Wyndham Worldwide Corporation announced results for the three months ended March 31, 2018.
First quarter revenues from continuing operations were $1.2 billion, an increase of 3% compared with the prior-year period. Results reflect the required adoption of the new revenue recognition standard, which had an immaterial year-over-year impact on the Company’s results on a comparable basis.
Net income from continuing operations in the first quarter of 2018 was $81 million compared with $127 million for the first quarter of 2017. Diluted earnings per share (EPS) from continuing operations were $0.80, versus $1.20 in the prior-year period. Net income from continuing operations was impacted by $53 million ($0.53 per diluted share) of after-tax separation- and transaction-related costs in first quarter 2018.
Adjusted net income from continuing operations was $134 million or $1.33 per diluted share, compared with $106 million or $1.01 per diluted share in the first quarter of 2017. Adjusted diluted EPS increased 32%, and 10% excluding the benefit of a reduced effective income tax rate. Adjusted results exclude separation costs and other items as detailed in Tables 7 and 8 of this press release, available via this link: http://phx.corporate-ir.net/External.Fileitem=UGFyZW50SUQ9NDA0MjI4fENoa…. The growth in adjusted earnings primarily reflects higher revenues in all three of the Company’s operating segments, hurricane-related insurance recoveries and lower taxes, partially offset by increased interest expense. Adjusted diluted EPS also reflects the benefit of the Company’s share repurchase program.
“We’ve started the year with strong growth in our businesses,” said Stephen P. Holmes, chairman and CEO. “Our teams delivered solid financial results while executing on several key strategic initiatives, including the pending sale of our European vacation rentals business, the planned spin-off of Wyndham Hotels & Resorts into a separate publicly traded company, and the pending acquisition of La Quinta’s hotel franchising and hotel management business.”
First quarter EBITDA from continuing operations was $221 million, compared with $237 million in the prior-year period, due to separation-related costs recorded in first quarter 2018. Adjusted EBITDA from continuing operations increased 10%, to $274 million, compared with $249 million in the first quarter of 2017. Results primarily reflect the growth in revenues as well as an approximately $5 million net benefit from hurricane-related impacts and insurance proceeds.
FIRST QUARTER 2018 BUSINESS UNIT RESULTS
Hotel Group
Revenues increased 4% to $302 million in the first quarter of 2018, compared with $289 million in first quarter 2017. Results reflect higher royalties and franchise fees as well as higher marketing, reservation and Wyndham Rewards revenues, which are generally offset in expenses.
EBITDA was $83 million in the first quarter, unchanged from the prior-year quarter, primarily due to $12 million of separation- and acquisition-related costs. Adjusted EBITDA was $98 million compared with $84 million in the prior-year period, an increase of 17%, primarily reflecting the growth in revenue and a net benefit of $6 million from hurricane-related insurance recoveries and costs.
First quarter domestic RevPAR increased 5.6% compared with first quarter 2017. Global RevPAR increased 7.0%, and 4.7% in constant currency.
As of March 31, 2018, the Company’s hotel system consisted of over 8,300 properties and approximately 723,000 rooms, a 3% increase compared with a year earlier that includes almost 12,000 rooms the Company added with the acquisition of AmericInn in October 2017. The development pipeline increased to over 1,100 hotels and nearly 147,700 rooms, a 3% year-over-year room increase, of which 58% are international and 67% are new construction.
Destination Network
Revenues were $246 million in the first quarter of 2018, compared with $243 million in the first quarter of 2017, an increase of 1%. The average number of members increased 1%, while exchange revenue per member declined 1%.
EBITDA was $66 million compared with $75 million in the first quarter of 2017, reflecting $11 million of separation costs. Adjusted EBITDA was $77 million compared with $75 million in the prior-year period, an increase of 3%, primarily reflecting hurricane-related insurance recoveries and cost savings.
This segment no longer includes the Company’s European vacation rentals business, which is classified as a discontinued operation.
Vacation Ownership
Revenues were $661 million in the first quarter of 2018, compared with $639 million in the first quarter of 2017, an increase of 3%. The increase reflects 6% growth in both gross vacation ownership interest (VOI) sales and consumer financing revenues, partially offset by a higher provision for loan losses. Tour flow increased 8% and sales volume per guest (VPG) declined 2%, driven by increased tours to new owners. New owner sales volume increased 19% year-over-year.
EBITDA was $124 million in the first quarter of 2018 compared with $117 million in the prior-year quarter. Adjusted EBITDA was $129 million compared with $122 million in the prior-year quarter, an increase of 6%. Results primarily reflect the growth in revenues.
OTHER ITEMS
- Upcoming Separation As previously announced, the Company plans to separate into two publicly traded hospitality companies through the spin-off of the Company’s Hotel Group business to shareholders. In the spin-off, Wyndham Hotels & Resorts, Inc. will become an independent hotel franchising and hotel management company whose common stock is expected to trade on the New York Stock Exchange under the ticker “WH.” In conjunction with the spin-off, Wyndham Worldwide will change its name to Wyndham Destinations, Inc. and will be primarily comprised of Wyndham’s Vacation Ownership and Destination Network operations, making it the world’s largest vacation ownership and exchange company. Wyndham Destinations’ stock will trade on the New York Stock Exchange under the ticker “WYND.” The separation process has been proceeding as planned, and the Company expects to complete the spin-off this quarter.
- Sale of European Vacation Rentals Business In the first quarter, the Company agreed to sell its European vacation rentals business to an affiliate of Platinum Equity for approximately $1.3 billion in cash. This transaction is expected to be completed this quarter.
- La Quinta Acquisition As previously announced, the Company has agreed to purchase La Quinta Holdings’ hotel franchising and hotel management operations for $1.95 billion in cash. The acquisition will add approximately 900 managed and/or franchised hotels to our Hotel Group’s portfolio and is expected to close this quarter. In preparation for the La Quinta acquisition and the spin-off, Wyndham Hotels & Resorts issued $500 million of senior unsecured notes due 2026 and arranged for commitments from lenders for a $1.6 billion senior secured term loan facility. Wyndham Hotels & Resorts has also arranged a $750 million senior secured revolving credit facility, which it expects to be undrawn at the time of spin-off and acquisition of La Quinta.
- Share Repurchases The Company repurchased 0.6 million shares of common stock for $75 million during the first quarter of 2018 at an average price of $115.91. From April 1 through May 1, 2018, the Company repurchased an additional 0.2 million shares for $22 million.
- Sale of Knights Inn In April, the Company agreed to sell its Knights Inn franchise brand, consisting of approximately 350 franchised hotels with 21,000 rooms, to Red Lion Hotels for approximately $27 million in cash. The transaction is expected to close this quarter.
- New Revenue Recognition Standard In the first quarter, the Company adopted the new U.S. GAAP revenue recognition standard, as required. This new standard reduced previously reported first quarter 2017 revenues and adjusted EBITDA by $14 million and $3 million, respectively, and reduced first quarter 2018 revenues and adjusted EBITDA by $16 million and $3 million, respectively.
OUTLOOK
Note to Editors: The Company has classified its European vacation rentals business, which it has agreed to sell, as a discontinued operation; its results are therefore excluded from the outlook below. In addition, the outlook excludes possible future share repurchases. Analysts’ estimates may include projections of the European vacation rentals business and/or include projected share repurchases, and may not have been adjusted to reflect the impact of the new U.S. GAAP revenue recognition standard. These factors may result in discrepancies between the Company’s projections and database consensus forecasts.
The Company’s outlook for 2018 adjusted EBITDA from continuing operations is unchanged from the outlook it provided in February. The Company projects the following results for full-year 2018:
- Revenues of $5.195 billion to $5.335 billion, an increase of 4% to 7%. The change from the Company’s prior projection is entirely due to the impact of the new revenue recognition standard, which did not affect projected year-over-year revenue growth calculated on a comparable basis.
- An effective tax rate applicable to adjusted pretax earnings of approximately 25%.
- Adjusted net income from continuing operations of $702 million to $717 million, an increase of 25% to 28%, approximately 19 points of which is due to a lower effective tax rate.
- Adjusted EBITDA of $1.330 billion to $1.355 billion, which represents year-over-year growth of 7% to 9% and is comprised of:
- Hotel Group adjusted EBITDA of $445 million to $455 million
- Destination Network adjusted EBITDA of $265 million to $275 million
- Vacation Ownership adjusted EBITDA of $735 million to $750 million
- Adjusted diluted EPS from continuing operations of $6.96 to $7.11, which is an increase of 28% to 31% and is based on a diluted share count of 100.8 million.
These projections exclude the impact of the La Quinta acquisition and the financing thereof, exclude any impact from our European vacation rentals business, which is treated as a discontinued operation, and exclude costs associated with the Company’s planned separation into two separate publicly traded companies. Projections now reflect the required change in revenue recognition accounting. See Table 12 for detailed projections, available via this link: http://phx.corporate-ir.net/External.Fileitem=UGFyZW50SUQ9NDA0MjI4fENoa… In addition, we are publishing two presentations on our website (http://investor.wyndhamworldwide.com) with additional information on our projections for the two separate companies post-spin.
In determining adjusted net income, adjusted EBITDA and adjusted EPS, the Company excludes certain items which are otherwise included in determining the comparable GAAP financial measures. A description of the adjustments that have been applicable for the reported periods in determining adjusted net income, adjusted EBITDA and adjusted EPS are reflected in Tables 7 and 8 of this press release, available via this link: http://phx.corporate-ir.net/External.Fileitem=UGFyZW50SUQ9NDA0MjI4fENoa…. The Company is providing an outlook for net income, EBITDA and EPS only on a non-GAAP basis because the Company is unable to predict with reasonable certainty the totality or ultimate outcome or occurrence of these adjustments or other potential adjustments that may arise in the future during the outlook period, which can be dependent on future events that may not be reliably predicted.
