Travel + Leisure - Earnings Call - Q3 2020
October 28, 2020
Transcript
Speaker 0
Good morning, and welcome to the Wyndham Destinations Third Quarter twenty twenty Earnings Conference Call. After the speakers' remarks, there will be a question and answer period. As a reminder, ladies and gentlemen, this conference is being recorded. If you do not agree with these terms, please disconnect at this time. Thank you.
I would now like to turn the call over to Chris Agnew. Please go ahead.
Speaker 1
Thank you, Aaron. Good morning and welcome. Before we begin, we'd like to remind you that our discussions this morning will include forward looking statements. Actual results could differ materially from those indicated in the forward looking statements. And the forward looking statements made today are effective only as of today.
We undertake no obligation to publicly update or revise these statements. The factors that could cause actual results to differ are discussed in our SEC filings, and you can find a reconciliation of the non GAAP financial measures discussed in today's call in the earnings press release available on our website at investor.windinvestinations.com. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our third quarter twenty twenty results in addition to an update on our current operations and company strategy. And Mike Hug, our Chief Financial Officer, will then provide greater detail on our results, our balance sheet and liquidity position. Following these remarks, we will be available to respond to your questions.
With that, I'm pleased to turn the call over to Michael Brown. Thank you, Chris, and good morning, everyone. We were very encouraged with our third quarter results, demonstrating the resiliency of our business and our ability to recover quickly since the reopening of our resorts. For the third quarter, we reported adjusted EBITDA of 139,000,000 adjusted diluted EPS of $0.83 and year to date positive adjusted free cash flow of $120,000,000 Our results steadily improved throughout the quarter, both sequentially and against prior year. This is a reflection of growing consumer confidence in travel, the performance of our associates around the globe and the overall strength of our business model, which is rooted in the resiliency of leisure travel and the recurring nature of our revenue and EBITDA streams.
Although COVID continues to present significant challenges for the travel industry, the third quarter highlighted several key distinctions of the Wyndham Destinations business model that allows us to be on the leading edge of the hospitality recovery. First and foremost, we are 100% focused on leisure travel. We have a geographically diverse resort and sales footprint, minimizing our reliance on any regional market to fulfill owner demand or to generate sales. The diverse footprint makes it easy for our owners to travel where they want, which was demonstrated this summer as consumers shifted to drive to destinations. Over 90% of our owners drove to our resorts for their vacations.
We saw fewer arrivals in urban destinations and medium haul markets like Hawaii and The Caribbean, while mainland beach destinations have been our most demanded locations since the reopening. As I mentioned, we are well diversified with historically only two markets representing more than 10% of our VOI sales, Las Vegas at 13% and Central Florida at 12%. These factors led to quarterly occupancy of nearly 60% for open resorts, including total occupancy of 77% over Labor Day, a Labor Day occupancy level that was equivalent to twenty nineteen. In North America, we have now reopened 97 of our resorts and resumed operations at over three quarters of our sales centers. Our sales resiliency is due to our loyal owner base and our diversified marketing channels and our greater concentration of in market guest acquisition.
When travelers arrive to a market, we have the ability to convert these arrivals to tour flow immediately. In the third quarter, we reported $256,000,000 of gross VOI sales, driven by a sequential improvement each month in North American tour generated gross VOI sales, which were lower year over year by 71% in July, 59% in August, and 49% in September. As we shared, our members love their ownership and when they travel, they buy more. Owners consistently spend an incremental 2.6 times the initial purchase over their lifetime. And the strength of owner buying behavior post reopening indicates to us that this metric remains unchanged post reopening.
As daily COVID cases declined in August, consumer sentiment improved with sixty percent of our owners indicating they were ready to travel. We're excited by the increased engagement from our owners, and we're seeing interest in longer stays during the Thanksgiving and Christmas holidays. We've seen searches for vacations increased to an average of nearly 1,000 miles from their home, up from around 700 miles at the June, indicating that people are gaining confidence with being able to travel longer distances. The positive momentum supports the strength in tour flow and VPGs we saw in the third quarter. VPG increased 30% in the quarter compared to pre COVID.
This is due to a combination of the sales mix being more heavily weighted to owners and the improved efficiency of our marketing channels. Additionally, we have not offered promotional pricing, but instead dedicating our promotional dollars to drive future owner bookings through digital campaigns. To dive deeper on new marketing channels, new owner mix was 28% in the third quarter with Blue Thread sales volume 13% of new owner sales. The increased proportion of Blue Thread tours is an encouraging sign given that VPG is more than $300 higher for Blue Thread tours compared to overall new owner tours. In addition, the overall improvement in new owner sales demonstrates our ability to generate strong demand even in the challenging travel environment.
In just a few days, we will begin selling our new urban resort location in Centennial Park Atlanta, which will be available for occupancy to owners in 2022. To provide one last insight into performance at Wyndham Vacation Clubs, our loan loss provision saw noticeable improvement. We have elevated the minimum FICO qualification threshold from 600 to six forty, improving tour quality and driving better performance in our portfolio. In the third quarter, our loan loss provision as a percentage of gross VOI sales was just under 19%, down from 20% in the same quarter last year. I'd now like to shift to Panorama, our exchange and membership travel business.
Panorama continues to deliver on its recurring revenue model and shows the resilience we have come to expect from this segment. Revenue per member improved each month, down from the prior year 29% in July, 20% in August, and 7% in September. 78% of RCI affiliated resorts were opened in the third quarter, and this is expected to rise to 88% in the fourth quarter. More importantly, we are beginning to execute on our plan to grow our base of non timeshare relationships in this segment. Panorama Travel Solutions will offer discounted travel to close user groups powered by the technology from ARN while requiring upfront membership fees and recurring transaction fee streams.
We are very pleased to announce our first non time share affiliation agreement with Grupo Losadas. Although immaterial to our results today, this deal is our first venture outside the TownShare model and begins our effort to expand our travel business to gain access to the more than 100,000,000 North American households that do not own time share. These services are provided on a B2B basis and are complementary to our current timeshare model. Let me now move to our outlook. We are seeing the positive trends in the third quarter continue through October, giving us optimism through the end of the year.
With that said, we remain mindful of uncertainties in the fourth quarter that may pose significant headwinds to our business, including spikes in daily COVID cases, next week's selection and the uncertainty around the timing and amount of a second stimulus package. For the fourth quarter, we expect tours to be down 60% year over year, gross VOI sales to be 45% lower year over year, and VPGs to remain at 30% above the prior year. We expect the loan loss provision to remain below 20% of gross VOI sales in the fourth quarter, adjusted EBITDA margins to be similar to the third quarter, and we continue to expect to be free cash flow positive for the full year. With that, I would like to hand the call over to our Chief Financial Officer, Mike Hug. Mike?
Thanks, Michael. Good morning to everyone and thank
Speaker 2
you for joining us today. I will discuss our third quarter results and provide you with more color on our balance sheet, liquidity position and cash flow. My comments will be primarily focused on our adjusted results and year over year comparisons. We reported third quarter adjusted EBITDA of $139,000,000 and adjusted earnings per share of $0.83 compared to adjusted EBITDA of $267,000,000 and adjusted EPS of $1.57 one year ago. During the quarter, we had $31,000,000 of public charges with $30,000,000 added back to total company adjusted EBITDA.
Wyndham Vacation Club reported revenue of $477,000,000 with gross VOI sales of $256,000,000 and adjusted EBITDA of $96,000,000 Tour declined 70% in the quarter compared to the prior year with Las Vegas and Hawaii providing a drag. New tours declined 80% and existing owner tours declined 55%. VPG on the other hand increased 30% to $3,039 benefiting in part from improved new normal close rates and a higher mix of owner sales. Our underlying portfolio continues to perform well with delinquencies lower year over year driven in part by deferral programs as well as a more mature portfolio from reduced originations over the historically busy summer months. Request for deferrals have continued to trend down since the second quarter and now active deferments represent just 2% of loans outstanding, down from 6% at the peak.
We remain in close contact with owners coming off deferral and are seeing the majority of them return to making payments. We remain comfortable with the overall allowance on our receivables portfolio considering the continued uncertainty around the duration of the pandemic and its economic impact. Excluding the results of the North American Vacation Rental business, which we sold in October and the acquisition of ARN last August, our Panorama segment delivered third quarter revenue of $123,000,000 In the prior year, Panorama's revenue was $161,000,000 On this basis, Panorama third quarter adjusted EBITDA was $59,000,000 compared to $70,000,000 in the prior year. During the quarter, the average number of Panorama members decreased by 6% and we expect that trend to continue into 2021. Panorama net transactions were down 33% in the quarter due to cancellations.
However, we are seeing a positive underlying recovery trend. September exchange gross bookings exceeded the prior year by 1% marking the first month of year over year growth since COVID started. Cancellations are recovering more slowly and continue to run at elevated levels, particularly internationally. As discussed on the last quarter call, exchange member based drivers are going to become less relevant for Panorama as its travel portfolio expands and we will be transitioning to reporting overall Panorama vacation transactions. During COVID, Panorama has remained focused on the growth and integration of ARN and we are seeing excellent progress in our business development pipeline.
In the third quarter, ARN delivered 27% of Panorama's net transactions. Turning to our balance sheet. As of September 30, we had 1,300,000,000 of cash and cash equivalents with corporate debt at $4,200,000,000 which excludes $2,500,000,000 of non recourse debt related to our securitized receivables. Our net leverage for covenant purposes at the end of the quarter was 4.1x, which is 2.4x below our covenant restriction. In the third quarter, we significantly improved our capital and liquidity position.
In July, as discussed on our second quarter earnings call, we amended our revolving credit facility while retaining some flexibility on capital allocation and also issued $650,000,000 of senior secured notes. In August, we completed our second ABS transaction of the year with great execution on a $575,000,000 term securitization with a 90% advance rate and a 2.81% interest rate. This transaction will complete our twenty twenty term securitizations as our ability to upsize this transaction due to the tremendous demand allowed us to eliminate the need and the associated risk of a fourth quarter transaction. As a result, we pulled cash forward into the third quarter negatively impacting fourth quarter cash flow. We successfully closed the renewal of our $800,000,000 ABS conduit facility on October 27 and extended the maturity date another year to 10/31/2022.
The bank group and commitment sizes remain the same with the renewal. The new terms provide greater efficiency for Wyndham as the dynamic advance rate is now tied to the credit quality of the underlying assets allowing for a higher advance rate versus the previous facility. We are very happy with the renewal and appreciate the support of our banking partners. We paid our third quarter dividend of $0.30 per share on September 30 and we expect to recommend a fourth quarter dividend of $0.30 per share for approval by our Board of Directors in November. We are paying a dividend because we believe in the underlying strength of our business, cash flow and liquidity.
We believe the dividend at this level is attractive to both current and potential shareholders and is sustainable. As Michael previously mentioned, with a continued range of possible outcomes through the end of the year, we still expect to be adjusted free cash flow positive for the full year. Overall, we are very proud of our third quarter results, which put us on great trajectory for meeting our full year 2020 objectives. With that, Aaron, can you please open up the call to take questions?
Speaker 0
And we will take our first question from Joe Greff with JPMorgan. Your line is open.
Speaker 3
Good morning, everybody. And Michael and Mike, thanks for the details here. The first question relates to VOI sales. That was great color that you gave us, Michael, on the performance in July, August and September. And I appreciate the VOI sales outlook commentary, down 45% year over year in the 4Q.
Can you talk about, you know, maybe this is nitpicking, but a little bit, what you're seeing or what you've seen so far, in October, you know, relative to that 49% number for September? And then I guess when you think about October as a percentage of the four q, you know, how much is generally October? And does that shift a little bit this year given your commentary on what you're expecting for longer duration, stays in November and around Christmas.
Speaker 1
Great. Good morning, Joe, and happy to give some commentary around the Q4. On VOI sales, we are we are seeing continued momentum in the month of October. I would expect us easily to cross the $100,000,000 mark for VOI sales, which not only shows improvement in the in the absolute number, but again, just continued improvement against the prior year. I really have to credit our sales and marketing teams.
They they came back and and reinvented their business, and their performance is really shown through. Combine that with the fact that we're seeing increasing consumer confidence of our owners wanting to get back on vacation. We see that momentum on the areas that we control to to be likely to continue throughout q four. As as far as rhythm of or cadence of the fourth quarter, October December tend to be your stronger strongest months. So while we've enjoyed a sequential improvement every month, I'm not I'm not sure how November will end up because it tends to be a month that dips a little bit with a slower first half of the month and then it begins to pick up around Thanksgiving time.
So we'll see. But, again, the underlying performance of that, of the BOI sales has been really strong, and I couldn't be happy with our team's performance and and the fact that our owners are coming back to the resorts.
Speaker 3
Thank you. And then if I'm piecing together your your pieces of outlook for the four q, that would suggest that we should see four q EBITDA up sequentially from what you reported in the three q. Is that how you're thinking about it?
Speaker 1
Well, we're we're we're staying away from giving specific guidance just because I think there's three components that we remain cautious of, which which I mentioned being the the election when the second second stimulus which we believe will come when it comes and then obviously continue COVID spikes. What what I would just add to that, though, Joe, is we we are seeing We were very pleased with the third quarter margins. I think it really reflects the early actions we took to make sure our piano and our balance sheet were were solid, and we're expecting similar margins in the fourth quarter. And I think the other piece of the fourth quarter that's an important component in the overall equation for driving EBITDA is that we're seeing bookings in Q4 down 20% over last year. And in the third quarter, that number was down 27%.
So sort of a tie in to your first question, which is just showing continued improvement not only in BOI sales, but in consumers' willingness to travel compared to prior year.
Speaker 3
Great. Thank you very much,
Speaker 1
guys. Sure. Thank you.
Speaker 0
And we will go next to Chris Woronka with Deutsche Bank. Your line is open.
Speaker 4
Hey. Good morning, guys.
Speaker 1
Good morning, Chris. Good morning, Chris.
Speaker 4
Good morning. I wanted to dive into the inventory outlook a little bit. And maybe you can remind us kind of where you are right now in terms of how much you have on hand? And then also, given the stress that's out there in the market, are you seeing any opportunities to maybe go on offense there, particularly given that you do expect to be free cash flow positive for the year?
Speaker 2
Well, think when we look at our inventory, with the decline in sales that we had through this year, we feel very comfortable with the levels of inventory that we have. And in fact, when we look at over the next several years, on average, you'll see our inventory spending in that $200,000,000 range rather than the $250,000,000 that we've targeted the past several years. As it relates to opportunities, we do see opportunities coming our way. I wouldn't expect that we would take advantage of any of those this year. We think like we saw back in 02/2010, those opportunities will be there for some time.
At this point, because of the level of inventory that we have, we really think that driving free cash flow as high as possible, using that free cash flow over the course of the next couple of years to get our leverage back down to continue with our return of capital to shareholders is probably more important than putting a new dollar on the app. We'll be really focused on EBITDA margins and free cash flow once again to drive that leverage down and get us out from under our amended revolver, which gives us a great more flexibility as it relates to return of capital to shareholders.
Speaker 4
Okay, very helpful. And then on the Panorama segment, and I know that's still in transition and there's COVID related headwinds and all kinds of things, but margin performance pretty impressive. Is that indicative of where the margins could be on a when we get to a more normal operating environment? Or is there more to go? Is there something exogenous that is not going to repeat the future as you grow the business?
Speaker 2
Well, I think there's a couple of things. First of all, on the current margin, obviously, team has done a great job you know, controlling their costs, putting cost controls in place where possible. And then also we do see, you know, those members that canceled earlier in the year, especially in the first quarter, start to rebook their exchanges. So we're excited about the trend that we see there. Long term margins as we grow ARN, we can see pressure on the Panorama long term margins.
Now we'll still drive absolute EBITDA growth, but the margins on the ARN side of the business are tighter than what we see as it relates to the RCA Exchange business. So we'll drive absolute growth in EBITDA out of Panorama. But I wouldn't expect the margins that we're seeing now to continue long term, not because of the change in the Exchange business, but because of ARN representing a bigger portion of Panorama.
Speaker 4
Okay. Very good. Thanks, guys.
Speaker 1
Thank you, Chris.
Speaker 0
And we will go next to Patrick Scholes with Truist. Your line is open.
Speaker 2
Hi. Good morning, Michael and Mike.
Speaker 0
Good morning, Patrick.
Speaker 5
Good morning. Just a bit of a follow-up question on Chris' question. One thing that stood out to me in earnings really certainly was that sequential improvement in exchange bookings exceeding prior year September by 1%. Is it fair to assume that that is simply just pent up demand that's driving it? And certainly, people couldn't take their couldn't exchange because resorts were closed in much of 2Q and 3Q.
Is that a fair assumption?
Speaker 2
I think you're exactly right, Mac. I mean, there's no doubt that there's pent up demand out there, not only on the exchange side of the business, but we're seeing it on the Wyndham Vacation Club side of the business as well, which is why when we look at the continued trend in vacation ownership sales, the shortfall year over year decreasing each month. But on the RCA Exchange side of the business, we're definitely seeing those people that either canceled reservations or in the year rebooking their exchanges or those that haven't yet had the opportunity to take their vacation to vote for a 2020 vacation or even obviously starting to think about 2021.
Speaker 5
Okay. And related to that, what if you can give us any high level color on how you see the Christmas and New Year's weeks shaping up? Is it possible that you could see increased visitation at your clubs year over year as well as increased exchanges during that time period?
Speaker 1
Well, we're already we're already seeing some change in consumer booking trends for the fourth quarter. Typically, our consumer will will book about a hundred and twenty plus days out, and we're seeing that booking window shorten to just under ninety days so we're definitely still in the Thanksgiving and Christmas booking window and as I mentioned in Joe's question. We are seeing improvement in our Q four net bookings compared to the other versus prior year compared to Q three. We're seeing improvement there. So we still think we're gonna see good pick up here in the fourth quarter.
There's a few different dynamics with schools going straight through and getting out earlier. We think December has the possibility to be a more full month as opposed to purely a second half of the month phenomenon, which is typical for December. Also, credit to our our digital team is we've been out there promoting our holidays. We've we've just launched something for Thanksgiving to try to drive people for longer stays at at during the Thanksgiving time frame. So there there are different dynamics from prior years, but with the improving trend that we're seeing in q four compared to q three, We're very encouraged that- is subject to sort of the external forces you.
The overall demand for leisure travel will continue to improve. Really in that holiday season.
Speaker 5
Okay. Good to hear. Then one last question here, I may, and I apologize if you did say this in the prepared remarks. In the March, what was in the, VOI sales? What was the percentage of new owners purchases versus existing?
Speaker 1
In q three, it was 28%. And of that 28%, 13 was Blue Thread. Just if I could rewind back to our prior public remarks, we expected that number to be 20 to 25%. So we were we were very pleased that ending up at 28%. We did not expect that to be that large of a mix in q three.
So very positive early trend in in the prepared remarks, we did comment that a lot of that can be also due to the fact that our end market acquisition as as leisure travel begins to pick up, Patrick. We can capture that improvement in, leisure travel and converted to tours relatively quickly.
Speaker 5
Okay. Very good. Thank you very much.
Speaker 1
Thanks, Patrick.
Speaker 0
And we will go next to Stephen Grambling with Goldman Sachs. Your line is open.
Speaker 6
Hey, good morning. I guess on maybe a bit of a follow-up on thinking about new owners or I should say, new tours. Can you just elaborate on what you're seeing in terms of the demographics of the customers who are coming in now and how that may or may not have evolved? Specifically, feel like we get a lot of pushback on whether the younger customer is, you know, still engaging with time share and what or whether they they may be, you know, choosing alternative forms of accommodations then. Thanks.
Speaker 1
Good morning, Steven. We get that question as well all the time. So I I I really appreciate you bringing bringing the topic up. Let let me just share a few facts and then give you a few of my personal thoughts on the matter is. This time last year, 60% of our new owner sales were to either Gen Xers or Millennials.
And this year, that number is 58%. Given the fact that we've got less less, new owners coming into our mix, I think that's actually a really good sign. In the third quarter, 20% of our sales to new owners were to millennials. And just in form of context, just a few years ago, that number was 5% to 6%. So we are seeing millennials continue to move toward timeshare and find it as a great way to vacation.
And I really think when you look at the more macro trends of how people want to leisure travel, we just fit in all of those areas, whether it's drive to is more of a near term phenomenon. But the idea of vacation with with bigger accommodations, multiple bedrooms, resort amenities, everything you're seeing is the positive elements of the Airbnb's and the RVO's. We're benefiting from the same trends. I I think the element that we deal with is that there's still a large part of the population that use timeshare as a six week, six location, same unit every year. And the reality is this When the brands came in in the late or nine and and maybe unbranded companies.
We've completely changed the model which provides maximum flexibility and for those who. Take the time to do the research they. They, they see the benefits, and I think it really shows up in the demographic that, like I said, 20% of our new purchasers are millennials. And I think that's only gonna continue to grow as we as we move forward. Needless to say, fact that there is is that perception still out there is we have a lot of work to do, and we're gonna continue to tell our story and show that it is a great way to travel like we're seeing post reopening.
Speaker 6
That that's helpful. And as a a follow-up maybe for Mike Hug on free cash flow, I I know you referenced some some timing that maybe pulled some cost in the four q. Is there any other kind of working capital or other CapEx puts and takes to think about as we think through free cash flow in the fourth quarter? And maybe any initial signals as we think about the recovery in the
Speaker 2
next year? Thanks. Good morning, Stephen. Cash flow, obviously, we were very excited about that ABS transaction. The demand was incredible.
We went to market with a $400,000,000 transaction, upsized it to $575,000,000 and really felt like we always had that you put the money in the bank when you can, when you got 90% of interest rates and interest rate under 3%. So we're fine making that decision even though it did move some cash flow from fourth quarter into the third quarter, didn't change our overall outlook. And really when we look at fourth quarter cash flows, the reason it's going to be down so significantly year over year is driven entirely by the consumer finance activity, the lack of an ABS transaction as well as we grow, our VOI sales in the fourth quarter and not doing a fourth quarter transaction, they're only going to sit in the ABS conduct that we have that we recently renewed that we were very excited about as well at a 60% advance rate. So it's really a timing issue where the sales that we make this quarter will go into the conduit. Then when we do our next transaction probably in March or April next year like we historically do, they'll jump up to that 90% advance rate.
So really nothing unusual in the fourth quarter as it relates to cash flow except for, really the consumer finance activity.
Speaker 1
Thank thank you, Steven. Is there was there another question? Couldn't hear if there was. Thank you so much. Thank you, Steven.
And we can move to our
Speaker 0
next questioner, Brian Dobson with Jefferies. Your line is open. Hi. Good morning. You gave some great color on on Blue Thread tour sourcing.
I was wondering if you could just expand a little bit on what you're seeing in the open open channel marketing.
Speaker 1
Absolutely. Good morning, Brian. Great to hear from you. There's the the blue thread, it's it's one of the programs, as you know, that we've been we've been very committed to and, is provides a lot of stability in in attracting new owners because of loyalty to Wyndham rewards in the hotel group in their in their stays. To our hotel brands.
We saw continued strong performance almost from day one coming out of our reopening and at the May. As I mentioned, the VPGs are $3,300 plus dollars higher and therefore provide a good steady base of margins as we move forward. Related to open market, the dynamic is a little more, I don't would say tricky, probably complex in in it's a market by market decision that we continue to make. As part of our changes as we went through this reopening, as we mentioned we've increased our FICO minimum. And as well we evaluated.
Yep hundreds of marketing locations across The US. And make some decisions to close some down because margins were low and we we knew that we needed scale to to reopen those markets. This summer is the peak season for the for the open market channels. And we made some we made some tough decisions in May and June to close locations down that we will not reopen until at some point next year if if ever. The result of that I think is what you saw in q three is that the marketing locations that do remain open, are producing really good margin business, which we think will create downstream benefits for our portfolio.
You know, I I always hesitate to say we've closed down marketing because that's what this business is based on. But the reality is, with 28% of our sales big to new owners, I think that decisions are are are are marketing and sales teams made, and across the organization really were flat that they they made the right decisions, and it's and it's really helped our business. So, this this is a month by month evaluation. The market is the same. We we see what's going on in Hawaii, urban destinations versus, you know, what's going on here in Orlando.
And I'll I'll just use that to to give you an anecdote, Brian, about Orlando. Sixty days ago, when we looked at Orlando 2021 bookings, it was our number seven requested destination, which it's always our top top demanded destination. Roll forward sixty days to the past week or so. It's now our number one demanded destination for 2021. And I think not only does that speak to how we will approach our open marketing in Orlando in 2021, But I think it speaks more broadly to the consumer confidence of booking travel in the leisure space, at a little more distance from today.
And I think it's an encouraging sign for us, obviously, but obvious, but more so probably for leisure travel to this region.
Speaker 0
Thanks. That's that's very helpful. And then and then shifting over to the loan loss provision, better than expected in the three q. How do you see that evolving moving forward? Should we expect the curve to should we expect that to decline in a linear fashion?
Or might there be some ups and downs along the way? And then if you wouldn't mind touching on your progress against the third party exit strategy firms,
Speaker 1
that would be very helpful.
Speaker 2
Yes. Good morning, Brian. This is Mike Hugge. I'll take the first part as it relates to the provision, and Mike can jump in on the third party activity. As you mentioned, very happy with the provision in the quarter coming at 18.8%.
You all know that's been a real goal of ours is to get below 20%. So the team has done a great job really on the marketing side to make sure that we're marketing to the people that have the ability to pay for the product and getting that minimum cycle up to $640 definitely helps with that. When we look at the fourth quarter, we would expect it to be in that same range. Then even throughout 2021, our goal will be to continue to market to the right people and have a provision that remains under 20%. So overall, we're happy with the new originations and we're happy with the entire portfolio.
When we look at the level of defaults that came through in the quarter flat year over year, delinquencies are actually better at the September this year than September. So I think the outreach we're doing to our owners continue to stay in contact with them. The trends we're seeing as far as them booking vacations and getting on vacation, I think all bodes well for, our portfolio. So and the provision going forward. So overall, I don't think we could be happier as far as, how our consumers are continuing to pay.
And just as importantly as we go forward, the marketing changes we put in place to make sure that we keep that provision below 20%.
Speaker 1
So Brian, I'll touch a little bit on the third parties, and and you you've heard us mention many times our five point plan. And in the third quarter, we had progress on every single one of those points. We're seeing improvement on the older vacations, and their booking trends. You've seen the changes we've made to our underwriting, to drive up FICO scores. We launched in the third quarter certified exit by Wyndham.
That's traditionally been our ovation program, but, it it shows that what we want is for people, whether it's through us or through a reputable agent company, to when the time is right for them to exit to make sure they're dealing with the party that won't charge them upfront fees, and we'll give them the straight information. And therefore, we wanted to be far more front. In the sense of make no mistake when you click on this. What's that or call this number the discussion that you're gonna have and we've we've seen a nice uptick from that. There continues to be progress at the state level with regulators.
Both on on resolving pending litigation or, ones that continue down the path toward resolution between exit companies and and attorney generals attorneys general. And then lastly, you know, our litigation, our individual company litigation continues to bear fruit. You know, the fundamental question we ask is, these companies is you you can answer in front of a judge or or you can you can change your business practices and almost without exception, exact exit companies are choosing to either exit the business or change their business practices rather than face their business practices in the quarter law. So we continue to see progress and are and are pleased that more than anything that consumers are starting to get the straight information and can make their own decisions for them for themselves.
Speaker 0
Great. Thank you. That's very helpful.
Speaker 1
Thanks, Brian.
Speaker 0
And we will go next to Jared Shojaian with Wolfe. Your line is open. Hi. Good morning, everyone. Thanks for taking my question.
Previously the idea was COVID cases I think you had identified were the number one driver of arrivals. Obviously COVID cases are still going up. It seems like trends are improving and moving in the right direction. So can you just talk about that a little bit? And then I know Hawaii is small for you guys, but anything you've seen since the quarantine was lifted?
Speaker 1
Yes. It's a great question because, yes, if I if I if I dial back to June and and then July and August commentary, was you know, we're we're as as cases spike, you see a correlation to our net bookings. And here we are rolling forward ninety days later, we're seeing cases spike. And interestingly enough, are not seeing cancellations, which is what we talked about as to being the corollary. We are not seeing cancellations spike.
And I and I, you know, I wanna say yes. The yet being I'm not sure if they will or they won't, but until now, we have not seen anything unusual in the cancellations like we saw in July and August. We are hopeful that will stay that way. We will see. And and we believe it could be two things.
Two primary drivers as to why cancelations are not spiking this time the way they did in July and August. And and I mean, cancelations of bookings for vacations. Number one, we think there is a bit of COVID fatigue or burnout, and people are just saying, I'm gonna continue on, despite what we're hearing as far as spikes. And secondly is in in the last ninety days a lot of people have traveled. People have learned, what safe travel is all about.
Learn that's going to, brands that have programs that ensure safety and do every, you know, follow cleaning protocols. And I can point to my own experience. I I traveled out to our our location in Las Vegas and, could not have been more impressed with our health and safety protocols. In place and felt super super, comfortable to be on vacation and it was time is going on. You've seen, I think a little bit of fatigue and a little bit of, people just growing comfortable that if they choose the right place, they feel good to travel.
And so you're you're right to point out what we said in the past and where we are today. As I mentioned, until now, we have not seen that cancellation or spike in cancellations that we saw in July and August. August.
Speaker 0
Okay. Thank you. And then on Hawaii, any anything you've seen with the quarantine?
Speaker 1
So in in Hawaii, when you look at our q four tour projections, a 100 actually, a 120% of our decline in q four from our previous projection is due to Hawaii. We are starting to see bookings come into Oahu, but the Out Islands, not so much. So I actually, although reopened, technically, it it is a it is gonna remain a very soft market for us for the remainder of the year, and it is not a dependent market for us by any stretch. So what I'm very proud about is the rest of our our tour projection. A 100 a 120% of our tour decline in in q four from our previous projection has been made up for the from the rest of the the the sales locations in The Mainland US.
Sorry, that was a bit confusing. We've we've recovered some of the loss in Hawaii in the remainder of our our sales locations, which shows really good performance in the ones that are reopened on the Mainland.
Speaker 0
Okay. Thank you. That's Just to stick on that is that it was actually my follow-up question. With tours expected to be down 60% in the fourth quarter, I think the implication was maybe they were expected to be down maybe 50% previously. Are you saying that delta between those two numbers is entirely Hawaii or are there more things going on in there?
Speaker 1
It's not only entire and thank you for giving me the chance to to speak more clearly on this on this subject. It's not only entirely. It's more than that number, but we've been able to offset it by strength in in the other mainland markets. Yes is the short answer that it's entirely due to Hawaii. And more.
Speaker 0
Okay. Thank you very much.
Speaker 1
Thanks, Jared.
Speaker 0
And we can go next to Ian Zaffino with Oppenheimer. Your line is open.
Speaker 3
Hi, great. Maybe just following up on that question. Is there a way or have you done any surveys on bookings and motivations? I'm just trying to get a sense of you know, how many of these bookings are just aspirational, and they're not necessarily serious just given all the kinda reductions in the, the strictness of the cancellation policies, etcetera. And and if you have that information, have aspirational bookings actually declined and you're seeing actually more real solid bookings?
Maybe just some color on that would be
Speaker 1
really helpful. Thanks. Good morning, Ian. It's a it's a it's a question that's evolved throughout the third quarter. Let's start with our cancellation policy.
Is is what it has was pre COVID now. We are providing much more flexibility as far as you shares and being able to roll your points into 2021. And in the implication of that, knowing that we do have a cancellation policy, does show that our, the reservations we see are less just purely aspiration. I'm just gonna put something on the calendar and they're actually sticking. And we know that for a few reasons.
Number one is cancellations have been very steady over the last sixty days. And we've seen them shortened from a hundred twenty days down to ninety days, which means people have this pent up demand, and they want to get on vacation. And we're seeing that travel actually have come through from when we change the cancellation policy to those bookings are actually happening and and we're getting that the arrival. So we there's actual proof to, the cancellation numbers that that we're seeing in the month of October as as well. What I would also say, Ian, is that, you know, I mentioned that, I think back to Joe's original question is, we were down on net bookings 27 from prior year in the third quarter.
We were down we we are currently down 20% in the 2020 with a closer in booking window, so improvement. But we also are looking into 2021. And that number is only 5% down, versus, the same time last year looking into 2020. So we we are seeing this consistent progression of interest to get on vacation. And we think the overriding factor here is that there is this.
It's the leisure travel phenomenon is that people want to get get away and start using their vacation and get out of the house and and that's why we want to share that statistic that not only are they going to drive to destinations, but they're starting to look a little further afield, to get on vacation in the upcoming ninety days.
Speaker 3
Okay. And then maybe just just a follow-up and maybe just
Speaker 1
a little bit color on this.
Speaker 3
So it seems like the bookings you're getting are are more serious. Do you think that's what's driving the the decoupling, I guess, between COVID spikes and and cancellations? Any color on that that would be would be helpful for the banks.
Speaker 1
I do. And, know, we I've as you can imagine, read almost every report, whether it's gaming or hotel REITs or this morning, airlines that are they're releasing it. And and there does there we've we've been seeing it in our business, this less correlation between between daily infections and consumer confidence. Consumer confidence is at its highest level. It's through our survey since April, and that includes the last three weeks when COVID has been spiking.
And that's why I shared that I think it's really comes down from my perspective to two big issues that there is a bit of covert fatigue. People have chosen to start living their lives a bit differently. And secondly is more and more people have traveled in the last ninety days and when they get home, they they share where and how it's safe to travel. And again, that's my hypothesis, our hypothesis, but you're starting to see it show up in a number of other company reports when they talk about leisure and leisure travel as well, which which is a bit of affirmation.
Speaker 3
Okay. Great. Thank you very much.
Speaker 1
Thank you, Ian.
Speaker 0
We will go next to David Katz with Jefferies. Your line is open.
Speaker 7
Hi, David. Good morning. And thanks for all the information and thanks for taking my question. I know that we've asked a couple already. But I wanted to go back to just one matter, having heard everything that you've said, which is, you know, little doubt around the notion that consumers will travel and want to travel.
But from a separate perspective, the degree to which they can. And if you kind of look at your business today, are there any restrictions or you know, airport constraints or, you know, things that are constraining your business that, you know, prevent a person who will travel but, you know, cannot to one of your resorts at the moment?
Speaker 1
Well, I very fair, David, and happy to take as many questions as you have. The this is really what it comes down to, and I although we are seeing a greater propensity to travel, if you dig a little bit more into this consumer confidence that I just referenced in in Ian's statement, I do still think you can break consumers into three primary categories. The first being, They're gonna travel no matter what, and we saw that throughout the summer, when there was even more uncertainty out there. There's a third that that say they won't travel until there's a vaccine or close to having a vaccine. That number goes between thirty percent and thirty five percent depending on the week, but.
It's roughly a third and then it's that middle third group that really followed tends to be following the sentiment and- seems to be. Less sensitive to daily infections just because as time's gone by and as as we just talked about. And that's how we look at our owner base and it's really making sure that. That last third who aren't comfortable to travel have have as much flexibility as possible Meaning point our our points aren't perishable. So although you may not have traveled from March to October, we wanna make sure you get the full use of your points,
Speaker 0
and that may not be this year. It may be that you need
Speaker 1
to roll them over. I received an email from a, you know, a top point owner last night, and they just said, we're just not gonna travel this year. Any issue with
Speaker 2
us rolling it over.
Speaker 1
Our our service team was on it this morning, and and I I they're they're happy. They're they're just happy today they can travel next year. To to constraints- I think this is where it comes back to one of the distinctions of our model is. We have- 230 resorts around the world and- you know there's we have we have resorts and a lot of different destinations in the Mainland US. And the fact that people that there's a greater proportion of people who are not willing to travel today.
It's just fine because they'll choose from Chicago to go to the Dells or in Arizona to go up to some of our great resorts in Utah or in Arizona or Southern California. Or New Mexico. So this drive to component. I think, is a big win for us here for the next fifteen months and allows a lot of flexibility for owners to choose when and how they want a vacation. And I think that's meaningful.
You know, talked at our our beach destinations on the Mainland were most demanded. I didn't mention, one of our affiliates has a mountain destination in Virginia. And they're having incredible demand because it's a it's a remote location that's, you know, sort of this mountain retreat, and it's great. And we have many resorts that went in vacation clubs like that, and I think that is an important element of the short term for getting people back on vacation because they want to travel. They just need to have the options and whether it's Panorama or Wyndham Vacation Clubs, we offer by far the most extensive, optionality.
Speaker 2
Yeah. And David, I think I would add a couple of other things. Think the restrictions are actually being reduced when you look at Southwest Airlines recently announced that they're going to start selling the middle seat again. United was providing testing to, you know, their customers that were flying out to Hawaii. They're providing testing at the airports that you could start enjoying your vacation when you get to Hawaii.
I think an EM announced they were going to start seven shows, in November out of Las Vegas. So when you look at, you know, the leisure travel, all these companies that help drive our business by getting people into our vacation destinations are actually doing things to drive more arrivals to our markets. So previously you didn't want to go to Vegas because you enjoyed another things other than just gamble, now potentially you have a reason to go out there because you can go see a show. So I think all the trends that we're seeing are, you know, once the states are willing to open up, other companies in leisure travel are doing things to drive more consumers there, obviously, to help their business, but that also helps our business because arrivals in the markets leads to Tour flow and VOI sales.
Speaker 7
I appreciate that. If I can just one more. I recall the company during GFC getting into WAM and WAM two point zero, which was opportunistic when there was a fair amount of distress out in the market. Are putting plans or structures in place that are similar to capitalize on what may be capital light or fee based opportunities as the world evolves through next year?
Speaker 2
We definitely are, David. I mean, we in fact, we never put those plans on the shelf. We've been doing the asset light continuously since 02/2009, just to different levels. And in fact, the deal that Mike just announced today or discussed today in Atlanta is actually an asset light transaction there in Atlanta. So we are ready to roll with those transactions that come our way.
We definitely feel there'll be opportunities and we'll be smart and just take advantage of the ones that represent great inventory and great markets for us. But we're ready to roll on those.
Speaker 7
Perfect. Thank you very much.
Speaker 1
Thank you, David.
Speaker 0
Thank you. That concludes our question and answer period. I would now like to turn the call back over to Michael Brown for closing remarks.
Speaker 1
Thank you, Aaron. And as we launch here into the fourth quarter of what's been a tremendously unpredictable year, we were making important strides to restoring and growing our business. Our customers continue to trust us with their vacation, and we're seeing strong stronger travel trends around the globe. As always, our success is driven by our associates around the world, who I wanna thank for their outstanding work over the past seven months. They've truly been an an inspiration to me.
We look forward to sharing more with you in the upcoming months. Thank you, and have a great day.
Speaker 0
Thank you. That concludes today's third quarter twenty twenty Wyndham Destinations earnings conference call. You may now disconnect your line at this time, and have a wonderful day.