Annual report pursuant to Section 13 and 15(d)

Revenue Recognition

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Revenue Recognition
 12 Months Ended
Dec. 31, 2023
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
3. REVENUE RECOGNITION
The principal source of revenues from franchising hotels is ongoing royalty fees, which are typically a percentage of gross room revenues of each franchised hotel. The Company recognizes royalty fee revenues as and when the underlying sales occur. The Company also receives non-refundable initial franchise fees, which are recognized as revenues over the initial non-cancellable period of the franchise agreement, commencing when all material services or conditions have been substantially performed. This occurs when a hotel opens for business in the Company’s system or when a franchise agreement is terminated after it has been determined that the hotel will not open. The Company’s standard franchise agreement typically has a term of 10 to 20 years. Additionally, the Company recognizes occupancy taxes on a net basis.
The Company’s franchise agreements also require the payment of marketing and reservation fees, which are intended to reimburse the Company for expenses associated with operating an international, centralized reservation system, e-commerce channels such as the Company’s brand.com websites, as well as access to third-party distribution channels, such as online travel agents, advertising and marketing programs, global sales efforts, operations support, training and other related services. Marketing and reservation fees are recognized as revenue when the underlying sales occur. The Company is generally contractually obligated to spend the marketing and reservation fees it collects from franchisees, in accordance with the franchise agreements. Marketing and reservations costs are expensed as incurred, which may not occur in the same period as the recognition of marketing and reservation revenues.
The Company earns revenues from its Wyndham Rewards loyalty program when a member stays at a participating hotel, club resort or vacation rental. These revenues are derived from a fee the Company charges a franchised or managed hotel based upon a percentage of room revenues generated from a Wyndham Rewards member’s stay. These fees are to reimburse the Company for expenses associated with member redemptions and activities that are related to the administering and marketing of the program. Revenues related to the loyalty program represent variable consideration and are recognized net of redemptions over time based upon loyalty point redemption patterns, which include an estimate of loyalty points that will expire or will never be redeemed.
The Company earns revenue from its Wyndham Rewards co-branded credit card program, which is primarily generated by cardholder spending and the enrollment of new cardholders. The advance payments received under the program are recognized as a contract liability. The program primarily contains two performance obligations: (i) brand performance services, for which revenue is recognized over the contract term on a straight-line basis, and (ii) issuance and redemption of loyalty points, for which revenue is recognized over time based upon the redemption patterns of the loyalty points earned under the program, including an estimate of loyalty points that will expire or will never be redeemed.
The Company provides management services for certain international hotels under management contracts. The Company’s standard management agreement typically has a term of 10 to 20 years. The Company’s management fees are comprised of base fees, which are typically a specified percentage of gross revenues from hotel operations, and, in some cases, incentive fees, which are typically a specified percentage of a hotel’s gross operating profit. The base fees are recognized when the underlying sales occur and the management services are performed. Incentive fees are recognized when
determinable, which is when the Company has met hotel operating performance metrics and the Company has determined that a significant reversal of revenues recognized will not occur.
The Company also recognizes reimbursable payroll costs for operational employees and other reimbursable costs at certain of the Company’s managed hotels as revenue. Although these costs are funded by hotel owners, accounting guidance requires the Company to report these fees on a gross basis as both revenues and expenses.
The Company recognizes license and other revenues from Wyndham Worldwide (“former Parent”), now known as Travel + Leisure Co., for use of the “Wyndham” trademark and certain other trademarks.
In addition, the Company earned revenues from its previously two owned hotels (sold in 2022), which consisted primarily of (i) gross room rentals, (ii) food and beverage services and (iii) on-site spa, casino, golf and shop revenues. These revenues were recognized upon the completion of services.
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 December 31, 2023 and 2022 are as follows:
December 31, 2023 December 31, 2022
Deferred initial franchise fee revenues
 $ 145  $ 143 
Deferred loyalty program revenues
 95  85 
Deferred co-branded credit card program revenues
 3  — 
Deferred other revenues
 15  19 
Total
 $ 258  $ 247 

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. 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.
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 years set forth below:
2024 2025 2026
Thereafter
Total
Initial franchise fee revenues
 $ 17  $ 8  $ 7  $ 113  $ 145 
Loyalty program revenues
 61  23  9  2  95 
Co-branded credit card program revenues
 3  —  —  —  3 
Other revenues
 10  1  —  4  15 
Total
 $ 91  $ 32  $ 16  $ 119  $ 258 
Disaggregation of Net Revenues
In the first quarter of 2023, the Company changed the composition of its reportable segments to reflect the recent changes in its Hotel Management segment due to the exit from the select-service management business, the sale of its two owned hotels and the exit from substantially all of its U.S. full-service management business in 2022. The remaining hotel management business, which is predominately the full-service international managed business, no longer meets the quantitative thresholds to be considered a reportable segment and as a result, the Company has aggregated, on a prospective basis, such management business within its Hotel Franchising segment.
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:
Year Ended December 31,
2023 2022 2021
Hotel Franchising (a)
Royalties and franchise fees
 $ 532  $ 496  $ 436 
Marketing, reservation and loyalty
 578  543  467 
Management fees 14 —  — 
License and other fees
 112  100  79 
Cost reimbursements 13  —  — 
Other (b)
148  138  117 
Total Hotel Franchising
 1,397  1,277  1,099 
Hotel Management
Royalties and franchise fees
 n/a 16  25 
Marketing, reservation and loyalty
 n/a 1  1 
Owned hotel revenues
 n/a 42  82 
Management fees
 n/a 15  35 
Cost reimbursements
 n/a 144  320 
Other
 n/a 3  3 
Total Hotel Management
 n/a 221  466 
Net revenues
 $ 1,397  $ 1,498  $ 1,565 
_____________________
(a)    For 2023, the Hotel Franchising segment includes the former Hotel Management segment, which is primarily comprised of the Company's remaining international full-service managed business.
(b)    The Company’s other revenues are primarily related to revenues from its co-branded credit card program and property management systems.
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 December 31, 2023 and 2022, capitalized contract costs were $68 million and $34 million, respectively, of which $4 million for both periods was included in other current assets, and $64 million and $30 million, respectively, were included in other non-current assets on the Company’s Consolidated Balance Sheets.