Travel + Leisure Co. (NYSE:TNL) Q2 2023 Earnings Call Transcript

Travel + Leisure Co. (NYSE:TNL) Q2 2023 Earnings Call Transcript July 26, 2023

Travel + Leisure Co. misses on earnings expectations. Reported EPS is $1.27 EPS, expectations were $1.34.

Operator: Greetings and welcome to the Travel + Leisure Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host Chris Agnew, Senior Vice President Investor Relations. Thank you. Please go ahead.

Chris Agnew: Thanks Donna and good morning to everybody. Before we begin, we’d like to remind you that 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 in our earnings press release accompanying this earnings call. And you can find a reconciliation of the non-GAAP financial measures discussed in today’s call in the earnings press release available on our website at travelandleisureco.com/investors.

This morning Michael Brown, our President and Chief Executive Officer will provide an overview of our second quarter results and full year outlook. And Mike Hug, our Chief Financial Officer will then provide greater detail on the quarter our balance sheet and liquidity position. Following our prepared remarks we look forward to responding to your questions. And with that, I’m pleased to turn the call over to Michael Brown.

Michael Brown: Thanks Chris. Good morning everyone and thanks for joining us today. We are pleased to report solid second quarter results and the continued return of capital to shareholders. With our solid results and the forward owner bookings at our resorts, we are reaffirming our full year adjusted EBITDA guidance. For the second quarter, we reported adjusted EBITDA of $236 million, a 3% increase over the prior year and adjusted earnings per share of $1.33, a 5% improvement over Q2 2022. Adjusted EBITDA margin was 25%, which was flat compared to the prior year and reflects headwinds from higher interest expense from ABS transactions and our investment in growing new owner mix. In the second quarter, we returned $135 million to shareholders.

We paid a $0.45 per share dividend on June 30th and repurchased 2.6 million shares for $100 million. Over the last 12 months, our share count has been reduced by 10 million shares, 12% of the shares outstanding at the end of June 2022. Now, let me discuss some of the key performance indicators that we monitor to gauge the health of the travel consumer, forward bookings, volume per guest or VPG, and the performance of our consumer finance portfolio. First, forward bookings. Owner nights on the books for the second half of the year continue to track ahead of 2019 and providing us good visibility into the remainder of the year. Second is volume per guest. Our Q2 VPG of $3,150 was at the top end of our guidance range and 30% above 2019. VPG remains well above our long-term guidance range of $2,700 to $3,000.

On an absolute basis, VPGs are healthy and reflect a strong value proposition of our product. On a relative basis, we saw a modest reduction in close rates through the quarter, which likely reflects a pullback of pent-up demand in the prior year. Our VPG guidance for the full year is unchanged at $3,050 to $3,150. Sequentially VPG declined $65 or 2% with 60% of this related to mix impact. Year-over-year VPG declined $339 or 10% with closed rates accounting for 64% of the year-over-year decline. The balance was mix related with new owner transactions increasing to 34% of total transactions in the quarter, up 200 basis points from the prior year. This investment in new owners adds to our pipeline of future upgrade sales opportunities. Turning to our consumer finance portfolio.

We saw a similar picture emerge in the second quarter. Delinquencies are performing well on an absolute basis, but we did see further normalization in the quarter. However, there is nothing in these changes that we would expect to impact our full year loan loss provision guidance. The strategic moves we made in 2020 to raise credit standards have positioned us well for the current economic environment. At the end of the second quarter, 11% of our portfolio had a FICO below 640 and year-to-date the average FICO score for originations is 738. The prepaid nature of timeshare ownership is a key differentiator for our business model. 80% of our owners have fully paid for their timeshare and therefore the choice to vacation is less dependent on economic conditions.

As we’ve said before our healthy mix of recurring and predictable revenues is one of the reasons we expect our business will continue to be resilient if we enter a more challenging economic environment. This resilience and demand among timeshare owners has been proven time and time again most recently coming out of COVID. Blue Thread sales, our new owner marketing channel aligned with Wyndham Hotels continues to exceed expectations. Blue Thread tours increased 20% year-over-year in the second quarter compared to 15% growth in overall tours. At Travel and Membership, transaction propensity continues to be a headwind at RCI with transactions declining 7% year-over-year in the second quarter. This was somewhat offset by a 5% increase in exchange revenue per transaction on the back of mix improvements and price increases.

Travel Club transactions declined 9% year-over-year, which was consistent with the expectation that we communicated on our first quarter call. Shifting to our 2023 outlook. We are reaffirming our adjusted EBITDA guidance range of $925 million to $945 million as well as our expectation for gross VOI sales to be within a range of $2.1 billion to $2.2 billion. We recognize the uncertainties related to the outlook for the economy, but we are optimistic about the company’s ability to deliver strong performance. Although, we expect consumers will continue to prioritize vacations we came into the year anticipating some normalization of demand trends. We saw some of this in the second quarter and our guidance for the second half of the year reflects a range of outcomes including at the low-end potential softening of trends.

For more detail on our performance, I would now like to hand the call over to Mike Hug.

Mike Hug: Thanks, Michael and good morning to everyone. As well as discussing our second quarter results, I’ll provide more color on our balance sheet and cash flow. All my comments will refer to comparisons to the prior year unless specifically stated. We reported second quarter adjusted EBITDA of $236 million and adjusted diluted earnings per share of $1.33, increases of 3% and 5%, respectively. Adjusted EPS was impacted by approximately $0.03 due to the cumulative impact on our tax rate of income tax legislation passed in certain states during the quarter. Looking at the performance of our two business segments in the second quarter Vacation Ownership reported segment revenue of $768 million, an increase of 4% while adjusted EBITDA of $187 million was flat to the prior year.

We delivered 170,000 tours in the second quarter, 15% growth year-over-year and VPG was $3,150 meeting the top end of our expectations. Adjusted EBITDA growth in the second quarter was primarily impacted by the normalization of the provision as well as higher interest expense on the ABS transactions which have closed over the past 12 months. Revenue in our Travel and Membership segment was $179 million in the quarter compared to $188 million in the prior year. Adjusted EBITDA was $62 million compared to $64 million in the second quarter of 2022. Exchange member count has started to recover, but not enough to offset the reduction in transaction propensity. Turning to our balance sheet. Our financial position remains strong. And in the second quarter we continue to return capital to shareholders through share repurchases and our regular quarterly dividend of $0.45 per share.

In the first half of the year we repurchased $202 million of common stock representing 7% of shares outstanding compared to year-end 2022. We have $275 million remaining under our approved share repurchase program. In July, we closed on our second ABS transaction of the year, a $300 million transaction with a weighted average coupon of 6.72% and an advance rate of 92%. The transaction had solid oversubscription levels underlying the strength and resiliency of our ABS program and the market’s confidence in our business model. Adjusted free cash flow was $11 million in the first half of the year compared to $121 million in the same period last year, due to higher year-over-year originations in our loan portfolio, certain other working capital items and an increase in interest payments on our corporate debt.

Our net corporate leverage ratio for covenant purposes was 3.7 times at the end of the second quarter. We continue to expect our leverage ratio to decline by the end of the year to below 3.5 times. Now let me provide some more detail about our expectations for the third quarter. Overall, we expect adjusted EBITDA to be in the range of $245 million to $260 million, with Travel and Membership to be in the range of $60 million to $65 million. Gross VOI sales in the third quarter are expected to be in the range of $580 million to $600 million with VPG in the range of $3,000 to $3,100. With respect to our provision for loan loss, we continue to expect a range of 18% to 19% for the full year with the third quarter provision to be over 19%. Historically, it is not unusual for our third quarter provision to be the highest of the year.

Related to EPS, we are expecting our effective tax rate to be between 27% and 28% for the full year, with stock-based compensation expected to be around $12 million per quarter and net interest expense of approximately $60 million per quarter for the remainder of the year. Overall, our strong second quarter performance drove continued growth in adjusted diluted EPS and return of capital to our shareholders. These results met our expectations and allow us to reaffirm our outlook for the balance of the year. With that, Donna, can you please open up the call to take questions?

Q&A Session

Operator: Thank you [Operator Instructions]. This morning’s first question is coming from Joe Greff of JPMorgan. Please go ahead.

Joe Greff: Good morning, everybody. Michael, you talked about the close rates coming down towards the end of the second quarter. Can you talk about close rate trends for both, new and existing owners and bucket it in those two categories? What are you seeing there?

Michael Brown: Absolutely. And I’ll bucket it for Q2, and then give you a perspective of how we’re looking at that — those close rates going forward. We saw pretty much across the board what I’d call normalization because the close rates are still well above our historical norms for owner our Blue Thread tours and our non-affinity new owner tours. They normalized throughout the quarter. And then, what we saw as we’ve moved into July, and the way we’re looking at the remainder of the year is those July close — those June close rates are what we would expect going forward and what we’re already seeing in July. So those components, there’s been nothing that stood out particularly between the three channels highlighting strength or weakness in any of them. They’ve just been a slight normalization and then those have continued into July and what we expect for the remainder of this year.

Joe Greff: Got it. Okay. And then margins were down year-over-year in VO in the second quarter. Can you talk about margin expectations in the 3Q and 4Q, VO?

Mike Hug: Hey, Joe. This is Mike Hug. As it relates to margins in the second quarter, we talked about the fact that we did invest in the new owner growth. So that’s a positive sign for the business. Year-over-year, there was some pressure as it relates to the provision for loan losses in the second quarter of last year compared to the second quarter this year. And then the same thing on the interest expense on the ABS debt the transactions we’ve done over the last 12 months have been a little bit more expensive. So overall for the consolidated business margins remained strong, but there was some pressure, like I said on those two items from a year-over-year standpoint as it relates to the Vacation Ownership business.

Joe Greff: And then, do you expect them to be down similarly in the 3Q and 4Q?

Mike Hug: Well, I would say, that the comparisons become easier when you look at the provision in the second half of last year compared to the second half of this year, and same thing with the interest expense those kind of start to normalize on a year-over-year basis, as we progress throughout the year.

Joe Greff: So, then that means margins would be up then to comparisons — I mean can you just sort of quantify that?

Mike Hug: Yes, I would comment that you’re exactly, right. The margins continue to improve especially in the fourth quarter, I think about the timing, right? Third quarter, you have pressure because it’s your largest new owner tour volume. And then fourth quarter, I would expect that they’ll move back up.

Michael Brown: Yes. Just the interest in the provision were punitive. We’re the most punitive earlier in the year. And as the year progresses, they become less punitive to the overall margin and as you look into the fourth quarter, that’s one of the reasons our fourth quarter VOI margin accelerates.

Joe Greff: Thank you, guys.

Michael Brown: Thanks, Joe.

Operator: Thank you. The next question is coming from Chris Woronka of Deutsche Bank. Please go ahead.

Chris Woronka: Hi, good morning, guys.

Michael Brown: Good morning.

Chris Woronka: So maybe we start on the Travel and Membership side. I know you’ve talked about kind of this structural challenge of lower propensity to transact on the exchange side. Is there anything you can do to, try to reverse that? I know, it’s folks that are exchanging within the networks more often. But is there anything you can do — I don’t know what it might be, but to kind of stimulate that, or is that a business where this is really just going to be about managing costs and things like that.

Michael Brown: There are a number of things that we can do, Chris. And yes, managing cost is always one component. But we believe this platform, which has been actually helped by the Travel Club business allows us a greater suite of options. So, there’s propensity, there’s transaction price but then there’s overall share of wallet. And one of the components that could help the exchange business is, to provide a greater suite of travel services simply than the exchange fee. That is one of the initiatives, that we have in place. And even if propensity does not bounce back to where it was pre-COVID, there are opportunities along that line. And hopefully, which is a bit more longer term looking at spaces just outside of pure timeshare to provide same services to. So, I think those are two good opportunities for us, as we go forward.

Chris Woronka: Okay. Thanks, Michael. And as a follow-up on, the timeshare — on the core VOI piece I know you guys obviously, cover a wide range of customer demographics. But is there any thought to with your brand portfolio? Are there any I guess, white spaces where you might see an opportunity to introduce new brands or something like that. We’ve seen Wyndham do that on the resort side, with all — new all-inclusive brands. So just any thoughts on whether there could be brand changes coming?

Michael Brown: Absolutely. I think it’s a great question. We’ve always felt that there were two opportunities for diversification of our business, post-COVID. The first is, the Travel Club side, which is allowing us to diversify to a degree on the Travel and Membership side. But we absolutely believe that there’s a lot of white space on the VO side of the business, to continue to support the great run we’re having with Wyndham and continue to grow that in the future. However, there are more white spaces that we feel that there are opportunities to grow into. We communicated that just over 18 months ago, at our Investor Day. As we’ve rolled forward, the time line on that our pipeline is strong in that space as it’s ever been. And although, we are not ready to announce anything today, we do express confidence in our pipeline and believe that that is an opportunity for us as we move forward.

Chris Woronka: Okay. Very helpful. Thanks, guys.

Michael Brown: Thanks Chris.

Operator: Thank you. The next question is coming from Patrick Scholes of Truist Securities. Please go ahead.

Patrick Scholes: Hi, good morning, gentlemen. Mic

Michael Brown: Good morning. Patrick.

Patrick Scholes: Michael you talked about owner, I think it was one of the reservations being ahead for the second half. Can you give a little more granularity on that? Is that up 1%, or is it up 15%? A little more color please. Thank you.

Michael Brown: Yeah, absolutely, which the owner arrivals in length of stay is a critical part of our business. We are on arrivals for our owner base flat to 2019 but on a room night basis up 4%. It’s a reflection that owners are staying longer and the whole work from anywhere environment is still going strong. We really haven’t seen an adjustment to the length of stay from this year to last. We also closely watch booking windows because usually when confidence wanes booking windows compress and we are at about 120 days booking window which is very consistent with what we’ve seen historically. It’s just interesting stat. We’re starting to see search patterns begin 160 days in advance which means people are already looking into the end of this year and into next year, which again just expresses confidence in people’s desire to get to travel.

And I think we’ve seen a very similar confidence level come out in the recent consumer sentiment index. It was released I believe earlier this week. I think one other unique aspect or just granularity is we’re not seeing it particularly by region any particular strength or weakness that’s one of the real benefits of our portfolio. We have 250 resorts around the world 180 destinations. And therefore, we’re not overly reliant on any particular geography. Of course Orlando, Myrtle Beach, Tennessee, Las Vegas are big markets but we really don’t — we aren’t overly reliant on a particular destination and makes us feel good about the geographies and the diversification we have and in any particular exposures.

Patrick Scholes: Okay. Thank you. And then — regarding the Travel and Membership sector it looks like your guidance for 3Q is below Street expectations. But it’s possible 4Q could be above. Is there anything in that 3Q guidance number regarding timing of costs that hurt you in 3Q that you might get back in 4Q or maybe help you in 2Q, or anything to think about there?

Michael Brown: Well, actually I — there’s nothing particular in Q3 or Q4 related to traveler membership. The primary focus that, we have in that space is around propensity. And as propensity goes really reflects the outcomes of that segment. I know, we get questions on Travel Clubs but those are — that segment is less than 5% of our company EBITDA. So moves in that space don’t really affect the outcome. It really becomes a matter of our effectiveness on propensity. And we continue to work hard at that to offset the opportunity the risk related to propensity. But with our membership growing again and above last year, it is a slight tailwind that we don’t have to face in Q1 or Q2 sort of a year-on-year lower membership. So we think as the membership grows you start to see even more benefit in Q4.

Patrick Scholes: Okay. And then lastly related to that, how are you doing with getting organizations to sign up on the call you didn’t really mention anything new is that anything accelerating? Is that ahead of schedule behind schedule? Just some color please. Thank you.

Michael Brown: I assume you mean the Travel Club is that correct?

Patrick Scholes: Yes.

Michael Brown: So we continue to have really good interest and company sign-ups. We didn’t mention anything this particular quarter, although we have had plenty of sign-ups. It’s really now a matter of driving transactions and our energy is spent around elevating the propensity to transact in that space. We have the necessary population in that area. It is growing transactions are growing in the second half of this year. So for us, it’s around just being intelligent in the marketing dollars and the propensity to transact. And again, it’s a profitable piece of our business which helps to offset propensity. And although, it’s not growing at the level that we had originally anticipated, it provides a positive offset to the exchange propensity headwind that we talked about which is the big mover in the T&M space.

Patrick Scholes: And sorry, one last, I’ve kind of asked this every quarter, but it’s safe to assume that for your long-term guidance Vacation Ownership tracking ahead Travel and Membership not tracking behind, but still overall tracking to that?

Michael Brown: Well, that’s the best way to characterize it Patrick. I mean, we’re only 18 months into a four-year plan. And the last six months have definitely been full of interest rate and macroeconomic uncertainty. But the characterization of Travel and Membership running behind Vacation Ownership ahead with 2.5 years to go. And I think referencing back to Chris Woronka’s question and our ability to diversify on the VO side, which is the vast majority of our EBITDA and where we have some white space. I think as we start to get into next year and some of those things unfold and the uncertainty clears up and turns into more economic and interest rate certainty, we’ll be able to really start to sharpen our pencil on the 2025 plan. But directionally, exactly what you said is the right way to characterize it.

Patrick Scholes: Okay. Thank you. I’m all set.

Operator: Thank you. The next question is coming from Ian Zaffino of Oppenheimer. Please go ahead.

Ian Zaffino: Hi. Thank you very much. Can you guys maybe talk about as far as like geographic spread of demand what centers were kind of the strongest, did you see any less strong markets? And then maybe, if you were to like just wrap in RCI into that as well what are you seeing domestically versus international? Thanks.

Michael Brown: Yeah. Great question. Just to pull it back up for a second, as I mentioned early, 250 resorts, 90% of our sales are going to happen in North America and our key centers, our key concentrations Las Vegas, Tennessee, Myrtle Beach, Florida primarily Central Florida really is where the vast majority of our sales will occur with each — any of them peaking out at around 10% of our total volume. So again, we’re not overly concentrated in any particular market. And when you look at demand and close rates across our geographies, we’re really not seeing particular variation in the last quarter. I think we’ve all seen the news that Central Florida is a bit down, but our demand remains very consistent in Central Florida, which again speaks to the timeshare model.

The beach locations, the Southeast destinations have been very popular as far as bookings. And as it relates to RCI, we serve the Latin community and particularly in Mexico and really seen a resurgence and strength in the Mexican exchange market and just generally the timeshare market there. So that shift from drive to right coming out of COVID to a bit more mid-haul demand is showing up in the Mexican market. And in the end, like I said the diversification that we have really gives us hedges in — when there’s headwinds in some markets, there’s tailwinds in others. And across the board, we’re really seeing consistent demand for the second half of this year. Nothing that stands out and really were porting out.

Ian Zaffino: Okay. Thank you. And then maybe talk about the inventory side, I guess with rates going up, what are you doing in that inventory environment? Do you think there’s going to be less inventory being built on — how you kind of position yourself? Thanks.

Mike Hug: Good morning, Ian. This is Mike Hug. So as it relates to inventory, we’ve talked about the fact that we’ve got four years of inventory on our balance sheet. So really right now our inventory spend is pretty minimal $100 million or less and that will continue for the next several years. So as it relates to lack of inventory being built or when it is being built it being more expensive, one of the things about having that inventory on the balance sheet is we don’t have exposure to the increasing costs and things like that. So we’re in good spot from an inventory standpoint for the next several years for sure. So we really don’t have any pressure as it relates to going out and sourcing inventory. If the right opportunity came to us, we could do an asset-light deal if there is a market that we really wanted something like that.

But for right now we aren’t out looking for a whole lot of inventory because of the nice position we have on our balance sheet. And I would like to jump back to Joe’s question on margin. I think when I first answered the question, as it relates to the first part of the question, I was thinking about the year-over-year margins and the pressure related provision and the interest expense. Your second part of the question was basically margins in the second half of the year and kind of what we’d expect for the Vacation Ownership business is to end the year at margins that are comparable to where we ended 2022.

Michael Brown: Ian, if I could just add and maybe it’s a little promotion of one of our projects is the last project that was delivered for the company was in Atlanta. It was a dual-branded Club Wyndham Margaritaville Vacation Club, two different markets consumer-wise, one building and maybe one of the finest timeshare resorts in North America. But that was our last in-process construction. It’s completed. So when we look at our inventory spend today it’s not as if we’re mid-cycle on anything. Our commitments are really aligned to reducing our balance sheet and using sales to burn off. several years of inventory that’s sitting there. But for those of you who’ve not been to our Atlantic project, I’d invite you all to visit next time you’re in the city.

Ian Zaffino: Thank you very much.

Michael Brown: Thanks, Ian.

Operator: Thank you. The next question is coming from Brandt Montour of Barclays. Please go ahead.

Brandt Montour: Great. Thanks for taking my questions, everybody. So a follow-up to Joe’s question on the close rates throughout the quarter loud and clear Mike, that they sort of subsided into July you’re using that in the back half of your guidance. But I want to dig in a little bit in terms of what – like how far back we are to 2019 levels in that sort of July close rate level after you adjust out the repeat versus owner mix, after you adjust out the channel mix, which I know is which is a big driver you guys chopping out a lot of the lower efficiency channels. And the point is how defensible are the close rates that you guys have that you’re seeing in July on that sort of same-store basis?

Michael Brown: So let me start with the statement that if the close rates stay where they are right now which is a bit of a normalization from last year’s pent-up demand that puts us well above the high end of our long-range guidance plan. So we’re very satisfied with where close rates ended the quarter and where they continue in July. The answer to your question is they’re about 40 – they’re about midway back from the peak point to where they were pre-COVID. And you heard us lay out of the VPG component, what was due on a sequential basis than what was on a year-on-year basis due to mix, and what was due to the normalization. What I just – these are round numbers but just to put it – if our pre-COVID level was 10% and at the peak last year is 13%, we’re about at 11.5%, 11.7%.

So that is a very positive close rate number. And we’ve seen that throughout June and throughout July, and really that level of normalization we’ve incorporated into our outlook for the remainder of this year. Does that answer your question, Brandt?

Brandt Montour: No. That was super, super clear and very helpful. The second question is about consumer behavior and we don’t usually talk about the higher-end consumer, the lower end consumer though sometimes you guys talk about your FICO under 640 set. But when you think about — or what you see in terms of timeshare purchase or points per transaction or timeshare purchase per closure. Are you seeing softer — less consumer propensity to purchase a lot of points or larger transactions. Is that something happening under the surface?

Michael Brown: No. The impact of VPG, if you strip out mix, because there is a mix effect. It’s not an average price per transaction. It is almost solely due to close rate. So there isn’t any underlying nuance that should be shared. It’s simply we had an incredible pent-up demand in Q2 of last year that followed through the summer season of 2022 and then it began to normalize in the fall of last year, and the primary difference is close rates. What I would say, because we rushed through mix in it. And — but I think there is an important component of the mix story, which is I’ve consistently said over the last year, we over the next few years we want to get to 35% to 40% of new owner mix. And in Q2 we were at 34% already and my expectation is we will be above that in Q3 because it’s summer season.

It’s our primary new owner quarter. The margins we’re achieving, the outlook that we’re providing is in light of a new owner mix that is filling the pipeline for future owner sales ahead of the expectations we had laid out over the past year. So again the team is really — and we said it at the beginning of the year the team has dedicated itself to growing the new owner side of the equation and investing in our business early in this part of the cycle to set ourselves up for future success. And the 34% that we achieved in Q2 was a very strong result and I think we’re going to see the same strength come out of Q3 as well.

Brandt Montour: That’s great extra color. Thanks for all that.

Operator: Thank you. The next question is coming from David Katz of Jefferies. Please go ahead.

David Katz: Good morning everybody. Thanks for taking the questions.

Michael Brown: Good morning.

David Katz: Good morning. So I wanted to go back to a comment or a discussion point I had with Mike Hug a while back regarding the terms on securitizations and the impact of narrowing credit spreads where those terms could be expected to improve. Can we just have an updated chat about that and where we could see it in some more detail?

Mike Hug: Yes, sure. Happy to do that and thanks for the question, David. I guess when we look at spreads they have continued to tighten, which I said they had room to do. If we look at the transaction we just did in July compared to the transaction we did last October, spreads on the tranches time anywhere between 25 bps and 105 bps between the April transaction and the July transaction the spreads were flat to better by 70 bps. So, what we need is some certainty in interest rates, right? When there’s uncertainty in interest rates those spreads are wider. So, as we progress through the next several months and hopefully, starts to get some certainty as to where interest rates are going to sell. I would like to think that those spreads continue to have the opportunity to tighten.

Obviously, the benchmark had moved up from the April to July transaction, which is why the overall rate came in at 6.72% compared to 6.33% for the April transaction. But, overall, good sought execution and good solid demand, and like I said, I would like to think that once the interest rate environment starts to become a little more certain, there’s still some opportunity for the spreads to tight further.

David Katz: So I just want to make sure I’m clear on this, meaning if market interest rates stop going up right and stay flat, we could see some other terms within the securitizations improve a little bit even — and that includes or excludes the coupon on them?

Mike Hug: You are correct and that includes the coupon. I think we have the opportunity on future transactions to come in below 6.7%, which is what the July transaction was at.

David Katz: Okay. Thanks very much. Interesting.

Mike Hug: Thank you.

Operator: [Operator Instructions] The next question is coming from Dany Asad of Bank of America. Please go ahead.

Dany Asad: Hi. Good morning, everybody. A question on buybacks. Your current pace of buybacks, if we just run rate that into the rest of the year, what kind of have you delevering slightly from a kind of debt-to-EBITDA perspective? And we are further along in the year now. So I guess my question is just how do we think about capital allocation and the pace of buybacks for the balance of the year?

Mike Hug: Thanks for the question, Dany. We look at capital allocation basically on a monthly basis. So when we look at our cash flows for this year, we had the guidance out there of 55% to 60% with two ABS transactions having been completed now when you taking account the transaction we did in July coming in at 92% or a little under, I would say, the high end of the cash flow guidance is probably out of the picture. However, as it relates to share repurchases, we’ll sit down and evaluate that every month, like we’ve always done, and I would expect that we’ll continue to repurchase shares as we progress through the end of the year. Once again, that amount we usually don’t give guidance on that, because it is a decision we’re making really on a monthly basis depending on other opportunities we have as far as capital and our evaluation of free cash flow on the full year on a continuous basis.

Dany Asad: Got it. Thank you very much.

Mike Hug: Sure. Thank you.

Operator: Thank you. At this time, I’d like to turn the floor back over to management for any additional or closing comments.

Mike Hug: Thank you, Donna. We’re pleased with how the second quarter finished as our team worked hard to deliver solid results with year-over-year growth in revenue, adjusted EBITDA and earnings per share. I want to thank all of our associates who are working hard during this busy summer travel season to deliver great vacations for owners and guests. Thanks and have a great day.

Operator: Ladies and gentlemen, thank you for your participation. This concludes today’s conference. You may disconnect your lines or log-off the webcast at this time and enjoy the rest of your day.