Michael Brown: So, just to clarify, when you say larger scale, Blue Thread is accelerating because with anything it comes down to relationships and maximizing them and our team tie in closely into the Wyndham Hotel team has allowed us to really accelerate the strength in the performance of the Blue Thread initiative. We’ve continued to invest into this space, not only through our call center operations, but also outside of Blue Thread and starting to lean heavier into forward-looking package sales. So, yes, scale matters. Data matters. And the Wyndham Hotel team has done a great job growing Wyndham rewards and that’s benefited us. It’s benefited them and ultimately the more Wyndham Hotels grows its Wyndham reward programs, the more opportunity we have in the Blue Thread space.
David Katz: Okay. Fair enough. Thanks.
Operator: Thank you. Next question is coming from Dany Asad from Bank of America. Your line is now live.
Dany Asad: Hi, good morning, everybody. Just to start off for that guidance cut for this year. Can we just walk through the buckets? Like the different component of like, what changed from last quarter?
Mike Hug : Yeah, good morning, Dany. Thanks for the question. This is Mike Hug. It’s really a pretty simple walk. First of all, I touched on in my comments the fact that the third quarter was the impacted by a few things that were individually immaterial, but it totaled up to $5 million, that being the fires at Hawaii, the hurricane in Florida, and the East Coast and some higher healthcare expenses. So, to get from the previous guidance to the current guidance, you have about $5 million there. And the in remainder about $15 million is really due to the reduction that we have in the Travel and Membership business forecasted for the fourth quarter. So, pretty easy walk down and really driven by the reduced revenue forecast on Travel and Membership.
Dany Asad: Got it, okay. That’s super helpful. And then, when if we look at this year as a whole and then we turn to ‘24 and ’25, can you just really walk us through like the puts and takes of kind of where free cash flow conversion from EBITDA can go kind of what drives from one year to the next compared to from this year?
Mike Hug : Yeah, I think the big drivers are going to be, our continued securitzation activity what we’re experiencing this year and the reason that cash flow is weighted to the fourth quarter is, build up in the receivable portfolio throughout the summer. As you guys know the busiest time of the year we start to get that in the ABS transactions and into our conduit in the fourth quarter. That’s why the cash flow this year is like always is weighed towards the fourth quarter. On a long-term basis, the two big drivers are going to be that continued ABS market available to us and then our inventory spend. And we’ve talked about inventory spend remaining below a $100 million for several years into the future as we have four years of inventory on the balance sheet.
And the other thing about Sports Illustrated is we do expect to reserve that inventory in a capital efficient model. So, the investment will need to make Sports Illustrated from an inventory perspective shouldn’t significantly impact our free cash flow conversion. But it’s really the ABS market, which remains strong to us. As you saw we’ve got the transactions done in October and then, us being smart keeping our inventory spending below $100 million.
Dany Asad: Got it. Thank you very much.
Mike Hug : Sure. Thank you.
Operator: Thank you. Next question is coming from Brandt Montour from Barclays. Your line is now live.
Brandt Montour: Hey, good morning everybody. Thanks for taking my question. Mike Hug, maybe you could just, we could dive back into that, that tree cash flow question a little bit deeper. I’m curious on the 50% free cash flow conversion commentary I think is little bit lower than what we were expecting before. So what are the dynamics that could change that? I know obviously, there’s a guide down on the Travel and Membership side and that’s probably a better sort of free cash flow business especially if you’re growing VOI and lending more as a percentage of mix. But maybe you just talk through the dynamics of what led to that conversion guide down.
Mike Hug : You are exactly, right as far as the free cash flow generation conversion from the Travel and Membership business is very strong. And one of the reasons we continue to like the business is the great margins and free cash flow generation. But that’s one of the drivers as it relates to 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 is definitely timing in terms of – if you think about sales in the second half of the year, we’re able to get that into the those receivables into the ABS conduit, most of them not all. 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 advanced 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, with what’s happening with the interest rates compared to the model we have from the Investor Day, we are seeing higher interest expense, but, most of it’s just going to be the way we manage the portfolio and getting that into the ABS securitizations.
Brandt Montour: Okay, great. And then, my follow-up is related to something happening and away from you guys. The hostel or the sort of proposal from choice to acquire Wyndham, the – your licensor of your brand for Blue Thread, when you look at your license contract with Wyndham, what are the stipulations within that the documents? What would happen if this transaction was to go forward to your agreement?
Michael Brown: 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.
Brandt Montour: Okay. So Wyndham Hotels became Wyndham brands by choice or something like that. You would sort of grandfather and you are – you would still have access to that database?
