Q2 2020 Wyndham Destinations Inc Earnings Call
Good morning, and welcome to Wyndham destination second quarter 2020 earnings Conference call.
After the speaker's remarks, there will be a question and answer period. If you would like to ask your question Dream is tribes up we press star and one on your telephone keypad. If he would like to withdraw your question. Please press the pound Kian your telephone keypad.
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I'd now like to during the call they were to Chris Agnew. Please go ahead.
Thank you Keith good morning, and welcome.
Before we begin we'd like to remind you that our discussions. This morning will include forward looking statements.
Actual results could differ materially from those indicated in the forward looking statements and the forward looking statements made today are effect is only as of today.
We undertake no obligation to publicly update or revise these statements.
Factors that could cause actual results to differ discussed in resi see violence and you can find a reconciliation of the non-GAAP financial measures discussed in todays cool in the earnings press release available at our website at <unk>.
Investor Dot Wyndham destination Dot com.
Also available on our website, you'll find a supplemental presentation for this cool.
This morning, Michael Brown, President Chief Executive Officer will provide an overview of our second quarter.
2020 results. In addition to an update of our current operations and company strategy.
And my colleagues, our Chief Financial Officer will then provide greater detail on our results our balance sheet and liquidity position.
Following these remarks will be available to respond to your question.
With that I'm pleased to turn the call over to Michael Brown.
Good morning, and thank you for joining us on the call today.
This morning, we confirmed our second quarter results following the preliminary second quarter release on July the Twentyth.
We reported adjusted EBITDA of $16 million and adjusted free cash flow of 166 million.
The second quarter highlighted the strength and resiliency of our business model and although the majority of our resorts were closed for much of the quarter, we delivered 343 million of revenue.
And produced positive free cash flow and EBITDA.
The second quarter Salt two significant macro events, the global calling for greater social Justice and racial and quality in the wake of George George Floyd stats as what was the economic crisis created by the Corona virus pandemic.
I'm proud of how our organization has responded to both and want to reaffirm our unwavering commitment to address those events head on.
Knowing that our culture of diversity and inclusion in economic performance will prove this out in the month in years to calm.
Our resorts and sales operations were for all intents and purposes close in April and May.
The reopening face began at the end of May in progress throughout you and we ended the second quarter with 85 for cinnabar U.S. resorts and 56% of our sales locations reopened.
Similar reopening timelines were seen by RCR and its developer affiliates.
In the second quarter key metrics in both business segments vacation club and vacation exchange performed well during the reopening face.
With that said, we saw consumer sentiment declined at the end of June which continued into July.
Despite getting new Koby cases has resulted in consumer sentiment retreating back near April lows.
This became evident evident as short term vacation cancellations increase in June and July.
To give you a sense of the magnitude at the peak of the closure period, our reservation cancellations were nearly double the level in 2019.
As we reopened in June those cancellations began to moderate but.
But as Cobiz cases accelerated from around 20000 cases per day to more than 60000 in July cancellations returned to April levels at Wyndham vacation club.
And he similar trend immerse at RCR.
We do not believe the underlying demand for leisure travel declined however, the short term willingness to travel diminish and resulted in the pullback we saw in late June.
In July.
To highlight the headwinds we saw its best to look at several key markets.
First our expectations of reopening in Hawaii, California, New York have all been delayed due to coated.
Second the surgeon cases occurred in five key States, Florida, Texas, Arizona, South Carolina, and Tennessee. These states represent just under 40% of our annual deal I sales in the search has negatively impacted arrivals.
Third well, we are right raising credit standards, we are seeing a higher number of new owner prospects in some of our larger markets, who fall below or more getting qualification criteria.
However, there is a silver lining.
The elements of our business that we control performed well during the reopening face.
Let me share a few proof points vpgs in July or more than 30% higher than prior year and close rates across all channels are up nearly 300 basis points as we benefit from putting our best salespeople in front of our better quality leads.
[noise] Blues Red sales have represented 17% of new water sales.
FICA scores are up just under 10 points and our mix of 700, plus FICO scores is up more than 700 basis points.
93% of owner rivals whereby car up from around 70% previously.
Loan Deferments peaked in early April and have decreased every week, except one through the end of July.
Our C.I. North America booking volume was clearly rebounding throughout the second quarter and achieved 5% year over year growth for the month of June before the coded resurgence in the Sunbelt states at the beginning of July.
[noise], although this pandemic has created unprecedented uncertainty the green shoots we're seeing in our underlying business are indicative of the stronger business. We can expect in the future current headwinds are directly tied to co bid.
And it is a matter of time before consumer sentiment returns to historic levels, resulting in an increase in quantity of owner rivals and improvement of credit quality for non owner prospects.
I'd now like to talk about how we have used the last few months as an opportunity to accelerate some of our investments and strategic initiatives.
Recognition of our exchange business has been a key strategic focus.
And we're making great progress.
Earlier this week, we announced the launch of the new parent brand for exchange and travel business. The new segment called Panorama will include our timeshare exchange companies, including RCR, the world's largest vacation exchange network seven across formerly known as D and the registry collection.
In a ramp will also feature our travel and leisure businesses Love home swap trip be an extra holidays as well as leading property management and travel technology platforms at work International and Alliance reservations network or a our it.
Panorama with its breadth of membership assets expertise in commercial relationships, coupled with its strong leadership has a great opportunity to broaden its scope within the travel and tourism market.
It would be shabby, who joined us in 2019 and brings global travel industry experience was named President Panorama.
Panorama expansion plans will pursue three pats first we plan to offer nearly 4 million members more ways to utilize their memberships, allowing them to use their exchange currency for rich experience is a meaningful travel all year long not just for a week or two week period every year.
Our goal is to serve as a true end to end travel provider across the full spectrum of travel and vacations.
Second our club 365 membership product sold by our C.I. affiliates as a trial product will be greatly enhanced on a already platform.
And third the error in platform will allow for travel membership expansion opportunities outside the traditional time share ownership.
Our existing direct to consumer business lines will be converted to the new platform with significant brand marketing and business development focus for expansion.
The first significant expansion beyond the timeshare span space will be the launch of Panorama travel solutions and you travel services business powered by a RN to provide customized global discount travel membership clubs and travel technology solutions to affinity partners, including large.
Employers bangs retailers trade associations and others in the U.S. and abroad.
We've also been accelerating innovation with are within our Wyndham vacation club segment. These innovations not only make for a better vacation experience, but also provide our guest with more ways to social distance in todays environment. We have re imagined our check in process innovated the on site experience with.
If I de risked fans to increase engagement with our guest and went live with our New club Wyndham website in may to ensure owners can plan and book there next adventure.
Looking ahead, let me share some thoughts on the second half of 2020.
We expect tours to be down 60% from the prior year with 80% of this reduction coming from lower margin new owner tours.
We expect VPG to be 30% higher than the prior year.
We expect Wyndham vacation clubs owner arrivals and panorama bookings to improve through the fourth quarter, but not to 2019 levels.
We anticipate access in the ABS market when terms are most favorable and we expect our provision to be below 20% benefiting from the improvements in credit quality. We have made this year.
And finally more than 50% of our normalized adjusted EBITDA will continue to come from predictable hospitality net interest income and membership revenue streams.
Against the backdrop of an unprecedented economic environment, our second quarter performance highlighted the strength the resiliency of our business model and its strong free cash flow generation.
While the range of outcomes remains broad our priorities remain unchanged our underlying business is performing and we have a much clear line of sight to the second half of 2020 than we did when we last spoke to each of you in may.
With that I would like to hand, the call over to Mike.
Mike.
Thanks, Michael and welcome to everyone joining our call.
Before I discuss our financial performance I would like to think our teams for their tremendous efforts and helping the company manage through this challenging time, we'll remain focused on emerging stronger on the other side.
I've been very impressed energized by our colleagues have come together to understand and swiftly address current challenges and adapt to our new ways of working with a focus on customer obsession one of our strategic pillars.
Today I want to discuss our second quarter results and also provide you with more color on our balance sheet liquidity position and cash flow outlook. My comments will be primarily focused on our adjusted results.
As previously mentioned, we reported second quarter, adjusted EBITDA, a $16 million with $15 million of timing favorability on items, we've expected to be realized in the second half of this year.
For the second quarter, we reported a loss per share of $1.11 cents compared to earnings per share of $1.45 cents in the prior year.
Wyndham vacation clubs reported revenue of $239 million with gross view I revenue of $18 million in an adjusted EBITDA loss of $17 million.
Tours and VPG, we're heavily impacted by the closure of our resorts for the majority of the quarter.
Vpgs in June however, ray percent higher year over year, and as Michael mentioned Vpgs had been even stronger in July.
The higher BPG reflect both the increase mix of under sales and high quality leads sitting in front of our best salespeople.
Our underlying portfolio continues to perform well with delinquencies performing a little better than normal for this time of year, driven impart by deferral programs.
Request for deferrals with the highest in the first week of April have trended down nicely since that time at the peak, 6% of our loans rend deferral, but that number is down to 3% of loans outstanding as of the end of July as some owners are now exiting their deferral period.
We remain in close contact with these owners and are seeing the majority of them returned to making payments.
We remain comfortable with our overall allowance on our receivable portfolio, considering the continuing uncertainty around the duration of dependent <unk>, that's economic impact.
Our newly branded Panorama segment reported second quarter revenue of $100 million in the prior year Panorama report a comparable $164 million.
For comparability, we excluded North America vacation rentals business, which was sold in October last year, and the acquisition of Aireon, which occurred last August.
Panorama adjusted EBITDA was $40 million into second quarter compared to $68 million in the prior year.
With the expansion in the breadth of panoramic business exchange revenue per member will become less relevant as revenue driver as a growth will increasingly be driven by non exchange member transactions.
As a result, we're tracking to new metrics panoramic transactions and average revenue per transaction.
In the second quarter all of our revenue drivers were negatively impacted by cobot <unk>.
In the future, we expect to see robust transaction growth for this segment, partially offset by decline average revenue per transaction, given an increase mix from Iran.
In total, though this one that the positive revenue growth.
Year to date Aireon has added more than 130000 transactions nearly 30% of panoramic volume.
We plan to report on these metrics more broadly once we lap the Aireon acquisition late this year.
During the quarter, we had $106 million of total cobot charges with 87 million added back to EBITDA.
46 million of those charges related to our decision to exit our lease space in New Jersey, with the remainder related to employee compensation and severance and impairment of other assets.
Turning to our balance sheet as of June Thirtyth, we had over $1 billion of cash and cash equivalents with corporate debt at $3.9 billion, which include excludes $2.5 billion of nonrecourse debt related to our securitize receivables.
Our net leverage for covenant purposes at the ended the quarter was 3.4 time.
It should be noted that as is often the case and the define covenants items, such as onetime charges expenses as well run rate cost savings associated with the reorganization can be added back to consolidated EBITDA in calculating the ratio.
Two weeks ago, we amended the financial Covenant covenants for our revolving credit facility through March 30, Onest 2022.
The covenant relief provides flexibility by raising the first lien coverage ratio, while allowing us to maintain our ability to pay our dividend subject to 250 million to our liquidity covenant, which increases by 50 cents for every $1 of dividends paid.
We also retain some flexibility to act on acquisition opportunities up to $250 million.
We proactively amended our revolver due to the continuing in potentially extended uncertainty in the United States around the timing and magnitude of the economic recovery.
We have the right to left out of the credit agreement at our discretion at which time and we were strict restrictions, resulting from the amendment would be lifted.
We paid our second quarter dividend of 50 cents per share on June thirtyth.
And the company expects to recommend a third quarter dividend of 30 cents per share for approval by the company's board of directors in August.
We are paying a dividend because we believe in the underlying strength of our business cash flow and liquidity.
We believe the dividend at this level is attractive to both current and potential shareholders and is sustainable.
In July we should $650 million of senior secured notes with an interest rate of 6.6% to 5%.
We were pleased with the transaction, which strengthens our balance sheet.
We used $350 million to pay down a corporate revolver and intend to use $250 million for the repayment of our secured notes due in March 2021.
Back in March we withdrew or normal comprehensive earnings earnings guidance. We did however provide an outlook for adjusted free cash flow for the full year of $100 million to $150 million on our first quarter call.
With a continued wide range of outcomes. The ended the year, we expect to be adjusted free cash flow positive.
Our previous guidance was based on Preopening projections with our revised guidance based on current trends, including the continued uncertainty around Cohen and related impacts the leisure travel.
Our new guidance assumes the 60% reduction in tour volumes in the second half over the prior year and reflects increased volatility of vacation cancellations.
Let me conclude by saying that we continue to be confident we can manage the business to deliver on our objectives that we ended the year.
With that Keith can you. Please open up call to take questions.
Yeah. It happens Tom if he would like to ask your question. Please press star one on your Touchtone phone.
There are always remove yourself by pressing the pankey, we do ask that you wouldn't yourself to one question on one follow up in a week he with any others. Thank you.
Well take our first question for quick Chris Woronka with Deutsche Bank. Please go ahead.
Hey, good morning, guys.
For all the board and thanks for all the helpful data points and other information wanted to ask you on the what your.
Kind of seeing on the with the increased cancellations I mean can you can you tell when those folks need reservations I mean, its something were.
Yeah. They kind of saw what was happening in March and April they they plan to go in July and that obviously case loads went up or is.
The booking activity much closer in and people are just kind of making aspirationally bookings and then kind of canceling them last minute is there any way to kind of delineate between those two.
Absolutely, Chris and yes, it's it's it's one of the key metrics were watching every single day, because I'm on the gross bookings side, we saw a relative consistency heading into the reopening phase there seem to be that consumer sentiment heading to more.
Positive direction and gross bookings went right with it.
Then what happened as we got to the into June and Koby cases began to Spike you would see the cancellations coming in against that so we've only had two phases of gross booking trends first was what was already on the books before the end of March.
Many of those fell off in April and then as the National conversation moved to a reopening phase generally consumer sentiment moving moving upwards those gross bookings picked up again.
And then have have fallen off the gross bookings have cancellations increased against that.
As cases fight so as we look forward.
We're looking for gross bookings they continue to follow what happens in the general trend around daily New cases.
Okay. That's helpful and then as a follow up.
Curious as to whether you're seeing any change in the in the in Europe, primarily owners, who are transacting right now any be change their behavior in terms of are they buying bigger units are they buying more poor.
We want a bigger units are they buying more points are they lower higher propensity to finance and just how do you think about that if you're if your own or mix is going to be changed for little while how what kind of impacts that had maybe beyond just the VPG.
So so is we went into this closure period, probably the biggest question for us.
Maybe for everyone in the industry was what would the behavior look like as the reopening phase began and that has been one of the clearest indicators that we saw in June instead of buying behavior from our owner base.
It is going to look very very similar to what we saw back in January and February.
The transaction prices are very similar are closing rates are up in our VPG, they're up and of all of the elements that we were the most anxious to see it was exactly those metrics in those metrics are performing very similar to the pre Kobe.
Shutdown and gives us a lot of confidence going forward and that's why we've tried to gear our remarks Ford.
The ebb and flow with the remainder this year is really going to be tied to what we see in co bid because that's driving that is the clear driver of consumer sentiment today, but a lot of confidence in what we're seeing on.
Key purchasing metrics and I would say the one thing that that we've we've spoken about that we were going to do it during the shutdown period with strength in our our marketing and look for a stronger quality that is clearly showing up in the.
In the fight the statistics in or closing statistics, and RVP cheese and that will ultimately lead to good margins for business going forward.
Okay very very helpful. Thanks, guys.
Thanks, Chris.
Your next question from Ben Chaiken with Credit Suisse. Please go ahead.
Hey, How's it going.
I'm worried that.
Hey, It sounds like July exchange revenues accelerated game play in a quarter or presumably down below 40% the trough to.
My 23% in June I think you called out.
Are you seeing that trend continue can you describe what's driving that.
So so we we definitely saw that as we.
No different than Wyndham vacation clubs as we saw the the reopening phase begin in consumer confidence begin to pick up we saw bookings increase as we moved into June no different than Wyndham vacation club, we've seen that pull back at at one point in June we saw bookings.
Pretty much equivalent to prior year, and we've seen that move slightly down in July to roughly 15% a decline from prior year.
So the trend that we saw Wyndham vacation club. It we view is a little bit more of a macro trend of that recovery started came out a good heading in that sort of Nike swim or direction, and then stall to a certain degree in July, but but stalled out.
At higher level.
Okay and.
And then just one more it sounds like delinquencies might eat better than you were thinking sounds like the hurdle or 6% that down 3% ended July.
Yeah.
Different that you see today.
In past cycles from a <unk> standpoint, any reason maybe lot.
Yeah, and this is Mike I'll take that one you know we've been very pleased with the way. The portfolios performed you know our delinquencies are just barely over 2019 levels about a bit over 2019 levels as at the end of June So overall portfolio performance we've been very.
Very pleased with and I think I'm you know what we're saying is that you know one to deferral programs helps and we're also pleased with as these people are coming off deferral. They do appear to have the cash to continue with a with with making their payments. So I do think obviously to the hope is that this pandemic is short term.
Thank you in a other pieces, maybe the economic outlook has been for a longer term in terms of when the recovery comes so I think the consumer still remains optimistic in as a result is continuing to you know pay on their or their obligation. So overall once again very pleased with the the performance of the portfolio.
I appreciate it.
Our next question from Joe Greff with JP Morgan. Please go ahead.
Good morning, everybody can you hear me okay.
Okay, Great data show great. He may send this I may have missed it.
I was hoping in the Wyndham vacation club segment, if he can give us EBITDA generation by month I'm Presuming June with some degree of positive EBITDA overseas.
A larger or EBITDA losses in the first two months to the tune to you.
Yeah, you're you're exactly right. We did start to turn positive in June the first two month for losses as you would expect because we really didn't have any uppers resorts opener ourselves operation. So definitely a positive trend in terms of a the this last month being more profitable than the first to.
You want to give us the first couple of months of.
She just again this extensive.
But the bases from here and how to think about it for the second half of the or.
Yeah, we'll have to get back to with that.
And what you're seeing in July sequentially is that EBITDA generation of vacation club stronger than what you've seen gen. Presumably so with.
Resorts more fully open.
Yeah. Yeah. This is Mike good morning joke that that's absolutely the case and when you when you look at the second half of this year.
The the generation in and overall and it ties even the cash flow is gonna be really heavily tied to POI, we had a reopening phase I've called it a transition pace in June we opened July with roughly 80, 85% of our resorts reopened in there for our view.
Why generation has been much better in the month of July in there for that segment of our business.
Has improved.
Yes, we're seeing sequential.
Improvement and in both Wyndham vacation club EBIT as well as our overall EBITDA and we would expect that as consumer confidence continues to grow.
Got it and then just one follow up going back to the cancellation activity that you've seen I mean do you feel and looking at your slide nine when you look at you know beyond.
The next month, so starting in September through the end of the year.
When you look at what you have that the July twentyth on this slide.
Do you feel that those.
Net reservations had been I don't know I guess, the drift a little bit with cancellations or is it really the cancellation that you've seen in sort of July obviously and August.
So I guess when they look at that should we kind of take.
Sort of the 2020 net reservation activity with it a grain of salt given the cancellation commentary.
No I don't think so because what we've tried to do is it just for the current environment and our latest outlook in during our pre release or underlying assumption going forward is that.
Well, let me just step back when we made our projections back around Memorial day, the National Kobe cases, Rolling Seven day average was 18000 and it was there and then at the end domain in early June and then is it progressed to the middle of July that same rolling average was three times as high as it is a bit.
50.
As far as daily you cases, so as we projected out the remainder of this year. We've tried to taking account. The fact that that cobot cases will remain elevated oh, we have an anticipated they're going to 100000, we have an anticipated they're going back to 20 in the near term. So we've tried to take into account that ultimate.
Lee.
A more modest rebuild of consumer confidence than we last expected in the middle.
The middle of me and when you look at a net arrivals for the remainder this year, we're expecting them to be a just under 80% of what they were in the second half of this year compared to 2019, a little softer in the third quarter and a little stronger than that in the fourth quarter. So I'm just a general.
The improvement in consumer confidence for the remainder this year, but nothing dramatic in either direction.
Thank you very much Mike.
And Joe getting back to you on the adjusted EBITDA for Wyndham vacation clubs for the segment for the quarter. They had 17 million Lawson adjusted EBITDA basically in June they had a profit of 28 million. So you can see the difference would be the losses that were incurred in.
April and May.
Excellent thanks much.
Sure.
Our next question from unions are Pheno with Oppenheimer. Please go ahead.
Hi, Great just touched upon what's going on in the third party.
Outside.
Activity, there, what you're seeing habits, so sort of change.
Thanks.
Good morning in things for that it a it's definitely even even though the pandemic has preoccupied everything we're doing we are still continuing to pay attention to everything happening in the third party side.
A few things first of all are really not related to Wyndham vacation clubs are winter destinations, but there has been a lot of.
State activity as it relates to pressing a exit companies for their business practices.
Questioning them in either filing complaints or.
Raising concerns in the goertz related to their activity, where we're continuing to watch watch those cases as they unfold I believe it's now up to three different cases against three different companies in three different states or maybe more by now as I know there's been some recent actions so.
What we have felt is the case in many of our individual corporate suits that seems to be playing out now at the state level, especially in an environment, where consumer protection is is even more important when people are or looking to survive. This endemic they I think the state's offices.
Really wanting to take a closer focus on consumer protection and obviously, we're supportive of that I think as Mike is shared we're seeing nothing unusual in our portfolio and as he shared in delinquencies and deferments.
We don't we have not seen any uptick or any new concern as it relates to third party impact to our portfolio.
Okay, Great and then.
All up on that I guess, increasing cancellations.
I was wondering movie to delineate.
Sounds like you believe a lot of that was driven by what you think consumer sentiment.
Is that more so the case and let's just say additional travel restrictions being put in I know, Hawaii is difficult travel restrictions that might lead to the cancellations there, but if you look at sort of he used 48.
Is that driven by sentiment, which it sounds like you're saying versus like travel restrictions herself quarantines or for forced 14 day quarantines is that kind of correct maybe de Lenny Bruce Thanks.
What you know, it's really an important question because I I think it really should shape. The way we look at the second half this year for first of all I absolutely believe they the demand for people to take leisure travel is very high.
We said throughout this and I think there was either article on the Wall Street Journal today about leisure demand is it will be the first to return and we still believe that to be the case, we've we've shown in the reopening that.
The metrics are gonna be strong when the quantity picks up and although we're talking about headwinds to arrival.
Our occupancy in the month of July was was between 60 and 70% even though the once not done we know that that's going to be the case. So take a lot of leisure travel a lot of hospitality would want it to be at those levels. So despite a tripling of Kobe cases, the underlying metrics we feel are there.
Very strong and I apologize for the long preamble to answer your question, but I think that's an important component.
We we we see the biggest impact to arrivals to be daily cases, yes, Hawaii has delayed until probably September yes.
San Francisco is likely to be September New York will be reopening in the month of August, but but the self quarantining in the market closures, we think are relatively isolated.
And we take the number one driver of cancellations is the consumer sentiment and what showing up in daily cases.
Okay. That's very helpful. Thank you very much.
I appreciate it.
Our next question from Jared Shojaian with Wolfe Research. Please go ahead.
Hi, good morning, everyone.
Well I.
Good morning can you give us a sense for how much daily tours are running down year over year right now it just so we can have some context for the down 60% second half guide and then in that thought process did you assume the daily decline continues through year end are you assuming a a ramp up as we get into.
Two.
Later in the fourth quarter and by year end.
Absolutely.
Jared it's a I would put it very similar to what we're seeing that arrivals as as we mentioned we expect it to be 60% down in the second half of this year of which 80% of that <unk>, 80% of that 60% is on the new owner side.
We expected to be a little more than that 60% or here in the third quarter and a little less so in the fourth quarter. All that's to say that we expect a sort of.
I won't say, a slow grind, but steady increase in confidence as as the year plays out and that's how we've projected third and fourth quarter.
Just to give you a sense of July you know, we expect to be somewhere around 75 million it'd be a wide sales with very strong BBGI.
So.
Once you get quantity back that should all play out very well in margins because we've not only improved our segment results but.
As we've discussed on multiple occasions, we continue to.
Make our overall infrastructure more efficient and we believe those infrastructure takeout will are sticky and we will be able to.
Keep.
Those cost reductions into 2021.
Okay. Thank you and just a clarification did I hear you say that the July VPG down 30%. That's also your expectation that the second half will be down 30%.
Yeah the dry.
30% I'm sorry, yes. The June July VPG ER, we expect the second half of this year to be over 30% VPG lift from prior year and not too dissimilar than than the that commentary on.
On arrivals, we think july might be a bit stronger than that but at the end of the year that second half of the year being 30% at least 30% up on VPG compared to prior year.
Thank you that's helpful and so my question on that then is if tours and VPG, often our inversely correlated and you're expecting to see tour flow really built throughout the second half a year is there anything specific that's giving you that confidence that you're still going to be able to maintain that up 30% that you were saying in July as tour focus.
When used to build.
I do a number of elements first of all what we've done as it relates to our overall marketing criteria.
Will is new in the reopening face and will continue throughout the remainder of this year because volumes.
We are not in a topline chase at this point, we're in a build back scenario, we have our best talent now now speaking to higher quality tours as far as marketing qualifications and and thirdly is you're getting some some form of mix effect by the.
Fact that as we as we said going into the reopening phase that we would be more weighted toward owner tours for the second half of this year.
Okay. Thank you very much.
Thanks Sharon.
Next question from Patrick Scholes with Suntrust. Please go ahead.
Hi, good morning, Michael.
Good morning.
Taking a little bit of a step back you're thinking about that extraordinary large loan loss provision you took in one Q in hindsight, how do you feel bad.
That was too conservative the right amount of conservatism or not conservative enough now Jim the dust is starting to settle a little bit.
Yeah, I think you know I think when we sat down and looked at it at the end of the the second quarter I'm, obviously, we didn't make any adjustment to it. So I think we feel the the reserve is still appropriate in terms of you know, whether it's a too conservative or not keep in mind that when we put the reserve in place. We really took an 18 month outlook what kind of projecting.
What we expected through the end of 2021, I'm really just cutting it three months into that 18 months. So we're very pleased with the way their portfolio performing.
I would say it's too early to say, it's its conservative, but I would say the trends are positive in terms of you know looking at delinquencies I'm looking at how people are returning to making payments when they come off deferrals. The fact that deferrals of almost you know a completely gone away as far as new request. So yeah. I think we're happy we acknowledged when we.
ER talked about the reserve in the first where there was at the higher into the range.
When you compare to it as a percentage to what some other companies with consumer portfolios had booked but too early at this time to say that you know the number with two large will you know we'd like to think that over the next 14 to 15 months. The portfolio continues to perform well, but we'll just a need more history, especially in these uncertain times.
Understood. Thank you and.
My follow up question.
In your prepared remark.
POC and I apologize if I didn't get this is correct about seen a larger but not qualified.
Well to want to take a poor could you give little more color on that it.
When I got that correctly, what what's behind the scene that even though that increase.
Patrick you you heard that we didn't expand on it but it's it's more of a broader common commentary on what we're seeing as for far as the first returns to many of the Mega market such as a Vegas Orlando is.
Is I would say the FICO score have been disproportionately at the lower level a than we would have typically seen and and sort of an up market.
So that's also driven some of our decisions not to pursue.
Aggressively the new owner marketing return is it's just general market conditions seem that.
The FICA scores have been a little lower.
The lower FICO scores have been a little higher percentage of the tourist or prospects that we're seeing in the market. So that's what that was referring to and and again I think its tours and picks up and and you have more quantity of travel that will that will naturally self correct.
Did you say that's reflective.
So were not.
Not having a much much if any fly to customers coming in where the assumption being that customer, perhaps isn't a better like our financial position minute drive to customer.
Do you know Patrick it it's a great question I'm I honestly I don't know that I have the answer to that I, you know I listen to your your questions too that our sister company at Wyndham hotels yesterday, and I'm always listening for what everyone else is sitting as well it could be a or it could just.
Be you know it's very early in the reopening in people that are anxious to get out have gotten out so I I wish I could give you a clear answer I I'm not sure, but what I if I could just pivot here for a second I didn't notice on the call yesterday, you all we're talking about occupancy in it and it.
To me is just a reminder that.
Although we've spent a lot of our time talking about headwinds and cancellations and you know we're not we would have wanted a stronger rebound, but when you really just still what's happening in the timeshare space today, and well specifically with us our occupancy or mid Sixtys and.
To me it it really gets back to the fundamental point that leisure travel time share base you own your vacation you Wanna get back to normal sees quick as possible all those macro trends, we talked about are playing out and you know our starting point was to get back to 80 80.
5% occupancy and think that difference of what you're seeing between us and the hotel space. Today is the starting point was different as a timeshare provider, we want to be consistently in that 80% spaces in the summer season and were 65 roughly.
That's still great and it shows the strength of our business, but our expectation coming into the reopening was this a little bit higher but but we're pleased where we are and we think that that number is only going to grow from where it is today.
Okay fair enough. Thanks. Thank you that's everything from me.
Thank you Patrick.
Our next question from David Katz with Jefferies. Please go ahead.
Hi, good morning, everyone.
You, obviously have covered a lot of the detail that that's important so I'll apologize for going back to it but.
You know you talked Mike Brown about your sight line for the rest of the year.
How are you then look irrespective of where our optimism baseline might be we do need to consider.
What.
A bit more bearish case could be and you know given the fact that we're seeing you know cases increase in certain places really ought to on a weekly basis.
If you could just talk about how you cut how your contemplated the bare case of you know cases.
Resurging or right a appearing for the first time to be significant new places that we haven't discussed yet.
Just help us understand how your process that that that side of it.
Absolutely David and.
Feels like we've been bear case in their scenario now for for going on four or five months and.
And and trying to say attuned to what's going on obviously the majority of our EBITDA is U.S. centric. So we start there and and.
Let's start with what we're seeing today I think.
Both after the Memorial day in July 4th Holiday, you sell spikes and you saw him and Sunbelt states and and what we're watching right. Now is really a are you seeing a plateau in of daily cases, which you know it's early but it appears to be and you're saying.
It looks like a lot more consistency on messaging is to mass wary and social distancing and.
We look at transmission rates and the Sunbelt states and in states that have now Ah you know under one to one transmission rate has gone from roughly five to six two weeks ago to now nearly 20 and keep in our key markets, Florida, South Carolina, Texas.
And I believe, California, or I knew Arizona has as well so.
Those are at least early signals that there could be some positivity as it relates to the sing singular biggest issue that we think is affecting travel, but as as to bear case, we absolutely are scenario planning against that.
We continue to evaluate our operating capital we continue rate continued operating or.
Our operating cost structure.
And we'll make decisions according to how that changes and you know given that we've we've weathered I think quite well a tripling of of daily cases.
We hopefully think we've moved through the worst, but we remain flexible that continue to too.
Take risk off the table either through our operating capital or expense as we move forward keep in mind that we feel confident with our liquidity over a billion dollars that hasn't changed I think Mike and his team have executed fantastically both in a.
In the and the debt market as well as this amendment.
And we'll continue to evaluate what's out there the ABS market as we as we move and you know arc are our peer set has done a fantastic job in the ABS market. So we think the that liquidity he's going to be available to us as well again, we think our underlying business is strong and we have the optionality and flexibility.
With the to react or whatever the environment gives us, including if consumer confidence comes back very strong we think we're in a position to wrap up quickly.
Understood and if I can just follow up with one housekeeping item.
I know you indicated earlier what.
The senior note proceeds.
Would you mind.
My colleague repeating what you said about that please.
Yes, but the proceeds we used 350 million to pay down the corporate revolver.
And then we would expect to use 250 million to pay the maturity. That's due next March.
Got it okay. Thank you very much but look all.
Hi, David Thank you.
As a reminder started one for questions. We'll go next to Stephen Grambling with Goldman Sachs. Please go ahead.
Hey, good morning.
Thanks Steven.
So the first half of the year, you're pretty much in line with with free cash flow. Despite what was ultimately an unprecedented shut down so when we think about the back half an ultimate recovery in free cash flow you know what are some of the big moving parts of any onetime thing or calendar shift that we should be thinking about.
Particularly relative to EBITDA recovery.
Yeah. This is Mike I think that one when we think about the cash flow in second half year, there's really a couple of items that are impacting us as our portfolio decreases in size, we actually have cash taxes that are occurred because we defer those taxes until the principle is quite good. So we are seeing the situation the second half.
For the year, where we will have cash taxes that are going to be paid the other nuances happening is because we haven't had sales into sales or you know going to be weighted towards the last half of your and even though the last quarter the year.
Those receivables that are generated at that time wont go in drug conduit or won't go into a term transaction until 2021. So.
Kind of getting hit with a a timing issue. If you will will where the receivables once again, our converted to cash until until next year.
Got it helpful. And then on Panorama can you just expand on the comments that you made specific about.
Ventured into non timeshare.
I'm, just trying to understand what what new avenues.
Could be under consideration, what maybe is out of bounds and how to think about trying to size that opportunity.
Oh, absolutely. The idea here is is that <unk> I mean, if we just start with travel and tourism, it's enormous space, but between the size for member base and the relationships, we have a as far as a a purchaser of travel served.
As we believe that there's a starting off there's a lot of b to b opportunities.
That for discount travel programs affinity groups, whether whether they be corporations membership clubs.
Pro sports teams that that have a need for travel yet or they're not a timeshare purchaser because they're entities. So our our opportunity. We think initially is to offer a form of a b to b discount travel program, we're in pretty in depth discussions with the number.
For of groups today, and expect to be announcing a few of those relationships here in the near future.
Our ultimate objective Steven is is to begin to transition.
Formally RC I now panorama as the umbrella brand.
You have more avenues to grow and grow is the key word I think most people have been looking at our C. I as a no to low growth vehicle, but with little capital and therefore with attractive for its cash flow, we think by adding a growth element within our core competency being trial.
Well in membership clubs that it'll be a nice a second leg to our growing Wyndham vacation club business to provide holistic growth as opposed to simply.
Yes, a complementary brand to the timeshare industry.
As a very quick follow up on that <unk> does that would that shift.
Change to the.
Cyclicality or volatility of that stream and and or the capital intensity.
I know I don't think so I think if anything it reinforces a steady cash flows through membership programs and the capital component. We think will remain low you saw we basically acquired technology through the acquisition are there and last year and that provide the fuel or the base.
And it's allowing us to move in this direction. So you know nearly a year after we.
Concluded that transaction, you're starting to see those.
That strategic intent come to life.
Helpful. Thank so much.
Stephen I appreciate it.
Yeah. This will conclude todays question and answer period I'd now like turn the call back or what have Michael Brown for closing remarks.
Thank you and I'm going to conclude today by by doing what I, absolutely think is most important and that's thinking or associates, who have worked tirelessly through this pandemic to not only adapt to it extremely uncertain environment, but to innovate our business and to serve our owners and our members exceptionally there.
Hertz and performance has been truly amazing and it makes me extremely proud to be the leader Wyndham destinations.
We're continuing to innovate to be ready for the full recovery and wireless timing is uncertain. What we know for sure is that Wyndham destinations, we'll be ready, thank you and stay safe.
And that will conclude today's second quarter 2020 went up destinations earnings conference call. You May now disconnect your lines and have a wonderful day.
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