Q1 2020 Earnings Call
Good morning, and welcome to the Hilton Grand Vacations first quarter 2020, <unk> earnings Conference call.
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I would now like to turn the call over to Mark Melnick, Vice President Investor Relations. Please go ahead Sir.
Thank you operator, and welcome to the Hilton Grand Vacations.
2020 earnings call.
Please note that we are prepared slides that are available to download.
And also on the main age or web site.
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We may refer to these slides during the course of or called question and answer session.
As a reminder, or discussion. This morning will include forward looking statements.
Actual results could differ materially from those indicated by these forward looking statements and these statements are effective only as of today.
We undertake no obligation to publicly update or revise these statements.
Especially with some of the factors that could cause actual results to differ we see the risk factor section of our 10-K as well, it's similar sections or 10-Q, which we expect to follow soon after the conclusion those coal and in any other applicable SEC filings.
We will also be afraid to certain non-GAAP financial measures you can find definitions and components of such non-GAAP numbers as what was reconciliations of non-GAAP non-GAAP financial measures discussed today, our earnings release and on our website at Investor study TV Dot com.
As a reminder reported results for both periods in 2020, 2019, what accounting rules under AOCI sick. So.
Which we adopted in 2080.
Under a 56, so six we're required to defer certain revenues and expenses related to sales made in the period. When a project is under construction and then hold off on recognizing those revenues and expenses until a period when construction is completed.
To help you make more meaningful curious appeared comparisons you can find details of our current and historical deferrals and recognitions in table to you want in earnings release.
Also frees up comparability into simplify our discussion say more comments on adjusted EBITDA in a real estate results will hurt results, excluding the net impact of construction <unk> related deferrals and recognition for all the <unk>.
Finally, unless otherwise noted results discussed today referred to first quarter 2020, l. comparisons or accordingly against the first quarter 2019.
In a moment mark weighing our president and Chief Executive Officer will provide highlights from the quarter. In addition to an update of our current operations and company strategy.
Aftermarket Thomas our Chief Financial Officer, Dan Matthews will go further financial details for the quarter market. Dan will then make themselves available for your questions with that let me turn the call over to our President and CEO Mark one Mark.
Good morning, everyone earlier today, we released our first quarter results.
I'd like to start by saying that this call what's kind of feel very different from the once before and that's because one of very different environment.
Well I'll discuss the performance of the business I believe it's also critical to address what we're facing today.
It's clear that the impact of chronic virus has been sudden and significant.
And that this curative disrupt your remains uncertain.
Well, we saw a minimal effect from the virus in January February <unk>.
It should come as no surprise that we saw significant falloff and trends in March.
Effects of the virus spread to the U.S.
Health and travel advisories began to up here in late January February and our major markets, which cascaded into a full locked out itself quarantine orders as we move through March in markets, such as New York.
California, Hawaii in Florida.
We took immediate action to ensure the safety of our team members owners I guess my shutting all of our shale centers.
Spending operations at most of our U.S. resorts.
It was clearly an unprecedented decision.
I never contemplated having to make particularly over the step up just a few short weeks.
Fortunately, we honor just curious with a strong business model engage owner base and solid balance sheet.
And we took further steps to ensure though strikes will carry us through this time of uncertainty.
Today I like to talk about three things first I'll provide more context about what we've done to address the urgent need to the business and our people second.
How we view the industry, it's relative resilience during these times and our position without it.
Lastly, I'll share for strategic priorities, we're committed to and I believe will position us for success today and as we exit these restrictions and enter a new period a recovery.
First let me walk you through some of the Swift actions, we've taken already in mid March we paused or onsite sales operations to protect our staffing gas.
We waived all cancellation pedal lease for our guests who plan to stay with us prior to the other bag and we funded all reservation fees associated with those days.
And we waived online transaction fees for owners, who book a stay by the end of May for travel at 2020 and 21.
We've kept our customer service centers fully operational to answer questions take future bookings continue to provider owners with a high level of service.
Yeah, we they temporary changes to our booking rules and we will continue to evaluate not just them as necessary to ensure owners travel is protected.
At the same time, we took immediate steps to safeguard our future marketing pipeline post recovery.
Our teams, we quickly to transition or call center stuff to work from home and maintain continuity with our <unk> call transfer program, along with the ability to service our customers booking future vacations.
We also built out infrastructure to allow our top sales directors to work remotely enabling them to begin sales to our top clients.
Resort level, we work with our HR ways to keep our properties a pristine condition during the pause.
Prior to the shutdown the rooms in common areas were deep clean and many resorts took advantage of the slowdown to get ahead of plan maintenance projects that will allow us to have more rooms in service in the latter half a year.
We also acted quickly to protect the business with additional steps to defend our cash flow by adjusting our operating expenses and inventories bad.
Nearly 60% of our total operating costs for variable.
Fighting a natural hedge against periods of reduce business activity.
And our helped license fee is almost entirely variable.
To lower our fixed cost, we implemented cost controls, including a pause in our discretionary spending a hiring freeze and a temporary halt to our for a one came dodge.
So just to the suspension of operations, we made it difficult decision to furlough approximately 6100 of our valuable team members, representing nearly 70% of our employee base.
On the inventory side, we identified over $200 million a budget it spend for the year that can be deferred with minimal impact to the plant sales launch schedule for our new projects representing over 50% of the previously budgeted spend over the next three quarters.
As a situation evolves, we'll continue to revisit our planned spend as we balance cash needs to get sick availability of new inventory.
In addition, we also drew down our revolver and warehouse to strengthen our cash position and Dan will speak to those in more detail.
Collectively these actions have significantly reduced our fixed cost burden minimize our cash burn rate and strengthen our balance sheet to enable our business to whether an extended period of slowdown.
Next I'd like to highlight the strength of our sector.
The timeshare industry as both business model and product advantages not shared by other parts of the hospitality industry.
Our business models differentiated by solid foundation of owners that provides a stable source of recurring EBITDA efforts section from fluctuation in asset utilization.
For example, approximately 40% of our segment EBITDA last year was generated from financing and resort and club divisions and 90% of our member fees for this year have already been collected.
Our business is fortunate in that these maintenance fees for all the operational costs of our resorts.
This reduces the fixed asset burden, commonly seen and other areas of hospitality industry.
Further the timeshare product is better positioned to recover from a pandemic.
Owners, often returned to a familiar yet at resort, which truly makes it feel like they're called away from home.
Because of this they know the HCV staff and have a comfort level that is closer to a second home that hotel.
Additionally, our product is structured to allow us to reduce reliance on communal features for example.
Most units include it room kitchens in laundry facilities.
Rather than needing to dine at a common restaurants, our owners and guests come prepared meals for themselves in the comfort and safety of their accommodations.
Within the industry, we're starting from a strong position because of our dog strategy.
Flexible inventory sourcing and the strength of our balance sheet.
We entered the year with nearly $1 billion, a liquidity and we manage the conservative balance sheet with very low leverage and significant cash on hand, which provides a staying power and the ability to protect our customers' interest.
And while we can't be sure when they turn will come or what the path to normalcy will look like once structural advantage that we always enjoyed it HCV strength of our owners.
Our 27 years of positive dog has built a high quality base of owners, who have an elevated level of connection to our breath.
This provides us with historic levels of embedded upgraded sales yet to be materialize.
70% of our owners older intervals outright that made a material financial commitments HCV.
They're leisure travelers and they have both a desire to travel frequently and a prepaid vacation waiting for them. When this disruption passes.
Our just in time and fee for service structure provides us with operational flexibility to tweak our pipeline for shifting needs and market conditions.
We think it's important to not only consider the impact of the pandemic, but also the resulting recession.
While we can't say, what the shape or duration of the recovery will look like.
We believe the best comparison, we have surpassed financial crisis.
As we discussed before HCV demonstrated the strength of our model during and after the last crisis.
And we feel were even a better positioned to weather the storm and rebound now than we were at El eight.
To give a few data points our order base today is two times larger.
Hilton honors loyalty program has grown its members by four times and we're entering with more liquidity.
As we've done in the past, we'll continue to manage our business conservatively through this period of uncertainty and take steps to prepare for return to a new normal as travel restrictions lifted end markets recover.
Finally, I'd like to briefly discuss our four strategic priorities. The first three are focused on winning the fight today, while the fourth is designed to position the business to when as we come out of these travel restrictions and enter a period of recovery.
Well covered every initiative, we have plan, but for your reference you can find them on page two of the materials. We've provided for this call.
The first priority is to safeguard the safety and well being of our team members our owners and guest.
When able will reopen our resorts and sales offices comply fully with local regulations and CDC guidance.
To ensure the highest level cleanliness, we created the HCV clean initiative in alignment with Hilton.
Which we will implement in our properties as we bring them back online.
The second priority is to streamline our spending to maintain our strong liquidity position.
And optimize our inventory assets.
We'll continue to manage variable cost flexing them up and down to meet the demands of our business.
Well carefully monitor inventory demand and leverage our flexible inventory sourcing models to ensure appropriate supply while minimizing the exposure of our balance sheet.
The third priority is to protect our recurring revenue streams and embedded value.
We said before our owners or what are the foundational strengths of our business.
To protect this foundation.
We're ensuring owner points on vacations are not lost during these constrain travel period.
We're also planning to promote the return of travel to orders as restrictions allow through drive to offers and other incentives.
The final priority is to grow demand and implement opportunities to create incremental value.
The two key factors to create demand in our system, our tour flow and inventory.
To generate tour flow and relaunched shales, we will focus on our owners and the over 400000, new buyers we have in our package pipeline with enhanced promotions and marketing offers.
Our new inventory investments should create incremental demand for both orders and upgrades and dog sales as these audiences begin talking again.
We'll also continue to grow our new buyer package pipeline through direct marketing and digital channels with Hilton and other partners to ensure we have a robust pipeline of tours going forward.
And we've developed a new prepaid term product that was originally scheduled to launch in April that we will now plan to pilot as soon as conditions allow.
And finally in 2008 financial crisis, we benefited from being opportunistic with distressed properties will continue to monitor the market and work with our fee for service partners to do the same as opportunities present themselves.
To wrap up clearly this is the time of unprecedented challenges.
We acted quickly and decisively to secure our business and control the things that we can control.
While this disruption is fundamentally different from others. We've seen before we're confident that leisure travel will recover and that timeshare owners will be at the leading edge of that recovery.
And we're using this period of reduce business activity to position, our business and lever our strategic drivers to ensure we emerge as a stronger business ready to engage our owners.
Before I turn it over to Dan.
I want to say, how proud I am a bit efforts of our team who have been working around the clock to adapt to this situation in real Todd and take the necessary steps for us to get ahead of it.
And I want to extend our best wishes to all of those affected.
Either directly or indirectly by this pandemic and thank the frontline workers around the globe, we're saving lives.
Dan.
Thank you Mark good morning, everyone. We have a lot of ground to cover today and given the unique environment format will be different from our prior calls.
After a walk through of our Q1 results I will spend more time talking about our actions to preserve our cash flow. During these unprecedented times followed by additional detailing our liquidity.
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As Mark Melnick mentioned in his introduction to our call. Our Q1 results did include deferrals, specifically 47 million revenue deferrals and net deferrals of 27 million impacting adjusted EBITDA and net income.
References to net income adjusted EBITDA and you'll stay results on this call for current and prior periods will exclude the impact of deferrals and recognition.
We completed accounting for our historical deferred recognition activity can be found on.
An excel format on the financial reporting section of our Investor Relations site.
Let's turn to a quick review of the results for the quarter.
Total first quarter revenue declined $52 million to $398 million, reflecting declines in our real estate and rental and ancillary segment that more than offset the growth in our resort in club and finance businesses.
This decline in revenue was primarily the result of cobot 19, and its global impact and consumer activity.
Q1, adjusted EBITDA came in at $60 million versus 102 million last year. In addition to lost sales in rentals. During the month of March Q1, 2020 was impacted by incremental bad that accrual of $23 million, which I will discuss in few minutes as well as 11 million and onetime payroll related expenses incurred in connection with operational close.
And the refund of 2.2 million in reservation fees for those impacted by resort closures.
Net income was 35 million and dilute diluted earnings per share was 40 cents compared to net income of 55 million diluted earnings per share of 58 cents in the first quarter 2019.
With real estate Q1 contract sales declined 24.2% driven by a reduction in both tours and VPG through the first two months of the quarter tour growth at 6% was tracking in line with our expectations, reflecting gains from both owners and new buyers.
However, as we move through March the impacts of at 19 related disruptions resulted in tours declining 19% for the quarter.
Close rate was up three basis points in the quarter as gains in January and February were partially offset by decline in March I highlighted I'd like to note is that our own or close rate was up every single month of the quarter underscoring both the strength of our owner base and the connection that we that they have with HCV.
Our fee for service mix for the quarter was 53.3%.
On the consumer lending side, our provision for bad debt was $37 million.
I'd like to pause here to talk through the increasing our provision this quarter.
The charge at 37 million can be broken down into effectively two parts first an ordinary course of business bad debt expense of 14 million, which is similar magnitude to the one that we made in the first one of last year.
Second we recorded a charge of an incremental 23 million associated with the potential impact that thing of ours could have on their portfolio.
This has increased our overall, while on the balance sheet to 212 million or 15.9% of the gross financing receivables.
I'd say potential impact because our staff will models require us to make an estimate about the expected performance over portfolio and recognize any potential future default in different period. So as a reminder, provision is based on credit Mali and future expectations of losses. It is not on a loss as an started basis.
As of today, we have less than 60 days of data, indicating how covidien 19 will impact our portfolio with such limited data, we have not seen an increasing their default rates. Today. However, we have seen an increase in delinquency rates over the past quarter from 2.5% at the end of Q4 to 3.2% at the end of Q1 and 3.5% through.
The end of April.
Turning back to real estate expenses product cost were 23.7% of our own contract sales SNG and today was 54.1% of contract sales as a result of de leverage associated with the decline in revenues.
Real estate margin was 25, nine down 63.8% versus last year, driven by the 23 million dollar coal as well as payroll costs associated with operational closures.
Margin percentage was 14%.
And our financing business for first quarter margin was $31 million with the margin percentage of 70.5% first a margin of $28 million in the margin percentage of 68.3% last year.
As I mentioned, our credit trends were stable through the end of the core aided by recent improvements to our collection standards. We have seen an uptick in delinquencies in April and anticipate them to increase in the coming months as a result of the elevated levels of unemployment owing to Soviet 19 Endemics.
Looking at the portfolio balance gross receivables stood at just over $1.3 billion.
Our average down payment year to date is 12.4% or average interest income rate increased to 12.5% from 12.3% last year.
Turning to our resort in club business now was 5.3% for the quarter, which drove a 4.8% increase in revenue to $44 million EBITDA for Q1 was 32 million with margins of 72.7% down 108 basis points versus last year.
The decrease in margin percentage was driven by the refund the reservation fees during the quarter.
Rental and ancillary revenues were $52 million versus 59 million last year due to a combination of lower supply of rooms at the Quinn and lower occupancy levels at the end as the pandemic progressed through the quarter.
Sensors with $2 million higher at 37 million, owing to larger subsidy requirements for newly opened properties.
Our EBITDA was 15 million with margins of 28.8% impacted by de leverage over relatively fixed cost base.
During the gap between segment adjusted EBITDA and total adjusted EBITDA first quarter, Gina decreased $3 million license fees were down 1 million EBITDA from Jvs was up $2 million.
Now I want to spend a few minutes talking to our operations in some of the adjustments that we've made due to the impact of till that 19.
During the course of the last 45 days, we have significantly changed our expense structure to adapt to reduce level business with a focus on preserving our cash flow.
We expect that these cost saving measures, which include furlough and close to 70% of our employees salary reductions for the remaining active employees elimination of all discretionary spend no hiring freeze among others further reduced our cost base by over $100 million.
As business returns you have the ability to about cost in the must methodical manner to maintain their flexibility in what we anticipate will be an uneven recovery bass.
Regarding inventory prior to granola bars outbreak, we plan to spend just under $400 million. This year with the largest spend associated with our new projects Maui the hockey into central.
Given the impact of in 19 has on construction in New York Central will be further delayed and our initial contractual payment will be shifted to 2021.
We have slowed our spend in Maui completely pause our development activity at the hopper as well as Cabo and adjusted the amount of inventory repurchases, we will make this year.
These actions will result in us reducing inventory investment by just under $200 million without having a material impact to acquire plan sales launches that said the hockey now begin sales in the first one of 2021, rather than the back half of 2020 as previously expected.
In the first quarter, we spent $30 million on inventory, which indicates that we've cut over half of our previously planned inventories Vince the balance of the year.
It's important to note that the vast majority of our planned inventory has been pertains to own projects the contractual level of inventory spend for the balance of the or is limited to $26 million. So we have additional flexibility to further adjust our spending as we progress through this year and balance our cash needs against our plan sales launches.
We also took several proactive steps during the quarter to ensure the strength of our balance sheet, we substantially drew down the remainder of a revolving credit facility and raised additional cash by borrowing against receivables collateralized through or warehouse facility.
In 2018, we amended our credit facility and were able to increase our revolver from 200 million to 800 million. This amendment combined with a focus on maintaining relatively low leverage levels have allowed us to be strong financial position.
As the Soviet 19 crisis unfolded as of March 31st our liquidity position consisted of 670 million of unrestricted cash 39 million of availability under our revolving credit facility and 255 million of capacity on the warehouse with regards to our warehouse facility, our existing timeshare receivable collateral would allow for 120 million.
And the remaining capacity of $255 million.
On the debt front, we had corporate debt of one point Threebillion nonrecourse debt of 885 million.
Turning to our credit metrics at the end of Q1 net leverage stood at 1.4 or five times, our interest coverage at into the quarter was 9.56 times. Our nearest debt maturities are the warehouse facility in 2022, the credit facility in November 2023, and our senior notes in December 2024.
Our warehouse facility is a key funding advantage for us providing a cash advance against are pledged collateral at attractive rates.
The facility was set up in the wake of global financial crisis to insulate us from disruptions to the term circuitous Asian markets necessary. We're in a position to borrow another 120 million for 315 million total on the warehouse facility.
Currently our cash position combined with availability on our revolver as well as the warehouse facility provides us with ample liquidity, we have sufficient liquidity even in the event that business remains pause for the next 22 months.
Well, we maintain low leverage ratios and have great access to capital via or warehouse facility.
And the ABS markets, our covenant threshold of nevertheless at levels that are lower than those of our peers.
I've been affiliate 19, we have been active negotiation with their lenders to amend our covenant thresholds to provide more flexibility as we navigate through the crisis. We feel good about the progress we've made in a request and remain very comfortable with our strong liquidity and deliberately conservative leverage positions.
We will now turn the call over to the operator for your questions operator.
Thank you we will now be conducting a question and answer session.
We ask that all callers limit themselves to one question and one follow up if you have additional questions. You may recall, you and those questions will be addressed time permitting.
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One moment, please while we pull for questions.
Thank you. Our first question comes from a line of Jared show game with Wells Wolfe Research. Please proceed with your question.
Hi, Good morning, everyone. Thanks for taking my question and I appreciate all the the coloring commentary here today.
Can you just talk about how you decided the new 15.9% allowance rate is the right number and what's your level of confidence there and then I appreciate the commentary on the delinquencies it doesn't seem like much of an increase so far but it's also only been 45 days since the shutdown. So if you have it maybe a better staff.
It would be what percentage of people are laid on their monthly loan payments right now versus what you might normally see.
Hey, Jared it's Dan good morning, and thanks for the question with regards to the additional bad debt expense that was crude getting to that allowance of 15.9%. It's really tough estimate to make as to your point very limited data.
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It's been less than 60 days. So what we did was we look back to the last shocked that we sell to the portfolio and that dates back to the great recession. We're very cognizant that this crisis is going to be different than the tip of potentially different than that crisis.
But that's the best thing that we had to look to so what we did was we looked at the increase in defaults during that period applied that same increase in default to every single bucket in our static pool and assumed that that that the that impact negatively impacted us for about 15 months so effectively role.
Going out till August of 2021, and then it starts to more normalized and once you do that it.
You are the additional reserve you would need is roughly $23 million now.
The level of delinquencies that we see today.
As you know just north of 3% or also below the level of doing sees that we saw during the great recession. If you will and they were more at the level, 4.2%, which is more in line with what that bad debt expense expects over the course of this period now how comfortable are we without yeah, we have a limited.
Set of data points it could.
Clearly extend longer than a lot and it could clearly extend less than that this is going to be a bit of an evolution process, but given the fact that we have to date you can see that we've assumed a higher do delinquency rate than we're currently seeing.
We're also tying it back to the last major shop that we sell to our portfolio hopefully that's helpful.
Joe This is mark and Oh, just to add to that is as Dan alluded to.
It's just too early still to really get to.
Your arms around this one but we had been he knows you know over the last decade since the financial crisis, we've been originating our loans around 745 to score that pre financial crisis, a we originated around 700, so hopefully that the quality.
Well, obviously the quality doesn't prove that hopefully that quality will hold up and just another point to add on the quality standpoint that we did not take into consideration during the great recession, you know the credit process here as improved materially not only from a FICO score perspective, the back in 2008 2009, we actually did not.
Due credit reporting either.
In place today, so that should help mitigate that to some extent, but that was not taking into consideration when we came up with article.
Thank you that's really helpful and I guess just that the second part of that question have you seen anything unusual in terms of people that not necessarily delinquent because they're not in that 60 day window, but maybe they missed the payment I mean have you seen anything unusual there well I think the best that to tell you. When a this is a bit anecdotal, but when we talk to that.
Portfolio team and we analyze the calls they're coming through the doors. The number of individuals who are calling to cancel something and just completely default and they just want to get out has not increase from Q3 last year Q4 last you last year to today. So that's been a very static number what we have seen is an increasing the number of calls.
Individuals asking for some level of deferment and to date were just over a thousand individuals in aggregate reached out to ask for some level of deferment. So out of the people that have loans with us that just under 2% of the portfolio and some of these calls or individuals who obviously some of the larger banks are allowing.
From its on mortgages. So they're just looking to say hey look they're doing it you should be doing a too and then there's other individuals who are obviously had been directly impacted by covert 19. These are all being handled on a one off basis.
But again, it's less than 2% of or portfolio today.
Oh, Okay. That's really helpful. I appreciate that and then just meant for my second question. What do you think that if I. If I look back to slide five which is really helpful. On liquidity in the cash burn what do you think that 38 million monthly burn looks like when you start to reopen assuming you're at very low volume levels initially and you start to.
Bring back those costs do you think you're still burning cash initially and if so should we assume that any burn is definitely going to be less than that that $38 million.
Look I think it's a great question, it's all how we bring things back we've done we've obviously readjusted the business is something that you'd never ever planned for right. So we've really pulled back that expense quite dramatically and it's all how we come back I mean, there's a scenario where you bring individuals back who are selling packages sooner than you actually upsale open up sales centers. So.
While you would have a cash hopefully neutral standpoint, you would have compression on your margins, but I.
I don't want to get into a level prediction at this point just subsistence were so early into this we you know the 38 million is really trying to be just an example.
We're where we are today for the balance of this crisis, how long can we last.
I, just don't want to get into anything predictive at this point.
Okay. That's helpful. Thank you very much I appreciate it.
Our next question comes from line of Stephen Grambling with Goldman Sachs. Please proceed with your question.
Hi, good morning, Thanks for taking the questions all the details as well as a follow up to two Gerons last question. I know you don't want to be predictive but is there any additional detail you can provide on how you generally you're thinking about are evaluating reopening of the sales centers. How you may be shifting to target existing owners differently and is there a level of.
Contract sales that you would need to get to free cash flow positive.
Yes, Stephen as Mark.
And it was good morning.
Sales centers up work, we've I can say that for the first.
Q3 weeks, 100% Oh focus was.
Powder, we recycle business and Recalibrated, the business and and since then it's all bad about getting prepared and getting ready to reopen it.
And we expect our sales centers will well open and close alignment with our resort openings and.
The two main factors there really is really around.
Around the timing of the government mandates and it also helps people feel up around traveling and so at this point, we can't predict the restrictions when those restrictions are going to be left it but you know as of today.
We expect probably a number of our markets will reopen here towards the latter part of this quarter and rolling into summer and and ER.
So so that's a that's what we're projecting on that at this point, but again, that's a moving target and it could shift a you know anytime so that's what we're seeing as far as which markets.
We started off in a really good position top eight markets last year solve for 300 million.
Visitors. So there is strong inherit a demand and 70%.
Of our markets, our drive to markets, which I think approximately 60% of the U.S. population can reach within a 300 mile drugs.
So up.
So we see each market really recovering on its own timeline and it's going to be based on you know the demand and also the shelter in place will supersede all of those.
You know conditions or when you look at our portfolio. We you kind of categorize it really is urban and resort seemed and resort future or mountain and our expectation is that urban.
Well take longer to recover do really to the density in nature of the urban markets in particular in New York, which has been so heavily impacted.
You know Orlando Vegas up you know.
Yeah, I think the demand is that.
The pent up demand will be there, but it's all driven by.
You know, how we see the theme parks and casinos opening and I can't speak for.
Those companies, but do you know we're following their progress very closely and.
And we know that they're working to get reopened and and again, we're seeing strong pent up demand. We think that are beach locations are Myrtle Beach Hilton head Southern California, our Mount location of the Colorado, and Utah will be the quickest a return to a more normal state.
You know with Ah I think beach is going to be in high demand for the summer and the low density up.
These are these markets and then.
As we look at our fly to markets Hawaiian Barbados.
You know, we're showing really good demand and again, there's less density.
And it abundance of Sunshine in those markets.
As it relates to Hawaii as you know we have a oh, we have that 18% of our products it's in Hawaii.
Again, showing very strong demand on our books right now both from our U.S. and Japanese customer.
Why is perceived as very safe. It I think it has the lowest infection rate per capita in U.S.
But.
So it's very early we still don't understand how distasteful I was going to manage the imbalances, both domestic and international.
And how well the airlines are going to do but I think the airlines are working very hard getting people back on planes. So again, probably a long winded answer, but it's very dynamic situation, it's going to remain very fluid for some time, but we're building a plant plans around all of this season and Ah well be able to reopen in.
<unk> fairly short order once we get the digital wallet.
Thanks, and I guess as a follow up on the demand side I'm, sorry, sorry, I guess, maybe a catch up there, but there's still sneak it in real quick if you want to address it afterwards on slide nine yet if some good statistics on the owner arrivals rental rivals marketing and sampler package arrivals and a year over year is there.
Any color you can get on.
Postponements deferrals or cancellations on those thanks.
Yes, so look again.
When we look at the we look at the data we're really pleased with the trends I think we're about 80% of the levels. We saw at the same time last year and our owners are sitting at about 90%. If you kind of take a snapshot I think it was dot on April 28.
Then really really consistent up you know with what we've seen in previous slowdowns in and I think again indicative of we've talked about this before and competitors said to say you know the ownership position really the prepaid ownership nature of the business really drives that.
That demand however, I think the important thing is is.
Alluded to a minute ago, there's still a lot of uncertainty.
Around market. Its opening are left in all of that but I think is we look at the data. The important thing is the behavior, it's very consistent with what we've seen in the past.
And that consistency gives me a lot of confidence that next year, we'll see a good return of our owners as we get farther along in a recovery.
And then from a cancellation standpoint or from a package standpoint, we BOLI or go to 92% of are.
Those who have cancelled and our package pipeline have read books for a date later out so we've had a relatively small percentage of those cancel it.
And Steve integration.
Second question with regards to adjusted free cash flow I mean, I guess, the best way to look at his I'll just.
Tell you something similar that some of our peers have said.
I assume this pause to state for the remainder of the year.
It's going to an adjusted free cash flow neutral basis is really dependent on the levels inventory spend right. If you if we stick to the contractual level, which I mentioned earlier was $25.6 million.
That coupled with what we've already spent to date, we can easily get to adjusted free cash flow neutral and even if we spend closer to what we've indicated just under 200 million or it would be neutral ish. So to speak. So we're we're in that ballpark hopefully that's helpful. Just from a perspective basis.
That's great. Thanks, so much.
One other thing to add to that you know that the level of inventory spend yeah. We're very cognizant of this we're managing this obviously as everybody else is day to day.
And where you know if we are shuttered for the balance of the year, we're clearly going to make a material decrease in that spend the reason, we're so focused and so cognizant about not just cutting the spend right. Now is we have several large projects.
That were currently invested in Maui coffee Quinn Ocean tower on those projects as we continue to invest in its important to keep in mind, it's north of five and a half billion dollars and future sales value. So that's that's the reason where why we just don't automatically shut everything off it now if we need.
Two we can.
And we will manage that very prudently.
Great. Thanks again.
Our next question comes from the line of Brandt Montour with JP Morgan. Please proceed with your question.
Hey, good morning, everyone. Thanks for taking my questions and I appreciate all the details today.
Quick question on on slide five on the cash burn analysis I just want to I'm just curious what if any assumptions are baked into that.
Regards to sort of recapture of defaulted inventory.
[noise] this from a cash burn perspective, this assumes a very minimal repurchase of defaulted inventory.
And could you guys, sorry, and then could you just sort of Oh, I guess, just we explained to us.
Sort of what what you would be libel for I know you know this is non recourse debt, but but is there a sense that that you would be potentially in the market. Since it is obviously good business a lot of the time to do so.
And sort of what that could look like in the you always part of your forward modeling that you talked about with loan loss provisions yeah. No sure. So the financing cash inflow that you see here takes into consideration the level of defaults that we've discussed.
Earlier it also from a liquidity perspective, when you look at the warehouse availability clearly we already mentioned that the remaining capacity is at 255, what you see here is 120 million the doubt whats draw driving a large part of the Delta is us holding back loans for substitution.
If we were to remain shuttered. So we've we've tried to capture those elements and this cash burn analysis.
Got it that's super helpful. Thank you and then just R&D drive tumors fly to stats, which were which really help I was curious, which I think might be and.
A different way to look at it but how do you how would you sort of quantify.
How much of your sales mix is is drive to what I'm trying to get get out is I think we all kind of maybe agreed that the first segment to come back would be your.
Existing owners that can drive to their market that you could potentially sell upgrades to it and so I'm just curious of what percentage of your current mix is is is that sort of business and then and then just a quick second part of that is do you think you might see a shift toward repeat business as it.
Percentage of your mix.
Brad this marked a yeah.
Our drive to markets.
About 65% of our overall real estate revenue and and I'm sorry, the second part of that question well yeah.
Just curious because you know if you do see a shifts to Pete business, which you know its arguable that it'll be easier to get repeat customers in for tours versus new customers that obviously comes with a higher VPG higher close rate so that would be something for us to consider when we're looking to model forward.
So just curious if you think that that mix will shift towards the top customers. Yeah right. Okay. Yeah, we we're definitely going to lean on our owners you know coming out of this.
And a you know that historically, we run at about 50 50 mix.
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But we're going to leverage our owners coming out of this as you can see there's a fairly strong demand is I talked about a few minutes ago and art in the back half of this year from a booking standpoint, but more importantly will we think that's going to continue.
And to to next year that behavior.
The fact that we've been able to double our owner base in the last 10 years.
And the fact that we've been driving positive Dod we've got a lot of 10 up on materialized embedded value in sales for owners. So so you should expect it that mix is going to shift a I can't give you an exact number but.
60, 40, you know for the next 12 months wouldn't wouldn't surprise me you know as I think our orders will be more confident to travel up you know and get to the prepaid nature of it but but yes. So we will definitely lean heavier on our owners and as you know that's a much more efficient sale.
Excellent. Thanks, guys. Good luck.
[music].
Our next question comes from a line of David Katz with Jefferies. Please proceed with your question.
Oh, hi, or morning ever warm.
You covered a lot in all the questions and so for us I appreciate that so thank you.
With respect to the the construction of inventory I think then so you're sort of cutting that that might have.
Just a follow up on that point when it comes time to ramp that back up again.
What kind of trajectory should we expect to mean is no is there kind of a several months ramp up period to it or can you turn it back on.
At the same.
Speed.
Shut it off.
Yeah, So smart just a so what we've done.
Is weve with Maui forensic sweeps just slowed it down in Maui is a you know were it was a horizontal project what I mean by that its low density its multiple smaller buildings and so we've got as we slowed that down to that will continue moving along.
As it relates to to Hock you, we've we've been able to get all the necessary permits to improve the land. So we've we stopped that project and it's entirely entirety, but we will be able to turn it on in a relatively short period of time it too.
They have to Remobilize because they moved all the equipment off site. So you know that could take a you know 60 90 days to Remobilize.
With Ocean tower up again, because it's a phase project, where we're converting hotel rooms, we just slowed that down in and it will allow you know we can we can ramp that up relatively fast. So you know so I think we have a lot of flexibility there's nothing here.
That we're talking about Cabo for instance.
Most of the renovation was been completed we just decided lets just pause and preserve that cash and and push it into a.
Early next year so.
We have a lot of flexibility and there's nothing that's going to take a long time to get back and going but as you know these projects take a long time to develop and so even when we do we start to hock who.
You know, it's going to take a good couple of years to finish it showed get pushed back our sales original step sales date, which was originally set to be the back half of this year and we're going to push that sales start date to the latter part of 21.
Got it thank you very much and good luck.
As a reminder, if he would like to ask the question Press Star one on your telephone keypad.
Our next question comes from lineup Patrick Shoals with Suntrust. Please proceed with your question.
Hi, good morning, everyone.
You folks are quite possibly the best capitalize the.
Timeshare company out there both public and private.
Private and I'm wondering how are you thinking down the road here opportunities for.
Distressed acquisitions, I think back or the Amar was one I don't know if you might have been Centerbridge you did that but certainly you own it now what a preliminary.
And any thoughts in that regard.
Oh, Yeah, no great question.
And you know is we've been talking about really to over the last couple of years, we have a very robust pipeline of inventory and.
So we're not at this point looking to put any of our capital to work today, but as you.
As you pointed out a you know the last crisis.
Really.
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Put us in a position where we had to go out and seek to third party capital and we were very successful propping up.
And developing as fee for service model in fact, we've done 10 deals to date with really good partners. You mentioned, one centerbridge, we've done a number with Goldman and strand, and Blackstone and and so we think you know that we think there's going to be it in a good amount of dislocation in the market and I think.
We also believe it at the highest and best use for a number these assets will will be timeshare and so we will definitely are going to keep our eyes and ears open and and importantly, we've got great partners and we've been fielding some inbound calls already it's still bit early oh, but.
You know, we think there'll be some opportunities in and we just want to.
So like we did out of the last a crisis, we want to be really smart on on making sure there they're good assets that fit well into or are in our brand standards in our portfolio and and would have a really good partner Oh, that's working beside us.
Okay, well something to be clear your in addition to possible existing timeshare.
Location acquisitions, it could be conversions.
Tell lifting hotels or hotels that are development as well that you might be interested in is that correct.
Absolutely I think you know it could be hotel you know we've we've.
We recently been doing a number of hotel conversions. We did the you know the units in Chicago with the Doubletree, we did the.
The number of floors in the embassy suites in Washington, D.C., we've done floors in Hawaii and in New York and so.
We think it's a really efficient model and a in in some cases it improves the hotel asset.
And that you know it reduces the deal variety size. So the overall yield in performances hotel improves and in some cases, a you know just converting the entire hotel over his is an opportunity for us too.
Our next question comes for line of Jared Show Jain with Wolfe Research. Please proceed with your question.
Hi, Thanks again for taking my follow up here, So just to tag on a little bit to that that comment you are pretty well capitalized here, but do you have any desire to raise unsecured debt right now I know we've seen a lot of other companies, who don't really need capital just go out and raise capital just because the credit markets have reopened and then I guess how long those.
So can you talk about what you're seeing in the securitization my right now both public and private judging by Wyndhams terms. This morning, it would seem the private market is still quite good.
But can you just help us think about that and maybe the timing on when you guys would do a transaction.
Hey, Jerry to stand and Ah. Thanks for the follow up I'll answer. Your second question first with the with terms with consideration ABS market, we still.
Believe and we have a number of incoming calls is showing a lot of support for our ABS back paper or both private and public obviously I think everybody knows that S&P in particular paused on ratings over the last 30 or 45 days, we've had discussions with them, where they are going to be getting back again.
They may be adjusting their loss factors for obvious reasons, just like we have adjusted our loss factors as well.
So we are you know.
Confident that we will be able to get to deal done it in one way or another.
Currently we clearly have enough availability under our warehouse facility to do the same kind of.
Order of magnitude or that we have done historically.
We've also had a number of incoming calls from private institutions.
With regards to do ideal similar to what you saw Wyndham announced today. So we're actually going down a dual path looking at both public and private as we speak today and we're very confident we'll get that done the timing.
It's probably late Q2.
Maybe early Q3, we're going to see how that actually unfolds.
With regards to raising.
Neither senior unsecured or senior secured debt, yeah look we talked to a number advisors, we obviously listen to the opportunities that are out there and when we sit here and we look at 22 months of liquidity, it's not the top order of our list right now that's not to that does not me that we do not look at this and analyze it on a routine.
Yes, but I'll just leave it leaves it that for now.
Okay. Thank you that's really helpful.
Thank you before we and I will turn the call back over to Mark Wang for any closing remarks Mr. Wang.
Well, thanks, everyone for joining us this morning, Ah stay safe and we look forward to speaking with you over the coming weeks and updating you on our next call.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.