Travel + Leisure Co (TNL) 2007 Q4 法說會逐字稿

Welcome to the Wyndham Worldwide fourth quarter and full year 2007 earnings call. Throughout today's presentation, all lines will remain in a listen-only mode. Following today's presentation, there will be a question-and-answer session. 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 Ms. Margo Happer, Senior Vice President of Investor Relations of Wyndham Worldwide. You may begin.

Thank you. Good morning and welcome to the fourth quarter and full year 2007 Wyndham Worldwide earnings conference call. Joining us today are Steve Holmes, our CEO, and Gina Wilson, our CFO.

Before we get started, I just wanted to remind you that our remarks today contain forward-looking information that is 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-K, filed March 7th, 2007 with the SEC. We will also be referring to a number of non-GAAP measures. Reconciliation of these measures to the comparable GAAP results is provided to the tables in the press release which is available on the Investor Relations section of our website at www.WyndhamWorldwide.com.

Steve?

Good morning and thanks for joining us. As you saw from the press release, we had another strong quarter, delivering the results that we said we would with no surprises. Looking at the full year, we achieved double-digit top and bottom line growth and made significant progress against several of our strategic goals. You will notice that our adjusted EPS for the fourth quarter of 2007 did not grow as rapidly as it did in the first three quarters of 2007, and I would like to address that for a moment up front. As we expected, this reflects some tough comparisons with the fourth quarter of 2006.

In our time share business, as we had anticipated, we had increase in deferred revenue at the end of 2007. We also had a phenomenal fourth quarter of 2006 as the timing of revenue related to the change in GAAP accounting for time share rolled into the end of 2006. With the hotel group, we had a net increase in marketing expenses in the fourth quarter of 2007 compared to 2006, which impacted that segment's EBITDA and with group RCI, we were comparing 2007 with no meaningful international consulting contracts to 2006, where in the fourth quarter, we reported significant contract revenue. Again, all these comparative factors were worked into our plan for 2007 and we delivered right on our expectations. Excluding the year-over-year noise, momentum across the company is strong and we are looking forward to continued strong performance in 2008.

Of course, what everyone is focused on is what we see in the current marketplace and what we see looking forward into this new year. As I'm sure you have noticed, we are affirming the guidance given in our investor day on December 11th. We continue to believe that our business model solidly positions us even in a tougher economic environment because we have a global portfolio of diverse businesses and brands and our concentration in the mid-scale and economy segments plays well in uncertain economic times. And we have multiple revenue sources and more than half of our revenue is generated from fees related to services.

Overall, our businesses continue to perform very well. That said, we are watching consumer sentiment and stresses in the overall economy very carefully. The resiliency and nimbleness built into our business model make us optimistic that Wyndham Worldwide can continue to perform and grow and generate substantial long-term value for our shareholders.

Now let me review our results. The Wyndham Hotel Group had a great year, with 10% revenue growth and 6% adjusted EBITDA growth. Fourth quarter lodging results were in line with expectations and reflect our ability to execute against our key strategic initiatives. Leveraging our strength in a domestic economy and mid-scale segments, growing the upscale Wyndham brand and expanding our international presence. RevPAR grew 5.3% in the fourth quarter of 2007 versus the same period last year. We ended the year with overall system RevPAR growth of 4.4%, and comparable RevPAR growth of 5.6%.

Our Super 8 and Days Inn brands outperformed their competitive set with domestic RevPAR growth of 5.6% and 4.2% respectively, compared to just 2.4% growth for the economy segment. A good portion of Super 8's RevPAR performance resulted from occupancy gains in excess of the industry average. Super 8 also was the top rated economy hotel brand and number 24th overall in Entrepreneur Magazine's 2007 ranking of the best franchise businesses. Our Ramada brand also enjoyed domestic RevPAR growth well in excess of its competitive set. Ramada ended the year with domestic RevPAR growth of 8.3%, versus just 3.8% for the mid-scale with food and beverage segment. These three brands, Ramada, Super 8 and Days Inn, collectively represent over 70% of our U.S. lodging portfolio. The performance of these brands illustrate our focus on product improvement, franchisee education and training and the power of our loyalty program.

There has been much speculation and concern regarding the U.S. economy and the lodging cycle. One of our advantages, especially in a slowing economy, is that we have a diversified business model so our sensitivity to any one business driver is muted. For example, a 100 basis point change in RevPAR would only have a $2 million to $3 million impact on EBITDA and that assumes no cost cutting initiatives. So as Jim will discuss, while we are slightly lowering our expectation for RevPAR to 3% to 5% from 4% to 6%, in light of the macroeconomic environment, we remain comfortable with our financial guidance. Our lodging platform is a franchise and management business with dependable and consistent cash flows. We're not as exposed as owners managing hard assets with an inflexible cost structure.

Turning to franchise development, in the fourth quarter of 2007, we opened approximately 19,000 rooms. We grew our overall system by 1.4% in 2007, which reflects a 15% increase in our international presence, and an 8% increase in our Wyndham brand system size. Our pipeline remains robust with over 105,000 rooms in the pipeline, representing a 15% increase over last year, and reflecting continued strong interest in our brands. The Wyndham Hotel and Resorts brand is over 20% of our pipeline and another 30% represents international properties. Another matrix, approximately, or statistic, approximately 45% of our pipeline is new construction.

We are now beginning to see the impact of our rebuilding efforts for the Wyndham Hotels and Resort brand. We had strong growth in the first three quarters of the year, adding 18 properties in key markets such as London, Puerto Rico, Mexico and New Orleans. In the fourth quarter, we opened properties in Newark, New Jersey, Portland, Maine, Cozumel, Mexico, which a -- it's a luxury boutique resort that represents Wyndham's first Grand Bay new construction property, and we opened another new Wyndham in Panama City, housing one of the largest casinos in Latin America.

Internationally, we have increased our footprint significantly, with 15% growth in system size this year, we now have a presence in over 60 countries. In the fourth quarter alone, we added hotels in key cities like Seoul, Shanghai, Beijing and Bucharest. Over three-fourths of our international lodging portfolio is in Canada, China, the U.K., Germany and Mexico, countries where our brands have enjoyed RevPAR growth of almost 19% in the fourth quarter and more than 10% for the full year. We are also proud to announce that Super 8 Hotel in China has been appointed by the Beijing organizing committee for the games of the 29th Olympiad as a member of the Beijing Olympic Village accommodation service management team. We are pleased with our strong RevPAR performance, significant development momentum, and the opportunities that lay ahead of us, specifically with respect to the potential for international expansion and our growth plans for the Wyndham Hotel and Resorts brand. As you heard at investor day in December, Peter [Yesowich] and his Why Partnership's research predicts that even if the travel market slows down, business and leisure travel will continue but with renewed focus on value. We are confident that our broad selection of products, locations and price points will continue to meet the needs of travelers looking for high value in leisure and business travel.

Now turning to Vacation Exchange and Rentals. For the year, RCI revenue and adjusted EBITDA both increased 9%. Results for the fourth quarter are in line with our expectations, with revenue up 5% and EBITDA down 5%. Both metrics were dampened by the impact of international consulting and other revenue in Q4 of 2006 that was not repeated in 2007. Excluding these items, the underlying base business EBITDA grew. In the exchange business, growth in the average number of exchange members continues to be stable, up 5% versus prior year in Q4 and the full year of 2007. However, annual dues and exchange revenue per member was relatively flat for the full year, and down 3% in Q4, reflecting the timing and mix of exchange deposits versus last year, which resulted in higher inventory deposits in the fourth quarter of 2006.

In December, we launched a new web-based U.S. member rental platform that is a significant improvement over our prior offering and includes links to Google maps. Early results are positive with online member rental bookings increasing 59% during the month of January versus last year. More broadly speaking, we are building our Internet capabilities in the exchange business to improve the overall member experience and drive transaction revenue. While at the same time, benefiting from lower cost. During the last few months I have met with many of our time share development partners and what I'm hearing from them confirms what we see in our own time share business, which is that the time share business looks strong. Of course, our time share developer relationships are the lifeblood of the exchange business, and I'm pleased to say that we ended the year with good results for developer affiliations, completing approximately 30 affiliations in Q4, for a total of approximately 115 for the year. Our affiliates consistently renew their multi-year agreements with RCI at a rate of about 99%.

In the rental business, overall performance was strong in Q4, driven by higher net price per vacation rental, up 9%, excluding favorable currency translations, which was supported by mix and pricing as well as the conversion of two Landal parks from franchised to managed parks. Landal's success is due to favorable local trends, coupled with continued improvement in shoulder season space management. Our Novasol business also grew and benefited from its southern European destination expansion as well as an improving economy in Germany. We continue to expand our rental capabilities outside of our strong and growing base in Europe. Through our recent agreement with Leisure Link, we will increase the online presence of our global condominium and vacation rental inventory via new channels, including online travel agents such as Travelocity and Orbitz. In Q4, we made progress toward putting this alliance into operation and expect to begin selling and expanding our use of this distribution channel in the first half of 2008. We will put our building box in place in 2008, and look forward to further positive momentum in 2009.

Now turning to our Vacation Ownership business. 2007 was a spectacular year, with gross annual VOI sales up 14%. Our reportable drivers were not only up across the board but set new records in every category. We saw more prospective buyers last year than in any time in our history, and we converted these prospects with greater efficiency and higher transaction sizes than ever before. We added over 1500 time share units to our portfolio through ongoing development at resorts in Orlando and Gatlinburg, among others and opened multiple high profile properties in several key expansion markets, including San Diego and Oceanside California, San Antonio, Texas, West Yellowstone, Montana, Wisconsin Dells, Wisconsin and Panama City, Florida.

In addition, we have now solidified our pipeline for future development with several projects now under way at major destinations like Washington DC's National Harbor, San Francisco and Anaheim California, Steamboat Springs, Colorado, Kauai Hawaii, as well as a planned mixed use project at the Wyndham Rio Mar Resort in Puerto Rico. It's worth mentioning that all of this was accomplished during a year long transition period for this business as we work to rebrand and realign our extensive sales and servicing operations under the new Wyndham flag. Including an existing portfolio of approximately 145 resort properties. As a result of these efforts and those of our hotel division that I discussed earlier, 223 hotels and time share resorts now fly a Wyndham flag, up from only 87 in August 2006. Our Vacation Ownership business enters 2008 with a clear path forward from which to more fully leverage and capitalize on the Wyndham brand. We believe our strong results in 2007, particularly in upgrade sales efficiencies, were in part due to the early use of the Wyndham brand within in-house sales channels.

Clearly, we're excited about what the Wyndham brand means for our Vacation Ownership business in the long-term. In the short term, however, particularly as we work to sustain double-digit growth in an uncertain economic -- uncertain economy, we believe our greatest assets are our people, a satisfied member base, and a scalable business model, which includes highly diversified marketing strategies, dual on site and off site sales channels and a best of breed product structure that works well for our customers and just as well for us as the developer. As we noted in our invested day conference in December, our Vacation Ownership business employs one of the most highly diversified marketing strategies in the industry, allowing us the flexibility to adjust our strategies to match consumer behavior.

In 2007, our marketing programs yielded more than a million tours through a combination of in-house, direct mail, call transfers, telemarketing, e-commerce, magazine ads, alliance partners, special events, community marketing programs and other offers designed to bring consumers directly to our sales centers. We continue to add new approaches to our marketing as you can see in our motor sports and golf alliances, which appeal to wide audiences from baby boomers to Gen X and Gen Y. Our points-based product structure enables us to sell any inventory we develop or acquire from virtually any sales center throughout our system, of which there are currently more than 135. While many of these are located on site within resort properties in major tourist destinations, more than 45 are off site sales centers located in suburban markets where our customers live and work. Our selling strategy is not dependent on whether people plan on traveling to exotic places this year or maybe staying closer to home.

In addition, our points-based product by design is not a one size fits all offering. We're able to adjust each sale by the amount of points a particular customer is willing and able to purchase. We can effectively meet the demand and match the pocketbook of each individual consumer. Throughout 2007, our sales pace exceeded our expectations while maintaining sales efficiencies. Our early read into 2008 is that the strength of sales is continuing. Our double-digit growth projections are fully reflective of how we see the business performing today.

Before I turn it over to Gina, I would like to report on an aspect of the business, while one of my top priorities, we rarely discuss with the Street. Corporate culture and employee morale. We're in the process of telling the results of our first associate opinion survey. We had a great response rate and the most significant finding was that we scored higher than both external norms and hospitality norms in employee engagement. This is especially impressive since we have an been an independent public company for a a little over a year when the survey was taken. The areas with the strongest ratings included ethics, teamwork, work life balance and employee sense of inclusion. To me, the results reflect the energy and direction of our great employees and I'm very proud to be part of this organization.

Let me now pass the call over to Gina, who will provide some more detail and walk you through the financials, and I'll come back to briefly wrap up before we take your questions. Gina?

Thank you, Steve. Let me take a few minutes to go through our results and then we'll take your questions.

First in the lodging business, we ended the quarter and the year right within our expectations, continuing to make progress on system size and quality. Margins are tracking according to plan with full year adjusted franchise margin of 75%. On a broader note, here are some points to consider in evaluating our sensitivity to various economic factors. Because of the positioning and market segments of the majority of our brands, we historically have been less affected by softness in the economy. Indeed, we see an opportunity for Wyndham Worldwide to benefit in a softer market as consumers seek value and independent hoteliers become franchisees to benefit from stable brand performance.

Where does that leave us? In light of recent industry forecasts for the lodging segment, we're revising our RevPAR guidance to 3 to 5% from 4 to 6%. Steve went into the details regarding RevPAR and how changes in that metric will only impact our EBITDA in a muted way. Despite the reduction in RevPAR, we are able to maintain our lodging revenue and EBITDA guidance and company-wide financial guidance, including EPS, revenue and EBITDA remains unchanged.

Now moving on to Vacation Exchange and Rentals. Exchange and rental results were in line with our guidance. The year and quarter reflect an adjustment of previously recorded revenues related to consulting activities in Asia-Pacific, which we told you about when we announced the secretary quarter. The impact of 2007 reflects a year-over-year decrease in revenues of $11 million, with fourth quarter comparisons adversely affected by $4 million in consulting revenues in 2006, that were absent in 2007. On the exchange side, the average number of members is where we expected it to be and annual dues and exchange revenue per member was flat during the second half of the year. As we told you on the last call, this was due primarily to the mix and timing of inventory deposits. On the rental side, the average net price per vacation rental was strong, helped by currency and the mix of premium locations. The number of transactions met our expectations.

Now let's turn to Vacation Ownership. Results for the fourth quarter, which reflect $21 million in deferred revenues, were in line with expectations, drivers are tracking to plan so far in 2008, and we see no signs of any slowdown in this business. Gross and gross VOI sales for the quarter was in line with our expectations as well, at 4% ahead of last year but somewhat dampened due to the benefit of revenues recognized in the fourth quarter of 2006 on business written in earlier periods related to the change in accounting rules at the beginning of the year. The second half of 2007 also reflects the lapping effect of sales offices opened in the first half of 2006. In addition, the fourth quarter of 2006 benefited from a price increase to defray certain marketing costs. Consistent with our previously communicated guidance, we expect to see the timing of those marketing programs reduce our driver comparison the early part of this year.

Consumer Finance revenues were up 22% for the quarter and 24% for the full year 2007, driven by higher outstanding consumer receivable levels. As we told you before, our goal post spin is to improve our balance sheet leverage by shifting to more secured type debt to help finance growth in this business. This improved financing efficiency shifts interest expense from below EBITDA to operating expense above EBITDA, reducing Vacation Ownership's reported results. We estimate that this shift to a higher securitized debt ratio reduced fourth quarter and full year 2007 EBITDA by approximately $4 million and $13 million respectively. That means Vacation Ownership would have reported even better results if we hadn't continued to work on the balance sheet over the course of 2007. Fourth quarter Vacation Ownership EBITDA was also reduced by the higher levels of deferred revenue that we talked about before, which carries about a 50% margin. Absent the effect of the deferred revenue, margins would have been about 18%. Our growth assumption for VOI sales this year is 10 to 12%, and again, what we see so far this year leads us to believe that we should achieve it.

Remember that 2008 reported results will be reduced by 40 million to 100 million in deferred revenue associated with percentage of completion accounting under GAAP. We have included increased disclosure on table 4 of the Earnings Release to give you more transparency into this aspect of the business. It's also worth reminding you a construction reality, which any of you has done your own construction project knows.

The various development projects that we have under way at any point in time are subject to a host of factors that can lead to changes in the pace of construction. Such as weather, materials delivery and inspections by local building departments. We build our project plans with those uncertainties in mind. And our best estimates of construction progress flow through into our GAAP revenue forecast. We have more visibility into the level of deferral closer in, but actual results will still depend on how those various construction realities play into our percent complete levels at each quarter end, project by project. Our estimated deferred revenue range for Q1 is based on our current assessment of the construction pace at this point. As discussed on investor day, we currently expect deferred revenues of $70 million to $90 million in the first quarter, and at this point we're estimating $5 million to $20 million in the second quarter. Remember, again, that the deferred revenues carry an estimated 50% margin.

On the Consumer Financing side, our portfolio remains stable. The quality of the portfolio is strong with average FICO scores increasing slightly since 2006 to 665 and average borrower equity in the portfolio is at about 37.5%. Overall, the portfolio or the portion of the portfolio that is current is tracking close to our past experience, taking seasonality into account. We're not seeing any dramatic changes in the performance of the overall portfolio, but we are seeing some stress among our weaker borrowers, consistent with what you would expect in a weaker economic environment. For example, our collections team may need to place more calls to contact pass through borrower. We will continue to watch our portfolio carefully as we always do. Our seven outstanding securitizations are all performing well within their predetermined tolerances.

On our last call, we announced a $455 million term securitization as well as the renewal and upsizing of our conduit facility to $1.2 billion. Based on our current sales pace, we expect to be in the market with a securitization in the second or third quarter. Our market research, which includes talking to both banks and investors on a regular basis, indicates that demand for our pay remains strong. Insurance guarantee, over 1.6 billion of our historical securitization transactions were successfully completed without wrap coverage. We're reviewing various structures in relationship to the next time we go to market and the decision whether to secure the securitization will ultimately be determined by price and availability. It's important to note that our securitization transactions are bankruptcy remote and therefore non recourse to us, even though they are consolidated onto our balance sheet.

Moving on to some corporate matters, adjusted corporate EBITDA for the fourth quarter excluding legacy matters was $13 million. We expect to see a ramp of corporate expenses in the first half of 2008 and estimate that a normalized run rate will be about $15 million to $17 million a quarter in 2008. Separation and related expenses are now finished as expected. Contingent liabilities related to the separation now stand at approximately $349 million with related assets of $48 million. Changes in which will continue to be reported as legacy items. We were pleased with the Ernst & Young settlement announced in late December, which resulted in a $29 million after tax gain.

As you saw from the press release, we are affirming the 2008 guidance that we provided in December. Before I turn it back to Steve, I want to spend a moment on the quality of of our balance sheet and how we have managed to improve its efficiency while maintaining our credit metrics. During the course of 2007, we've grown our revenues and adjusted net income by 13 and 14% respectively while our total assets have grown by only around 10%. We have a good portfolio of time share inventories, spread between finished projects and the construction pipeline and land slated for 2000 and later development and delivery. As I mentioned just now, we shifted our debt mix to use our time share receivables more effectively and we have an appropriate liquidity posture to support our plans for growth. That combined with the well balanced global portfolio of businesses that we operate positions us well to execute our plans and take advantage of opportunities that these unstable markets may present.

And now I'll turn it back to Steve to wrap up.

Thanks. So I hope that you all come away today with a clear sense that we are watching things very carefully and that we have the ability to quickly make adjustments to our business if we need to. Our businesses are performing well and we will continue to focus on executing on our strategic plan and thereby generating value for our shareholders. With that, let me open up the call for questions. Laurel?

Thank you. At this time we will take questions. (OPERATOR INSTRUCTIONS). One moment while the questions register. Our first question comes from Steven Kent. Your line is open and please state your company name, sir.

Hi. Steven Kent. Can you hear me?

Yeah, we can, Steve.

A couple questions. First off, just on -- maybe it's a minute point. Looked like the estimated uncollectible receivables fell in the fourth quarter. Is that a seasonal issue or are you doing a better job at getting those collected correctly? And then more broadly, you know, we can't help but see that the pipeline of new hotel development is robust has there been any shifting -- anybody talking about capital constraints slowing down their development, et cetera?

I'll take the second one and I'll let Gina take the first one. With respect to any slowdown, all the feedback that we're getting from the developers that we're dealing with, particularly on new construction, is that the projects are moving forward as planned. Now, realize that most of the new construction projects we're talking about are smaller projects and are often financed by the local banks or the local funding institutions within their communities, so it's a little bit different than large urban big city center projects. We did hear, because we had people out at the conference, I guess it was two weeks ago out in Los Angeles, that there was clearly pressure on big projects. We haven't seen the pressure on the smaller kind of projects that we're dealing with. And Gina --

Steve, on your question on the allowance for loan loss, it is down just slightly from third quarter. That is a seasonal pattern. If you look at last year's chargeoffs you would see that the fourth quarter was relatively high compared to Q3 as well.

You mentioned earlier that your people are making more phone calls to get these collected. Is it more dramatic? How significant is that and how concerned should we be about that?

The chargeoffs are pretty much in line with what we would have expected for the fourth quarter, given the larger size of the portfolio. On the collection side, what our teams are telling us is that people who are not inclined to answer the phone may be harder to track down so they may have to work a little harder to catch them and talk to them about their repayment plan.

We're not seeing, to your question, Steve, we're not seeing anything significant.

Okay. Thank you.

Our next question comes from Joe Greff. Your line is open and please state your company name.

Hi. Joe Greff, Bear Stearns. Steve took most of my questions. With regard to that last comment about seeing some stress with the weaker borrowers and making more calls and things like that, are you thinking of changing some of the financing criteria in terms of who you lend to?

No, Joe. I'll take that one and Gina can add anything that she would like. No, we are constantly changing our marketing programs to target the best possible consumer. But at the end of the day, we are targeting a very broad net. We're pulling in -- we pulled in 1 million tours in 2007. So no, we're not planning on adjusting our marketing program specifically to change the credit profile of the person that we're targeting. We do try to target to the best possible buyer that we can get. We do that on a constant basis. But there's nothing -- again, there's no significant movement that we're seeing in the portfolio.

The answer is we are making a few extra calls to get those collections and we're just trying to get people a feel for what we're seeing on a hands-on basis. We have over the last two years, though, Joe, just to give you one aspect of what we've done, we did change our -- some of our pricing to consumers based on their credit worthiness, what we called internally our risk based pricing. So the better consumers could achieve a lower interest rate from us in their consumer financing and that has tended to bring in some -- keep some of the higher rated FICO consumers with their paper in place by getting a 9.9% loan instead of a 13% loan. But those are all built into the models of what you've been seeing.

Great. And then one final question with respect to your '08 out look and Gina, I think you mentioned this and you talked about the RevPAR sensitivity which thank you for that. In terms of the RevPAR growth going to 3 to 5 from 4 to 6, that EBITDA impact is offset by higher margins, is that what you said, Gina?

No, I think what we we've said is that we're confident we should be able to hold the EBITDA for the segment because of cost savings that we're going to charge the business with, making sure that they achieve.

Great. Thanks, guys.

Our next question comes from William Truelove. Your line is open and please state your company name.

UBS. Hate to beat a dead horse on the Consumer Financing, but on your December presentation, Slide 33, on the consumer financing operations,you gave a chart that shows net new monthly default dollars as a percentage of qualified portfolio, excluding the 120 days past due. It's never been over, say, 80 basis points. What's it currently running? Is it over 80 basis points now or is it still in the historical range of roughly 60 basis points.

Good question, we have that information somewhere in the room. If we could go to another question while I'm looking for it that would be great.

I've got back-ups. The deferred revenue you're talking a range of $40 million to $100 million, which is what you also said in December. Is there any sense of -- is that getting -- any sense that that range could narrow in terms of your expectations and a little bit more on the quarterly expectations possibly of that?

Well, yes, it could narrow as we get closer to it. It's a lot easier for us to tell as we get closer to the end of a quarter what our deferred revenue is going to look like. Let me just -- let me give you an example, Will, of the kind of things that impact the deferred revenue line. In this quarter, in the first quarter of 2008, we're in the process of developing a project up in Wisconsin Dells that has been under construction for a while and the final delivery of the certificate of occupancy will determine that final bit of earnings that we can report or revenue that we can report on that project. Weather's been good up in Wisconsin. We could have that project end up delivering its CO in the first quarter.

Likewise, there could be another project that we're working on where we can't pour the foundation because the project is in an area that gets hit by bad weather and it could delay some of the reporting of the revenue into the next quarter. So there's gives and takes in all of them. We try to be as precise as we can to give you guidance. We've always been very close at hitting where we said we would be relative to deferred revenue and we foresee that we'll continue to do that. We have projects ongoing in over a dozen markets and we monitor all of them very closely. We have a great development team that manages that process and so we think we are very close to the range that we're giving. We'll try to tighten those ranges as we get closer.

Thanks so much, Steve. I really appreciate that.

Going back to your first question, what we're seeing in the last couple months is generally within the zone of what we've seen in prior years, maybe slightly closer to the top end of that range.

So, say, call it, but still under the 80 basis point level?

That's the best information that I actually have at the moment.

Great. Thank you so much.

Our next question comes from Patrick Scholes. Your line is open and please state your company name.

Good morning. This is Patrick Scholes with JPMorgan. In your commentary you mentioned that you likely would be doing a securitization in the second or third quarter. What type of backup plans do you have if the securitization markets aren't open for your -- are not favorable for you at that time?

Well, there's a number of different steps that we would take, Patrick, and it sounds like the same conversation we had last year when the credit markets were falling apart and nobody said that securitizations would get done and then we did one because this -- these markets are -- there's great demand for the paper that we're issuing. If we can't do a securitization as we did it in the last year, which is a rapped securitization, as Gina said, we've done a number of securitizations that have just been the tiered structure, the senior subordinated structure of issuing debt.

If for some reason all of those markets are closed, we do have a conduit that's up to 1.2 billion then we do have a revolver and then if all of those are tapped out and we're sitting here and we want to continue to grow our business and we're not willing to take our growth rates down in the time share business, we can always just sell our receivables. We've often gotten unsolicited inquiries from people who just like to buy our notes. That's not our preferred approach because we think it's less efficient but there are different ways that we could go. So we looked at a number of different scenarios to make sure that we've thought through all the various alternatives and we're very actively in the market on a daily basis, talking to both people who buy these securities as well as the banks that help us issue them.

And I think the only additional comment that I would make is that when we talk to investors and to the bankers that work with those fixed income shops, there is still a fair amount of liquidity that needs to find a home and needs to look for additional yield that they cannot get in the ultra safe securities like treasury. So we don't really have a concern that that money won't be looking for the kind of paper that we have to offer. It's just a question of timing.

Great. Thanks. One more question on a different topic, concerning your lodging segment. Looks like you're forecasting a step up in your room count growth from about 1.5% to 7 to 4 to 6 in '08. Does that assume any acquisitions like you had done in '06 with the Corinthia transaction.

The Corinthia transaction was more of a bulk conversion. We did a conversion of a number of Corinthia properties to Ramada and Wyndham brands. And yes, we may do more of those type of bolt conversions. It doesn't assume acquisitions, large acquisitions, that we might be able to do based on what's in the marketplace. But it does assume that we continue to do those bulk conversions. And we've always done those. Those are kind of our organic conversion pipeline.

Great. Thanks. One last question here. When you're taking a look at your time share markets across the country, are you seeing any markets that are particularly stronger than others? Any particularly weaker than others?

Yeah, Patrick, actually that is a great question because it's a question that we get quite a bit. But the fact is, because of the way that we sell our product and we sell a pure points based product, the ability to adjust marketing channels is -- it's very flexible. We're selling from 134 different locations. We sell various product that's built in different locations. So really, from our standpoint, it's not a question of is the Las Vegas market a great market for time share to be built and sold right now, because frankly we haven't built any in Las Vegas in the last year but we've been selling a lot of. San Francisco. So the markets that we're marketing to are those where either people are living, we sell in a suburban market, or people are traveling to in our resort market.

So really, if you look at our sales offices, Las Vegas had great performance, Orlando had had great performance, our San Diego office did very well last year. I can rattle off a lot of great locations that we saw from a sales perspective performance come out of. I would say there was no market that we would say gee that market really fell off the table, people aren't buying in that. We continue because of the very flexible model we have, we continue to push product throughout all of our channels.

Great. Thanks.

Our next question comes from Michael Millman. Your line is open and please state your company name.

Thank you. Soleil Securities. Several question. Just wanted to follow up on a recent one. The pipeline for lodging, could you tell us where you expect to be at the end of the year or give us the increases from the pipeline, less the attrition. I thought I heard a 4 to 6% number. I'm not sure where that came from.

Well, we don't give projections on pipeline. Frankly, Mike, if we could get all of our product in our pipeline open next week, I would love to do it, which means our pipeline would go down but we have more product that's worked on every day by our sales force to flow into the pipeline. We would like to see the pipeline grow. We like to see that pipeline grow sequentially every quarter. Again, I wouldn't get too caught up. If we have a great quarter of opening product like we did in the fourth quarter of 2007, we opened 19,000 rooms and we still grew our pipeline. It wasn't as much as it would have grown if we had only opened 14,000 rooms, because we would have added 5,000 to the pipeline. You have to look at the pipeline and the rooms opening working very closely together. I think what you're referring to on the 4 to 6%, that is our room growth guidance for 2008. And we achieved about a 1.5% growth in 2007, so going back to Patrick's question, we are looking at a faster level of growth in 2008.

Okay. Thank you. Also, just could Gina repeat what she said was the first and second quarter deferred revenue numbers? I missed those.

Yeah. Hold on one second. First quarter is unchanged from what we saw during December.

Which was?

$70 million to $90 million. And our current best estimate for the second quarter, again, recognizing that things might move between Q1 and Q2, is 5 to 20 million of additional deferred revenue.

$70 million to $90 million in the first quarter and then 5 --

$5 million to $20 million.

Okay. Regarding the vacation business, understand the tough comparisons, but little unsure as to why the VPG was up only 4%. Can you talk about that? Is there mix within that number, more, half, semi annual or trials or existing buying smaller pieces?

I think it's really more of a function of what happened in the fourth quarter of 2006. We opened in 2006 a number of sales offices. We ran out, rolled out some new marketing programs in response to the change of -- frankly, the change of accounting that occurred at the beginning of 2006 where we had to adjust our sales processes in order to be able to report earnings and a lot of that came and hit in 2006. Also, in the fourth quarter of 2006, part of the sales offices that we opened were in-house sales offices for WorldMark by Wyndham, formerly known as TrendWest or WorldMark and those also increased our VPG in the fourth quarter of 2006. So I think what you're really seeing is just -- you're still seeing a good trend in VPG. You're just seeing less of an increase because we had a real killer 2006 fourth quarter.

Okay. Well, the numbers don't look -- I can see them and the tour numbers are much bigger differences. But on the RCI business, I guess a couple things. One is there seems to be a very large difference when you compare with what numbers interval is putting up. Can you discuss -- are they doing something different? Why are they I think growing close to double-digit?

Well, I don't want to comment on what Interval is doing. I think if you go back to their numbers, you can divine from it, clearly they did an acquisition of Resort Quest in Hawaii which really added a lot to their growth in the fourth quarter of 2007 versus 2006.

I have taken that out and still I think they're up 9% they revenue and 12% in OIBA.

That's in the fourth quarter?

Fourth quarter with an over 40% margin.

I mean, I would be happy to sit down and analyze their financials along side ours. We're happy with our performance at RCI. The fact is, we had a great fourth quarter of 2006. I don't know how their fourth quarter of 2006 compared to ours. So I think the question you're asking, I welcome the analysis but I'm not sitting here prepared to do an analysis of the competitor.

Related to that, is there any slowdown in the actual number of exchanges? We see membership is up.

Well, we did see some. As we mentioned, we did see some slowdown in exchange revenue per member and that was, as we said, was really related to the inventory, both the inventory mix and the timing of the inventory that we had. In the fourth quarter of 2006, we had an inventory program, marketing program that was accumulating during the first three quarters of 2006, that delivered a lot of inventory for us at the end of 2006. That is what we're comparing ourselves to right now.

I can tell you what we see in the business and in the business we need to continue to drive to get inventory in, focus on the fundamentals and give our customers inventory to trade into. If we have a swell like we did at the fourth quarter of 2006, it may offset the comparisons a little bit. But we don't see an overall -- we don't see an overall negative trend here and we haven't predicted that for 2006. 2008, rather. I think we predicted it pretty much flat for 2008.

Touching back on the VPGs, final question again, I'm not sure if you're saying that there is some difference in or no difference in the mix you're seeing between existing owners and new owners in terms of how much each one is buying or --

No, we're seeing pretty much the trends that we've seen over the last several quarters. There's really nothing different. And I wouldn't read anything more into that. And Mike, I apologize, but I need to cut you off so other people can get some questions in.

Our next question comes from Jake Fuller. Your line is open and please state your company name.

Good afternoon, guys. Couple of questions for you. First, the higher lodging marketing you talked about, what did that go for?

The majority of it went for Wyndham and about $5 million or so went into TripRewards, the marketing program. We are converting this year, as we told you before, the TripRewards program over to Wyndham rewards and we're starting that process now.

Our next question comes from Chris Woronka. Your line is open and please state your company name.

Good morning, everyone. Steve, looking at the lodging, the number of rooms at the end of the quarter, I know you added about 19,000 in the fourth quarter. Looks like by my math, you probably about 9,000 left in the system, because I think there's about a 10,000 net increase. Is that about right or -- ?

Yeah, I think that's about pretty close to right. We continue to be aggressive at terminating properties that do not meet the quality standards or are not paying us.

Right. And so kind of as we look at '08, I mean, there any -- would you think the attrition rate changes much? And then kind of maybe how does that affect your RevPAR outlook? Because presumably a lot of this stuff that's leaving the system is probably a lower RevPAR, I would guess.

That's a good point. There's a number of things that go into the mix of the RevPAR. The fact is we're bringing in more Wyndham product as a mix. We're bringing in more international product, which can carry a higher RevPAR. So there's a lot of things going into our RevPAR mix and it may be why we're not reducing our RevPAR by more, based on what a lot of other people are saying about just U.S. domestic straight out. So we do have improvement in our RevPAR through mix, which we always like to take out the weaker and bring in the stronger. That's a good model for growing the business.

With respect to the number of properties in the attrition, the attrition has been pretty much what we expected. We look at our quality assurance scores of the properties. We put people on plans if they don't meet our quality. We can look forward and see how many we put in default and how many we think are going to be able to remedy themselves. So we're pretty scientific about the way that we look at our role of attrition as well as what's going to be coming into the system. So the guidance we're getting for 2008 is based on the best information we have available and looking at all the current trends.

Before our next question from Patrick Scholes. Your line is open.

Can you remind me again where you stand with the status of share repurchases, I recall you had -- after the -- I think it was two year slight restriction after spinning off from, that limited the number of shares you could repurchase, remind again where you stand with that.

Well, we still have some room under our current program that we've put in place, the $200 million program that we put in place. We still have about 154 million outstanding in that. And then we have some room beyond that to still stay within the IRS Safe Harbor for the tax-free spin-off.

So we still have some room even over what we currently authorize. The fact is you have to take the share repurchase into mix with what we see as business opportunities for investing in our business, both organic and inorganic growth as well as our credit ratings and a lot of other factors. So we have said that we can't do more than 20% until August 2008 because of the spin-off. But we also have to see where we stand with all of our other factors. I don't want to make it sound like it's a one event trigger, Patrick.

Okay. Thanks.

Chris Woronka, your line is open.

Thanks, just a follow-up also on Patrick's question. I see you've bought back about half a million shares in the quarter. Can you tell us how many days of the quarter of any given quarter are you blacked out?

Well, I mean, the black-out would be during a quiet period where we can't be buying. That's assuming that we don't put a 10B5 plan in place. Theoretically, there's no time that you're blocked out if you put a 10B5 plan in place.

Okay. And then just kind of how do you look at with where the stock is, you know, I mean, looks like you don't -- we just extrapolate it, you'd be on pace for about another million shares in quarter for the 1Q, just like 4Q. Would you be comfortable going beyond that? I understand what you said about the opportunities and other things. I mean, is there any kind of inherent limit that you guys -- where you guys just wouldn't do a certain amount of repurchase or how do you look at that? Thanks.

Well, Chris, we look at it holistically. We look at it in light of what opportunities are sitting in front of us now. We look at it based on our build rate in the time share side of our business. We look at it -- we've got to look at all the pieces, plus there's seasonality to our cash flow. So we could certainly borrow off the revolver but that gives us more limiting capacity on the overall debt capacity. So would we be willing to change the pace that we're buying? I really don't want to speculate or predict how we're going to be buying back stock or at what pace we're going to be buying it back.

Okay. Thanks.

And that is our final question.

All right. Well, thank you all very much for joining us for the call this morning. Thanks all for the questions. And we look forward to talking to you soon.

Thank you for participating in today's conference. Have a good day. You may disconnect at this time.