Travel + Leisure Co (TNL) 2015 Q1 法說會逐字稿

Welcome to the Wyndham Worldwide first-quarter earnings conference call. (Operator Instructions). Today's conference is being recorded. If you have any objections you may disconnect at this time.

I will now turn the call over to Margo Happer, Senior Vice President of Investor Relations. Ma'am, please go ahead.

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-Q filed February 13, 2015 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. It is also available on the investor relations section of our website at WyndhamWorldwide.com. Steve?

Thanks, Margo. Good morning and thank you for joining us. As you saw from the release, we started the year with a strong quarter with 32% growth in adjusted diluted EPS and a 14% increase in adjusted EBITDA. All of this was accomplished despite a dollar that continued to strengthen during the quarter. Tom will walk you through our financial results in more detail. My comments will focus on a number of important and exciting initiatives underway across our businesses to drive growth and strengthen our competitive position.

Let me start with Wyndham Hotel Group which has been undergoing significant transformation and has established robust momentum. The team has a strong plan for sustainable growth and has recruited world-class talent to make it happen. We recently unveiled our plans at the Wyndham Hotel Group Global Conference, the largest gathering of hotel owners and operators in the world with over 6000 attendees. We shared great news and I've never seen our franchisees more excited and engaged.

First, we continue to evolve our brands and offerings to meet the changing needs and demands of today's travelers. We announced transformational changes to our Wyndham Rewards loyalty program. It bucks the recent hotel and airline trends that have made rewards programs overly complicated and frustrating. No other loyalty program makes it easier and faster for customers to earn their stays than Wyndham Rewards.

Wyndham Rewards is poised to be a game-changer within our industry. To introduce the new program we are launching a new umbrella marketing campaign. The TV, digital and radio ads feature actor Kristofer Hivju, best known for HBO's Game of Thrones as a new character created just for Wyndham Rewards. Our launch commences with commercials beginning May 11.

The new Wyndham Rewards and umbrella marketing campaign generated more excitement at the conference -- much excitement at the conference but we are making other groundbreaking back office changes in the business as well. Enhanced technology tools to book guests and support our franchise operators are essential components of our value proposition.

We recently announced an important global agreement to migrate our central reservation systems to Sabre Corporation, which will make them our exclusive global CRS provider. We are already working with Sabre on a new cloud-based property management system that incorporates an easy-to-use, automated revenue management tool for our smaller hotels which is being provided through a partnership with INFOR. Once these systems are implemented, hotels within our portfolio will be able to more effectively manage their pricing and inventory, connect to a wider range of global distribution partners, utilize a broad array of currency and language capabilities, and have access to a fully integrated customer profile that is tied into our Wyndham Rewards program.

This creates a strong competitive advantage for our economy and midscale brands.

Our new model of partnering with world-class providers such as Sabre will keep us at the leading edge of the technology we need to support our business. At the same, it will allow us to focus on what we do best, delivering great service and value to our franchisees and guests.

We are only beginning to deliver on the exciting opportunities we see in our hotel business and look forward to sharing more details and results with you throughout the coming year.

Now let's move to Wyndham Exchange and Rentals which had a terrific quarter. We were especially pleased with rental revenue. In constant currency this increased 8% year-over-year. Our industry-leading brands continued to earn accolades with RCI recently winning six ARDA awards and Landal GreenParks winning two prestigious Zoover awards, which is a pinnacle of achievement from customers in the Dutch holiday market.

We have many initiatives underway such as our yield management program. I have discussed this program on prior calls. It allows us to effectively position and price our managed rental inventory. Now we are taking the data we use for portfolio yield management even further and using it as a sales tool to recruit new properties. Historically our field agents had to rely on their local knowledge to find the most desirable properties and present our value proposition to the homeowner. Estimating property pricing, occupancy, commission rates and potential owner income was a manual process requiring multiple visits with the homeowner. We are now live at our UK Cottage brands with a mobile tablet-based application that enables a sales representative to easily identify and demonstrate the potential of a new property based on its unique features, location and seasonal price curve.

We expect this approach to improve the effectiveness of our initial visits with property owners resulting in increased conversion rates.

As importantly, we expect to improve our overall property mix. We look forward to expanding the application to other rental brands within our portfolio in the future.

Technology also continues to present great opportunities to broaden vacation rental distribution. By way of background, there are two distinct business models in the rental industry, the rent by owner model, which is self-explanatory, and the professionally managed model where we are the largest player. Supporting both of these models are third-party distribution channels such as HomeAway, Airbnb and online travel agencies.

To capture this opportunity we are expanding our third-party distribution channels. We recently signed a global agreement with HomeAway and we are in active dialogue with others. We are leveraging our global scale to benefit our brands and property owners. While we have great proprietary websites across our rental brands, third-party distribution often provides an effective marketing alternative. To optimize utilization we augment our property booking channels by listing certain properties at certain times with third-party providers.

The benefit is higher consumer awareness and the ability to generate additional bookings especially beyond our primary customer markets and the peak season. While we are in the early stages, we are already seeing benefits and we will manage the process closely to continue to drive incremental bookings.

Now let's move to Wyndham Vacation Ownership where we continue to reap the benefits of the changes we have instituted over the last couple of years. Changes in our underwriting standards have led to a higher quality portfolio which has benefited our provision for loan loss while our innovative methods for sourcing inventory continue to reflect positively in the cost of goods sold.

Over the past few quarters, I've talked about our commitment to evolve the business to drive improved customer engagement and future growth. I said that this would be a long-term process with some bumps along the way but we believe this was essential to the ongoing health and growth of the business. In the first quarter, we experienced some of this variability as evidenced by VPG which was lower than our expectations. While we saw strength in some markets such as Williamsburg; Oceanside, California and Myrtle Beach, certain key markets such as Waikiki, South Florida and Gatlinburg were weak. Much of this underperformance was linked to the evolving owner outreach related to our specialist presenter model. We will continue to fine-tune our approach including a hybrid model for marketing to enhance our outreach.

We are working to improve customer engagement in other ways as well. For example, in what I believe is the first in the timeshare industry, we are proactively enabling long-time owners to gracefully exit their ownership while allowing us to efficiently acquire inventory. We broadly call this program Ovation by Wyndham. It is how we applaud owners who have experienced years of great travel memories but whose needs and circumstances have changed.

Ovation provides owners who have fulfilled their loan obligation with options that include referral to a verified seller. In certain instances, we will offer to acquire their inventory. Owners who have participated thus far have been highly satisfied. We receive low-cost inventory but more importantly help ensure we have a highly satisfied former owner to spread the word about the benefits of Wyndham Vacation Ownership.

Finally, I want to share a glimpse into a concept that is in the early trial phase. Although we already have international locations such as Australia and New Zealand, we have remained largely focused in the US. The US will continue to be a great market for us but there are countries with emerging economies and a strong emphasis on family and vacations that are virtually untapped.

Brazil is one example and we are launching a small trial program there over the next couple of months. We found that a notable portion of our sales in Orlando are to Brazilians. They love the product, love to travel and many are gaining wealth.

This trial program is another capital light concept which could be our best model yet. I'm especially excited that it involves all of our business units. We are selling a 10- to 15-year term product using inventory that we are leasing from current or future Wyndham flag mixed-use projects and the club operations will be run by RCI.

Again, it is a small trial and we won't have any visible impact on our results but we are excited by its long-term potential. We believe there is a strong market for this product which can be adapted for other regions across the globe with parts of Asia being our next likely target.

Now let me turn the call over to Tom for details on the quarter's results.

Thanks, Steve, and good morning, everyone. As Steve noted, we are off to a great start with our first-quarter results with 32% growth in adjusted diluted EPS and 14% growth in adjusted EBITDA. Year-over-year FX in the quarter had a topline negative impact of $38 million and a $10 million impact on EBITDA. We were $0.09 above the high end of our guidance range reflecting better than expected operating results and the favorable timing of expenses at Wyndham Exchange and Rentals, favorable depreciation and amortization timing, a VAT related reserve reversal, and the effect of share repurchases.

Free cash flow for the quarter was $197 million, down from the $269 million in the first quarter of 2014, slightly ahead of our expectations for the quarter. This year-over-year comparison reflects the timing of inventory purchases which are more front-weighted this year and the impact of foreign currency movement.

I want to point out that we expect year-over-year free cash flow comparisons may be negative until the fourth quarter. While FX movements have created a $28 million headwind to our year-over-year free cash flow assumptions, we remain committed to hit our annual neighborhood target of $800 million.

In addition, we repurchased 1.7 million shares for $150 million during the quarter contributing to a 6% year-over-year decrease in our weighted average diluted share count.

Now let's take a look at the financial performance of each of our business units.

Starting with our Hotel Group, which enjoyed a very strong quarter with revenues up 23% and adjusted EBITDA up 16% year-over-year. Excluding the impact of the Dolce Hotels & Resorts acquisition and revenues associated with our global franchisee conference, revenues were up 11% in constant currency. Both Dolce and the global conference fees featured incremental revenues with no impact on adjusted EBITDA for the first quarter.

Adjusted EBITDA reflected higher domestic RevPAR and global room growth along with an increase in the licensing fee rate the Hotel Group charges our timeshare business for the use of the Wyndham brand. We last adjusted this rate in early 2012 shortly after the Marriott Vacation Ownership spinoff. A subsequent review of market-based pricing led us to further increase the rate this past quarter.

The impact on first-quarter Hotel Group revenues and adjusted EBITDA was an increase of $3 million with a corresponding negative EBITDA effect on our timeshare business. Domestic RevPAR increased 7.7% while system-wide RevPAR increased 1.7% reflecting both currency headwinds and higher unit growth in lower RevPAR markets, especially China.

Now if we were to exclude the China effect and in constant currency, global RevPAR actually grew 5.5%.

Our Exchange and Rentals segment generated strong operating results in the first quarter. On a currency neutral basis, adjusted EBITDA increased 17% reflecting solid year-over-year operating results, the absence of a $7 million loss in the first quarter of 2014 associated with Canvas, which we sold late last year, and a $4 million reserve reversal of value-added taxes. Excluding the Canvas loss and value-added tax adjustment, currency neutral adjusted EBITDA increased 5%.

On the exchange side of the business, revenues were up 2% in constant currency. The average number of members increased 2.5% attributable to new member growth in the Americas while exchange revenue per member was relatively flat.

For Vacation Rentals, revenues were up $14 million or 8% for the quarter in constant currency reflecting a 7% increase in transaction volume and a 1% increase in the average net price per rental. Growth across all our major brands was highlighted by strength in our Denmark-based Novasol business, our Netherlands-based Landal GreenParks business, and our Wyndham Vacation Rentals North America business.

In our Vacation Ownership business, adjusted EBITDA grew 13% even after the $3 million increase in licensing fees paid to our Hotel Group. EBITDA growth was primarily driven by higher net VOI sales reflecting a lower provision for loan loss and improve cost of goods sold as we implement new inventory acquisition models.

Total revenue growth was 4% for the quarter which did include $13 million from the recognition of deferred revenue related to Margaritaville in St. Thomas.

Net VOI sales were up 11% or 12% in constant currency reflecting a lower loan-loss provision partially offset by a 3.1% decline in VPG, net of currency, and a 1.2% decline in tour flow.

Now as Steve discussed, VPG performance continues to be impacted by steps we are taking to improve the customer experience with our sales process. While VPG may vary from quarter to quarter, we believe these steps are necessary to enhance the business for the longer term.

The provision for loan loss was $46 million, down 23% from a year ago. The decision to raise the FICO profile of our buyers made a number of years ago coupled with the decision to require more cash on sale and other operational steps have continued to result in provision rates that are at all-time lows.

Now let's turn to some Companywide figures. In the first quarter, we completed two significant capital markets transactions. First, we locked in the current low interest rates and enhanced our liquidity by renewing our five-year $1.5 billion revolving credit line agreement to 2020, July 2020.

Second, we issued our first ABS term note transaction of the year, the $350 million Sierra 2015-1 transaction which had a 2.54% weighted average coupon and a 90% advance rate.

Finally, let's turn to guidance which will be posted on the website after the call. As you saw from the press release, we are increasing our adjusted diluted EPS guidance $0.06 for the full year and diluted share count goes to 121.4 million shares reflecting the benefit of our quarter one repurchases.

In addition, we are updating adjusted EBITDA guidance for the Hotel and Vacation Ownership businesses to reflect the previously discussed increase in rate on the inter-segment licensing fee for the use of the Wyndham brand. We estimate that this will have a favorable $13 million EBITDA and revenue impact on the Hotel Group and an equal and opposite EBITDA impact on the Vacation Ownership business for the full year. That is the only change in our assumptions on the business units. We will post updated guidance sheet to the website following the call.

During the quarter, foreign exchange rates continued to move against us as the US dollar further strengthened against our most relevant foreign currencies. We noted a $34 million FX headwind to full-year EBITDA guidance on our February 10 call. Based on exchange rates as of March 31, which is the basis for our current guidance, we now have a year-over-year EBITDA FX headwind of $42 million.

As a reminder, we said in October that we would be at the midpoint of our guidance range based on currency headwinds. We are not inclined to change guidance at this time but we will continue to closely track the effect of currency movements and as always, we will keep you appropriately updated.

For the second quarter, we expect adjusted diluted earnings per share of $1.24 to $1.27. We expect a tax rate in the second quarter of approximately 35.5% but our annual guidance rate remains unchanged at 36.75%. Remember that we don't assume share repurchases in our guidance -- future share repurchases that is. Year-over-year 2015 second-quarter comparisons reflect unfavorable currency movement.

To close, we are pleased with our strong start and are looking forward to continued progress in the remainder of the year.

With that I will turn the call over to Steve. Steve?

Thanks, Tom. Before we open the line for questions, I would like to summarize our comments on the quarter. It was a great start to the year despite FX headwinds.

The quarter was highlighted by strong domestic RevPAR growth in our Hotel Group, lower inventory costs and continued improvement in credit performance at Vacation Ownership, and strong growth in our Rental business. Our focus continues to be to deliver strong results, generate growing free cash flow, allocate capital to drive shareholder value and innovate to build an even stronger competitive position going forward.

Before we open the line for questions, I would like to close with a few comments about our culture which is the foundation that supports all we do. Last week we were named among the top 50 companies for diversity by Diversity Inc., one of the most widely respected thought-leading organizations on diversity. This was our third consecutive year on the list and we were in the top 10 for our supplier diversity, global diversity and diversity council programs.

We were also named one of the world's most ethical companies by Ethisphere Institute, and named to Corporate Responsibility Magazine's 100 Best Corporate Citizens list. Based on our core values of integrity, respect, opportunity and supporting our community, our culture is focused on providing the best possible environment to deliver results including the value we create for shareholders, the experience we provide our customers and the quality of the communities where we live and work.

I believe the culture we have created is distinctive and remains an important driver of the growth of us as a public company and we are gratified that as a young company we are achieving this recognition.

With that, Richard, we can open the line for comments.

(Operator Instructions). Joe Greff, JPMorgan.

On the loan-loss provision in the 1Q, obviously that came in lower, better than we were forecasting and from Tom's comments I deduce that that component for the full-year guidance didn't change or at least you are not effectively changing it. Can you talk about how you are seeing that trend and if it is not going to be sort of similarly improving as it was in the 1Q going forward from here, why wouldn't that be or is it just that you were leaving it that way and if things continue to perform better from a FICO score basis than from a cash down payment basis we could see similar trends? If you could help us understand the forward outlook on the loan-loss provision. Thanks.

Joe, unfortunately the beginning part of your question got cut off but I think we have got the gist of it. If we don't, you can follow up. But as I think I said at your conference last year, philosophically because we are selling to a higher credit customer and we are selling more cash down when we make the sale, we should see improvements of our loan-loss and theoretically we should see improvements beyond what was our high or low watermark before the downturn. We have kind of gotten back to that point now.

So again, this is theoretical and Tom may have comments on the specific numbers but theoretically we should continue to see improvement there. I don't know how quickly we will see it. I thought that we should see the improvement frankly before we have seen it now but this takes time and the loss curves need to work their way through. So I understand the process that we go through with Deloitte in order to come up with it but philosophically if we are selling it to a higher FICO score customer with more cash down, we should be seeing better results.

I would only add, Steve, directionally absolutely we should continue to see better results. Our balance sheet reserve, Joe, as a percentage of receivables outstanding is at an all-time high, it is around 17% which is a lot higher than it has been historically. And our default rates have been coming down over the past few years. So we are optimistic that we will continue to see additional momentum but at this point in time it is just hard to judge when that benefit is going to be apparent to us. But we are optimistic over the long-term on this particular measure.

Okay, great. And then two quick follow-ups on the VPG performance. You mentioned certain markets weren't as strong with the specialist presentation experience. Can you maybe get into a little bit more detail, like what you are doing to change that experience and when do you expect to see that result and sequentially improving VPG performance?

And then a kind of quick second part to that, you mentioned that you had a little bit more inventory spend in 1Q versus a year ago. How much of that $195 million to $205 million of that inventory development then could you actually spend in the 1Q? That is all for me. Thank you.

Do you want to answer the second question first? It is an easy one. So the incremental inventory spend was about 60% of the difference between last year's overall free cash flow and this year's. It was around $37 million, $38 million on about a $70 million so in the 55% to 60% range.

All right, let me make sure I get that right, it was $70 million of the roughly $200 million in the 1Q?

No, no I was talking -- the difference between 1Q this year and last year in free cash flow was $70 million. I am attributing 55% or thereabouts of that variance related to incremental inventory spend in the first quarter of this year as opposed to last year.

And in the absolute level of spend in the 1Q is then what, Tom?

Let's see, it is around -- the absolute spend was -- Joe, let me just look at some sheets. As Steve answers your first question, I will get you the number.

Great. Thank you.

On the question about specialist presenter and the marketing programs, Joe, you are absolutely right, there are some markets that have performed better and some markets that didn't perform as well and that is actually in my eye is an encouraging sign. There is not a systemic problem with the program, it is the execution on the ground of that program and it really is in the marketing side, it is not on the sales side, it is on the marketing side. And it is on how do we encourage our customers who are visiting the resorts to come in and learn more about their ownership and see if they would like to expand their ownership by buying more. And it is that consumer engagement that we think we probably could have done a better job with which is why we are changing the program.

We just recently, it was last week, we had a very large homeowners conference down in Orlando and we surveyed and talked to the owners about how do they like the new specialist presenter marketing and sales approach, and it was overwhelmingly positive. So we are on the right track here. We just have to fine-tune it and get it to be right.

You asked some questions about trending of VPG I think that was also in there. You asked a bunch of questions, Joe. But I think on the trending question, I would expect the second quarter to be better than the first quarter and I would expect the second half of the year to be better than the first half of the year. More than that I don't know that it makes sense to try to put such a fine point on it. The fact is the team is on it. This is a team that is extraordinarily good at execution. The slips that we have had are uncharacteristic frankly and some of it is people related and some of it is just location related and how will they adopted the new marketing programs.

Thank you very much.

Sure.

Steven Kent.

Good morning. Two questions. First, on Vacation Rentals, you showed some real pricing growth. Can you just talk about travel trends in light of US dollar appreciation and Europe to Europe customer base for that part of the business? It seems like that might be an offset to maybe some of the travel weakness we may see of Europeans coming into the US. So could you talk about that?

And then again just going back to some of the VPG data, you mentioned -- Steve, you gave some color on how you are working with existing customers to upgrade them and some of the programs you just mentioned that you met with new -- I'm sorry the existing owners on some of the programs there. Could you talk about color on selling to the new owners, what are you doing to get new owners through the door?

And one final thing, the split between new versus existing. Sometimes you have given that in the past.

Okay. We will click through those. For the Rental businesses, you are right, we did see strength and most of that strength was transactional strength as opposed to pricing strength. But there was strong uptake in the first quarter. We don't do a lot of US to UK or US to Europe bookings so that would not have a significant impact on it, I don't believe. I have not heard our team over there say that they are seeing a larger influx of US customers. I think what you are really seeing is just some of our programs for yield management over there are taking effect and we are seeing a better utilization of our weeks, we are pricing them properly where we are maintaining the same price at this point and filling more of the units. It is not a whole lot different than a hotel where the more units that are filled the more courage you have to raise prices.

So that would be the next logical step in this is that we will see some price improvement but we are not projecting that. We are just saying that again that is philosophically what you would expect to see. But yes, the fact is we are seeing a lot of very good transaction activity in Europe. For the most part, the activity is either inter-country or within Europe.

On the new owner side, actually we are seeing good performance with our new owners at the sales table. Our close rate was actually up a little bit for new owners in the first quarter. And yet, we didn't see a huge influx of more tours for new owners so we are focused on increasing the tours. That is just a function of the marketing programs we have in place. We just added a couple of new marketing programs that will drive in. So we feel good about the new tour generation.

We would expect to see some increase in new tours and an increase in new owner sales over time. That is something that we have been increasing, we are up to I think 31,000 estimated for this year, that is about a 4% or 5% increase over last year. We would expect to continue to see at least that level of increase in new owners looking forward and we might increase it depending on how well some of our marketing programs perform.

Split between new and existing, I am not sure.

No, you gave color on that. I think we understand how that seems to be trending better on the new site than we would have expected.

It clicked up a little bit in the first quarter of 2015 but not dramatic.

Okay, thank you.

Patrick Scholes, SunTrust. I am sorry, speakers, but Patrick's line got disconnected. Christopher Agnew, MKM Partners.

Good morning. First question, it just asked about the system-wide RevPAR constant currency I think you came in at the low end of your full-year guidance. And I know China accounted for sort of 1% headwind given the growth there. But also domestically I think if you look at the STR numbers you came in maybe a little bit lower than I would've thought and perhaps that is an unfair comparison. But maybe can you talk a little bit about the trends in RevPAR and whether and how China growth compares to your expectations and is growth a little bit faster at the start of the year? Thanks.

Thanks, Chris. Yes, it may be an unfair characterization because we were pretty happy with what we saw domestically in the Hotel Group so it may be a function of the mix of our business, business segments within the Hotel Group versus what you see in Smith Travel. I am not sure how you are looking at it but we feel pretty good about the domestic growth and we feel that.

Well, let's turn to China for a minute. We are pushing hard to continue to grow in China and we are seeing a lot of growth with Super 8, we are also adding Wyndham Hotels, so we are adding a mix of hotels in China right now. That obviously does put some pressure on our international RevPAR growth because the Chinese market does not price as well as the European markets do or some of the other markets where we are large. And I think that is just the nature of the beast and that is a result of growth in that market.

We are not going to deemphasize growth there, we will continue as you and I have talked about, we're going to continue to push hard to grow that market and continue to add properties in China and we will just live with the fact that it creates a little bit of a pressure on international RevPAR growth.

Okay, thanks. And then switching to Vacation Ownership, can I understand a little bit better the lower COGS in timeshare. You mentioned the new inventory acquisition process is accounting for lower COGS. Is that mainly Ovation and are there any one-time items in the quarter? Is it possible to quantify sort of your expectations for how much lower cost of goods are sustainably going forward? Thanks.

Yes, Chris, it is Tom. So when we use the term sort of alternative inventory acquisition models, it really reflects two distinct approaches. One is as Steve described, Ovation is where we go to our existing owners who have used the product and had a lifetime of enjoyment with the product and their exhibiting use patterns, I would say they are not using with as much frequency, we are reaching out to people and offering them an alternative to be able to sell their product either through a referral to a reseller or to us directly as sort of a graceful way to exit the product and in certain instances, continue to use the product for a period of time.

That is an area that we have been pursuing for a number of months now. I think it is still relatively new information and the effort continues in a more formal way as we speak.

The other avenue that we approach is to go to homeowners associations to whom inventory has been defaulted and we go to homeowners associations and offer that we will pay the ongoing maintenance fee and we will also resell the inventory and so we are able to acquire inventory for very economic costs through that channel as well. So those two factors are the factors that have driven the lower cost of goods trend and I would say we continue to expect that we will see more of that as we go forward.

So I wouldn't describe them as one time but I would describe them as opportunistic in a sense that these are sources of inventory acquisition that haven't been fully utilized that we are now utilizing probably more formally and with more determination than we have in the past.

I think we have quoted in the past that we expect 60% to 70% of our inventory -- I think it is around 60% of our inventory -- spending in a given year to be earmarked to what we consider to be capital efficient sources and they would be the two sources that I just described to you, Ovation, direct to owner or direct to homeowners association.

And then our asset affiliation model, which we are in full swing of implementing. So I think that is the best we can do at quantifying our commitment to this type of inventory acquisition but I think everyone should expect to see us continue to do that well into the future.

If I could, Chris, I just want to respond to the question that came up earlier about the amount of inventory spend in the first quarter. The number was around $60 million.

If I could, just one last quick follow-up on your answer there. The way you explained that, does that sort of leave open, there is room for continued improvement in lowering cost of goods as you continue to roll out or were you talking more about the sustainability of those two programs?

It really depends on the success of these programs but I would say that we would hope that it would be able to sustain these rates for a bit in cost of goods sold. But once that opportunity, once we have recovered this inventory from homeowners associations and owners, there will be a steady flow of it on an ongoing basis but there has been this sort of buildup of opportunity that we are just tapping into as we speak.

Okay, got you. Thank you very much.

You are welcome, Chris.

Patrick Scholes, SunTrust.

A couple of questions here for you. When you had given your guidance back in February for EBITDA, at that time had you contemplated the $13 million percentage of completion add back as well as the $4 million VAT reversal at that time?

Yes and no. Yes on the add back of deferred revenue; no, on the VAT reversal.

Okay. Secondly, on the earnings results for the Lodging segment, you had listed incremental global conference fees. I wonder if you could just explain a bit more what that is. I wouldn't naturally think that Super 8s or Knightsbridge Hotels are holding a lot of conferences so if you could give color on that.

Actually, Patrick, that is our global conference that we hold every 18 months for all of our franchisees. It is one that I have commented on that we had about 6000 people at the conference. They pay a fee to attend the conference and we pay the cost of putting on the conference. So in essence, it is a pass-through but it does bump up the revenue and also bumps up the expenses in the quarter that it happens. As I said, we do this once every 18 months.

But it is a breakeven, Patrick, so we are not making any money on those.

So nothing to do with property level conferences?

No.

No.

Lastly, a question on your latest thoughts on making a large lodging acquisition, is it still something that you are actively pursuing?

I'm going to sound a little bit like a broken record, Patrick. We will look at everything that is out there, everything that makes sense. We will only do things that obviously are good for the Company and we do not forecast, project or schedule acquisitions because you really can't forecast opportunity. You have to be prepared for it and when it presents itself, we are ready to move.

We are thrilled with the Dolce acquisition we did earlier this year. The integration has gone extremely smoothly. It is a great business and it will continue to add great value. We already have quite a few of the Dolce folks here integrated into our offices in Parsippany and we are thrilled to have it part of the team.

Okay, thank you. That is it.

Thanks.

Harry Curtis, Nomura.

Good morning, everyone. I just wanted to follow up on the Lodging side. Your system growth in the first quarter was 3.2%. What have you built into expectations for this year and next year based on what you have in the pipeline?

Our growth that we forecast for room growth is 3% to 5% -- I wasn't sure if we had 2% to 4% or 3% to 5%. The reason I was confused was this is a confusing year. It is normally 2% to 4% and this year we said 3% to 5% because we were adding the Dolce rooms in as well so that obviously increases our growth rate. So we are comfortable with that 2% to 4% as a long-term growth prospect. And the pipeline, Harry, I wouldn't focus too much on for us frankly because we are not a lot of new construction property, we do have some new construction. But we have properties that we sign the franchise agreement and open them the same month so you don't even ever see it on a pipeline. Because we are largely a conversion company, pipeline has a little bit less impact and a little bit less of a predictor, probably more of a predictor on international frankly than on the US.

So, but that is a net number, the 3% to 5%?

Yes.

Okay. And then can you give us what your international RevPAR was in constant dollars?

Constant dollars, I thought it was a plus.

It was around flat, I thought it was down 1%, Tom thinks it was up 1%. We will see if we have that here handy. We'll get the number for you. Again, remember that that is where we have the Chinese impact of adding more rooms internationally in China which has a lower RevPAR than the rest of the world.

Okay. What I was getting at is what was the RevPAR in China again in constant dollars?

RevPAR in China. I don't have it in front of me right now.

All right, we can get that off-line. My last question is more in line with Pat's, which is what the highest ROIC means of growing your Lodging business? You do have some brands that seem to be growing. Does it make sense to expand your development team? What in your view is the most efficient way of expanding your business?

Well, we feel very good about the team that we have in place. If there is one area that we probably could use some more strength, it is in the international market where we grow very nicely but we do not have as many people on the ground if you looked at the balance of our sales force or development group on the ground in markets like India versus what we have here in the US. It is not even a fair fight. I think over time what we will see is the international markets we will continue to add development people internationally.

In the US, we certainly could take advantage of constantly changing and reorganizing our development effort here in the US. We are also always refining it and making it a little better but we have a pretty efficient and very effective team here domestically and so I think probably to answer your question, I would say international more than domestic.

Okay. And then the last piece of this is are there brands that you really are trying to develop with new builds where you might be interested in providing either key money or mezzanine financing?

Well, we do provide key money on managed properties and we have for a long time. That is the competitive landscape. So yes for like Wyndhams which we are managing. On the new construction side, the two that are probably getting the most attention right now are Wingate by Wyndham and Microtel and we are only doing key money basically where we are getting management contracts and we don't look at doing mezzanine as a standard way of doing business. But we do have programs in place example with Wingate where we do provide a key money for new construction. And so the answer to the question is yes, but limited. It is not our standard operating procedure.

We are doing it with Wyndham of course as well, Harry, in certain international markets particularly in China, there is a bunch of new build Wyndham activity going on.

Okay.

Not where we are providing key money. (multiple speakers)

Okay, I understand. Appreciate it. That is it for me. Thanks.

Thank you, Mr. Curtis. At this time there are no further questions on queue. I would now like to hand the call back to the speakers.

Thank you all very much for joining the call and look forward to seeing the ads roll out on May 11 for our new Wyndham Rewards program. Take care.

That ends today's conference call. Thank you all for joining. You may now disconnect.