Travel + Leisure Co.

Good morning and welcome to Wyndham Destination's first quarter 2020 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. We would now like to turn the call over to Chris Agnew. Please go ahead.

Thanks, Brie. 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 discussed in our SEC filings, and you can find a reconciliation of the non-GAAP financial measures discussed in today's call in the earnings press release available on our website at investor.windhamdestinations.com. Also available on our website, you'll find a supplemental presentation for this call. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our first quarter 2020 results in addition to an update of our current operations and company strategy. And Mike Hugg, our Chief Financial Officer, will then provide greater detail on our results, our balance sheet, and liquidity position. 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.

Good morning, and thank you for joining us on our first quarter call. This is undoubtedly the most challenging time many of us can remember. The circumstances surrounding the COVID-19 pandemic are unprecedented, and the financial impact to the travel industry, our company, our customers, and our employees has been material. Although this crisis is like no other, we will manage through it by keeping our customers and associates the top priority while protecting the long-term sustainability of our business. Our work, since becoming a standalone public company nearly two years ago, has prepared us for an economic downturn, even of this size, and our resilient business model and strong liquidity position will see us through this crisis. We recognize there remains significant macroeconomic uncertainty. However, we are operationally and financially prepared to respond as this crisis unfolds. On today's call, I will dedicate the first part of my remarks to first quarter results and then the remainder of the time to COVID-19 pertaining to our liquidity position and on how to think about our second quarter and the remainder of the year. With that said, it is most appropriate to begin more broadly by offering our sincere thanks to all those on the front line of this crisis, healthcare workers, first responders, and all those providing essential services. For Wyndham Destinations, I'm extremely proud of our team who moved nearly every aspect of our service operation to work from home in record time. Our resort staff has done an exceptional job to comply with local, regional, and national orders, and they are now preparing for an eventual return to operations. Let me shift to our first quarter performance. Earlier this morning, we reported a first quarter negative adjusted EBITDA of $44 million and adjusted loss per share of 98 cents. In the first quarter, we took 241 million of charges in total related to COVID-19, including a $225 million provision charge to revenue, an estimated increase to future loan defaults resulting from COVID-19. Many of you have seen banks increase their loan loss provisions. However, because of timeshare accounting treatment, our provision is treated as a reduction of revenue, not an operating expense, and therefore cannot be an adjustment to EBITDA. Also, we will recover approximately 25% of the charge in the form of returned inventory, reflected as a benefit to cost of sales. The additional provision charge had a $170 million negative impact to adjusted EBITDA. The first quarter was off to a strong start in January and February, with gross VOI revenue 7% higher year over year. In March, COVID-19 caused tours to decline 52%, and gross VOI 44% year over year. Our exchange business experienced a similar trend, solid start to the year, followed by a sharp increase in cancellations in March. The exchange revenue associated with those canceled bookings will be recognized over the course of the next 12 months as exchanges are rebooked for future travel. Negative adjusted free cash flow for the first quarter was $78 million, as the $325 million securitization we announced last week shifted into April. We expect adjusted free cash flow to be positive in the second quarter and positive for the first half of the year in the range of 50 to 80 million. We paid our first quarter dividend of 50 cents per share on March the 31st, and our board of directors intends to declare the second quarter cash dividend of 50 cents per share in mid-May. Needless to say, our time is now fully consumed with navigating the new COVID-19 environment and economy. There are two overriding considerations that are guiding our point of view. First, over 50% of our adjusted EBITDA comes from predictable hospitality, net interest income, and membership revenue streams. These provide predictability in our cash flow forecast, and a baseline of visibility into the second half of 2020. Second, we are managing our operating business to be cash flow positive for the full year. As you were here in our action plans, we are very much on track to deliver that goal. From the outset of this crisis, we have been proactive in safeguarding our owners' vacations and their youth rights. We extended the time owners and members had to book their next vacation, as well as waiving cancellation and rebooking fees. As of this call, booking rates for the second half of 2020 are comparable to where they were for the same period of 2019, which suggests that demand will be strong despite economic uncertainty driven by COVID-19. We expect robust occupancy once governmental health officials give us the green light to reopen our resorts. As our extensive North American resort footprint will meet the consumer preference of drive-to destinations, we expect our historical 70% of drive-to arrivals to approach the 90% range. We have taken early and significant actions to maximize cash flow. These actions included reducing our 2020 project inventory and capital expenditures by $100 million and reducing our operating cost base by over $205 million through furloughs and layoffs of employees, as well as eliminating other discretionary spending. We expect $60 million of these savings to be permanent. I suspended my salary. and the Board of Directors is taking a pay reduction, both of which began in the second quarter. Lastly, we do expect key metrics on the VOI business to be under pressure for the remainder of the year. As such, we will be slower to reopen lower margin marketing programs. In the exchange business, we have renegotiated inventory agreements and are gearing up programs to maximize member exchange fulfillment when the recovery begins. We expect the flexibility of our exchange system, partnered with ARN's capability, to be a significant advantage to drive member bookings. Turning to liquidity. At the end of the first quarter, we had over $1 billion in cash on the balance sheet. On March the 25th, we drew down our $1 billion revolving credit facility as a purely precautionary measure. We have no debt maturities this year, and our next maturity is $250 million in March of 2021. We are evaluating the credit markets to determine whether we will take action to provide additional liquidity. Should leisure travel remain depressed into the third quarter, we have the flexibility to make additional changes in the business to be at least cash-neutral run rate for the full year. Last week, we closed on a $325 million private securitization deal. With this deal, we have $342 million available on our conduit facility and plenty of capacity to support our sales volume into 2021. With 230 resorts in our Wyndham Vacation Club business, we expect a rolling ramp up of both our resorts and sales offices when stay-at-home guidelines are lifted. We are monitoring local jurisdictions and our expectation is that a number of resorts will reopen just after Memorial Day with a slow ramp up for other resorts into June and July. We assume urban destinations to be among the last to reopen. As we ramp back, expect tour volumes to be lower year over year, even in the fourth quarter. Our plan is to raise FICO levels and exhibit caution in reopening marketing programs with traditionally low margins. Additionally, our focus on getting owners on vacation will place a greater weighting on owner sales in the near term. Combined, these actions will result in higher margins and a lower loan loss provision going forward. On March the 25th, like many other companies, we withdrew our full year and first quarter guidance. The macro environment remains too uncertain to reintroduce full-year guidance, but we would like to provide some outlook for the second quarter while acknowledging the timing of reopenings will impact our estimate. The second quarter will have very limited VOI sales, and cost reductions will not be at a full run rate until later in the quarter. If we assumed some limited sales in June, we would anticipate adjusted EBITDA to be flat to negative $20 million and positive adjusted free cash flow of $130 to $160 million in the second quarter and positive adjusted free cash flow of $50 to $80 million for the first half of 2020. As you look to the remainder of the year, we remain confident in our hospitality, net interest income, and member fee earnings streams. The remainder of the EBITDA will rely on our ability to open our resorts and sales centers and realize operations on DOI sales. We believe those efforts will begin in June, ramp through Labor Day, and return to a level of near normalcy in the fourth quarter. Because of the lack of clarity today, we cannot provide specific guidance on those numbers, but will once we have clarity on the economic restart and early trends related to leisure travel. In our exchange business, the crisis is not delaying progress of our ARN integration and growth strategies. The team is redoubling its effort to launch new products leveraging the ARN platform, and we expect to begin rolling these out in the second and third quarter. Since our exchange business collects and recognizes revenue at the point of confirmation, we expect an earlier rebound as our members take advantage of their trading power in 2020 and 2021. To conclude my remarks, I'd like to reinforce three main takeaways. First, 50% of our adjusted EBITDA comes from predictable fee streams, and we believe this crisis will prove out the strength of our business model. Second, we paid a dividend in March, and our board intends to declare the second quarter cash dividend of 50 cents per share in mid-May, underscoring the confidence we have in our business model and our solid liquidity position. Third, our preparations to reopen will include changes to sales and marketing, which, like our emergence from the Great Recession, will shift FICO score requirements higher, improve the quality of earnings, and help our loan loss provision. With that, I would like to hand the call over to Mike Hugg.