NOVEMBER Investor Presentation

Transcription

1 NOVEMBER 2018 Investor Presentation

2 Forward-Looking Statements This presentation contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include those that convey management's expectations as to the future based on plans, estimates and projections at the time Wyndham Destinations makes the statements and may be identified by words such as "will," "expect," "believe," "plan," "anticipate," "intend," "goal," "future," "outlook," "guidance," "target," "projection," "estimate" and similar words or expressions, including the negative version of such words and expressions. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Wyndham Destinations to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements contained in this presentation include statements related to Wyndham Destinations current views and expectations with respect to its future performance and operations. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Factors that could cause actual results to differ materially from those in the forward-looking statements include without limitation general economic conditions, the performance of the financial and credit markets, our ability to obtain financing, our credit ratings (including changes thereto as result of the spin-off and other related transactions), post-closing credit obligations as result of the sale of our European vacation rentals business, the economic environment for the timeshare industry, the impact of war, terrorist activity or political strife, operating risks associated with the vacation ownership and vacation exchange businesses, unanticipated developments related to the impact of the spin-off on our relationships with our customers, suppliers, employees and others with whom we have relationships, uncertainties related to our ability to realize the anticipated benefits of the spin-off, as well as those factors described in our Quarterly Report on Form 10-Q, filed with the SEC on November 1, 2018, and subsequently filed periodic filings with the SEC. Except as required by law, Wyndham Destinations undertakes no obligation to update or keep current the information contained in this presentation, whether as a result of new information, subsequent events or otherwise. Further Adjusted Financial Information This presentation also includes certain further adjusted financial information, which is unaudited, presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the date indicated, nor is it indicative of future operating results. The further adjusted financial information presented includes adjustments that would not be included in the pro forma financial statements contained in a registration statement filed with the SEC that contain further adjusted information prepared in accordance with Regulation S-X under the Securities Act. Disclaimer This presentation and the information contained herein are solely for informational purposes. This presentation does not constitute a recommendation regarding the securities of Wyndham Destinations. This presentation or any related oral presentation does not constitute any offer to sell or issue, or any solicitation of any offer to subscribe for, purchase or otherwise acquire any securities of Wyndham Destinations, nor shall it form the basis of, or be relied upon in connection with, or act as any inducement to enter into any contract or commitment whatsoever with respect to such securities. This presentation is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident located in any jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require registration of licensing within such jurisdiction. The information contained in this presentation, including the forward-looking statements herein, is provided as of the date of this presentation and may change materially in the future. Except as required by law, Wyndham Destinations undertakes no obligation to update or keep current the information contained in this presentation, whether as a result of new information, subsequent events or otherwise. Non-GAAP Financial Measures Financial information contained in this presentation includes non-gaap measures, which include or exclude certain items. The Company utilizes non-gaap measures on a regular basis to assess performance of its reportable segments and allocate resources. These non-gaap measures differ from reported GAAP results and are intended to illustrate what management believes are relevant period-over-period comparisons and are helpful to investors as an additional tool for further understanding and assessing the Company s ongoing operating performance. Management also internally uses these measures to assess our operating performance, both absolutely and in comparison to other companies, and in evaluating or making selected compensation decisions. Exclusion of items in the Company s non-gaap presentation should not be considered an inference that these items are unusual, infrequent or non-recurring. Full reconciliations of GAAP non-gaap financial measures to the most directly comparable GAAP financial measures 2018 Wyndham for the Destinations reported Proprietary periods appear in the appendix of this presentation. 2

3 Strengths and Competitive Advantages Leading Size and Scale Customer acquisition drives top line growth Access to deals that grow the network Innovation keeps WYND at the forefront Best at Owner Acquisition Unassailable leader in Open Market channels Untapped Blue Thread potential Owner base with highly predictable revenues Expansive Brand Portfolio Seven vacation ownership brands Grow/expand into new markets Development partner of choice 3

4 Unprecedented Size and Scale VOI Sales $2.1B Resorts 221 $1.4B 108 $1.3B 48 Members Exchange Options 3.9M 4.3K 1.8M 3.2K Source: Annual reports on Form 10-K for year ended December 31, Marriott Vacations Worldwide metrics include ILG s annual report for the same time period. 4

5 US Household Income Serving the broadest demographic of travelers $200,000 WYND HGV VAC ILG US Census Households 17.1M $150,000 $100, M 36.9M US Traveler Mean HHI $87,695 $50, M $0 Owner Count 881K 288K 400K 250K Mean HHI $91K $113K $155K $161K Note: Mid point of bubble corresponds to mean owner demographic by brand; area of circle corresponds to relative owner count of each brand. Sources: US Census (2016), WYND Owner Data (September 2018, excludes Discovery), HGV Investor Deck (September 2018), VAC Investor Day (2015), ILG Investor Day (2017). 5

6 Key Statistics Show Stability in Owner Base OWNERS OWNERS HAVE A 881K 185K LOAN BALANCE ~80% OF OWNERS HAVE NO LOANS OUTSTANDING ANNUAL OWNER CHURN INCLUDING ELEVATED LOAN DEFAULTS* ~4% >98% ~70% ANNUAL RETENTION OF OWNERS WITHOUT A LOAN BALANCE* OF OWNERS WHO PURCHASED IN AND SINCE THE 1990s ARE STILL ACTIVE IN THE WYND SYSTEM *Annual average over last 10 years 6

7 Shifting Sales Mix to Increase New Owners Mix improved over the first nine months of 2018 Shift mix while growing EBITDA and maintaining industry leading margins 32% 36% 35.5% 38.8% Average 45% YTD 2018 YTD 2022 The Future Value of New Members is High Owners spend an incremental ~2.6X the initial purchase over their lifetime Average lifetime spend per owner, ~$65K Source: Club Wyndham Owner Data 7

8 Industry Leader in New Owner Sales $2.1B Owner acquisition channels are strong, diversified, and a growth engine Generated more than $750M in new owner sales and 36K new owners in 2017 New Owner Sales $762M 2017 VOI Open Market $718M Blue Thread $44M 8

9 Blue Thread Opportunity Rental: Renting 174 resorts on Wyndham.com On Property Marketing: In-hotel marketing at select WH&R locations Call transfer: Access to 11M annual phone calls Loyalty Data: Marketing to database of 60M+ Wyndham Rewards members and post stay guests 60M+ includes anticipated impact of La Quinta acquisition Aligned Demographic Average Household Income +20% VPG Homeowner Married Gen X Millennials >$100k 93% 69% 29% 15% >$100k 94% 73% 30% 17% New Owners (< 5 Years) 9

10 Maintain High Margins Across the Cycle 25% 25% 25% 25% 25% 24% 22% 22% 24% 23.6% 24.1% 17% 16% 16% YTD 2017 YTD 2018 Wyndham Vacation Ownership Segment Adjusted EBITDA Margin Strong Credit Quality Average FICO Score on New Originations % % % 13.1% 13.3% 13.5% YTD 13.6% 13.7% 13.8% 14.0% Average Interest Rate 14.1% 14.2% 14.5% 14.0% 13.5% 13.0% 12.5% 12.0% 10

11 ~25% Primarily New Owner Sales $3,808 Other $ % 90% 80% ~75% of Revenue is $3.6B loan portfolio; Fixed interest rates 3.9M members paying annual dues; 85% retention Consumer Finance $463 Vacation Exchange $671 70% 60% 50% RECURRING & PREDICTABLE Management fees from 200+ resorts; 98% contract retention Hospitality Services $649 40% 30% 25+ years of data proves owners consistently upgrade VOI Upgrade Sales $1,078 20% 10% 0% 11

12 Capital Efficient Inventory Model High Free Cash Flow Conversion Moderate and consistent annual inventory spend, ~$250M Strong ROIC Maximizes returns to shareholders with ~90% of inventory sourced through capital-efficient channels Lower cash taxes with deferred taxes on financed sales Access to ABS markets Disciplined capex 12

13 Return of Capital to Shareholders Returned $237M to shareholders through dividends and share repurchases, since June 1, 2018 through the end of October Total repurchases represented ~7% of market capitalization (a) DIVIDENDS PAID SHARE REPURCHASES Month of June (post-spin) Q Month of October $44M $40M -- $15M $106M $32M Total Return of Capital $237M (a) Market capitalization of $3.57B on October 31, 2018 with a share price of $

14 Further Adjusted Full-Year 2018 Free Cash Flow ($ in millions) $952 - $960 ($154 - $158) $63 - $83 ($109 - $113) ($31 - $51) ($28 - $48) ($108 - $128) $555 - $575 Expected Further Adjusted EBITDA Interest expense Cash taxes Net Consumer Finance activity Net inventory spending Changes in net working capital Capital expenditures Expected Further Adjusted Free Cash Flow (a) Interest expense was calculated based on $3.0 billion of outstanding debt and assuming Wyndham Destinations is rated non-investment grade credit, resulting in higher interest rates for select tranches of notes; excludes non-cash interest expense. (b) Based on an estimated cash tax rate of approximately 17%. (c) Reflects the net change in vacation ownership contract receivables offset by the provision from loan losses and the net expected proceeds from securitization activities. (d) Operating cash flow less capital expenditures. Does not include redundant personnel and related costs during the transition period. 14

15 Strong Balance Sheet Net Leverage: 2.9x Target: 2.25x to 3.0x Debt Maturity Schedule (a) ($ in millions) $884 WACD ~5% WAM ~5.8 years $650 $400 $400 $300 $250 $64 $19 $40 $ (a) Assumes revolving credit facility matures on May 1,

16 2018 Further Adjusted Guidance Revenues Further Adjusted EBITDA Further Adjusted EPS (a) $ $3.975B $952 - $960M $ $4.85 Key Drivers (b) Tours: 5% - 7% VPG: 1% - 3% Average Number of Members: 1% - 3% Exchange Revenue per Member: (2%) - 0% EBITDA Impact of 100bps Change (c) Tours: $6.0M VPG: $9.0M Average Number of Members: $4.5M Exchange Revenue per Member: $7.0M Outlook is based upon September 30, 2018 foreign exchange rates (a) Based upon 99.7 million diluted shares expected to be outstanding. (b) Reflects projected growth over (c) EBITDA sensitivities for revenue drivers are based on average systemwide trends. Operating circumstances including but not limited to brand mix, product mix, geographical concentration or market segment may result in variability. 16

17 Key Drivers: Steady Mid-Single Digit Growth Gross VOI Sales ($ in millions) Number of Tours (in 000s) Volume Per Guest (VPG) 6%-8% CAGR 5%-7% CAGR 0%-2% CAGR Consumer Finance Portfolio ($ in millions) Hospitality Services Revenue ($ in millions) RCI Revenues ($ in millions) 6%-8% CAGR 7%-9% CAGR 1%-3% CAGR The Company does not provide a reconciliation of non-gaap measures to the closest GAAP equivalent because the Company is unable to predict with reasonable certainty the totality or ultimate outcome or occurrence of these adjustments or other potential adjustments that may arise in the future during the outlook period, which can be dependent on future events that may not be reliably predicted. 17

18 Three Year Growth Outlook Further Adjusted Adjusted EBITDA Margins Total Revenue ($ in millions) 4%-7% CAGR Adjusted EBITDA ($ in millions) Free Cash Flow ($ in millions) 4%-7% CAGR 4%-7% CAGR The Company does not provide a reconciliation of non-gaap measures to the closest GAAP equivalent because the Company is unable to predict with reasonable certainty the totality or ultimate outcome or occurrence of these adjustments or other potential adjustments that may arise in the future during the outlook period, which can be dependent on future events that may not be reliably predicted. 18

19 APPENDIX

20 Historical Financials Vacation Ownership Number of Tours (in 000s) Volume Per Guest (VPG) % CAGR $2,281 $2,257 1% CAGR $2,324 $2,345 Total Revenues ($ in millions) Adjusted EBITDA ($ in millions) (b) 3% CAGR $2,515 (a) $2,638 (a) $2,772 (a) $2,774 $2,881 $621 $660 3% CAGR $708 $696 (a) Does not reflect impact of the adoption of the new revenue recognition standard. (b) Adjusted EBITDA is per Wyndham Worldwide s definition. 20

21 Historical Financials Exchange & Rentals 3,698 Average Number of Members (in 000s) 3,765 1% CAGR 3,852 3,799 Total Revenues ($ in millions) 2% CAGR $856 (a) $864 (a) $880 (a) $916 $927 $229 (a) $249 (a) Adjusted EBITDA ($ in millions) 3% CAGR $241 (a) $251 $261 Consolidated Net VOI Sales ($ in Millions) Total Revenues ($ in millions) 5% CAGR 3% CAGR $1,684 $1,604 (a) $1,601 $3,653 $1,485 (a) (a) $3,690 $3,808 $1,379 (a) $3,503 (a) $3,372 (a) (a) Does not reflect impact of the adoption of the new revenue recognition standard. 21

22 Appendix: Non-GAAP Reconciliations Wyndham Destinations Reconciliation of Further Adjusted Net Income to Further Adjusted EBITDA ($ in millions) 2017 Further Adjusted Net Income $ 591 Benefit for income taxes $ (235) Depreciation and amortization $ 131 Interest expense $ 130 Interest income $ (7) Impairment $ 205 Stock-based compensation $ 36 Restructuring $ 14 Acquisition-related gain $ (12) Assumed general and administrative cost savings $ 65 Other adjusting items $ (4) Further Adjusted EBITDA $

23 Appendix: Non-GAAP Reconciliations Vacation Ownership (VO) Further Adjusted EBITDA Reconciliation ($ in millions) VO Segment Reported EBITDA Acquisition Related Restructuring Costs Loss on Sale/Asset Impairments Executive Costs Separation Costs VO Adjusted EBITDA VO Adjusted EBITDA Margin 2017 $ 489 $ - $ - $ 205 $ 1 $ 1 $ % 2016 $ 694 $ - $ 8 $ - $ 6 $ - $ % 2015 $ 687 $ - $ 1 $ - $ - $ - $ % 2014 $ 660 $ - $ - $ - $ - $ - $ % 2013 $ 619 $ 2 $ - $ - $ - $ - $ % 2012 $ 549 $ 1 $ 2 $ - $ - $ - $ % 2011 $ 515 $ - $ (1) $ - $ - $ - $ % 2010 $ 440 $ - $ - $ - $ - $ - $ % 2009 $ 387 $ - $ 37 $ 9 $ - $ - $ % 2008 $ (1,074) $ - $ 66 $ 1,374 $ - $ - $ % 2007 $ 378 $ - $ - $ - $ - $ 9 $ % 2006 $ 325 $ - $ - $ - $ - $ 18 $ % Adjusted EBITDA is per Wyndham Worldwide s definition and does not reflect the adoption of the new revenue recognition accounting standard. 23

24 2018 Further Adjusted Guidance (in millions, except per share amounts) Q1 Q2 Q3 Q4 Full Year Full Year Net revenues $907 $1,007 $1,062 N/A $3,925 - $3,975 $3,806 Adjusted EBITDA $189 $243 $269 $229 - $236 $931 - $938 $882 Separation adjustments (a) (5) (5) (10) (25) Corporate and other costs (b) Further adjusted EBITDA $197 $249 $271 $235 - $243 $952 - $960 $914 Depreciation and amortization (c) (31) (31) (29) (27-31) ( ) (110) Interest expense (d) (40) (40) (40) (38-42) ( ) (160) Stock-based compensation (9) (4) (3) (2-4) (17-19) (35) Further adjusted pre-tax income $117 $174 $198 $162 - $170 $652 - $660 $609 Further adjusted taxes (e) (32) (49) (52) (43-46) ( ) (164) Further adjusted net income from continuing operations $85 $125 $146 $118 - $126 $475 - $483 $443 Diluted shares outstanding Further adjusted diluted earnings per share $0.84 $1.25 $1.47 $ $1.28 $ $4.85 $4.29 Note: Amounts may not add due to rounding. The Company is providing guidance for net income, EBITDA and diluted EPS only on a non-gaap further adjusted basis because not all of the information necessary for a quantitative reconciliation of forward-looking non-gaap financial measures to the most directly comparable GAAP financial measures is available without unreasonable effort, primarily due to uncertainties relating to the occurrence or amount of these adjustments or other potential adjustments that may arise in the future. Unavailable reconciling items could significantly impact the Company s financial results. (a) (b) (c) (d) Includes incremental license fees paid to Wyndham Hotels & Resorts and other changes being effected in conjunction with the spin-off. Represents the difference between corporate costs incurred and those expected to be incurred following the spin-off and transition period. Excludes amortization of acquisition-related intangible assets. Includes expected depreciation related to retained Wyndham Destinations' corporate assets. Interest expense was calculated based on $3.0 billion of outstanding debt, excluding non-recourse vacation ownership debt, and a non-investmentgrade rating, resulting in higher interest rates for select tranches of notes. (e) Assumes a stabilized effective tax rate of approximately 27% in all quarters, prior to the spin-off, which occurred in the second quarter of The rate used for 2017 reflects the benefit of the tax rate reduction resulting from the U.S. Tax Cuts and Jobs Act. 24

25 Non-GAAP Measure: Reconciliation of Gross VOI Sales (in millions) The Company believes gross VOI sales provide an enhanced understanding of the performance of its vacation ownership business because it directly measures the sales volume of this business during a given reporting period. The following table provides a reconciliation of Gross VOI sales to Net VOI sales: 2018 Q1 Q2 Q3 Q4 Full Year Gross VOI sales $ 465 $ 602 $ 640 N/A N/A Less: Sales under fee-for-service (15) (14) (5) N/A N/A Gross VOI sales, net of fee-for-service sales N/A N/A Less: Loan loss provision (92) (126) (132) N/A N/A Net VOI sales $ 358 $ 462 $ 503 N/A N/A 2017 Gross VOI sales $ 438 $ 562 $ 600 $ 538 $ 2,139 Less: Sales under fee-for-service (3) (5) (11) (15) (35) Gross VOI sales, net of fee-for-service sales ,104 Less: Loan loss provision (85) (110) (123) (101) (420) Net VOI sales $ 350 $ 446 $ 466 $ 422 $ 1,684 25

26 Non-GAAP Measure: Free Cash Flows and Further Adjusted Free Cash Flows (in millions) Nine Months Ended September 30, Continuing Operations Net cash provided by operating activities $ 205 $ 264 Less: Property and equipment additions (63) (76) Less: Sum of proceeds and principal payments of non-recourse vacation ownership debt 94 (146) Free cash flow from continuing operations $ 236 $ 42 Corporate and other costs (a) Separation adjustments Further adjusted free cash flow from continuing operations $ 356 $ 187 Discontinued Operations Net cash provided by operating activities $ 150 $ 400 Less: Property and equipment additions Less: Sum of proceeds and principal payments of non-recourse vacation ownership debt Free cash flow from discontinued operations $ 150 $ 400 Corporate and other costs (a) Separation adjustments Further adjusted free cash flow from discontinued operations $ 150 $ 400 Total further adjusted free cash flow $ 506 $ 587 (a) Includes incremental license fees paid to Wyndham Hotels & Resorts and other changes being effected in conjunction with the spin-off including corporate costs that reflect the Company s position as if the spin-off had occurred for all periods presented. 26

27 Appendix: Definitions Adjusted EBITDA: A non-gaap measure, defined by the Company as net income before depreciation and amortization, interest expense (excluding consumer financing interest), early extinguishment of debt, interest income (excluding consumer financing revenues) and income taxes, each of which is presented on the Condensed Consolidated Statements of Income. Adjusted EBITDA also excludes stock-based compensation costs, separation and restructuring costs, transaction costs and impairments, and items that meet the conditions of unusual and/or infrequent. We believe that Adjusted EBITDA is useful to assist our investors in evaluating our ongoing operating performance for the current reporting period and, where provided, over different reporting periods. We also internally use these measures to assess our operating performance, both absolutely and in comparison to other companies, and in evaluating or making selected compensation decisions. Adjusted EBITDA should not be considered in isolation or as a substitute for net income or other income statement data prepared in accordance with GAAP and our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies. Further adjusted earnings measures: A non-gaap measure, defined by the Company to exclude certain items including impairment charges, restructuring and other related charges, transaction-related items, contract termination costs and other significant charges which in the Company's view does not reflect ongoing performance. Further adjusted earnings measures adjust for license fees, credit card income and corporate expense to reflect the performance of the Company as if it were separated from Wyndham Hotels & Resorts during all reported periods. All further adjusted earnings measures are reported from continuing operations, unless otherwise noted. Wyndham Destinations believes that these measures are useful to investors as supplemental measures in evaluating the aggregate performance of the Company. A full reconciliation of non-gaap measures to GAAP are included in Table 5. Gross Vacation Ownership Interest Sales: Represents sales of vacation ownership interests (VOIs), including sales under the fee-for-service program before the effect of loan loss provisions. We believe that Gross VOI sales provide an enhanced understanding of the performance of our vacation ownership business because it directly measures the sales volume of this business during a given reporting period. Tours: Represents the number of tours taken by guests in our efforts to sell VOIs. Volume Per Guest (VPG): Represents Gross VOI sales (excluding tele-sales upgrades, which are non-tour upgrade sales) divided by the number of tours. The Company has excluded non-tour upgrade sales in the calculation of VPG because non-tour upgrade sales are generated by a different marketing channel. Average Number of Members: Represents members in our vacation exchange programs who paid annual membership dues as of the end of the period or who are within the allowed grace period. For additional fees, such participants are entitled to exchange intervals for intervals at other properties affiliated with the Company's vacation exchange business. In addition, certain participants may exchange intervals for other leisurerelated services and products. Exchange Revenue Per Member: Represents total annualized revenues generated from fees associated with memberships, exchange transactions, member-related rentals and other servicing for the period divided by the average number of vacation exchange members during the period. Free Cash Flow (FCF): A non-gaap measure, defined by the Company as Net Cash provided by operating activities less property and equipment additions which the Company also refers to as capital expenditures and less the sum of proceeds and principal payments of non-recourse vacation ownership debt. The Company believes free cash flow to be a useful operating performance measure to evaluate the ability of its operations to generate cash for uses other than capital expenditures and, after debt service and other obligations, its ability to grow its business through acquisitions, development advances and equity investments, as well as its ability to return cash to shareholders through dividends and share repurchases. A limitation of using free cash flow versus the GAAP measures of net cash provided by operating activities as a means for evaluating Wyndham Destinations is that free cash flow does not represent the total cash movement for the period as detailed in the consolidated statement of cash flows. Net Debt: Net debt equals total debt outstanding, less non-recourse vacation ownership debt and cash and cash equivalents. Leverage Ratio: The Company calculates leverage ratio as net debt divided by Adjusted EBITDA. 27