Travel + Leisure Co.

Good morning and welcome to Wyndham Destination's second quarter 2020 earnings conference call. After the speaker's remarks, there will be a question and answer period. If you would like to ask your question during this time, simply press star and 1 on your telephone keypad. If you would like to withdraw your question, please press the pound key on your telephone keypad. As a reminder, 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 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 at 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 second 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'll 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 the call today. This morning, we confirmed our second quarter results following the preliminary second quarter release on July the 20th. We reported adjusted EBITDA of $16 million and adjusted free cash flow of 166 million. The second quarter highlighted the strength and resiliency of our business model. And although the majority of our resorts were closed for much of the quarter, we delivered 343 million of revenue and produced positive free cash flow and EBITDA. The second quarter saw two significant macro events, the global call for greater social justice and racial equality in the wake of George Floyd's death, as well as the economic crisis created by the coronavirus pandemic. I'm proud of how our organization has responded to both and want to reaffirm our unwavering commitment to address both events head on knowing that our culture of diversity and inclusion and economic performance will prove this out in the months and years to come. Our resorts and sales operations were, for all intents and purposes, closed in April and May. The reopening phase began at the end of May and progressed throughout June, and we ended the second quarter with 85% of our U.S. resorts and 56% of our sales locations reopened. Similar reopening timelines were seen by RCI and its developer affiliates. In the second quarter, key metrics in both business segments, vacation clubs and vacation exchange, performed well during the reopening phase. With that said, we saw consumer sentiment declined at the end of June, which continued into July. The spike in new COVID cases has resulted in consumer sentiment retracing back near April lows. This became evident as short-term vacation cancellations increased in June and July. To give you a sense of the magnitude, at the peak of the closure period, our reservation cancellations were nearly double the level in 2019. As we reopened in June, those cancellations began to moderate. But as COVID cases accelerated from around 20,000 cases per day to more than 60,000 in July, cancellations returned to April levels at Wyndham Vacation Clubs and a similar trend emerged at RCI. We do not believe the underlying demand for leisure travel declined. However, the short-term willingness to travel diminished and resulted in the pullback we saw in late June and July. To highlight the headwinds we saw, it's best to look at several key markets. First, our expectations of reopening in Hawaii, California, and New York have all been delayed due to COVID. Second, the surge in cases occurred in five key states, Florida, Texas, Arizona, South Carolina, and Tennessee. These states represent just under 40% of our annual VOI sales, and the surge has negatively impacted arrivals. Third, while we are raising credit standards, we are seeing a higher number of new owner prospects in some of our larger markets who fall below our marketing qualification criteria. However, there is a silver lining. The elements of our business that we control performed well during the reopening phase. Let me share a few proof points. BPGs in July are more than 30% higher than prior year, and close rates across all channels are up nearly 300 basis points as we benefit from putting our best salespeople in front of our better quality leads. Blue thread sales have represented 17% of new owner sales. FICO scores are up just under 10 points and our mix of 700 plus FICO scores is up more than 700 basis points. 93% of owner arrivals were by car, up from around 70% previously. Loan deferments peaked in early April and have decreased every week except one through the end of July. RCI North America booking volume was clearly rebounding throughout the second quarter and achieved 5% year-over-year growth for the month of June before the COVID resurgence in the Sunbelt states at the beginning of July. Although this pandemic has created unprecedented uncertainty, the green shoots we are seeing in our underlying business are indicative of the stronger business we can expect in the future. Current headwinds are directly tied to COVID, And it is a matter of time before consumer sentiment returns to historic levels, resulting in an increase in quantity of owner arrivals and improvement of credit quality for non-owner prospects. I would now like to talk about how we have used the last few months as an opportunity to accelerate some of our investments and strategic initiatives. Reignition of our exchange business has been a key strategic focus And we are making great progress. Earlier this week, we announced the launch of the new parent brand for our exchange and travel business. The new segment called Panorama will include our timeshare exchange companies, including RCI, the world's largest vacation exchange network, Seven Across, formerly known as DAE, and the Registry Collection. Panorama will also feature our travel and leisure businesses, Love Home Swap, Trip Beat, and Extra Holidays, as well as leading property management and travel technology platforms at Work International and Alliance Reservations Network, or ARN. Panorama, with its breadth of membership assets, expertise in commercial relationships, coupled with its strong leadership, has a great opportunity to broaden its scope within the travel and tourism market. Olivier Chave, who joined us in 2019 and brings global travel industry experience, was named president of Panorama. The Panorama expansion plans will pursue three paths. First, we plan to offer nearly 4 million members more ways to utilize their memberships, allowing them to use their exchange currency for rich experiences and meaningful travel all year long, not just for a week or two-week period every year. Our goal is to serve as a true end-to-end travel provider across the full spectrum of travel and vacations. Second, our Club 365 membership product sold by RCI affiliates as a trial product will be greatly enhanced on the ARN platform. And third, the ARN platform will allow for travel membership expansion opportunities outside the traditional timeshare ownership. Our existing direct-to-consumer business lines will be converted to the new platform with significant brand, marketing, and business development focus for expansion. The first significant expansion beyond the timeshare space will be the launch of Panorama Travel Solutions, a new travel services business powered by ARN to provide customized global discount travel membership clubs and travel technology solutions to affinity partners, including large employers, banks, retailers, trade associations, and others in the U.S. and abroad. We have also been accelerating innovation within our Wyndham Vacation Club segment. These innovations not only make for a better vacation experience, but also provide our guests with more ways to social distance in today's COVID environment. We have reimagined our check-in process, innovated the onsite experience with RFID wristbands to increase engagement with our guests, and went live with our new Club Wyndham website in May to ensure our owners can plan and book their next adventure. Looking ahead, let me share some thoughts on the second half of 2020. We expect tours to be down 60% from the prior year, with 80% of this reduction coming from lower margin new owner tours. We expect VPGs to be 30% higher than the prior year. We expect window vacation clubs, owner arrivals and panorama bookings to improve through the fourth quarter, but not to 2019 levels. We anticipate access in the ABS market when terms are most favorable, and we expect our provision to be below 20%, benefiting from the improvements in credit quality we have made this year. And finally, more than 50% of our normalized adjusted EBITDA will continue to come from predictable hospitality, net interest income, and membership revenue streams. Against the backdrop of an unprecedented economic environment, our second quarter performance highlighted the strength and resiliency of our business model and its strong free cash flow generation. While the range of outcomes remains broad, our priorities remain unchanged. Our underlying business is performing, and we have a much clearer line of sight to the second half of 2020 than we did when we last spoke to each of you in May. With that, I would like to hand the call over to Mike Hugg.