Travel + Leisure Co

NYSE:TNL

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, and welcome to the Fourth Quarter and Full Year 2020 Earnings Conference Call for Travel + Leisure Co., formerly, Wyndham Destinations. [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.

[Christopher Agnew, executive]

Thank you, Ashley. Good morning, and welcome to Travel + Leisure's Fourth Quarter and Full Year 2020 Earnings Conference Call.

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 our earnings press release available on our website at investor.travelandleisureco.com.

This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our fourth quarter and 2020 full year results. And Mike Hug, our Chief Financial Officer, will then provide greater detail on the quarter, our balance sheet and liquidity position. Following these remarks, we'll 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. Good morning, and welcome to our first earnings call as Travel + Leisure. Earlier this morning, we were pleased to report fourth quarter adjusted EBITDA of $148 million and adjusted EPS of $0.32. Last year was full of unprecedented challenges for the travel industry, yet the strength of leisure travel demand, combined with our resilient business model, enabled us to achieve positive adjusted free cash flow for the full year. Indeed, after reopening at the end of the second quarter, we were able to deliver a strong second half of 2020, with adjusted EBITDA margins over 20%.

The combination of our recurring earning streams, the resilience of our owners, our competitive resort footprint and the early actions we took to reduce costs and maximize cash flows, all contributed to our strong performance in 2020.

Let me transition to some of the highlights from last year. For the full year, we generated revenue of $2.2 billion and adjusted EBITDA of $259 million. As a reminder, adjusted EBITDA includes a $157 million negative impact for increased defaults due to COVID. The end of the first quarter and the majority of the second quarter were significantly impacted by suspended resort operations due to stay-at-home orders in 42 states.

By the end of June, 85% of our U.S. resorts and 56% of our sales locations have reopened. As we look ahead to the eventual rebound in leisure travel, we made a number of operational changes to put us in a stronger position for the recovery. In the Vacation Ownership business, we elevated the FICO qualification threshold from 600 to 640, improving tour quality, which results in better performance in the portfolio.

We also pared back underperforming marketing locations and programs. We reimagined our check-in process, innovated the on-site experience with RFID wristbands to increase engagement with our guests, and went live with our new Club Wyndham website in May. We also launched virtual sales and virtual contract closings. Both have been well received, and we plan to expand both programs in 2021.

Cost savings helped buffer a softer top line in our Travel and Membership segment. This segment, which is primarily RCI, achieved 40% adjusted EBITDA margins in the second half compared to 37% in the prior year.

Revenue per member also improved in both the third and fourth quarters, down just 19% and 13% over the prior year, which were noteworthy improvements compared to the second quarter, which was down 37% over the prior year. And on a consolidated basis, we reduced our annualized 2020 operating cost base by approximately $225 million, $50 million of which will become permanent G&A savings. And we reduced inventory and operating capital expenditure by over $125 million. In a year when many global lodging and leisure companies were net users of cash, we maintained a strong balance sheet as we generated positive adjusted free cash flow of $35 million for the full year.

We had $1.6 billion of liquidity at year-end and finished the year with $3 billion of corporate debt. We were also able to maintain a quarterly dividend, which is currently $0.30 per share demonstrating our confidence and the resilience of our business. The strength of our balance sheet and our business allowed us to be productive and execute several strategic initiatives toward achieving our goal to expand into the broader leisure travel market.

We successfully unveiled Panorama midyear, and we acquired the Travel + Leisure brand in early 2021. We are excited about both of these businesses and the momentum they will drive into 2021 and beyond.

Let me share with you the rationale behind our acquisition of the Travel + Leisure brand and content and its existing businesses. First, our mission is to put the world on vacation, and by renaming our corporate entity, it allows us to demonstrate an increased breadth of marketing and services we will provide going forward. The acquisition of Travel + Leisure allows us to express that direction with one of the most trusted and iconic names in the leisure travel space.

Second, it reinforces our strategic direction to expand beyond the timeshare space. The overall North American leisure market is more than tenfold larger than the timeshare market. The Travel + Leisure acquisition, fueled by our technology platform, allows us to expand by offering new products and services to a much larger market. As part of the acquisition, we acquired 2 subscription travel clubs with a combined 60,000 members. We plan to grow these travel clubs as we launch new products this summer.

Third, this facilitates our ability to offer timeshare services to other travel brands in addition to Wyndham. Our strength lies in sales and marketing, hospitality and our ability to access the financial markets to support consumer lending. We believe there are strong travel brands that could operate under their name but benefit from our services. The renaming of our corporate entity will reduce the obstacle of overcoming issues of brand conflict.

To recap, our company now has 3 business lines: Wyndham Destinations, our core timeshare business, which is committed to the Wyndham brand and growing our relationship with Wyndham Hotels and the Wyndham Rewards program; Panorama, including the RCI Exchange business and the ARN technology platform, focused on growing B2B travel solutions with partners; and the Travel + Leisure group which will focus on its booking platform, subscription-based travel services and its licensing business. We look forward to sharing more with you in the coming quarters and at an Investor Day, we are planning, whether in person or virtually for September 10 in New York City.

Let me now move to our outlook. We are already seeing the positive trends in 2021, providing us with optimism about a strong recovery in leisure travel. Post pandemic, consumer travel sentiment is back to the highs, last seen in October. And as daily COVID infections continue to decrease, we only see this trend improving. With that said, we remain mindful of uncertainties in the first half of the year.

The state of the pandemic and the success of the vaccine rollout remain critical to consumer travel sentiment and the easing of travel restrictions. COVID daily infections were still elevated in January, and our performance in January, with California still closed, was very much like December. January is normally a seasonally slow month, so the impact will be less pronounced. February has seen some improvement, and we anticipate that momentum will continue into March.

Although it is our intention to return to full year guidance, in the short term, we will be providing quarterly guidance. For the first quarter, we expect tours to be down 56% to 58% from the prior year, gross VOI sales to be approximately $210 million to $220 million and VPG to be 30% above the prior year. Overall, we anticipate adjusted EBITDA in the range of $95 million to $110 million in the first quarter.

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 to everyone, and thank you for joining us today. I will discuss our fourth 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 fourth quarter adjusted EBITDA of $148 million and adjusted earnings per share of $0.32 compared to adjusted EBITDA of $265 million and adjusted EPS of $1.58, 1 year ago. During the quarter, $20 million of COVID-related charges were added back to total company adjusted EBITDA with the largest item being $12 million of lease-related restructuring charges.

In the fourth quarter, Vacation Ownership reported revenue of $512 million with gross VOI sales of $281 million and adjusted EBITDA of $115 million.

Tours declined 64% in the quarter compared to the prior year with travel restrictions in California and Hawaii, a headwind to our previous expectations. New owner tours were down more sharply as these tour sources are expected to recover more slowly than existing owner tours, which were 48% lower than the prior year.

VPG increased 24% to $2,938, benefiting from improved new owner close rates and a higher mix of sales to existing numbers.

Our underlying portfolio continues to perform well with delinquencies lower year-over-year, driven in part by deferral programs, a more mature portfolio from reduced originations and improved quality of new originations due to changes we made in our underwriting standards.

Requests for deferrals have continued to trend down since the second quarter, and now active permits represent just 1% of loans outstanding, down from 6% at the peak. As we have noted previously, as owners come off deferral, we are seeing the majority of them return to making payments.

In the fourth quarter, we released $20 million of the $225 million receivables reserve we took back in the first quarter due to continued strong performance of the portfolio, resulting in a $13 million benefit to adjusted EBITDA.

We remain comfortable with the overall allowance on our receivables portfolio, considering the continuing uncertainty around the pandemic and its economic impact. Revenue in our Travel and Membership segment, which includes Panorama as well as Travel + Leisure group starting in the first quarter of 2021, was $135 million in the fourth quarter compared to $181 million in the prior year.

Travel and Membership fourth quarter adjusted EBITDA was $49 million, down just 11% compared to $55 million in the prior year. Strong cost control and a sequential improvement in revenue per member trends helped margin improve to 36%, up from 30% in the prior year.

Average number of members in the segment decreased 6%, and we expect that trend to continue in 2021. Reduced VOI sales for the industry, particularly in new owner channels, are not generating enough new owners to offset the normal churn of members. We expect this decline to moderate in the back half of 2021.

As Travel and Membership continues to evolve beyond its traditional focus on the timeshare industry and into servicing the broader travel club market, the Exchange-focused KPIs we had previously been reporting will become less relevant to the overall business. As such, in 2021, we will disclose new transaction-based drivers.

Net transactions for this segment declined 29% in the fourth quarter due to an increase in cancellations and lower gross bookings at ARN, which has a shorter booking window than the Exchange business. However, we are continuing to see positive travel trends in Exchange as December's gross bookings were in line with the prior year. The different gross booking patterns in Exchange and ARN are a good indicator of how our members feel about travel right now. Although they are cautious in the short term, they are looking to return to travel in the near future.

Turning to our balance sheet. As of December 31, we had $1.2 billion of cash and cash equivalents with corporate debt at $4.2 billion, which excluded $2.2 billion of nonrecourse debt related to our securitized receivables.

Our net leverage for covenant purposes at the end of the quarter was 5.4x, 2 turns below our 7.5x covenant. We paid our fourth quarter dividend of $0.30 per share on December 30, and we will recommend our first quarter dividend of $0.30 per share for approval by our Board of Directors in March, as we remain committed to returning capital to shareholders.

As Michael mentioned, we acquired the Travel + Leisure brand in early January. We paid $35 million in cash at closing and the trailing payments of $65 million will be completed by June 2024. The acquisition is expected to be neutral to earnings in the first year as we invest in marketing programs to grow the business and accretive in the second year.

As noted previously, we are not providing full year guidance at this time. However, we do want to share some thoughts on our outlook for full year free cash flow. We expect 2021 free cash flow to be below our historic free cash flow conversion range of between 50% and 60% of adjusted EBITDA.

Reduced net interest income; fewer unsecuritized receivables on our balance sheet as of January 31, 2021, combined with higher corporate interest expense as a percent of adjusted EBITDA; as well as the timing of some working capital items are behind the temporary reduction. We expect 2022 free cash flow to move closer to our historical levels.

First quarter free cash flow will be a significant use of cash due to the timing of inventory spending and working capital payments as well as fewer eligible receivables for our first ABS transaction of the year than has historically been the case due to the lower level of VOI sales in the second half of 2020.

In summary, we are pleased with our results for the fourth quarter and full year 2020 and look forward to the continued recovery of leisure travel throughout 2021.

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

[Operator]

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

[Joseph Greff, analyst]

A question -- my first question is on the Travel + Leisure acquisition. When you kind of think about the investments this year and looking at next year and beyond a year or 2 following the acquisition, Mike, how do you think about sort of the incremental revenue and EBITDA growth that TNL would contribute on a segment basis to the Travel and Membership segment basis?

[Michael Brown, executive]

We're really, really excited about this acquisition because more than anything, it strategically opens a number of doors for us. And as Mike just mentioned, we believe it will be neutral to earnings this year and accretive next year.

Our plan as we move through this year is that we've already launched a booktandl.com, our online booking platform, to really just start to leverage the brand. But secondly, and more importantly, and really the core of the acquisition was to begin to offer product to a lower entry price point and for shorter duration.

With that, we bought 2 travel clubs with that 60,000 members, and we expect to be launching new clubs that allow us to really move up and down the demographic scale, both age and economically. And from that, we will take those learnings and then start launching more subscription-based clubs into 2022.

With that said, I know the question was specifically about revenue and segment. That's our strategy. And as that unfolds throughout this year, that's why we wanted to organize our Investor Day for the third quarter to really lay out in more detail the economics associated with that plan with 6 months of learning under our belt.

[Joseph Greff, analyst]

Okay. Great. And then appreciate the first quarter guidance. Can you talk about -- you have gross VOI sales targeted at $210 million to $220 million. How much of that is in the bank through the first 55 days of the quarter? And when you think about gross VOI sales in the 1Q, how much of that is to existing owners versus new?

And then lastly, with respect to what you have incorporated into your 1Q guidance, how much of another reserve release is baked into that $95 million to $110 million of EBITDA?

[Michael Brown, executive]

Okay. Well, let me start on the VOI sales, and then I'll hand over the provision question to Mike, is just as you traditionally look at the first quarter, what you tend to get, Joe, is that about 50% of your gross VOI sales come in the month of March. And given the fact that January was slower because California was closed, which has knock-on effects of both -- sorry, both Hawaii and Las Vegas, January was slower than we expected. When the year started, we didn't think that the closure would last through the end of January.

And as you look into the remainder of this quarter, I think we've already released our January -- sorry, we released our December number, but we'd expect that about 50% of our sales would be in the month of March of this year. Given where we're seeing on booking trends, we feel pretty good about the number as we're seeing definitely positive trends in overall bookings and arrivals to our resorts.

[Michael Hug, executive]

And Joe, as it relates to new owner sales and the provision, we would expect the new owner sales for the first quarter to be in the low to mid-20s. And the provision, our guidance that we put out there does not include or assume any additional benefit from the provision. We're very happy with the way the portfolio is performing. As I mentioned, delinquencies are actually down year-over-year.

So that is a result of the great team, the job it's doing in servicing the portfolio as well as we've mentioned higher underwriting standards as it relates to new originations.

So for the full year, we would expect the provision to be just south of that 19% range, kind of what we saw in the third quarter where we were at 18.8%. But we are not assuming in our first quarter guidance, any additional provision benefit.

[Michael Brown, executive]

Joe, let me just add back. I didn't answer one of your questions. About 3/4 of our sales will be to owners.

[Operator]

We'll take our next question from Patrick Scholes with Truist Securities.

[Charles Scholes, analyst]

A couple of questions just concerning the name change, and it sounds like a little bit of shift in direction here. When you talk about new club products, could you give us a little more granularly what exactly would that look like? What exactly is that?

[Michael Brown, executive]

Absolutely. So let me just come back to your first comment about change of direction. This is about expansion. It's not about a shift of core strategy. The -- we're as committed to -- ever to the VOI business. We're committed as ever to grow the Wyndham name and the relationship with the Wyndham Hotel Group. It's been our success for years, and it will continue to be as we stay committed to that growth.

But we do see an opportunity in the leisure travel market. In North America, it represents over 100 million households. And those people go on vacation. And simply, the type of products that we're offering, it would be a lower entry price point, a subscription-based price point, somewhere $10 to $20 a month, with a shorter duration. You can think of many subscription models, whether they be Peloton, Netflix, Costco, just to name a few, is they want to be part of something that's exclusive and unique.

And with the exclusive content that we now own related to Travel + Leisure, you're going to be able to take the inspiration that you -- that's created in the Travel + Leisure publishing side of the arm and activate that with fulfillment through your subscription club, again for a subscription-based fee with exclusive content and unique value -- a better value than you might be able to get on the open market. So that's the plan.

We've talked many times over the years about our focus on Middle America, where we remain committed to that through our VOI brand. But this allows us to start testing other demographics, both age and economics, to supply vacations to a broader leisure market.

[Charles Scholes, analyst]

Okay. Does this acquisition and those new plans, does that shift your focus at all from spending on development for timeshare? And also, are you out there still looking for perhaps some tuck-in types of acquisitions on the timeshare side?

[Michael Brown, executive]

So this doesn't change at all our perspective on Vacation Ownership. We believe that we can continue to grow that business, as we always have. We're committed to it as ever.

And from a development standpoint, if there's an -- either an M&A or a resort opportunity that we see that's out there, we would absolutely pursue it. What I would say related to that is, as it relates to individual projects as the industry, and we declined our VOI sales, our balance sheet affords us a bit more time with our existing inventory. So we will definitely be constrained on our individual project spend because we want to maintain a strong balance sheet.

But to your tuck-in question, absolutely, we would be out there looking. I do want to take your question and just add to it on the subscription business side is that our acquisition of the technology platform of ARN nearly 2 years ago, really laid the foundation for not only the Panorama Travel Solutions but also these Travel + Leisure subscription clubs. So as it relates to incremental capital investment, there's nothing material that's required for us to go out and grow that business going forward.

[Operator]

And we can take our next question from Brian Dobson with Jefferies.

[Brian Dobson, analyst]

I was wondering if you could provide just a little bit more color on areas of geographic strength or weakness that you're seeing within your portfolio? And how you expect those to evolve over the next, call it, year as consumers start to travel more?

[Michael Brown, executive]

Absolutely, Brian. I appreciate the question. And let me start a little broader, and then I'll get into the specific geographies because the question out there today seems to be around what are you seeing with the consumer. So let me share just a few points of information that, I think, everyone will find interesting.

I'm going to first talk about pacing, the booking pacing at our resorts. If we were to look back at early January, the first and second week of January, our pacing rate was about 35% below what it was the same time in 2020. It's now the third week of February, and our pacing is flat to what it was in 2020. And I think that's a good demonstration of the momentum we're starting to see with the leisure traveler in the last 60 days.

Second point of reference is our on the books for the second half of 2021. If you look at where we are today and the number of reservations that we have on the books for the second half of 2021, that is 99% of what we -- of the position we were in, in 2019 at exactly the same point. So comparing second half 2021 to second half of 2019 on the books, we're at 99% of where we were in 2021.

So I think that's a really good indication that the overall leisure demand is: a, has momentum; and b, is starting to look like it did in '19. What we're watching for most closely is rate of cancellation. That has been the elevated component, and that typically will decline once infections stay at a reduced rate for a longer period of time. And I'm sorry for that long wind up to your geographic question, but I think that context is important.

Where we're seeing the most geographic demand, number one -- in a distant, number one is the Carolinas, beach location, summertime, drive-to market. We're seeing a lot of demand for the Carolinas. Second is Arizona. You would argue there, again, drive-to destinations from our West Coast market, a lot of demand in Arizona.

And about 6 months ago, we mentioned that Orlando was a laggard as far as reservations. Most people wanted the beach locations. Then we talked about it being -- moving up to the #1 destinations. And now we're looking at that being up to prior year. So I would highlight the Carolinas, Arizona and Central Florida as key demand destinations going forward.

[Brian Dobson, analyst]

That's very helpful. And then within Panorama, a lot of exciting stuff going on there. Do you think you could give us some examples of the type of B2B business that you're hunting down for that unit?

[Michael Brown, executive]

It is an exciting time in that side of the business and one that we've spoken about, but the new brand is -- probably has caught everyone's attention, but the team in the Panorama is really working with a wide variety of businesses. I know we're in the leisure travel space, but the reality is, whether there are corporations that are looking to develop programs for their employees or whether they are leisure companies that are looking to white label a travel benefit for their club, but they don't have the scale, it is ranging from one side being leisure companies all the way to corporations looking for loyalty.

I would say that when you look at the development pipeline for those businesses, it's grown in a very positive way since the last time we've been on the call. So I'd expect as we roll through this year, we'll start rolling through a number of names that we've been able to contract, but very encouraged by what we're seeing in the pipeline of future business for the Panorama Travel Solutions.

[Operator]

We can take our next question from Chris Woronka with Deutsche Bank.

[Chris Woronka, analyst]

So as you think about how 2021 is going to unfold, and there's a lot of variables with the consumer. But in addition to getting more comfortable traveling, again, right, we think a lot of them in your demographic are sitting in a better financial position with stock market gains and savings, and then we potentially have stimulus.

So the question is, have you guys thought about maybe how that plays out in terms of propensity to buy, but also perhaps less propensity to finance and kind of what some of the offsets might be there from a bigger picture perspective? And how you're going to -- might change your marketing approach to that?

[Michael Brown, executive]

Sure. Let me take a stab at it first, and if Michael's ready, he definitely can. So we think it was a very important shift that we made to our marketing standards in the pandemic. The move to 640 FICOs, we believe, has already shown signs of strength in our portfolio. We're pleased with how that has progressed. And it's been a conversation that we've had with each of you over the last 2 years. So we think that is the right move.

We also know that, as we've discussed, tour flow being down, there is going to be a natural increase of tour flow, not only for the owner base, as we continue to see momentum in the owner bookings, but the decisions are going to come as to the way the strength of the recovery occurs will determine the speed at which we reopened some of our open marketing channels.

This is going to be a little bit of a transition year because summers -- summer will be here Memorial Day, and we're going to start to need to make some of those summertime decisions in the next 60 days. So I think that's from a tactical direction, the decisions we'll make over which type of marketing programs will go with for the remainder of 2021, we want to grow back in a very margin-rich environment and with a very strong portfolio, both of which I think we're already proving out.

We do -- we are generally positive about the consumer. I think if you look at savings rates with stimulus still coming, I think people's ability to make purchases and to get back on leisure travel is definitely going to be there. We don't see the consumer, especially -- well, we -- our observation is that they're very liquid.

And I would pass this to Mike, but I think he would also say that, generally, our financing rates sit at cash downs typically between 20% and 25%, and neither of us would predict a very material change to that irrespective of where the consumer is.

[Michael Hug, executive]

Yes. I think when we think about the percent-of-sale finance, to Mike's point, we would expect on finance sales to be in that 20% to 25% cash down. I think there is the potential that, as you noted, with higher savings rates, the actual number of contracts that do take financing could go down. So we're definitely watching that.

Keep in mind that it also provides the opportunity for either improvement in close rates because more people buy or larger transaction size. So it's a fair point. We definitely are excited about the strength of the consumer. We see it coming through loud and clear in terms of the current portfolio performance. And as we learn more, as we continue to increase our sales levels, we'll adjust accordingly, but definitely watching the percent-of-sales finance very closely.

[Chris Woronka, analyst]

Okay. Very helpful. And then second question is, Mike, I just heard your comments about your -- you're really more about growth, not changing or shifting strategy? And also, the last question was about potential M&A or acquisitions.

But as we think about there potentially being some distressed hotel inventory out there, especially in urban markets, where you guys had put a little bit more focus kind of pre-COVID, what's the appetite for potentially getting some inventory in some of these urban markets if the pricing is right?

[Michael Hug, executive]

Yes. And this is Michael. I'm going to take that one. So as we've talked about, we're going to be very disciplined as it relates to our cash spend. We do expect that our inventory spending over the next several years will average less than $200 million. So as Michael noted previously in one of the answers to the questions, we do have sufficient inventory on our balance sheet to carry us for a while, along with the -- what we have in the pipeline. So we'll be very selective. If a great opportunity comes our way, we'll take advantage of it.

But I would say, generating free cash flow, gaining that leverage rate back down is more important than 1 additional dot on the map. We're very happy with the resort locations we have. I think the results that we've driven in the second half of the year point to the benefit of the geographic diversity we have. But I think right now, inventory spending is pretty far down the list as it relates to how we want to spend our dollars unless there's just an incredible deal that comes our way. And there's no rush either.

As we saw back in 2008, 2009, these inventory opportunities are going to be available to us for several years now. So it's not like if we don't jump on one in 2021, we won't have a chance in the future. So we'll be very disciplined, and like I said, more focused on that leverage rate and using cash to -- and growing EBITDA to get that leverage rate down.

[Operator]

We can go next to Stephen Grambling with Goldman Sachs.

[Stephen Grambling, analyst]

I know you want to disclose more at the Analyst Day, but perhaps as a basic question on the Travel + Leisure acquisition and the Travel and Membership segment, how is that business similar or different to kind of an online travel agent? And could it become more of an OTA long term within some of the clubs you referenced? And as a related follow-up, is there any impact, I think, through from the Travel + Leisure brand acquisition on the VOI segment long term?

[Michael Brown, executive]

So let me hit the OTA first. It's not our intention at all to get into the OTA business, but the rental of nightly inventory is a component that we've been able to do as a byproduct of our VOI business, and I review it as a byproduct of our Travel + Leisure acquisition.

If you look at the continuum of the way people travel, the -- one side of the spectrum is the way we just mentioned, which is heavy SEO and spend to get nightly travel. And then the other end of the spectrum is Vacation Ownership, which is where we specialize, and we will continue to specialize.

We do think there's an opportunity in between to combine a few things. We think there is a macro trend around subscription, number one; and number two, we think there is the overall trend that people want to travel with the name that they can trust, that they know that when they book their vacation, they're going to know what to expect on the other end of that vacation. And when you combine the content and the relationships that Travel + Leisure has through its publishing arm, that don't necessarily have to be Wyndham, combining those with an ultimate fulfillment of vacation, we think, could be very attractive.

I had a discussion with the editor of Travel + Leisure. And I was sharing with her that I was reading about -- reading one of her articles about great U.S. national parks to visit. And I kept looking for to book this trip now. And that's really what it is and being the owner of Travel + Leisure, it's content, and having that relationship with the Meredith Group, and ultimately, Travel + Leisure publishing arm, it allows us to provide a product that is not simply on price, even though we think we're going to provide tremendous value, but also linking it with tremendous content and with a trusted name that people are looking to travel with today. And that sort of sits in the middle of the spectrum with that subscription-based model.

[Michael Hug, executive]

And then Steve, as it relates to your question on the impact on the VOI segment, I mean, we obviously are still very high on the Vacation Ownership business, do expect to continue to drive growth there. I wouldn't say we did the TNL transaction in order to improve on that segment. We think we've got plenty of upside there. Down the road, there might be opportunities there. But I think, as Michael mentioned in his comments, the primary reason for it was to start to broaden our offerings to a wider group of leisure traveler.

[Operator]

We can take our next question from Ben Chaiken with Crédit Suisse.

[Benjamin Chaiken, analyst]

Not to belabor the topic, but I guess, on the TNL booking website, booktandl.com, yes, I guess, is the intention for it to be a B2C travel booking website for single use, meaning I'm flipping through the TNL Instagram and then get a lead and book a trip that looks appealing, and I could be anyone on that Instagram page in this example? Or is the intention to be more subscription oriented? Just trying to close that loop, number one.

And with the intention that, that website is specifically for subscribers, and then it also looks like you can get flights on here, rent cars, hotels, et cetera, bundle and save. So -- but you described it not as an OTA. So I'm just trying to close the loop on kind of like the intention, who's exactly it's for?

[Michael Brown, executive]

Right. So it's a great question. It is an online booking platform for primarily single use. The intention is that what we wanted to do is we wanted to get that website up and running and to begin having transactions for the single use. Ultimately, the end objective is to -- that's just being once or so it leads into what would be an ultimate subscription business.

Our intention is not to compete in the OTA space. We've got an online booking platform. We're going to work with a number of different providers, including all the ones you mentioned. But that is, again, a byproduct that will ultimately feed into a more regular and recurring revenue stream, which is the subscription business, which will have more curated content, an entry price point being the subscription cost per month and then benefit from transaction fees along the way.

Very similar to the RCI model that we have today. I mean, ultimately, our objective is we've been viewed for up until now, rightly so, as a single brand purely timeshare company. I think the RCI component, which is recurring revenue, highly predictable streams, 30% of our EBITDA, haven't always got the credit that it deserves as it relates to its recurring revenue nature.

This is furthering that strategy of getting into asset-light recurring revenue streams. Again, not so much focused on the single transaction, but that is a lead source into our subscription businesses, which is where we want to focus. And we're not -- this strategy is to begin building a diversified EBITDA generation and support improved growth. And we're not -- we don't need or want to come out with a big bang in 2021 with this. We want to learn the right curation of the subscription model, get it really well curated with great content, and then have next year for it to be -- really start to be accretive to our overall earnings platform.

[Benjamin Chaiken, analyst]

Got you. That makes sense. I don't know. It seems like a great opportunity. There's not that many places that people go to book single-use vacation. So Travel + Leisure brand plus your timeshare inventory, I mean, it seems like a great opportunity.

[Operator]

[Operator Instructions] We'll go to David Katz with Jefferies.

[David Katz, analyst]

And I know we've asked a couple of other questions, but I wanted to circle back on something, hopefully, you have not already touched on. But with respect to the loan loss, right, which came in adjusted at 17-and-change. But I think you're guiding us toward a just under 19% level, if we're hearing correctly, what happened specifically to get you to that 17%? Was that a low-volume COVID trend? What's sort of going on between that 17%, 19% level?

[Michael Hug, executive]

Yes. David, this is Mike. I appreciate the question. I think if you look at the trend, over the last couple of years, our forth quarter has always been the lowest quarter as far as the provision. If you look at the quality of the consumer that's coming in, usually a little bit higher-quality consumer, a little bit less percent-of-sale finance and things like that.

So the 17.3% would be just to follow the trends of Q3 and Q4 from 2019 and 2018 as well, as far as the lower fourth quarter rate. You all know that the rate can move by quarter, which is really wide. When we talk about 2021, we -- the limited guidance we are giving as it relates to the provision, we were talking about the full year rate of just under 19%, let's say, in that 18.8% range. So nothing unusual in the fourth quarter, just to follow the historical trends of the demographic of the consumer that we see is a little bit higher quality, and the provision, obviously, is reflective of that.

[David Katz, analyst]

So what we're effectively doing is bringing the seasonal arc, call it, down by about 100 basis points from what you had sort of been guiding sub-20% and bring it down over time. Is that a fair way to think about it?

[Michael Hug, executive]

Yes. That's probably great, yes.

[Operator]

We can go next to Ian Zaffino with Oppenheimer.

[Ian Zaffino, analyst]

Just on the TNL deal. One other question would be, is there any intentions to maybe broaden that TNL brand to introduce maybe a new VO product under that brand? And maybe grow that a little bit? Or no, that's going to be purely separate from the VO business?

[Michael Brown, executive]

Ian, our intention is to grow that TNL brand under a subscription-based business. We think that's -- we think our VOI business as it stands today, Wyndham-only, has a great trajectory around it. We think that Travel + Leisure brand is a great opportunity for us to start a new -- and build a new business and create some diversified earning streams.

What I would come back to is, I do think -- and it ties into the earlier question on distressed assets or other companies, we do think there are travel brands out there, outside of hospitality that could benefit from our timeshare services. So I think when you look at where our opportunity lies in the VOI space, it would be partnering with another travel brand to try to grow a vacation club inside of their travel brand to make more efficient their assets or to better utilize their assets.

So I think there's a lot of opportunities we still have in the VO business. We love the core business. We think there are more opportunities, but I would say the more likely scenario is with the rebranding of the company, another travel company might come to us and say, hey, I'm interested in a VO business for our brand, and that, we would be open to and think it actually could make a lot of sense.

[Operator]

And we will go next to Patrick Scholes with Truist Securities.

[Charles Scholes, analyst]

Just a couple of quick follow-up questions. I wonder if you can just remind us how many years of unsold inventory you have?

And then second question is, if you can give us an update on progress and trajectory with the Blue Thread initiatives?

[Michael Brown, executive]

Yes. So I'll take the inventory line. Then, I'll let Mike update everyone as it relates to Blue Thread. On the inventory, we have over 2 years, once again, with the slowdown in sales in 2020. That extends our inventory a little bit further. So over 2 years of inventory, which is why, once again, we'll be very selective as it relates to -- if the opportunities come our way, execute on those. No rush. We've got plenty of inventory, and I'd say things that are of other higher priority as it relates to use of cash.

[Michael Hug, executive]

And as far as the Blue Thread, just a reminder, we were on our way to $100 million last year before COVID hit. That was our projection. We expect that Blue Thread will be one of the first items to return, 13% of our new owner sales in fourth quarter were for Blue Thread. So very bullish on our ability to grow Blue Thread back quicker than the rest of the open market channels or we project to grow it faster than the rest of the open market channels.

[Operator]

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

[Michael Brown, executive]

Great. Thank you. And thanks for the many questions. It's very good to be able to get out and share our story on both the Travel + Leisure acquisition and our strong 2020. But as we look back on last year, we have a lot to be proud of, thanks to the hard work of our associates around the world. In the midst of the pandemic, we made significant progress on our efforts to begin the transformation of our company beyond timeshare, while staying laser-focused on delivering strong results in our current existing business lines. We look forward to updating you on our progress on our next call in approximately 60 days. Thank you, and have a great day.

[Operator]

Thank you, and that concludes Travel + Leisure's fourth quarter and full year 2020 earnings conference call. You may now disconnect your lines at this time, and have a wonderful day.