Q4 2021 Travel + Leisure Co Earnings Call
The R&D around.
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Good morning, and welcome to the fourth quarter and full year 2021 earnings conference call for travel and leisure co formerly Wyndham destinations.
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 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 call is being recorded if you do not agree with these terms. Please disconnect at this time, thank you and I would now like to turn the call over to Chris Agnew. Please go ahead.
Thank you Ashley and good morning.
Before we begin we'd like to remind you that our discussions today may include forward looking statements.
Actual results could differ materially from those indicated in the forward looking statements and the forward looking statements made today are effective only as of today, we undertake no obligation to publicly update or revise these statements factor.
Factors that could cause actual results to differ are discussed in our SEC filings and you can find a reconciliation of the non-GAAP financial measures discussed in today's call and the earnings press release available on our website at.
Investor travel and leisure.
Carl.
This morning, Michael Brown, our President and Chief Executive Officer.
I'll provide an overview of our fourth quarter and full year results.
Hi, Todd.
Key financial Officer will then provide greater detail on the quarter, our balance sheet and liquidity position.
Following these remarks, we look forward to responding to your questions.
With that I'm pleased to turn the call over to Mike.
Thank you Chris.
Morning, and welcome to our fourth quarter earnings call.
This morning, we are pleased to announce another strong quarter to close out 2021.
We reported adjusted EBITDA of $228 million and adjusted EPS of $1 19.
For the full year, adjusted EBITDA was $778 million and adjusted EPS was $3 65.
Adjusted free cash flow finished the year at $223 million.
This was ahead of our expectations and we resumed share repurchases in the fourth quarter.
Including dividends, we returned $134 million to shareholders in 2021.
At Wyndham destinations gross vacation ownership sales were at the high end of expectations with tours above our guidance range and continued strong V. P. G.
In the fourth quarter, <unk> was 36% higher than the fourth quarter of 2019 and for the year. We finished with a 32% increase from 2019.
The strength in D. P. G is a testament to our best in class sales and marketing teams and reflects our focus on higher quality tours are.
Our receivable portfolio continues to perform and in the fourth quarter. We released an additional COVID-19 reserve, yielding a net positive adjusted EBITDA impact of $28 million.
I would like to highlight a few key metrics from 'twenty to 'twenty one.
28% of total transactions were to new owners with 65% of the sales to Gen X and millennials.
Blue thread, which is our term for lead generation through our relationship with Wyndham hotels <unk> resorts also performed well blue thread sales represented 16% of new owner transactions in the fourth quarter and 14% for the full year, both over 200 basis points higher than the prior year.
Turning to the travel and membership segment fourth quarter, and full year transactions increased 30% and 61% respectively over the prior year.
This segment recovered steadily in 2020 , one with year over year transaction growth each quarter.
Exchange transactions make up the largest component with domestic U S demand proving very resilient throughout 2021, helping to offset international cross border travel, which continues to be challenged by pandemic related travel restrictions.
Non exchange revenue per transaction increased 44% and 38% in the fourth quarter and full year respectively.
Transaction growth has been led by Panorama travel solutions.
We launched Panorama travel solutions in the fall of 2020 with a focus on development of the business model and signing partners to date, we have closed 18 contracts with a combined total addressable market of 9 million households in North America.
Our pipeline of branded and White label clubs continues to grow.
In the fourth quarter, we began moving into the activation phase as an example, the National Association of Realtors Travel Club went live at its National Convention in San Diego in November and in under four months nearly half a percent of its $1 5 million member base.
Active hate it.
As we approach the busy spring and summer travel period, we have a number of marketing programs with an a or designed to activate additional users.
More recently our team was at the Super Bowl to promote the newly launch platform for the NFL alumni travel club.
Although insignificant to our financial results, we are seeing tangible progress, which reinforces our expectation that this business will be a driver of growth in the coming years.
Our overall adjusted EBITDA margin was 26% in the fourth quarter and 25% for the full year, we were able to achieve these margins. Despite a reduction of net interest income, which is due to the reduction of our consumer finance portfolio.
To put in perspective, the strength of our fourth quarter and full year margin.
If we equalize the 2021 portfolio size to 2019.
And exclude the EBIT benefit from the Covid reserve release.
Adjusted EBITDA adjusted EBITDA margin would have been 100 basis points higher than the comparative period in 2019.
In 2021, we laid the foundation for the next four years with our stated strategic goals to expand our addressable market accelerate earnings growth and increase free cash flow.
We acquired the travel leisure branded January and launched a new subscription based travel on leisure club.
Our Investor day in September we laid out a plan to increase our compound annual adjusted EBITDA growth rate to 11% to 14% through 2025, reflecting continued growth of our cornerstone businesses of Wyndham destinations and RCI and growing new business extensions into BTB travel clubs and two <unk>.
To direct to consumer travel clubs.
Related to recent travel trends in late December we started seeing some near term hesitation in booking behavior, given rising omicron Covid case counts net arrivals and forward bookings were impacted in January however, as with previous Covid spikes each successive wave has had a.
<unk> impact on our business and the rebounds have come faster and stronger.
In January net bookings at our vacation ownership resorts were 8% below 2019, but in the first three weeks of February net bookings for 2022 were 5% higher than 2019.
Exchange as being a similar inflection with North American revenue trends swinging positive in February .
Internationally. The news continues to improve Australia has reopened its borders to international travel and our exchange business in the U K has seen a rebound in demand, we expect international to be slower to rebound with cross border travel taking longer to get back to 2019 levels.
Although the pandemic has presented a tremendous challenges. It ultimately is proving the resiliency of our business our ownership a member based model with its recurring fee streams and strong cash generation, whether the dislocation in travel over the last two years.
These same strengths will be our tailwind as travel and the economy recover.
With the economic recovery, we recognize rising inflationary pressures, but we do not view it as a meaningful risk in fact, one of the core value propositions of timeshare is locking in the value of future vacation costs at today's prices.
We can more readily demonstrates the value of ownership when travel costs are rising which should help close rates or business model also allows us to focus on the lifetime value of new owners through future additional purchases consumer finance and management fees as well as exchange membership and transaction fees.
As a reminder, 80% of our owners have no loan outstanding and are enjoying their vacation accommodation for the ongoing relatively low cost of their maintenance fees.
Turning to our outlook, we expect first quarter adjusted EBITDA of $160 million to $170 million. We are excited to begin 2022 with optimism about the strength of leisure travel.
We're focused on delivering the strategy, we laid out in September and believe the path to accelerated growth remains clear broadening the strength of our cornerstone brands and creating a depth of products and services to serve the leisure traveler.
For more detail on our performance I would now like to hand, the call over to Mike hug.
Thanks, Michael and good morning to everyone.
As well as discussing our fourth quarter results I'll provide more color on our balance sheet liquidity position and cash flow my.
My comments will be primarily focused on our adjusted results.
We reported total company fourth quarter, adjusted EBITDA of $228 million and adjusted diluted earnings per share of $1 19.
Compared to $148 million of adjusted EBITDA, and 32% of adjusted diluted EPS one year ago.
Let me share some operational highlights from our two business segments that led to these great results.
Vacation ownership reported segment revenue of $695 million.
Gross VOI sales of $432 million and adjusted EBITDA of $182 million increases of $37 54, and 58% respectively over the fourth quarter of 2020.
We delivered 129000 tours and <unk> of $3222 in the fourth quarter.
52, and 10% increases over the prior year.
In the fourth quarter due to continued strong portfolio performance, we released $44 million for the Covid specific reserve recorded in March 2020, resulting in a $28 million net benefit to adjusted EBITDA.
At the end of the quarter, our total reserve as a percentage of gross vacation ownership contract receivables was 18, 1% compared to 19, 3% at the end of 2019.
After considering write offs and reserve Romanian Lockheed defaults associated with loans that were granted payment deferrals. We have no remaining COVID-19 related receivables reserve as of December 31, 2021.
Revenue in our travel membership segment was $175 million in the fourth quarter compared to $141 million in the prior year.
Adjusted EBITDA was $64 million, an increase of 28% compared to last year's $50 million.
Non exchange transactions, largely driven by Pts continued to grow faster than exchange transactions and the mix of non exchange transactions has increased 200 basis points year over year to around 40% of total transactions in 2021.
Turning to the balance sheet, our corporate net debt at the end of December was $3 billion and our leverage ratio was 399 times.
We completed three important transactions in the fourth quarter.
We renewed our $1 billion revolving credit facility.
The maturity date to October 2026, and removing restrictions on return of capital to shareholders that were in place during the relief period.
We closed a $350 million ABS transaction.
And we repaid $650 million of senior secured notes due in March 2022, with proceeds from issuing new four 5% senior secured notes due in 2029.
We remain focused on reducing our leverage ratio and with continued adjusted EBITDA growth. We expect to see this ratio continued to decline throughout 2022.
As it relates to a return of capital to shareholders, we paid our fourth quarter dividend of <unk> 35 cents per share on December 30th.
We'll recommend a dividend of <unk> 40 per share by four approval by our board of directors at their March meeting.
We also resumed share repurchases in the fourth quarter buying back $26 million of shares an average price of $52 94.
As of the end of 2021, we had $328 million remain under our authorized share repurchase program.
Adjusted free cash flow for the year was $223 million with free cash flow conversion from adjusted EBITDA at 29%.
We expect feedback around our historical free cash flow conversion rate of 55% to 60% in 2022 and over time, we expect to see just trying to move it higher to 58% to 63% of adjusted EBITDA as we laid out at our Investor Day last fall.
Let me just provide some more detail about our expectations for the first quarter.
We expect gross VOI sales to be in the range of $345 to $355 million.
A 46% to 50% increase over the prior year at.
<unk> membership we are forecasting revenue to increase in the high single digits over the prior year.
And in the first quarter, we expect the provision for loan loss to be around 17%.
This will likely mark the low for the provision in 2022, as we look to increase new owner sales and a percent of sales finance.
Both of these initiatives are designed to accelerate the growth of our portfolio, but they do impact the provision.
For the full year, we expect our effective tax rate to be 27% and net interest expense on corporate debt to be around $185 million to $195 million.
In closing 2021 was a great year for travel leisure our focus on cost controls and quality drove strong margins and EBITDA.
We started the transition back to historic levels of EBITDA to free cash flow conversion and when you ended the year with increased returns of capital to shareholders.
We are excited about the foundation, we have laid for future growth and the opportunities. We have ahead of us.
We look forward to catching up with many of you hopefully in person over the next couple of months.
With that Ashley can you. Please open up the call to take questions.
At this time, if you would like to ask a question. Please press star one on your Touchtone phone. We do ask you. Please limit yourself to one question and one follow up and we will take our first question from Joe Greff with Jpmorgan. Please go ahead.
Hi, good morning, guys.
Question for you that dovetails with your comment Mike on new owner sales and no loan loss provision going up as a result of that are you guys rethinking.
The universe of credit quality target customers and end and maybe going back and lowering.
Back to that that lower FICO band that you.
And given that that pivot from a from a couple of years ago.
Yes, Joe Thanks for the question, we definitely want to drive new owner sales. However, we couldnt be happier with the BTG as were running as a result of as you mentioned moving that minimum five go up to 640, we'll look at that number do we haven't dropped back down to 600 in the near future I wouldn't expect that we will but you know.
We'll look at different factors not just FICO, but other factors. So we can look at payment history for owners and things like that.
To try to drive sales and incremental upgrades to get that portfolio growing again as I mentioned it does come with a provision increase but that net interest income obviously, a great margin and great recurring revenue stream. So we're always looking at credit quality.
Probably hanging around that 60 40 number from an average FICO.
And as I mentioned, our debt would go down to 600 in the near future.
And then just with the capital return and buybacks can you talk about how youre thinking about buybacks here in 2022.
Obviously with the net leverage sub four times and obviously the EBITDA increase in the <unk>.
Deleveraging, we're reducing that leverage ratio.
So paying down debt or hoarding cash doesn't really give you any great efficiencies. So can you just talk about your buyback activity maybe quarter to date and plans for 2022.
Yeah, well first of all we were very excited to be able to.
Remove the restrictions we had during the relief period and that's evident in the share repurchase we did in the fourth quarter and to your point when you look at our intent as it relates to lowering our leverage rate, we've said very clearly.
As we exited.
The covenant relief period that we're going to do that through growing EBITDA not using cash to pay down debt. So when it comes to capital allocation. We demonstrated right. There will continue to grow the dividend and we will go back to that pre COVID-19 capital allocation methodology of looking at M&A and absent M&A.
Excess cash will be used for share repurchases.
And.
By that quarter to date.
Yes at this time, we are going to give guidance as it relates to.
Our cadence of 2022 share report repurchases I think what I would point out, though as you know.
After the spinoff of the hotel grew back in June of 2018, we had a steady increasing level of share repurchases absent any M&A activity. So we're very excited about the optionality, we have as far as capital allocation.
We'll put excess cash to work to.
Drive shareholder value.
Thank you.
Sure. Thank you.
And we'll take our next question from Dan Chaiken with Credit Suisse. Please go ahead.
Hey, How's it going.
This question is maybe tough given due to COVID-19 and but if you were to if you were to exclude.
Exclude.
Omicron as consumers come back are you seeing a relative value tailwind between timeshare and hotels I guess, what I'm, what I'm, referring to is rising leisure hotel ADR is making the price value and importantly, the breakeven for timeshare.
Medically much.
Much more compelling I don't know if thats showing up in the business or if that's more just like a.
Yeah theoretical.
Thanks.
It's definitely theoretical but it is showing up in their business as well and.
One of the one of the <unk>.
Great components of our business, especially at this point in the cycle as.
You can demonstrate very clearly the relative value of ownership.
Vacation ownership compared to a hotel stay or.
Our house rental as the case may be.
And where we see it show up and there is a dynamic that we have to consider which is.
Do you try to drive that incremental 1% price or do you want to try to drive closing percentages at the table.
We've seen a steady increase through both to our quality and I think where we are in the cycle on our close rates and our close rates are.
Our.
Two to 300 basis points from where they were pre Covid and we think that's a result of not only the change into our quality but.
The value people are saying and ownership and paying for future vacation.
Stays future vacation dollars at today's prices and we pointed out in the prepared remarks that 80% of our owners are fully paid off with or are there loans. So.
If you're if you're traveling in this inflationary environment.
To a destination and all you've paid for is your annual maintenance fee.
More clear the value you're getting out of your ownership.
That's helpful. And then just wanted to clarify any clarification.
Are you, saying are you taking are you are you.
Showing us the kind of like two different variables. The closed rate <unk> price, but are you also taking price or are you doing both or you're taking price and also closure coming higher which one are you kind of like towers that situation by situation basis.
No we're leaning more toward close rate because the lifetime value of a new owner is not only future purchases, but the portfolio, which we're trying to grow back and management fees. So we're not taking outsized pricing.
Price increases just normal price increases and looking for the benefit coming out of the close rate I would also like to add because that indoor.
Indirectly it leads to a margin question as our balance sheet, we have the inventory already there is paid for so we don't have rising construction cost pressures there that could affect our margins. So we feel like we're in a really good margin situation and the product that.
We offer is clearly Devon demonstrable.
<unk> that we can offer to the consumer.
Thanks, and then just one more is there any way and I hope I didn't if I missed this I apologize, but is there any way to given the slowdown from omicron in December and January give us.
You have kind of like where you are in.
Maybe at the end of January or February or any data point to show that kind of like bridge us between pre omicron and where we are today.
Absolutely so.
First of all just to reiterate our Q1 guidance.
It takes into account the effects of <unk>, but just let me give you one we normally don't but in February in North American revenue is above 2019 levels, where in January it was below 10%.
And in arrivals in January to our resorts, we were roughly 6% below and we're trending.
Flat if not above for your for February and then when you look at forward bookings as we said in our prepared remarks that our forward bookings are actually above 2019 levels. So.
It's been a very quick return to.
Yeah pretty much normal operations in February .
Thank you very well penetrated in.
And one more thing because we talked a lot about how consumer behavior is changing during COVID-19 that over 90% of.
Arrival to our resorts were drive too, whereas they historically have been in the low seventies.
That number is back to 73% drive two which shows the consumer is returning to their normal travel behavior from a leisure standpoint.
That's really helpful. Thank you.
Thanks, Dan.
And again as a reminder that is star one for your questions. We will take our next question from Chris <unk> with Deutsche Bank. Please go ahead.
Okay.
Hey, good morning, guys.
Morning, Chris Michael Good morning.
Prior to Covid I know you guys had always talked about the kind of this target of getting 50%.
New owners on the VOI side, and I don't think you ever quite really got there youre moving in the right direction now that you've had two years to kind of.
Thank you.
With the business and the strategy I mean does that 50% still makes sense and do you think you can get there or could there be more benefits to can you get the same level of free cash flow or EBITDA, whatever you might like to look at if you are in the 40% range.
Yes.
It's a very important dynamic as we've always talked about the lifetime value of.
New owners is critical to our long term growth rates. So we had presented pre COVID-19 a 45% target.
I would say that that was an aggressive target because.
Coming out of the Great financial crisis, we were.
We had some catch up to do and I think we did a great job, we got it out really right at 40% pre COVID-19 .
Which laid a great foundation for us going into Covid.
We're back at 30% 28%.
Quarters, 30% during during Covid.
We expect to trend right back over time back towards the 40% range.
I think it's very important to note my perspective on this is that.
If you can sustain transaction somewhere around.
The upper <unk> in the low 40% of total transactions Youre in a very good place that's sustainable we will get back into that range and I think just as a point of reference.
The three public companies that are out there 111 has got a higher percentage of one's got a lower percentage and I would say all three of US are in a very sustainable good range of how to grow the business for the long term so.
Feel good about where we are we will increase the number into the <unk> and then into the upper <unk>, but.
Don't think any of that as a concern for us in the near future as long as we stay on that trajectory to grow it back to the upper thirties.
And to Michael's point like we have to have to rush to get there. If you remember at our Investor Day, we pointed out that our current owner base has $20 billion in revenues available to us over the next 10 years, so kind of going back to their question about cycles, we will maintain our quality be smart about growing net VOI number keep those margins high.
<unk>.
Get to the right number over time, but we don't have to.
To do that right away.
Okay very helpful. And then just as a follow up as we think about the subscription business. Obviously the goal is is to grow it but there is probably a lot of stuff. We don't see what are you guys internally looking at in terms of measuring the efficiency.
Of growing that business, because I don't I don't we don't get to see things like customer acquisition costs or things like that I mean, what are the what are the key metrics that debt that you.
You all look at to really grow that business on a on a bottom line not just a top line standpoint.
Yeah.
Absolutely so.
One of the elements that we laid out as we wanted to grow our addressable market.
The subscription business allows us both on a <unk> basis to grow our ecosystem of who we're developing capital capital light transactions from recurring revenues capital light and on the <unk> side the painter.
And the travel solutions.
We really laid out a few key.
Way stations to know that we're being successful the first was can we.
Ill provide a value proposition to white label clubs.
In the first year, we've seen 18 sign ups in our development pipeline is very full on.
And I would even argue it's accelerating nicely.
Next step is an activation phase, which is turning and addressable market into true memberships and it's why we wanted to highlight the National Association of Realtors, we laid out at Investor day that we expected.
Activation to be 3% to 4% and in four months, we're already at half a percent and we haven't even really hit our peak summer season and.
So we're seeing very good proof points on the activation phase and then the last is going to be transaction size and we know that if we get the transaction size. We expect in the three to $400 range. The margins will come with it so it's a funnel of.
Acquire brands, then activate the brands and then activate the members within that brand and then.
Monitor transaction size and given that the travel leisure club are our D to C. Our direct to consumer is about six to nine months behind the launch of Panorama travel solutions.
Looking at very similar metrics as we start to see.
Activation into the <unk>.
The BDC side of our business in the travel and leisure club.
Okay Super helpful. I appreciate all the color thanks, guys.
Thanks, Chris.
We'll take our next question from Patrick Scholes with true Securities. Please go ahead. Your line is open.
Hi, good morning, everyone.
Good morning, Patrick.
Morning.
From a high level, how do you.
Envision the trajectory BTG going.
This year and next.
Given that you're trying to get more new buyers in there, but on the other side of that you have.
From inflationary forces just naturally rising prices, how do you think about or how should we think about that thank you.
Yes.
Great. Yes, it's a great story, we get to share about sort of our pre COVID-19 and post COVID-19 level. We've seen just in general a rise in our BTG.
From $23 2400 up over 3000.
And we would attribute.
About half of that maybe slightly more to the mix of owners versus new owners.
And we would attribute the remainder to 45% to 50% to pure production.
Quality and the performance of our teams along with the change of the quality of our.
Our.
Our marketing efforts so the only the only adjustment that I would make to where were going at the moment is as we increase as Chris was asking to.
To 32% new owners to 34, there'll be a very modest headwind too.
The BTG, but I will say that.
As the leisure travel environment continues to be strong and we see the early indications about how our teams are performing.
Continue to surprise and they shouldnt, because they've always they always perform and they always do a great job in the field.
But our <unk> are holding up very well and I would add anecdotally that includes Q1 in the midst of omicron either performance on PPG continues to be at that expectation if not not above it.
Maybe a slight pullback as the year progresses.
Mix changes, but but not significant.
Okay. Thank you for the color.
Thanks, Patrick.
And we'll take our final question from David Katz with Jefferies. Please go ahead. Your line is open.
Hi, Good morning, everyone. Thanks for taking my question I wanted to just check in with respect to the securitization market obviously.
It's been so good right and the recent transactions have been.
Super Super strong, but that was back in October .
What are you seeing today in terms of what would be if you went to market today and what are you contemplating as we move through the rest of the year so far.
Yes, Thanks, David for the question.
We expect as we move through the rest of the year to kind of get on our normal cadence of three transactions a year.
Obviously as you know we're in a rising interest rate environment. So we would expect rates to go up they under 2% that we were able to get throughout 2021, probably won't be available to us this year, but keep in mind. It is still very attractive rate. So we are expecting an increase we do expect to be in the market three times a year, we're looking for those.
Advance rates to stay in the high 90%. So overall very optimistic about the market.
Keep in mind, all our term transactions that we've already issued are fixed rate. So any exposure. We have is really on any new issuance that we have.
This year and going forward. So it shouldn't be a significant impact to 2022 earnings when you think about the cadence of those in one acre in the year.
Okay. Thank you very much.
Sure.
Thank you and 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 Ashley.
As we head into 2022, we are focused on a very clear and simple ABC strategy, we want to accelerate our growth of our global business, we want to broaden the strength of our cornerstone brands and we want to create depth of our products and services I would like to recognize our global team of associates for contributing to our.
Success and for serving our owners members and guests. Thank you to the shareholders and stakeholders of our company who have put their trust in our ability to put the world on vacation. We're building on a great Foundation and I hope you're as excited as I am about the future of travel and leisure thanks, everyone and have a great day.
Thank you and that concludes javelin lasers fourth quarter and full year 2021 earnings Conference call. You May now disconnect. Your line at this time and have a wonderful day.
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