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Wyndham Destinations, Inc. (NYSE:WYND)
Q1 2020 Earnings Call
May 06, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning and welcome to Wyndham Destinations first-quarter 2020 earnings conference call. [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.

We would now like to turn the call over to Chris Agnew. Please go ahead.

Chris Agnew -- Senior Vice President, Investor Relations

Thanks, Bree. 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.

Also available on our website, you'll find a supplemental presentation for this call. This morning, Michael Brown, our president and chief executive officer, will provide an overview of our first-quarter 2020 results in addition to an update of our current operations and company strategy. And Mike Hug, our chief financial officer, will then provide greater detail on our results, our balance sheet, and liquidity position. Following these remarks, we will be available to respond to your questions.

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

Michael Brown -- President and Chief Executive Officer

Good morning and thank you for joining us on our first-quarter call. This is undoubtedly the most challenging time many of us can remember. The circumstances surrounding the COVID-19 pandemic are unprecedented and the financial impact to the travel industry, our company, our customers and our employees had been material. Although this crisis is like no other, we will manage through it by keeping our customers and associates our top priority while protecting the long-term sustainability of our business.

Our work, since becoming a stand-alone public company nearly two years ago, has prepared us for an economic downturn, even of this size and our resilient business model and strong liquidity position that will see us through this crisis. We recognize there remains significant macroeconomic uncertainty. However, we are also operationally and financially prepared to respond as this crisis unfolds. On today's call, I will dedicate the first part of my remarks to first-quarter results.

And then the remainder of the time to COVID-19 pertaining to our liquidity position and on how to think about our second quarter and the remainder of the year. With that said, it is most appropriate to begin more broadly by offering our sincere thanks to all those on the front line of this crisis, healthcare workers, first responders and all those providing essential services. From Wyndham Destinations, I'm extremely proud of our team who moved nearly every aspect of our service operation to work from home in record time. Our resort staff has done an exceptional job to the company with local, regional and national orders, and they are now preparing for an eventual return to operations.

Let me shift to our first-quarter performance. Earlier this morning, we reported a first-quarter negative adjusted EBITDA of $44 million and adjusted loss per share of $0.98. In the first quarter, we took $241 million of charges in total related to COVID-19, including a $225 million provision charge to revenue, an estimated increase to future loan defaults resulting from this COVID-19. Many of you have seen banks increase their loan loss provisions.

However, because of timeshare accounting treatment, our provision is treated as a reduction of revenue, not an operating expense and therefore, cannot be an adjustment to EBITDA. Also, we will recover approximately 25% of the charge in the form of returned inventory reflected as a benefit to cost of sales. The additional provision charge had a $170 million negative impact to adjusted EBITDA. Our first quarter was off to a strong start in January and February, with gross VOI revenue 7% higher year over year.

In March, COVID-19 caused tours to decline 52% and gross VOI, 44% year over year. Our exchange rate business experienced a similar trend, solid start to the year, followed by a sharp increase in cancellations in March. The exchange revenue associated with those canceled bookings will be recognized over the course of the next 12 months as exchanges are rebooked for future travel. Negative adjusted free cash flow for the first quarter was $78 million as the $325 million securitization we announced last week shifted into April.

We expect adjusted free cash flow to be positive in the second quarter and positive for the first half of the year in the range of $50 million to $80 million. We paid our first-quarter dividend of $0.50 per share on March 31st, and our Board of Directors intends to declare in the second quarter cash dividend of $0.50 per share in mid-May. Needless to say, our time is now fully consumed with navigating the new COVID-19 environment and economy. There are two overriding considerations that are guiding our point of view.

First, over 50% of our adjusted EBITDA comes from predictable hospitality, net interest income and membership revenue streams. These provide predictability in our cash flow forecast and a baseline of visibility into the second half of 2020. Second, we are managing our operating business to be cash flow positive for the full year. As you will hear in our action plans, we are also very much on track to deliver that goal.

From the outset of this crisis, we have been proactive in safeguarding our owners' vacations and their use rights. We extended the time owners and members had to book their next vacation as well as waiving cancellation and rebooking fees. As of this call, booking rates for the second half of 2020 are comparable to where they were for the same period of 2019, which suggests that demand will be strong despite economic uncertainty driven by COVID-19. We expect robust occupancy once governmental health officials give us the green light to reopen the resorts.

As our extensive North American resort footprint will meet the consumer preference of drive to destinations, we expect our historical 70% of drive to arrivals to approach the 90% range. We have taken early and significant actions to maximize cash flow. These actions included reducing our 2020 project inventory and capital expenditures by $100 million in reducing our operating cost base by over $205 million through furloughs and layoffs of employees, as well as eliminating other discretionary spending. We expect $60 million of these savings to be permanent.

I suspended my salary, and the Board of Directors is taking a pay reduction, both of which began in the second quarter. Lastly, we do expect key metrics on the VOI business to be under pressure for the remainder of the year. As such, we will be slower to reopen lower-margin marketing programs. In the exchange business, we have renegotiated inventory agreements and are gearing up programs to maximize member exchange fulfillment when the recovery begins.

We expect the flexibility of our exchange system, partner with ARN's capability to be a significant advantage to drive number bookings. Turning to liquidity. At the end of the first quarter, we had over $1 billion in cash on the balance sheet. On March 25, we drew down our $1 billion revolving credit facility as a purely precautionary measure.

We have no debt maturities this year, and our next maturity is $250 million in March of 2021. We are evaluating the credit markets to determine whether we take action to provide additional liquidity. Should leisure travel remain depressed into the third quarter, we have the flexibility to make additional changes in the business to be at least cash flow run -- cash neutral run rate for the full year. Last week, we closed on a $325 million private securitization deal.

With this deal, we have $342 million available on our conduit facility and plenty of capacity to support our sales volume into 2021. With 230 resorts in our Wyndham Vacation Club business, and we expect a rolling ramp-up of both our resorts and sales offices when stay-at-home guidelines are lifted. We are monitoring local jurisdictions, and our expectation is that a number of resorts will reopen just after Memorial Day, with a slow ramp-up for other resorts into June and July. We assume urban destinations to be among the last to reopen.

As we ramp back, expect tour volumes to be lower year over year, even in the fourth quarter. Our plan is to raise FICO levels and exhibit caution in reopening marketing programs with traditionally low margins. Additionally, our focus on getting owners on vacation will place some greater weighting on owner sales in the near term. Combined, these actions will result in higher margins and a lower loan loss provision going forward.

On March 25th, like many other companies, we withdrew our full year and first-quarter guidance. The macro environment remains too uncertain to reintroduce full year guidance, but we would like to provide some outlook for the second quarter, while also acknowledging the timing of reopenings will impact our estimate. The second quarter will have very limited VOI sales and cost reductions will not be at a full run rate until later this quarter. If we assumed some limited sales in June, we would anticipate adjusted EBITDA to be flat to negative $20 million and positive adjusted free cash flow of $130 million to $160 million in the second quarter and positive adjusted free cash flow of $50 million to $80 million for the first half of 2020.

As you look to the remainder of the year, we remain confident in our hospitality, net interest income and member fee earnings streams. The remainder of EBITDA will rely on our ability to open our resorts and sales centers and realize operations on VOI sales. We believe those efforts will begin in June, ramp through Labor Day and return to a level of near normalcy in the fourth quarter. Because of the lack of clarity today, we cannot provide specific guidance on those numbers, but will once we have clarity on the economic restart and early trends related to leisure travel.

In our Exchange business, the crisis is not delaying progress of our ARN integration and growth strategies. The team is redoubling its effort to launch new products, leveraging the ARN platform, and we expect to begin rolling these out in the second and third quarter. Since our exchange business collects and recognizes revenue at the point of confirmation, we expect an earlier rebound as our members take advantage of their trading power in 2020 and 2021. To conclude my remarks, I'd like to reinforce three main takeaways: First, 50% of our adjusted EBITDA comes from predictable fee streams, and we believe this crisis will prove out the strength of our business model; second, we get paid a dividend in March, and our board intends to declare the second quarter cash dividend of $0.50 per share in mid-May, underscoring the confidence we have in our business model and our solid liquidity position; third, our preparations to reopen will include changes to sales and marketing, which, like our emergence from the Great Recession, will shift FICO score requirements higher, improve the quality of earnings and help our loan loss provision.

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 first-quarter results in more detail and also provide you with more color on our balance sheet, liquidity position and outlook for cash flow. My comments will be primarily focused on our adjusted results and year-over-year metrics. This morning, we reported our first-quarter adjusted diluted loss per share of $0.98, compared to EPS of $1.03 last year.

We reported negative adjusted EBITDA of $44 million, compared to positive adjusted EBITDA of $205 million last year. This quarter, we took $241 million of charges associated with the impact of COVID-19 in our business, the details of which can be found on Table 8 of our earnings release. But primarily consist of the estimated increase in our allowance for loan losses, inventory impairments and employee compensation associated with some restructuring efforts. Adjusted EBITDA was negatively impacted by $181 million of these charges, which are not allowed to be added back to adjusted EBITDA, as Michael mentioned in his remarks.

Our Vacation Ownership segment reported revenue of $409 million, which was negatively impacted by $225 million related to the additional COVID-19 provision. Excluding the additional provision, revenue was 7% lower than the prior year. Gross VOI revenue declined 15% year over year and was partially offset by management fees increasing 3% and interest revenue that's increasing 1%. And so, I would like to point out that our underlying portfolio continues to perform well, and we have not seen an impact from COVID-19 on defaults to date.

However, these are highly uncertain times, and therefore, we use forward-looking information, such as unemployment projections, in estimating the additional allowance that may be required for future defaults. Excluding the estimated COVID-19 impact of $225 million, the gross provision showed improvement and would have been the fourth quarter in a row of showing consecutive year-over-year improvement for that metric. In our Vacation Ownership segment, first-quarter adjusted EBITDA decreased to negative $73 million. I believe -- the $170 million impact of the COVID-19 provision charge was not excluded from adjusted EBITDA, thereby driving the negative EBITDA.

Hospitality EBITDA contribution and net interest income both increased 2% but were outweighed by a significant decline in VOI EBITDA contribution. This sharp decline in tours as a result of resort closures in March left some trap costs, particularly in sales and marketing. Many of these costs were addressed in the April through headcount reductions, furloughs and other operating cost savings initiatives. In our Vacation Exchange segment, the first-quarter revenue was $150 million, compared to $236 million in the prior year.

Excluding both North American rentals, which was sold last October and ARN, which was acquired last August, revenues were down $47 million or 26%. Average member count was flat, and exchange revenue per member declined 26% in the first quarter as booking cancellations spiked in the quarter and March bookings were 57% lower than the prior year. One item to also keep in mind with exchange transactions, revenue is recognized at booking rather than when the arrival takes place. And when the booking is canceled, the member receives a coupon or credit to book an exchange at a later date.

In the first quarter, $15 million of revenue underlying these cancellations was deferred and will be recognized when future exchanges are rebooked. ARN had a solid start to the quarter with a stand-alone gross revenue up 81% year over year through the February. Exchange adjusted EBITDA was $42 million, down $38 million, compared to $80 million in the prior year on lower transactions and the deferral of revenue on canceled exchanges. In the short run, many exchange costs are fixed and with cancellations keeping our call centers at peak staffing, there was a very high flow-through to EBITDA from lower transactions.

And so, in April, transactions this -- I'm sorry, actions were taken to reduce costs in the exchange business as well as outreach to encourage members to rebook their exchange transactions. We expect bookings to rebound quickly as our members look to utilize their deposits for vacations later in 2020 and into 2021. Turning to our balance sheet. As of March 31st, we had over $1 billion of cash and cash equivalents, with corporate debt at nearly $4 billion, which excludes $2.4 billion of nonrecourse debt related to our securitized receivables.

Our net leverage for covenant purposes at the end of this quarter was 2.9 times. It should be noted that it's often the case in the defined covenants, items such as onetime charges and expenses as well as run rate cost savings associated with the reorganization can be added back to consolidated EBITDA and calculating the ratio. The incremental allowance related to COVID-19 was the largest adjustment, but there is also pro forma run rate cost savings of close to $60 million that we have appropriately included in our calculation. Our most restrictive covenant is our first lien coverage ratio of 4.25 times, due to changes we have made across the organization as well as reductions in our inventory spending and capital expenditures, we are confident that we can manage our business to generate cash for the full year and remain within our covenants, assuming that, consistent with many economist expectations, there is a recovery in the second half of the year.

Mike will provide some thoughts on the second quarter, and I want to finish with some detail on free cash flow. We normally provide you with a bridge from adjusted EBITDA to free cash flow and provide guidance on the major items in between the -- while we are not providing EBITDA guidance for the full year, given the uncertainty on timing and the pace of reopening economy, we can comment on some of the moving pieces. We expect corporate interest expense to be around $165 million, net inventory spending to be $100 million to $120 million and capital expenditures to be approximately $90 million. Working capital as a useful source of cash will depend on the timing of the recovery in the second half of the year.

Lastly, assuming we had VOI sales in the second half of 2020, and also assuming that we can execute another securitization in the second half, and we would anticipate net consumer financing activity to be a source of cash of $80 million to $180 million. Under the assumption that the ABS markets are functioning and VOI sales restart at the end of the second quarter, we expect positive adjusted free cash flow of approximately $100 million to $150 million for the full year. In the event of either of those factors don't come to fruition, we have plans to pull the necessary levers to be free cash flow neutral for the full year. So, a couple of other points to note about the second quarter.

We will incur additional charges related to actions we are taking to reduce costs, although they will be minor relative to the first quarter. And second, we will see the provision as a percent of VOI sales heavily distorted because of the low level of VOI sales. Let me conclude by saying that we are confident too that we can manage the business and have the leverage to pull to deliver a positive free cash flow position for the full year given a range of different scenarios. So, as such, we are also confident in our ability to manage this liquidity in our covenants.

With that, Bree, can you please open up the call to take questions?

Questions & Answers:


Operator

Certainly. [Operator instructions] And we'll go first to David Katz with Jefferies. Please go ahead.

David Katz -- Jefferies -- Analyst

Hi. Good morning, everyone. Question one, just around the charge and the provision. And obviously, when we sort of put it back in, we otherwise saw some pretty strong results.

Is it fair -- well, let me ask it a different way. Are you comfortable that we don't come back in another one or two quarters and have to expand that or what would you suggest is the probability or how conservative were you in putting that together?

Mike Hug -- Chief Financial Officer

Yes. I'd say when we were thinking about pulling the number, keep in mind, right, the challenges we're all facing now are like nothing we've ever seen before, not like 9/11, not like the 2008, 2009 recession. So what we did was we looked at this portfolio performance back in 2008 and 2009, we looked at unemployment trends during that time frame, and then we looked at current unemployment projections for the next 18 months and correlate those two to come up with the estimated provision. When we think about the magnitude of it, the thought was to make sure that we are appropriate in the methodology in which we have calculated.

We used an 18-month time frame. And when you look at unemployment projections, that's kind of when you see unemployment level start to level off. But I think most importantly, when we think about where the provision we'll look at, as it relates to COVID-19 reserve for the second and third and fourth quarters, what we will have then that we don't have now is history on how the portfolio will perform. It is all estimates right now.

So that will also probably be one of the most impactful things that we've taken to consideration at the end of Q2 and Q3 is how is the portfolio actually performing. To date, as I mentioned, we haven't seen really significant increases in levels of default as a result of COVID-19. But we will obviously monitor that daily. So, once again, actual performance will be our largest driver going forward in terms of evaluating the continued adequacy.

David Katz -- Jefferies -- Analyst

Right. And my one follow-up is when we ran -- understanding historically, how many levers you have and how much control there is over this business and the business model, the assumption set that you're going with today around keeping the dividend cash flow neutral and your ability to get there, which is highly controllable, in some of the slides in the deck, that is all based on some measure of reopening as we go this summer. Do -- is it possible to sustain a lot of that, if we do have kind of a choppy period through the rest of the year, where we're either operating at low levels or maybe forced to close again for a short time? How did you sort of contemplate those kind of dynamics in what you've laid out?

Michael Brown -- President and Chief Executive Officer

David, this is Michael. Well, first of all, we -- as we laid out, we anticipate a slower reopening throughout the summer and into the third quarter and a return to near normalcy but not historical fourth quarters in 2020. So that's what our assumption is based on. And as we see how June, July, and August turn out, our first consideration is the costs associated with operating the business.

We think we will be able to bring back costs on a highly variable basis that correlates with resort openings and sales openings. So we think we can manage our business from a cash flow basis, depending on whatever turn both the economy and this COVID-19 takes. Our base assumption puts us at the level of cash flow positive that Mike laid out. In the event that it turns worse, we will turn back from an operating standpoint and more capital to continue to generate free cash flow.

And if it's a lot worse than expected, we'll always reevaluate the dividend. But the dividend really for us expresses confidence about how we see the outlook of our business, our first half cash flow, our full-year projection to cash flow and our ability and our confidence to change our operation according to whatever happens in the environment going forward. And so as you heard us say, we think that even if it goes not as well as anticipated, we can at least manage the business to be cash flow neutral for the remainder of the year.

David Katz -- Jefferies -- Analyst

Got it. Appreciate that. Thank you very much.

Michael Brown -- President and Chief Executive Officer

Thank you, David.

Mike Hug -- Chief Financial Officer

Thank you.

Operator

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

Stephen Grambling -- Goldman Sachs -- Analyst

Hey. Thanks for taking the questions. I guess I'd like to dive into the reopening prep a little bit more. Can you elaborate on how you may need to change the business as it relates to generating tours, executing tours? How do you think about reopening sales centers, whether that's from staffing levels geographically? And is there a general level of contract sales or ramping as you're talking about this reopening and recovery in the second half or at least a range of possibilities that we should be thinking through? Thanks.

Michael Brown -- President and Chief Executive Officer

Thanks, Stephen. Well, let's start with our overarching priority as it relates to reopening, whether it's resorts or sales, and that's really that health and safety protocols that we're working on. What we're seeing from consumers, whether it be in our industry or throughout travel and tourism, they want to see confidence that companies have really addressed the health and safety protocols and they feel comfortable to travel. I would say that our team has really put its top priority on exactly those elements of our business, again, for operations and resorts.

We've, in many ways, reinvented both the way our owners will check into resorts. For instance, meeting them at their tower, their unit to check them in as opposed to getting them to the lobbies. Our sales operations, no different than our resort operations, are changing their protocols to increase social distancing, increasing cleaning protocols, and in many cases, we've experimented in the month of April with virtual sales with success. So I would expect, like every business in the U.S., health and safety protocols are the most important elements, and that doesn't just apply to how people experience the resort, but also to our sales and marketing operations.

We've changed a tremendous level of our processes related to that, starting with the social distancing. As we look to the reopening of sales, I think as you look at June and July, I would look at them in a way as sort of soft openings. Getting those protocols and these processes in place is a lot of work, and we're not going to rush back into it. It's more important that our owners and our members feel comfortable with their stay.

But as you really look at how the remainder of this year is meant to play out, we think the footprint of our resorts are really supportive of drive-to destinations and getting people back to our resorts, first of all. And we're seeing the first signs of reopening in states like South Carolina, Tennessee and Missouri. Those states regulations seem to be some of the first to allow it. And also because of the fact that our resorts have been dormant for a month now, and you should expect to see more owner occupancy at our resorts as us as the developer gives up our inventory, so that we can get more owners to our resorts and maximize their use ability.

And then the last part of your question, Stephen, and I apologize for the long answer here. But as you look to the remainder of this year, we're projecting somewhere around 30% reduction in tour flow compared to 2019, being a much greater level in Q3. And then so as I mentioned, getting back to near normalcy in Q4. So -- but on average, the second half of this year, we'd expect tour flow to be weighted toward owners and down about 30-ish percent for our second half of the year.

Stephen Grambling -- Goldman Sachs -- Analyst

And then I guess one follow-up. Just on the social-distancing measures that you're talking to, and I don't know if you -- as you're looking at some of these tests or just generally from a structural standpoint, does that reduce your ability to get as many people through these sales centers or impact conversion rates as you're now looking at them? And can that be offset by the virtual closings that you referenced? Thanks.

Michael Brown -- President and Chief Executive Officer

I think we have two elements of it. As you ramp back up simply by the fact that in late Q2 and throughout Q3, the level of tour flow that we expect through our galleries, we have more than ample space in our galleries to allow for the social distancing. What used to be one table, might be two tables. Our resort operations team is going to be running in the sanitation protocols in all our galleries.

So I don't think that they are, to the projections that we've laid out, there's an issue of space constraint to get the tours through the door to the level we expect. So, as we look into next year, I think that's a little more of a realistic concern. But candidly, we've got plenty of time to plan for that. I would expect more different hours that we operate for the remainder of the year.

Again, in the short term, our space is more than capable to handle the tour for whatever we expect.

Mike Hug -- Chief Financial Officer

And, Stephen, this is Mike Hug. There's one other thing I would add too. We do about $100 million a year in telesales. So we also have the opportunity there.

For those of you that are familiar with us, if you go back -- way back to the WorldMark days, they had a very extensive telesales program. So we also have the opportunity, if we do have consumers that are at our resorts, prefer not to take a face-to-face tour, we can ramp up our telesales program and do that whether they're on vacation or follow-up when they get home. So we're actually taking some of our top salespeople now and training them on telesales. So that would be another avenue we have that can make sure that even if the tours aren't there, we still have the ability to drive VOI sales.

Michael Brown -- President and Chief Executive Officer

Just even on that, RCI has had a product called LiveStream, which allows you to make a sales presentation virtually, and companies have used it in the past. But the amount of inbound inquiries on how to use that tool across the entire industry has been noticeable. So I would expect that not only Wyndham Destinations, Wyndham Vacation Clubs to increase their virtual presentations, but also you could see that across the industry.

Stephen Grambling -- Goldman Sachs -- Analyst

Great. Thanks. I'll jump back in the queue. Appreciate it.

Michael Brown -- President and Chief Executive Officer

Thank you, Stephen.

Operator

And we'll go next to Jared Shojaian with Wolfe Research. Please go ahead.

Jared Shojaian -- Wolfe Research -- Analyst

Hi. Good morning, everyone. Thanks for taking my question. Just to go back to the provision, you've never really had an allowance balance this high.

And certainly, the magnitude of the increase quarter over quarter was also pretty extreme. So I guess, first question, are you confident you won't need to be able to do this -- you won't have to do this again in future quarters? And I know you said there's been no default issues so far, but can you talk about what you've seen so far with delinquencies and maybe people that are late on their payments?

Mike Hug -- Chief Financial Officer

Yes. So as far as future quarters, as I mentioned, we'll be evaluating it every quarter. We'll have history on portfolio performance as we look to the future quarters. I think where you look at -- if you took our -- the reserve that we put up compared to other companies, we're on the higher end of the range as far as the reserve as a percentage of the portfolio.

So I think once again, it's just a matter of looking at that 18-month time frame and seeing how things play out as far as the actual performance of the portfolio. And that if we did have to take another one, I definitely wouldn't expect it to be of the same magnitude. But I think we've gone in and did a good job of estimating what we think the additional losses are. And obviously, time will tell.

When we look at actual portfolio performance, as you would expect and is always the case, delinquencies were down at the end of March compared to the end of December, that's historically the way the trend goes. When we look at this April, about a 60 bp increase in delinquencies from March to April. So once again, not a huge increase there from a delinquency standpoint, March to April. We do have a deferral program that's in place.

I think when we look at the deferral program, a couple of things that we like about what we're seeing there. First of all, the request for deferrals peaked the first week in April, which is really when we rolled the program out. So since then, there's been a steady decline in request. And secondly, we're actually excited that when we do hear from our owners, they prefer to defer a payment or two rather than to exit the product.

So we think that those are positive metrics when we look at the portfolio and we look at the owner engagement and their desire to stay in the product.

Jared Shojaian -- Wolfe Research -- Analyst

OK. And if I look at your prior slide decks, you've always had a stat where you showed that your owners typically spend an incremental 2.5 times, a little bit more of the initial purchase on new inventory over their lifetime. Do you have a sense for how much inventory your owners own today versus in the past, maybe five years ago, 10 years ago? And really, the angle for this question is, it would seem -- and then based on what you're saying today, that over the next several months in the back half of this year, VOI sales are predominantly going to come from existing owners. I'm really just trying to figure out how much opportunity there is to continue to just, I guess, temporarily drive more existing VOI sales for the time being? And how do you think about that?

Mike Hug -- Chief Financial Officer

Yes. I think when we look at our ability to sell additional product to our current owner base, keep in mind, that's where we're getting the benefit of what we've been focused on for the last couple of years with bringing in new owners. So we've been generating 35,000 new owners a year for these last several years, that we definitely feel we have the opportunity to upgrade. And then when we look at our current order base, we are not seeing and had not seen any trends or indications that there was any information to drop in terms of that additional upgrade propensity.

So I think -- and especially when you think about where we're at now, the things that we're facing, one of the things we love about our product is, it gives you additional space. So if you're one of those individuals that maybe isn't comfortable yet going back to the restaurants when they do open, and you have that kitchen in the full active area, you can stay in your unit and eat your meals there. We also think that our product, when you look at it being branded and feeling comfortable that it will be appropriately cleaned, it is important. And then when we look at reservations into the second half of the year, we're seeing strong reservations when we compare them year over year.

So we're seeing trends in our owner base that are very consistent with what we've been saying then and with what we've seen in the past in terms of their propensity to travel and their desire to travel. And when we look at the biggest challenge we have faced in this, and I think it's really being ready to open those resorts, the team is working really hard to make sure we have the right steps in place. But what we see based on reservation trends and continued payment on loans and maintenance fees, as our owners are ready to travel.

Jared Shojaian -- Wolfe Research -- Analyst

Great. Thank you. And I'm sorry, if I could just ask one quick housekeeping. Can you tell us your updated liquidity after the securitization and how much receivables are eligible for securitization right now?

Mike Hug -- Chief Financial Officer

Yes, so we had $1.1 billion in cash at the end of April. So basically, the incremental cash from the ABS, the private transaction we did in the month of April is still on the balance sheet. Based on that, we were cash flow neutral for the month with evidence on that. And then we would expect sales -- additional sales into our ABS conduits of about $200 million in April and May.

Jared Shojaian -- Wolfe Research -- Analyst

OK. Thank you very much.

Mike Hug -- Chief Financial Officer

Sure. Thank you.

Operator

And we'll go next to Brian Dobson with Nomura Instinet. Please go ahead.

Brian Dobson -- Nomura Instinet -- Analyst

Hi. Good morning. Thanks for taking my question. So just again on the existing owners' question, how much of your contract sales in the back half of the year or, call it, for the next six to 12 months, do you think will come from existing owners? And then you previously mentioned freeing up inventory to make some more availability for those owners.

Would you remind us what the percentage of resort occupancy is usually existing owners and how that could change over the next six to 12 months?

Michael Brown -- President and Chief Executive Officer

So let me just reinforce what Mike was saying about just our overall strategy. For the last three years, we've been talking about new owners and the owner engagement as our top priorities. And this is exactly the reason you do it, is so that you develop a loyal owner base and one that is new and at the early part of the curve that Jared was just mentioning. So what our plan is to -- and for the developer inventory that we typically rent to monetize the fact that as the developer, it's our inventory, we will forego a good amount of that inventory and income associated with it so we can also get our existing owners on vacation and available for a marketing opportunity as well.

Typically, our resort occupancy, between 65% to 75% of our resorts are with our owners, and we'd expect that to go higher for the remainder of this year, into the 80s of those who are staying at the resort. And accordingly, that is what's going to drive our overweighted existing owner sales for the remainder of the year. We have moved that number of owner sales from about 66% down to about 62% over the last two to three years. I would expect it to be over 70% for the remainder of the year, not because the -- we're increasing the amount of owner sales, but just as a proportion of the reopening of new owner tours, marketing programs and owners, the owners will be the first back to the resorts.

And as we mentioned in the earnings script is we're going to be more cautious in the opening lower margin marketing programs and be a little bit more stringent on our FICO requirements. And that should be good as well for the long-term sustainability of the business in that we should be driving a stronger portfolio and greater margins for the long run in our business by that approach.

Brian Dobson -- Nomura Instinet -- Analyst

Great. That's helpful. And can you give us an example of one of the low-margin open-channel marketing streams that you might step back from or step away from completely?

Michael Brown -- President and Chief Executive Officer

Sure. We've done over $800 million in open marketing channels. And within that, there are plenty of subsets. The first and most profitable are things like the Blue Thread.

Then we've got great partnerships, as we've talked about on many occasions, the Sea World and Six Flags and Caesars, just to name a few. Those tend to be better margins. But then there may be some individual locations that are unbranded, that generate new owners, but maybe have a 2% to 4% margin that are profitable on their own. But as this post-COVID environment, those may dip to negative.

So you're really looking at open marketing channels that drove new owner business on a low-margin basis. So those would be the ones would be the last to bring back. Not saying we wouldn't, but we would -- those would be among the last. We would start with existing owners and Blue Thread, work with our partners and then we -- to really evaluate market-by-market the open market channels that were the lowest margins.

Brian Dobson -- Nomura Instinet -- Analyst

Thanks. That's very helpful. And then finally, on your exchange business. So prior to this pandemic, you were taking steps to broaden and improve its product offering, are those plans temporarily on hold or do you see this crisis as a good opportunity to continue to reshape that business?

Michael Brown -- President and Chief Executive Officer

I would even say it's definitely not on hold. And it's definitely not progressing at its normal rate. I would say we're accelerating many of those ideas because they're more relevant than ever. I used the example of the -- with Stephen's question about the RCI LiveStream on having a virtual sales tool available.

That's one product, but the ones that RCI was working on to expand its offerings to be more broad are absolutely progressing, and I would also expect to, if anything, be accelerated coming out of COVID-19 because candidly, they're not having to run a full business, while this is going on, and they've been able to -- redouble the efforts on many of these initiatives. So I'm looking forward to a really strong Q3 and Q4 from our RCI team.

Brian Dobson -- Nomura Instinet -- Analyst

Great. Thank you very much.

Michael Brown -- President and Chief Executive Officer

Thank you, Brian.

Operator

And we will go next to Patrick Scholes with SunTrust. Please go ahead.

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

Hi. Good morning. Good morning. I wonder if you can provide a little more color on your recent private securitization.

How do you feel that the demand was -- for that product -- sorry, for that issuance? And then additionally, how much of that -- I don't think this was in the filings or the press release. How much of that was a Class A issuance, Class B, Class C, and beyond, if you can disclose that?

Mike Hug -- Chief Financial Officer

Yes. So when you look at the issue, basically, it was one bucket because it was a private transaction, $325 million. I would say we were happy with the demand. When we went out, we were obviously targeting something in the $300-plus million level, and then we're able to execute on that at a very solid event rate of 85% and an interest rate of 3.85%.

So I would say we were happy with the demand, I think, demonstrates, once again, like we've said that we have access to the ABS markets, where there's public markets, which weren't available to us at the time, but the private were. And that's why when we think about the second half of the year, when resorts up and back up, sales up and backs up, we think that the ABS market will continue to also be available to us, whether it's private or public. We have a number of investors that continue to call us about doing a transaction, which once again gives us the confidence in the market. We've got sufficient capacity in our revolver to definitely get us in 2021 but just as importantly, another proof point that we have that those markets are available to us.

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

OK. Thank you. That's it.

Michael Brown -- President and Chief Executive Officer

Thank you, Patrick.

Operator

[Operator instructions] We'll go next to Chris Woronka with Deutsche Bank.

Chris Woronka -- Deutsche Bank -- Analyst

Hey. Good morning, guys. I think I understand what you said about the inventory spend declining to $100 million or $120 million. This is kind of a bit of a longer-term question, but how do you balance the fact that there's probably incremental demand in drive-thru markets right now and some of the more fly to markets, just Las Vegas, Hawaii, to name a few, might be slower to come back.

But how do you balance inventory opportunities that might become available at really attractive prices versus kind of your desire to limit spending and also focus on the markets that are currently more in demand?

Michael Brown -- President and Chief Executive Officer

Well, it's a great question. So let me hit it in two ways. First of all, adjust our supply. And I think that's one of the great parts of our geographic footprint.

We've got a great urban portfolio, places like Downtown Manhattan, which are going to be very slow to come back, and places like Austin, Texas, which has already announced a slight reopening. So then we have our WorldMark product out West, which is definitely more in -- outside the city centers and great drive-to markets, our WorldMark owner base love those drive-to destinations. So I think we're set up very well for the next year or two to satisfy the drive-to demand that's definitely going to be out there. We're not overly dependent on Hawaii.

It's a relatively small piece of our portfolio and the vast majority of our owner base can reach any one of our resorts within a short two- to three-hour drive. As it relates to inventory, we've already -- as you mentioned knockdown 2020 spending, we're in the same situation for 2021. We're already either putting it on hold or deferring our commitments in '21 to give us maximum flexibility next year, not only as it relates to consumer preferences. But maybe more importantly, very similar to '08 and '09, take advantage of a down real estate market or projects that were in need of a rescue.

So I think it will create opportunities for us next year. I think our portfolio is already really supportive of the drive-to model. That's why we expect our arrivals to be around the 90% of the remainder of this year as opposed to where they've traditionally been, 70%. So I think we're well positioned already, and we'll be -- we're in a great position next year to adjust our inventory model should we need to attract more drive-to destinations.

Mike Hug -- Chief Financial Officer

And, Chris, keep in mind, right, we also have the asset-light model that we can utilize so we don't necessarily have to go spend the cash to get access to the inventory. We could do an asset-light deal and basically go with that fee-for-service model, which allows us to great dots on the map, additional inventory if we need it in certain markets and not be out the cash under that asset-light model.

Chris Woronka -- Deutsche Bank -- Analyst

Yes, yes. Thanks, guys. That's great color. And just as a follow-up, Mike, as you guys look out, say, five years from now, hopefully, COVID is a distant memory in your rearview mirror.

Some of these initiatives related to virtual tours and things like that. Do you think there's some extrapolation of that and that, that -- some of the things you might have been working on the digital front before all this started, this might kind of accelerate that that might become just a more sustainable option, not to suggest that all of your tours are going to go virtual. But could that be more of a complement? And do you think that has an impact on the longer-term period of cost structure of the business in terms of sales centers?

Michael Brown -- President and Chief Executive Officer

The short answer is yes. The longer answer is, I actually think this pandemic, the phrase we're using around here is, it's tough to change tires going 70 miles an hour. For 30 days, the car has been in the garage, and it's a lot easier to change tires. So for us, I view this as an opportunity to accelerate our innovation, whether it be through the sales process or the digital work that we've been doing I see the changes that are occurring today to be an accelerant to the evolution we were already on and the investment that we were already making.

Things do change over time. And this has given us also an opportunity to get really focused on the projects that we thought we needed to get to over time anyways. It's always tough when you're in an 11-year bull market, moving up constantly to make those changes when you're going such a fast speed. And in an odd way, this last 60 days has allowed our teams to really accelerate many of those ideas.

You heard me mention it in Brian's question. We've talked about virtual tours. And there's a laundry list of elements that are going to not only change our business, but also really heighten the customer experience. I mean, and I love what our resort operations team is doing.

They've been experimenting with this fast check-in for about a year now. And now that they've had time to work on it, they're going to be pretexting owners on their drive-to our resorts, giving them the time to check in, telling them in, for instance, our Orlando property, which tower that we have to go to. And our front desk agent will meet them at the tower and they can go straight to their room without ever seeing a 7,000 square foot lobby if they don't want to visit it. So this is -- and as I mentioned, this is just going to accelerate innovation, not slow it down, and I do think it's sustainable.

Chris Woronka -- Deutsche Bank -- Analyst

OK. Very helpful. Thanks, guys.

Michael Brown -- President and Chief Executive Officer

Chris, thank you.

Operator

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

Michael Brown -- President and Chief Executive Officer

Thank you, Bree. Let me acknowledge once again all those in our communities who have adapted to this situation by stepping up to provide essential services for our daily lives. I also want to thank our associates. Unquestionably, these times have been extremely difficult for all of you.

I'm just proud of what everyone has done in the way we've reacted first professionally. But maybe my most proud moment is how our associate base has responded compassionately, to not only serve our business, but in a much broader way to serve the communities that we are a citizen of. So I'm really thankful to our associates. I'm proud of everything they've done to react to this pandemic.

I want you to know that we appreciate all your hard work. I also want to say thank you to everyone who joined us today and we wish you well, and thank you for joining us and look forward to speaking to you in the near future.

Operator

[Operator signoff]

Duration: 2 minutes

Call participants:

Chris Agnew -- Senior Vice President, Investor Relations

Michael Brown -- President and Chief Executive Officer

Mike Hug -- Chief Financial Officer

David Katz -- Jefferies -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

Jared Shojaian -- Wolfe Research -- Analyst

Brian Dobson -- Nomura Instinet -- Analyst

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

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