Wyndham Destinations, Inc. (WYND) Q4 2019 Earnings Call Transcript

Wyndham Destinations, Inc. (NYSE: WYND)
Q4 2019 Earnings Call
Feb 26, 2020, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Wyndham Destinations fourth-quarter and full-year 2019 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. I would now like to turn the call over to Chris Agnew .

Please go ahead.

Chris Agnew -- Senior Vice President, FP&A, and Investor Relations

Thank you, Catherine. 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 strategic initiatives for fourth quarter and 2019 full-year results; and Mike Hug, our chief financial officer, will then provide greater detail on our results and discuss our outlook. Following these remarks, we will be available to respond to your questions.

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

Michael Brown -- President and Chief Executive Officer

Thank you, Chris. Good morning, everyone, and thank you for joining us today. Earlier this morning, we were pleased to report full-year adjusted EBITDA of $991 million, reflecting 4% year-over-year growth and adjusted EPS of $5.62, an increase of 16% over the prior year. We delivered adjusted free cash flow of $617 million, which was above the high end of our guidance range.

We continue to return cash to shareholders throughout 2019 with $340 million of share repurchases and $166 million of dividends. Since becoming Wyndham destinations through the end of 2019, we have returned 23% of our current market cap to shareholders in 19 months. I want to shift to our 2020 outlook. And additionally, given recent headlines concerning coronavirus, provide you with some context on the potential impact to our business.

Year to date, we have continued to experience robust leisure travel trends. And as a result, our outlook assumes a continuation of these trends and growth in line with our long-term guidance. For the moment, the coronavirus is limited to our international operations, and our outlook for 2020 does not reflect any impact from coronavirus given materiality year to date and uncertainty around any future impact. We are mindful that bookings and arrivals may be impacted more broadly going forward.

As context, approximately 10% of our total EBITDA comes from outside of the United States with less than 1% from Asia. We will continue to follow events closely, and we are working with health authorities to ensure precautionary and proactive protocols are in place for our owners, guests and employees. Shifting back to 2019, it was a year of notable progress and success for Wyndham Destinations. We successfully completed our first M&A activity, selling one business and buying another.

We sold the North American rentals business to Vacasa for $162 million, and we acquired ARN for $102 million. ARN is a travel technology platform that will enable us to provide integrated travel services and value-added benefits to RCI and other close user groups. Both transactions were strategic. The vacation rental business was noncore to our timeshare operations, and ARN is helping us reignite our core exchange business at RCI.

In 2019, Blue Thread had its strongest year with sales of $87 million, 31% higher than the prior year. The fourth quarter, in particular, demonstrated strong momentum with a year-over-year sales increase of 35%. As a reminder, Blue Thread tours deliver over 25% higher VPGs than overall new owner VPG. This year, we expect Blue Thread sales to top $105 million, more than double what it was in 2017.

For the third consecutive year, we further improved our already industry-leading margins, finishing 2019 with a company margin of 24.5%. This is in line with our overall objectives to grow EBITDA, maintain margins and grow new owners. Related to new owner growth, our percentage of total sales was flat in the fourth quarter and marginally down for the year. This was primarily a result of overperformance on owner arrivals, new marketing channels opening later than expected in the year and lower new owner VPG in the second half of the year.

New owner growth remains one of our key priorities, and we remain committed to getting our sales mix above 40%. However, we must balance it with our other key strategic priorities, and increasing owner arrivals is one of those. Our success in owner engagement, and therefore arrivals, creates a natural headwind to growing the new owner percentage. Having said that, our strong financial performance in 2019 importantly reflects the appeal of our products to a diverse customer base.

Last year, Gen X and millennial sales increased 20% for the full year and 32% in the fourth quarter, with the average age of our new owner continuing to trend younger. Millennial sales represented 22% of new owner sales in 2019. Our success in Blue Thread affinity sales, combined with our growing appeal to millennial travelers demonstrates we are building a strong foundation of the right owners for our long-term growth. Other notable achievements last year include the launch of a new Salesforce-powered CRM tool, the relaunch of our Club Wyndham and Worldmark vacation club brands, the completion of $1 billion in securitizations, all the while delivering on our financial commitments, hitting our loan loss provision target, and most importantly, delivering more than 8 million vacations for our owners and members.

For the fourth quarter, we reported adjusted EPS of $1.58, above our guidance of $1.49 to $1.57. Adjusted EBITDA was $265 million, 10% higher year over year with margins nearly 200 basis points higher over the prior year at 27%. Looking ahead to 2020, I want to share some insight about our strategy for Wyndham Destinations. First, our exchange business.

It continues to be reenergized under its new leadership, which is squarely focused on top-line growth and product enhancements within the core exchange business, as well as new lines of business resulting from the acquisition of ARN. We are evolving the business into an integrated consumer and B2B travel services platform, offering more solutions to RCI members and affiliates. To reposition this business into a more holistic travel platform, we're working on a new overarching brand that fully captures this vision. We look forward to sharing more details on our first-quarter call.

The next area where we are investing time and energy this year is through our technology and digital efforts. This includes a multipronged approach that begins with the consumer. We're improving all of our digital interfaces and making it easier for our owners to search and book vacations. Our mobile-first approach will make it easier to engage with owners and prospects anytime, anywhere.

We are delivering faster, easier and improved search functionality by adding resort recommendations and eventually, individual owner personalization. The new booking experience is already having an impact and was one of the drivers in 2019 that delivered 43,000 incremental owner arrivals. We are using technology to enhance our sales and marketing processes. Our new CRM system supports more efficient tour generation and gathers data for improved remarketing and prospect analysis.

We are using a suite of digital media tools to counter negative messaging from exit companies. Our team is cultivating positive social sentiment to reclaim the narrative, drive engagement and target prospects. Also, we are building on the foundation as announced last year and believe Wyndham Destinations is leading the way in the timeshare space to provide end-to-end tour package sales online. Since our launch in June, our digital team has been able to target our audience more efficiently, and then the early results have been positive.

Let me transition to our continued delivery of great resorts and great destinations for our owners and members. In 2020, we have a number of resort openings or expanding across our brand portfolio. Most notably, we are opening our new WorldMark Moab, Utah destination, which is in the National Parks corridor. We will expand or reopen two resorts in St.

Thomas, the Club Wyndham Limetree Tree Beach and Club Wyndham Elysian Beach resorts. Additionally, we are expanding the dual-branded WorldMark and Club Wyndham Kingstown Reef in Orlando. To conclude my remarks, I would like to reinforce three major takeaways from our recent performance. First, we are making the investments in product and digital technology and in our marketing channels, like Blue Thread to ensure that over the next 10 years, our strategy will continue to be one of steady growth, industry-leading margins, strong return on invested capital and consistent generation of free cash flow.

Second, our customer engagement initiatives are paying dividends as evidenced by our 43,000 incremental owner arrivals. And third, we outperformed our expectations on free cash flow by executing on our underlying business and by optimizing our balance sheet, demonstrating once again our commitment to returning capital to shareholders. With that, I would like to hand the call over to Mike Hug. Mike?

Mike Hug -- Chief Financial Officer

Thank you, Michael, and good morning, everyone. Today, I'd like to discuss our fourth-quarter results and introduce our 2020 outlook. My comments will be primarily focused on our adjusted results and year-over-year metrics. Our fourth-quarter adjusted EBITDA was $265 million, an increase of 10% over the prior year.

And adjusted diluted EPS was $1.58, an increase of 24%. Fourth-quarter gross VOI sales increased 3% to $582 million, with a 9% increase in tours and a 5% decline in VPGs. VPG was heavily impacted by mix with very strong new owner tour growth of 14% in the quarter. Adjusted EBITDA for the vacation ownership segment increased 10% in the fourth quarter to $222 million.

Revenue growth of 5% in combination with lower product cost, as well as lower G&A costs drove the year-over-year improvement. Offsetting the EBITDA increase were higher sales and marking costs due to the strong new owner tour growth. Turning to the provision for loan loss as a percentage of gross VOI sales, the provision again improved to 18.6% from 20.3% in the third quarter this year and 19.3% in the fourth quarter of last year. For the full year, the provision was 20.6%, consistent with our expectation that it'll be comparable to where it was in the prior year.

In our vacation exchange segment, fourth-quarter revenue decreased 5% as a result of the sale of North American vacation rentals, slightly offset by the inclusion of ARN. Excluding the impact of the two transactions, revenue increased 3%. Additionally, revenue was driven by a 1% increase in the average number of members and a 1% increase in revenue per member. Adjusted EBITDA in the segment increased 10% over the prior year to $55 million.

Exchange margins benefited from the sale of vacation rentals and the acquisition of ARN, as well as continued cost control. Our adjusted free cash flow in 2019 was $617 million, compared to $580 million in 2018. The increase was due to higher net income and cash that we received from the sale of inventory, which was not in our short-term sales plan, thereby allowing us to accelerate the receipt of cash. Turning to our balance sheet as of December 31, we had $355 million of cash and cash equivalents, with corporate debt at $3 billion, which excludes $2.5 billion of nonrecourse debt related to our securitized receivables.

Our net leverage at the end of 2019 was 2.7 times, which improved from 2.9 times at the end of the third quarter and 2.8 times at the end of 2018. Our leverage is also comfortably within our targeted range of 2.25 to three times. As it relates to capital allocation, we announced an 11% increase in our quarterly dividend in 2020 to $0.50 from $0.45 per share, beginning with a dividend that is expected to be declared in the first quarter of 2020. We bought back $125 million of stock in the fourth quarter at a weighted average price of $47.36 per share for a total of 2.6 million shares.

Now let me turn to our outlook, which excludes any potential impact from the coronavirus and uses year-end foreign exchange rates. For the full-year 2020, we anticipate adjusted EBITDA to be in the range of $1.03 billion to $1.05 billion, and we expect 2020 earnings per share to range from $5.90 to $6.10. As a reminder, our outlook for EPS is based on a diluted share count of 89 million shares which assumes no further share repurchases after December 31, 2019. In terms of total company revenue in 2020, we expect it to be flat to up 2%, which includes a full year of ARN and excludes the rentals business.

It also includes an increase of $160 million in fee-for-service sales. Excluding both transactions and also adjusting for the increase in mix of fee-for-service sales, comparable revenue growth over 2019 is 5% to 7%. With respect to our key drivers for the full year, we expect tours to increase 3% to 5% and VPG to be up 1% to 2%. We expect gross realized sales growth of 4% to 6%.

Our 2020 provision is expected to be around 20% of gross realized sales, net of fee-for-service sales. We anticipate that the provision as a percentage of gross VOI sales will follow a pattern similar to 2019. It will be higher in the first half of 2020, particularly in the first quarter. For the exchange business, we believe average exchange members will be flat to up 1% and exchange revenue per member will be flat to up 2%.

For the first quarter of 2020, we expect adjusted diluted EPS to range from $1 to $1.06. We expect first-quarter gross VOI sales growth to be in the low single digits due to tough VPG comps in the prior year. In addition, product costs will be approximately 100 basis points higher in the first quarter due to higher cost inventory being sold by the WorldMark brand. As such, we expect adjusted EBITDA in the first quarter to be comparable to the prior year.

This is reflected in our full-year guidance. Our outlook for 2020 adjusted free cash flow is $560 million to $580 million, representing approximately 55% conversion from adjusted EBITDA. To conclude, we are pleased with our performance during the fourth quarter, our outlook for the full year and our continuing strong free cash flow. With that, we'd like to turn the call back to Catherine and open it up for questions.

Questions & Answers:

Operator

[Operator instructions] And we'll take our first question from Patrick Scholes with SunTrust. Please go ahead.

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

Hi. Good morning. I'm wondering if you could -- there had been a number of lawsuits filed against Attorney Generals. And I am wondering if you could comment on that, how you see that progressing, impacting your business? Secondly, I noticed under guidance, your exchange and revenue per member going up materially.

I'm wondering if M&A or what else might be impacting that? And then lastly, it'd be remiss if I didn't ask a question about the virus. But I understand the Asian customer is very minuscule. But could it be possible that it might be a benefit to you folks like after September 11 when travelers stayed domestic and continued their travels by a car, which I believe many of your customers do already?

Michael Brown -- President and Chief Executive Officer

Thank you, Patrick, and good morning. Let me try to cover the two within the coronavirus and the actions by the individual Attorney Generals by state, and then I'll hand it over to Mike to handle the revenue per member. As it relates to the coronavirus, I think we're all in a wait-and-see mode. A lot changed over the weekend as we saw it began to spread and really try to quantify where the impacts can be.

Let me just first reiterate again, our total EBITDA for the company is just under 10% internationally, and that's divided between Europe and Latin America, Asia and the South Pacific, being Australia and New Zealand. We're in a wait-and-see mode in the sense of where it spreads and potential impact. 90% of our EBITDA is in the U.S. And I think you make a good point as it relates to what we saw after 9/11 as far as travel trends.

The travel trends, basically, people started to move away from long-haul travel and move to more regional travel. So you can imagine we're watching our entire business every day. And specifically, our long-haul destinations like the South Pacific and Hawaii. I can tell you, as of yesterday, whether it's bookings or cancellations, we have not seen an impact.

Now that could all change overnight, and we'll see it if it does. But until now, we have not seen any impact to bookings or cancellations in our Wyndham vacation clubs business. The only impact we've seen so far is intra-Asia travel with our RCI team. But again, it's a relatively small piece of the overall pie.

Secondly, moving on to actions we've seen from state Attorney General as it relates to exit companies. For those who haven't seen, I'd encourage everyone to read the actual complaints, but there have been two attorneys, two AGs that have gone out and filed complaints against two separate exit companies in two separate states, which is a follow-up to an additional one in the third state that happened earlier or late last year. For us, there's nothing new there other than the fact that we've known about these type of activities as one of the complaints described, and I'm paraphrasing, every aspect of the process is either false or deceitful. We've been litigating against the companies we've seen have actions that mirror that description.

But overall, for us, although we know regulatory or state actions will have an impact over time. Our focus in the near term and on a macro basis that can most affect our loan loss provision is really around our owner engagement. And that's why we're so pleased with our 43,000 incremental arrivals. This affects our business.

It affects the industry, but most importantly, we can't lose sight of it. It affects consumers and basically, the call-out in that complaint is that consumers are being harmed, and that's why the state governments have stepped in and created their own actions. We'll follow it. The wheels of justice take time, but we were very pleased and applaud the efforts of each of these states to move.

With that, I'll hand it to Mike for revenue per member.

Mike Hug -- Chief Financial Officer

Good morning, Patrick. On the revenue per member, several things that are impacting our guidance for 2020. First of all, as you recall, over the last couple of years, we've added a number of large clubs to the RCI -- as RCI affiliates. And sometimes, those members have a delay in terms of their booking because they've already booked a vacation with the previous exchange company.

In addition, the acquisition of ARN is bringing us additional opportunities to do things to enhance the experience for RCI members, so they're more likely to transact. One example of that would be the deposit plus cash program, where if a member has points that aren't sufficient to acquire a complete vacation, they can pay cash to complete that vacation. Also, ARN allows us to offer them other destinations in hotels. So they have opportunities now outside of just the timeshare exchange options they otherwise had.

In addition, we have some plans for later this year, where we'll continue to enhance other product offerings we have for our consumers. So I think it's really the opportunities we have with ARN to provide additional products to our consumers. And then making sure that we're refreshing the benefits that we offer to some of our upper-tier consumers as well.

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

OK, thank you very much.

Michael Brown -- President and Chief Executive Officer

Thank you, Patrick.

Operator

We'll take our next question from Chris Woronka with Deutsche Bank. Please go ahead.

Chris Woronka -- Deutsche Bank -- Analyst

Hey, good morning, guys.Was hoping maybe we could talk a little bit more about the ARN. I know you're anticipating a step-up in the revenue and EBITDA contribution in '20 versus what little time you owned it in '19. Can you just talk about what goes into that? And also, maybe longer term, the $10 million, directionally, where can that go as you get everything done that you'd like to do?

Michael Brown -- President and Chief Executive Officer

OK. Again, let me start with where I see the business going, Chris, and then I'll hand it to Mike for the $10 million. I'm glad you asked the question because this is an area of the business that I'm really excited about, even though it's still early days. We gave a preview of it in the script is, this is about helping our core exchange business, first and foremost.

And secondarily, as well beginning to broaden our ability to gain share of wallet for the overall traveler that may not own timeshare. So let's start with our core business. One of the elements that we launched since the acquisition of ARN, and I mentioned it in the last call, was points plus cash, and this allows an exchange owner to deposit their week and flex their individual reservation more. Maybe they don't want to use their full points, they want to just add one more night.

They can now do that with the technology that ARN has brought to RCI and create far more flexibility for not only the length of stay of individual exchange members but also the number of destinations that they can travel to. As an example, or as a tangible example of how that's impacted us. In January alone, we had 5,000 transactions on cash or points plus cash that we would not have had at the same time last year. So that's great for our members, and, obviously, it's great for our ability to drive transactions.

As it relates to outside of the individual exchange owner, the reality is most people don't own all of their vacation time with timeshare. And there's a great opportunity for ARN and the overall platform to gain more share of wallet through, whether it's flights, experiences, adding on to their stays. It's really a chance for RCI to begin broadening its business to grab that share of wallet, and we're starting to see that as well. With that, I'll hand it to Mike for the question regarding $10 million.

Mike Hug -- Chief Financial Officer

Sure. When we think about the EBITDA associated with ARN, we have talked about a $10 million number for 2020. First of all, I think it's important to point out that as we go forward and further integrate ARN and RCI, it's more and more difficult to attribute specific EBITDA to ARN, for example, the example that Mike used with the deposit plus cash. As we do more and more things, the two companies become more integrated, but what we ultimately expect from ARN and what it should allow RCI to do, and we've talked about this, really since the spin is to use the platform we have with 4 million members to get a larger share of their travel wallet and to increase the growth of that overall business, not just ARN, but also the growth of the overall RCI business through offering additional services to our 4 million members.

So we would expect basically to see in the out years, high-growth out of RCI as a result of this transaction.

Chris Woronka -- Deutsche Bank -- Analyst

OK, that's really helpful color. And then just kind of looking at the tour flow and VPG guidance for the year and really kind of, I guess, zooming in on tour flow. How much visibility do you think you have on that? And how quickly can you pivot some of your marketing programs? If you're not seeing the right mix of owners that you want, are you able to make changes intra-year to kind of manage that process? Or is it a longer-term, multiyear kind of thing?

Michael Brown -- President and Chief Executive Officer

Well, it is within the year, Chris. And our visibility is becoming clearer every year that we move from '17 to '18 to '19. And why do I say that? The two areas that we can create the most visibility are owner arrivals. We already have good visibility for the first half of this year.

And that's why, as we mentioned in our commentary, we're seeing positive leisure travel trends. And that shows up on a macro basis on arrivals into our key cities, but it also for us shows up in bookings. We have a lot of visibility on the owner side. And we're getting more visibility on the Blue Thread because there's a longer lead time for those tours to show.

Just to give you an example, a third of our new owner growth in the last 36 months has been through Blue Thread. They have a longer lead time, they have a higher VPG. So those two aspects of our business do give us more clarity. The open marketing, which has traditionally been our bread and butter, is the one we have less visibility on.

And I think, candidly, and transparently. Some of our strengths earlier in the year and some of our wobble in late Q3 and early Q4 was around trying to move marketing and push marketing to chase new owner mix, and that's our ability to drive toward. And then if we see something tactically not working, we can make changes like we did in the fourth quarter to get performance back to the VPG and tour levels we expect.

Chris Woronka -- Deutsche Bank -- Analyst

OK, very helpful. Thanks, guys.

Michael Brown -- President and Chief Executive Officer

Chris, thank you.

Operator

We'll now go to David Katz with Jefferies. Please go ahead.

David Katz -- Jefferies -- Analyst

Hi. Good morning, everyone.

Michael Brown -- President and Chief Executive Officer

Good morning, David.

David Katz -- Jefferies -- Analyst

Appreciate the commentary and the context of all the uncertainty. But I wanted to just ask how you're viewing the M&A landscape at this point? And, obviously, you looked at everything, everything that's relevant or everything that makes sense. But where would you consider the boundaries to be in terms of size, needs, etc.?

Michael Brown -- President and Chief Executive Officer

Well, I'll take that. And I think you answered it for me, but I'll add a lot more color to it, is on the M&A front, we're constantly looking at it on both sides of our business. Think everyone in 2019 was waiting to hear our pursuit of something as it related to Wyndham vacation clubs, and we talked of the far more strategic way for us to go in '19, given where the market was and where we felt we had the most ability to energize our business and energize our bottom line, it turned out to be on the RCI side, and we're very pleased with that. To me, the size of that deal should not be an indicator.

It was just the right strategic deal that would drive our strategic objectives. So I would definitely not put boundaries around any M&A, except for as we look at leveraging the strength of our balance sheet, we would want to be responsible and aware of what's going on in the general market, but we're looking and have always looked at deal potentials, both on the Wyndham vacation clubs side and on the exchange side. What I would come back and say, though, is we're very pleased with our organic strategy. We think our ability over the last 19 months to return capital to shareholders in an efficient manner and pick up two strategic deals or make two strategic deals along the way is exactly the right type of work we should be doing, and we'll continue to evaluate everything that's out there in the marketplace.

Actually, let me just add one little commentary, which is not necessarily about M&A, but I think it's important to broader context is the last decade, I really have -- think the timeshare space has strengthened because of the consolidation that's happened. When you look across the consolidation network, you saw in 2008, about one in three time shares that were sold were by branded hospitality companies. Today, that number is somewhere around two out of every three. And I think that is great for the strength of an incredible product, which is timeshare that creates value to consumers.

And I think it also bodes extremely well for the long-term viability of the industry. So I don't think it's a -- well, it's a spoken-about story, but I think that transition after the last -- over the last decade has really benefited consumers. It's created an extremely strong foundation for the industry, and I think it will propel this industry for the next decade.

David Katz -- Jefferies -- Analyst

I agree. If I can sneak in a follow-up with just a couple of details at the risk of having Chris penalize me. You made some commentary, and there's some change within the business mix about your long-term margin. Mike, can you give us a little bit of sense of what your long-term margin target is now given that changing mix? And if you have any statistics, given the earlier question and commentary around driving visitors rather than those that fly, I think that's kind of an important point.

Do you know what the percentages of your visitors who drive versus those that come in some other mode?

Michael Brown -- President and Chief Executive Officer

Well, let me touch on margin. And to be candid, I'm probably going to have to follow up on the breakdown of fly to drive, but I will make a quick comment about that in a second. On margins, we've said our long-term objective is to maintain our margins. However, as Mike and I plan through the year and work with our senior team here of what the most efficient way to drive our bottom-line growth and the most secure way to put ourselves in a position to grow above that, we see there is always a balance between Wyndham vacation clubs, RCI, cost management and margins, and we were 200 basis points up in Q4.

We think we're going to drive incremental margin here in 2020. And what we don't want to become slave to is individual secondary or tertiary metrics that people are watching and lose the bigger picture, which is inefficient bottom-line growth. And we see an opportunity. We all know we're 11 to 12 years into a cycle, that maybe the best way to grow is a solid top line, that back to Chris' question, that's balanced very well now between the exchange business and Wyndham vacation clubs and a growing margin.

So I wouldn't expect it to be materially different. But in the year where we see an opportunity to efficiently grow. That's what we're going to do. And I think we demonstrated that in 2019.

As it relates to the drive/fly, we will get back to you on what that mix is. But what we are watching right now is, obviously, we're watching Hawaii. That's the domestic long-haul destination. And again, as of yesterday, our bookings are up year on year.

Cancellations, there's been no reflection of cancellations. Again, news could change that overnight. But until now, both our long-haul and short-haul or short-drive destinations are highly demanded so far this year.

David Katz -- Jefferies -- Analyst

Very good. Thank you.

Michael Brown -- President and Chief Executive Officer

Thanks, David.

Operator

Our next question comes from Joe Greff with JP Morgan. Please go ahead.

Joe Greff -- J.P. Morgan -- Analyst

Good morning, everybody.

Michael Brown -- President and Chief Executive Officer

Good morning, Joe.

Joe Greff -- J.P. Morgan -- Analyst

Michael, earlier in your prepared comments when you were talking about some of the strategic things for this year, you touched on your digital efforts and talked about the mobile-first approach. Can you talk about the owner engagement that you've seen since this has been rolled out? And then how do you measure success or gains from here? And then I have a couple of small follow-ups.

Michael Brown -- President and Chief Executive Officer

Sure. Well, let's start with the digital, and I'm glad you started with the customer because we could also touch on the sales and marketing side, but the customer is really where I see the vast majority of the changes occurring. We've got a project in place now that really is meant to expand owner optionality when booking a vacation. We were pleased with our booking platform previously, but the new platform that's going to be rolled out in Quarter 2 internally and to the consumers via the web allows greater optionality on second, third, fourth choices if their first choice wouldn't be available.

That simply is going to drive incremental bookings online, and we've seen year-on-year increases in our online bookings. Additionally, we are actually in a more targeted way, focused on outbound bookings as well, people that may have been disengaged for 12 months to 24 months, trying to reactivate them in their ownership. As you can imagine, if you're using your ownership and getting value out of it, you're less likely to have a reason to either go to an exit company or return your week back to us through Ovation. So that's the digital side on the internal management side.

There's just a lot of work that we're doing from an inventory management standpoint to open up more inventory available to our owners. And the combination of those two really has resulted in the 43,000 incremental arrivals. We expect that number to be up again this year. And that, combined with first-year usage are the two metrics we were really following to make sure our owner engagement stays up.

Joe Greff -- J.P. Morgan -- Analyst

Got it. And then maybe it does tie into this topic. When you think about the new owner mix target of 40%. Do you think because of what you're doing to engage with existing owner sand the successes you've had there that maybe the timing to reach that threshold is pushed out a little bit?

Michael Brown -- President and Chief Executive Officer

Yes, I do, Joe. And I think there's a lot in this mix. And I've said this since we went public in June of 2018, I put a target out there of 45%. And I said, if we can get to 47% or 43%, it doesn't really matter.

Once you get a four in front of the number, I believe that that is the right long-term sustainable growth model for new owner mix. If you look in the marketplace today among our public peers, one's above us, one's the below us in mix. All three of our companies are very sound and have a great future ahead of them. So I'm not myopically focused on that specific number, but we absolutely are on our way to get above 40%.

We want to drive it as high as we can, but we're not going to get so tied to a specific number that we don't celebrate and drive what is our core business, which is putting people on vacation and when they go on vacation, they buy more. And therefore, that is a natural headwind to our new owner mix.

Joe Greff -- J.P. Morgan -- Analyst

Great. And then on loan loss provision and what you have the 20% for this year, I'm presuming that does not include any sort of incremental benefit from the two AGs in Missouri and Washington engaging in some of the more egregious timeshare exit companies. I'm presuming that's a fair assessment?

Mike Hug -- Chief Financial Officer

Yes. Good morning, Joe. This is Mike Hug. On the provision for 2020 at around 20%, and you're right.

I mean, I think we've talked about the fact that the things that we're doing, while they will impact the provision and the portfolio quality in a positive way, they're things that will take time. The first positive sign we've seen, obviously, the owner engagement, the additional arrivals, we're excited about the suits that have been filed by the AGs, but we all know that litigation takes time. So we'll, obviously, closely follow those, but we do expect a slow decline in the provision down to the 16%, 17% that we feel is the long-term rate, which is why we're leaving 2020 at the 20% provision for the full year.

Joe Greff -- J.P. Morgan -- Analyst

Got it. In other words, though, as you exit calendar 2020, you would expect that provision to be lower. And all things being equal, which I know it's not easy, but all things being equal going into 2021, you would expect that provision percentage to be lower?

Mike Hug -- Chief Financial Officer

Yeah, assuming, right, there's no other factors that come into play. But we hope, right, that the AG actions are effective, and then we'll continue to do things on the owner engagement side. So yes, long term, we do expect that the provision will come down.

Michael Brown -- President and Chief Executive Officer

Joe, just to add one more comment to that is -- I also think that now that there are three actions in three separate states, our hope is that other AGs will see it, see the path and realize that this is a widespread issue that's not designated for one company in one state. It needs to be addressed across the board. And I'm hopeful it will be an encouragement to other state AGs to take action as well.

Joe Greff -- J.P. Morgan -- Analyst

Thank you for your thoughts.

Michael Brown -- President and Chief Executive Officer

Joe, thank you.

Operator

The next question comes from Stephen Grambling with Goldman Sachs. Please go ahead.

Stephen Grambling -- Goldman Sachs -- Analyst

Hi. Thanks. Maybe just two related follow-ups. You mentioned the younger cohort growth.

Can you just talk to how they engage similar or different than the older owners. You think about them at the same age as we think about both the technology investments you're making and then the ARN benefits. And then as an potentially related follow-up, you also mentioned broadening your source markets. Can you just remind us of the mix of non-Blue Thread and how that is evolving as we think about cruise, gaming and other travel industries or even direct? Thanks.

Michael Brown -- President and Chief Executive Officer

Stephen, let me start with the younger cohort. And then I may need to come back just to make sure we covered off all the questions there. But on the younger cohort, although we talk about millennials in 22% in 2019. Across the board, we are seeing a dramatic shift of how people want to engage us as an organization, the number of times now that people are using social media at the sales table or providing feedback on their experience while they're on site, creating chat communities while on vacation.

I just saw one on social media yesterday from an owner who was posting, and owners were saying, oh, I've never been there. Where are you because that looks like a great place to be. And the technology investments that we have in this space are really -- yes, they're more engaged with the millennial traveler, but the reality is, all of our travelers are using more and more our social media. So whether it's on-site check-in, whether it's experience while you're at the resort, whether it's, as I mentioned earlier, your flexibility of booking when, where and how you book, all of those elements from a customer-facing standpoint are all being digitized and moved to a more nimble and flexible way where they hold the steering wheel, not us.

And then that ultimately translates to our sales and marketing process where we really began for the first time last year an end-to-end package sale program where you not only book on the web, but you actually fulfill, and you can find yourself at a resort on tour without having ever spoken to a marketing representative, and we view that as the next wave of how people are going to book tours. And we've seen success of that in 2019 and some specific consumer trends on how and when they're going to book online using the digital way. So our investment should be there for the next few years to really make sure we're current on that. And then your next question, Joe was around -- just remind me.

Mike Hug -- Chief Financial Officer

Broadening the tour flow mix. Just to make sure I understand what you're asking there. I mean, when we think about our tour flow mix, obviously, we've got the largest percentage of our tour flow is our current owners. We continue to see growth in the Blue Thread, where in 2020, we expect the Blue Thread to grow by at least 20% to 25%, similar to what we've seen in the prior years.

And then we will continue to expand the large national relationships we have, whether it's Latino companies like Caesars and Six Flags, the companies we've talked about, as well as looking for new opportunities. But I think the thing we're most excited about is the continued growth of that Blue Thread, as you guys know, it runs higher VPG. So that continuing to be a larger source of our newer generation is a positive in terms of, one, us hitting those new owner numbers, as well as maintaining the margins that we've talked about.

Michael Brown -- President and Chief Executive Officer

Yeah. And Stephen, I mentioned this, a third of our new owner growth in the last three years has been through the Blue Thread. And it used to represent about 5% of our new owner sales. Now it's nearly 15%.

Stephen Grambling -- Goldman Sachs -- Analyst

Got it. And maybe one other more financial follow-up. Just can you talk through some of the puts and takes and perhaps I missed this. On adjusted free cash flow guidance, which I think is expected to be down year over year, though adjusted EBITDA is still growing? Is that just securitizations or are there other capex things that are in there that we should be thinking about?

Mike Hug -- Chief Financial Officer

You're right, it is -- some of it is securitization timing. I think the important thing to note is even though it's down year over year, it's still within that range of 55% to 60% that we talked about and one of the reasons it's down year over year is because we were over 60% in 2019 as we look to detailed review of our balance sheet, making sure we're doing everything we can to maximize our working capital to look for any sources of cash that we can find. So even though the absolute number is down year over year, we are still within our range, and it is driven by the fact that we were over 60% free cash flow to EBITDA conversion in 2018 and 2019. So I would say, since the spin in June, we've done -- June of 2018, we've done a great job on our free cash flow conversion and are comfortable with the long-term range of 55% to 60%.

Stephen Grambling -- Goldman Sachs -- Analyst

Got it. That is helpful. Thanks so much.

Michael Brown -- President and Chief Executive Officer

Thank you, Stephen.

Operator

[Operator instructions] And we'll now go to Brian Dobson with Nomura. Please go ahead.

Brian Dobson -- Nomura Instinet -- Analyst

Hi, good morning. So I was wondering if you could just expand a little bit on online vacation package sales. What are the closing rates like on those sales compared to your traditional channels? And then in terms of mini vacation bookings for this year, where do they stand in comparison to the same time last year?

Michael Brown -- President and Chief Executive Officer

Good morning, Brian, what we're finding is that the conversion from lead to package sale, the conversion is lower than phone telemarketing. But the ability to reach more is a lot higher. So in the end, what you're playing toward is that you're generating a lower cost tour to your gallery by attracting a much larger funnel, but accepting that the lead to package sales is lower. Ultimately, when you see those packages arrive to site, the VPGs are almost as high as your Blue Thread tours and very acceptable from a margin standpoint.

It is an area that I would start to think about similar to the Blue Thread is we began that initiative in 2017. We saw it as a better-margin marketing channel and wanted to invest in it and grow it. You've seen the growth in Blue Thread. On the digital side, which I think there's a lot less clear playbook on how that's going to grow, I would expect, though, that our investment in the growth would be there in that channel.

And the investment, both from talent inside our organization to financial resources we put behind it will be there because although, we think the growth time line is going to be slower than instead of Blue Thread. We do believe that it is a great investment for us going forward to invest in the digital generation of tours.

Brian Dobson -- Nomura Instinet -- Analyst

Great. And then in terms of the exchange business, a lot of really exciting updates there. Could you give us any kind of color on the timing of the mobile app introduction? Is that something we should expect in the back half of this year?

Michael Brown -- President and Chief Executive Officer

Well, not only are we going to talk about the mobile app, but we're also going to talk about the overall positioning of RCI in the next-quarter call because we said that we were going to discuss the impact of ARN and what we've done really in the first six months, we gave you a little bit of a preview in the Q&A here about some of the exciting things happening. We will give you an idea on the mobile app on the next call, but yeah, we're looking at later this year related to it.

Brian Dobson -- Nomura Instinet -- Analyst

Great. And finally, just not to beat a dead horse, but on the coronavirus, have you seen any kind of traffic disruption at your open-channel marketing partners that could lead you to believe that you might see some kind of impact in tour flow later on? Or do the open-channel marketers continue to have the same levels of foot traffic?

Michael Brown -- President and Chief Executive Officer

None whatsoever through yesterday. The only impact that we've seen across all of Wyndham Destinations is really the intra-Asia exchange travel. We're, obviously, mindful of long-haul travel from Asia to the South Pacific, but that's a very, very small piece of our overall mix. And we've got our antennas up in a number of different areas to make sure that areas where you might suspect disruption, whether it be cancellations, open market tours, long-haul travel, to see if there are any signs or trends of change.

Again, the news is daily, and we're staying as updated as everyone else is. But until now, we've not seen any material disruption anywhere in the business other than as I mentioned, intra-Asia travel, which as I shared with you, is less than 1% of our total EBITDA.

Brian Dobson -- Nomura Instinet -- Analyst

OK, excellent. Thanks very much.

Michael Brown -- President and Chief Executive Officer

Thank you, Brian.

Operator

We'll take our final question today from Jared Shojaian with Wolfe Research. Please go ahead.

Michael Brown -- President and Chief Executive Officer

Jared, good morning.

Jared Shojaian -- Wolfe Research -- Analyst

Good morning, everyone. So just going back to the new owner sales mix being a little bit lighter in the quarter. I think, among the reasons you mentioned, lower new owner VPG. Can you just talk about what you've seen with close rates? And maybe why it's been a little bit harder to drive some of that new owner growth?

Michael Brown -- President and Chief Executive Officer

Absolutely. Well, let's start with some absolute numbers. For the year, our new owner sales were up 2% for the quarter, they were up 3.5%. And in the fourth quarter, our tours on new owners were up 14,000.

The reality is what I mentioned earlier is sometimes, and it's something we need to avoid is getting myopically focused on a secondary or tertiary KPI that affects how you run the business. And as we got to the end of the third quarter, coming out of the hurricane season, which came over Labor Day going into the fourth quarter, we really wanted to push toward our new owner mix percentage that we had established earlier in the year. We opened up some of the open marketing channels, whether it be ways, premiums or -- and to generate tours, and we did, as I mentioned, 14,000 incremental tours. They tend to go to the lower-performing salespeople.

And in the end, we made a tactical choice that did not -- that underperformed in early Q4. We recognized that, back to an earlier question about intra-year and intra-quarter changes that you can make, and we changed in the month of November. And the net result that we saw in the month of December is we had a record December in VPG and tours. And those VPGS, whether they were new owners were reflective of our prior-year VPGs on 10,000 incremental tours.

So we pride ourselves on being transparent about how our business is going. And not only when things are going well, but when we make decisions that may not have been the best in an individual month or quarter, and we had lower VPGs early in Q4 and saw a great recovery in December. And as I mentioned, we had a record December on both sides of the business, with VPGs back to where they've been at historical levels.

Jared Shojaian -- Wolfe Research -- Analyst

OK, thank you. And Mike, you mentioned the right number for new owner mix is probably in the 40% range. Can you help me understand why that's the right number? And is there a way to look at I don't know, maybe how much inventory your existing owners own today versus what that's looked like historically, just trying to figure out how much upside there is going forward just from these existing owner sales?

Michael Brown -- President and Chief Executive Officer

Well, it's not an exact science. And as I mentioned earlier, we have public company peers that are above us and below us. And I think all three of our businesses are very healthy. 40% when you look at transactions, that actually translates to roughly 50% and 50% transactions between owners and new owners because new owners have a lower transaction amount.

In the end, what we know is that someone that buys today will spend another $2.60 over their lifetime. And as a result of that, we know that the proper investment in the future is that we should be having around 40%. Wyndham vacation ownership ran in the low 30s for a period of time and did very well and was very sustainable for a period of time. But over the long haul, and I mean, 10 years, 15 years, a nice consistent place to be is 40%.

And if there are years you can drive it up to 45%, that's absolutely great. If there are years that it's better to be at 35%, nothing falls apart or nothing really changes in your business when you go up and down in individual years or over two years, but where owner engagement is and where we want to be at that 40% for the long haul, we think is a nice, steady way for our business to grow, have very high predictability on the top line and allows us to make individual decisions within a year like we did last year and like we will do this year around what's the right top-line growth, so that we can ensure and give us the best possible avenue to the long-term guidance of bottom-line growth in that 5% range that we're projecting now. And then Mike was going to add to your other question here.

Mike Hug -- Chief Financial Officer

Yeah. On the question as far as the upgrade pipeline available to us. Keep in mind that every year, we're generating 35,000 to 40,000 new owners into our system. So when we look at the future upgrade pipeline associated with our current owner base, very comfortable with the ability to continue to realize good upgrade business, an upgrade business that will continue to grow.

And once again, that new owner channel coming in at 35,000 to 40,000 new owners just continues to support that. So we don't see a situation right now where we have a owner base that is sold out, if you will. We're very confident in the upgrade potential from our current owner base.

Jared Shojaian -- Wolfe Research -- Analyst

OK, thank you. And one more, if I may. Just, Mike, on the loan portfolio. Can you help us think about the provision versus the write-offs because the provision was flat year over year.

I think the write-offs ticked up about 10%. We've seen that really for a few quarters now. So maybe you can just help me understand a little bit better? Like what's driving that? And is the expectation that write-offs will lag the provision, and we should be expecting the write-offs to start ticking down in 2020? Is that the right way to think about it?

Mike Hug -- Chief Financial Officer

Yeah, I think when we think about the write-offs and the provision. First of all, the increase in write-offs isn't a surprise to us. As we've been providing at a higher rate, you can see our reserve as a percentage of the portfolio is as high as it's ever been. So that is anticipation of the higher level of write-offs.

Even with the higher write-offs, we hit our provision number for the full year at around 20.5%, 20.6%. So very happy with the progress we're making as it relates to the provision. When we think about 2020 compared to 2019, I think you'll see write-offs for the full year that are pretty much comparable, 2020, 2019. You'll see heavier write-offs in the first half of the year.

But I think as the year progresses into the second half, you'll start to see an improvement in the write-offs. That trend when you think about the provision is also why we've seen historically a higher provision in the first half of the year, improving in the second half of the year. But no surprises for us as it relates to the portfolio activity in the fourth quarter.

Jared Shojaian -- Wolfe Research -- Analyst

OK, thank you very much.

Operator

Thank you. 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 -- President and Chief Executive Officer

Thank you. Thank you, and let me close by thanking the team around the world who make our success possible. Together, we're aligned to a clear strategy driven by customer obsession. Across all brands of Wyndham Destinations, we put the world on vacation, delivering a branded hospitality experience that provides travelers great value year after year.

Thank you to everyone for joining us today.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Chris Agnew -- Senior Vice President, FP&A, and Investor Relations

Michael Brown -- President and Chief Executive Officer

Mike Hug -- Chief Financial Officer

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

David Katz -- Jefferies -- Analyst

Joe Greff -- J.P. Morgan -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

Brian Dobson -- Nomura Instinet -- Analyst

Jared Shojaian -- Wolfe Research -- Analyst

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