Q3 2023 Travel + Leisure Co Earnings Call
Hello, and welcome to the travel and leisure Q3, 2023 earnings call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation.
You may be placed in the question queue at any time by pressing star one on your telephone keypad and we ask you. Please limit yourself to one question and one follow up then return to the queue. As a reminder, this conference is being recorded.
My pleasure to turn the call over to Christopher Agnew Investor Relations. Please go ahead Sir.
Thanks, Kevin and 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 the last they seen filings and in our earnings press release accompanying the earnings call 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 travel and leisure co dot com forward slash.
Investors.
This morning, Michael Brown, our President and Chief Executive Officer will provide an overview of our third quarter results and Mike Hug, Our Chief Financial Officer will then provide greater detail on the quarter our balance sheet.
But for the rest of the year following our prepared remarks, we will open up the call for questions.
With that I'm pleased to turn the call over to Michael Brown.
Thanks, Chris and thank you for joining us on our third quarter earnings call.
This morning, we reported adjusted EBITDA of $248 million, a 6% increase over the prior year and adjusted diluted earnings per share of $1.54.
20% improvement over Q3 2022.
Third quarter, adjusted EBITDA margin was 25% flat compared to the prior quarter and prior year.
Our team delivered solid results against key performance indicators, particularly the vacation ownership business sale.
Sales volume per guest and gross VOI sales were at the top end of expectations.
As well, new owner and totaled tour flow increased 36% and 18% respectively year over year.
In keeping with our commitment to grow our new owner base.
Hands action mix increased nearly 200 basis points to 35% of sales.
The provision for loan loss came in ahead of expectations adjusted were <unk>, 18.5% reaffirming the improvements in owner of credit quality.
Regarding capital allocation, we returned $98 million to shareholders in the third quarter through a combination of dividends and share repurchases, which puts us on track to reduce our outstanding shares by 10% for the full year.
From the start of 2022 until the end of the most recent quarter, we have reduced our share count by 16%.
Spin, we have reduced our share count by 27 million shares or 27% of shares outstanding.
Let me update you on the key performance indicators, we monitor to gauge the health of our consumer.
Forward resort bookings sales volume per guest and the performance of our consumer finance portfolio.
Regarding forward bookings Q4 owner nights on the books are 7% had a fourth quarter 2019.
Reflecting a continued strong booking pace.
Owner arrivals are ahead and length of stay is 5% above the fourth quarter of 2019.
Of note in our post stay surveys nearly one quarter of respondents worked remotely while staying at our resorts reinforcing the work from anywhere trends that we believe is one of the factors behind longer length of stay.
Turning to B B G. R third quarter D. P. G was $3108 above the top end of our guidance range on an absolute basis <unk> are healthy and reflect the strong value proposition of our products and for the full year, our outlook is improving to 3100 to 3000.
$150.
V. P. G did declined $42 from the second quarter, but 90% was due to the higher new owner mix.
<unk> remains well above our long term guidance range of 2700 to $3000 in.
In 'twenty to 'twenty, three we made a strategic decision to ramp up new owner marketing channels to continue growth of new owner tours.
Year to date, we have had success with new owner tours, which have increased 35% over the same period in the prior year.
Over 70% of this growth have come from open market channels or package sales.
<unk> positions us to achieve our long term plan for new owner transactions to be 35% to 40% of all sales. We expect this tour pipeline to yield incremental growth over the next 12 months and grow our pipeline of future upgrade sales.
Blue thread, which is our new owner marketing channel aligned with Wyndham hotels continues to exceed expectations with PPG is nearly 50% higher than other new owner channels.
We expect blue thread sales to finish the year at an all time high over $100 million.
Our third key performance indicator is our consumer finance portfolio, which performed well in the quarter delinquencies remain below 2019 levels and our outlook for the full year loan loss provision is unchanged at 18% to 19%.
At the end of the third quarter, only 10% of our portfolio had FICO below 640 and year to date. The average FICO score for originations is 738.
All in all our vacation ownership segment continues to perform well.
The continued strength in our vacation ownership business was challenged by headwind to the travel of membership segment.
This segment continues to lag expectations due to lower exchange propensity and slower than anticipated ramp up of travel clubs. Accordingly, we are making structural and operational changes to reduce its cost structure, while maintaining focus on driving transactions in both exchange and travel clubs. These changes will occur.
Her prior to year end, allowing us to enter 2020 for more streamlined coming.
Coming into this year, our expectation was that our exchange business would maintain that 2022 transaction propensity levels and that travel clubs would ramp up through the year. Instead, we experienced a decline in exchange propensity throughout the year.
To put it in perspective, our exchange propensity is nearly 20% of pre COVID-19 levels, Mike will provide more details in a moment, but the lower expectation of travel a membership in combination with <unk> coming in toward the low end of our guidance is the reason for our full year reduction.
For our reduction in full year, adjusted EBITDA guidance to a range of 900 million to $915 million.
As we look ahead to next year. It is worth reflecting that traveler membership over the last four quarters had revenues of $716 million and adjusted EBITDA of $253 million with a healthy 35% adjusted EBITDA margin.
The business has low capital requirements strong returns and cash flow.
We expect that Q4 will mark the trough in revenue momentum for travel and membership due to a combination of stabilizing transaction propensity trends and pricing at RCI and growth in our travel clubs.
On the strategic front, we acquired the rights to the vacation ownership business of sports hospitality ventures, the hotel and resorts licensee of the sports illustrated brand.
Our plans, including network of sports themed George Awards located in popular College towns and then leisure destinations we.
We will be launching in managing a vacation ownership club under the sports illustrated resorts brand.
Among the strategic goals, we shared at our Investor day with the intention to add incremental vacation ownership revenue streams under the travel and leisure brands. We are proud to launch this expansion with sports illustrated the most celebrated name and sports with nearly 70 years of legendary content.
Tuscaloosa, Alabama home with the University of Alabama has been selected as the first college destination and the sports illustrated resorts portfolio and is projected to open in late 2025.
Our goal is to develop sports illustrated vacation ownership inventory in a capital efficient manner.
We have several addition location additional locations in the pipeline and more consideration after significant inbound inquiries following the Tuscaloosa announcements were.
We're excited by the initial representation of our strategy to add new brands to our portfolio and we look forward to sharing more with you over the coming quarters.
As a reminder, it's important to remember that the prepaid nature of timeshare ownership is a key differentiator for our business model within the leisure travel industry.
80% of our owners have fully paid for their timeshare and therefore, the choice to vacation is less dependent on economic conditions as we have seen historically, our healthy mix of recurring and predictable revenues as one of the reasons. We expect our business will continue to be resilient, if we enter a more challenging economic environment.
This resilience in demand among timeshare owners has been proven time and time again, most recently coming out of total a bit.
With that and 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 third quarter results I'll provide more color on our balance sheet and cash flow as well as update our outlook for the remainder of the year.
All of my comments will refer to comparisons to the same period of the prior year unless specifically stated.
We reported third quarter, adjusted EBITDA of $248 million and adjusted diluted earnings per share of $1 54.
Increases of 6% and 20% respectively.
Year to date, adjusted EBITDA growth is 5% and adjusted EPS growth of 16%.
The adjusted EBITDA growth was achieved in spite of several headwinds.
In the third quarter, which include the buyers in Maui, two hurricanes in Florida and up the east coast of the U S and higher than anticipated health care expenses.
Though not individually material they amounted to $5 million and combine to push our result to the lower end of our guidance range.
Vacation ownership reported segment revenues of $812 million, an increase of 8%.
While adjusted EBITDA of $203 million also increased 8%.
We delivered 187000 shares in the third quarter, representing 18% growth and PPG was $3108 above the top end of our expectation.
The vacation ownership segment also incurred some incremental marketing expenses in the quarter associated with the ramp up of our tour package pipeline and opening of additional new owner marketing locations.
Both of which are designed to benefit our tour flow in 2024 and beyond.
Revenue in our travel and membership segment was $174 million in the quarter compared to $183 million in the prior year.
Adjusted EBITDA was $62 million compared to $9 in the third quarter of 2022.
Exchange member Count is start to recover but not enough to offset the reduction in transaction potentially.
We expect the headwinds to exchange transaction propensity to continue into the fourth quarter.
Turning to our balance sheet, our financial position remained strong in the third quarter. We continued to return capital to shareholders through share repurchases and a quarterly dividend of <unk> 45 per share.
Through the first three quarters of the year, we repurchased $267 million of common stock and paid $104 million in dividends.
In October we closed our third ABS transaction of the year at $300 million transaction with a weighted average coupon of six 8% and advanced rate at 92% continuing to demonstrate our ability to access this market on a regular basis.
In addition, during the quarter, we renewed our $600 million ABS conduit facility and moved the maturity date to September 2025.
Adjusted free cash flow was $81 million through nine months compared to $195 million and thank for your last year.
Similar to the first six months this is due to higher year over year originations on our loan portfolio certain other working capital items and an increase in interest payments on our corporate debt.
For the full year, our expectation for free cash flow conversion from adjusted EBITDA is for it to be around 50% with the majority of free cash flow generated in the fourth quarter.
Our net corporate leverage ratio for covenant purposes was three seven times at the end of the third quarter.
We continue to expect our leverage ratio to decline by the end of the year to below three and a half times.
Turning to our outlook for the rest of the year, we're reducing our expectations for full year adjusted EBITDA to range between 90 million to $915 million.
5% to 7% increase over 2022.
Our expectation for the fourth quarter as for adjusted EBITDA of between $233 million to $248 million.
With respect to vacation ownership, we remain confident in our core timeshare business and its ability to continue to deliver strong sales performance.
We are increasing our outlook for gross VOI sales for 2023 to a range of $2, one five to $2 $2 billion unimproved PPG got a 3000 $103150.
In the travel segment, we expect fourth quarter adjusted EBITDA to be in the range of $45 million to $50 million.
Related to EPS, we are expecting our effective tax rate to be around 27% for the full year with stock based compensation is expected to be around $12 million in the fourth quarter and anticipated net interest at $52 million in the fourth quarter.
Looking ahead to next year, we expect the rapid rise of interest rates and 22 and 2023 to stabilize at elevated levels in 2024.
As such our expectation is that interest expense on our asset backed securitization once again be an incremental $30 million headwind to adjusted EBITDA in 2024 similar to 2023.
As we continue our 2024 paying profit over the next few months, we will also revisit our longer term outlook.
This will allow us to take into account the impact of the interest rate environment over the full time horizon.
Lower travel membership growth and the updated view of a well performing business.
We will provide more color in the first quarter of 2024.
In summary, we are pleased with our third quarter performance, our continued growth in adjusted EBITDA and double digit growth in adjusted diluted earnings per share as well as our continued return of capital to our shareholders.
With that Kevin can you. Please open up the call to take questions.
Certainly, we'll now be conducting a question and answer session. We ask you. Please ask one question one follow up then return to the queue, if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants.
Speaker equipment, it may be necessary to pick up a handset before pressing star one one moment. Please while we poll for questions and once again. Please ask one question. One follow up then return to the queue. Our first question is coming from Joe Greff from JP Morgan. Your line is now live.
Hi, good morning, guys won't yet Mike.
Michael You mentioned that you think travel membership is just going to trough here in the fourth quarter. What gives you that confidence in both the exchange business and travel clubs and then when you think about next year.
Do you look at next year as a growth year or is it just the rate of change is less negative next year than what it was this year.
Well, let me start with the second one no. We expect 2024 for the travel of membership segment to be a growth year.
For a number of different regions.
So let me jump back to the first question is.
As we went came into 2023.
We expected exchange propensity to reflect pre COVID-19 levels.
2022 was there a revenge travel year and I think what the trends we saw in 2022 masks a little bit of what was happening in exchange propensity.
VOI was super strong and exchange propensity.
Similar to pre Covid levels.
As travel normalized in 2023.
The unmasking of post Covid travel trends.
And Covid.
And exchange really came forward.
First two quarters propensity was slightly down and I had expected the second half of this year for a rebound and recovery in that propensity right to pre COVID-19 levels, because that's what we saw throughout leisure travel instead, what we saw is more and more of.
Owners within the timeshare industry were returning to their home resorts, it's no different within the Wyndham travel club and as the year progressed instead of getting that rebound that I had forecasted that we had forecasted.
It continued to dip as I mentioned to a level that was around 20% below pre COVID-19 levels. So what gives us confidence that we think Q4 is going to trough number. One is we have seen a stabilization in that propensity over the last few months.
So we think we have a good anchor is what the true propensity is once the revenge travel and once we've made our way through 2023 years.
You've heard us referred to the fact that membership dropped about half a million and RCI through.
Covid period, and finally, the memberships is beginning to grow again and that is absolutely happening and then lastly.
As we head into 2024.
When the travel club side, although our transactions are flat to last year, that's taken into account the loss of one of our major clients. So absent that loss, we're actually seeing growth in our travel clubs that we will start to lap that in the second quarter next year. So I know that's a long answer to a.
What's happening but in the in the end, we absolutely expect through a number of the actions. We're taking in Q4, but also with the clearer visibility of what the travel trends and should return travel membership will return travel a membership to a growth profile in 2024.
Thank you for that and then you also mentioned that you're reducing costs. In these business can you help quantify that and how much of that is revenue dependent versus fixed costs coming out.
Well.
We are as I mentioned is going to be going through that here in Q4 to make sure that our overall cost structure aligns to the revised forecast you would expect that and instead of being reactive to it we have already proactively begun to look at.
The realities of our revenue forecast as share and make sure that our cost structures are obliged to do it we will give you an update a bit more later in the quarter, but yes.
As as is the case.
We will adjust to the realities of our revenue forecast.
Great. Thank you very much guys.
Thanks Chip.
Thank you next question is coming from David Katz from Jefferies. Your line is now live.
Hi, good morning, everyone.
Thanks for taking my question.
I wanted to just focus for a minute on the.
Gosh, the Psi deal yes.
Those of us that are huge sports fans. She sees the opportunity out there is potentially very very large, but maybe you could help us just set our expectations as to how big an opportunity this could really be.
And what your vision for this.
Well thanks for the question, David and let me just since the first quarter, we've been on the call. Let me take a little bit of time with this answer on a number of different subjects.
First of all the overall model looks very similar to the vacation ownership model that we currently have with Wyndham targeting similar margins and returns.
As this business grows three primary revenue streams, the sale of vacation ownership the operations of our resorts and the club and as well the financing income streams.
The difference from the outset as today, we talked about 35% to 40% new owners on an annual basis with Wyndham and the first year, it's 100% new owners into our system and we're excited about the opportunity because the timeshare model used to be the two things you have to secure our new tours.
And new inventory.
Over the last decade, securing inventory has not has not been any ones issue because people. Appreciate the model of what are the developments with with timeshare companies. It's.
All about growing your addressable market and the reputation of sports illustrated the reach that it has in a number of different ways not just data social media, but also passion.
Theres, probably not a more passionate lifestyle in America than the college sports.
We.
We're excited when we signed the deal with sports illustrated that.
The day after the announcement, we became even more excited with the outreach that we received from universities around the United States wanting us to be part of their infrastructure. So for us. It's it's really clear is that.
We mentioned, we will be announcing over the next few months.
Additional locations.
We're excited about the partnership with the sports illustrated team.
But we're probably most excited about the additional reach that this gives us.
To reach new timeshare owners when you look at the U S. Population today, there is around 10 million timeshare owners for over 100 million households.
Safe to say that our college sports will allow us to reach a lot more than that 10 million household base.
And we're looking forward to get started.
As I mentioned the one in Alabama will open in later in 2025, but needless to say, we have a lot of work going on to get that up and running and eventually into pre sales.
Alright now.
The follow up question I wanted to ask is when we think about the blue thread, which you commented it was running ahead of expectations.
I think your commentary was was exactly the same as it was a quarter ago part of the question is is that accelerating.
The topic is really what is it that drives that is it just a function of getting integrated or.
As larger scale.
Something that could drive that more.
For obvious reasons that.
Topic, that's hit our brains over the past.
A couple of months.
So.
Just to clarify when you say larger scale.
Blue thread is accelerating because.
With anything it comes down to relationships and maximizing them and our team tying closely into the Wyndham Hotel team has allowed us to really accelerate.
The strength in the performance of the Blue thread.
Initiative.
We have continued to invest into this space not only.
Through our call center operations, but also outside of Blue thread and starting to lean heavier into forward looking package sales so yes scale matters.
Data matters and the Wyndham Hotel team has done a great job growing Wyndham rewards and that's benefited us it's benefited them and ultimately the more Wyndham hotels grows its wyndham reward programs the more opportunity we have in the blue thread space.
Okay fair enough. Thanks.
Thank you next question is coming from Danny Assad from Bank of America. Your line is now live.
Hi, good morning, everybody.
Just to start off the guidance cut for this year can we just walk through the buckets like the different components of like what changed from last quarter.
Yes, good morning, Jami. Thanks for the question this is Mike hug.
It's really a pretty simple walk first of all I touched on in my comments. The fact that the third quarter was impacted by.
A few things that were individually immaterial, but totaled up to $5 million that being the fires out in Hawaii, the hurricanes in Florida, and the East Coast and then some higher health care expenses, so to get from the previous guidance. The current guidance, we have about $5 million there and the remainder about $15 million is really due to the reduction that we have in the travel membership.
Business forecasted for the fourth quarter, so pretty easy walk down and really driven by the reduced revenue forecast on travel membership.
Got it okay.
Super Helpful. And then when we look at this year as a whole and then we turn to 24% 25 can you just maybe walk us through like the puts and takes.
Kind of where free cash flow conversion from EBITDA.
Can go kind of what drives from one year to the next compared to us from this year.
Our continued securitization activity what were experiencing this year and the reason that cash flow is weighted to the fourth quarter is buildup in the receivable portfolio throughout the summer as you guys know the busiest time of the year, we start to get that into ABS transactions and into our conduit into fourth quarter. So that's why the cash flow. This year like it always has weighed towards the fourth quarter.
On a long term basis, the two big drivers are going to be that continued.
ABS market available to us and then our inventory spend and we've talked about.
Toy spanned remaining below a $100 million for you know for.
For several years into the future as we have four years of inventory on the balance sheet and the other thing about sports illustrated is we do expect to deliver that inventory in a capital efficient model. So the investment will need to make in sports illustrated from an inventory perspective, shouldnt significantly impact our free cash flow conversion, but it's ROI the ABS market, which remained strong to us as you saw we got.
Transaction done in October and then being smart and keeping our inventory spend you know blip below $100 million.
Got it.
Thank you very much.
Sure. Thank you.
Thank you. Your next question is coming from Brent <unk> from Barclays. Your line is now live.
Hey, good morning, everybody. Thanks for taking my question.
Mike Hug, maybe maybe you could just.
We could dive back into that that free cash flow question, a little bit deeper I am curious.
On the 50% free cash flow conversion.
Commentary I think theres, a little bit lower than what we were expecting before so what are the dynamics that could change that.
I know, obviously Theres a guide down on that.
Travel and membership side, and Thats, probably a better sort of free cash flow business, especially if you're growing DIY and lending more as a percentage of mix, but maybe you could just talk through the dynamics of what lead to that conversion guide down.
You are exactly right as far as the free cash flow generation conversion from the travel membership business is.
It was very strong one of the reasons, we continue to like the business has great margins and free cash flow generation.
But that's one of the drivers as it relates to the 50% as opposed to the range. We've previously talked about and then as I mentioned in the <unk>.
<unk> answer as we continue to grow the portfolio, there's definitely timing in terms of if you think about sales in the second half of the year, we're able to get that into the those receivables into the <unk>.
Conduit most of them not all of them and then obviously in the first quarter of next year.
And then we do the second deal get them into the term transactions better at.
90, plus percent advance rate so in my mind, it's primarily timing as far as the growth in receivables portfolio. The one headwind. We continue to have is on the corporate interest expense, that's obviously not timing thats permit so.
What's happening with interest rates compared to the model we had from the Investor day, we are seeing higher interest expense, but most of it is just going to be the way, we manage the portfolio and getting that into the ABS securitizations.
Okay, Great and then my follow up is related to something happening away from you guys.
Yes.
The.
Hostile or the sort of.
On proposal from choice to.
To acquire Wyndham.
Your license or of your brand for Blue thread.
When you look at your license contract with Wyndham and what are the stipulations within those documents what would happen. If this transaction was to go forward to your agreement.
Yeah.
Well without going through the whole legal document basically.
Any M&A would have no negative impact our agreements really do protect what we need to continue growing our.
Successful and very valuable relationship with Wyndham hotels.
Okay. So at Wyndham hotels became Wyndham brands by choice or something like that you would you would you would sort of grandfather and your you would still have access to that database.
Correct.
Okay. Thank you very much.
Thank you.
Thank you next question is from Patrick Scholes from <unk> Securities. Your line is now live.
Hi, Good morning, Michael and Mike.
I can follow up follow up question on the hypothetical combination of choice plus a wyndham.
It sounds like there would be any downside, but could there be potential.
Upside.
From that.
Certainly.
Twice as massive.
Guests reward system and I believe there their primary color is yellow so would it be the blue thread plus potentially plus the yellow threat at that point or would you just be.
Or would you be just limited to the legacy Wyndham hotels.
Well.
Let me, let me comment a bit more broadly because I'm not a party to those discussions what I would say is something very similar to what I said to David earlier is that.
The key to growing vacation ownership in general is to gain more and more access to new customers and.
Create partnerships that allow you to open up your marketing universe.
Not being party to any of those discussions if that were the case then that's that's beneficial but.
Whether it was that question or one related to any partnership the key to growth in this space is marketing and data and new customer opportunities.
My answer broadly is anytime that occurs in the vacation ownership space It has possibilities too.
Be a positive to our video business and okay.
Okay.
So fair to think that you would be.
Fair to think you would you would hope that you would get access to it but again no guarantees and certainly theres blue-green when their existing contracts. So a lot of devil in the details possibly to be worked out here.
Yes.
And then.
Taking a step back just.
Michael on sort of the high level macro question.
Your average household income is I recall 90 for a for a vacation ownership by our 90 to $100000.
Any discernible changes in propensity of that customer too.
You have to purchase or use your product.
That you noticed thank you.
Yes.
I really appreciate that question because.
In a quarter like this I think it's really important to re ground ourselves on what's happening in our business and.
We raised our credit quality throughout Covid.
Our FICO score of 738 matches anyone in the industry.
The the portfolio, which I'm going to ask Mike to speak about in just a second is performing extremely well.
And it's very important in my opinion to takeaway from this quarter.
On the vacation ownership business.
<unk> are strong.
At or above the high end of our range, we raised our guidance.
Our portfolio remains strong and our and our forward bookings are ahead of last year. The core the primary driver of our business.
For our consumer is continuing to perform consistently well and is not showing signs of weakness.
Our household income is actually around 100000 now.
And.
I don't want.
The noise of the quarter related to our overall guidance to distract from the foundation of our overall travel and leisure business, which is it.
Extremely consistent and well performing business that did not in Q3 shows signs of change and its performance or its metrics and as we sit here almost through the month of October nothing that's happened in the first three weeks of October would indicate that that commentary is.
Change.
And then just touching on the portfolio a little more first of all a.
A few things we've talked about the provision and our guidance for the quarter was over 19% and it came in under 19%, which I think once again shows a good performance on our portfolio.
Noticed delinquencies moved up from Q2 to Q3, but that's always the case what was positive about that in my opinion is if you look at the movement from Q2 to Q3 as far as increase it was the lowest increase we've seen since 2016, except for in 2021, when the portfolio wasn't growing so when you look at that increase it's a very manageable increase one that was actually.
Better than we expected and then finally I always.
I appreciate you and the Securitizations done because we'd love to free cash flow generates but just as important for me. It's a proof that others also believe and have confidence in the portfolio because in essence, that's what they are what they are purchasing with the notes that they purchase related to ABS transactions. So overall couldn't be happier with the portfolio performance.
The big move to move from 600 to 640, and most importantly, sticking with that move when a lot of other industries have dropped down to below 640.
Even subprime if you will that really has allowed us to have confidence in our portfolio and see the results that we're seeing.
Throughout this year as far as performance.
Okay. Thank you very thorough answer.
Sure. Thank you.
Thank you next question today is coming from Chris <unk> from Deutsche Bank. Your line is now live.
Hey, good morning, guys. Thanks for all the details so far.
I guess the first one for you as Michael I think you mentioned in the prepared comments that you.
Stimulate these new owner tours youre going youre going back to some of these open market channels and packaged sales.
I was wondering if you could kind of maybe compare and contrast, I know in the past those.
We're not always the best and they they weren't always the most efficient or cost effective can you talk about why some of them might be better today than they than they've been historically.
Absolutely.
We have we have stepped back into locations that we can ensure profitability in those channels. We've been very selective when your FICO band starts at 640.
You need to make sure that your open market channels.
Our performing from from really day one.
But also.
Southern commentary, we didn't want to get too far into it today, but we there is there is a investment that we're making into our overall package pipeline Wyndham has traditionally been in on the week.
Toward generator and we will remain that it is one of the distinguishing key characteristics of our marketing model in this space, but that doesn't prevent us from starting to lean in more toward a.
A little bit more to create diversification on a package pipeline that gives us visibility as well 12 to 18 to 18 months out. So it is really being selective in what we're going into on the open marketing and starting to diversify and create incremental workflow opportunity through the <unk>.
<unk> and our and our package pipeline and we've already seen early signs of success in doing exactly that.
Okay very helpful. Thanks, Thanks, Michael and then just.
So I'm not going to ask you for 'twenty for guidance.
You've already shared with us the headwind on interest in I guess the question is and Theres a lot of puts and takes obviously that'll that will impact what happens but.
If we kind of revisit just the free cash flow generation I mean, whenever somebody might come up with for EBITDA estimate you said inventory is below the spend is going to continue to be below 100 million per year. I mean is there any reason why the convert the free cash flow conversion.
At least in <unk>. This year, if not higher I guess, what I'm asking is is there any anything in Europe.
Current thinking in terms of a placeholder for an acquisition or anything like that.
Well I think when we think about free cash flow position.
<unk>, an acquisition would be outside of the free cash flow conversion.
Obviously thats the decision went back as far as capital allocation dividends M&A and <unk>.
Share buybacks, but overall from a free cash flow perspective, yes, I would expect that as we move forward we're back north of 50.
50%, 55% range, maybe even higher.
Everything except for the increase in the corporate interest expense.
On that walk across this timing do you think about the receivables portfolio. If you think that that being another favorite building the inventory spend so and with our cost of sales coming in.
Lower this year very very nice cost of sales performance due to the price increases the inventory we have on the balance sheet is even going to last longer than we expected kind of when we came out with the model in 'twenty. One so long term I would say no change in the view to the free cash flow conversion being 55% plus.
Okay very good.
Good thanks, guys.
Thank you.
Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from Ian Zaffino from Oppenheimer. Your line is now live.
Okay.
Hey, Good morning. This is <unk> on for Ian Thanks for taking the question.
I just have two quick ones on the Geo business could you just touch on tour flow.
And the expectations for that for the remainder of the year I guess should that still be in sort of in the double digit range.
And then secondly for the acquisition of.
Sports illustrated rates that you guys announced.
Earlier.
It was a large capital commitment or is that something you guys have been disclosed thanks, well, let me let me touch on the tour the tour flow and then I'll hand, it to Mike on the sports illustrated acquisition yet.
Tour flow expectations.
We'll be both double digit growth.
For Q4 and for the full year.
The higher teens.
So that our tour flow strength continues into the into Q4, and obviously reflected in our full year number.
And then on the acquisition of the sports illustrated brand, we haven't disclosed that number but what I would say is half of it is inventory or land that we purchased in Tuscaloosa destructive development now as I also mentioned going forward, we'll find a partner that will do development for soft unexpected additional cash flow drag because of that but.
Overall, most of the acquisition costs that we pages.
Cash out the door that will be recovered as we sell the product.
Okay, great. Thank you very much guys.
Thank you.
Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Thank you Kevin.
We were pleased with the third quarter and in particular the performance of our core vacation ownership metrics. We also execute executed on the first of what we expect will be several deals to grow our brand portfolio with the announcement of the sports illustrated resorts portfolio I would like to take a moment and thank our partners on that deal Sports Hospital.
Adventures, the eastern band of the Cherokees and authentic brands.
I want to thank all of our associates, who are working hard to deliver great vacations for our owners and guests. Thanks, everyone and have a great day.
Yeah.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.