Earnings Call Transcript
WYNDHAM HOTELS & RESORTS, INC. (WH)
Earnings Call Transcript - WH Q3 2024
Operator, Operator
Welcome to the Wyndham Hotels & Resorts Third Quarter 2024 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation. I would now like to turn the call over to Matt Capuzzi, Senior Vice President of Investor Relations. Please go ahead.
Matt Capuzzi, Senior Vice President of Investor Relations
Thank you, operator. Good morning, and thank you for joining us. With me today are Geoff Ballotti, our CEO; and Michele Allen, our CFO and Head of Strategy. Before we get started, I want to remind you that our remarks today will contain forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our most recent annual report on form 10-K filed with the Securities and Exchange Commission and any subsequent reports filed with the SEC. We will also be referring to a number of non-GAAP measures. Corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP metrics are provided in our earnings release and investor presentation, which are available on our investor relations website at investor.wyndhamhotels.com. We are providing certain measures discussing future impact on a non-GAAP basis only, because without unreasonable efforts, we are unable to provide the comparable GAAP metric. In addition, last evening we posted an investor presentation containing supplemental information on our investor relations website. We may continue to provide supplemental information on our website and on our social media channels in the future. Accordingly, we encourage investors to monitor our website and our social media channels in addition to our press releases, files submitted with the SEC, and any public conference calls or webcasts. With that, I will turn the call over to Geoff.
Geoff Ballotti, CEO
Thanks, Matt. Good morning, everyone. And thanks for joining us today. Q3 illustrates yet another quarter of success in our team's execution against our long-term growth strategy, which we outlined with all of you one year ago this week. Last night, we reported strong earnings with comparable adjusted EBITDA and EPS growth of 7% and 10% respectively. We grew our system 4%. We increased both our US and international royalty rates, and we significantly grew our ancillary fee streams. Year-to-date, we've generated over $265 million of adjusted free cash flow and we've returned nearly $380 million to our shareholders. We sustained strong momentum on the development front, opening over 17,000 rooms, bringing our year-to-date total to more than 48,000 rooms globally, up 13% compared to a year ago. We also improved our global franchisee retention rate by 40 basis points year-over-year. Notably, our franchise sales teams here in the United States signed an impressive 10% more deals in the quarter than they did last year, contributing to the 17th consecutive quarter of growth in our global development pipeline, which increased nearly 5% year-over-year to a record 248,000 rooms. Domestically, net rooms grew sequentially and year-over-year, driven by a solid 3% net room growth in our mid-scale and above brands with new conversions like the Wyndham Bloomington adjacent to the Mall of America in Minnesota and the Wyndham Garden, Louisville East near Churchill Downs, the home of the Kentucky Derby. This quarter, we also opened our second new construction ECHO Suites hotel located in Plano, Texas, a fast-growing technology hub that's attracted economic investments such as the expansion of Plano’s Children's Medical Center, the new Wells Fargo campus, which is expected to create over 4,000 new jobs and the growing presence of Toyota North America and Frito-Lay's corporate headquarters. We awarded another 10 new ECHO Suites contracts this quarter in markets like Huntsville, Alabama, Greensboro in Raleigh, North Carolina, and Myrtle Beach, South Carolina. And we currently have over eight dozen ECHO Suites hotels under construction across the country. Our ECHO Suites owners are telling us that these hotels are performing ahead of their expectations and pro formas. The Spartanburg property, the first ECHO Suites to welcome guests last quarter reached stabilized occupancy levels of over 80% just weeks after opening while outperforming its competitive set in ADR. Even more promising was that its extended stay occupancy rate, a key metric in the segment, which finished September at a 63% occupancy with a 55-night average length of stay, a clear indicator of the strong demand for this product along with our ability to generate corporate negotiated business from day one. Internationally, we grew net rooms by 2% sequentially and by 8% versus prior year. Our EMEA team grew net rooms by 11%, adding several new destinations like the stunning new Dolce by Wyndham Resort in Spain's renowned Penedès Wine Country outside of Barcelona and the Days Inn by Wyndham, Arnavutkoy near Istanbul's main international airport. Our EMEA team also signed a multi-unit deal to introduce the Microtel brand to India with plans to open 40 new Microtel hotels by 2031. This represents our eighth Wyndham brand in India where we currently have 60 hotels and expect double-digit net room growth over the next several years. Our EMEA development pipeline grew 10% year-over-year and now represents an average fee per 15% above the current portfolio. Our Latin America team, similar to our EMEA teams, grew net rooms by 11% in the third quarter and increased its development pipeline by 16% with an average fee per now nearly 20% higher than its current portfolio. It added several new destinations our Wyndham reward members will want to visit, including the spectacular new construction Wyndham Garden, Mazatlan Marina Hotel located on Mexico's Pacific Coast. Our Southeast Asia and Pacific Rim region grew net rooms by 10%, entering several new markets with luxury additions like the five-star Wyndham Panbil Batam in Indonesia and the Upscale La Vie D'or Hotel, a trademark collection resort adjacent to Samsung and Hyundai's headquarters in the tourism hub of Hwaseong-si, South Korea. In China, our direct franchising system grew 13% with new openings, including the Wyndham Taian West, nestled at the foot of China's Wohu Mountain, as well as a new La Quinta in Renhuai’s booming business district and another new La Quinta on Hainan Island. Development activity across China remained robust, increasing 6% with 37 direct franchise agreements awarded this quarter, bringing the region's direct franchise pipeline to nearly 400 hotels at a fee per 40% higher than that of our current China system. Overall, we expanded our brand presence across the globe, adding five new brands to markets where they hadn't existed previously, including the debut of the newly renovated luxury lifestyle registry collection hotel brand here in the United States with the historic mining exchange hotel in Colorado Springs, the first Wyndham Garden in Malaysia and the first Wyndham branded hotel in Cluj, Romania in the heart of Transylvania and the country's second largest city. Importantly, these Q3 additions came into the system with a collective average fee per that is expected to be approximately 50% higher than the current system. Now turning to RevPAR. In the United States, RevPAR declined 80 basis points this quarter compared to prior year, while economy RevPAR continues to normalize, up 260 basis points from the first half of this year, gaining 50 basis points of market share this quarter. Importantly, we're seeing positive momentum in infrastructure-related business. Weekday performance outpaced weekends with RevPAR growing about a point driven by higher demand. This includes an improvement of 250 basis points across our oil and gas markets and sustained year-over-year growth in the five states that have received significant infrastructure funding to date, Texas, California, New York, Illinois, and New Mexico. Our properties in these key markets are well-positioned and when coupled with the efforts by our Wyndham sales team captured an additional 300 basis points of weekday demand share across our select service chain scales during the quarter. We're encouraged by these results and we're also encouraged that our brands continue to maintain pricing power. Domestic ADR held steady throughout the quarter at 17% above pre-pandemic levels, which still trails real inflation growth, suggesting that pricing can continue to be flexed in the years ahead. We continue to believe the infrastructure strength we saw in the third quarter, coupled with more favorable comparisons ahead in the fourth quarter, will provide positive domestic RevPAR momentum as we exit 2024. Internationally, RevPAR increased 7% versus prior year in constant currency and accelerated over 1,300 basis points from Q2 to Q3 when compared to 2019. EMEA and Latin America RevPAR were both especially strong this quarter. EMEA grew 9% year-over-year, driven by strength in Greece, Spain, and Turkey and Latin America grew 52% as a result of strength across Brazil, Mexico, and the Caribbean, as well as the hyperinflationary impact in Argentina, which accounted for 20 points of the region's RevPAR growth. Occupancy, while continuing to recover at varying rates around the globe, now stands at 10% behind where it was in 2019 and remains a significant tailwind as we close out this year and we look towards 2025. One of the key drivers of our ancillary fee growth strategy is the expansion of our suite of co-branded credit card products. Earlier this year, we launched Wyndham Business aimed at streamlining the direct booking process for all types of business travel. This initiative has gained significant traction driving a double-digit year-to-date increase in our corporate contracted business from infrastructure related accounts. In addition, our Wyndham Rewards Earner business card has seen a 32% year-over-year increase in new accounts and a 70% lift in purchase volumes contributing to our ancillary fee growth this quarter. We're also leveraging technology as part of Wyndham's owner-first commitment, which is at the very forefront of everything we do. Our recently launched guest engagement platform, Wyndham Connect is an initiative that was made possible by our best-in-class technology stack with leading partners like Salesforce, Sabre, Oracle, Amazon, Adobe, and Canary. Our technology platform enables personalized guest experiences to boost franchisees' bottom lines while improving guest engagement scores. Franchisees are now digitally and automatically without staff intervention upselling early check-ins and late checkouts, and they're also pre-selling room upgrades and various in-room amenities online before the guest checks in. More than 4,000 of our hotels in North America have adopted this platform with about 40% of those properties generating over $1,500 in incremental monthly revenue. As we continue to implement guest-facing AI tools and services, we're offloading labor-intensive tasks from our franchisees. We're reducing their costs and we're increasing their bottom lines while at the same time allowing them to focus on guest service and guest satisfaction. Moreover, Wyndham Connect is simplifying the process of enrolling guests in Wyndham Rewards, helping to drive an increase of more than 2 million new members this quarter to over 112 million members globally at quarter end. Before Michele takes us through the financials, we want to take a moment to recognize the incredible dedication of our team members around the world. The success of our owner-first operating philosophy and our record owner engagement levels reflect their steadfast commitment and support. And we're thrilled that for the fourth year in a row, we've been named to Newsweek's America's Most Loved Workplaces list, earning a spot in the top 10. This achievement is a testament to our team's hard work and commitment that consistently places our owners at the very center of everything we do. In closing, this quarter's results underscore our ability to execute on the key pillars of our long-term growth algorithm, including robust development momentum, continued royalty rate expansion, consistent ancillary fee growth, and a very early innings of a sustained period of growing infrastructure capture. Our value proposition is stronger than ever, powered by our world-class teams around the globe. And we have full conviction that our strategy will create significant value for our shareholders, our guests, our franchisees, and our team members for many years to come. And with that, I'll now turn the call over to Michele.
Michele Allen, CFO and Head of Strategy
Thanks, Geoff. And good morning, everyone. I'll begin my remarks today with a detailed review of our third quarter results. I'll then review our cash flows and balance sheet, followed by our outlook. Before we get started, let me briefly remind everyone that the comparability of our financial results is impacted by the timing of our marketing funds spent. In the third quarter of this year, marketing fund revenues exceeded expenses by $12 million as expected compared to revenues exceeding expenses by $17 million in the third quarter of last year. To enhance transparency and provide a better understanding of the results of our ongoing operations, I will be highlighting our results on a comparable basis, which neutralizes the marketing fund impact. In the third quarter, we generated $394 million of fee-related and other revenues and $208 million of adjusted EBITDA. Prior period fee-related and other revenues included $18 million of pass-through revenues from our global franchisee conference conducted in September 2023, absent which fee-related and other revenues increased 3%, driven by a 5% increase in royalties and franchise fees and 8% growth in ancillary revenues. The increase in royalties and franchise fees reflects our global system growth, the expansion of our domestic, international, and global royalty rates, driven by our higher fee per growth strategy and higher other franchise fees. Our ancillary revenue growth was primarily driven by higher credit card and partnership fees, as well as increased license fees. This growth continues to trend from the first half of this year where these fee streams meaningfully outperformed industry RevPAR level. Looking ahead, we have exciting new opportunities on the horizon that will build on our momentum and further enhance these ancillary fee streams. Adjusted EBITDA grew 7% on a comparable basis, primarily reflecting our higher royalty and franchise fees and increased ancillary revenues, as well as margin expansion, which was largely driven by operational improvements this quarter. Third-quarter adjusted diluted EPS was $1.39, up 10% on a comparable basis, reflecting our adjusted EBITDA growth as well as a benefit from our share purchase activity. These benefits were partially offset by higher interest expense. Adjusted free cash flow was $96 million in the third quarter and $267 million year-to-date with a conversion rate from adjusted EBITDA of 51%. We continue to expect full-year adjusted free cash flow to convert at approximately 60% of adjusted EBITDA. At our current trading levels, our adjusted free cash flow yield of over 6% continues to lead the lodging sector. Our capital allocation strategy remains unchanged. Our first preference is to invest in the business, balancing organic growth opportunities with disciplined M&A activity. While we remain focused on pursuing transactions that are accretive from both an earnings and net room growth perspective, as well as additive to chain scales underrepresented in our portfolio, we are equally committed to driving organic growth through development investments. To that end, demand for our brands remains strong with development advance spend reaching $24 million in the third quarter, bringing our year-to-date spend to $88 million. This increased investment is attracting higher value properties, as Geoff mentioned, further strengthening our portfolio. We returned $126 million to our shareholders during the third quarter through $97 million of share repurchases and $29 million of common stock dividends. Year-to-date, we have repurchased 3.8 million shares of our stock for $285 million. From 2019 through the end of the third quarter, we returned 47% of our market cap to shareholders, which continues to be best in class among lodging C-Corps and well above our closest competitor. We closed the quarter with approximately $750 million in total liquidity and our net leverage ratio of 3.5 times remains as expected at the midpoint of our target range. As we’ve previously highlighted, we continue to expect to finish this year with net leverage at this level with any excess leverage capacity or capital to be either invested in the business to support future growth or returned to shareholders in the fourth quarter. In September, we opportunistically took advantage of the interest rate environment by successfully executing $350 million of interest rate swap agreements on our existing Term Loan B facility. These four-year swaps carry a fixed rate of 3.3% and expire in 2028. As a result of this transaction, we ended the third quarter with approximately 80% of our total debt at a fixed rate and 20% variable. The fixed portion of our debt carries a blended rate of 4.4%, providing certainty around the majority of our interest expense at a very attractive rate while the remaining 20% affords us an opportunity to capture incremental benefits should the Fed continue to execute further rate cuts over the coming quarter. Finally, turning to our full year outlook, we're increasing our adjusted diluted EPS projection by $0.02 to a range of $4.22 to $4.34 to account for our third-quarter share repurchase activity. This outlook is based on a lower diluted share count of 80.1 million shares and as usual assumes no additional share repurchases or incremental interest expense associated with any potential borrowing activity to maintain our leverage at 3.5 times. There are no other changes to the remainder of our outlook. We are expecting more favorable RevPAR comparisons in the fourth quarter and our outlook reflects this dynamic. With Wyndham's stronger concentration in the select service space, you'll recall that domestic RevPAR gradually declined in 2023 starting with a modest 1% decrease in the second quarter, which then deepened to a 4% decline by year-end. We expect to lap this effect in the fourth quarter, which should support better year-over-year performance, especially when coupled with the recent positive trends Geoff mentioned in our infrastructure-related business. And even though this shift doesn't occur until the last 10 days of October, month-to-date through the first three weeks, US RevPAR is trending up 3% year-over-year and the comps only get easier from here. In closing, our third-quarter results reflect strong execution across our strategic priorities from steady system expansion and expanding royalty rates to ancillary fee growth and disciplined capital allocation. We remain confident in our ability to create sustainable value as we capitalize on the best investment opportunities to deliver meaningful returns for our shareholders. With a robust pipeline and RevPAR green shoots, particularly on the infrastructure side, we are excited about the opportunities ahead and look forward to building on this momentum as we close out the year and move into 2025. With that, Geoff and I would be happy to take your questions.
Operator, Operator
Our first question will come from Joe Greff with JP Morgan.
Joe Greff, Analyst
Geoff, I just want to ask a question about how you're thinking about net rooms growth for next year. How confident are you that next year's room growth rate could exceed what you end up doing this year? And then when you think about the composition from a brand and a geography perspective, obviously, ECHO would be stronger next year, I would think than this year. How is next year's net rooms growth composition different than what we've seen in the last couple of years?
Geoff Ballotti, CEO
We're very confident about our net room growth driving forward. And I think the most important metric for us to look at is our pipeline and what's been happening in terms of how that record pipeline has been driven. I mean, we have, we believe, the most talented and experienced franchise sales team out there in the industry. They've been selling directly to these franchisees longer than anyone else in over 95 countries. And when we look at where the breakdown is in terms of what's coming into the pipeline that will translate into net room growth next year, we're seeing just again a record execution. So globally, 197 hotel contracts were awarded this quarter, that's up 350 basis points versus where we were back pre-COVID. And we've got a record pipeline of 250,000 rooms, 85% of which is in the midscale and above or the extended stay segments. In terms of domestically, we're seeing really strong growth, 95 deals executed this quarter, up 10%. Our new construction prototype brands are selling very, very well. Our new construction pipeline is at an all-time high. It was up 300 basis points to nearly 1,500 hotels globally. We're seeing growth in terms of what we'll be seeing coming up and out of the ground in the coming years. We had many new La Quintas awarded in the quarter. Our pipeline is up 3% for La Quinta year-on-year. Our dual brands are selling very well. Our Hawthorn Suites pipeline is up. Our new Wyndham Garden prototype is up. And of course, new brands like ECHO Suites, those hotels are just getting started. Conversions have been very strong for us. They’re going to be very strong for us throughout the remainder of this year and going into next, our conversion pipeline was up 30%. And internationally, that high single-digit net room growth, we believe we could continue to drive upwards, 102 deals signed this quarter. Great growth really around the world across all regions. All we need to do this week is look at existing developers like NILE Hospitality who came in with 40 new Microtels in India to be very, very confident in that 3% to 5% long-term algorithm for net room growth. The progress we're making, and the continued retention rate improvements we're making on a global basis, we feel great about the year ahead.
Joe Greff, Analyst
Thank you, Geoff. And then Michele, your comment about month-to-date US RevPAR growth being up 3%, which looks like it's maybe 50 to 60 basis points versus what the Smith Travel data would suggest, which is great. And noting that the comparisons do get easier from here. What specifically is embedded for the US economy and midscale RevPAR performance in the fourth quarter?
Michele Allen, CFO and Head of Strategy
I guess, I would start by saying, last year in the US, our RevPAR declined 1 point during the third quarter and then in the fourth quarter, it was down 4%. So we moved from down 1% to down 4%, that's a 300 basis point swing, which does create a much easier comparison this year for the fourth quarter. This is a bit unique to our business due to our heavier concentration in economy, which by the way was down 7 points last year in the fourth quarter compared to only down 3 in the third quarter. So really large swings here for us and not necessarily for some of the other peers. That is predominantly what's built into our base case right now for the full year guide in addition to the infrastructure momentum we saw, that we have always expected in the back half of the year, we saw it in the third quarter and obviously, have it reflected in the outlook for the fourth quarter. And I'd say there is a favorable holiday calendar built into the outlook as well, which should drive increased leisure demand in the fourth quarter, particularly again in contrast to those more reliant on corporate and group business where travel windows are a bit tighter from a calendar perspective. We have two extra leisure travel days over the Christmas holiday period this year. What's not yet reflected in the outlook and we see potential upside are the benefits we're seeing from the recent hurricanes. There was no material impact in the third quarter given it only impacted the last week of September. But as we moved into October, we have seen much larger impacts with occupancy up over 10% in the impacted states. Right now, it's already a 40 basis point benefit to our fourth-quarter RevPAR and there is potential for more depending on the duration of the relief efforts, which as we all know are ongoing. But remember, when you weight that fourth-quarter impact, the 40 basis points translates to probably about 10 basis points on a full year basis at the global level. So it is going to be additive but it's not going to be materially different than what the current outlook implies.
Operator, Operator
Our next question will come from Stephen Grambling with Morgan Stanley.
Stephen Grambling, Analyst
So on Slide 6 of the deck, you have the 2026 walk on EBITDA. And I know you mentioned confidence in the 3% to 5% net room growth, sounds like RevPAR building back to that 2% to 3% range. But would love to get a scorecard of where you feel you're running ahead, where you may be behind on this trend line for some of the other buckets and if there's any other factors to consider for 2025 that might impact that march to that 2026 number?
Michele Allen, CFO and Head of Strategy
That's a loaded question. Let me start by saying we're very confident in the driver assumptions out on Page 6, particularly with respect to system growth and continued retention improvement. RevPAR, it's still early in our budgeting process. For us to be getting specific guidance for 2025, you'll have to wait for the February call for that. But we do expect to exit the year with positive momentum given the fourth quarter inflection point I just discussed. And when we think about the infrastructure, we see that capture just starting to happen in the third quarter and we're going to continue to see that in the fourth quarter, and it's going to continue to increase as more spend gets out into the economy. What we're really excited about is the ancillary revenue opportunities where exactly where we wanted to be at this point in our plan, up 8% year-to-date, we have a lot of great things happening on that front. And so we feel highly confident in our ability to continue to deliver that growth rate. So from a long-term perspective, this was a three year plan, capturing ‘24, ‘25, and ‘26, we reaffirm this guidance on Page 6. And we have plenty of initiatives planned to be able to bring it to realization, not all of which, by the way, need to hit. We just need a bunch of things to work in our favor, but not everything.
Stephen Grambling, Analyst
And then maybe one unrelated follow up. Are there any investments needed for project ECHO to ramp from here or was there a bit of front loading things like the development team and/or sales team for the unique demand drivers of that segment?
Michele Allen, CFO and Head of Strategy
We allocated around $100 million in capital, which we began using in 2024. The deployment of this capital will increase in 2025 and 2026 as more properties are developed and become operational. Additionally, the teams required for this investment are already in place, including the operating and sales teams, so this investment is reflected in our EBITDA.
Geoff Ballotti, CEO
Exactly, and all the money we've spent, Stephen, on the new design prototypes and support operationally that we've given to our franchisees. Obviously, we'll continue to support them but nothing incremental.
Operator, Operator
Our next question will come from Michael Bellisario with Baird.
Geoff Ballotti, CEO
We understand from Matt that you thought there was a Cinderella theme happening in your house, and that Annie wanted to dress up as Aurora. As a father of four girls, you have one who is sleeping beauty, and the witch she wants you to dress up as is not the wicked witch of the north.
Michael Bellisario, Analyst
Well, last night it was an adventure for me, so a couple more days set aside. Two unrelated questions there for you on development. Just first on the 10 ECHO deals that you signed. Are those deals with franchisees that are new to Wyndham, new to ECHO or are they just more deals that your original developers are doing there, trying to understand the composition of where the signings are now?
Geoff Ballotti, CEO
No, they are new institutional development groups who have not done new construction deals with us previously until now. And it's just great to see as we called out in our script some of the markets those dozen or so that we signed this quarter.
Michael Bellisario, Analyst
So it sounds like it's broadening, that's good to hear. And then just on a related note then, you've historically talked about infrastructure spending, you've mentioned oil and gas a couple of times in the last few quarters. Where do data centers fit into all that? And is all the AI spending and build-out there, is that incremental to what you've outlined previously and how might that hit RevPAR and unit growth over the intermediate term?
Geoff Ballotti, CEO
Yes, data centers are mainly private. There is some overlap in the infrastructure concerning energy. However, AI requires increasingly large amounts of data. As companies like Google, Amazon, and Meta expand their infrastructures, we're witnessing a significant surge in data center construction across the USA, particularly in major markets where these centers are located. For instance, in Texas, especially around the Dallas Fort Worth area, we have surpassed 700 hotels, making it our top state. Our team will be heading there this Sunday for AHLA's annual Hospitality Show. Our franchise sales team and corporate contracted sales teams are noticing a growth in data center construction in numerous secondary markets. In Georgia, which has good access to fiber routes, we have 300 hotels, and our franchise sales teams are actively involved where these centers are being developed. New York and New Jersey are crucial markets for data centers near financial hubs, where we have 250 hotels. In Florida, particularly in the Miami area, there’s an uptick in activity as it serves as a gateway to Latin America for AI; we have 300 hotels there, making it our second-largest state, and demand is rising. Arizona is another often-overlooked market, benefiting from a rich supply of renewable energy. With over 150 hotels in Arizona, the local data centers will gain advantages from spending related to the infrastructure bill. We believe that the ongoing new construction is attracting our franchise sales and GSO teams, which will help boost our brand's weekday market share, a trend we observed beginning this quarter. As Michele mentioned, we expect this trend to accelerate into 2025, significantly supporting our development pipeline with new construction prototype brands due to the shortage of lodging around these centers.
Operator, Operator
Our next question will come from David Katz with Jefferies.
David Katz, Analyst
Firstly, I just wanted to go a little farther. I know, Michele, you talked about some of the comp benefits that worked your way in 4Q. One of your peers talked yesterday about leisure for ‘25 being flat or maybe a little down. And I know that that's an important part but not all leisure is created equal. If you all could just talk about what your kind of leisure expectation is broadly and how that relates to your system would be a good place to start?
Geoff Ballotti, CEO
We believe that if leisure demand were to decline, we would still be well positioned, as has been the case in previous downturns. Our brands consistently outperform the broader lodging market during slow periods. Currently, we are not experiencing any notable weakness or downgrading, and the gaps between the different hotel segments are strengthening. There are no signs of discounting or compression; the gap between the economy and upper midscale segments has changed. Average daily rates have increased, and the gap between upper midscale and upper upscale segments is now wider. All key indicators we monitor are positive. Our booking windows have increased by 5% year-over-year, and we are noticing longer stays. Additionally, credit card spending in September rose significantly, and sentiments for leisure travel are improving among blue-collar workers, who have more jobs, higher wages, and increased savings. This situation creates a robust employment backdrop and boosts disposable income, enabling more vacation spending. Concerns about normalization are subsiding as we see consistent improvements. The economy's Revenue Per Available Room (RevPAR) has been steadily normalizing, with growth in each quarter of 2024. Current pricing power remains strong, although it still lags behind inflation. Recently, our economy sector has outpaced the overall domestic RevPAR growth. We expect continued positive momentum in leisure travel demand as we move into Q4 and throughout 2025, particularly as our economy and midscale brands capture more market share and we benefit from increased infrastructure business.
David Katz, Analyst
I wanted to follow up on the ancillary fees. It seems that in the industry, those fees are growing faster than the RevPAR driven fees, especially for companies that have been around longer than yours. My perspective is that your company is still at an earlier development stage in this area. Therefore, when considering future growth, you should be able to expand at a significantly higher rate compared to the core RevPAR fees. Does that sound accurate? Any additional insights would be appreciated.
Michele Allen, CFO and Head of Strategy
Yes, we do expect over the longer term, in the short term and over the longer term, the growth rate for our ancillary fee streams will outpace the growth rate of the compounded franchising model.
Operator, Operator
Our next question will come from Ian Zaffino with Oppenheimer.
Ian Zaffino, Analyst
Just wanted to maybe drill down on the market share gains, and congratulations on that. Maybe just talk to us about which of the states those were, maybe which brands kind of saw the best traction? And also is that just the function of the location being around infrastructure projects, are you doing anything different there? And maybe I'll add this one and another one as it relates to this topic is, what sort of the sustainability of this do you think? At least the numbers we've seen less than half of the spending has been dispersed. So kind of any comments or color, or meat on the bone you could provide there?
Geoff Ballotti, CEO
There’s a lot to cover here, Ian. We noticed strong RevPAR gains in several states, particularly in our oil markets. Texas saw a 5% increase, North Dakota was up 6%, and Alabama and Louisiana, with their robust oil markets, experienced significant double-digit growth. The infrastructure states we’ve discussed also showed positive results. We anticipate this growth to continue, especially in the oil and gas sectors as crews return to these markets, and on the infrastructure side as activities ramp up. It remains early in our journey. We are observing a double-digit increase in proposals from companies bidding on federal infrastructure projects, with a 15% rise in corporate contracted accounts secured by our Wyndham sales teams. This has contributed to our market share growth. The infrastructure sector boosted our overall domestic weekday RevPAR by 100 basis points, primarily driven by occupancy and widespread demand. However, we're still in the early stages, with less than 20% of the $1.2 trillion bill allocated. So far, $400 billion has been allocated, but only $300 billion has been announced, and only $100 billion of that has been disbursed. This means just a fraction of the entire bill has been paid out. Therefore, this will be a significant multiyear growth driver for our franchisees over the next decade and beyond. Additionally, there’s an ongoing $100 billion annual infrastructure spending that isn’t part of the initial allocation. We aim to capture a substantial share of that, thanks to our investment in technology, tools, and teams. Regarding market share, our biggest brands such as Super 8, Days Inn, and La Quinta have been performing exceptionally well according to our most recent filings. Days Inn, in particular, has improved its fair market share from 117% to 120%. In this quarter alone, Super 8 gained an additional 10 basis points, Microtel increased by 50 basis points, and Days Inn saw an impressive jump of 80 basis points in market share.
Ian Zaffino, Analyst
As a follow-up, how do you view the balance between economy, midscale, ECHO Suites, and other segments? Given the emergence of new drivers recently, are you reconsidering potential sources of growth? Any comments on that would be appreciated.
Geoff Ballotti, CEO
Well, in the economy segment, certainly, ECHO Suites is another upside for us in terms of just the demand that is out there from an extended stay standpoint. And there's not a lot of economy, new construction, extended stay lodging out there. I mean, extended stay lodging is outpacing existing supply by a 3:1 margin. If you look at Q3 STR economy, extended stay RevPAR was another 200 basis points higher than the overall economy industry. And it's really no surprise that extended stay is 36% of the domestic pipeline supply right now when you look at the STR reports. So we're looking at that as certainly incremental.
Operator, Operator
Our next question will come from Patrick Scholes with Truist Securities.
Patrick Scholes, Analyst
Geoff, Michele, can you give an update on continued progress with the retention rates? You are getting close to, I believe, your target of 96%. Is there further opportunity beyond that? And then within that retention rate, can you give us a breakout of what that looks like US versus international?
Michele Allen, CFO and Head of Strategy
We are really pleased with the progress we've made on retention thus far and we do expect to continue to improve it. You can see steady improvement over a number of years now. And it really is reflective of our increasing value proposition as well as our owner-first philosophy. We've always said that 96% was kind of the first stop, maybe the first base around and there's room once we get there to continue to push higher. In terms of the breakout, the timing I'd say of terminations is dependent upon many factors, including contractual terms, notice periods, cures on defaults, all of those things. And some culling of the system is necessary from time-to-time, especially as we bring in higher value properties. So while retention remains priority across our portfolio, we don't measure it quarterly. It's measured over time. Our focus this year has been on improving our global retention rate. We've made great progress on that front. Domestically, our primary focus is on overall net room growth, again, especially as we continue to push into these higher value segments. I think this is the 13th consecutive quarter now we've seen positive growth in the US. Our teams are really proud of that, especially in what has been a limited new supply market.
Patrick Scholes, Analyst
I guess, just a bit of a follow up. When we do think about that blended 96 roughly retention rate, how does that percentage break out US versus international? If you can, I don’t know, share that?
Michele Allen, CFO and Head of Strategy
From an outlook perspective, we definitely don't guide to that level of detail.
Geoff Ballotti, CEO
We're currently at 95.7%. Our global retention has increased by 40 basis points. Our teams are successfully replacing lower value termination rooms with higher value new rooms. For instance, the double-digit net room growth we saw in Asia Pacific is generating three times the license fee. Over the last 12 months, we've moved our retention from 93% to 94%, then to 95%, and now to 96%, resulting in another 40 basis points increase to 95.7%.
Operator, Operator
Our next question will come from Brandt Montour with Barclays.
Brandt Montour, Analyst
I wanted to double click on the hurricane impact and obviously, no one's rooting for this relief effort to drag on or become more egregious from here. But just objectively speaking, if you could compare this hurricane season and the devastation with the aftermath of the 2017 hurricanes Harvey and Irma. And the reason I ask is because those relief efforts trailed into, all the way into the second quarter of 2018 and you had a pretty large lift related to that in the order of 200 to 300 basis points in the US. So maybe you could just help us sort of understand compare and contrast the two situations?
Michele Allen, CFO and Head of Strategy
Yes, you're right. Our select service hotels play an important role in housing displaced families and emergency workers. The effect on RevPAR can differ greatly depending on the severity of the storm and our presence in the affected area. We had about 500 hotels impacted, but currently, only one hotel remains closed, which is our Super 8 in Asheville. The other hotels are open and operational, accommodating emergency crews and displaced families. This increased demand is what contributes to the 40 basis points I mentioned earlier. In 2017, with two major hurricanes affecting our largest markets in Florida and Texas, we observed a 200 to 300 basis point impact over a two to three-quarter span. However, in many other instances, the impact is not as significant and tends to be shorter, typically around 50 to 100 basis points for a single quarter. FEMA has sent 9,000 personnel to the affected areas, and over 100 hotels are currently achieving occupancy rates above 90%. We are seeing many of our hotels filled with crews and substantial business. Just yesterday, we booked $0.5 million from a specific vendor, which represents new business coming in. We anticipate ongoing benefits, but it's difficult to predict how long this will continue.
Brandt Montour, Analyst
I have a follow-up question. Yesterday, Hilton mentioned that the election in November will have a greater impact than they initially anticipated. I assume they were referring to group travel, which doesn't really affect your business. However, we've noticed other smaller operators in various industries mention that in swing states, the election is distracting and keeping people at home, making them feel down due to all the commercials and related negativity. Geoff or Michele, I know you may not have complete visibility yet, but it seems like you might be starting to see it. Is there any distraction related to leisure travel or anything else that you think might be contributing to people staying at home that you’re considering?
Michele Allen, CFO and Head of Strategy
I would say, since you mentioned Hilton, there are several dynamics at play in our business, particularly in the fourth quarter, and we’ll see various impacts on some of the more business-oriented brands. One significant factor is the upcoming presidential election, which tends to reduce not only group and conference business but also overall corporate travel. However, our business travelers are primarily workers in construction, so we don't expect it to have a significant effect on us. This election is unique, so we will have to wait and see. Additionally, during the Christmas holiday period, we typically experience shorter windows for business travel but longer ones for leisure travel. This shift should benefit us in the fourth quarter, unlike some of our competitors.
Operator, Operator
Our next question will come from Lizzie Dove with Goldman Sachs.
Lizzie Dove, Analyst
Sounds like you're seeing some really nice green shoots in the economy segment in the fourth quarter, it's a change scale that has been a laggard. Curious to what extent you have seen any impact from some of the newer brands in the premium economy segment taking any share, something like a spark, for example, or especially with the improvements you've seen, do you see those challenges in an economy over the last 18 months is more kind of cyclical and a function of comp?
Geoff Ballotti, CEO
Yes, I'd say more cyclical and function of comp, I mean, it's been two years and really none of the new brand launches out there have been slowing our NRG or our accelerating development pipeline, especially in the midscale and above segments that really these brands are playing in according to Smith Travel. Where we've been able to accelerate our domestic midscale and above net room growth to plus 3%, Lizzie, over the last several quarters since their introduction and we don't view the reflagging of the handful, I think, it's 10 of our over 9,200 hotels is incremental in any way to our normal term activity.
Lizzie Dove, Analyst
Can you provide an update on China, which represents a significant portion of your international rooms? With the recent stimulus announcement, has that changed your outlook? Do you believe it could have a meaningful impact on China in 2025?
Michele Allen, CFO and Head of Strategy
I don't think it changes our outlook. It definitely makes it a little bit easier. But we'd always been expecting continued recovery in China and that view has not changed. We just feel a little bit more confident in it with the stimulus coming in.
Operator, Operator
Our next question will come from Steve Pizzella with Deutsche Bank.
Steve Pizzella, Analyst
On development, I believe Slide 15 noted net rooms growth pacing ahead of historical performance. Is that just a pull forward of new rooms or should we expect to see historical seasonal net room adds in the 4Q this year?
Michele Allen, CFO and Head of Strategy
We are currently above our performance from last year at 70%, compared to about 50% last year. The teams have been very effective in securing deals earlier in the year. However, for the fourth quarter, some of our international teams achieved significant growth with new openings. We anticipate that this fourth quarter will be slightly lower than last year since many of those openings have already been accounted for year-to-date, but we expect the full year to show an increase. We remain confident in our ability to meet expectations.
Steve Pizzella, Analyst
And then margins continue to show solid year-over-year growth ex the marketing spend. What is driving the expansion from a cost control perspective? Is there any margin benefits embedded in the 2026 algorithm and how should we think about margins going into next year?
Michele Allen, CFO and Head of Strategy
The current margin benefits are primarily driven by our growth in ancillary revenue and the efficiencies we are achieving. We have improved efficiencies through the integration of our commercial organization and the implementation of AI and technology enhancements in our operations. All of these factors contribute to the impact on margins. Additionally, year-to-date and for the full year, we received approximately $4 million in insurance proceeds, which provided a minor boost to margins. Excluding this insurance benefit, we expect the remaining margin to remain stable as we move into 2025. However, it is difficult to predict the exact margin for 2025 until we complete our budgeting process.
Operator, Operator
Our last question will come from Meredith Jensen with HSBC.
Meredith Jensen, Analyst
Quickly on the technology front, I know you spoke quite a bit about your advantage being cloud-based versus competitors who may have to rebuild that tech stack to get there. I was wondering if you have kind of any internal targets on the merchandising front, like how many bookings might add on some of those sort of build a room options. I do think we got one of the competitors was saying currently they have low teens percentage of bookings that have some of those additions. So I was wondering if you have any sort of metrics we could follow on that.
Geoff Ballotti, CEO
I think, Meredith, the investments that we made over the last six years, which has really laid the foundation for us, a $300 million investment in our industry-leading tech stack is what is really helping us drive, from a direct contribution standpoint and a Wyndham Rewards standpoint, so much of our success. I mean, we're seeing record enrollments in our loyalty program, which is driving member occupancy up 240 basis points in Q3 and is now 50% over one out of every two check-ins directly for our guests to our franchisees are coming through our technology stack, and that's really important. It's an all-time high for any Q3 that we've had. It's up 600 basis points to where we were in 2019. We're going to continue to invest in that technology stack. We're going to continue to, as we said, furiously execute and implement and speed up all aspects of the operation for our franchisees, which is really reducing the labor load on their front desks. Our ability to allow those hotel teams to interact directly with the guests that, through our automation of all of the manual processes and seamlessly offering that early check-in and late checkout, that's also helping drive our net room growth. It's one of the biggest points of differentiation, our franchise sales teams believe when they're out there selling our value proposition versus our competitors. And so, we're huge believers. We're big partners with Salesforce, Mark Benioff on CNBC, Mad Money. I don’t know if you saw it, but Matt could send you the clip. Talked about how our technology and digital teams are really innovating. I mean, coupled with Salesforce's data cloud, we are amalgamating the data. We're delivering a level of automation that, as Mr. Benioff said, has never been envisioned. We're taking that ebb and flow of the manual tasks and customer demand and automating every customer touch point that we can really supercharging our 360 strategy with our data and building a much stronger data cloud. We think the opportunities ahead for us are endless.
Meredith Jensen, Analyst
One quick addition regarding the important ancillary fees, I want to delve a bit deeper. You mentioned that the business card saw an impressive 70% increase year-over-year in spending. Will you be able to share some of those trends moving forward, as well as a breakdown of ancillary growth that we can anticipate?
Geoff Ballotti, CEO
I think we're both excited about it.
Michele Allen, CFO and Head of Strategy
We are very excited about the opportunities ahead. I'd say our credit card program will be the largest contributor to our ancillary fee growth, and it has been in 2024 and will likely be in 2025. Growth here is accelerating due to several initiatives that have helped generate more cardholders and higher purchase volumes. One of those initiatives is the Wyndham business that Geoff mentioned in his prepared remarks. There are numerous opportunities to enhance our marketing and reach a broader base of consumers to increase the number of cardholders. Additionally, there are new product opportunities and international expansion. The Wyndham business is just beginning to ramp up, so we expect to see not only an increase in cardholders but also a rise in purchase volumes. Beyond the credit card, our Blue Thread with TNL is continuing to drive higher license fees. We know that consumers value the Wyndham Rewards currency, and we plan to capitalize on that through strategic partnerships. The investments mentioned regarding our back-end and on-property technology are creating incremental opportunities. For our franchisees, the 40% of owners engaged and opted into Wyndham Connect are seeing an additional $1,500 a month in revenue, which is substantial for them, and we earn a portion of that as well. There are many opportunities here, and we are excited about the progress we are making. We will continue to provide updates as we have more to share.
Operator, Operator
Thank you. At this time, I would like to turn the floor back over to Geoff Ballotti for closing remarks.
Geoff Ballotti, CEO
Thanks, Scott. And thanks to everyone who's still with us, we're sorry for going over. But we appreciate everyone's interest in Wyndham Hotels & Resorts. Certainly, Michele and I and Matt look forward to talking to and seeing many of you in the weeks ahead at so many of the upcoming investor conferences that we'll be attending. In the meantime, have a great weekend ahead and happy Halloween, everyone. Thanks again for joining us today.
Operator, Operator
Thank you. This does conclude today's Wyndham Hotels & Resorts third quarter 2024 earnings conference call. Please disconnect your line at this time, and have a wonderful day.