Travel + Leisure Co (TNL) 2015 Q4 法說會逐字稿

Welcome to the Wyndham Worldwide fourth-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. These risk factors are discussed in detail in our Form 10-K filed February 13, 2015 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. It is also available on the Investor Relations section of our website at WyndhamWorldwide.com. Steve?

Thanks, Margo. Good morning, and thank you for joining us. As you saw from the release, we posted a strong close to a great year. Looking forward, we're excited about what lies ahead in 2016, which we believe will be a great year for leisure travel. With a wide range of places to stay, Wyndham Worldwide is uniquely positioned to welcome people to travel the way they want, and where they want.

This gives us great confidence in our prospects and is reflected in our Board's decision to raise our quarterly dividend by 19%, and increase our share repurchase authorization by $1 billion. Tom will focus on fourth-quarter results, but first, let me summarize the year, which was terrific from both an operational and a financial perspective.

On a constant currency basis, and excluding acquisitions and a divestiture, we grew revenues 6%, and adjusted EBITDA 8% in 2015. On the same basis, adjusted EPS grew 17%, reflecting strong operating performance across the Company, supported by our share repurchase program.

Wyndham Hotel Group achieved 11% adjusted EBITDA growth on a constant currency basis, excluding acquisitions, and including the increased license fee paid by Wyndham Vacation Ownership, or 7% excluding the fee.

We successfully acquired and integrated Dolce, which significantly enhanced our presence in the managed hotel space, and is performing better than our expectations. We also developed and launched a new cloud based strategy for our property management and central reservation systems. Finally, we introduced the Wyndham Wyzard to millions of consumers and made great progress on our new award winning Wyndham Rewards loyalty program. Wyndham Rewards is one of the threads that weave Wyndham Worldwide together, driving a powerful marketing and value proposition to consumers across our travel brands.

The newly-named Wyndham Destination Network, formerly known as Wyndham Exchange and Rentals, grew adjusted EBITDA 6% on a constant currency basis, excluding acquisitions and a divestiture.

We are moving to a more expansive vision of the business, which combine the offerings from our vacation rentals and time share exchange brands, to enable our worldwide customer base to experience the vacation of their dreams. With rising awareness of the sharing economy and increasing consumer demand for unique places to stay, we believe this new strategy will drive higher customer engagement, and higher growth in years to come.

Our portfolio of managed vacation rental brands posted great results in 2015. While some of our largest European vacation rental competitors had declines in vacation volume in 2015, all our brands, both in Europe and the US, posted transaction increases, enabling us to achieve transaction growth on an organic basis of 7%. And RCI also had a strong year, adding 66,000 to their average member count.

Wyndham Vacation Ownership had a great year, with gross time share sales up 5% in constant currency. Adjusted EBITDA was up 6% in constant currency, and including the additional license fee paid to Wyndham Hotel Group, or 8% excluding that fee. With a focus on the next generation of time share owners, we improved our sales process to enhance customer engagement, and drive future growth. We opened six new sales centers to expand our reach for new owners, and changes to our underwriting standards continued to benefit EBITDA through lower loan losses, while innovative methods for sourcing inventory reduced our cost of goods sold.

So with all those 2015 achievements behind us, let's talk in more detail about some of the initiatives that will fuel our growth in the coming years. I'll begin with Wyndham Hotel Group.

We expect to drive growth through a renewed focus on improving the quality of our brands, redefining what technology means for economy and mid-scale hotels, and continuing to differentiate with our Wyndham Rewards loyalty program. Our goals are to increase our value proposition to both our hotel owners and guests, and to drive higher contribution across the portfolio.

The migration of our central reservation and property management systems are on schedule, and are being well-received by owners and franchisees alike. The new cloud-based property management system, with automated revenue management capabilities is now running in over 200 of our North American hotels. By the end of the year, we expect to have transitioned over 3,000 hotels to the new system, which is being operated and maintained, and will be enhanced in the years ahead by, technology leaders such as Sabre and Infor.

In addition, we successfully transitioned the TRYP by Wyndham brand to our new Sabre-enabled central reservations system, and we're already seeing a lift in our reservation contribution for the TRYP brand, even during the short time the new system has been in place. We're looking forward to rolling it out to our Wyndham brand later this year, and the remaining brands through 2017.

Last quarter, I was pleased to announce that US News and World Report named Wyndham Rewards one of the top loyalty programs in the hotel industry, jumping from seventh to second place. More recently, our Wyndham Rewards program received two best-in-show platinum awards from Loyalty 360, a well-known loyalty marketing association with members from across a wide range of industries. These accolades are a reflection of the innovative and dedicated work of our team, which has created a program that is less complex and more rewarding than any other. And our franchisees have never been more engaged, with property direct enrollments up over 30% since program launch.

Our recently introduced Go Fast program, where consumers use points plus cash for a stay, has been a great success, with over 300,000 room nights booked through the program last year. We expect Wyndham Rewards members to drive over $2 billion of revenue to our hotel owners this year, delivering guests who stay more often, and stay longer than non-members.

Now turning to Wyndham Destination Network. As discussed on last quarter's call, we changed the name from Wyndham Exchange and Rentals to reflect our standing as the world's largest provider of professionally-managed, unique vacation accommodations: Anything from cottages to castles, to time share resorts.

We continue to see momentum in our rental brands, with strength in our core customer sourced markets, which are the UK, Denmark, the Netherlands, Germany, and the US. Despite new entrants into the rental market, we've seen little impact in the competitive landscape. With the strength of our brands and the depth and breadth of our offerings, we provide a great value proposition to both homeowners and travelers. These attributes enable us to be largely insulated from economic as well as geopolitical risks, and produce reliable, consistent results.

Last year, we bolstered our strong proprietary distribution network through global partnerships with online portals such as HomeAway and Booking.com. We'll continue to pursue this strategy in 2016. We have local presence and global leverage, which provide strong advantages compared with the ?For Rent By Owner? option in the same channels. Providing the widest distribution for our property owners has been a primary strategy for the Wyndham Destination Network, and it's working. For example, Novasol, our Danish brand, now sources renters from over 80 countries. That's up from 50 countries just 18 months ago.

Now, let's look at RCI. This brand continues to perform well, driven by a long tradition of innovation. Over the past few years, we've introduced enhanced membership options and several new products that add convenience and flexibility to RCI membership.

Last year, we launched additional new products that strengthened our member's ability to enhance their trading options. All told, the products we've introduced since 2010 added approximately $50 million to annual revenues in 2015. We're working on the next generation of RCI.com, and look forward to updating you on our plans in the near future.

Of course, we continue to expand our global network at RCI. For example, RCI recently added a new flagship affiliation with Tokyu Corporation in Japan, adding five great resorts in popular Japanese destinations. RCI is by far the biggest time share exchange brand in the world, and its international footprint is clearly a distinguishing strength. With over 4,000 resorts worldwide to choose from, RCI provides tremendous value to its members, and we expect to further expand our network in 2016.

Now moving on to Wyndham Vacation Ownership, which had another outstanding year, with strong VOI sales growth. Last quarter we discussed how all indications are pointing to strong long-term trends in the US leisure travel market, from millennials to boomers. We also highlighted our efforts to set the stage for increased sales, by opening new sales centers in New York City, St. Thomas, Puerto Rico, Southern California, Colorado, and Las Vegas, along with new affiliation agreements.

We're pleased with the early progress and performance of these initiatives, and have recently taken additional organizational steps to best position our Vacation Ownership business for future expansion. Our goal is to drive consistent and profitable sales growth, with tighter, more-focused operating regions. We believe this focus will help us intensify the process we started a couple of years ago to evolve timeshare sales and marketing to ensure a customer friendly buying experience, and to drive future growth.

Let me remind you of the primary initiatives, most of which we've previously discussed:

First, we introduced and refined a group presentation sales format for new and existing owners, ensuring that our best salespeople are in front of our customers, using a proven uniform method of telling a consistent story and producing sales.

Second, for owners who have benefited from our product for many years, but are no longer actively using it, we designed a suite of programs to enable them to gracefully exit their ownership. We broadly call this program Ovation by Wyndham. It is how we applaud owners for who have experienced years of great travel memories, but whose needs and circumstances have changed.

Finally, we improved the buying experience for consumers. We implemented enhanced sales training and compliance programs, and we've bolstered our quality assurance regime on the contracting and close process, which now includes videotaping. We're also streamlining our documentation process, to make it more transparent and easier to understand for the consumer. We are piloting a program to bring greater clarity to the sale, by providing contractual documents and program information in a digital format on a pre-loaded tablet. We give buyers the tablet rather than a thick owners? kit, enabling them to enjoy easier access to important materials regarding their purchase, and use of our products.

We have made great progress in these initiatives over the past two years, and we'll continue our focus in the future. With our new sales centers, strong affiliation agreements, and enhanced sales and marketing operations, we're looking forward to generating substantial long-term sales growth within our Vacation Ownership business.

The opportunities in time share, a business with strong economics, are robust. To capture these opportunities, we're targeting 35,000 new owners in 2016, about a 15% increase over 2015, so 35,000 in 2016. We expect to achieve these through increased tours, primarily from new marketing alliances and the new sales offices we've opened in the past 18 months. We will also slightly increase financing to credit-worthy new buyers through lower down payment requirements. We look forward to updating you on our progress.

Before turning over the call to Tom, let me spend a few minutes on our outlook. Stock market volatility aside, the operating dynamics we see across this Company look strong for 2016. The geographic and demographic diversity of our offerings, the resiliency of our fee-for-service revenue streams, the scalability of our businesses, and our proven track record of strong execution provide a stable base from which to grow. It's a powerful combination.

Now let me turn the call over to Tom to walk through the fourth quarter, and what we expect in detail in 2016. Tom?

Thanks, Steve. Good morning everyone. As Steve noted, 2015 was a very good year for Wyndham Worldwide, despite the fact that foreign exchange negatively affected year-over-year adjusted EBITDA by $46 million, and created significant headwinds throughout the year. Absent the foreign exchange effect on EBITDA, we would have ended the year at the top of our long-term guidance range.

We also enjoyed a strong fourth quarter. On a currency neutral basis, and excluding acquisitions and a divestiture, revenue increased 6%, and adjusted EBITDA increased 8%. We also enjoyed a very strong year in cash flow generation. Free cash flow for 2015 was $769 million, compared with $749 million for the 12 months of 2014. This was within our neighborhood target range of $800 million. Remember that foreign exchange reduced free cash flow in 2015 by approximately $43 million, so on a constant currency basis, free cash flow in 2015 was $812 million, an 8% increase over 2014, growing in line with currency neutral adjusted EBITDA. The increase reflects stronger operating results and lower capital expenditures.

In addition, you might recall from last quarter's call that we sold land and work in progress in a WAAM just-in-time transaction for $65 million in cash. So while not technically a part of the definition of free cash flow, it did add to overall cash flow for the Company, and was available to support our capital allocation decisions.

During the quarter, we repurchased 2.2 million shares for $165 million, and over the course of the year, we repurchased 7.9 million shares for $650 million, reducing our full-year weighted average share count by over 6%. In addition, we've repurchased 1.6 million shares for $107 million so far in 2016.

Now let's take a look at the performance of each of our business units.

Our Hotel Group had a strong fourth quarter, capping off a terrific year. On an apples-to-apples basis, which excludes the effect of currency, the increased inter-segment licensing fee that Hotel receives from Wyndham Vacation Ownership, and the Dolce acquisition, fourth-quarter revenues increased 6%, and adjusted EBITDA increased 10%. Results reflect an increase in royalty and hotel management fees, as well as growth in our Wyndham Rewards credit card program.

Same-store domestic RevPAR increased 4.4%, reflecting the ability of our owners to increase room rates, as hotel occupancy was relatively flat. We achieved this growth despite continued pressure on our RevPAR growth in the oil-producing markets, which, as defined by STR, mainly includes parts of Texas, Louisiana, Oklahoma and West Virginia. To put this into perspective, RevPAR in the non-oil producing markets grew 7.5%, whereas RevPAR in the oil producing markets was down 27.9%.

We were especially pleased with the performance of our managed portfolio, where domestic same-store RevPAR was up 7% from the prior year. The performance of our FelCor upper upscale Wyndham portfolio was particularly strong, with a 9% increase in RevPAR year-over-year.

System-wide RevPAR was flat in constant currency, largely due to the continued unit growth of lower RevPAR hotels in China. Excluding China, and in constant currency, global RevPAR was up 1.6%, which includes a 240 basis point unfavorable impact from domestic and Canadian oil markets.

Overall net system size grew 2.6%.For the year, gross room openings of nearly 66,000 were offset by over 48,000 terminations, most of which we considered to be substandard. The result is continually improving system quality. Our development pipeline is over 119,000 rooms, a 2.2% increase over the prior year.

Our Destination Network segment continued to perform well. Note that adjusted EBITDA in the fourth quarter of 2014 included a $6 million operating loss from Canvas Holidays, a UK-based camping brand that we sold late in 2014. On a currency-neutral basis and excluding acquisitions and the Canvas Holidays divestiture, revenues increased 5%, and adjusted EBITDA increased 9%. Results reflect growth in our portfolio of brands, particularly at our RCI and Denmark-based Novasol brands. EBITDA also benefited from the receipt of settlements of business disruption claims related to the Gulf of Mexico oil spill in 2010.

At RCI, exchange revenues increased 1% in constant currency. The average number of members increased 0.7%, attributable to continued new member growth in the Americas. Exchange revenue per member was flat, as pricing increases offset the growth in lower transacting club members.

Vacation rentals revenue for the quarter was up 8% in constant currency, and excluding the impact of acquisitions and the Canvas divestiture. That increase reflects an 8.1% increase in transaction volume, and flat average net price per rental. Transaction growth occurred in all significant brands and regions. Both pricing and transaction volume were aided by our dynamic pricing initiatives.

Fourth-quarter results for our Vacation Ownership business were also solid, with revenues up 7% and adjusted EBITDA up 5% in constant currency, and excluding a $4 million increase in the licensing fee rate paid to the Hotel Group.

Reflecting our emphasis on sales growth, gross VOI sales were up 9% in constant currency in the fourth quarter of 2015. That growth reflected a 3.4% increase in VPG, and a 4.7% increase in tour flow. VPG benefited from higher transaction sizes, and tour flow increased, primarily due to the new sales centers that Steve mentioned earlier.

The performance of the consumer loan portfolio remains solid. The provision for loan loss was $64 million, compared to $60 million in the fourth quarter of last year, excuse me of 2014, primarily reflecting higher sales volumes in the quarter. For the full year, the provision for loan loss was right in line with write-offs, and write-offs were approximately 2% in the fourth quarter, and approximately 7.5% for the full year, reasonably consistent with the results in the same periods of 2014.

Company-wide net interest expense increased by $10 million in the fourth quarter over the same period in 2014, reflecting the $350 million, 5.1% bonds issued in September, and the absence of the fixed to floating interest rate swap that we unwound during the second quarter of 2015.

Now let's turn to our 2016 outlook and guidance. As a reminder, we're going to post full guidance details to our Investor Relations website following the call.

Revenue guidance for 2016 is $5.8 billion to $5.95 billion. Adjusted EBITDA guidance for 2016 is $1.375 billion to $1.4 billion. As usual, we're most comfortable with the midpoint of these ranges.

Today's guidance is based on foreign exchange rates as of December 31, 2015, which reflects $10 million of an adverse impact on our 2016 EBITDA assumptions. While the calculated EBITDA growth range for 2016 is 6% to 8%, please take note that in constant currency, we're expecting 2016 EBITDA growth of 7% to 9%.

Adjusted diluted earnings per share for 2016 is $5.46 to $5.60. We expect a diluted share count of 116 million shares, which per our standard guidance practice, assumes no share buybacks in 2016.

Now, let's take a quick look at guidance for each of our business units. Starting with the Hotel Group, we expect another strong year. We expect revenues of $1.355 billion to $1.39 billion. We expect room growth of 2% to 4%, and global RevPAR growth of flat to up 2%, or 1% to 3% in constant currency, which does incorporate 3% to 5% domestic RevPAR growth. Note that our January RevPAR was directionally in line with industry reports, and we expect RevPAR to be below our annual guidance range in the first quarter, reflecting the Easter holiday shift, and a strong first-quarter 2015 comparison. We expect Hotel Group adjusted EBITDA will be $397 million to $407 million.

At Destination Network, we expect revenues of $1.57 billion to $1.615 billion, and adjusted EBITDA of $378 million to $388 million. We expect the average number of exchange members to be flat to up 2%, and exchange revenue per member to be flat, or up 1% to 3% in constant currency. We expect vacation rental transactions to grow 5% to 7%, and average net price per rental to decline 1% to 3%, primarily reflecting foreign exchange.

For Vacation Ownership, we expect revenues of $2.9 billion to $2.98 billion, and adjusted EBITDA of $728 million to $754 million. Our key metric, gross VOI sales, is expected to grow 5% to 7%, reflecting tour growth of 3% to 5%, and flat to plus 2% VPG growth. As Steve noted earlier, we intend to increase our new owner target this year, which will have a dampening effect on VPG. This will be more than offset by higher tours.

Company-wide, we expect corporate expenses of $135 million to $140 million, consistent with 2015. We expect depreciation and amortization to be $245 million to $250 million, as additional capital projects come online. We expect interest expense of $131 million to $133 million, which assumes no new debt issuances in 2016. Interest expense is higher than 2015, primarily due to the $350 million, 5.1% bond we issued last September, and the elimination of the fixed to floating rate swap that was in place for five months in 2015. Now, we'll be considering ways throughout the year to reduce interest expense further.

We expect a modestly higher rate of securitization activity in 2016, but rates will be comparable. The market appears to be strong, and while spreads may be widening a bit, benchmarks are lower.

Our neighborhood target for 2016 free cash flow remains $800 million. As Steve discussed earlier, we expect to increase financing to credit-worthy consumers to drive new owner growth, which will have an adverse short-term impact on cash, but which we believe is a great investment in the business. Also, as always, keep in mind that there can be variability in cash flow in any given quarter or any given year, so we view $800 million as a neighborhood target, rather than an exact figure.

Our business produces abundant free cash flow, roughly $7 a share this year, which represents a compounded growth rate of [14%] (corrected by company after the call) since 2010. Our capital allocation philosophy is to invest in the business and then return capital to shareholders through dividends and share repurchase. Absent M&A opportunities, you can expect we'll return at least $600 million to shareholders this year through share repurchases. In addition, based on the Board's decision to increase our annual dividend to $2 per share, we will return another $230 million to shareholders through dividend payments.

Now turning to the first quarter, we expect adjusted diluted earnings per share of $1.08 to $1.11, and remember that we don't budget repurchases into our guidance.

To close, we are very pleased with our performance in 2015, and are looking forward to a very strong 2016. And with that, I'll turn the call back to Steve. Steve?

Thanks, Tom. As I said earlier, we see strong operating dynamics for Wyndham Worldwide in 2016, and a bright future ahead. We are confident that we will continue to grow and generate significant value for our shareholders. Our confidence rests on the diversity of our products, the resiliency of our model, and most importantly, the strength of our 38,000-person global team members. They've done a great job of delivering results and driving shareholder value for close to 10 years now.

On behalf of all of us, thank you for your continued support and confidence. We will work hard to earn it each and every day. And with that, Lindy, we'll open the call for questions.

(Operator Instructions)

Our first question comes from Joe Greff with JPMorgan. Please go ahead. Your line is open.

Since you reported the prior earnings in late October, obviously a lot of macro risks have come to the fore. Just wondering you how maybe your internal budgets have changed over the last three months, reflecting these heightened risks. Put another way, Steve and Tom, how have some of the pieces moved around, and how have you incorporated some of these macro risks in the segment guidance? And then I have a follow-up.

Okay. That's a great question, Joe. Our budgeting process, like our strategic planning process, is pretty dynamic. We're always looking at what's out in the landscape.

Actually, I don't believe there was much of a change in the way the budgets developed from October to January. There was some additional tasking, where we saw risks developing, but it really didn't change our outlook. The budget was based on our strategic plan, and yes, there are shifts and moves but it really didn't change all that dramatically. I can't think of anything.

Just a little bit.

Okay. And then just looking at the Hotel Group segment, the pipeline was down a little bit sequentially from the end of the 3Q. Seems to be more outside the US than in the US. Can you talk about what's driving that?

And then another quick one on the Vacation Ownership segment. You mentioned the new sales centers driving increased tour flow. Can you remind us when those new sales centers, when they opened up, and when you anniversary the opening of those? That's it from me. Thank you.

Well, I'll hit the second one first, and maybe somebody can grab the specific date. I don't know the exact dates when these sales offices opened, but they opened in various times during 2015. I think one of them may have opened at the end of 2014, but generally they opened during 2015. And we're seeing good production out of all of them and we'll continue to enhance those sales offices and the affiliation agreements that we have for driving more tours into those sales centers. Your first question was on-

On pipeline, sequential pipeline.

The pipeline is, as we've said in the past, Joe, is not a critically important thing for us, probably less important than other hotel-related companies, because a lot of the additions we make are new construction -- excuse me, are conversion, and conversions tend to flip very quickly, so may not even appear on the pipeline. The pipeline is really mostly made of properties that are new construction. There were some international conversions that were brought in, that are on there.

They take a little bit longer to come in than domestic conversions. But it's a mix. I don't think there's anything really meaningful to be read into that change or difference.

Great. That's all from me. Thank you.

The only other thing I would add, Joe, is when it comes to the sales offices, if we can get back to you with specific dates when things opened we will, but bear in mind that when a sales office opens, it doesn't open initially at 100% capacity. I know, I visited our New York sales office shortly after it opened, and we had a minimal staff there. We've been staffing up, and continue to grow, and so they do ramp up a little bit. So that will happen during 2016 and into 2017.

In other words, then once you anniversary, it's not like you're lapping against a full comparison quite yet.

Not necessarily. It's like a hotel ramping up. It's going to take us a little while to ramp up, and then it continues to improve.

Good enough. Appreciate it.

And our next question comes from Steven Kent with Goldman Sachs. Please go ahead. Your line is open.

Good morning. Two questions. First, on the vacation rental business which was very, very strong this quarter, you alluded to it, but how much of the volume was essentially same store versus maybe some acquisitions? In fact, I think you said some part of your business actually left.

So what I want to understand is, is this same store volume increases, is it also consolidation? Are you starting to acquire some of these vacation businesses? Is that starting to gain momentum? And is that the rationale for the name change to Destination Network, meaning, are we going to see more and more from that, both on the consolidation and on the marketing front?

And then more on the numbers side. The securitization market, as you noted continues to be robust. Can you just give us a little bit more color on that? And also the first rate increase that we saw from the Fed, did that have any impact on propensity for financing, or any issues on spread? I just want to understand how that's going to roll out, if in fact we start to see rate increases?

So Steve, your first question was on same store transaction volume. It was 8%. 8% growth in transaction volume, that's excluding acquisitions and divestitures.

Tom, is that, the revenues was up 8%, or was that the actual number of weeks or vacation days or?

It was transaction volume but transaction volume was up 8%, and on a currency-neutral basis, pricing was flat, which translates to about 8% revenue growth.

So then the second part of the question was just, I know at one point you talked about that there was an opportunity to consolidate this part of the business. Is that starting to gain momentum, and is that the rationale for the name change, or one of the rationales for the name change? The M&A activity is not the rationale for the name change. The acquisition opportunities, we continue to look at things. We've built this side of the business, this rental business, through acquisitions, starting in 2003.

We have been in the market acquiring businesses as they become available, if they're appropriately priced. But like with the hotel side, we're very disciplined in what we will pay for the businesses. As you noted, we sold one business in 2014 or 2015 -- 2014.

End of 2014.

And that's because it really didn't fit our model as well. It was more of a camping business versus a cottage rental business, so we sold it to somebody who's more focused on that particular sector of the market. The change for Destination Network is really all about getting more out of the businesses that we already have in the family there.

Some of it, you've heard or seen, which is we brought our tremendous yield management skill set from RCI, and transported it into the rental business in Europe, and we're seeing results from that yield management capability, which is the first time a European rental business has had that skill set. And various other technology things, for the most part, that RCI's brought to the table, and has put into the rental business.

In addition, we see an opportunity to do more cross-selling of people who are currently doing rentals of cottages, to possibly renting time share, and then maybe deciding that they want to buy time share at some point. We think there's real opportunity there, and so by getting this team as one family within Destination Network, we think we can drive more of that across the enterprise.

Steve, I think your third question, if I recall the sequencing right, was around securitization, and so, we're in constant touch with investors. I think one of the strategies that we've employed is constant marketing, and discussions with interested investors. And it's from this constant source of intelligence that we remain very optimistic.

The base rate is lower on the pricing of these types of notes. Spreads have widened a tiny bit, but we think rates will be comparable to what they were last year. Actually, we feel very good that because of this constant marketing, and because of the performance of our businesses, that we'll be able to get through 2016 very comfortably, and that's reflected in our targets for the year.

You had mentioned something about interest rate increase, and whether that had any effect on pricing on our securitizations, and the answer is, none that were discernible to us. And so at least in this part of our business, we remain quite confident in the stability of trends, as we go forward.

And I'll just add one more thing. We've been at this securitization business for a long time. Investors know us.

They've experienced the performance of our businesses through the tumultuous period of 2009 and 2010, and I think they remain very confident in the program that we have out there. And if there's any stress in the market, I think we're going to maintain ourselves nicely, although we don't detect any stress in the market currently at all.

Okay. Thank you.

And our next question comes from Patrick Scholes with SunTrust. Please go ahead. Your line is open.

I have a couple questions. First is, with all the US economy and US consumer under the microscope at the moment, what trends have you seen in sales for your time share business, so far this year?

Well, we don't get into granularity in this call about what we're already seeing in 2016, but the way I would view it is, as with any powerful sales organization, a year-long sales effort is more of a marathon. However, it's really nice to come out of the starting gate fast, and we're doing very well down at WVO now. I'll leave it at that, because we don't give specific guidance.

Fair enough. Several other questions. In the past you've talked about if you were to make an acquisition, the priority would be in the Hotel Group. Is that still consistent?

Yes, it is. We said hotel and rental, I think, were the two that we focused on. We would -- we look at everything, though, Patrick, to be quite honest, and we have made acquisitions in time share.

We bought Shell Vacations two years ago, I think. So -- three years ago, maybe now. And so we will do transactions if they make sense, and we do look at everything.

I wouldn't say we won't do anything in time share, but our focus tends to be more heavily on rental and hotel. And the reason for that is, the synergies that we can bring to bear on a hotel transaction or a rental transaction are greater and, therefore, we can bring more value as an industry player probably, than we can on the time share side.

Okay. Thank you. Two more questions here. You talked in the prepared remarks about increasing financing to new owners. Does that mean lowering credit standards for these potential new buyers?

No, not at all.

The plan is that we think that we're -- frankly, we're leaving some opportunity and some money on the table, and that we can lower our down payment requirement a little bit, and still maintain our quality standards. We're very focused on that. The results that we?ve seen - improvement in provision - are a direct result of that team's effort to improve our quality standards of our buyers.

Okay. And my last question concerns the repurchases so far, quarter to date. The pace seems to be a little bit higher than where historically it is, when you report earnings. Is that reflective on your thoughts of -- are you increasing the pace a little bit, now that the stock has pulled back? Anything we should read into that?

Well, I think what you should read into it, we put a good 10b-5 plan in place, that triggered as the stock went down. We are not allowed to make trading decisions during most of the period that we've been in right now, but we had put in place a plan, in effect, in advance. No, we're -- as Tom said in his comments, we're comfortable saying we're going to get at least $600 million this year, assuming no M&A, and we'll follow that pace.

Will we buy more when the stock is down? Yes, but we're not a day trader so we're not making day-to-day decisions about a particular movement. We're trying to do this thoughtfully, and with a plan.

That's all. Thank you.

We'll go next to Christopher Agnew with MKM Partners. Please go ahead. Your line is open.

Couple questions. First, any major differences in the cadence of free cash flow or CapEx that we should look for in 2016? And then second, I think you said you assume no debt issuance in 2016. Is that -- has there been any change in your view on leverage ratios? Can you remind us what they are, and how you're thinking about leverage in 2016? Thanks.

No problem, Chris. On free cash flow cadence, I think the only thing that will be somewhat extraordinary will be -- we're going to build up our receivables balance a bit, as we increase lending to credit-worthy buyers of time share. I would expect that cash earnings will improve this year. CapEx is going to come in a little wider than it did last year. Product will be -- product investment will be in the ballpark of what we spent last year, and working capital will be a net positive.

So I would say that if you were to look at the components of free cash flow, we're maintaining the $800 million neighborhood target, because we are going to fund this increased lending to time share buyers. So I would say that's how I see the free cash flow environment for 2016. As it relates to debt issuance, Steve and I believe, as others do in our Company, that we're at the optimal point of leverage. We are the lowest rung of investment grade.

We believe that's where we should be, given the business composition that we have, and the free cash flow dynamics of our business. We do not intend to change that, unless something extraordinary and compelling comes up, that we believe will lead to an expansion of the business over time. But that would have to be quite an extraordinary opportunity. So I think at this point, we're certainly comfortable where we are and don't expect that will change any time soon.

Got it, thank you. One more follow-up on vacation rental business. The business, particularly in Europe, I think outperformed during the Great Recession. Does that dynamic change in any way, because of new entrants, thinking about Airbnb in particular? And is there an opportunity for you to think about distributing vacation rental product on Airbnb? And even potentially other leisure inventory, some of your lodging product through Airbnb? Is that something that you've thought about? Thank you.

Well, the rental businesses in Europe have performed very well. As I said in my comments, they've done extremely well. They did well in the recession a couple years ago too. So it's a very resilient business. We've got great product and great locations.

As I commented, we are using Booking.com and HomeAway for some of our distribution, and HomeAway has been in this market for quite some time. This is not -- they're not a new entrant and Airbnb has been there for a while. Airbnb's systems do not accommodate our rental model, as well as some of the others do.

As of right now, we've run some tests that require a lot of manual effort to try to use Airbnb as a distribution channel for us, because that's really what they are. But we have not been able to find an automated way to do it. So I think it's unlikely that they will be a big distribution avenue for us. But HomeAway and Booking.com will continue to be.

Great. Thanks very much.

Hey, Chris, I just want to add one more point about your question around debt. It came to me, as Steve was answering your last question. That is, we do have some notes that come due at the end of the year. We'll be looking at different refinancing options of those notes. And so, while I said in my prepared comments that our guidance doesn't reflect -- it just reflects our current debt levels, we do have a refinancing come up, and we'll be considering alternatives to refinance those notes at some point in time this year.

Okay. Thank you.

Our next question comes from David Katz with Telsey Advisory Group. Please go ahead. Your line is open.

Two questions. Just the strategy, or the strategic thinking around what you talked about with the VOI business, in terms of higher tours and prospectively lower VPG. And the opening of the new sales centers, is that indicative of some change in view about the landscape, and just driving a little greater volume? Any economic change as to why that VPG would go down, or is that just the physics of how that business works?

It's really capturing an opportunity, David. It's looking at the opportunity to grow more rapidly our new owners from about 30,000 a year to 35,000 a year and new owners tend to run a slightly lower VPG than upgrade sales. So it's just -- it's almost a mix function, more than anything else.

Not a sign of weakness at all. In fact, a sign of strength, because we see the opportunity exists to be able to go out and bring in more new owners to our system. Now, those new owners to our system become upgrade owners in the next year, three years, five years.

Got it. And if I can ask a question about the hotel business. Again, taking all the information in total, with a bit more focus, or at least as the pipeline reflects on international, I think Tom, you made some reference to hotels exiting the system that were sub-quality.

As we look at the whole hotel landscape, we see brands investing and repositioning themselves. We see some new entrants in the price-driven segments of the market. Any thoughts at all about looking at the brands that you have, and repositioning some of those in a more assertive way than what you've done so far? And basically, how you're thinking about that issue?

Well, we constantly, David, are looking at our brands and part of the big push that we have going on is to increase the quality of those brands. So Tom referred to the substandard properties that we're kicking out. The other side of it is that the units that we're adding generally have a higher quality score, Trip Advisor score, our QA scores, than the average. So the idea is to improve the overall quality.

Do I see us taking Days Inn from being a solid, or Super 8 a solid monster economy brand and moving its up to mid-scale? No. But we do see some terrific growth in our mid-scale and upper upscale properties of Wyndhams and Wingates and Wyndham Garden. We are seeing growth in those areas. But I don't see us taking one of our economy brands, and trying to reposition it to the select mid-scale. If that was your question.

Not that it would necessarily change segments, but just to cite an example, Choice has taken the Comfort brand and doing some refreshing, perhaps, is a better word, or we've seen Holiday Inn over the years establish a new set of standards, to in some respects upgrade within their current segment, that brand. And as an example of a new entrant, we saw Hilton introduce a brand a couple of weeks ago that is intended for a specific segment. And so it was more about a refreshment, rather than a repositioning.

Okay, absolutely, sorry, didn't understand the question. That definitely is happening. We are working on new prototypes for each one of our brands. We're working with the franchise advisory councils to get those rolled out.

Yes, I think -- but honestly, we're always doing that. So that's nothing extraordinary. We're probably going to have in 2016 and 2017 a fairly significant rollout of some of those prototypes. But I wouldn't consider a repositioning, like Holiday Inn did.

I think they did a terrific job of resetting that brand, one of the best I've seen. So they did a great job for a very, very large brand, and I applaud them on it. I don't think we're going to go through that type of a massive change. We're trying to make more of an evolutionary change, versus a revolutionary change.

Perfect. Thanks very much. Nice quarter.

And our next question comes from Harry Curtis with Nomura. Please go ahead. Your line is open.

Quick follow-up on Pat's question, on the time share business. Should we expect any increase in your provisions as you change your down payment requirements?

Harry, we will see an increase in provision, and the reason is that in spite of the fact that our sales levels are growing, the more important factor is that we're financing a higher percentage of those sales. And so just by the fact that we're extending more loans to people, means that we're going to provide at a higher level, as a percentage of sales. So it's a mechanical thing. But as Steve said earlier, in an answer to an earlier question, we have no intention to deviate from the credit-worthy standard that we've established over the past few years.

Okay. Very good. And my other question had to do with a little bit of historic perspective, given the disruption we're seeing in the markets. There's an awful lot of concern about the consumer confidence, and consumer spending beginning to tip over. If you go back to 2007 and 2008, what are the indicators that softened first, or what are the data points in your -- mainly in your time share business, that softened first? And it was encouraging, your comments were encouraging about, you have expectations for a great year in leisure travel, but if you could give us some perspective on if there were to be some softness, where would that likely manifest itself, and are you not seeing any at this point?

Thanks, Harry. The question about consumer confidence, and I think we've mentioned it before, we don't see a lot of correlation between consumer confidence and the time share business. The time share business, it's a sold good. It's not a sought good. It really depends on how good our marketing and sales efforts are, that's what drives that business.

If you go back to 2007, 2008, and 2009, and you take out the fact that we took our sales down because we didn't know what the ABS market would look like, all of the metrics around our sales effort in time share were terrific. VPG was up. We were controlling tours perfectly. We repositioned that business. I tell you, it was one of the great repositionings of a business I've seen, and we made the business actually stronger.

So we did not see a lack of people interested in buying. What we saw was our marketing efforts were bringing in buyers who probably were more prone to buy, because people traveling at that time when travel was down a bit were the more dedicated travelers, more inclined to buy.

So we actually exceeded sales during that time. And that's true of our rental businesses as well. We did extremely well. So we have a model that is extremely resilient.

So do we look at consumer confidence? Do we look at trends? Do we look at the fact that gas is down, and whenever gas prices are up, people say oh, my gosh, people won't be going in their cars to go rent hotel rooms now. Well, that doesn't happen.

And likewise, when prices are down, it doesn't mean they necessarily get in their car more to drive around, but they do have more disposable income in their pocket. And I've seen several reports that have shown that a large percentage of the additional dollars people have, now that gas prices are down, is going into travel and entertainment. So we feel we're extremely well positioned, and all of our tracking is looking very positive.

Thank you. And just a housekeeping item. Can you address the improved margins in the hotel business? I think the mix of the Dolce business was having an impact on them, but it seems to have righted itself. Is that a fair statement?

For the full year, Harry, Dolce cost us around almost 300 basis points of margin. So net of the Dolce effect, we were positive. Now, to be fair, the offset to that is the higher licensing fee that they received from our time share guys. And so net-net on a full year basis, I would evaluate that their margin was basically flat against 2014.

Okay. Very good. Thanks.

Our final question comes from Michael Millman with Millman Research Associates. Please go ahead. Your line is open.

Thank you. I want to follow up actually on the last question? questions. One is regarding the time share. Could you discuss the trends you're seeing in terms of the users and buyers?

I guess by that, I mean, in terms of age or income or how they use it or in fact even nationality. Are we seeing more, less, from Europe, Canada? And secondly, regarding your comment about a great year for leisure travel, can you talk about that in consideration of the oil economy, you talked about in the US, Texas and Oklahoma markets, maybe that's broadening, Canada, also in Europe- terrorism, and more broadly now, the Zika concerns.

There was a lot in that last question, which I'll tackle first. We are not seeing any impact from the Zika virus. We don't have a huge presence in Latin America. We have a good presence but not a huge presence, and so we have not seen any change there.

As for travelers coming in to the US, there was a little bit of a downturn in Brazilian travelers to Florida. They flow into Miami and Orlando in large numbers, and we do a lot of marketing for them. We have a Portuguese sales line in Orlando. Again, it wasn't large enough to impact the business at all. So we don't think that the travel patterns are changing.

As for the oil producing markets, where the fracking has been occurring in the US is definitely down. As Tom said, I think it's down 27% RevPAR in those particular markets, so they have been hit very, very hard. I never thought I would I say that oil-producing markets in the US would have an impact on our results, but frankly they have. We highlighted that and pointed that out to you.

As to the -- you asked about the age of the buyers of time share. It has trended down. It's gotten younger over the last several years. I think right now, the ARDA report says that the average time share buyer is 51 years old. That's the owner.

So the buyer is probably younger than that, I think it's in the early 40s. Actually I'm looking at something here that says 39 years old. And so they are younger. The Gen Xers are attracted to time share.

The average household income is up fairly significantly. I remember when it used to be $80,000, it's up to like $95,000 now. Yes, there's a younger, more affluent person buying time share, than there was historically.

He asked about leisure trends, as well.

We see good momentum on the leisure side, yes. We're largely a leisure business, so we're a pretty good barometer of the leisure traveler.

Thank you.

We have no further questions at this time. I'd like to turn the program back to our management for closing remarks.

Thank you very much, Lindy, and thank you all for being on the call, and thank you for your support. We'll look forward to talking to you next quarter.

This does conclude today's program. You may disconnect at this time. Thank you, and have a great day.