Travel + Leisure Co (TNL) 2014 Q3 法說會逐字稿

Welcome to the Wyndham Worldwide third-quarter earnings conference call. (Operator Instructions)

Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I will now turn the call over to Margo Happer, Senior Vice President of Investor Relations.

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

Before we get started I want to remind you that our remarks today contain forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. The risk factors are discussed in detail in our Form 10-K filed February 14, 2014, with the SEC.

We will also be referring to a number of non-GAAP measures. The reconciliation of these measures to GAAP is provided in the tables to the press release and is available on the Investor Relations section of our website at WyndhamWorldwide.com.

We understand that there may be some issues with the webcast that some of you are experiencing. This is a problem with our service provider which we are working to resolve. If you have any questions, please call me after the call. Thanks. Steve?

Thanks, Margo. Good morning and thank you for joining us. As you saw from the release, we had another great quarter with adjusted EPS growth of 18%, primarily reflecting strong adjusted EBITDA growth and great operating momentum across our businesses.

Adjusted EBITDA at the Wyndham Hotel Group grew 13%, supported by strong domestic RevPAR growth. Wyndham Exchange & Rentals also grew EBITDA 13%, reflecting a strong summer for our European vacation rental business, which is their peak season. And Wyndham Vacation Ownership delivered EBITDA growth of 7% despite a miss in the VPG operating statistic. Our preliminary view of 2015 is in line with our long-term EBITDA growth range of 6% to 8%.

Based on our future outlook and our current share price against what we believe is our intrinsic value, our Board of Directors approved an additional $1 billion share repurchase authorization. We are really excited about what lies ahead.

I want to update you on a few of our most promising operating initiatives beginning with the Hotel Group. I'm excited to share some results from our first umbrella ad campaign which we discussed last quarter. The campaign consolidates a significant portion of our individual brand spend.

We ran over 10,000 spots on prime time network and cable TV during the peak travel period between Memorial Day and Labor Day, with the objective of driving web traffic, call volume, and ultimately direct bookings through our Wyndham Rewards channel. The results were fantastic, with direct bookings increasing 22%, enrollment in Wyndham Rewards growing over 65%, and significant growth in reservations contribution from Wyndham Rewards. We were pleased with the outcome and are already planning next year's campaign.

While our umbrella campaign produced stellar results, it's worth noting that the ad campaign is just one of many initiatives underway to continue strengthening the overall value derived by Wyndham Rewards for both hotel owners and traveling guests. For hotel owners, Wyndham Rewards members generate 10% higher revenue than non-members because they stay longer and provide a cost per booking that is, in many cases, half of what other more expensive channels may cost.

Moreover, nearly 60% of Wyndham Rewards guests who stayed at one of our 12 brands originated from another brand in our portfolio, demonstrating that the breadth of our portfolio is yielding unique benefits to our hotel owners. And with almost 80% of all points redeemed in the program are now for free nights at our hotels, which is up from about 60% three years ago, this again demonstrates the program's core value proposition to owners.

On the guest side, Wyndham Rewards offers one of the most generous reward program payouts in the industry. In addition to attractive redemption options, we have the most hotels around the world offering free Internet access as a standard benefit to all Rewards members regardless of loyalty tier. And we are only beginning to leverage the full potential of the Wyndham Rewards platform.

We are investing to develop even more reward options that are easy to understand and attainable to all consumers. Through this continued focus we expect to grow our active Wyndham Rewards member base over 50% within the next three years, increasing our reservation contribution and the value we bring to our franchisees. I look forward to updating you on this progress.

Now moving to Wyndham Exchange & Rentals. As you'll see in the third-quarter revenue driver performance, momentum is picking up in our RCI exchange business and our affiliates are telling us that they are seeing more access to capital at reasonable rates.

I am pleased to say that RCI recently completed a long-term extension of its affiliation with Hilton Grand Vacations. This continues a great relationship with one of the leading brands in the timeshare industry. Hilton Grand Vacations has over 200,000 members and more than 40 resorts worldwide.

As I mentioned, our European vacation rental business had a strong summer, helped by improving demand in our key markets, and just as importantly, by our innovative use of analytics. We previously discussed utilizing yield management and dynamic pricing in our vacation rentals business. We are making great progress and are on track to rollout across 100% of our rental businesses by 2016.

Yield management has existed for years in the airline and hotel industries, but we believe this is the first time it is being applied in a significant manner for vacation rental. And we believe our ability is unmatched.

Implementing these tools for vacation rentals is a fairly complex process. The inventory is typically owned by third parties and there are many variables that make developing effective yield management strategies challenging.

Think about our portfolio of inventory. Each cottage and villa has a unique design, square footage, outdoor and indoor amenities, and location. We also have a variety of bungalows, campers, tents, and condo-style resorts. Each brand has different customer source markets, peak seasons, and varying lengths of stay.

All these variables must be accounted for in our pricing algorithms; however, we don't rely on algorithms and formulas alone. We combine our analytics with our on-the-ground knowledge of product and market, and we model right down to each individual property. Our analytics expertise, along with our deep knowledge of both consumer preferences and available inventory on a local level, differentiates what we do in the vacation rental space.

We are excited about the results we have seen to date. In the UK cottages business, homes within our yield management program produced on average 360 basis points more revenue improvement than those without. In the end, it's more revenue for homeowners, more commissions for us, and a fair market-based price for the consumer. Look for more from this group in the future.

Now let's move to Wyndham Vacation Ownership. The team has been working on a comprehensive initiative to increase and enhance consumer engagement across our brand, beginning with how we sell our products to both potential new purchasers and existing owners.

Research confirms that while consumers generally love the timeshare product, some are put off by the sales process. As a proven innovator in the industry, we are addressing what many believe has historically been a limiting factor in the growth of the timeshare industry and its mainstream acceptance as a better way to vacation. We feel strongly that our product offering is superior in the marketplace and we are intent on matching that with a superior buying experience.

We believe the time is right to innovate our sales process to ensure we keep our owners engaged and our potential owners eager to engage. As importantly, we want to ensure we are ready to capture the next generation of timeshare buyers.

We are looking at the entire customer experience from check-in to post-sale feedback with three simple questions in mind. Does it put the customer first? Does it lead to the guest having a better experience? And does it increase trust in Wyndham?

Again, this is a long-term initiative and we started implementing some of these changes over the past 12 months. Let me remind you of four of these new engagement initiatives which we have previously discussed.

First, I spoke to you earlier this year about moving to, quote-unquote, podium presentations which we internally refer to as our specialist presenter program. These informative group presentations are geared toward both new and existing owners, ensuring that our best salespeople are in front of our customers using a proven, uniform method of telling our story and producing sales.

Second, we have taken steps to reduce the occurrence of default by tightening our lending practices. When a consumer defaults on a loan it is not good for us, but it is also painful to the consumer. Third, for owners who have benefited from our product for many years but are no longer actively using it, we have designed various programs to enable them to gracefully exit their ownership.

And, finally, we are enhancing and increasing our outreach to new owners to cultivate a new generation of timeshare owners. While the implementation of some of these new approaches was more disruptive than we expected on VPG in our largest sales quarter, we are confident these initiatives will expand the marketplace for our current and future product offerings and fuel the long-term growth of this business. We view these modifications as investment in our business and are confident in the long-term returns.

Now I will turn the call over to Tom for details on the quarter's results.

Thanks, Steve. Good morning, everyone. Let me start by echoing Steve's comments about the strong performance of quarter three.

Revenues were up 6%, adjusted EBITDA up 11%, and adjusted diluted EPS increased 18% year-over-year. Results reflect strong financial performance in each of our businesses.

In the Hotel group, revenues were up 6%, reflecting higher RevPAR. These revenue increases were partially offset by the absence of fees from last year's global franchisee conference, which were fully offset in expenses. Ancillary revenues increased $8 million, primarily reflecting revenues from a recently negotiated third-party co-branded credit card.

Adjusted EBITDA for the business increased 13%, reflecting the strong revenue increases. Adjusted EBITDA excluded an $8 million write-down of an investment in a joint venture.

Domestic RevPAR increased 8.4%, led by the strength of our Wyndham brand. System-wide RevPAR increased 4.6% due to continued growth in lower RevPAR markets outside of the US and unfavorable currency impacts. Specifically, international RevPAR was down 3.5% primarily reflecting high growth in China, one of our lowest RevPAR markets. Now if we were to exclude China, international RevPAR increases 1% and global RevPAR 7%.

Year-over-year system size increased 2.7%, reflecting a 1.2% increase in global room openings, primarily in our Asia-Pacific region, where openings were up 25%. Our pipeline at quarter end stood at over 960 properties and over 116,000 rooms, up 2% over last year. Two-thirds of our pipeline is new construction and 57% of it is international.

In our Exchange & Rentals business, net revenues were up 9% and EBITDA 13% for the quarter. If we were to exclude foreign currency and acquisitions, revenue and EBITDA were both up 6%.

Exchange revenues were up 3% in the quarter, with an increase of 1.8% in average members and a 1.1% increase in exchange revenue per member. Member growth was driven by the North America and Latin American regions, while revenue per member increase was primarily the result of higher exchange yield in North America.

Now looking at vacation rentals, excluding the impact of foreign currency and acquisitions, revenues were up 8% for the quarter, reflecting a 3.8% increase in the average net price for a vacation rental and a 3.6% increase in transactions. Transaction growth was largely driven by increases at Novasol, Wyndham Vacation Rentals UK, and Landal GreenParks.

The increase in the average net price per rental was driven by higher yields at James Villa Holidays and Landal GreenParks. Yields at Landal GreenParks benefited from our dynamic pricing program as Steve discussed, which is now fully implemented across Landal's parks.

In our Vacation Ownership business unit, revenues were up 4% and EBITDA 7%. Revenue increases reflect an 8% increase in net vacation ownership intrasales, which benefited from a lower loan loss provision. Overall revenue also benefited from higher resort management revenues.

Gross VOI sales were down 4.3%, reflecting a 5.3% decrease in volume per guest. As Steve noted, this was below our expectations. VPG was dampened by a higher mix of new owner tours due to a shortfall in upgrade tours.

Now remember that new owner tours produce a lower VPG than our upgrade tours do. The shortfall in upgrade tours was due in part to the introduction of our new specialist presenter program. In addition, VPG was also affected by our ongoing efforts to improve the overall quality and performance of our consumer receivables portfolio. As Steve mentioned, we have put tighter limits in place that dampen upgrade sales and, consequently, reduce VPG, but have a positive effect on the provision for loan loss and overall cash flow.

As we continue to refine our sales processes and lending standards, we expect to experience some variability in VPG on a quarter-to-quarter basis. However, we manage the business for long-term sustainable EBITDA and cash flow growth, not quarterly operating statistics. Over the longer term we expect that VPG should grow slightly faster than the rate of inflation, assuming a constant tour flow mix.

As you know, in addition to the changes we are making to the way we reach existing and prospective owners, we are adjusting our tour mix to increase our level of new owner sales and with partner alliances such as our relationship with Margaritaville, and we are seeing success. Through September 30 of this year we have brought in close to 24,000 new owners to our system. That is an 8% increase from the first nine months of 2013.

Remember that new owner growth is essential to ensure the long-term health of our timeshare business.

Now moving to our portfolio performance, write-offs for the quarter were $59 million, down from $62 million in the third quarter of last year. The provision for loan loss was 14.4% of gross VOI sales, net of [WAM] fee for service sales. That's down 21% -- that's down from 21% in the third quarter of 2013, reflecting the many improvements we have made to our lending standards since the downturn.

The provision is now at historic lows, but we believe there's opportunities for some further improvement. I would also like to point out that cost of sales, which was 16.3% for the quarter, is near an all-time low as well. This reflects our continued progress at evolving low-cost inventory sources as well as capital efficient ones. 50% of our spending on inventory next year will be on capital efficient sources, specifically [WAM] just-in-time and various forms of inventory take-backs.

On the capital markets front we recently closed a $200 million term deal of previously unsecuritized timeshare receivables. Note that this helps us optimize our liquidity position, but that the interest expense on the debt is treated as an operating cost to the business, creating a negative impact on EBITDA of approximately $1.4 million this year and $5.4 million in 2015.

Free cash flow in the first nine months of 2014 was $750 million, or $5.86 per share. That's up $45 million from the first nine months of last year. However, recall that the fourth quarter is typically our seasonal low point for free cash flow production and our neighborhood target for the year remains approximately $750 million.

In the third quarter we repurchased 2 million shares for a total of $161 million and an additional 600,000 shares for $50 million so far in the fourth quarter. That brings our year-to-date total share repurchase to $531 million. As a reminder, our capital allocation strategy is to invest strategically in growing our businesses, coupled with returning capital to shareholders through share repurchase and dividends. With the $1 billion increase to our share repurchase authorization that Steve noted, our share repurchase authorization now stands at $1.1 billion.

Finally, let's turn to guidance, which will be posted on the website after the call. As you saw from the press release, 2014 full-year adjusted earnings per share guidance goes to a new range of $4.45 to $4.48, which reflects a tax rate of 36.25% and revised interest expense of approximately $108 million.

Weighted average shares for the year are expected to be 127 million, down from 128 million shares. We expect our Hotel group to be at the high end of their adjusted EBITDA range and Exchange & Rental to be at the low end of their range, largely due to some anticipated foreign exchange headwinds from our prior guidance. Our current view is that Wyndham Vacation Ownership will also be at the low end of their adjusted EBITDA range.

We are comfortable around the midpoint of our 2014 adjusted EBITDA range of $1.230 billion to $1.245 billion, despite the $5 million in adjusted EBITDA headwind from foreign exchange since our July guidance. It is not likely that we will reach the high end of our guidance range.

With one exception, we are maintaining our 2014 operating statistic guidance. Our current view on VPG is that it will be down approximately 2% for the full year. For the fourth quarter we expect adjusted earnings per share of $0.83 to $0.86 and a diluted share count of 125 million shares, based on share repurchase activity through September 30, 2014.

While we don't give quarterly EBITDA guidance, I will note that the consensus number is somewhat ahead of us based on the aforementioned foreign exchange headwinds and some timing differences between third- and fourth-quarter EBITDA performance.

Now let's move to 2015. Steve and I begin our budget reviews next month, so this is an early view of things. At this point, we are more comfortable at the midpoint of the following ranges.

We expect revenues of $5.4 billion to $5.5 billion and EBITDA of $1.3 billion to $1.330 billion, consistent with our long-term growth range of 6% to 8%. We expect earnings per share of $4.70 to $4.85, assuming a diluted share count of 125 million shares. Our EBITDA assumptions include a $9 million foreign exchange headwind versus 2014, and as I mentioned, a $5 million increase in consumer finance interest that has moved from below the EBITDA line to above the line.

Note that we expect an increase in our tax rate in 2015 back to approximately 37%, up from approximately 36.25% this year, which is creating some EPS headwinds for us in 2015. The share count assumption includes our repurchases only through September 30, 2014. We will delve into more details on next quarter's earnings call, but let me say now that we expect depreciation and amortization to be higher as a result of our elevated levels of capital spending of the past few years associated with support of our growth initiatives in each of our businesses.

We also expect interest expense to grow as we increase our leverage associated with anticipated EBITDA growth. We will give you 2015 free cash flow guidance in February once our budgeting process is complete.

And with that, I will turn the call back to Steve. Steve?

Thanks, Tom. Before we open the line for questions I would like to summarize our comments on the quarter.

It was a strong quarter with 18% growth in adjusted EPS and we have great momentum. To ensure that we sustain that momentum, we are executing on important operating initiatives across our businesses. In the Hotel group, our umbrella ad campaign is proving to be effective in driving bookings and increasing enrollment in the Wyndham Rewards program, which delivers value for both hotel owners and guests.

In our Exchange & Rental business we are rolling out proven yield management analytics in our rentals business to drive greater revenue for homeowners and higher commissions for Wyndham. And at Wyndham vacation ownership, we are working to enhance consumer engagement across the business to optimize the mix of new owners and upgrades and to ensure that the business is well-positioned for long-term growth.

As we continue to deliver consistently strong results, we remain focused on disciplined, value-creating capital allocation. As always, this includes opportunities to invest in our businesses and to grow the business through M&A and returning cash to shareholders. To that end, we announced a $1 billion increase to our share repurchase program.

With that, Wendy, we can open the line for questions.

(Operator Instructions) Joe Greff, JPMorgan.

Good morning, guys. Surprise, surprise, first question is on VPG. Can you talk about how long of a transition some of these new initiatives might have?

You talked about upgrade tours shortfall in the quarter. Is that something that you are changing to change that trend in upgrade tours? And how do you look at the transition?

The down 2% VPG for the year implies a greater decline year-over-year decline in VPG in the fourth quarter, so how do you look at the transition and how long of a transition? You had mentioned there was some variability in the near term in VPG.

And, Joe, not surprising it was the first question because obviously it disappointed us a little bit. The fact is we instituted a number of changes over the last 12 months. Some have rolled in flawlessly; some have been very positive.

For example, the lending practices that we changed over 12 months ago, we see that flowing through in provision. And so provision improvement isn't an accident. This has been something that has been a conscious effort to improve.

Some of the changes that we instituted this quarter, particularly this specialist presenter program, we rolled out during what is arguably a difficult time to roll it out, which is the third quarter, which is our biggest quarter. And we did not -- we saw some decline in the number of upgrade tours that we got.

Now the new customers we did great with. We got the tour flow we were looking for, as we always do, and we saw the uptick in that metric, the new owner metric. For VPG on the upgrade side, which is the more profitable sale, as you know, we just didn't have as many people come in for the presentation. (multiple speakers)

What was the feedback that you got from these potential upgrade customers? Why didn't they come in to these new presentations?

It was more the methodology that we used to market to them. We changed it and, as we have seen in the past, and I will remind you and everybody else, Joe, we have had this happen before where there has been some volatility on VPG. The team down in Orlando, which is a phenomenal team, and really across the country that are selling, they do these things thoughtfully and they them at times where they feel like they can make a move to make a shift.

And so they did it during the summer to make sure that we could see how the salesforce and how the people would react to some of our changes in marketing. And we will continue to modify; we learned a lot during the third quarter.

We are confident and they are confident that we will be back to VPG growth next year. We see this as a little bump in the road. Fortunately, they did this at a time when we felt confident that we were getting benefit from other initiatives, like the lending practice initiative.

So really at the end of the day I kind to say, well done, guys; you do this at a time when we already knew that we probably had a little bit of extra powder from the lending practices we had modified. So I don't view it as anything that is monumental. There's no big shift here.

We are changing the marketing programs to make sure that we get back to the kind of response that we've previously had for upgrades.

So when you get back into the seasonally stronger 2Q and 3Q periods of next year would you expect VPG to have been turned at that point?

Absolutely, that's what I'm saying. Next year we will be back to growth pattern.

Got you. Then my second question -- thank you, Steve. My second question free cash flow year-to-date you are already at your annual target. I know you talked about here on the call and the press releases there were some working capital timing issues and we've seen that in other 4Qs.

If you look at the last couple of 4Qs, you still generated the incremental free cash flow. Can you help us understand some of these working capital drags or incremental PP&E or other drags on free cash flow? In other words, it seems to us, sitting where we are sitting, that there is upside to your $750 million target for this year. And then I have one other follow-up question.

Tom Conforti

Joe, just quickly, it was the same question that we had as we are preparing for the call. We are already at $750 million and so when we looked at fourth quarter there were a couple of things that stand out.

If you recall, I think we gave you guidance on product spend for WVO at around [$175-ish-million] this year. I think through three quarters we are at $80 million or $90 million and so we know that there's going to be a meaningful increase in product spend for WVO in the fourth quarter. And so that is a mitigant to -- if you were to comparison to last year, we are going to be about $50 million or $60 million ahead in product spend against last year.

The second area is cash taxes that's worth noting. While we're going to end up probably on rate a little lower in cash taxes than we thought originally when we put together our thoughts for the year, it's still going to be an increment of around $20 million, if I recall the number correctly. Around $20 million quarter over quarter.

We've always viewed free cash flow as a neighborhood estimate. We are glad we are already at the point. If we're going to be a little above or a little below, it's really at this point hard to gauge so we are sticking to the $750 million neighborhood target because of those two factors that I just mentioned.

Okay. Thanks, Tom. Then when you think about next year, and I know you're not providing free cash flow target or guidance for 2015, but just generally how are you thinking about WVO investment in 2015 versus 2014?

And you brought up cash tax rate; how are you thinking about the cash tax rate in 2015 versus relative to 2014? That's all for me, guys. Thank you.

The spend at WVO year-over-year may be up slightly. What we are doing with our inventory buy, Joe, and we have mentioned this before, is we are trying to be opportunistic and find the best sources of low-cost product. So we have done a lot of things with our WAAM model.

We have agreed to buy inventory that's coming in at attractive rates. We have bought back inventory from our owners, so there will be an increase in WVO spend next year without a doubt. I don't know how much that's going to be yet.

As I said, as Tom said rather, we haven't even been through the budgets yet. So this is -- giving guidance and talking about things in 2015 at this point I think we are a broken record. I think we say this every call this time of year: this is premature to be talking about next year. And we try to give a glimpse, but we got a lot of work to do to firm that up.

Joe, on cash taxes, we expect that our cash tax rate is going to be higher next year than it is this year because this year's number was lower than we thought it was going to be. So Steve said it's early on, so at the end of the day who really knows at this point? But our sense is that it will be a little higher and, therefore, it will work against us a little next year.

Great, thank you.

Steven Kent, Goldman Sachs.

Good morning. Just following up on Joe's questions on VPG, could you just be a little bit more specific on the marketing issues and sort of what you did and what you didn't do and what you will be evolving to?

And is the specialist presentation, is that the group presentation? Is that what you're referring to? So that's number one; I just want to understand sort of the details. I understand there are competitive issues, but just to give us some color as to what's going on there.

Second, Vacation Rental, with some of the new yield management programs, what kind of run rate pricing growth could you be getting at? Because you are already doing well there and I think you've always said that there is an opportunity to yield manage that. So what kind of numbers or sense can you get from that?

Then, finally, given the cash flow characteristics, given the balance sheet characteristics, given even the securitization market -- all positive -- could the quarterly buyback of shares start to accelerate given how strong the balance sheet cash flow characteristics are?

Okay. There's a lot in there, Steve. Hopefully I jotted most of it down.

Your question on VPG went to the programs that we changed, specifically the marketing programs. And, yes, you are correct; a specialist presenter or podium presentation program is the group presentations. That is where we invite people to come into a group presentation and that group presentation lays out the fundamentals of timeshare ownership, or in the case of an existing owner, of opportunities to better use their ownership. And then they meet with an individual salesperson to then discuss their interest in either buying more or buying timeshare for the first time.

So it is the marketing effort that brings people into that group presentation and then into the individual presentation that did not generate the level of people that we wanted to see who were existing owners. It's just a matter of what are we using as the pitch to get people to come to that group presentation.

We have changed it over time. We've changed the way that we go about approaching the existing owner. Obviously, we want to be very respectful of the existing owner. They are on vacation, so we want to make sure that we are putting the pitch together right. And I think as a group we were a little disappointed on what the reaction was to the presentation, the marketing pitch we were using.

So you're right; I don't want to go into details because it is a competitive business. But suffice it to say, the team down in Orlando is all over it and they are working to do what they need to do to get back to where they wanted to be.

On Vacation Rental, you talked about yield management, the impact it's having on pricing. It is having a positive impact on pricing and, importantly, on utilization, because it's not all about pricing. As you know, with yield management systems in a hotel company you are trying to move the occupancy up so that it gives you more pricing power as you get closer to the date of visit. So the same type of dynamics come into play with vacation rental.

The only -- the example that we gave today was we saw about a 360 basis point increase in the yield on the units that we are using this what we call our epic yield management system. And so we did see some improvement. And we had a good comparison, because we had a number of places that were not yet utilizing it. So within the UK rental business we had a very good kind of test kitchen and it clearly had a positive impact.

And we are only getting started. Because the more you can put -- more inputs you can have into a yield management system, the more impact that yield management system will have on your business. So this will be an iterative process and we will keep adding to it and improving it. But the good news is we see positive results so far and we see -- we will have this thing a rolled out in 2016, at some point during 2016, so it will be affecting all of our rental businesses.

So, yes, we are very excited about it, very enthusiastic. We have a phenomenal team of analytics that work both on RCI and the rental business and they are doing a terrific job.

Last question was about cash flow.

Cash and can we increase our share repurchase.

Buyback. It's really too early to tell, Steve. We view this as there's no reason to sit with cash on our balance sheet.

We want to put that cash to use. We want to be investing in the business. We want to be doing acquisitions. We are going to pay dividend and we want to buy back stock. So it really just depends on how the cash flows in, how successful we are with all the programs that we are running to increase our EBITDA, because that gives us more ability to lever up and have more cash available.

So the answer to your question is I can't answer it anyway other than yes, because it could increase the amount of buyback we have. But there's so many variables, Steve, that are going into that because I don't know what the M&A landscape looks like for 2015 yet.

And another limiting variable, Steve, of course is our desire to remain investment grade.

Okay, thanks.

Did we get all of them?

Yes. Just the last one, Tom, is that it seems to me like you are going to be investment grade and you could accelerate share buyback. I understand that you don't tell us today, but just when you look the cash flow or the balance sheet it looks like you could move at a much faster pace on a quarterly basis. But that's doing my own math. Anyway, thanks.

We will put you in charge of our treasury group.

Thank you.

Patrick Scholes, SunTrust.

Two questions here. The first is on your VOI sales mix. Where do you stand right now percentage-wise between existing owners and new owners? And if you could give a little color, how that has changed since a year ago.

Then, secondly, concerns the international side of your lodging business. I wonder if you could actually give the specific RevPAR results for China and for Europe. Just trying to gauge here, because you did have some weakness in there, both from foreign exchange and obviously international locations, in China.

Was that -- did you notice that weakness was in second- and third-tier cities versus key urban locations? Was there any geographic-specific weakness? That's it.

First, on the upgrade side I think we are around 70 -- 65% to 70% upgrade and the other piece of it is new owners. That's pretty consistent with where we have been for the last three years, last couple years.

Over time I could see it shifting a little bit more new owner. Not dramatically, but there will be a gentle shift there over time in the long term. But that is about where we are now.

On the specifics of what's going on in markets like China, I was over in China last week and spent a lot of time with our team, particularly the Hotel team there. To answer your question, no, there is not a market that is slowing down or is down. We are up across the board.

The challenge is that we are adding hotels in the Super 8 brand that we have this year and last year at a faster pace than we are adding them in any of the other brands. And so we are bringing in lower ADR properties, and they are generally in tertiary and beyond markets, that are coming in just at a lower rate. So it's really an arithmetic equation.

We did not see a market slowing down. I visited some of our product that is absolutely spectacular and things that are just coming online now that I think will help that rate over the next 18 months. You will see improvement in the rate that we are getting out of China because some of the properties we are bringing in at that higher level are much, much larger properties than the small Super 8s that we are adding.

This will continue to be a big growth market for us, so we are going to have this mix impact for this foreseeable future, but it is a healthy impact because we are growing in a market that will undoubtedly have a long-term, positive impact on our company.

If I might add just a quick note, if you were to look at China on a same-store basis, you would see -- without getting too granular, you would see RevPAR improvement.

Okay, thank you for that color. One follow-up question here. When I look in the last table of the press release, it looks like your sales under WAAM fee-for-service in the most recent quarter were about half of what they were last year.

Is that just from the sellout of properties that offer -- that you're involved with fee-for-service? And sort of where do you stand with the pipeline with the WAAM fee-for-service properties?

Those that you see that are basically commissions are the WAAM 1.0 deals, the early on WAAM deals that we did, where we were not holding the paper for those deals. We were selling product for somebody else and they were providing the financing. And so we basically stopped sourcing those deals over a year ago, maybe two years ago.

And so, yes, you're right; it's kind of the sell down of those deals and what we've move towards more is this just-in-time model where we have other people building product, delivering it to us. And so it is reducing the capital call for us and it's bringing product in quickly. That does not flow through commission. That is us and we are financing it and so it's like our normal inventory.

Some of that higher inventory spend that I mentioned earlier in the fourth quarter will be associated with the purchase of some of that just-in-time inventory as well.

Okay, I got it.

So to answer your pipeline question, Patrick, pipeline is robust for that type of inventory.

Okay, thank you.

Chris Agnew, MKM Partners.

Thanks very much, good morning. First question I wanted to ask about your preliminary outlook for 2015 and how much currency is impacting revenue growth expectation on a year-over-year basis.

Revenue growth, I don't have the number off the top of my head, but I think the number I quoted was that on a year-to-year basis it's a $9 million EBITDA impact.

Yes.

$9 million EBITDA impact. 2015 against 2014.

Something larger than that obviously on the revenue side. I don't know what it is.

By the way, on the revenue number, if I just might say Steve and I gave an earlier caution. He and I haven't even reviewed budgets yet, so don't read too much into the revenue figure yet for 2015.

Got you. And then on time share, I am thinking more broadly about 2015, I'm not fishing for guidance, but just want to think about the implications of the initiatives that you are putting in place around tour flow and VPG. Will that in any way put pressure on sales and marketing costs and, therefore, timeshare margins, or do you anticipate offsetting that and where?

We don't believe that it will. This is more about the art of it versus the numbers of it. It is an operational focus on getting the tours generated from the owners in-house.

So, no, I don't think -- I would say that we expect to see our sales costs go up. I don't think marketing costs will go up dramatically. And if they do, the team -- and again this is -- I feel a little bit like a broken record. The team down there is driven to produce long-term EBITDA growth and free cash flow. That is what their metrics are that we measure them on.

VPG is not one of the metrics and so they are really focused on -- it is a metric obviously, but they really focus on, okay, how are they going to continue to build this business, which has just performed remarkably well over the last five years and will continue to do so in the future.

Thanks. Then last question just on vacation rental in North America. Any update on growth opportunity, either organic or M&A opportunities, in North America? Thanks.

Chris, I'm still very, very excited and bullish about North America. We are going through kind of a process of reviewing our business development side of that as well as in North America, and that will encompass both M&A but also just internal growth within the markets that we already exist.

We just brought on a new leader for that group. She started two or three months ago. I'm sure she feels like she is drinking through a firehose right now just getting complete -- her arms around that business, but I'm very, very excited about it. I think that in the future we will be talking about how that has had a positive impact on overall growth.

I spoke about the analytics that we are putting in place. We really talked only about the analytics and impact it's had on the European business, but we are rolling those analytics out in North America as well. They don't exist now, but they will down the road.

All those things point to us being able to walk into a market with the proposition that is better than anyone else for delivering to your home, villa, or cottage that you want to rent through us. So we are very excited.

Thanks.

Wendy, thank you very much. Appreciate it. And thank you all for listening. We look forward to talking to you next quarter.

Thank you. This does conclude today's conference. Thank you for joining. You may disconnect at this time.