Q4 2023 Travel + Leisure Co Earnings Call
Operator: Greetings. Welcome to Travel and Leisure's fourth quarter and 23 earnings call. At this time, all participants are in a listen-only mode.
Greetings welcome to travel on Leisure Force Clutter twenty-three earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Michael Hug, Executive Vice President and CFO. Thank you. You may begin.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Michael has executive Vice President and CFO. Thank you you may begin.
Michael A. Hug: Thank you, Sharon, and good morning to everyone. 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 made today are effective only as of today. We undertake no obligation to publicly update or revise these statements.
Michael: Thank you Sherry and good morning to everyone.
Michael: Before we begin we'd like to remind you that our discussions today will include forward looking statements.
Michael: Actual results could differ materially from those indicated in the forward looking statements and the forward looking statements made today are effective only as of today.
Michael: We undertake no obligation to publicly update or revise these statements.
Michael A. Hug: The factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release accompanying this earnings call, and you can find a reconciliation of the non-GAAP financial measures discussed in today's call in the orange press release available on our website at TravelMleisureCo.com. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our fourth quarter, full year results, and outlook. And then I will provide greater detail on the quarter, our balance sheet, and our outlook for the rest of the year. Following our prepared remarks, we will open up the call for questions. With that, I'm pleased to turn the call over to Michael Brown.
Michael: Factors that could cause actual results to differ are discussed.
Michael: Our earnings press release accompanying this earnings call.
Michael: You can find a reconciliation of the non-GAAP financial measures discussed in today's call and the earnings press release available on our website and travel and leisure so dot com slash investors.
Michael: This morning, Michael Brown, our President and Chief Executive Officer will provide an overview of our fourth quarter full year results and outlook.
Michael Millman: And then I will provide greater detail on the quarter, our balance sheet and outlook for the rest of the year.
Speaker Change: Following our prepared remarks, we will open up the call for questions.
Speaker Change: I'm pleased to turn the call over to Michael Brown.
Michael Brown: Good morning, and thank you for joining us. As you saw from the press release, we had a solid finish to the year with four quarters adjusted EBITDA of $240 million, a 7% increase over the prior year. Adjusted Diluted Earnings per share was $1.98, inclusive of a $0.37 income tax benefit, which Mike will discuss. Excluding this benefit, our adjusted earnings per share growth would have been 24% over Q4 2022. Our full year 2023 results reflect an intense focus on organic execution, delivering 5% year-over-year top line growth, 6% year-over-year adjusted even in growth to $908 million, 10% adjusted EBITDA growth in vacation ownership, our core business segment, reflecting strong consumer demand for our product and great execution by our team, and 26% adjusted EPS growth over the prior year. Excluding the Q4 tax benefit, our adjusted earnings per share growth would have been 18%, reflecting in part our strong continued commitment to share repurchase. For the second consecutive year, we returned approximately 15% of our market capitalization to shareholders.
Michael Millman: Good morning, and thank you for joining us as you saw from the press release, we had a solid finish to the year with fourth quarter adjusted EBITDA was $240 million, a 7% increase over the prior year.
Michael Millman: Adjusted diluted earnings per share was $1 98 since include.
Michael Millman: Inclusive of the 37th an income tax benefit, which Mike will discuss.
Mike: Excluding this benefit our adjusted EBIT to adjusted earnings per share growth would have been 24% over Q4 2022.
Mike: Our full year 2023 results reflect an intense focus on organic execution, delivering 5% year over year top line growth, 6% year over year, adjusted EBITDA growth to $908 million.
Mike: 10% adjusted EBIT growth in vacation ownership.
Mike: Core business segment, reflecting strong consumer demand for our products and great execution by our teams.
Mike: 26% adjusted EPS growth over the prior year.
Mike: Excluding the Q4 tax benefit.
Mike: Our adjusted earnings per share growth would have been 18%.
Mike: Being in part are strong continued commitment to share repurchases.
Mike: For the second consecutive year, we returned approximately 15% of our market capitalization to shareholders.
Michael Brown: That brings our cumulative capital return to shareholders since then to over $2.1 billion. Now, let me review the operational highlights from the quarter and full year and touch upon how we're positioned for growth in 2024 and beyond. I'll begin with our core business, vacation ownership. In a year that demonstrated the stabilization of domestic leisure travel demand, our VOI business delivered fully to the 2023 guidance that we laid out last February. Gross VOI sales in the fourth quarter increased 4% year-over-year to $540 million, with a VPG of $3,058.
Mike: That brings our cumulative capital return to shareholders since it's been to over $2 $1 billion.
Speaker Change: Now, let me review the operational highlights from the quarter and full year and touch upon how we're positioned for growth in 2024 and beyond.
Speaker Change: I'll begin with our core business vacation ownership.
Speaker Change: And a year that demonstrated the stabilization of domestic leisure travel demand our VOI business delivered fully to the 'twenty two 'twenty three guidance that we laid out last February.
Speaker Change: Gross VOI sales in the fourth quarter increased 4% year over year to $540 million with a <unk> of $3058.
Michael Brown: For the full year, gross VOI sales increased 8% year-over-year to $2.15 billion, with a BPG of $3,128. We delivered both gross VOI sales and VPG at or above the middle of our 2023 expectations, a credit to our sales and marketing team. Tours increased 17% year-over-year in the fourth quarter and 18% year-over-year for the full year.
Speaker Change: For the full year gross VOI sales increased 8% year over year to $2, one $5 billion with a V P G at $3128.
Speaker Change: We delivered both gross VOI sales and PPG at or above the middle of our 2023 expectation is a credit to our sales and marketing teams.
Speaker Change: Towards increased 17% year over year in the fourth quarter and 18% year over year for the full year.
Michael Brown: We made great progress last year in sourcing and securing new owners. As we mentioned in last quarter's call, we have been investing in new order marketing channels, focusing on both additional marketing packages for future stays, as well as adding new off-premise marketing locations. The results have been strong, with new owner transaction nets improving 330 basis points in the fourth quarter and 240 basis points for the full year. In our experience, new owners in the system spend, on average, an additional 2.6 times their initial purchase during their ownership, giving us a large, reliable revenue pipeline. Our receivables portfolio continues to perform well. The portfolio grows naturally with sales, but we are accelerating that growth somewhat while maintaining our tightened credit standards to help offset higher interest expense. We expect the provision to remain below 19%.
Speaker Change: We made great progress last year in sourcing and securing new owners as.
As we mentioned in last quarters call, we have been investing in new order marketing channels focusing on both the additional marketing packages for future states as well as adding new off premise marketing locations.
Speaker Change: The results have been strong with Warner transaction mix, improving 330 basis points in the fourth quarter.
Speaker Change: And 240 basis points for the full year.
Speaker Change: In our experience new owners in the system spend on average an additional two six times their initial purchase during their ownership, giving us a large reliable revenue pipeline.
Speaker Change: Our receivables portfolio continues to perform well the portfolio grows naturally with sales, but we are accelerating that growth somewhat while maintaining our tightened credit standards to help offset higher interest expense, we expect the provision to remain below 19%.
Michael Brown: Turning to Travel and Membership, we reported fourth quarter adjusted EBITDA of $52 million, above the range of $45 to $50 million we shared on our October third quarter call. We completed our cost realignment during the quarter and feel confident that we have the right sides of business to execute our plan and fully leverage future opportunities. With these changes, we expect Travel and Membership adjusted EBITDA to grow low single digits in 2024, providing recurring revenue, high margins, and strong free cash flow. In addition to strong organic execution in 2023, we were excited to announce the acquisition of the rights to the Sports Illustrated vacation ownership business in September. It represents an opportunity to drive incremental growth for years to come with the most celebrated name in sports. So far, we have announced our first resort in Tuscaloosa, Alabama, home of the University of Alabama, which is expected to open in late 2025.
Speaker Change: Turning to travel and membership we reported fourth quarter adjusted EBITDA of $52 million above the range at $45 million to $50 million, we shared on our October 3rd quarter call.
Speaker Change: We completed our cost realignment during the quarter and feel confident that we have right sized the business to execute our plan and fully leverage future opportunities.
Speaker Change: With these changes we expect travel to membership adjusted EBITDA to grow low single digits in 2020 for providing recurring revenue high margins and strong free cash flow.
Speaker Change: In addition to strong organic execution in 2023, we were excited to announce the acquisition of the rights to the sports illustrated vacation ownership business in September.
Speaker Change: Represents an opportunity to drive incremental growth for years to come with the most celebrated name and sports so.
Speaker Change: So far we have announced our first resort in Tuscaloosa, Alabama home of the University of Alabama, which is expected to open in late 2025.
Michael Brown: The Sports Illustrated Club will be immaterial to 2024 earnings but will support our long-term growth. We look forward to announcing more locations at universities and leisure destinations in the months and years ahead. Last month we announced the addition of a core to our vacation ownership portfolio, which already includes Wyndham, Margaritaville, and, as noted, Sports Illustrated. This was the second significant milestone in executing a multi-brand strategy in less than six months, demonstrating great momentum. It is further confirmation of our ability to be a trusted steward of world-class hospitality brands for vacation ownership development. The agreement gives us the exclusive license to grow the Accor Vacation Club brand on the Travel & Leisure Global Platform.
Speaker Change: The sports illustrated club will be immaterial to 2024 earnings, but will support our long term growth.
Speaker Change: We look forward to announcing more locations at universities and leisure destinations in the months and years ahead.
Speaker Change: Last month, we announced the addition of a core to our vacation ownership portfolio, which already includes Wyndham.
Speaker Change: Read it, though and as noted sports illustrated.
Speaker Change: This was the second significant milestone in executing our multi brand strategy and less than six months demonstrating great momentum.
Speaker Change: It is further affirmation of our ability to be a trusted steward of world class hospitality brands for vacation ownership development.
Speaker Change: The agreement gives us the exclusive license to grow the core vacation club brand utilizing the travel and leisure global platform. The acquisition will add 24 resorts 30000 members.
Michael Brown: The acquisition will add 24 resorts, 30,000 members, and finished inventory to our Asia-Pacific region and lay the groundwork for economic benefits for years to come, providing revenue streams from sales, resort management, and consumer finance. We expect to close the transaction next month, and I couldn't be more pleased to welcome Accord to the Travel & Leisure Brandt family. Mike will review guidance in a moment, but let me first share some color on the key performance indicators we monitor to gauge the health of our consumer, including Ford Resort Bookings, Sales Volume per Guest, and the Performance of our Consumer Finance Portfolio. Regarding forward bookings, 2024 owner nights on the books are ahead of 2023, reflecting continued robust consumer demand. VEGs are normalizing from post-pandemic pickup demand for leisure travel but remain at the high end of our 2021 investor day range and 30% above pre-pandemic levels.
Speaker Change: <unk> finished inventory to our Asia Pacific region.
Speaker Change: It lays the groundwork for economic benefits for years to come out on providing revenue streams from sales.
Speaker Change: Management and consumer finance, we expect to close the transaction next month and I couldn't be more pleased to welcome a core to the travel leisure brand family.
Speaker Change: Mike will review guidance in a moment, but let me first share some color on the key performance indicators, we monitor to gauge the health of our consumer.
Speaker Change: Ford resort bookings sales volume per guest and the performance of our consumer finance portfolio.
Speaker Change: Regarding forward bookings 2020 for owner nights on the books are ahead of 2023, reflecting continued robust consumer demand.
Speaker Change: <unk> are normalizing from post pandemic pent up demand for leisure travel.
Speaker Change: Remained at the high end of our 2021, Investor day range, and 30% above pre pandemic levels.
Michael Brown: And finally, as I mentioned earlier, our continued focus on credit quality has resulted in a portfolio that continues to perform to our expectations. To summarize, we were pleased with our performance and execution in 2023. We delivered our full-year plan with 5% top-line growth, 6% adjusted EBITDA growth, and 26% adjusted EPS growth. We return a significant amount of capital to shareholders, paying $136 million in dividends and repurchasing 7.8 million shares of stock. These results were achieved by the strength of our business model and by an intense focus on organic execution by our associates around the world. I want to thank each and every one of them.
Speaker Change: And finally as I mentioned earlier, our continued focus on credit quality has resulted in a portfolio that continues to perform to our expectations.
Speaker Change: To summarize we were pleased with our performance and execution in 2023, we delivered our full year plan with 5% top line growth.
Speaker Change: 6% adjusted EBITDA growth.
Speaker Change: And 26% adjusted EPS growth.
Speaker Change: We returned a significant amount of capital to shareholders.
Speaker Change: Paying a $136 million in dividends and repurchasing seven 8 million shares of stock.
These results were achieved by the strength of our business model and by an intense focus on organic execution by our associates around the world.
Speaker Change: I want to thank each and every one of them.
Michael Brown: For 2024, we are off to a solid start with a strong foundation in our core vacation ownership business and a clear line of sight for execution in the travel and membership segment. Reflecting our confidence in the future, we intend to recommend to the board a first quarter 2024 dividend increase of $0.50 per share. This action supports our continued commitment to use our significant free cash flow generation to drive shareholder value through increased dividends, strategic M&A should opportunities arise, and continued share repurchases. The ability to generate and effectively utilize our free cash flow, combined with our proven track record of organic execution, leaves us excited about the opportunities ahead. For more detail on our performance and outlook, I would now like to hand the call over to Mike Hugg. Thanks, Michael.
Speaker Change: For 2024, we're off to a solid start with a strong foundation in our core vacation ownership business and a clear line of sight for execution in the travel and membership segment.
Speaker Change: Reflecting our confidence in the future we intend to recommend to the board a first quarter 2024 dividend increase to 50 cents per share.
Speaker Change: This action supports our continued commitment to use our significant free cash flow generation to drive shareholder value through increased dividends strategic M&A should opportunities arise and continued share repurchases.
Speaker Change: The ability to generate and effectively utilize our free cash flow combined with a proven track record of organic execution leave us excited about the opportunities ahead.
Speaker Change: For more detail on our performance and outlook I would now like to hand, the call over to Mike Mike.
Mike: Thanks, Michael.
Michael A. Hug: As well as discussing our fourth-quarter results, I will provide more color on our balance sheet and cash flow, as well as our outlook for 2024. However, all of my comments will refer to comparisons to the same period of the prior year, unless specifically stated. We reported fourth quarter adjusted EBITDA of $240 million and adjusted diluted earnings per share of $1.98, increases of 7% and 52% respectively. For the full year, Adjusted EBITDA was $908 million and Adjusted EPS was $5.75, representing year-over-year growth of 6% and 26% respectively. Full Year Adjusted EPS includes a $0.35 benefit from foreign tax credit carry forwards that we now expect to be able to utilize. Looking at the fourth quarter performance of our two business units. Vacationownership reported segment revenue of $776 million, an increase of 5%. SPAW Adjusted EBITDA increased 12% to $209,000.
Mike: As well as discussing our fourth quarter results.
Mike: More color on our balance sheet and cash flow as well as our outlook for 2024.
Mike: All of my comments will refer to comparisons to the same period of the prior year unless specifically stated.
Mike: We reported fourth quarter, adjusted EBITDA of $240 million.
Mike: Adjusted diluted earnings per share of $1 98.
Mike: Increases of 7% and 52% respectively.
Mike: For the full year, adjusted EBITDA was $908 million and adjusted EPS was $5.70.
Mike: Representing year over year growth of 6% and 26% respectively.
Mike: Full year adjusted EPS includes a 35% benefit from foreign tax credit carry forwards that we now expect to be able to utilize.
Mike: Looking at our fourth quarter performance of our two business units.
Mike: Our ship reported segment revenue of $776 million, an increase of 5%.
Mike: While adjusted EBITDA increased 12% to $299.
Mike: We delivered 172000 tours in the fourth quarter growth of 17%.
Michael A. Hug: We delivered 172,000 tours in the fourth quarter, up to 17%, and BPG was $3,058 in line with expectations. Revenue in our Travel and Membership segment was $158 million in the quarter compared to $163 million in the prior year. Adjusted EBITDA was $52 million compared to $57 million in the fourth quarter of 2022.
Mike: And BTG was $3058 in line with expectations.
Mike: Revenue in our travel and membership was $158 million in the quarter compared to $163 million in the prior year.
Mike: Adjusted EBITDA was $52 million compared to $57 million in the fourth quarter of 2022.
Mike: Exchange member counts continue to grow but as expected exchange transactions were down 8%.
Mike: Flexing the continued mix shift of clubs, whose members have a lower propensity to exchange.
Mike: As Michael said, we have right sized the business to the current environment, which will drive EBITDA growth in 2024.
Michael A. Hug: Exchange member accounts continue to grow, but as expected, exchange transactions were down 8%, reflecting the continued mixed shift of clubs whose members had a lower propensity to exchange. As Michael said, we have right-sized the business to the current environment, which will drive EBITDA growth in 2024. Our full-year performance was solid despite significantly higher interest rates and disappointing results in travel and membership. We partially offset these challenges with strong, decisive cost cuts throughout the year and reductions in variable compensation.
Mike: Our full year performance was solid despite significantly higher interest rates and disappointing results at travel membership.
Mike: We partially offset these challenges with strong decisive cost cuts throughout the year and reductions in variable compensation expense.
Mike: We continued to drive strong adjusted EBITDA margins across our businesses with our 2023 full year adjusted EBITDA margin coming in at 24, 2%.
Mike: Moving to our balance sheet, our financial position remains strong and in the fourth quarter. We continued to return capital to shareholders through share repurchases and our quarterly dividend of <unk> 45 per share for.
Mike: For the full year, we repurchased 10% of shares outstanding at the beginning of the year for $307 million and paid dividend totaling $136 million for total capital returned to shareholders of $443 million.
Michael A. Hug: We continue to drive strong adjusted EBITDA margins across our businesses, with our 2023 full-year adjusted EBITDA margin coming in at 24.2%. Moving to our balance sheet, our financial position remains strong, and in the fourth quarter, we continue to return capital to shareholders through share repurchases and our quarterly dividend of 45 cents per share. For the full year, we repurchased 10% of shares outstanding at the beginning of the year for $307 million, and paid dividends totaling $136 million for a total capital return to shareholders of $443 million.
Mike: As you saw in the press release, we completed three important transactions in the fourth quarter.
Mike: Those two timeshare receivable financing of $300 million term securitization transaction of October and a $238 million term securitization transaction in December.
Mike: So in December we secured additional term loan borrowings under our credit agreement.
Mike: Who are primarily used to pay the $300 million senior notes due in April.
Mike: Adjusted free cash flow was $359 million for the year, resulting in a 42% adjusted EBITDA to free cash flow conversion.
Michael A. Hug: As you saw in the press release, we completed three important transactions in the fourth quarter. We closed two timeshare receivable financings, a $300 million term securitization transaction in October and a $238 million term securitization transaction in December. Also, in December, we secured additional term loan borrowings under our credit agreement, which we will primarily use to pay the $300 million senior notes due in April.
Mike: Excluding the impact from the sports illustrated investment of $41 million adjusted free cash flow conversion would have been 46%.
Mike: We ended 2023 with our net corporate leverage ratio for covenant purposes at three four times.
Mike: Remember our goal was to end the year below three five times levered.
Mike: Overall, our capital allocation for the year was right in line with what we anticipated when looking at our share repurchases quarterly dividends and your leverage.
Speaker Change: Now, let me provide some more detail about our expectations for the full year and first quarter of 2024.
Speaker Change: For the full year, we are providing a guidance range of $910 million to $930 million for adjusted EBITDA and for now we are most comfortable at the midpoint of the range.
Michael A. Hug: Adjusted pre-cash flow was $379 million for the year, resulting in a 42% adjusted EBITDA pre-cash flow conversion. Excluding the impact of the sports illustrated investment of $41 million, adjusted free cash flow conversion would have been 46%. We ended 2023 with our net corporate leverage ratio for government purposes at 3.4 times. Remember, our goal is to end the year below 3.5 times...
Speaker Change: Note that our guidance includes $30 million of incremental interest expense on our ABS debt and assumes no variable compensation benefit in 2024.
Speaker Change: For comparison purposes, the variable compensation benefit in 2023 was $17 million.
Speaker Change: Turning to vacation ownership, we expect gross VOI sales in the range of 2.25 to $2 $35 billion.
Speaker Change: With PPG is in the range of 2900 to $3000.
Michael A. Hug: Overall, our capital allocation for the year was right in line with what we anticipated when looking at our share repurchases, quarterly dividends, and year-end liabilities. Now, they provide some more detail about our expectations for the full year and first quarter of 2024. For the full year, we will provide a guidance range of $910 to $930 million for adjusted EBITDA, and for now, we are most comfortable at the midpoint of the range. Note that our guidance includes $30 million of incremental interest expense on our ABS debt and assumes no variable compensation benefit in 2024. For comparison purposes, the variable compensation benefit in 2023 will be $17 million.
Speaker Change: For travel membership as Mike already mentioned, we expect adjusted EBITDA to grow low single digits in 2024.
Speaker Change: For the full year, we expect an effective income tax rate of 26% to 28%.
Speaker Change: Turning to the first quarter, we expect adjusted EBITDA in a range of $185 million to $190 million keep.
Speaker Change: Keep in mind, the application of our ship adjusted EBITDA faces, a $9 million year over year headwind to interest expense in the first quarter as a result of higher interest expense on our most recent ABS transactions.
Speaker Change: Indication our ship, we expect first quarter gross VOI sales of $460 to $490 million.
Speaker Change: <unk> $2925 to $3025.
Speaker Change: The total membership we are guiding to adjusted EBITDA in the first quarter of $75 million to $80 million.
Speaker Change: And finally, we expect our first quarter tax rate range from 28% to 30%.
Michael A. Hug: Turning to vacation ownership, we expect gross real estate sales in the range of $2.25 to $2.35 billion, with BPGs in the range of $2,900 to $3,000. For travel membership, as Michael already mentioned, we expect Adjusted EBITDA to grow low single digits in 2024. For the full year, we expect an effective income tax rate of 26 to 28%.
Speaker Change: Turning to cash we expect our 2024 adjusted free cash flow conversion to be in the neighborhood of about 50%.
Speaker Change: Elevated interest rates have increased our ABS and corporate interest expense assumptions for 2020 for approximately $75 million from when we set out our cash flow conversion Gulf in September 2021. However.
Speaker Change: However, as adjusted EBITDA growth and interest rates decline, we expect to move towards an adjusted free cash flow conversion of over 55%.
Speaker Change: In closing we are pleased with the earnings and free cash flow, we delivered in 2023 and proud of our continued ability to return capital to shareholders for.
Michael A. Hug: Turning to the first quarter, we expect adjusted EBITDA in the range of $185 to $190 million. Keep in mind that vacation ownership adjusted EBITDA faces a $9 million year-over-year headwind to interest expense in the first quarter as a result of higher interest expense on our most recent ABS transaction. In vacation ownership, we expect first quarter gross VOI sales of $460 to $480 million and VPGs of $2,925 to $3,025. We are diving to adjusted EBITDA in the first quarter of $75 to $89. And finally, we expect our first core tax rates to range from $28 to $33.
Speaker Change: For 2024, our guidance reflects our confidence in the strength and resiliency of our business and our ability to grow.
Speaker Change: Long term, we expect our adjusted EBITDA growth rate to return to high single digits as interest headwinds subside and we no longer lapping 23 variable compensation benefit.
Speaker Change: With that Sherry can you. Please open up the call to take questions.
Sherry: Thank you if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
Sherry: For participants using speaker equipment may be necessary to pick up your handset before pressing the star to use.
Sherry: Our first question is from Chris or Ranke with Deutsche Bank. Please proceed.
Chris: Hey, good morning, guys. Thanks for taking the questions and for the details so far.
Operator: Turning cash, we expect our 2024 Adjusted Free Cash Flow Conversion to be in the neighborhood of about 50%. Elevated interest rates have increased our ABS and corporate interest expense assumptions for 2024 by approximately $75 million from when we set out a cash flow conversion bill in September 2021. However, as adjusted EBITDA grows and interest rates decline, we expect to move towards an adjusted pre-cash flow conversion of over 55%. In closing, we are pleased with the earnings and free cash flow we delivered in 2023 and proud of our continued ability to return capital to shareholders. For 2024, our guidance reflects our confidence in the strength and resiliency of our business and our ability to grow. In the long term, we expect our adjusted EBITDA growth rate to return to high single digits as interest headwinds subside, and we no longer lack the 2023 variable compensation benefits. With that said, Sherry, can you please open up the call to take questions? Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Chris: Mike Michael I was hoping you could talk a little bit about some of these.
Chris: The LPC channels and some of the other marketing channels Youre looking at this year and the question is really kind of you sit here in February you know you have a plan you have I know you have some new partners. How do you how do you kind of typically evolve or adjust those some of those your mix of partners through the year as you know various events on Paul just trying to get at.
Speaker Change: A sense as to whether your visibility to some of the tour flow in the bookings improves with your you know with your partner mix. Thanks.
Good morning, Chris.
Chris: Yeah, the new order questions, a very important one and.
Chris: As we came out of the pandemic, we said that there were two very important elements number one was we wanted to increase our.
Speaker Change: Marketing standards.
Chris: Credit standards and secondly, as we wanted to ensure our marketing partners delivered positive margins as well as new owners. So we took a very measured approach coming out and we've seen our.
Chris: I would say diversified OTC channels grow on a regional basis, we're not overly dependent on a single partner.
Chris: We do have some some big apart partners that generate a lot of doors for us but region by region.
Chris: Each of our regional marketing executives will evaluate the best opportunities in their region.
Chris: And therefore contract locally.
Chris: What typically happens in the cadence of the year and you also see it in our V. P. G guidance in the Q in the first quarter versus the full year is.
Chris: The summer months are your big New order months. So our teams right now will be working with Mark marketing partners to sign up deals for the upcoming summer.
Chris Woronka: And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star 2. Our first question is from Chris Woronka of Deutsche Bank. Please. Hey, good morning, guys. Thanks for taking the questions and for the details so far. Michael, I was hoping you could talk a little bit about, you know, some of these OPC channels and some of the other marketing channels you're looking at this year. And the question is really kind of, you sit here in February, you know, you have a plan, you have, I know you have some new partners. How do you typically evolve or adjust those, some of those, your mix of partners through the year as, you know, various events unfold?
Chris: So you're you're just building on the success of last year, which was 18% toward growth from the prior year and were expecting tour growth this year.
Chris: Over 10%. So it's just a steady growth on a regional basis of developing the right partners that will deliver a new orders and be at a profit from day one.
Chris: Okay.
Speaker Change: Very helpful. Thanks, Thanks, Michael just as a follow up this is on the on the travel and membership clubs business. It sounds like you've you're.
Speaker Change: You said, you've right sized the cost structure and you obviously have a couple of growth initiatives that are have started but the question would be going forward is it possible to kind of maintain level EBITDA with very minimal topline growth or do you.
Michael Brown: Just trying to get a sense as to whether your visibility to some of the tour flow and the bookings improves with your, you know, with your partner mix. Thanks. Morning, Chris.
Could you do more on the cost side, if you need to or do you expect this expectation really that we begin to see the top line growth accelerated a little bit.
Michael Brown: Yeah, the new owner question is a very important one. And as we came out of the pandemic, we said that there were two very important elements. Number one was we wanted to increase our marketing standards, our credit standards. And secondly, we wanted to ensure our marketing partners delivered positive margins, as well as new owners. So we took a very measured approach coming out, and we've seen our, I would say, diversified OPC channels grow on a regional basis. We're not overly dependent on a single partner.
Speaker Change: Yeah.
Speaker Change: Well, yes, you can get the growth through top line growth one of the key elements that.
Speaker Change: We've we've modified is that.
Speaker Change: The addition of the travel club business is driving incremental EBIT growth in that space.
Speaker Change: Although it's.
Speaker Change: It's not meeting the expectations we have.
Speaker Change: We laid out on Investor day, it is providing growth and it is providing a new source of revenue for that side of the business.
Speaker Change: So the right sizing was really a reflection of the growth trajectory, we saw in travel clubs and we've seen.
Speaker Change: A lot of predictability start to come into the exchange side of the equation as we've seen coming out of the pandemic it it dropped.
Michael Brown: We do have some bigger partners that generate a lot of tours for us. But, region by region, each of our regional marketing executives will evaluate the best opportunities in their region and, therefore, negotiate locally. What typically happens in the cadence of the year, and you also see it in our BPG guidance for the first quarter versus the full year, is that the summer months are your big new owner months. So our teams right now will be working with marketing partners to sign up deals for the upcoming summer. So you're just building on the success of last year, which was 18% tour growth from the prior year. And we're expecting tour growth this year of over 10%. So it's just a steady growth on a regional basis of developing the right partners that will deliver A, new owners, and B, at a profit from day one. Okay, very helpful.
Speaker Change: But we're starting to see that stabilize.
Speaker Change: To to a revenue range that we think is pretty predictable. So yeah. I think we can see top line growth and we just needed to make some changes to make sure the cost structure reflected what we thought was the future growth in revenue and they they travel a membership space.
Speaker Change: Okay very helpful. Thanks, Michael.
Speaker Change: Thanks, Chris.
Speaker Change: Our next question is from Joe <unk> with J P. Morgan. Please proceed.
Joe: Good morning, guys.
Joe: Mike the reference to the variable compensation.
Joe: Expense benefit in 2023, you indicated at $17 million can.
Joe: Can you break that out.
Speaker Change: <unk> segment does that hit corporate does that hit.
Speaker Change: The <unk>.
Speaker Change: Team members as well as corporate that even through the year and then I guess my bigger picture question is this I mean, your full year EBITDA guidance implies a low single digit EBITDA growth rate.
Michael Brown: Thanks. Thanks, Michael. Just as a follow up, this is on the travel and membership clubs business. You know, it sounds like you said you've right sized the cost structure. And you obviously have a couple of growth initiatives that are starting. But, you know, the question would be going forward, is it possible to kind of maintain level EBITDA with very minimal top line growth? Or do you think you could do more on the cost side if you need to?
Speaker Change: You referenced the variable compensation.
Speaker Change: Year over year Delta the incremental interest expense of $30 million.
Speaker Change: Would you.
Speaker Change: Basically expect V O to grow low single digits, as well and travel and membership is flat I'm just I'm just trying to triangulate how youre seeing the rest of the euro what's incorporated in there.
Speaker Change: Yeah. Good morning, gentlemen, thanks for the question on the variable compensation.
Speaker Change: As you would expect the you know the biggest impact is going to be.
Michael Brown: Or do you expect the expectation really is that we will begin to see the top line growth accelerate a little bit? Thanks. Yeah, well, yes, you can get growth through top-line growth. One of the key elements that we've modified is that the addition of the travel club business is driving incremental growth in that space. Although it's not meeting the expectations we originally laid out on investor day, it is providing growth, and it is providing a new source of revenue for that side of the business. So the right sizing was really a reflection of the growth trajectory we saw in travel clubs.
Speaker Change: At the travel member sentiment because they were the ones that are you know as compared to our original expectations.
Speaker Change: Like meat to the level that we set out the second most significant impact would be at the consolidated level traveler membership I'm, sorry, travel and leisure because we're comping travelling leisure based on consolidated and a D. And then as Michael Brown touched on Wyndham destinations you know basically performed well for the year. So their impact is going to be small.
Speaker Change: In terms of the cadence of that throughout the year.
Michael Brown: And we've seen a lot of predictability start to come into the exchange side of the equation. As we saw coming out of the pandemic, it dropped, but we're starting to see that stabilize to a revenue range that we think is pretty predictable. So yeah, I think we can see top-line growth, and we just needed to make some changes to make sure the cost structure reflected what we thought was the future growth in revenue in the travel and membership space. Okay, very helpful. Thanks, Michael. Thanks, Chris.
Speaker Change: Pretty much evenly spread in Q2 through Q4, obviously you know as you're getting later in the year you get your design you kind of see how things are going and that's when you start to make those adjustments if or if there are any adjustments to be made so in your models. You can think about that coming through pretty much be in Qs two through four.
Speaker Change: As far as the year over year growth rate, you're exactly right that the two big hit headwind. We have are the $30 million interest expense when that we've talked about and then the variable compensation, which obviously we mentioned today.
Speaker Change: If you take.
Joseph Greff: Our next question is from Joe Grace with J.P. Morgan. Please proceed. Good morning, guys.
Speaker Change: Take those two out of the picture, you're basically looking at 46% growth year over year. When we think about the long term you know the reason we believe over the long term, we can get back up to high single digit growth is we do expect interest rates to subside, we're already seeing that and what happens on the ABS transactions. They have about a three and a half year life. So.
Joseph Greff: Mike, the reference to the variable compensation expense benefit in 2023, you indicated $17 million. Can you break that out between segments? Does that hit corporate? Does that hit, you know, V.O., T&M, as well as corporate? Is that even through the year?
Speaker Change: You know the less expensive ones that we did but Troy ended in.
Speaker Change: The middle of 2022 will finally kind of be all rolled all rolled off by the middle of 2025, so that interest headwind sure.
Michael A. Hug: And then I guess my bigger picture question is this. I mean, your full-year EBITDA guidance implies a low single-digit EBITDA growth rate. You referenced the variable compensation year-over-year delta, the incremental interest expense of $30 million, basically expect VO to grow low single digits as well, and travel membership is flat. I'm just trying to triangulate how you see the rest of the year, what's incorporated in there. Yeah, good morning, Joe.
Basically be neutral in 'twenty, five and then start to become a tailwind in 'twenty six as the more expensive transactions that we've put in place in late 'twenty, two and throughout 'twenty three start to roll off so you factor that into the growth that we're able to generate even covering some of that headwind and that's really the big item that gets us back to our long term growth.
Speaker Change: Oh high single digits.
Speaker Change: The next several years.
Speaker Change: Got it and then my final question is buyback slowed fairly.
Speaker Change: Substantially from the fourth quarter versus earlier in the year and slow down from the <unk>, which was slower than what it was in the Q2 in <unk>, what's what's driving that that lower activity.
Michael A. Hug: And thanks for the question. On variable compensation... As you would expect, the biggest impact is going to be on the travel membership segment because they were the ones that, as compared to our original expectations, didn't quite meet the level that we set out. The second most significant impact would be at the consolidated level, Travel & Leisure, because we're a conference, Travel & Leisure, based on the Consolidated NAD headwind that we've talked about, and then the variable compensation, which obviously we mentioned today. If you take those two out of the picture, you're basically looking at 4% to 6% growth year-over-year. When we think about the long-term, you know, the reason we believe in the long-term we can get back up to high single-digit growth is that we do expect interest rates to subside. We're already seeing that.
Speaker Change: Really.
Speaker Change: When we look at our total capital allocation strategy.
Speaker Change: You've talked about.
Speaker Change: If the right opportunity presents itself to invest in the business, we're going to make that.
Speaker Change: That decision to help drive once again to high digit long term growth that we talked about so what we looked at you know obviously as we got into the second half of the year. When we had the opportunity to invest $41 million in sports illustrated a great opportunity that we're very excited about and as we've talked about all these things that when we look at it it's really the market opportunity that presents too that's what we think the sports illustrated.
Speaker Change: As well as the relationships with the universities that we will be working with offers that opportunity. So when we think about how we use our free cash flow. Obviously the dividend is very important to us as demonstrated where we increased it again. This year and then we'll look at M&A and absent M&A or the ability to invest in the long term growth are busy.
Michael A. Hug: And what happens with the ABS transactions, they have about a three-and-a-half-year life. So, you know, the less expensive ones that we did, which really ended in the middle of 2022, will finally kind of be rolled off by the middle of 2025. So that interest headwind should basically be neutral in 2025 and then start to become a tailwind in 2026 as the more expensive transactions that we put in place in late 22 and throughout 23 start to roll off. So you factor that into, you know, the growth that we're able to generate even covering some of that headwind. And that's really the big item that gets us back to long-term growth of high single digits over the next several years. And then my final question is whether my back floats fairly.
Speaker Change: The difference goes to share repurchases. So that's why you see share repurchases being down.
Speaker Change: In the second half of the year was because we execute on the sports illustrated opportunity and then you'll really see the same thing in the first quarter. This year, where you know the acquisition of a core which we're very excited about for just under $50 million will come out of our free cash flow and as part of our capital allocation strategy.
Speaker Change: Great. Thank you.
Speaker Change: Sure. Thank you.
Speaker Change: Our next question is from David Katz with Jefferies. Please proceed.
David Katz: Hi, good morning, everyone.
David Katz: Thanks for taking my question I wanted to just go back to.
David Katz: The capital allocation choices and in view of what is obviously enthusiasm for some of the new brands and channels.
Speaker Change: Just wanted to make sure.
Michael A. Hug: [inaudible] really, you know, when we look at our total capital allocation strategy, you know, we've talked about that, you know, if the right opportunity presents itself to invest in the business, we're going to make that that decision to help drive once again that high-digit long-term growth that we talked about. So what we looked at, you know, obviously, as we got into the second half of the year was we had the opportunity to invest $41 million in Sports Illustrated, a great opportunity that we're very excited about. And as we talked about all these things, it's really the marketing opportunity that MA presents to us. And that's what we think the Sports Illustrated brand, as well as the relationships with the universities that we'll be working with, offers that opportunity. So when we think about how we use our free cash flow, obviously, the dividend is very important to us, as demonstrated when we increased it again this year. And then we'll look at M&A and absent M&A or the ability to invest in the long-term growth of the business. The difference goes to share repurchases.
David Katz: Just to sort of capture your philosophy about capital returns, obviously with repurchases and dividends being Paramount for the story for many years.
David Katz: Any change in the philosophy about.
David Katz: Those policies or strategies near term given.
Given some of these new initiatives.
Speaker Change: Good morning, David There, there's no change in our capital allocation strategy I think for the last five years, we've said.
Speaker Change: Dividends are the foundation and then you're consistently choosing between.
Speaker Change: Strategic.
Speaker Change: M&A opportunities and share repurchases and we will only act on anything M&A as it relates to what we think is has the right IRR and also.
Speaker Change: Fits into our long term strategy sports illustrated does exactly that.
Speaker Change: And for the ability to.
Speaker Change: <unk> with a brand of that quality with the marketing capabilities that come along with it.
Speaker Change: Which is lifestyle leisure in the hospitality space.
Speaker Change: Combined with a world class Hospital hospitality brand like a core which really strategically decided to.
Speaker Change: Put on pause it sales effort in Asia Pacific region.
Speaker Change: Post pandemic.
Michael A. Hug: So that's why you see share repurchases being down in the second half of the year because, right, we execute on the Sports Illustrated opportunity. And then you'll really see the same thing in the first quarter this year where, you know, the acquisition of Accord, we're very excited about, for just under $50 million will come out of our free cash flow and as part of our capital allocation strategy. Great, thank you. Sure, thank you.
Speaker Change: The opportunity to get an existing operation with 30000 members.
Speaker Change: With a brand to the quality of our core.
Speaker Change: Made complete sense to us as Mike mentioned, we've returned.
Speaker Change: 15% of our capital through dividends and share repurchases last year.
Speaker Change: On top of this pretty much the same the year prior and when we saw these two opportunities to invest in the long term growth of this business to support our long term initiatives at the high single digits.
David Katz: Our next question is from David Katz with Jeffries. Please proceed. Hi, good morning, everyone.
Speaker Change: It was really an easy choice for us and we couldn't be more excited about it.
Speaker Change: Understood and just to.
Michael Brown: Thanks for taking my question. I wanted to just go back to the capital allocation choices and in view of, you know, what is obviously enthusiasm for some of the new brands and channels. I just wanted to make sure to sort of capture your philosophies about capital returns, obviously, with purchases and dividends being, you know, paramount to the story for many years. Any change in the philosophy about those policies or strategies near term given some of these new initiatives? Good morning, David.
Speaker Change: Follow up I think the essence of the question is whether something or others like it are consumers of capital.
Speaker Change: And where is that.
Speaker Change: Does that alter the path and it sounds like it's no I just want to make sure.
Speaker Change: Yes.
Speaker Change: We're in the business of leisure vacations in the vacation ownership space and I think our 2023 execution against that shows that.
Speaker Change: Our business model.
Speaker Change: Performs extremely well and if we have the opportunity to invest in the long term success of our business look our core is more immediate because it's an existing operation of size or a relatively decent size as far as their own or basic resort system.
Michael Brown: There's been a change in our capital allocation strategy, I think, for the last five years. Dividends are the foundation, and then you're consistently choosing between strategic M&A opportunities and share repurchases, and we'll only act on any M&A as it relates to what we think has the right IRR and also fits into our long-term strategy. Sports Illustrated does exactly that.
Speaker Change: Build something like sports illustrated from ground up is it is an investment in what we do well, which is leisure vacations and vacation ownership and in the absence of those opportunities going forward, we will use our free cash flow to keep plowing into share repurchases and paying an increased dividend.
Michael Brown: And the ability to grow with a brand of that quality, with the marketing capabilities that come along with it, which are lifestyle, leisure, and the hospitality space, made complete sense to us. As Mike mentioned, we returned 15% of our capital through dividends and share repurchases last year on top of pretty much the same the year prior. And when we saw these two opportunities to invest in the long-term growth of this business to support our long-term initiatives of being high single digits, it was really an easy choice for us, and we couldn't be more excited about it.
Speaker Change: And David on the on the use of capital it would be our intent.
David Katz: On both the core and sports illustrated to have delivery inventory.
David Katz: We delivered all in just in time basis. So we will work with our partners to make sure that inventory comes in when the revenue starts to come in.
Speaker Change: Thank you.
Speaker Change: Sure. Thank you.
Our next question is from Patrick shows that chose Securities. Please proceed.
Patrick: Hi, Good morning, Michael and Mike.
Patrick: Good morning, Patrick Good morning could you talk a little bit about expectations are for <unk>.
Patrick: Growth rates for tours.
David Katz: And just to follow up, I think, you know, the essence of the question is, you know, whether Accor or others like it are consumers of capital in ways that, you know, that alter the path and sounds like it's no, I just want to make sure. No, look, we're in the business of leisure vacations in the vacation ownership space. And I think our 2023 execution against that shows that our business model, Leisure Vacations and Vacation Ownership, and in the absence of those opportunities going forward, we'll use our pre-cash flow to keep plowing into share repurchases and paying an increased dividend. And David, on the use of capital, it would be our intent in both the core and sports sales trade to have inventory delivered on a just-in-time basis. So, you know, we'll work with our partners to make sure that inventory comes in when revenue starts to come in. Sure, thank you. Our next question is from Patrick Scholes at Truist Securities. Please proceed. Hi, good morning, Michael and Mike. Good morning, Patrick.
Patrick: It looked like.
Patrick: At least versus street consensus numbers V. P. G was a little bit lighter, but implied in there because gross VOI sales in line.
Patrick: Maybe tourists.
Patrick: Your expectations for tours, a little bit better than us analyst first can you just talk about that please thank you.
Speaker Change: Yeah, it's a very important sort of strategic direction for the next few years is our growth. This year will be towards led as I mentioned, we had 18% growth last year, we'd expected our tour growth this year to be over 10%, which is a combination of a number of factors.
Speaker Change: We mentioned that our.
Speaker Change: Older room nights will be are already projected up versus 'twenty three that results in incremental owner tours, we have a great relationship with the Wyndham hotel groups that for the first time broke $100 million of sales last year, we expect that to grow as that relationship remains very strong and productive.
Speaker Change: And then lastly back to Chris's question is our regional teams continue to grow incrementally good profitable.
Charles Scholes: Good morning. Could you talk a little bit about expectations or, more specifically, growth rates for tours? It looked like, at least versus street consensus numbers, VPG was a little bit lighter, but implied in there because it grows DOI sales in line, maybe your expectations for tours are a little bit better than us analysts. First, can you talk about that, please?
Speaker Change: Local marketing channels as it relates to the volume per guest.
Speaker Change: We are projecting at the high end of our long term guidance range.
Speaker Change: And that really does.
Speaker Change: With our tour growth is an important dynamic to look at because with our expected new order growth. This year. This will put us over 35% of our transactions being new owners.
Michael Brown: Thank you. Yeah, a very important sort of strategic direction for the next few years is that our growth this year will be tour led. As I mentioned, we had 18% growth last year, and we'd expected our tour growth this year to be over 10%, which is a combination of a number of factors. And then lastly, back to Chris's question, our regional teams continue to grow incrementally good profitable local marketing channels. As it relates to volume per guest, we are projecting at the high end of our long-term guidance range. So that implies that as we get beyond 2024, the decisions on you should have less of an impact on VPG related to a mix adjustment unless we proactively make that choice beyond this year. Okay, thank you. I have another question here, and then I'll pop back in the queue. B2B, B2B, B2C business: would you say that's fully on the cost side, fully the right size, or where you want it to be at this point? I do. You know, it's never, it's never, it's never easy to make changes.
Speaker Change: And for those of our those of you familiar with our story, we said once we get the 35%. We are set up for the long haul to be stabilized and we can start making decisions on a year on year basis as to if we want to grow that number or not.
Speaker Change: So that implies that as we get beyond 2024.
Speaker Change: The decisions on.
Speaker Change: You should have less of an impact on V. P. G.
Speaker Change: <unk> two a mix adjustment unless we proactively make that choice.
Speaker Change: Beyond this year.
Speaker Change: Okay. Thank you and I have another question here and then I'll hop back in the queue.
Speaker Change: CDP the B to B to C business would you say that's fully on the cost side fully right size of where you want it to be at this point.
Speaker Change: I do.
Speaker Change: It's never it's never easy to make changes and I think the industry has evolved dramatically over the last 12 years.
Speaker Change: And at some point the nature of the structure of the industry changes and therefore, you have to change the structure of your business.
Michael Brown: And I think the industry has evolved dramatically over the last 12 years. And at some point, the nature of the structure of the industry changes, and therefore, you have to change the structure of your business. Our teams continue to deliver great exchanges with over 3.5 million members in that space. But you recognize structurally where the exchange business is, which, as we shared, will have low single-digit growth this year, and you have to make those changes, which is what we did. I still love the business, high margin, high free cash flow, and think that this sets us up for a very clear line of sight to our performance in 2024, which candidly was a constant conversation that we had on these calls. And that change, along with our clear line of sight to this year's performance, should hopefully result in a lot of calls this year where people are nodding their heads because we're hitting those expectations and achieving the goals we Okay, good to hear. I'll jump back in the queue.
Speaker Change: Our teams continue to deliver.
Speaker Change: Great exchanges, whatever $3 5 million members in that space.
Speaker Change: But you recognize structurally where the exchange business is which as we shared will be low single digit growth. This year and you have to make those changes.
Speaker Change: Which is what we did.
Speaker Change:
Loved the business high margin high free cash flow.
Speaker Change: And think that.
Speaker Change: This sets us up for a very clear line of sight to our performance in 2024, which candidly was a constant conversation that we had on these calls.
Speaker Change: And that change along with our clear line of sight to this year's performance.
Speaker Change: Should hopefully result in a lot of calls this year, where people are nodding their heads because we're hitting those expectations and achieving the goals we laid out.
Speaker Change: On this call.
Speaker Change: Okay. Good to hear I'll jump back in the queue. Thank you.
Speaker Change: Thank you Patrick.
Brandt Montour: Our next question is from Brent entire with Barclays. Please proceed.
Brandt Montour: Hey, good morning, everybody and thanks for taking my question.
Brent: I'm curious kind of core.
Brandt Montour: Thank you. Our next question is from Brandt Montour with Barclays, please. Good morning, everybody.
Brent: If you could give us a sort of sense for.
Brent: The run rate EBITDA.
Michael Brown: And thanks for taking my question. I'm curious, at the core, if you could give us a sort of sense for, you know, the run rate for this asset at the time of purchase. If you've put anything in your 24 guides, I'm assuming no, but also, you know, help us understand sort of, you know, if there are synergies that you see in that asset and if there's a fee to the core and how that, well, I'm sure there is, but how that fee is structured with them so that they're incentivized to sort of help you with their database. Absolutely So, their run rate even is approximately $68 million.
Brent: This asset at the time of purchase if you put anything in your and your 24 guidance and assuming no.
Brent: But also help us understand sort of if there are synergies that you see in that asset.
Brent: And if there is a C to a core and how that one sure there isn't but how that piece is structured with them. So that they are incentivized to sort of help you with their database.
Absolutely.
Brent: So.
Brent: Bob.
Brent: There is there a run rate EBITDA is approximately $6 million to $8 million.
Brent: As I mentioned previously as they had really stalled their sales efforts.
Michael Brown: And as I mentioned previously, they had really stalled their sales efforts coming out of the pandemic to decide exactly how they wanted to take the business forward. So, as we look at this year, we should be closing this deal at the end of Q1, which means we have three-fourths of the year, which means it is very immaterial even for this year, 2 to 3 million. But our investment and real focus this year will be the re-launching and growth of the sales efforts related to the Accor Vacation Club. There's no one on this call that doesn't know the brand and know the quality of it, and have the level of resorts in Region 24.
Brent: Coming out of the pandemic to decide exactly how they want to take the business forward.
Brent: So as we look at this year.
Brent: We should be closing this this deal at the end of Q1, which means we have three fourths of the year, which means very immaterial EBITDA for this year $2 million to $3 million.
Brent: But our investment and real focus this year will be the re ramping and growth of the sales efforts related to the core vacation club.
Brent:
Brent: There's no one on this call that doesn't know that brand into the quality of it and having the level of resorts in the region 24.
Brent: The core team is excited about it the travel leisure team is excited.
Michael Brown: The Accord team is excited about it. The Travel & Leisure team is excited. And, very similar, it's a license fee arrangement.
Brent: And very similar.
Brent: It's a license fee arrangement so.
Michael Brown: So they're incented for us to grow their member count, their top line, and ultimately, to add more resorts at more Accord destinations. That all sounds great. And I guess just one quick follow-up. Is your expectation that this could be accretive to VPGs when you guys get everything running the way you want it to? The short answer is yes, but the more detailed answer is materially against.
Brent: Their incentive for us to grow their member count their top line and ultimately leading to more resorts at more core destinations.
Brent: Now it sounds great and then I guess just one quick follow up is your expectation that that could be accretive to <unk>. When you guys get everything running the way you want it to.
Speaker Change: The short answer is yes, the the more detail answer is material materially against $2 2 billion of sales.
Michael Brown: 2.2 billion in sales. It's not going to move a BPG needle, but, you know, the Encore Vacation Club is an up-scale brand which tends to... bring with it slightly higher... Great. Thanks, everyone.
Speaker Change: It's not going to move our PPG needle, but.
The core vacation club as an upper upscale brand and which tends to.
Speaker Change: Bring with it slightly higher repeat use.
Speaker Change: Great. Thanks, everyone.
Speaker Change: Yes.
Speaker Change: Our next question is from Danny Assad with Bank of America. Please proceed.
Dany Asad: Our next question is from Dany Asad with Bank of America. Please proceed. Hi, good morning, everybody.
Dany Asad: Hi, good morning, everybody.
Dany Asad: Mike.
Dany Asad: My first questions on margins, just kind of with the implied, like VOI segment and kind of what we've talked about so far. Where would you expect VOI margins to shake out in 2024 compared to 23? And how much would you quantify, if you could, the impact of, you know, remixing new owners and kind of driving that, you know, tour flow for 24 hours.
Dany Asad: First question is on margins just kind of what the implied.
Dany Asad: Like VOI segment, and kind of what we've talked about so far.
Dany Asad: Where would you expect VOI margins to shake out in 2024 compared to <unk> 23, and how much would you quantify if you could the impact of.
Dany Asad: Remixing, new owners in kind of driving that.
Dany Asad: Tour flow.
Dany Asad: For 24.
Speaker Change: Yeah as you would expect I mean, our margins for next year for the <unk> business.
Michael A. Hug: Yeah, as you'd expect, I mean, our margins for next year for the VO business will be down a little bit. The $30 million interest headwind, obviously, is what's most impactful in terms of, you know, what's driving that margin down a little bit. We finished on a consolidated basis at 24.2% this year.
Speaker Change: We'll be down a little bit the $30 million interest headwind, obviously is what's most impactful in terms of.
Speaker Change: What's driving that margin down a little bit we finished on a consolidated basis 24, 2%.
Michael A. Hug: We'll be down just a little bit once again because of that interest headwind. And then, to your point on the new owner generation, that does put about $10 million in pressure on EBITDA as we move up to 35%. So the consolidated drop in margin I've talked about is primarily at the VOI level. And if you think about, too, the comment I made earlier about, you know, how are we confident in that long-term growth being back up to the high single digits, in addition to the variable cost and the interest headwinds that we have in 24, we do have this continued investment in the new owner mix. So, as Michael touched on, as we get up to 35%, 36% new owner mix, and if we decide to settle in there, that's a headwind that we no longer have as far as, you know, the potential BPG pressure or the higher marketing costs. And for my follow-up, as we keep driving tour flow, do you ever see yourself running into any capacity limitations on tour growth or, you know, I know we're still kind I don't...
Speaker Change: This year will be down just a little bit once again because of the interest headwind and then to your point on to the new owner generation.
Speaker Change: That does have about $2 million in pressure on EBITDA as we move up to the 35% so the.
Speaker Change: The drop in margin that I talked about is primarily at the at the dealer level and if you think about to the comment I made earlier about you know how are we confident that long term growth came back up to high single digits. In addition to the variable comp and interest headwinds that we have in 'twenty. Four we do have just continued investment in the new owner mix. So as Michael touched on as we get up to 30.
Speaker Change: 536%, new owner mix and if we decide to settle on there that's it.
Speaker Change: Headwind that we no longer have as far as.
Speaker Change: The potential B B G.
Your or the higher marketing costs.
Speaker Change: Got it thank you and for my follow up as we keep driving tour flow.
Speaker Change: Do you ever.
Speaker Change: See kind of yourself running into any capacity limitations on tour growth or.
Speaker Change: We're still kind of a ways off from 2019 levels, but just kind of curious.
Speaker Change: Any kind of like capacity issues that you can see.
Speaker Change: I don't I don't see any physical capacity issues, we have sufficient sales space.
Speaker Change: People are the key to success in this industry and we're very focused on retaining and bringing in new talent. So I think physical capacity in human capacity or are the most important.
Michael Brown: I don't see any physical capacity issues. We have sufficient sales space. People are the key to success in this industry, and we're very focused on retaining and bringing in new talent. So I think physical capacity and human capacity are the most important things, along with the third leg of that story in today's world. Data is key.
Speaker Change: Along with the third leg of that storage.
Speaker Change: In today's world data is key so it's one of the reasons that we.
Speaker Change: We love the relationship with within the hotels and are excited about their growth in their loyalty program as well. It's the reason we're excited about the additions of sports illustrated a core as they bring new databases untap databases to a certain degree and give us the ability to grow our marketing component.
Michael Brown: So it's one of the reasons that we love the relationship with Woodland Hotels and are excited about their growth and their loyalty program, as well as the reason we're excited about the addition of Sports Illustrated and Accor is that they bring new databases, untapped databases to a certain degree, and give us the ability to grow our marketing component. Travel Membership segment, high margin, and the rapid rise of interest rates. I just want to say I'm very proud of our team.
Speaker Change: If I could just swing back to add one comment to my <unk>.
Speaker Change: The Cubs earlier on margins.
Speaker Change: I think in a year like 2023, where we had our challenges at all.
Speaker Change: Travelled memberships at high margin and the rapid rise of interest rates.
Speaker Change: Once I am very proud of our team, yes, we organically executed to our vacation ownership plans that we laid out at the beginning of 2023 and I think that was a great accomplishment, but also the overall margin of the business, but some headwinds against high margin business shows once again that.
Michael Brown: Yes, we organically executed on our vacation ownership plan that we laid out at the beginning of 2023. And I think that was a great accomplishment, but also, the overall margin of the business, with some headwinds against high-margin business, shows once again that, you know, our team, when faced with challenges, finds a way to deliver against expectations. And in the case of 2023, actually improve our margins slightly. Thank you very much. Thanks, Danny. Our next question is from Ian Zaffino with Oppenheimer & Company. Hey, good morning. This is Isaac Sellhausen on behalf of Ian.
Speaker Change: Yeah.
Speaker Change: Our team when faced with challenges finds a way to deliver against expectations.
Speaker Change: In the case of 2023 actually.
Speaker Change: Our margins slightly.
Speaker Change: Thank you very much.
Speaker Change: Thanks Danny.
Speaker Change: Our next question is from Ian Zaffino with Oppenheimer <unk> Company. Please proceed.
Ian Zaffino: Hey, Good morning. This is <unk> on for Ian Thanks for taking the questions.
Isaac Arthur Sellhausen: Thanks for taking the questions. First, just a follow-up on travel and membership. How should we think about the maybe top-line recovery of that business as we move through the year? And what are the expectations maybe around members and exchange transaction growth? You know, should we still expect some headwinds on exchange transactions? Yeah, good morning. This is Michael.
Speaker Change: First just a follow up on travel and membership how should we think about the top line recovery of that business as we move through the year.
Speaker Change: What are the expectations, maybe around members and exchange transaction growth.
Speaker Change: Should we still expect some headwinds on exchange transactions and then maybe modest growth in our members.
Speaker Change: Yeah. Good morning. This is Michael Thanks for the question.
Michael A. Hug: Thanks for the question. When we look at the travel membership business on the exchange side, we do expect the number of exchange members to continue to grow. We also are seeing across the industry continued new owner generation, increases in new owner generation, just like we did in 24 compared to 23. So member count, we expect to continue to go up. The one challenge we have that we've talked about is that most of that growth is coming from clubs, which obviously have a lower propensity to exchange.
Michael: When we look at the travel and membership business on the exchange side, we do expect the exchange members to continue to grow.
Michael: We are seeing across the industry continued new owner generation increases in neuro generation just like we're doing in 24 compared to 23. So member count we expect to continue to go up.
Michael: The one challenge we have that we've talked about is most of that growth is coming in the clubs, which obviously have a lower propensity to exchange. So when we look at the expectation for your exchange transactions, we do expect them to be down a little bit.
Michael: Like we did in 2003, we will try to make up for that with some pricing.
Michael: And then as it relates to the travel clubs, we do expect increase in transactions.
Michael A. Hug: So when we look at the expectation for exchange transactions, we do expect them to be down a little bit. But like we did in 2023, we'll try to make up for that with some pricing. And then as it relates to the travel clubs, we do expect an increase in transactions out of the travel clubs. So overall, for this segment, you'll see revenue growth in the mid single digits. And as we mentioned, EBITDA growth will be in the low single digits. The reason for that difference is the revenue that comes from the travel club. Okay, very helpful.
Michael: As a travel club so overall for this segment Youll see.
Michael: Revenue growth in the mid single digits and as he mentioned EBITDA growth will be in the low single digits. The reason for that difference is the revenue that comes on the travel side of business does come with a lower margin as compared to the RCI exchange.
Speaker Change: Okay very helpful. And then just as a follow up you mentioned, a 4% resort for bookings excuse me were ahead of 2023 levels I'm not sure how specific you can get but maybe how far ahead are we are.
Speaker Change: And then maybe you could touch on regions that are performing particularly well.
Speaker Change: I can.
Speaker Change: For the first half of the year. The two primary destinations are where you would expect Las Vegas, and Orlando are leading the charge.
Michael Brown: And then, just as a follow-up, you mentioned four resort bookings. Excuse me, we're ahead of 2023 levels. I'm not sure how specific you can get, but maybe how far ahead are we? And then maybe you could touch on regions that are performing particularly well. I can.
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Speaker Change: I expect this year that you'll see.
Speaker Change: Return to U S travel I think we all know that.
Speaker Change: Europe was the hot market last year and cruise I think the second half of the year blending into the first part of this year remains hard I'm not sure how they travel through the year, but our.
Michael Brown: For the first half of the year, the two primary destinations are where you would expect, Las Vegas and Orlando leading the charge. I expect this year that you'll see a return to US travel. I think we all know that Europe was the hot market last year for cruises. I think the second half of the year, blending into the first part of this year, remains hot.
Speaker Change: Our bookings are ahead.
Speaker Change: 5% on room nights for the full year.
Speaker Change: And.
Speaker Change: Yeah, five 5% for the full year.
Speaker Change: Okay perfect. Thanks, so much.
Michael Brown: I'm not sure how they [inaudible] 5% on room nights for the full year and Yeah, 5% for the full year. Okay, perfect. Thanks so much. Just one more quick thing to add to that is, you know, post-pandemic, there's been a tendency for longer length of stay, or we're seeing that longer length of stay continue, which really sort of validates this work-from-anywhere environment that continues to persist, even into 2024, related to our older books. As a reminder, there's star one on your telephone keypad if you would like to ask a question. Our next question is a follow-up from Patrick Scholes with TruSecurities. Please.
Speaker Change: Just one more quick thing to add to that is you know post pandemic, there's been a tendency for longer length of stay.
Speaker Change: We're seeing that longer length of stay continue which.
Speaker Change: Really sort of validates this work from anywhere.
Speaker Change: <unk> that continues to persist.
Speaker Change: Even into 2024 related to our older bucket.
Speaker Change: As a reminder, this star one on your telephone keypad, if he would like to ask a question. Our next question is a follow up from Patrick Charles It truly securities. Please proceed.
Patrick Scholes: Okay. Thank you.
Charles Scholes: Okay, thank you. Yeah, I do have a couple follow-up questions. Mike, can you talk about expectations for loan loss provision going forward? I think the long term, you know, you've talked about in the past around 18 to 19%. And then related to that, have you, I assume, made any changes to your credit standards? Let me know if there have been any.
Patrick Scholes: A couple of follow up questions.
Patrick Scholes: Mike can you talk about expectations for loan loss provision going forward I think the long term you've talked about in the past around 18% to 19% and then related to that have you I assume no changes to your credit standards. Let me know if there have been any and then if you also could provide a little bit of color.
Patrick Scholes: On.
Patrick Scholes: Any thing you notice.
Patrick Scholes: Since our last earnings on customers' propensity to pay their loans. Thank you.
Michael A. Hug: And then just if you could provide a little bit of color on anything you've noticed and last earnings on customers' propensity to pay their loans. Thank you. Obviously, we ended up the year 2023 at the lower end of that range, demonstrating, right, the good performance in the portfolio. We continue to be very happy with portfolio performance, obviously driven in large part by the move up to minimum 645. Our new originations are coming in at 739 in 2023. That's up from 736 in 2022.
Patrick Scholes: Yes.
Michael Millman: Thanks again for the questions Patrick first of all on the provision.
Speaker Change: We've been consistent in terms of that being in the 18% to 19% range.
Speaker Change: Obviously, we ended up the year 2023 at the low end of that range demonstrating the good performance of the portfolio will continue to be very happy with portfolio performance.
Speaker Change: And obviously driven in large part by that move up to a minimum 40 FICO are new originations are coming in at 739 in 2023, that's up from 736 and 2022. So we're very very happy with the credit quality and I don't see it changing that in the near term just couldn't be happier with the way the.
Speaker Change: Our consumers performing.
Speaker Change: When we look at delinquency, he's very happy with the level of delinquencies. Obviously, you know you see more pressure on the on the lower end of the back up in the higher end, but nothing that is out of the ordinary or outside of our expectations and that's another reason, we continue to have confidence and great execution on the ABS transaction drive those things or something.
Michael A. Hug: So, we're very, very happy with the credit quality, and I don't see us changing that in the near term. I just couldn't be happier with the way our consumer is performing. When we look at delinquencies, we're very happy with the level of delinquencies. Obviously, you see more pressure on the lower end of the FICOs than the higher end, but nothing that, you know, is out of the ordinary or outside of our expectations.
Speaker Change: Something that we do very regularly in our quality portfolio makes it.
Speaker Change: An easy decision for investors and those notes to the jump in three times a year. When we go to market. So very happy with credit quality very high credit provisions that I would say that if it does end up at the high end of the range in 2024, it would be because of the conscious decision that we make.
Michael A. Hug: And, you know, that's another reason we continue to have confidence and great execution on the ABS transactions, right? So, those things are, you know, something that we do very regularly, and our quality portfolio makes it an easy decision for investors in those notes to jump in three times a year when we go to market. So, very happy with credit quality, very happy with where the provision's at. I would say that if it does end up at the high end of the range in 2024, it will be because of the conscious decision that we make to sometimes try to generate more financing from those good quality FICOs. So, you know, we do want to get that interest income growing again, doing everything we can to offset the interest expense headwinds. And so, you know, don't read us coming in at the high end of that range in 2024.
Speaker Change: Times to try to generate more financing from those good quality FICO. So we do want to get that interest income growing again doing everything we can to offset the interest expense headwinds and so you know don't.
We are coming in at the high end of that range in 2024, if we do it.
Speaker Change: Quality issue, making sure you listen to what we say as it relates to the level of originations, we have and obviously the long term earnings growth and drive.
Okay. Thank you.
Speaker Change: And then just shifting gears a little bit here, Michael I know, you're supposed to have a little bit of Hawaii exposure I'm, certainly far less than some of your peers, but could you talk about.
Speaker Change: Recent trends in Hawaii.
Speaker Change: <unk> et cetera, and then if you have any granularity on how that might break out say versus a wahoo versus Maui. Thank you.
Michael: So so we have a significant Hawaii exposure.
Michael A. Hug: If we do have a quality issue, make sure you listen to what we say as it relates to the level of originations we have and, obviously, the long-term earnings growth that drives that. Okay, thank you. And then just shifting gears a little bit here, Michael, I know you folks have a little bit of Hawaii exposure, certainly far less than some of your peers, but could you talk about recent trends in Hawaii, visitation, et cetera, and then if you have any granularity on how that might break out, say versus Oahu versus Maui.
Michael: <unk> Maui and the Big Island in Kuwait.
Michael: We only have one resort in Maui, and what I would say for our 2023 performance.
There was no material change from what we performed in that market from 2022 and as it relates to 2024 bookings they look very.
Michael: Very similar to what they were in 'twenty three 'twenty two so for us we really.
Michael: Really didn't see any material variability in performance, both sales or occupancy.
Michael Brown: Thank you. So, uh, we have significant Hawaii exposure on Oahu, Maui, and the Big Island, and Kauai. Um, we only have one resort in Maui, and as for our 2023 performance, there was no material change from what we performed in that market in 2022. And as it relates to 2024 bookings, they look very similar to what they were in 23 and 22. So for us, we really didn't see any material variability in performance, both sales or occupancy, for the year between the three years, 22, 23, and 24.
Michael: For the year.
Michael: Between the three years 'twenty to 'twenty, three and 'twenty four and again, we only have the one year's award on on the island of Boeing.
Speaker Change: Right, Okay, and then just.
Speaker Change: Switching gears, and that's sort of the south Pacific or Australia.
Speaker Change: Like our core is.
Speaker Change: Their properties are in that region any plans for expansion.
Speaker Change: Or growth, perhaps down the road to take that to other.
Speaker Change: Destinations outside of where it's currently face.
Speaker Change: So.
Speaker Change: The key to expansion is good execution. So our first priority would be to make sure we execute against the plan, we put forward, but the short answer to your future expansion question is yes, we want to.
Charles Scholes: Right, but okay, and then just 15 years in the South Pacific or Australia, you know, it seems like a core is their properties are in that region. Any plans for expansion or growth perhaps down the road to take that to other destinations outside of where it is currently? Currently, let's see.
Speaker Change: The average the relationship.
Speaker Change: Build a good one with a core just like we have with Wyndham hotels, which has proved to be highly successful and then from there gain the mutual respect and alignment economically to grow and do more.
Michael Brown: Thank you. So The key to expansion is good execution, so our first priority would be to make sure we execute against the plan we put forward. But the short answer to your future expansion question is yes. We want to establish a relationship, build a good one with Accord, just like we have with Wyndham Hotels, which has proved to be highly successful. And then, from there, gain mutual respect and alignment economically to grow into more locations, countries, and regions of the world.
Speaker Change: More locations countries and regions of the world.
Speaker Change: Okay I'm all set thank you.
Speaker Change: Thanks, Patrick.
Speaker Change: We have reached the end of our question and answer session I would like to turn the conference back over to management for closing remarks.
Speaker Change: Thank you Sherry.
Speaker Change: We were very pleased with our fourth quarter and full year performance, particularly in our core business vacation ownership, we are effectively leveraging leisure travel momentum, which we expect to continue in 2024 as indicated by our announcement of the core agreement, we have great traction in executing our multi brand strategy.
Speaker Change: We are excited by the opportunities ahead to drive earnings and adjusted free cash flow and to deliver value to our shareholders I want to thank our teams who work tirelessly every day to put the world on vacation and thank you for participating have a great day everyone.
Michael Brown: Okay, I'm all set. Thank you. [inaudible] We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing. Well, thank you, Sherry. We were very pleased with our fourth quarter and four-year performance, particularly in our core business, vacation ownership. We are effectively leveraging the leisure travel momentum, which we expect to continue in 2024. As indicated by our announcement of the Accor Agreement, we have great traction in executing our multi-grant strategy. We are excited by the opportunities ahead to drive earnings and adjusted free cash flow and to deliver value to our shareholders.
Speaker Change: Thank you. This will conclude today's conference you may now disconnect and thank you for your participation.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
Michael Brown: I want to thank our teams who work tirelessly every day to put the world on vacation. And thank you for participating. Have a great day, everyone. Thank you. This will conclude today's conference. You may now disconnect.
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: