Travel + Leisure Co.

Good morning and welcome to Wyndham Destination's first quarter 2019 earnings conference call. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key on your telephone keypad. As a reminder, ladies and gentlemen, this conference call is being recorded. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Chris Agnew. Please go ahead.

Thank you, Keith. Good morning and welcome. Before we begin, we'd like to remind you that our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and the forward-looking statements made today are effective only as of today. We undertake no obligation to publicly update or revise these statements. The factors that could cause actual results to differ are discussed in our FCC filings, and you can find a reconciliation of the non-GAAP financial measures discussed in today's call and our earnings press release on our website at investor.windhamdestinations.com. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview on our strategic objectives and our first quarter results. and Mike Hugg, our Chief Financial Officer, will then provide greater detail on our results and discuss our outlook. Following these remarks, we will be available to respond to your questions. With that, I'm pleased to turn the call over to Michael Brown.

Thank you, Chris, and good morning, everyone. We appreciate you joining us today for our first quarter earnings call. Earlier this morning, Wyndham Destinations reported adjusted EBITDA of $205 million and adjusted diluted earnings per share of $1.03. We were very pleased with our operating performance and we completed the quarter with increased confidence in our positioning for the remainder of the year. Today, we are reaffirming the outlook for all of our key drivers and operating metrics. Our adjusted EBITDA guidance of $995 million to $1 billion and $15 million remains unchanged, and our adjusted EPS guidance increases to $5.21 to $5.42 on lower share count. Our strong first quarter performance was underpinned by good fundamentals. Gross VOI sales and adjusted EBITDA both increased 4% over the prior year. and adjusted diluted earnings per share was 23% higher, aided by our strong share repurchase activity over the last 12 months. Our key operating metrics, including blue thread, new owner mix, and margins were all in line with the cadence we expected to achieve our full year goals. Additionally, our work to increase owner utilization through targeted owner outreach is paying dividends. In the first quarter, we saw an increase of 13,000 owner arrivals to our resorts. This drove a greater mix of owner sales in the first quarter, which was a key factor in our improved margins. At the same time, our new owner sales were at expectation and represented 37% of total sales. Adjusting for a higher owner occupancy and sales in the first quarter, new owner sales mix showed a 120 basis point increase over the same quarter last year. Our earnings performance was led by strong VPGs and cost efficiencies. VPG increased 4.5% year over year in the first quarter, and tour growth was 1.4%. We expect VPG and tour flow to trend towards our full year target ranges as we progress through the year with new sales center openings, blue thread growth, and benefits from marketing partnerships driving the additional tour volume. Mike will discuss in detail our loan loss provision in a moment. I would like to share my perspective on the first quarter performance. Our provision of 22.5% was as expected when we offered our full-year guidance of 20.5%, and is why after the first quarter of the year, I am equally confident in our full-year projection. Additionally, the increase in owner arrivals, success in litigation, and our refinement of underwriting standards all point to positive momentum related to our provision. With regard to capital allocation, we continue to demonstrate our commitment to returning cash to shareholders with $122 million in dividends and share repurchases through the end of April. With leverage well within our target range, our capital allocation outlook remains the same. We are committed to our quarterly dividend, which expresses confidence in our ability to consistently generate and grow free cash flow And in the absence of compelling transactions, we believe the best use of excess free cash flow remains share repurchases. Now, I would like to shift gears from our financial performance to our most important work, our owners and their satisfaction. A key initiative we began in 2018 is the implementation of a new customer relationship management system. This work will be transformative, and we have already seen glimpses of the fundamental improvements it will make to our business. We are investing to elevate our customer data intelligence through this CRM. We have contracted with Salesforce for the debut and rollout, and in fact, Wyndham Destinations was recognized by Salesforce with a Partner Innovation Award for the most creative implementation of a Salesforce solution in 2018 within the travel and transportation industry. This new platform will enable us to improve our engagement with guests and owners throughout the marketing, sales, booking, and resort stay experience. We will have the ability to generate tours more efficiently and estimate it will take less than half the time to book a tour once fully implemented. As well, we will test a self-service tour booking capability this year, providing our owners and guests more convenience and flexibility during their stay. Not only will this platform deliver a better customer experience through the entire sales and marketing process, but over time, it will enable us to aggregate data and improve our marketing initiatives and will improve owner utilization. We launched this automated sales and marketing technology in the fall of 2018, and following initial success, we are progressing with a much broader deployment, bringing the CRM system to all sites and brands in the United States. Prior to this rollout, our tour scheduling was manual and time-consuming. When complete, every tour in the United States will be booked through this system. To be clear, this multi-year capital commitment is fully incorporated in our financial projections and is a portion of our $120 million of annual capex spend. Shifting to exchange and rentals, we saw a positive start to the year. with the segment posting adjusted EBITDA growth of over 3%, excluding the impact of currency. I'm pleased to say that Olivier Chavi, our new president of RCI, has hit the ground running. He brings energy and fresh ideas, which will augment the good initiatives already underway from the existing team. The team is looking into several medium and long-term opportunities for the business. In the meantime, some of the initiatives we've put in place for 2019 to improve revenue per member are starting to gain traction, and excluding currency, we are already seeing some progress. Regarding the strategic review of our vacation rental business, there is nothing new to report at this time. We will share definitive news with you as soon as we can. Before handing over to Mike, who will go through the quarter and our guidance in more detail, let me take a moment to touch on the consumer and the overall environment for leisure travel, the primary topic amongst investors over the last several months. We see strength with the consumer, and in our view, the leisure traveler in particular remains healthy. Let me share a few data points to support that view. First, as I shared, the metrics in our business that indicate the strength of the consumer were all comparable or stronger in the first quarter than the prior year. Second, North American tours increased just over 3% in the first quarter. And third is a data point using Orlando as a proxy for leisure travel demand. In the first three months of 2019, total airline passenger traffic increased 6% year-over-year, with domestic travel increasing 5% and international travel increasing 16%. Although we are mindful of macroeconomic strength and softness, it is important to note the timeshare industry has been resilient during prior economic downturns. Our direct marketing and sales teams are able to consistently generate tours in all economic climates. To continue with the Orlando example, in 2018, we generated close to 90,000 tours in our home market. This year, Orlando is likely to receive close to 80 million arrivals, and we are confident that we could continue to generate our planned tour volume even if overall leisure travel were to decline. After all, our marketing universe will be to owners and non-owners who have already chosen to come to Orlando on vacation. In summary, our results today once again demonstrate the strength and durability of our overall business model and cash flows. The resiliency of our top line is underpinned by recurring and predictable revenue streams and also by our direct marketing and sales approach. which even in an economic downturn, we believe would still generate the tours which drive our sales. Our core strengths at Wyndham Destinations include our size and scale, the breadth and depth of our owner acquisition channels, and our expansive brand portfolio. These core strengths continue to enable us to deliver industry-leading adjusted EBITDA margins of about 25% and free cash flow conversion of around 60% of adjusted EBITDA, or 120% of adjusted net income. With that, I would now like to turn it over to Mike Hugg.