Q1 2023 Travel + Leisure Co Earnings Call
Hello, and welcome to the travel and leisure first quarter 2023 earnings call and webcast.
Anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. As a reminder, this conference is being recorded its now my pleasure to turn the call over to your host Chris Agnew head of Investor Relations. Please go ahead Chris.
Thank you Kevin and 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 forward looking statements and the forward looking statements made today are effective.
Our effective only as of today, we undertake no obligation to publicly update or revise these statements factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release accompanying that's cool.
You can find a reconciliation of non-GAAP financial measures discussed in today's call and the earnings press release available on our website at travel and leisure Dot com forward slash investors.
This morning, Michael Brown, our President and Chief Executive Officer, who 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 prior remarks, we look forward to responding to your questions.
With that I'm 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 89 says 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 attractive business and measure consumer sentiment our forward bookings sales volume per guest or BTG and the performance of our consumer finance portfolio.
These three metrics.
US eight perspective current and retrospective look at consumer trends.
Each of these metrics have 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-19 remains 6% above 2019.
<unk> 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.
<unk> $3215 exceeded our expectations, even as our incremental new owner channels started to ramp.
<unk> 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 at other travel accommodations.
Our receivables portfolio is performing well.
Once these are trending below 2018 levels. This 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 and 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.
We enter a more challenging economic environment.
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 and a resilient and predictable business model.
Turning to travel and membership this segment came in below our expectations with exchange being the primary cause 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 more 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.
And our travel clubs 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 <unk>.
Actions in Q2, however, we have a comparable new customer signed that will begin transacting in the second half of the year.
Turning to our out our 2023 outlook for the full year, we are raising our adjusted EBIT guidance range to 925 million to $945 million and reiterating our expectation for gross VOI sales to be within a range of $2 one to $2 $2 billion.
And a <unk> <unk> range of $3050 to $3150. 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 Mike.
Thanks, Michael and good morning to everyone.
As well as discussing our first quarter results I'll 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 89.
Increases of 8% and 29% respectively over the prior year.
As Michael previously mentioned, the healthy acceleration and 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.
Adjusted EBITDA of $131 million.
Increases of 12% and 25% respectively over the first quarter of 2022.
We delivered 135000 tours in the first quarter, 24% growth over the prior year.
<unk> was $3215 above the top end of our expectation.
Revenue in our travel membership segment was $200 million in the quarter flat compared to the prior year.
That EBITDA was $71 million.
Compared to $82 million in the first quarter of 2022.
Due to higher cost of sales driven by transaction mix, our marketing cost to support our pubs 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 45 per share and paid on March 31.
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 three 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 six 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 and $100 million.
Our corporate net leverage ratio for covenant purposes was three seven times in the first quarter as.
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 three five times.
Now, let me provide 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 in the second quarter are expected to be in the range of $550 million to $560 million with BTG in the range of $3050 to $3150.
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 returning capital to shareholders.
With that Kevin can you. Please open up the call to take questions.
Certainly, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one at this time a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to move your question from the queue for participants using speaker equipment. It may be necessary to pick up a handset before pressing star.
Our one one moment, please while we poll for questions.
First question today is coming from Joe Greff from JP Morgan. Your line is now live.
Good morning, guys.
Nice results.
Thanks, Good morning, Jeff.
I was hoping maybe you could talk about sort of the.
In vacation ownership.
Maybe the monthly cadence within the quarter and what Youre seeing so.
So far in April in terms of close rates and BTG did you see I guess the degradation of trends throughout the quarter just giving.
What's been going on in the <unk>.
<unk> markets and just the macro in general.
And my second my follow up question. My second question is with respect to travel and membership in the second half obviously it'll be.
Better than what you've talked about in sort of the ingredients to the first quarter and what you're expecting for the second quarter.
Last year, you did about $122 million in EBITDA in the second half from travel and membership could do you expect that to grow and can you talk about what.
What are your expectations for growth there is and actually what the drivers are.
Thanks, Joe Yes, it's a great question about just sort of the cadence to the first quarter because.
As we started January and February .
Really all the metrics were.
Continued strength of what we saw in <unk>.
2022, and as we moved through March.
Those those trends continued.
Post the SVP banking crisis.
We did see some volatility in some.
Some weakening in some of the <unk>.
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 <unk>.
Returned to where they were at the beginning of Q1, so it feels like it was a temporary blip.
<unk>.
The cause of it.
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 towards the end of 'twenty, two and the first part of the quarter.
And.
We're really expecting those trends to continue as we as we head into.
The remainder of the second quarter as it relates to travel a membership I'll 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 auto EBIT in that segment.
Two things that we're really focused on number one is as new owners continue to come back into the timeshare space as we're 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 'twenty four for the majority of the EBIT to transit the EBITDA and transactions related to the exchange business and as it relates to the travel club had we not lost this this client which is creating a four month timing issue between the new one we're bringing.
<unk>.
We would have had about <unk>.
Mid single digits growth about 5% growth in the first half of this year. So we'll get some tailwind on that travel club transaction in the second half of the year and I'll ask Mike to answer specifically about the second half growth.
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 for the exchange business. So as we go.
I'll go through the year.
The impact of travel membership on our overall EBITDA continues to become a smaller portion of the overall EBITDA at the consolidated business due.
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 and creating this form of timing issue.
Does that push out what you think the ramp would be next year by four months or or is it really not that material.
Well it was it was a it was a high volume transaction and they left due to the type of travel that they were looking for.
Ours is more accommodation base 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 relatively small part of our EBITDA, but it might it might slightly delay the ramp.
Thank you very much thanks, Joe.
Thank you next question is coming from Chris <unk> from Deutsche Bank. Your line is now live.
Hey, good morning, guys.
So this is a little bit of a <unk>.
Asking one of Joe's questions 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'm getting at is.
Have you seen any weakening in the west coast relative to.
East Coast, and really talking about where the customer originates.
Well.
We definitely saw some impact on our west coast operations late in March.
But not dissimilar from the macro commentary as we've seen those performance metrics returned in April .
So.
Our belief at this stage was it was a short term blip in the macro consumer strength that we're seeing not only in our results, but in the airline results in and fast food results in other hospitality companies.
As well today.
Seems to be intact and.
With 26 days of run rate in the month of April .
We're just not seeing that what happened at the end of March persist.
Beyond that sort of two two and a half week period.
Okay Fair enough and then as a follow up going back to the <unk>.
Exchange question.
Yes.
Michael.
It looks like that business has 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.
We'll get some kind of re org of it or or do you think this is just something where there is some macro.
Turbulence and you have to get through it.
Okay.
The macro trend around exchange has been intact for a decade, now which is across the industry.
The industry has consolidated and many of the affiliates affiliates have.
<unk> internal travel club, which is very natural I mean, that's nothing new this quarter or last year or even pre COVID-19, that's been going on for a decade, which has created a natural headwind against the.
The entire exchange space I think our team's 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 that owners, 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 has it started slower than we expected, yes, but we.
We see we see positive trends, our new travel club transactions are up.
Significantly and it's going to it's going to take some time, but again.
That is an effort to incrementally add some some growth rate too.
A segment of our business and inside the industry Thats had headwinds for now over a decade. So I think we have.
Our plan.
The level of growth is the part that we're seeing unfold and it started a little slower than we anticipated and let me just Mike Mike is just going to add one other thing here, Yeah, I think Chris one thing when you talked 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 blowing out procuring inventory and providing additional opportunities for our RCI members to exchange.
The impact of that is obviously more.
Transactions are more EBITDA, but it does have a cost of sales benefit because we are going out and bringing that inventory. So that was part of the reason for the slight Miss in the first quarter on the exchange side of the business.
We will continue to do throughout the year to give our owners and members more opportunities to transact.
Okay I appreciate all the color thanks, guys.
Thank you Chris Thank.
Thank you. Your next question is coming from Patrick <unk> from <unk> Securities. Your line is now live.
Hi, Good morning, Michael and Mike.
Good morning, Patrick.
Yeah.
Michael.
Talked about.
April bouncing back.
From March.
How would you describe how summer.
Leisure travel is shaping up for you folks specifically on the.
Year over year basis.
At this point thank you.
Well.
Just to Frank just to frame up.
Q1, and now Q2 as it relates to the majority of our business.
No.
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're investing and we're seeing results in our new owner business, that's not only coming holistically.
But also our blue thread is performing extremely well I would say that as a precursor because we.
We've said, we're going to invest and grow our new owner business in the second 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 the summer 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 with that the case forward bookings is the greatest predictive measure that we have at this point and our rivals 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.
T to drive owner sales for the upcoming summer season. So holistically, we're positive about what's to come this summer.
And the April 1st three weeks give us an indication that what happened at the end of March was temporary a brief as opposed to something that will show in cracks feel.
Feel good about what's happening in April .
And the owner arrivals that we have.
On the books for the summer give us confidence for the next 120 days.
And Patrick.
Just to make sure we clarify that March commentary that Mike made as far as the impact on.
Performance was primarily out west right. So I just didn't want you to think that that was across the entire business that was primarily out west which potentially was driven by the impact of the <unk>.
Banking environment out there.
Okay.
Thank you for color on that and my follow up question.
I think I'd, probably ask 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.
Those.
Numbers that you laid out at your Investor day. Thank you yeah, Yeah, I'd reiterate what I said on the last call, which is we remain.
On track with a with a different mix than we originally laid out but that's the proverbial difference between the budget and the forecast so.
We.
The strength of our business is really showing through on the <unk>, 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.
Thank you very much thanks Patrick.
Thank you next question is coming from Ian Zaffino from Oppenheimer. Your line is now live.
Thank you very much good quarter.
Thanks, Dan.
Shane side I know you talked about the loss walk us through the gain or the customer win.
What happened there he could get it but they are looking for versus the customer you lost any other kind of color you could give there would be great.
Absolutely.
Pretty straightforward just the.
The travel the travel type that the one we lost.
I was looking for was more air based in our platform is more combination based which is understandable and.
It is.
We still we still do transactions with that customer, but they're on a much smaller scale and the client that we brought in was basically a similar type of benefits provider.
<unk> day will begin transacting.
In the third quarter, so it's sort of a like for like change and these things happen.
Obviously would have preferred the timing to be and then the other way, where we had three to four months of overlap, but it just it just worked out that we've got a four month gap and.
To put it all in perspective is is if we had a perfect transition.
Q first half of the year.
Club transactions would have been up mid single digits. So.
Probably probably wouldn't have got a question on this call I had it not been that timing gap, but these things happen and just another clarifying point and that was on the travel side not on the RCI exchange side. So just an important point there in terms of.
The impact on the business isn't near as significant as it had been on the exchange side.
Okay. Thank you and then also remind us how you're thinking about interest rates and the higher interest rate environment.
A lot of this is sold through a kind of a monthly payment.
Process, but how do you kind of thinking about that as vis vis your margin and then also recently.
What the consumer get there thanks.
Great question Ian.
Obviously, we've talked about the impact of rates keep in mind, 80% of our corporate debt is fixed and on the ABS side. It's the 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 are seeing improvement in rates.
As it relates to the impact on the overall business.
The way we view it as increasing interest rates are the result of inflation inflation comes through loud and clear in leisure travel when you look at.
Hotels, and other leisure accommodations, and we see that translate into higher <unk> that we're seeing so when you look at the overall business, we arent, giving something up on the net interest income, but we feel making up for it on the <unk> side of the business, where we've talked about those rates been at all time high all time highs I'm, having said that we do usually raised.
Interest rates, a little bit maybe 25 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.
Sales table to demonstrate the value of the product.
And get those new understand that Mike talked about being over 31%, which drives future recurring revenues.
Okay, Alright, thank you very much good color.
Thanks.
Thank you I was a reminder, that star one to be placed into the question queue. Our next question is coming from David Katz from Jefferies. Your line is now live.
Hi, good morning, everyone. Thanks for taking my questions.
<unk>.
Two for us.
Number one just noting the year over year growth in sales and recalling that.
Evolution of wet himself that started back in the financial crisis, and wondering what visibility or what indications you may be saying about that portion of the business having some growth.
Or whats the trend line there could be and then I have one other follow up please.
Great I'll take that this is Michael on the web sales, we have a few arrangements today that.
As you look forward.
With our commentary that we have relatively low capital investment into project inventory around $100 million going forward Thats, because we are stacked up on our balance sheet of inventory that we own. So as you go forward.
The <unk> sales should be consistent to where they are today if not declining.
Cause our objective ultimately over the next three years is to spend less capital in projects and burn through our own balance sheet.
Perfect and then I'm 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 corner and just timing driven.
Could you maybe color that in just a little bit more.
Largely in terms of what we're going to see <unk>.
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 of last year, we started to ask for lower down payments at.
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.
PNC 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 week normally be closed in March it closed in April very great execution there.
I would say just more confirmation of our belief in the resiliency of the business and the quality of portfolio, but obviously the ABS investors.
As far as timing will be basically cash neutral in the second quarter and then <unk>.
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. Your next question is coming from Danny Assad 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 BTG you maintained your PPG 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 <unk> outlook for the balance of the year.
Yes.
Great. This is Mike I'll take that.
The second and third quarter are really our largest new owner tour months, and therefore have a natural drag on PPG, which is it.
Even though we outperformed our expectation in Q1.
Okay.
The.
The relative size of Q1 as is the smallest of the entire year. So it was a great performance in Q1.
Outperforming what we expected and then the second 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.
<unk> down as we head through the peaking summer months in which are more heavily weighted with Joel naturally drag the full year.
Back into the range that we've laid out what I would say is that's the that's the macro number.
But as you get into the underlying marketing channels again, we're 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 towards those close rates in <unk> are holding up on a by channel basis.
It's really the mix that creates the impact as you move through the year.
Okay, great. Thank you very much and then my follow up if you could just give us a little bit more on a little more color on consumer financing so.
When a new prospective owners at the table, maybe you can tell us about their intentions and their propensity to finance the kind of down payments, they're making are and whether youre seeing more or less.
Prepayments in your existing base and 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 salespeople ACH 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're 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 being driven by the mix in the portfolio now 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've seen in over five years, so very happy with the consumer.
And aren't seeing anything unusual from a financing or prepayment propensity to indicate.
Weakness or strength I think it's pretty consistent with what we've always seen based on the Peco makes us now the portfolio.
Got it that's very helpful. Thank you very much that's it for me.
Thank you.
Thank you. Your 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 'twenty 'twenty, four and 'twenty to 'twenty five maturities and the current state of the capital markets.
Yes. Thanks for the question Ricardo good to hear from you.
So we've got 300 million due next April obviously, we'll see what happens with the markets between now and then right now we have nothing outstanding of significance on the corporate revolver. So a $1 billion in capacity there. So probably historically, we've taken care of that later in the year or.
Early in 'twenty four.
The bigger tranches, we have come up in 2025, and obviously, we'll have to see what happens in the markets between now and then but we've never had a problem as far as being able to refi.
We finance that that pushed it out another six or seven or eight years. So obviously, we did one 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.
We bought what happens to the market over the next nine months.
It makes a decision as to how we take care of that.
No.
Best case scenario.
Our revolver is always available to us.
I've mentioned this before but pre covered we always carry $250 million to $300 million revolver.
We would expect.
And we're 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're able to refinance that at the appropriate time.
Got it.
Very helpful.
For my follow up have you guys considered changing the car and you know.
Versus viral.
Rate structure of the capital structure are you guys thinking that you know you want to keep a significant portion of fixed versus variable.
It's something that we.
Every time we.
Looking at 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.
Low interest rate environment. So it made sense to go with a fixed rate.
Once again, we will watch what happens with the.
The capital markets over the next.
Eight or nine months.
We will see what we do at that 300 million $300 million of over 3 billion I wouldn't say, it's really material. When you think about whether it's fixed or variable, but that's the discussions we'll have with our banking partners at the time.
When the time comes to refinance that.
I appreciate it. Thank you so much sure. Thank you.
Thank you. Our next question today is coming from Brent <unk> from Barclays. Your line is in our lives.
Hey, everybody. Thanks for taking my questions most of them have been answered but.
Wondering if you could 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 there could be new owner heavy.
But just maybe an idea of the channel mix that theyre coming through this as sort of you're tapping up.
Our sort of reaching full recovery of your existing channels.
Give us a peek into what those channels or if you expect them to be higher higher yielding or lower yielding than the.
The overall company average.
Great Brian .
Good 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 or our business is about our owner base.
So we want to do it as quickly as possible get back to growing that that base.
The tour flow expectations for the second half of the year really reflect.
Our new owner commitment.
That's going to be in the mid to upper teen toward 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 <unk>.
And.
Non affinity channels, which come with a lower V. P. G. All new owner channels come in lower than the average and the owner mix. Obviously, so that's where when we talk about <unk> 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.
All of that is baked into the guidance that we've laid out today, which you know just to pull it up to a higher level for a moment.
We're talking high single digits EBIT growth. This year also traditionally mid single digits.
We're talking about returning cash.
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 EBIT growth and capital return, but lay the foundation for 'twenty four 'twenty five 'twenty six through our new owner base.
That's great color. Thanks for that and then just a follow up.
Sure.
EBITDA margins in the <unk>.
Impressive right up couple of hundred basis points year over year. Despite the.
<unk> been down year over year in loan loss provisions being higher as well. So I guess the question is is there a timing was there a tiny 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.
I'll touch on that there were a couple of things that happened in the quarter first of all our cost of sales was very favorable.
The first quarter.
Compared to historical transit was what we expected but.
Thats, 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 counting on a first in first out basis.
The inventory that we're selling through in the first quarter with some of our less expensive inventory until we got that benefit also the provision came in at 17, 4%.
We're retaining our guidance at 18% to 19% for the full year as we get into the busier part of the year and drive.
Our origination so those are really the two significant items in the quarter that help.
Help to drive margins up on the 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.
His broken band kind of in that.
Mid to low Twenty's.
Perfect great. Thanks, everyone.
Sure. Thank you.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments. Thank you Kevin are.
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 which are the driving.
Enforced travel and leisure and helped us to receive recognition as amongst the.
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.