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Hotel & Resorts

Journey + Leisure Co (TNL) CEO Michael Brown on Q1 2022 Outcomes – Earnings Name Transcript

Journey + Leisure Co (NYSE:TNL) Q1 2022 Earnings Convention Name April 28, 2022 8:30 AM ET

Firm Individuals

Christopher Agnew – SVP, FP&A and IR

Michael Brown – CEO, President & Director

Michael Hug – EVP & CFO

Convention Name Individuals

Joseph Greff – JPMorgan Chase & Co.

Charles Scholes – Truist Securities

Ian Zaffino – Oppenheimer

Stephen Grambling – Goldman Sachs Group

Benjamin Chaiken – Crédit Suisse

Chris Woronka – Deutsche Financial institution


Good morning, and welcome to the First Quarter 2022 Earnings Convention Name for Journey + Leisure Co. [Operator Instructions]. As a reminder, girls and gents, this convention name is being recorded. If you don’t agree with these phrases, please disconnect presently. Thanks.

I’d now like to show the decision over to Chris Agnew. Please go forward.

Christopher Agnew

Thanks, Leo. Good morning. Earlier than we start, we might prefer to remind you that our discussions in the present day will embrace forward-looking statements. Precise outcomes may differ materially from these indicated within the forward-looking statements. And the forward-looking statements that made in the present day are efficient solely as of in the present day. We undertake no obligation to publicly replace or revise these statements. The components that would trigger precise outcomes to vary are mentioned in our SEC filings. And you’ll find a reconciliation of the non-GAAP monetary measures mentioned in in the present day’s name in our earnings press launch out there at our web site at

This morning, Michael Brown, our President and Chief Govt Officer, will present an outline of our first quarter outcomes; and Mike Hug, our Chief Monetary Officer, will then present better element on the quarter, our stability sheet and liquidity place. Following these remarks, we are going to look ahead to responding to your questions.

And with that, I am happy to show the decision over to Michael Brown.

Michael Brown

Thanks, Chris. Good morning, and welcome to our First Quarter Earnings Name. This morning, we’re happy to report adjusted EBITDA of $170 million and adjusted EPS of $0.69. Leisure journey is within the midst of a pointy restoration that started in February. The power of the restoration continued via March and has not slowed within the month of April. Anecdotally, right here in Central Florida, the power of leisure journey demand is instantly evident once you observe the airport, motels, theme parks and, in fact, our resorts.

This sturdy demand can be obvious in our outcomes, most notably in our Trip Possession section, pushed by an elevated quantity per visitor within the first quarter of $3,377, an all-time excessive for the corporate and 40% above 2019. The document VPGs not solely have continued via April however have strengthened additional past first quarter ranges. We count on this to reasonable in the summertime months as new proprietor tour combine will increase.

I would like to debate our efficiency within the context of the leisure journey restoration and the present inflationary setting. Let me say upfront, we see rising inflation as a web constructive for our enterprise mannequin. Rising resort and trip residence rental charges create an much more compelling worth proposition for our prospects. That worth has resulted in a rise in gross sales shut charges of over 300 foundation factors in Q1 in comparison with 2019 ranges.

Our house owners see nice worth in timeshare. For instance, a 7-night keep this July in 2 resort rooms in shut proximity to Disney presently price roughly $6,000, together with charges. Distinction that with our flagship Membership Wyndham Bonnet Creek Resort in Orlando, the place our house owners pay a $1,600 annual upkeep charge to remain throughout excessive season in a spacious 2-bedroom condominium with lounge and kitchen, to not point out all of Bonnet Creek’s resort facilities.

The worth proposition is evident, and it is among the causes quantity per visitor at Bonnet Creek is 53% increased in comparison with the primary quarter of 2019. As a reminder, 80% of our proprietor base have absolutely paid off their possession and are touring for the only price of their upkeep charge.

It’s not simply our current house owners which might be realizing the worth proposition. New proprietor VPGs are additionally sturdy. Within the first quarter, new proprietor VPG was 47% increased than Q1 of 2019. New proprietor transaction combine elevated simply over 200 foundation factors year-over-year to 29%, with Blue Thread as much as 15% of latest proprietor quantity from 13% in 2021 and seven% in 2019.

Blue Thread VPGs usually run 20% increased than different new proprietor VPGs because of increased shut charges on leads coming from our affinity companion, Wyndham Accommodations and Resorts. Close to demographics, in Q1, practically 40% of latest proprietor gross sales had been to Gen Xers and 30% of latest proprietor gross sales had been to millennials.

On the price aspect, we wouldn’t have publicity to rising building prices for the following a number of years as a result of our stock prices are locked on our stability sheet. We do acknowledge labor prices are rising, however these bills are primarily borne by the householders’ associations at our resorts or are a small fraction of our price publicity. Ultimately, our house owners are desirous to journey and inflation reinforces the choice they beforehand made to personal with us. That demand is mirrored in our anticipated occupancy for the rest of 2022, which is presently monitoring above 2019 ranges.

Turning now to Journey and Membership. Income per transaction elevated 12% year-over-year within the first quarter and transactions elevated 6%. We acknowledged coming into the 12 months that RCI’s progress can be challenged as a result of decrease enrollments as new proprietor gross sales proceed to recuperate industry-wide.

Our strategic choices over the past a number of years to complement the expansion within the trade enterprise with the launch of latest enterprise strains has resulted in Journey and Membership not solely offsetting enrollment headwinds however producing 15% income progress and 12% year-over-year adjusted EBITDA progress within the first quarter. Key to the success of the quarter was the sturdy contribution from our Journey Golf equipment, which noticed a 21% year-over-year enhance in income per transaction and an 18% enhance in transactions.

A major factor of the expansion at Journey and Membership was the activation of RCI members who’re incrementally reserving non-exchange transactions at a better fee as a result of expanded choices via our Journey Membership platform. March RCI non-exchange journey bookings had been the best because the launch of those expanded choices in 2020 and double the run fee on the finish of final 12 months. We count on the momentum from these expanded advantages to proceed, driving elevated RCI member engagement and creating incremental income as members complement their common timeshare stays with further journey bookings.

Turning to our outlook. We count on second quarter adjusted EBITDA of $220 million to $230 million, and for the complete 12 months, adjusted EBITDA of between $855 million to $875 million. Reservation nights on our books for Q2 are presently working 10% increased than 2019 for trip possession.

The rationale I discussed nights is that we’ve got seen a marked enhance in size of keep, which is yet one more constructive information level on the power of client demand. Via the tip of this 12 months, size of keep is averaging 8% increased than 2019. Shoppers are seeing the worth in our merchandise, and we proceed to be centered on the easy ABC technique we laid out on our final name.

First, we need to, A, speed up the expansion of our world enterprise. This was obvious in our income progress at our Journey Golf equipment within the quarter. Second, we need to, B, broaden the power of our cornerstone manufacturers, and this was obvious in our document VPG and the strengthening of our portfolio efficiency. And lastly, we need to, C, create depth of our services and products. And this was obvious with the progress at our B2B Journey Golf equipment, the place, within the first quarter, we activated 5 new golf equipment, and B2B Journey Golf equipment delivered 43% of complete Journey and Membership transactions.

For extra element on our efficiency, I’d now like at hand the decision over to Mike Hug.

Michael Hug

Thanks, Michael, and good morning to everybody. In addition to discussing our first quarter outcomes, I’ll present extra shade on our stability sheet, liquidity place and money stream. My feedback will likely be primarily centered on our adjusted outcomes.

We reported complete firm first quarter adjusted EBITDA of $170 million and adjusted diluted earnings per share of $0.69 in comparison with $129 million of adjusted EBITDA and $0.39 of adjusted diluted EPS 1 12 months in the past. The efficient tax fee of 31% this quarter negatively impacted EPS. Nevertheless, we count on our efficient tax fee to be between 27% and 28% for the complete 12 months.

Turning to the efficiency in our 2 enterprise segments within the first quarter. Trip Possession reported section income of $604 million and adjusted EBITDA of $103 million, will increase of 35% and 56%, respectively, over the primary quarter of 2021. We delivered 108,000 excursions and a VPG of $3,377 within the first quarter, representing will increase of 42% and 19%, respectively, over the prior 12 months first quarter. The primary quarter provision for mortgage loss was 14% as a result of continued sturdy portfolio efficiency and high-quality originations throughout the quarter because of our continued self-discipline in our advertising operations.

Income in our Journey and Membership section was $210 million within the quarter, up 15% in comparison with $183 million within the prior 12 months first quarter and above the $195 million within the first quarter of 2019, adjusted for the sale of the North American rental enterprise. As Michael famous, the rise in income was pushed by will increase in each transactions and income per transaction leading to adjusted EBITDA of $84 million, a rise of 12% over the prior 12 months. The primary quarter benefited from power within the U.S. for RCI in addition to progress in our Journey Golf equipment.

Along with sturdy working outcomes, we’re additionally very happy with our stability sheet and capital allocation. Our stock place is robust, with 5 years of stock on our stability sheet, together with our new resort at Centennial Park in Downtown Atlanta. We anticipate this degree of stock will permit us to drive cumulative money financial savings from diminished stock spending of roughly $400 million via 2025.

In the course of the quarter, we closed out a $275 million transaction with an advance fee of 98% and a weighted common rate of interest of three.84%. 2022 demonstrates the power of our enterprise mannequin. Even throughout a time of market volatility within the securitization market and continued fee variability, we’re happy with the phrases of this transaction.

Appreciating that we’re in a — it is vital to remind everybody that 89% of our debt as of March 31 was fastened fee. We count on each 50 foundation level enhance in rates of interest annualize affect to earnings. However the adjusted EBITDA affect is predicted to be minimal as a result of this timing, that are anticipated to shut within the third and fourth quarters.

And a one which charges are rising due to inflation, and as our outcomes reveal, we count on inflation to assist VPGs and supply some safety towards increased curiosity prices. For instance, an incremental $15 in VPG greater than offset a $4 million curiosity headwind related to rising charges.

With reference to capital allocation, we paid our not too long ago elevated dividend of $0.40 per share on March 31. And we’ll suggest to our Board of Administrators persevering with our dividend at $0.40 per share within the second quarter. Share repurchase exercise within the first quarter widespread inventory. Our confidence within the resiliency of our enterprise and proceed rising our share repurchases.

We had $283 million of unused capability finish of March, and our Board of Administrators not too long ago authorised a $500 million enhance. Our web company leverage ratio for covenant functions continues to say no and was at 3.8x on the finish of the quarter, deleveraged via adjusted EBITDA progress in 2022.

These wholesome returns of capital to shareholders are pushed by our sturdy free money stream era and free money stream conversion from adjusted EBITDA to be again to our historic vary of 55% to 60%. Over time, we count on to see this vary transfer as much as 58% to 63% of adjusted EBITDA, as we laid out at our Investor Day final fall.

In the course of the first quarter, we acknowledged $7 million of fees associated to restructuring initiatives, primarily centered on enhancing organizational effectivity. The vast majority of the initiative and associated bills had been incurred within the first quarter of 2022, with the remaining fees to be acknowledged within the second quarter.

Having summarized our sturdy first quarter, let me present some extra element about our expectations for the second quarter and full 12 months. Within the second quarter, we count on gross VOI gross sales to be within the vary of $500 million to $520 million over the prior 12 months second quarter, with VPG anticipated to be round $3,300. The supply for mortgage loss is predicted to be beneath 17% within the second quarter.

At Journey progress near flat within the second quarter. Do not forget that within the prior 12 months, COVID shifted demand into the second quarter from the primary quarter, which ends up in a tricky comparable. As Michael talked about, for the complete 12 months, we’re anticipating adjusted EBITDA $875 million are anticipated to be between $1.9 billion and $2 billion, with VPG round $3,200.

As we lean into new proprietor gross sales over the height summer time journey interval, we count on our sturdy VPGs to be rising combine — impacted, bringing the blended VPG down for the remaining quarters of the 12 months.

Equally, due to anticipated increased new proprietor combine in addition to the rise within the proportion of gross sales financed, we count on the supply for mortgage loss to be beneath 18% within the second half of the 12 months. This enhance within the provision however quite a spotlight by us to return to a rising portfolio via a better % of gross sales financed and new proprietor excursions. With respect to web company curiosity expense within the $195 million for the complete 12 months.

So to wrap up, we proceed to be happy with the power of the leisure journey market and our skill to capitalize on the alternatives which might be introduced to us. Each our present and new house owners in addition to our RCI members proceed to understand the worth of holidays, and our outcomes for the quarter show the worth they see in vacationing as a timeshare proprietor.

With that, Leo, are you able to please open up the decision to take questions?

Query-and-Reply Session


[Operator Instructions]. We’ll take a query from Joe Greff of JPMorgan.

Joseph Greff

Simply given the upper broadly rate of interest setting. Are you able to speak about the way you’re fascinated by probably elevating on timeshare financing? Or are you doing that? Or do you anticipate doing that? And the way are you fascinated by that?

Michael Hug

Joe, that is Mike Hug. Thanks for the query. Once we take into consideration — as you all know, we have been steadily rising these over time. And clearly, once more, that profit in comparison with low charges that we had been charged on our ABS transactions.

However we have talked in regards to the worth our shoppers see within the product and the way, throughout an inflationary interval, the worth comes via loud and clear. So I would not see that we count on a big enhance within the fee that we cost to the patron, in our thoughts, protecting the product reasonably priced, particularly once you take a look at that month-to-month fee, is the important thing to the carry within the shut charges and the VPG that we’re seeing.

So we do have some pressures or might need some pressures on the curiosity unfold that I discussed, however as soon as once more, a $15 carry in VPG greater than covers that $4 million related to increased curiosity on a 50 foundation level enhance. So thus, the acquisition of the shopper and continued upgrades in curiosity earnings, RCI transaction membership charges are in all probability extra vital than making an attempt to get somewhat extra curiosity on that month-to-month fee within the quick time period.

Joseph Greff

Nice. And my follow-up query is on capital. You continue to have an honest quantity of remaining authorization on the finish of March and, clearly, the Board upped it pretty considerably. Is it honest in decoding these 2 issues in isolation and acknowledging the place your EBITDA steering is and kind of the pure discount in leverage and a leverage ratio that buybacks meaningfully speed up from right here? Or is there something that might impede a significant acceleration in buybacks in the remainder of this 12 months in relation to what you’ve got executed within the first quarter?

Michael Hug

Sure. Once we take a look at our free money stream era in that 55% to 60% of EBITDA, after we pay our dividends and we do have a fee on leisure, we’ve got $250 million to $280 million in capital that we will 12 months, absent utilizing that for different issues that would offer higher returns. So should you again off the $45 million we spent within the first quarter for share repurchases and free money stream is obtainable, rising our leverage.


Our subsequent.

Unidentified Analyst

Michael, you indicated a few of these metrics, however one of many topics that we discover ourselves discussing a good quantity is of Trip Possession versus — are you able to simply go somewhat bit deeper, please, into the levers that you could or — and are pulling to, one, simply interact folks in that worth proposition; and two, capitalize on it as greatest you may? And I heard the 1 metric about shut charges being up 300 foundation factors, however I’d simply love somewhat extra shade there, please.

Michael Brown

Completely. And one of many nice issues in regards to the resort mannequin is you get to reset your charges each night time given present demand. And each time the resort in {industry} raises their charges, which they proceed to do, it creates an increasing number of worth to our client.

The instance right here in Orlando, we did that math in quite a few totally different properties. And it is at all times the identical, is that the clear profit, and also you hear it each anecdotally and simply mathematically, is it is robust to seek out resort rooms in Florida. And should you discover them, they’re extraordinarily costly. And for the overwhelming majority of our house owners, 80% to be precise, who’ve already paid for his or her possession, the worth isn’t solely obvious. It is simply unimaginable, the worth that persons are getting on trip.

So after we take a look at how persons are touring within the midst of the pandemic, David, the drive to market was — rose to 92%. For our shoppers, that is already gone again to historic norms of 72%, 73%. Our shut charges are transferring up, each on the house owners and our new proprietor aspect. And we see, as Mike referred to, on the APR, each pricing and APRs, we need to hold comparatively steady, possibly 2% to three% will increase on the worth, as a result of the lifetime worth is admittedly what’s most vital.

As a result of the house owners that we’ve got now which might be having fun with this unimaginable worth of their possession, we wish them to see that for 10 to twenty years in gross sales payables. And we’re listening to that when persons are deciding to go on trip this 12 months is, “Why would not I? My trip’s absolutely paid for.” And so it is obvious anecdotally and economically.

Unidentified Analyst

Admire it. And for my follow-up, and I feel you’ll have headed on this path with the prior reply, the prior caller’s reply. However when will what you are securitizing and your APR, have you ever given us any market rates of interest transfer 100 base by x or y? Specificity there would even be useful.

Michael Hug

Sure. So a 50 foundation level transfer ends in about $4 million EBITDA affect. So not likely that important and, in fact, are lessening after that as a result of, clearly, the issuance that we’ve got will likely be shut within the third and fourth quarter. A $15 VPG carry greater than covers it you’ve got seen these VPGs come via very strongly, pushed by the shut charges that we have talked about.

So clearly, we monitor it so far as the rate of interest, and we’ll do what we will to regulate these prices. Remember, as soon as once more, ignoring the ABS, should you can simply take a look at the company debt, 89% of our debt is fastened fee. So one thing we take a look at intently, however extra importantly, we love the standard that we’re seeing. And people VPGs present us some safety towards that.


We’ll take our subsequent query from Patrick Scholes of Truist Securities.

Charles Scholes

My questions pertain to the B2B and B2C Journey Golf equipment. Final fall, at your Investor Day, you laid out some expectations, particularly long-term income progress of 27% to 30% and adjusted EBITDA progress of 13% to 17% yearly from 2021 to 2025. How are you monitoring in the present day versus these expectations? Do you assume you are in line?

Michael Brown

I am more and more assured with each of the brand new enterprise strains, B2B and B2C, that we launched final September each the underlying enterprise mannequin and the financial projections. And the explanation I say that, Patrick, is that, as we have been developed from final September, particularly on the important thing components that, in the long run, to be extra particular, it is the enterprise pipeline of offers that we have to do. That pipeline not solely has continued to transform to precise contracts, however as we indicated within the first quarter, we have activated 5 of these golf equipment for the beginning of utilization.

Then as soon as you progress from there, the conversion of these golf equipment to subscriptions and transactions, we’re starting to see an increasing number of proof factors that, that’s taking place and beginning to transfer to the odds and quantities that we laid out on Investor Day.

So I’d say, in line, sure, possibly even a bit forward because it pertains to the B2B I am assured and happy with the progress that, that workforce and group is doing.

Because it pertains to the B2C. As I shared on the final name, that launch in operation is about 9 months behind the launch of the B2B aspect simply because of the calendar and after we launch issues. We now have discovered quite a bit within the first 6 months and are beginning to see traction acquire because it pertains to the member acquisition.

So once more, I’d say, I really feel assured that we’re in line, if not possibly a contact higher, as to our path. However I’d say, as you look into the rest of 2022, we’ll in all probability begin to present financial proof factors on the B2B aspect. After which the B2C aspect will come after that so far as something materials on the financial aspect.

Charles Scholes

Okay. And only a follow-up query. I noticed there was some change within the government management on that section of the enterprise pretty not too long ago. Are you able to simply go into the rationale behind that?

Michael Brown

Completely. Any time you launch new companies, you not solely need to be assured within the companies that we’re launching, which is what we simply shared, that we’re actually assured in each of these 2 new companies. We additionally need to be open to the learnings of easy methods to greatest execute these 2 companies. And the fact is, is after we launch the B2B and the B2C aspect, I saved them segregated.

And the conclusion was that there have been lots of duplicative efforts, lots of duplicative work on each enterprise improvement and advertising and know-how platforms that we had the chance to mix and create a extra environment friendly and what we consider is a more practical method to execute these methods. And due to this fact, we had been open to that studying and made the change and really feel that we’re rather well positioned to take what are going to be 2 nice companies and execute them as effectively as attainable.


We’ll take our subsequent query from Ian Zaffino of Oppenheimer.

Ian Zaffino

Good quarter right here. Thanks for all of the steering and shade. I simply needed to dig somewhat bit deeper into the Journey and Membership section. Revenues per transaction had been up considerably. Are you able to possibly give us somewhat about what drove that? Is this extra product? Is it simply the patron feeling higher. What’s successfully driving that? And possibly give us an instance, should you may.

Michael Hug

Two issues driving that. To begin with, as we laid out at Investor Day, we have made mainly the Panorama Journey Options Membership out there to our RCI members, and we’re seeing them reserving further transactions past simply their timeshare trade, and that is been one of many large drivers of the carry.

After which as we anticipated, as we roll out the Panorama Journey Options product to extra associations, extra of our associates, we begin to see the carry. So that you begin to see the Nationwide Affiliation Realtors transact. We enrolled the NFL Alumni Affiliation. So I’d say it is only a pure development of our plan that, as we roll out the product to extra shoppers, to extra associates, we will see that carry in transactions.

And that is what we count on to occur via the rest of the 12 months is proceed the expansion out of the Journey Golf equipment. We love the EBITDA it brings. Needless to say it would current some margin pressures as a result of we do not run the identical margins on a Journey Membership transaction as we do on an RCI change transaction. But it surely’s one of many key drivers to our future EBITDA progress, and we could not be happier with the best way these companies are performing. And I respect you recognizing the carry in transactions as a result of we had been very happy with that.

Ian Zaffino

Good. After which additionally as a follow-up property and land acquisition aspect. And I do know you guys are comparatively good on stock, however what are you seeing so far as availability, pricing? And the way are you kind of approaching it on this setting?

Michael Hug

Sure. I feel, as you talked about, we’re very sturdy so far as the stock we’ve got on our stability sheet, which is nice for our money flows after we look out over the following a number of years in our diminished stock spending. And we had little or no pricing stress as a result of, clearly, the stock on our stability sheet we have already bought. And the vast majority of the stock that we’ll be buying is — the acquisition prices are already fastened and have been agreed to.

There’s positively offers on the market. However for us, we have no must go and purchase a bunch of stock. We’re pleased with what we’ve got on the stability sheet, and that is why we’re assured in that free money stream conversion transferring up sooner or later due to our skill to promote what we’ve got on the stability sheet.

After which clearly, because the EBITDA and the Journey Golf equipment grows, that is a greater free money stream conversion because of the capital-light nature of that enterprise. So there’s alternatives on the market, however we like the truth that our prices are locked in on the stability sheet or via fastened value contracts that we’ll ship over the following couple of years.


We’ll take our subsequent query from Stephen Grambling of Goldman Sachs.

Stephen Grambling

I wish to simply peel again the onion a bit extra on the shut charges, which, I feel, you stated had been up for each new and current house owners. Are you seeing any change in shut fee throughout demographics?

And I suppose, what I am actually making an attempt to get at is, are you seeing possibly a brand new cohort of individuals coming in and changing? And to David’s query, does this make you rethink sort of market to this new buyer cohort as you rebuild excursions?

Michael Brown

Demographically, Stephen, actually, the change that we made is the strategic change we made to raise the minimal FICO rating for our excursions. What we’re seeing is we thought that the two main parts that we thought we’d see can be a carry in VPG as a result of combine and a carry of VPG because of the elevated advertising FICOs.

What we have since discovered is that I feel the inflationary setting is even including further gas to our skill to carry out on the gross sales desk. As I discussed is above our and that is coming via increased shut charges versus increased common transactions.

In order that makes me really feel actually assured that you simply put higher excursions in entrance of a very high quality gross sales workforce and the place worth is instantly obvious. And that is the consequence you are going to get, which provides us a possibility as we head into the summer time to not solely put money into new house owners, but in addition to drive margins.

I’d say, demographically, and it is vital to notice that 70% of the brand new house owners which might be shopping for are both Gen Xers or millennials. And I feel that continues to talk to that the demographic continues to get somewhat bit youthful in our combine and is refueling for that stunning life cycle of possession and improve that this enterprise mannequin.

Stephen Grambling

Perhaps as a comply with up. One of many large pushbacks, I suppose, we usually hear on the VOI is proprietor progress being sort of constantly down. Given this deal with new and simply the traits you are seeing, may we truly see web proprietor progress or simply the full variety of house owners flat line? And is there any method to parse out what you are seeing from attrition versus sort of the gross provides?

Michael Brown

Sure. So needless to say the final 2 years, there’s been kind of 2 shocks to the system. Primary is COVID. And with COVID got here increased defaults. So our member depend has positively decreased not flatlined. We’re very dedicated to rising our new proprietor combine, we count on to be over 30% for the rest of this 12 months and proceed to develop that as we transfer into 2023 to get again above the 35% and begin working towards 40%.

That is crucial as a result of I feel the work we have executed over the past 4 to five years has actually strengthened our proprietor base. You may see that in our portfolio efficiency. And as you progress ahead, we wish to see our member depend start to develop once more, and we absolutely count on.


We’ll take our subsequent query of Credit score Suisse.

Benjamin Chaiken

Only a fast clarification. I feel you had been saying the Journey and Membership outperformance that was RCI members primarily reserving the, mainly, non-exchange transactions. Are you able to give us an instance of this? Is that this like RCI members signing up to make use of the brand new T+L membership membership, for instance?

Michael Hug

Ben, that is Mike Hug. Thanks for the query. So 2 issues. Once we take a look at the primary quarter, RCI transactions to the Journey Golf equipment, but in addition the final 12 months, Omicron pushed trade enterprise from the primary quarter to the second quarter, which is why we’ve got a tricky second quarter comp this 12 months. However we noticed these exchanges getting booked within the first quarter of this 12 months, which we had been very happy to see. And clearly, that helps the margins as properly in Q1.

Because it pertains to the continued progress of the non-exchange transactions, for almost all of our RCI members, they do have the flexibility to entry these 600,000 motels via the Panoramic Journey Options system. And as we proceed to roll that out and as they proceed to see the worth in that, we do see progress in transactions in that.

In order that’s nice from a transaction standpoint, but in addition it is nice by way of RCI member retention as a result of it simply brings further worth to their membership with RCI. So as soon as once more, goes again to the worth of the Journey Golf equipment, why we count on that to develop. And the primary quarter was nice for RCI, each on the trade aspect and for the non-exchange transactions booked by their members.

Benjamin Chaiken

Obtained it. That is useful. After which on the VOI aspect of the enterprise, clearly, VPGs had been nice. The supply was decrease than historic. Is there — was there any transferring elements on the price aspect that we should always take into consideration that had been impacting the margins in 1Q? Is it simply seasonality? Simply something you’d name on the market on that VOI EBITDA margin?

Michael Hug

Sure. As we have talked about, sort of the — into the primary quarter, the March timeframe, it is after we needed to begin making choices on advertising, assets and ranges of headcount via the busy summer time season. And as Michael talked about, we do hope to get that new proprietor transaction combine up over 30% via the rest of the 12 months. So we did we go in and make some choices to go forward and begin hiring advertising and gross sales personnel in order that we’re prepared for that busy summer time season.

The primary quarter is our lowest quantity quarter from a VOI gross sales standpoint. In order that did put some pressures on margins. However we predict it was the best enterprise choice as a result of it permits us to benefit from the sturdy leisure journey market and proceed to get new house owners into the system.

Michael Brown

And Benjamin, let me simply level-set for everybody on the decision as a result of I feel we uniquely — with the scale of our portfolio pre-COVID and the place we’re in the present day, the portfolio is down simply over — from $4 billion to only underneath $3 billion. In case you equalize that portfolio clearly comes with actually excessive margins on the web curiosity earnings. Our margin is definitely up this level in Q1 and regardless of that Omicron headwind in January. And to Mike’s level that we started to put money into that new proprietor channel for {the summertime}. So we fee for that I would count on that outperformance versus 2019 to proceed for into the second quarter, the latter half of the 12 months.

Benjamin Chaiken

Very useful. Admire it. Is there any method to quantify that? Is it an analogous drag in 2Q as properly? Or is there one thing modified seasonally?

Michael Hug

No. We’d count on to see our margins go up in Q2. As soon as once more, we made the funding in Q1, which was the best long-term enterprise choice. In order we get into Q2, these gross sales and advertising folks ought to generate extra excursions and extra gross sales, which permits us to leverage these prices.

Michael Brown

And traditionally, the cadence is to maneuver up in your margins as you progress into the Q2 and Q3. And we completely count on it to get within the mid-20s as we hit Q2.


[Operator Instructions]. We’ll take our subsequent query from Chris Woronka of Deutsche Financial institution.

Chris Woronka

First query was, I hoped possibly we may speak somewhat bit about your ideas on the longer-term margin potential of the VOI segments. So past this 12 months, as a result of it sounds such as you’re getting your shut charges are going up. You may cost extra on your leases and issues like that.

[Indiscernible] and so simply making an attempt to consider it. And it feels like additionally on stock, whereas unit degree prices could be going up, you are fairly properly set for the following a number of years. So actually, simply fascinated by how these margins may observe 2, 3, 5 years from the place they’re in the present day.

Michael Brown

So Chris, let me reply your query after which let me broaden it just a bit bit on complete margins. You’ve got taken all the best puzzle items and concluded accurately. And one of many strategic choices we made on altering our advertising strategy was to change into extra environment friendly on the holiday possession aspect and drive margins.

As talked about, we’re very happy with the portfolio efficiency, and we see that performing in addition to it has in fairly a while. So we’d count on, as time strikes on, to proceed to maneuver the holiday possession margins up, take pleasure in a really seen and predictable price of gross sales that will likely be coming off our stability sheet. And as we get via commitments within the subsequent 12 months that we have already made, we’ll begin to see these decrease price of merchandise come again once more and enhance our margins.

Because it pertains to the Journey and Membership section, clearly, with the character of that enterprise, that does include decrease margin enterprise. However on a complete, it is best to see the two of these start to offset each other. However the vital factor in all of that is the online consequence we’re in search of is to extend our progress charges from mid-single digits to excessive single digits, and due to this fact, be capable to return an equal amount of money progress to our shareholders. In order that’s the person items that hyperlink as much as finally driving extra EBITDA and additional cash stream to shareholders.

Chris Woronka

Okay. Very useful. After which a comply with up was, on the gross sales facilities, your — a few of your top-rated salesman, they will ship sort of top-heavy outperformance. And I am simply curious as as to if you’re seeing any elevated turnover amongst your higher performers, or conversely, whether or not you are seeing lots of curiosity in new of us coming in?

Michael Brown

Nicely, a few of it was, I feel, very, very intentional. And the — a few of it was simply the macro setting of labor scarcity. However the actuality of what is taking place on the gross sales facilities in the present day is, as we’re steadily rising our tour stream, our prime reps and our highest-performing representatives are seeing an increasing number of purchasers, and due to this fact, having fun with the advantages of those increased shut charges. And that is nice.

And a part of our technique, Chris, is we didn’t need to rush again right into a troublesome labor market in a mass hiring strategy. And thankfully, it is paid off. And we have steadily moved into what is going on to be a really, very busy summer time. However this enterprise is all in regards to the folks however we predict they’re the very best folks within the enterprise, they usually’re proving that they are prime performers. And we do not need to overload that system that is actually working successfully for the time being with simply bringing in a ton of individuals.

It is a troublesome labor market to do it, and also you spend lots of time and vitality coaching and also you invariably enhance your turnover. So it is extra about investing within the folks we’ve got and letting them benefit from the nice efficiency they’re producing for the corporate and for themselves.


Thanks. That concludes Journey + Leisure’s first quarter Q&A. I’d now like to show the decision again over to Michael Brown for closing remarks.

Michael Brown

Thanks, Leo. We proceed our sturdy momentum into 2022, and we stay centered on our clear technique to ship for our stakeholders as we speed up our progress in creating services and products by broadening the power of our core enterprise that put the world on trip.

As soon as once more, I wish to thank our hundreds of hard-working associates who ship nice holidays for our house owners, members and company each day. We will likely be on the street quite a bit over the following 8 weeks, and we hope to see you in individual. Thanks once more on your time in the present day, and have a fantastic day.


Thanks. That concludes our question-and-answer interval in addition to our convention. Chances are you’ll now disconnect your line presently, and have an exquisite day.

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