Travel + Leisure Co (TNL) 2016 Q1 法說會逐字稿

Good day and welcome to the Wyndham Worldwide first-quarter earnings conference call. Your lines have been placed on listen-only mode until the question-and-answer session. 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. Please go ahead.

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 12, 2016 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 in the investor relations section of our website at WyndhamWorldwide.com. Steve?

Thanks Margo. Good morning and thank you for joining us. I am pleased to report that we starting a year with another solid quarter of operating performance across our businesses. Tom will walk you through the financial results in detail. First, let me give you the highlights of the quarter.

In our Hotel Group, RevPAR results are somewhat mixed. We continued to see weakness in oil producing territories but this was offset somewhat by areas of strength such as California and Florida. Comps should get easier in the second half of the year. At Wyndham Vacation Network, our rental businesses had a strong first quarter with our bookings pipeline running ahead of last year while RCI remains a consistent steady performer.

And Wyndham Vacation ownership had a great operational quarter as we saw the benefits of various initiatives - new sales processes, new sales offices, and an intensified focus on new owners - pay off with double-digit growth in gross VOI sales. Unfortunately there was also an increase in the provision for loan loss which was attributable to an increased effort by third parties to encourage customers to default on their timeshare loans.

And finally, our free cash flow is strong and we continued to opportunistically deploy our capital.

Now I would like to focus on the great progress we have made on a number of strategic growth initiatives throughout our businesses. At the Wyndham Hotel Group, our new and award winning Wyndham Rewards Program continues to deliver great results. Designed to appeal to the everyday traveler, we have made Wyndham Rewards the most generous and easiest to use program in the industry. We have one simple and straightforward award night redemption level. All of our rooms are now available for only 15,000 points per night with no blackout dates. And that includes our Wyndham Grand Resorts which previously required up to 45,000 points for each night.

To make the Wyndham Rewards program even more attractive, we are beginning to leverage our unique portfolio of vacation rental and vacation ownership properties. We are expanding award night redemption options across the most aspirational of our destinations. So now Wyndham rewards members have even more exciting travel options, staying for example at timeshares in Hawaii and vacation rentals in Aspen.

In addition to enrolling five million new members in the last 12 months, award night redemptions have increased 90% since the program launched last May. We have seen our member occupancy increase over 200 basis points since the launch of the program and our franchisees have never been more engaged, increasing enrollments across their front desk by 55%.

Building on this momentum we launched our third umbrella advertising campaign on April 18. The ads once again feature Game of Thrones star, Kristofer Hivju, as the Wyndham Rewards Wizard in new prime time network and cable TV spots. The campaign is designed to drive direct bookings by promoting our richest consumer offer ever. The offer is available only on our branded websites and through our call centers. Members will receive up to 25% off our best available rate along with $100 in Wyndham rewards gift cards on their second stay which can be redeemed for a savings on future stays.

In the Hotel Group, our decision to exit the central reservation system and property management system development business and migrate to best-in-class cloud-based technology partners is proceeding as planned. We currently have over 450 properties live on the new Sabre System which includes an automated revenue management component.

Wyndham is the first global hospitality company to offer economy and midscale hotel owners a means to automatically analyze millions of historical transactions and demand trends. This enables our franchisees to set the ideal price for their property with the simple push of a button each day. The first group of hotels using this new revenue management tool is showing a 260 basis point increase in RevPAR Index compared with hotels not yet on the system.

Moving on to Wyndham Destination Network which is evolving its strategy to better harness its inventory and distribution power to send more people on the vacation of their dreams. For us the sharing economy isn't a trend. We have been in the business for decades. RCI invented the exchange concept for timeshare back in the 1970s and our vacation rental brands include well-established businesses dating back more than 70 years.

As you all know, we are the largest world's largest provider of privately owned yet professionally managed unique vacation accommodations, with over 112,000 properties. And for us it is about the strength of our proprietary brands and the local relationships we have built with our property owners and customers. The strength of these relationships and our value proposition is at the core of our strategy.

In Vacation Rentals, we are benefiting from initiatives to expand our e-commerce and distribution capabilities while continuing to develop new markets. In fact, our Denmark-based Novasol brand and Netherlands-based Landal GreenParks brand just experienced their best ever quarter in terms of bookings and we are seeing strong bookings throughout our business for the peak summer season. What makes this even more noteworthy is that it has happened despite the economic turmoil in Europe along with recent terrorism and the refugee crisis. We have a very resilient business built on the strength of our core brands and our diversified portfolio.

At RCI, we are excited about the continued expansion enhancement of our product offering. RCI has long been the leader in vacation exchange based on our ability to consistently deliver innovations and transform our business to deliver the best experiences for our members and affiliates.

In the first quarter, we launched a multi-your business strategy that will encompass our entire core membership model including our customers' experiences and our B2B relationships with timeshare affiliates. It will expand our digital capabilities to further improve our personalization. We are initially focused on our North American operations before expanding globally. The program will leverage the ways we use our customer data, automation and content to create exceptional engaging interactions with our customers.

For example, we will be able to offer members customized products based on their travel preferences and timeshare ownership characteristics. We will improve both the relevance and the quality of leads to our affiliates and improve the effectiveness and efficiencies of their operations. In addition, we will be transforming our website, mobile offering and digital marketing capabilities. We look forward to updating you about our progress in the future.

Now let's move to Wyndham Vacation Ownership. As we previously mentioned, our focus is gross VOI growth supported by accelerated growth in new owners. I'm especially pleased to report excellent topline results in the first quarter and we are well on track to achieve our goal of increasing new owners by 15% in 2016. Our new sales centers are performing well particularly strong performances in Las Vegas, New York, Puerto Rico and St. Thomas.

Our timeshare product delivers the ultimate in choice and flexibility as evidenced by our industry-leading owner base of close to 900,000 families. As our history demonstrates, we are committed to continually evolving our product offerings to meet the needs of today's consumers in an ever-changing marketplace. We believe this customer centric approach is the foundation of our success.

First, we started a process a couple of years ago to evolve timeshare sales and marketing to ensure a more consumer friendly buying experience. 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.

We expanded post sales surveys as well as a secret shopper program, both part of a vigorous multifaceted compliance and quality assurance effort. As always, our closings are led by a designated quality assurance associate to independently explain the contractual terms of each transaction.

More importantly, we ensure that owners remain satisfied with the product long after the original sale by continual surveys and feedback loops. We are tracking our owner satisfaction whether they are saying at our resorts, or speaking with a customer service representative or a consumer finance representative. We also continually monitor comments on social media to ensure that we are getting unfiltered feedback from various survey channels.

Our mission is to always keep a close watch on the sentiment and satisfaction of our owners. We expect to continue evolving and innovating to maintain and grow our position as the market leader in this industry and that includes providing options to our long-time owners who may want to exit their contract if they no longer are regularly using their timeshare.

We first announced our Ovation by Wyndham program at this time last year. The goal of this innovative program is to ensure a simple, safe and secure exit path for owners that preserves the goodwill and strong brand loyalty we have generated over many years of providing these families with fantastic vacation experiences.

There are no fees, hidden costs or additional purchase requirements to participate in the program, just an Ovation for these members for their many years of ownership. We believe this customer centric approach benefits our customers, our brand and in the end our bottom line.

Now let me turn the call over to Tom for the details on the quarter's results.

Thanks, Steve, and good morning, everyone. We started 2016 with a solid first quarter. On a currency neutral basis and excluding acquisitions, adjusted EBITDA increased 6%. We generated $218 million of free cash flow, an 11% increase over the first three months of 2015 due to strong operating performance and the favorable timing of capital expenditures.

These results include the negative effect of a Venezuelan currency devaluation which reduced free cash flow by $24 million.

During the quarter, we repurchased 2.5 million shares for $175 million. We have reduced our weighted average share count by 7% year-over-year through share repurchases made during the last 12 months. In addition, we have repurchased 600,000 shares for $45 million so far in the second quarter of 2016. So now let's take a look at the performance of each of our business units.

At our Hotel Group, revenues increased 1%. Adjusted EBITDA grew 6% as growth in our Wyndham Rewards credit card program, strong performance at our two owned hotels and cost containment measures more than offset weaker global RevPAR. These factors also led to a higher margin for the quarter.

As we have seen for the last several quarters, there were many macroeconomic factors impacting our Hotel Group performance. The oil-producing markets in the US and Canada, foreign exchange and the growth in low RevPAR markets such as China continue to pressure our global RevPAR growth. Domestic RevPAR was flat as higher room rates were offset by lower occupancy. This performance reflected continued pressure on our RevPAR in the oil-producing markets which is defined by STR mainly includes parts of Texas, Louisiana, Oklahoma, West Virginia, Ohio, Pennsylvania, Kansas and North Dakota.

To put this into perspective, performance in the oil-producing markets was down 28% resulting in a 220 basis point impact on domestic RevPAR. Excluding oil, domestic RevPAR grew 1.9% which reflected RevPAR growth of 2.8% in our economy branded hotels and 3% in our midscale hotels. These two segments make up over 90% of our portfolio.

Now domestic RevPAR growth was also adversely impacted by over 100 basis points from the loss of a few Wyndham branded properties such as the San Francisco based Parc 55 in February 2015 and also by the timing of Easter. Remember, first-quarter performance is against a strong domestic RevPAR in quarter one of 2015 of almost 8%.

System-wide RevPAR declined 1.6% in constant currency largely due to the continued unit growth of lower RevPAR hotels in China and continued weakness in the Canadian oil markets. Excluding China and in constant currency, global RevPAR was flat which includes a 210 basis point unfavorable impact from domestic and Canadian oil markets.

Overall net system size grew 1.8% year-over-year which incorporates our continued focus on improving the overall quality of our system. Our development pipeline is over 124,000 rooms; that is a 7.3% increase over the prior year and that number also includes a 20% increase in domestic new construction activity with the concentration in our higher end brands.

Our destination network segment had a very good quarter. On a currency neutral basis and excluding acquisitions, revenues increased 5% and adjusted EBITDA 3%. Additionally, excluding a $4 million benefit in the first quarter of 2015 from a value-added tax reserve reversal which we discussed with you last year, adjusted EBITDA would have increased 7%.

Results benefited marginally from the shift of the Easter holiday into the first quarter. First-quarter 2016 reported EBITDA included the $24 million foreign exchange loss associated with the devaluation of the Venezuelan Bolivar.

At RCI, exchange revenues were flat in constant currency reflecting flat average number of members and revenue per member.

Vacation Rentals revenue for the quarter were up 9% in constant currency and excluding the impact of acquisitions. The increase reflects a 7% increase in transaction volume and a 2.3% increase in the average net price per rental. Transaction growth was strongest in our Novasol and Landal GreenParks brands aided by our e-commerce and geographic expansion initiatives. The pricing increase was primarily due to higher average fees at Landal, which we believe also benefited from the Easter holiday shift.

First-quarter results for our vacation ownership business were solid with revenues up 4% and EBITDA up 5%. In addition to strong gross VOI sales, results benefited from an increase in property management fees and higher consumer finance revenues.

As we committed to a couple of calls ago, we intensified our emphasis on growing gross VOI sales which is now yielding excellent results. Gross VOI sales were up 10% in constant currency. That growth reflected a 3.8% increase in VPG and a 6.5% increase in tour flow.

VPG benefited from higher transaction sizes and improved close rates while tour flow benefited from higher arrivals and tours at our new sales centers.

Sales to new owners increased 7%, consistent with our internal plans. The performance of the consumer loan portfolio remained solid but is experiencing slightly higher default rates. Our average FICO score of originations during the quarter was 727, consistent with underwriting standards of the past year. However, we saw an increase of $12 million in loan defaults during the first quarter resulting from higher activity by third parties that may be soliciting our owners to cancel their contracts. This may be a variation of what we saw a few years ago with cease-and-desist activity. We are looking into whether there is illegal activity associated with this issue and if so, we will take appropriate action.

Separately, we are enhancing communications to owners about options that we may have available to them should they wish to exit their timeshare ownership.

The higher defaults contributed to a higher provision for loan loss in the quarter with the provision that $63 million in the first quarter compared to $46 million in the prior period. Approximately $5 million of the increase reflects higher sales volumes. The remainder reflects increased defaults encouraged by third parties. Now remember the provision flows through to EBITDA at an approximate 60% rate since we get about 40% of the loan value in inventory recoveries which we then of course resell.

Companywide net interest expense increased by $8 million in the first quarter over the same period of 2015 reflecting the $350 million 5.1% bonds issued last September and the absence of the fixed to floating interest-rate swap we unwound during the second quarter of 2015. Depreciation also increased as we brought new long-term projects into service.

We completed two notable capital markets transactions in March. At the corporate level, we closed a $325 million five-year floating-rate term loan and used the proceeds to redeem the remaining $315 million outstanding under our 6% bonds due this December. We incurred an $11 million one-time charge to pay for the related make whole provision.

The effect of these two transactions is now included in our updated interest expense guidance.

At Vacation Ownership, we completed our first term securitization of the year, the $425 million Sierra 2016-1 transaction had a 3.2% weighted average coupon and an 88.9% advance rate. The order book was strong as our paper continues to be well received by the market.

Now let's turn to guidance which will be posted on the website after the call. As you saw from the press release, we are increasing our adjusted diluted EPS guidance to $5.61 to $5.75 for the full year and diluted share count goes to 113.2 million shares reflecting the benefit of our first-quarter share repurchases.

We are adjusting our interest expense guidance to account for the previously discussed debt transactions. We are reiterating total company as well as business unit revenue, adjusted EBITDA and driver guidance, although our current view is that RevPAR will be at the low end of our guidance range.

Our projected annual interest expense moves to $127 million to $129 million from $131 million to $133 million as a result of the previously mentioned favorable capital markets transactions. Our neighborhood target for 2016 cash flow remains at $800 million. As always keep in mind that there can be variability in cash flow in any given quarter or any given year so we view the $800 million number as a neighborhood target rather than a precise figure.

Now turning to the second quarter, we expect adjusted diluted earnings per share of $1.35 to $1.38. Remember that we don't budget repurchases into our guidance. Also note that depreciation will be a couple of million dollars higher in the quarter sequentially but we expect it to moderate in the second half of the year.

For the second quarter while we expect continued momentum on the top line at Vacation Ownership, our current best view is that there will be continued pressure on defaults and hence the provision which will reduce their EBITDA growth rates. At the Hotel Group, we expect RevPAR in the oil regions to remain challenged.

Finally, a quick note on some additional disclosure. The majority of our peers have amended their definitions of adjusted EBITDA to exclude share-based compensation. While we have not formally changed that definition of adjusted EBITDA, we are now providing our quarterly share-based compensation in Table 7 of our earnings release so that investors can make apples-to-apples comparisons between us and our peers. Note that our full-year adjusted EBITDA guidance would increase by approximately $60 million if it were presented on a similar basis to our peers.

With that I will turn the call back to Steve. Steve?

Thank you again for joining us today. We are off to a good start in 2016 as we continue to execute and drive innovation across our businesses whether it is the Wyndham Rewards program at the Hotel Group, revenue management efforts in Europe that are helping to drive our booking pace in our rental businesses or our new owner expansion efforts at WVO, we are continuing to develop differentiated value propositions that will serve as the foundation for growth, profitability and shareholder value.

The proven resilience of our diversified business model makes us uniquely positioned for any environment. And disciplined capital allocation continues to be a hallmark and commitment of Wyndham.

Thank you for your continued support and confidence in us. We will work hard to continue to earn it each and every day. And with that, Keith, we are happy to take any questions.

(Operator Instructions). Joe Greff, JPMorgan.

Good morning, everybody. With regard to your comments on increases in the loan-loss provision in vacation ownership on February 9 and your cash flow representative model, you had a range of about $291 million for that provision and obviously that didn't take into account some of the things you talked about this morning. What is that range now taking into account the third-party pressuring that provision? And from an EBITDA perspective, what is that and where are you offsetting it since the full-year guidance is unchanged?

So, Joe, we know what the provision is in the first quarter obviously and we have visibility into the second quarter. As I said in my comments, Joe, we expect that we will have a similar level of provision variability quarter to quarter but beyond that really our visibility is somewhat limited because we believe that these organized efforts -- we are not quite sure the longevity of those or the duration of those efforts. We hope that it will end with the end of the second quarter but we have no way of knowing at this point.

So we expect that the business unit - because of the momentum on the topline, as it did in the first quarter - will be able to offset a good portion of that and of course we will do whatever else we need to do in terms of cost containment throughout the Company to achieve that number.

So the increase in the first quarter was $12 million year-over-year, $5 million of that was just related to higher VOI sales so 12 less 5 is 7, 50% flow through of the EBITDA impact in the 1Q and I should interpret your comments just now as a similar level to that in the 2Q here with nothing in 3Q or 4Q?

So let me walk you through the numbers. It is $17 million, $5 million of it is attributable to sales, that gets us to $12 million, we get 60% of the $12 million because we recover 40% on inventory recovery. That gets you to $7 million. So $7 million was the net EBITDA effect for provision in the quarter associated with this organized third-party activity. We expect similar levels in the second quarter, comparable levels. It may be $1 million or so lower or higher but in that neighborhood and we expect that the revenue... and there may be some continuation in the third and fourth quarter, we expect that the revenue momentum of the business will serve to offset some of that as well as cost control across the board.

And as you know, Joe, we went through something not dissimilar to this a couple of years ago and we worked through it. It is a very creative innovative group down in Orlando that take on these challenges and when they come up, we always find a way around them.

Okay, great. And then I have two relatively minor questions. One is on the buyback in the quarter, there obviously was a slowdown since you guys reported results back in early February. And I know the share price has moved upwardly but is there anything to the slower amount of buyback in the last half or two months of the quarter versus what you did in the earlier part of the 1Q? Was there anything that precluded you other than share price?

No, the pace of the program we put in place for the beginning of the year was adjusted for price and so it was more accelerated at the beginning part of the year and then we were on pace with what our expectation was for the quarter for the rest of the quarter basically. So it was share price driven.

It was share price driven but also remember the bumpers we have... or we want to retain our investment-grade rating. So we felt that we were above trend. Typically it is a 150 quarter, we did a 175 quarter and we want to make sure that we are comfortably within the bumpers of what is investment grade.

Got it. And then this Venezuela currency devaluation charge, I think most of us are surprised that it was that sizable relative to maybe how we understand the relative size and presence of Wyndham in Venezuela. Can you talk about that a little bit? What is your revenue EBITDA dependency in Venezuela?

In the old days it was more than it is currently and this is sort of the accumulated effect of years and years of activity in the market and the inability of us to remove cash out of the market. We knew that this day was coming at some point in time because the regime in Venezuela hasn't changed in some respects and certainly moving currency out of the country has been impossible for a number of years now. And so we didn't know that it was going to happen when it did but we expected that eventually we were going to experience something like this at some point in time.

And your exposure to adverse currency in Venezuela at this point forward is zero?

It is minimal. We produced less than $2 million this year in Venezuela. It used to be a bigger part of our business at RCI but it is not as much anymore and what business we do do is US currency denominated.

Joe, you should know that we don't have much left in Venezuela so I think it is probably $1 million or so, a couple million dollars. So I think we have devaluated it as much as it could be devalued. Maybe if it happens down the road, it will be immaterial for sure.

Great. Thank you, guys.

Steve Kent, Goldman Sachs.

Good morning. So I wanted to talk to you a little bit about new customers versus existing customers for the timeshare business. I thought maybe Tom, you said something like the new customers are up 7%. So if you break it out, what is your split between new and old? That is one question related to that.

Second, is the FICO score about these same on the new versus the old? I know it is early because they are new but the default rates, are they running about the same?

And then just one final question because I think the VPG number was very strong this quarter. I know it is a continued evolution of how you get better and better at selling. Maybe you could just give a couple of examples of what is leading to that higher momentum on VPG?

So a four part question, I counted. The one question I can answer comfortably and immediately is that our FICO score remained... it is actually a couple of points higher than it was last year so the profile is the same. Too early to tell on the default tendencies of the new owners since they've just become new owners and we haven't noticed a material drop off. Keep in mind that new owners don't necessarily default at any greater rate than existing owners, the reason being that existing owners typically have larger loan balances and new owners typically don't. And so the default experience is not materially different than it is with upgrade.

And then you had also asked about the mix of new and upgrade. It is pretty close to what it was before, slightly increased new owner additions obviously by increasing... but it is not anything dramatically different.

On the VPG momentum, Steve, it really is in both of the kind of metrics that go into VPG, both close rate as well as the transaction size and this is really, I believe, a continuation of the process improvements that they have put in place down at WVO as well as to a degree the opening of the new sales offices. Some of our sales offices are in locations where we will deliver, just by their locale, we will deliver a higher VPG like New York, St. Thomas, so we are getting the benefit of some of that flowing through as well.

So I think it is really kudos to the team. They are doing everything they need to do to continually improve the business and if not for this bump in the road on provision, this would have been a blowout quarter for WVO.

Okay, thanks, Steve. Thanks, CF.

Patrick Scholes, SunTrust.

Good morning. I have a number of questions. First, talk a little bit more about in the vacation rental revenue - certainly a strong 7% growth rate in transaction volume. Can you give us a little color on what types of customers are you seeing that large increase from and perhaps where they are located and their geographic region?

Sure, as you know this is largely a European business and the two businesses that performed the best were Landal which is largely Dutch for Dutch but also some German in there as well. And the other was Novasol, which is a little more broadly distributed because they have product both in Northern Europe as well as Southern Europe and Croatia and Italy and those are the... the biggest population they draw from are the German travelers and the Danish travelers. So those are the two highest performing markets that we have.

Patrick, you might recall that we discussed last year the expansion of our distribution relationships with a couple of online distributors and that also gave some nice buoyancy to our transaction volume.

Have you seen any material change after the Brussels attacks in the booking and demand patterns?

No, no, we did not.

Two more questions here. When I look at your exchange revenue per member, it has been a pretty consistent downward trend year-over-year. Is that just propensity to exchange is decreasing? Is there something else going into that decrease?

No, it really is the -- it is exactly that. It is the propensity. It is as more and more of the members are coming from clubs to larger clubs, they do less transactions with us and that creates a downward pressure on the exchange revenue per member. Part of what we are doing with this new initiative that has started in Destination Network is to expand our offerings to these members so that we can give them more products, more different experiences which can generate a larger share of wallet. So they are doing a great job of looking at different ways that we can reverse that trend but that trend is one that has existed for some time.

Okay, thank you. Last question, historically you have outlined a 6% to 8% organic EBITDA growth going out into the future. How do you feel about that range for the next several years?

We feel good about it. I was just handed a note though on your last question, Patrick. Recognize that there is FX impact in that exchange revenue per member. I neglected to say that.

Going forward, our growth rate - we feel very good about it. We did our strategic reviews at the end of last year and have done budget reviews. We feel like we have terrific programs in place and a lot of the seed corn that we are planting right now is going to bear fruit in 2017 and beyond even though we were comfortable for this year because things like the tremendous systems that we are rolling out in Hotel Group are going to have some really positive impacts and those aren't felt immediately because really there is a series of initiatives that we are rolling out and we haven't even hit the big ones yet that will have the biggest impact.

The revenue management for these hotels is important but the two-way interface and other things that are coming out as part of the Sabre System that will come out in 2016 and 2017 are going to have the bigger impact. So we feel very good and WVO is clicking along. They have got great plans for going forward.

That is all. Thank you.

Chris Agnew, MKM Partners.

Thanks very much. Good morning. I wanted to ask about the strong tour flow growth you saw in the quarter with new sales centers. Have the sales centers fully ramped and thinking about the cadence through the year, when do you start to lap the opening of sales centers and any plans for additional sales centers? Thanks.

Just talking generically about tour flow, there were a lot of drivers of our increased tour flow. The new offices were one element of it, they are not completely ramped up yet. They will continue to ramp up over this year and actually into next year to a degree because not only do you have to open sales centers, you then are finding your tour flow sources, you are training your salespeople. So I expect to see a multi-year impact from some of these larger sales centers like New York and St. Thomas as well as the new center we have out in Vegas. So that is going to blend in over time.

Some of the initiatives that we've talked about previously like Norwegian Cruise Lines, that is just starting. We had our first cruise for the new Norwegian Cruise Line that went into St. Thomas and then went over to our sales center on the 19th I believe of April. So last week. So we are just starting that program and there is a multitude of other programs that the group is working on to continually freshen the sources of our tour generation.

So I think what you are seeing I do not expect it to slow down. It was great in the first quarter, it is always difficult to predict so I don't want to say it is going to be up every quarter like it was this quarter but we feel very good about our marketing and sales efforts at WVO right now.

Thank you. And if I could switch to the weakness you talked about in oil and gas markets, are you seeing any signs of stabilization and when do you start to run over easier comps in those regions? Thanks.

That is a good point, Chris. At some point we should start lapping the issue and it was first identified kind of at the end of the first quarter of last year. So the second quarter had some in it but it really got more dramatically pronounced in the third and fourth quarter. So we should start -- that is why comps should be easier in the second half of the year. Now we are hesitant to say it will be easier because we are not sure how much contagion there will be from this. There is... the markets that are oil-producing are down. Will it expand beyond that? We won't know until the summer quite frankly because we are such a leisure, summer driven business. But we are monitoring it closely and we are working with our franchisees in those markets to try to do everything we can to drive business there.

All right. Thank you.

David Katz, Telsey Group.

So two questions. Some of the discussion around this third-party effort, are you able to provide any more detail as to where that came from exactly or is this perhaps a better off-line discussion? And then you mentioned that it has happened in the past. Can you point to some specific timing so that we can go back and get a little historical perspective on how that has rolled in the past?

Yes, the last question is easier to answer than the first one. The first time we saw kind of a similar activity was back in 2012 and it flowed into 2013 and at that time we called it the cease-and-desist effort. As a result of that cease-and-desist activity, there were people who were prosecuted, who were found guilty and who are serving sentences right now. So sometimes these activities are just out and out illegal and we have to beat them back and because of that, I will go to the first part of the question.

Which is I don't think we are really in a position to talk about this on the call or frankly off of the call either. Because if we could talk about we would talk about it on the call, because we are in the midst of trying to track all of this down right now. As you can see the business is performing and covering the pressure that we are feeling from this and as I said, it would have been a knockout quarter if not for this activity.

Understood. And then if I can ask one smaller question around Dolce, can you -- just since it is a newly integrated brand and again recognizing it is relatively small, can you just talk about what your plans are for that over the next 12 months in terms of exiting rooms from the system and what we can reasonably expect that to achieve? And it certainly would help if we went out past rest of this year also if that is possible qualitatively?

Sure. As you said, Dolce is a new brand, it is also a relatively small brand. But we also have a lot of momentum in the brand. As for exits, we did have a couple of properties leave, maybe just one property leave after the acquisition but other than that it is very stable. We are producing for them. I think we reported on the last call or maybe the call before that the impact on those hotels has been dramatic not just on their performance from a revenue standpoint but also in their cost because they have been rolled into our OTA contracts. They are getting the benefit of it. So we've got some very happy hotel owners in the Dolce world. We will continue to manage those properties and grow as a management company and we will continue to keep the quality up. It is a terrific quality product offering.

Got it. If I could ask one last one. I believe you mentioned in the past that -- and the question comes up about regulatory scrutiny on the industry overall and the degree to which that may or may not impact your practices. But I believe you've talked about surveillance or tracking on your vacation ownership sales closing execution. And if my memory serves correctly, the percentage was around 70%. Can you just talk about how that number, what the sort of factors around that percentage going up, or down I suppose, could be in the near-term? And just how you are thinking about this kind of regulatory scrutiny context that comes up with investors all the time?

Well, a couple of thoughts and then Tom can add whatever he would like as well. This has been a highly regulated industry for decades which is a really, really good thing. There used to be some kind of bad actors in this industry and many of them have been eliminated because of the good regulatory environment. So we encourage regulation, we encourage prosecution of the bad guys who are the bad resellers. We do everything we can to continue to build the integrity and the respect of this industry and I think it has improved dramatically if you follow this industry 15 years ago and you look at it now.

The current flurry of activity has not really influenced how we are operating the business. I think you are referring to our videotaping of closings. We started that before any of this recent flurry has cropped up and we started doing it because we thought we could learn more by understanding how our consumer is understanding our product offering to make sure that our specialist presenter programs and others are the best that they can be.

So this is a constant effort on our part and we survey our customers. We do the video recordings and we also do the closings by the QAs. It is something we have been doing for years and that is just the way we manage the business, always wanting to improve that.

David, you had mentioned what was the -- we are at 70, what is the limitation? The limitation is technology and we are exploring ways to develop mobile technology or utilize mobile technology to be able to video record the whole system at some point but we haven't found the right technology solution at this point.

Thanks very much. Congratulations.

Harry Curtis, Nomura.

Good morning. So I am just trying to drill into the third-party issue a little bit more. To what extent is the Ovation plan a response to what these third-party folks are offering? Is there a connection? That is my first question.

The answer is no. We started the Ovation program which is really for our customers who have already paid their loans and have been owners for some time. We started that a couple of years ago.

Okay. So in trying to understand the Ovation program a little bit deeper, is there, to what degree -- I'm not sure I really understand or can articulate the question. But to the extent that there is a loan out there, what happens to that loan if you make them an offer to take that unit or interest back?

Those aren't the people that we are approaching with Ovation. The people that are right now are taking advantage of the Ovation program are ones who have paid off their loans and are people who have been around for a while. Usually there is some change in their situation, they lost their job, their health has gone bad. We notice that they are not using their product as much as they historically have used it. So we will reach out to them and say can we book a vacation for you? If not, is there some reason that you are not using your product? We just want them to gracefully exit if they don't want it. We don't want them to feel like they are trapped into paying maintenance fees so we will give them a way out and then we can take that product and resell it to somebody else. So it is really just kind of a recycling program for those people who have kind of reached their term.

Now to be honest, we have not gotten the kind of response that we were thinking we might see on Ovation. Not as many people have taken us up on the offering but we are going to continue to refine it and improve it and we think it will be a nice way to get people to recycle out and leave gracefully.

Thank you. My last question goes back to the second half provisions. You mentioned that the second quarter provision is roughly the same as the first and so in your annual guidance, are you assuming that the provision will be roughly the same as it was last year?

Harry, I think that we expect that there will be some continuation although probably not at the same rates as we have experienced in the first half of the year but that is a constant area of reassessment frankly. And so what I say to you today may change a month or two down the road as we get a better sense of things.

Okay, thanks a lot. Appreciate it.

Carlo Santarelli, Deutsche Bank.

Thanks for taking my question. Just a follow-up on the Venezuela devaluation. Obviously it has been hard for just about any company to get capital out there but Tom, did you reference the free cash flow that you noted was negatively impacted by $24 million because I'm just trying to reconcile if it was a write-down what the adjustments would be from a cash and EBITDA perspective?

Absolutely, our free cash flow was reduced by $24 million. It struck me odd as well the first time I thought through it with my Chief Accounting Officer but it is a write-down of cash. And so therefore, it is cash that had been earned previously that now has been sort of devalued and therefore we have to reverse the prior earnings of cash. I guess is in my sort of non-accounting mind I would rationalize it.

So yes, it did impact cash flow and it impacted reported EBITDA which we adjusted out because obviously it is not a part and parcel of our daily operations of our business.

So the cash flow number that you guys provided, the 218 for the quarter, you are saying is 242 prior to that reversal?

That is correct, Carlo.

Okay, thank you very much.

It appears we have no further questions. At this time, I will return the floor to our speakers for closing remarks.

Thank you all very much and watch out for the Wyndham Wizard -- Wyndham Reward Wizard on TV. We will talk to you in the next call.

This does conclude today's program. Thanks for your participation. You may now disconnect. Have a great day.