WYN Q2 2015 CONFERENCE CALL NOTES

Takeaway: Better WVO segment as higher VPGs offset lower tours but REVPAR guidance was soft and it wasn't all FX/Parc 55 sale related

  • Rental transaction volume is growing for the summer
  • Lodging  
    • Strong growth in Wingate brand (highest customer satisfaction)
    • Microtel brand - leadership in economy/budget segment
    • Migrating 4,500 franchisees to new revenue mgmt system.  Full implementation of new mgmt system in late 2016.
    • New revised loyalty programs:  7% increase in loyalty bookings. Reward redemptions are up 60% YoY
    • $4m benefit in increase in licensing fee rate paid to Wyndham 
    • Strong Pacific/Atlantic performance
    • Weak occupancy in oil-producing regions
    • SS managed NA REVPAR increased double digits YoY
    • Excluding China and FX, global REVPAR grew 4%
  • Rental
    • Launched niche brands in UK
    • 2Q: Included $3m loss due to sell of  Canvas Holidays in 2014 
    • Had some mix impact as a large portion of membership was from timeshare club which generates lower revenues
    • Denmark Days, UK Cottage, Wyndham Rentals in US were strong
  • Vacation Ownership
    • Favorable product mix which resulted in higher yields
    • Modified sales approach to owners with a hybrid model
    • 60% tours in specialist presenter/group format
    • Opened 6 new sales centers (e.g. NYC, St. Thomas Las Vegas)
    • Sees tremendous upside in timeshare business
  • FX reduced revs by $48m and $12m in EBITDA
  • FCF 2Q: $428m (flat YoY), expect 1st 9 months FCF to be lower YoY in 2015 due to inventory shifts and FX headwinds
  • FX headwinds: $25m for FY 2015 EBITDA  
  • Lower WAAM fee-for-service (1.0) - continued to shift to WAAM 2.0 (just-in-time model).  Expect this to continue
  • FY GUIDANCE:  
    • 25bps reduction in FY tax rate 36.5%
    • 2015 REVPAR: 2-4% (down from 4%-6%) - will be at lower end of range and FX issues and the sale of Parc 55 to Hilton. - But this sale closed in February 2015. Should've been known when they last gave guidance
    • WVO:  1-3% 
    • 3Q EPS: $1.65-1.68 
    • Rental: Canvass brand had $18m EBITDA contribution in 3Q 2014. Credit card transaction of $4m in 3Q 2014
    • 3Q Interest expense: $32m (early termination of interest rate swaps in 2Q)
    • May issue some more debt for the rest of the year
    • 3Q: $13m FX headwinds

 

Q & A

  • VPG - not a consistent metric, can be volatile. 
  • Hybrid - Specialist-presenter model - targeted towards in-house customers (who have already own a timeshare)
    • 60% of tours is the right balance
  • WVO:  Breakout: 2/3, 1/3 - new owner/existing owner
  • Citycenter hotel to Hilton: worth a little under 100bps in REVPAR
  • VPG:  will be positive going forward.  Constantly changing marketing programs
  • Vacation rental pricing seasonality:  summer is highest 
  • Rentals:  European booking shorter stays? Have not seen that.
  • Acquisition:  constantly looking for Rentals and Lodging opportunities
  • Pipeline a little stronger than in the past but expectations are pretty high
  • No reset button on brands. Franchisees are reinvesting in their properties.
  • Domestic REVPAR vs STR underperformance:  feel they performed in-line with economy segment
  • Exchange rev/member:  Change in composition of exchange membership:  going to clubs and transact less   
  • New yield mgmt system:  will take time to roll out since these owners are new to this technology.
  • Health of consumer:  saw an improvement in close rate in timeshare sales.  Don't know if consumer will feel stronger in 2H 2015.  Hotel/timeshare and European rental business seeing good reaction from consumer in July.
  • Summer European rental pricing has been healthy 
  • Sales team:  may be providing too many tours

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