Q1 2022 Travel + Leisure Co Earnings Call
Good morning, and welcome to the first quarter 2022 earnings conference call for travel and Leisure company.
After the Speakers' remarks, there will be a question and answer period. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
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Thank you.
Now I'd like to turn the call over to Chris Agnew. Please go ahead.
Good morning.
Before we begin we'd like to remind you that our discussions today 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.
Factors that could cause actual results to differ are discussed in our SEC filings and you can find a reconciliation of the non-GAAP financial measures discussed in today's call in our earnings press release is available at our website.
At Investor travel on leisure co duck call.
This morning, Michael Brown, our President and Chief Executive Officer, who will provide an overview of our first quarter results and Mike Hug, Our Chief Financial Officer will then provide greater detail on the quarter, our balance sheet and liquidity position.
Following these remarks, we look forward to responding to your questions and with that I'm pleased to turn the call over to Michael Brown.
Thank you, Chris Good morning, and welcome to our first quarter earnings call.
This morning, we are pleased to report adjusted EBITDA of $170 million and adjusted EPS of <unk> 69.
Leisure travel is in the midst of a sharp recovery that began in February the.
The strength of the recovery continued through March and it has not slowed in the month of April .
Anecdotally here in Central Florida, the strength of leisure travel demand is readily evident when you observe the airport hotels theme parks and of course, our resorts.
The strong demand is also apparent in our results most notably in our vacation ownership segment driven by an elevated volume per guest in the first quarter up $3377, an all time high for the company and 40% above 2019.
The record <unk> not only have continued through April but have strengthened further beyond first quarter levels. We expect this to moderate in the summer months as new owner tour mix increases.
I'd like to discuss our <unk> performance in the context of the leisure travel recovery and the current inflationary environment.
Let me say upfront, we see rising inflation as a net positive for our business model.
Rising hotel and vacation home rental rates, creating even more compelling value proposition for our customers.
That value has resulted in an increase in sales close rates of over 300 basis points in Q1 compared to 2019 levels.
Our owners see great value in timeshare.
For example, a seven night stay this July and two hotel rooms in close proximity to Disney currently costs, approximately $6000 including fees.
Contrast that with our flagship club Wyndham Bonnet Creek resort in Orlando, where are our owners pay a <unk> hundred dollars annual maintenance fee to stay during high season in a spacious two bedroom condominium with living room and kitchen not to mention all of Bonnet Creek resort amenities.
The value proposition is clear and it is one of the reasons volume per guest at Bonnet Creek is 53% higher compared to the first quarter of 2019.
As a reminder, 80% of our owner base have fully paid off their ownership and are traveling for the sole cost of their maintenance fee.
It is not just our existing owners that are realizing the value proposition.
New <unk> are also strong in the first quarter, new owner of <unk> was 47% higher than Q1 of 2019.
You want to transaction mix increased just over 200 basis points year over year to 29%.
With blue thread up to 15% of new owner volume from 13% in 2021 and 7% in 2019.
Blue thread Btg's typically run 20% higher than other new owner of <unk> as a result of higher close rates on leads coming from our affinity partner Wyndham hotels and resorts.
With regards to demographics in Q1, nearly 40% of new owner sales were to Gen xers and 30% of new owner sales were to millennials.
On the cost side, we do not have exposure to increasing construction cost for the next several years because our inventory costs are locked on our balance sheet.
We do recognize labor costs are rising, but those expenses are primarily borne by the homeowners associations.
At our resorts or are a small fraction of our cost exposure.
And the yen our owners are eager to travel and inflation reinforces the decision. They previously made to old with us.
That demand is reflected in our expected occupancy for the remainder of 2022, which is currently tracking above 2019 levels.
Turning now to travel on membership revenue per transaction increased 12% year over year in the first quarter and transactions increased 6%.
We recognized coming into the year that rci's growth would be challenged due to lower enrollments as new owner sales continue to recover recover industry wide.
Our strategic decisions over the last several years to supplement the growth in the exchange business with the launch of new business lines has resulted in travel and membership not only offsetting enrollment headwinds, but generating 15% revenue growth and 12% year over year adjusted EBIT growth in the first quarter.
Key to this success of the quarter was the strong contribution from our travel clubs, which saw a 21% year over year increase in revenue per transaction and an 18% increase in transactions.
A significant element of the growth at travel and membership with the activation of RCI members, who are incrementally booking non exchange transactions at a higher rate due to expanded offerings through our travel club platform.
March RCI non exchange travel bookings were the highest since the launch of these expanded offerings in 2020 and double the run rate at the end of last year.
We expect the momentum from these expanded benefits to continue driving increased RCI member engagement and creating incremental revenue as members supplement their regular timeshare stays with additional travel bookings.
Turning to our outlook, we expect second quarter, adjusted EBITDA of $220 million to $230 million and for the full year adjusted EBITDA of between 855 million to $875 million.
<unk> on our books for Q2 are currently running 10% higher than 2019 for vacation ownership.
The reason I mentioned night is that we have seen a marked increase in length of stay which is yet another positive data point on the strength of consumer demand.
Through the end of this year length of stay is averaging.
8% higher than 2019.
<unk> are seeing the value in our products and we continue to be focused on the simple ABC strategy, we laid out on our last call.
First we want to a accelerate the growth of our global business. This was apparent in our revenue growth at our travel clubs in the quarter.
Second we want to be brought in and the strength of our cornerstone brands and this was apparent in our record BTG and the strengthening of our portfolio performance.
And lastly, we want to see create depth of our products and services and this was apparent with the progress at our <unk> travel clubs were in the first quarter, we activated five new clubs and <unk> travel clubs delivered 43% of total traveler membership transactions.
For more detail on our performance I would now like to hand, the call over to Mike hug.
Thanks, Michael and good morning to everyone.
As well as discussing our first quarter results I will provide more color on our balance sheet liquidity position and cash flow.
My comments will be primarily focused on our adjusted results.
We reported total company first quarter, adjusted EBITDA of $170 million and adjusted diluted earnings per share of <unk> 69.
Compared to $129 million of adjusted EBITDA, and 39 of adjusted diluted EPS, one year ago.
The effective tax rate of 31% this quarter negatively impacted EPS. However, we expect our effective tax rate to be between 27% and 28% for the full year.
Turning to the performance in our two business segments in the first quarter.
Vacation ownership reported segment revenue of $604 million and adjusted EBITDA of $103 million.
Increases of 35% and 56% respectively over the first quarter of 2021.
We delivered 108000 tours and <unk> at $3377 in the first quarter, representing increases of 42, and 19% respectively over the prior year first quarter.
The first quarter provision for loan loss was 14% due to continued strong portfolio performance and high quality originations during the quarter as a result of our continued discipline in our marketing and operations.
Revenue in our travel and membership segment was $210 million in the quarter up 15% compared to $183 million in the prior year first quarter and above the $195 million in the first quarter of 2019.
Adjusted for the sale of the North American rail.
Business.
As Michael noted the increase in revenue was driven by increases in both transactions and revenue per transaction, resulting in adjusted EBITDA of $84 million an.
An increase of 12% over the prior year.
First quarter benefited from strength in the U S for RCI as well as growth in our travel clubs.
In addition to strong operating results. We are also very pleased with our balance sheet and capital allocation.
Our inventory position is strong with five years of inventory on our balance sheet, including our new resort at Centennial Park in downtown Atlanta.
We anticipate this level of inventory will allow us to drive cumulative cash savings from reduced inventory spending of approximately $400 million through 2025.
During the quarter, we closed on our first ABS transaction of the year, a 275 million to our transaction with an advanced rate of 98% and a weighted average interest rate of 384%.
Our first term offering of 2022 demonstrates the strength of our business model, even during a time of market volatility.
Despite a very busy securitization market and continued rate variability. We are pleased with the terms of this transaction.
Appreciating that we are in an increasing interest rate environment is important to remind everyone that 89% of our debt as of March 31 was fixed rate.
In regards to new ABS issuances, we expect every 50 basis point increase in interest rates will have approximately $4 million annualized impact to earnings.
But the adjusted EBITDA impact for the remainder of 2022 is expected to be minimal due to this timing of our two remaining transactions.
Which are expected to close in the third and fourth quarters.
Having said that it is important to remind everyone that rates are rising because of inflation and as our results demonstrate we expect inflation to help BTG and provide some protection against higher interest cost.
For example, an incremental $15 in <unk> more than offset a $4 million interest headwind associated with increasing rates.
In regards to capital allocation, we paid our recently increased dividend of <unk> 40 per share on March 31.
And we will recommend to our board of directors, continuing our dividend at <unk> 40 per share in the second quarter.
We accelerated share repurchase activity in the first quarter acquiring $45 million of our common stock.
Our confidence in the resiliency of our business and its cash flow provides us the opportunity to continue increasing our share repurchases.
We had $283 million of unused capacity under our share repurchase program at the end of March and our board of Directors recently approved a $500 million increase.
Our net corporate leverage ratio for covenant purposes continues to decline and was at three eight times at the end of the quarter.
We expect to continue to delever through adjusted EBITDA growth in 2022.
These healthy returns of capital to shareholders are driven by our strong free cash flow generation and for 2022, we continue to expect free cash flow conversion from adjusted EBITDA to be back to our historic range of 55% to 60%.
Over time, we expect to see this range move up to 58% to 63% of adjusted EBITDA as we laid out at our Investor Day last fall.
During the first quarter, we recognized $7 million of charges related to restructuring initiatives, primarily focused on enhancing organizational efficiency.
The majority of the initiative and related expenses were incurred in the first quarter of 2022 with the remaining charges to be recognized in the second quarter.
Having summarized our strong first quarter, let me provide some more detail about our expectations for the second quarter and full year.
In the second quarter, we expect gross VOI sales to be in the range of $500 million to $520 million at 30% to 35% increase over the prior year second quarter with <unk> expected to be around $3300.
The provision for loan loss is expected to be below 17% in the second quarter.
At travel membership, we're forecasting lower revenue growth close to flat in the second quarter.
Remember that in the prior year covered shifted demand into the second quarter from the first quarter, which results in a tough comparable.
As Michael mentioned for the full year, we're expecting adjusted EBITDA of between 855 and $875 million.
Gross VOI sales are expected to be between one nine and $2 billion with.
With BTG around $3200 as.
As we lean into new our sales over the peak summer travel period, we expect our strong <unk> to be increasingly mix impacted bringing.
Bringing the BP the blended <unk> down for the remaining quarters of the year.
Similarly, because of anticipated higher neuro mix as well as the increase in the percent of sales finance, we expect the provision for loan loss to be below 18% in the second half of the year.
This increase in the provision is not a quality issue.
Rather our focus by us to return to a growing portfolio through a higher percent of sales financed and new owner tours.
With respect to net corporate interest expense, we anticipate between $185 and $195 million for the full year.
So to wrap up we can be continue to be pleased with the strength of leisure travel market and our ability to capitalize on the opportunities that are presented to us.
Both our current and new owners as well as our RCI members continue to appreciate the value of vacations and our results for the quarter grew the value they see in vacationing as a timeshare owner.
With that Leo can you. Please open up the call to take questions.
Certainly at this time, if you would like to ask a question that is star one now on your telephone keypad Star one.
I'd like to reiterate walked viewing that we are going to allow for one question and one follow up.
Yes.
Once again that is star one on your Touchtone phone.
We'll take a question from Joe Greff of Jpmorgan. Your line is open.
Good morning, guys at.
Thank you for taking my question.
Just given the higher <unk>.
<unk> interest.
Interest rate environment can you talk about how you were thinking about potentially.
Raising.
Your apr's on timeshare financing.
And now whether you anticipate or are you doing that or would you anticipate doing that how are you thinking about that.
Good morning, Joe This is Mike. Thanks for the question when we think about the interest rates, we charged our consumers as you all know we've been steadily increasing those over time, and obviously gain that benefit compared with low rates that we were charged on our ABS transactions.
We've talked about the value of our consumers see in the product and how they are in an inflationary period.
The value come through loud and clear so I wouldn't see that we expect.
Large increase in the rate that we charge the consumer in our mind, keeping the product affordable, especially when you look at that monthly payment is the key to the lift in the close rates in the <unk> that we're seeing so we do have some pressures or might have some pressures on the interest spread that I mentioned, but once again, our $15 lift in <unk> more than covers that.
$4 million associated.
Associated with higher interest on a 50 basis point increase so does the acquisition of the customer and continued upgrades and interest income RCI transaction membership fees are probably more important in trying to get a little more interest on that monthly payment in the short term.
Great and then my question is on my follow up question is on capital return and buybacks.
You still have a decent amount of remaining authorization at the end of March and obviously the board.
It is fairly significant.
<unk>.
Is it fair in interpreting those two things in isolation.
And acknowledging where EBITDA guidance is in sort of the natural reduction in leverage and a leverage ratio that buybacks meaningfully accelerate from here or is there anything that would impede a meaningful acceleration in buybacks in the rest of this year in relation to what you've done in the first quarter.
Yes, when we look at our free cash flow generation in that 55% to 60% of EBITDA. After we pay our dividends and we do have a payment. Due later this year on the acquisition of travel and leisure, we have $250 million to $280 million in capital that we can return to shareholders for the full year absent using that for.
Other things that would provide better returns. So if you back up to 45, we spent in the first quarter for share repurchases, we've got $205 million to $235 million and free cash flow available to us.
Absent an increase in our leverage.
To return to shareholders.
Thank you very much guys.
Okay.
Sure.
Our next question is from David Katz of Jefferies. Please go ahead.
Hi, good morning, everyone and thanks for taking my question.
Michael you.
Indicated some of these met.
<unk> metrics in your opening remarks, but one of the subjects that we find ourselves discussing a fair amount.
<unk>.
The relative value proposition of of vacation ownership versus the expensive hotels can you just go a little bit deeper. Please enter the levers that you can can and our polling.
Uh huh.
One just engage people on that value proposition and to capitalize on it.
As best you can and I heard the one metric about close rates being up 300 basis points, but I'd just love a little more color there. Please.
Absolutely.
One of the great things about the hotel model as you get to reset your rates every night, given given current demand and expectation and every time the hotel industry raises their rates, which they continue to do it creates more and more value to our consumer. The example, we used at our bond.
Creek property here in Orlando.
We did that math in a number of different properties and it's always the same as that.
The clear benefit and you hear it both anecdotally and just mathematically is it's tough to find hotel rooms in Florida, and if you find them, they're extremely expensive and for the vast majority of our owners 80% to be exact.
Who've already paid for their ownership the value is is not only a pair. It's just incredible the value that people are getting on vacation. So when we look at how people are traveling.
In the midst of the pandemic David.
The drive to market.
Rose to 92%.
For our consumers that's already gone back to historical norms of 72% 73%.
Our close rates are moving up.
Both on the owners and our new owner side, and we see as Mike referred to on the APR.
Both pricing and Apr's, we want to keep.
Relatively stable, maybe 2% to three periods and increases on the on the price because the lifetime value is really.
What's most important because.
The owners that we have now that are enjoying this incredible value with their ownership.
We want them to see that for 10 to 20 years and.
And we're hearing that at our sales payables and we're hearing that when people are deciding to go on vacation. This year is why wouldn't I my vacations fully paid for.
And so its apparent anecdotally and economically.
I appreciate it and then for my follow up.
I think you may have headed in this direction with the prior answer.
On prior calls answer, but when we look at the spread between what you're securitizing.
Your APR have you given us any.
Math around how market interest rates move 100 basis points impacts earnings by.
X or y.
And some specificity there would also be helpful.
Yes, so on new issuances on the ABS space 50 basis point move results in about $4 million EBITDA impact so.
Not really that significant in in 2022 will be even less significant because obviously the issues that we have will be closed in the third and fourth quarter.
And as I mentioned in my remarks, right at $15 <unk> lift more than covers.
Sure.
The interest rates, we have and we're obviously seeing that those ppg's come through very strongly driven by the close rates as we've talked about so obviously, we monitor it as far as the interest rate and we will do what we can.
<unk>.
To control those costs keep in mind once again, ignoring the ABS you can just look at corporate debt a 9% of our debt is fixed rate. So it's something we look at closely but.
More importantly, we love the quality that we're seeing in <unk> provided some protection against that.
Got it. Thank you so much I appreciate it.
Sure. Thank you.
We will take our next question from Patrick Scholes of choice Securities. Please go ahead.
Thank you operator, good morning, everyone.
Good morning, guys.
Good morning, My question pertain.
Two the B to B to C travel clubs last fall at.
At your Investor Day, you laid out some expectations specifically.
Specifically.
Our long term revenue growth of 27% to 30% and adjusted EBITDA growth of 13% to 17% annually from 2021% to 2025.
How are you tracking today versus those expectations do you think you are in line.
Go ahead.
Thank you.
Well, let me first say.
I am increasingly confident with both of the new business lines <unk> to see that we launched last September as far as.
Both the underlying business model and the economic projections and the reason I say that Patrick is that as we as we move and evolve from last September .
Especially on the <unk> side, we're getting traction on the key elements that indicate that we're going to have future SaaS to.
To be more specific about that.
It's the business pipeline of deals that we need to do.
That pipeline not only has continued to convert to actual contracts.
But as we indicated in the first quarter, we activated five of those clubs for the start of usage.
Then once you move from there the conversion of those clubs to subscriptions and transactions were beginning to see more and more proof points that that is happening and starting to move to the percentages and amounts that we laid out on investor day, So I would say in line yes.
Maybe even a bit ahead as it relates to the <unk> travel club and very confident and pleased with the progress that that team and.
Group is doing as it relates to the B to B to C.
As I shared on the last call that launch an operation is about nine months behind the launch of the <unk>.
<unk> side.
Just due to the calendar and when we launch things.
We have learned a lot in the first six months and are starting to see traction gain as it relates to the member acquisition. So again I would say I feel confident that we're in line if not.
Maybe a touch better as to our direction, but.
But I would say as you look into the remainder of 2022.
We will probably start to shows economic proof points on the <unk> side, and then the BDC side will come after that as far as anything material on the economic side.
Okay. Thanks, Dan just a follow up question.
I saw there was the change in the executive leadership on that segment of the business fairly recent but can you just go into the rationale behind that thank you.
Absolutely.
Anytime you launch new businesses.
You not only have to be confident in the businesses that we're launching which is what we just shared that we're really confident in both of those two new businesses now that they are operating but you also have to be open to the learnings of how to best execute those two businesses and the reality is is when we launched the <unk> in the BDC side.
I kept in segregated in the realization was that there were a lot of duplicative efforts.
Duplicative work on both business development and marketing.
And.
Technology platforms that we had the opportunity to combine and create a more efficient and what we believe is a more effective way to execute these strategies and therefore, we were open to that learning I've made the change and feel that we're really well positioned to take what are going to be two great businesses and exit.
As efficiently as possible.
Okay. Thank you very much.
Thanks, Patrick.
We will take our next question from Ian Zaffino of Oppenheimer. Your line is open.
Hi, great good.
Good quarter here and thanks for all the guidance and color.
I just wanted to take a little bit deeper into the travel and membership segment.
Alright, each per transaction were up substantially can you maybe give us a little bit more color on maybe what drove that is additional product is it.
Just the consumer feeling better what is effectively driving that.
And maybe give us an example.
Good morning.
Two things driving that first of all as we laid out at Investor Day, we've made.
Basically the Panorama travel solutions club available to our RCI members and we're seeing them booking additional transactions beyond just their timeshare exchange and Thats been one of the big drivers of the lift and then as we expected as we rollout the Panorama travel solutions product to more association as more of our affiliate.
We start to see the lift so youll start to see the National Association of Realtors transact.
Enrolled the NFL Alumni Association, so I would say, it's just a natural progression of our plan that as we roll out the product to more consumers.
Two more affiliates, we're going to see that lift in transactions and that's what we expect to happen through the remainder of the year is continued growth out of the travel clubs, we love to EBITDA brings keep in mind that it will present some margin pressures because we don't run the same margins on a travel club transaction as we do on our RCI exchange transaction, but it's one of the key drivers to our future EBITDA.
<unk>.
We couldnt be happier with the way those businesses are performing and I. Appreciate you recognizing the lift in transactions because we were very pleased with that.
Okay, and then also as a follow up can you just talk a little bit about.
Property and land acquisition side.
You guys are relatively good on inventory.
What are you seeing as far as availability pricing and.
And how are you sort of approaching it in this environment. Thanks.
As you mentioned were very strong as far as the inventory we have on our balance sheet, which is great for our cash flows when we look out over the next several years and a reduced inventory spending and we had very little pricing pressure because obviously the inventory on our balance sheet. We have already purchased in a majority of the inventory that will be.
Be acquiring is the.
The acquisition costs are already fixed and had been agreed to so when we look into the future there's definitely deals out there but for us.
We don't have any need to go and buy a bunch of inventory, we're happy with what we have on the balance sheet and that's why we're confident in our free cash flow conversion, you know moving up in the future because of.
Our ability to sell what we have on the balance sheet and then obviously as the EBITDA and the travel clubs grows.
Better free cash flow conversion due to the capital light nature of that business. So there is opportunities out there, but we like the fact that our costs are locked in on the balance sheet or through fixed price contracts that will deliver over the next couple of years.
Okay, great. Thank you very much guys sure. Thank you.
We will take our next question from Stephen Grambling of Goldman Sachs. Your line is open.
Hi, Thanks, we'd like to just Peel back the onion a bit more on the close rates, which I think you said were up for both new and existing owners are you seeing any change in close rate across demographics, and I guess, what I'm really trying to get at.
Are you seeing it.
And maybe a new cohort of people coming in and converting.
To David's question does this make you rethink how to market to this new customer cohort as you've rebuilt tourists.
Demographically, Stephen really the change that we made is the strategic change we made to elevate the minimum FICO score for our our tours and as a result of that what we're seeing is.
<unk>.
We thought that the two major components that we thought we would see would be.
Lift and BTG due to mix and a lift of CPG due to the increased marketing if iqos.
What we've since learned is that I think the inflationary environment is even adding additional fuel to our ability to perform at the sales table.
As I mentioned our April performance is.
Is above or above.
Above our Q1 performance.
And that's coming through higher close rates as opposed to higher.
Average transactions.
That makes me feel really confident that.
You put better tours in front of a really quality sales team and.
Where value is readily apparent.
And this is the result, you're going to get which gives us an opportunity as we head into the summer to not only invest in new owners, but also to drive margins I would say demographically.
<unk>.
It is important to note that 70%.
The new owners that are buying are either gen. Xers are millennials and I think that continues to speak to.
The demographic continues to get a little bit younger in our in our mix and as refueling for.
Beautiful lifecycle of of ownership and upgrades that that this business model enjoys.
Maybe as a follow up there.
The big push backs I guess, you typically hear on the DIY side is just.
The net owner growth being kind of consistently down.
This focus on new and just the trends youre seeing could we actually see.
Net owner growth or just the total number of owners.
That line and is there any way to parse out what you're seeing from attrition versus kind of the gross adds.
Have you been expecting thanks.
So keep in mind that the last few years, there's been sort of the two shops. The system number one is COVID-19 and with Covid came higher default so.
Our member Count is definitely decreased.
No I don't expect that to be a flatline, we're very committed to growing our new owner mix.
We expect to be over 30% for the remainder of this year and continue to grow that as we move into 2023 to get back above the 35% and start working towards 40, that's very important because I.
I think the work we've done over the last four to five years has really strengthened our owner base.
You can see that in our portfolio performance and as you move forward.
We would like to see our member count begin to grow again, and we fully expect that to be the case.
Excellent. Thanks, so much.
Thanks, David.
We will take our next question from Ben Chaiken with.
Credit Suisse.
Hey, How's it going.
Just a just a quick clarification I think.
You were saying the travel and membership outperformance that was RCI members essentially booking.
Okay, selling non exchange transactions.
Can you give us an example of this so just like RCI members signing up to use the new <unk> membership club for example.
Hey, Ben This is Mike. Thanks for the question. So two things when you look at the first quarter.
<unk> was the driver, but a bit not just as a result of additional transactions of the travel clubs, but also because of the exchanges. So I remember last year Omicron pushed exchange business from the first quarter to the second quarter, which is why we have a tough second quarter comp this year, but we saw those exchanges getting booked.
In the first quarter of this year, which we were very pleased to say and obviously that helps the margins as well in Q1 as it relates to the.
Continued growth of the non exchange transactions.
For the majority of our RCI members. They do have the ability to access those 600000 hotels through the Panorama travel solutions.
And as we continue to roll that out and as they continue to see the value in that we do see growth in transactions and that so that's great from a transaction standpoint, but also it's great in terms of RCI member retention because it just brings additional value to their membership with RCI. So once again it goes back to the value of the travel clubs, while we expect that to grow in the first quarter was.
Great for RCI, both on the exchange side and for the non exchange transactions booked by their members.
Got it Thats helpful.
And then on the DIY side of the business.
C P.
<unk> were great the provision was.
Lower than historical is there any are there any moving parts on the cost side that we should think about that were impacting the margins in <unk> is it just seasonality is there anything you'd call out there on that VOI EBITDA margin yes.
As we've talked about kind of the into the first quarter. The March timeframe is when we have to start making decisions on.
Marketing sources and levels of head count through the busy summer season.
Michael mentioned, we do hope to get that.
That new owner transaction mix up over 30% through the remainder of the year. So we did go in and make some decisions to go ahead and start hiring marketing and sales personnel, so where that so that we're ready for that busy summer season.
First quarter is our lowest volume quarter from a sales standpoint, so that did put some pressure on margins, but we think it was the right business decision because it allows us to take advantage of the strong leisure travel market and continued.
<unk> continued to get new owners into the system.
And Brian Let me, let me just level set for everyone on the call because I think we uniquely with the size of our portfolio of pre Covid and where we are today.
Portfolio is down just over from core volume.
Under three.
If you equalize that portfolio, which obviously comes with really high margins on the net interest income.
Margin is actually up about 150 160 basis points in Q1.
Despite and omicron headwind in January and to Mikes point that we began to invest in that new owner.
Channel for the summer time, so we'd be ready for that I would expect that outperformance versus 2019 that continue for into the second quarter in the latter half of the year.
Is there any way to.
Very helpful. I appreciate it anyway to quantify that is it a similar drag in <unk> as well or does something change seasonally.
No we would expect to see our margins go up in Q2. Once again, we made the investment in Q1, which was the right long term business decision. So as we get into Q2.
Those sales and marketing people should generate more tuition more sales, which allows us to leverage those costs.
Yes.
Fortunately the cadence the cadence is to move up in your margins as you move into the Q2 and Q3 and we absolutely expect it to.
To get in the mid twenties.
As we hit Q2.
Awesome I appreciate it thank you very much.
Thanks, Dave.
And once again, if you would like to ask a question that is star one on your telephone keypad.
We'll take our next question from Chris while rocker of Deutsche Bank.
Hey, good morning, guys.
First question was I was hoping maybe we could talk a little bit about your thoughts on the longer term margin potential of the.
VOI segment, so beyond this year, because it sounds like you're getting more efficient with marketing.
Your close rates are going up you can charge more for.
Your rentals.
And things like that and so just trying to think about and it sounds like also on inventory.
Unit level cost might be going up you're pretty well set for the next several years. So really just thinking about how those margins could track.
235 years from where they are today.
So Chris Let me let me answer your question and then let me broaden it just a little bit on total margins.
<unk> you.
Taken all the right puzzle pieces and concluded correctly as well.
What are the strategic decisions, we made on changing our marketing approach was to.
To become more efficient on the vacation ownership side and drive margins.
As I can as I mentioned as Mike mentioned, we're very pleased with the portfolio performance and we see that.
Performing as well as it has in quite some time. So we would expect as time moves on to continue to move the vacation ownership margins up.
<unk>.
Very visible and predictable cost of sales that will be coming off our balance sheet.
And as we get through commitments in the next 12 months that we've already made we will start to see those lower cost.
Cost of products come back.
Instead and improve our margins as it relates to.
The traveller membership segment obviously.
With the types of transactions the capital light nature of that business that does come with a lower margin business, but.
On a total you should see.
Two of those begin to offset one another but the important element in all of this is the net outcome. We're looking for is to increase our increase our growth rates from mid single digits to high single digits.
And therefore be able to return.
An equivalent amount of cash growth to our shareholders. So that's the the individual pieces that that link up to ultimately driving more EBITDA and more cash flow to shareholders.
Okay.
Thanks, Michael very very helpful. And then follow up was I know that.
At the sales centers.
Sure.
Your top rated salesman they can.
Deliver kind of top heavy.
Outperformance and I'm, just curious as to whether you're seeing any.
Increased turnover among your better performers or.
Conversely, whether you're seeing a lot of interest in <unk>.
The new folks coming in.
Well.
Some of it was I think very very intentional and D D.
Some of it was just the macro environment of labor shortage, but the reality of what's happening at the sales centers today is as we are steadily increasing our tour flow.
Our top reps and our highest performing representatives are seeing more and more clients and therefore enjoying the benefits of these higher close rates.
And Thats, great and part of our strategy. Chris is we did not want to rush back into a difficult labor market and a mass hiring.
Approach. Unfortunately, it's paid off and we've steadily moved into what's going to be a very very busy summer.
But this business is all about the people. We think we have the best people in the business and they are proving that their top performers and we don't want to overload that system Thats really working effectively at the moment.
With just bringing in a ton of people, it's a difficult labor market to do it.
You spend a lot of time and energy training and youth.
You invariably increase your turnover so it's more about investing in the people we have in letting them enjoy the great performance there generating for the company and for themselves.
Okay. That's very helpful. I appreciate that thanks, Michael.
Thanks, Chris.
Thank you that concludes travel on leisure first quarter Q&A.
I'd now like to turn the call back over to Michael Brown for closing remarks.
Thanks Leo.
Continued as we continue our strong momentum into 2022 and.
And we remain focused on our clear strategy to deliver for our stakeholders as we accelerate our growth by broadening the strength of our core business and creating products and services that put the world on vacation once again I would like to thank our thousands of hardworking associates, who deliver great vacations for our owners members and guests each.
Every day.
We will be on the road a lot over the next eight weeks and we hope to see you in person and thanks again for your time today and have a great day.
Thank you.
That concludes our question and answer period as well as our conference.
You may now disconnect. Your line at this time and have a wonderful day.
Okay.
Yeah.
Yes.
Okay.