Travel + Leisure Co (TNL) 2017 Q1 法說會逐字稿

Good day, everyone, and welcome to the Wyndham Worldwide First Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded. If you have any objections, you may disconnect at this time.

I'll now turn the call over to Margo Happer, Senior Vice President of Investor Relations. Please go ahead.

Thanks, Keith. Good morning and 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 17, 2017, with the SEC. We will also be referring to a number of non-GAAP measures, corresponding GAAP measures and the reconciliations of these GAAP measures to GAAP are provided in the press release and tables to the press release, which are available on the Investor Relations section of our website at wyndhamworldwide.com.

Steve?

Thanks, Margo. Good morning and thank you for joining us today. First quarter results were right in line with our expectations. Tom will go over some first quarter details in a few minutes, but first I will start by discussing our most important strategic initiative: connecting our customers and brands together with what we call the blue thread, also known as Wyndham Rewards. This loyalty initiative has tremendous power to enhance customer acquisition and retention as well as customer satisfaction. It will make our sales processes more efficient and effective and will drive strong growth and profitability for each of our businesses.

As we've discussed before, growing new owners is a critical initiative in our timeshare business, and better aligning Wyndham Rewards in our hotel ecosystem with timeshare will be an important component of our strategy toward new owner growth for many years to come.

We've made great progress both on Wyndham Rewards and on our other initiatives, which we expect to accelerate with the addition last week of Mike Brown as the new President and CEO of Wyndham Vacation Ownership. The 25-year hospitality industry veteran, Mike comes to us from Hilton Grand Vacations, where he was Chief Operating Officer, overseeing sales, development, business operations, information technology and innovation. We conducted a broad and robust search process, considering exceptional individuals both within and beyond the industry. Mike emerged as a clear leader with an ideal combination of strategic vision, operational expertise and industry knowledge.

I spent the last 5 months as interim head of Vacation Ownership, and I have great pride in our teams across the company. I really appreciated opportunity to directly experience the energy and strength of the timeshare team. My confidence in this business has never been higher, and Mike Brown is the right leader to take Wyndham Vacation Ownership to the next level. Mike was instructed in expanding the Hilton owner base and in driving the connection between Hilton Grand Vacation and the Hilton hotel customers. And now that we've built the hotel industry's leading loyalty program, we believe we have a significant opportunity with the alignment of Wyndham Rewards across our timeshare and Vacation Rental inventory and here's why: Wyndham Rewards offers a compelling value proposition for consumers. Our customer profile, the everyday traveler who works hard to take their family on vacation, is consistent across our brands and around the world. There is immense potential to further embrace this market and drive these customers across our business lines. Our focus today in going forward is to unlock that potential.

Let me walk you through what we've done, what we're doing and how we expect connectivity through Wyndham Rewards to drive future growth. At the end of March, we announced that the Wyndham Rewards program surpassed 50 million member enrollments, a major achievement. Originally launched in 2004, Wyndham Rewards was completely reimagined in the summer of 2015, with the aim of reshaping loyalty for the masses. We've built a first of its kind program to be simple and generous. This resulted in Wyndham Rewards garnering the top spot in the acclaimed U.S. News & World Report best hotel rewards program in 2016. The ranking is based on benefits, geographic coverage, number of hotels in the network and property diversity. But the most important category with a 45% weighting is ease of earning of free night. And why is that important? A PwC study last year looking at what drives customer loyalty for hotel brands found that regardless of age, customers recognize and are motivated by value more than any other attribute in a loyalty program. Great value drives redemption, which drives engagement. And brands that engage with leisure travelers on a consistent basis foster a broad -- broader, more loyal consumer base.

Since our relaunch in 2015, membership is up 21% and redemptions for room nights have grown to 79%. Wyndham Rewards members now make up 37% of our hotel guests in North America, up from 31% when the program was relaunched. Now with a strong platform in place, we are expanding the program across our business units and brand. Last October, we launched the integration across a portion of our Vacation Rental and Vacation Ownership portfolio. Members can redeem free nights at nearly 30,000 Wyndham destinations worldwide. Ultimately, consumers will have the ability to earn and redeem points at more than 120,000 hotels, timeshare and Vacation Rental properties across our unmatched global portfolio. That's a huge opportunity to engage with a broad, loyal consumer base on a consistent basis.

The link between hotel loyalty and Vacation Ownership is especially compelling for us. We believe that the majority of our -- of new owner tours at our hotel branded timeshare competitors are sourced through their hotel loyalty and related channels. For Wyndham Vacation Ownership that number last year was under 5%. We have a great opportunity that we'll begin leveraging this year. Through enhanced call transfer, special member promotions and more hotel loyalty guests on-site and at timeshare resorts through reward redemptions, we expect Wyndham Rewards to generate nearly 1/3 of the incremental tours needed to hit our new owner growth target of 23%, with the remaining tours being driven by new sales centers and expanded third-party alliances as we discussed on the last call. And Wyndham Rewards new owner tours have better close rates. Loyalty member VPG could be more than 20% higher than new owner nonmember VPG.

In addition to driving tours and efficient sales, Wyndham Rewards also -- will also reduce marketing spend by keeping more dollars in-house, a potential new owner may get a small number of points to come to our marketing booth followed by a larger amount of points to take a tour and some additional points as an incentive to close the sale. These points go back into the Wyndham ecosystem when they're used for a stay at 1 of our hotel, rental or timeshare locations.

We're developing an efficient, closed-loop system in timeshare that can supplement our already robust third-party marketing alliance channels, which has traditionally been our primary source of tours. Think about it, we've built the world's largest timeshare organization, double the size of the nearest competitor, without a connected loyalty program, and now we have 1. The potential is significant.

In addition, we're making great progress in aligning Wyndham Rewards to Vacation Rentals, which is a product that captures those leisure travelers who embrace sharing economy option. Does loyalty matter for those travelers? Yes, it does. The PwC survey found that the option of staying at a sharing economy property becomes more feasible when it is combined with a recognizable hotel brand and they would stay more frequently at the sharing economy property if they could also generate hotel brand loyalty points for their stay. We have increasing momentum in growing our brands that are focused on the everyday traveler, all connected through Wyndham Rewards or blue thread. Together, we make travel more accessible to more people than anyone else.

With that, I'd like to turn the call over to Tom to walk you through more details on the quarter results and what we expect for the remainder of 2017. Tom?

Thanks, Steve. Good morning, everyone. Overall first quarter results were in line with our expectations. As expected and discussed on our last earnings call, the first quarter had some difficult comparisons, specifically, our provision for loan losses was higher, consistent with our previously guided range, and we benefited in 2016 from $9 million of business interruption claims. We expect quarterly earnings comparisons to be more favorable for the remainder of the year.

During the quarter, we repurchased 1.9 million shares of stock for $150 million. We reduced our weighted average share count by 7% year-over-year. In addition, we repurchased 400,000 shares for $36 million so far in the second quarter of 2017.

So now let's take a look at the first quarter performance of each of our business units starting with our Hotel Group. Revenues increased 1%, EBITDA increased 2% on a currency neutral basis, reflecting higher franchise fees and growth in the Wyndham Rewards credit card program. These growth factors were partially offset by a $3 million negative EBITDA impact from lower occupancy at our owned hotel in Puerto Rico, reflecting consumer concerns related to the Zika virus, which will begin to lap in the second quarter of this year.

Same-store global RevPAR increased 2.2% in constant currency, reflecting growth in most major regions. Same-store domestic RevPAR increased 1.7%, driven primarily by a 1.6% increase in room rates. We had positive momentum throughout the quarter with the strongest results in March, and we saw continued momentum through the first half of April. Net system size grew 3% year-over-year, including 2 new Wyndham Grands in South America and the mixed use Wyndham Grand Clearwater Beach. We continue to manage net growth against our goal of improving the overall quality of our system by adding higher-quality rooms and terminating substandard properties.

Room growth is supported by a development pipeline of over 140,000 rooms. Now that's up 15% year-over-year and 3% sequentially, driven by increased new construction units. In addition to these financial results, our hotel team has essentially completed the rollout of our new cloud-based property management system to approximately 4,200 of our domestic hotels. We believe that this is the single largest property management system migration of its kind, which also provides integrated and automated revenue management capabilities to our franchisees, another first in the economy space.

Now moving on to Destination Network. Revenues increased 1% in constant currency and excluding acquisitions, constrained by the unfavorable impact of the Easter holiday falling in the second quarter this year versus the first quarter of 2016. Adjusted EBITDA was down 5% excluding acquisitions, adversely affected by the impact from the timing of Easter as well as the absence of $3 million of business disruption claims received in the first quarter of 2016 related to the Gulf of Mexico oil spill. Vacation Rentals' revenue increased 1% in constant currency and excluding acquisitions, a 2.8% increase in transaction volume or 7.6% including acquisitions reflected higher demand and capacity increases. Transaction and unit growth were particularly strong in our Denmark-based Novasol business and U.K.-based cottages and parks brands, partially offset by the impact from the timing of Easter. Average net price per rental declined 2%, driven by the mixed impact of growth in our more modestly priced U.K.-based Hoseasons and Novasol brands and the Easter holiday shift impact at our relatively high price Netherlands-based Landal GreenParks business.

Looking forward, summer bookings are strong, up 7% on top of similar growth last year. At RCI, exchange revenues were flat in constant currency, reflecting a 0.8% increase in revenue per member, partially offset by a 0.6% decline in the average number of members.

Operationally, we're excited by the collaboration between our Rental brands, as they continue to expand on the cross-selling of each other's product. For example, our Landal GreenParks brand has expanded into the U.K. by working with our Hoseasons team to reflag 2 properties as Landal GreenParks. The 2 brands can now cross-market to their respective customer bases. In addition, our RCI brand just won 5 awards at the recent ARDA Industry Conference.

Our Vacation Ownership business performed as expected. Results reflected higher gross VOI sales, offset by a higher provision for loan loss. In addition, adjusted EBITDA comparisons were unfavorably impacted by the absence of $6 million of business interruption insurance claims received in the first quarter of 2016. Gross VOI sales increased 3% compared with the strong first quarter last year. Results reflected a 4.9% increase in VPG, offset by a 1.7% decline in tour flow. VPG growth benefited from both higher transaction sizes and close rates. Tour flow was reduced by the closure of 4 sales offices as a result of a restructuring initiative during the second half of 2016. On a same-store basis, tours would have increased a little over 1%.

New owners were up slightly. Overall, we are tracking to plan and are focused and enthusiastic regarding this important initiative. We recently opened a sales center at our now mixed-use resort in Clearwater Beach, Florida, and we'll be opening another sales center with our new resort in Austin, Texas later this year. And as Steve highlighted, we expect Wyndham Rewards to generate significantly higher tours this year than last. We are confident that these endeavors, as well as others, will support a ramp in new owner growth throughout the year.

The provision for loan loss was $85 million, that's an increase of $22 million against 2016. While this was a significant year-over-year increase, it was in line with our expectations and guidance. As a reminder, we began experiencing large increases in the provision in the second quarter of last year, so our year-over-year comparisons going forward should be easier. Defaults increased $12 million to $87 million in the first quarter, also in line with our expectations. Corporate expenses declined 3% excluding restructuring costs, as we continue to focus on tight overhead expense management. Our adjusted tax rate declined approximately 150 basis points to 34.4%, largely due to a change in accounting rules associated with stock-based compensation expense. In addition, we recorded a tax benefit of $28 million on foreign currency losses recognized from an internal restructuring undertaken to realign the organizational and capital structure of certain foreign operations, which we excluded from our adjusted results.

We generated $203 million of free cash flow compared with $218 million over the first 3 months of 2016. The decline reflects changes in the timing of our inventory spend, but we remain on track to hit our $800 million neighborhood target for the year. We completed 2 notable capital markets transactions in March. At the corporate level, we issued $300 million of 4.15% 7-year unsecured notes and $400 million of 4.5% 10-year unsecured notes. The proceeds were used primarily to repay outstanding commercial paper and other borrowings, including our $300 million, 2.95% senior notes that matured in March. We entered into a $400 million fixed-to-floating rate swap in order to maintain our targeted fixed-to-floating ratio. The net effect of all these transactions is now included in our increased interest expense guidance.

At Vacation Ownership, we completed our first term securitization of the year. The $350 million Sierra 2017-1 transaction had a 2.97% weighted average coupon and a 90% advance rate. The order book was strong, as our paper continues to be well received by the market.

Okay, let's turn to guidance now, which will be posted on the website after the call. As you saw from the press release, we're increasing our adjusted diluted EPS guidance to $5.98 to $6.18 for the full year, and diluted share count goes to 105.5 million shares, reflecting the benefit of our first quarter share repurchase activity. We're reiterating total company as well as business unit revenue, adjusted EBITDA and driver guidance. Overall, as we stated on our last earnings call, we are most comfortable with the midpoint of the revenue and EBITDA ranges. Our projected annual interest expense range moves to $142 million to $146 million from $134 million to $138 million as a result of the previously mentioned capital markets transactions reducing adjusted net income guidance by $6 million to $631 million to $652 million.

Now turning to the second quarter. We expect adjusted diluted earnings per share of $1.47 to $1.50. Remember that we don't budget repurchases into our guidance. Also, please keep in mind that the second quarter comparisons will be somewhat difficult, as we'll have higher interest expense from the debt transaction that we completed in March and higher depreciation expense as more long-term projects come into service. In addition, at Wyndham Vacation Ownership, we're lapping a benefit from proceeds received in 2016 related to a business interruption claim. And also, their cost of goods sold rate will be more normalized when compared to the very low level of COGS in the second quarter of 2016.

And with all of that, I'll turn the call back to Steve. Steve?

Thanks, Tom. In closing, let me reiterate, we have a great company with a powerful collection of businesses. While we have more work to do, we see a significant opportunity in connecting our businesses, especially our hotel ecosystem and timeshare through Wyndham Rewards. Doing so will drive increasing shareholder value into the future, regardless of our overall structure. Although, along those lines, questions have been raised in the last couples of the earnings calls about a possible separation of the company. In February, we had a specific question with respect to the hiring of a new CEO at our timeshare business. I said that the board had asked me to maintain optionality by getting a CEO qualified to run a public company. We are confident that with the hiring of Mike Brown, we have found that person. The board wants to maintain its optionality because we remain dissatisfied with our valuation relative to our peers. The board continues, as always, to actively consider all alternatives on the future direction of our company. We will keep you posted, as appropriate, on our progress.

All right, Keith, we will now take calls.

(Operator Instructions) We'll go first to Joe Greff with JPMorgan.

Steve, you kind of addressed to 1 of the questions I wanted to ask with that comment that you made at the end here. Maybe just kind of going back to Mike Brown, and just kind of help and understand the decision behind hiring him. Most of us on this call probably know him more by reputation than by spending a lot of time with him when he was at Hilton. Can you discuss why him, in a little bit more detail? What were the more important considerations in hiring Mike? Was it his past focus on new owner sales HGV? The fact that he was involved with the HGV (inaudible) out of Hilton? The fact that he was a senior leader out of public increasingly independent company? If you can maybe help rank order or prioritize. And then maybe as important as those answers, if you can help us understand what his priorities are in the next 12 months as you would like to see them. And then I have a couple of other questions.

Okay. Well, I think I would probably say, Joe, all of the above, with what you kind of outlined as attributes of Mike. As we said, during the search process, we were looking for somebody who is a great leader. We wanted somebody who we felt would be a good public company CEO, whether they were 1 before or not. And we wanted somebody who was capable of connecting the dots within our business. Those were kind of attributes that we were looking for. They didn't -- the person didn't need to have been timeshare before, but where they have connected businesses and driven the most out of marketing between businesses. So we saw -- I saw personally, about 8 different candidates. There were probably 24 or so that we within the organization saw. We whittled it down to 2, Mike was 1 of those 2. And Mike just stood out to us. If you don't know him, you're going to have a pleasure when you meet him, because he is a terrific human being. In addition, he really understands this business, which is a big help to me, because I would have spent a lot of time with somebody if they were coming from outside of the industry, which I was absolutely prepared to do if we couldn't find somebody who knew the business already. Mike's experience at HGV is, as you said, he was involved with connecting HGV to the Hilton hotel guests consumer base. He also worked at Marriott, both on the hotel side and on the timeshare side. He did participate heavily in the spinoff of HGV. I don't know how visible he was on the roadshow. I know he was on it, but he may not have been the lead speaker, but he certainly was heavily involved. And all of those factors together just give us a level of comfort that this is somebody who can get there quickly. You said, what do I expect in the first 12 months. I break it down into quarters, quite honestly. This first quarter that he's with us is going to be meeting the people and getting to understand the nuances of our business versus the general industry. And he's already heavily on that. He's actually on a plane right now, going to meet with the -- with part of the sales organization. And so it's -- he's going to be heavily engaged and involved. He will be traveling around the world, meeting all of our leaders and making sure he's well connected to them. And so I think it's kind of the -- first quarter is kind of educating himself on the business and the people. The next quarter or -- and bleeding into the first quarter that he's with us is going to be all about connecting the hotel company and WVO. He's already started that. He has a good relationship and previously knew Geoff Ballotti, who runs our hotel business, so they have a great working relationship. And he also knows Gail Mendel, who ran our -- who runs our Destination Network business. So he's -- he starts with a leg up in knowing a lot of people. So I expect big things from him. As you probably saw the -- when you look our results for WVO for the first quarter, our VPG was higher than we were projecting and our tours were lower than we were projecting for the full year. But the fact is, that's because that's the way that our model was built, and Mike is aware of that. He knows what he's going to need to do in order to get us to where you want to be, which we already had a plan for. I think he'll just make it that much better. So I think that -- I'm very optimistic, I feel very good about Mike. He's very results-oriented individual and I think he's going to have a big impact.

Great. And then 2 questions on timeshare, on the topic of loan loss provision. I guess, where are you on third-party (inaudible)? Tom, what was the increment in the loan loss provision in the 1Q related to that? How do you see that for the full year? And then what are you doing to curb that? Or what have you been doing and what are you seeing in response to that?

Joe, I'll take a crack at the data and then Steve can talk about the steps that we're taking to try to mitigate it. So around 40% to 50% of our incremental defaults and provisions in the quarter are attributable to the third-party activity. Volume growth is also going to lead to provision increases, so that was a contributing factor as well. And as you know, Joe, we remain committed to accepting a lower down payment to aid the process in bringing more people into our system in part. And so I think those are the 3 major factors. For the remainder of the year, the disparity in the provision rate in the first quarter was the most prominent, meaning the year-to-year comparisons were the most -- the biggest gap between 2017 and 2016. You might recall that in the second quarter and beyond in 2016, we started to provide at a higher rate. And so the year-to-year comparisons, the drag on year-to-year performance metrics will be mitigated to some extent as we go forward. Those are sort of the basic factors on the data. Steve, do you want to address it operationally?

Yes, Joe. As I said, the last quarter -- on the last quarter call, this is not just a Wyndham issue, it's an industry issue. And the industry as a whole is taking this on. We recently had the ARDA Conference, the industry conference down in New Orleans. And for the time I was there, probably 75% of my time was talking to other developers about the impact of these third-party interlopers. We are -- we, and I believe, others in the industry are getting more of aggressive with them. We're starting to see results from that. It's too early to say what that impact will be, but I'm optimistic that, as I've been all along, that we will beat this issue back and we will get it get back to a more normalized level. So it's just a question of when will that happen, and it's not all within our control, but we are taking significant steps in order to do that.

Great. And then my last question here is, how do you see the cadence of VPG growth from here over the next 3 quarters? Recognizing that the year-over-year comparisons are relatively easy or easier in the 2Q to the 4Q relative to the 1Q.

Well, I think the -- our guidance for VPG for the year, Joe, was 0% to 2%, and we came in close to 5% in the first quarter, and that's -- as I said, we knew that, we thought that would be the case. And our tours were down. What you're going to see between now and the end of the year on a quarterly basis is there'll be an increase in tour flow and some of these initiatives, which I've described and Tom spoke about, will start kicking in, so tour flow will increase and you'll see VPG start to moderate as more new owners are brought on. And that is in our plan and that's we -- we've had our plan set from day 1.

Yes, we remain committed to the -- to our operational guidance of 6% to 8% on tours and 0% to 2% on VPG. So there'll be a reversal of relative contribution from VPG to tours.

And we'll take our next question from Chris Agnew with MKM Partners.

With respect to customers and connecting customers and brands to Wyndham Rewards, is there anything structurally different to some of your peers such that you maybe can't connect in the same way or to the same degree? And if I think about timeframe, what's your view on how long it would be to, first, put in place maybe the infrastructure processes to achieve your goals? And then secondly, how long do you think it would take to achieve your goals?

Okay. Actually, Chris, it's a good question, because kind of the question I ask myself, why have we done this before? And the reason we haven't done it before is that we really didn't have a loyalty program. We had a rewards program that was more a rewarding people for staying at the hotels and then whether or not they were loyal to the hotel didn't matter because they would get gift cards or anything else that they wanted from the list of things that we offer. With this remake of the loyalty program in 2015, we now have created something that truly is a loyalty program, and we're seeing that with the number of Wyndham Rewards member staying at our hotels as well as those who are redeeming for hotel rooms versus redeeming for other things. So we needed to have that kind of baseline built before we could start to do what we can now do, which is connecting the hotel to the timeshare and to the Vacation Rental business. It's been a long time in the coming. We've been working on this for a really long time, and we now are at that point where we can start executing on it. And that's another reason I'm so excited about Mike coming on board, because Mike has seen this before, he's done this before. And I think he will get there -- get us there more quickly because of that experience. And so what's the difference is? The difference is, we didn't have 1 before, we do now. And other than that, there aren't a lot of differences. The customer staying at our hotels is a timeshare customer. It's kind of the average consumer that's out there that buys timeshare. And we think with a stronger loyalty connection to the brand, that driving those consumers to learn more about our timeshare product is going to be a -- it's going to be a natural progression, as we build out the interconnection between the 2 businesses. Did I get to your question there, Chris?

Yes. No, thank you. And if I could ask a follow-up on Vacation Rental, and incognizant of fact your Vacation Rental business is professionally managed and indifferent to the listing services, but can you help put in context your Vacation Rental business relative to Priceline, Expedia. Expedia is investing in HomeAway. They're generating tremendous growth. I think Priceline's listings were up 30%. Are those in any way impinging upon your growth? Are they complementary to your growth? Just help us sort of contextualize that in our minds.

Okay. The -- well, there are big differences between the 2 businesses, between a listings business and a professionally managed business. This past weekend, I was actually with the Novasol team over in Croatia. And when you are on the ground and you see how they interact with the consumer, how they interact with the owner of the property, it's a much more hands-on business model than a listings model. Now we think there is some complementary benefits to it, and we do put some of our products onto some of the listings services as a way of distribution, particularly in the shoulder period. But for the most part, we're distributing through our proprietary channels on behalf of the owner of the property, which actually provides them a more attractive rental proposition than having somebody manage their property then go through a listings channel. So we think there are some complementary aspects to it, but they're very different. The 2 models are very different.

And we'll take our next question from David Katz with Telsey Group.

I wanted to ask 2 questions. Number one, clearly, there is some positive momentum with respect to the loyalty program on the hotel business, and the accomplishments, I think by all accounts, should be considered impressive, and that is a driver of stays and room nights within the hotel business. How do you think about the tangible aspects of the brands within the competitive landscape, as we observe other hotel companies launching new brands in that category or rejuvenating or refreshing or refurbing certain brands in your categories? And how do you think about that in the context of the competitive landscape? And whether that might be on your to-do list on a bigger scale than where it is today.

Well, David, that actually is on -- it's a big priority on our to-do list. In fact, it's the #1 strategic initiative that Geoff Ballotti talks about on the hotel side is product quality and bringing in the right properties and retaining the right properties. So we're very, very focused on that. But let me just step back for a minute and address the broader question, which is how do we feel about the brand? We just went through a brand analyses, I guess I'd call it, where we actually redefined the brands for our hotel owners as well as prospective franchisees, so that it was very clear how we were marketing those different brands. And we received tremendous feedback from the hotel owner community about what we've done and how we've positioned them. So I feel very good now. Could our brands be better? Absolutely. And I think every hotel company in the world is trying to improve the quality of their brands by getting rid of the weaker ones and bringing in the stronger ones, and that's a kind of a forever fight for us. We see, this year, some growth in the domestic system, which is fantastic. We see new construction ramping up, which is also terrific, on the domestic side. And we'll continue to grow internationally as we've been doing for the last 10 years in a meaningful way. But I think our focus right now is on that domestic system. And we've cleaned a lot, and we're now looking at getting to a faster pace of growth.

And we'll go next to Patrick Scholes with SunTrust.

Several questions here. On the progress with the new customer mix, I think in the past you have mentioned that the plan is a 23% increase this year. How is that tracking? What was that result in 1Q?

We're tracking on our plan. It's obviously a little bit back-end loaded, but that's how the plan was built for this year, because we closed some sales offices and we're opening sales offices throughout this year. But it's tracking about where we thought it would be, so we feel good. I feel very confident. When you're with the people down in WVO and you're out in the field, they are very, very excited about the new owner initiatives that we have going on. And it's not just, let's go sell to new owners. It's everything else that's behind that in the organization, that we're building the right urgency tools, that we're building the right marketing lead generation programs, and that's where a lot of time has been spent in the first quarter and we'll be reaping those benefits in the future. Also obviously, the Wyndham Rewards connections are just being built but will also be meaningful.

Okay. In regards to that, so it's realistic when we think about tour flow for the rest of the year. I mean, you're maintained guidance is 6% to 8% growth, you did about negative 2%. I mean, it's still -- it's realistic to think you're going to do 10% from here on out for the rest of the year to get to that range?

Well, I don't think it'll be 10%. Yes, well, it won't be 10% every quarter, but it'll be significantly higher than it was. Obviously, it's negative this quarter. But again, that was -- on our side, that was expected. We knew how the year was going to build. So yes, there probably will be a quarter where we touch on 10%. But it's going to build to be in that 6% to 8% range. As Tom said, we're comfortable with the guidance for there as well as for VPG.

Okay. Just a few more questions here. I noticed for the first time in a number of years, it looked like the number or the count of RCI members declined, whereas the revenue per member was actually up for the first time year-over-year in a number of years. What's going on under the surface driving that?

Yes, I think the part of it is -- I'll hit the last piece first, which is the revenue per member. Part of that is the initiatives that we put in place to drive more offerings to the member. So we're trying to get a bigger share of wallet by offering them more. And we've created different pieces that we're making available, different levels of membership, different access to things. So that's what's driving the member per -- the revenue per member growth. On the member side, I think it's probably -- we did do a system cleanup of member account. I don't know how big of a impact that had, but that may have had a portion of it.

Yes, at the end of the day, Patrick, I think we're kind of flattish with members. And it was attributable to bit of a system cleanup that we do from time to time.

Okay. And then last 1 big picture question for Steve. You've talked certainly about -- in the last quarter, expecting or being confident of 6% to 8% EBITDA growth in 2018, still feeling that same level of confidence?

Absolutely. I think that this year, obviously, we've got a series of challenges that we talked about on the last call, which I won't repeat them all now. But I feel great about the businesses and how they're aligned. I mean, the things that we've done at the Hotel Group with respect to technology in the Wyndham Rewards program, the impact that will have is meaningful. But at WVO, we're going to see some pretty strong results moving forward. I feel that I can see it and sense it based on the different initiatives that we have in place. So I feel very good about our long-term goal.

Yes, Patrick, remember, expanding the new owner pool means that there's great upgrade potential shortly thereafter. So it's going to be -- that new owner growth is -- now they're going to contribute to 2017, but just as importantly, give us a broader pool to upgrade as we go forward.

(Operator Instructions) We'll go next to Stephen Grambling with Goldman Sachs.

Somewhat a follow-up to the Destination Network comments. You've previously talked to personalization there and more broadly, now you're even ramping up the loyalty program and plan to use it across segments. Where are you in implementing a more personalized offer to existing customers, not only using it to attract new?

Yes, I mean, that is something that on the hotel and timeshare side we will see a lot more of through Wyndham Rewards. Wyndham Rewards will not have as a big of an impact on the RCI personalization, because Wyndham Rewards is not an RCI product. RCI, as you know, services many different brands that are out there. And so that kind of keeps itself a little walled off from the Wyndham Rewards offering. Wyndham Rewards and WDN will really impact the Vacation Rental business. And there I think, yes, we can use the personalization tools that are being worked on within Wyndham Rewards to give that better experience to the person who's renting that shared economy accommodation.

Steven, on a related note to Steve's comment, we did kick off an initiative we call the next generation of RCI, which is a commitment to a new technology that will enable us to touch our members in ways that we haven't been able to do that, that's underway. It was an initiative that was approved, I think, at the end of 2016, so it's going to take a little time to work itself out. We should start to see some benefit later this year and into next year.

Okay. And then a follow-up that's unrelated. How should we be thinking about the impact of corporate tax reform on the business as it's kind of come back to the forefront with the new administration?

I can't wait for the announcement today to see what it will look like. But clearly, Stephen, a 15% tax rate, if that's where the President comes at and if that's what gets moved forward, is terrific for our businesses and most businesses. Lower taxes will mean better cash flow, more opportunity to invest, not just for us but for developers, both timeshare and hotel developers. So I think it's going to be big for business. And we're looking forward to seeing that move forward, but we'll have to see. That's the 1 that's not within our control, but we can be a cheerleader from the sidelines.

Fair enough. And one very quick follow-up. What's your U.S. cash tax rate currently?

The -- what's that? So -- well, it's -- we're paying the highest marginal tax rate, so it's -- what is it? It's...

Cash tax.

Oh, cash tax. It's low 20s. Cash tax rate.

And we'll go next to Harry Curtis with Nomura Instinet.

I wanted to start on the hotel side. In your pipeline of new hotels, can you give us a sense of the mix of conventions and new build and what's your RevPAR index for your brands looks like?

Well, I'll walk away from that last 1, because I don't have that at my fingertips and knowing what the index is for each of the brands is not something I have off the top of my head. The -- but to go to the prior questions, it's a mix of new construction and conversion, Harry. There is more new construction in our domestic pipeline now than there's been for some time. So we are seeing more excitement about the brands from developers. And internationally, I believe the mix is still the same, which there is a heavy mix of new construction in the international market.

And then moving on to timeshare. I was interested in your comments about the -- about your taking -- I think, the expression you used was taking on the issue. In the past, you've talked about actually going after or challenging these third-party's ability to get your lists. Is that still the primary strategy? And to what extent are you actually challenging the efficacy of their claims?

Well, we're -- that is 1 of the things we're doing. I don't think that, that is the primary initiative that we're undertaking. As I said last quarter, we feel that we own this issue. We have to have the better relationship with our customers, so that they're not enticed by a really lousy offer of paying money to get out of their timeshare, which they could do just by not paying their fees. So their -- our mission is to get much closer to those people. It's a small group of people, really. Relatively small group, who are enticed by that offer. And where we see unethical behavior, we clearly are going after it hard and strong and we will file suit. We will try to refer to the appropriate authorities when we find an unethical behavior. We have and we will continue to do that. So our approach is very broad in what we're doing, it's -- we're touching a lot of different elements and we're starting to see some benefits from that. So we're encouraged, but we're not willing to call a beat to it as we did with the cease and desist several years ago when we saw it turning that.

We'll go next to Jared Shojaian with Wolfe Research.

If you were to split up the business, can you just talk about any issues that would create with your initiative to drive more tours through the loyalty program?

Sure. If we were to make that decision, and I don't know if I said this on the last quarter call or not, having the interconnection to the Hotel Group and having the loyalty programs interconnected is a lot easier to do when you're 1 company. So you certainly would want to have all of that in place before you made a decision to spin off. Once you do that though, then you, by contract, you put the connections in place, which is what Marriott and what Hilton have done so far and I believe Starwood did that as well. So I don't see it as an impediment to harvesting that opportunity, particularly if it's in place beforehand.

Okay. And then if you were to pursue a spin-off, would you be blacked out from buying back stock prior to any announcement?

Well, I mean, if we had made a decision and it hadn't been announced yet, I'm not a lawyer, but I would guess that we would be blacked out from buying back stock. But the board would have to make that decision and then we will take the appropriate steps following that decision.

We'll take our next question from Michael Millman with Millman Research.

Would you talk about the timeshare market in Asia? And what piece of that you're looking at or how involved you may be?

Sure, thanks, Mike. The -- well, I'll break it down to 2 pieces. One is, we view Australia and Asia as kind of combined, because we run the Asia business out of our Australian business. Our Australian business is very large and is a mature operation and includes basically New Zealand, Australia and a little bit in Fiji. We've expanded from there up into the -- up into Thailand, and we're looking at other markets, Indonesian markets as well. The market over there is huge, but not well developed. As I think I said in the past, we spent a lot of time looking at China, and we wanted to make sure that the rules are well enough established in China that we don't start in a market and then see the more disreputable people who might want to enter into an unestablished market step-in. So we've been cautious in China, but I think the opportunity is huge there. And 1 other thing about Mike Brown that I didn't mention before is, Mike has a lot of international experience. He lived about 10 years overseas. I don't know if he ever lived in Asia, but he was in Europe and in the Caribbean. So he is very familiar with working outside of the U.S. marketplace. And I'm sure -- I know, because I've talked to him, he's very excited to get down, spend some time with our Australian group and look at what we're doing over there.

And could you just give us a rough idea of what percent the -- this Australian-based business represents of timeshare?

It's about 10%, Mike, of the total EBITDA from the business.

And then we'll take our final question as one follow-up from David Katz.

Can you talk about -- I think your perspective would be helpful and important on scale and its benefits in the timeshare business. Obviously, if we look at the landscape today, there is a group of players that are considerably smaller than you, and then you have considerable scale in that area. How do you use that and how do you build on that in the future? And obviously, I'm asking in the context of arguments for others combining and whether those things would make sense.

Okay, David, I'll give you my perspective. It's obviously 1 person's opinion. I view scale being critically important in the hotel business and the ability to work synergies through acquisitions as being very meaningful in the hotel business. It's less meaningful in the timeshare business, because you don't have the ability to take out cost. You -- like when you sell timeshare, you're still than have your product cost, you're still going to have your sales and marketing cost. You might be able to drive down the marketing cost somewhat by having a larger organization, but it's not as meaningful as it is on the hotel side. There's certainly things that are helpful with scale when you look at the selling proposition of the consumer. If you're selling a larger network of properties that are within your own captive versus going out to RCI or II, it certainly is helpful to have more scale there. But that's all in the selling proposition, and those that are smaller, tend to use the exchange companies as their kind of pathway to broader vacation experiences. So I think I would compare to hotel and say I don't think there's as much of a scale advantage in timeshare as there is an hotel, but there certainly is scale advantage and we benefit from that, obviously, being the largest.

And it appears we do have no further questions. I'll turn the floor to you, speakers, for any closing remarks.

All right, thank you very much, Keith. And thank you all for joining us, and we look forward to talking to you on the next call.

And this will conclude today's program. Thanks for your participation. You may now disconnect.