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spk10: Good morning and welcome to the first quarter 2022 earnings conference call for Travel and Leisure Company. After the speaker's 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. If you would like to withdraw your question, please press the pound key. As a reminder, ladies and gentlemen, this conference call is being recorded. If you do not agree with these terms, Please disconnect at this time. Thank you. I would now like to turn the call over to Chris Agnew. Please go ahead.
spk08: Thank you, Leo. 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. 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 our earnings press release available at our website at investor.travelandleisureco.com. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our first quarter results, and Mike Hugg, 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.
spk09: 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 69 cents. Leisure travel is in the midst of a sharp recovery that began in February. The strength of the recovery continued through March and 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 of $3,377. an all-time high for the company, and 40% above 2019. The record BPGs 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 BPG performance in the context of the leisure travel recovery in the current inflationary environment. Let me say up front, we see rising inflation as a net positive for our business model. Rising hotel and vacation home rental rates create an 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 in two hotel rooms in close proximity to Disney currently costs approximately $6,000, including fees. Contrast that with our flagship Club Wyndham Bonnet Creek Resort in Orlando, where our owners pay a $1,600 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's 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 owner VPGs are also strong. In the first quarter, new owner VPG was 47% higher than Q1 of 2019. New owner 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 VPGs typically run 20% higher than other new owner VPGs 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 costs 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. In the end, our owners are eager to travel, and inflation reinforces the decision they previously made to own 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 and 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 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 EBITDA growth in the first quarter. Key to the 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 Traveler Membership was the activation of RCI members who were 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 doubled 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 to $230 million, and for the full year, adjusted EBITDA between $855 million to $875 million. Reservation nights on our books for Q2 are currently running 10% higher than 2019 for vacation ownership. The reason I mention NITES 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. Consumers 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 B, broaden the strength of our cornerstone brands. And this was apparent in our record VPG and the strengthening of our portfolio performance. And lastly, we want to C, create depth of our products and services. And this was apparent with the progress at our B2B travel clubs, where in the first quarter we activated five new clubs, and B2B travel clubs delivered 43% of total travel and membership transactions. For more detail on our performance, I would now like to hand the call over to Mike Hugg.
spk05: 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 69 cents, compared to $129 million of adjusted EBITDA and 39 cents 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. Turn 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 108,000 tours and a VPG of $3,377 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 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 Rental 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 increase of 12% over the prior year, The 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 transaction with an advance rate of 98% and a weighted average interest rate of 3.84%. 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 31st 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 earnings. But the adjusted EBITDA impact for the remainder of 2022 is expected to be minimal due to the 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 BPGs and provide some protection against higher interest costs. For example, an incremental $15 in BPG more than offsets a $4 million interest headwind associated with increasing rates. In regards to capital allocation, we paid our recently increased dividend of 40 cents per share on March 31st, and we'll recommend to our board of directors continuing our dividend at 40 cents 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, hence 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 next corporate leverage ratio for covenant purposes continues to decline and was at 3.8 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 a restructuring initiative, 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 FOI sales to be in the range of $500 to $520 million, a 30% to 35% increase over the prior year second quarter, with VPG expected to be around $3,300. The provision for loan loss is expected to be below 17% in the second quarter. At Travel Membership, we are forecasting lower revenue growth close to flat in the second quarter. Remember that in the prior year, COVID 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 $1.9 and $2 billion, with VPG around $3,200. As we lean into new owner sales over the peak summer travel period, we expect our strong VPGs to be increasingly mix impacted, bringing the blended VPG down for the remaining quarters of the year. Similarly, because of anticipated higher new owner mix as well as increase in the percent of sales financed, 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. but rather a 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 continue to be pleased with the strength of the 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 prove the value they see in vacationing as a timeshare owner. With that, Leo, can you please open up the call to take questions?
spk10: Certainly. At this time, if you would like to ask a question, that is star 1 now on your telephone keypad, star 1. I would like to reiterate while queuing that we are going to allow for one question and one follow-up. Once again, that is star one on your touch tone phone. We'll take a question from Joe Greff of JP Morgan. Your line is open.
spk00: Good morning, guys. Thank you for taking my question. Just given the higher broadly interest rate environment, can you talk about how you're thinking about potentially raising your APRs on timeshare financing and whether you anticipate, or are you doing that, or do you anticipate doing that, and how are you thinking about that?
spk05: Hey, good morning, Joe.
spk00: This is Mike.
spk05: Thanks for the question. When we think about the interest rates we charge our consumers, as you all know, we've been steadily increasing those over time, and obviously getting that benefit compared to the low rates that we were charged on our ABS transactions, but You know, we've talked about the value our consumers see in the product and how during an inflationary period that the value comes through loud and clear. So I wouldn't see that we expect a 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 and the VPGs 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, a $15 lift in VPG more than covers that amount. $4 million associated with higher interest on a 50 basis point increase. So does the acquisition of the customer and continued upgrades in interest income, RCI transaction membership fees, are probably more important than trying to get a little more interest on that monthly payment in the short term?
spk00: Great. And then 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 upped it fairly significantly. Is it fair in interpreting those two things in isolation and acknowledging where your EBITDA guidance is and sort of the natural reduction leverage and a leverage ratio that buybacks meaningfully accelerate from here? Is there anything that would impede a meaningful acceleration in buybacks and the rest of this year in relation to what you've done in the first quarter.
spk05: Yeah, when we look at our free cash flow generation and 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 off the $45 million we spent in the first quarter for share repurchases, we've got $205 million to $235 million in free cash flow available to us absent increase in our leverage to return to shareholders. Thank you very much, guys. Sure.
spk10: Our next question is from David Katz of Jefferies. Please go ahead.
spk04: Hi. Good morning, everyone. Thanks for taking my question. Michael, you indicated some of these metrics in your opening remarks, but one of the subjects that we find ourselves discussing a fair amount is the relative value proposition of vacation ownership versus, you know, the expensive hotels. Can you just go a little bit deeper, please, into the levers that you can and are pulling to, one, just engage people in that value proposition and, two, capitalize on it? As best you can. And I heard the one metric about close rates being up 300 basis points, but I just love a little more color there, please.
spk09: Absolutely. And, you know, one of the great things about the hotel model is you get to reset your rates every night 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 Bonnet Creek property here in Orlando, we did that math in a number of different properties. And it's always the same, is 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 not only apparent, 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 mentioned 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 APRs, we want to keep relatively stable, maybe 2% to 3% increases 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 in their ownership, We want them to see that for 10 to 20 years, and we're hearing that at our sales tables, and we're hearing that when people are deciding to go on vacation this year is, why wouldn't I? My vacation is fully paid for. And so it's apparent anecdotally and economically.
spk04: Appreciate it. And for my follow-up, and I think you may have headed in this direction with the prior answer, the prior caller's answer, but when we look at the spread between, you know, what you're securitizing and, you know, your APR, have you given us any, you know, math around how market interest rates move 100 basis points, impacts earnings by, you know, X or Y, and some specificity there would also be helpful?
spk05: Yeah, so on new issuances on the ABS space, 50 basis point move results in about $4 million EBITDA impact. So not really that significant. And in 2022, we'll be even less significant than that because, obviously, the issuances we have will be closed in the third and fourth quarter. And as I mentioned in my remarks, right, a $15 VPG lift more than covers – the interest pressure we have, and we're obviously seeing that those VPGs come through very strongly driven by the closed rates as we've talked about. So obviously we monitor it as far as the interest rate, and we'll do what we can to control those costs. Keep in mind, once again, ignoring the ABS, if you just look at the corporate debt, 89% of our debt is fixed rate. So something we look at closely, but more importantly, we love the quality that we're seeing, and those VPGs provide some protection against that. Got it.
spk11: Thank you so much. Appreciate it. Sure. Thank you.
spk10: We'll take our next question from Patrick Scholes of Truist Securities. Please go ahead.
spk06: Thank you, operator. Good morning, everyone. Good morning, Patrick. Good morning. My questions pertain to the B2B and B2C travel clubs. Last fall, at your investor day, you laid out some expectations specifically 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're in line or ahead? Thank you.
spk09: Well, let me first say... I'm increasingly confident with both of the new business lines, B2B and B2C, 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've even evolved from last September, especially on the B2B side, we're getting traction on the key elements that indicate that we're going to have future success. And 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've 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 We're 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 B2B Travel Club and very confident and pleased with the progress that that team and group is doing. As it relates to the B2C, as I shared on the last call, that launch and operation is about nine months behind the launch of the B2B 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 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 I would say as you look into the remainder of 2022, we'll probably start to show economic proof points on the B2B side, and then the B2C side will come after that as far as anything material on the economic side.
spk06: Okay. Daniel, just a follow-up question. I saw there was some change in the executive leadership on that segment of the business fairly recently. Can you just go into the rationale behind that? Thank you.
spk09: 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're operating, but but you also have to be open to the learnings of how to best execute those two businesses. And the reality is when we launched the B2B and the B2C side, I kept them segregated, and the realization was that there were a lot of duplicative efforts, a lot of duplicative work on both business development and marketing issues, 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 and made the change and feel that we're really well positioned to take what are going to be two great businesses and execute them as efficiently as possible.
spk11: Okay. Thank you very much. Thanks, Patrick.
spk10: We'll take our next question from Ian Zaffino of Oppenheimer. Your line is open.
spk03: Hi, great. Good quarter here. Thanks for all the guidance and color. I just wanted to dig a little bit deeper into the travel membership segment. You know, revenues for transaction were up substantially. Can you maybe give us a little bit more color on maybe what drove that? Is this an additional product? Is it just to consider feeling better? What is effectively driving that? And maybe give us an example, if you could.
spk05: Good morning, Ian. You know, two things driving that. First of all, as we lay out Investor Day, we've made basically the Panoramic Travel Solutions Club available to our RCI members, and we're seeing them, you know, booking additional transactions beyond just their timeshare exchange, and that's been one of the big drivers of the Lyft And then, as we expected, as we roll out the Panorama Travel Solutions product to more associations, more of our affiliates, we start to see the lift. So you start to see the National Association of Realtors transact. We 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, Two 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 the 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 RCX transaction. But it's one of the key drivers to our future EBITDA growth, and we couldn't be happier with the way those businesses are performing. And I appreciate you recognizing the lifting transactions because we were very pleased with that.
spk03: Good. And then also, as a follow-up, can you just talk a little bit about, you know, property and land acquisition side? You know, I know you guys are relatively good on inventory, but, you know, what are you seeing as far as availability, pricing? and how are you sort of approaching it in this environment? Thanks.
spk05: Yeah, I think, you know, as you mentioned, we're 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 our reduced inventory spending. And we have very little pricing pressure because, obviously, the inventory on our balance sheet we've already purchased, and the majority of the inventory that we'll – uh be acquiring is is uh the the acquisition costs are already fixed and have been agreed to so when we look into the future there's there's definitely deals out there but for us um you know 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 that free cash flow conversion you know moving up in the future because of uh uh our ability to sell what we have on the balance sheet and then obviously As the EBITDA and the travel clubs grows, that's a better free cash flow conversion due to the capital-like nature of that business. So there's opportunities out there, but we like the fact that our costs are locked in on the balance sheet or through fixed-price contracts that we'll deliver over the next couple of years.
spk11: Okay, great. Thank you very much, guys.
spk10: Sure. Thank you. We'll take our next question from Stephen Grambling of Goldman Sachs. The line is open.
spk02: Hi, thanks. I would 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 is, are you seeing maybe a new cohort of people coming in and converting? And to David's question, does this make you rethink how to market to this new customer cohort as you rebuild tours?
spk09: Demographically, Stephen, really the change that we made is the strategic change we made to elevate the minimum FICA score for our tours. And as a result of that, what we're seeing is we thought that the two major components that we thought we would see would be a lift in BPG due to mix. and a lift of BPG due to the increased marketing FICOs. 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 above our Q1 performance. And that's coming through higher close rates as opposed to higher average transactions. So that makes me feel really confident that, you know, 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, and it's important to note that 70% of the new owners that are buying are either Gen Xers or millennials, and I think that continues to speak to that the demographic continues to get a little bit younger in our mix and is refueling for that beautiful life cycle of ownership and upgrades that this business model enjoys.
spk02: Maybe as a follow-up there, one of the big pushbacks I guess we typically hear on the DOI side is just, you know, the net owner growth being kind of consistently down. Given this focus on new and just the trends you're seeing, could we actually see net owner growth or just the total number of owners flatline, and is there any way to parse out what you're seeing from attrition versus kind of the gross ads, or are you even expecting? Thanks.
spk09: Yeah, so keep in mind that the last two years there's been sort of two shocks to the system. Number one is COVID, and with COVID came higher defaults. So our member count has definitely decreased. But, no, I don't expect that to be a flat line. 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 toward 40. That's very important because 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.
spk11: Excellent, thanks so much. Thanks, Steven.
spk10: We'll take our next question from Ben Chaiken of Credit Suisse.
spk07: Hey, how's it going? Just a quick clarification. I think you were saying the travel and membership outperformance, that was RCI members essentially booking the basically non-exchange transactions. Can you give us an example of this? Is this like RCI members signing up to use the new T&L membership club, for example?
spk05: Hey, Ben, this is Mike. Thanks for the question. So two things. When we look at the first quarter, RCI was the driver, but not just as a result of additional transactions to the travel clubs, but also because of 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 see. 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 600,000 hotels through the Panorama Travel Solutions system. And as we continue to roll that out and as they continue to see the value in that, we do see growth in transactions in 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, why we expect that to grow. And the first quarter was great for RCI, both on the exchange side and for the non-exchange transactions booked by their members. Got it. That's helpful.
spk07: On the VOI side of the business, obviously, you know, PPGs were great. The provision was, you know, lower than historical. Was there any moving parts on the cost side that we should think about that were impacting the margins in 1Q? Was it just seasonality, just anything you'd call out there on the VOI EBITDA margin?
spk05: Yeah, as we've talked about, you know, kind of the end of the first quarter of the March timeframe is when we have to start making decisions on marketing sources and levels of headcount through the busy summer season. And as Michael mentioned, we do hope to get 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 that we're ready for that busy summer season. The first quarter is our lowest volume quarter from a BOI sales standpoint. So that did put some pressures 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 continue to get new owners into the system.
spk09: And let me just level set for everyone on the call because I think we uniquely, with the size of our portfolio pre-COVID and where we are today, our portfolio is down just over from $4 billion to just under $3. If you equalize that portfolio, which obviously comes with really high margins on the net of interest income, our margin is actually up about 150, 160 basis points in Q1. despite an Omicron headwind in January and to Mike's point that we began to invest in that new owner channel for the summertime, so we'd be ready for that. I'd expect that outperformance versus 2019 to continue for into the second quarter and the latter half of the year.
spk11: Is there any way to – that's very helpful.
spk07: I appreciate it. Is there any way to quantify that? Is it a similar drag in 2Q as well, or does something change seasonally?
spk05: 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, you know, those sales and marketing people should generate more tourism, more sales, which allows us to leverage those costs.
spk09: Historically, the cadence is to move up in your margins as you move into the Q2 and Q3, and we absolutely expect it to get in the mid-20s as we hit Q2. Awesome.
spk11: I appreciate it. Thank you very much. Thanks, Ben.
spk10: And once again, if you would like to ask a question, that is star 1 on your telephone keypad. We'll take our next question from Chris Walronka of Deutsche Bank.
spk01: 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, while unit level costs might be going up, you're pretty well set for the next several years. So really just thinking about how those margins could track, you know, two, three, five years from where they are today.
spk09: So Chris, let me answer your question and then let me broaden it just a little bit on total margins. You've taking all the right puzzle pieces and concluded correctly is one of the strategic decisions we made on changing our marketing approach was to become more efficient on the vacation ownership side and drive margins. As I mentioned, as Mike's 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, enjoy a 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'll start to see those lower cost of products come back against and improve our margins. As it relates to the travel and 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 the 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 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 individual pieces that link up to ultimately driving more EBITDA and more cash flow to shareholders.
spk01: Okay. Thanks, Michael. Very, very helpful. And then follow-up was I know that at the sales centers, you know, some of your top-rated salesmen, 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, you know, conversely, whether you're seeing a lot of interest in new folks coming in.
spk09: Well, you know, some of it was, I think, very, very intentional. And the 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 that's great. And part of our strategy, Chris, is We did not want to rush back into a difficult labor market in a mass hiring approach, and fortunately 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're proving that they're top performers, and we don't want to overload that system that's 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 you invariably increase your turnover. So it's more about investing in the people we have and letting them enjoy the great performance they're generating for the company and for themselves.
spk11: Okay. Very helpful. Appreciate that. Thanks, Michael. Thanks, Chris.
spk10: Thank you. That concludes Travel and Leisure's first quarter Q&A. I would now like to turn the call back over to Michael Brown for closing remarks.
spk09: Thanks, Leo. We continue our strong momentum into 2022, 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 and every day. We will be on the road a lot over the next eight weeks, and we hope to see you in person. Thanks again for your time today, and have a great day.
spk10: 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.
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