WYNDHAM HOTELS RESORTS INC

Discussed below are our key operating statistics, consolidated results of operations and the results of operations for our reportable segment. The reportable segment presented below represents our operating segment for which discrete financial information is available and used on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segment, we also consider the nature of services provided by our operating segment.

Management evaluates the operating results of our reportable segment based upon net revenues and adjusted EBITDA. Adjusted EBITDA is defined as net income/(loss) excluding net interest expense, depreciation and amortization, early extinguishment of debt charges, impairment charges, restructuring and related charges, contract termination costs, separation-related items, transaction-related items (acquisition-, disposition-, or debt-related), (gain)/loss on asset sales, foreign currency impacts of highly inflationary countries, stock-based compensation expense, income taxes and development advance notes amortization. We believe that adjusted EBITDA is a useful measure of performance for our segment and, when considered with U.S. Generally Accepted Accounting Principles (“GAAP”) measures, gives a more complete understanding of our operating performance. We use this measure 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. Adjusted EBITDA is not a recognized term under U.S. GAAP and should not be considered as an alternative to net income or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. Our presentation of adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.

We generate royalties and franchise fees, management fees and other revenues from hotel franchising and hotel management activities, as well as fees from licensing our “Wyndham” trademark, certain other trademarks and intellectual property. In addition, pursuant to our franchise and management contracts with third-party hotel owners, we generate marketing, reservation and loyalty fee revenues and cost reimbursement revenues that over time are offset, respectively, by the marketing, reservation and loyalty costs and property operating costs that we incur.

OPERATING STATISTICS

The table below presents our operating statistics for the three and nine months ended September 30, 2024 and 2023. “Rooms” represent the number of hotel rooms at the end of the period which are either under franchise and/or management agreements and properties under affiliation agreements for which we receive a fee for reservation and/or other services provided. “RevPAR” represents revenue per available room and is calculated by multiplying average occupancy rate by average daily rate. “Average royalty rate” represents the average royalty rate earned on our franchised properties and is calculated by dividing total royalties, excluding the impact of amortization of development advance notes, by total room revenues. These operating statistics are drivers of our revenues and therefore provide an enhanced understanding of our business. Refer to the section below for a discussion as to how these operating statistics affected our business for the periods presented.

(a)Excluding currency effects, international RevPAR increased 7% and global RevPAR increased 1%.

(b)Excluding currency effects, international RevPAR increased 9% and global RevPAR increased 1%.

(c)Amounts may not recalculate due to rounding.

Global rooms grew 4% compared to the prior year, reflecting 1% growth in the U.S. and 8% growth internationally. These increases included 3% growth in the higher RevPAR midscale and above segments in the U.S., as well as strong growth in the Company's EMEA and Latin America regions, which both grew 11%.

Excluding currency effects, global RevPAR for the three months ended September 30, 2024 increased 1% compared to the prior year period, reflecting a 1% decline in the U.S. and international growth of 7%. In the U.S., RevPAR for our midscale and above segments were unchanged year-over-year while RevPAR for our economy segment declined 2%, reflecting a modest acceleration from the second quarter with a sequential improvement of 10 basis points. Additionally, our U.S. economy brands continued to strengthen their position, gaining 50 basis points of market share in the third quarter driven by performance in oil and gas markets, which grew 250 basis points in the quarter, and in the five states with the highest infrastructure bill spend, which collectively grew 80 basis points. U.S. occupancy remained consistent, highlighting the resilience of the select-service space and consumer demand for these products as weekday performance outpaced weekends, with RevPAR growing about a point. Internationally, RevPAR for our Latin America, EMEA and Canada regions collectively increased 13% due to both continued pricing power, with ADR up 11%, and occupancy growth of 2%. RevPAR for our APAC region declined 7%, driven by a 2% decrease in occupancy and a 5% decrease in ADR. Importantly, the third quarter RevPAR performance for APAC represented a 500 basis point sequential improvement.

Excluding currency effects, global RevPAR for the nine months ended September 30, 2024 increased 1% compared to the prior year period, reflecting a decline of 2% in the U.S. and international growth of 9%. In the U.S., the RevPAR decline was driven by lower occupancy, specifically in the economy segment. Internationally, RevPAR growth was driven by our Latin America and EMEA regions primarily due to continued pricing power.

THREE MONTHS ENDED SEPTEMBER 30, 2024 VS. THREE MONTHS ENDED SEPTEMBER 30, 2023

Net revenues for the three months ended September 30, 2024 decreased $6 million, or 1%, compared to the prior-year period, primarily driven by:

•$18 million of lower marketing, reservation and loyalty revenues due to the absence of pass-through revenues associated with the 2023 global franchisee conference; partially offset by

•$7 million of higher royalty and franchise fees primarily due to net room growth, as well as increased royalty rates and franchise fees; and

•$5 million of higher license and other ancillary revenues.

Total expenses for the three months ended September 30, 2024 decreased $14 million, or 6%, compared to the prior-year period, primarily driven by:

•$13 million of lower marketing, reservation and loyalty expenses primarily due to the absence of $18 million of expenses associated with the 2023 global franchisee conference, partially offset by timing of higher spend;

•$2 million of lower depreciation and amortization; and

•$2 million of lower operating and general and administrative costs driven by operational efficiencies; partially offset by

•$2 million of restructuring costs incurred in 2024.

Interest expense, net for the three months ended September 30, 2024 increased $7 million, or 26%, compared to the prior-year period primarily due to a higher average debt balance.

Our effective tax rates were 25.5% and 24.3% during the three months ended September 30, 2024 and 2023, respectively. Such increase was primarily due to the absence of a tax benefit from a state legislative change that resulted in the release of a valuation allowance in 2023.

As a result of these items, net income for the three months ended September 30, 2024 decreased $1 million compared to the prior-year period.

Following is a discussion of the results of our Hotel Franchising segment and Corporate and Other for the three months ended September 30, 2024 compared to the three months ended September 30, 2023:

Hotel Franchising

Net revenues decreased $6 million, or 1%, compared to the third quarter of 2023, as discussed above.

Adjusted EBITDA increased $9 million, or 4%, compared to the third quarter of 2023, primarily driven by higher royalty and franchise fees and other revenues as well as operational efficiencies, which resulted in an expansion of our franchising margin.

Corporate and Other

Corporate and other expenses were $16 million for the third quarter of 2024, reflecting a $1 million increase from the comparable prior year period.

NINE MONTHS ENDED SEPTEMBER 30, 2024 VS. NINE MONTHS ENDED SEPTEMBER 30, 2023

Net revenues for the nine months ended September 30, 2024 decreased $9 million, compared to the prior-year period, primarily driven by;

•$16 million of lower marketing, reservation and loyalty revenues primarily due to the absence of pass-through revenues associated with the 2023 global franchisee conference, partially offset by global net room growth;

•$8 million of lower cost-reimbursement revenues, partially due to the exit of our U.S. management business; and

•$4 million of lower management fees; partially offset by

•$15 million of higher license and other ancillary revenues driven primarily by higher credit card and partnership fees; and

•$4 million of higher royalty and franchise fees primarily due to net room growth, as well as increased royalty rates and franchise fees.

Total expenses for the nine months ended September 30, 2024 increased $24 million, or 4%, compared to the prior-year period, primarily driven by;

•$41 million of higher transaction-related expenses primarily due to the failed hostile takeover attempt in 2024;

•$12 million of impairment charges, primarily related to development advance notes; and

•$11 million of restructuring costs; partially offset by

•$11 million of separation-related income due to the reversal of a reserve in 2024 related to the expiration of a tax matter associated with our spin-off;

•$11 million of lower marketing, reservation and loyalty expenses primarily due to the absence of $18 million of expenses associated with the 2023 global franchisee conference, partially offset by timing of higher spend;

•$8 million of lower operating and general and administrative costs primarily due to operational efficiencies, lower foreign currency losses, including from highly inflationary countries, and an insurance recovery; and

•$8 million of lower cost-reimbursement expenses, which have no impact on net income.

Interest expense, net for the nine months ended September 30, 2024 increased $20 million, or 27%, compared to the prior-year period primarily due to a higher average debt balance.

Early extinguishment of debt was $3 million for both the nine months ended September 30, 2024 and 2023 related to the repricing and refinancing of our term loan B, respectively.

Our effective tax rates were 24.4% and 25.7% during the nine months ended September 30, 2024 and 2023, respectively. Such decrease was primarily a result of a reversal of a non-taxable separation-related reserve.

As a result of these items, net income for the nine months ended September 30, 2024 decreased $36 million compared to the prior-year period.

Following is a discussion of the results of our Hotel Franchising segment and Corporate and Other for the nine months ended September 30, 2024 compared to September 30, 2023:

Hotel Franchising

Net revenues for the nine months ended September 30, 2024 decreased $9 million compared to the prior-year period as discussed above.

Adjusted EBITDA for the nine months ended September 30, 2024 increased $24 million compared to the prior-year period, primarily driven by higher license and other ancillary revenues and lower operating expenses driven by operational efficiencies, which resulted in an expansion of our franchising margin.

Corporate and Other

Corporate and other expenses were $51 million for the nine months ended September 30, 2024, reflecting a $2 million increase from the comparable prior year period.

DEVELOPMENT

On September 30, 2024, our global development pipeline consisted of approximately 2,100 hotels and 248,000 rooms, representing a 5% year-over-year increase, including 7% growth in the U.S. and 3% internationally. Approximately 70% of our pipeline is in the midscale and above segments and 14% of our pipeline represents ECHO Suites Extended Stay by Wyndham. Approximately 58% of our pipeline is international. Additionally, approximately 79% of our pipeline is new construction, of which approximately 35% has broken ground.

RESTRUCTURING

During the first quarter of 2024, we approved a restructuring plan focused on enhancing our organizational efficiency. As a result, during the three and nine months ended September 30, 2024, we incurred $2 million and $11 million, respectively, of restructuring expenses, relating to 111 employees primarily in our Hotel Franchising segment. The following table presents activity for the nine months ended September 30, 2024:

(b)Represents non-cash payments in Company stock.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Financial Condition

Total assets increased $121 million from December 31, 2023 to September 30, 2024 primarily related to an increase in development advance notes in support of our growth strategy and accounts receivable resulting from seasonality. Total liabilities increased $284 million from December 31, 2023 to September 30, 2024 primarily related to a $286 million increase in our outstanding debt. Total equity decreased $163 million from December 31, 2023 to September 30, 2024 primarily due to $285 million of stock repurchases and $93 million of dividend payments, partially offset by our net income.

Liquidity and Capital Resources

Historically, our business generates sufficient cash flow to not only support our current operations as well as our future growth needs and dividend payments to our stockholders, but also to create additional value for our stockholders in the form of share repurchases or business investment.

As of September 30, 2024, our liquidity approximated $750 million. Given the minimal capital needs and flexible cost structure of our business, we believe that our existing cash, cash equivalents, cash generated through operations and our expected access to financing facilities, together with funding through our revolving credit facility, will be sufficient to fund our operating activities, anticipated capital expenditures and growth needs.

As of September 30, 2024, we were in compliance with the financial covenants of our credit agreement and expect to remain in such compliance. As of September 30, 2024, we had a term loan B with a principal outstanding balance of $1.5 billion maturing in 2030, a term loan A with a principal outstanding balance of $369 million maturing in 2027, $500 million senior unsecured notes due in August 2028 and a five-year revolving credit facility maturing in 2027 with a maximum aggregate principal amount of $750 million, of which $69 million was outstanding.

The interest rate per annum applicable to our term loan B is equal to, at our option, either a base rate plus an applicable rate of 0.75% or the Secured Overnight Financing Rate (“SOFR”) plus an applicable rate of 1.75%. Our revolving credit facility and term loan A are subject to an interest rate per annum equal to, at our option, either a base rate plus a margin ranging from 0.50% to 1.00% or SOFR plus a 0.10% SOFR adjustment, plus a margin ranging from 1.50% to 2.00%, in either case based upon our total leverage ratio and the total leverage of our restricted subsidiaries. As of September 30, 2024, the margin on our term loan A was 1.75%.

As of September 30, 2024, we had pay-fixed/receive-variable interest rate swaps which hedge the interest rate exposure on $1.5 billion, effectively representing nearly all of the outstanding amount of our term loan B. The interest rate swaps have weighted average fixed rates (plus applicable spreads) ranging from 0.91% to 3.84% based on various effective dates for each of the swap agreements, with $475 million expiring in the fourth quarter of 2027, $600 million of swaps that expire in the second quarter of 2028 and $350 million expiring in the third quarter of 2028.

As of September 30, 2024, our credit rating was Ba1 from Moody’s Investors Service and BB+ from both Standard and Poor’s Rating Agency and Fitch Ratings. A credit rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal by the assigning rating organization. Reference in this report to any such credit rating is intended for the limited purpose of discussing or referring to aspects of our liquidity and of our costs of funds. Any reference to a credit rating is not intended to be any guarantee or assurance of, nor should there be any undue reliance upon, any credit rating or change in credit rating, nor is any such reference intended as any inference concerning future performance, future liquidity or any future credit rating. Our liquidity and access to capital may be impacted by our credit ratings, financial performance and global credit market conditions.

CASH FLOW

The following table summarizes the changes in cash, cash equivalents and restricted cash during the nine months ended September 30, 2024 and 2023:

Net cash provided by operating activities decreased $97 million compared to the prior-year period primarily due to $47 million of transaction-related payments in 2024 related to the unsuccessful hostile takeover attempt and $41 million of higher cash used for development advances notes.

Net cash used in investing activities decreased $10 million compared to the prior-year period primarily due to a decrease in cash used for loans in connection with development activities and lower capital expenditures.

Net cash used in financing activities decreased $183 million compared to the prior-year period primarily due to $195 million of higher net debt borrowings and $15 million of stock option exercises, partially offset by $22 million of higher stock repurchases.

Capital Deployment

Our first priority is to invest in the business. This includes deploying capital to attract high quality assets into our system, investing in select technology improvements across our business that further our strategic objectives and competitive position, brand refresh programs to improve quality and protect brand equity, business acquisitions that are accretive and strategically enhancing to our business, and/or other strategic initiatives. We also expect to maintain a regular dividend payment. Excess cash generated beyond these needs is expected to be available for enhanced stockholder return in the form of stock repurchases or potential acquisitions from time to time.

During the nine months ended September 30, 2024, we spent $24 million on capital expenditures primarily related to information technology, including digital innovation. During 2024, we anticipate spending approximately $40 million on capital expenditures.

In addition, during the nine months ended September 30, 2024, we spent $88 million on development advance notes, net of repayments. During 2024, we anticipate spending approximately $110 million on development advance notes. These investments are important in enabling us to attract higher fee-per-available-room (FeePAR) hotels into our system, strengthening our portfolio with more premium properties. We may also provide other forms of financial support, such as enhanced credit support, to further bolster our business growth.

We have outstanding development advances and loans with a large franchisee currently negotiating with its lenders regarding a potential sale of its business. Both the development advance notes and loans are secured with guarantees and collateral from our current franchisee, adding an additional layer of protection. The development advance notes and loans are expected to be assumed by the purchaser when the sale is finalized, which is expected in the coming months, mitigating risk to our assets. However, if the sale does not proceed as planned, the franchisee’s lenders may seek concessions, which could require us to pursue the underlying guarantees and collateral and also impact the recoverability of a portion of our assets.

During the nine months ended September 30, 2024, we incurred $42 million of transaction-related costs associated with the failed hostile takeover attempt. During the nine months ended September 30, 2024, we paid $47 million, including amounts incurred in 2023 for this transaction.

We expect all our cash needs to be funded from cash on hand and cash generated through operations, and/or availability under our revolving credit facility.

Stock Repurchase Program

In May 2018, our Board approved a share repurchase plan pursuant to which we were authorized to purchase up to $300 million of our common stock. Our Board has increased the capacity of the program by $300 million in 2019, $800 million in 2022, $400 million in 2023 and $400 million in 2024. Under the plan, we may, from time to time, purchase our common stock through various means, including, without limitation, open market transactions, privately negotiated transactions or tender offers, subject to the terms of the tax matters agreement entered into in connection with our spin-off.

Under our current stock repurchase program, we repurchased approximately 3.8 million shares at an average price of $75.01 for a cost of $285 million during the nine months ended September 30, 2024. As of September 30, 2024, we had $560 million of remaining availability under our program.

Dividend Policy

We declared cash dividends of $0.38 per share in the first, second and third quarters of 2024 ($93 million in aggregate).

The declaration and payment of future dividends to holders of our common stock is at the discretion of our Board and depends upon many factors, including our financial condition, earnings, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant.

LONG-TERM DEBT COVENANTS

Our credit facilities contain customary covenants that, among other things, impose limitations on indebtedness; liens; mergers, consolidations, liquidations and dissolutions; dispositions, restricted debt payments, restricted payments and transactions with affiliates. Events of default in these credit facilities include, among others, failure to pay interest, principal and fees when due; breach of a covenant or warranty; acceleration of or failure to pay other debt in excess of a threshold amount; unpaid judgments in excess of a threshold amount, insolvency matters; and a change of control. The credit facilities require us to comply with a financial covenant to be tested quarterly, consisting of a maximum first-lien leverage ratio of 5.0 times. The ratio is calculated by dividing consolidated first lien indebtedness (as defined in the credit agreement) net of consolidated unrestricted cash as of the measurement date by consolidated EBITDA (as defined in the credit agreement), as measured on a trailing four-fiscal-quarter basis preceding the measurement date. As of September 30, 2024, our annualized first-lien leverage ratio was 2.9 times.

The indenture, as supplemented, under which the senior notes due 2028 were issued, contains covenants that limit, among other things, our ability and that of certain of our subsidiaries to (i) create liens on certain assets; (ii) enter into sale and leaseback transactions; and (iii) merge, consolidate or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications.

As of September 30, 2024, we were in compliance with the financial covenants described above.

SEASONALITY

While the hotel industry is seasonal in nature, periods of higher revenues vary property-by-property and performance is dependent on location and guest base. Based on historical performance, revenues from franchise contracts are generally higher in the second and third quarters than in the first or fourth quarters due to increased leisure travel during the spring and summer months. Our cash from operating activities may not necessarily follow the same seasonality as our revenues and may vary due to timing of working capital requirements and other investment activities. The seasonality of our business may cause fluctuations in our quarterly operating results, earnings, profit margins and cash flows. As we expand into new markets and geographical locations, we may experience increased or different seasonality dynamics that create fluctuations in operating results different from the fluctuations we have experienced in the past.

COMMITMENTS AND CONTINGENCIES

We are involved in claims, legal and regulatory proceedings and governmental inquiries related to our business. Litigation is inherently unpredictable and, although we believe that our accruals are adequate and/or that we have 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 us with respect to earnings and/or cash flows in any given reporting period. As of September 30, 2024, the potential exposure resulting from adverse outcomes of such legal proceedings could, in the aggregate, range up to approximately $9 million in excess of recorded accruals. However, we do not believe that the impact of such litigation should result in a material liability to us in relation to our financial position or liquidity. For a more detailed description of our commitments and contingencies see Note 10 - Commitments and Contingencies to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report.

CRITICAL ACCOUNTING POLICIES

In presenting our financial statements in conformity with U.S. GAAP, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. These Condensed Consolidated Financial Statements should be read in conjunction with our 2023 Consolidated Financial Statements included in our 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, which includes a description of our critical accounting policies that involve subjective and complex judgments that could potentially affect reported results.