Hello. And welcome to the Travel + Leisure First Quarter 2023 Earnings Call and Webcast. [Operator Instructions] A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It’s now my pleasure to turn over to your host, Chris Agnew, Head of Investor Relations. Please go ahead, Chris..

Thank you, Kevin, and good morning. Before we begin, we would 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 made today are effect of -- effective only as of today.

We undertake no obligation to publicly update or revise these statements. The factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release accompanying this call.

And you can find a reconciliation of non-GAAP financial measures discussed in today’s call in the earnings press release available on our website at travelandleisureco.com/investors.

This morning, Michael Brown, our President and Chief Executive Officer will provide an overview of our first quarter results and full year outlook; and Mike Hug, our Chief Financial Officer, will then provide greater detail on the quarter, our balance sheet and liquidity position.

Following our prepared remarks, we look forward to responding to your questions. With that, I am pleased to turn the call over to Michael Brown..

Thank you, Chris. Good morning and thank you for joining us today. This morning we reported strong first quarter results, exceeding the expectations we laid out at the end of February. With Leisure travel showing continued strength, our teams were able to translate that demand into significant adjusted EBITDA and EPS growth.

We reported adjusted EBITDA of $184 million, an 8% increase over the prior year and adjusted earnings per share of $0.89, a 29% improvement over Q1 2022. EPS growth is reflective of continued EBITDA growth and the impact of share repurchases over the last 12 months.

Our confidence in 2023 free cash flow allowed us to repurchase 3% of our shares outstanding in the first quarter alone.

Our Vacation Ownership business is performing incredibly well, among the key metrics we use to track the business and measure consumer sentiment are forward bookings, sales volume per guest, or VPG and the performance of our consumer finance portfolio. These three metrics give us a perspective, current and retrospective look at consumer trends.

Each of these metrics has shown no discernible change from the positive trends we saw in 2022. Consumer demand and operational performance continued in Q1 and into April. Forward bookings of our owners are pacing above 2019 levels in the second quarter, providing us good visibility as we head into the summer.

We are seeing strong demand in the major destination markets of Orlando, Las Vegas and Hawaii. Length of stay, which increased post COVID, remains 6% above 2019. VPGs have been strong following the pandemic as a result of leisure travel demand and our decision to raise our marketing standards. The first quarter was no exception.

VPG of $3,215 exceeded our expectations even as our incremental new owner channels started to ramp. Tours increased 24% over the prior year, and sales close rates remain well above historical levels. This is a reflection of the strong and still improving value proposition of our product relative to increasing prices and other travel accommodations.

Our receivables portfolio is performing well and delinquencies are trending below 2018 levels. The strategic move we made in 2021 to raise credit standards has positioned us well for the current inflationary environment. At the end of the first quarter, less than 11% of our portfolio had a FICO below 640.

The portfolio is growing again and at over $2.9 billion is 6% higher than one year ago. The prepaid nature of timeshare ownership is a key differentiator in predicting future leisure travel, 80% of our owners have fully paid for their timeshare, and therefore, the choice to vacation is less dependent on economic conditions.

This is important as we face macroeconomic uncertainty, and is one of the main reasons we expect our business will be more resilient if we enter a more challenging economic environment. This resiliency in demand amongst timeshare owners has been proven time and time again, most recently coming out of COVID.

As such, we have great visibility and confidence in the coming months to generate tour flow. Looking forward, we have $19 billion of embedded revenue potential over the next 10 years, associated with our existing owner base alone, giving us a pipeline of anticipated recurring revenues in a resilient and predictable business model.

Turning to Travel and Membership, this segment came in below our expectations, with exchange being the primary cost. Exchange accounts for 93% of Travel and Membership adjusted EBITDA. Trading activity leveled off later in the quarter after a strong January.

Booking pace in late February and March will closely resemble 2019 booking trends as opposed to the strong recovery we saw in 2022. Exchange revenue per transaction was up 6% year-over-year, but offset by a 4% decrease in transactions due to lower membership.

At our Travel Club, transactions increased 1%, with revenue per transaction down 5%, mostly due to mix. The transactions in the quarter include the impact of a customer loss late in the quarter, which will also impact transactions in Q2. We are now anticipating a year-over-year decrease in Travel Club transactions in Q2.

However, we have a comparable new customer signed that will begin transacting in the second half of the year. Turning to our 2023 outlook.

For the full year, we are raising our adjusted EBITDA guidance range to $925 million to $945 million and reiterating our expectation for gross VOI sales to be within a range of $2.1 billion to $2.2 billion and a VPG range of $3,050 to $3,150.

Our business model has a base of steady and predictable revenue and we reaffirm our guidance of 55% to 60% of our adjusted EBITDA conversion to adjusted free cash flow in 2023. We expect to allocate that capital to pay our dividend, repurchase common stock, reinvest back into our business and/or for compelling M&A opportunities that may arise.

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

Mike?.

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. We reported first quarter adjusted EBITDA of $184 million and adjusted diluted earnings per share of $0.89, increases of 8% and 29%, respectively, over the prior year.

As Michael previously mentioned, the healthy acceleration in adjusted EPS growth is benefiting from our continued share repurchase activity. Looking at the performance of our two business segments in the first quarter.

Vacation Ownership reported segment revenue of $685 million and adjusted EBITDA of $131 million, increases of 12% and 25%, respectively, over the first quarter of 2022. We delivered 135,000 tours in the first quarter, 24% growth over the prior year and VPG was $3,215, above the top end of our expectation.

Revenue in our Travel and Membership segment was $200 million in the quarter, flat compared to the prior year. Adjusted EBITDA was $71 million, compared to $82 million in the first quarter of 2022, due to higher cost of sales driven by transaction mix, higher marketing costs to support Travel Clubs and unfavorable foreign currency impact.

Turning to our balance sheet. Our financial position remains strong, and in the first quarter, we continued to return capital to shareholders through share repurchases and our regular quarterly dividend, which we increased to $0.45 per share and paid on March 31st.

We continue to drive shareholder value through the repurchase of $102 million of common stock in the quarter, reducing outstanding shares by 2.5 million or 3.2% of shares outstanding at the beginning of the quarter. In early April, we closed a $250 million ABS term transaction with a weighted average coupon of 6.3% and an advance rate of 91%.

The transaction was heavily oversubscribed, underlying the strength and resiliency of our ABS program and the market’s confidence in our business model.

Adjusted free cash flow was a use of cash of $8 million in the quarter, compared to a source of cash of $146 million in the same period of 2022, due to timing of inventory spend in our first ABS transaction, as well as higher year-over-year originations in our loan portfolio.

We continue to expect to be within our targeted 55% to 60% adjusted free cash flow conversion range in 2023 and to remain below our historical levels of inventory spending for our Vacation Ownership business for several years to come. 2023 is no different with expected inventory spend between $90 million and $100 million.

Our corporate net leverage ratio for covenant purposes was 3.7 times at the end of the first quarter. As a reminder, at the end of the second quarter, we expect our leverage ratio to increase slightly due to the timing of cash flows before starting to decline again and ending the year below 3.5 times.

Now let me provide some more detail about our expectations for the second quarter and the full year. Overall, we expect adjusted EBITDA for the second quarter to be in the range of $230 million to $240 million. For the full year, we are raising our outlook to $925 million to $945 million.

Gross VOI sales for the second quarter are expected to be in the range of $550 million to $560 million, with VPG in the range of $3,050 to $3,150. With respect to our provision for loan loss, we expect it to be in the range of 18% to 19% for the full year.

In summary, the first quarter of 2023 was another great quarter for us as we continue to drive adjusted EBITDA and earnings per share growth and return capital to shareholders. With that, Kevin, can you please open up the call to take questions..

Certainly. [Operator Instructions] Our first question today is coming from Joe Greff from JPMorgan. Your line is now live..

Good morning, guys. Nice results..

Thanks. Good morning, Joe..

Michael, I was hoping if you can talk about sort of in Vacation Ownership is about maybe the monthly cadence within the quarter and what you are seeing so far in April in terms of close rates in VPG.

Did you see, I guess, the degradation of trends throughout the quarter, just given what’s been going on in the financial markets and just the macro in general? And then, my second -- my follow-up question, my second question is, with respect to Travel and Membership in the second half, obviously, it will be better than what you have talked about in sort of the ingredients for the first quarter and what you are expecting for the second quarter.

Last year, you did about $122 million in EBITDA in the second half in Travel and Membership, could -- do you expect that to grow and can you talk about what your expectations for growth there is and actually what the drivers are? Thank you..

Thanks, Joe. Yeah. It’s a great question about just sort of the cadence of the first quarter, because as we started January and February, really all the metrics were continued strength of what we saw in 2022 and as we move through March, those trends continued.

Post the SVP banking crisis, we did see some volatility and some weakening in some of the VPGs, and as a result of that, we were really watching the trends as we moved into April. The April trends really across the Board, whether it’s close rates or VPGs return to where they were at the beginning of Q1. So it feels like it was a temporary blip.

The cause of it, I don’t know if the timing was coincidental or not, but it really was the last two weeks of March. But again, April trends have returned back to where we saw them toward the end of 2022 and the first part of the quarter and we are really expecting those trends to continue as we head into the remainder of the second quarter.

As it relates to Travel and Membership, I will ask Mike to talk specifically about the numbers of the growth in the second half of the year. But just more generally, we do expect growth in the second half of the year as it relates to the exchange business, which again is about 92% of our total EBITDA in that segment.

Two things that we are really focused on.

Number one is, as new owners continue to come back into the timeshare space as we are predicting and forecasting a nice jump this year in our business, that will provide a nice tailwind to the second half of the year and into 2024 for the majority of the EBITDA and transactions related to the exchange business.

And as it relates to the Travel Club, had we not lost this client, which is creating a four-month timing issue between the new ones we are bringing on. We would have had about mid-single digits growth, about 5% growth in the first half of this year. So we will get some tailwind on that Travel Club transaction in the second half of the year.

And I will ask Mike to answer specifically about the second half growth..

Yeah. Thanks, Michael. And we do expect growth in the second half of the year. I would note that, historically, as you guys are aware, the first quarter is always the largest quarter for the exchange business.

So as we go through the year, the impact of Travel and Membership on our overall EBITDA continues to become a smaller portion of the overall EBITDA of the consolidated business due to the timing within the quarter -- within the year..

Got it. And then just one follow-up question on the one client that left the Travel Club in creating this form of timing issue.

Does that push out what you think the ramp would be next year by four months or is it really not that material?.

Well, it was a high volume transaction and they left due to the type of travel that they were looking for. Ours is more a combination based, they were looking for more air based platform.

So we think the replacement depending on the scale of the replacement one, which will start early in the second half of the year, might be able to offset that ramp, if not, the impact will be minimal. Again, these transactions are a relatively small part of our EBITDA, but it might slightly delay the ramp..

Thank you very much..

Thanks, Joe..

Thank you. Next question is coming from Chris Woronka from Deutsche Bank. Your line is now live..

Hey. Good morning, guys. So this is a little bit of a asking one of Joe’s questions a different way.

But are you seeing any kind of difference in performance by geographic region in terms of either tour flow or close rates and what I am getting at is, have you seen any weakening, say, in the West Coast relative to East Coast and really talking about where the customer originates? Thanks..

Well, we definitely saw some impact on our West Coast operations late in March, but not dissimilar from the macro commentary is, we have seen those performance metrics return in April.

So our belief at this stage as it was a short-term blip and the macro consumer strength that we are seeing, not only in our results, but in the airline results and fast food results and other hospitality companies as well today seems to be intact and with 26 days of run rate in the month of April, we are just not seeing that what happened at the end of March persist beyond that sort of two-week, two-and-a-half-week period..

Okay. Fair enough. And then as a follow-up, going back to the exchange question. Michael, does it -- it looks like that business is obviously never meant to be a fast high growing business, but obviously appears to have stagnated a little bit.

Is there anything strategically you want to do, whether that’s lean into more marketing or look at some kind of reorg of it or do you think this is just something where there’s some macro turbulence and you have to get through it?.

Well, the macro trend around exchange has been intact for a decade now, which is across the industry, the industry is consolidated and many of the affiliates have evolved in internal Travel Club, which is very natural. I mean that’s nothing new this quarter or last year or even pre-COVID.

That’s been going on for a decade, which has created a natural headwind against the entire exchange space. I think our team has done a great job of continuing to maintain market share, maintain revenue per transaction and it is an indirect beneficiary of the growth of new owner towards an owner.

So that part stays intact from where it was historically. And when we launched the Travel Clubs and it’s just a reminder, I think, for everyone is that this was an incremental business to help us grow it. Has it started slower than we expected? Yes. But we see positive trends.

Our new Travel Club transactions are up significantly and it’s going to take some time. But again, that is an effort to incrementally add some growth rate to a segment of our business and inside the industry that’s had headwinds for now over a decade. So I think we have a plan.

The level of growth is the part that we are seeing unfold and it started a little slower than we anticipated. And let me just -- Mike is just going to add one other thing here..

Yeah. I think, Chris, one thing we talk about spending marketing dollars and things like that, we noted it slightly in the release and in my comments about the transaction mix.

On the RCI side of the business, we are able to drive incremental exchanges through going out and procuring inventory and providing additional opportunities for our RCI members to exchange. The impact of that is obviously more transactions and more EBITDA, but it does have a cost of sales benefit because we are going out and running that inventory.

So that was part of the reason for the slight miss in the first quarter on the exchange side of the business and something we will continue to do throughout the year to give our owners and members more opportunities to transact..

Okay. Appreciate all the color. Thanks, guys..

Yeah. Thank you..

Thank you, Chris..

Thank you. Next question is coming from Patrick Scholes from Truist Securities. Your line is now live..

Hi, guys. Good morning, Michael and Mike..

Good morning..

Hi, Patrick..

Good morning. Good morning. Michael, you talked about April bouncing back from March. How would you describe how summer leisure travel is shaping up for you folks, specifically on a year-over-year basis at this point? Thank you..

Well, just to frame up Q1 and then now Q2 as it relates to the majority of our VOI business. So Q1 of last year, we did 28.5% new owner business, Q1 of this year we raised that by 260 basis points up to 31.1%.

So we -- first of all, we are investing and we are seeing results in our new owner business that’s not only coming holistically, but also our Blue Thread is performing extremely well.

I’d say that as a precursor because we have said we are going to invest and grow our new owner business in the second quarter and third quarter and given our success so far, given consumer sentiment in hospitality and beyond, we think we will continue to grow our new owner business as we head into this over time above even the 31.1% that we had in Q1.

Which leads to the second side of the business, which is our owner business is over two-thirds of our business is from our owners, and without the case, forward bookings is the greatest predictive measure that we have at this point.

And our arrivals are flat to last year and with length of stay about the same as well, we have really good visibility into the summer months on our ability to drive owner sales for the upcoming summer season.

So, holistically, we are positive about what’s to come this summer, and the April first 3 weeks give us an indication that what happened at the end of March was temporary and brief as opposed to something that was showing cracks.

I feel good about what’s happening in April and the owner arrivals that we have already on the books for the summer give us confidence for the next 120 days..

And Patrick….

Okay..

… just to make sure we clarify the March commentary that Mike made as far as the impact on performance was primarily at West, right? So I just didn’t want you to think that, that was across the entire business. That was primarily at West, which potentially was driven by the impact of the banking….

Yeah..

… environment out there..

Okay. Thank you for color on that. My follow-up question and I think I probably asked this in prior quarters, but going back to your fall of 2021 Investor Day, where you laid out some very strong growth rates. Is it fair to assume that you are still on track to hit those numbers that you laid out at your Investor Day? Thank you..

Yeah. I’d reiterate what I said on the last call, which is we remain on track with a different mix than we originally laid out. But that’s the real difference between the budget and forecast. So we -- the strength of our business is really showing through on the VOI, which is 70% of our EBITDA.

So that strength is continuing to propel us, and therefore, the mix is going to be different than what we originally laid out, but the end result, we expect to be….

Okay. Okay. Thank you very much..

Thanks, Patrick..

Thank you. Next question is coming from Ian Zaffino from Oppenheimer. Your line is now live..

Hi. Thank you very much. Great quarter..

Thanks, Ian..

On the exchange side, I know you talked about the loss. Walk us through the game of the customer win.

What happened there, how did you get it, what were they looking for versus the customer you lost? Any other kind of color you could give would be great?.

Absolutely. It’s pretty straightforward, just the travel type that the one we lost was looking for was more air based and our platform is more combination based, which is understandable. And it’s -- we still do transactions with that customer, but they are on a much smaller scale.

And the client that we brought in was basically a similar type of benefits provider and there they will begin transacting in the third quarter.

So it’s sort of a like-for-like change and these things happen and obviously would have preferred the timing to be in the other way where we had three months to four months of overlap, but it just worked out that we have got a four-month gap.

And to put it all in perspective, if we had a perfect transition to first half of the year, Club transactions would have been up mid-single digits. So probably wouldn’t have got a question on this call had it not been that timing gap, but these things happen..

And just another clarifying point, Ian, that was on the Travel Club side, not on the RCI exchange side. So just an important point there in terms of the impact on the business, isn’t there significant as it had been on the exchange side..

Okay. Thank you. And then also remind us how you are thinking about interest rates and the higher interest rate environment. I know a lot of this is sold through kind of a monthly payment process. But how are you kind of thinking about that vis-à-vis your margin and then also vis-à-vis what the consumer could bear? Thanks..

Yeah. Great question, Ian. Obviously, we have talked about the impact of rates. Keep in mind, 80% of our corporate debt is fixed and on the ABS side, it’s only the new transactions we put in place that are impacted by the higher rates.

As it relates to that, I would note that the transaction that we closed in April actually had an interest rate that was lower than the third transaction we did last year, so we are seeing improvement in rates. As it relates to the impact on the overall business, the way we view it is increasing interest rates are the result of inflation.

Inflation comes through lot of travel and leisure travel when you look at hotels and other leisure accommodations and we see that translate into higher VPGs that we are seeing.

So when you look at the overall business, we are giving some up on the net interest income, but we feel making that forward on the VPG side of business, where we have talked about those rates being at all-time highs.

Having said that, we do usually raise interest rates a little bit, maybe 25 bps to 50 bps a year, obviously, not enough to make for the overall rate increase.

But as far as, once again, the overall business, inflation actually provides us a great opportunity at the sales table to demonstrate the value of the product and get those new owners in that Mike talked about being over 31%, which drives future recurring revenues..

Okay. Thank you very much. It’s great color..

Thanks..

Thank you. [Operator Instructions] Our next question is coming from David Katz from Jefferies. Your line is now live..

Hi. Good morning, everyone. Thanks for taking my questions. Two for us. Number one, I am just noting the year-over-year growth in Wyndham sales and recalling the evolution of Wyndham sales that started back in the financial crisis.

I am wondering what visibility or what indications you may be seeing about that portion of the business having some growth or what the trend line there could be and then I have one other follow-up, please?.

Great. I will take that. This is Michael. On the Wyndham sales, we have a few arrangements today that give us obligations to deliver Wyndham sales. In fact, part of our Atlanta project is a Wyndham deal. As you look forward with our commentary that we have relatively low capital investment into project inventory, around $100 million going forward.

That’s because we are stacked up on our balance sheet of inventory that we own. So as you go forward, the Wyndham sales should be consistent to where they are today, if not declining, because our objective ultimately over the next three years is to spend less capital on projects and burn through our own balance sheet..

Perfect. And then I am not sure if you touched on this, but the -- I know there was some explanation in the release about cash from ops being negative in the quarter and just timing driven.

Could you maybe color that in just a little bit more largely in terms of what we are going to see 2Q onward?.

Sure. This is Mike and happy to do that, David. So in the quarter, a couple of things happened. Over a third of our inventory spend for the full year came in the first quarter, which was a higher amount than we had in the first quarter of last year. The portfolio originations are up significantly.

If you remember, in the second quarter last year, we started to ask for lower down payments at the sales table to drive portfolio growth, which we saw start to happen in the second half of last year. In Q1 of 2022, financing propensity was about 55% in Q1 of 2023. It was up over 63%. So more growth coming out of the portfolio on a year-over-year basis.

And then finally, because of the temporary disruption in the banking markets, we did push our ABS transaction by a week. Normally, we closed in March. It closed in April. Very great execution there.

And I would say just more confirmation of not only our belief and the resiliency of the business and the quality of the portfolio, but obviously the ABS investors.

As far as timing, we will be basically cash neutral in the second quarter and then significant cash flow in the second half of the year, because we would expect to do our second ABS transaction in Q3, our third ABS transaction in Q4. Overall for the year, we still expect to be in that 55% EBITDA to free cash flow conversion..

Perfect. Thank you very much..

Sure. Thank you..

Thank you. Next question is coming from Dany Asad from Bank of America. Your line is now live..

Good morning, everybody, and thank you for taking my question. So maybe one more shot on VPG.

You maintained your VPG outlook for the full year, but can you maybe touch on the expectation of the underlying mix of new versus existing owners and how much of that is factoring into your VPG outlook for the balance of the year?.

Great. This is Michael. I will take that. The second quarter and third quarter are really our largest new owner tour months, and therefore, have a natural drag on VPG, which is, even though we outperformed our expectation in Q1, the relative size of Q1 is the smallest of the entire year.

So it was a great performance in Q1, outperforming what we expected.

And then the second quarter and the third quarter because our new owner mix will continue to move up from the current 31% that’s going to have a natural mix adjustment that brings VPG down as we head through the peaking summer months and which are more heavily weighted, which will naturally drag the full year back into the range that we have laid out.

What I would say is that’s the macro number. But as you get into the underlying marketing channels, again, we are seeing a lot of consistency from 2022 between the owner, our strong relationship with Wyndham Hotels through the Blue Thread and then our non-affinity tours, those close rates and VPGs are holding up on a by channel basis.

It’s really the mix that creates the impact as you move through the year..

Great. Thank you very much. And then, my follow-up, if you could just give us a little bit more on -- a little bit more color on consumer financing.

So when a new prospective owners of the table, maybe can you just tell us about their intention and their propensity to finance the kind of down payments they are making and whether you are seeing more or less prepayments in your existing base just with this current interest rate environment today?.

So as far as new owners at the sales table, they do have a likelihood of putting less down. Keep in mind, a lot of that is driven by what our sales people ask for at the sales table. So the propensity to finance is a strategic move on our part to drive it up, not necessarily indication that our consumers don’t have the ability to still put 25% down.

So we put that in place, as I mentioned, back in April and seeing good results from that. In terms of prepayments, they are up a little bit, as you would expect, because our portfolio continues to improve in quality.

So the higher the FICO, the higher the likelihood to prepay, but I think that’s, once again, driven by the mix in the portfolio and not any other indicator. Overall, our consumer remains strong.

If you look at delinquencies at the end of March, historically, they always improved from December to March, but what we saw this year was that the improvement from December to March was the best improvement we have seen in over five years.

So very happy with the consumer and aren’t seeing anything unusual from a financing or prepayment propensity indicate weakness or strength. I think it’s pretty consistent with what we have always seen based on the FICO mix that’s now in the portfolio..

Got it. That’s very helpful. Thank you very much. That’s it for me..

Thank you..

Thank you. Next question is coming from Ricardo Chinchilla from Deutsche Bank. Your line is now live..

Hey, guys. Thanks for taking the question.

I was wondering if you could please provide us some color on your refinancing strategy, given the 2024 and the 2025 maturities and the current state of the capital markets?.

Yeah. Thanks for the question, Ricardo. Good to hear from you. So we have got $300 million due next April, obviously, we will see what happens with the markets between now and then. Right now, we have nothing outstanding of significance on the corporate revolver, so $1 billion in capacity there.

So like, historically, we have taken care of that later in the year or early in 2024. The bigger tranches we have come up in 2025, and obviously, we will have to see what happens in the markets between now and then.

But we have never had a problem as far as being able to refinance that debt and push it out another six years or seven years or eight years. So, obviously, we did 1 last November to take care of the March maturity this year. So very confident in our ability to take care of the $300 million that comes due next April.

And once again, as we watch what happens to the market over the next nine months, we will make the decision as to how we take care of that and worst-case scenario, the $1 billion revolver is always available to us. And I mentioned this before, but pre-COVID, we always carried $250 million to $300 million revolver.

We would expect and we are very comfortable doing that, we would expect that revolver balance to be pretty low by the end of this year. So very comfortable with our capital stack and our ability to make sure we are able to refinance that at the appropriate time..

Got it. That was very helpful.

For my follow-up, have you guys considered changing the current fixed versus variable rate structure of the capital structure or are you guys thinking that you want to keep a significant portion fixed versus variable?.

It’s something that we evaluate every time we look at a transaction. I mean, obviously, the last transaction we did has a variable component to it. So if you think about the capital stack we have, the majority of that was inherited from Wyndham Worldwide and was generated there in a very low interest rate environment.

So it made sense to go with the fixed rate. Once again, we will watch what happens with the capital markets over the next eight months or nine months and we will see what we do with that $300 million.

$300 million over $3 billion, I wouldn’t say is really material when you think about whether it’s fixed or variable, but that’s the discussions we will have with our banking partners at the time or when the time comes to refinance that..

Appreciate it. Thank you so much..

Sure. Thank you..

Thank you. Our next question today is coming from Brandt Montour from Barclays. Your line is now live..

Hey, everybody. Thanks for taking my questions. Most of them have been answered, but wondering if you could give us a peek into the tour flow expectations for the year and I think we can sort of discern from your comments that they are going to be new owner heavy. But just maybe an idea of the channel mix that they are coming through.

This is sort of you topping up the or sort of reaching full recovery of your existing channels. So just give us a peek into what those channels are if you expect them to be higher yielding or lower yielding than the overall company average? Thanks..

Great, Brandt. It’s a great question, because the second half of this year really does reflect our continued commitment to laying the foundation for our future growth, which is investing back into our business and our businesses about our owner base.

So we want to do it as quickly as possible, get back to growing that base and the tour flow expectations for the second half of the year really reflect a new owner commitment. That’s going to be in the mid- to upper-teen tour growth from 2022, almost all of it coming from the new owner channels.

Those two channels are broken down into two primary types. Our relationship with the hotel group through Blue Thread, which comes with a higher VPG and non-affinity channels, which come with a lower. All new owner channels come in lower than the average and the owner mix obviously.

So that’s where when we talk about VPG impact going forward for the remainder of 2023, that’s the mix impact that causes it, which is very welcomed planned and what we want to do to lay the foundation for our future. And all of that is baked into the guidance that we have laid out today, which just to pull it up to a higher level for a moment.

We are talking high-single digits EBITDA growth this year off of traditionally mid-single digits. We are talking about returning capital in the first quarter of allowing us to pull 3% of our shares outstanding out of the market, all of that while our expectation is to maintain a free cash flow yield in the high teens.

So we think investing back into those new owners, growing them to just below 35% for the year is the right investment that allows us to continue to maintain our global strategy of EBITDA growth and capital return, but lay the foundation for 2024, 2025 and 2026 through our new owner base..

That’s great color. Thanks for that. And then just a follow-up, your VOI EBITDA margins in the 1Q were impressive, right, up a couple of hundred basis points year-over-year despite VPG being down year-over-year and loan loss provisions being high as well.

So I guess the question is, is there timing -- was there a timing benefit to margins in the first quarter and sort of how should we think about the margin cadence throughout the rest of the year and maybe for the full year as well?.

Yeah. I will touch on that. There were a couple of things that happened in the quarter. First of all, our cost of sales was very favorable in the first quarter compared to historical trends, it was what we expected, but that’s driven and we saw that in the fourth quarter.

But that’s really driven by the fact that we relieve inventory not to get independent accounting on a first-in first-out basis and the inventory we are selling through in the first quarter was some of our less expensive inventory. So we got that benefit.

Also, the provision came in at 17.4% and we are retaining our guidance at 18% to 19% for the full year as we get into the busier part of the year and drive higher originations. So those were really the two significant items in the quarter that helped to drive margins up on the Vacation Ownership business.

When we think about the full year, we would expect margins to be in line with where they were last year and historically been kind of in that mid- to low-20s..

Perfect. Great. Thanks, everyone..

Sure. Thank you..

Thank you. We reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further closing comments..

Thank you, Kevin. Our full year outlook underscores the persistent strength of leisure travel, people’s commitment to vacations and the consistent performance of our timeshare model. We will be on the road in May and June at multiple investor conferences and look forward to seeing many of you in person.

Finally, I would like to thank our associates, which are the driving force at Travel + Leisure and help us to receive recognition as a month the most trusted companies in America by Newsweek. Thank you to everyone and have a great day..

Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today..