Q1 2020 Earnings Call
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No. We appreciate your patience and please continue to standby.
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Good morning, and welcome to Wyndham destination first quarter 2020 earnings conference call.
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If you do not agree with these terms. Please disconnect at this time. Thank you we would now like to turn the call over to Chris Agnew. Please go ahead.
Thanks, Gary Good morning, and welcome.
We began 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 in the forward looking statements made today are 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 mare FCC 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 <unk>.
Faster talk Wyndham destinations dot com.
Also available on our website, you'll find a supplemental presentation for the school.
This morning, Michael Brown for President and Chief Executive Officer will provide an overview of our first quarter 2020 results. In addition to an update of our current operations and company strategy.
And my colleagues, our Chief Financial Officer will then provide greater detail on our results our balance sheet and liquidity position.
Following these remarks, we will be available to respond to your questions.
With that I'm pleased to turn the call over to Michael Brown.
Good morning, and thank you for joining us on our first quarter call.
This is undoubtedly the most challenging time many of us can remember.
Circumstances surrounding that Koby 19 pandemic are unprecedented in the financial impact to the travel industry Our company our customers in our employees has been material.
Although this crisis is like no other we will manage through it by keeping our customers and associates the top priority, while protecting the long term sustainability of our business.
Our work since becoming a standalone public company nearly two years ago has prepared us for an economic downturn, even if the size and our resilient business model and strong liquidity position, we'll see us through this crisis.
We recognize there remains significant macroeconomic uncertainty. However, we are operationally and financially prepared to respond as this crisis unfolds.
On today's call I will dedicate the first part of my remarks to first quarter results and then the remainder of the time to Cobiz 19 pertaining to our liquidity position and on how to think about our second quarter and the remainder of the year.
With that said it is most appropriate to begin more broadly by offering our sincere. Thanks to all those on the front line at this crisis healthcare workers first responders and all those providing essential services.
For Wyndham destinations.
Extremely proud of our team who moved nearly every aspect of our service operation to work from home in record time.
Our resorts staff has done an exceptional job to comply with local regional and national orders and they were now preparing for an eventual return to operations.
Let me shift to our first quarter performance earlier. This morning, we reported a first quarter negative adjusted EBITDA of $44 million and adjusted loss per share of 98 cents in the first quarter. We took 241 million of charges in total related to Cobiz 19, including.
On a $225 million provision charge to revenue and estimated increased a future loan defaults, resulting from Covidien Nike.
Many you many of you have seen banks increased their loan loss provisions, however, because of timeshare accounting treatment our provisions treated as a reduction of revenue not an operating expense and therefore, it cannot be an adjustment to EBITDA.
Also we will recover approximately 25% or the charge in the form of returned inventory reflected as a benefit to cost of sales.
The additional provision charge had a $170 million negative impact to adjusted EBITDA.
The first quarter was off to a strong start in January and February with gross via wide revenue, 7% higher year over year in March 2019 cause towards the declined 52% and gross feel like 44% year over year.
Our exchange business experienced a similar trend solid start to the year, followed by sharp increase in cancellations in March.
The exchange revenue associated with those cancel bookings will be recognized over the course of the next 12 months as exchanges are rebooked for future travel.
Negative adjusted free cash flow for the first quarter was $78 million as the $325 million securitization, we announced last week shifted into April.
We expect adjusted free cash flow to be positive in the second quarter and positive for the first half a year in the range of 50 to 80 million.
We paid our first quarter dividend of 50 cents per share on March 31st and our board of directors intends to declare the second quarter cash dividend of 50 cents per share in mid may.
Leavis Needless to say our time is now fully consumed with navigating the new Cobiz 19 environment and the economy.
There are two overriding considerations that are guiding our point of view.
First over 50% of our adjusted EBITDA comes from predictable hospitality net interest income and member membership revenue streams.
These provide predictability in our cash flow forecasts and a baseline of visibility into the second half of 2020.
Second we are managing our operating business to be cash flow positive for the full year. As you were here in our action plans, we're very much on track to deliver that goal.
From the outside of this crisis, we had been proactive in safeguarding our owners vacations and their use rights. We extended the time owners and members had to both their next vacation as well as waving cancellation and rebooking fees.
As of this call booking rates for the second half of 2020 are comparable to where they were for the same period of 2019.
Suggests that demand will be strong despite economic uncertainty driven by cobot 19.
We expect robust occupancy once governmental health officials give us the green light to reopen our resorts.
As our extensive north American resort footprint will meet the consumer preference of drive to destinations, we expect our historical 70% of drive to arrivals to approach the 90% range.
We have taken early in significant actions to maximize cash flow. These actions included reducing our 2020 project inventory.
And capital expenditures by $100 million and reducing our operating cost base by over $205 million to furloughs in layoffs of employees as well as eliminating other discretionary spending.
We expect 60 million of these savings to be permanent.
Suspended my salary and the board of directors is taking it pay reduction both of which began in the second quarter.
Lastly, we do expect key metrics on the view I business to be under pressure for the remainder of the year.
As such we will be slower to reopen lower margin marketing programs.
And the exchange business, we've renegotiated inventory agreements and our gearing up programs to maximize member engaged exchange fulfillment when the recovery begins.
We expect the flexibility of our exchange system partner with a orange capability to be significant advantage to drive member bookings.
Turning to liquidity.
At the end of the first quarter, we had over 1 billion in cash on the balance sheet on March the 25th we drew down our 1 billion dollar revolving credit facility as a purely precautionary measure we have no debt maturities. This year and our next maturity is $250 million in March of 2000.
The 21.
We are evaluating the credit markets to determine whether we will take action to provide additional liquidity should.
Should leisure travel remain depressed into the third quarter, we have the flexibility to make additional changes in the business to be at least cash flow runrate cash neutral run rate for the full year.
Last week, we closed on a 325 million dollar private securitization deal.
With this deal we have $342 million available on our conduit facility and plenty of capacity to support our sales volume into 2021.
With 230 resorts in our Wyndham vacation club business, we expect a rolling ramp up of both our resorts and sales offices wouldn't stay at home guidelines are lifted.
We are monitoring local jurisdictions and our expectation is that a number of resorts will reopen just after memorial day with a slow ramp up for other resorts ended June and July.
We assume urban destinations to be among the last three open.
As we ramp back expect tour volumes to be lower year over year, even in the fourth quarter.
Our plan is to raise FICO levels and exhibit caution in reopening marketing programs with traditionally low margins.
Additionally, our focus on getting owners on vacation will placing greater waiting on owner sales in the near term.
Combined these actions will result in higher margins and a lower loan loss provision going forward.
On March 25th like many other companies, we withdrew our full year in first quarter guidance.
The macro we the macro environment remains too uncertain to reenter reintroduced full year guidance, but we would like to provide some outlook for the second quarter, while acknowledging the timing of Reopenings will impact our estimates.
The second quarter, well have very limited view I sales and cost reductions will not be a full run rate until later in the quarter.
If we assume some limited sales in June we would anticipate adjusted EBITDA to be flat to negative 20 million and positive adjusted free cash flow of $130 million to $160 million in the second quarter and positive adjusted free cash flow of $50 million to $80 million for the first half of 2020.
Yeah.
As you look to the remainder of the year, we remain confident in our hospitality net interest income and member fee, earning streams.
Remainder of the EBITDA will rely on our ability to open our resorts and sales centers and realize operations on deal why sales.
We believe those efforts will begin in June ramped through labor day, and return to a level of near normalcy in the fourth quarter.
Because of the lack of clarity today, we cannot provide specific guidance on those numbers, but will once we have clarity on the economic restart and early trends related to leisure travel.
In our exchange business. The crisis is not delaying progress of our air in integration and growth strategies.
The team is redoubling its effort to launch new products leveraging the air in platform and we expect to begin rolling these out in the second and third quarter.
Since our exchange business collapse and recognized as revenue at the point of confirmation, we expect an earlier rebound as our members take advantage of their trading power in 2020 in 2021.
To conclude my remarks, I'd like to reinforce three main takeaways first 50% of our adjusted EBITDA comes from predictable fee streams and we believe this crisis will prove out the strength of our business model.
Second we paid a dividend in March and our board intends to declare the second quarter cash dividend of 50 cents per share in mid may underscoring that confidence we have in our business model and our solid liquidity position.
Third our preparations to reopen will include changes to sales and marketing, which like our emergence from the great recession will shift FICO score requirements higher improve the quality of earnings and help our loan loss provision.
With that I would like to hand, the call over to my top.
Mike.
Thank you Michael and good morning, everyone.
Today I'd like to discuss our first quarter result in more detail and also provide you with more color on our balance sheet liquidity position and outlook for cash flow.
My comments will be primarily focused on our adjusted results and year over year metrics.
This morning, we reported first quarter adjusted diluted loss per share of 98 cents compared to EPS of one dollar and three cents last year.
Ported negative adjusted EBITDA of $44 million compared to positive adjusted EBITDA of $205 million last year.
This quarter, we took $241 million of charges associated with the impact over 19, our business. The details of which can be found on table eight of earnings release, but primarily consist of the estimate increase in our allowance for loan losses inventory impairments and employee compensation associated with our restructuring efforts.
Adjusted EBITDA was negatively impacted by $181 million are these charges, which are not allowed to be added back to adjusted EBITDA as Michael mentioned in his remarks.
Our vacation ownership segment reported revenue of $409 million, which was negatively impacted by $225 million related to the additional cover 19 provision.
Excluding the additional provision revenue was 7% lower than the prior year.
Growth be our revenue declined 15% year over year. It was partially offset by management fees, increasing 3% and interest revenue increasing 1%.
I'd like to point out that our underlying portfolio continues to perform well and we have not seen an impact would probably not team on defaults. Today. However, these are highly uncertain times and therefore, we used forward looking information such as unemployment predictions and estimated additional allowance that may be required for future defaults.
Excluding the estimated opened 19 impact of $225 million. The gross provision showed improvement and would have been to fourth quarter in a row showing consecutive year over year improvement for that metric.
And our vacation ownership segment first quarter adjusted EBITDA decreased the negative $73 million.
The 170 million dollar impact of the cover 19 provision charge was not excluded from adjusted EBITDA, thereby driving the negative EBITDA.
Hospitality EBITDA contribution and then interest income both increased 2%, but were outweighed by significant decline and be like EBITDA contribution.
Sharp decline tours as a result to preserve others in March, but some cap cost, particularly in sales and marketing. Many of these costs were addressed in April through headcount reductions furloughs and other operating cost savings initiatives.
And our vacation exchange segment, the first quarter revenue was $150 million compared to $236 million in the prior year.
Excluding both North American rentals, which was sold last October and area, which was acquired last August revenues were down $47 million were 26%.
Average member Count was flat and exchange revenue per member declined 26% <unk> first quarter as booking cancellation spiked in the quarter and March bookings were 57% lower than the prior year.
When I'm to keep in mind with exchange transactions revenues recognized at booking rather with them when the arrival takes place.
And when a booking is canceled the member receives a coupon for credit book in exchange and led to date.
In the first quarter $15 million of revenue underlying these cancellations was deferred and will be recognized when future exchanges are we booked.
Erin had solid start to the quarter with a standalone growth revenue of 81% year over year through February.
Exchange adjusted EBITDA was $42 million down $38 million compared to $80 million in the prior year on lower transactions in the deferral of revenue on cancel exchanges.
And as short run me exchange cost are fixed and with cancellations keeping our call centers at peak staffing there was a very high flow through to EBITDA from lower transactions in April transactions I'm, sorry actions were taken through do costs and exchange business as well as outreach to encourage members to rebook their exchange transactions.
We expect bookings to rebound quickly as our members with utilize their deposits brick vacations later in 2020 and into 2021.
Turning to our balance sheet as of March 31st we had over $1 billion of cash cash equivalents with corporate debt and nearly $4 billion, which excludes $2.4 billion nonrecourse debt related to our securitized receivables.
Our net leverage for covenant purposes at the ended the quarter was 2.9 times.
It should be noted as often the case and find covenants items, such as onetime charges and expenses as well run rate cost savings associated with reorganization can be added back to consolidate either in calculating the ratio.
The incremental allowance related to cover 19 was the largest adjustment, but theres also pro forma run rate cost savings of close to $60 million that we appropriately included in the calculation.
Our most restrictive covenant is our first thing coverage ratio of 4.25 times.
The changes we've made across the organization as well as reductions in our inventory spinning and capital expenditures were confident that we can manage our business to generate cash for the full year and remain within our covenants assuming that consistent with many economists expectations. There's a recovery in the second half of the year.
Michael provide some thoughts on the second quarter and I want to finished with some detail on free cash flow.
We normally provide you with a bridge from adjusted EBITDA to free cash flow and provide guidance on the major items endpoint.
While we're not providing EBITDA guidance for the full year, given the uncertainty on timing and the pace of reopen income economy, we can't comment on some of the moving pieces.
We expect corporate interest expense to be around $165 million net inventory spending to be 102, $120 million and capital expenditures to be approximately $99.
Working capital as a use workforce of cash will depend on the timing of the recovery in the second half a year.
Lastly, assuming we had beyond sales in the second half of 2020 and also assuming that we can execute another securitization in the second half we would anticipate net consumer financing activity to be a source of cash of $80 million to $180 million.
Under the assumption that the ABS markets are functioning and be a life sales restarted the into the second quarter. We expect positive adjusted free cash flow of approximately $100 million to $150 million for the full year.
And you didn't have either those factors don't come to fruition, we have plans to pull the necessary levels levers to be free cash flow neutral for the full year.
A couple of other points to note about the second quarter.
We will incur additional charges related actions, we're taking to reduce costs, although there will be meyer relative to the first quarter.
Second we will see the provision as opposed to be lost sales heavy distorted because of the low level of the lost sales.
Let me conclude by saying that we're confident we can manage the business and have a levers to pull to live deliver a positive free cash flow position for the full year, given a range of different scenarios.
As such we also confident in our ability to manage our liquidity and our covenants.
With that Brea can you please open up call to take questions.
[noise] certainly you ask a question today, Please press star and one on your Touchtone phone, we ask that you ask one question and one follow up and re queue for any further questions you can remove yourself from the Q by pressing the pound key.
And we'll go first to David Katz with Jefferies.
Hi, good morning, good morning, everyone.
Hi, David.
Question, one just around the you know the charge and the provision and obviously when we sort of put it back then we otherwise saw some pretty strong result is it fair well, let me let me ask at a different right are you comfortable that you know, we don't come back and another one or two key.
Quarters and have to expand that or what would you suggest as the probability or how conservative where you and putting that together.
Yes, I would say when we were thinking about pulled the number do you have and keep in mind right. The challenges. We're all base now are like nothing we've ever seen before not why not 11.
Not like the 2008 2009 recession. So what we did we looked at the portfolio performance back in 2008 in 2009.
We looked at unemployment trends during that timeframe and then we looked at a current unemployment projections. The next 18 months and correlate those two to come up with the estimated provision when we think about the magnitude of it a you know there's a.
The thought was to make sure that we are appropriate and the methodology and in which we calculate it we used an 18 month timeframe and when you look at.
Unemployment projections.
That's kind of when you see unemployment levels start to.
Level off but I think most importantly, when we think about where the.
Provision will look at as relates to covert 19 reserve for the second and third and fourth quarters. What we will have then that we don't have now its history on how the portfolio will perform it is all estimates right now so that would probably one of the most impactful things that we take into consideration at the end of Q2 in Q3 is how is the portfolio actually.
Performing today as I mentioned, we haven't seen significant increases in levels of defaulted result of cover 19.
But we will obviously monitor that daily and once again, the actual performance will be the largest driver going forward in terms of evaluate a continued adequacy.
All right and my one follow up is when we when you know understanding historically.
Many levers you have and how much control there is over.
This business and the business model.
The assumption set that you you know, we're going with today around keeping the dividend cash flow neutral and your ability to get there which is highly controllable.
Some of the slides in the data that you know is all based on you know some measure of reopening as we go through the summer do I mean is it possible.
To to sustain a lot of that.
If we do have kind of a choppy period through the rest of the year, where you know where either operating at low levels or you know maybe for us to close again for a short time.
How did you sort of contemplate those kind of dynamics in what you've laid out.
David This is Michael.
Well first of all we as we laid out we anticipate a slower reopening throughout the summer in into the third quarter in it and a return to near normal C., but not.
Historical fourth quarters for 2020, so that's what our assumptions based on and as we see how June July and August turn out.
Our for our first consideration is the costs associated with operating the business. We think we will be able to bring back call. So in a highly variable basis that correlates with resort openings and sales openings. So we think we can manage our business from a cash flow basis, depending on.
On whatever turn.
Both the economy and this cobot 19 case, our base assumption puts us at the levels of cash flow.
Positive that Mike laid out in the event that it turns worse, we will pull back from an operating standpoint and more capital.
To continue to generate free cash flow and if it's a lot worse than expected will always reevaluate the dividend, but the dividend really for us expressed confidence about how we see the outlook of our business. Our first half cash flow, our full year projection difficult to cash flow.
And our ability and confidence to.
To change our operational according to whatever happens in the environment going for going forward and as you heard US say, we think that even if it goes not as well as anticipated we could at least manage the business to be cash flow neutral for the remainder of the here.
Got it appreciate that thank you very much.
Thank you David.
And we will go next to Stephen Grambling with Goldman Sachs.
Hey, Thanks for taking the questions I guess I'd like to dive into the reopening perhaps a little bit more can you elaborate on how you may need to change the business as it relates to generating tours executing tours, how you think about reopening sales centers, whether that's from staffing levels geographically.
And is there a general level of.
Contract sales are ramping as you're you're talking about this reopening in recovery in the second half.
Or at least a range of possibilities that we should be thinking through thanks.
Thanks, Steven well, let's start with our overarching priority as it relates to reopening whether its resorts for sales and that's really that health and safety protocols that we're working on.
What we're seeing from consumers, whether it be in our industry or throughout travel and tourism they want to see confidence that companies have.
Have really.
To address the health and safety protocols and they feel comfortable to travel I would say our team has put its top priority on exactly those elements of our business again for operations and resorts.
Weve.
In many ways reinvented both the way.
Our owners will check into words awards for instance, meeting them at their tower or their units to check demand as opposed to getting them to the lobbies.
Our sales operations no different than our resort operations are changing their protocols to increase social this and seeing increase cleaning protocols.
And in many cases, we've experimented in the month of April with with virtual sales with success.
So I would expect like every business in the U.S. health and safety protocols are the most important elements and and that doesn't just apply to how people experience the resort, but also to our sales and marketing operations. We've we've changed the tremendous level of our processes related to that start.
And with the social distancing as we look to the reopening of sales.
I think as you look at June and July I would look at them in a way is it sort of soft openings.
You are getting those protocols and processes in place.
Is it a lot of work and we're not going to rush back into it. It's more important that are owners in our members feel comfortable with their stay but as you really look at how the remainder of this year. Yeah. It's meant to play out we think the footprint of our resorts are really supportive of.
Drive to destinations and getting people back to our resorts first of all and we're seeing the first signs of reopening in states like South Carolina, Tennessee in Missouri, those states regulations seem to be some of the first to allow it.
And all and also because of the fact that our resorts have been.
Dormant for a month, you should expect to see more owner occupancy at our resorts as us as the developer gives up our inventory. So that we can get more owners to our resorts and maximize their use ability.
And then the last part of your question Stephen I apologize for the long answer here, but as you look to the remainder of this year, we're projecting somewhere around 30% reduction in tour flow compared to 2019.
And a much greater level.
In Q3, and then as I mentioned getting back to near Normalcy in Q4, so but on average the second half of this year, we'd expect tour flow to be weighted toward owners and down about 30% the second half a year.
And then I guess, one follow up just on those social distancing measures that you're talking to and I don't know if you as you're looking at some of these tests.
Or just generally from a structural standpoint does that reduce.
The ability to get as many people through these sales centers or impact conversion rates that you're looking at them and cannot be offset by the virtual closings that that you referenced thanks.
I I think we think we have two elements of it as you ramp back up simply by the fact that in that in this in late Q2 and throughout Q3 the level of tour flow that we expect to our galleries, we have more than ample space in our galleries to allow for the social discussing what used to be one.
Cable might be two tables, our resort operations team is is gonna be running.
The sanitation protocols and or galleries. So I don't think that there are two to the projections that we've laid out there's an issue of space constrained ticket the doors or through the door due to the level we expect.
As we look into next year, I think thats, a little more of a realistic concerned but candidly we've got plenty of time to plan for that I would expect more a different hours that we operate for the remainder of this year and.
And again in the short term our space is more than capable to handle the toward further we expect and Steven This is Mike I'd just one other thing I would add too.
We do about $100 million a year and telesales. So we also have the opportunity there and for those of you they're familiar with this if you go back we've actually Walmart days. They had very extensive telesales program. So we also have the opportunity. If we do have consumers that are at our resorts prefer not to take a face to face tour, we can ramp up our telesales program and do that when they're on.
Vacation or follow up and they get home. So we're actually taken some some of our top sales people now.
And train them on until sales I'm, so that would be a another avenue, we have to make sure that even if the tours aren't there we still have the ability to drive you ourselves. It's just a just even on that Archie I has has had a product called livestream, which allows you to make us a sales presentation bird.
Really and companies have used it in the past.
But the amount of inbound inquiries on how to use that tool across the entire industry has been noticeable so I would expect not only wyndham destination when the vacation clubs to increase their virtual presentations, but also you you can see that across the industry.
Great. Thanks, I'll jump back in the queue appreciate it.
Thank you Stephen.
Well go next to Jared children with Wolfe research.
Go ahead.
Hi, Good morning, everyone. Thanks for taking my question.
Just to go back to the provision you've never really had an allowance balance this high and certainly the magnitude of the increase quarter over quarter was also pretty extreme. So I guess first question are you confident you won't need to be able to do this that you won't you won't have to do this again in future quarters and I know you said, there's been no default issue so far but.
Can you talk about what you've seen so far with delinquencies and maybe people that are late on their payments.
Yeah. So you know as far as future quarters as I mentioned will be evaluated every quarter, we'll have history on portfolio performance as we look to the future quarters, I think where you look at if you took or the reserve that we put up compared to.
Other companies you know we're on the higher into the range as far as the reserve as a percentage of the portfolio.
So I think much again, it's just a matter of looking at that 18 months time frame and seeing how things play out as far as easy.
Actual performance of the portfolio and if we did have to take another one I definitely would expect it to you at the same magnitude, but I think we've gone in and that a good job of estimating what we think the additional losses are and obviously time will tell when we look at actual portfolio performance. As you would expect as is always the case delinquencies were down.
At the end of March compared to the in December that historically the way the trend goes when we look at April about US 60 bps increase in delinquencies from March to April so almost again not a huge increase there from a delinquencies standpoint March April we do have a deferral programming. That's in place I think when we're looking for program a couple of.
Things that we'd like it about what we're seeing their first of all the request for deferrals. Pete first we can April would really when we rolled the program out and since then there's going to stay declining request and.
Secondly, we're actually excited that when we.
I do hear from our owners they prefer to defer a payment or two rather than actually exit the product. So we think that those are positive metrics. When we look at the portfolio and we look at our engagement and their desire to standard product.
Okay. Thank you and you know if I look at your prior slide decks, you've always had a stat, where you showed that your owners typically spend an incremental.
I'm, you know two and a half times, a little bit more of their initial purchase on Ah Ah new inventory over their lifetime.
Do you have a sense for how much inventory your owners own today versus in the past maybe five years ago 10 years ago and really the angle for the question is it would seem and based on what you're saying today that over the next several months in the back half of this year view I sales are predominantly going to come from existing owners and I'm really just trying to figure out.
How much opportunity there is to continue to just I guess temporarily drive more existing POI sales.
For the time being how do you think about that.
Yeah, I think when we look at nor our ability to sell different product to our current order based keep in mind, that's where we're getting the benefit of while we've been focused on for last couple of years with bringing in new owners. So we've been generating 35000, new owners a year for last several years that we definitely feel had the opportunity to upgrade and then we look at our current or base we are.
Not seen and had not seen any.
Trends are indications that a you know there there was any inclination to drop in terms of that additional upgrade propensity. So I think you know.
Especially when you think about where we're at now the things that we're facing one of the things we love about our product is it gives you additional space. So if you're one of those individuals that maybe isn't comfortable yet going back to the restaurants. When they do open you have that kitchen and at the full luminaire you can stay in your you didn't need your mills. There. We also think that you know our product when you look.
But it'd been branded and feel uncomfortable that it will be appropriately claimed is important and then we look at a reservations a into the second half the year, we're seeing strong reservations, when we compare him year over year. So.
We're seeing friend in our owner base that are very consistent with what we've been saying and with what we've seen the pass in terms of.
Their propensity to travel and their desire to travel and you know when we look at a you know the biggest challenge we have have facing us I think it's really being ready to open those reports of teams working really hard to make sure. We have the right steps in place, but what we see based on reservation fans and continued payment on loans and maintenance fees is our our owners are ready to travel.
Great. Thank you and I'm, sorry, if I could just one quick housekeeping can you tell is your updated liquidity after the securitization and <unk> how much receivables that are eligible for securitization right now.
Yes. So we we had 1.1 billion in cash at the end of April so basically the incremental cash from the ABS the private transaction we did.
In the month April is still on the balance sheet basically we were cash flow neutral for the month.
Evidence on that and then we would expect sales additional sales into or ABS onto its of about 200 million and.
April and May.
Okay. Thank you very much.
Sure. Thank you.
And we'll go next to Brian Dobson with Nomura Instinet.
Hi, good morning, Thanks for taking my question.
So just again on the existing owners question.
How much of your contract sales in the back half the year or call. It. The next six to 12 months do you think will come from existing owners and then you previously mentioned freeing up inventory to make more availability for those owners.
Could you remind us what percentage of resort occupancy is usually existing owners and how that could change over the next six to 12 months.
Hi, good morning, Brian.
So let me let me just reinforce what.
Mike was saying about just our overall strategy for the last.
For the last three years, we've been talking about new owners and older engagement as our top priorities and this is exactly the reason you do it so that you develop a loyal owner base and and one that is new and <unk>.
The early.
Part of the curves that the Jared was just mentioning so.
What are what our plan is is to for the developer inventory that we typically a rent to monetize the fact that as the developer. It's our inventory we will forego a good amount of that inventory in income associated with it. So we can get our existing owners on vacation add.
And available.
For for a marketing opportunity as well.
Typically our resort occupancy Oh you.
Between 65% to 75% of our resorts or.
With our owners and we'd expect that to go higher for the remainder this year into the Eightys of those who are staying at the resort and and accordingly that is what's going to drive our overweighted existing owners sales for the remainder of the year Yeah, we have.
Move that number of owner sales.
From about 66% down to about 62 over the last two to three years I would expect it to be over 70% for the remainder of the year.
I'm not because.
The we're increasing the amount of ownership, but just as a proportion of the reopening of new owner tours marketing programs and owners the owners will be the first back to the resorts and as we mentioned in the earnings script is we're going to be more cautious in opening.
Lower margin marketing programs.
And be a little more stringent on our FICA requirements and that should be good as well for the long term sustainability the business in that we should be driving a stronger portfolio and greater margins for the long run in our business by by that approach.
Great. That's helpful and it can you give us an example of one at the low low margin open channel marketing streams that you might step back from or step away from completely.
Sure.
Yes, we we do we've done a over 800 million and open marketing channels and within that there are plenty of subsets. The first and most profitable or are things like the blue threat.
They we've got great partnership as we've talked about on many occasions to see world and six flags and.
Caesars it to name a few those tend to be better margins, but then there there may be some individual locations that are unbranded that generate new owners, but maybe have a 2% to 4% margin that are profitable on their own.
But as this post kogut environment those me dipped to negative so you're really looking at open marketing channels that drove new owner business on a low margin basis. So those would be the ones. We would be would be the last to bring back not saying what.
But we would those would be amongst the last we would start with existing owners and blue thread.
Work with our partners and then and then really evaluate market by market the open market channels that.
We are the most margins.
Thanks, that's very helpful. And then finally on your exchange business. So part of this pandemic youre, taking steps to broaden and prove its product offering. Our this plan temporarily on hold or do you see this crisis as a good opportunity or continue to reshape that business.
I would I would even say it's it's it's it's definitely not on hold and it's definitely not pursued.
Progressing at its normal rate I would say, we're accelerating many of those ideas because they're more relevant than ever.
I used the example of the with Stephen's question about the RC I live stream on on having a virtual sales a pool available that's one product, but the ones that RC I was working on to expand its offerings to be more broad are absolutely progressing in <unk>.
I would expect him to if anything the accelerated coming out of cobot 19.
Because candidly, they're not they're not having to run a full business. While this is going on in there, but they've been able to two redoubled their efforts on many of these initiatives. So I'm looking forward to a really strong Q3 in Q4 for more RCR James.
Great. Thank you very much.
Thank you Brian.
And we'll go next to Patrick shows with Suntrust.
Hi, Good morning, Good morning, I'm wondering can provide a little more color on your recent a private securitization how do how do you feel if the demand was for that product.
For that so issuance.
And then there's certainly a your how much of that I don't think that's within the filing or the press release, how much of that was like classing with issue in class B, a class C and beyond if you can disclose that.
Yes, so when you when you look at the issue. It's basically it was it was one bucket because it was a private transaction.
325 million I would say we were we were happy with the demand we when we went out we were.
Obviously targeting something in a 300 plus million level and were able to execute on that at a very solid advance rate of 85% and I'm. Your non interest rate of 3.85%. So I'd say, we're happy with demand I think demonstrates once again like we've said that we have access to the ABS markets, where there is.
Market for weren't available to us at the time, but the private were and that's why when we think about the second half year when resorts up a backup sales up and backs up we think the ABS market will continue to be a available to us whether its private or a or public we have a number of investors that no continued to call us about.
During the transaction, which went against gives us a confident in the market.
We've got sufficient capacity in a revolver to death and get us in 2021, but just as importantly, another proof point that we have that those markets are available to us.
Okay.
Thank you that's it.
Thank you Patrick.
Hi, guys are on line there that is star and wanting to ask a question.
[laughter].
Well go next to Chris Woronka with Deutsche Bank.
Hey, good morning, guys.
I think I understand what you said about the inventory spend declining 200, or 120 million its kind of a bit of longer term question, but how do you balance the fact that theres, probably incremental demand in drive to markets right now and some of the more.
Slide three markets, just Las Vegas, Hawaii to name a few.
Might be slower to come back, but how do you balance inventory opportunities that might become available it really attractive prices there versus kind of your your desire to limit spending also focused on the on the markets that are currently more in demand.
Well, it's a great question. So let me let me hit in two ways first of all adjust our supply in and I think that's one of the great parts about our geographic footprint.
We've got it a great urban portfolio places like downtown Manhattan, which are going to be very slow to come back in places like Austin, Texas, which has already announced a month or a a slight reopening so.
Than we have done we have our world more product out west which is.
Definitely more in outside the city centers and great drive to markets are aware of Mark owner base Love. This drive to destinations. So so I think we're set up very well for the next year or two to satisfy the drive to demand that's definitely going to be out there we're not it.
Really dependent on Hawaii, it's a relatively small piece of our.
Portfolio and the vast majority of our owner base can reach any one of our resorts within within a short two to three hour drive as it relates to inventory HM We've we've or already as you mentioned knocked down 2020 spending where in the same situation for htwo.
The 21, we're already.
Either putting on hold or deferring, our commitments and 21 to give us maximum flexibility next year not only as it relates to consumer preferences, but maybe more importantly, very similar to await no nai and take advantage of a down real estate market or.
Projects that were in need of a rescue so I think it will create opportunities for its next year I think our portfolio is already really supportive of the drive to model. That's why we expect.
Our arrivals to be around 90% for the remainder of this year as opposed to where they've traditionally been 70%. So I think we're well positioned already and and we'll be we're in a great position next year do adjust our inventory model should we need to to attract more drive to destinations and Chris keep in mind.
On right. We we also had the asset light model that we can utilize so we don't necessarily have to go.
And the cash that to get access to the inventory, we could do an asset light deal.
Basically go with that fee for service model, which allows us to.
Great dots on the map additional inventory, if we needed in certain markets and not be out the cash under that asset light model.
Yeah, Yeah. Thanks, guys, that's great color just as a follow up.
Mike.
Guys look out say five years from now hopefully Cove. It is a distant memory in the rearview mirror. Some of these initiatives related to a virtual tours and things like that do you think there's some extrapolation of that and that that yeah. Some of the things you might even working on the digital fraud.
Before all this started might this might kind of accelerate that and that might become just oh more sustainable option that suggests that all your tours are going to go virtual but could that be more of a complement and you know do you think that has an impact on the on the longer term cost structure of the business in terms of sales center.
Yes.
The short the short answer is yes, the longer answer is I I actually think this pandemic.
Yeah. The phrase we're using around here as it it's tough to change tires going 70 miles an hour and for for 30 days the cars, but in the garage and it's it's a lot easier to change to hire so.
For Us I view this as an opportunity to accelerate our innovation whether be through the sales process or the digital I'll work that we've been doing.
I see the changes that are occurring today to be an accelerant to the evolution. We were already on in the investment that we were already making.
Things things do change overtime, and and this has given us an opportunity to.
Getting really focus on the on the projects that we thought we needed to get to overtime anyways, It's always tough when you're in 11 year Bull market.
Moving moving up constantly to make those changes when you're going such a fast speed and in an odd way. The this last 60 days has has allowed our teams to to really accelerate many of those ideas. You know you heard me mention it and Brian's question.
Talked about virtual tours and there's there's a laundry list of elements that that are going to not only change our business, but also really.
Heighten the customer experience I mean, I I love, what our resort operations team is doing they've been experimenting with is fast check in for about a year now and now that.
Now that they've had time to work on it they're gonna be pretexting, Oh owners on their drive to our resorts.
Giving them a time to check in telling them a in for instance, our Orlando property, which tower to go to and our front desk age it will meet them at the tower and and they can go straight to their room without ever seeing.
As a 7000 square foot lobby, if they don't wanted to to visit it so.
This is this is as I've mentioned this is just going to accelerate innovation not not slow it down and I do think it sustainable.
Okay very helpful. Thanks, guys.
Thank you.
Thank you that concludes our question and answer period I would now like to turn the call back to Michael Brown for closing remarks.
Thank you Barry let me knowledge once again, all those in our community who have adapted to this situation by stepping up to provide essential services for our daily lives.
I also want to thank our associates unquestionably these kinds of been extremely difficult for all of you and I'm proud of what everyone has done in the way we've reacted first professionally but maybe my most proud moment is how our associate base has has responded compassionately did not.
Only serve our business, but in a much broader way.
To serve at the communities that we are a citizen out so I really thankful to our associates I'm proud of everything they've done to react to this pandemic and once you didn't know that we appreciate all your hard work I also want to say, thank you to everyone, who joined US today and wish you well and thank you for joining us and look forward to speaking.
Do you in the near future.
That concludes today's first quarter 2020, Wyndham destination signing conference call you make analogous disconnect. Your lines at this time and have a wonderful day.
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