Wyndham Destinations reports 2018 Results

Wyndham Destinations, the world’s largest vacation ownership and exchange company, has reported fourth quarter and full-year 2018 financial results for the period ended December 31, 2018.

Highlights include:

• Fourth quarter net revenue increased 3% to $956 million and gross VOI sales increased 5% to $564 million
• Due to favorable tax adjustments in 2017 related to U.S. tax reform, fourth quarter income from continuing operations decreased 76% to $106 million and diluted EPS from continuing operations decreased 75% to $1.10
• Further adjusted EBITDA1 increased 3% to $240 million in the fourth quarter
• Further adjusted diluted EPS1 for the quarter increased 14% to $1.27
• Delivered full year net cash provided by operating activities from continuing operations of $292 million and further adjusted free cash flow1 of $580 million
• Repurchased 2.6 million shares of common stock for $100 million in the fourth quarter and an additional $40 million through February 25
• Full-year 2019 Adjusted EBITDA is projected to be between $995 million and $1,015 million
• The Board of Directors authorized a 10% increase in the quarterly dividend to $0.45 per share

Michael D. Brown, president and chief executive officer of Wyndham Destinations, noted: “We are very pleased with our fourth quarter and full-year results. We continue to make progress against our strategic objectives which delivered six per cent growth in full-year gross VOI sales and a 240 basis point improvement in our new owner mix, all while preserving margins.

“Our industry leading margins combined with a capital efficient business model helped generate strong free cash flows and provide strong returns for shareholders.”

“As we begin 2019, our priorities remain the same — delivering great vacations and countless memories for our owners and members while providing strong returns for our shareholders. Since the spin-off through today, we have returned $385 million of capital to shareholders in the form of dividends and share repurchases.”

Results From Continuing Operations

Fourth Quarter 2018 — During the fourth quarter of 2018, reported revenues, income from continuing operations and income from continuing operations per diluted share were $956 million, $106 million and $1.10, respectively. This compared to reported revenues of $931 million, income from continuing operations of $444 million and income from continuing operations per diluted share of $4.36 in the fourth quarter of 2017. Total fourth quarter 2018 adjusted EBITDA from continuing operations increased 8% to $241 million, primarily driven by an increase in gross VOI sales and cost savings initiatives.

Full-Year 2018 — During the full-year of 2018, reported revenues, income from continuing operations and income from continuing operations per diluted share were $3.9 billion, $266 million and $2.68, respectively. This compared to reported revenues of $3.8 billion, income from continuing operations of $646 million and income from continuing operations per diluted share of $6.22 in 2017. The year-over-year decrease in income from continuing operations was due to a $407 million tax benefit in 2017 due to the U.S. Tax Cuts and Jobs Act. Total full-year 2018 adjusted EBITDA from continuing operations increased 7% to $942 million, primarily driven by an increase in gross VOI sales and cost savings initiatives.

Company Results — Further Adjusted

Further adjusted results are presented as if Wyndham Hotels & Resorts were separated from Wyndham Destinations and the sale of the European rentals business was completed for all periods presented.

During the fourth quarter of 2018, further adjusted net income was $123 million and further adjusted diluted earnings per share (EPS) was $1.27. Further adjusted EBITDA was $240 million, compared to $234 million in the fourth quarter of 2017. The Company’s guidance range was $235 million to $243 million.

Full-year 2018 further adjusted net income was $480 million and further adjusted diluted EPS was $4.84. Further adjusted EBITDA was $957 million, compared to $914 million in the full-year of 2017. The Company’s guidance range was $952 million to $960 million.

Business Segment Results

During the fourth quarter, Vacation Ownership revenues increased 5%, primarily due to a 5% increase in gross vacation ownership interest (VOI) sales of $564 million. Tours increased 2% year-over-year and Volume Per Guest (VPG) increased 3%.

Further adjusted EBITDA increased 2% to $201 million, due to revenue growth of 5% and partially offset by higher product costs in the fourth quarter of 2018, compared to the same period in 2017.

Consumer finance gross receivables grew 5% year-over-year to $3.8 billion. The provision for loan loss as a percentage of gross VOI sales, net of fee-for-service sales, was 19.3% at the end of the fourth quarter of 2018. The provision for loan loss increased to $106 million, with the $5 million year-over-year increase primarily due to higher gross VOI sales volume.

During the fourth quarter, Exchange & Rentals revenues decreased 5%, primarily due to a 7% decline in exchange revenue per member. The decline in exchange revenue per member was due to lower other product revenue, inventory supply challenges, and negative impacts of member mix, exacerbated by economic headwinds in Latin America.

Further adjusted EBITDA increased $4 million, or 9%, primarily driven by cost savings initiatives.

Balance Sheet and Liquidity

Net Debt — As of December 31, 2018, the Company’s leverage ratio was 2.8x, within the Company’s target range of 2.25x to 3.0x. The Company had $2.9 billion of corporate debt outstanding, which excluded $2.4 billion of non-recourse debt related to its securitized notes receivable. Additionally, the Company had cash and cash equivalents of $218 million. Refer to Table 9 for definitions of net debt and leverage ratio.

Cash Flow — For the full-year 2018, net cash provided by operating activities from continuing operations was $292 million, compared to $500 million in the prior year. Further adjusted free cash flow from continuing operations was $580 million and $500 million for the same periods, respectively, primarily due to increased securitization activity.

Share Repurchases — During the fourth quarter of 2018, the Company repurchased 2.6 million shares of common stock for $100 million at a weighted average price of $38.73 per share. As of December 31, 2018, the Company had $816 million remaining in its share repurchase authorization. Subsequent to the end of the fourth quarter, the Company repurchased an additional $40 million of shares through February 25.

Dividend — The Company announced a cash dividend of $0.41 per share on November 14, 2018, which was paid on December 28, 2018 to shareholders of record as of December 14, 2018. Subsequent to the end of the fourth quarter, the Company’s Board of Directors authorized a 10% increase in the quarterly cash dividend to $0.45 per share, beginning with the dividend that is expected to be declared in the first quarter of 2019.

Securitizations — In October, the Company closed a $350 million Sierra term securitization with a weighted average coupon of 4.02% and an advance rate of 98%. In December, the Company closed a $279 million private transaction with a weighted average coupon of 4.73% and an advance rate of 70%. The December transaction leveraged receivables that are not eligible for the Company’s normal public transactions.