Mike Hug: … just to make sure we clarify the March commentary that Mike made as far as the impact on performance was primarily at West, right? So I just didn’t want you to think that, that was across the entire business. That was primarily at West, which potentially was driven by the impact of the banking…
Patrick Scholes: Yeah.
Mike Hug: … environment out there.
Patrick Scholes: Okay. Thank you for color on that. My follow-up question and I think I probably asked this in prior quarters, but going back to your fall of 2021 Investor Day, where you laid out some very strong growth rates. Is it fair to assume that you are still on track to hit those numbers that you laid out at your Investor Day? Thank you.
Michael Brown: Yeah. I’d reiterate what I said on the last call, which is we remain on track with a different mix than we originally laid out. But that’s the real difference between the budget and forecast. So we — the strength of our business is really showing through on the VOI, which is 70% of our EBITDA. So that strength is continuing to propel us, and therefore, the mix is going to be different than what we originally laid out, but the end result, we expect to be…
Patrick Scholes: Okay. Okay. Thank you very much.
Michael Brown: Thanks, Patrick.
Operator: Thank you. Next question is coming from Ian Zaffino from Oppenheimer. Your line is now live.
Ian Zaffino: Hi. Thank you very much. Great quarter.
Michael Brown: Thanks, Ian.
Ian Zaffino: On the exchange side, I know you talked about the loss. Walk us through the game of the customer win. What happened there, how did you get it, what were they looking for versus the customer you lost? Any other kind of color you could give would be great?
Michael Brown: Absolutely. It’s pretty straightforward, just the travel type that the one we lost was looking for was more air based and our platform is more combination based, which is understandable. And it’s — we still do transactions with that customer, but they are on a much smaller scale. And the client that we brought in was basically a similar type of benefits provider and there they will begin transacting in the third quarter. So it’s sort of a like-for-like change and these things happen and obviously would have preferred the timing to be in the other way where we had three months to four months of overlap, but it just worked out that we have got a four-month gap. And to put it all in perspective, if we had a perfect transition to first half of the year, Club transactions would have been up mid-single digits. So probably wouldn’t have got a question on this call had it not been that timing gap, but these things happen.
Mike Hug: And just another clarifying point, Ian, that was on the Travel Club side, not on the RCI exchange side. So just an important point there in terms of the impact on the business, isn’t there significant as it had been on the exchange side.
Ian Zaffino: Okay. Thank you. And then also remind us how you are thinking about interest rates and the higher interest rate environment. I know a lot of this is sold through kind of a monthly payment process. But how are you kind of thinking about that vis-à-vis your margin and then also vis-à-vis what the consumer could bear? Thanks.
Michael Brown: Yeah. Great question, Ian. Obviously, we have talked about the impact of rates. Keep in mind, 80% of our corporate debt is fixed and on the ABS side, it’s only the new transactions we put in place that are impacted by the higher rates. As it relates to that, I would note that the transaction that we closed in April actually had an interest rate that was lower than the third transaction we did last year, so we are seeing improvement in rates. As it relates to the impact on the overall business, the way we view it is increasing interest rates are the result of inflation. Inflation comes through lot of travel and leisure travel when you look at hotels and other leisure accommodations and we see that translate into higher VPGs that we are seeing.
So when you look at the overall business, we are giving some up on the net interest income, but we feel making that forward on the VPG side of business, where we have talked about those rates being at all-time highs. Having said that, we do usually raise interest rates a little bit, maybe 25 bps to 50 bps a year, obviously, not enough to make for the overall rate increase. But as far as, once again, the overall business, inflation actually provides us a great opportunity at the sales table to demonstrate the value of the product and get those new owners in that Mike talked about being over 31%, which drives future recurring revenues.
Ian Zaffino: Okay. Thank you very much. It’s great color.
Michael Brown: Thanks.
Operator: Thank you. Our next question is coming from David Katz from Jefferies. Your line is now live.
David Katz: Hi. Good morning, everyone. Thanks for taking my questions. Two for us. Number one, I am just noting the year-over-year growth in Wyndham sales and recalling the evolution of Wyndham sales that started back in the financial crisis. I am wondering what visibility or what indications you may be seeing about that portion of the business having some growth or what the trend line there could be and then I have one other follow-up, please?
Michael Brown: Great. I will take that. This is Michael. On the Wyndham sales, we have a few arrangements today that give us obligations to deliver Wyndham sales. In fact, part of our Atlanta project is a Wyndham deal. As you look forward with our commentary that we have relatively low capital investment into project inventory, around $100 million going forward. That’s because we are stacked up on our balance sheet of inventory that we own. So as you go forward, the Wyndham sales should be consistent to where they are today, if not declining, because our objective ultimately over the next three years is to spend less capital on projects and burn through our own balance sheet.
David Katz: Perfect. And then I am not sure if you touched on this, but the — I know there was some explanation in the release about cash from ops being negative in the quarter and just timing driven. Could you maybe color that in just a little bit more largely in terms of what we are going to see 2Q onward?
Mike Hug: Sure. This is Mike and happy to do that, David. So in the quarter, a couple of things happened. Over a third of our inventory spend for the full year came in the first quarter, which was a higher amount than we had in the first quarter of last year. The portfolio originations are up significantly. If you remember, in the second quarter last year, we started to ask for lower down payments at the sales table to drive portfolio growth, which we saw start to happen in the second half of last year. In Q1 of 2022, financing propensity was about 55% in Q1 of 2023. It was up over 63%. So more growth coming out of the portfolio on a year-over-year basis. And then finally, because of the temporary disruption in the banking markets, we did push our ABS transaction by a week.
Normally, we closed in March. It closed in April. Very great execution there. And I would say just more confirmation of not only our belief and the resiliency of the business and the quality of the portfolio, but obviously the ABS investors. As far as timing, we will be basically cash neutral in the second quarter and then significant cash flow in the second half of the year, because we would expect to do our second ABS transaction in Q3, our third ABS transaction in Q4. Overall for the year, we still expect to be in that 55% EBITDA to free cash flow conversion.
