Q3 2020 Wyndham Destinations Inc Earnings Call
Should begin within the next month.
[music].
Good morning, and welcome to the Wyndham destination third quarter 2020 earnings Conference call.
After the speakers remarks, there will be a question and answer period. If you would like to ask a question. During this time simply press. The Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key on your telephone keypad.
As a reminder, ladies and gentlemen, this conference is being recorded if you do not agree with these terms. Please disconnect at this time.
Thank you I would now like to turn the call over to Chris Agnew. Please go ahead.
Thank you Aaron good morning, and welcome.
Before we begin we'd like to remind you that our discussion. This morning will include forward looking statements actual results could differ materially from those indicated in the forward looking statements.
Forward looking statements made today are effective only as well.
Today.
We undertake no obligation to publicly update or revise these statements.
Factors that could cause actual results to differ are disgusting arrest T. SEC filings and you can find a reconciliation of the non-GAAP financial measures discussed in today's call in the earnings press release available on our website at Investor Day, Wyndham destination is dot com.
This morning, Michael Brown, our President and Chief Executive Officer will provide an overview of our third quarter 2020 results. In addition to an update on our current operations and company strategy.
And 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.
Okay.
Thank you, Chris and good morning, everyone.
We were very encouraged with our third quarter results, demonstrating the resiliency of our business and our ability to recover quickly since the reopening of our resorts.
Third quarter, we reported adjusted EBITDA of $139 million adjusted diluted EPS of 83 cents.
And year to date positive adjusted free cash flow of $120 million.
Our results steadily improved throughout the quarter, both sequentially and against prior year.
This is a reflection of growing consumer confidence in travel.
For many of our associates around the globe and the overall strength of our business model, which is rooted in the resiliency of leisure travel and the recurring nature of our revenue and EBITDA streams.
Although cobot continues to present significant challenges for the travel industry. The third quarter highlighted several key distinctions the Wyndham destination business model that allows us to be on the leading edge of the hospitality recovery.
First and foremost we are 100% focused on leisure travel we have a geographically diverse resort in sales footprint minimizing our reliance on any regional market due to fulfill owner demand or to generate sales.
Diverse footprint makes it easy for our owners to travel where they want which.
Which was demonstrated this summer as consumers shifted to drive to destinations.
Over 90% of our owners drove two hours awards for their vacations.
We saw fewer rivals in urban destinations and medium haul markets like Hawaii, and the Caribbean, while mainland beach destinations have been almost demanded locations since the reopening.
As I mentioned, we are well diversified with historically only two markets representing more than 10% of our B O <unk> sales Las Vegas at 13% and Central Florida at 12%.
These factors led to quarterly occupancy of nearly 60% for open resorts, including total occupancy of 77% over labor day Labor day occupancy level that was equivalent to 2019.
In North America, we have now we opened 97% of our resorts and resumed operations at over three quarters of our sales centers.
Our sales resiliency is due to our loyal owner base and our diversified marketing channels and our greater concentration of end market guest acquisition.
When travelers arrive to a market we have the ability to convert these are rivals tour flow immediately.
In the third quarter, we reported 256 million of gross VOI sales driven by a sequential improvement each month in North American tour generated gross VOI sales, which were lower year over year by 71% in July.
59% in August and 49% in September.
As we shared our members love their ownership and when they travel they buy more.
Owners consistently spend an incremental 2.6 times the initial purchase over their lifetime.
And the strength of owner buying behavior post reopening indicates to us that this metric remains unchanged post reopening.
As daily Koby cases declined in August consumer sentiment improved 60% of our owners, indicating they were ready to travel.
Were excited by the increased engagement from our owners and were seeing interest in longer stays during the Thanksgiving and Christmas holidays.
We've seen searches for vacations increased to an average of nearly 1000 miles from their home.
From around 700 miles at the beginning of June, indicating that people are getting confidence with being able to travel longer distances.
The positive momentum supports the strength in tour flow and VPG as we saw in the third quarter.
VPG increased 30% in the quarter compared to pre Cove. It this.
This is due to a combination of the sales mix being more heavily weighted to owners and the improved efficiency of our marketing channels.
Additionally, we have not offered promotional pricing, but instead dedicating our promotional dollars to drive future owner bookings to digital campaigns.
To dive deeper on new marketing channels, New order mix was 28% in the third quarter with Blue thread sales volumes, 13% of new water sales.
The increased proportion of blue thread tours is an encouraging sign given that VPG is more than $300 higher for blue thread tours compared to overall new owner tours.
In addition, the overall improvement in new owner sales demonstrates our ability to generate strong demand even in a challenging travel environment.
And just a few days, we will begin selling our new urban resort location, its Centennial Park, Atlanta, which will be available for occupancy to owners and 2022.
To provide one last insight into performance at Wyndham vacation clubs, our loan loss provision saw noticeable improvement with elevated the minimum ficos qualification threshold from 600 to 640, improving toward quality and driving better performance in our portfolio.
The third quarter, our loan loss provision as a percentage of gross VOI sales was just under 19% down from 20% in the same quarter last year.
I'd now like to ship depend around our exchange membership travel business.
Panorama continues to deliver on its recurring revenue model and shows the resilience we have come to expect from this segment.
Revenue per member improved each month down from the prior year, 29% in July 20% in August and 7% in September.
78% of our C.I. affiliated resorts were opened in the third quarter and this is expected to rise to 88% in the fourth quarter.
More importantly, we are beginning to execute on our plan to grow our base of non timeshare relationships in this segment Panna.
Panorama travel solutions will offer discounted traveled to close user groups powered by the technology from a already while requiring a problem membership fees and recurring transaction fee streams. We're very pleased to announce our first non timeshare affiliation agreement with group up without us.
Although immaterial to our results results today. This deal is our first venture outside the timeshare model and begins our effort to expand our travel business to gain access to the more than 100 million North American households that do not own timeshare.
These services are provided on the B to B basis and are complementary to our current timeshare model.
Let me now move to our outlook.
We are seeing the positive trends in the third quarter continued through October, giving us optimism through the end of the year.
With that said, we remain mindful of uncertainties in the fourth quarter that may pose significant headwinds to our business, including spikes in daily Koby cases next week's election, and the uncertainty around the timing and amount of a second stimulus package.
For the fourth quarter, we expect towards to be down 60% year over year gross VOI sales to be 45% lower year over year and VPG used to remain at 30% above the prior year.
We expect the loan loss provision to remain below 20% of gross VOI sales in the fourth quarter adjusted EBITDA margins to be similar to the third quarter and we continue to expect to be free cash flow positive for the full year.
With that I would like to hand, the call over to our Chief Financial Officer, Mike talk.
Right.
Thanks, Michael Good morning to everyone and thank you for joining us today.
Well discuss our third quarter results and provide you with more color on our balance sheet liquidity position and cash flow.
My comments will be primarily focused on our adjusted results and year over year comparisons.
We reported third quarter, adjusted EBITDA of $139 million and adjusted earnings per share of 83 cents compared to adjusted EBITDA of $267 million.
Adjusted EPS of $1.57 cents, one year ago.
During the quarter, we had $31 million that nobody charges 30 million added back to total company adjusted EBITDA.
Wyndham vacation club reported revenue of $477 million with gross realized sales, a $256 million and adjusted EBITDA of $96 million.
Turns decline, 70% in the quarter compared to the prior year, Las Vegas, and Hawaii, providing a drag.
Nurtures declined 80% and existing archers declined 55%.
VPG on the other hand increased 30% to $3039.
Benefiting in part from improved neural code base, and a higher mix of owner sales.
Our underlying portfolio continues to perform well with delinquencies lower year over year, driven in part by the <unk> programs as well as the more mature portfolio from reduced originations over the historically busy summer months.
Request for deferrals have continued to trend down since the second quarter and now active deferment represent just 2% of loans outstanding down from 6% at the peak.
We remain in close contact with owners coming off the borough and are seeing the majority of them Reaper returned to making payments.
We remain comfortable with the overall allowance on our receivables portfolio considering the continued uncertainty around the duration of the pandemic and its economic impact.
[laughter].
Excluding the results of the North American vacation rental business, which we sold in October last year.
The acquisition of Aireon last August our Panorama segment delivered third quarter revenue of $123 million.
In the prior year Panoramas revenue was $161 million.
On this basis Panorama third quarter, adjusted EBITDA was $59 million in <unk> compared to 70 $70 million in the prior year.
During the quarter the average number of Panorama members decreased by 6% and we expect that trend to continue into 2021.
Panorama NIPT transactions were down 33% in the quarter due to cancellations. However, we're seeing a positive underlying recovery trend.
The timber exchange gross bookings exceeded prior year by 1%.
Marking the first month of year over year growth since cobot started.
Cancellations are recovering more slowly and continue to run at elevated levels, particularly internationally.
As discussed on last quarter's call exchange member base drivers are going to become less relevant for panorama EPS as its travel portfolio expands and we will be transitioning to reporting overall panorama vacation transactions.
Turning Tobin Panorama has remained focused on the growth and integration of Aireon and we're seeing excellent progress in our business development pipeline in the third quarter, HR and delivered 27% of Panorama SNET transactions.
Turning to our balance sheet.
As of September Thirtyth, we had $1.3 billion of cash and cash equivalents with corporate debt at $4.2 billion, which excludes $2.5 billion nonrecourse debt related to our securitized receivables.
Our net leverage for covenant purposes at the end of the quarter was 4.1 times, which is 2.4 times below our covenant restriction.
In the third quarter, we significantly improved our capital and liquidity position into.
In July as discussed our second quarter earnings call, we amended our revolving credit facility well retain some flexibility on capital allocation and also issued $650 million of senior secured notes.
In August we completed our second ABS transaction of the year with great execution on a $575 million term securitization with a 90% advance rate at 2.81% interest rate.
This transaction will complete our 2020 term securitization as our ability to upsize. This transaction due to the tremendous demand allowed us to eliminate the need.
And the associated risk <unk> fourth quarter transaction.
As a result, we pulled cash poured into the third quarter negatively impacting fourth quarter cash flow.
We successfully closed the renewal over $800 million ABS conduit facility on October 27, and extended the maturity date, another year talked over 31st 2022.
The bank group and commitment sizes remain the same with the renewal.
The new terms provide greater efficiency for Wyndham as the dynamic advance rate is now tied to the credit quality of the underlying assets, allowing for a higher advance rate versus the previous facility.
We are very happy with we know and appreciate the support of our banking partners.
We paid our third quarter dividend of 30 cents per share on September Thirtyth, and we expect to recommend a fourth quarter dividend of 30 cents per share for approval by our board of directors in November.
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.
As Michael previously mentioned Weve continued range of possible outcomes that ended the year, we still expect to be adjusted free cash flow positive for the full year.
Overall, we are very proud of our third quarter results, which does not great trajectory for meet our full year 2020 objectives.
That Aaron can you. Please open up the call to take questions.
If you would like to ask this question simply press. The Star then the number one on your telephone keypad if.
If youd like to withdraw your question. Please press the pound key on your telephone keypad. We ask that you. Please limit yourself to one question one follow up for this Q and a session.
And we will take our first question from Joe Greff with JP Morgan Your line is open.
Hi, good morning, everybody and that Michael and my Thanks for the details here on my first question relates to <unk> to be a life sales that was great color that you gave this michael.
On the performance in July August and September and I appreciate the Adobe life sales outlook commentary that 45% year over year in the Fourq. You can you talk about you know, maybe nitpicking, but a little bit or what you're seeing or what you've seen so far in october relative to that 49% number.
For September and then I guess when you think about October at the percentage of the Fourq. You you know how much. He is generally October and does that shift a little bit this year given your commentary on what you're expecting for a longer duration is in November and ran.
Yes.
Great. Good morning, Joe It and are happy to give some commentary around Q4 on B.Y. sales, we Ark and we are seeing continued momentum in the month of October I would expect us to easily to cross the $100 million Mark for the Allied sales, which.
Yeah, not only shows improvement.
Improvement in that in the absolute number but.
Again, just continued improvement against the prior year I really have to credit our sales and marketing teams they came back and and reinvented their business and their performance is really showing through combine that with the fact that we're seeing increasing consumer confidence of our owners wanting to get.
Back on vacation, we see that momentum on the areas that we control.
To to be likely to continue throughout Q4 as as far as rhythm of or cadence of the fourth quarter October December tend to be are stronger strongest months. So why we've enjoyed a sequential improvement every month I'm not I'm not sure how November we'll end up because it tends to be a month at depth.
Little bit with a slower first half of the month and then it begins to pick up around Thanksgiving time, So we'll see but again the underlying performance of that Oh. The Veo why sales has been really strong and I couldn't be happier with our team's performance and the fact that our owners are coming back to the resource.
Thank you and then if I'm piecing together your pieces of outlook for the for Q.
That would suggest that we should see for Q EBITDA up sequentially from what you report in Threeq. It was that how you're thinking about it.
Well, we're we're staying away from giving specific guidance just because I think there's three components that we remain cautious on which which I mentioned being the the election when the secular second stimulus, which we believe will come when it comes and then obviously continue cobot spikes.
What I would just add to that though Joe is we are seeing.
We were very pleased with the third quarter margins I think it really reflects the early actions we took to make sure our personnel and our balance sheet were solid and were expecting similar margins in the fourth quarter.
I mean, I think the other piece of the fourth quarter. That's an important component in the overall equation for driving EBITDA is that we're seeing bookings in Q4 down 20% over last year and in the third quarter that number was down 27% so sort of a tie into your first question, which is just showing continued improve.
Not only do I sales, but and consumers' willingness to travel compared to prior year.
Great. Thank you very much guys.
Thank you.
And we will go next to Chris Woronka with Deutsche Bank. Your line is open.
Hey, good morning, guys.
Morning, Chris.
Good morning, good morning.
Morning.
Wanted to dive into the inventory outlook, a little bit and maybe you can remind us kind of kind of where you are right now in terms of how much you have on hand, and then also.
Given given the distress that that's out there in the market are you seeing any opportunities to maybe go going off fence, there, particularly given that you do expect to be free cash flow positive for the year.
Well I think when we look at our inventory.
You know with the decline in sales that we had through this year, we feel very comfortable with the level of inventory that we have and in fact, when we look out over the next several years on average you'll see our inventories spending in that $200 million range, rather than the 250 that weve targeted you know the the past several years.
As it relates to the opportunities that we do see opportunities coming our way I wouldn't expect that we would take advantage of any of those this year. We think like we saw back in 2009 2010, those opportunities will be there for sometime I'm at this point because of the level of inventory that we have we really think that.
You know driving free cash flow as high as possible.
Using that free cash flow over the course of the next couple of years to get our leverage back down to continue with our return of capital to shareholders is probably more important than putting a new dot on the map I'm. You know, we'll we'll be really focused on you know EBITDA margins and free cash flow once again to drive that leverage down into.
Get us out from under our.
Amended revolver, which gives us a great more flexibility as it relates to return of capital to shareholders.
Okay very helpful. And then on the Panorama segment and I know that's still in transition and there's co would really headwinds all kinds of things, but margin performance pretty pretty impressive is that indicative of where where the margins can be on a one when we get to a more.
For.
Normal operating environment or is there more to go was or was there something exhaustion is that you know is not going to repeat in the future as you grow the business.
I think there's a couple of things first of all on on the current margin I'm. Obviously the team has done a great job you know controlling their costs, putting cost controls in place where possible and then also we do see.
No. Those those are members that cancelled earlier in the year, especially in the first quarter start to rebuild their exchanges. So we're excited about the trend that we see there long term margins as we grow Irene Oh, we can see pressure on the Panorama long term margins now will still drive absolute EBITDA growth, but the margins on the air inside the business.
As our tighter than what we see as it relates to the Rcs exchange business. So we'll drive absolute growth in EBITDA out of Panorama, but Oh I wouldn't expect the margins that we're seeing now to see long term not because of a change in the exchange business, but because they are in representing a bigger portion of panorama.
Okay very good thanks, guys.
Thank you Chris.
And we will go next to Patrick Scholz with Trust your line is open.
Hi, Good morning, Michael Mike.
Good morning, Patrick.
Just a bit of a follow up question on Chris is Oh question. Chris is question one thing that stood out to me.
Earnings will be certainly was that sequential improvement in exchange bookings exceeding prior year in September by 1% you know is it fair to.
Assume that that is simply just pent up demand that's driving it and certainly people couldn't take there, but you know putting exchange because resorts were closed.
In much about Twoq and Threeq here.
A fair assumption.
I think you're exactly right Patrick I mean, there's there's no doubt that there's pent up demand out there no one on the exchange side of the business, but we're seeing it on the Wyndham vacation club side of the business as well, which is why when we look at you know that the continued trend in vacation ownership sales or the shortfall year over year decrease in each month, but on the RCM.
James side of the business, we're definitely seeing those people that either cancelled reservations are in the year rebooking their exchanges or those that haven't yet had the opportunity to take their vacation to you know go for a 2020 vacation or even obviously starting to think about 2021.
Okay and related to that what did you give us any high level color on how you see the.
Christmas and new year's weeks are shaping up and how is it possible that you could see you increased visitation at your club a year over year as well as.
Increased exchanges during that time period.
Well, we're already we're already seeing some change in consumer booking trends.
For the fourth quarter typically our consumer war will book about a 120 plus days out and we're seeing that booking windows shorten to just under 90 days. So we are definitely still in the Thanksgiving and Christmas booking window and as I mentioned.
Joes question.
We are seeing improvement in our Q4 net bookings compared to any other versus prior year compared to Q3, we're seeing improvement there. So we still think we're going to see good pick up here in the fourth quarter.
There's a few different dynamics with schools are going straight through and getting out earlier. We think December has the possibility to be a more full month as opposed to purely a second half of the second half of the month phenomena, which is typical for December.
Also credit to our digital and a team is we've been out there promoting our holidays. We've we've just launched something for Thanksgiving to try to drive people for longer stays at that it during the Thanksgiving timeframe. So there are different dynamics from prior years, but with the improving trend that we're seeing in.
Q4, compared to Q3, we're very encouraged that subject to sort of the external forces you are.
The the overall demand for leisure travel will continue and who are really in that holiday season.
Okay. Good to hear and then one last question here, if I may and I apologize. If you did say this in the prepared remarks I'm in the Threeq two <unk> in the idea why sales what was the percentage of new owners purchases first existing.
In Q3 was 28% and of that 28% 13 was blue thread just if I could rewind back to our prior public remarks, we expected that number to be 20% to 25%. So we were we were very pleased that in.
Ending up at 28%, we did not expect that to be that large of a mix in Q3, so very positive early trend and in.
Yeah in the prepared remarks, we did comment that.
A lot of that can be also due to the fact that our in market acquisition has as leisure travel begins to pick up Patrick we can capture that improvement and leisure travel and converted the tours relatively quickly.
Okay very good thank you very much thanks Patrick.
And we will go next to Stephen Grambling with Goldman Sachs. Your line is open.
Hey, good morning, I guess on maybe.
Maybe a bit of a follow up on <unk> thinking about new owners or I should say no new tours can you just elaborate on what you're seeing in terms of the demographics of the customers who are coming in now and how that may or may not have evolved specifically I feel like we got a lot of pushback on what a younger customer.
Sure.
Is you know still engaging with timeshare and wet or whether they may be.
Choosing alternative forms of accommodations and thanks.
Good morning, Steven.
We get that question as well all the time, so I I really appreciate you, bringing in bringing the topic up let me just share a few facts and then give you a few of my personal thoughts on the matter is that this time last year, 60% of our new owner sales were to either Gen. Xers are millennials and this year that number is 58%.
Given the fact that.
Weve got less less or new owners coming into our mix I think that's actually a really good sign in the third quarter, 20% of our sales to new owners were to millennials and just to inform a context just a few years ago that number was 5% to 6% so.
So we are seeing millennials continue to move toward timeshare and find it as a great way to vacation.
And and I really think when you look at the more macro trends of how people want to leisure travel. We we just fit in all of those areas whether its drive to is more of a near term phenomenon, but the idea of vacation with with bigger accommodations multiple bedrooms.
So what amenities everything you're seeing is the positive elements of the air being bees and VR videos, we're benefiting from those same trends I I think the element that we deal with is that there's still a large part of the population that use timeshare as a fixed week fixed location.
Same same unit every year and the reality is is.
When the brands came in in a way to nine and and in many of the unbranded companies. We've completely changed the model, which provides maximum flexibility and for those who.
Take the time to do the research they.
They are they see the benefits and I think it really shows up in the demographic that like I said, 20% of our new purchasers are millennials and I think that's only going to continue to grow as we as we move forward Needless to say so the fact that there's is that perception still out there is we have a lot of work to do.
Going to continue to tell our story and show that a it is a great way to travel like we're seeing post reopening.
That's helpful and as a follow up maybe for Mike Hogan free cash flow I know you referenced some some timing that maybe pulled some costs into fourq is there any other kind of working capital or other capex puts and takes to think about as we think through free cash flow in the fourth quarter and maybe any initial signals as we think about the recovery.
And the next year. Thanks.
Good morning, Steven you know cash flow. Obviously, we were we were very excited about that ABS transaction. I mean demand was incredible we went to market with a $400 million transaction.
Size it to 575, and you know I really felt like we always have they did you put the money in the bank. When you can when you get 90% advance rate in interest rate under 3%. So we're fine making that decision, even though it did or a move some cash flow from fourth quarter into the third quarter. It didn't change our overall outlook and really when we look at fourth quarter cash flows.
Jason it's going to be down those in a year over year driven entirely by the consumer finance activity lacking the lack of an ABS transaction as well as as we grow or be a life sales in the fourth quarter and not doing a fourth quarter transaction, they're only going to sit in that the idea of content that we have that we recently renewed that we're very excited about as well and 60.
An advance rate so it's really a timing issue where the sales that we make this quarter will go into the conduit and then when we do our next transaction probably in March or April of next year like we historically do don't jump up to that 90% advance rate. So really nothing unusual in the fourth quarter as it relates to cash flow, except for ROI to the consumer finance activity.
<unk>.
Yes.
Great. Thank you Steven there was there another question I, we couldn't hear if there was.
Thanks, so much.
Thank you Steve.
And we can move to our next questioner, Brian Dobson with Jefferies. Your line is open.
Hi, Good morning, I know you gave some great color on on Blue thread tour sourcing I was wondering if you could just expand a little bit on what you're seeing in the open open channel marketing.
Absolutely good morning, bride and great to hear from you.
There's the blue thread.
It's it's one of the programs as you know that we've been we've been very committed to and.
Is provides a lot of stability and in attracting new owners because of the the loyalty to Wyndham rewards in the hotel group and their stays to our hotel brands.
We saw continued strong performance almost from day, one coming out of our reopening and at the end of May as I mentioned, there vpgs or three 300, plus dollars higher and therefore provide a good steady base of margins as we move forward related to open market. It did.
I NAMIC is a little more.
It was a tricky probably complex in it's a market by market decision that we continue to make as part of our changes as we went through this reopening as we mentioned we've increased our FICO, a minimum and as well we evaluated.
Hundreds of marketing locations across the U.S. and made some decisions to close them down because margins were low and we we knew that we needed scale to to reopen those markets that summer is the peak season for the for the open market channels and we made some we made some tough decisions.
Ends in May and June to close locations down that we will not reopen until at some point next year if ever.
The result of that I think is what you saw in Q3 is that the marketing locations that do remain open.
Are producing really good margin business, it, which we think will create downstream benefits for our portfolio.
I always hesitate to say Weve closed down marketing because that's what this business is based on but the reality is with 28% of our sales being to new owners I think that decisions are on marketing and sales teams may and across the organization really reflect that they they made the right decisions and it's in its ray.
Really helped our business. So this is a month by month evaluation know markets. The same we see what's going on in Hawaii urban destinations versus you know what's going on here in Orlando.
And just use that to give you an anecdote Brian about Orlando 60 days ago, when we looked at Orlando 2021 bookings it was our number seven.
Requested destination, which.
It's always our top top demanded destination well.
Roll forward 60 days to the past a week or so it's now our number one demanded destination for 2021.
And I think not only does that speak to how we will approach our open marketing in Orlando and 2021.
I think it speaks more broadly to the consumer confidence of booking travel in the leisure space.
At a little more distance from today and I think it's an encouraging sign for us obviously, but obviously, but more so probably for leisure travel to this region.
Thanks, that's very helpful. And then and then shifting over to the loan loss provision and a better than expected in Threeq you. How do you see that how do you see that evolving moving forward should we expect the curve to.
Is should we expect that to decline in a linear fashion or might there be some ups and downs along the way and then if you wouldn't mind touching on your progress against the third party exit strategy firms.
That would be very helpful.
Yeah. Good morning, Brian This is Mike I'll take the first part as it relates to the provision and Mike can jump in on that third party activity as.
As you mentioned very happy with the provision in the quarter coming in at 18.8% you. All know there has been a real goal of ours to get low 20 percents of teams done a great job really on the marketing side to make sure that you know we're marketing to the people that have the ability to pay for the product and getting that minimum five go up to 640.
Only helps with that when we look at the fourth quarter, we would expect it to be in that same range and then even throughout 2021, you know our goal will be to continue to market to the right people to have a provision that remains under 20%. So overall, we're you know we're happy with in originations and we're happy with the entire portfolio. When you look at the level of defaults that came through in the quarter.
About flat year over year delinquencies are actually better at the end of September this year than September last year. So you know I think the outreach we are doing to our owners continue to stay in contact with them or the trend we're seeing as far as then booking vacations again on vacation I think all bode well for our portfolio, so and the provision going forward. So overall I don't think.
It could be happier as far as how our consumers are continuing to pay and just as importantly, as we go forward. The marketing changes we put in place to make sure that we keep that provision below 20%.
So so Brian I'll touch a little bit on the third parties and and you heard US mentioned many times, our five point plan and and in the third quarter. We had progress on every single one of those points.
We're seeing improvement on the older vacations and their booking trends you are seeing the changes we've made to our underwriting to drive a FICO scores.
We launched in the third quarter certified exit by Wyndham, that's traditionally been our ovation program, but it.
It shows that what we want is for people, whether it's through us or through a a reputable lay the company to when the time is right for them to exit to make sure they're dealing with a party that won't charge them upfront fees and we'll give them the straight information and therefore, we want to be far more upfront in the sense of make no mistake.
Greg when you click on this web site or call. This number the discussion that you're going to have and weeks, we've seen a nice uptick from that.
There continues to be progress at the state level with regulators, both on on resolving or pending litigation or.
Ones that continue down the path toward resolution between exit companies and attorney Generals attorneys General and then lastly, Youre our litigation our individual company litigation continues to bear fruit yeah. The fundamental question. We ask is of these companies is you you can answer it.
One of the judge or or you can you can change your business practices and almost without exception exact exit companies are choosing to either exit the business or change their business practices, rather than face up their business practices in the quarter loss. So we continue to see progress in her and are pleased that.
More than anything that consumers are starting to get the straight information and can make their own decisions for them for themselves.
Great. Thank you that's very helpful.
Thanks, Brian.
And we will go next to Jared show Jain with Wolfe Your line is open.
Hi, Good morning, everyone. Thanks for taking my question.
So previously the idea was koby cases, I think you had identified are the number one driver of arrivals. Obviously covered cases are still going up I seems like trends are improving and moving in the right direction. So can you just talk about that a little bit and then I know Hawaii is it's small for you guys, but or anything you've seen since.
Quarantine was lifted.
Yeah that Jared it's a great question because ER.
Yes, if I if I, if I dialed back to June and in July and August commentary. It was we're as cases Spike you see a correlation to our net bookings and here. We all roll for 90 days later, we're seeing up cases, spike and interestingly enough we are not seeing cancellation.
Engines, which is what we talked about as being the corollary, a we're not seeing cancellations spike and I you know I want to say, yet the yet being I'm not sure if they will or they won't but until now we have not seen anything unusual in the cancellations like we saw in July and August.
We are hopeful that will stay that way we will see.
And we believe it could be two things two primary drivers as to why cancellations are not spiking. This time the way they did in July and August and I mean cancellations of bookings for vacations number. One we think there is a bit of kogut fatigue or burn out and people are just saying I'm going to continue on I'm just.
By what we're hearing as far as spikes and secondly is in the last 90 days a lot of people have traveled people have learned what's safe travel was all about learn that going to brands that have programs that ensure safety and do ever follow cleaning proto.
Because and I can point to my own experience I I traveled out to all our location in Las Vegas and could not have been more impressed with our health and safety protocols in place himself Super Super comfortable.
Comfortable to be on vacation and you know as time has gone on you've seen I think a little bit of fatigue, and a little bit of a people just growing comfortable that if they choose the right place they feel good to travel and so you're right to point out what we said in the past of where we are today and and.
As I mentioned until now we have not seen that cancellation better spike in cancellations that we saw in July and August.
Okay. Thank you and then on Hawaii in anything you see as the corn Dean so.
In Hawaii, when you look at our Q4 tore projections 100 actually 120% of our decline in Q4 from our previous projection is due to Hawaii, we're starting to see bookings come into Oh.
Uhhuh, but the outer islands or not so much so I actually although reopened technically.
It is a it is going to remain a very soft market for us for the remainder of the year and it is not a.
Dependent market for us it by any stretch so I'm what I'm very proud about is the rest of our <unk> our tour projection one.
100, or 120% of our toward decline and in Q4 from our previous projection has been made up for the from the rest of the.
The the.
Sales locations in the mainland U.S.
Sorry that was a bit confusing we recovered some of the loss in Hawaii in the remainder of our our sales locations, which shows really good performance in the ones that are reopened on the mainland.
Okay. Thank you that's helpful. Just to stick on that is that was actually my follow up question with tour is expected to be down 60% in the fourth quarter.
I think the implication was maybe they were expected to be down maybe 50% previously are you, saying that delta between those two numbers is entirely Hawaii are there more things going on in there it's not only entire it and think you forgive me the chance to to speak more clearly on the subject, it's not only entirely it's more than that.
Number, but we've been able to offset it by strength in the other mainland market. So yes is the short answer that it's entirely due to Hawaii.
And more.
Okay. Thank you very much thanks Jared.
And we can go next to Ian Zaffino with Oppenheimer. Your line is open.
Hi, Great you know.
Maybe just following up on that question.
Our way or any surveys on on bookings and motivations I'm, just trying to get a sense of how.
How many of these bookings at this aspiration all.
And they're not necessarily serious just given.
Oh, the kind of reduction in the district. This other cancellation policies et cetera.
And if you have that information like have aspiration of bookings actually declined and you're seeing actually more real solid bookings, maybe just some color on that would be helpful. Thanks.
Well good morning, and it's it's a it's a it's a question that evolved throughout the third quarter.
Let's start with our cancellation policy.
Is is what it has <unk> was pre coven now we are providing much more flexibility as far as use years and being able to roll your points into 2021, and and the implication of that knowing that we do have a cancellation policy does show that our.
The reservations, we see are less just purely aspiration I'm, just going to put something on the calendar and they're actually sticking.
And we know that for a few reasons number one is cancellations have been very steady over the last 60 days.
And we've seen them shortened from 120 days down to 90 days, which means.
People have this pent up demand and they want to get on vacation and we're seeing that travel actually have come through from when we change the cancellation policy to those bookings are actually happening and we're getting that done your rivals. So we there's actual proved too.
The cancellation numbers that that we're seeing in the month of October as well or what I would also say Ian is that you know I mentioned that I think back to Joe's original question is we were down on net bookings, 27% from prior year in the third quarter, we were down.
Down we are currently down 20% in the fourth quarter up 2020 with a closer in booking window. So improvement, but we also are looking into 2021 and that number is only 5% down versus the same time last year looking into 2020. So.
We are seeing this consistent progression of interest to get on vacation.
And we think the overriding factor here is that there is that it's the leisure travel phenomenon is that people want to get get away and start using their vacation get out of the house and and that's why we wanted to share that statistic that not only are they going to drive to destinations, but they're starting to look a little further afield to get on.
Vacation in the upcoming 90 days.
Okay, and then maybe just just a follow up and maybe just a little bit more color on this so it seems like the bookings you're getting are more serious you think that's what's driving the decoupling I guess between.
Cobot spikes and and cancellations.
<unk> any color on that that would.
Okay. Thanks.
I I do and I.
You know we I've.
As you can imagine read almost every report or whether its gaming or hotel rates or is this morning Airlines that are that are releasing and there does.
We we've been seeing it in our business this.
Less correlation between between in daily infections, and consumer confidence consumer confidence is at its highest level. It through our survey since April and that includes the last three weeks wins when Cove. It has been spiking and that's why I shared that I'd.
I think it's really comes down from my perspective to two big issues or that there is a bit of cove. Its a D people have chosen to just start live in their lives a bit differently and secondly is a more and more people have traveled in the last 90 days and when they come home they share a way.
Where and how it's safe to travel and again, that's my hypothesis, our hypothesis, but you're starting to see it show up in a number of other company reports when they talk about leisure leisure travel as well, which which is a bit of affirmation.
Okay, great. Thank you very much.
Thank you Ian.
As a reminder, please press star then the number one on your telephone keypad, if you would like to ask a question.
We will go next to David Katz with Jefferies. Your line is open.
Hi, Dave just a morning and thanks for all the information and thanks for taking my question I know that we've we've asked a couple already but I wanted to go back to just one matter having heard everything that you've said which is.
Little doubt around the notion that consumers will travel and want to travel, but from a separate perspective, the degree to which they can and if you kind of look at your business. Today are there any no restrictions or you know airport conns.
Strange or things that are constraining your business.
You know prevent a person who will travel, but you know cannot to one of your resorts at the moment.
Well, a very fair, David and a heavy take as many questions. As you have the this is really what it comes down to an i. I. Although we are seeing a greater propensity to travel if you dig a little bit more into this consumer confidence that I just referenced and it ends.
David I do still think you can break consumers into three primary categories. The first being.
They're going to travel no matter, what and we saw that throughout the summer when there was even more uncertainty out there.
There's a third that that say they won't travel until there's a vaccine or close to having a vaccine you know that.
That number goes between 30%, 35%, depending on the week, but I.
Its roughly a third and then it's that middle third group that really follow that tends to be following the sentiment and it seems to be less sensitive to daily infections, just because as time has gone by and as as we just talked about and that's how we look at our owner base and it's really make.
He sure that.
That last third who aren't comfortable to travel have had as much flexibility as possible, meaning point our points on perishables. So although you may not have traveled from March to October we want to make sure you get the full use of the year points and that may not be the share. It may be that you need to roll them over.
I received an email from a you know a top point owner last night and they just said.
We just not going to travel this year any issue with us rolling it over in our our service team was on it this morning, and I I've, they're they're happy there. They are just happy to know they can travel next year.
<unk> two constraints I think this is where it comes back to one of the distinctions of remodel is.
We have.
230 resorts around the world and you.
You know, there's we have we have resorts in a lot of different destinations in the mainland U.S. and the the fact that people that there is a greater proportion of people who are not willing to travel today, it's just fine because they'll choose from Chicago to go to the the dials are you know in Arizona.
Go up just some of our great resorts and you taller in Arizona, or southern California, or new Mexico. So this drive to component.
I think is a big win for US here for the next 15 months and allows a lot of flexibility for our owners to choose when and how they want to vacation and I think that's meaningful you know I talked at our [noise] Our beach destinations on the mainland where our most demanded I didn't mention one of our affiliates has.
A mountain destination in Virginia, and they are having incredible demand because it's a it's a remote location. That's you know sort of this mountain retreat and it's great and we have a many resorts at Wyndham vacation clubs like that and I think that is an important element of the show.
Short term for getting people back on vacation because they want to travel they just need to have the options and whether its panorama or wyndham vacation clubs, we offer by far the most extensive optionality.
Yeah, and David I think I would add a couple of other things I think the restrictions are actually.
Being reduced when you look at southwest Airlines recently announced they're going to start selling the middle seat again.
United was providing testing to you know their customers that were find out why they're providing testing at the airports that you could start enjoying your vacation when you get to who I think Im GM announced they were going to start seven shows in November out in Las Vegas. So when you look at you know the the leisure travel all these companies that help drive our business by you.
Getting people into our vacation destinations are actually doing things to drive more arrivals to our markets and and so you know previously you didn't want to go to Vegas, because [laughter] enjoy doing other things other than just gamble now potentially you have a reason to go out there because you can go see a show. So I think all the trends that we're seeing are you know once the state's Rwanda to open up other.
Companies and leisure travel or doing things to drive more consumers. They are obviously to help their business, but that also helps our business because rivals in the marketplace to tour flow and realized sales.
I appreciate that if I can just one more I recall that the company you know during do you have to getting into Wham and web 2.0, you know, which you know was opportunistic when there was a fair amount of destruction out in the market.
Are you putting plans or structures in place that are similar to capitalize on what may be capital light or or fee based opportunities as the world evolves through next year.
We definitely are David I mean, we in fact, we never put those plans on the shelf why we've been doing that they asset light continuously since 2009, just a different levels and in fact, the deal that might just announced today or discuss day in Atlanta is actually a a an asset light.
Transaction there in Atlanta, So we're ready to roll with those transactions that come our way you know, we we definitely feel there'll be opportunities and will be smart and just take advantage of the ones that you know.
Represent great inventories are great markets for us, but we're ready to roll on those.
Perfect. Thank you very much.
Thank you David.
Thank you that concludes our question and answer period I would now like to turn the call back over to Michael Brown for closing remarks.
Thank you Aaron.
And as we launch here into the fourth quarter of what's been a tremendously unpredictable year, we were making important strides to restoring and growing our business. Our customers continue to trust us with their vacation and we're seeing strong <unk> star stronger travel trends around the globe as always our success is driven.
By our associates around the world, who I want to thank for their outstanding work over the past seven months. They truly been an inspiration to me we look forward to sharing more with you in the upcoming months. Thank you and have a great day.
Thank you that concludes todays third quarter 2020, Wyndham destinations earnings Conference call. You May now disconnect. Your line at this time and have a wonderful day.
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