Wyndham Worldwide Corp (WYN)

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Wyndham Worldwide (WYN)

Q2 2013 Earnings Call

July 24, 2013 8:30 am ET


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


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

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

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

Carlo Santarelli - Deutsche Bank AG, Research Division

Harry C. Curtis - Nomura Securities Co. Ltd., Research Division

Michael Millman - Millman Research Associates



Welcome to the Wyndham Worldwide Second 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 turn the call over to Margo Happer, Senior Vice President of Investor Relations. You may begin.

Margo C. Happer

Good morning. Thank you for joining us. With me today are Steve Holmes, our CEO; and Tom Conforti, our CFO.

Before we get started, I just 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. The risk factors are discussed in detail in our Form 10-Q filed April 24, 2013, with the SEC. We will also we 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. It is also available on the Investor Relations section of our website at wyndhamworldwide.com.


Stephen P. Holmes

Thanks, Margo. Good morning, and welcome to our second quarter call. As you saw from the press release, we had another great quarter with adjusted EBITDA growth of 6% and adjusted EPS growth of 13%, reflecting strong execution and operating momentum in each of our businesses. We also continued to drive value for our shareholders through disciplined capital allocation. Based on our strong cash flow and what we continue to believe is great value in our stock, the Board of Directors has added $750 million to our share repurchase authorization.

Tom will go through the details on the quarter, but I'd like to point out a few highlights. In Vacation Ownership, we closed our first WAAM 3.0 deal in Las Vegas, and we're seeing strong monthly sequential improvement in VPG from the first quarter. The Exchange and Rental business is performing very well in a difficult operating environment with improving yields in Europe and revenue increases from new products in the Exchange business. And the Hotel group continues to execute its plan, achieving solid adjusted EBITDA growth.

Next week marks the 7-year anniversary of our listing on the New York Stock Exchange. I'm proud of what we've accomplished so far. We've taken great businesses and made them even better. But I'm even more excited by what lies ahead. We recently completed our annual 5-year strategic reviews, and we're very excited about the opportunities before us.

Let me make a few comments on our strategic direction in each of our businesses. Since the spin, the Hotel group has established itself as a full service hotel company, adding hotel management expertise to what was already the largest hotel franchisor in the world. We've gone from 11 brands in 48 countries to 14 brands in 67 countries. And there's plenty of runway left. We have a strong pipeline, of which close to 60% is international today compared with just 25% when we went public. We will continue to focus on increasing our value proposition to our franchisees and consumers through enhanced technology and marketing. And while we see great potential for all our brands, we will continue to investigate opportunities to add new brands to our portfolio.

In the Exchange and Rental business, we are focused on inspiring world-class service, leveraging technology, expanding into new geographic markets, developing new products and improving analytics. All of these are evident in the progress we've made at RCI. We continue to increase the value to our affiliates and members through our industry-leading technology, which has improved service delivery and resulted in innovative product offerings. Innovation and technology continues to pay dividends, increasing margins and growing revenues.

As a side note but very relevant to RCI's growth prospects, ARDA, the timeshare association, recently published its 2013 State of the U.S. Vacation Timeshare Industry study. We are encouraged that 2012 marked the first significant increase in timeshare industry sales volume since the low mark in 2009 and the largest increase since 2007. Trends in the industry point to a continued rebound from the lows experienced during the global economic downturn.

In the Vacation Rentals business, we have successfully acquired 9 businesses in the last 3 years. And importantly, they are performing better than our expectations. Vacations rentals is estimated to be a $65 billion global market. According to PhoCusWright, more than half of the market in Europe and the U.S. is professionally managed. With over 100,000 vacation rental properties now under management, Wyndham Vacation Rentals is the undisputed global leader in managed vacation rentals with exciting potential to grow.

Now turning to Wyndham Vacation Ownership. We've dramatically improved our already impressive traditional timeshare business. We have reduced marketing spend, improved margins, tightened our credit underwriting standards and are limiting the capital deployed while improving the bottom line. The result has been a stronger business with better cash flow.

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