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Good morning, and welcome to Wyndham Destinations Second Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Chris Agnew. Please go ahead.
Thank you, Keith. 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 at 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 second 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'll be available to respond to your questions. With that, I am pleased to turn the call over to Michael Brown.
Good morning, and thank you for joining us on the call today. This morning, we confirmed our second quarter results following the preliminary second quarter release on July 20. We reported adjusted EBITDA of $16 million and adjusted free cash flow of $166 million. The second quarter highlighted the strength and resiliency of our business model and although the majority of our resorts were closed for much of the quarter, we delivered $343 million of revenue and produced positive free cash flow and EBITDA. The second quarter saw 2 significant macro events. The global call for greater social justice and racial equality in the wake of George Floyd's death as well as the economic crisis created by the coronavirus pandemic. I am proud of how our organization has responded to both and want to reaffirm our unwavering commitment to address both events head-on, knowing that our culture of diversity and inclusion and economic performance will prove this out in the months and years to come. Our resorts and sales operations were for all intents and purposes closed in April and May. The reopening phase began at the end of May and progressed throughout June, and we ended the second quarter with 85% of our U.S. resorts and 56% of our sales locations reopened. Similar reopening time lines were seen by RCI and its developer affiliates. In the second quarter, key metrics in both business segments, Vacation Clubs and Vacation Exchange, performed well during the reopening phase. With that said, we saw consumer sentiment declined at the end of June, which continued into July. The spike in new COVID cases has resulted in consumer sentiment retracing back near April lows. This became evident as short-term vacation cancellations increased in June and July. To give you a sense of the magnitude, at the peak of the closure period, our reservation cancellations were nearly double the level in 2019. As we reopened in June, those cancellations began to moderate. But as COVID cases accelerated from around 20,000 cases per day to more than 60,000 in July, cancellations returned to April levels at Wyndham Vacation Clubs and a similar trend emerged at RCI. We do not believe the underlying demand for leisure travel declined. However, the short-term willingness to travel diminished and resulted in the pullback we saw in late June and July. To highlight the headwinds we saw, it's best to look at several key markets. First, our expectations of reopening in Hawaii, California and New York have all been delayed due to COVID. Second, the surge in cases occurred in 5 key states: Florida, Texas, Arizona, South Carolina and Tennessee. These states represent just under 40% of our annual VOI sales and the surge has negatively impacted arrivals. Third, while we are raising credit standards, we are seeing a higher number of new owner prospects in some of our larger markets who fall below our marketing qualification criteria. However, there is a silver lining. The elements of our business that we control performed well during the reopening phase. Let me share a few proof points. VPGs in July are more than 30% higher than prior year, and close rates across all channels are up nearly 300 basis points as we benefit from putting our best salespeople in front of our better quality leads. Blue Thread sales have represented 17% of new owner sales. FICO scores are up just under 10 points, and our mix of 700-plus FICO scores is up more than 700 basis points. 93% of owner arrivals were by car, up from around 70% previously. Loan deferments peaked in early April and have decreased every week, except one through the end of July. RCI North America booking volume was clearly rebounding throughout the second quarter and achieved 5% year-over-year growth for the month of June before the COVID resurgence in the Sunbelt states at the beginning of July. Although this pandemic has created unprecedented uncertainty, the green shoots we are seeing in our underlying business are indicative of the stronger business we can expect in the future. Current headwinds are directly tied to COVID. And it is a matter of time before consumer sentiment returns to historic levels, resulting in an increase in quantity of owner arrivals and improvement of credit quality for nonowner prospects. I would now like to talk about how we have used the last few months as an opportunity to accelerate some of our investments and strategic initiatives. Reignition of our exchange business has been a key strategic focus, and we are making great progress. Earlier this week, we announced the launch of the new parent brand for our Exchange and Travel business. The new segment called Panorama will include our timeshare exchange companies, including RCI, the world's largest vacation exchange network, 7Across, formerly known as DAE, and The Registry Collection. Panorama will also feature our travel and leisure businesses, Love Home Swap, Tripbeat and Extra Holidays as well as leading property management and travel technology platforms, @Work International and Alliance Reservations Network, or ARN. Panorama, with its breadth of membership assets, expertise in commercial relationships, coupled with its strong leadership, has a great opportunity to broaden its scope within the travel and tourism market. Olivier Chavy, who joined us in 2019 and brings global travel industry experience, was named President of Panorama. The Panorama expansion plans will pursue 3 paths. First, we plan to offer nearly 4 million members more ways to utilize their memberships, allowing them to use their exchange currency for rich experiences and meaningful travel all year long, not just for a week or 2-week period every year. Our goal is to serve as a true end-to-end travel provider across the full spectrum of travel and vacations. Second, our Club 365 membership product sold by RCI Affiliates as a trial product will be greatly enhanced on the ARN platform. And third, the ARN platform will allow for travel membership expansion opportunities outside the traditional timeshare ownership. Our existing direct-to-consumer business lines will be converted to the new platform with significant brand, marketing and business development focus for expansion. The first significant expansion beyond the timeshare space will be the launch of Panorama Travel Solutions, a new travel services business powered by ARN to provide customized global discount travel membership clubs and travel technology solutions to affinity partners, including large employers, banks, retailers, trade associations and others in the U.S. and abroad. We have also been accelerating innovation within our Wyndham Vacation Club segment. These innovations not only make for a better vacation experience, but also provide our guests with more ways to social distance in today's COVID environment. We have reimagined our check-in process, innovated the on-site experience with RFID wrist bands to increase engagement with our guests and went live with our new Club Wyndham website in May to ensure our owners can plan and book their next adventure. Looking ahead, let me share some thoughts on the second half of 2020. We expect tours to be down 60% from the prior year, with 80% of this reduction coming from lower-margin new owner tours. We expect VPGs to be 30% higher than the prior year. We expect Wyndham Vacation Clubs, owner arrivals and Panorama bookings to improve through the fourth quarter, but not to 2019 levels. We anticipate accessing the ABS market when terms are most favorable, and we expect our provision to be below 20%, benefiting from the improvements in credit quality we have made this year. And finally, more than 50% of our normalized adjusted EBITDA will continue to come from predictable hospitality, net interest income and membership revenue streams. Against the backdrop of an unprecedented economic environment, our second quarter performance highlighted the strength and resiliency of our business model and its strong free cash flow generation. While the range of outcomes remains broad, our priorities remain unchanged. Our underlying business is performing, and we have a much clear line of sight to the second half of 2020 than we did when we last spoke to each of you in May. With that, I would like to hand the call over to Mike Hug. Mike?
Thanks, Michael, and welcome to everyone joining our call. Before I discuss our financial performance, I would like to thank our teams for their tremendous efforts in helping the company manage through this challenging time while remaining focused on emerging stronger on the other side. I've been very impressed and energized by how our colleagues have come together to understand and swiftly address current challenges and adapt to our new ways of working with a focus on customer obsession, one of our strategic pillars. Today, I want to discuss our second quarter results and also provide you with more color on our balance sheet, liquidity position and cash flow outlook. My comments will be primarily focused on our adjusted results. As previously mentioned, we reported second quarter adjusted EBITDA of $16 million, with $15 million of timing favorability on items we had expected to be realized in the second half of this year. For the second quarter, we reported a loss per share of $1.11 compared to earnings per share of $1.45 in the prior year. Wyndham Vacation Clubs reported revenue of $239 million with gross VOI revenue of $18 million and an adjusted EBITDA loss of $17 million. Tours and VPG were heavily impacted by the closure of our resorts for the majority of the quarter. VPGs in June, however, were 8% higher year-over-year. And as Michael mentioned, VPGs have been even stronger in July. The higher VPGs reflect both the increased mix of owner sales and higher quality leads sitting in front of our best salespeople. Our underlying portfolio continues to perform well with delinquencies performing a little better than normal for this time of year, driven in part by deferral programs. Request for deferrals were the highest in the first week of April and have trended down nicely since that time. At the peak, 6% of our loans were in deferral, but that number is down to 3% of loans outstanding as of the end of July as some owners are now exiting their deferral period. We have remained in close contact with these owners and are seeing the majority of them return to making payments. We remain comfortable with our overall allowance on our receivable portfolio, considering the continuing uncertainty around the duration of the pandemic and its economic impact. Our newly branded Panorama segment reported second quarter revenue of $100 million. In the prior year, Panorama reported a comparable $164 million. For comparability, we excluded the North America vacation rentals business, which we sold in October last year and the acquisition of ARN, which occurred last August. Panorama adjusted EBITDA was $40 million in the second quarter compared to $68 million in the prior year. With the expansion in the breadth of Panorama's business, exchange revenue per member will become less relevant as a revenue driver as our growth will increasingly be driven by nonexchange member transactions. As a result, we are tracking 2 new metrics; Panorama transactions and average revenue per transaction. In the second quarter, all of our revenue drivers were negatively impacted by COVID. In the future, we expect to see robust transaction growth for this segment partially offset by a decline in average revenue per transaction, given an increased mix from ARN. In total, though, this will net to positive revenue growth. Year-to-date, ARN has added more than 130,000 transactions, nearly 30% of Panorama's volume. We plan to report on these metrics more broadly once we lap the ARN acquisition later this year. During the quarter, we had $106 million of total COVID charges, with $87 million added back to EBITDA. $46 million of those charges were related to our decision to exit our lease space in New Jersey with the remainder related to employee compensation and severance and impairment of other assets. Turning to our balance sheet. As of June 30, we had over $1 billion of cash and cash equivalents with corporate debt at $3.9 billion, which include -- excludes $2.5 billion of nonrecourse debt related to our securitized receivables. Our net leverage for covenant purposes at the end of the quarter was 3.4x. It should be noted that as is often the case in the defined covenants, items such as onetime charges expenses as well as run rate cost savings associated with the reorganization can be added back to consolidated EBITDA in calculating the ratio. Two weeks ago, we amended the financial covenants for our revolving credit facility through March 31, 2022. The covenant relief provides flexibility by raising the first lien coverage ratio, while allowing us to maintain our ability to pay our dividend, subject to a $250 million liquidity covenant, which increases by $0.50 for every $1 of dividends paid. We also retained some flexibility to act on acquisition opportunities up to $250 million. We proactively amended our revolver due to the continuing and potentially extended uncertainty in the United States around the timing and magnitude of the economic recovery. We have the right to elect out of the credit agreement at our discretion, at which time any restrictions resulting from the amendment would be lifted. We paid our second quarter dividend of $0.50 per share on June 30, and the company expects to recommend a third quarter dividend of $0.30 per share for approval by the company's Board of Directors in August. We are paying a dividend because we believe in the underlying strength of our business, cash flow and liquidity. We believe the dividend at this level is attractive to both current and potential shareholders and is sustainable. In July, we issued $650 million of senior secured notes with an interest rate of 6.625%. We were pleased with the transaction, which strengthens our balance sheet. We used $350 million to pay down our corporate revolver and intend to use $250 million for the repayment of our secured notes due in March 2021. Back in March, we withdrew our normal comprehensive earnings guidance. We did, however, provide an outlook for adjusted free cash flow for the full year of $100 million to $150 million on our first quarter call. With a continued wide range of outcomes, at the end of the year, we expect to be adjusted free cash flow positive. Our previous guidance was based on preopening projections with our revised guidance based on current trends, including the continued uncertainty around COVID and related impacts to leisure travel. Our new guidance assumes a 60% reduction in tour volumes in the second half over the prior year and reflects increased volatility of vacation cancellations. Let me conclude by saying that we continue to be confident that we can manage the business to deliver on our objectives through the end of the year. With that, Keith, can you please open up the call to take questions?
[Operator Instructions] We'll take our first question from Chris Woronka with Deutsche Bank.
Thanks for all the helpful data points and other information. I wanted to ask you on the -- what you're kind of seeing on the -- with the increased cancellations? I mean can you tell when those folks made reservations? I mean is this something where they kind of saw what was happening in March and April, they planned to go in July and then, obviously, caseloads went up. Or is the booking activity much closer in and people are just kind of making aspirational bookings and then kind of canceling them last minute? Is there any way to kind of delineate between those 2?
Absolutely, Chris. And it's one of the key metrics we're watching every single day because on the gross booking side, we saw relative consistency heading into the reopening phase. There seem to be that consumer sentiment heading to a more positive direction and gross bookings went right with it. Then what happened as we got to the end of June and COVID cases began to spike, you would see the cancellations coming in against that. So we've almost had 2 phases of gross booking trends. First was what was already on the books before the end of March. Many of those fell off in April. And then as the national conversation moved to reopening phase, generally consumer sentiment moving upwards, those gross bookings picked up again and then have fallen off. The gross bookings haven't fallen off, but cancellations increased against that as cases spiked. So as we look forward, we are looking for gross bookings to continue to follow what happens in the general trend around daily new cases.
Okay. That's helpful. And then as a follow-up, I'm curious as to whether you're seeing any change in the -- in your -- primarily owners who are transacting right now? Any change in their behavior in terms of are they buying bigger units? Are they buying more -- equivalent of bigger units? Are they buying more points? Are they lower or higher propensity to finance? And just how you think about that? If your owner mix is going to be changed for a little while, what kind of impact that has maybe beyond just the VPG?
So as we went into this closure period, probably the biggest question for us and maybe for everyone in the industry was what would the behavior look like as the reopening phase began. And that has been one of the clearest indicators that we saw in June is that the buying behavior from our owner base is going to look very, very similar to what we saw back in January and February. The transaction prices are very similar. Our closing rates are up and our VPGs are up. And of all of the elements that we were the most anxious to see, it was exactly those metrics, and those metrics are performing very similar to the pre-COVID shutdown, and it gives us a lot of confidence going forward. And that's why we've tried to gear our remarks toward the ebb and flow of the remainder of this year is really going to be tied to what we see in COVID because that's driving -- that is the clear driver of consumer sentiment today. But a lot of confidence in what we're seeing on key purchasing metrics. And I would say the one thing that we've spoken about that we were going to do it during the shutdown period was strengthen our marketing and look for a stronger quality. That is clearly showing up in the FICO statistics, in our closing statistics and our VPGs, and that will ultimately lead to good margins for our business going forward.
Next question is from Ben Chaiken with Crédit Suisse.
It sounds like July exchange revenues accelerated meaningfully in the quarter from presumably down below 40% at the trough to minus 23% in June, I think you called out. Are you seeing that trend continue? And then kind of can you help describe maybe what's driving that?
So we definitely saw that as we -- no different than Wyndham Vacation Clubs as we saw the reopening phase began and consumer confidence began to pick up, we saw bookings increase. As we moved into June, no different than Wyndham Vacation Clubs, we've seen that pull back. At one point in June, we saw bookings pretty much equivalent to prior year, and we've seen that move slightly down in July to roughly 15% decline from prior year. So the trend that we saw at Wyndham Vacation Clubs, we view as a little bit more of a macro trend of that. Recovery started, came out good, heading in that sort of Nike swoosh direction and then stall to a certain degree in July, but stalled at that higher level.
Got you. And then just one more. It sounds like delinquencies might be better than you were thinking? It sounds like the deferrals were 6% and then down to 3% at the end of July. Is there any difference that you see today versus maybe what you've seen in past cycles from a consumer behavior standpoint? Any reason may be why?
Yes. And this is Mike Hug. I'll take that one. We've been very pleased with the way the portfolio has performed. I mean our delinquencies are just barely over 2019 levels, about 8 bps over 2019 levels as of the end of June. So overall portfolio performance we've been very pleased with. And I think what we're seeing is that, one, the deferral program has helped, and we're also pleased with -- as these people are coming off deferral, they do appear to have the cash to continue with making their payments. So I do think, obviously, the hope is that this pandemic is short term. I think in other cases, maybe the economic outlook has been for a longer term in terms of when the recovery comes. So I think the consumer still remains optimistic, and as a result is continuing to pay on their obligations. So I'm overall, once again, very pleased with the performance of the portfolio.
Our next question is from Joe Greff with JPMorgan.
Can you hear me okay?
We can hear you great.
We can hear you. Thanks, Joe.
Great. You may have said this, I may have missed it. But I was hoping in the Wyndham Vacation Club segment, if you can give us EBITDA generation by month? I'm presuming June was some degree of positive EBITDA versus larger EBITDA losses in the first 2 months of the 2Q.
Yes, you're exactly right. We did start to trend positive in June. The first 2 months were losses as you would expect because we really didn't have any of our resorts open or our sales operations. So definitely a positive trend in terms of this last month being more profitable than the first 2.
Do you want to give us the first couple of months of EBITDA generation? Just to give us a sense of what the base is from here and how to think about it for the second half of the year?
Yes. We'll have to get back to you with that.
Okay. And what you're seeing in July sequentially is that EBITDA generation of Vacations Club is stronger than what you've seen in June presumably so with resorts more fully open.
Yes. This is Mike. Joe, that's absolutely the case. And when you look at the second half of this year, the generation and overall and it ties -- even the cash flow is going to be really heavily tied to VOI. We had a reopening phase, I've called it a transition phase, in June. We opened July with roughly 80%, 85% of our resorts reopened. And therefore, our VOI generation has been much better in the month of July. And therefore, that segment of our business has improved. So yes, we're seeing sequential improvement in both the Wyndham Vacation Clubs EBITDA as well as our overall EBITDA. And we would expect that as consumer confidence continues to grow.
Got it. And then just one follow-up going back to the cancellation activity that you've seen. I mean do you feel -- and I'm looking at your Slide 9, when you look at beyond the next months, so starting in September through the end of the year, when you look at what you have as of July 28 on this slide, do you feel that those net reservations have been, I don't know, I guess, derisked a little bit with cancellations? Or is it really the cancellations that you've seen in sort of July, obviously, and August? So I guess when we look at this, should we kind of take sort of the 2020 net reservation activity with a grain of salt given your cancellation commentary?
No. I don't think so because what we've tried to do is adjust for the current environment in our latest outlook in during our prerelease. Our underlying assumption going forward is that -- well, let me just step back. When we made our projections back around Memorial Day, the national COVID cases rolling 7-day average was 18,000, and it was there at the end of May and then early June. And then as it progressed to the middle of July, that same rolling average was 3x as high in the mid-50,000s as far as daily new cases. So as we projected out the remainder of this year, we've tried to take into account the fact that COVID cases will remain elevated. We haven't anticipated they're going to 100,000. We haven't anticipated they're going back to 20,000 in the near term. So we've tried to take into account that, ultimately, a more modest rebuild of consumer confidence than we last expected in the middle of May. And when you look at net arrivals for the remainder of this year, we're expecting them to be just under 80% of what they were in the second half of this year compared to 2019, a little softer in the third quarter and a little stronger than that in the fourth quarter. So just a general steady improvement in consumer confidence for the remainder of this year, but nothing dramatic in either direction.
And Joe, getting back to you on the adjusted EBITDA for Wyndham Vacation Clubs for the segment for the quarter, they had $17 million loss in adjusted EBITDA. Basically, in June, they had a profit of $28 million. So you can see the difference would be the losses that were incurred in April and May.
Our next question is from Ian Zaffino with Oppenheimer.
Can you guys just touch upon what's going on in the third-party default side? As far as activity there, what you're seeing, how that's sort of changed with COVID now?
Ian, thanks for that. It's definitely even though the pandemic has preoccupied everything we're doing, we are still continuing to pay attention to everything happening on the third-party side. A few things. First of all, really not related to Wyndham Vacation Clubs or Wyndham Destinations, but there has been a lot of state activity as it relates to pressing exit companies for their business practices. And in fact, questioning them and either filing complaints or raising concerns in the courts related to their activity. We're continuing to watch those cases as they unfold. I believe it's now up to 3 different cases against 3 different companies in 3 different states, maybe more by now, as I know there's been some recent action. So what we have felt is the case in many of our individual corporate suits seems to be playing out now at the state level, especially in an environment where consumer protection is even more important when people are looking to survive this pandemic. They -- I think the states' offices are really wanting to take a closer focus on consumer protection, and obviously, we're supportive of that. I think as Mike has shared, we're seeing nothing unusual in our portfolio. And as he shared in delinquencies and deferments, we don't -- we have not seen any uptick or any new concern as it relates to third-party impact to our portfolio.
Okay. Great. And then just a follow-up on the, I guess, increases in cancellations. I was wondering if maybe you could delineate. It sounds like you believe a lot of that was driven by, let's just say, consumer sentiment. Is that more so the case than, let's just say, additional travel restrictions being put in? I know Hawaii, there's difficult travel restrictions that might lead to the cancellations there. But if you look at sort of the contiguous 48, is that driven by sentiment, which it sounds like you were saying versus like travel restrictions or self quarantines or forced 14-day quarantines. Is that kind of correct? Maybe delineate for us.
Well, Ian, it's really an important question because I think it really should shape the way we look at the second half of this year. First of all, I absolutely believe the demand for people to take leisure travel is very high. We've said throughout this, and I think there's even an article in the Wall Street Journal today about leisure demand is and will be the first to return, and we still believe that to be the case. We've shown in the reopening that the metrics are going to be strong when the quantity picks up. And although we're talking about headwinds to arrival, our occupancy in the month of July was between 60% and 70%, even though the month's not done, we know that that's going to be the case. So I think a lot of leisure travel, a lot of hospitality would wanted to be at those levels. So despite a tripling of COVID cases, the underlying metrics we feel are very strong. And I apologize for the long preamble to answer your question, but I think that's an important component. We see the biggest impact to arrivals to be daily cases. Yes, Hawaii has delayed until probably September. Yes, San Francisco is likely to be September. New York will be reopening in the month of August. But the self-quarantining and the market closures, we think, are relatively isolated. And we think the #1 driver of cancellations is the consumer sentiment and what's showing up in daily cases.
Our next question is from Jared Shojaian with Wolfe Research.
Can you give us a sense for how much daily tours are running down year-over-year right now? Just so we can have some context for the down 60% second half guide. And then in that thought process, did you assume the daily decline continues through year-end? Or are you assuming a ramp-up as we get into -- later into the fourth quarter and then by year-end?
Absolutely, Jared. It's -- I would put it very similar to what we're seeing in net arrivals. As we mentioned, we expect it to be 60% down in the second half of this year, of which 80% of that decline -- 80% of that 60% is on the new owner side. We expect it to be a little more than that 60% here in the third quarter and a little less so in the fourth quarter. All that's to say that we expect a sort of, I won't say a slow grind, but a steady increase in confidence as the year plays out. And that's how we've projected both the third and the fourth quarter. Just to give you a sense of July, we expect to be somewhere around $75 million of VOI sales with very strong VPGs. So once you get quantity back, that should all play out very well in margins because we've not only improved our segment results, but, as we've discussed on multiple occasions, we continue to make our overall infrastructure more efficient and we believe those infrastructure takeouts will -- are sticky, and we will be able to keep those cost reductions into 2021.
Okay. And just a clarification. Did I hear you say that the July VPG down 30%. That's also your expectation that the second half will be down 30%?
No, no, no. The July...
Up 30%, I'm sorry.
Yes. The July VPGs we expect the second half of this year to be over 30% VPG lift from prior year and not too dissimilar than the commentary on arrivals. We think July might be a bit stronger than that. But at the end of the year, the second half of the year being 30% -- at least 30% up on VPG compared to prior year.
That's helpful. And so my question on that then is if tours and VPG often are inversely correlated and you're expecting to see tour flow really build throughout the second half of the year, is there anything specific that's giving you that confidence that you're still going to be able to maintain that up 30% that you were seeing in July as tour flow continues to build?
I do. A number of elements. First of all, what we've done as it relates to our overall marketing criteria will -- is new in the reopening phase and will continue throughout the remainder of this year. Because volumes -- we are not in a top line chase at this point. We're in a build back scenario. We have our best talent now speaking to higher quality tours as far as marketing qualifications. And thirdly, as you're getting some form of mix effect by the fact that as we said going into the reopening phase that we would be more weighted toward owner tours for the second half of this year.
Next question is from Patrick Scholes with SunTrust.
Taking a little bit of a step back, you know thinking about that extraordinary large loan loss provision you took in 1Q, in hindsight, do you feel that, that was too conservative, the right amount of conservatism or not conservative enough now that you've -- the dust is starting to settle a little bit?
Yes. I think when we sat down, looked at it at the end of the second quarter, obviously, we didn't make any adjustment to it. So I think we feel the reserve is still appropriate. In terms of whether it's too conservative or not, keep in mind that when we put the reserve in place, we really took an 18-month outlook, really kind of projecting what we expected through the end of 2021. We're really just kind of 3 months into that 18 months, so we are very pleased with the way the portfolio is performing. I would say it's too early to say it's conservative, but I would say the trends are positive in terms of looking at delinquencies, looking at how people are returning and making payments when they come off deferrals, the fact that deferrals have almost completely gone away as far as new requests. So yes, I think we're happy. We acknowledged when we talked about the reserve in the first quarter that it was at the higher end of the range when you compare it as a percentage to what some other companies with consumer portfolios had booked, but too early at this time to say that the number was too large. We'd like to think that over the next 14 to 15 months, the portfolio continues to perform well, but we'll just need more history, especially in these uncertain times.
Understood. And my follow-up question, in your prepared remarks, you had talked, and I apologize if I didn't get this correct, about seeing a larger but not qualified folks who want to take a tour. Could you give a little more color on that? Assuming I got that correctly, what's behind seeing that increase?
Well, Patrick, you heard that. We didn't expand on it. But it's more of a broader commentary on what we're seeing as far as the first returnees to many of the mega markets, such as Vegas or Orlando is, I would say, the FICO scores have been disproportionately at the lower level than we would have typically seen in sort of an upmarket. So that's also driven some of our decisions not to pursue as aggressively the new owner marketing return is. It's just general market conditions seeing that the FICO scores have been a little lower. The lower FICO scores have been a little higher percentage of the tourists or prospects that we're seeing in the market. So that's what that was referring to. And again, I think as tourism picks up and you have more quantity of travel, that will naturally self-correct.
Would you say that's reflective of not having much, if any, fly-to customers coming in with the assumption being that customer perhaps is in a better FICO or financial position than a drive-through customer?
Do you know, Patrick. It's a great question, and honestly, I don't know that I have the answer to that. I listened to your questions to our sister company at Wyndham Hotels yesterday, and I'm always listening for what everyone else is saying as well. It could be or it could just be -- it's very early in the reopening and people that are anxious to get out have gotten out. So I wish I could give you a clear answer, I'm not sure. But what I -- if I could just pivot here for a second. I did notice on the call yesterday you all were talking about occupancy. And it to me is just a reminder that although we spend a lot of our time talking about headwinds and cancellations, and we're not -- we would have wanted a stronger rebound. But when you really distill what's happening in the timeshare space today and, well, specifically with us, our occupancies are mid-60s. And to me, it really gets back to the fundamental point that leisure travel, timeshare space, you own your vacation, you want to get back to normalcy as quick as possible. All those macro trends we talk about are playing out. And our starting point was to get back to 80%, 85% occupancy. And I think the difference of what you're seeing between us and the hotel space today is the starting point was different. As a timeshare provider, we want to be consistently in that 80% space in the summer season, and we're at 65% roughly. That's still great, and it shows the strength of our business. But our expectation coming into the reopening was just a little bit higher. But we're pleased where we are. And we think that number is only going to grow from where it is today.
Our next question is from David Katz with Jefferies.
You obviously have covered a lot of the detail that's important. So I'll apologize for going back to it. But you talked, Mike Brown, about your sightline for the rest of the year. How have you been -- look, irrespective of where our optimism baseline might be, we do need to consider what a bit more bearish case could be. And given the fact that we're seeing cases increase in certain places, really on a weekly basis, if you could just talk about how you contemplated the bear case of cases resurging or appearing for the first time to be significant in new places that we haven't discussed yet? Just help us understand how you process that side of it.
Absolutely, David. And it feels like we've been bear case scenario-ing now for going on 4 or 5 months and trying to stay attuned to what's going on. Obviously, the majority of our EBITDA is U.S.-centric. So we start there and let's start with what we're seeing today. I mean I think both after the Memorial Day and July 4 Holiday, you saw spikes and you saw them in Sunbelt states. And what we're watching right now is really, are you seeing a plateauing of daily cases, which it's early, but it appears to be, and you're seeing it looks like a lot more consistency on messaging is to mask wearing and social distancing. And we look at transmission rates in the Sunbelt states and states that have now under 1:1 transmission rate has gone from roughly 5 to 6 two weeks ago to now nearly 20. And in our key markets, Florida, South Carolina and Texas and I believe California a bit there, I know Arizona has as well. So those are at least early signals that there could be some positivity as it relates to the singular biggest issue that we think is affecting travel. But as to bear case, we absolutely are scenario planning against that. We continue to evaluate our operating capital. We continue to operate in our operating cost structure. And we'll make decisions according to how that changes. And given that we've weathered, I think, quite well, a tripling of daily cases, we hopefully think we've moved through the worst, but we remain flexible to continue to take risk off the table either through our operating capital or expense as we move forward. Keep in mind that we feel confident with our liquidity over $1 billion. That hasn't changed. I think Mike and his team have executed fantastically, both in the debt market as well as this amendment, and we'll continue to evaluate what's out there in the ABS market as we move. And our peer set has done a fantastic job in the ABS market. So we think that, that liquidity is going to be available to us as well. Again, we think our underlying business is strong, and we have the optionality and flexibility to react to whatever the environment gives us, including if consumer confidence comes back very strong, we think we're in a position to ramp up quickly.
Understood. And if I can just follow-up with one housekeeping item? I know you indicated earlier what the senior note proceeds. Would you mind, Mike Hug, repeating what you said about that, please?
Sure. Yes. With the proceeds, we used $350 million to pay down the corporate revolver. And then we would expect to use $250 million to pay the maturity that's due next March.
We'll go next to Stephen Grambling with Goldman Sachs.
So the first half of the year, you were pretty much in line with free cash flow despite what was ultimately an unprecedented shutdown. So when we think about the back half and then an ultimate recovery in free cash flow, what are some of the big moving parts? Are there any onetime things or calendar shifts that we should be thinking about, particularly relative to an EBITDA recovery?
Yes. And this is Mike Hug. I'll take that one. When we think about the cash flow in the second half of the year, there's really a couple of items that are impacting us. As our portfolio decreases in size, we actually have cash taxes that occurred because we've deferred those taxes until the principal is collected. So we are seeing a situation in the second half of the year, where we will have cash taxes that are going to be paid. The other nuance that's happening is because we haven't had sales and the sales are going to be weighted towards the last half of the year and even the last quarter of the year, those receivables that are generated at that time won't go into our conduit or won't go into a term transaction until 2021. So we're kind of getting hit with a timing issue, if you will, where the receivables once again aren't converted to cash until next year.
Got it. Helpful. And then on Panorama, can you just expand on the comments that you made, specifically about expansion into non-timeshare? Just trying to understand what new avenues could be under consideration? What maybe is out of bounds and how to think about trying to size that opportunity?
Absolutely. The idea here is that -- I mean if we just start with travel and tourism, it's an enormous space. But between the size of our member base and the relationships we have as far as a purchaser of travel services, we believe that there's a -- starting off, there's a lot of B2B opportunities that for discount travel programs, affinity groups, whether they be corporations, membership clubs, pro sports teams that have a need for travel, yet they're not a timeshare purchaser because they're entities. So our opportunity, we think, initially is to offer a form of a B2B discount travel program. We're in pretty in-depth discussions with a number of groups today and expect to be announcing a few of those relationships here in the near future. Our ultimate objective, Stephen, is to begin to transition formally RCI, now Panorama as the umbrella brand to have more avenues to grow, and grow is the key word. I think most people have been looking at RCI as a no-to-low growth vehicle, but with little capital and, therefore, was attractive for its cash flow. We think by adding a growth element within our core competency being travel and membership clubs that it will be a nice second leg to our growing Wyndham Vacation Club business to provide holistic growth as opposed to simply a complementary brand to the timeshare industry.
And as a very quick follow-up on that. So does that -- would that shift change the cyclicality or volatility of that stream and/or the capital intensity?
No. I don't think so. I think, if anything, it reinforces steady cash flows through membership programs. And the capital component, we think, will remain low. You saw, we basically acquired technology through the acquisition of ARN last year, and that provides the fuel or the baseline that's allowing us to move in this direction. So nearly a year after we concluded that transaction, you're starting to see those -- that strategic intent come to life.
And this will conclude today's question-and-answer period. I'd now like to turn the call back over to Michael Brown for closing remarks.
Thank you. And I'm going to conclude today by doing what I absolutely think is most important, and that's thanking our associates who have worked tirelessly through this pandemic to not only adapt to an extremely uncertain environment, but to innovate our business and to serve our owners and our members exceptionally. Their efforts and performance has been truly amazing, and it makes me extremely proud to be the leader of Wyndham Destinations. We are continuing to innovate to be ready for the full recovery. And while its timing is uncertain, what we know for sure is that Wyndham Destinations will be ready. Thank you, and stay safe.
And that will conclude today's second quarter 2020 Wyndham Destinations Earnings Conference Call. You may now disconnect your lines, and have a wonderful day.