Travel + Leisure Co

NYSE:TNL

Earnings Call Transcript 2020-Q3

[Operator]

Good morning, and welcome to the Wyndham Destinations Third Quarter 2020 Earnings Conference Call. [Operator Instructions]

As a reminder, ladies and gentlemen, this conference 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.

[Christopher Agnew, executive]

Thank you, Aaron. Good morning, and welcome. 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 only as of today. We undertake no obligation to publicly update or revise these statements.

The factors that could cause actual results to differ are discussed in our SEC filings, and you can find a reconciliation of the non-GAAP financial measures discussed in today's call in the earnings press release available on our website at investor.wyndhamdestinations.com.

This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our third quarter 2020 results in addition to an update on our current operations and company strategy. And Mike Hug, our Chief Financial Officer, will then provide greater detail on our results, our balance sheet and liquidity position. Following these remarks, we will be available to respond to your questions.

With that, I'm pleased to turn the call over to Michael Brown.

[Michael Brown, executive]

Thank you, Chris, and good morning, everyone. We were very encouraged with our third quarter results, demonstrating the resiliency of our business and our ability to recover quickly since the reopening of our resorts.

For the third quarter, we reported adjusted EBITDA of $139 million, adjusted diluted EPS of $0.83 and year-to-date positive adjusted free cash flow of $120 million. Our results steadily improved throughout the quarter, both sequentially and against prior year. This is a reflection of growing consumer confidence in travel, the performance of our associates around the globe, and the overall strength of our business model, which is rooted in the resiliency of leisure travel and the recurring nature of our revenue and EBITDA streams.

Although COVID continues to present significant challenges for the travel industry, the third quarter highlighted several key distinctions of the Wyndham Destinations business model that allows us to be on the leading edge of the hospitality recovery. First and foremost, we are 100% focused on leisure travel. We have a geographically diverse resort and sales footprint, minimizing our reliance on any region or market to fulfill owner demands or to generate sales.

The diverse footprint makes it easy for our owners to travel where they want, which was demonstrated this summer as consumers shifted to drive to destinations. Over 90% of our owners drove to our resorts for their vacations. We saw fewer arrivals in urban destinations and medium-haul markets like Hawaii and the Caribbean, while mainland beach destinations have been our most demanded locations since the reopening.

As I mentioned, we are well-diversified with historically only 2 markets representing more than 10% of our VOI sales: Las Vegas at 13% and Central Florida at 12%. These factors led to quarterly occupancy of nearly 60% for open resorts, including total occupancy of 77% over Labor Day, a Labor Day occupancy level that was equivalent to 2019.

In North America, we have now reopened 97% of our resorts and resumed operations at over 3/4 of our sales centers. Our sales resiliency is due to our loyal owner base and our diversified marketing channels and our greater concentration of in-market guest acquisition. When travelers arrive to a market, we have the ability to convert these arrivals to tour flow immediately.

In the third quarter, we reported $256 million of gross VOI sales, driven by a sequential improvement each month in North American tour generated gross VOI sales, which were lower year-over-year by 71% in July, 59% in August, and 49% in September. As we've shared, our members love their ownership and when they travel, they buy more. Owners consistently spend an incremental 2.6x the initial purchase over their lifetime, and the strength of owner buying behavior post reopening indicates to us that this metric remains unchanged post reopening.

As daily COVID cases declined in August, consumer sentiment improved, with 60% of our owners indicating they were ready to travel. We're excited by the increased engagement from our owners, and we're seeing interest in longer stays during the Thanksgiving and Christmas holidays. We've seen searches for vacations increase to an average of nearly 1,000 miles from their home, up from around 700 miles at the beginning of June, indicating that people are gaining confidence with being able to travel longer distances.

The positive momentum supports the strength in tour flow and VPGs we saw in the third quarter. VPG increased 30% in the quarter compared to pre-COVID. This is due to a combination of the sales mix being more heavily weighted to owners and the improved efficiency of our marketing channels. Additionally, we have not offered promotional pricing, but instead dedicating our promotional dollars to drive future owner bookings through digital campaigns.

To dive deeper on new marketing channels, new owner mix was 28% in the third quarter, with Blue Thread sales volume 13% of new owner sales. The increased proportion of Blue Thread tours is an encouraging sign given that VPG is more than $300 higher for Blue Thread tours compared to overall new owner tours.

In addition, the overall improvement in new owner sales demonstrates our ability to generate strong demand even in a challenging travel environment. In just a few days, we will begin selling our new urban resort location in Centennial Park, Atlanta, which will be available for occupancy to owners in 2022.

To provide one last insight into performance of Wyndham Vacation Clubs, our loan loss provision saw noticeable improvement. We have elevated the minimum FICOs qualification threshold from 600 to 640, improving tour quality and driving better performance in our portfolio. In the third quarter, our loan loss provision as a percentage of gross VOI sales was just under 19%, down from 20% in the same quarter last year.

I'd now like to shift to Panorama, our exchange and membership travel business. Panorama continues to deliver on its recurring revenue model and shows the resilience we had come to expect from this segment. Revenue per member improved each month, down from the prior year 29% in July, 20% in August and 7% in September. 78% of RCI affiliated resorts were open in the third quarter, and this is expected to rise to 88% in the fourth quarter.

More importantly, we are beginning to execute on our plan to grow our base of non-timeshare relationships in this segment. Panorama Travel Solutions will offer discounted travel to closed user groups powered by the technology from ARN while requiring upfront membership fees and recurring transaction fee streams.

We are very pleased to announce our first non-timeshare affiliation agreement with Grupo Posadas. Although immaterial to our results today, this deal is our first venture outside the timeshare model and begins our effort to expand our travel business to gain access to the more than 100 million North American households that do not own timeshare. These services are provided on a B2B basis and are complementary to our current timeshare model.

Let me now move to our outlook. We are seeing the positive trends in the third quarter continue through October, giving us optimism through the end of the year. With that said, we remain mindful of uncertainties in the fourth quarter that may pose significant headwinds to our business, including spikes in daily COVID cases, next week's election and the uncertainty around the timing and amount of a second stimulus package.

For the fourth quarter, we expect tours to be down 60% year-over-year, gross VOI sales to be 45% lower year-over-year, and VPGs to remain at 30% above the prior year. We expect the loan loss provision to remain below 20% of gross VOI sales in the fourth quarter, adjusted EBITDA margins to be similar to the third quarter, and we continue to expect to be free cash flow positive for the full year.

With that, I would like to hand the call over to our Chief Financial Officer, Mike Hug. Mike?

[Michael Hug, executive]

Thanks, Michael. Good morning, everyone, and thank you for joining us today. I will discuss our third quarter results and provide you with more color on our balance sheet, liquidity position and cash flow. My comments will be primarily focused on our adjusted results and year-over-year comparisons.

We reported third quarter adjusted EBITDA of $139 million and adjusted earnings per share of $0.83 compared to adjusted EBITDA of $267 million and adjusted EPS of $1.57 1 year ago. During the quarter, we had $31 million of COVID charges with $30 million added back to total company adjusted EBITDA.

Wyndham Vacation Clubs reported revenue of $477 million with gross VOI sales of $256 million and adjusted EBITDA of $96 million. Tours declined 70% in the quarter compared to the prior year with Las Vegas and Hawaii providing a drag. New owner tours declined 80% and existing owner tours declined 55%. VPG, on the other hand, increased 30% to $3,039, benefiting in part from improved new owner close rates and a higher mix of owner sales.

Our underlying portfolio continues to perform well, with delinquencies lower year-over-year, driven in part by deferral programs as well as a more mature portfolio from reduced originations over the historically busy summer months. Requests for deferrals have continued to trend down since the second quarter and now active deferments represent just 2% of loans outstanding, down from 6% at the peak. We remain in close contact with owners coming off deferrals and are seeing the majority of them return to making payments.

We remain comfortable with the overall allowance on our receivables portfolio, considering the continued uncertainty around the duration of the pandemic and its economic impact.

Excluding the results of the North American vacation rental business, which we sold in October last year, and the acquisition of ARN last August, our Panorama segment delivered third quarter revenue of $123 million. In the prior year, Panorama's revenue was $161 million. On this basis, Panorama's third quarter adjusted EBITDA was $59 million compared to $70 million in the prior year.

During the quarter, the average number of Panorama members decreased by 6%, and we expect that trend to continue into 2021. Panorama net transactions were down 33% in the quarter due to cancellations. However, we are seeing a positive underlying recovery trend.

September exchange gross bookings exceeded the prior year by 1%, marking the first month of year-over-year growth since COVID started. Cancellations are recovering more slowly and continue to run at elevated levels, particularly internationally.

As discussed on the last quarter call, exchange member base drivers are going to become less relevant for Panorama as its travel portfolio expands, and we will be transitioning to reporting overall Panorama vacation transactions. During COVID, Panorama has remained focused on the growth and integration of ARN, and we are seeing excellent progress in our business development pipeline. In the third quarter, ARN delivered 27% of Panorama's net transactions.

Turning to our balance sheet. As of September 30, we had $1.3 billion of cash and cash equivalents with corporate debt at $4.2 billion, which excludes $2.5 billion of nonrecourse debt related to our securitized receivables. Our net leverage for covenant purposes at the end of the quarter was 4.1x, which is 2.4x below our covenant restriction.

In the third quarter, we significantly improved our capital and liquidity position. In July, as discussed on our second quarter earnings call, we amended our revolving credit facility while retaining some flexibility on capital allocation and also issued $650 million of senior secured notes.

In August, we completed our second ABS transaction of the year with great execution on a $575 million term securitization with a 90% advance rate and a 2.81% interest rate. This transaction will complete our 2020 term securitization as our ability to upsize this transaction due to the tremendous demand allowed us to eliminate the need and the associated risk of a fourth quarter transaction. As a result, we pulled cash forward into the third quarter, negatively impacting fourth quarter cash flow.

We successfully closed the renewal of our $800 million ABS conduit facility on October 27 and extended the maturity date another year to October 31, 2022. The bank group and commitment sizes remain the same with the renewal. The new terms provide greater efficiency for Wyndham as the dynamic advance rate is now tied to the credit quality of the underlying assets, allowing for a higher advance rate versus the previous facility. We are very happy with the renewal and appreciate the support of our banking partners.

We paid our third quarter dividend of $0.30 per share on September 30, and we expect to recommend a fourth quarter dividend of $0.30 per share for approval by our Board of Directors in November. We are paying a dividend because we believe in the underlying strength of our business, cash flow and liquidity. We believe the dividend at this level is attractive to both current and potential shareholders and is sustainable.

As Michael previously mentioned, with a continued range of possible outcomes through the end of the year, we still expect to be adjusted free cash flow positive for the full year. Overall, we are very proud of our third quarter results, which put us on a great trajectory to remain on our full year 2020 objectives.

With that, Aaron, can you please open up the call to take questions.

[Operator]

[Operator Instructions] And we will take our first question from Joe Greff with JPMorgan.

[Joseph Greff, analyst]

The first question relates to VOI sales. That was great color that you gave us, Michael, on the performance in July, August and September. And I appreciate the VOI sales outlook commentary, down 45% year-over-year into 4Q. Can you talk about -- maybe this is nitpicking but a little bit what you're seeing or what you've seen so far in October relative to that 49% number for September? And then I guess when you think about October as a percentage of the 4Q, how much is generally October? And does that shift a little bit this year given your commentary and what you're expecting for longer duration stays in November and around Christmas?

[Michael Brown, executive]

Great. Happy to give some commentary around Q4. On VOI sales, we are seeing continued momentum in the month of October. I would expect us easily to cross the $100 million mark for VOI sales, which not only shows improvement in the absolute number, but again, just continued improvement against the prior year. I really have to credit our sales and marketing teams. They came back and reinvented their business. And their performance has really shown through. Combine that with the fact that we're seeing increasing consumer confidence of our owners willing to get back on vacation. We see that momentum on the areas that we control to be likely to continue throughout Q4.

As far as rhythm of -- or cadence of the fourth quarter, October and December tend to be your stronger -- strongest month. So while we've enjoyed sequential improvement every month, I'm not sure how November will end up because it tends to be a month that dips a little bit with a slower first half of the month, and then it begins to pick up around Thanksgiving time. So we'll see. But again, the underlying performance of that -- of the VOI sales has been really strong and I couldn't be happier with our team's performance and the fact that our owners are coming back to the resorts.

[Joseph Greff, analyst]

And then if I'm piecing together your pieces of outlook for the 4Q, that would suggest that we should see 4Q EBITDA up sequentially from what you reported in the 3Q. Is that how you're thinking about it?

[Michael Brown, executive]

Well, we're staying away from giving specific guidance just because I think there's 3 components that we remain cautious of, which I mentioned being the election, when the second stimulus, which we believe will come, when it comes, and then obviously, continued COVID spikes.

What I would just add to that, though, Joe, is we are seeing -- we were very pleased with the third quarter margins. I think it really reflects the early actions we took to make sure our P&L and our balance sheet were solid, and we're expecting similar margins in the fourth quarter. And I think the other piece of the fourth quarter that's an important component in the overall equation for driving EBITDA is that we're seeing bookings in Q4 down 20% over last year, and in the third quarter, that number was down 27%. So sort of a tie-in to your first question, which is just showing continued improvement, not only in VOI sales but in consumers' willingness to travel compared to prior year.

[Operator]

And we will go next to Chris Woronka with Deutsche Bank.

[Chris Woronka, analyst]

Wanted to dive into the inventory outlook a little bit. And maybe you can remind us kind of where you are right now in terms of how much you have on hand. And then also, given the stress that's out there in the market, are you seeing any opportunities to maybe go on offense there, particularly given that you do expect to be free cash flow positive for the year?

[Michael Hug, executive]

Well, I think when we look at our inventory, with the decline in sales that we had through this year, we feel very comfortable with the levels of inventory that we have. And in fact, when we look out over the next several years, on average, you'll see our inventory spending in that $200 million range rather than the $250 million that we've targeted the past several years.

As it relates to opportunities, we do see opportunities coming our way. I wouldn't expect that we would take advantage of any of those this year. We think, like we saw back in 2009, 2010, those opportunities will be there for some time. At this point, because of the level of inventory that we have, we really think that driving free cash flow as high as possible, using that free cash flow over the course of the next couple of years to get our leverage back down, to continue with our return of capital to shareholders is probably more important than putting a new dot on the map. We'll be really focused on EBITDA margins and free cash flow, once again, to drive that leverage down and to get us out from under our amended revolver, which gives us great more flexibility as it relates to return of capital to shareholders.

[Chris Woronka, analyst]

Okay. Very helpful. And then on the Panorama segment, and I know that's still in transition and there's COVID-related headwinds and all kinds of things. But margin performance, pretty impressive. Is that indicative of where the margins can be on a -- when we get to a more normal operating environment? Or is there more to go? Or is there something exogenous that is not going to repeat in the future as you grow the business?

[Michael Hug, executive]

Well, I think there's a couple of things. First of all, on the current margin, obviously, the team has done a great job controlling their costs, putting cost controls in place where possible. And then also, we do see those members that canceled earlier in the year, especially in the first quarter, start to rebook their exchanges. So we're excited about the trend that we see there.

Long-term margins, as we grow ARN, we can see pressure on the Panorama long-term margins. Now we'll still drive absolute EBITDA growth, but the margins on the ARN side of the business are tighter than what we see as it relates to the RCI exchange business. So we'll drive absolute growth in EBITDA out of Panorama, but I wouldn't expect the margins that we're seeing now continue in the long term, not because of the change in the exchange business but because of ARN representing a bigger portion of Panorama.

[Operator]

And we will go next to Patrick Scholes with Truist.

[Charles Scholes, analyst]

Just a bit of a follow-up question on Chris' question. One thing that stood out to me in your earnings release certainly was that sequential improvement in exchange bookings exceeding prior year in September by 1%. Is it fair to assume that, that is simply just pent-up demand that's driving it and certainly, people couldn't take their -- couldn't exchange because resorts were closed in much of both 2Q and 3Q?

[Michael Hug, executive]

Yes.

[Charles Scholes, analyst]

Is that a fair assumption?

[Michael Hug, executive]

I think you're exactly right, and I could comment there's no doubt that there's pent-up demand out there, not only the exchange side of the business, but we're seeing it on the Wyndham Vacation Clubs side of the business as well, which is why when we look at the continued trend in vacation ownership sales, the shortfall year-over-year decreased in each month. But on the RCI exchange side of the business, we are definitely seeing those people that either canceled reservations during the year, rebooking their exchanges or those that haven't yet had the opportunity to take their vacation, to go for a 2020 vacation or even, obviously, starting to think about 2021.

[Charles Scholes, analyst]

Okay. And related to that, I wonder if you could give us any high-level color on how you see the Christmas and New Year's weeks shaping up. Is it possible that you could see increased visitation at your clubs year-over-year as well as increased exchanges during that time period?

[Michael Brown, executive]

Well, we're already seeing some change in consumer booking trends for the fourth quarter. Typically, our consumer will book about 120-plus days out. And we're seeing that booking window shorten to just under 90 days. So we're definitely still in the Thanksgiving and Christmas booking window. And as I mentioned in Joe's question, we are seeing improvement in our Q4 net bookings compared to -- versus prior year compared to Q3. We're seeing improvement there.

So we still think we're going to see good pickup here in the fourth quarter. There's a few different dynamics with schools going straight through and getting out earlier. We think December has the possibility to be a more full month as opposed to purely a second half of the month phenomena, which is typical for December. Also, credit to our digital team as we've been out there promoting our holidays. We've just launched something for Thanksgiving to try to drive people for longer stays during the Thanksgiving time frame.

So there are different dynamics from prior years, but with the improving trend that we're seeing in Q4 compared to Q3, we're very encouraged that subject to sort of the external forces here, the overall demand for leisure travel will continue to improve really in that holiday season.

[Charles Scholes, analyst]

Okay. Good to hear. And then one last question here, if I may, and I apologize if you did say this in the prepared remarks. In the 3Q, what was -- in the VOI sales, what was the percentage of new owners purchases versus existing?

[Michael Brown, executive]

In Q3, it was 28%. And of that 28%, 13% was Blue Thread. Just -- if I could rewind back to our prior public remarks, we expected that number to be 20% to 25%. So we were very pleased that ending up at 28%. We did not expect that to be that large of a mix in Q3. So a very positive early trend. In the prepared remarks, we did comment that a lot of that can be also due to the fact that our in-market acquisition as leisure travel begins to pick up, Patrick, we can capture that improvement in leisure travel and convert it to tours relatively quickly.

[Operator]

And we will go next to Stephen Grambling with Goldman Sachs.

[Stephen Grambling, analyst]

I guess on -- maybe a bit of a follow-up on thinking about new owners, or I should say, new tours, can you just elaborate on what you're seeing in terms of the demographics of the customers who are coming in now and how that may or may not have evolved? Specifically, I feel like we get a lot of pushback on whether the younger customer is -- are they still engaging with timeshare and what -- or whether they may be choosing alternative forms of accommodation sense?

[Michael Brown, executive]

We get that question as well all the time, so I really appreciate you bringing the topic up. Let me just share a few facts and then give you a few of my personal thoughts on the matter is this time last year, 60% of our new owner sales were to either Gen-Xers or millennials. And this year, that number is 58%. Given the fact that we've got less new owners coming into our mix, I think that's actually a really good sign.

In the third quarter, 20% of our sales to new owners were to millennials. And just in form of context, just a few years ago, that number was 5% to 6%. So we are seeing millennials continue to move toward timeshare and find it as a great way to vacation.

And I really think when you look at the more macro trends of how people want to leisure travel, we just fit in all of those areas, whether it's drive to is more of a near-term phenomenon. But the idea of vacation with bigger accommodations, multiple bedrooms, resort amenities, everything you're seeing is the positive elements of the Airbnbs and Vrbos. We're benefiting from those same trends.

I think the element that we deal with is that there's still a large part of the population that uses timeshare as a fixed week, fixed location, same unit every year. And the reality is when the brands came in, in '08, '09, and many of the unbranded companies, we've completely changed the model, which provides maximum flexibility. And for those who take the time to do the research, they see the benefits. And I think it really shows up in the demographic that, like I said, 20% of our new purchasers are millennials. And I think that's only going to continue to grow as we move forward.

Needless to say, the fact that there is -- that perception's still out there is we have a lot of work to do, and we're going to continue to tell our story and show that it is a great way to travel like we're seeing post reopening.

[Stephen Grambling, analyst]

That's helpful. And then as a follow-up maybe for Mike Hug on free cash flow. I know you referenced some timing that maybe pulled some costs into 4Q. Are there any other kind of working capital or other CapEx puts and takes to think about as we think through free cash flow in the fourth quarter? And maybe any initial signals as we think about the recovery in the next year?

[Michael Hug, executive]

Yes. Cash flow -- obviously, we were very excited about that ABS transaction. I mean the demand was incredible. We went to market with a $400 million transaction, upsized it to $575 million and really felt like we always had that you put the money in the bank when you can when you get 90% advance rates and the interest rate under 3%. So we're fine making that decision. Even though it did move some cash flow from fourth quarter into the third quarter, it didn't change our overall outlook.

And really, when we look at fourth quarter cash flows, the reason it's going to be down so significantly year-over-year driven entirely by the consumer finance activity, the lack of an ABS transaction as well as, as we grow our VOI sales in the fourth quarter and not doing a fourth quarter transaction, they're only going to sit in the ABS conduit that we have that we recently renewed that we were very excited about as well at a 60% advance rate. So it's really a timing issue where the sales that we make this quarter will go into the conduit, and then when we do our next transaction, probably in March or April of next year like we historically do, don't jump up to that 90% advance rate. So really nothing unusual in the fourth quarter as it relates to cash flow, except for really the consumer finance activity.

[Michael Brown, executive]

Thank you, Stephen. Was there another question? We couldn't hear if there was.

[Operator]

And we can move to our next questioner, Brian Dobson with Jefferies.

[Brian Dobson, analyst]

You gave some great color on Blue Thread tour sourcing. I was wondering if you could just expand a little bit on what you're seeing in the open channel marketing.

[Michael Brown, executive]

Absolutely. Great to hear from you. There's -- the Blue Thread, it's one of the programs, as you know, that we've been very committed to and is -- provides a lot of stability in attracting new owners because of the loyalty to Wyndham rewards and the hotel group and their stays to our hotel brands. We saw a continued strong performance almost from day 1 coming out of our reopening at the end of May. As I mentioned, their VPGs are $300 plus higher and, therefore, provide a good steady base of margins as we move forward.

Related to open market, the dynamic is a little more, I would say, tricky, probably complex, and it's a market-by-market decision that we continue to make. As part of our changes as we went through this reopening, as we mentioned, we've increased our FICO minimum. And as well, we evaluated hundreds of marketing locations across the U.S. and made some decisions to close some down because margins were low, and we knew that we needed scale to reopen those markets. That summer is the peak season for the open market channels. And we made some tough decisions in May and June to close locations down that we will not reopen until at some point next year, if ever. The result of that, I think, as what you saw in Q3 is that the marketing locations that do remain open are producing really good margin business, which we think will create downstream benefits for our portfolio.

I always hesitate to say we've closed down marketing because that's what this business is based on. But the reality is with 28% of our sales base to new owners, I think that decisions our marketing and sales teams made and across the organization really reflect that they made the right decisions, and it's really helped our business.

So this is a month-by-month evaluation. No market is the same. We see what's going on in Hawaii, urban destinations versus what's going on here in Orlando. And I'll just use that to give you an anecdote, Brian, about Orlando.

60 days ago, when we looked at Orlando 2021 bookings, it was our #7 requested destination, which -- it's always our top demanded destination. Roll forward 60 days to the past week or so, it's now our #1 demanded destination for 2021. And I think not only does that speak to how we will approach our open marketing in Orlando in 2021, but I think it speaks more broadly to the consumer confidence of booking travel in the leisure space at a little more distance from today. And I think it's an encouraging sign for us, obviously, but more so probably for leisure travel to this region.

[Brian Dobson, analyst]

That's very helpful. And then shifting over to the loan loss provision, better than expected in the 3Q. How do you see that evolving moving forward? Should we expect the curve to -- should we expect that to decline in a linear fashion? Or might there be some ups and downs along the way? And then if you wouldn't mind touching on your progress against the third-party exit strategy firms, that would be very helpful.

[Michael Hug, executive]

Yes. This is Mike Hug. I'll take the first part as it relates to the provision, and then Mike can jump in on the third-party activity. As you mentioned, very happy with the provision in the quarter coming at 18.8%. You all know that's been a real goal of ours is to get it below 20%. So the team has done a great job really on the marketing side to make sure that we're marketing to the people that have the ability to pay for the product, and getting that minimum cycle up to 640 definitely helps with that.

When we look at the fourth quarter, we would expect it to be in that same range. And then even throughout 2021, our goal will be to continue to market to the right people and have a provision that remains under 20%. So overall, we're happy with the new originations, and we're happy with the entire portfolio. When we look at the level of defaults that came through in the quarter, flat year-over-year. Delinquencies are actually better at the end of September this year than September last year.

So I think the outreach we're doing to our owners, continue to stay in contact with them, the trends we're seeing as far as the booking vacations and gain on vacation, I think all bodes well for our portfolio, so -- and the provision going forward. So overall, I don't think we could be happier as far as how our consumers are continuing to pay, and just as importantly, as we go forward, the marketing changes we put in place to make sure that we keep that provision below 20%.

[Michael Brown, executive]

So Brian, I'll touch a little bit on the third parties, and you've heard us mention many times our 5-point plan. And then in the third quarter, we had progress on every single one of those points. We're seeing improvement on owner vacations and their booking trends. You see the changes we've made to our underwriting to drive our FICO scores.

We launched in the third quarter Certified Exit by Wyndham. That's traditionally been our Ovation program, but it shows that what we want is for people, whether it's through us or through a reputable company, to win that time is right for them to exit to make sure they're dealing with a party that won't charge them up for fees and will give them the straight information. And therefore, we want to be far more upfront in the sense of make no mistake. When you click on this website or call this number, the discussion that you're going to have, and we've seen a nice uptick from that.

There continues to be progress at the state level with regulators both on resolving pending litigation or ones that continue down the path toward resolution between exit companies and Attorney Generals -- Attorneys General.

And then lastly, our litigation -- our individual company litigation continues to bear fruit. The fundamental question we ask is -- of these companies is you can answer in front of a judge or you can change your business practices. And almost without exception, exit companies are choosing to either exit the business or change their business practices rather than face their business practices in the court of law. So we continue to see progress and are pleased that more than anything, the consumers are starting to get the straight information and can make their own decisions for themselves.

[Operator]

And we will go next to Jared Shojaian with Wolfe.

[Jared Shojaian, analyst]

So previously, the idea was COVID cases I think you had identified were the #1 driver of arrivals. Obviously, COVID cases are still going up. It seems like trends are improving and moving in the right direction. So can you just talk about that a little bit? And then I know Hawaii is small for you guys, but anything you've seen since the quarantine was lifted?

[Michael Brown, executive]

Yes. Jared, it's a great question because, yes, if I dial back to June and then July and August commentary, it was -- as cases spike, you see a correlation to our net bookings. And here, we all roll forward 90 days later, we're seeing cases spike. And interestingly enough, we are not seeing cancellations, which is what we talked about as to being the corollary. We're not seeing cancellations spike. And I want to say yet, the yet being I'm not sure if they will or they won't, but until now, we have not seen anything unusual in the cancellations like we saw in July and August. We are hopeful that will stay that way. We will see.

And we believe it could be 2 things, 2 primary drivers as to why cancellations are not spiking this time the way they did in July and August, and I mean cancellations of bookings per vacation. Number one, we think there is a bit of COVID fatigue or burnout, and people are just saying, I'm going to continue on despite what we're hearing as far as spikes. And secondly, in the last 90 days, a lot of people have traveled. People have learned what safe travel is all about, learned that going to brands that have programs that ensure safety and do every -- follow cleaning protocols. And I can point to my own experience. I traveled out to our location in Las Vegas and could not have been more impressed with our health and safety protocols in place, and so super, super comfortable to be on vacation.

And as time has gone on, you've seen, I think, a little bit of fatigue and a little bit of people just growing comfortable if they choose the right place, they feel good to travel. And so you're right to point out what we said in the past of where we are today. And as I mentioned, until now, we have not seen that cancellation -- or spike in cancellations that we saw in July and August.

[Jared Shojaian, analyst]

Okay. And then on Hawaii, anything you can say on the quarantine?

[Michael Brown, executive]

So in Hawaii, when you look at our Q4 tour projections, 100% -- actually, 120% of our decline in Q4 from our previous projection is due to Hawaii. We are starting to see bookings come into Oahu, but the out islands not so much. So I actually -- although reopened technically, it is going to remain a very soft market for us for the remainder of the year, and it is not a dependent market for us by any stretch.

So what I'm very proud about is the rest of our tour projection -- 120% of our tour decline in Q4 from our previous projection has been made up from the rest of the sales locations in the mainland U.S. -- sorry, that was a bit confusing. We've recovered some of the loss in Hawaii in the remainder of our sales locations, which shows really good performance in the ones that are reopened on the mainland.

[Jared Shojaian, analyst]

Okay. That's helpful. Just to stick on that, it was actually my follow-up question. With tours expected to be down 60% in the fourth quarter, I think the implication was maybe they were expected to be down maybe 50% previously. Are you saying that delta between those 2 numbers is entirely Hawaii? Or are there more things going on in there?

[Michael Brown, executive]

It's not only -- thank you for giving me the chance to speak more clearly on the subject. It's not only entirely. It's more than that number. But we've been able to offset it by strength in the other mainland markets. So yes is the short answer that it's entirely due to Hawaii and more.

[Operator]

And we can go next to Ian Zaffino with Oppenheimer.

[Ian Zaffino, analyst]

Maybe just following up on that question. Is there a way -- or have you done any surveys on bookings and motivations? I'm just trying to get a sense of how many of these bookings are just aspirational and they're not necessarily serious just given all the kind of reductions in the strictness of the cancellation policies, et cetera. And if you have that information, like have aspirational bookings actually declined and you're seeing actually more real solid bookings? Maybe just some color on that would be really helpful.

[Michael Brown, executive]

It's a question that's evolved throughout the third quarter. Let's start with our cancellation policy is what it has -- was pre-COVID now. We are providing much more flexibility as far as new tiers and being able to roll your points into 2021.

And the implication of that, knowing that we do have a cancellation policy, does show that our -- the reservations we see are less just purely aspiration. I'm just going to put something on the calendar and they're actually sticking. And we know that for a few reasons. Number one is cancellations have been very steady over the last 60 days. And we've seen them shorten from 120 days down to 90 days, which means people have this pent-up demand, and they want to get on vacation, and we're seeing that travel actually have come through from when we changed the cancellation policy to those bookings are actually happening and we're getting the arrival. So we -- there's actual proof to the cancellation numbers that we're seeing in the month of October as well.

What I would also say, Ian, is that -- I mentioned it, I think, back to Joe's original question is we were down on net bookings 27% from prior year in the third quarter. We were down -- we are currently down 20% in the fourth quarter of 2020 with a closer in booking window. So improvement. But we also are looking into 2021, and that number is only 5% down versus the same time last year looking into 2020.

So we are seeing this consistent progression of interest to get on vacation. And we think the overriding factor here is that there is -- it's the leisure travel phenomena is that people want to get away and start using their vacation and get out of their house. And that's why we wanted to share that statistic that not only are they going to drive to destinations, but they're starting to look a little further afield to get on vacation in the upcoming 90 days.

[Ian Zaffino, analyst]

Okay. And then maybe just a follow-up and maybe just a little bit more color on this. So it seems like the bookings you're getting are more serious. Do you think that's what's driving the decoupling, I guess, between COVID spikes and cancellations? Any color on that would be helpful.

[Michael Brown, executive]

I do. And we -- I've, as you can imagine, read almost every report, whether it's gaming or hotel REITs or this morning airlines, they're releasing. And there does -- there -- we've been seeing it in our business, this less correlation between daily infections and consumer confidence. Consumer confidence is at its highest level through our survey since April. And that includes the last 3 weeks when COVID has been spiking.

And that's why I shared that I think it really comes down, from my perspective, to 2 big issues, that there is a bit of COVID fatigue. People have chosen to start living their lives a little bit differently. And secondly is more and more people have traveled in the last 90 days. And when they go on home, they share where and how it's safe to travel.

And again, that's my hypothesis, our hypothesis, but you're starting to see it show up in a number of other company reports when they talk about leisure and leisure travel as well, which is a bit of affirmation.

[Operator]

[Operator Instructions] We will go next to David Katz with Jefferies.

[David Katz, analyst]

I know that we've asked a couple already. But I wanted to go back to just one matter, having heard everything that you've said, which is a little doubt around the notion that consumers will travel and want to travel, but from a separate perspective, the degree to which they can. And if you kind of look at your business today, are there any restrictions or airport constraints or things that are constraining your business that prevent a person who will travel but cannot to one of your resorts at the moment?

[Michael Brown, executive]

Well, very fair, David, and happy to take as many questions as you have. The -- this is really what it comes down to. And I -- although we are seeing a greater propensity to travel, if you dig a little bit more into this consumer confidence that I just referenced in Ian's statement, I do still think you can break consumers into 3 primary categories, the first being they're going to travel no matter what. And we saw that throughout the summer when there was even more uncertainty out there. There's 1/3 that say they won't travel until there's a vaccine or close to having a vaccine. That number goes between 30% and 35% depending on the week, but it's roughly 1/3. And then it's that middle third group that really followed -- tends to be following the sentiment and seems to be less sensitive to daily infections just because as time has gone by and as we just talked about.

And that's how we look at our owner base, and it's really making sure that, that last 1/3 who aren't comfortable with travel have as much flexibility as possible, meaning points -- our points aren't perishable. So although you may not have traveled from March to October, we want to make sure you get the full use of your points, and that may not be this year. It may be that you need to roll them over. I received an e-mail from a top point owner last night. And they just said, we're just not going to travel this year, any issue with us rolling it over, and our service team was on it this morning, and I've -- they're happy. They're just happy today they can travel next year.

To constraints, I think this is where it comes back to one of the distinctions of our model is we have 230 resorts around the world. And there's -- we have resorts in a lot of different destinations in the mainland U.S. And the fact that people -- that there's a greater proportion of people who are not willing to travel today is just fine because they'll choose from Chicago to Denver or in Arizona to go up to some of our great resorts in Utah or in Arizona or Southern California or New Mexico.

So this drive to component, I think, is a big win for us here for the next 15 months and allows a lot of flexibility for our owners to choose when and how they want to vacation. And I think that's meaningful.

I talked on -- our beach destinations on the mainland were our most demanded. I didn't mention, one of our affiliates has a mountain destination in Virginia. And they're having incredible demand because it's a remote location that's sort of this mountain retreat, and it's great. And we haven't many resorts at Wyndham Vacation Clubs like that. And I think that is an important element in the short term for getting people back on vacation because they want to travel, they just need to have the options. And whether it's Panorama or Wyndham Vacation Clubs, we offer by far the most extensive optionality.

[Michael Hug, executive]

Yes. And David, I think I would add a couple of other things. I think the restrictions are actually being reduced. When you look at Southwest Airlines, recently announced that they're going to start selling the middle seat again. United was providing testing to their customers that were flying out to Hawaii. They're providing testing at the airports that you could start in doing your vacation when you get to Hawaii. I think MGM announced they were going to start 7 shows in November out in Las Vegas.

So when you look at the leisure travel, all these companies that help drive our business by getting people into our vacation destinations are actually doing things to drive more arrivals to our markets. And so previously, you didn't want to go to Vegas because you enjoyed doing other things other than just gamble. Now potentially, you have a reason to go out there because you can go see a show. So I think all the trends that we're seeing are once the states are going to open up, other companies in leisure travel are doing things to drive more consumers there, obviously, to help their business, but it also helps our business because arrivals in the market leads to tour flow and realize sales.

[David Katz, analyst]

I appreciate that. If I can, just one more. I recall the company during GFC getting into WAAM and WAAM 2.0, which was opportunistic when there was a fair amount of distress out in the market. Are you putting plans or structures in place that are similar to capitalize on what may be capital-light or fee-based opportunities as the world evolves through next year?

[Michael Hug, executive]

We definitely are, David. I mean, we -- in fact, we never put those plans on the shelf. We've been doing the asset-light continuously since 2009, just at different levels. And in fact, the deal that Mike just announced today or discussed today in Atlanta is actually an asset-light transaction there in Atlanta. So we are ready to roll with those transactions that come our way. We definitely feel there'll be opportunities, and we'll be smart and just take advantage of the ones that represent great inventory and great markets for us, but we're ready to roll on those.

[Operator]

That concludes our question-and-answer period. I would now like to turn the call back over to Michael Brown for closing remarks.

[Michael Brown, executive]

Thank you, Aaron. And as we launch here into the fourth quarter of what's been a tremendously unpredictable year, we've been making important strides to restoring and growing our business. Our customers continue to trust us with their vacation, and we're seeing stronger travel trends around the globe.

As always, our success is driven by our associates around the world, who I want to thank for their outstanding work over the past 7 months. They've truly been an inspiration to me. We look forward to sharing more with you in the upcoming months. Thank you, and have a great day.

[Operator]

Thank you. That concludes today's Third Quarter 2020 Wyndham Destinations Earnings Conference Call. You may now disconnect your line at this time, and have a wonderful day.