Travel + Leisure Co. (TNL) Q1 2022 Earnings Report, Transcript and Summary

Good morning, and welcome to the First Quarter 2022 Earnings Conference Call for Travel + Leisure Co. [Operator Instructions]. As a reminder, ladies and gentlemen, this conference call is being recorded. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Chris Agnew. Please go ahead.

Thank you, Leo. Good morning. Before we begin, we'd like to remind you that our 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 that 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 you can find a reconciliation of the non-GAAP financial measures discussed in today's call in our earnings press release available at our website at investor.travelandleisureco.com. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our first quarter results; and Mike Hug, our Chief Financial Officer, will then provide greater detail on the quarter, our balance sheet and liquidity position. Following these remarks, we will look forward to responding to your questions. And with that, I'm pleased to turn the call over to Michael Brown.

Thank you, Chris. Good morning, and welcome to our First Quarter Earnings Call. This morning, we are pleased to report adjusted EBITDA of $170 million and adjusted EPS of $0.69. Leisure travel is in the midst of a sharp recovery that began in February. The strength of the recovery continued through March and has not slowed in the month of April. Anecdotally, here in Central Florida, the strength of leisure travel demand is readily evident when you observe the airport, hotels, theme parks and, of course, our resorts. This strong demand is also apparent in our results, most notably in our Vacation Ownership segment, driven by an elevated volume per guest in the first quarter of $3,377, an all-time high for the company and 40% above 2019. The record VPGs not only have continued through April but have strengthened further beyond first quarter levels. We expect this to moderate in the summer months as new owner tour mix increases. I'd like to discuss our performance in the context of the leisure travel recovery and the current inflationary environment. Let me say upfront, we see rising inflation as a net positive for our business model. Rising hotel and vacation home rental rates create an even more compelling value proposition for our customers. That value has resulted in an increase in sales close rates of over 300 basis points in Q1 compared to 2019 levels. Our owners see great value in timeshare. For example, a 7-night stay this July in 2 hotel rooms in close proximity to Disney currently cost approximately $6,000, including fees. Contrast that with our flagship Club Wyndham Bonnet Creek Resort in Orlando, where our owners pay a $1,600 annual maintenance fee to stay during high season in a spacious 2-bedroom condominium with living room and kitchen, not to mention all of Bonnet Creek's resort amenities. The value proposition is clear, and it is one of the reasons volume per guest at Bonnet Creek is 53% higher compared to the first quarter of 2019. As a reminder, 80% of our owner base have fully paid off their ownership and are traveling for the sole cost of their maintenance fee. It is not just our existing owners that are realizing the value proposition. New owner VPGs are also strong. In the first quarter, new owner VPG was 47% higher than Q1 of 2019. New owner transaction mix increased just over 200 basis points year-over-year to 29%, with Blue Thread up to 15% of new owner volume from 13% in 2021 and 7% in 2019. Blue Thread VPGs typically run 20% higher than other new owner VPGs as a result of higher close rates on leads coming from our affinity partner, Wyndham Hotels and Resorts. With regards to demographics, in Q1, nearly 40% of new owner sales were to Gen Xers and 30% of new owner sales were to millennials. On the cost side, we do not have exposure to increasing construction costs for the next several years because our inventory costs are locked on our balance sheet. We do recognize labor costs are rising, but those expenses are primarily borne by the homeowners' associations at our resorts or are a small fraction of our cost exposure. In the end, our owners are eager to travel and inflation reinforces the decision they previously made to own with us. That demand is reflected in our expected occupancy for the remainder of 2022, which is currently tracking above 2019 levels. Turning now to Travel and Membership. Revenue per transaction increased 12% year-over-year in the first quarter and transactions increased 6%. We recognized coming into the year that RCI's growth would be challenged due to lower enrollments as new owner sales continue to recover industry-wide. Our strategic decisions over the last several years to supplement the growth in the exchange business with the launch of new business lines has resulted in Travel and Membership not only offsetting enrollment headwinds but generating 15% revenue growth and 12% year-over-year adjusted EBITDA growth in the first quarter. Key to the success of the quarter was the strong contribution from our Travel Clubs, which saw a 21% year-over-year increase in revenue per transaction and an 18% increase in transactions. A significant element of the growth at Travel and Membership was the activation of RCI members who are incrementally booking non-exchange transactions at a higher rate due to expanded offerings through our Travel Club platform. March RCI non-exchange travel bookings were the highest since the launch of these expanded offerings in 2020 and double the run rate at the end of last year. We expect the momentum from these expanded benefits to continue, driving increased RCI member engagement and creating incremental revenue as members supplement their regular timeshare stays with additional travel bookings. Turning to our outlook. We expect second quarter adjusted EBITDA of $220 million to $230 million, and for the full year, adjusted EBITDA of between $855 million to $875 million. Reservation nights on our books for Q2 are currently running 10% higher than 2019 for vacation ownership. The reason I mentioned nights is that we have seen a marked increase in length of stay, which is yet another positive data point on the strength of consumer demand. Through the end of this year, length of stay is averaging 8% higher than 2019. Consumers are seeing the value in our products, and we continue to be focused on the simple ABC strategy we laid out on our last call. First, we want to, A, accelerate the growth of our global business. This was apparent in our revenue growth at our Travel Clubs in the quarter. Second, we want to, B, broaden the strength of our cornerstone brands, and this was apparent in our record VPG and the strengthening of our portfolio performance. And lastly, we want to, C, create depth of our products and services. And this was apparent with the progress at our B2B Travel Clubs, where, in the first quarter, we activated 5 new clubs, and B2B Travel Clubs delivered 43% of total Travel and Membership transactions. For more detail on our performance, I would now like to hand the call over to Mike Hug.

Thanks, Michael, and good morning to everyone. As well as discussing our first quarter results, I will provide more color on our balance sheet, liquidity position and cash flow. My comments will be primarily focused on our adjusted results. We reported total company first quarter adjusted EBITDA of $170 million and adjusted diluted earnings per share of $0.69 compared to $129 million of adjusted EBITDA and $0.39 of adjusted diluted EPS 1 year ago. The effective tax rate of 31% this quarter negatively impacted EPS. However, we expect our effective tax rate to be between 27% and 28% for the full year. Turning to the performance in our 2 business segments in the first quarter. Vacation Ownership reported segment revenue of $604 million and adjusted EBITDA of $103 million, increases of 35% and 56%, respectively, over the first quarter of 2021. We delivered 108,000 tours and a VPG of $3,377 in the first quarter, representing increases of 42% and 19%, respectively, over the prior year first quarter. The first quarter provision for loan loss was 14% due to continued strong portfolio performance and high-quality originations during the quarter as a result of our continued discipline in our marketing operations. Revenue in our Travel and Membership segment was $210 million in the quarter, up 15% compared to $183 million in the prior year first quarter and above the $195 million in the first quarter of 2019, adjusted for the sale of the North American rental business. As Michael noted, the increase in revenue was driven by increases in both transactions and revenue per transaction resulting in adjusted EBITDA of $84 million, an increase of 12% over the prior year. The first quarter benefited from strength in the U.S. for RCI as well as growth in our Travel Clubs. In addition to strong operating results, we are also very pleased with our balance sheet and capital allocation. Our inventory position is strong, with 5 years of inventory on our balance sheet, including our new resort at Centennial Park in Downtown Atlanta. We anticipate this level of inventory will allow us to drive cumulative cash savings from reduced inventory spending of approximately $400 million through 2025. During the quarter, we closed out a $275 million transaction with an advance rate of 98% and a weighted average interest rate of 3.84%. 2022 demonstrates the strength of our business model. Even during a time of market volatility in the securitization market and continued rate variability, we are pleased with the terms of this transaction. Appreciating that we are in a -- it's important to remind everyone that 89% of our debt as of March 31 was fixed rate. We expect every 50 basis point increase in interest rates annualize impact to earnings. But the adjusted EBITDA impact is expected to be minimal due to this timing, which are expected to close in the third and fourth quarters. And a one that rates are rising because of inflation, and as our results demonstrate, we expect inflation to help VPGs and provide some protection against higher interest costs. For example, an incremental $15 in VPG more than offset a $4 million interest headwind associated with increasing rates. In regards to capital allocation, we paid our recently increased dividend of $0.40 per share on March 31. And we'll recommend to our Board of Directors continuing our dividend at $0.40 per share in the second quarter. Share repurchase activity in the first quarter common stock. Our confidence in the resiliency of our business and continue increasing our share repurchases. We had $283 million of unused capacity end of March, and our Board of Directors recently approved a $500 million increase. Our net corporate leverage ratio for covenant purposes continues to decline and was at 3.8x at the end of the quarter, deleveraged through adjusted EBITDA growth in 2022. These healthy returns of capital to shareholders are driven by our strong free cash flow generation and free cash flow conversion from adjusted EBITDA to be back to our historic range of 55% to 60%. Over time, we expect to see this range move up to 58% to 63% of adjusted EBITDA, as we laid out at our Investor Day last fall. During the first quarter, we recognized $7 million of charges related to restructuring initiatives, primarily focused on enhancing organizational efficiency. The majority of the initiative and related expenses were incurred in the first quarter of 2022, with the remaining charges to be recognized in the second quarter. Having summarized our strong first quarter, let me provide some more detail about our expectations for the second quarter and full year. In the second quarter, we expect gross VOI sales to be in the range of $500 million to $520 million over the prior year second quarter, with VPG expected to be around $3,300. The provision for loan loss is expected to be below 17% in the second quarter. At Travel growth close to flat in the second quarter. Remember that in the prior year, COVID shifted demand into the second quarter from the first quarter, which results in a tough comparable. As Michael mentioned, for the full year, we're expecting adjusted EBITDA $875 million are expected to be between $1.9 billion and $2 billion, with VPG around $3,200. As we lean into new owner sales over the peak summer travel period, we expect our strong VPGs to be increasing mix -- impacted, bringing the blended VPG down for the remaining quarters of the year. Similarly, because of anticipated higher new owner mix as well as the increase in the percentage of sales financed, we expect the provision for loan loss to be below 18% in the second half of the year. This increase in the provision but rather a focus by us to return to a growing portfolio through a higher percent of sales financed and new owner tours. With respect to net corporate interest expense in the $195 million for the full year. So to wrap up, we continue to be pleased with the strength of the leisure travel market and our ability to capitalize on the opportunities that are presented to us. Both our current and new owners as well as our RCI members continue to appreciate the value of vacations, and our results for the quarter prove the value they see in vacationing as a timeshare owner. With that, Leo, can you please open up the call to take questions?

[Operator Instructions]. We'll take a question from Joe Greff of JPMorgan.

Just given the higher broadly interest rate environment. Can you talk about how you're thinking about potentially raising on timeshare financing? Or are you doing that? Or do you anticipate doing that? And how are you thinking about that?

Joe, this is Mike Hug. Thanks for the question. When we think about -- as you all know, we've been steadily increasing those over time. And obviously, again, that benefit compared to low rates that we were charged on our ABS transactions. But we've talked about the value our consumers see in the product and how, during an inflationary period, the value comes through loud and clear. So I wouldn't see that we expect a large increase in the rate that we charge to the consumer, in our mind, keeping the product affordable, especially when you look at that monthly payment, is the key to the lift in the close rates and the VPG that we're seeing. So we do have some pressures or might have some pressures on the interest spread that I mentioned, but once again, a $15 lift in VPG more than covers that $4 million associated with higher interest on a 50 basis point increase. So thus, the acquisition of the customer and continued upgrades in interest income, RCI transaction membership fees are probably more important than trying to get a little more interest on that monthly payment in the short term.

Great. And my follow-up question is on capital. You still have a decent amount of remaining authorization at the end of March and, obviously, the Board upped it fairly significantly. Is it fair in interpreting those 2 things in isolation and acknowledging where your EBITDA guidance is and sort of the natural reduction in leverage and a leverage ratio that buybacks meaningfully accelerate from here? Or is there anything that would impede a meaningful acceleration in buybacks in the rest of this year in relation to what you've done in the first quarter?

Yes. When we look at our free cash flow generation in that 55% to 60% of EBITDA, after we pay our dividends and we do have a payment on leisure, we have $250 million to $280 million in capital that we can year, absent using that for other things that would provide better returns. So if you back off the $45 million we spent in the first quarter for share repurchases and free cash flow is available, increasing our leverage.

Our next.

Michael, you indicated some of these metrics, but one of the subjects that we find ourselves discussing a fair amount is of Vacation Ownership versus -- can you just go a little bit deeper, please, into the levers that you can or -- and are pulling to, one, just engage people in that value proposition; and two, capitalize on it as best you can? And I heard the 1 metric about close rates being up 300 basis points, but I'd just love a little more color there, please.

Absolutely. And one of the great things about the hotel model is you get to reset your rates every night given current demand. And every time the hotel in industry raises their rates, which they continue to do, it creates more and more value to our consumer. The example here in Orlando, we did that math in a number of different properties. And it's always the same, is that the clear benefit, and you hear it both anecdotally and just mathematically, is it's tough to find hotel rooms in Florida. And if you find them, they're extremely expensive. And for the vast majority of our owners, 80% to be exact, who've already paid for their ownership, the value is not only apparent. It's just incredible, the value that people are getting on vacation. So when we look at how people are traveling in the midst of the pandemic, David, the drive to market was -- rose to 92%. For our consumers, that's already gone back to historical norms of 72%, 73%. Our close rates are moving up, both on the owners and our new owner side. And we see, as Mike referred to, on the APR, both pricing and APRs, we want to keep relatively stable, maybe 2% to 3% increases on the price, because the lifetime value is really what's most important. Because the owners that we have now that are enjoying this incredible value in their ownership, we want them to see that for 10 to 20 years in sales payables. And we're hearing that when people are deciding to go on vacation this year is, "Why wouldn't I? My vacation's fully paid for." And so it's apparent anecdotally and economically.

Appreciate it. And for my follow-up, and I think you may have headed in this direction with the prior answer, the prior caller's answer. But when will what you're securitizing and your APR, have you given us any market interest rates move 100 base by x or y? Specificity there would also be helpful.

Yes. So a 50 basis point move results in about $4 million EBITDA impact. So not really that significant and, in truth, are lessening after that because, obviously, the issuance that we have will be close in the third and fourth quarter. A $15 VPG lift more than covers it you've seen those VPGs come through very strongly, driven by the close rates that we've talked about. So obviously, we monitor it as far as the interest rate, and we'll do what we can to control those costs. Keep in mind, once again, ignoring the ABS, if you can just look at the corporate debt, 89% of our debt is fixed rate. So something we look at closely, but more importantly, we love the quality that we're seeing. And those VPGs provide us some protection against that.

We'll take our next question from Patrick Scholes of Truist Securities.

My questions pertain to the B2B and B2C Travel Clubs. Last fall, at your Investor Day, you laid out some expectations, specifically long-term revenue growth of 27% to 30% and adjusted EBITDA growth of 13% to 17% annually from 2021 to 2025. How are you tracking today versus those expectations? Do you think you're in line?

I'm increasingly confident with both of the new business lines, B2B and B2C, that we launched last September both the underlying business model and the economic projections. And the reason I say that, Patrick, is that, as we've been evolved from last September, especially on the key elements that, in the end, to be more specific, it's the business pipeline of deals that we need to do. That pipeline not only has continued to convert to actual contracts, but as we indicated in the first quarter, we've activated 5 of those clubs for the start of usage. Then once you move from there, the conversion of those clubs to subscriptions and transactions, we're beginning to see more and more proof points that, that is happening and starting to move to the percentages and amounts that we laid out on Investor Day. So I would say, in line, yes, maybe even a bit ahead as it relates to the B2B I'm confident and pleased with the progress that, that team and group is doing. As it relates to the B2C. As I shared on the last call, that launch in operation is about 9 months behind the launch of the B2B side just due to the calendar and when we launch things. We have learned a lot in the first 6 months and are starting to see traction gain as it relates to the member acquisition. So again, I would say, I feel confident that we're in line, if not maybe a touch better, as to our direction. But I would say, as you look into the remainder of 2022, we'll probably start to show economic proof points on the B2B side. And then the B2C side will come after that as far as anything material on the economic side.

Okay. And just a follow-up question. I saw there was some change in the executive leadership on that segment of the business fairly recently. Can you just go into the rationale behind that?

Absolutely. Any time you launch new businesses, you not only have to be confident in the businesses that we're launching, which is what we just shared, that we're really confident in both of those 2 new businesses. We also have to be open to the learnings of how to best execute those 2 businesses. And the reality is, is when we launch the B2B and the B2C side, I kept them segregated. And the realization was that there were a lot of duplicative efforts, a lot of duplicative work on both business development and marketing and technology platforms that we had the opportunity to combine and create a more efficient and what we believe is a more effective way to execute these strategies. And therefore, we were open to that learning and made the change and feel that we're really well positioned to take what are going to be 2 great businesses and execute them as efficiently as possible.

We'll take our next question from Ian Zaffino of Oppenheimer.

Good quarter here. Thanks for all the guidance and color. I just wanted to dig a little bit deeper into the Travel and Membership segment. Revenues per transaction were up substantially. Can you maybe give us a little about what drove that? Is this additional product? Is it just the consumer feeling better. What is effectively driving that? And maybe give us an example, if you could.

Two things driving that. First of all, as we laid out at Investor Day, we've made basically the Panorama Travel Solutions Club available to our RCI members, and we're seeing them booking additional transactions beyond just their timeshare exchange, and that's been one of the big drivers of the lift. And then as we expected, as we roll out the Panorama Travel Solutions product to more associations, more of our affiliates, we start to see the lift. So you start to see the National Association Realtors transact. We enrolled the NFL Alumni Association. So I would say it's just a natural progression of our plan that, as we roll out the product to more consumers, to more affiliates, we're going to see that lift in transactions. And that's what we expect to happen through the remainder of the year is continue the growth out of the Travel Clubs. We love the EBITDA it brings. Keep in mind that it will present some margin pressures because we don't run the same margins on a Travel Club transaction as we do on an RCI change transaction. But it's one of the key drivers to our future EBITDA growth, and we couldn't be happier with the way those businesses are performing. And I appreciate you recognizing the lift in transactions because we were very pleased with that.

Good. And then also as a follow-up property and land acquisition side. And I know you guys are relatively good on inventory, but what are you seeing as far as availability, pricing? And how are you sort of approaching it in this environment?

Yes. I think, as you mentioned, we're very strong as far as the inventory we have on our balance sheet, which is great for our cash flows when we look out over the next several years in our reduced inventory spending. And we had very little pricing pressure because, obviously, the inventory on our balance sheet we've already purchased. And the majority of the inventory that we'll be acquiring is -- the acquisition costs are already fixed and have been agreed to. There's definitely deals out there. But for us, we don't have any need to go and buy a bunch of inventory. We're happy with what we have on the balance sheet, and that's why we're confident in that free cash flow conversion moving up in the future because of our ability to sell what we have on the balance sheet. And then obviously, as the EBITDA and the Travel Clubs grows, that's a better free cash flow conversion due to the capital-light nature of that business. So there's opportunities out there, but we like the fact that our costs are locked in on the balance sheet or through fixed price contracts that we'll deliver over the next couple of years.

We'll take our next question from Stephen Grambling of Goldman Sachs.

I would like to just peel back the onion a bit more on the close rates, which, I think, you said were up for both new and existing owners. Are you seeing any change in close rate across demographics? And I guess, what I'm really trying to get at is, are you seeing maybe a new cohort of people coming in and converting? And to David's question, does this make you rethink kind of market to this new customer cohort as you rebuild tours?

Demographically, Stephen, really, the change that we made is the strategic change we made to elevate the minimum FICO score for our tours. What we're seeing is we thought that the 2 major components that we thought we would see would be a lift in VPG due to mix and a lift of VPG due to the increased marketing FICOs. What we've since learned is that I think the inflationary environment is even adding additional fuel to our ability to perform at the sales table. As I mentioned is above our and that's coming through higher close rates as opposed to higher average transactions. So that makes me feel really confident that you put better tours in front of a really quality sales team and where value is readily apparent. And this is the result you're going to get, which gives us an opportunity as we head into the summer to not only invest in new owners, but also to drive margins. I would say, demographically, and it's important to note that 70% of the new owners that are buying are either Gen Xers or millennials. And I think that continues to speak to that the demographic continues to get a little bit younger in our mix and is refueling for that beautiful life cycle of ownership and upgrade that this business model.

Maybe as a follow up. One of the big pushbacks, I guess, we typically hear on the VOI is owner growth being kind of consistently down. Given this focus on new and just the trends you're seeing, could we actually see net owner growth or just the total number of owners flat line? And is there any way to parse out what you're seeing from attrition versus kind of the gross adds?

Yes. So keep in mind that the last 2 years, there's been sort of 2 shocks to the system. Number one is COVID. And with COVID came higher defaults. So our member count has definitely decreased not flatlined. We're very committed to growing our new owner mix, we expect to be over 30% for the remainder of this year and continue to grow that as we move into 2023 to get back above the 35% and start working toward 40%. That's very important because I think the work we've done over the last 4 to 5 years has really strengthened our owner base. You can see that in our portfolio performance. And as you move forward, we would like to see our member count begin to grow again, and we fully expect.

We'll take our next question of Credit Suisse.

Just a quick clarification. I think you were saying the Travel and Membership outperformance that was RCI members essentially booking the, basically, non-exchange transactions. Can you give us an example of this? Is this like RCI members signing up to use the new T+L membership club, for example?

Ben, this is Mike Hug. Thanks for the question. So 2 things. When we look at the first quarter, RCI transactions to the Travel Clubs, but also the last year, Omicron pushed exchange business from the first quarter to the second quarter, which is why we have a tough second quarter comp this year. But we saw those exchanges getting booked in the first quarter of this year, which we were very pleased to see. And obviously, that helps the margins as well in Q1. As it relates to the continued growth of the non-exchange transactions, for the majority of our RCI members, they do have the ability to access those 600,000 hotels through the Panoramic Travel Solutions system. And as we continue to roll that out and as they continue to see the value in that, we do see growth in transactions in that. So that's great from a transaction standpoint, but also it's great in terms of RCI member retention because it just brings additional value to their membership with RCI. So once again, goes back to the value of the Travel Clubs, why we expect that to grow. And the first quarter was great for RCI, both on the exchange side and for the non-exchange transactions booked by their members.

Got it. That's helpful. And then on the VOI side of the business, obviously, VPGs were great. The provision was lower than historical. Is there -- was there any moving parts on the cost side that we should think about that were impacting the margins in 1Q? Is it just seasonality? Just anything you'd call out there on that VOI EBITDA margin?

Yes. As we've talked about, kind of the -- into the first quarter, the March time frame, it's when we had to start making decisions on marketing, resources and levels of headcount through the busy summer season. And as Michael mentioned, we do hope to get that new owner transaction mix up over 30% through the remainder of the year. So we did we go in and make some decisions to go ahead and start hiring marketing and sales personnel so that we're ready for that busy summer season. The first quarter is our lowest volume quarter from a VOI sales standpoint. So that did put some pressures on margins. But we think it was the right business decision because it allows us to take advantage of the strong leisure travel market and continue to get new owners into the system.

And Benjamin, let me just level-set for everyone on the call because I think we uniquely -- with the size of our portfolio pre-COVID and where we are today, the portfolio is down just over -- from $4 billion to just under $3 billion. If you equalize that portfolio obviously comes with really high margins on the net interest income. Our margin is actually up this point in Q1 and despite that Omicron headwind in January. And to Mike's point that we began to invest in that new owner channel for the summertime. So we rate for that I'd expect that outperformance versus 2019 to continue for into the second quarter, the latter half of the year.

Very helpful. Appreciate it. Is there any way to quantify that? Is it a similar drag in 2Q as well? Or is there something changed seasonally?

No. We would expect to see our margins go up in Q2. Once again, we made the investment in Q1, which was the right long-term business decision. So as we get into Q2, those sales and marketing people should generate more tours and more sales, which allows us to leverage those costs.

And historically, the cadence is to move up in your margins as you move into the Q2 and Q3. And we absolutely expect it to get in the mid-20s as we hit Q2.

[Operator Instructions]. We'll take our next question from Chris Woronka of Deutsche Bank.

First question was, I was hoping maybe we could talk a little bit about your thoughts on the longer-term margin potential of the VOI segments. So beyond this year, because it sounds like you're getting your close rates are going up. You can charge more for your rentals and things like that. [Indiscernible] and so just trying to think about it. And it sounds like also on inventory, while unit level costs might be going up, you're pretty well set for the next several years. So really, just thinking about how those margins could track 2, 3, 5 years from where they are today.

So Chris, let me answer your question and then let me broaden it just a little bit on total margins. You've taken all the right puzzle pieces and concluded correctly. And one of the strategic decisions we made on changing our marketing approach was to become more efficient on the vacation ownership side and drive margins. As mentioned, we're very pleased with the portfolio performance, and we see that performing as well as it has in quite some time. So we would expect, as time moves on, to continue to move the vacation ownership margins up, enjoy a very visible and predictable cost of sales that will be coming off our balance sheet. And as we get through commitments in the next 12 months that we've already made, we'll start to see those lower cost of products come back again and improve our margins. As it relates to the Travel and Membership segment, obviously, with the nature of that business, that does come with lower margin business. But on a total, you should see the 2 of those begin to offset one another. But the important element in all of this is the net outcome we're looking for is to increase our growth rates from mid-single digits to high single digits, and therefore, be able to return an equivalent amount of cash growth to our shareholders. So that's the individual pieces that link up to ultimately driving more EBITDA and more cash flow to shareholders.

Okay. Very helpful. And then a follow up was, at the sales centers, your -- some of your top-rated salesman, they can deliver kind of top-heavy outperformance. And I'm just curious as to whether you are seeing any increased turnover among your better performers, or conversely, whether you're seeing a lot of interest in new folks coming in?

Well, some of it was, I think, very, very intentional. And the -- some of it was just the macro environment of labor shortage. But the reality of what's happening at the sales centers today is, as we are steadily increasing our tour flow, our top reps and our highest-performing representatives are seeing more and more clients, and therefore, enjoying the benefits of these higher close rates. And that's great. And part of our strategy, Chris, is we did not want to rush back into a difficult labor market in a mass hiring approach. And fortunately, it's paid off. And we've steadily moved into what's going to be a very, very busy summer. But this business is all about the people but we think they are the best people in the business, and they're proving that they're top performers. And we don't want to overload that system that's really working effectively at the moment with just bringing in a ton of people. It's a difficult labor market to do it, and you spend a lot of time and energy training and you invariably increase your turnover. So it's more about investing in the people we have and letting them enjoy the great performance they're generating for the company and for themselves.

Thank you. That concludes Travel + Leisure's first quarter Q&A. I would now like to turn the call back over to Michael Brown for closing remarks.

Thanks, Leo. We continue our strong momentum into 2022, and we remain focused on our clear strategy to deliver for our stakeholders as we accelerate our growth in creating products and services by broadening the strength of our core business that put the world on vacation. Once again, I would like to thank our thousands of hard-working associates who deliver great vacations for our owners, members and guests each and every day. We will be on the road a lot over the next 8 weeks, and we hope to see you in person. Thanks again for your time today, and have a great day.

Thank you. That concludes our question-and-answer period as well as our conference. You may now disconnect your line at this time, and have a wonderful day.