# WYNDHAM HOTELS & RESORTS, INC. (WH) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from WYNDHAM HOTELS & RESORTS, INC.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1722684/000172268422000005/wh-20211231.htm
Accession: 0001722684-22-000005
Filing date: 2022-02-16
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/WH/
All MD&A years: /company/WH/mda/
Next year: /company/WH/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Unless otherwise noted, all amounts are in millions, except share and per share amounts)

References herein to “Wyndham Hotels,” the “Company,” “we,” “our” and “us” refer to both (i) Wyndham Hotels & Resorts, Inc. and its consolidated subsidiaries for time periods following the consummation of the spin-off and (ii) the Wyndham Hotels & Resorts businesses for time periods prior to the consummation of our spin-off from Wyndham Worldwide (“former Parent”), now known as Travel + Leisure Co.

BUSINESS AND OVERVIEW

The Company is a leading global hotel franchisor, licensing its renowned hotel brands to hotel owners in approximately 95 countries around the world.

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The Company operates in the following segments:

•    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. Upon sale of the CorePoint management business to Highgate, the Company will no longer provide hotel management services to limited-service hotels.

The Consolidated Financial Statements presented herein have been prepared on a stand-alone basis. The 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.

RESULTS OF OPERATIONS

Discussed below are our key operating statistics, consolidated results of operations and the results of operations for each of our reportable segments. The reportable segments presented below represent our operating segments 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 segments, we also consider the nature of services provided by our operating segments. Management evaluates the operating results of each of our reportable segments 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, transaction-related items (acquisition-, disposition- or separation-related), 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 segments 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. During the first quarter of 2021, we modified the definition of adjusted EBITDA to exclude the amortization of development advance notes to reflect how our chief operating decision maker reviews operating performance beginning in 2021. We have applied the modified definition of adjusted EBITDA to all periods presented.

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.

COVID-19

During 2020, the hotel industry experienced a sharp decline in travel demand due to COVID-19 and the related government preventative and protective actions to slow the spread of the virus, including travel restrictions. We and the entire industry experienced significant revenue losses in 2020 as a result of steep RevPAR declines. Yet, the impact on our business was mitigated by characteristics unique to our business model. With approximately 70% of bookings at our hotels being leisure-oriented, our hotel owners are less reliant on business travel, which only makes up approximately 30% of bookings. Within this business segment, corporate transient and group bookings are the smallest component, where less than 5% of our bookings come from this segment. Our business customers are substantially comprised of truckers, contractors, construction workers, utility crews and others whose office is the road and who do not have the ability to conduct their work remotely. These customers provide a steady state of business for the majority of our hotel owners and, in fact, our infrastructure accounts, which represent 70% of the domestic business demand that our brands drive, contributed 10% more revenue to our U.S. hotels during the second half of 2021 than the same period in 2019, a trend that we see continuing given the passage of President Biden’s infrastructure bill late last year. In addition, nearly 90% of hotels within our U.S. system are located along highways and in suburban and small metro areas, on the way to or near outdoor destinations such as national parks and beach communities. Our hotels are in locations that travelers felt safe visiting and we invested in sales and marketing efforts to reach travel seekers and instill confidence that our hotels were clean, safe and welcoming guests. Finally, over 95% of our U.S. business is originated domestically. As a result, our platform was naturally set up to capture returning demand throughout the pandemic and the recovery and our business was able to substantially recover from COVID’s impact during 2021.

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Our economy and midscale brands in the U.S. have outperformed the industry’s higher-end chain scales consistently since the onset of the pandemic and have led the industry’s recovery in 2021. Our RevPAR recovered to 97% of 2019 levels in the U.S. International recovery has trailed the U.S. due to a heavier reliance on cross boarder travel and localized travel restrictions at various points throughout the year. However, we have experienced significant improvement over the last few quarters and international RevPAR, on a constant currency basis, has recovered to 78% of its pre-pandemic levels during the second half of 2021 compared to 56% in the first half of this year. Our 2021 adjusted EBITDA recovered to 95% of pre-pandemic 2019 levels.

The Company does not anticipate the pandemic to further materially impact the results from operations, however should there be a resurgence of COVID-19, our results of operations may be negatively impacted and certain intangible assets, such as our trademarks, and our franchised and managed goodwill may be exposed to impairments. For further discussion on the effect of COVID-19 on our financial condition and liquidity, see the section below Financial Condition, Liquidity and Capital Resources.

OPERATING STATISTICS - 2021 VS. 2020

The table below presents our operating statistics for the years ended December 31, 2021 and 2020. “Rooms” represent the number of hotel rooms at the end of the period which are either under franchise and/or management agreements, or are Company-owned, 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.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","% Change"],["Rooms"],["United States","490,600","","","487,300","","","1","%"],["International","319,500","","","308,600","","","4","%"],["Total rooms","810,100","","","795,900","","","2","%"],["RevPAR"],["United States","$","45.19","","","$","30.20","","","50","%"],["International (a)","21.52","","","15.35","","","40","%"],["Global RevPAR (a)","35.95","","","24.51","","","47","%"],["Average Royalty Rate"],["United States","4.6","%","","4.5","%","","2","%"],["International","2.1","%","","2.1","%","","\u2014","%"],["Global average royalty rate","4.1","%","","4.0","%","","3","%"]]
[[/GREPCENT_TABLE]]

______________________

(a)Excluding currency effects, international RevPAR increased 36% and global RevPAR increased 46%.

Rooms as of December 31, 2021 increased 2% compared to the prior year. As expected, we experienced strong growth in the higher RevPAR midscale and above chain scales in the U.S., increasing system size by 5%, as well as strong growth in the direct franchising business in China, which grew 15%.

Global RevPAR for the year ended December 31, 2021 increased 47% to $35.95, compared to the prior year due to the ongoing recovery in travel demand. Global RevPAR recovered to 88% of 2019 levels on an annual and constant currency basis, including domestic and international RevPAR at 97% and 67%, respectively, of 2019 levels.

Global average royalty rate for the year ended December 31, 2021 increased 3% to 4.1%, compared to the prior year.

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YEAR ENDED DECEMBER 31, 2021 VS. YEAR ENDED DECEMBER 31, 2020

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Change","","% Change"],["Revenues"],["Fee-related and other revenues","$","1,245","","","$","950","","","$","295","","","31","%"],["Cost reimbursement revenues","320","","","350","","","(30)","","","(9","%)"],["Net revenues","1,565","","","1,300","","","265","","","20","%"],["Expenses"],["Marketing, reservation and loyalty expense","450","","","419","","","31","","","7","%"],["Cost reimbursement expense","320","","","350","","","(30)","","","(9","%)"],["Other expenses","349","","","577","","","(228)","","","(40","%)"],["Total expenses","1,119","","","1,346","","","(227)","","","(17","%)"],["Operating income/(loss)","446","","","(46)","","","492","","","n/a"],["Interest expense, net","93","","","112","","","(19)","","","(17","%)"],["Early extinguishment of debt","18","","","\u2014","","","18","","","n/a"],["Income/(loss) before income taxes","335","","","(158)","","","493","","","n/a"],["Provision for/(benefit from) income taxes","91","","","(26)","","","117","","","n/a"],["Net income/(loss)","$","244","","","$","(132)","","","$","376","","","n/a"]]
[[/GREPCENT_TABLE]]

Net revenues during 2021 increased $265 million, or 20%, compared to the prior year, primarily driven by:

•$133 million of higher royalty and franchise fees reflecting a 47% increase in global RevPAR due to the ongoing recovery in travel demand and a 2% increase in system size;

•$98 million of higher marketing, reservation and loyalty fee primarily due to the RevPAR increase;

•$53 million of higher management and other fees due to the ongoing recovery in travel demand; partially offset by

•$30 million of lower cost-reimbursement revenues in our hotel management business as a result of CorePoint Lodging asset sales.

Total expenses during 2021, decreased $227 million, or 17%, compared to the prior year, primarily driven by:

•    $200 million of lower impairment charges, driven by the absence of $206 million of impairment charges during 2020, partially offset by a $6 million impairment charge in 2021 resulting from our Board’s approval of a plan to sell our two owned hotels;

•$34 million of lower restructuring charges due to the absence of cost saving initiatives implemented in 2020 in response to COVID-19;

•$30 million of lower cost-reimbursement expenses consistent with the revenue decline discussed above;

•$12 million of lower transaction-related expenses; partially offset by

•$31 million of higher marketing, reservation and loyalty expenses primarily due to the ongoing recovery in travel demand; and

•$23 million of higher operating expenses primarily associated with the recovery in travel demand at our owned hotels.

Interest expense, net during 2021 decreased $19 million, or 17%, compared to the prior year and early extinguishment of debt was $18 million in 2021 as a result of the redemption of our $500 million 5.375% senior notes in April 2021.

Our effective tax rate increased to 27.2% on pre-tax income from 16.5% on pre-tax loss during 2021 and 2020, respectively. The change was primarily related to valuation allowances for certain tax attributes and impact of foreign taxes, including withholding taxes on international operations. In 2020, we had goodwill impairment charges that were nondeductible for tax purposes which decreased the effective tax rate.

As a result of these items, net income during 2021, increased $376 million compared to the prior year.

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A reconciliation of net income/(loss) to adjusted EBITDA is represented below:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020 (a)"],["Net income/(loss)","$","244","","","$","(132)"],["Provision for/(benefit from) income taxes","91","","","(26)"],["Depreciation and amortization","95","","","98"],["Interest expense, net","93","","","112"],["Early extinguishment of debt","18","","","\u2014"],["Stock-based compensation expense","28","","","19"],["Development advance notes amortization","11","","","9"],["Impairments, net","6","","","206"],["Separation-related expenses","3","","","2"],["Restructuring costs","\u2014","","","34"],["Transaction-related expenses, net","\u2014","","","12"],["Foreign currency impact of highly inflationary countries","1","","","2"],["Adjusted EBITDA","$","590","","","$","336"]]
[[/GREPCENT_TABLE]]
______________________

(a)Adjusted EBITDA for 2020 has been recasted to conform with the current year presentation.

Following is a discussion of the results of each of our segments and Corporate and Other for 2021 compared to 2020:

[[GREPCENT_TABLE]]
[["","Net Revenues","","Adjusted EBITDA"],["","2021","","2020","","% Change","","2021","","2020 (a)","","% Change"],["Hotel Franchising","$","1,099","","","$","863","","","27","%","","$","592","","","$","392","","","51","%"],["Hotel Management","466","","","437","","","7","%","","57","","","13","","","338","%"],["Corporate and Other","\u2014","","","\u2014","","","n/a","","(59)","","","(69)","","","(14","%)"],["Total Company","$","1,565","","","$","1,300","","","20","%","","$","590","","","$","336","","","76","%"]]
[[/GREPCENT_TABLE]]
______________________

(a)Adjusted EBITDA for 2020 has been recasted to conform with the current year presentation.

Hotel Franchising

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","% Change"],["Rooms"],["United States","465,100","","","452,600","","","3","%"],["International","304,300","","","293,900","","","4","%"],["Total rooms","769,400","","","746,500","","","3","%"],["RevPAR"],["United States","$","43.95","","","$","29.50","","","49","%"],["International (a)","20.86","","","14.75","","","41","%"],["Global RevPAR (a)","34.85","","","23.74","","","47","%"]]
[[/GREPCENT_TABLE]]

______________________

(a)    Excluding currency effects, international RevPAR increased 37% and global RevPAR increased 46%.

Net revenues during 2021 increased $236 million, or 27% compared to the prior year, primarily driven by:

•$127 million of higher royalty and franchise fees driven by the ongoing recovery in travel demand, its impact on global RevPAR and increase in our system size; and

•$98 million of higher marketing, reservation and loyalty revenues, driven by the ongoing recovery in travel demand.

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Adjusted EBITDA during 2021 increased $200 million, or 51%, compared to the prior year, driven by revenue increases discussed above, partially offset by $36 million of higher expenses primarily due to higher marketing, reservation and loyalty expense and other volume-related expenses.

Hotel Management

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","% Change"],["Rooms"],["United States","25,500","","","34,700","","","(27","%)"],["International","15,200","","","14,700","","","3","%"],["Total rooms","40,700","","","49,400","","","(18","%)"],["RevPAR"],["United States","$","63.20","","","$","37.97","","","66","%"],["International (a)","34.31","","","26.21","","","31","%"],["Global RevPAR (a)","53.81","","","34.67","","","55","%"]]
[[/GREPCENT_TABLE]]

______________________

(a)    Excluding currency effects, international RevPAR increased 30% and global RevPAR increased 55%.

Net revenues during 2021 increased $29 million, or 7%, compared to the prior year, primarily driven by:

•$45 million of higher owned hotel revenues due to the ongoing recovery in travel demand;

•$8 million of higher management fees due to the ongoing recovery in travel demand; and

•$4 million of higher termination fees primarily related to CorePoint asset sales; partially offset by

•$30 million of lower cost-reimbursement revenues as discussed above, which have no impact on adjusted EBITDA.

Adjusted EBITDA during 2021 increased $44 million, or 338%, compared to the prior year, primarily driven by the higher owned hotel revenues discussed above, partially offset by higher volume-related expenses primarily related to our owned hotels.

Corporate and Other

Adjusted EBITDA during 2021 was favorable by $10 million compared to the prior year, primarily due to lower general and administrative costs.

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OPERATING STATISTICS - 2020 VS. 2019

The table below presents our operating statistics for the years ended December 31, 2020 and 2019. “Rooms” represent the number of hotel rooms at the end of the period which are either under franchise and/or management agreements, or are Company-owned, 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.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2020","","2019","","% Change"],["Rooms"],["United States","487,300","","","510,200","","","(4","%)"],["International","308,600","","","320,800","","","(4","%)"],["Total rooms","795,900","","","831,000","","","(4","%)"],["RevPAR"],["United States","$","30.20","","","$","46.39","","","(35","%)"],["International (a)","15.35","","","31.85","","","(52","%)"],["Global RevPAR (a)","24.51","","","40.92","","","(40","%)"],["Average Royalty Rate"],["United States","4.5","%","","4.5","%","","\u2014","%"],["International","2.1","%","","2.0","%","","5","%"],["Global average royalty rate","4.0","%","","3.8","%","","5","%"]]
[[/GREPCENT_TABLE]]

______________________

(a)Excluding currency effects, international RevPAR decreased 51% and global RevPAR decreased 40%.

Rooms as of December 31, 2020 decreased 4% compared to the prior year reflecting our previously announced strategic termination plan as well as the unforeseen sale of certain hotels by a strategic partner which triggered the termination of that underlying license agreement. As a result of these unusual termination events, we removed approximately 26,700 hotel rooms during 2020, which adversely impacted net room growth by 300 basis points.

Global RevPAR for the year ended December 31, 2020 decreased 40% to $24.51, compared to the prior year due to COVID-19 and its impact on travel demand.

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YEAR ENDED DECEMBER 31, 2020 VS. YEAR ENDED DECEMBER 31, 2019

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2020","","2019","","Change","","% Change"],["Revenues"],["Fee-related and other revenues","$","950","","","$","1,430","","","$","(480)","","","(34","%)"],["Cost reimbursement revenues","350","","","623","","","(273)","","","(44","%)"],["Net revenues","1,300","","","2,053","","","(753)","","","(37","%)"],["Expenses"],["Marketing, reservation and loyalty expense","419","","","563","","","(144)","","","(26","%)"],["Cost reimbursement expense","350","","","623","","","(273)","","","(44","%)"],["Other expenses","577","","","560","","","17","","","3","%"],["Total expenses","1,346","","","1,746","","","(400)","","","(23","%)"],["Operating (loss)/income","(46)","","","307","","","(353)","","","(115","%)"],["Interest expense, net","112","","","100","","","12","","","12","%"],["(Loss)/income before income taxes","(158)","","","207","","","(365)","","","(176","%)"],["(Benefit from)/provision for income taxes","(26)","","","50","","","(76)","","","(152","%)"],["Net (loss)/income","$","(132)","","","$","157","","","$","(289)","","","(184","%)"]]
[[/GREPCENT_TABLE]]

Net revenues during 2020 decreased $753 million, or 37%, compared to the prior year, primarily driven by:

•$273 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;

•$152 million of lower royalty and franchise fees reflecting a 40% decline in RevPAR due to lower travel demand as a result of COVID-19;

•$192 million of lower marketing, reservation and loyalty fees (inclusive of a $13 million benefit in loyalty revenues from a change in our member redemption assumption) due to the RevPAR decline;

•$61 million of lower management and other fees due to a (i) $52 million reduction in owned hotel revenues and (ii) $29 million of lower management fees resulting from a decline in RevPAR primarily due to lower travel demand from COVID-19, partially offset by the absence of a $20 million fee credit for past services with a customer in 2019; and

•$47 million of lower license and other fees due to lower travel demand resulting from COVID-19.

Total expenses during 2020, decreased $400 million, or 23%, compared to the prior year, primarily driven by:

•    $273 million of lower cost-reimbursement expenses consistent with the revenue decline discussed above;

•$144 million of lower marketing, reservation and loyalty expenses primarily due to cost reductions in response to COVID-19;

•$69 million of lower operating and general and administrative expenses primarily due to cost containment efforts in response to COVID-19;

•$48 million of lower separation and transaction-related expenses;

•$42 million of lower contract termination costs; partially offset by

•$161 million of higher impairment charges, driven by the $206 million of impairment charges during 2020, primarily related to certain of our trademarks, principally La Quinta, as well as goodwill for our owned hotel reporting unit, partially offset by the absence of a $45 million impairment charge in 2019. The 2020 trademark impairments were primarily due to a higher discount rate as a result of increased share price volatility, consistent with the lodging sector and broader equity markets; and

•    $26 million of higher restructuring charges due to cost saving initiatives implemented in response to COVID-19.

Our effective tax rate decreased to 16.5% on pre-tax loss from 24.2% on pre-tax income during 2020 and 2019, respectively. The effective tax rate in 2020 was lower primarily due to valuation allowances established for certain tax attributes. In 2019, the Company had higher foreign taxes on international operations, which was partially offset by a one-time state tax benefit resulting from a change in the Company’s state income tax filing position due to its spin-off from former Parent.

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As a result of these items, net income during 2020, decreased $289 million compared to the prior year.

A reconciliation of net income/(loss) to adjusted EBITDA is represented below:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2020","","2019"],["Net (loss)/income","$","(132)","","","$","157"],["(Benefit from)/provision for income taxes","(26)","","","50"],["Depreciation and amortization","98","","","109"],["Interest expense, net","112","","","100"],["Stock-based compensation expense","19","","","15"],["Development advance notes amortization","9","","","8"],["Impairments, net","206","","","45"],["Restructuring costs","34","","","8"],["Transaction-related expenses, net","12","","","40"],["Separation-related expenses","2","","","22"],["Contract termination costs","\u2014","","","42"],["Transaction-related item","\u2014","","","20"],["Foreign currency impact of highly inflationary countries","2","","","5"],["Adjusted EBITDA (a)","$","336","","","$","621"]]
[[/GREPCENT_TABLE]]
______________________

(a)Adjusted EBITDA for 2020 and 2019 has been recasted to conform with the current year presentation.

Following is a discussion of the results of each of our segments and Corporate and Other for 2020 compared to 2019:

[[GREPCENT_TABLE]]
[["","Net Revenues","","Adjusted EBITDA (a)"],["","2020","","2019","","% Change","","2020","","2019","","% Change"],["Hotel Franchising","$","863","","","$","1,279","","","(33","%)","","$","392","","","$","629","","","(38","%)"],["Hotel Management","437","","","768","","","(43","%)","","13","","","66","","","(80","%)"],["Corporate and Other","\u2014","","","6","","","n/a","","(69)","","","(74)","","","7","%"],["Total Company","$","1,300","","","$","2,053","","","(37","%)","","$","336","","","$","621","","","(46","%)"]]
[[/GREPCENT_TABLE]]
______________________

(a)Adjusted EBITDA for 2020 and 2019 has been recasted to conform with the current year presentation.

Hotel Franchising

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2020","","2019","","% Change"],["Rooms"],["United States","452,600","","","464,600","","","(3","%)"],["International","293,900","","","305,600","","","(4","%)"],["Total rooms","746,500","","","770,200","","","(3","%)"],["RevPAR"],["United States","$","29.50","","","$","44.09","","","(33","%)"],["International (a)","14.75","","","30.80","","","(52","%)"],["Global RevPAR (a)","23.74","","","38.91","","","(39","%)"]]
[[/GREPCENT_TABLE]]

______________________

(a)    Excluding currency effects, international RevPAR decreased 52% and global RevPAR decreased 39%.

Net revenues during 2020 decreased $416 million, or 33% compared to the prior year, primarily driven by:

•$190 million of lower marketing, reservation and loyalty revenues (inclusive of a $13 million benefit in loyalty revenues from a change in our member redemption assumption) due primarily to a 39% decline in RevPAR due to lower travel demand as a result of COVID-19;

•$156 million of lower royalty and franchise fees due to the decline in RevPAR; and

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•$47 million of lower license and other fees due to lower travel demand as a result of COVID-19.

Adjusted EBITDA during 2020 decreased $237 million, or 38%, compared to the prior year, primarily driven by the changes in net revenues discussed above, partially offset by:

•$145 million of lower marketing, reservation and loyalty expenses primarily due to cost reductions in response to COVID-19; and

•    $34 million of lower operating and general and administrative expenses primarily due to cost containment efforts in response to COVID-19.

Hotel Management

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2020","","2019","","% Change"],["Rooms"],["United States","34,700","","","45,600","","","(24","%)"],["International","14,700","","","15,200","","","(3","%)"],["Total rooms","49,400","","","60,800","","","(19","%)"],["RevPAR"],["United States","$","37.97","","","$","67.32","","","(44","%)"],["International (a)","26.21","","","52.69","","","(50","%)"],["Global RevPAR (a)","34.67","","","64.01","","","(46","%)"]]
[[/GREPCENT_TABLE]]

______________________

(a)    Excluding currency effects, international RevPAR decreased 49% and global RevPAR decreased 45%.

Net revenues during 2020 decreased $331 million, or 43%, compared to the prior year, primarily driven by:

•$273 million of lower cost-reimbursement revenues as discussed above, which have no impact on adjusted EBITDA;

•$61 million of lower management and other fees due to a (i) $52 million reduction in owned hotel revenues and (ii) $29 million of lower management fees resulting from a decline in RevPAR primarily due to lower travel demand from COVID-19, partially offset by the absence of a $20 million fee credit for past services with a customer in 2019; partially offset by

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

Adjusted EBITDA during 2020 decreased $53 million, or 80%, compared to the prior year, primarily driven by the revenue decreases discussed above, excluding the absence of a $20 million fee credit for past services with a customer in 2019 which had no impact on adjusted EBITDA, partially offset by $28 million in lower operating expenses primarily due to cost containment efforts in response to COVID-19.

Corporate and Other

Corporate and Other revenues decreased $6 million during 2020 compared to 2019, due to the completion of transition services previously in place following our separation from former Parent.

Adjusted EBITDA during 2020 increased $5 million compared to the prior year, primarily due to $10 million in lower operating and general and administrative costs primarily due to cost containment efforts in response to COVID-19, partially offset by the $6 million decrease in net revenues discussed above.

SELECTED FINANCIAL DATA

The following selected historical consolidated statement of income/(loss) data for the years ended December 31, 2021, 2020 and 2019 and the selected historical consolidated balance sheet data as of December 31, 2021 and 2020 are derived from the audited Consolidated Financial Statements of Wyndham Hotels & Resorts included elsewhere in this report. The selected historical consolidated and combined statement of income/(loss) data for the years ended December 31, 2018 and 2017 and the selected historical consolidated and combined balance sheet data as of December 31, 2019, 2018 and 2017 are derived from audited consolidated and combined financial statements of Wyndham Hotels & Resorts businesses that are not included in this report.

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The selected historical consolidated and combined financial data below should be read together with the audited Consolidated Financial Statements of Wyndham Hotels & Resorts, including the notes thereto and the other financial information included elsewhere in this report.

[[GREPCENT_TABLE]]
[["","","As of or For the Year Ended December 31,"],["($ in millions, except per share amounts and RevPAR)","","2021","","2020","","2019","","2018 (a)","","2017 (b)"],["Statement of Income/(Loss) data:"],["Revenues"],["Fee-related and other revenues","","$","1,245","","","$","950","","","$","1,430","","","$","1,282","","","$","1,016"],["Cost reimbursement revenues","","","320","","","","350","","","","623","","","","586","","","","264"],["Net revenues","","","1,565","","","","1,300","","","","2,053","","","","1,868","","","","1,280"],["Expenses"],["Marketing, reservation and loyalty expense","","","450","","","","419","","","","563","","","","486","","","","373"],["Cost reimbursement expense","","","320","","","","350","","","","623","","","","586","","","","264"],["Other expenses","","","349","","","","577","","","","560","","","","513","","","","394"],["Total expenses","","","1,119","","","","1,346","","","","1,746","","","","1,585","","","","1,031"],["Operating income/(loss)","","","446","","","","(46)","","","","307","","","","283","","","","249"],["Interest expense, net","","","93","","","","112","","","","100","","","","60","","","","6"],["Early extinguishment of debt","","","18","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["Income/(loss) before income taxes","","","335","","","","(158)","","","","207","","","","223","","","","243"],["Provision for/(benefit from) income taxes","","","91","","","","(26)","","","","50","","","","61","","","","13"],["Net income/(loss)","","$","244","","","$","(132)","","","$","157","","","$","162","","","$","230"],["Per share data:"],["Diluted earnings/(loss) per share (c)","","$","2.60","","","$","(1.42)","","","$","1.62","","","$","1.62","","","$","2.31"],["Cash dividends declared per share","","","0.88","","","","0.56","","","","1.16","","","","0.75","","","","\u2014"],["Balance Sheet data:"],["Cash","","$","171","","","$","493","","","$","94","","","$","366","","","$","57"],["Total assets (d)","","","4,269","","","","4,644","","","","4,533","","","","4,976","","","","2,137"],["Total debt (d)","","","2,084","","","","2,597","","","","2,122","","","","2,141","","","","184"],["Total liabilities (d)","","","3,180","","","","3,681","","","","3,321","","","","3,558","","","","875"],["Total stockholders\u2019 / invested equity (e)","","","1,089","","","","963","","","","1,212","","","","1,418","","","","1,262"],["Other financial data:"],["Royalties and franchise fees","","$","461","","","$","328","","","$","480","","","$","441","","","$","364"],["License and other fees","","","79","","","","84","","","","131","","","","111","","","","75"],["Adjusted EBITDA (f)"],["Hotel Franchising segment","","$","592","","","$","392","","","$","629","","","$","521","","","$","409"],["Hotel Management segment","","","57","","","","13","","","","66","","","","47","","","","21"],["Corporate and Other (g)","","","(59)","","","","(69)","","","","(74)","","","","(55)","","","","(40)"],["Total adjusted EBITDA (h)","","$","590","","","$","336","","","$","621","","","$","513","","","$","390"],["Operating statistics:"],["Total Company"],["Number of properties (i)","","","8,950","","","","8,941","","","","9,280","","","","9,157","","","","8,422"],["Number of rooms (j)","","","810,100","","","","795,900","","","","831,000","","","","809,900","","","","728,200"],["RevPAR (k)","","$","35.95","","","$","24.51","","","$","40.92","","","$","40.80","","","$","37.63"],["Average royalty rate (l)","","","4.1%","","","4.0%","","","3.8%","","","3.8%","","","3.7%"],["United States"],["Number of properties (i)","","","6,139","","","","6,175","","","","6,342","","","","6,358","","","","5,726"],["Number of rooms (j)","","","490,600","","","","487,300","","","","510,200","","","","506,100","","","","440,100"],["RevPAR (k)","","$","45.19","","","$","30.20","","","$","46.39","","","$","45.30","","","$","41.04"],["Average royalty rate (l)","","","4.6%","","","4.5%","","","4.5%","","","4.5%","","","4.4%"]]
[[/GREPCENT_TABLE]]

______________________

(a)    In May 2018, we acquired La Quinta Holdings’ hotel franchise and hotel-management business, spanning a portfolio of over 900 La Quinta-branded hotels.

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(b)    As described in Note 2 - Summary of Significant Accounting Polices to the Consolidated Financial Statements contained in Part II, Item 8 of this report, we adopted the new accounting standard related to revenue recognition utilizing the full retrospective transition method on January 1, 2018.

(c)    On June 1, 2018, our separation from former Parent was effected through a tax-free distribution to former Parent’s stockholders of one share of our common stock for every one share of former Parent common stock held as of the close of business on May 18, 2018. As a result, on June 1, 2018, we had 99.8 million shares of common stock outstanding (inclusive of deferred shares and shares that vested upon separation). This share amount is being utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the date of separation.

(d)    Reflects the impact of the adoption of the new accounting standard in 2020 for the measurement of credit losses on financial instruments and the 2019 accounting standard for lease accounting.

(e)    Represents the Company’s stand-alone stockholders’ equity since May 31, 2018 and former Parent net investment (capital contributions and earnings from operations less dividends) in the Company and accumulated other comprehensive income for 2017 through May 31, 2018, the date of our spin-off.

(f)    “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, transaction-related items (acquisition-, disposition- or separation-related), 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 segments which, when considered with U.S. Generally Accepted Accounting Principles (“GAAP”) measures, allows 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. Our presentation of adjusted EBITDA may not be comparable to similarly-titled measures used by other companies. During the first quarter of 2021, the Company modified the definition of adjusted EBITDA to exclude the amortization of development advance notes to reflect how the Company’s chief operating decision maker reviews operating performance beginning in 2021. The Company has applied the modified definition of adjusted EBITDA to all periods presented.

(g)    Corporate and Other reflects unallocated corporate costs that are not attributable to an operating segment.

(h)    The reconciliation of net income/(loss) to adjusted EBITDA is as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(in millions)","2021","","2020 (a)","","2019 (a)","","2018 (a)","","2017 (a)"],["Net income/(loss)","$","244","","","$","(132)","","","$","157","","","$","162","","","$","230"],["Provision for/(benefit from) income taxes","91","","","(26)","","","50","","","61","","","13"],["Depreciation and amortization","95","","","98","","","109","","","99","","","75"],["Interest expense, net","93","","","112","","","100","","","60","","","6"],["Early extinguishment of debt","18","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Stock-based compensation expense","28","","","19","","","15","","","9","","","11"],["Development advance notes amortization","11","","","9","","","8","","","7","","","6"],["Impairments, net","6","","","206","","","45","","","\u2014","","","41"],["Separation-related expenses","3","","","2","","","22","","","77","","","3"],["Restructuring costs","\u2014","","","34","","","8","","","\u2014","","","1"],["Transaction-related expenses, net","\u2014","","","12","","","40","","","36","","","3"],["Contract termination costs","\u2014","","","\u2014","","","42","","","\u2014","","","\u2014"],["Transaction-related item","\u2014","","","\u2014","","","20","","","\u2014","","","\u2014"],["Foreign currency impact of highly inflationary countries","1","","","2","","","5","","","3","","","\u2014"],["Adjusted EBITDA","$","590","","","$","336","","","$","621","","","$","513","","","$","390"]]
[[/GREPCENT_TABLE]]

______________________

(a)    Adjusted EBITDA has been recasted to conform with the current year presentation. Amounts may not foot due to rounding.

(i)    Represents the number of hotels at the end of the period.

(j)    Represents the number of rooms at the end of the period which are (i) either under franchise and/or management agreements, or are Company-owned and (ii) properties under affiliation agreements for which the Company receives a fee for reservation and/or other services provided.

(k)    Represents revenue per available room and is calculated by multiplying the average occupancy rate by the average daily rate.

(l)    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.

In presenting the financial data above in conformity with U.S. GAAP, we are required to make estimates and assumptions that affect the amounts reported. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Financial Condition, Liquidity and Capital Resources–Critical Accounting Policies,” for a detailed discussion of the accounting policies that we believe require subjective and complex judgments that could potentially affect reported results.

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DEVELOPMENT

We awarded 655 new contracts this year, compared to 581 in 2020. As of December 31, 2021, our global development pipeline consisted of over 1,500 hotels and over 194,000 rooms, the highest level on record. Our pipeline grew 5% compared to 2020, including 3% domestically and 6% internationally. As of December 31, 2021, approximately 65% of our development pipeline was international and 79% was new construction, of which approximately 35% has broken ground. Over 80% of our global development pipeline was in midscale and above segments, including over 70% in the U.S.

RESTRUCTURING

We did not incur restructuring charges during 2021.

We incurred $34 million of charges related to restructuring initiatives implemented in response to COVID-19 during 2020. These initiatives resulted in a reduction of 846 employees and were comprised primarily of employee separation and facility closure costs. In addition, during 2019, we implemented restructuring initiatives, primarily focused on enhancing our organizational efficiency and rationalizing our operations. During 2020, we paid $30 million in restructuring payments relating to our 2019 and 2020 plans. As of December 31, 2020, we had a $10 million liability related to our 2020 restructuring plans which was paid in 2021.

During 2019, we recorded $8 million of charges related to restructuring initiatives, primarily focused on enhancing our organizational efficiency and rationalizing our operations. These initiatives resulted in a reduction of 58 employees and were comprised of employee separation costs. The charges were recorded primarily to the Corporate and Other segment. During 2019, we made no material cash payments related to this initiative. The remaining liability of $8 million as of December 31, 2019 was paid during 2020.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Financial Condition

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Change"],["Total assets","$","4,269","","","$","4,644","","","$","(375)"],["Total liabilities","3,180","","","3,681","","","(501)"],["Total stockholders\u2019 equity","1,089","","","963","","","126"]]
[[/GREPCENT_TABLE]]

Total assets decreased $375 million from December 31, 2020 to December 31, 2021 primarily due to a reduction in cash as a result of the redemption of our $500 million 2026 senior notes, partially offset by cash generated from operations. Total liabilities decreased $501 million from December 31, 2020 to December 31, 2021 primarily due to the redemption of our senior notes (discussed above). Total equity increased $126 million from December 31, 2020 to December 31, 2021 primarily due to our net income for the year, partially offset by stock repurchases and dividend payments.

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. However, due to the negative impact that COVID-19 was having on the travel industry, in 2020 we took a number of preventative steps to conserve our liquidity and strengthen our balance sheet:

•In March 2020, we suspended share repurchase activity;

•In April 2020, we amended our revolving credit facility agreement to waive the quarterly-tested leverage covenant until April 1, 2021. The covenant was also modified for the second, third and fourth quarters of 2021 to use a form of annualized EBITDA, as defined in the credit agreement, rather than the last twelve months EBITDA, as previously required;

•In May 2020, we decreased our quarterly cash dividend to $0.08 per share; and

•In August 2020, we issued $500 million of senior unsecured notes, which mature in 2028 and bear interest at a rate of 4.375% per year, for net proceeds of $492 million, which were used to repay a portion of the then outstanding borrowings under our revolving credit facility.

As a result of our confidence in the continued recovery of travel demand, we have taken the following actions in 2021:

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•In the first quarter of 2021, we increased our quarterly cash dividend to $0.16 per share, followed by a subsequent increase in July to $0.24 per share and a final increase in October to the pre-pandemic quarterly payout of $0.32 per share;

•On April 15, 2021, we redeemed all $500 million of our outstanding 5.375% senior notes due in 2026, primarily from cash on hand. We expect this redemption to reduce our annual cash interest expense by approximately $27 million. Coupled with the issuance of 4.375% senior notes in August 2020, this redemption effectively returns our balance sheet to pre-pandemic debt and liquidity levels while extending $500 million of maturity by approximately 2.5 years at a 100 basis point or 19% lower interest rate; and

•In August 2021, we resumed our share repurchase program.

As of December 31, 2021, our liquidity approximated over $900 million. Given the minimal capital needs of our business, the flexible cost infrastructure and the mitigation measures taken, 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 December 31, 2021, we were in compliance with the financial covenants of our credit agreement and expect to remain in such compliance with no additional waivers or amendments required. As of December 31, 2021, we had a term loan with an aggregate principal amount of $1.5 billion maturing in 2025 and a five-year revolving credit facility maturing in 2023 with a maximum aggregate principal amount of $750 million, of which none was outstanding and $15 million was allocated to outstanding letters of credit. The interest rate per annum applicable to our term loan is equal to, at our option, either a base rate plus a margin of 0.75% or LIBOR plus a margin of 1.75%.

Our revolving credit facility is 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 LIBOR plus a margin ranging from 1.50% to 2.00%, in either case based upon the total leverage ratio of the Company and its restricted subsidiaries. During the amendment period as discussed above, the revolving credit facility was subject to an interest rate per annum equal to, at our option, either a base rate plus a margin of 1.25% or LIBOR plus a margin of 2.25% with the LIBOR rate subject to a 0.50% floor. The amendment period expired on April 1, 2021.

As of December 31, 2021, $1.1 billion of our term loan is hedged with pay-fixed/receive-variable interest rate swaps hedging our term loan interest rate exposure. The aggregate fair value of these interest rate swaps was a $23 million liability as of December 31, 2021.

The Federal Reserve has established the Alternative Reference Rates Committee to identify alternative reference rates for when the U.S. dollar LIBOR ceases to exist after June 2023. Our credit facility, which includes our revolving credit facility and term loan, gives us the option to use LIBOR as a base rate and our interest rate swaps are based on the one-month U.S. dollar LIBOR rate. In the event that LIBOR is no longer published, the credit facility allows us and the administrative agent of the facility to replace LIBOR with an alternative benchmark rate, subject to the right of the majority of the lenders to object thereto. We anticipate that we will amend and extend the revolving credit portion of the credit facility during the first half of 2022 for which Secured Overnight Funding Rate (“SOFR”) will be utilized as the new benchmark rate. In addition, the International Swaps and Derivatives Association issued protocols to allow swap parties to amend their existing contracts, though the Company’s existing swaps will continue to reference LIBOR for the foreseeable future.

As of December 31, 2021, our credit rating was Ba1 from Moody’s Investors Service and BB+ from Standard and Poor’s Rating Agency. 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. 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.

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CASH FLOW

The following table summarizes the changes in cash, cash equivalents and restricted cash during the years ended December 31, 2021, 2020 and 2019:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["Cash provided by/(used in)"],["Operating activities","$","426","","","$","67","","","$","100"],["Investing activities","(34)","","","(31)","","","(53)"],["Financing activities","(713)","","","363","","","(320)"],["Effects of changes in exchange rates on cash, cash equivalents and restricted cash","(1)","","","\u2014","","","1"],["Net change in cash, cash equivalents and restricted cash","$","(322)","","","$","399","","","$","(272)"]]
[[/GREPCENT_TABLE]]

During 2021, net cash provided by operating activities increased $359 million compared to the prior year primarily due to higher net income (excluding non-cash impairments and depreciation expense) in 2021 as well as favorable collections experience, including collection of fee deferrals related to COVID-19 and working capital management, partially offset by $14 million of higher net payments for development advance notes. Net cash used in investing activities increased $3 million compared to the prior year, primarily due to higher property and equipment additions. Net cash used in financing activities increased $1.1 billion compared to the prior year. This change reflects borrowing activities in 2020 out of an abundance of caution in connection with the pandemic and repayment activities in 2021 as our business began to experience recovery. Specifically, in 2020, we issued $500 million of 4.375% senior unsecured notes; while in 2021, we redeemed $500 million of higher-cost, nearer maturity debt effectively replacing it with the August 2020 issuance of lower-cost, longer maturity debt.

During 2020, net cash provided by operating activities decreased $33 million compared to the prior year primarily due to lower net income (excluding non-cash impairment and depreciation expenses) in 2020 and timing of deferred revenues associated with our Wyndham Rewards co-branded credit card program, partially offset by the absence of payment of $195 million of tax liabilities assumed in the La Quinta acquisition during 2019. 2020 also included $66 million of cash outlays related to restructuring, contract termination costs and transaction and separation related costs, while 2019 included $113 million of such costs. Net cash used in investing activities decreased $22 million compared to the prior year, primarily due to lower property and equipment additions in connection with our COVID-19 cost containment initiative. As a result of the impact of COVID-19 on travel demand, we prioritized our capital projects to focus on guest-facing projects with the higher return potential. Net cash provided by financing activities increased $683 million compared to the prior year, primarily due to the issuance of our $500 million 4.375% senior unsecured notes due in 2028, suspension of our share repurchase activity in March 2020 and reduction of our quarterly cash dividend in the second quarter of 2020 and throughout the remainder of the year from $0.32 per share to $0.08 per share.

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 would be available for enhanced stockholder return in the form of stock repurchases.

During 2021, we spent $37 million on capital expenditures, primarily related to information technology. During 2022, we anticipate spending approximately $45 million on capital expenditures.

In addition, during 2021, we spent $30 million, net of repayments on development advance notes. During 2022, we anticipate spending approximately $55 million on development advance notes. We may also provide other forms of financial support.

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.

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Contractual Obligations

Material contractual obligations arising in the normal course of business primarily consist of long-term debt and related interest payments, purchase commitments and lease payments. See Note 12 - Long-Term Debt and Borrowing Arrangements and Note 19 - Leases to the Consolidated Financial Statements contained in Part IV of this report for more information. As of December 31, 2021, we had future long-term interest payment obligations of approximately $343 million of which $77 million is payable within twelve months. We have purchase commitments primarily consisting of non-cancelable obligations for marketing and technology related services. As of December 31, 2021, we had purchase commitments of $157 million of which $58 million is payable within twelve months.

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. In August 2019, the Board increased the capacity of the program by $300 million. 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.

Due to our confidence in our ability to generate significant cash flow, the resiliency of our business model and the ongoing recovery of travel demand, we resumed our share repurchase program in August of 2021. Under our current stock repurchase program, we repurchased approximately 1.4 million shares at an average price of $80.60 per share for a cost of $110 million during 2021. Since inception, we repurchased 9.0 million shares at an average price of $57.55 per share for a cost of $519 million. As of December 31, 2021, we had $81 million of remaining availability under our program. In February 2022, our Board increased the capacity of the program by an additional $400 million.

Dividend Policy

We declared cash dividends of $0.32 per share in the fourth quarter of 2021, which is consistent with our pre-pandemic quarterly dividend per share. Additionally, we declared cash dividends of $0.24 per share in the third quarter of 2021, and $0.16 per share in the first and second quarters of 2021 resulting in an aggregate of $83 million during 2021.

In response to COVID-19, our Board approved a reduction in the quarterly cash dividend from $0.32 per share to $0.08 per share, beginning with the dividend that was declared during the second quarter of 2020.

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.

Foreign Earnings

Although the one-time mandatory deemed repatriation tax during 2017 and the territorial tax system created as a result of U.S. tax reform generally eliminate U.S. federal income taxes on dividends from foreign subsidiaries, we continue to assert that all of our undistributed foreign earnings of $24 million will be reinvested indefinitely as of December 31, 2021. In the event the Company determines not to continue to assert that all or part of its undistributed foreign earnings are permanently reinvested, such a determination in the future could result in the accrual and payment of additional foreign withholding taxes and U.S. taxes on currency transaction gains and losses, the determination of which is not practicable due to the complexities associated with the hypothetical calculation.

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.

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In April 2020, we completed an amendment to our revolving credit facility agreement to waive the quarterly-tested leverage covenant until April 1, 2021. The covenant was also modified for the second, third and fourth quarters of 2021 to use a form of annualized EBITDA, as defined in the credit agreement, rather than the last twelve months EBITDA, as previously required. However, during this period we never exceeded the maximum first-lien leverage ratio of 5.0 times. As of December 31, 2021, our annualized first-lien leverage ratio was 2.2 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 December 31, 2021, 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 and management 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 provided by operating activities tends to be lower in the first half of the year and substantially higher in the second half of the year. However, given the impact of COVID-19 in 2020, our second quarter was the most severely impacted and as such, we had higher revenues and cash flows in the third and fourth quarters. However, during 2021, our revenues and cash provided by operating activities returned to the historic seasonality as our business recovered from the pandemic. 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 December 31, 2021, 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, 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 14 - Commitments and Contingencies to the Consolidated Financial Statements contained in Part IV of this report.

CRITICAL ACCOUNTING ESTIMATES AND 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. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our business activities are in environments where we are paid a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.

Impairment of Long-Lived Assets

Goodwill is reviewed annually (during the fourth quarter of each year subsequent to completing our annual forecasting process), or more frequently if circumstances indicate that the value of goodwill may be impaired, to the reporting units’ carrying values as required by the guidance. This is done either by performing a qualitative assessment or utilizing the one-step impairment test, with an impairment being recognized only where the fair value is less than carrying value. In any given year, we can elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a

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reporting unit is in excess of its carrying value. If it is not more likely than not that the fair value is in excess of the carrying value, or we elect to bypass the qualitative assessment, we would use the one-step impairment test. The qualitative factors evaluated include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, our historical share price as well as other industry-specific considerations.

We also determine whether the carrying values of other indefinite-lived intangible assets are impaired on an annual basis or more frequently if indicators of potential impairment exist. Application of the other indefinite-lived intangible assets impairment test requires judgment in the assumptions underlying the approach used to determine fair value. The fair value of each other indefinite-lived intangible asset is estimated using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which are dependent on internal forecasts, discount rates and to a lesser extent, estimation of long-term rates of growth. The estimates used to calculate the fair value of other indefinite-lived intangible assets change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and the other indefinite-lived intangible assets’ impairment.

We also evaluate the recoverability of each of our definite-lived intangible assets by performing a qualitative assessment to determine if circumstances indicate that impairment may have occurred. If such circumstances exist, we perform a quantitative assessment by comparing the respective carrying value of the assets to the expected future cash flows, on an undiscounted basis, to be generated from such assets.

We also evaluate the recoverability of our other long-lived assets, including property and equipment, if circumstances indicate impairment may have occurred, pursuant to guidance for impairment or disposal of long-lived assets. This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. Property and equipment is evaluated separately within each segment. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value.

For more information on the impairment analyses performed on our goodwill, other indefinite-lived intangible assets, definite-lived intangible assets and other long-lived assets, see Note 7 - Property and Equipment, Net and Note 8 - Intangible Assets to the Consolidated Financial Statements contained in Part IV of this report.

Loyalty Program

We operate the Wyndham Rewards loyalty program. Wyndham Rewards members primarily accumulate points by staying in hotels operated under one of our brands. Wyndham Rewards members may also accumulate points by purchasing everyday services and products with their Wyndham Rewards co-branded credit card.

We earn revenue from these programs (i) when a member stays at a participating hotel or club resort or vacation rental from a fee charged by us to the property owner or manager, which is based upon a percentage of room revenues generated from such stay which we recognize, net of redemptions, over time based upon loyalty point redemption patterns, including an estimate of loyalty points that will expire or will never be redeemed, and (ii) based upon a percentage of the member’s spending on the Wyndham Rewards co-branded credit cards for which revenues are paid to us by a third-party issuing bank which we primarily recognize 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.

As members earn points through the Wyndham Rewards loyalty program, we record a liability for the estimated future redemption costs, which is calculated based on (i) an estimated cost per point and (ii) an estimated redemption rate of the overall points earned, which is determined with the assistance of a third-party actuarial firm through historical experience, current trends and the use of an actuarial analysis.

As a result of the negative impact that COVID-19 had on travel demand in 2020, our assumptions related to redemptions, including estimated member redemption rate, member redemption pattern, and the estimated cost to satisfy such redemptions, changed. Accordingly, we recognized a $16 million cumulative adjustment, which resulted in an increase to loyalty revenues during the second quarter of 2020. Such increase is included within marketing, reservation and loyalty and other revenues on the Consolidated Statement of Income/(Loss) for the year ended December 31, 2020.

Income Taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using currently enacted tax rates. We regularly review our deferred tax

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assets to assess their potential realization and establish a valuation allowance for portions of such assets that we believe will not be ultimately realized. In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. A change in these assumptions may increase or decrease our valuation allowance resulting in an increase or decrease in our effective tax rate, which could materially impact our results of operations.

For tax positions we have taken or expect to take in our tax return, we apply a more likely than not threshold, under which we must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information, in order to recognize or continue to recognize the benefit. In determining our provision for income taxes, we use judgment, reflecting our estimates and assumptions, in applying the more likely than not threshold.

RECENTLY ADOPTED AND NEW ACCOUNTING PRONOUNCEMENTS

For a detailed description of recently adopted and new accounting pronouncements see Note 2 - Summary of Significant Accounting Policies to the Consolidated Financial Statements contained in Part IV of this report.

OFF-BALANCE SHEET ARRANGEMENTS

There were no off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons in 2021, 2020 and 2019 that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.