Travel + Leisure Co (TNL) 2009 Q3 法說會逐字稿

I'd like to welcome all parties to the Wyndham Worldwide conference call. All lines will be in a listen-only mode. (Operator Instructions). Today's conference is also being recorded. If you have any objections you may disconnect at this time. I would like to turn the call over to Margo Happer. Senior Vice President of Investor Relations. Thank you, you may begin.

Good morning, thank you for joining us today. With me today are Steve Holmes our CEO and Tom Conforti our new CFO. Before I get started I want to remind your our remarks today contain forward-looking information that are subject to a number of risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors discussed in detail in our Form 10-Q filed August 7, 2009 with the SEC. We will also be referring to a number of non-GAAP financial measures. The reconciliation of these measure to the comparable GAAP measure is provided in the table to the press release and is available on the Investor Relations section of our Web site at Wyndhamworldwide.com. Steve.

Thanks. Good morning and thank you for joining us today. I am very pleased to introduce Tom Conforti our new CFO on this call. Tom brings a strong set of finance strategic and general management skills to Wyndham Worldwide from world class companies like PepsiCo and Disney. These skills and his experience have successfully transforming the IHOP restaurant business to a free cash flow business model will be a great compliment to our leadership team, as we seek to maximize cash flow from the current operations and rebalance our business portfolio.

We continue to execute against our strategic initiatives in the third quarter, delivering adjusted EPS of $0.58 compared with guidance of $0.53 to $0.57. Revenues were down 17% from the third quarter 2008, primarily reflecting our plan to reduce the deployment of capital in our vacation ownership business, and the recession's impact on RevPAR in our lodging business. Year-to-date cash from operating activities a measure of increasing importance to us was approximately $570 million compared with $146 million in 2008.

In the worst economic environment since the great depression, we are raising our EBITDA guidance by $15 million, and expect to come in at the top end of the new range. We expect to be in the middle of the original guidance range. If you exclude the $0.09 per share of additional interest expense relating to the 2009 senior debt issuances, which was not considered when we originally issued guidance, we would be at the upper end of our EPS range. These are outstanding results produced by the exceptional execution of our operating teams who responded well to the macro economic challenges as well as the goals we set.

Tom will discuss our third quarter operating and financial results in detail, so I would like to take a moment now to share some of the important highlights from our reasonable recently completed strategic planning sessions which will drive our directions and investments in 2010 and beyond. We will apply laser focus in the following areas -

First with superior execution we will concentrate on maximizing free cash flow while enhancing earnings through improved operating margins. We will continue to improve our strategic focus, efficiency, accountability, and execution.

Next, we will continue to rebalance the Wyndham Worldwide portfolio, by increasing the contribution from fee for service businesses, moderating timeshare spending and growth, and exploring strategic and tuck-in acquisitions, acquisition opportunities, in our fee for service businesses.

We will also increase market share by delivering our signature customer service experience count on me, as well as our Wyndham rewards program to improve guest satisfaction which will result in repeat guest activity and support gains and market share.

And finally, and very importantly, we will continue to attract, retain and develop associates across the organization as well as support and promote Wyndham Green and Wyndham diversity initiatives.

These strategies will serve as the guide post for the overall company. Let me switch now to review how our businesses are applying this frame work to move forward.

Remember, that as we drive to rebalance our portfolio, about 2/3 of Wyndham Worldwide EBITDA is already driven by our fee for service businesses. Wyndham exchange and rentals contributes over half of that EBITDA stream. That group's execution has been flawless this year with third quarter adjusted EBITDA increasing 13% excluding the net effect of foreign currency.

As we announced today, after significant and careful review of our strategic plans and with considerable input from associates and customers, including the over 30 exchange and rental brands that Group RCI operates, we have decided to rename Group RCI as Wyndham Exchange and Rentals. This new name will elevate the vacation rentals business to an appropriate level within our core company given its contribution to overall company performance. We will continue to use the RCI brand in exchange, which will support the world's largest membership affiliate and developer base in the industry.

Let me give you an overview of these two great businesses.

First, looking at the exchange business, 78% of all timeshare owners are members of exchange companies and approximately three-fifths have participated in exchange and RCI is the market leader. Vacation exchange generates approximately half of the segments revenues through annual membership fees as well as steady transaction fees from timeshare inventory exchange in approximately 100 countries by our 3.8 million members. No exchange company today has more quality product in more countries than RCI. And we believe that RCI is and will remain the strongest brand in the industry. It is a fee for service business with modest capital requirements, high barrier entry, and a stable customer base.

The other half of the revenues in this segment are from vacation rentals. Currently a European dominated business where we are also the market leader offering over 60,000 homes, villas, cottages and condos for rental. Our revenues are derived through commissions on rental revenues. Again this is a fee for service business with low capital requirements where we have great brands, a strong network and a significant market position.

Given the size and potential of the relatively unbranded and fragmented $65 billion global rental marketplace, we believe that our well established brands such as English Country Cottages, Novasol, Cuendet and Landal can leverage the significant marketing, technology, operating, and strategic sourcing synergies of the world's largest hospitality provider.

Wyndham Exchange and Rentals strategy is focused on two primary areas, optimizing and expanding exchange, and expanding rentals.

A central initiative for optimizing and expanding exchange is RCI.com a comprehensive online strategy that will support a number of goals. Expanding online capabilities and efficiency, enhancing products and revenue per member, enhancing our affiliate value proposition, improving marketing efficiencies and member satisfaction, improving inventory management, and of course driving margin improvement.

RCI.com's success to date is clear. RCI's web share increase from 13% in the third quarter of 2008 to 23% in the third quarter of 2009. In North America, which generates over 70% of our exchange transactions, third quarter web share increased from 17% in 2008 to 29% in 2009. We believe that RCI.com can support margin improvement of 200 to 300 basis points over the next few years.

Moving to our second area of focus, we intend to expand rentals in Europe by capitalizing on our strong base. We intend to continue to grow Landal, our Dutch part business and expand Denmark based Novasol. Landal recently announced the signing of two new franchise parks in Austria that will open in December of this year. This will bring the number of parks to 65 across six European countries. Novasol continued to expand its presence in Croatia, where we have gone from zero to nearly 4,000 homes, in just four years.

Now I would like to turn to the Wyndham Hotel Group which will be a key investment area for us going forward. While it appears that the worst is behind us and we are certainly expecting industry improvement next year, we don't believe there will, we do believe there will be a significant restructuring of the lodging industry over the next 12 to 18 months. We are already seeing opportunities for brand acquisition, as well as multiunit conversion packages. In this environment we intend to leverage these and other opportunities to globally grow new rooms, organically, through acquisitions and of course by retaining every property we want to keep.

We have worked hard over the past several years to clarify our brands positions in the market. We have made great progress in growing the Wyndham footprint, and with the acquisition of Hawthorne Suites and Microtel last year we now have a broad and deep portfolio with strong product in every category from budget to upper up scale. Our on going efforts have resulted in Hotel & Motel Management magazine recently recognizing Wyndham Hotel Group as the largest hotel company in the US. From this powerful base, we are well positioned to grow both domestic and internationally. Conversions are a big part of our domestic growth story and an area we have been quite successful. Historically, 80% of our room openings have been conversions, and we believe the opportunity going forward is huge.

In addition, international opportunities are very strong and promising, representing over 40% of our pipeline. We are growing our international organization, strengthening our global sales team, and continuing to increase the Wyndham reward footprint. We are seeing great success. For example, in the UK, prompted awareness of Days Inn increased from 35% in 2006 to 42% in 2008. While Ramada went from 58% to 68% during the same period. We have an exceptionally strong base in China where we are the largest US Hotel company with over 30,000 rooms. According to the American Express, 2010 Global Business Travel forecast, the economy within China is expected to grow 3% to 8% in 2010.

Another objective which supports room growth is to improve the franchisee value proposition. We will do this by increasing property revenue contribution, leveraging the use of consumer data, and enhancing the consumer experience. For example, through our revenue management services, we helped franchisee insure that their hotels inventory is available on sale, on all channel, and positioned competitively based on market dynamics. Year-to-date, through July, franchisee using this service demonstrated RevPAR index improvements 230 basis points higher than those not in the program. Obviously we are encouraging all of our franchisee to participate in these programs.

Now turning to Wyndham Vacation Ownership, where we are developing new ways to maintain our revenue base, while maximizing free cash flow. Remember that this business includes a stable fee for service property management business that accounts for about 15% of segment revenues and annually contributes about $30 million in EBITDA. We have significantly transformed the other two pieces of vacation ownership this year - sales and consumer finance.

As we have discussed before, we have refocused our marketing and distribution channels to efficiency target high quality customer, resulting in an impressive 25% increase in volume per guests in the third quarter. That's led by an increase in our closed rate while holding pricing steady.

In our consumer finance portfolio, we continue to make great progress in our effort to strengthen the quality of our receivables portfolio, by providing financing programs that promote sales to the right customers. During the third quarter, we increased our average down payment in North America to over 20%, up from 12% a year ago. Cash generated at the time of sale increased to 43% from 31%. We financed 57% of VOI sales in the third quarter of this year compared with about 69% in the third quarter of last year. And the weighted average FICO of our third quarter 2009 new borrowers was 736 compared with 709 in the third quarter of last year.

Looking ahead we believe a great opportunity exists in this business, from our new fee for service Wyndham Asset Affiliation Model or WAAM.

This model offers turnkey solutions for developers or banks in possession of newly developed, nearly completed, or recently finished condo or hotel inventory. We will sale this unused or unsold inventory for a fee through our extensive distribution channels. WAAM enables us to expand our resort portfolio with little or no capital deployment while providing additional channels for new owner acquisition and growth for our fee for service resort management business.

We recently signed exclusive WAAM sales and marketing agreements in Orlando and Myrtle Beach. We expect to introduce these projects to our owners next year and that the result also be, the resorts will be affiliated with our points based Club Wyndham Plus Reservation System. We anticipate sales of approximately 460 recently constructed condominium-style units over the next few years. In addition, one of these projects has the possibility of a mixed use hotel, under a franchise agreement as a Wyndham Grand Hotel, which will leverage our brand as well as our timeshare and hotel operations.

We hope the WAAM model will become an essential piece of our strategy for this business as we focus on cash generation, although it is still too early to predict ultimately how large it will be. We are uniquely equipped to execute this strategy given our scale and expertise, our points based product structure, our extensive sales and marking channels, our consumer financing and servicing operations, and our terrific property management expertise. I look forward to updating you on our progress over time.

Now let me turn the call over to Tom Conforti our Chief Financial Officer.

Thanks, Steve. I have been at Wyndham close to eight weeks now and I am really thrilled to be here. I am impressed with the energy and enthusiasm of the team, and the strength of our business models. The combination of which will yield significant opportunities going forward. And I look forward to meeting and working with each of you over time.

I come out of the CFO experience where the Company was transformed from a net user of capital to a generator of free cash flow. I am a big advocate of delivering strong cash flow to drive shareholder value. As Steve described here at Wyndham Worldwide, we are really focusing on cash flow, and seeking to deploy capital for the highest possible returns. Ultimately, our business objective is to transform the cash and earnings profile of the Company, primarily by rebalancing the cash streams to achieve a greater proportion of EBITDA from our fee-for-services businesses. We will focus on generating cash earnings and improving working capital management going forward, investing it in high return businesses, such as lodging.

Now let me take you through the business unit performance beginning with the hotel group. Revenues and adjusted EBITDA was down 14% and 24% respectively, primarily due to expected, domestic industry wide RevPAR declines, and lower other franchise fees. Margins were compressed due to increased expenses from remediation effort, on technology compliance initiatives as well as an increase in bad debt expense. The majority of our economy brand hotel owners are single property owner operators that have been hit hard by the recession. We are working with these franchise in a number of ways to help them through these difficult times, including extending payment terms. As a result, our reserve against these aged receivables is naturally higher. Our managed portfolio which comprises only about 2% of our total system is also experiencing some turmoil in this economic climate and we have adjusted our reserves accordingly.

Domestic RevPAR decreased 16% from a year ago. Worldwide international RevPAR declined 17% and 19%, respectively, in constant currency.

The hotel group continues to benefit from strong brands as well as the geographic and segment distribution of our lodging portfolio, evidence by a 90 basis point out-performance of the domestic industry-wide by RevPAR. Now we believe these results reflect market share improvement, and the consumer travel shift to more frequent, mini vacations closer to home. But the majority of our domestic properties located on the interstate or small metro or suburban areas and almost 75% of our domestic portfolio in the economy segment, we were well positioned in this economic climate to capture occupancy and hold rate. Despite this support, the environment continues to be difficult and we now believe RevPAR for the year could be at or slightly below our earlier guidance.

On the development front, the financing time line has been extended and some conversion prospects are having a more difficult time extracting themselves from their existing relationships. This makes it harder to forecast the timing of property openings and will slow the new room openings for the year. Our current best view is that the number of rooms in the system at year end may be below guidance. However, we expect to still be slightly positive for the year. We ended the quarter with approximately 591,000 hotel rooms and another 111,000 in the pipeline including some multi unit larger deals. The number of projects breaking ground through September was constant to last year at close to 30. During that same period, we converted over 6,000 rooms from independent brands and another 16,000 rooms from competitor chains. As Steve mentioned we continue to focus on growing our international system although at a slower pace than we would like. Year-to-date, we have added over 10,000 rooms internationally including 4,900 in China, 2,200 in Canada and 1,400 in the UK.

Now, moving to Wyndham Exchange and Rentals, in the third quarter both businesses within the segment continued to deliver excellent results, excluding the net effect of foreign currency and restructuring charges, recorded during the third quarter of 2008, revenue was relatively flat and adjusted EBITDA increased 13%, reflecting continued cost reduction efforts.

Exchange revenue in the third quarter of 2009 was flat on a constant currency basis and down 4% on a reported basis. Member growth was up 3% reflecting the addition of the Disney Vacation Club earlier this year. Growth in the average members was offset by a 3% reduction in annual dues and exchange revenue per member in constant currency. The reduction in revenue per member primarily reflects the impacts of clubs such as Disney where members also have the option to exchange within their club network. While clubs reduce our revenue per member metric, RCI our exchange business benefits from higher overall revenue from the additional members subscriptions and transactions as well as other ancillary revenues earned from our development partners. The decline was partly offset by higher transaction fees, as we increased pricing earlier in the year for call center transactions while holding web prices constant to encourage members to transact on the web.

Rentals revenue in the third quarter were up 3% on a constant currency basis, and down 7% on a reported basis. Transaction volumes were up 2% reflecting strength from Landal Greenparks in the Netherlands and Holiday Cottages in the UK. In constant currency, average net price per rental was up 1% in the third quarter of 2009 primarily reflecting favorable yield management for member rentals.

We expect Wyndham Exchange and Rentals to deliver full-year 2009 results at the higher end of guidance. However, fourth quarter year-over-year comparisons will be difficult due to one-time currency gains and cost savings in fourth quarter of 2008 as well as a delay in the timing of certain rental expenses until the fourth quarter.

Now moving to vacation ownership. VOI revenues exceeded expectations in the third quarter. As Steve mentioned, sales efficiencies were once again up significantly, reflecting the resizing of the business with volume per guest up 25% from the third quarter of 2008. Close rates are strong and transaction sizes remain stable. We expect vacation ownership to end the year with approximately $400 million in adjusted EBITDA exceeding the top end of our guidance range.

On the consumer financing front the provision for loan loss was $117 million, consistent since the fourth quarter of last year. Write offs in the third quarter were at 3.38% of the loan portfolio also relatively consistent, and the securitizations continue to perform within their expected tolerance. We continue to see some good trends in the portfolio as delinquency and default rates remain consistent with those experienced at the end of last year.

We are very pleased with the recent renewal of our conduit as well as the closing in September and October of two term securitizations, totaling $350 million. The conduit has the capacity of $600 million which is ample for our on going sales plans. The spread is approximately 100 basis points less than our prior facility, with lower up front fees and a comparable advance rate of approximately 51%. We are particularly encouraged by the improving pricing and terms we achieved on these transaction which reflects the quality of the underlying loans, our strong history in the asset backed market and continuing recovery in the market. Now remember that our securitizations are currently recorded on our balance sheet and have been so since 2003. So, unlike others in the industry, we expect no impact from FAS 166 and 167 in January 2010, relating to our securitization.

Moving on to the corporate front, I want to spend a moment on what will be a significant area of concentration for the Company, and for me as CFO as we seek to rebalance our portfolio. We will be placing greater emphasis on managing free cash flow which we define as operating cash flow less CapEx and development advances. This means that as we move forward, our management teams will increasingly focus their attention on the major components of this metric; cash earnings, CapEx, and working capital management. For the nine months ended September 30, 2009, free cash flow totaled $455 million compared with an outflow of $1 million last year. Excluding any contingent liabilities we expect free cash flow of approximately $500 million in 2009, and approximately $500 million to $600 million in 2010. We had approximately $850 million of capacity on the corporate revolver at the end of the third quarter in 2009, compared with approximately $290 million as of year-end 2008.

The convertible debt balance increased to $309 million from $253 million last quarter, reflecting the increased value of the conversion feature driven by the strong increase in our stock price. The value of the conversion feature will continue to fluctuate with our stock price. As you may recall we purchased a call option to protect the Company from an increase in the value of this convertible debt. Therefore, the increase in debt, up to $20.16, share price will not result in any incremental cash payments or dilution.

Turning our attention to the remainder of the year, as you saw from the press release we expect fourth quarter adjusted earnings per share of $0.35 to $0.38, which puts full year adjusted EPS at $1.75 to $1.78, slightly higher than our prior commentary. Fourth quarter assumptions include approximately $20 million to $25 million of EBITDA benefit from deferred revenue, and diluted shares of approximately 184 million. In addition, we are raising the 2009 EBITDA guidance by $15 million. We now expect depreciation and amortization to be approximately $180 million for the year, based on current project timing compared with our $175 million in our prior guidance.

As you saw from the press release, our preliminary outlook for 2010 indicates that revenues and EBITDA will be approximately equal to 2009 guidance ranges. With RevPAR assumed to decline by zero to 3% and flat growth VOI sales in our timeshare business. Keep in mind that 2009 EBITDA has benefited by about $90 million, from percentage-of-completion deferred revenue which will be absent next year. Also, we expect interest expense of approximately $130 million to $140 million reflecting higher interest expense related to the 2009 senior notes and lower capitalized interest consistent with our reduced vacation ownership spending.

With that I would like to turn it back to Steve.

Thanks. Before we open the line for your questions I would like to make a few closing comments. Across our businesses we are seeing that leisure travelers are traveling and staying at our properties. We believe that the overall economic environment is improving but the strength and course of recovery are still very uncertain. For example, we see occupancy rates stabilizing in the hotel industry. We are cautiously optimistic regarding our European rental business where summer travel was strong. European travelers are booking although later than in the years past. And our timeshare resorts system-wide occupancies were up 1.5% to 83.8% during the third quarter of 2009 despite the addition of almost 500 units over the past year. Our resized vacation ownership business is operating more efficiently with a greater focus on only the most qualified and credit worthy sales prospects. Our unique points-based product sold in varying increments fits well with current family travel preferences, multiple shorter vacations, closer to home. And then while there have been some industry reports about softer consumer demand for timeshare we have held our pricing steady and improved our close rates.

This is a transformational time, in this environment, superior execution is our central strategy and as Tom mentioned this will enable us to drive continued strong cash flow and increase the contribution of our fee for service businesses. We are leveraging and growing this strong Wyndham brand and enhancing our customer service culture throughout our company. In this process, we will be guided by Wyndham Worldwide's mission statement which is to be the leader in travel accommodations welcoming our guests to iconic brands and vacation destinations through our signature count-on-me service. With the success we are seeing in all these efforts I am confident that Wyndham Worldwide is well positioned to capitalize on economic recovery and deliver shareholder value both in the near and long-term.

With that, we will open the line for questions.

Thank you. We will begin the question-and-answer session. (Operator Instructions). One moment while we wait for questions. Our first question comes from Joe Greff and please state your company name.

Good morning, it is Joe from JPMorgan.

Hey, Joe.

A question for you on the RCI margin, Steve you mentioned you would expect 200 to 300 basis paints margin over the next few years. Can you just help us to understand are relative to what my question is more direct Wyndham rentals had north of 30% EBITDA margins, is that what you look for to improve or is that the level you want a sustainable basis? And my second question is with regard to the WAAM initiative. How much revenue contribution or EBITDA contribution do you anticipate from initiatives in 2010? Thank you.

Thanks, Joe. A couple of -- okay, taking the questions I will take them in reverse order. On the WAAM question, we are looking for minimal contribution in 2010, the product we have already signed up for we are going to need to, we are going to need to put through our registration process, and that registration process will be into the beginning part of the year, it is not going to be, it is not going to be a, it is not going be a huge contributor, in 2010. If successful, which we hope the program will be, we will see more though growing in 2010 and 2012. As to the first question which related to the RCI margin question, the margin in the third quarter is one of the higher margin quarters you are looking at our average in the that business is around 25% or so. We are looking for the 2 to 300 basis points to be incremental to that average of 25% margin. As you know we have been talking about this initiative for a while. We have already captured some improvement so this is additional.

Great. Thank you. Thanks for table four.

Thank you. Our next question comes from Steve Kent, your line is open. Please state your company name.

It is Steve Kent with Goldman Sachs. Steve could you just talk about tuck-in acquisitions and what you meant by that, and given your share, your multiple it seems like maybe share buy backs would be on the list, and maybe more importantly, debt pay downs I was a little puzzled by the idea of tuck in. Can you talk about a little more about Wyndham and changing the name, what the reaction is and does that put you out of business with pursuing any hotel companies who would want to use you as an exchange company? So just to be clear on the size of tuck in, what does that really mean.

On the tuck-ins, and let me address the second part of that question first, which is reducing debt and share buy back, we are not eliminating that as an option for us. Obviously we are paying down debt that has been a central focus of ours. We still have a program, we have been cautious with balance sheet, and have not been buying back shares recently. What the strategic tuck in was addressing was the growth of our business. So if we are looking at where we will deploy capital to grow businesses inorganically, we would expect to focus on. That's what we were saying about tuck-in with acquisitions. We want to pay down debt and do what we can to improve our share price for the shareholders. The size of the tuck-in acquisitions can be varied, and I don't want to put a bracket on a number of these. I don't want to have one that's $5 million over it and somebody say, you are doing bigger deals than you said you were going to do. I would consider the tuck-in acquisition to be the Microtel and Hawthorne Suite deal that we recently did, that is a deal that was around $100 million was an accretive deal and will be a terrific add had-in going forward the opportunity. So I don't know exactly what will be available, and what will be able to cut a good deal, very disciplined only to do positive transactions for us.

And then with respect to the second question regarding the renaming of Group RCI to Wyndham Exchange and Rental, we don think that will have any impact, and that is your question, on other hotel companies. We are some terrific hotel companies who are affiliated with Group RCI right now. The RCI business will remain its name within the exchange marketplace and will continue to be the leader of exchange with a great companies like Disney and Hilton as part of our portfolio. The Wyndham Exchange and Rentals renaming was really to make sure that the world knows including the investment community that we have got this incredibly great business that some people think is just associated with the timeshare business but it also has a terrific rental business over in Europe which is extremely well managed, great brand names, terrific presence in the marketplace and has performed incredibly well. I don't know that there's many companies, I probably couldn't find any within the travel industry that on an FX neutral basis have increased from 2008 to 2009. This business has, and we are not sure people actually appreciate what is there. In addition, we are expanding the rental size of the business and it has grown to half of that business and we thought it was appropriate to give it the umbrella name of Wyndham. Did I answer all of the questions there, Steve.

Yes, thank you, Steve.

Thank you. Our next question or comment comes from Patrick Scholes your line is open. Please state your company name.

Good morning. Patrick Scholes, FBR Capital Markets. My first question, can I get a little more color on the trends in the RCI business with the of customer bookings online versus calling in I know you have been, where does that stand right now?

Okay. I am just flipping back to my notes. I mentioned that in my points. That's fine. The increase has been pretty dramatic. We went from 13% web activity RCI.com last year in the third quarter to 23% in the third quarter of this year. And in North America, which is our biggest part of the Company, this is part of our exchange business we increased from 17 to 29% 2007 third quarter to -- 2008 third quarter to 2009 third quarter. So that's been dramatic. The web site, which is actually going to have a new skin put on it in mid November has been very well received by the, by the consumer community, and I welcome you to go online at RCI.com and see what we have available.

Good. Do you think with customers continuing to migrate online that will be where most of the margin increase in that segment will come from?

Absolutely.

Okay. Just one other question here, and on a different topic here, there has been a lot of press, and chatter on one of your competitors not giving in to demands from an OTA, what are your thoughts on, on demands at OTAs are asking for availability, 25% net rate, and terms, do you think they're starting to overstep their bounds, given that we are starting to see a recovery on the hotel side?

I am not, as you probably expect on what others are negotiating or what's going on in the marketplace with the OTAs versus our competitors. We have a good relationship with the OTAs. We work closely with them and beyond that I don't know that there's much that I can do on it because it doesn't relate to us. It relates to others.

Do you have a master agreement right now with Expedia?

Yes, we do.

Okay. Okay. Thank you. That's all. Thank you.

Thanks.

Thank you. (Operator Instructions). One moment while we wait for questions. Next is Michael Millman.

Thank you. This is Michael Millman at Millman Research and Associates. Regarding primarily timeshare, can you talk about how you're sourcing or where yourself sourcing the customer that is are, so that you are getting a better increase in volume per guest as to what extent are those existing, to what extent you two customers, and the other question is regarding RCI, can you talk about what you think is for you and for the industry general, generally what is the growth members, is there growth in members?

Okay. The first question on the timeshare sourcing our existing new customer, Mike, that has been a constant over the years, we have mix of that. What we call in house higher as a percentage than it was last yore or the year before, but we continue to focus on new members obviously, and then we bring new people into the fold. So, it is a source, the reason that the quality of the buying customer is better frankly, is that we more closely refined our marketing for those new customers. We have refined it. We have cut out some of the marketing programs we had that previously generated lower FICO customer stores. That was part of the restructuring and repositioning of the business that we did at the end of last year, and grew it into this year. So, it is really being selective on our marketing channels and the marketing channels generally drive the quality of the buyer coming to the table. We also then we don't sale to certain FICO score customers or we don't offer the same financing, I should say to those customer. We are happy to sale to them but the cash portion will be more or all cash because the credit we provide to the customers based on the scoring that we have.

If I might add, it is Tom, we also closed some of our under performing sales offices as part of the restructuring effort. That combined with superior execution that Steve described and a more targeted marketing effort has really those have been the driving behind the VPG increase.

Okay. On the RCI side, Mike, we are looking at large customer growth in RCI we are driven by the number of timeshare so the industry as a hole has contracted somewhat. We would not expect to see as many new members, there are two things I will say will be kind of positive for that business. The first is that with this RCI.com technology that we have rolled out, and the kind of customer reaction we are seeing to it, we do expect to see an up tick in the number of active members at RCI. We haven't quantified this yet, but we are introducing this new product to the marketplace, we think people in the past maybe wanted to do it online will focus on call center maybe defaulting to go back, or we are not as actively involved in that process for their vacation. So, I think we will reignite people to be interested. We are not, the new member growth efficiency and again efficiency improvements to come through the new mechanisms we have for providing the service to the customers in the RCI.com.

Thank you. (Operator Instructions). Our next question or comment comes from Ryan Meliker.

Good morning, guys. This is Ryan Meliker from Morgan Stanley. I just had a quick question regarding the lodging business. I am wondering if I know you don't have a lot of details on renegotiations right now. I just wanted to get color on an up tick in RSP requests, you know basically trying to get to whether we are seeing any type of trade downs from other brands and full service products to us, to the product for corporate travel level, thank you.

You too, Ryan. We are not a huge corporate traveler, we don't do a lot of planning business, other than in our Wyndham brand. So we probably are not as good for that, so default more to the general trending that we are seeing in the industry, and the part of the RevPAR decline that is up scale, upper up scale luxury segment have been more dramatic than those at the economy and mid scale sectors, and a leisure focus there certainly is a leisure focus in the economy and mid scale sectors some people call that trading down some of that trading down going on. As I pulled others, we don't ask somebody when they come into a Super 8 if they wanted to to stay at a different hotel before. We book them a room, so we don't know if they traded down to a different decision but we can look at our performance versus the competitors and where we stand, our decline versus not been as dramatic. So that would be some trading down going on.

But you are not seeing an up tick in FRP request from corporations?

Again we are not big enough in that for us to be a barometer for it, Ryan. I am probably not the right person to answer that question for you.

Okay. Thank you.

Thank you. At this time I am showing no further questions. Thank you. I would like to turn it back to the speakers for closing comments.

All right. Thank you very much, Carolyn, and we appreciate everybody's attendance and questions and we look forward to talking you to you on the next quarterly call. Thank you.

That concludes today's conference call. The for your participation. You may disconnect at this time.