Q4 2019 Earnings Call

February 26, 2020

[music] standby your program it's about began.

Operator: Good morning, welcome to Wyndham Destinations' Q4 and full year 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 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, 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.

Good morning, and welcome to Wyndham destination fourth quarter and full year 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 punky 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 Catherine good morning, and welcome.

Chris Agnew: Thank you, Catherine. 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 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.wyndhamdestinations.com. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our strategic initiatives for Q4 and 2019 full year results. Mike Hug, our Chief Financial Officer, will then provide greater detail on our results and discuss our outlook.

Christopher Agnew: Thank you, Catherine. 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 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.wyndhamdestinations.com. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our strategic initiatives for Q4 and 2019 full year results. Mike Hug, our Chief Financial Officer, will then provide greater detail on our results and discuss our outlook.

We began we'd like to remind you that our discussion. 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, our effective only as of today, we undertake no obligation to publicly update or revise these statements.

Factors that could cause actual results to differ disgusting are actually see filings and you can find a reconciliation of the non-GAAP financial measures discussed in todays coal in the earnings press release available on our website at Investor Dog Wyndham destination Dot com.

This morning, Michael Brown, our President and Chief Executive Officer will provide an overview of our strategic initiatives fourth quarter and 2019 full year results.

And my colleagues, 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 question without please turn the call over to Michael Brown.

Chris Agnew: 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.

Christopher Agnew: 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 Good morning, everyone and thank you for joining us today earlier. This morning, we were pleased to report full year, adjusted EBITDA of $991 million, reflecting 4% year over year gross and adjusted E. P. S. A $5.62 an increase of 16% over.

Michael Brown: Thank you, Chris. Good morning, everyone, thank you for joining us today. Earlier this morning, we were pleased to report full year Adjusted EBITDA of $991 million, reflecting 4% year-over-year growth and Adjusted EPS of $5.62, an increase of 16% over the prior year. We delivered Adjusted free cash flow of $617 million, which was above the high end of our guidance range. We continued to return cash to shareholders throughout 2019, with $340 million of share repurchases and $166 million of dividends. Since becoming Wyndham Destinations through the end of 2019, we have returned 23% of our current market cap to shareholders in 19 months.

In the prior year.

We delivered adjusted free cash flow of $617 million, which was above the high end up our guidance range. We continue to return cash to shareholders throughout 2019 with $340 million of share repurchases, Andrew and $166 million dividends since.

Becoming wyndham destinations through the end of 2019, we have returned 23% of our current market cap to shareholders in 19 months.

I want to shift toward 2020 outlook and additionally, given recent headlines concerning corona virus provide you with some context on the potential impact to our business.

Michael Brown: I want to shift to our 2020 outlook, and additionally, given recent headlines concerning coronavirus, provide you with some context on the potential impact to our business. Year to date, we have continued to experience robust leisure travel trends, and as a result, our outlook assumes a continuation of these trends and growth in line with our long-term guidance. For the moment, the coronavirus is limited to our international operations. Our outlook for 2020 does not reflect any impact from coronavirus, given materiality year to date and uncertainty around any future impact. We are mindful that bookings and arrivals may be impacted more broadly going forward. As context, approximately 10% of our total EBITDA comes from outside of the United States, with less than 1% from Asia.

Year to date, we have continued to experience robust leisure travel trends and as a result, our outlook assumes a continuation of these trends and growth in line with our long term guidance.

For the moment the Corona virus is limited to our international operations and our outlook for 2020 does not reflect any impact from Corona virus, given materiality year to date and uncertainty around any future impact.

We are mindful that bookings and arrivals maybe impacted more broadly going forward.

As context, approximately 10% of our total EBITDA comes from outside the United States with less than 1% from Asia.

We will continue to follow events closely and we are working with health authorities to ensure precautionary and proactive protocols are in place for owners guest and employees.

Michael Brown: We will continue to follow events closely. We are working with health authorities to ensure precautionary and proactive protocols are in place for our owners, guests, and employees. Shifting back to 2019, it was a year of notable progress and success for Wyndham Destinations. We successfully completed our first M&A activity, selling one business and buying another. We sold the North American Rentals business to Vacasa for $162 million, and we acquired ARN for $102 million. ARN is a travel technology platform that will enable us to provide integrated travel services and value-added benefits to RCI and other closed user groups. Both transactions were strategic. The vacation rental business was non-core to our timeshare operations, and ARN is helping us reignite our core exchange business at RCI.

Shifting back to 2019, it was a year of notable progress and success for Wyndham destinations. We successfully completed our first M&A activity selling one business and buying another.

We sold the North American rentals business to bokassa for $162 million and we acquired a are in for $102 million. A are in is a travel technology platform that will enable us to provide integrated travel services and value added benefits to our c. I and other close user groups.

Both transactions were strategic the vacation rental business was non core to our times your operations and HR and it's helping us reignite our core exchange business at our C. I.

In 2019 Blue thread had its strongest year with sales of $87 million.

Michael Brown: In 2019, Blue Thread had its strongest year, with sales of $87 million, 31% higher than the prior year. The Q4, in particular, demonstrated strong momentum, with a year-over-year sales increase of 35%. As a reminder, Blue Thread tours deliver over 25% higher VPGs than overall new owner VPG. This year, we expect Blue Thread sales to top $105 million, more than double what it was in 2017. For the third consecutive year, we further improved our already industry-leading margins, finishing 2019 with a company margin of 24.5%. This is in line with our overall objectives to grow EBITDA, maintain margins, and grow new owners. Related to new owner growth, our percentage of total sales was flat in the Q4 and marginally down for the year.

31% higher than the prior year.

The fourth quarter in particular demonstrated strong momentum with a year over year sales increase.

35% as a reminder, blue thread tourist deliver over 25% higher BPG used an overall new owner VPG.

This year, we expect blue thread sales to top $105 million more than double what it was in 2017.

For the third consecutive year, we further improved our already industry, leading margins, finishing 2019 with a company margin of 24.5%.

This is in line with our overall objectives to grow EBITDA maintain margins and grow new owners.

It's a new owner growth our percentage of total sales was flat in the fourth quarter and marginally down for the year. This was primarily result of overperformance on over older arrivals, new marketing channels opening later than expected in the year and lower new owner VPG in the second half of the year.

Michael Brown: This was primarily a result of overperformance on over owner arrivals, new marketing channels opening later than expected in the year, and lower new owner VPG in the second half of the year. New owner growth remains one of our key priorities, and we remain committed to getting our sales mix above 40%. However, we must balance it with our other key strategic priorities, and increasing owner arrivals is one of those. Our success in owner engagement, and therefore arrivals, creates a natural headwind to growing the new owner percentage. Having said that, our strong financial performance in 2019 importantly reflects the appeal of our products to a diverse customer base. Last year, Gen X and millennial sales increased 20% for the full year and 32% in Q4, with the average age of our new owner continuing to trend younger.

New owner growth remains one of our key priorities and we remain committed to getting our sales mix above 40%. However, we must balance it with our other key strategic priorities and increasing owner rivals is one of those.

Our success in owner engagement, and therefore rivals creates a natural headwind to grow in the new owner percentage.

Having said that our strong financial performance in 2019 importantly reflects the appeal of our products.

He diverse customer base last year Gen X. millennials sales increased 20% for the full year and 32% in the fourth quarter with the average age of our new owner continuing to trend younger.

Millennials sales represented 22% of new order sales in 2019.

Michael Brown: Millennial sales represented 22% of new owner sales in 2019. Our success in Blue Thread sales, combined with our growing appeal to millennial travelers, demonstrates we are building a strong foundation of the right owners for our long-term growth. Other notable achievements last year include the launch of a new Salesforce-powered CRM tool, the relaunch of our Club Wyndham and WorldMark Vacation Club brands, the completion of $1 billion in securitizations, all the while delivering on our financial commitments, hitting our loan loss provision target, and most importantly, delivering more than 8 million vacations for our owners and members. For Q4, we reported adjusted EPS of $1.58, above our guidance of $1.49 to $1.57.

Our success in Blue threat affinity sales combined with our growing appeal to middle and two millennial travelers demonstrates we are building a strong foundation the right owners for a long term growth.

Other notable achievements last year include the launch of a new Salesforce powered CRM tool the relaunch of our club Wyndham and World Mark Vacation club brands, the completion of $1 billion in Securitizations.

All the while delivering on our financial commitments getting our loan loss provision target and most importantly, delivering more than 8 million vacations for owners and members.

For the fourth quarter, we reported adjusted EPS of $1.58 cents above our guidance of $1.49 cents to $1.57 cents.

Adjusted EBITDA was $265 million, 10% higher year over year with margins nearly 200 basis points higher over the prior year at 27%.

Michael Brown: Adjusted EBITDA was $265 million, 10% higher year-over-year, with margins nearly 200 basis points higher over the prior year at 27%. Looking ahead to 2020, I want to share some insight about our strategy for Wyndham Destinations. First, our exchange business. It continues to be reenergized under its new leadership, which is squarely focused on top-line growth and product enhancements within the core exchange business, as well as new lines of business resulting from the acquisition of ARN. We are evolving the business into an integrated consumer and B2B travel services platform, offering more solutions to RCI members and affiliates. To reposition this business into a more holistic travel platform, we are working on a new overarching brand that fully captures this vision. We look forward to sharing more details on our Q1 call.

Looking ahead to 2020 I want to share some insight about our strategy for Wyndham destination.

First our exchange business. It continues to be Reenergize under its new leadership, which is squarely focused on topline growth and product enhancements within the core exchange business as well as new lines of business, resulting from the acquisition of they are in.

We are evolving the business into an integrated consumer and BTB travel services platform offer more solutions to our see iden members and affiliates.

The repositioning this business into a more holistic travel platform, we're working on a new overarching brand that fully captures this vision, we look forward to share more details on our first quarter call.

The next area, where where we are investing time and energy. This year is through our technology and digital efforts. This includes a multi prong approach that begins with the consumer we're improving all of our digital interfaces and making it easier for owners to search and booked vacation.

Michael Brown: The next area where we, where we are investing time and energy this year is through our technology and digital efforts. This includes a multipronged approach that begins with the consumer. We are improving all of our digital interfaces and making it easier for our owners to search and book vacations. Our mobile-first approach will make it easier to engage with owners and prospects anytime, anywhere. We are delivering faster, easier, and improved search functionality by adding resort recommendations and, eventually, individual owner personalization. The new booking experience is already having an impact and was one of the drivers in 2019 that delivered 43,000 incremental owner arrivals. We are using technology to enhance our sales and marketing processes. Our new CRM system supports more efficient tour generation and gathers data for improved remarketing and prospect analysis.

Our mobile first approach will make it easier to engage with owners and prospects anytime anywhere.

We are delivering faster easier and improved search functionality by adding resort recommendations and eventually individual owner personalization.

The new booking experience is already having an impact in was one of the drivers in 2019 that delivered 43000 incremental owner arrival.

We are using technology to enhance our sales and marketing processes, our new CRM system supports more efficient towards generation and gathers data for improved remarketing and prospect analysis.

We are using a suite of digital media tools to count on negative messaging from exit companies. Our team is cultivating positive social sentiment to reclaim the narrative drive engagement in target prospects.

Michael Brown: We are using a suite of digital media tools to counter negative messaging from exit companies. Our team is cultivating positive social sentiment to reclaim the narrative, drive engagement, and target prospects. We are building on the foundation as announced last year, and believe Wyndham Destinations is leading the way in the timeshare space to provide end-to-end tour package sales online. Since our launch in June, our digital team has been able to target our audience more efficiently, and the early results have been positive. Let me transition to our continued delivery of great resorts and great destinations for our owners and members. In 2020, we have a number of resort openings or expanding across our brand portfolio. Most notably, we are opening our new WorldMark Moab, Utah destination, which is in the National Parks Corridor.

Also we are building on the foundation as announced last year and believe Wyndham destination is leading the way in the timeshare space to provide into in tour package sales online.

Since our launch in June our digital team has been able to target our audience more efficiently and then the early results have been positive.

Let me can you let me transition to our continued delivery of great resorts in great destinations for owners a members in 2020, we have a number of resort openings or expanding across our brand portfolio.

Most notably we are opening our new world Mark Moab, Utah destination, which is in the National Parks corridor.

We will expand or reopened two resorts in Saint Thomas The club Wyndham line pre Beach and club Wyndham Lesion Beach resorts.

Michael Brown: We will expand or reopen 2 resorts in St. Thomas, the Club Wyndham Lime Tree Beach and Club Wyndham Elysian Beach resorts. Additionally, we are expanding the dual-branded WorldMark and Club Wyndham Kingstown Reef in Orlando. To conclude my remarks, I would like to reinforce 3 major takeaways from our recent performance. First, we are making the investments in product, in digital technology, and in our marketing channels like Blue Thread, to ensure that over the next 10 years, our strategy will continue to be one of steady growth, industry-leading margins, strong return on invested capital, and consistent generation of free cash flow. Second, our customer engagement initiatives are paying dividends, as evidenced by our 43,000 incremental owner arrivals.

Additionally, we are expanding the dual branded world, Mark and club Wyndham Kinks down reef and Orlando.

To conclude my remarks, I would like to reinforce three major takeaways from our recent performance.

First we are making the investments in product and digital technology, and then our marketing channels like blue thread to ensure that over the next 10 years. Our strategy will continue to be one a steady growth industry, leading margins strong return on invested capital and consistent generation of free cash flow.

Second our customer engagement initiatives are paying dividends as evidenced by our 43000 incremental owner arrivals and third we outperformed our expectations on free cash flow by executing on our underlying business and by optimizing our balance sheet, demonstrating once again, our commitment to returning capital to shareholders.

Michael Brown: Third, we outperformed our expectations on free cash flow by executing on our underlying business and by optimizing our balance sheet, demonstrating once again our commitment to returning capital to shareholders. With that, I would like to hand the call over to Mike Hug. Mike?

With that I would like to hand, the call over to Mike Hug Mike.

Mike Hug: Thank you, Michael, and good morning, everyone. Today, I'd like to discuss our Q4 results and introduce our 2020 outlook. My comments will be primarily focused on our adjusted results and year-over-year metrics. Our Q4 Adjusted EBITDA was $265 million, an increase of 10% over the prior year, and adjusted diluted EPS was $1.58, an increase of 24%. Q4 gross VOI sales increased 3% to $582 million, with a 9% increase in tours and a 5% decline in VPG. VPG was heavily impacted by mix, with very strong new owner tour growth of 14% in the quarter. Adjusted EBITDA for the vacation ownership segment increased 10% in the Q4 to $222 million.

Michael Hug: Thank you, Michael, and good morning, everyone. Today, I'd like to discuss our Q4 results and introduce our 2020 outlook. My comments will be primarily focused on our adjusted results and year-over-year metrics. Our Q4 Adjusted EBITDA was $265 million, an increase of 10% over the prior year, and adjusted diluted EPS was $1.58, an increase of 24%. Q4 gross VOI sales increased 3% to $582 million, with a 9% increase in tours and a 5% decline in VPG. VPG was heavily impacted by mix, with very strong new owner tour growth of 14% in the quarter. Adjusted EBITDA for the vacation ownership segment increased 10% in the Q4 to $222 million.

Thank you Michael and good morning, everyone today, I'd like to discuss our fourth quarter results and introduce or 2020 outlet.

My comments will be primarily focused on our adjusted results in year over year metrics.

Our fourth quarter, adjusted EBITDA was $265 million, an increase of 10% over the prior year.

Adjusted diluted EPS was $1.58 cents, an increase of 24%.

Fourth quarter gross Pos sales increased 3% to $580 million, but the 9% increase in tours and a 5% decline in VPG.

VPG was heavily impacted by mix with very strong nurture growth of 14% in the quarter.

Adjusted EBITDA for the vacation ownership segment increased 10% in fourth quarter to $222 million.

Revenue growth of 5% in combination with lower product costs as well as large in a cost drove the year over year improvement.

Mike Hug: Revenue growth of 5% in combination with lower product cost as well as lower G&A costs drove the year-over-year improvement. Offsetting the EBITDA increase were higher sales and marketing costs due to the strong new owner tour growth. Turning to the provision for loan loss as a percentage of gross VOI sales, the provision again improved to 18.6% from 20.3% in Q3 of this year, and 19.3% in Q4 of last year. For the full year, the provision was 20.6%, consistent with our expectation that it'd be comparable to where it was in the prior year. In our vacation exchange segment, Q4 revenue decreased 5% as a result of the sale of North American vacation rentals, slightly offset by the inclusion of ARN.

Michael Hug: Revenue growth of 5% in combination with lower product cost as well as lower G&A costs drove the year-over-year improvement. Offsetting the EBITDA increase were higher sales and marketing costs due to the strong new owner tour growth. Turning to the provision for loan loss as a percentage of gross VOI sales, the provision again improved to 18.6% from 20.3% in Q3 of this year, and 19.3% in Q4 of last year. For the full year, the provision was 20.6%, consistent with our expectation that it'd be comparable to where it was in the prior year. In our vacation exchange segment, Q4 revenue decreased 5% as a result of the sale of North American vacation rentals, slightly offset by the inclusion of ARN.

I'll send EBITDA increase were higher sales and borrowing costs due to the strong new owner to growth.

Turning to the provision for loan loss as a percentage of gross realized sales the provision again improved to 18.6% from 20.3% in the third quarter this year and 19.3% in the fourth quarter of last year for the full year. The provision was 20.6% consistent with our expectation that'd be.

Comparable to where it was.

In the prior year.

And our vacation exchange segment fourth quarter revenue decreased 5%.

As a result of the sale of North American vacation rentals slightly offset by the inclusion of they are in.

Excluding the impact of the two transactions revenue increased 3%.

Mike Hug: Excluding the impact of the two transactions, revenue increased 3%. Additionally, revenue was driven by a 1% increase in the average number of members and a 1% increase in revenue per member. Adjusted EBITDA in the segment increased 10% over the prior year to $55 million. Exchange margins benefited from the sale of Vacation Rentals and the acquisition of ARN, as well as continued cost control. Our adjusted free cash flow in 2019 was $617 million, compared to $580 million in 2018. The increase was due to higher net income and cash that we received from the sale of inventory, which was not in our short-term sales plan, thereby allowing us to accelerate the receipt of cash.

Michael Hug: Excluding the impact of the two transactions, revenue increased 3%. Additionally, revenue was driven by a 1% increase in the average number of members and a 1% increase in revenue per member. Adjusted EBITDA in the segment increased 10% over the prior year to $55 million. Exchange margins benefited from the sale of Vacation Rentals and the acquisition of ARN, as well as continued cost control. Our adjusted free cash flow in 2019 was $617 million, compared to $580 million in 2018. The increase was due to higher net income and cash that we received from the sale of inventory, which was not in our short-term sales plan, thereby allowing us to accelerate the receipt of cash.

Additionally, revenue was driven by 1% increase in the average number of members and a 1% increase in revenue per member.

Adjusted EBITDA in the segment increased 10% over the prior year to $55 million.

Exchange margins may offended from the sale of vacation rentals in the acquisition of Ariane as was continued cost control.

Our adjusted free cash flow in 2019 was $617 million compared to 580 million in 2018.

The increase was due to higher net income and cash that we received from the sale of inventory, which was not in our short term sales plan, thereby allowing us to accelerate the receipt of cash.

Turning to our balance sheet as of December 30, Onest, we had $355 million of cash and cash equivalents with corporate debt at $3 billion, which excludes $2.5 billion of nonrecourse debt related to our securitize receivables.

Mike Hug: Turning to our balance sheet as of 31 December 2019, we had $355 million of cash and cash equivalents, with corporate debt at $3 billion, which excludes $2.5 billion of non-recourse debt related to our securitized receivables. Our net leverage at the end of 2019 was 2.7x, which improved from 2.9x at the end of Q3 and 2.8x at the end of 2018. Our leverage is also comfortably within our targeted range of 2.25x to 3x.

Michael Hug: Turning to our balance sheet as of 31 December 2019, we had $355 million of cash and cash equivalents, with corporate debt at $3 billion, which excludes $2.5 billion of non-recourse debt related to our securitized receivables. Our net leverage at the end of 2019 was 2.7x, which improved from 2.9x at the end of Q3 and 2.8x at the end of 2018. Our leverage is also comfortably within our targeted range of 2.25x to 3x.

Our net leverage at the end of 2019 was 2.7 times, which improved from 2.9 times at the end of the third quarter and 2.8 times at the end of 2018.

Our leverage is also comfortably within our targeted range of 2.25 to three times.

As it relates to capital allocation, we announced an 11% increase in our quarterly dividend in 2020 to 50 cents from 45 cents per share.

Mike Hug: As it relates to capital allocation, we announced an 11% increase in our quarterly dividend in 2020 to $0.50 from $0.45 per share, beginning with the dividend that is expected to be declared in the Q1 of 2020. We bought back $125 million of stock in the Q4 at a weighted average price of $47.36 per share, for a total of 2.6 million shares. Now let me turn to our outlook, which excludes any potential impact from the coronavirus and uses year-end foreign exchange rates.

Michael Hug: As it relates to capital allocation, we announced an 11% increase in our quarterly dividend in 2020 to $0.50 from $0.45 per share, beginning with the dividend that is expected to be declared in the Q1 of 2020. We bought back $125 million of stock in the Q4 at a weighted average price of $47.36 per share, for a total of 2.6 million shares. Now let me turn to our outlook, which excludes any potential impact from the coronavirus and uses year-end foreign exchange rates.

Again, but the dividend that is expected to be declared in the first quarter of 2020.

We bought back $125 million the stock in the fourth quarter at a weighted average price of $47 at 36 cents per share for a total of 2.6 million shares.

Now, let me turn trial that which excludes any potential impact from the Corona virus and uses year end foreign exchange rates for the full year 2020, we anticipate adjusted EBITDA to be in the range of 1.03 billion to $1.05 billion and we expect 2020 earnings per share to range from $5 in 90 cents.

Mike Hug: For the full year 2020, we anticipate Adjusted EBITDA to be in the range of $1.03 to 1.05 billion, and we expect 2020 earnings per share to range from $5.90 to 6.10. As a reminder, our outlook for EPS is based on a dilute share count of 89 million shares, which assumes no further share repurchases after 31 December 2019.

Michael Hug: For the full year 2020, we anticipate Adjusted EBITDA to be in the range of $1.03 to 1.05 billion, and we expect 2020 earnings per share to range from $5.90 to 6.10. As a reminder, our outlook for EPS is based on a dilute share count of 89 million shares, which assumes no further share repurchases after 31 December 2019.

To $6 in 10 cents.

As a reminder, our outlook for Ipass is based on diluted share count of 89 million shares which assumes no further share repurchases. After December 30, Onest 2019.

In terms of total company revenue in 2020, we expect it to be flat up 2%, which includes a full year. They are in and excludes the rentals business.

Michael Brown: In terms of total company revenue in 2020, we expect it to be flat to up 2%, which includes a full year of ARN and excludes the rentals business. It also includes an increase of $160 million in fee-for-service sales, excluding both transactions and also adjusting for the increase in mix of fee-for-service sales. Comparable revenue growth over 2019 is 5% to 7%. With respect to our key drivers for the full year, we expect tours to increase 3% to 5% and VPG to be up 1% to 2%. We expect gross VOI sales growth of 4% to 6%. Our 2020 provision is expected to be around 20% of gross VOI sales, net of fee-for-service sales.

It also includes an increase of $160 million in fee for service sales.

Excluding both transactions and also adjusting for the increase in mix a fee for service sales comparable revenue growth over 2019, 5% to 7%.

With respect to our key drivers for the full year, we expect tourist increased 3% to 5% and BPG to be up once 2%.

We expect gross feel I sales growth of 46%.

Our 2020 provision is expected to be around 20% of gross realized sales net of fee for service sales.

We anticipate that.

Michael Brown: We anticipate that the provision as a percentage of gross VOI sales will follow a pattern similar to 2019. It will be higher in the first half of 2020, particularly in Q1. For the exchange business, we believe average exchange members will be flat to up 1% and exchange revenue per member will be flat to up 2%. For Q1 2020, we expect adjusted diluted EPS to range from $1.00 to $1.06. We expect Q1 gross VOI sales growth to be in the low single digits due to tough VPG comps in the prior year. In addition, product costs will be approximately 100 basis points higher in Q1 due to higher cost inventory being sold by the WorldMark brand.

Vision as a percentage of gross sales will fall a pattern similar to 2019.

We'll be higher in the first half of 2020, particularly in the first quarter.

For the exchange business, we believe average exchange members, we flat to up 1% and exchange revenue per member will be flat to up 2%.

For the first quarter of 2020, we expect adjusted diluted EPS range from one dollar to one darn six cents.

We expect first quarter gross VOI sales growth to be in the low single digits due to tough VPG comps in the prior year.

In addition product cost will be approximately 100 basis points higher in the first quarter due to higher cost inventory being sold by the World <unk> brand.

As such we expect adjusted EBITDA in the first quarter to be comparable to the prior year.

Michael Brown: As such, we expect Adjusted EBITDA in Q1 to be comparable to the prior year. This is reflected in our full year guidance. Our outlook for 2020 adjusted free cash flow is $560 to $580 million, representing approximately 55% conversion from Adjusted EBITDA. To conclude, we are pleased with our performance during Q4, our outlook for the full year, and our continuing strong free cash flow. With that, we'd like to turn the call back to Catherine and open it up for questions.

This is reflected in our full year guidance.

Our outlook for 2020, adjusted free cash flow is $560 million to $580 million, representing approximately 55% conversion from adjusted EBITDA.

To conclude we're pleased with our performance during the fourth quarter our outlook for the full year and are continuing strong free cash flow.

With that we'd like to turn the call back to Kathryn and open it up for questions.

As a reminder, if you would like to ask a question today. Please press star one on your Touchtone telephone keypad, we do ask that you limit yourself to one question and one follow up today and we'll take our first question from Patrick Shoals with Suntrust. Please go ahead.

Operator: As a reminder, if you would like to ask a question today, please press * and one on your touchtone telephone keypad. We do ask that you limit yourself to one question and one follow-up today. We'll take our first question from Patrick Schulz with SunTrust. Please go ahead.

Hi, good.

[Analyst] (SunTrust): Hi, good. I'm wondering if you could com- there, there have been a number of lawsuits filed against attorney generals, and I'm wondering if you could comment on that. You know, how you see that progressing, impacting your business. Secondly, I noticed on your guidance, your exchange, and revenue per member going up, materially. I'm wondering if M&A or what else might be impacting that. Lastly, it'd be remiss if I didn't ask a question about the virus, but you know, I understand it's, you know, the Asian customer is very minuscule.

Patrick Scholes: Hi, good. I'm wondering if you could com- there, there have been a number of lawsuits filed against attorney generals, and I'm wondering if you could comment on that. You know, how you see that progressing, impacting your business. Secondly, I noticed on your guidance, your exchange, and revenue per member going up, materially. I'm wondering if M&A or what else might be impacting that. Lastly, it'd be remiss if I didn't ask a question about the virus, but you know, I understand it's, you know, the Asian customer is very minuscule.

[music].

I Wonder if you could come there had been a number of lawsuits.

Filed against Attorney generals and I Wonder if you could comment on that you know how you see that progressing impacting your business.

Secondly, I noticed your exchange on your guidance your exchange.

And revenue per member going up or a sick.

Materially I'm wondering if M&A or what else might be impacting that and then lastly, I'd be remiss if I didn't ask a question about the virus, but I I understand it's the Asian customer is very minuscule, but could it pos be possible that it might be a benefit to you folks like after.

[Analyst] (SunTrust): You know, could it be possible that it might be a benefit to you folks, like after 9/11, when, when, travelers, you know, stayed domestic and, you know, continued their travels via car, which I believe, you know, many of your customers, do already? Thank you.

Patrick Scholes: You know, could it be possible that it might be a benefit to you folks, like after 9/11, when, when, travelers, you know, stayed domestic and, you know, continued their travels via car, which I believe, you know, many of your customers, do already? Thank you.

Our September 11th win win travelers stayed domestic and continued their travelled by a car, which I believe you know many your customers do already thank you.

Thank you thank you Patrick and ER.

Michael Brown: Thank you. Thank you, Patrick, good morning. Let me try to cover the two within the coronavirus and the actions by the individual attorneys general by state. Then I'll hand it over to Mike to handle the revenue per member. As it relates to the coronavirus, I think we're all in a wait-and-see mode. A lot changed over the weekend as we saw it begin to spread and really try to quantify where the impacts can be. Let me just first reiterate again, our total EBITDA for the company is just under 10% internationally, and that's divided between Europe and Latin America, Asia, and the South Pacific, being Australia and New Zealand. We're in a wait-and-see mode in the sense of where it spreads and potential impact.

Good morning, let me try to cover the two within the the krona virus and and the actions by the individual attorneys general by State and then I'll hand, it over to Mike to handle the revenue per member as it relates to the <unk> Corona virus I think we're all in a wait and see mode a lot changed over the weekend as we saw.

It begin to spread it really try to quantify where the impacts can be let me just first reiterate again, our total EBITDA for the company is less just just under 10% internationally and that's divided between Europe, and Latin America, Asia, and and the South Pacific being Austria.

In New Zealand.

We're in a wait and see mode in the sense of where it spreads and potential impact 90% of our EBITDA is in the U.S. and and I think you make a good point as it relates to what we saw last or 911.

Michael Brown: 90% of our EBITDA is in the US. I think you make a good point as it relates to what we saw after 9/11. As far as travel trends, the travel trends, basically, people started to move away from long-haul travel and move to more regional travel. You can imagine we're watching our entire business every day and specifically our long-haul destinations like the South Pacific and Hawaii. I can tell you as of yesterday, whether it's bookings or cancellations, we have not seen an impact. That could all change overnight, and we'll see it if it does, but until now, we have not seen any impact to bookings or cancellations in our winter vacation clubs business.

As far as travel trends the travel trends basically people started to move away from long haul travel and move to more regional travel. So you can imagine we're watching our entire business every day and specifically our long haul destinations like the south Pacific and Hawaii.

I can tell you act as of yesterday, whether its bookings or cancellations or we have not seen an impact now that could all change overnight and we'll see it if it does but until now.

We have not seen any impact to bookings or cancellations.

I wouldn't vacation club business the only the only impact we've seen so far is intra Asia travel with our CIO team, but again, it's a relatively small piece of the overall pipe secondly, moving onto actions we've seen from state attorneys general as it relates to exit companies for those who have.

Michael Brown: The only, the only impact we've seen so far is intra-Asia travel with our RCI team, but again, it's a relatively small piece of the overall pie. Secondly, moving on to actions we've seen from state attorneys general as it relates to exit companies. For those who haven't seen, I'd encourage everyone to read the actual complaints, but there have been 2 attorneys, 2 AGs that have gone out and filed complaints against 2 separate exit companies in 2 separate states, which is a follow-up to an additional one in the 3rd state that happened earlier or late last year. For us, there's nothing new there other than the fact that we've, we've known about these type of activities as one of the complaints described, and I'm paraphrasing, every aspect of the process is either false or deceitful.

I'd encourage everyone to read the actual complaints, but there have been to attorneys to agencies that have gone out and filed a complaint against two separate exit companies in two separate states, which is a follow up to an additional one in the third state that happened earlier or late last year.

For us there's nothing new there other than the fact that.

We've we've known about these type of activities as one of the complaints described and I'm paraphrasing.

Every aspect of the process is either false or deceitful, we've been litigating against the company's we've seen have actions that mirror that description.

Michael Brown: We've been litigating against the companies we've seen have actions that mirror that description. Overall, for us, although we know regulatory or state actions will have an impact over time, our focus in the near term and on a macro basis that can most affect our loan loss provision is really around our owner engagement. That's why we're so pleased with our 43,000 incremental arrivals. This affects our business, it affects the industry, but most importantly, we can't lose sight of it. It affects consumers, and basically, the call out in that complaint is that consumers are being harmed, and that's why the state governments have stepped in and created their own actions.

But overall for us, although we know regulatory or state actions will have an impact over time, our focus in the near term and on a macro basis that can most affect our loan loss provision is really around.

Our older engagement and that's why we're so pleased with our 43000 incremental arrivals.

This affects our business it affects the industry, but most importantly, we can't lose sight of it it affects consumers and basically the call out of that complaint is that consumers are being harmed and that's why the state governments have stepped in and and created their own actions will follow it the wheels adjusted.

Michael Brown: We'll follow it, the wheels of justice take time, but we were very pleased and applaud the efforts of each of these states to move. With that, I'll hand it to Mike for revenue per member.

Take time, but we were very pleased that applaud the efforts of of each of these states to move with that I'll hand, it to my thought or revenue per member good morning, Patrick.

Mike Hug: Good morning, Patrick. On the revenue per member, several things that are impacting our guidance for 2020. First of all, as you recall, over the last couple of years, we've added a number of large clubs to the RCI, as RCI affiliates. Sometimes those members have a delay in terms of their booking because they've already booked a vacation with the previous exchange company. In addition, the acquisition of ARN is bringing us additional opportunities to do things to enhance the experience for RCI members, so they're more likely to transact. One example of that would be the Deposit Plus Cash program, where if a member has points that aren't sufficient to acquire a complete vacation, they can pay cash to complete that vacation.

Michael Hug: Good morning, Patrick. On the revenue per member, several things that are impacting our guidance for 2020. First of all, as you recall, over the last couple of years, we've added a number of large clubs to the RCI, as RCI affiliates. Sometimes those members have a delay in terms of their booking because they've already booked a vacation with the previous exchange company. In addition, the acquisition of ARN is bringing us additional opportunities to do things to enhance the experience for RCI members, so they're more likely to transact. One example of that would be the Deposit Plus Cash program, where if a member has points that aren't sufficient to acquire a complete vacation, they can pay cash to complete that vacation.

On the revenue per member several things that are impacting our guidance for 2021st of all as you recall over the last couple of years, we've added a larger number of large clubs to the Archie as RCR affiliates and sometimes those members have a delay in terms of their booking because they've already booked a vacation with that produce exchange company. In addition.

And the acquisition if they are in his bring us additional opportunities to do things to enhance the experience for our C. I remember so they're more likely to transact. One example that would that have that would be the deposit bus cash program, where if a member has points that aren't sufficient to acquire a complete vacation they can pay cash.

To complete that vacation also our and allows us to offer them other destinations in hotels. So they have opportunities now outside of just the timeshare exchange options. They otherwise had in addition, we have some planned for later this year, we'll we'll continue to enhance other product offerings, we had to our consumer so I think it's really.

Mike Hug: ARN allows us to offer them other destinations and hotels, so they have opportunities now outside of just the timeshare exchange options they otherwise had. We have some plans for later this year, where we'll continue to enhance other product offerings we have to our consumers. I think it's really the opportunities we have with ARN to provide additional products to our consumers, and then making sure that we're refreshing the benefits that we offer to some of our upper tier consumers as well.

Michael Hug: ARN allows us to offer them other destinations and hotels, so they have opportunities now outside of just the timeshare exchange options they otherwise had. We have some plans for later this year, where we'll continue to enhance other product offerings we have to our consumers. I think it's really the opportunities we have with ARN to provide additional products to our consumers, and then making sure that we're refreshing the benefits that we offer to some of our upper tier consumers as well.

The opportunities we have with they are into provide additional products to our consumers and making sure that were refreshing the benefits that we offer to some of our aperture consumers as well.

Okay. Thank you very much.

[Analyst] (SunTrust): Okay. Thank you very much.

Patrick Scholes: Okay. Thank you very much.

Michael Brown: Thank you, Patrick.

You Patrick.

Well take our next question from Chris Woronka with Deutsche Bank. Please go ahead.

Operator: We'll take our next question from Chris Woronka with Deutsche Bank. Please go ahead.

Hey, good morning, guys.

[Analyst] (Deutsche Bank): Hey, good morning, guys. Was hoping maybe we could talk a little bit more about the ARN. I know you're anticipating a step up in the revenue and EBITDA contribution in 2020 versus what little time you owned it in 2019. Can you just talk about, you know, what goes into that? Also, you know, maybe longer term, you know, the $10 million, directionally, where can that go as you get everything done that you'd like to do?

Chris Woronka [Senior Analyst: Hey, good morning, guys. Was hoping maybe we could talk a little bit more about the ARN. I know you're anticipating a step up in the revenue and EBITDA contribution in 2020 versus what little time you owned it in 2019. Can you just talk about, you know, what goes into that? Also, you know, maybe longer term, you know, the $10 million, directionally, where can that go as you get everything done that you'd like to do?

I was hoping maybe we could we talk a little bit more about the Lorraine I know you're anticipating a step up in the revenue and EBITDA contribution.

20 versus what little time.

Team can you just talk about what goes into that and also you know maybe longer term.

The 10 million Directionally, where where can that go as you get everything done that you'd like to do.

Okay wouldn't a again, let me, let me start with where I see the business going Chris and then I'll hand, it to Mike for the 10 million I Oh I'm glad you asked the question because this is an area of the business that I'm really excited about even though it's still early days.

Michael Brown: Okay. Well, again, let me start with where I see the business going, Chris, and then I'll hand it to Mike for the $10 million. I'm glad you asked the question because this is an area of the business that I'm really excited about, even though it's still early days. We gave a preview of it in the script, is this is about helping our core exchange business first and foremost, and secondarily, as well, beginning to broaden our ability to gain share of wallet for the overall traveler that may not own timeshare. Let's start with our core business.

I will give a preview of it in the script is this is about helping our core exchange business first and foremost and secondarily as well beginning to broaden our ability to to gain share of wallet for the overall traveler that may not own timeshare.

So let's start with our core business one of the one of the elements that we launched since the acquisition of they are already like I mentioned it in the last call was was points plus cash in this allows an exchange the owner.

Michael Brown: One of the elements that we launched since the acquisition of ARN, and I mentioned it in the last call, was Points Plus Cash. This allows an exchange owner to deposit their week and flex their individual reservation more. Maybe they don't want to use their full points today, want to just add one more night. They can now do that with the technology that ARN has brought to RCI and create far more flexibility for not only the length of stay of individual exchange members, but also the number of destinations that they can travel to.

To deposit there week and flex their individual reservation more maybe they don't want to use their full points do they want to just add one more night. They can now do that with the technology that they are in has brought to our c. I and create far more flexibility for not only the.

Length of stay of individual exchange members, but also the number of destinations that they can travel to as an example, whereas a tangible.

Michael Brown: As an example or as a tangible e-example of how that's impacted us, in January alone, we had 5,000 transactions on Cash Plus or Points Plus Cash, that we would not have had at the same time last year. That's great for our members, and obviously, it's great for our ability to drive transactions. As it relates to outside of the individual exchange owner, the reality is, most people don't own all of their vacation time with timeshare, and there's a great opportunity for ARN and the overall platform to gain more share of wallet through whether it's flights, experiences, adding on to their stays. It's really a chance for RCI to begin broadening its business to grab that share of wallet, and we're starting to see that as well.

Example of how that's impacted in January alone, we had 5000 transactions on cash plus or points plus cash that we would not have had at the same time last year. So that's great for our members and obviously, it's great for our ability to drive transactions.

As it relates to outside of the individual exchange owner.

Reality is you most people don't own all of their vacation time with timeshare and there's a great opportunity for a are in the overall platform to gain more share of wallet through whether its flights experience is adding onto their stays it's really a chance.

For our CIO to begin broadening its business to grab that share of wallet and we've we're starting to see that as well that I'll hand, it to Mike for the question regarding $10 million sure, but when we think about the EBITDA associated with they are in a we have talked about a 10 million dollar number for 2021st of all I think it's important to point out that.

Michael Brown: With that, I'll hand it to Mike for the question regarding $10 million.

Mike Hug: Sure. When, when we think about the EBITDA associated with ARN, we have talked about a $10 million number for 2020. First of all, I think it's important to point out that as we go forward and further integrate ARN into RCI, it's more and more difficult to attribute specific EBITDA to ARN. For example, the example that Mike used with the Deposit Plus Cash. As we do more and more things, the two companies become more integrated. What we ultimately expect from ARN and what it should allow RCI to do, and we've talked about this really since the spin, is, you know, to use the platform we have with 4 million members to get a larger share of their travel wallet and to increase the growth of that overall business.

Michael Hug: Sure. When, when we think about the EBITDA associated with ARN, we have talked about a $10 million number for 2020. First of all, I think it's important to point out that as we go forward and further integrate ARN into RCI, it's more and more difficult to attribute specific EBITDA to ARN. For example, the example that Mike used with the Deposit Plus Cash. As we do more and more things, the two companies become more integrated. What we ultimately expect from ARN and what it should allow RCI to do, and we've talked about this really since the spin, is, you know, to use the platform we have with 4 million members to get a larger share of their travel wallet and to increase the growth of that overall business.

As we go forward and further integrate a are in and Darcy I its more and more difficult to attribute a specific EBITDA to a are in for example, the example, they might use with the deposit plus cash as we do more and more things the two companies become more integrated but what we ultimately expect from a are in and what it should allow us yeah.

To do and we've talked about this really since the spin is you know to use the platform. We have with 4 million members to get a larger share their travel wallet and to increase the growth of that overall business not just a are in but also the growth of about overall RCR business through offering additional services to our 4 million members. So.

Mike Hug: Just ARN, but also the growth of the overall RCI business through offering additional services to our 4 million members. We would expect, you know, basically to see in the out years, higher growth out of RCI as a result of this transaction.

Michael Hug: Just ARN, but also the growth of the overall RCI business through offering additional services to our 4 million members. We would expect, you know, basically to see in the out years, higher growth out of RCI as a result of this transaction.

We would expect you know basically to see in the out years high growth out of our CIO as result of this transaction.

Okay. That's a that's really helpful color and then just just kind of looking at the tour flow.

[Analyst] (Deutsche Bank): Okay, that's, that's really helpful color. Just, just kind of looking at the, the tour flow and VPG guidance for the year, and really kind of, I guess, zooming in on tour flow, how much, how much visibility do you think you have on that? How quickly can you pivot some of your marketing programs if you're, if you're not seeing the right mix of, of owners, that you want? Are you able to make changes intra-year to kind of manage that process, or, or is it a longer term, multi-year kind of thing?

Chris Woronka [Senior Analyst: Okay, that's, that's really helpful color. Just, just kind of looking at the, the tour flow and VPG guidance for the year, and really kind of, I guess, zooming in on tour flow, how much, how much visibility do you think you have on that? How quickly can you pivot some of your marketing programs if you're, if you're not seeing the right mix of, of owners, that you want? Are you able to make changes intra-year to kind of manage that process, or, or is it a longer term, multi-year kind of thing?

Guidance for the year, and really kind of I guess zooming in on tour flow.

Well the visibility do you think you have on that and how quickly can you give it some of your marketing programs, if you're if you're not seeing the ready mix.

Of owners.

Can you are you able to make.

Changes intra year to kind of manage that process or is it a longer term multiyear kind of thing.

Well it is within the year, Chris and and our visibility is becoming clearer every year that when we move from 17 to 18 to 19 and why do I say that.

Michael Brown: Well, it, it is within the year, Chris, and our visibility is becoming clearer every year that we move from 2017 to 2018 to 2019. Why do I say that? The two areas that we can create the most visibility are owner arrivals. We already have good visibility for the first half of this year. That's why, as we mentioned in our commentary, we have, we're seeing positive leisure travel trends, and that shows up on a macro basis on, on arrivals into our key cities, but it also, for us, shows up in bookings. We have a lot of visibility on the owner side, and we're getting more visibility on the Blue Thread because there's a longer lead time for those tours to show.

The two areas that we can create the most visibility our owner arrivals we already have good visibility for the first half of this year.

And that's why as we mentioned in our commentary we have.

We're seeing positive leisure travel trends and that shows up on a macro basis on.

On a.

Arrivals and do our key cities, but it also for US shows up in bookings. So that we have a lot of visibility on the owner side and we're getting more visibility on the blue thread because there's a longer lead time for those tours to show.

Just to give you. An example, a third of our new Warner growth in the last 36 months has been through blue thread. They have a longer lead time, they have a higher BBGI. So those two aspects of our business you will give us more clarity the open marketing, which has traditionally been our bread and butter.

Michael Brown: Just to give you an example, 1/3 of our new owner growth in the last 36 months has been through Blue Thread. They have a longer lead time, they have a higher VPG. Those two aspects of our business do give us more clarity. The open marketing, which has traditionally been our bread and butter, is the one we have less visibility on, and I, I think candidly and transparently, some of our strengths earlier in the year and some of our wobble in late Q3 and early Q4 was around trying to move marketing and push marketing to chase new owner mix. That's our ability to drive tours.

The one we have less visibility on and I think candidly, a and transparently or some of our strings earlier in the year in some of our wobble in late Q3 in early Q4 was around trying to move marketing and push marketing to chase, new order mix and and that's our ability to.

To drive tours, and then if we see something tactically not working we can make changes like we did in the fourth quarter to get performance back to the VPG and toward levels, we expect.

Michael Brown: Then if we see something tactically not working, we can make changes like we did in Q4 to get performance back to the VPG and tour levels we expect.

Okay very helpful. Thanks, guys.

[Analyst] (Deutsche Bank): Okay. Very helpful. Thanks, guys.

Chris Woronka [Senior Analyst: Okay. Very helpful. Thanks, guys.

Chris Thank you.

Michael Brown: Chris, thank you.

Well now go to David Katz with Jefferies. Please go ahead.

Operator: We'll now go to David Katz with Jefferies. Please go ahead.

Hi, good morning, everyone.

[Analyst] (Jefferies): Hi, good morning, everyone.

David Katz: Hi, good morning, everyone.

Michael Brown: Good morning.

[Analyst] (Jefferies): Appreciate the commentary and, and, you know, the context of all the uncertainty, but I wanted to just ask how you're viewing the M&A landscape at this point? You know, obviously, you know, you, you look at everything, everything that's relevant or everything that makes sense, but, you know, where would you consider the boundaries to be in terms of, you know, size, needs, et cetera?

David Katz: Appreciate the commentary and, and, you know, the context of all the uncertainty, but I wanted to just ask how you're viewing the M&A landscape at this point? You know, obviously, you know, you, you look at everything, everything that's relevant or everything that makes sense, but, you know, where would you consider the boundaries to be in terms of, you know, size, needs, et cetera?

Appreciate the commentary and and you know the context of all the uncertainty, but I wanted to just ask how you're viewing the M&A landscape at this point and you know it obviously you look at everything everything that's relevant or everything that make sense about.

You know where would you consider the boundaries to be in terms of.

Hi, guys needs et cetera.

Well I'll take that in and I think you you answered it for me, but I'll add a lot more color too is is on the on the M&A front. We're we're constantly looking at it on both sides of our business think everyone in 2019 was waiting.

Michael Brown: Well, I'll, I'll take that. I think you, you, you answered it for me, but I'll add a lot more color to it. Is on the M&A front, we're constantly looking at it on both sides of our business. I think everyone in 2019 was waiting to hear our pursuit of something as it related to Wyndham Vacation Clubs, and we thought the far more strategic way for us to go in 2019, given where the market was and where we felt we had the most ability to energize our business and energize our bottom line, turned out to be on the RCI side, and we're very pleased with that. To me, the size of that deal should not be an indicator.

To here, our pursuit of something as it related to Wyndham vacation clubs and we thought the the far more strategic way for us to go in 19, given where the market was and where we felt we had the most ability to.

To energize, our our business it energize our bottom line turned out to be.

On the RC I decided we're very pleased with that.

To me the size of that deal should not be an indicator. It was just the rights strategic deal that would drive our strategic objectives. So I would definitely not put boundaries around any M&A.

Michael Brown: It was just the right strategic deal that would drive our strategic objectives. I would definitely not put boundaries around any M&A, except for, you know, as we look at leverage and the strength of our balance sheet, we would want to be responsible and aware of what's going on in the general market. We're looking and have always looked at deal potentials, both in the Wyndham Vacation Club side and on the exchange side. What I would come back and say, though, is we're very pleased with our organic strategy.

Except for you know as we look at leverage in the strength of our balance sheet, we would want to be responsible and aware of what's going on the general market, but we're looking and have always looked at ads deal potentials, both and the Wyndham vacation club side and on.

The exchange side, what I would come back at in say, though is we're very pleased with our organic strategy. We think the our ability over the last 19 months to return capital to shareholders in an efficient manner and and pick up a two strategic deals or make two studies.

Michael Brown: We think our ability over the last, you know, 19 months to return capital to shareholders in an efficient manner and, and pick up 2 strategic deals or make 2 strategic deals along the way, is exactly the right type of work we should be doing, and we'll continue to evaluate everything that's out there in the marketplace.

Deals along the way is exactly the right type of.

Work, we should be doing and we'll continue to evaluate everything that's out there in the marketplace.

[Analyst] (Jefferies): Okay.

David Katz: Okay.

Okay I should let me let me just had one little commentary, which is not necessarily about M&A, but I think it's it's important to broader context. This.

Michael Brown: Actually, let me just add one little commentary, which is not necessarily about M&A, but I think it's important in the broader context is the last decade. I really have think the timeshare space has strengthened because of the consolidation that's happened. When you look across the consolidation network, you saw in 2008, about 1 in 3 timeshares that were sold were by branded hospitality companies. Today, that number is somewhere around 2 out of every 3. I think that is great for the strength of an incredible product, which is timeshare, that creates value to consumers. I think it also bodes extremely well for the long-term viability of the industry.

The last decade I really.

Have have think that timeshare space has strengthened because of the consolidation thats happened.

When you look across the consolidation network you saw in 2008 about one in three Timeshares that were sold were to whereby branded hospitality companies today that number is somewhere around two out of every three and I think that is great for the strength of an incredible product which is timeshare.

That creates value to consumers and I think it also bodes extremely well for the long term viability industry. So I don't think it's a well.

Michael Brown: I, I don't think it's a well, it's a spoken about story, but I think that transition after the last, over the last decade has really benefited consumers. It's created an extremely strong foundation for the industry, and I think it will propel this industry for the next decade.

It's and it's just it's just spoken about story, but I think that transition of after the last over the last decade has really benefiting consumers is created extremely strong foundation for the industry and I think it will propel this industry for the next decade.

I agree if I can sneak in a follow up with just a couple of details at the risk of having Chris Penalized me you made some commentary and there's some change within the business makes about your long term margin.

[Analyst] (Jefferies): I agree. If I can sneak in a follow-up with just a couple of details at the risk of having Chris penalize me. You, you, you made some commentary, and there's some change within the business mix about your long-term margin. You know, Mike, can you give us a little bit of sense of what your long-term, you know, margin target is now given that changing mix? If you have any statistics, given the earlier question and commentary around, you know, driving visitors rather than those that fly, I think that's kind of an important point. Do you know what the percentage is of your visitors who drive versus those that come in some other mode?

David Katz: I agree. If I can sneak in a follow-up with just a couple of details at the risk of having Chris penalize me. You, you, you made some commentary, and there's some change within the business mix about your long-term margin. You know, Mike, can you give us a little bit of sense of what your long-term, you know, margin target is now given that changing mix? If you have any statistics, given the earlier question and commentary around, you know, driving visitors rather than those that fly, I think that's kind of an important point. Do you know what the percentage is of your visitors who drive versus those that come in some other mode?

You know my can you give us a little bit of sense of what your long term.

Margin target is now given that changing mix and if you have any statistics given the earlier question and commentary around.

You know driving visitors <unk>, rather than those that fly I think that's kind of an important point do you know what the percentages of your visitors who drive versus those that come in some other mode.

Well, let me, let me touch on margin in a to be candid I'm, probably going to have to follow up on the the breakdown of fly that drive, but but I will make a quick comment about that and second on margins. We've set our long term objective is to maintain or margins, however, as Mike and I plan through.

Michael Brown: Well, let me touch on margin, and I, to be candid, I'm probably gonna have to follow up on the breakdown of fly to drive, but I will make a quick comment about that in a second. On margins, we've said our long-term objective is to maintain our margins. However, as Mike and I plan through the year and work with our, our senior team here of what the most efficient way to drive our bottom line growth and the most secure way to put ourselves in a position to grow above that, we see there is always a balance between Wyndham Vacation Clubs, RCI, cost management, and margins. You know, we were 200 basis points up in Q4. We think we're gonna drive incremental margin here in 2020.

The year and work with our our senior team here, what the most efficient way to drive our bottom line growth and the most secure way to put ourselves in a position to grow above that.

We see there is always a balance between Wyndham vacation clubs, RC I cost management and margins and we were 200 basis points up in Q4, we think we're going to drive incremental margin here in 2000.

And 20, and what we don't want to become slave to is individual secondary or tertiary metrics that.

Michael Brown: What we don't want to become slave to is individual secondary or tertiary metrics that people are watching and lose the bigger picture, which is an efficient bottom line growth. We see an opportunity. We all know we're 11 to 12 years into a cycle, that maybe the best way to grow is, is a solid top line that, back to Chris's question, is balanced very well now between the exchange business and Wyndham Vacation Clubs and a growing margin. I wouldn't expect it to be materially different, but in the year where we see an opportunity to efficiently grow, that's what we're gonna do, and I think, I think we demonstrated that in 2019.

People are watching and lose the bigger picture, which is an efficient bottom line growth and and we see an opportunity. We all know where 11 to 12 years into a cycle that maybe the best way to grow is is a.

Solid topline that back to Chris Chris is question, that's balance very well now between the exchange business and when the vacation clubs.

And a growing margins, so I wouldn't expect it to be materially different but in the year, where we see an opportunity to efficiently grow that's what we're going to do and I think I think we demonstrated that in 2019 as it relates to the drive fly I will give we will get back to you on what that mix is but what.

Michael Brown: As it relates to the drive, fly, I will give-- we will get back to you on what that mix is, but what we are watching right now is obviously we're watching Hawaii. That's the domestic long-haul destination. Again, as of yesterday, our bookings are up year-on-year. Cancellations, there's been no reflection of cancellations. Again, news could change that overnight, but until now, both our long haul and short haul, or short drive, destinations are highly demanded so far this year.

We are watching right. Now is is obviously, we're watching Hawaii, that's the domestic long haul destination and.

Again as of yesterday, our bookings are up year on year cancellations, there's been no reflection of cancellations.

Again news could change that overnight, but up until now both our long haul in short haul or or short drive.

Destinations are highly demanded so far this year.

Very good thank you.

[Analyst] (Jefferies): Very good. Thank you.

David Katz: Very good. Thank you.

It's David.

Michael Brown: Thanks, David.

Our next question comes from Joe Greff with JP Morgan. Please go ahead.

Operator: Our next question comes from Joe Greff with JP Morgan. Please go ahead.

Good morning, everybody.

[Analyst] (Aiera): Good morning, everybody.

Joseph Greff: Good morning, everybody.

Michael Brown: Morning, Joe.

Turning to.

[Analyst] (Aiera): Michael, earlier in your prepared comments, when you were talking about, you know, some of the strategic things for this year, you touched on your digital efforts and talked about the mobile-first approach. Can you talk about the owner engagement that you've seen since this has been rolled out? How do you measure success or gains from here? I have a couple of small follow-ups.

Joseph Greff: Michael, earlier in your prepared comments, when you were talking about, you know, some of the strategic things for this year, you touched on your digital efforts and talked about the mobile-first approach. Can you talk about the owner engagement that you've seen since this has been rolled out? How do you measure success or gains from here? I have a couple of small follow-ups.

Michael earlier prepared comments, when you're talking about the strategic things for this year you touched on a digital efforts.

And talked about the mobile first approach can you talk about the owner engagement that you've seen.

And rolled out and then how do you measure successor gains from here and then out a couple of small follow up.

Sure well, let's start with the digital and I'm glad you sort of what the customer because we could also touched on the sales and marketing side with the customers were really where I see the the the vast majority of the changes occurring we we've got a project in place now that really is meant to expand owner optionality wouldn't booking.

Michael Brown: Sure. Well, let's start with the digital, and I'm glad you started with the customer because we could also touch on the sales and marketing side. The customer is where, really where I see the, the, the vast majority of, of the changes occurring. We've got a project in place now that really is meant to expand owner optionality when booking a vacation. We were pleased with our booking platform previously, but the new platform that's gonna be rolled out in Q2 internally, and to the consumers via the web, allows greater optionality on second, third, fourth choices if their first choice wouldn't be available. That simply is going to drive incremental bookings online, and we've seen year-on-year increases on in our online bookings.

Vacation, we were pleased with our booking platform previously, but the new platform, that's going to be rolled out in quarter two internally.

And to the consumers via the web allows greater Optionality on second third fourth choices. If their first choice wouldn't be available that that simply is going to drive incremental bookings online and we've seen year on year increases on in our online bookings. Additionally.

Michael Brown: Additionally, we are actually, in a more targeted way, focused on outbound bookings as well. People that, that may have been disengaged for 12 months to 24 months, trying to reactivate them in their ownership. As you can imagine, if you're using your ownership and getting value out of it, you're less likely to have a reason to either go to an exit company or return your week back to us through Ovation. That's the digital side. On the internal management side, there's just a lot of work that we're doing from an inventory management standpoint to open up more inventory available to our owners, and the combination of those two really has resulted in the 43,000 incremental arrivals.

We are actually in a more target away focused on outbound bookings as well people that that may have been disengage for 12 months to 24 months trying to revamp reactivate them in their ownership.

As you can imagine if you're using your ownership and getting value out of it you are less likely to.

Have a reason to either go to an exit company or return your week back to us through through innovation.

So so that's the digital side on the.

On the internal management side, there's just a lot of work that we're doing from an inventory management standpoint to to open up more inventory available to our owners and the combination of those two really has resulted in the 43000 incremental arrivals, we expect that number to be up again, this year and that that combine.

Michael Brown: We expect that number to be up again this year, and that combined with first-year usage are the two metrics we're really following to make sure our owner engagement stays up.

And with first year usage or the two metrics, we were really following to make sure owner engagement stays up.

Got it.

[Analyst] (Aiera): Got it. Then maybe it does tie into this topic. When you think about, you know, the new owner mix target of 40%, do you think because of what you're doing to engage with existing owners and the successes you've had there, that maybe the timing to reach that threshold is pushed out a little bit?

Joseph Greff: Got it. Then maybe it does tie into this topic. When you think about, you know, the new owner mix target of 40%, do you think because of what you're doing to engage with existing owners and the successes you've had there, that maybe the timing to reach that threshold is pushed out a little bit?

And does tie in to a this topic when you think about the new owner <unk> target of 40% you didn't because of what you're doing to engage with existing owners and success you've had there that maybe that the timing to reach that threshold is pushed out a little bit.

Yes, I do Joe and.

Michael Brown: Yes, I do, Joe, and I think there's a lot in this mix. I've said this since we, since we went public in June of 2018. I put a target out there of 45%, and I said if we can get to 47 or 43, it doesn't really matter. Once you get a 4 in front of the number, I believe that that is the right long-term, sustainable growth model for new owner mix. If you look in the marketplace today amongst our public peers, one, one's above us, one's below us in mix. All 3 of our companies are very sound and have a great future ahead of them. I'm not myopically focused on that specific number, but we absolutely are on our way to get above 40%.

I think theres a lot in this mix and I've said this.

Since we since we went public in June of 2000, I put a target out there are 45% and I said it if we can get to 47 or 43. It doesn't really matter. Once you get a four in front of the number I believe that that is the right long term sustainable.

Growth model for new owner mix.

If you look in the marketplace today amongst our public peers, one ones above us ones below us and mix all three of our companies are very sound and have a great future ahead of them. So.

I'm not myopically approach I'm focused on that specific number but we absolutely are on our way to get above 40%, we want to drive it is as as high as we can.

Michael Brown: We want to drive it as, as, as high as we can, but we're not gonna get so tied to a specific number that we don't celebrate and drive what is our core business, which is putting people on vacation, and when they go on vacation, they buy more, and therefore, that is a natural headwind to our new owner max.

But we're not going to get a so tied to a specific number that we don't celebrate and drive.

What is our core business, which is putting people on vacation and when they go on vacation they buy more and therefore that is a natural headwind to our new owner Max.

Right and then on loan loss provision.

[Analyst] (Aiera): Great. Then, on loan loss provision, and what you have, the 20% for this year, I'm presuming that does not include any sort of incremental benefit from, you know, the 2 AGs in Missouri and Washington, engaging in some of the more egregious timeshare exit companies. I'm presuming that's a fair assessment?

Joseph Greff: Great. Then, on loan loss provision, and what you have, the 20% for this year, I'm presuming that does not include any sort of incremental benefit from, you know, the 2 AGs in Missouri and Washington, engaging in some of the more egregious timeshare exit companies. I'm presuming that's a fair assessment?

And what you have that the 20% for this year I'm presuming that does not include any sort of incremental benefit from the two lead Missouri in Washington, and engaging in some of them work region or timeshare company I'm presuming that a fair assessment.

Hi, Good morning, Joe This is Mike out on the provision for 2020 at around 20% you're right. I mean, I think we've talked about the fact that the things that we're doing well they will impact the provision in portfolio quality in a positive way, they're things I will take time that first positive sign we've seen obviously the owner engagement. The addition on arrivals were excited about the.

Mike Hug: Yeah. Good morning, Joe, this is Mike Hug. On the provision for 2020 at around 20%, you're right. I mean, I think we've talked about the fact that the things that we're doing, while they will impact the provision and the portfolio quality in a positive way, they're things that will take time. The first positive sign we've seen, obviously, the owner engagement, the additional owner arrivals. We're excited about the suits that have been filed by the AGs, but we all know that litigation takes time. We'll obviously closely follow those, but we do expect a slow decline in the provision down to, you know, the 16%, 17% that we feel is the long-term rate, which is why we're leaving 2020 at the 20% provision for the full year.

Michael Hug: Yeah. Good morning, Joe, this is Mike Hug. On the provision for 2020 at around 20%, you're right. I mean, I think we've talked about the fact that the things that we're doing, while they will impact the provision and the portfolio quality in a positive way, they're things that will take time. The first positive sign we've seen, obviously, the owner engagement, the additional owner arrivals. We're excited about the suits that have been filed by the AGs, but we all know that litigation takes time. We'll obviously closely follow those, but we do expect a slow decline in the provision down to, you know, the 16%, 17% that we feel is the long-term rate, which is why we're leaving 2020 at the 20% provision for the full year.

The suits the been filed by the Agee's, but we all know that litigation takes time. So we'll obviously closely follow those but but we do expect a slow decline in the provision down to 16, 70%. We feel is the long term rate which is why.

We're leaving 2020 at the 20% provision for the full you're not in other words, though as you exit.

[Analyst] (Aiera): Got it. In other words, as you exit calendar 2020, you would expect that provision to be lower. All things being equal, which I, I know is not easy, but all things being equal, going into 2021, you would expect that provision percentage to be lower?

Joseph Greff: Got it. In other words, as you exit calendar 2020, you would expect that provision to be lower. All things being equal, which I, I know is not easy, but all things being equal, going into 2021, you would expect that provision percentage to be lower?

Calendar 2020, you would expect that provision to be lower.

And all things being equal, which I know that but all things being equal going into 2021 unit that that provision percentage to be lower.

Yes, I mean right. There's no other factors that come into play, but we hope right that the AG actions are effective and then we'll continue to do things on the engagement side. So yes long term, we do expect that the provision will come down.

Mike Hug: Yeah, assuming, right, there, there's no other factors that come into play. We hope, right, that the AG actions are effective, and then we'll continue to do things on the owner engagement side. Yes, long term, we do expect that the provision will come down.

Michael Hug: Yeah, assuming, right, there, there's no other factors that come into play. We hope, right, that the AG actions are effective, and then we'll continue to do things on the owner engagement side. Yes, long term, we do expect that the provision will come down.

Michael Brown: Yeah, Mike, just to add one more comment to that is I also think that now that there are three actions in three separate states, our hope is that other AGs will see it, see the path and realize that this is a widespread issue that's not designated for one company in one state. It needs to be addressed across the board, and I'm hopeful it'll be an encouragement to other state AGs to take action as well.

Joe from just at a one more comment to that is is I also think that.

Now that there are three actions and three separate states. Our hope is that other agee's, we'll see it see the path and realize that.

This is a this is a widespread issue that's not designated for one company in one state it it needs to be addressed across the board and I am hopeful it will be and encouragement to other state agencies to take action as well.

Thank you for your thoughts.

[Analyst] (Aiera): Thank you for your thoughts.

Joseph Greff: Thank you for your thoughts.

Sure. Thank you Joe Thank you.

Mike Hug: Sure. Thank you.

Michael Hug: Sure. Thank you.

Michael Brown: Joe, thank you.

The next question comes from Stephen Grambling with Goldman Sachs. Please go ahead.

Operator: The next question comes from Stephen Grambling with Goldman Sachs. Please go ahead.

Hey, thanks, mainly to related follow ups.

[Analyst] (Goldman Sachs): Hey, thanks. Maybe just two, related follow-ups. How-- You mentioned the younger, the younger cohort growth. Can you just talk to how they engage, similar or different than the older owners? Do you think about them at the same age as we think about both the technology investments you're making and then the ARN benefits? As an potentially related follow-up, you also mentioned broadening your source markets. Can you just remind us of the mix of non-Blue Thread and how that is evolving as we think about cruise, gaming, and other travel industries, or even direct? Thanks.

Stephen Grambling: Hey, thanks. Maybe just two, related follow-ups. How-- You mentioned the younger, the younger cohort growth. Can you just talk to how they engage, similar or different than the older owners? Do you think about them at the same age as we think about both the technology investments you're making and then the ARN benefits? As an potentially related follow-up, you also mentioned broadening your source markets. Can you just remind us of the mix of non-Blue Thread and how that is evolving as we think about cruise, gaming, and other travel industries, or even direct? Thanks.

Mentioned the younger the younger cohorts growth can you just talk to how they engage similar or different than the older owners do you think about them at the same age as we think about both the technology investments, you're making and then they are on benefits and then.

Yeah potentially related follow up you also mentioned broadening your source markets can you just remind us of the mix of nonbelievers thread and how that is evolving as we think about cruise gaming and other traveling industries or even direct thanks.

[noise], Steven Let me, let me start with the younger cohort and then I mean need to come back just to make sure we covered off all the other questions there.

Michael Brown: Stephen, let me, let me start with the younger cohort. Then I may need to come back just to make sure we covered off all the questions there. On the younger cohort, although we talk about millennials and 22% in 2019, across the board, we are seeing a dramatic shift of how people wanna engage us as an organization. The number of times now that people are using social media at the sales table or providing feedback on their experience while they're on site, creating chat communities while on vacation. I just, I just saw one on social media yesterday from an owner who was posting, and owners were saying, I've never been there. Where, where are you?

But on the younger cohort.

Although we talk about millennials and 22% in 2019 across the board we are seeing a dramatic shift of how people want to engage us as an organization.

The the number of times now that people are using social media to sales table or.

Providing feedback on their experience, while they're on site, creating a chat communities while on vacation.

Just I just saw one on social media yesterday from an owner who was posting and owners were saying I've never been there I'd where are you because that looks like a great place to be and and the technology investments that we have.

Michael Brown: Because that looks like a great place to be." The technology investments that we have in this space are really, Yes, they're more engaged with the Millennial traveler, but the reality is, all of our travelers are using more and more our social media. Whether it's on-site check-in, whether it's experience while you're at the resort, whether it's, as I mentioned earlier, your flexibility of booking when, where, and how you book. All of those elements from a customer-facing standpoint are all being digitized and moved to a more nimble and flexible way where they hold the steering wheel, not us.

In this space are really.

Yes, there they they're more.

There there are more engaged with the millennial traveler, but the reality is all of our travelers are using more and more our social media. So whether it's on site check in whether its experience while you're at the resort, whether it's as I mentioned earlier your flexibility of booking win and won't.

Well, when where and how you book all of those elements from a customer facing standpoint are all being digitized and and move to a more nimble and flexible way, where they hold the steering wheel not us.

Michael Brown: Then that ultimately translates to our sales and marketing process, where, you know, we really began for the first time last year, an end-to-end package sale program where, you know, you, you not only book on the web, but you actually fulfill, and you can find yourself at a resort on tour without having ever spoken to a marketing representative. We view that as the next wave of how people are gonna book tours. We've, we've seen success of that in 2019 and some specific consumer trends on how and when they're gonna book online using the digital way. Our investment should be there for the next few years to really make sure we're current on that. Then your next question, Joe, was around... Just remind me.

And then that ultimately translates to our sales and marketing process, where we really began for the first time last year, an end to end a package sale program, where you're not only book on the web, but you actually fulfill and you can find yourself at a resort on on tour.

Or without having ever spoken to a marketing representative and and we view that as the next wave of of how people are going to book tours and we've we've seen success of that in 2019, and and some specific consumer trends on a on how and when they're going to book online using the digital way so.

Our investment should be there for the next few years to really make sure worker and on that and.

And then your next question Joe was around just remind me broadening the tour flow mix I'm just to make sure I understand what you're asking their minimum we think about our tour Foamix. Obviously, we've got the largest percentage of our tour flow is our current owners.

Mike Hug: Broadening the tour flow mix. Just to make sure I understand what you're asking there. I mean, when we think about our tour flow mix, obviously, we've, we've got the largest percentage of our tour flow is our current owners. We continue to see growth in the Blue Thread, where in 2020, we expect the Blue Thread to grow by at least 20% to 25%, similar to what we've seen in the prior years. We will continue to expand the large national relationships we have, whether it's with, you know, companies like Caesars and Six Flags, the companies we've talked about, as well as looking for new opportunities. I think the thing we're most excited about is the continued growth of that Blue Thread. As you guys know, it runs higher VPG.

Michael Hug: Broadening the tour flow mix. Just to make sure I understand what you're asking there. I mean, when we think about our tour flow mix, obviously, we've, we've got the largest percentage of our tour flow is our current owners. We continue to see growth in the Blue Thread, where in 2020, we expect the Blue Thread to grow by at least 20% to 25%, similar to what we've seen in the prior years. We will continue to expand the large national relationships we have, whether it's with, you know, companies like Caesars and Six Flags, the companies we've talked about, as well as looking for new opportunities. I think the thing we're most excited about is the continued growth of that Blue Thread. As you guys know, it runs higher VPG.

Continue to see growth in the Blue thread were in 2020, we expect the blue spread to grow by at least 20% to 25% similar to what we've seen in the prior years and then we will continue to expand the large national relationships, we have whether it's with companies like seizures and six flags that companies, we've talked about as well as looking for new opportunities.

But I think the thing. We're most excited about is the continued growth of that blue threat. As you guys know it runs higher BPG, so I'm back and tuning to be a larger source of our newer generation as a positive in terms of one that's hitting those new owner numbers as well as maintain the margins that we talked about.

Mike Hug: That continuing to be a, a larger source of our new owner generation is a positive in terms of, one, us hitting those new owner numbers as well as maintaining the margins that we've talked about.

Michael Hug: That continuing to be a, a larger source of our new owner generation is a positive in terms of, one, us hitting those new owner numbers as well as maintaining the margins that we've talked about.

Michael Brown: Yeah. Steven, I mentioned this earlier, 1/3 of our new owner growth in the last 3 years has been through the Blue Thread, and it used to represent about 5% of our new owner sales. Now, it's nearly 15%.

And Steve in the.

As.

I mentioned this or a third of our new owner growth in the last three years has been through the blue thread and it used to represent about 5% of our new owner sales now it's it's nearly 15%.

Got it and maybe one other.

[Analyst] (Goldman Sachs): Got it. Maybe 1 other, more financial follow-up. Just can you talk through some of the puts and takes, and perhaps I missed this, on adjusted free cash flow guidance, which I think is expected to be down year-over-year, though adjusted EBITDA is still growing. Is that just securitizations, or are there other CapEx things that are in there that we should be thinking about? Thank you.

Stephen Grambling: Got it. Maybe 1 other, more financial follow-up. Just can you talk through some of the puts and takes, and perhaps I missed this, on adjusted free cash flow guidance, which I think is expected to be down year-over-year, though adjusted EBITDA is still growing. Is that just securitizations, or are there other CapEx things that are in there that we should be thinking about? Thank you.

More financial follow up just can you talk through some of the puts and takes and perhaps I missed this on adjusted free cash flow guidance. So I think is expected be.

In year over year, though adjusted EBITDA is still growing is that just securitizations are there other capex things that are in there that we should be thinking about thank you.

Yeah, you're right. It is some of these securitization timing I think the important thing to note is even though it's down year over year, it's still within that range of 55% to 60% that we talked about and one of the reasons is down year over years, because we were over 60% in 2019 as we look to you know we detailed review of our balance sheet, making sure.

Mike Hug: You're right. It is... Some of it is securitization timing. I think the important thing to note is even though it's down year-over-year, it's still within that range of 55% to 60% that we talked about. One of the reasons it's down year-over-year is because we were over 60% in 2019 as we look to, you know, we detail review our balance sheet, making sure we're doing everything we can to maximize our, our working capital, to look for any sources of cash that we can find. Even though the absolute number is down year-over-year, we are still within our range, and it is driven by the fact that we were over 60% free cash flow to EBITDA conversion in 2018 and 2019.

Michael Hug: You're right. It is... Some of it is securitization timing. I think the important thing to note is even though it's down year-over-year, it's still within that range of 55% to 60% that we talked about. One of the reasons it's down year-over-year is because we were over 60% in 2019 as we look to, you know, we detail review our balance sheet, making sure we're doing everything we can to maximize our, our working capital, to look for any sources of cash that we can find. Even though the absolute number is down year-over-year, we are still within our range, and it is driven by the fact that we were over 60% free cash flow to EBITDA conversion in 2018 and 2019.

Doing everything we can to.

Maximize our working capital to look for new sources of cash that we can find so even though the absolute number is down year over year, we are still within our range and it is driven by the fact that we were over 60% free cash flow to EBITDA conversion in 2018 and 2019, So I would say since the.

Mike Hug: I would say since the spin in, in June, June of 2018, we've done a great job on our free cash flow conversion and are comfortable with the long-term range of 55% to 60%.

Michael Hug: I would say since the spin in, in June, June of 2018, we've done a great job on our free cash flow conversion and are comfortable with the long-term range of 55% to 60%.

Span in June we've done in June of 2018, we've done a great job on our free cash flow conversion and are comfortable with the long term range of 55% to 60%.

Got it helpful. Thanks, so much <unk>.

[Analyst] (Goldman Sachs): Got it. Helpful. Thanks so much.

Stephen Grambling: Got it. Helpful. Thanks so much.

Sure.

Mike Hug: Sure.

Michael Hug: Sure.

Thank you Stephen.

Michael Brown: Thank you, Steven.

And once again that is star and one on your Touchtone telephone keypad for your questions and we'll now go to Brian Dobson with Nomura. Please go ahead.

Operator: Once again, that is * and 1 on your touchtone telephone keypad for your questions. We'll now go to Brian Dobson with Nomura. Please go ahead.

Hi, Good morning. So I was wondering if you could just expand a little bit on online vacation package sales what are the closing rates like on those sales compared to traditional channels and in terms of many vacation bookings for this year, where do they stand in comparison to the same time last year.

Operator: Hi, good morning. I was wondering if you could just expand a little bit on online vacation package sales. What are the closing rates like on those sales compared to your traditional channels? In terms of mini vacation bookings for this year, where do they stand in comparison to the same time last year?

Brian Dobson: Hi, good morning. I was wondering if you could just expand a little bit on online vacation package sales. What are the closing rates like on those sales compared to your traditional channels? In terms of mini vacation bookings for this year, where do they stand in comparison to the same time last year?

Hi, good morning, Brian.

Michael Brown: Good morning, Brian. What we're finding is that the conversion from lead to package sale, it's the conversion's lower than phone telemarketing, but the ability to reach more is a lot higher. In the end, what you're playing toward is that you're generating a lower cost tour to your gallery by attracting a much larger funnel, but accepting that the lead to package sales is lower. Ultimately, when you see those packages arrive to site, the VPGs are almost as high as your Blue Thread tours, and very acceptable from a margin standpoint. It is an area that I would put...

What we're finding is that the conversion from.

Pat from.

Lead to package sale it it's the conversions lower than that of the phone telemarketing, but the ability to reach more is a lot higher so in the and.

What your.

What you're playing toward is that you're generating a lower cost tour to your gallery by attracting a much larger funnel, but accepting that the lead to.

The lead to package sales this lower ultimately when you when you see those packages arrive to cite a the vpgs are are almost as high as youre blue thread doors.

And very acceptable from a from a margin standpoint.

It is an area that I see I would put I would start to think about similar to the blue thread is we began that initiative in 2017.

Michael Brown: I, I would start to think about similar to the Blue Thread, as we began that initiative in 2017. We saw it as a better margin marketing channel and wanted to invest in it and grow it. You've seen the growth in Blue Thread. On the digital side, which I think there's a lot less clear playbook on how that's gonna grow, I would expect, though, that our investment and the growth would be there in that channel. The investment, both from talent inside our organization to financial resources we put behind it, will be there. Because although we think the growth timeline is gonna be slower than, say, the Blue Thread, we do believe that it is a great investment for us going forward to invest in the digital generation of tours.

We saw it as a better margin marketing channel and wanted to invest in it and grow it you've seen the growth in blue thread on the digital side, which I think there's a lot less clear playbook on how that's going to grow I would expect though that our investment and the growth.

I would be there in that channel and the investment both.

From talent inside our organization to financial resources, we put behind it will be there because although we think the growth timeline is going to be slower than say the blue thread. We do believe that is a great investment for us going forward to invest in the digital generation of stores.

Great and then in terms the exchange business a lot of really exciting updates there could you give us any kind of color on the timing of the mobile App introduction is that something we should expect in the back half of this year.

Operator: Great. In terms of the exchange business, a lot of really exciting updates there. Could you give us any kind of color on the timing of the mobile app introduction? Is that something we should expect in the back half of this year?

Brian Dobson: Great. In terms of the exchange business, a lot of really exciting updates there. Could you give us any kind of color on the timing of the mobile app introduction? Is that something we should expect in the back half of this year?

Well, we not only are we going to talk about the mobile app, but we're also going to talk about the overall positioning of our C. I in the next quarter call because.

Michael Brown: Well, we-- not only are we gonna talk about the mobile app, but we're also gonna talk about the overall positioning of, of RCI in the next quarter call, because we said that we were gonna discuss the impact of ARN, and what we've done really in the first six months. We gave you a little bit of a preview in the Q&A here about some of the exciting things happening. We will give you a, a, an idea on the mobile app, on the next call, but yeah, we're looking at later this year, related to it.

We said that we were going to discuss the impact of a our and and what we've done really in the first six months. We gave you a little bit of a preview in the Q when they hear about some of the exciting things happening we will give you an idea in the mobile app.

On the next call, but yes, we're looking at later this year related to it.

Great and finally, just not to beat a dead horse, but on the current of ours have you seen any kind of traffic disruption at your open channel marketing partners.

Operator: Great. Finally, just not to beat a dead horse, but on the coronavirus, have you seen any kind of traffic disruption at your open channel marketing partners, that could lead you to believe that you might, you might see some kind of impact in tour flow later on? Do the open channel marketers, you know, continue to have the same levels of foot traffic?

Brian Dobson: Great. Finally, just not to beat a dead horse, but on the coronavirus, have you seen any kind of traffic disruption at your open channel marketing partners, that could lead you to believe that you might, you might see some kind of impact in tour flow later on? Do the open channel marketers, you know, continue to have the same levels of foot traffic?

That could lead you to believe that you might you might see some kind of impact and tour flow later on or do the open channel marketers.

And you'd have the same levels of foot traffic.

None whatsoever through yesterday.

Michael Brown: None whatsoever, through yesterday. The only impact that we've seen across all of Wyndham Destinations is really the intra-Asia exchange travel. We're obviously mindful of long-haul travel from Asia to the South Pacific, but that's a very, very small piece of our overall mix. We've got our antennas up in a number of different areas to make sure that areas where you might suspect disruption, whether it be cancellations, open market tours, long-haul travel, to see if there are any signs or trends of change.

The only impact that we've seen across all of Wyndham destinations is really the intra Asia exchange travel.

We're obviously mindful of long haul travel from Asia to the South Pacific, but that's a very very small piece of our.

Our overall mix and.

We've got our antennas up in a number of different areas to make sure that areas, where you might suspect disruption whether it be cancellations open market tours long haul traveled to see if there any signs or trends of change.

Michael Brown: Again, the news is daily, and we're staying as updated as everyone else is. Until now, we've not seen any material disruption anywhere in the business other than, as I mentioned, intra-Asia travel, which as I shared with you, is less than 1% of our total EBITDA.

Again, the news is daily and and we're staying is updated as everyone else is but until now we've not seen any material disruption it anywhere in the business other than.

As I mentioned inter Asia travel, which as I shared with you is less than 1% of our to total EBITDA.

Okay excellent thanks very much.

Mike Hug: Okay, excellent. Thanks very much.

Brian Dobson: Okay, excellent. Thanks very much.

Thank you Brian.

Michael Brown: Thank you, Brian.

Well take our final question today from Jared show Jain with Wolfe Research. Please go ahead.

Operator: We'll take our final question today from Jared Shojan with Wolfe Research. Please go ahead.

Jeff Good morning, everyone. Good morning, Thanks for taking my question. So just going back to the new owner sales mix being a little bit lighter in the quarter I think among the reasons you mentioned lower new owner VPG can you just talked about that you've seen with close rates and maybe why it's been a little bit harder to drive some of that new owner gross.

Michael Brown: Jared, good morning.

[Analyst] (Wolfe Research): Hi, good morning, everyone. Good morning. Thanks for taking my question. Just going back to the new owner sales mix being a little bit lighter in the quarter, I think, among the reasons you mentioned, lower new owner VPG.

Jared Shojaian: Hi, good morning, everyone. Good morning. Thanks for taking my question. Just going back to the new owner sales mix being a little bit lighter in the quarter, I think, among the reasons you mentioned, lower new owner VPG.

Michael Brown: That's right.

[Analyst] (Wolfe Research): Can you just talk about what you've seen with close rates and maybe why it's been a little bit harder to drive some of that new owner growth?

Jared Shojaian: Can you just talk about what you've seen with close rates and maybe why it's been a little bit harder to drive some of that new owner growth?

I have absolutely well, let's let's start with [noise].

Michael Brown: Absolutely. Well, let's, let's start with some, some absolute numbers. For the year, our new owner sales were up 2%. For the quarter, they were up 3.5%, and in Q4, our tours on new owners were up 14,000. The reality is, is what I mentioned earlier, is sometimes, and it's, and it's something we need to avoid, is getting myopically focused on a secondary or tertiary KPI that affects how you run the business. As we got to the end of Q3, coming out of the hurricane season, which came over Labor Day, going into Q4, we really wanted to push toward our new owner mix percentage that we had established earlier in the year.

Some absolute numbers for the year, our new owner sales were up 2% for the quarter, they were up 3.5% and in the fourth quarter.

Our tours on new owners were up 14000.

The reality is is what I mentioned earlier is.

Sometimes and its and its a something we need to avoid is getting myopically focused on a secondary or tertiary.

Cape High that affects.

How you run the business and and as we got to the end of the third quarter coming out of the hurricane season, which came over labor day going into the fourth quarter, we really wanted to push toward our new order mix percentage that that we had established earlier in the year.

We opened up some of the open marketing channels, whether it be waves premiums or you know.

Michael Brown: We opened up some of the open marketing channels, whether it be waves, premiums, or, you know, and to generate tours, and we did, as I mentioned, 14,000 incremental tours. They tend to go to the lower performing salespeople, in the end, we made a tactical choice that did not... That underperformed in early Q4. We recognized that back to an earlier question about intra-year and intra quarter changes that you can make, and we changed in the month of November. The net result that we saw in the month of December is we had a record December in VPG and tours. Those VPGs, whether they were new owner or owners, were reflective of our prior year VPGs on 10,000 incremental tours.

And to generate tours, and we did as I mentioned 14000 incremental and incremental tours.

They tend to go to the lower performing salespeople and in in the end Oh, we made a tactical choice that did not.

That underperformed in early Q4, we recognize that back to an earlier question about intra year and intra.

Quarter changes that you can make and we changed in the month of November and the net result that we saw in the month of December is we had a record December and VPG and tours and that those vpgs, whether they were new owner owners were reflective of our prior year VPG.

On 10000 incremental tour so.

Michael Brown: we, we pride ourselves on being transparent about how our business is going and, and not only when things are going well, but when, when we make decisions that, that may not have been the best in an individual month or, or quarter. We had lower VPGs early in Q4 and saw a great recovery in December. As I mentioned, we had a record December on both sides of the business with VPGs back to where they've been at historical levels.

We pride ourselves on being transparent about how our business is going in and not only when things are going well, but when what do we make decisions that that may not have been the best in an individual month or quarter and and we had a we had lower vpgs early in Q4, and so a great recovery.

In December and as I mentioned, we had a record December on both sides of the business with VPG is back to where they've been at historical levels.

Okay.

[Analyst] (Wolfe Research): Okay. Thank you. Mike, you mentioned, you know, the right number for new owner mix is probably in the 40% range. Can you help me understand why that's the right number? Is there a way to look at, I don't know, maybe how much inventory your existing owners own today versus what that's looked like historically? Just trying to figure out, you know, how much upside there is going forward, just from, you know, these, these existing owner sales.

Jared Shojaian: Okay. Thank you. Mike, you mentioned, you know, the right number for new owner mix is probably in the 40% range. Can you help me understand why that's the right number? Is there a way to look at, I don't know, maybe how much inventory your existing owners own today versus what that's looked like historically? Just trying to figure out, you know, how much upside there is going forward, just from, you know, these, these existing owner sales.

Thank you and Mike You mentioned you know the right number for new order mix is probably in the 40% range can you help me understand why that's the right number and is there a way to look at I don't know, maybe how much inventory your existing owners own today versus what that's look like historically just trying to figure out you know how.

Much upside there is going forward just from these existing owner sales.

Well Oh, yeah, that's it's not an exact science and as I mentioned earlier, we have we have public company peers at or above us and below us and I think all three of our businesses are very healthy.

Michael Brown: Well, it, yeah, that's, it's not an exact science, and as I mentioned earlier, we have, we have public company peers that are above us and below us, and I think all three of our businesses are very healthy. For 40%, when you look at transactions, that actually translates to roughly 50%, and 50% transactions between owners and new owners, because new owners have a lower transaction amount. In the end, what we know is that someone that buys today will spend another, you know, $2.60 over their lifetime. As a result of that, we know that the proper investment in the future is that, we should be having around 40%.

Fourth 40% when you look at transactions that actually translates to roughly 50% and 50% transactions between owners in new owners, because new owners have a lower transaction amount any and what we know is that someone that buys today, we'll spend another.

You know $2.60 over their lifetime and as a result of that.

We know that the proper investment in the future is that we should be having around 40% wind Wyndham vacation.

Michael Brown: Wyndham, Wyndham, vacation ownership ran in the low 30s for a period of time and did very well and was very sustainable for a period of time. Over the long haul, and I mean 10 years, 15 years, a nice, consistent place to be is 40%. If there are years that you can drive it up to 45, that's absolutely great. If there are years that it's better to be at 35, nothing falls apart or nothing really changes in your business when you go up and down in individual years or over 2 years.

Vacation ownership ran in the low thirtys for a period of time and all and did very well in was very sustainable for a period of time, but over the long haul and I mean 10 years 15 years, a nice consistent place to be is 40% and if they're years. It you can drive it up to 45, that's absolutely great if they're years that.

Better to be at 35, nothing falls apart or nothing really changes in your business. When you go up and down an individual years are over two years, but where are owner engagement is and where we want to be at that 40% for the long haul. We think is a nice steady way for our business to grow have very high predictability on the top line.

Michael Brown: Where our owner engagement is and where we wanna be at that 40% for the long haul, we think is a nice, steady way for our business to grow, have very high predictability on the top-line, and allows us to make individual decisions within a year, like we did last year, and like we will do this year, around what's the right top-line growth so that we can ensure and give us the best possible avenue to the long-term guidance of bottom line growth in that 5% range that, that we're projecting out.

And allows us to make individual decisions within a year like we did last year in like we will do this year around what's the right topline growth. So that we can ensure and give us the best possible Avenue to the long term guidance.

Bottom line growth in that 5% range that that we're projecting out.

Okay and on doing well and then Mike was going to add to your other question here Yeah I on the question as far as the you know the upgrade pop on available to us keep in mind that every year regenerating 35 to 40000, new owners and our system. So when we look at the future upgrade pipeline associated with our current owner base very comfortable with the ability to.

[Analyst] (Wolfe Research): Okay, thank you.

Jared Shojaian: Okay, thank you.

Michael Brown: Well, and then Mike was gonna add to your other question here.

Mike Hug: Yeah, on the question as far as the, you know, the upgrade pipeline available to us, keep in mind: Every year, we're generating 35,000 to 40,000 new owners into our system. When we look at the future upgrade pipeline associated with our current owner base, very comfortable with the ability to continue to realize good upgrade business, an upgrade business that will continue to grow. Once again, that new owner channel coming in of 35,000 to 40,000 new owners just continues to support that. We don't see, you know, a situation right now where we have a owner base that is sold out, if you will. We're very confident in the upgrade potential from our current owner base.

Michael Hug: Yeah, on the question as far as the, you know, the upgrade pipeline available to us, keep in mind: Every year, we're generating 35,000 to 40,000 new owners into our system. When we look at the future upgrade pipeline associated with our current owner base, very comfortable with the ability to continue to realize good upgrade business, an upgrade business that will continue to grow. Once again, that new owner channel coming in of 35,000 to 40,000 new owners just continues to support that. We don't see, you know, a situation right now where we have a owner base that is sold out, if you will. We're very confident in the upgrade potential from our current owner base.

Continue to realize a good upgrade business an upgrade business that will continue to grow and once again that new owner channel come in if 35 40000 new owners.

To support that so we don't see situation right now where we have a owner base that sold out if you will we're very confident in.

The upgrade potential from our current owner base.

Okay. Thank you and one more if I may just Mike on the loan portfolio.

[Analyst] (Wolfe Research): Okay. Thank you, and one more, if I may. Just Mike, on the loan portfolio, can you help us think about the provision versus the write-offs? Because the provision was flat year-over-year, I think the write-offs ticked up about 10%. We've seen that really for a few quarters now. Maybe you can just help me understand a little bit better, like, what's driving that, and is the expectation that write-offs will lag the provision, and we should be expecting the write-offs to start ticking down in 2020? Is that the right way to think about it?

Jared Shojaian: Okay. Thank you, and one more, if I may. Just Mike, on the loan portfolio, can you help us think about the provision versus the write-offs? Because the provision was flat year-over-year, I think the write-offs ticked up about 10%. We've seen that really for a few quarters now. Maybe you can just help me understand a little bit better, like, what's driving that, and is the expectation that write-offs will lag the provision, and we should be expecting the write-offs to start ticking down in 2020? Is that the right way to think about it?

Can you help us think about the provision versus the write offs because the provision was flat year over year I think the write offs ticked up about 10% we've seen that really for a few quarters now. So maybe just help me understand a little bit better like what's what's driving that and is the expectation that write offs will lag the provision and we should be expect.

The write offs to start ticking down in 2020 that the right way to think about it.

Yeah, I think we when we think about the write offs in the provision first of all the increase in write offs isn't a surprise. This as we've been providing that a higher rate you can see our reserve as a percentage of the portfolio is as high as it's ever been.

Mike Hug: Yeah, I think when we think about the, the write-offs and the provision, first of all, an increase in write-offs isn't a surprise to us. As we've been providing at a higher rate, you can see our reserve as a percentage of the portfolio is as high as it's ever been. That is in anticipation of the higher level of write-offs. Even with the higher write-offs, we hit our provision number for the full year at around 20.5, 20.6%. Very happy with the progress we're making as it relates to the provision. When we think about 2020 compared to 2019, I think you'll see write-offs for the full year that are pretty much comparable.

Michael Hug: Yeah, I think when we think about the, the write-offs and the provision, first of all, an increase in write-offs isn't a surprise to us. As we've been providing at a higher rate, you can see our reserve as a percentage of the portfolio is as high as it's ever been. That is in anticipation of the higher level of write-offs. Even with the higher write-offs, we hit our provision number for the full year at around 20.5, 20.6%. Very happy with the progress we're making as it relates to the provision. When we think about 2020 compared to 2019, I think you'll see write-offs for the full year that are pretty much comparable.

So that is anticipation of the higher level write offs, even with the higher write offs, we hit our provision number for the full year at around 20.5, 20.6%. So very happy with the progress we're making as it relates to the provision when we think about 2000.

20, compared to 2019, I think you'll see write offs for the full year that are a pretty much comparable 2000 22019, you'll see heavier write offs in the first half of the year, but I think as the year progressive into the second half you'll start to see an improvement in write offs that trend when you're thinking about the provision is also always seen historically.

Mike Hug: 2020, 2019, you'll see heavier write-offs in the first half of the year, but I think as the year progresses into the second half, you'll start to see an improvement in, in the write-offs. That trend, when you think about the provision, is also what we've seen historically, a higher provision the first half of the year, improving the second half of the year. No surprises for us as it relates to the portfolio activity in the Q4.

Michael Hug: 2020, 2019, you'll see heavier write-offs in the first half of the year, but I think as the year progresses into the second half, you'll start to see an improvement in, in the write-offs. That trend, when you think about the provision, is also what we've seen historically, a higher provision the first half of the year, improving the second half of the year. No surprises for us as it relates to the portfolio activity in the Q4.

Hi provisions first half the year, improving the second half a year, but no surprises for us as it relates to the portfolio activity in the fourth quarter.

Okay. Thank you very much.

[Analyst] (Wolfe Research): Okay. Thank you very much.

Jared Shojaian: Okay. Thank you very much.

Thank you that concludes our question and answer period I would now like to turn the call back over to Michael Brown for closing remarks.

Operator: Thank you. That concludes our question and answer period. I would now like to turn the call back over to Michael Brown for closing remarks.

Thank you.

Michael Brown: Thank you. Thank you, and let me close by thanking the team around the world who make our success possible. Together, we're aligned to a clear strategy driven by customer obsession. Across all brands of Wyndham Destinations, we put the world on vacation, delivering a branded hospitality experience that provides travelers great value year after year. Thank you to everyone for joining us today.

Thank you and let me close by thanking the team around the world, who make our success possible together, we're aligned to a clear strategy driven by customer its obsession across all brands when the destinations we put the world on vacation delivering a branded hospitality experience that provides travelers great value year after year.

Thank you to everyone for joining us today.

Thank you that concludes today's fourth quarter and full year 2019, Wyndham destination earnings Conference call. You May now disconnect. Your lines at this time and have a wonderful day.

Operator: Thank you. That concludes today's Q4 and full year 2019 Wyndham Destinations earnings conference call. You may now disconnect your lines at this time, and have a wonderful day.

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