Good morning and welcome to Wyndham Destination's Third Quarter 2018 Earnings Conference Call. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Chris Agnew. Please go ahead sir.

Thank you, Tony, and good morning. Before we begin, we'd like to remind you that our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements and the forward-looking statements made today are effective as of today. We undertake no obligation to publicly update or revise these statements. The factors that could cause actual results to differ discussed in our SEC filings. And you can find a reconciliation of the non-GAAP financial measures discussed in today's call and our earnings press release on our website at Investor.wyndhamdestinations.com. This morning, Michael Brown, our President and Chief Executive Officer will provide an overview of on our strategic initiatives and our third quarter results; and Mike Hug, our Chief Financial Officer will then provide greater detail on our third quarter results and discuss our outlook. Following these remarks, we will be available to respond to your questions. With that, I'm pleased to turn the call over to Michael.

Thank you, Chris. Good morning and thank you for joining us for our third quarter earnings call, our first full quarter as Wyndham Destinations. Before I discuss the strength of our day to day business, I want to share that our transition into Wyndham Destinations has gone extremely well. Our number one priority in separating Wyndham Destinations and Wyndham Hotels & Resorts will soon show that our core business would continue to operate and perform without skipping a beat. With that as the measure to transition has been a success. Our leadership team was in place before separation, our transition of operations from Wyndham Worldwide to Wyndham Destinations has been seamless and the alignment around our core mission to put the world on vacation has never been stronger. In fact, in August we’ve bought our senior leaders from around the globe to Orlando to share the vision and strategy of Wyndham Destinations for the upcoming years. The summit was an important milestone and one that gave me great confidence that our organization is aligned and more focused than ever on our vision and on delivering results. That brings me to our performance in the third quarter. We had a very strong quarter, delivering on our key operating metrics. Solid execution by our leaders allow us to deliver further adjusted EBITDA and further adjusted EPS at the high end of our guidance range in the third quarter. Further adjusted EBITDA in the quarter was $271 million, 5% higher than prior year. The $271 million of further adjusted EBITDA includes a $10 million negative impact from hurricane Florence. We were able to more than offset the impact of the hurricane in the quarter with two items. The first is operating over performance of $7 million and second, timing favorability of $5 million.…

Thank you, Michael. And good morning, everyone. Today I'd like to discuss our third quarter results and our 2018 outlook. As noted last quarter, the spin-off of Wyndham Hotels makes the year-on-year comparisons in our financial reporting results more difficult. Therefore my comments will primarily be focused on our further adjusted metrics, presenting our financial results as if the spin had occurred on January 1st for each of the reported periods. These metrics are more helpful in understanding how our business performed, and how it will look on a go-forward basis. You can find complete results in our earnings release, including reconciliations of adjusted amounts to GAAP numbers. Our further adjusted results reflect full run rate expense for corporate costs and license fees, and removes separation related costs. Please refer to Table 8 in our earnings release for details on our further adjusted results. Our third quarter results exceeded the midpoint of the estimate we provided on our second quarter call, and our further adjusted diluted earnings per share came in at the high end of the range. Further adjusted EBITDA was $271 million and further adjusted diluted earnings per share was $1.47 an increase of 15% over the prior year. These strong results include an approximate $10 million negative impact from Hurricane Florence, about half of which was offset by some timing favor ability between third and fourth quarters. Excluding the hurricane and the timing favorability, we delivered $7 million above our guidance midpoint and have carried this into our revised full year guidance, which I will touch on in a moment. As Michael mentioned, growth realized sales increased 7% to $640 million over the third quarter of last year. Behind these numbers was steady execution, with VPG increasing 10% over the prior year and tours 5% higher. Year-to-date…

Thank you.[Operator Instructions] We'll take our first question from David Katz with Jefferies. Please go ahead, your line is open.

Hi, good morning everyone.

Good morning, David.

Good morning. Look, I think the one metric or the one issue that we probably discuss the most with investors is the loan loss provision, which was down sequentially and year-over-year. But I did hear your commentary Mike that seasonally it may pick up in the fourth quarter. I just really want to get a sense and I'll come straight at it, is this thing starting to head down or trend downward? Is that what we should expect or should we be thinking more of a choppy line for the next four quarters or so?

Hey David thanks for the question. A couple of things. First of all, a clarification, what we expect to increase in the fourth quarter is our charge-offs. We expect them to be higher than they were in the third quarter, which historically has been the case. When we think about the provision, you're spot on in that, we were very pleased with the performance of the portfolio in the quarter saw a downtick in the provision compared to the prior year, in the prior quarter and we would expect to be well within that 21% for the full year, and the provision in the fourth quarter to trend down. Once again, it’s charge-offs that will be up, but the gross provision, we would expect to be down in the fourth quarter compared to third. But, overall a solid quarter as it relates to portfolio performance and feel that all the things we're doing to re-engage our owners are continuing to make the product valuable to them, which means they're paying for it and we see great provision and portfolio performance results.

Fair, and if I may, you know it's just a tad bit harder, that this is something that we're thinking about our model, should be starting to tick downward next year as well, correct, is that the expectation?

David, this is Michael Brown. Let me just tack on to what Michael shared and touch on next year. Just I think a little more color as well on the third quarter. A 100% of our loan loss provision in the third quarter was due to volume and none of it due to third party. We specifically wanted to call out that the third quarter is historically the highest quarter. So being below just a touch 21 was a very good sign for us, and that's what gives us confidence for the full year. As it relates to next year, we're going to -- we're going to hold on for your guidance until the end of the quarter for earnings call. But what I would say -- the both -- the portfolio and the operating efforts that we're putting forth to improve the provision and to continue to drive it down give us confidence that first of our long range projection is exactly where we want it to be, it’s moving in the right direction. And we feel the multiple tactics that we're putting in place starting with owner engagement will be -- we'll continue to push it in the right direction going forward.

Perfect. Fair enough. Thanks, very much.

Thanks, David.

Thank you. We'll take our next question from Patrick Scholes with SunTrust. Please go ahead. Your line is open.

Great. Good morning

Patrick, good morning.

Couple of questions here, just on the hurricane specific here, correct me if I'm wrong but that was mostly for your – as you're taking down your phone or your number, it's mostly just related to the RCI business. Is that correct, as opposed to the sales of vacation owner ship units?

I think when we look at the impact of the hurricane; the biggest impact is actually driven by the vacation ownership side the business. The markets that were impacted, Myrtle Beach, Williamsburg represent about 13% of our volume in the months that were impacted. So it's primarily the VOI sales that are the biggest driver of the revenue impact and the earnings impact due to the hurricanes.

Okay. And then secondly, you did roughly little over 100 million of repurchases in the quarter barring any M&A activity. Is that a fair run rate to think of going forward? But again -- then again also mention some sort of one-time items for next year as well, but ballpark? Is that a fair run rate?

So as it relates to share repurchase we were very happy with our ability to repurchase at the level we did. Also point out as we noted in our script that we’re doing things to drive incremental cash to sell the land at BB tranche. It was $35 million in incremental cash. So, I think we would expect for the remainder of 2019 -- I'm sorry 2018 to continue to be in the share repurchase market and we’ll be as aggressive as possible keeping mind that the goal of the leverage rate just remain at that 2.9 times, but we should have cash availability to continue to repurchase shares through the end of 2018.

Okay. Thank you. And then lastly, as we think about the dividend historically the parent company, Wyndham would raise it’s -- come February earnings by about the rate of the earnings growth. Is that a fair assumption to make for you folk? How are you thinking about that?

Yes. We've been pretty consistent since Investor Day that when it comes to our dividend we definitely appreciate the expectation of our investors and we would expect that as we grow the company we would look to grow the dividend at a similar rate. Pointed out that right now dividend yield is a very healthy 5%, so we definitely appreciate the value that brings our shareholders and as I mention we’ll grow that as we grow the company.

Okay. Thank you. That’s all from me.

Thank you, Patrick.

Thanks, Patrick.

Thank you. We’ll take our next question from Ian Zaffino with Oppenheimer. Please go ahead. Your line is open.

Hi, great. Thank you. Could you guys say that you didn't see any third-party defaults in the quarter? Or that there's was a comment about volume versus third-party. Maybe just clarify that a little bit for us? Thanks.

Absolutely, Ian. This is Mike. Thanks for question. As it relates to the third-party defaults, no, we didn't see any incremental defaults related to third parties beyond our expectations. What we’re mentioning is that full increase to the loan loss provisions the absolute dollar was driven 100% by volume and not by third parties. In fact what we’re seeing, the trends that we’re seeing in the third-party defaults, we’re seeing positive trends as a result of all our activity not just in owner engagement but a number of other operational actions that we put in place, to not only counteract third parties, but really to regain our voice with the consumer and make sure that they contact us when they have questions. We feel we’re by far the best and most clear in how to help owners, should they wish to exit their ownership, should they have questions or any clarification. Maybe I should just take a moment and share with you a few points that we speak to in parts, but holistically to address the third-party challenge we’ve had over the last year or so, I've consistently talked about our efforts to increase our owner engagement. Those continue and we’re seeing good success there. Secondly, as we continue to evaluate our portfolio and ways of lending 725 FICOs, it’s a strong portfolio but there are always things that we can be improving in our portfolio to strengthen it and to lower the provision, which we’ll continue to do. Third, we’re very active on the Internet and on the digital platform. We’re trying to regain our voice so that the first port of call for any question positive, negative, anywhere in between is to Wyndham – through our Wyndham Cares program. And then proactively we’re very – we’ve become very active at both the state and federal level on regulation. We welcome competition. But we think it should be regulated. And the secondary market is not regulated the way it should be today and we’re very supportive of increasing the regulation associated with that market. And then lastly, you probably would've seen several results both by the industry and by Wyndham in the third quarter related to litigation that really points out what’s going on in these – in the secondary market in the schemes that some companies are trying to employ to lower existing owners to their scheme.

Okay. And I guess just one follow-up would be, given the successful actions that you’ve had against third party, the industries had against third parties. How long it will take to kind of get back to where you are? Let’s just say, three, four years ago as it relates to what you’ll be seeing on the third-party? Or how closer you are ready to achieving that level?

Ian, this is Michael again. Just -- this is -- we always said and continue to believe this is going to be an ongoing effort and those five items that I listed out to you are efforts that we’re committed to for the long haul. Since I began being on the cause as part of Wyndham Worldwide initially and Wyndham Destinations today is we’ve seen that number go from an upward trajectory, fairly or moderately steep. Now what we’re talking about here in the third quarter is a provision that’s both down sequentially and year-on-year. So, I think we’re making progress. We've indicated a full-year, sorry, long-term projection for our provision which we're staying with. But we will not be satisfied with that long-term projects that we have in. And we’re starting to seize a few green shoots across the portfolio that would indicate we’re on the right track.

All right. Great. Thanks for the color. Appreciate that. Good quarter.

Thanks Ian.

Thank you. We’ll take our next question from Stephen Grambling with Goldman Sachs. Please go ahead. Your line is open.

Hey, good morning. Thanks for taking the questions. First, what’s the typical FICO’s score of the third-party induced owners who had defaulted? And then a separate question. How are the new owners that you're getting compares to the existing base by age, geography otherwise perhaps a mishap?

Well, let me take the second question and then I’ll hand that to Mike for your question on average FICOs. From the new owner standpoints, keep in mind we’re trying to drive more new owners from our Blue Thread which we did successfully in the quarter as well as entering new markets as we shared last quarter in places like Portland and Nashville, Austin and South Myrtle Beach. The demographic and the look of that consumer on the Blue Thread component highly correlates to what you see in the Wyndham Rewards database, whether it would be households, homeownership, age, household income, they look extremely similar. I mentioned in my remarks that the new owners what we’re seeing is a stable FICO score about 725. We’re seeing the average age of a new owner starting to move down to around 50 years of age. And then you're seeing the household income moved from an average over our total owner base of 91,000, up to about a 100,000. So demographically I think everything is moving in the way that we would hope and wanted to move. And with that I’ll hand it to Mike for FICO’s question.

Yes. Good morning Stephen. When we look at the FICO and really all the stats related to PPE activity what we see is the PPE activity is pretty representative of all the demographics of our portfolio whether you’re looking at average loan balance, average age, new owner versus existing owner, so the FICO was pretty consistent with the loans that we’re originating in the current period.

Okay. Thanks so much. I’ll jump back in the queue.

Sure. Thank you.

Thank you. And next we’ll move to Chris Woronka with Deutsche Bank. Please go ahead. Your line is open.

Hey. Good morning, guys.

Good morning, Chris.

Good morning. Maybe we could zoom in a little bit more on the Blue Thread and two-part question. One, how is the progress you’ve made kind of to-date? How was that compare to your maybe initial expectations that you’ve laid out during the spin process? And second part of it is, is there any data you have regarding the penetration of the La Quinta customers that are coming over to Wyndham brand? And is there any – do you any information there as to weather there -- there prospects for those folks are greater than maybe your existing base?

Great. Thanks, Chris. The Blue Thread and the connection with our hotel group which had its call the other day is a strong as ever. I'm very pleased with the progress in the third quarter. We said that we would be somewhere around 50% growth on VOI sales through the Blue Thread this year. To see 56% come through the third quarter was extremely encouraging not just because it's about 50% but we began this effort in earnest early last year which means, you can easily argue that the comps were more difficult in the second half of last year. What I see in the Blue Thread is that we've brought on the right people. They know how to execute this program. This is a day-to-day effort. It's having close relationships with the hotel groups and getting as many tie-ins as possible. The hotel group has been fantastic and continues to be supportive. And the team that we brought on here at Wyndham vacation clubs really knows how to execute and it showing through in the numbers. I'm also -- I've also been extremely pleased in how we've been able to grow the rental platform. We always talk about VOI sales as it relates the Blue Thread. But the rental platform and using the hotel group reservation system is driving more qualified leads that will generate a 20% higher VPG to our sales locations. And they do it at a much cheaper rate because we’re not moving through OTAs. So, very pleased with the Blue Thread. As it relates to La Quinta, as you heard on their call they’re still working through the integration. They're making tremendous progress. La Quinta remains an opportunity for 2019.

Okay, great. And then, I want to go back to the -- on the new owner question. Can you talk maybe a little bit about any differences in propensity to finance? And then also kind of with the interest rates moving a little bit, is there any I guess implied or implicit change in your guidance as it relates to spreads on finance income for this year?

Good morning, Chris. This is Mike Hug. As relates to the propensity to finance the new owners do have a higher propensity which is as we talk about why in the third quarter. We normally have a high provision because of the higher propensity. And we think about the interest expense that we incurred on the ABS transaction which is the above the line either the impact. When we look at our guidance we haven't modify guidance for any increase in rates this year. When we look at our long-term plan a 50 bps increase in interest rates resulting about $5 million an EBITDA exposure on the new ABS transactions that will issue on an annual basis, keep in mind that our current ABS transactions obviously are fixed rate, so when we look at our long-term plan $5 in EBITDA risk if the rates do move up 50 basis points on those transactions. And we feel that we’ll be able to mitigate that risk either through passing on the consumer or other areas of the business.

Okay, very helpful. Thanks guys.

Sure. Thank you.

Thanks Chris.

Thank you. And our next question comes from Cameron Mcknight with Credit Suisse. Please go ahead. Your line is open.

Good morning. Thanks very much.

Good morning, Cameron.

Question for Mike Brown. In terms of the decrease in the provision rates, could you perhaps give a little more color in terms of the efforts you’ve made around defaults collections underwriting and third parties?

Let me start and then let me hand it to Mike for the default component of that. What this team has done in the first nine months of this year is we’re continuing to look at our underwriting of the loans. Our sales team and our consumer finance team have speak weekly to figure out what's the best way to continue to drive lower defaults, which means credits to sales and marketing team they continue to find their marketing programs eliminating either unprofitable ones that are generating low FICO’s business asking for higher down payments wherever possible and is well looking at size of loan balances as well. If you were to look into each of those metrics, you can see improvements in each of them across the portfolio. And the result is each of them incrementally are making an impact to the underwriting and the overall health of the consumer finance portfolio. And maybe Mike can provide little more color on the default question.

Sure. On the default and our collection, Cameron, what we do is we have the information to be able to identify when somebody goes one day delinquent, their ability to pay based on FICO loan balance and things like that. So we stratify our calling efforts or mailing efforts or our collection efforts based on things like that. So if you have a lower FICO and a higher loan balance and you go five days delinquent, we’ll start calling you then as opposed to if you have an 800 FIOC and the lower loan balance will later gets a little more delinquent before we start making calls and things like that. So, by doing that we’re able to touch base with the highest risk consumers earlier in the delinquency process giving us more time to work through whatever challenge they might be having and making sure they get their loan brought current. One of things we do as well not just try to collect their money, but one of the very effective ways we have is also to try to get them on vacation. Obviously they have to be paying to go on vacation. So talk to them about using their product, get them on vacation and obviously with getting them on vacation means they're paying for their product. So stratifying our efforts and our resources based on the highest risk contracts earlier in the delinquency process.

Right. Thanks. And just as a follow-up, I’m assuming the answer is no, but any change in the methodology or the assumptions that you've used around calculating the loan loss provision?

No. We continue to be consistent. We have been for years in terms of how we calculate our loan loss provision using ten-year loss curves. We do that every month and are consistent in our methodology for calculating the required reserve for the portfolio.

Okay, fantastic. And then one last one if I can. In terms of the hurricane impacts, can you quantify the number of sales centers that are out and how long the impact should last? Will that likely stretch into Q1 or Q2 of next year?

So, just as a reminder, the two markets where we have very concentrated positions are Myrtle Beach and the Florida Panhandle. Myrtle Beach has a number of different sales centers, but really it was that market primarily that was impacted. There were some ancillary affects to Williamsburg in Washington DC, but Myrtle Beach was the primary impact. And the issue, Cameron, was not only that we had to close the sales offices for a period of time, but flow back into the market was slow, was has been slow and continues to be slow and getting our owners back there. And then you have the Panhandle, which we again have a number of different sales locations both in Panama City and in Destin. And as a result to that they are back, open and operational. However, getting our owners back to those locations is very important. I like to reiterate one statistic that Mike mentioned earlier. 13% of our sales in September and October come from Myrtle Beach and the Florida Panhandle. So we uniquely get hit with those two concentrated markets when a hurricane comes through.

And then final, I think all those sales centers we would expect to be open and operational in January, actually most of them are open now. So, a little bit of impact in the fourth quarter as we talked about, but by the beginning of the year it will be back to full force?

Great. Thank you very much.

Thank you, Cameron. Appreciate it.

Thank you. And our next question will come from Brandt Montour with JP Morgan. Please go ahead. Your line is open.

Great. Good morning everyone. Can you hear me?

Good morning. Yes, we can. Thanks Brandt.

Great. Thanks. So, great job on the Blue Thread initiative thus far. I was just wondering what percent of your tour mix at this point is Blue Thread. I know this was in the mid-single digits range back when you started the Blue Thread. And then secondarily what do you think you need to get to on that to achieve that end game of 45% new owner mix?

So, well, let me start with total volume if I could and we can move to tours. So we’ll do this year approximately $60 million in Blue Thread sales on a new owner base of approximately 800 million. So that's the math that’s getting into the high single digits. And as it relates tour flow, we’ll do about 30,000 to 35,000 tours -- Blue Thread tours out of our total tour mix of around 900,000. Our goal is to continue to grow that, growing it off a higher base of 50% is not what we’re projecting that. We’ll continue to move down as a percent -- annual percent growth. But when you look across the industry and those who've been in this space for some time, we believe the opportunity will be in several hundred million level. But that will take time and take execution and obviously maintaining the great relationship we already have with the Hotel Group. So we’re at about 60 million once we get through this year and then we want to get it up to several hundred million overtime.

Great. That’s helpful. Thank you. And then recognizing that there weren't any incremental loan-loss provisions relating to just general pressure on the consumer, I was just wondering if you think you’re seeing any early signs of weakness on your customers around the consumer from rising interest rates and/or guest [ph] prices?

The short answer to that is no. The consumer today, we really look closely at the tour flow and transactions to see if there's any sign of weakness in those areas. Our tour growth was at expectation and we’re maintaining our full-year direction on tour flow. That's a great sign. You look at our volume per guest and tour flow both new owners and owners. And they are showing no signs of weakness whatsoever. So, we continue to remain positive. Our full-year guidance is really only negatively impacted through the hurricane and we’re flowing through the performance we had in Q3. So, we’re excited about where the consumers are going. And I think more importantly everyone does love to go on vacation. And this is a great way to vacation. When weakness eventually comes hopefully several years out what we saw in the last recession is they'll continue to vacation with us, they may just change their vacation pattern.

Got it, great. Thanks for the color.

Thank you.

Thank you. [Operator Instructions] Next we’ll move to Jared Shojaian with Wolfe Research. Please go ahead.

Hi. Good morning, everyone. Thanks for taking my question.

Good morning, Jared.

On your guidance, you lowered the exchange revenue per member growth by about 300 basis points at the midpoint. And in your release you have a table where you can sort of back into the full-year EBITDA impact of about $21 million. And then you’re also calling out about 16 million from the hurricane. So can you help me understand those impacts in relation to the full-year guide, because you only cut the guide by 9 million at the midpoint? And then you also reiterated the tours in the VPG, despite some of the issues we've seen from the hurricane. So I guess what is sort of offsetting those declines there?

So this is Mike Hug. Thanks for the question, Jared. I think when we look at the full-year guidance the midpoint previously was 965 million as you note, hurricanes impact brought down by 16 million and the operational over performance in the third quarter 7 million would carry through to bring our guidance down to the 956 million. As it relates to the RCI side of the business and the impact that's having on our operations, I think you can see from the results that we've done a good job of making sure we’re controlling our overhead costs. Continue to see good performance on the VOI side of the business. And then as I mentioned – as we’ve talked about the provision, it was slightly favorable as well. So, I think it's all the other aspects of the business combined that are, in essence to really hold and actually increase our guidance if you back off the impact of the hurricanes on a full-year basis.

Okay. Thank you. And just to switch gears here and I guess, ask the macro question. From a bit of a different perspective because there is obviously been a lot of concerns that we’re late in the cycle and, right or wrong timeshare I think is perceived to be more economically sensitive and perhaps other consumer sectors. So can you talk about that and maybe more specifically what you've seen in historical recession excluding 2008, 2009, I think we can all agree that was a little bit unusual. So maybe you can just talk about what you would usually experience in more of a normal downturn? Thank you.

Well, this is Michael. The way that Wyndham went into the 2008 recession compared to how we will eventually go into the next recession, I think looks completely different. I think we looked more like a homebuilder in 2007 and we look more like a hospitality company whenever the next recession occurs. And the reason I say that is because the team here has done a lot of work over the last decade to re-align its business model. First on the capital side, we've moved to a very capital efficient business where we highly correlate our sales to our inventory spend allowing more flexibility and more visibility as to when outlays are matched with sales. As well there was a dramatic shift in the overall marketing makeup of the organization so that should we move into a recession. We would not have to change our underlying business model. And I'll let Mike just talk about some of the things we changed out the last recession, but going into the next recession we will be able to maintain our full marketing platform continue to generate demand and the adjustments that we will make into the next recession will ultimately be on the cost side. You always will compress margins, but we believe we can maintain our business model, maintain our focus on new owners in the Blue Thread and react to any downturn through moving the cost side of the equation as opposed to fundamental business model. I would say that with 60% of our EBITDA moving to free cash flow conversion, we have a tremendous amount of cash that we -- that provides us cushion within our targeted leverage levels to be able to be in a great position as we move into the next recession. And Mike maybe if you could just talk about the marketing programs and underwriting from the last recession would be helpful.

Yes. I think the key points from where we were back in 2007 and 2008 to where we are today as relates to underwriting is approximately 13% of our span-in [ph] sales back in 2008 were sub 600 FICOs and we’ve eliminated all the sub-600. You see our FICOs scores now between 725 [ph]. We used to get about 12% down; now we’re getting north of 25% down on an overall basis. So when we look at how we generate, we also have more significant underwriting standards for large balance loans. We do analysis on owners and if they -- we don't believe they have the ability to borrow more as it relates to their vacation ownership. We won’t market to them. Even if we do market certain consumers and they borrow above a certain a certain level we will put them through additional underwriting. So the underwriting process and in fact who we market two has improved greatly since 2007, 2008. And then what that has led to is significantly improve margins over the last seven or eight years. We’re now on the vacation ownership side of the business. We’re running 24% and 25% margin. So the way we operate the business is much healthier and we wouldn't have to make significant changes to our underwriting and our marketing standards if the downturn were to occur as compared to what we had to do back really in January of 2009 when we made the big shift.

All right. That's helpful. Thank you very much.

Sure. Thank you. Appreciate it.

Great. Thank you. Next we’ll move to Edward Engel with Macquarie. Please go ahead. Your line is open.

Good morning, Ed.

You always try to strip out the third party defaults. What do you believe your core default rate on the loan portfolio would be? I remember back in 2015 it was 7.5% I was just kind of working where you think it would kind of trend there ex these defaults?

Yes. Thanks. If we were to back out the impact of the third-party activity we would expect the provision of around 15%, so a 25% reduction from where we’re at today with the 20% provision. So I think that would basically then translate into a similar level of defaults being reduced by that same level. And keep in mind that the – I’m sorry, go ahead.

No, keep your guns, going?

I just want to say, keep in mind that defaults on an annual basis then would be around 8%

Okay, thank you for that. And then, in regards to provision, I remember last quarter if I recall correctly, you said in 2019, if you get back to 20% of VOI sales, are you still on track to get there, and I guess what’s driving that? Is that an assumption of a lower default rate? Or is that changes to your financing that it could be that you do it earlier?

I think like we said on this call, and I believe we did on Q2 as well, our long term trajectory and projection is to be at 20%. As we've seen Q3 and Q4 and we'll see Q4 come in, we'll put out our official 2019 guidance at the end of Q4. We are seeing the positive trends, but like with the rest of our business, VPG, blue thread sales, tour growth, EBITDA and loan loss provision we will put a finer, sharpen a pencil, put a finer point on the actual projection in that call. But we're confident in our long term projection and that in the immediate term the trends are moving in the right direction.

Great guys. Congrats on your quarter.

Thanks. I appreciate the question of course.

Thank you. And our final question is a follow up from Stephen Grambling with Goldman Sachs. Please go ahead, your line is open.

Hey thanks, for sneaking me back in. I guess a quick follow up to your response to Jared's question. Just on the shift to a more just in time capital approach versus the last downturn. How much of these just in time products have a fixed capital requirement over certain periods versus just being adjustable or sales? Or in other words, if sales were to soften for whatever reason, what percentage of your projects would you still be on the hope for?

So when we look at our inventory pipeline, and the average $250 million that we've mentioned we'll be seeing over the next several years, when we think about the closer when you get right to 2019, the majority of that is committed, but then when we get out to 2020 and 2021, that rate drops pretty significantly. So we're being smart in terms of not making sure we don't ever commit and leaving some flexibility. Once again, the further out we get, the more flexibility we have. But I would just say for 2019, probably 80% of that $250 million is committed to it.

Great. Thank you.

Great. Thank you. This does conclude our question and answer period. I would now like to turn the call back over to Michael Brown for closing remarks.

Thank you. Let me close by saying how pleased we are with our first full quarter of Wyndham Destinations as a standalone company. We deliver great operational results and ways to drive incremental free cash flow for return to shareholders, and remain focused on the execution of our strategic plans. As a result, we are well-positioned to deliver our long term goals. More importantly, we have a great team focused on delivering outstanding vacation experiences each and every day. I want to say thank you to our associates for their hard work and focus on putting the world on vacations while delivering strong shareholder value. Thank you for joining us today.

Thank you. This does conclude today's conference. You may disconnect and have a great day.