Wyndham Worldwide Corp (WYN)

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Wyndham Worldwide (WYN)

Q4 2010 Earnings Call

February 09, 2011 8:30 am ET

Executives

Thomas Conforti - Chief Financial Officer and Executive Vice President

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

Margo Happer - Senior Vice President of Investor Relations

Analysts

Michael Millman - Millman Research Associates

Christopher Agnew - MKM Partners LLC

Robert LaFleur - Hudson Securities Inc.

Amanda Bryant - Susquehanna Financial Group, LLLP

Chris Woronka - Deutsche Bank AG

Joseph Greff - JP Morgan Chase & Co

Steven Kent - Goldman Sachs Group Inc.

Presentation

Operator

Welcome to the Wyndham Worldwide Fourth Quarter Earnings Conference Call. [Operator Instructions] I will now turn the call over to Margo Happer, Senior Vice President of Investor Relations. Thank you, you may begin.

Margo 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 want 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 October 28, 2010, with the SEC.

We will also be referring to a number of non-GAAP 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?

Stephen Holmes

Thank you, Margo. Good morning, everyone, and thank you for joining us today. We ended the year a high note with fourth quarter adjusted EPS coming in $0.02 ahead of the top end of our guidance range. For the year, excluding the benefit of deferred revenues we had in the 2009, revenues increased 8% and adjusted EBITDA increased 17%, demonstrating continued strong execution across our businesses.

2010 was a great year at Wyndham Worldwide. We generated $603 million in free cash flow just above the top end of our range. We used that cash to both grow our businesses and return capital to shareholders.

A year ago, we tripled our dividend, and today, we announced another 25% increase, reflecting the real growth of our businesses, our confidence in the future and our continued commitment to return cash to shareholders.

In 2010, we utilized $237 million to repurchase approximately 9.3 million shares of our common stock. We used another $212 million to repurchase approximately 50% of our convertible notes and related warrants, reducing current and potential future share dilution. And we invested $232 million in our businesses before acquisitions for Fee-for-Service businesses that will drive higher EBITDA and cash flow for years to come.

So for those keeping score, we returned 42% of our available cash flow to shareholders through dividend and share repurchases, 30% to acquire complementary businesses to fuel future growth and 28% to retired convertible debt.

On the operating front, each of our three business units exceeded its 2010 plan and made significant progress towards its strategic goals. At Wyndham Vacation Ownership, we drove VPG to new levels and launched our Asset Affiliation Model, signing three deals and generating sales ahead of our expectations.

In our Exchange and Rental business, we enhanced our leadership position in service rentals with three terrific acquisitions. RCI signed 74 new long-term affiliations and renewed its affiliation with the Disney Vacation Club in a multi-year agreement. Also in exchange, we achieved 29% online Web share, more than doubling our online shares since we began our initiative to enhance RCI.com in 2008. To capture similar success in our Lodging business, we launched the Apollo initiative, which will improve our value proposition to franchisees and consumers and enable us to capture incremental RevPAR and room growth.

I'll bring you up-to-date on the most recent achievements in a moment, but first, let me spend a minute on what we're seeing across our businesses and around the world. In general, we continue to see signs of gradual economic recovery. In Lodging, the outlook in the hotel owner community has significantly improved, and we expect asset trading to increase in 2011 as the credit markets continue to improve. The RevPAR rebound that we experienced in the U.S. in 2010 continues to gain momentum globally.

Our European Rentals business was also off to a great start in 2011. We believe the significant decline in unemployment in Germany and pent-up demand from December's inclement weather are two contributing factors supporting broad demand, as evidenced by a year-over-year increase of 11% in rental volume, excluding the acquisitions that we made in January of 2011.

RCI recently held its annual affiliate event in New York. The event brought together more than 55 Timeshare developers and industry leaders to celebrate a year of collaboration and success and to learn more about how RCI can continue to help their businesses.

While credit markets for Timeshare developers are still in the recovery process, sentiment among the developers who attended the event was markedly positive. Of course, nowhere is the health of the Timeshare industry more evident than at Wyndham Vacation Ownership, where we ended the year with adjusted EBITDA of 32% above 2009, excluding the impact of deferred revenue. So against that backdrop of improving economic conditions, we're focused on ensuring we capture more than our fair share of the recovery and that we continue to fuel our growth for many years to come.

Today, I want to discuss four themes that will help ensure we achieve these goals: First, our emphasis on innovation; second, rebound single portfolio towards Fee-for-Service businesses; third, expanding brand presence; and finally, our customer service and associates engagement culture.

Read the rest of this transcript for free on seekingalpha.com