Wyndham Worldwide Corp (WYN)

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Wyndham Worldwide (WYN)

Q4 2012 Earnings Call

February 06, 2013 8:30 am ET

Executives

Margo C. Happer - Senior Vice President of Investor Relations

Stephen P. Holmes - Chairman, Chief Executive Officer and Chairman of Executive Committee

Thomas G. Conforti - Chief Financial Officer and Executive Vice President

Analysts

Joseph Greff - JP Morgan Chase & Co, Research Division

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Charles Patrick Scholes - SunTrust Robinson Humphrey, Inc., Research Division

Christopher Agnew - MKM Partners LLC, Research Division

Carlo Santarelli - Deutsche Bank AG, Research Division

Nikhil Bhalla - FBR Capital Markets & Co., Research Division

Robert A. LaFleur - Cantor Fitzgerald & Co., Research Division

Presentation

Operator

Welcome to the Wyndham Worldwide Fourth Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Margo Happer, Senior Vice President of Investor Relations. You may begin.

Margo C. Happer

Thank you. Good morning, and thank you for joining us. With me today are Steve Holmes, our CEO; and Tom Conforti, our CFO. Before we get started, I want to remind you that our remarks today contain forward-looking statements. These statements are subject to a number of risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our Form 10-Q filed October 24, 2012 with the SEC. We will also be referring to a number of non-GAAP measures. The reconciliation of these measures to GAAP is provided in the tables to the press release and is available on the Investor Relations section at our website at www.wyndhamworldwide.com.

Steve?

Stephen P. Holmes

Thank you, Margo. Good morning, and welcome to our year-end call. Once again, 2012 was a great year for Wyndham Worldwide across all of our businesses. I feel that I'm repeating myself each quarter as we talk about our performance. And while the view in the rearview mirror is great, the view out the windshield is even better. As you saw in our release this morning, we are raising our dividend and our earning guidance for 2013. We are also increasing our baseline sustainable annual free cash flow target to $750 million. So our outlook is positive.

This morning I'd like to take a couple of minutes to reflect on what is driving these results and why this success is sustainable. In addition to having great businesses, strong brands and fantastic associates, we have also utilized our healthy cash flow to invest in the future growth of our businesses. We have continuously said that we would invest in our businesses through both M&A and CapEx, as well as return capital to shareholders through an increasing dividend policy and share repurchases. Our capital allocation policy is working. The investments in our businesses have put us in a position to be more efficient and drive future growth. Innovations such as program interaction or rci.com and our Vacation Exchange and Rentals business, our asset-light model, WAAM, and our timeshare business and our Hotel group Apollo program are examples of seeds that have been planted for future benefit, and we continue to plant more seeds. Our operation momentum has never been better.

I will address some of the opportunities in a few minutes, but first, I'd like to turn the call over to Tom to review our financial performance and our outlook for 2013.

Thomas G. Conforti

Thanks, Steve, and good morning, everyone. Results were excellent in the fourth quarter and full year 2012. Year-over-year fourth quarter adjusted EBITDA was up 14% and adjusted earnings per share increased 34%. These results reflect strong operational execution in all of our businesses and the benefit from our ongoing share repurchase program. During 2012, we repurchased 9% or $12.9 million -- excuse me, 12.9 million of our outstanding shares for $623 million at an average price of $48.30. In addition, our strong results, coupled with our long-term earnings and cash flow growth outlook, give us the confidence to announce a 26% increase in our dividend.

Let's take a quick look at business unit performance. Wyndham Hotel Group had an exceptional quarter. Excluding higher intersegment fees, revenues increased 16%, and adjusted EBITDA increased 41%. These increases were primarily attributable to RevPAR gains and cost savings. RevPAR was up 4% globally and 6% domestically in the fourth quarter. As we've discussed in previous quarters, as we grow internationally, specifically in countries such as China, there will be a dilutive impact on global RevPAR. We opened 66,000 new rooms in 2012, our highest level in 10 years, and terminations were down 5%, resulting in a 2% net increase in system size.

At Wyndham Exchange and Rentals, excluding the impact of foreign currency and acquisitions, fourth quarter revenues were flat, and performance was in line with expectations. We are especially pleased with European rentals revenue results, which remained stable despite the macroeconomic challenges in the region. Adjusted EBITDA, excluding the impact of foreign currency and acquisitions, was up 3% driven by call center efficiencies resulting from our ongoing rci.com improvements. Adjusted EBITDA excluded $14 million in charges in the quarter, primarily related to trademark asset impairment of recently acquired brands, as we've decided to transition all of our North America vacation rental operations to the Wyndham Vacation Rentals brand over the next few years.

At Wyndham Vacation Ownership, excluding the Shell contribution, business unit revenues increased by 6%. For the fourth quarter, year-over-year gross VOI sales increased 6%, reflecting a 6% increase in tour flow and a 3% decline in volume per guest due to the expiration of a VIP incentive marketing program and tighter credit underwriting standards. Revenues from our fee-for-service property management business increased 24%, primarily reflecting the Shell acquisition. Consumer finance revenues for the fourth quarter increased by 5% compared to 2011, reflecting portfolio contributions from the Shell acquisition. The provision for loan losses in the fourth quarter 2012 was $89 million or 21% of gross VOI sales, down from 22% of gross VOI sales in the fourth quarter of 2011.

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