Wyndham Destinations reports strong Q3 results

Wyndham Destinations, Inc. has reported its third quarter 2018 financial results for the three months ended 30 September 2018.

Results are reported in accordance with U.S. generally accepted accounting principles (GAAP) adjusting for certain items (non-GAAP). The company is also presenting non-GAAP results on a further adjusted basis as if the spin-off of its hotel business and the sale of its European vacation rentals business had occurred for all periods presented.

Full reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures for the reported periods appear in the financial tables section of this press release.

Highlights include:

• Income from continuing operations increased 28% to $131 million and diluted earnings per share (EPS) from continuing operations increased 32% to $1.31. Adjusted EBITDA increased 6% to $269 million.
• Further adjusted EBITDA increased 5% to $271 million, compared to guidance of $262 million to $272 million.
• Further adjusted diluted EPS increased 15% to $1.47, compared to guidance of $1.37 to $1.47.
• Total revenue increased 5% to $1.1 billion and gross VOI sales increased 7% to $640 million.
• Repurchased $106 million of stock in the third quarter and an additional $32 million in October.
• Revised full-year further adjusted EBITDA guidance to a range of $952 million to $960 million to reflect the impact from hurricanes Florence and Michael and stronger operating performance in the third quarter of 2018.

Michael D. Brown, president and chief executive officer of Wyndham Destinations, said: “Our company reported another outstanding quarter, demonstrated by strong operational results that came in above expectations.

“During the third quarter, gross VOI sales increased 7%, further adjusted EBITDA increased 5% and we maintained margins while we continue to track ahead on new owner sales mix, which increased 330 basis points in the third quarter. We also meaningfully increased the pace of share buybacks in the third quarter, repurchasing $106 million in stock.

“As we have demonstrated this quarter, Wyndham Destinations continued to execute upon our key strategic initiatives, which included increasing our new owner sales mix and further integration with the Blue Thread, all while preserving our margins. Our elevated level of share repurchases in the third quarter underscored our commitment of returning value to shareholders.”

Results From Continuing Operations

In May 2018, the company sold its European vacation rentals business and completed the spin-off of its hotel business into a separate publicly traded company. For all periods presented, the results of operations for the hotel business and the European vacation rentals business have been classified as discontinued operations.

During the third quarter of 2018, reported revenues, income from continuing operations and income from continuing operations per diluted share were $1.1 billion, $131 million and $1.31, respectively. This compared to reported revenues of $1.0 billion, income from continuing operations of $102 million and income from continuing operations per diluted share of $0.99 in the third quarter of 2017. Total third quarter 2018 adjusted EBITDA from continuing operations increased 6% to $269 million.

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 third quarter of 2018, further adjusted net income was $146 million and further adjusted diluted EPS was $1.47 based on 100 million diluted shares outstanding. Further adjusted EBITDA was $271 million, compared to $257 million in the third quarter of 2017, and was near the top-end of the company’s guidance range of $262 million to $272 million. Hurricane Florence was estimated to have negatively impacted further adjusted EBITDA by $10 million in the third quarter of 2018.

Business Segment Results

Vacation Ownership

Vacation Ownership revenues increased 7%, primarily due to a 7% increase in gross vacation ownership interest (VOI) sales of $640 million. Tours increased 5% year-over-year and Volume Per Guest (VPG) increased 2%. The mix of new owner sales increased 330 basis points over the prior year and new owner sales volume increased 15%.

Vacation Ownership further adjusted EBITDA increased 9% to $203 million, primarily due to revenue growth of 7%, consumer finance income growth and cost efficiencies in general and administrative expenses.
Consumer finance gross receivables grew 5% year-over-year to $3.7 billion. The provision for loan loss as a percentage of gross VOI sales, net of fee-for-service sales, was 20.8% at the end of the third quarter of 2018. The provision for loan loss increased to $132 million, with the $9 million year-over-year increase due to higher gross VOI sales.

Exchange & Rentals

Exchange & Rentals revenues decreased 2%, primarily due to a 5% decline in exchange revenue per member. The decline in exchange revenue per member was due to lower inventory levels, a change in customer mix, economic headwinds in Latin America and Hurricane Florence.

Further adjusted EBITDA decreased $1 million, or 1%, due to lower revenue per member, offset by cost efficiencies within the business.

Balance Sheet and Liquidity

Net Debt – As of September 30, 2018, the company’s leverage ratio was 2.9x. The company had $3.0 billion of corporate debt outstanding, which excluded $2.2 billion of non-recourse debt related to its securitized notes receivable. Additionally, the Company had cash and cash equivalents of $164 million. Refer to Table 9 for definitions of net debt and leverage ratio.

Cash Flow — For the nine months ended 30 September 2018, net cash provided by operating activities from continuing operations was $205 million, compared to $264 million in the prior year period. Free cash flow from continuing operations was $236 million for the nine months ended 30 September 2018, compared to $42 million for the same period in 2017, primarily due to securitization activity in 2018. Further adjusted free cash flow from continuing operations was $356 million and $187 million for the same periods, respectively.

Share Repurchases — During the third quarter of 2018, the company repurchased 2.4 million shares of common stock for $106 million at a weighted average price of $43.39 per share. As of 30 September 2018, the company had $916 million remaining in its share repurchase authorization. Subsequent to the end of the quarter, the company repurchased another $32 million of shares in the month of October.

Securitization — On 18 July 2018, the company closed a $500 million term securitization with a weighted average coupon of 3.65% and an advance rate of 88.7%. Subsequent to the end of the quarter, the company closed a $350 million term securitization with a weighted average coupon of 4.02% and an advance rate of 98.0%.

Outlook

The Company is revising its further adjusted full-year 2018 guidance as follows:

• Revenues of $3.925 billion to $3.975 billion, compared to the previous expectation of $3.975 billion to $4.085 billion
• Further adjusted EBITDA of $952 million to $960 million, compared to the previous expectation of $955 million to $975 million
• Further adjusted net income of $475 million to $483 million, compared to the previous expectation of $476 million to $496 million
• Stock based compensation of $17 million to $19 million, compared to the previous expectation of $16 million to $20 million
• Further adjusted diluted EPS of $4.77 to $4.85, compared to the previous expectation of $4.74 to $4.94

The company’s guidance assumes that the spin-off of its hotel business and the sale of its European vacation rentals business had been completed on 1 January 2018. This guidance is presented 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 measure is available without unreasonable effort, primarily due to uncertainties relating to the occurrence or amount of these adjustments that may arise in the future.