WYNDHAM HOTELS & RESORTS, INC. (WH) FY 2022 MD&A

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.

The Company is a leading global hotel franchisor, licensing its renowned hotel brands to hotel owners in over 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 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), (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 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.

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.

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OPERATING STATISTICS - 2022 VS. 2021

The table below presents our operating statistics for the years ended December 31, 2022 and 2021. “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 (as of December 31, 2021), 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.

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(a)Excluding currency effects, international RevPAR increased 49% and global RevPAR increased 20%.

Rooms as of December 31, 2022 increased 4% compared to the prior year, reflecting 1% growth in the U.S. and 9% growth internationally. As expected, these increases included strong growth in both the higher RevPAR midscale and above segments in the U.S. and the direct franchising business in China, which grew 4% and 10%, respectively, as well as 80 basis points of growth globally and 200 basis points internationally from the acquisition of the Vienna House brand in September 2022.

Excluding currency effects, global RevPAR for the year ended December 31, 2022 increased 20%, compared to the prior year, including U.S. growth of 12% and international growth of 49%. The increases were primarily driven by stronger pricing power and COVID-19 recovery internationally.

Global average royalty rate for the year ended December 31, 2022 decreased by 20 basis points to 3.9%, compared to the prior year due to mix as both international RevPAR and net room growth outpaced the U.S., with the RevPAR growth primarily the result of COVID-19 recovering more slowly internationally than it did in the U.S.

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YEAR ENDED DECEMBER 31, 2022 VS. YEAR ENDED DECEMBER 31, 2021

Net revenues during 2022 decreased by $67 million, or 4%, compared to the prior year, primarily driven by:

•$261 million of lower revenues associated with our select-service management and owned hotel businesses which were exited in the first half of 2022 (which $186 million represented cost-reimbursement revenues that have no impact on net income); partially offset by

•$76 million of higher marketing, reservation and loyalty fees reflecting a 16% increase in global RevPAR;

•$65 million of higher royalty and franchise fees due to the RevPAR increase;

•$21 million of higher license and other fees resulting from higher travel demand associated with the COVID-19 recovery;

•$20 million of higher other revenues primarily due to favorable co-branded credit card activity; and

•$10 million of higher cost-reimbursement revenues related to the COVID-19 recovery in our full-service managed properties that have no impact on net income.

Total expenses during 2022, decreased $179 million, or 16%, compared to the prior year, primarily driven by:

•    $267 million of lower expenses associated with our select-service management and owned hotel businesses, which were exited in the first half of 2022 (which $186 million represented cost-reimbursement expenses as discussed above); and

•a $35 million gain related to the sale our owned hotel Wyndham Grand Bonnet Creek Resort in March 2022; partially offset by

•$81 million of higher marketing, reservation and loyalty expenses primarily as a result of the increase in marketing revenue;

•$14 million of higher variable expenses primarily associated with the improvement in travel demand due to the COVID-19 recovery;

•$13 million of higher costs primarily due to inflation, as expected; and

•$10 million of higher cost-reimbursement expenses related to COVID-19 recovery in our full-service managed properties.

Interest expense, net during 2022 decreased $13 million, or 14%, compared to the prior year as a result of the redemption of our $500 million senior notes in April 2021 and an increase in interest income.

Early extinguishment of debt of $2 million in 2022 relates to the amendment of our credit agreement and $400 million partial pay down of our term loan B, while the $18 million in 2021 relates to the redemption of our $500 million senior notes.

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Our effective tax rate decreased to 25.4% in 2022 from 27.2% in 2021. The change was primarily related to the release of valuation allowances for net operating loss carryforwards, which was partially offset by an additional valuation allowance for certain foreign tax credits generated during the year.

As a result of these items, net income during 2022, increased $111 million compared to the prior year.

A reconciliation of net income to adjusted EBITDA is represented below:

Following is a discussion of the results of each of our segments and Corporate and Other for 2022 compared to 2021:

Hotel Franchising

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(a)    Excluding currency effects, international RevPAR increased 49% and global RevPAR increased 22%.

Rooms increased 7% from the prior year period reflecting:

•Organic growth of 4%;

•The conversion of managed properties to franchise in connection with the exit of our select-service management business and the sales of our two owned hotels, which resulted in 270 basis points of growth; and

•The acquisition of the Vienna House brand in the third quarter of 2022, which resulted in 80 basis points of growth.

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Excluding currency effects, global RevPAR increased 22% from the prior year period due to a 14% increase in the U.S. and a 49% increase internationally, both driven by stronger pricing power.

Net revenues during 2022 increased $178 million, or 16% compared to the prior year, primarily driven by:

•$60 million of higher royalty and franchise fees reflecting the RevPAR increase;

•$76 million of higher marketing, reservation and loyalty revenues also reflecting the RevPAR increase;

•$21 million of higher other revenues primarily due to favorable co-branded credit card activity; and

•$21 million of higher license and other fees due to strong travel demand associated with the COVID-19 recovery.

Adjusted EBITDA during 2022 increased $87 million, or 15%, compared to the prior year, driven by the revenue increases discussed above, partially offset by;

•$81 million of higher marketing, reservation and loyalty expenses primarily as a result of the increase in marketing revenues;

•$8 million of higher costs primarily reflecting variable expenses associated with the improvement in travel demand due to the COVID-19 recovery; and

•$5 million of higher costs due to inflation, as expected.

Hotel Management

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(a)    Excluding currency effects, international RevPAR increased 50% and global RevPAR increased 23%.

Rooms declined 62% from the prior year period, driven by the conversion of managed properties to franchise in connection with the exit of our select-service management business and the sale of our two owned hotels.

Excluding currency effects, global RevPAR increased 23% from the prior year period primarily due to the impact from the exit of our select-service hotel management business.

Net revenues during 2022 decreased $245 million, or 53%, compared to the prior year, primarily driven by:

•$261 million of lower revenues associated with our select-service management and owned hotel businesses which we exited in the first half of 2022 and, of which $186 million represented cost-reimbursement revenues, that have no impact on adjusted EBITDA; partially offset by

•$10 million of higher cost-reimbursement revenues related to our full-service managed properties; and

•$4 million of higher royalty, management and other fees.

Adjusted EBITDA during 2022 decreased $20 million, or 35%, compared to the prior year primarily driven by the revenue decreases discussed above (excluding cost reimbursements), partially offset by $56 million of lower expenses associated with the exit from our select-service hotel management business and owned hotel businesses.

Corporate and Other

Adjusted EBITDA during 2022 was unfavorable by $7 million compared to the prior year primarily due to inflationary cost pressures, as expected.

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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.

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(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

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:

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(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:

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

Hotel Franchising

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(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

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(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.

SELECTED FINANCIAL DATA

The following selected historical consolidated statement of income/(loss) data for the years ended December 31, 2022, 2021 and 2020 and the selected historical consolidated balance sheet data as of December 31, 2022 and 2021 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, 2019 and 2018 and the selected historical consolidated and combined balance sheet data as of December 31, 2020, 2019 and 2018 are derived from audited consolidated and combined financial statements of Wyndham Hotels & Resorts businesses that are not included in this report.

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.

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(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.

(b)    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.

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(c)    “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), (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 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.

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

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

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

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

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

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

(i)    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.

DEVELOPMENT

We awarded 882 new contracts this year, a 35% increase compared to the 655 contracts we awarded during 2021. As of December 31, 2022, our global development pipeline consisted of over 1,700 hotels and approximately 219,000 rooms, of which approximately 73% is in the midscale and above segments (56% in the U.S.). Our pipeline grew 12% compared to 2021, including 34% growth in the U.S. As of December 31, 2022, approximately 60% of our development pipeline was international and over 80% was new construction, of which approximately 36% had broken ground. The pipeline includes 170 new contracts awarded for the Company's ECHO Suites Extended Stay by Wyndham brand since its launch in March 2022.

RESTRUCTURING

During 2020, we incurred $34 million of charges related to restructuring initiatives implemented in response to COVID-19. 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

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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.

For a comparative review of the consolidated results of operations of our Company and reportable segments for the fiscal years ended December 31, 2021 and 2020, refer to Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on February 16, 2022.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Financial Condition

Total assets decreased $146 million from December 31, 2021 to December 31, 2022 primarily due to a $154 million reduction in assets held for sale due to the completion of the sales of our two owned hotels and an $84 million reduction in intangible assets related to the exit of our select-service management business, both of which occurred in the first half of 2022. Such reductions were partially offset by a $53 million increase in the value of our interest rate swaps and a $44 million increase to intangible assets related to the Vienna House acquisition. Total liabilities decreased $19 million year-over-year primarily due to a reduction in liabilities held for sale as a result of the owned hotel sales. Total equity decreased $127 million year-over-year primarily due to $445 million of stock repurchases and $116 million of dividend payments, partially offset by the net income we generated in the year and a $53 million increase in accumulated other comprehensive income primarily associated with the increase in the value of our interest rate swaps.

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 and business investment.

As of December 31, 2022, our liquidity approximated $900 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.

In April 2022, we amended our $750 million revolving credit facility, extending the maturity from May 2023 to April 2027 on similar terms as the previous facility, and issued a new $400 million senior secured term loan A facility, which matures in April 2027. The proceeds from the term loan A were used to repay a portion of our $1.6 billion term loan B facility, which is scheduled to mature in May 2025. There was no increase in rates from the $1.6 billion term loan B facility to the new term loan A.

As of December 31, 2022, we were in compliance with the financial covenants of our credit agreement and expect to remain in such compliance. As of December 31, 2022, we had a term loan B with a principal outstanding balance of $1.1 billion maturing in 2025, a term loan A with a principal outstanding balance of $400 million maturing in 2027 and a five-year revolving credit facility maturing in 2027 with a maximum aggregate principal amount of $750 million, of which none was outstanding and $9 million was allocated to outstanding letters of credit.

The interest rate per annum applicable to our term loan B 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 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 the Secured Overnight Funding Rate (“SOFR”) plus a 0.10% SOFR adjustment, 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.

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As of December 31, 2022, $1.1 billion of our term loan B 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 $53 million asset as of December 31, 2022.

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, as amended in April 2022, includes our revolving credit facility and term loans A and B. The revolver and term loan A are both based on SOFR. For the pre-existing term loan B, the credit facility 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. In addition, the International Swaps and Derivatives Association issued protocols to allow swap parties to amend their existing contracts, though our existing swaps will continue to reference LIBOR for the foreseeable future.

As of December 31, 2022, 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.

CASH FLOW

The following table summarizes the changes in cash, cash equivalents and restricted cash during the years ended December 31, 2022, 2021 and 2020:

During 2022, net cash provided by operating activities decreased $27 million compared to the prior year primarily due to higher development advances provided to franchisees in support of system growth, as well as the impact from the sale of our two owned hotels and the exit of our select-service management business and lower cash collected from 2020 COVID-19 related fee deferrals. Net cash provided by investing activities increased $213 million compared to the prior year, primarily due to the proceeds from the sales of our two owned hotels and the termination fee received from CorePoint Lodging associated with the exit of our select-service management business, partially offset by $44 million of cash used for the acquisition of the Vienna House brand. Net cash used in financing activities decreased $129 million compared to the prior year primarily due to the absence of cash used for the redemption of our $500 million 5.375% senior unsecured notes in 2021, partially offset by a $341 million increase in stock repurchases and a $34 million increase in dividend payments.

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.

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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.

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 2022, we spent $39 million on capital expenditures, primarily related to information technology, including digital innovation. During 2023, we anticipate spending approximately $35 million on capital expenditures.

In addition, during 2022, we spent $48 million, net of repayments, on development advance notes. During 2023, we anticipate spending approximately $60 million on development advance notes. We may also provide other forms of financial support such as enhanced credit support to further assist in the growth of our business.

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 and, if needed and available, new debt incurrence.

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 13 - Long-Term Debt and Borrowing Arrangements and Note 20 - Leases to the Consolidated Financial Statements contained in Part IV of this report for more information. As of December 31, 2022, we had future long-term interest payment obligations of approximately $337 million of which $94 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, 2022, we had purchase commitments of $140 million of which $57 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. Our Board increased the capacity of the program by $400 million in February 2022 and an additional $400 million in October 2022. 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 6.2 million shares at an average price of $71.70 per share for a cost of $445 million during 2022. Since inception, we repurchased 15.2 million shares at an average price of $63.32 per share for a cost of $964 million. As of December 31, 2022, we had $436 million of remaining availability under our program.

Dividend Policy

We declared cash dividends of $0.32 per share in each of the first, second, third and fourth quarters of 2022 ($116 million in aggregate), which is consistent with our pre-pandemic quarterly dividend per share. In February 2023, the Board approved an increase in the quarterly cash dividend to $0.35 per share.

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

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that all of our undistributed foreign earnings of $48 million will be reinvested indefinitely as of December 31, 2022. 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. As of December 31, 2022, our 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, 2022, 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 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 December 31, 2022, the potential exposure resulting from adverse outcomes of such legal proceedings could, in the aggregate, range up to approximately $3 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 15 - 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

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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 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.

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.

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 2022, 2021 and 2020 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.