Wyndham Worldwide Corp (WYN)

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Wyndham Worldwide Corporation (WYN)

Q3 2010 Earnings Call

October 26, 2010 8:30 AM ET


Margo Happer – Senior Vice President, Investor Relations

Steve Holmes – Chief Executive Officer

Tom Conforti – Chief Financial Officer


Chris Woronka – Deutsche Bank

Joe Greff – J.P. Morgan

Patrick Scholes – FBR Capital Markets

Steve Kent – Goldman Sachs

Michael Millman – Millman Research Associates

Ryan Meliker – Morgan Stanley



Welcome to the Wyndham Worldwide Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions)

Today’s conference is being recorded, if you have any objection, you may disconnect at this time. I will now turn the call over to Margo Happer, Senior Vice President of Investor Relations.

Margo Happer

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

Before we get started, I’d like to remind you that our remarks today contain forward-looking information that 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 July 30, 2010 with the SEC.

We will also be referring to a number of non-GAAP financial measures. The reconciliation of these measures to the comparable GAAP measure is provided in the table to the press release and is available on the Investor Relations section of our website at wyndhamworldwide.com. Steve?

Steve Holmes

Thanks, Margo. Good morning, everyone, and thank you for joining us. As you saw from the press release we had another terrific quarter. Revenues were up close to 5% and EBITDA increased over 27% or actually 36% excluding the positive impact of deferred revenue in third quarter of last year. We delivered adjusted EPS of $0.68. These results reflect continued superior execution across all of our businesses.

The third quarter is an important one for us, it includes the heavy summer travel months and we saw a great traction across our product offerings around the world. We’re encouraged to see a rebound in lodging RevPAR, particularly in the U.S. economy segment, which comprised two-thirds of our hotel portfolio. This contributed to overall RevPAR growth of approximately 7% led by broad-based occupancy gains. As importantly we’re starting to see average daily rates stabilization.

Sales of vacation ownership continued to show strong momentum. As you know, the satisfaction with our Timeshare product was widely demonstrated during the downturn as evidenced by consistent occupancy. We continue to see great traction in sales to new owners as well, bringing 17,000 first-time buyers into the Wyndham family in the first nine months this year.

In the European rentals business, Hoseasons, which we acquired in March of this year, added capacity to 2010 program to address demand for last minute U.K. holidays during the summer and delivered great results.

In travel industry growth in Asia continues to be promising. Our team recently returned from HICAP a regional Investment Conference that’s held in Hong Kong, the mood in Asia is bullish. RevPAR increases in China are among those leading the world in the development pace is consistent. China outbound travel is increasingly important to the arrivals in other parts of the region and our leading market presence there should help our awareness and growth in other Asian markets.

Against the backdrop of improving economic conditions, we have continued our focus on superior execution, which is translated to strong financial performance. As a result, we have once again raised our 2010 EBITDA and EPS guidance, which Tom will detail later on the call.

Our preliminary guidance for 2011 point’s to revenue growth of approximately 5% to 7% and EBITDA growth of 8% to 10%, with continued strong free cash flow generation. On our last call, we outlined the framework for how over time disciplined deployment of cash through share repurchases, additional investment in our core businesses and acquisitions of fee-for-service businesses could even double our growth rate. We will continue to pursue these growth initiatives.

We remain keenly focused on cash generation. We expect to generate approximately $600 million in free cash flow this year, excluding the legacy IRS payment that we made and are firmly on track to deliver sustainable annual free cash flow of $600 to $700 million again next year and beyond.

We intend to use a large portion of that cash to support dividends and share buybacks. We believe our shares represent a great value and offer significant return potential. We acted on this belief in the third quarter committing $120 million to repurchase 4.8 million shares, a significant step-up in our program activity. We also reduced significant future dilution by repurchasing approximately 40% of our convertible bonds in the open market and retiring the call options and warrants tied to those bonds. Tom will walk you through the details little bit later.

We are also deploying cash to achieve an important strategic imperative, rebalancing our portfolio to emphasize fee-for-service businesses. We have completed three acquisitions this year toward this goal. Post seasons, which added meaningful inventory to our highly successful U.K. vacation rental business, the trip brand, a tuck-in opportunity for the Wyndham hotel group that significantly enhanced our international presence.

And in the third quarter ResortQuest, a leading provider of full service vacation rentals in the U.S., with a portfolio of approximately 6,000 rental properties. We will leverage ResortQuest sales organization, market he relationships and geographic reach with best practices from our rental operations in Europe to build a meaningful U.S. vacations rentals business.

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