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Presentation

Operator: Greetings, and welcome to the Travel and Leisure Fourth Quarter 2022 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Christopher Agnew, Senior Vice President, FP&A and Investor Relations for Travel and Leisure. Thank you. You may begin.

Christopher Agnew: Thank you, Melissa, and good morning. Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements and the forward-looking statements made today are effective only as of today. We undertake no obligation to publicly update or revise these statements. The factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release accompanying this earnings call. You can find a reconciliation of the non-GAAP financial measures discussed in today’s call in the earnings press release available on our website at travelandleisureco.com/investors.

This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our fourth quarter and full year results and outlook. And Mike Hug, our Chief Financial Officer, will then provide greater detail on the quarter, our balance sheet and liquidity position. Following these remarks, we look forward to responding to your questions. With that, I’m pleased to turn the call over to Michael Brown.

Michael Brown: Thank you, Chris. Good morning and thank you for joining us today. This morning, we reported fourth quarter results that demonstrate continued robust leisure travel demand, allowing us to generate strong free cash flow, drive meaningful adjusted EBITDA growth and return a significant level of capital to shareholders. In the fourth quarter, we reported adjusted EBITDA of $225 million and adjusted earnings per share of $1.30. Adjusted free cash flow was $245 million. Leisure travel demand remained robust in the quarter and that demand has continued into Q1 of 2023. Our overarching strategic goal, which we are achieving, is to increase our historical growth rate, while continuing to generate meaningful and substantial cash flow.

Performance across our most important KPIs is driving our results, allowing us to deliver 10% adjusted EBITDA growth in 2022 and as you will see in our guidance growth of 7% to 9% in 2023. We finished 2022 with the highest annual volume per guest in the company’s history and returned $486 million of cash capital to shareholders, a level representing 15% of our current market cap. For the full year, adjusted EBITDA increased 10% year-over-year to $859 million and with strong adjusted free cash flow conversion, adjusted free cash flow doubled to $439 million over the prior year. As a reminder, 2021 included a $58 million benefit to adjusted EBITDA related to the COVID reserve release, including $28 million in the fourth quarter. Absent the benefit from this release, adjusted EBITDA would have increased 19% over 2021.

Adjusted earnings per share totaled $4.52, which is a 24% increase year-over-year. Reflecting on last year, our Cornerstone businesses performed very well and our new club businesses laid the foundation for accelerating growth. We delivered record VPG of $3,426 for the full year, which is 9% and 44% above 2021 and 2019, respectively. The record strength in VPG is broad based. The strong performance was across all North American regions with increases in both close rates and transaction prices. We are confident this is a clear sign that consumers see the value of our products and are prioritizing vacations. As a reminder, we made a strategic decision to increase our total quality standards and are now seeing the benefits in elevated VPG. The only lagging portion of the business was our international operations, where a mix of travel restrictions and currency headwinds impacted operations.

Tours increased 24% to 561,000 dollars in 2022, inclusive of 33% growth in new owner tours. New owner sales increased 42% year-over-year, bringing new owner transaction mix to 31%, a 300 basis point improvement over the prior year. Blue Thread sales increased 65% year-over-year to $96 million, representing an all-time high for our affinity lead generation relationship with Wyndham Hotels. Blue Thread sales represented 16% of new owner sales, up 200 basis points over the prior year. With both strong tour growth and VPGs, gross VOI sales finished the year 33% ahead of 2021. Moving to our Travel and Membership segment, RCI had a solid year with North American revenue per transaction or RPT increasing 10%. This strength was partially offset by lower international RPT and a 5% decrease in average members.

The decrease in members reflects the industry wide decline in new owner enrollments since the pandemic began. Although absolute member count has increased sequentially for the last two quarters, it remains down on a year to year basis. We expect RCI member count will remain a headwind for Travel and Membership in the first half, and Mike will provide more color on the first quarter outlook in a moment. Our Travel Club business continued to build the foundation, while also experiencing growth. Our Travel Club businesses increased transactions 37% year-over-year as we brought on 75 new affiliate relationships in the year. Looking ahead, owner reservations on the books for the year are pacing above 2022. First quarter to date, owner reservations are 6% ahead of the prior year.

At RCI, occupancy of available first quarter supply was up 3% compared to the prior year. As we sit here today, the strong leisure travel trend of last year remains intact. Turning to our 2023 outlook. For the full year, we are providing guidance range of adjusted EBITDA between $920 million and $940 million. Gross VOI sales of $2.1 billion to $2.2 billion and VPG in the range of $3,050 to $3,150. Our tour expectations for this year are above 2019 levels once you account for the changes we made to our marketing criteria. As a reminder, we made the changes to our marketing criteria in order to raise our sales efficiencies and strengthen our finance portfolio, both of which are happening. For our Travel Club business, we expect transaction growth of 20% to 25%, weighted to the second half of the year.

Our business model has a base of steady and predictable revenue and we expect to convert 55% to 60% of our adjusted EBITDA into adjusted free cash flow in 2023 and to allocate that capital to pay our dividend, repurchase common stock or for M&A if a compelling opportunity arises. As we shared with you at our Investor Day in 2021, our strategic goal is to accelerate the earnings growth profile of the business, while continuing to generate strong and sustainable cash flow. Our plan at that time was based on a combination of strengthening and expanding our cornerstone businesses, being vacation ownership in RCI, as well as adding incremental growth through business extensions, namely our travel clubs. I’m confident in saying we remain on track to achieve our corporate goal of elevating enterprise growth, although with a slightly different mix than originally anticipated.

Holistically, the strength of our vacation ownership growth combined with the consistency and high margins of our vacation exchange business continues to give us a strong foundation for growth. The incremental adjusted EBITDA generated by our travel clubs, albeit relatively small within the enterprise today, contributed to successfully raising our growth profile in 2022. We fully expect the strategy we laid out in 2021 to play through into an elevated growth rate in 2023. For more detail on our performance, I would now like to hand the call over to Mike Hug.

Mike Hug: Thanks, Michael, and good morning to everyone. As well as discussing our fourth quarter results, I’ll provide more color on our balance sheet, liquidity position and cash flow. We reported fourth quarter adjusted EBITDA of $225 million and adjusted diluted earnings per share of $1.30, compared to $228 million and $1.19 one year ago. As a reminder, the fourth quarter of 2021 included a $28 million adjusted EBITDA benefit from the COVID reserve release. Absent this item, adjusted EBITDA would have increased 12.5%. Moving to the performance of our two business segments in the fourth quarter. Vacation ownership reported segment revenue of $737 million and adjusted EBITDA of $186 million increases of 5% and 1% respectively over the fourth quarter of 2021.

We delivered 147,000 tours and a VPG of $3,434, representing increases of 14% and 7% respectively over the prior year. Revenue in our travel membership segment was $163 million in the quarter compared to $170 million in the prior year, a 4% decrease. Adjusted EBITDA was $57 million compared to $62 million in the prior year, a decrease of 8% primarily due to a decrease in exchange subscription revenue resulting from lower average member count. Travel and Membership transactions decreased 5% compared to the fourth quarter of 2021, tracking average exchange membership. In addition to driving strong adjusted EBITDA growth, we continue to maintain a strong balance sheet and return capital to shareholders. We completed two transactions in the fourth quarter.

We closed a $250 million ABS term transaction. And we closed on an incremental term loan B of $300 million which will mature in 2029. We expect to use the net proceeds from this loan and capacity under our corporate revolver to repay our outstanding $400 million secured notes that mature in March. Regarding capital allocation, we repurchased $351 million of common stock, reducing outstanding shares from 86 million to 78 million and paid $135 million in dividends in 2022. We paid our fourth quarter dividend of $0.40 per share on December 30, and we will recommend an increase to our quarterly dividend to $0.45 per share for approval by our Board of Directors. Adjusted free cash flow for the year was $439 million with adjusted free cash flow conversion from adjusted EBITDA at 51%.

We expect to be within our targeted 55% to 60% adjusted free cash flow conversion range by the end of 2023 and for it to be weighted to the second half of the year, primarily due to the timing of inventory spend and ABS transactions. As a reminder, we expect to remain below our historical levels of inventory spend for several years to come and 2023 is no different with expected inventory spend between $90 million and $100 million. Our net corporate leverage for covenant purposes was 3.5 times at the end of the year, and we expect to continue to delever through adjusted EBITDA growth. In the first half of 2023, we expect our leverage ratio to increase slightly due to the timing of cash flows, but anticipate ending the year below 3.5 times. Let me provide some more detail about our expectations for the first quarter and the full year.

We expect gross VOI sales to be in the range of $400 million to $420 million, a 5% to 10% increase over the prior year with VPGs in the range of $3,100 dollars to $3,200. Keep in mind, that vacation ownership adjusted EBITDA faces a $5 million year-over-year headwind to net interest income in the first quarter as a result of higher interest expense on our most recent ABS transactions. For the full year, this headwind is anticipated to be approximately $20 million. We expect Travel and Membership adjusted EBITDA in the first quarter to be down in the mid-single digits year-over-year, primarily due to the impact of lower RCI member count on exchange transactions and the timing of marketing spending at our travel clubs. For the full year, we expect travel membership adjusted EBITDA to grow mid-single digits.

Overall, we expect adjusted EBITDA for the first quarter to be in the range of $170 million to $180 million and $920 million to $940 million for the full year. In summary, we are pleased with our full year earnings and cash flow and our continued ability to return capital to shareholders. We are excited about the leisure travel momentum that has continued into 2023 and our results demonstrate the quality of our consumers and our ability to capitalize on the strong leisure travel market to drive earnings and adjusted free cash flow. With that, Melissa, can you please open up the call to take questions?

Operator: Thank you. Our first question comes from the line of Joe Greff with JPMorgan. Please proceed with your question.

Joe Greff: Good morning, everyone.

Michael Brown: Good morning, Joe.

Joe Greff: You talked in your prepared remarks on capital allocation dividends repurchases, then your last comment was M&A. How theoretical is M&A and or acquisition opportunities. How theoretically is that? I mean, is there anything warm? Is there anything on the horizon? Is there much out there? And then my follow-up question relates how you’re thinking subscription revenues perform in 2023, last couple quarters that’s been $47 million, for the year it was $184 million. How do you see that growing? And how do you see that contribute to margins? And how that’s embedded in your full year guidance? Thank you.

Michael Brown: Joe, good morning. Let me first touch on the M&A question or capital allocation and then I’ll ask Mike to just touch on subscription for a second. Our perspective on capital allocation really has not changed in 2023 any different than what it was in 2022. As you saw, especially in the fourth quarter, we returned a lot of capital through share repurchases at a really strong clip and taking out nearly 8 million shares throughout the course of all of last year. As we enter 2023, our outlook and philosophy on share buybacks has not changed. As it relates to M&A, we continue to evaluate all opportunities out there, but we want to make sure anything we evaluate, both strategic and accretive. And that really is consistent with the last few years of our outlook on M&A.

Before handing over to subscription, I will just say as we look at our travel and membership business, we talked about 20% to 25% growth on transactions in our travel clubs, which is going to be the primary driver of our growth in that space of travel club. But Mike, can you talk about subscription.

Mike Hug: Yes, subscription revenue, as we talked about, we are seeing lower member count, which was to be expected until the industry starts to pick up new owner sales. And we are anticipating ourselves growing in our sales from the low-30s to the mid-30s this year. So when we think about the timing of that, not only in our business, but across the industry, we would expect subscription revenue maybe to be a slight headwind in the first half of the year, but as the member count starts to grow again in the second half of the year, we would see it as being slightly favorable compared to 2022 in Q3 and Q4.

Joe Greff: Thank you.

Operator: Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

Patrick Scholes: Hi. Good morning, everyone.

Michael Brown: Good morning, Patrick.

Patrick Scholes: Good morning. When looking at results for the quarter, pretty much in line, 1Q guide perhaps a little bit light, but you have some sort of one-timers in there. But certainly the implications are that 2Q through 4Q of next year well ahead of what consensus was thinking. What gives you confidence to come out with sort of a 2Q to 4Q implied guidance that is better than expectations?

Michael Brown: Absolutely and happy to answer that. Really it comes back to our Cornerstone businesses. Vacation ownership continues to perform extremely well. It is the vast majority of our company’s EBITDA. It’s the most predictable element of our overall business model. And as we’ve seen through the first two months of this year, as we look forward into continued strength in our owner demand, the majority of our EBITDA reliance is based off that segment of the business and that gives us a lot of confidence as we look to the remainder of this year that our guidance is well within the range of a number of economic outcomes. You’d notice within that business, we’ve said consistently over the last two years that we will have measured growth in our new owner business.

The success of 2022 allows us to invest even further into this year and really drive tour growth up nearly 20% this year. That side combined with our other Cornerstone business, RCI which is the vast majority of the travel and membership EBITDA, we are facing an early year headwind. Our member count is down about 250,000 members due to, as Mike mentioned, the industry wide decline in new owner enrollments through COVID and we’ve seen two quarters of sequential growth in that member count and we know that that will continue to grow as the industry returns to new owner generation. And considering that those two elements are the vast majority of our EBITDA gives us a lot of confidence what will occur in 2023.

Patrick Scholes: Okay. Very thorough answer. And then a follow-up question for Mike — Mike Hug. You’ve historically said that you target the loan loss provision to be below 17% long term. Is that still the expectation? And then could you give a little color on performance in the securitizations? Are you seeing any weakness in the lower end tranches at all or anything you’d want to point out there? Thank you.

Mike Hug: Yes. Great. Thanks for the question, Patrick. On the provision, we’re guiding for the full year to 18% to 19% which is consistent with what we talked about at Investor Day. The reason that number is not lower kind of that 17% range that you talked about is because, as we’ve discussed, we’ve worked to drive our percent of sales financed to around 60% from the low 50s. And what that means is, our portfolio grows quicker. We get that nice recurring high margin interest income stream. The offsetting impact is in the near term you get to higher provision because you’re financing more sales. Exclusive of that growth in the portfolio, the accelerated growth in that higher percent sales finance, we’d be talking about provision that was probably 150 basis points lower than the 18% to 19% range.

So it’s a strategic move on our part to get the portfolio growing again. We’re seeing it happen, and keep in mind that those new originations that are coming in, the higher finance balances are coming in with higher FICO as we moved our average FICO up to 735 to 736 range, which is right in line with our branded competitors. So very happy with the new originations and the strategic decision that we made to grow the portfolio. The other thing relates portfolio performance. We did talk about in the second half of last year some normalization or increase in default rates on the sub 640 FICOs. We saw that level off in the fourth quarter, so very happy to see that happen as far as that leveling off. And as a result, we actually saw our delinquency rates drop from the end of the third quarter down to the end of the fourth quarter.

So delinquencies have improved compared to the end of the third quarter. And once again, the new originations coming in are in a much better quality than what we previously originated. So overall, very happy with the portfolio. And as it relates to the ABS markets, very confident in our ability to continue to execute transactions. Obviously, we did three of those last year. I mean, we would expect to do three of those this year and that’s really why the timing of cash flow is just weighted second half of the year, which it always is, is because our second, third HBS transactions usually occur in July and October. So portfolios performing well, we remain confident in the ABS transactions, which is a big reason we’re guiding towards that free cash flow from EBITDA conversion of 55% to 60%.

Patrick Scholes: Great. Good to hear. Thank you. I’m all set.

Mike Hug: Thank you.

Operator: Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Chris Woronka: Hey, good morning, guys. Thanks for taking the question and congratulations on a great year. First question was on new owners. And you guys, I think, have made really good progress in getting that mix back up a little bit closer to where you’ve historically wanted it. Can you give us a little bit of color or background on where these folks are coming from? And are they any different in terms of demographics or type of product they’re looking for? Just a little more color on the profile of those. Thanks.

Michael Brown: Good morning, Chris. We are extremely pleased with what’s happening with new owners. 2022 was really the proven ground whether ramping up new owner tours with a higher FICO’s could deliver across the board margins and higher VPGs and that’s exactly what happened in 2022. So the accelerated growth that we’re going to see in 2023 is a commitment to a number of different elements. Number one, it’s a reinvestment in our business because we know that new owners drive incremental revenue in the future. The growth that we’re seeing there is in the traditional marketing channels that we’ve always played in, whether it be regional partnerships or overall U.S. partnerships. We’re just investing a lot more in that space and I don’t mean capital investment, I mean simply that we’re willing to commit to more relationships in our individual regions than we were previously.

So Blue Thread, you heard that hit an all-time high. That will continue to grow this year. Our regional marketing partnerships will grow this year and all in all that new owner mix which finished the year in the 30%, 31% to be exact. We expect to be near 35% this year, which really sets us up even further for future growth. There’s no change to our demographic, no change to our marketing criteria. We’re sticking to that 640 and above FICO, which is where as a company we’ve always been, so no change to that demographic. We’ve simply taken a reevaluation of the 640 and below and it doesn’t — this growth in new owner tours does not include a return to those sub 640 FICOS.

Chris Woronka: Okay. Very helpful. And then as a follow-up, I know on the Travel Club side and memberships, you guys have been doing a lot of tweaking and fine tuning. Where do you think you are in that process and what are some of the learnings you’ve taken away and what gives us confidence that you get that, I think, up to where you originally or back when you first did that TNL acquisition?

Michael Brown: Well, a few elements. First of all, our Travel Club’s transaction growth was 37% last year and we’ve laid out guidance this year of 20% to 25%. The whole purpose of not only the TNL acquisition was, yes, to help us on the travel clubs to also broaden our ability to do more in the vacation ownership space as well. But specifically to travel clubs. What gives us confidence is, we’ve learned a lot about the best and right affiliates to sign up. We’ve signed up 75 last year and we continue to have a lot of interest in the product. Our whole objective this year is to drive transactions, which is why, I thought it was important we lay out our transaction growth guidance of this year of 20% to 25%. And it’s something we haven’t normally done, but we laid out the travel and membership, the holistic RCI plus the travel clubs for the full year as mid-single digit growth.

And if you just go back to where we’ve been historically, we’ve always said without these travel clubs, RCI is a 0% to 2% growth business. In a year where we’re down 0.25 million members to start the year, with that as a fact in the vast majority of our EBITDA, the fact that we can lay out mid-single digits growth for travel and membership this year, not only says that our exchange business continues to diversify what they’re doing with share of wallet, but it also says that our travel club business is adding incremental growth to a segment of our business, which has been consistently 0% to 2% growth. So we’re not pushing that growth off to future years. We’re actually going to be realizing it this year and elevating our total enterprise growth profile.

Chris Woronka: Okay. Very good. Thanks guys.

Michael Brown: Sure. Thank you, Chris.

Operator: Thank you. Our next question comes from the line of Brandt Montour with Barclays. Please proceed with your question.

Brandt Montour: Hi, everybody. Thanks for taking my questions. Just keen of that, Mike, on the explanation of Travel and Membership growth outlook, just curious the 70 plus transactions or 70 plus accounts — the accounts that you signed up in the B2B business, I’m assuming that’s what you’re implying in 2022. How much of the 20% to 25% year-over-year growth in 2023 is basically that versus accounts that you haven’t closed on yet, early — sometime in 2023?

Mike Hug: Yes, thanks for the question, Brandt. Most of that growth in 2023 is associated with accounts that we brought on in 20 22. Keep in mind, a number of those came on in the second half of the year, which is part of the reason we’ve got some of the marketing spend in the first quarter this year is to make sure we’re in front of those new consumers that are just being introduced to the product and that they can understand the value that they can get as they start thinking booking spring break and summer travel and all that good stuff. So we’ve definitely got enough affiliates, if you will, signed up and live to deliver that 20% to 25% growth.

Brandt Montour: Okay. That’s great. Thanks for that. And then on the VO side, just sort of putting the pieces together with the gross VOI sales growth that you guys guided to and obviously loan loss provisions are going to comp — are going to be higher just by nature of rolling through sort of run rate what you were doing last year? And just curious, with that mix shift what we should be considering for that segment’s margins as the new owner mix shift hypothetically is just more margin intensive. So any color on that could be helpful. Thank you.

Michael Brown: Yes, I think when we look at margins overall for the year, we wouldn’t expect them to most significantly. We demonstrated during pre COVID when we were growing new owner sales that we could grow the new owner mix and still drive comparable margins on a year over basis. So the strong VPGs and other areas of the business where we can realize efficiencies should allow us to hold margins pretty much consistent year-over-year on that piece of the business.

Brandt Montour: Great. That’s it for me. Thanks, guys.

Michael Brown: Sure.

Operator: Thank you. Our next question comes from the line of Ian Zaffino with Oppenheimer. Please proceed with your question.

Isaac Sellhausen: Hey, good morning guys. This is Isaac Sellhausen on for Ian. Just a follow-up on vacation ownership. VPG really finish out the year strong. Within the context of guidance, I guess, what are your assumptions regarding tours and VPG? And should we be expecting a stronger second half of the year compared to the first half and sort of how you’re feeling about the general cadence of the full year?

Michael Brown: Well, the focus last year was making sure that we were driving efficiency in the business through the change of our marketing criteria. The lower loan loss provision, the way the portfolio has really been managed, the VPGs at record levels proved the direction we were heading was the right direction, which means we — that allows us to pivot to really focus on elevating our tour growth for the year, which will be a nearly 20% growth in our tour count. That has a natural impact to VPG. As we all know in the industry, the more new owners you drive, there’s a natural pullback to VPG. More than half of the VPG pullback will be due to mix. And the other is really just the recognition that as you continue to grow volume nearly 10% hiring more people, training new people, ramping up does cost some dilution of your overall VPG.

Just a reminder to what we laid out 18 months ago, we expected our volume per guest to be between 2,700 and 3,000 in our long range plan. We hit all-time highs last year, we are guiding to a number that’s still above the top end of that guidance and we think it’s the right investment into our business to really get that tour flow back above 2019 levels when you look at a similar marketing criteria. And I have a lot of confidence, especially given how our team is performing these first two months that we’re on the right track for 2023.

Isaac Sellhausen: Okay, great. That’s helpful. And then a quick follow-up. You mentioned January and February was strong and owner reservations are pacing ahead of 2022. Is everything pointed to that strength continuing in the first half? Or have you seen any softness at all?

Michael Brown: Well, our outlook is really 120 days. That’s the normal booking window. So that gives you a sense of what we can see going forward. I look at a lot of different elements that would say whether the consumer is strengthening or weakening. Our drive to arrivals are around 75%. Usually when confidence deteriorates, that number will go off. We saw that during COVID. It will be interesting to see how that goes forward in the macroeconomic environment, but really 75% is right at where we are historically. The booking window is remaining around 120 days, again consistent with pre-COVID levels. And then, I would say, just the delinquencies, which Mike referenced in his remarks, really are showing that there’s not been really any change to our consumers’ behavior, either on the booking side or on the finance side.

We obviously watch it given all of the headlines. But as we sit here today, there’s really been no change to the consumer sentiment around leisure travel. And I think we’ve been hearing that on a lot of different calls of other CEOs talking strictly about leisure travel.

Isaac Sellhausen: Got it. Thank you very much.

Operator: Thank you. Our next question comes from the line of Ben Chaiken with Credit Suisse. Please proceed with your question.

Ben Chaiken: Hi, good morning. Thank you.

Michael Brown: Good morning, Ben.

Ben Chaiken: Hey, good morning. Just on the Travel and Membership, think you guys talked about down 5% in 1Q and then mid-single digits for the full year. Just to be clear, is that — I think you were answering before, is the accelerating guide a function of affiliates you’ve already signed up and expect to transact? And then if so, are there some leading indicators you’re looking at that kind of inform that to you? And I just follow-ups.

Michael Brown: Yes, go ahead . Thanks for that. First of all, we already have 60 days of view in the first quarter and know that transactions are up on a year to year basis and we’d expect them to be for the first quarter. And that’s without marketing spend and it’s really early on in our Travel Club sort of full year run rate. So the acceleration really comes from the fact that we’re going to get a full year of existing travel clubs. Number one. Number two is the fact that this will be the first quarter that we do, what I’d say, proper marketing related to these travel clubs now that they’re signed up, stood up and available for transactions fully. So as you look to the year, the vast majority of our transaction growth this year will be from those existing clubs. We do expect some new to come on, but it really — it’s not real — our growth is not reliant on a lot of new clubs coming on board this year.

Ben Chaiken: Got you. That’s super helpful. And then in the VOI business on tours, I think you gave us some helpful commentary of tours up 2020. I believe that was in 2023 versus 2022. Can you give us a little bit of context of how many tours you guys are actively removing versus 2019? And then maybe where you are in 4Q adjusted for that?

Michael Brown: So we’re up about $100,000 from 2022 to 2023, the vast majority of that is new owner tours, which will put us up versus 2019 on a more — equalizing from marketing criteria. And it’s about 250,000 tours that we’ve taken out of the equation from the 2019 sub-640 and a few other elements of marketing channels that weren’t economically viable.

Ben Chaiken: That’s super helpful. Is there any way to provide context four 4Q, where you guys came out with the 147, how to think about that in this adjusted kind of apples to apples basis?

Michael Brown: Let us take the next question and we’ll just do some quick math here and answer that as we wrap up here, if that’s okay, Ben.

Ben Chaiken: I appreciate it. Thank you very much.

Michael Brown: Thanks Ben.

Operator: Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.

David Katz: Good morning, everyone. Thanks for all of the details so far. And I wanted to just go back to the loan loss provision where, frankly, I think we were maybe modeling this a little bit lower for this year and it sounds like — and I want to make sure I’m interpreting properly that we’re still looking at, call it, an 18% to 19% range number. Can you just talk about, number one, am I correct with that? And number two, how might that vary within the range of scenarios that you’re embedding in your guidance so far and such? Thank you.

Mike Hug: Yes. Good morning, Dave. This is Mike. I’ll take that one. You are correct. We’re guiding to 18% and 19% for the year. Once again, the reason that that’s not in the 16.5% to 17.5% range is because we are driving the sales team to get lower down payments, to get a higher percent of financed in order to grow the portfolio. So that’s probably the big difference between what you were thinking and where we’re guiding now. Obviously a short term need as it relates to the provision, long term benefit of getting the portfolio growing again in that high net interest income and net interest margin. And keep in mind, too, those higher levels of originations are coming from the higher FICO bands, because they’re the ones that had the capacity to put less down if you will because they were the ones that had the capacity to pay more in cash.

So I would say, overall, when we think about the provision, it’s right where we would have expected taken into consideration the strategic decision we made to grow that portfolio and get those recurring revenue streams growing again.

David Katz: Perfect. And I just wanted to follow-up quickly and just make sure I’m capturing it. It sounds as though your degree of confidence in the numbers and the guidance that you laid out is relatively high even within a reasonable range of economic scenario. Is that a fair takeaway?

Michael Brown: It is, David. A lot of the questions we get are on the new business that we’ve launched. And on the grand scheme of things, we’re talking about a number that’s probably less than 5% of our total EBITDA. We’ve been in the Vacation Ownership business and Exchange business for quite some time. We know what the recovery looks like and we know what the key indicators are. And as you look at volume per guest, putting our confidence in our VPGs and our core growth, things we’ve done previously with a tighter business model around efficiency, combine that with the fact that despite the headwinds on RCI member count. We have good visibility on how that business is going to perform. That’s 93% to 96% of our EBITDA. So yes, we’re quite confident in the direction that we’re heading in 2023 because we’ve been there.

We believe we have the best team in the industry that consistently delivers in these areas. And as a result of it, as we look through for the remainder of this year, we’ve always said that this business is resilient, it’s predictable and we believe our guidance covers a wide variety of macroeconomic outcomes that are out there. So yes, there is confidence in our number. And through the first two months, our team continues to prove that we are resilient and we can deliver against the KPIs.

David Katz: Got it. Thank you very much. Appreciate it.

Michael Brown: And just before we go to the next question, I do want to come back to Ben. Q4 was — we were down low single digits on tour growth on a comparable basis. So this year is going to be slightly above 2019, Q4 was slightly below 2019.

Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I’ll turn the floor back to Mr. Brown for final comments.

Michael Brown: Thank you, Melissa. Overall, 2022 was a very strong year. We continue to benefit from the strength of leisure travel, despite concerns of a consumer slowdown. We’re off to a strong start in 2023 with the momentum we saw in December continue into January and February. Our full year outlook underscores the persistent strength of leisure travel, people’s commitment to vacations and the consistent performance of our business model. Ultimately, we were able to deliver our results, thanks to the millions of customers who continue to make travel a priority and to our associates who deliver great vacations every day. Thank you and have a great day.

Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.