income taxes | 347 | | | 366 | |
Deferred revenues | 163 | | | 165 | |
Other non-current liabilities | 181 | | | 189 | |
Total liabilities | 3,154 | | | 3,180 | |
Commitments and contingencies (Note 13) | | | |
Stockholders’ equity: | | | |
Preferred stock, $0.01 par value, authorized 6.0 shares, none issued and outstanding | — | | | — | |
Common stock, $0.01 par value, 101.6 and 101.3 issued at September 30, 2022 and December 31, 2021 | 1 | | | 1 | |
Treasury stock, at cost – 13.3 and 9.0 shares at September 30, 2022 and December 31, 2021 | (831) | | | (519) | |
Additional paid-in capital | 1,561 | | | 1,543 | |
Retained earnings | 290 | | | 79 | |
Accumulated other comprehensive income/(loss) | 35 | | | (15) | |
Total stockholders’ equity | 1,056 | | | 1,089 | |
Total liabilities and stockholders’ equity | $ | 4,210 | | | $ | 4,269 | |
See Notes to Condensed Consolidated Financial Statements.
4
WYNDHAM HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Operating activities | | | |
Net income | $ | 299 | | | $ | 195 | |
Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | | | |
Depreciation and amortization | 58 | | | 70 | |
(Recovery of)/provision for doubtful accounts | (3) | | | 15 | |
| | | |
Deferred income taxes | (37) | | | 4 | |
Stock-based compensation | 25 | | | 20 | |
Gain on asset sale, net | (35) | | | — | |
Loss on early extinguishment of debt | 2 | | | 18 | |
Net change in assets and liabilities: | | | |
Trade receivables | (1) | | | (10) | |
Prepaid expenses | 6 | | | — | |
Other current assets | 40 | | | (6) | |
Accounts payable, accrued expenses and other current liabilities | 4 | | | 18 | |
Deferred revenues | 20 | | | 14 | |
Payments of development advance notes, net | (36) | | | (25) | |
Other, net | 7 | | | 14 | |
Net cash provided by operating activities | 349 | | | 327 | |
Investing activities | | | |
Property and equipment additions | (28) | | | (23) | |
Acquisition of hotel brand | (44) | | | — | |
Proceeds from loan repayments, net | — | | | 3 | |
Proceeds from asset sales, net | 263 | | | — | |
Other, net | (1) | | | (1) | |
Net cash provided by/(used in) investing activities | 190 | | | (21) | |
Financing activities | | | |
Proceeds from borrowings | 400 | | | 45 | |
Principal payments on long-term debt | (404) | | | (570) | |
| | | |
Dividends to stockholders | (88) | | | (53) | |
Repurchases of common stock | (313) | | | (26) | |
Net share settlement of incentive equity awards | (11) | | | (7) | |
Other, net | (4) | | | 5 | |
Net cash used in financing activities | (420) | | | (606) | |
Effect of changes in exchange rates on cash, cash equivalents and restricted cash | (4) | | | — | |
Net increase/(decrease) in cash, cash equivalents and restricted cash | 115 | | | (300) | |
Cash, cash equivalents and restricted cash, beginning of period | 171 | | | 493 | |
Cash, cash equivalents and restricted cash, end of period | $ | 286 | | | $ | 193 | |
See Notes to Condensed Consolidated Financial Statements.
5
WYNDHAM HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares Outstanding | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income/(Loss) | | Total Equity |
Balance as of December 31, 2021 | 92 | | | $ | 1 | | | $ | (519) | | | $ | 1,543 | | | $ | 79 | | | $ | (15) | | | $ | 1,089 | |
Net income | — | | | — | | | — | | | — | | | 106 | | | — | | | 106 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 31 | | | 31 | |
Dividends | — | | | — | | | — | | | — | | | (30) | | | — | | | (30) | |
Repurchase of common stock | — | | | — | | | (38) | | | — | | | — | | | — | | | (38) | |
Net share settlement of incentive equity awards | — | | | — | | | — | | | (9) | | | — | | | — | | | (9) | |
Change in deferred compensation | — | | | — | | | — | | | 8 | | | — | | | — | | | 8 | |
Exercise of stock options | — | | | — | | | — | | | 2 | | | — | | | — | | | 2 | |
| | | | | | | | | | | | | |
Balance as of March 31, 2022 | 92 | | | 1 | | | (557) | | | 1,544 | | | 155 | | | 16 | | | 1,159 | |
Net income | — | | | — | | | — | | | — | | | 92 | | | — | | | 92 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 7 | | | 7 | |
Dividends | — | | | — | | | — | | | — | | | (29) | | | — | | | (29) | |
Repurchase of common stock | (2) | | | — | | | (142) | | | — | | | — | | | — | | | (142) | |
Net share settlement of incentive equity awards | — | | | — | | | — | | | (2) | | | — | | | — | | | (2) | |
Change in deferred compensation | — | | | — | | | — | | | 9 | | | — | | | — | | | 9 | |
Exercise of stock options | — | | | — | | | — | | | 2 | | | — | | | — | | | 2 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance as of June 30, 2022 | 90 | | | 1 | | | (699) | | | 1,553 | | | 218 | | | 23 | | | 1,096 | |
Net income | — | | | — | | | — | | | — | | | 101 | | | — | | | 101 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 12 | | | 12 | |
Dividends | — | | | — | | | — | | | — | | | (29) | | | — | | | (29) | |
Repurchase of common stock | (2) | | | — | | | (132) | | | — | | | — | | | — | | | (132) | |
| | | | | | | | | | | | | |
Change in deferred compensation | — | | | — | | | — | | | 8 | | | — | | | — | | | 8 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance as of September 30, 2022 | 88 | | | $ | 1 | | | $ | (831) | | | $ | 1,561 | | | $ | 290 | | | $ | 35 | | | $ | 1,056 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares Outstanding | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Equity |
Balance as of December 31, 2020 | 93 | | | $ | 1 | | | $ | (408) | | | $ | 1,504 | | | $ | (82) | | | $ | (52) | | | $ | 963 | |
Net income | — | | | — | | | — | | | — | | | 24 | | | — | | | 24 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 14 | | | 14 | |
Dividends | — | | | — | | | — | | | — | | | (15) | | | — | | | (15) | |
Net share settlement of incentive equity awards | — | | | — | | | — | | | (5) | | | — | | | — | | | (5) | |
Change in deferred compensation | — | | | — | | | — | | | 5 | | | — | | | — | | | 5 | |
Exercise of stock options | — | | | — | | | — | | | 4 | | | — | | | — | | | 4 | |
Other | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Balance as of March 31, 2021 | 93 | | | 1 | | | (408) | | | 1,508 | | | (72) | | | (38) | | | 991 | |
Net income | — | | | — | | | — | | | — | | | 68 | | | — | | | 68 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 | |
Dividends | — | | | — | | | — | | | — | | | (15) | | | — | | | (15) | |
Net share settlement of incentive equity awards | — | | | — | | | — | | | (1) | | | — | | | — | | | (1) | |
Change in deferred compensation | — | | | — | | | — | | | 8 | | | — | | | — | | | 8 | |
Exercise of stock options | — | | | — | | | — | | | 4 | | | — | | | — | | | 4 | |
Issuance of shares for restricted stock units vesting | 1 | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance as of June 30, 2021 | 94 | | | 1 | | | (408) | | | 1,519 | | | (19) | | | (33) | | | 1,060 | |
Net income | — | | | — | | | — | | | — | | | 103 | | | — | | | 103 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | |
Dividends | — | | | — | | | — | | | — | | | (23) | | | — | | | (23) | |
Repurchase of common stock | (1) | | | — | | | (27) | | | — | | | — | | | — | | | (27) | |
Net share settlement of incentive equity awards | — | | | — | | | — | | | (1) | | | — | | | — | | | (1) | |
Change in deferred compensation | — | | | — | | | — | | | 8 | | | — | | | — | | | 8 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Other | — | | | — | | | (1) | | | 1 | | | — | | | — | | | — | |
Balance as of September 30, 2021 | 93 | | | $ | 1 | | | $ | (436) | | | $ | 1,527 | | | $ | 61 | | | $ | (30) | | | $ | 1,123 | |
See Notes to Condensed Consolidated Financial Statements.
6
WYNDHAM HOTELS & RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all amounts are in millions, except share and per share amounts)
(Unaudited)
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 over 95 countries around the world.
The Condensed Consolidated Financial Statements have been prepared on a stand-alone basis. The Condensed Consolidated Financial Statements include the Company’s assets, liabilities, revenues, expenses and cash flows and all entities in which it 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 (“U.S. GAAP”). 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 2021 Consolidated 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 hotels.
| | |
2. NEW ACCOUNTING PRONOUNCEMENTS |
There were no recently issued accounting pronouncements applicable to the Company during the nine months ended September 30, 2022.
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 September 30, 2022 and December 31, 2021 are as follows:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Deferred initial franchise fee revenues | $ | 141 | | | $ | 145 | |
Deferred loyalty program revenues | 86 | | | 76 | |
| | | |
Deferred other revenues | 18 | | | 14 | |
Total | $ | 245 | | | $ | 235 | |
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 13 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.
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 10/1/2022 - 9/30/2023 | | 10/1/2023 - 9/30/2024 | | 10/1/2024 - 9/30/2025 |
| Thereafter |
| Total |
Initial franchise fee revenues | $ | 16 | | | $ | 8 | | | $ | 7 | | | $ | 110 | | | $ | 141 | |
Loyalty program revenues | 54 | | | 21 | | | 9 | | | 2 | | | 86 | |
| | | | | | | | | |
Other revenues | 12 | | | 1 | | | 1 | | | 4 | | | 18 | |
Total | $ | 82 | | | $ | 30 | | | $ | 17 | | | $ | 116 | | | $ | 245 | |
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 September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Hotel Franchising | | | | | | | |
Royalties and franchise fees | $ | 148 | | | $ | 137 | | | $ | 381 | | | $ | 327 | |
Marketing, reservation and loyalty | 159 | | | 149 | | | 416 | | | 353 | |
License and other fees | 28 | | | 20 | | | 74 | | | 60 | |
Other | 32 | | | 31 | | | 103 | | | 89 | |
Total Hotel Franchising | 367 | | | 337 | | | 974 | | | 829 | |
| | | | | | | |
Hotel Management | | | | | | | |
Royalties and franchise fees | 4 | | | 7 | | | 13 | | | 17 | |
Owned hotel revenues | — | | | 23 | | | 42 | | | 57 | |
Management fees | 3 | | | 9 | | | 12 | | | 25 | |
Cost reimbursements | 32 | | | 86 | | | 119 | | | 242 | |
Other | 1 | | | 1 | | | 4 | | | 3 | |
Total Hotel Management | 40 | | | 126 | | | 190 | | | 344 | |
| | | | | | | |
Net revenues | $ | 407 | | | $ | 463 | | | $ | 1,164 | | | $ | 1,173 | |
Capitalized Contract Costs
The Company incurs certain direct and incremental sales commissions costs in order to obtain hotel franchise and management contracts. Such costs are capitalized and subsequently amortized, beginning upon hotel opening, over the first non-cancellable period of the agreement. In the event an agreement is terminated prior to the end of the first non-cancellable period, any unamortized cost is immediately expensed. In addition, the Company also capitalizes costs associated with the sale and installation of property management systems to its franchisees, which are amortized over the remaining non-cancellable period of the franchise agreement. As of September 30, 2022 and December 31, 2021, capitalized contract costs were $32 million and $33 million, respectively, of which $4 million and $5 million, respectively, was included in other current assets and $28 million for both periods, was included in other non-current assets on its Condensed Consolidated Balance Sheets.
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 September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income | $ | 101 | | | $ | 103 | | | $ | 299 | | | $ | 195 | |
| | | | | | | |
Basic weighted average shares outstanding | 89.5 | | 93.6 | | 91.2 | | 93.5 |
Stock options and restricted stock units (“RSUs”) | 0.4 | | 0.5 | | 0.5 | | 0.4 |
Diluted weighted average shares outstanding | 89.9 | | 94.1 | | 91.7 | | 93.9 |
| | | | | | | |
Earnings per share: | | | | | | | |
Basic | $ | 1.13 | | | $ | 1.10 | | | $ | 3.28 | | | $ | 2.09 | |
Diluted | 1.13 | | | 1.09 | | | 3.26 | | | 2.08 | |
| | | | | | | |
Dividends: | | | | | | | |
Cash dividends declared per share | $ | 0.32 | | | $ | 0.24 | | | $ | 0.96 | | | $ | 0.56 | |
Aggregate dividends paid to stockholders | $ | 29 | | | $ | 23 | | | $ | 88 | | | $ | 53 | |
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 December 31, 2021 | 9.0 | | | $ | 519 | | | $ | 57.55 | |
For the nine months ended September 30, 2022 | 4.3 | | | 312 | | | 72.17 | |
As of September 30, 2022 | 13.3 | | | $ | 831 | | | $ | 62.29 | |
The Company had $169 million of remaining availability under its program as of September 30, 2022.
Allowance for Doubtful Accounts
The following table sets forth the activity in the Company’s allowance for doubtful accounts on trade accounts receivables for the nine months ended:
| | | | | | | | | | | |
| 2022 | | 2021 |
Balance as of January 1, | $ | 81 | | $ | 72 |
(Recovery of)/provision for doubtful accounts | (3) | | 15 |
Bad debt write-offs | (6) | | (8) |
Balance as of September 30, | $ | 72 | | $ | 79 |
| | |
6. HOTEL BRAND ACQUISITION |
During September 2022, the Company completed the acquisition of the Vienna House hotel brand for a total purchase price of $44 million. Vienna House’s portfolio consisted of 41 franchised hotels across Europe, predominantly in Germany. This acquisition enables the Company to grow the Vienna House brand by leveraging its vast global scale and franchise expertise and is consistent with the Company’s strategy to expand its brand portfolio and total system size.
The purchase price was allocated based on the relative fair value, on a pro rata basis, of the indefinite lived trademark and the franchise agreements acquired, which were assigned a 20 year life. The following table summarizes the fair value of the assets acquired in connection with Wyndham's acquisition of Vienna House: | | | | | | | | |
| Amount | |
Franchise agreements | $ | 17 | | | |
Trademark | 27 | | |
Total assets acquired | $ | 44 | | | |
This acquisition was assigned to the Company’s Hotel Franchising segment. The results of operations of Vienna House have been included in the Consolidated Statements of Income since its date of acquisition. Such results were not material to the Company's results of operations for the three and nine months ended September 30, 2022.
| | |
7. ASSETS AND LIABILITIES HELD FOR SALE |
During the fourth quarter of 2021, the Company’s Board approved a plan to sell its two owned hotels. In March and May 2022, the Company completed the sales of its Wyndham Grand Bonnet Creek Resort and Wyndham Grand Rio Mar Resort, respectively, resulting in no assets or liabilities left held for sale. See Note 16 - Other Expenses and Charges for more information on the sales.
The Company’s Condensed Consolidated Balance Sheets include the following with respect to assets and liabilities held for sale:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Assets: | | | |
Trade receivables, net | $ | — | | | $ | 4 | |
Other current assets | — | | | 4 | |
Property and equipment, net | — | | | 146 | |
Total assets held for sale | $ | — | | | $ | 154 | |
| | | |
Liabilities: | | | |
Accrued expenses and other current liabilities | $ | — | | | $ | 8 | |
Deferred revenues | — | | | 6 | |
Other liabilities | — | | | 3 | |
Total liabilities held for sale | $ | — | | | $ | 17 | |
Intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | | | | | December 31, 2021 |
| Gross Carrying Amount (a) | | | | | | Gross Carrying Amount | | Accumulated Impairment | | Net Carrying Amount |
Goodwill | $ | 1,525 | | | | | | | $ | 1,539 | | | $ | 14 | | | $ | 1,525 | |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Unamortized intangible assets: | | | | | | | | | | | |
Trademarks | | | | | $ | 1,228 | | | | | | | $ | 1,201 | |
| | | | | | | | | | | |
Amortized intangible assets: | | | | | | | | | | | |
Franchise agreements | $ | 912 | | | $ | 533 | | | $ | 379 | | | $ | 895 | | | $ | 513 | | | $ | 382 | |
Management agreements | 15 | | | 14 | | | 1 | | | 135 | | | 44 | | | 91 | |
Trademarks | 2 | | | 1 | | | 1 | | | 2 | | | 1 | | | 1 | |
Other | 1 | | | — | | | 1 | | | 1 | | | 1 | | | — | |
| $ | 930 | | | $ | 548 | | | $ | |