Patrick Pacious: Yes. I think, Michael, we’re – obviously, we were looking to continue the conversation at the time that they kind of surprisingly disengaged. So we are hopeful that through the conversations we can have in the future, we’re going to get back to the negotiating table. I think it’s important for us to realize we are aware of the calendar we have – as a company, have been very patient in our growth strategies. But when we look at what the opportunity here sitting in front of us is, today, the time to execute this transaction is now. If you look at our franchisees and you look at the costs that they are bearing with rising labor costs, rising interest rates, and the pro-competitive nature of what’s happening in our segments, now is the time to get a transaction done.
I think when we discussed this with the Wyndham Board and with their shareholders, everybody sees the strategic rationale of getting this transaction done. So it’s just a matter of getting back and getting engagement again and realizing that the issues that remain are things that can clearly be met and answered if we’re able to get back into the negotiating room and solve these issues.
Michael Bellisario: Got it. And then just one follow-up on the AAHOA statement, I know that public come out and stated that they don’t support the transaction. Can you maybe help us understand sort of their role and their influence in the industry, especially with your franchisees?
Patrick Pacious: Yes, I think what’s important is, we, as an organization, have seven franchisee associations. These associations elect their own members. And those are the associations that we’ve been talking to this to about this transaction. They are most familiar with our programs, they are most familiar with all of the benefits we bring to them, the cost reductions that we’ve been able to achieve. And it’s been really exciting in the last three weeks talking to our franchisees and seeing their enthusiasm. They see this combination not as a promise that these benefits are coming that way. It’s a reality because we are achieving those cost benefit reductions to them right now through the Radisson acquisition. The cost reductions we’re able to drive are going across not just the Radisson brands, but all of the Choice legacy brands.
And so this is a reality that’s occurring now. And so our franchisees are seeing that performance improvement on the topline, they are seeing the cost reduction on their bottom line, and ultimately, they see this combination as something that could really accelerate and be a real game changer for their brands. And as I said, many of them own Wyndham brands as well. So the response we’ve heard has been very enthusiastic, and they get it. They understand that this is something that’s going to benefit them at the street corner level.
Michael Bellisario: Fair enough. Thank you. And then just one unrelated question on the fundamental front. Just on the pipeline, kind of trying to focus on the domestic rooms here, conversions look like they stepped way up. So maybe what happened on the new construction front? And are you seeing any incremental pressures on the signings front there? Thank you.
Dominic Dragisich: Yes, Michael, thank you. Yes, we are very pleased with what we’ve seen on the conversion side. As you know, that’s something that we’re very good at as a company, driving the conversion market. Near two-thirds of our openings typically come to conversion. So we’re able to grow in all market conditions. And even if the financing environment becomes a little bit tougher, we have the ability to grow in all market conditions. I point back to the great financial crisis, where about 90% of our openings came from conversion. So we are pleased with what we are seeing on the step-up of conversion. So in terms of new construction, we’re still seeing a lot of great demand there. I think one thing that Pat mentioned is our investment in our brands is we continue to look at ways to drive down the cost of our prototypes to make them more financeable and for the most part, our owners are more small business owners that still have access to that local level bank that’s able to still drive in finance new construction of hotels.
As an example, since we relaunched the Cambria brand with us a lower-cost prototype, we’ve signed 23 new agreements since its launch. So we’re pleased with our ability to continue to drive conversions as well as make our new construction prototypes more affordable to continue to build in all market cycles.
Operator: Hi, do you have any further questions?
Michael Bellisario: No, sir. Thank you.
Operator: Thank you. Next question will be from David Katz at Jefferies. Please go ahead.
David Katz: Hi. Good morning. Appreciate all the detail on the strategic rationales and all the background. My one question is on the backside of this, leverage is getting up to a relatively high level, higher than I think historically you’ve seen, at least in my covering tenure. Just how do you get comfortable with that and talk about how long you expect that leverage level to stay there? Thanks.
Scott Oaksmith: Thanks, David. Yes, as you said, we’ve typically operated our targeted leverage levels or that 3 times to 4 times. I mean, we’ve typically been below that, which really shows the strength in our balance sheet, which allows us to think about a transaction like this. We don’t enter into that lightly, but for such a transformative acquisition, we think it’s prudent to be able to leverage up the balance sheet temporarily and then quickly de-lever. As you know, we are a very high free cash flow generating company as is Wyndham. And so the combination of those two can handle a little bit of higher debt load on the short-term. We pressure tested it. We believe that even with a slightly elevated leverage, we can continue to reinvest in the business to grow as well as de-lever. And we kind of think we can do that within 24 months to a little over that timeframe to get back to the high end of the 3 times to 4 times targeted ratios that we have.
