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spk00: The free cash flow generation conversion from the travel membership business is very strong. One of the reasons we continue to like the business is the great margins of free cash flow generation. But that's one of the drivers as it relates to, you know, the 50% as opposed to the range we previously talked about. And then as I mentioned in the previous 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 those receivables into the ABS 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 that are at a 90-plus percent advance rate. So In my mind, it's primarily timing as far as the growth and receivable portfolio. The one headwind we continue to have is on the corporate interest expense, right? That's obviously not timing. That's permanent. So, you know, with what's happening with interest rates compared to the model we have from the investor day, we are seeing higher interest expense. But, you know, most of it's just going to be the way we manage the portfolio and getting that into the ABS securitizations.
spk05: Okay, great. And then my follow-up is related to something happening away from you guys, the hostile or the sort of proposal from Choice to acquire Wyndham, your licensor of your brand for Blue Thread. You know, when you look at your license contract with Wyndham, what are the stipulations within those documents? What would happen if this transaction was to go forward to your agreement?
spk02: Yeah, 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.
spk05: Okay, so if Wyndham Hotels became Wyndham Brands by choice or something like that, you would sort of grandfather and you would still have access to that database? Correct. Okay. Thank you very much. Thank you.
spk06: Thank you. Next question is from Patrick Schultz from Truist Securities. Your line is now live.
spk04: Hi. Good morning, Michael and Mike. A follow-up question on the hypothetical combination of Choice plus Wyndham. It sounds like there wouldn't be any downside, but could there be potential upside from that? Certainly, Choice has a massive guest reward system, and I believe their primary color is yellow. So, you know, would it be the blue thread potentially plus the yellow thread at that point? Or would you just be, you know, or would you be just limited to the legacy Wyndham hotels?
spk02: Well, 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 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. So my answer broadly is any time that occurs in the vacation ownership space, it has possibilities to be a positive to our VO business. Okay.
spk04: So fair to think that you would hope that, that you'd get access to it, but again, no guarantees, and certainly there's blue-green with an existing contract, so a lot of devil in the details possibly to be worked out here. And then taking a step back, just Michael, on sort of the high-level macro question, you know, your average household income, as I recall, 90 for a vacation ownership buyer, 90 to $100,000. Any discernible changes in propensity of that customer to purchase or use your product that you've noticed? Thank you.
spk02: Yeah, and I really appreciate that question because in a quarter like this, I think it's really important to reground 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 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 take away from this quarter on the vacation ownership business. VPGs are strong at or above the high end of our range. We raised our guidance. Our portfolio remains strong 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 $100,000 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 an extremely consistent and well-performing VO business that did not in Q3 show signs of change in 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 has changed.
spk00: And then just touching on the portfolio a little more, first of all, a few things. We talked about the provision. Our guidance for the quarter was over 19% and it came under 19%, which I think once again shows a good performance on the portfolio. You'll notice 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, you know, I always appreciate getting the securitizations done because we love the free cash flow it generates. But just as importantly for me, it's a proof that others also believe in the confidence of the portfolio because, in essence, that's what they're purchasing with the nuts that they purchased related to the ABS transaction. So overall, couldn't be happier with the portfolio performance and, you know, 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, 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.
spk04: Okay. Thank you. Very thorough answer.
spk00: Sure. Thank you.
spk06: Thank you. Next question today is coming from Chris Waronka from Deutsche Bank. Your line is now live.
spk03: Hey, good morning, guys. Thanks for all the details so far. I guess the first one for you is, Michael, I think you mentioned the prepared comments that you stimulate these new owner tours. You're going back to some of these open market channels and package sales. And I I wonder if you can kind of maybe compare and contrast. I know in the past, those were not always the best and they weren't always the most efficient or cost effective. Can you talk about why some of them might be better today than they've been historically?
spk02: Yeah, absolutely. And 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 are performing from really day one. But also, subtle commentary, we didn't want to get too far into it today, but There is an investment that we are making into our overall package pipeline. Wyndham has traditionally been an on-the-week tour generator, and we will remain that. It is one of the distinguishing key characteristics of our marketing model in the space. But that doesn't prevent us from starting to lean in more toward 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's really being selective and what we're going into on the open marketing and starting to diversify it and create incremental to workflow opportunity through the investment in our in our package pipeline and we've already seen early signs of success in doing exactly that okay uh very helpful thanks thanks michael and then just um
spk03: So I'm not going to ask you for 24 guidance, and you've already shared with us the headwind on interest. And I guess, though, the question is – and there's a lot of puts and takes, obviously, that will impact what happens. But if we kind of revisit just the free cash flow generation, I mean, whatever somebody might come up with for an EBITDA estimate, you said inventory is below – spend is going to continue to be below $100 million today. I mean, is there any reason why the free cash flow conversion wouldn't be at least where it is this year, if not higher? I guess what I'm asking is, is there anything in your current thinking in terms of a placeholder for an acquisition or anything like that?
spk00: Well, I think when we think about free cash flow conversion, an acquisition would be outside the free cash flow. conversion. Obviously, that's, you know, the decision we make as far as capital allocation, right, dividends, M&A, and share buybacks. But overall, from a pre-cash flow perspective, yeah, I would expect that, you know, as we move forward, we're back north of, you know, the 50% kind of that 55% range, maybe even higher. Everything except for the increase in the corporate interest expense Everything else on that walk across is timing, right? You think about the receivables portfolio, if you think about the capability and the inventory spend. 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 21. So long-term, I would say no change in the view to the free cash flow conversion being 55% plus.
spk03: Okay, very good. Thanks, guys.
spk00: Sure, thank you.
spk06: Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Ian Zaffino from Oppenheimer. Your line is now live.
spk01: Hey, good morning. This is Isaac Salas and I'm for Ian. Thanks for taking the question. I just have two quick ones. On the VO 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 the Sports Illustrated rights that you guys announced earlier, was that a large capital commitment or is that something you guys haven't disclosed? Thanks.
spk02: Let me touch on the tour flow and then I'll hand it to Mike on the Sports Illustrated acquisition. Yeah, the tour flow expectations will be both double-digit growth and for Q4 and for the full year, the higher teams. So that, our tour flow strength continues into the Q4 and obviously reflected in our full year number.
spk00: And then on the acquisition of the sports restaurant brand, we haven't disclosed that number, but what I would say is, you know, half of it is inventory or land that we purchased in Tuscaloosa to start the development. Now, as I also mentioned, going forward, we'll find a partner that will do development for us, so don't expect additional cash flow drag because of that. But, you know, overall, most of the acquisition costs that we pay is cash out the door that will be recovered as we sell the product.
spk01: Okay, great. Thank you very much, guys.
spk06: Thank you. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.
spk02: Thank you, Kevin. We were pleased with the third quarter and, in particular, the performance of our core vacation ownership metrics. We also 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 Hospitality Ventures, the Eastern Band of the Cherokees, and Authentic Brands. I also 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.
spk06: 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.
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