Travel + Leisure Co (TNL) 2013 Q1 法說會逐字稿

Welcome to the Wyndham Worldwide first-quarter earnings conference call. Your lines have been placed on listen-only until the question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Margo Happer, Senior Vice President of Investor Relations. You may begin.

Thank you. Good morning. Thank you for joining us. With me today are Steve Holmes, our CEO and Tom Conforti, our CFO.

Before we get started, I want to remind you that our remarks today contain forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our Form 10-K filed February 15, 2013 with the SEC.

We will also be referring to a number of non-GAAP measures. The reconciliation of these measures to GAAP is provided in the tables to the press release and is available on the Investor Relations section of our website at WyndhamWorldwide.com. Steve?

Thanks, Margo. Good morning and welcome to our first-quarter call. I'm pleased to report another great quarter, resulting from strong operating performance across our businesses and enhanced by our disciplined shareholder-friendly capital allocation philosophy. We made great progress in the quarter on a number of strategic growth initiatives throughout our businesses.

In the Hotel Group, we had our best first quarter ever for room openings, supported by several bulk conversions of existing hotels to our brands. This is a sign that we are gaining greater traction in multiple property owner relationships, which is expected to be a driving force for growth going forward.

Nowhere is this more evident than with our Wyndham brand where we have grown our footprint by over 30% since the first quarter of 2012 and in our managed portfolio where we have doubled the number of properties in the past year. We believe these achievements are due in good part to our Apollo initiative, which is about driving reservations to our owners at the lowest possible cost. We are making significant progress in this area.

Since we launched Apollo in the first quarter of 2010, we have booked more than 27 million incremental room nights and over half of those are through our direct channels. This is translating to positive owner and developer feedback and consequently to overall system growth.

In Vacation Ownership, we continue to lead the industry in innovation. Specifically, we are changing the approach of timeshare development with the Wyndham asset affiliation model, or WAAM. We announced the WAAM concept four years ago and to date have launched WAAM 1.0 and WAAM 2.0 producing over $350 million in VOI sales.

Today, I am pleased to announce that we recently signed a purchase and sale agreement, which we expect to close in the second quarter for our first WAAM 3.0 transaction. With WAAM 3.0, we are directing a financial partner to make strategic investments for our future use. This could be either ground-up development or using inventory from our balance sheet. In this transaction, our partner will purchase from us land and work-in-process on a project located in Las Vegas and finish the development on our behalf, delivering it to us on a just-in-time basis. Total proceeds to us will be approximately $80 million.

When we first announced our asset-light model, we targeted 15% to 20% of VOI sales through this structure because we wanted to work down the inventory already on our balance sheet. The success of our already initiated WAAM deals, both for us and for our partners, moves us forward in our transition from capital-intensive product development to a greater emphasis on asset-light by effectively monetizing inventory on our balance sheet. We are in the process of completing other like structured transactions, which we hope to announce in the near term. We believe that the majority of our timeshare sales within the next three to five years could be in an asset-light form.

The Exchange & Rentals business is off to a good start this year as well. Results in the Exchange business were especially strong as innovations introduced through RCI.com drove additional revenues. With our technology advantage, we are gaining a bigger share of consumers' wallets and enhancing our services to affiliates and the results are compelling. Last year, RCI added nearly 100 new affiliations and 150 new resorts to the portfolio. We bring better resorts to Exchange members and better technology to affiliates and consumers. This is our formula to drive revenue and marketshare for years to come.

In the Rentals business, we continue to make great progress in our global expansion. We have increased our footprint in the US vacation rental market by almost 60% since we entered the market in 2010. And the integration of our most recent tuck-in acquisitions is going very well. We consolidated 32 US websites into one on the newly upgraded wyndhamvacationrental.com platform, which now gives consumers the ability to easily search our entire global inventory on one website. I encourage you to visit wyndhamvacationrentals.com to view the array of product we have available now.

Above and beyond websites, we are committed to improved yield management, which is essential to help offset the economic challenges in Europe. We are leveraging our 39 years of RCI experience in revenue management and analytics to achieve results where others can't. For example, we are in the process of rolling out enhanced pricing tools in our UK cottages business that we believe are the first of their kind in our industry. Using real-time reporting, we can monitor, demand and automate price changes. This will enable us to maximize price and occupancy and to enjoy premiums where we should and discounts only when and where needed to drive occupancy.

Throughout the Company, we continue to drive performance through a combination of sharp execution of our business unit plans and value-creating capital allocation. On the execution front, innovation such as RCI.com and Apollo are driving improvements in the value propositions of our businesses, while WAAM and transactions such as the Shell acquisition are supporting our growth strategy and generating strong cash flow. When we layer significant share repurchases on top of that, the result is a proven, durable formula for continued performance. And now I would like to turn the call over to Tom to review the results.

Thanks, Steve. First-quarter results once again came in strongly with adjusted EBITDA up 7% and adjusted earnings per share up 18%. The year-over-year EPS increase is attributable to strong operational execution across our businesses and the benefit of our share repurchase program. Let me spend a few minutes on the highlights of the quarter and then we will get into your questions.

Our Hotel Group had an excellent quarter with revenues up 20% and EBITDA up 18%. Top-line and EBITDA gains were attributable primarily to higher RevPAR, a nice increase in system size and the addition of our second owned hotel, the Rio Mar, to our portfolio.

RevPAR was up 4% globally and 6% domestically in the first quarter. International RevPAR was flat and was negatively impacted by China performance where, as we have discussed in previous quarters, our economy segment is growing faster than higher RevPAR brands.

As Steve mentioned, room openings were exceptional with over 14,000 rooms coming into the system in the quarter. We also did a great job of sustaining the pipeline, which, despite the high openings in the quarter, remained flat from year-end.

At our Exchange & Rentals segment, excluding the impact of foreign currency and acquisitions, first-quarter revenues and adjusted EBITDA were both up over 1%. We believe these are good results given the economic and consumer confidence environment in Europe and stagnant trends in the broader timeshare industry.

In constant currency, Exchange revenue was up over 3% driven by higher Exchange revenue per member reflecting growth in Exchange fees from new products, price increases and growth in affiliate club servicing revenues. Rental acquisitions contributed $7 million of incremental vacation rental revenues, but had no impact on EBITDA for the quarter due to seasonality of those businesses.

Excluding the impact of acquisitions, rental revenues were flat as we were able to offset lower transaction volumes in Europe, particularly in the UK and Holland, with enhanced yield management efforts that Steve discussed.

At our Vacation Ownership business, revenues and adjusted EBITDA were each up close to 10%. Now excluding the Shell acquisition, adjusted EBITDA was up 5% primarily reflecting an improved provision for loan loss and the benefits associated with a favorable legal settlement totaling $11 million. Gross VOI sales were flat reflecting a 10% increase in tour flow offset by an 8% decline in VPG. VPG was down due to difficult comparisons resulting from an exceptionally strong upgrade market program last year and the mix effect of lower Shell VPGs. While we are holding our VPG guidance for the year, we expect to come in at the low end of the range. Regardless, we are confident that we can mitigate any weakness in VPG by cost controls and the many other levers we have to employ in his business.

The number of new owners added increased 5% for the first quarter of last year, which also was reflected in VPG trends. Growing the new owner pool is an important component of sustaining the overall business and comes with the trade-offs of lower VPG.

WAAM sales for the quarter were $49 million, a significant increase from the $17 million in the first quarter of 2012, reflecting higher WAAM 1.0 sales, as well as the inclusion of $13 million of WAAM 2.0 sales. Property management revenues significantly increased reflecting the addition of the Shell portfolio. Remember that these fee-for-service revenue streams were an important rationale for the Shell acquisition, but, as in the Hotel business, property management revenues include reimbursable expenses, which reduce the overall reported margin.

Defaults in the quarter were down 3% and the provision for loan loss was $84 million, down from $96 million a year ago. Relative to sales, that is a 200 basis point improvement from the first quarter of 2012. We are seeing good progress in portfolio trends, especially around slowing cease-and-desist activity.

Now let's spend a few moments on the quarter's balance sheet and capital markets activity. On the ABS front, we completed a $300 million timeshare securitization with an advance rate of 91% and a weighted average coupon of 1.77%, another terrific execution. Earlier in the quarter, we successfully tendered for $446 million of our 2018 and 2020 Senior Notes and exercised the make-whole option to redeem the remaining $43 million outstanding of our 2014 notes.

We also repurchased $42 million of our 2016 notes on the open market. To replace these notes, we issued $450 million of 2.5% senior unsecured notes maturing in five years and $400 million of 3.9% notes maturing in 10 years. In total, we replaced $531 million of debt with a weighted average cost of 6.75% with $850 million of debt at a weighted average cost of 3.16%.

The debt repurchase transactions resulted in a pretax charge of $111 million, which has been excluded from our first-quarter 2013 adjusted results. The transactions were assumed in our interest expense guidance issued in February. We also added approximately $120 million of debt associated with the Alex Hotel in quarter one. While this debt is legally our partner's, it is consolidated on our balance sheet in accordance with GAAP and counts in our leverage ratio with the rating agencies.

In total, our debt level at the end of the first quarter was nearly $360 million higher than it was at the end of 2012 and our leverage ratio was temporarily above our targeted range. As part of our financial policy, we remain committed to an investment-grade rating. Our leverage will return to our target range over the remainder of the year as EBITDA increases.

Overall leverage is expected to remain higher than 2012, consistent with the Company's commitment to add leverage as we grow EBITDA. Free cash flow for the quarter was $1.69 per share compared with $1.31 per share last year. We spent $140 million to repurchase shares, about $105 million for repurchase premiums on the tendered debt and nearly $50 million in hotel development advances. Based on today's guidance and our baseline, sustainable free cash flow target of $750 million, we expect around $5.45 in free cash flow per share in 2013.

As you saw from the press release, we are bringing up the bottom of our full-year adjusted EPS guidance, $0.03, based on our quarter one share repurchases. For now, we are holding at the top end of our range. It is early in the year and just as significantly, currency movements relative to our original assumptions are creating headwinds causing a $10 million change in our full-year EBITDA expectations since our guidance just two months ago. Our full-year share count guidance is now 138 million shares. This excludes any share repurchase beyond the first quarter of 2013.

For the second quarter, we expect earnings per share of $0.87 to $0.90. We would note that there are some differences between our outlook and some analyst models with regard to future share repurchases.

On a business unit level, year-over-year comparisons in the second quarter will be challenging for the Hotel Group due to expense timing for WER due to a claim settlement related to the Gulf oil spill that we recognized in 2012 and for Vacation Ownership as it continues to lap the upgrade marketing program of 2012. As a reminder, our full-year earnings and driver guidance are posted on the Company's website at www.WyndhamWorldwide.com. And with that, I will turn the call back to Steve.

Thanks, Tom. Tom and I have the pleasure of talking about the performance of our Company, but it is the focused execution by our associates that deliver the results. We all share with pride the strong culture we are building in Wyndham in just the last six years since our listing. Examples of this culture are the recognition as one of the top 100 greenest companies in the US as ranked by Newsweek; among the top 50 companies for executive women by the National Association of Female Executives; a perfect score of 100 on the Human Rights Campaign Corporate Index; and just last night, we were named among DiversityInc.'s top 50 companies for diversity in the United States. It is our employees living our core values that are reflected in these accolades and enable us to consistently deliver great results. It is a great foundation from which we continue to grow. And now, Shirley, we will take questions.

(Operator Instructions). Joe Greff, JPMC.

Good morning, everybody. Steve, with regard to your introduction of WAAM 3.0, this purchase and sale agreement with a financial partner, can you talk about how the economics would work, what percentage of economics that you would get? You also mentioned there are other like structured deals in the pipeline. Is it with this same financial partner or with others? And then I have a couple of follow-ups.

Okay. Well, thanks for the question, Joe. WAAM 3.0 is similar to WAAM 2.0 in that we will be providing financing to the end consumer. So unlike WAAM 1.0 where the partner was providing the financing, in this case, it will be economically very similar to WAAM 2.0. The real differentiation is that we are bringing in a financial partner to take down the inventory.

So one way to look at it might be that, with WAAM 2.0, we were basically capitalizing on a market that had a lot of excess inventory out there and there were tremendous opportunities and we were being advantageous with our purchases. With WAAM 3.0, we are being more strategic with our purchases and we are also establishing basically something that we have wanted for a while, which is basically a programmatic approach to doing it where we can kind of time out our inventory build.

With respect to the additional deals that we are working on right now, they could be with the same partner; it is not required. There are several people who have expressed interest in this offering that we are now making. But we hope to be able to do more with the partner we're working with right now. They understand our business, they kind of get the way that the business operates and they have been great partners. So we will have to see what the future holds.

Great. And then another couple of follow-up questions here. In Lodging, in the revenue segment, if we are looking at your table 4, the owned hotel segment jumped up a lot. I know that is inclusive of the Rio Mar, but the line item below that, ancillary revenues, also jumped a lot on a year-over-year basis. Maybe less so on a sequential basis. I guess what exactly is that? How much of that is passthrough and what is the margin or flowthrough on that? And then with the Rio Mar, I know that boosted revenues. Is that positively contributing to EBITDA yet? Is that EBITDA positive?

What was the last question, Joe?

With respect to the Wyndham Rio Mar, is that contributing on an EBITDA basis? Is that EBITDA positive yet?

Joe, it's Tom. Rio Mar did contribute positive EBITDA in the quarter. It is a seasonally positive quarter for Rio Mar. It was worth about $3 million and most of that ancillary revenue is kind of passthrough revenue, low-margin revenue and so there really isn't much EBITDA gain from that at all. In fact, that is a contributor to our margins sort of being stagnant for the quarter.

Okay. And then my final question, going back to Vacation Ownership, if we exclude the impact of Shell on VPG, what was the year-over-year performance in volume per guest?

We would be down 7% in VPG. So it was worth around 150 basis points.

Great. Thanks, guys.

Steve Kent, Goldman Sachs.

Hi, just a quick one -- good morning. Just a quick one. Following up on Joe's question on the strategic partner, can you name who this strategic partner is? Is it a real estate developer? Is it a former timeshare developer, just some sense for that?

And then more importantly, I guess I am just a little concerned about the timeshare sales pacing. You've put more people through the tours, but the number of customers who are essentially buying slowed down. You did say that the upgrade cycle is slowing. Is that -- are you reaching the maximum or are you reaching sort of the full potential of that? And should that ratio of sales that are going to upgrades versus new customers start to decline and what are the implications of that to profitability?

Well, I will start and then Tom can anything he wants to add. On the first question, Steve, it is a financial partner; it is not somebody who is a timeshare developer or who has been in timeshare in the past. It is a financial partner that is taking the assets and finishing them off and making them available to us.

On the second question about VPG, VPG we have said in the past has always been a difficult thing to say that it is always going to be moving in one direction. We have had quarters in the past where VPG has been down quarter-over-quarter. It is not an indication that there is any sort of an issue with producing EBITDA for the Company. What it means is there could be some mix changes. So yes, you may see more VPG decline as we push new sales, which is part of what is impacting this quarter, so we are ramping up our new sales. But that is a function of what we see out in the marketplace, what our marketing programs are producing. So there is a lot that goes into that.

I think the bottom line is the VPG decline, and we said this last quarter as well, is just one element to this business. Tour flow was up 10%. VPG happened to be down and so it is a bit of a balancing act and as we noted, Shell is a piece of that VPG decline as well. So I don't know, Steve, if I answered --.

I guess my only concern is that the -- selling the upgrades was a relatively low marketing expense part of the story. And I am just wondering if, on a go-forward basis, whether margins will be compressed if you have to shift more -- tell me if I am wrong. I thought it was like 60/40 or 70/30 at one point, upgrades versus new customers, whether that shifts, whether that could have an impact on the margins in this segment.

Well, you are right. I think -- what was it? 65/35?

65/35.

65/35, you are right in the zone there. There are higher marketing costs associated with new sales. It costs more to get a tour to come -- to get a couple to come in and do a tour as a new customer than it does somebody who is staying at our resort. So there is a marketing cost differential. Again, it is just one component of what we have. There's a lot of levers within the business and ability to control some costs and take costs down.

This was all within our plan. We are kind of at the bottom end of our VPG, but as we watch through what is happening, we are obviously -- these guys are very good in Orlando who manage this business. They are constantly adapting and adjusting to what they are seeing in the marketplace and so I don't think it is an indication that there is a slowdown. I think what it is an indication of is we are taking advantage of different marketing channels and we had an absolute killer VIP program, marketing program last year. It definitely outperformed our expectations and I think we were talking about it last year as being -- just the results have been extraordinarily good.

So I wouldn't read too much into that. I think it is just where we have got a tough comparison because last year was so strong and we are focused on bringing in new customers. If the new customers come in at a higher marketing cost, well, then it is incumbent upon us to adjust other costs to make the levers all work.

Okay, thank you.

Chris Agnew, MKM Partners.

Thanks very much. Good morning. I wanted to ask a follow-up question on WAAM 3.0 and how this impacts your development margin versus WAAM 2.0 and non-WAAM transactions. And also can you clarify what you mean by total proceeds of $80 million? Is that effectively an amount of inventory that is involved?

On the second question, the answer is yes. It is the inventory and land that is on our balance sheet that we will be selling off in order to have our partner take it and complete it.

With respect to the first part of the question, the economics are not a whole lot different. If we held the property ourself, we would have to develop and we would have the cost of carry to develop the property. So if you look at our average cost of capital, it is above what the cost is to have a third party develop it for us.

So from an overall basis, we think this is a smart thing to do because it is holding our capital within the house. We are not having to put the capital out until we need to put it out and it gives our model more of a -- kind of a just-in-time manufacturing feel to it. And actually turns a little bit more into kind of a fee-for-service business because we are not having to sit with a huge amount of capital on the balance sheet. Now the balance sheet won't go down immediately. It will go down over time as the products take off and sold, but it will give us a chance to de-asset heavy our business.

Got you. And if I could ask a follow-up on VPG and I might have missed this, when did your promotion last year, which really drove the VPG, when did that end and you start lapping that? And also just throw in another one on credit scores. At ARDA this year, there was quite a lot of discussion about the industry reaching back down to customers with lower credit scores and I was just wondering where you stand with respect to that? Thanks.

Chris, it's Tom. So the promotion lasted for three quarters last year and our commitment to sustain credit scores with the progress we have made over the last few years remains steadfast. So we are going to continue to seek FICO scores above 700 for the most part.

Great. Thanks very much.

Patrick Scholes, SunTrust.

Hi, good morning. My questions pertain to the loan loss ratio coming down substantially year-over-year. Did you -- I think you alluded to this on the previous question. Did you tighten credit standards further and if so, did that have an impact on sales volumes or was the loan loss provision coming down more of a -- more due to previous sales or loans performing better than initially expected?

Patrick, it's Tom. We had diagnosed the issue with the portfolio to have two causes. One was this organized third-party activity to defraud and the second was the large balance loans. We talked about tightening our underwriting criteria to deal with large balance loans. We tightened it, we loosened it a bit more and so I wouldn't attribute the improvement in portfolio to improvement on large balance loans just yet, but neither was the tightened underwriting criteria a significant factor in VPG.

So where we've really made progress and we have seen a discernible change in the underlying cause of portfolios around this organized third-party activity, we have made serious inroads as we thought we would to slow the level of defaults that are taking associated with these cease and desist activities. So we thought that would be the first area that we could deal with because it is more easily dealt with and I think we've addressed it pretty aggressively. So we are happy with where we ended up in the quarter with the provision.

Okay, thank you for the color and then just one more question here concerning WAAM 2.0. You had a very strong start to sales; though it seemed to have faded a bit. Where do you see that opportunity going forward?

Oh, I think it will still be out there; it will still exist. We will continue to pursue those opportunistic deals that come up and are available. We may flip some of our 2.0 to 3.0 if we feel it is in our best interest to have a partner take it on because it is bleeding in over a longer period of time. For example, the deal we did in New York is really kind of a 2.0 deal, the Alex Hotel that we are converting and selling as a timeshare. So we will continue to use both.

Okay, very good. Thank you.

(Operator Instructions). Bob LaFleur, Cantor Fitzgerald.

Hi, good morning, everyone. I was wondering if you could just -- again, going back to 3.0 here. What exactly are you selling to the partner? Is it -- and what combination of land and/or work-in-progress is it? And I guess I was confused by your comment that it is something that is going to phase, so that leads me to ask is this one project you are selling to them or is it across multiple projects? Just a little bit more on understanding the logistics of the whole thing.

And then a related question. If this deal is $80 million and you are working on additional 3.0 projects with what you have on your balance sheet, can you give us a sense of the order of magnitude? Is this half of the potential volume of these type of transactions, a third or any color you can give us on that?

Well, it is one project that we are talking about right now, Bob, but there is other projects, as I have said, that we are working on. It is a combination of land and buildings, but I honestly don't have in front of me right now the percentage that was land. It is a project that is out in Las Vegas that we began construction on prior to the downturn and we put it on hold because we didn't want to pursue more development and we were switching our capital allocation philosophy around that time. So it has been out there; it has been available for us. We now have an opportunity to finish it. It is going to be a terrific product when it is done, but it will be done by somebody else, finished off by somebody else.

When I say it is going to be phased in, it is because there is still construction that has to take place. It is going to take a while for them to complete it. So we will get the $80 million now and then when we start needing the product, we will take the product down and we will pay for it over time as we need it. I just got handed a number actually. Of the $80 million, $65 million is building and $15 million is land. So that is to answer your first question, Bob.

Okay. That wasn't clear because I wasn't clear whether the $80 million was coming in over time or the inventory would go out over time, so that makes perfect sense.

It will come in when we close.

Okay. A, when do you think that is going to be and B, is that $80 million additive to -- because that is essentially free cash flow, is that additive to the $750 million or is that part of the $750 million for this year?

Well, I will answer when it is going to close and then I will ask cash flow Conforti to talk about the cash flow impact. But we expect it to close in the second quarter. There is some zoning issues that we have to get complete and other things in order to close the transaction. But we did sign the purchase and sale agreement.

And Bob, the $80 million is above and beyond sort of our core forecast of $750 million.

Okay, and then the last question that I did is can you give us an order -- a sense of order of magnitude? Like how many more of these potential deals are there given what is on your balance sheet? Is this half of what you have, a third? Anything you can give us on that?

Well, probably closer to a third of what we have, so there is more on the balance sheet that we can use this format for. There is land on our balance sheet that we know we are going to develop over time. It is in great locations, but it is going to be there for a while. We know that and that was the planning when we acquired control of some of these parcels of land.

Okay. And then promise last question, is there any sort of WAAM application for completed inventory that is on your balance sheet, any sort of bulk sale, sale-leaseback type arrangements or is this 3.0 kind of the way you're looking at dealing with stuff that is already on the balance sheet?

I don't -- this is the way that we are thinking about dealing with what is on our balance sheet. Not that 3.0 is the last iteration of what we will have and the reason that we keep redefining it is we are trying to make it easy to follow kind of the steps that we are taking and the differences that these make to the way that we are kind of evolving this program, but I can pretty much guarantee you that there will be a 4.0 at some time and it is going to be a different form from what we have right now, but I don't -- I am not going to say that it is going to be something coming of our balance sheet. That is not necessarily the next program that we'll roll out.

So it sounds safe to say that the completed inventory that is on your balance sheet right now is likely to stay there and just get disposed through traditional channels, is that fair?

That's correct. That is correct.

Okay, thank you.

Harry Curtis, Nomura.

Hi, good morning, guys. Just changing gears a little bit. Can you give us some sense of how your bookings look for the Vacation Rentals segment in the second and third quarters and particularly in Europe?

Okay. Well, Europe is a tale of many countries. I will put it that way and there are parts of the market that have actually been performing very well in advance bookings and there are parts that have been weaker. To kind of break it down for you so you have a sense of the strengths and weaknesses, the Southern European product has been moving very well, which basically indicates that Northern European travelers to Southern Europe are booking at or above the expectations that we have. The Northern to Northern European travel has been a little bit slower and we have seen over the last several years a slowdown in the booking pattern where the bookings get closer to the date of arrival. So we are monitoring that and that is partially also -- I mentioned before this yield management system that we are rolling out for our UK cottage business. Part of the reason for doing that is, with the booking patterns changing, we need to be better at managing the inventory that we have available. And that is for this industry quite a shift because the normal way of doing it in this industry is you set a price with your home that you have or cottage that you're giving to us and that price is set and it doesn't really move during the season, the rental season.

Now we are going for more flexibility with the owners to give us the flexibility to help them move price to take advantage of opportunities and that might be premiums at some times. It might be discounts at other times based on those patterns. So I think this shortening of the booking window, which we have seen in the hotel industry over the years and we are now seeing it more in the rental business, is something that we think is a trend that will stay in place. With the amount of product that is available online now, it just makes it so much easier for people to kind of monitor what is available, what is out there and then book when they want to book. So hopefully that kind of addresses the question.

Yes, just one quick follow-up on that. Just generally speaking, do you think that your forward bookings just on the books today versus this time last year are above or below last year or about the same?

It is so early, Harry. Like we said last year, I think somebody asked this question in the first quarter, the first quarter is -- you're booking basically spring, which is not the heavy period. The summer is the heavy period and so the second quarter is usually where we see the bulk of those summer bookings coming in. So it is really too early frankly. I am not evading the question; it's just too early to tell.

Okay. And then my second question, just going back to timeshare, the legal settlement, I am not sure if I got the number right, was that about $11 million, is that what you said?

It was, yes. $11 million.

Okay. And that was -- okay. And so if you back out the Shell acquisition and the legal settlement, would your kind of same-store results have been somewhere in the high 90s EBITDA? Does that sound about right?

It is hard for me to do the math off the top of my head on this one, Harry. Let us get back to you on it, okay?

Okay. That is all I had. Thanks very much.

Will do.

I think, Harry, what you will see if you back those out is that it was probably fairly flat, down slightly for the quarter.

Okay, very good. Thank you.

Carlo Santarelli, Deutsche Bank.

Hey, good morning, everyone. Just quickly with respect to the free cash flow, I was just wondering, being up nicely this quarter despite having spent a little bit more on the maintenance side, is there anything one-off in that item for the 1Q '13?

Not for first quarter. It was -- the EBITDA performance and then some improvement in working capital associated with our receivables over in the timeshare business.

Okay. And then just with respect to the legal charge, where does that come in and has that, along with the $10 million in EBITDA headwind from FX, is that -- are both of those currently contemplated in the same EBITDA guidance as prior?

Everything -- yes, everything is contemplated.

Frankly, the legal settlement, which is really a component of two things. We settled for less than we had reserved for and we received reimbursement of some legal expenses that we have. That is what is in that number. So those are things that hit us in the past that we got reimbursed for basically in the current period. Those were in our forecasts when we laid it out in our EBITDA guidance for the year. So that was already in there. What wasn't in there was the $10 million of headwind that we are having on the foreign currency. That is the piece that has flipped the most over the last two months.

Correct, yes.

Understood. And then just if I could ask one quick follow-up. With respect to inventory spending in the 1Q, do you guys have a number for that?

Inventory spend?

We will get it for you in a second.

We will get that, Carlo. I don't have it off (multiple speakers).

We will [burn] it out.

I appreciate it, guys. Thank you very much.

About $23 million, Carlo. See how quickly we respond to your request?

Thanks a bunch, guys.

Michael Millman, Millman Research Associates.

Thank you. I think you may have touched on this earlier, but I was curious as to what do you see or what do you expect to see the impact of the sequester in terms of maybe timeshare stays or hotel booking changes or anything else that you see or are trying to work around?

Thanks, Mike. We don't see a big impact from the sequester. Most of our customers in the hotel side drive. Some fly, so I guess they may be delayed in getting to where they are trying to get to right now, but it doesn't impact the fact that they still need the hotel room when they get there. So we have not seen anything that I would say is meaningful from the sequestration.

And that is true also of timeshare stays?

Yes, I mean obviously our busy season is coming up in the summer when we are chockablock full, but we don't see any change to our occupancy on the timeshare side.

Okay, thank you.

At this time, I will turn the call back over to the speakers.

Okay, well, thank you very much all and we will look forward to speaking to you on the second-quarter call.

Thank you. This does conclude today's conference. We thank you for your participation. At this time, you may disconnect your line.