Travel + Leisure Co.

Good morning and welcome to the Wyndham Destination's third 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 the 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 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, Aaron. 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 or discuss 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.windemdestinations.com. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our third quarter 2020 results, in addition to an update on 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 Nicole over to Michael Brown. Thank you, Chris, and good morning, everyone. We were very encouraged with our third quarter results, demonstrating the resiliency of our business and our ability to recover quickly since the reopening of our resorts. For the third quarter, we reported adjusted EBITDA of $139 million, adjusted diluted EPS of 83 cents, and year-to-date positive adjusted free cash flow of $120 million. Our results steadily improved throughout the quarter, both sequentially and against prior year. This is a reflection of growing consumer confidence in travel, the performance of our associates around the globe, and the overall strength of our business model, which is rooted in the resiliency of leisure travel and the recurring nature of our revenue and EBITDA streams. Although COVID continues to present significant challenges for the travel industry, the third quarter highlighted several key distinctions of the Women Destinations business model that allows us to be on the leading edge of the hospitality recovery. First and foremost, we are 100% focused on leisure travel. We have a geographically diverse resort and sales footprint, minimizing our reliance on any regional market to fulfill owner demands or to generate sales. The diverse footprint makes it easy for our owners to travel where they want, which was demonstrated this summer as consumers shifted to drive-to destinations. Over 90% of our owners drove to our resorts for their vacations. We saw fewer arrivals in urban destinations and medium-haul markets like Hawaii and the Caribbean, while mainland beach destinations have been our most demanded locations since the reopening. As I mentioned, we are well diversified, with historically only two markets representing more than 10% of our VOI sales, Las Vegas at 13% and Central Florida at 12%. These factors led to quarterly occupancy of nearly 60% for open resorts, including total occupancy of 77% over Labor Day, a Labor Day occupancy level that was equivalent to 2019. In North America, we have now reopened 97% of our resorts and resumed operations at over three-quarters of our sales centers. Our sales resiliency is due to our loyal owner base and our diversified marketing channels and our greater concentration of in-market guest acquisition. When travelers arrive to a market, we have the ability to convert these arrivals to tour flow immediately. In the third quarter, we reported 256 million of gross VOI sales, driven by a sequential improvement each month in North American tour-generated gross VOI sales, which were lowered year-over-year by 71% in July, 59% in August, and 49% in September. As we shared, our members love their ownership, and when they travel, they buy more. Owners consistently spend an incremental 2.6 times the initial purchase over their lifetime, and the strength of owner buying behavior post reopening indicates to us that this metric remains unchanged post reopening. As daily COVID cases declined in August, consumer sentiment improved, with 60% of our owners indicating they were ready to travel. We're excited by the increased engagement from our owners, and we're seeing interest in longer stays during the Thanksgiving and Christmas holidays. We've seen searches for vacations increase to an average of nearly 1,000 miles from their home, up from around 700 miles at the beginning of June, indicating that people are gaining confidence with being able to travel longer distances. The positive momentum supports the strength in tour flow and BPGs we saw in the third quarter. BPG increased 30% in the quarter compared to pre-COVID. This is due to a combination of the sales mix being more heavily weighted to owners and the improved efficiency of our marketing channels. Additionally, we have not offered promotional pricing, but instead dedicating our promotional dollars to drive future owner bookings through digital campaigns. To dive deeper on new marketing channels, new order mix was 28% in the third quarter with blue thread sales volume 13% of new order sales. The increased proportion of blue thread tours is an encouraging sign given that BPG is more than $300 higher for blue thread tours compared to overall new owner tours. In addition, the overall improvement in new owner sales demonstrates our ability to generate strong demand even in a challenging travel environment. In just a few days, we will begin selling our new urban resort location in Centennial Park, Atlanta, which will be available for occupancy to owners in 2022. To provide one last insight into performance at Wyndham Vacation Clubs, our loan loss provision saw noticeable improvement. We have elevated the minimum FICO qualification threshold from 600 to 640, improving tour quality and driving better performance in our portfolio. In the third quarter, our loan loss provision at the percentage of gross VOI sales was just under 19%, down from 20% in the same quarter last year. I'd now like to shift to Panorama, our exchange and membership travel business. Panorama continues to deliver on its recurring revenue model and shows the resilience we have come to expect from this segment. Revenue per member improved each month down from the prior year 29% in July, 20% in August, and 7% in September. 78% of RCI-affiliated resorts were open in the third quarter, and this is expected to rise to 88% in the fourth quarter. More importantly, we are beginning to execute on our plan to grow our base of non-timeshare relationships in this segment. Panorama Travel Solutions will offer discounted travel to closed user groups powered by the technology from ARN while requiring upfront membership fees and recurring transaction fee streams. We are very pleased to announce our first non-time share affiliation agreement with Grupo Placadas. Although immaterial to our results today, this deal is our first venture outside the timeshare model and begins our effort to expand our travel business to gain access to the more than 100 million North American households that do not own timeshare. These services are provided on a B2B basis and are complementary to our current timeshare model. Let me now move to our outlook. We are seeing the positive trends in the third quarter continue through October, giving us optimism through the end of the year. With that said, we remain mindful of uncertainties in the fourth quarter that may pose significant headwinds to our business, including spikes in daily COVID cases, next week's election, and the uncertainty around the timing and amount of a second stimulus package. For the fourth quarter, we expect tours to be down 60% year-over-year, gross VOI sales to be 45% lower year-over-year, and VPGs to remain at 30% above the prior year. We expect the loan loss provision to remain below 20% of gross VOI sales in the fourth quarter, adjusted EBITDA margins to be similar to the third quarter, and we continue to expect to be free cash flow positive for the full year. With that, I would like to hand the call over to our Chief Financial Officer, Mike Hugg.

Mike? Thanks, Michael. Good morning to everyone, and thank you for joining us today. I will discuss our third quarter results and provide you with more color on our balance sheet, liquidity position, and cash flow. My comments will be primarily focused on our adjusted results and year-over-year comparisons. We reported third quarter adjusted EBITDA of $139 million and adjusted earnings per share of 83 cents compared to adjusted EBITDA of $267 million and adjusted EPS of $1.57 one year ago. During the quarter, we had $31 million of public charges with $30 million added back to total company adjusted EBITDA. Women vacation clubs reported revenue of $477 million with gross VOI sales of $256 million and adjusted EBITDA of $96 million. Tours declined 70% in the quarter compared to the prior year with Las Vegas and Hawaii providing a drag. New owner tours declined 80% and existing owner tours declined 55%. BPG, on the other hand, increased 30% to $3,039. benefiting in part from improved new owner close rates and a higher mix of owner sales. Our underlying portfolio continues to perform well with delinquencies lower year over year, driven in part by deferral programs, as well as a more mature portfolio from reduced originations over the historically busy summer months. Requests for deferrals have continued to trend down since the second quarter, and now active deferments represent just 2% of loans outstanding, down from 6% at the peak. We have remained in close contact with owners coming off the furl and are seeing the majority of them return to making payments. We remain comfortable with the overall allowance on our receivables portfolio, considering the continued uncertainty around the duration of the pandemic and its economic impact. Excluding the results of the North American vacation rental business, which we sold in October last year, and the acquisition of ARN last August, our Panorama segment delivered third quarter revenue of $123 million. In the prior year, Panorama's revenue was $161 million. On this basis, Panorama's third quarter adjusted EBITDA was $59 million compared to $70 million in the prior year. During the quarter, the average number of Panorama members decreased by 6%, and we expect that trend to continue into 2021. Panorama net transactions were down 33% in the quarter due to cancellations. However, we are seeing a positive underlying recovery trend. September exchange gross cookings exceeded the prior year by 1%, marking the first month of year-over-year growth since COVID started. Cancellations are recovering more slowly and continue to run at elevated levels, particularly internationally. As discussed in the last quarter call, exchange member-based drivers are going to become less relevant for Panorama as its travel portfolio expands, and we will be transitioning to reporting overall Panorama vacation transactions. During COVID, Panorama has remained focused on the growth and integration of ARN, and we are seeing excellent progress in our business development pipeline. In the third quarter, ARN delivered 27% of Panorama's net transactions. Turning to our balance sheet, as of September 30th, we had $1.3 billion of cash and cash equivalents with corporate debt at $4.2 billion, which excludes $2.5 billion of non-recourse debt related to our securitized receivables. Our net leverage for covenant purposes at the end of the quarter was 4.1 times, which is 2.4 times below our covenant restriction. In the third quarter, we significantly improved our capital and equity position, In July, as discussed on our second quarter earnings call, we amended our revolving credit facility while retaining some flexibility on capital allocation and also issued $650 million of senior secure notes. In August, we completed our second ABS transaction of the year with great execution on a $575 million term securitization with a 90% advance rate and a 2.81% interest rate. This transaction will complete our 2020 term securizations as our ability to upsize this transaction due to the tremendous demand allowed us to eliminate the need and the associated risk of a fourth quarter transaction. As a result, we pulled cash forward into the third quarter, negatively impacting fourth quarter cash flow. We successfully closed the renewal of our $800 million ABS conduit facility on October 27th and extended the maturity date another year to October 31st, 2022. The bank group and commitment sizes remain the same with the renewal. The new terms provide greater efficiency for Wyndham as the dynamic advance rate is now tied to the credit quality of the underlying assets, allowing for a higher advance rate versus the previous facility. We are very happy with the renewal and appreciate the support of our banking partners. We paid our third quarter dividend of $0.30 per share on September 30th, and we expect to recommend a fourth quarter dividend of $0.30 per share for approval by our Board of Directors in November. We are paying the dividend because we believe in the underlying strength of our business, cash flow, and liquidity. We believe the dividend at this level is attractive to both current and potential shareholders and is sustainable. As Michael previously mentioned, with a continued range of possible outcomes to the end of the year, we still expect to be adjusted free cash flow positive for the full year. Overall, we are very proud of our third quarter results, which put us on great trajectory for meeting our full year 2020 objectives. With that, Aaron, can you please open up the call to take questions?