Travel & Leisure Co. (TNL) Q4 2023 Earnings Call Transcript

Greetings. Welcome to Travel + Leisure Fourth Quarter '23 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. 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.

Thank you, Sherry, and good morning to everyone. 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. And 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 full year results and outlook. And then I will provide greater detail on the quarter, our balance sheet, and 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.

Good morning, and thank you for joining us. As indicated in the press release, we had a strong finish to the year, with fourth quarter adjusted EBITDA of $240 million, representing a 7% increase compared to the previous year. Our adjusted diluted earnings per share stood at $1.98, which includes a $0.37 income tax benefit that Mike will elaborate on. If we exclude this benefit, our adjusted EBITDA and earnings per share growth would have been 24% over Q4 2022. Our 2023 full year results demonstrate a strong focus on organic execution, achieving 5% top line growth and a 6% increase in adjusted EBITDA to $908 million, along with a 10% growth in adjusted EBITDA for our core Vacation Ownership segment, showcasing robust consumer demand and excellent execution by our teams. Additionally, we experienced a 26% growth in adjusted EPS year-over-year. Without the Q4 tax benefit, our adjusted earnings per share growth would have been 18%, reflecting our ongoing commitment to share repurchases. For the second consecutive year, we returned around 15% of our market capitalization to shareholders, bringing our total capital return to over $2.1 billion since the spin-off. Now, let me outline the operational highlights from the quarter and the full year while discussing our growth positioning for 2024 and beyond. I'll start with our core business, Vacation Ownership. In a year that saw the stabilization of domestic leisure travel demand, our VOI business met the 2023 guidance we established last February. Gross VOI sales in Q4 rose 4% year-over-year to $540 million, with a VPG of $3,058. For the entire year, gross VOI sales increased by 8% year-over-year to $2.15 billion, with a VPG of $3,128. We delivered gross VOI sales and VPG that met or exceeded the midpoint of our 2023 expectations, thanks to the efforts of our sales and marketing teams. Tours rose by 17% year-over-year in Q4 and 18% for the full year. We made significant progress last year in acquiring new owners. As noted in last quarter's call, we’ve been investing in new owner marketing channels, enhancing marketing packages for future stays and introducing new off-premise marketing locations. The results were positive, with the new owner transaction mix improving by 330 basis points in Q4 and 240 basis points for the full year. Our experience shows that new owners spend, on average, 2.6 times their initial purchase during their ownership, providing us a substantial revenue pipeline. Our receivables portfolio is performing well, naturally growing with sales, though we are somewhat accelerating that growth while upholding our stricter credit standards to counterbalance higher interest expenses. We expect the provision to remain below 19%. In Travel and Membership, we reported Q4 adjusted EBITDA of $52 million, surpassing the projected range of $45 million to $50 million shared during our October call. We completed our cost realignment this quarter and are confident in our ability to effectively execute our plan and capitalize on future opportunities. With these adjustments, we anticipate low single-digit growth in Travel and Membership adjusted EBITDA in 2024, ensuring recurring revenue, high margins, and strong free cash flow. Additionally, we were thrilled to announce the acquisition of the rights to the Sports Illustrated Vacation Ownership business in September, presenting an opportunity for sustained growth alongside one of the most celebrated names in sports. We have already announced our first resort in Tuscaloosa, Alabama, the home of the University of Alabama, anticipated to open in late 2025. Although the Sports Illustrated club will have a minimal impact on 2024 earnings, it supports our long-term growth strategy. We look forward to revealing more locations and universities, as well as leisure destinations. Last month, we expanded our Vacation Ownership portfolio to include another core brand, which already features Wyndham, Margaritaville, and now Sports Illustrated. This marks a significant step in executing our multi-brand strategy within six months, reflecting our momentum. It confirms our capability as a reliable steward of high-quality hospitality brands for vacation ownership development. The agreement allows us to exclusively grow the Accor Vacation Club brand, leveraging the Travel + Leisure global platform. This acquisition adds 24 resorts, 30,000 members, and finished inventory to our Asia Pacific region, setting the stage for economic benefits for years to come, generating revenue from sales, resort management, and consumer finance. We expect to conclude the transaction next month and are excited to welcome Accor to the Travel + Leisure brand family. Mike will cover guidance shortly, but first, let me provide insight into the key performance indicators we track to assess our consumer's health. Forward resort bookings, sales volume per guest, and consumer finance performance are all strong. In terms of forward bookings, 2024 owner nights on the books are up compared to 2023, indicating ongoing robust consumer demand. VPGs are normalizing from the post-pandemic pent-up demand for leisure travel but remain at the high end of our 2021 Investor Day range and 30% above pre-pandemic levels. Finally, our steady focus on credit quality has resulted in a portfolio that continues to meet our expectations. To summarize, we are pleased with our 2023 performance and execution. We successfully delivered on our full year plan with 5% top line growth, 6% adjusted EBITDA growth, and a 26% increase in adjusted EPS. We returned a considerable amount of capital to shareholders, paying out $136 million in dividends and repurchasing 7.8 million shares of stock. These results reflect the strength of our business model and the intense focus on organic execution from our team worldwide. I want to express my gratitude to each one of them. For 2024, we are starting strong with a robust foundation in our core Vacation Ownership business and a clear path for execution in the Travel and Membership segment. Reflecting our confidence, we plan to recommend a first quarter 2024 dividend increase to $0.50 per share to the Board. This decision reaffirms our commitment to utilizing our substantial free cash flow generation to enhance shareholder value through elevated dividends, strategic M&A if opportunities arise, and ongoing share repurchases. Our ability to generate and effectively apply free cash flow, coupled with our proven track record of organic execution, excites us about the opportunities ahead. For more details on our performance and outlook, I will now turn the call over to Mike Hug. Mike?

Thanks, Michael. 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. 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 $5.70, representing year-over-year growth of 6% and 26%, respectively. Full year adjusted EPS includes a $0.35 benefit from foreign tax credit carryforwards that we now expect to be able to utilize. Looking at the fourth quarter performance of our two business units, Vacation Ownership reported segment revenue of $776 million, an increase of 5%, while adjusted EBITDA increased 12% to $208 million. We delivered 172,000 tours in the fourth quarter, growth of 17% and VPG 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. Exchange member count continues to grow, but as expected, exchange transactions were down 8%, reflecting the continued mix shift to clubs whose members have 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 at Travel and Membership. We partially offset these challenges with strong decisive cost cuts throughout the year and reductions in variable compensation expense. 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 continued to return capital to shareholders through share repurchases and our quarterly dividend of $0.45 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 total capital returned to shareholders of $443 million. 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. Adjusted free cash flow was $379 million for the year, resulting in a 42% adjusted EBITDA to free 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 covenant purposes at 3.4 times, remember, our goal was to end the year below 3.5 times leverage. Overall, our capital allocation for the year was right in line with what we anticipated when looking at our share repurchases, quarterly dividend, and year-end leverage. Now let me provide some more detail about our expectations for the full year and first quarter of 2024. 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. 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 was $17 million. Turning to Vacation Ownership, we expect gross VOI sales in the range of $2.25 billion to $2.35 billion, with CPGs in the range of $2,900 to $3,000. For Travel and Membership, as Mike 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%. Turning to the first quarter, we expect adjusted EBITDA in the range of $185 million to $190 million. Keep in mind that Vacation Ownership's 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. In Vacation Ownership, we expect first quarter gross VOI sales of $460 million to $480 million and VPGs of $2,925 to $3,025. For Travel and Membership, we are guiding to adjusted EBITDA in the first quarter of $75 million to $80 million. And finally, we expect our first quarter tax rate to range from 28% to 30%. Turning to 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, approximately $75 million from when we set out our cash flow conversion goals in September 2021. However, as adjusted EBITDA grows and interest rates decline, we expect to move towards an adjusted free 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. Long term, we expect our adjusted EBITDA growth rate to return to high single digits as interest headwinds subside, and we no longer lapse to 2023 variable compensation benefits. With that, can you please open up the call to take questions?

Our first question is from Chris Woronka with Deutsche Bank. Please proceed.

Good morning, everyone. Thank you for the questions and the informative updates so far. Michael, could you discuss the OPC channels and other marketing channels you're focusing on this year? As we sit here in February with a plan in place and some new partners on board, how do you typically adjust your partner mix throughout the year as events unfold? I'm looking to understand if your visibility into tour flow and bookings improves with your partner mix.

Good morning Chris. The question about new owners is very important. As we emerged from the pandemic, we identified two key elements. First, we aimed to enhance our marketing and credit standards. Second, we intended to ensure that our marketing partners generated positive margins along with new owners. We took a careful approach while coming out of the pandemic and have seen growth in our diverse OPC channels on a regional level. We aren’t overly reliant on any single partner, although we do have larger partners that provide a significant number of tours. Each of our regional marketing executives assesses the best opportunities in their area and contracts locally. Throughout the year, which is reflected in our VPG guidance for the first quarter compared to the full year, the summer months are typically when we see a spike in new owners. Our teams are currently collaborating with marketing partners to finalize agreements for the upcoming summer. We are building on the success of last year, which experienced an 18% increase in tours compared to the previous year, and we anticipate over 10% growth in tours this year. Our focus is on steady growth by identifying the right partners who will deliver new owners and profitability from the outset.

Thank you, Michael. I have a follow-up regarding the Travel and Membership clubs business. It seems you've adjusted the cost structure, and you have some growth initiatives underway. My question is whether it's feasible to maintain a stable EBITDA with only minimal top-line growth. Alternatively, could you implement further cost reductions if necessary? Or do you anticipate that top-line growth will start to pick up in that segment? Thank you.

Yes. Well, yes, you can get the 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 EBITDA 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 Club, and we've seen a lot of predictability start to come into the exchange side of the equation as we've seen 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 yes, 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.

Our next question is from Joe Greff with JPMorgan. Please proceed.

Good morning guys. Mike, the reference to the variable compensation expense benefit in 2023, you indicated that 17 million. Can you break that out between segments? Does that hit corporate? Does that hit VOTM as well as corporate and 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. You referenced the variable compensation of year-over-year delta, the incremental interest expense of 30 million. Would you basically expect VO to grow low single digits as well and travel membership to be flat? I'm just trying to triangulate how you're seeing the rest of the year what's incorporated in there.

Yeah, good morning Joe, thanks for the question. On the variable compensation as you would expect, the biggest impact is going to be at the Travel and Membership segment because they were the ones that as compared to our original expectations, didn't quite meet to the level that we set out. The second most significant impact would be at the consolidated level, Travel and Leisure because we're confident Travel and Leisure based on consolidated NAV, and then as Michael Brown touched on, Wyndham Destinations basically performed well for the year, so their impact is going to be the smallest. In terms of the cadence of that throughout the year, pretty much evenly spread in Q2 through Q4. Obviously, as you're being laggard in the year, you get in July and you kind of see how things are going, and that's when you start to make those adjustments if there are any adjustments to be made. So in your models, you can think about that coming through pretty much evenly in Q2 through Q4. As far as the year-over-year growth rate, you're exactly right that the two big headwinds we have are the $30 million interest expense 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, 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 3.5-year life. So the less expensive ones that we did, but truly ended in the middle of 2022, we'll finally kind of be all rolled off by the middle of 2025. So that interest headwind should basically be neutral in '25 and then start to become a tailwind in '26 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 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.

Got it. And then my final question is, buyback flows fairly substantially from the fourth quarter versus earlier in the year, it slowed down from the 3Q, which was slower than what was in the 2Q and 1Q. What's driving that lower activity?

Really, when we look at our total capital allocation strategy, we've talked about if the right opportunity presents itself to invest in the business, we're going to make that decision to help drive once again, the high digit long-term growth that we talked about. So what we looked at, obviously, as we got into the second half of the year as we had the opportunity to invest $41 million in Sports Illustrated, a great opportunity that we're very excited about. And as we talk about all these things that when we look at M&A it's really the marketing opportunity that 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 offer 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 of the business, the difference goes to share repurchases. So that's why you see share repurchases being down in the second half of the year was because we had executed on the Sports Illustrated opportunity. And then you'll really see the same thing in the first quarter this year where the acquisition of Accor, 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.

Great. Thank you.

Sure. Thank you.

Our next question is from David Katz with Jefferies. Please proceed.

Hi. Good morning, everyone. Thanks for taking my question. I wanted to just go back to the capital allocation choices and in view of 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 repurchases and dividends being paramount for 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. There's no change in our capital allocation strategy. I think for the last five years, we've said dividends are the foundation and then you're consistently choosing between strategic M&A opportunities and share repurchases, and we'll only act on anything 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. And for the ability to grow with a brand of that quality with the marketing capabilities that come along with it, which is lifestyle, leisure in the hospitality space, combined with a world-class hospitality brand like Accor, which really strategically decided to put on pause its sales effort in the Asia Pacific region post-pandemic. The opportunity to get an existing operation, 30,000 members with a brand of the quality of Accor made complete sense to us. As Mike mentioned, we returned 15% of our capital through dividends and share repurchases last year, on top of this, yes, 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 to be in high single digits, it was really an easy choice for us, and we couldn't be more excited about it.

Understood. And just to follow up, I think the essence to the question is whether something Accor or others like it, are consumers of capital in ways that alter the path. And it sounds like it's no, I just want to make sure.

We are in the leisure vacation business, particularly in vacation ownership, and our execution in 2023 demonstrates that our business model excels. If we can invest in our long-term success, Accor presents a more immediate opportunity due to its established operations and owner base in the resort system. Building something like Sports Illustrated from scratch represents an investment in our strengths in leisure vacations and vacation ownership. If other opportunities don't arise in the future, we will utilize our free cash flow for share repurchases and to support our increased dividend.

And David, regarding the use of capital, we intend for both Accor and Sports Illustrated to have inventory delivered on a just-in-time basis. We will collaborate with our partners to ensure that inventory arrives as revenue begins to generate.

Got it. Thank you.

Sure. Thank you.

Our next question is from Patrick Scholes with Truist Securities. Please proceed.

Hi, good morning, Michael and Mike. Could you discuss the growth expectations for tours? It seems that VPG was slightly below the Street consensus numbers, but the gross VOI sales appear to align with your expectations for tours, perhaps even better than what analysts anticipated. Could you elaborate on that, please?

Yes, a key part of our strategic focus for the coming years is that our growth this year will be driven by tours. As I mentioned, we achieved 18% growth last year, and we expect our tour growth this year to exceed 10%. This is due to several factors, including an increase in owner room nights, which are projected to be up 23%. This leads to more owner tours. Our relationship with the Wyndham Hotel groups has also been strong, with sales breaking $100 million last year for the first time, and we anticipate further growth in this area. Additionally, our regional teams are successfully developing profitable local marketing channels. Regarding the volume per guest, we expect to be at the upper end of our long-term guidance range. This tour growth is significant because, with the anticipated increase in new owners this year, over 35% of our transactions will come from new owners. For those familiar with our company, we have indicated that reaching 35% positions us for long-term stability, allowing us to make decisions each year about whether to increase that percentage. This suggests that moving beyond 2024, changes in volume per guest will have less impact related to mix adjustments, unless we choose to make proactive changes going forward.

Okay, thank you. I have another question here, and then I'll hop back in the queue, the B2B, B2C business. Would you say that's fully on the cost side, fully right-sized or where you want it to be at this point?

I do. It's never easy to make changes. 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 be low single-digit growth this year. And you have to make those changes, which is what we did. We 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 laid out on this call.

Okay. Good to hear. I’ll jump back in the queue. Thank you.

Thank you, Patrick.

Our next question is from Brandt Montour with Barclays. Please proceed.

Good morning, everyone. Thank you for taking my question. I'm interested in understanding the run rate EBITDA for Accor at the time of purchase. If it's included in your 2024 guidance and assuming there are no changes, could you also explain any potential synergies you see with that asset? Furthermore, is there a fee structure with Accor that incentivizes them to assist you with their database?

Absolutely. Their run rate EBITDA is approximately $6 million to $8 million. As I mentioned earlier, they have slowed down their sales efforts coming out of the pandemic while deciding on the future direction of the business. Looking ahead this year, we expect to close this deal at the end of Q1, which leaves us with three-fourths of the year and results in minimal EBITDA for this year, estimated at $2 million to $3 million. Our main focus this year will be on revitalizing and expanding the sales efforts for the Accor Vacation Club. Everyone knows the brand and its quality, and the Accor team is excited about the opportunities in the Region 24. The Travel + Leisure team shares this enthusiasm, and similarly, it involves a license fee arrangement. This structure incentivizes us to increase their member count, boost their top line, and ultimately lead to more resorts at additional Accor destinations.

Sounds great. And I guess just one quick follow-up. Is your expectation that, that could be accretive to VPGs when you guys get everything running the way you want it to?

The short answer is yes. The more detailed answer is materially against $2.2 billion of sales. It's not going to move a VPG needle. But the Accor Vacation Club is an upscale brand which tends to bring with it slightly higher VPGs.

Our next question is from Dany Asad with Bank of America. Please proceed.

Hi, good morning, everybody. My first question is on margins, just kind of with the implied like VOI segment and kind of what we've talked about so far compared to '23. And how much would you quantify, if you could, the impact of remixing new owners and kind of driving that tour flow for '24?

Yes. As you'd expect, I mean, our margins for next year for the VOI business will be down a little bit. The $30 million interest headwind, obviously, is what's most impactful in terms of what's driving that margin down a little bit. We finished on a consolidated basis, 24.2% this year. We'll be down just a little bit once again because of the interest headwind. And then to your point, on the new owner generation, that does have about $10 million in pressure on EBITDA as we move up to the 35%. So the consolidated drop in margin I talked about is primarily at the VOI level. And if you think about to the comment I made earlier about how are we confident in that long-term growth going back up to high single digits, in addition to the variable cost and 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 on there, that's a headwind that we no longer have as far as the potential VPG pressure or the higher marketing costs.

Got it. Thank you. And for my follow-up, as we keep driving tour flow, do you ever see kind of yourself running into any capacity limitations on tour growth? Or we're still kind of a ways off from 2019 levels, but just kind of curious there's any kind of like capacity issues that you can see?

I don't see the physical capacity issues. We have sufficient sales pace. 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 along with the third leg of that stool is in today's world data is key. So it's one of the reasons that we love the relationship with Wyndham Hotels and are excited about their growth and their loyalty program as well as the reason we're excited about the additions of Sports Illustrated and Accor as they bring new databases, untapped databases to a certain degree and give us the ability to grow our marketing component. And if I could just swing back to add one comment to Mike Hug's earlier on margins. I think in a year like 2023, where we had challenges in our Travel and Membership segment, high margin and the rapid rise of interest rates, I just want to say I'm 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 with some headwinds against high-margin business shows once again that our team, when faced with challenges find a way to deliver against expectations and in the case of 2023 actually improved our margins slightly.

Thank you very much.

Thanks, Dany.

Our next question is from Ian Zaffino with Oppenheimer & Company. Please proceed.

Hi, good morning. This is Isaac Sellhausen on for Ian. 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? What are the expectations, maybe, around members and exchange transaction growth? Should we still expect some headwinds on exchange transactions and then maybe modest growth in members?

Yeah, good morning. This is Mike. Thanks for the question. When we look at the Travel and Membership business, on the exchange side, we do expect the exchange members to continue to grow. We are seeing across the industry continued new owner generation and increases in new owner generation, just like we're doing 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 most of that growth is coming in the clubs, which obviously have a lower propensity to exchange. So when we look at the expectations for exchange transactions, we do expect them to be down a little bit 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 Club. 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 on the Travel Club side of the business does come with a lower margin as compared to the RCI exchanges.

Okay. Very helpful. And then just as a follow-up, you mentioned resort bookings were 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. For the first half of the year, the two primary destinations are, where you would expect, Las Vegas and Orlando are leading the charge. We expect this year that you'll see a return to U.S. travel. I think we all know that Europe was the hot market last year in Cruise. I think the second half of the year blending into the first part of this year remains hot. I'm not sure how they trail through the year. But our bookings are ahead 5% on room nights for the full year and yes 5% for the full year.

Okay, perfect. Thanks so much.

Just one more quick thing to add to that is post-pandemic, there's been a tendency for a longer length of stay. 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 owner bookings.

Our next question is a follow-up from Patrick Scholes with Truist Securities. Please proceed.

Thank you. I have a couple of follow-up questions. Mike, could you discuss your expectations for the loan loss provision moving forward? I believe you mentioned a long-term range of around 18% to 19%. Additionally, have there been any changes to your credit standards? Please let me know if there have been any updates. Also, could you share any insights about customers' willingness to pay their loans since the last earnings report? Thank you.

Thank you for the questions, Patrick. Regarding the provision, we've maintained our stance of it being in the 18% to 19% range. We finished 2023 at the lower end of that range, which reflects the strong performance of our portfolio. We are pleased with how the portfolio is performing, primarily due to the increase to a minimum FICO score of 640. Our new originations averaged 739 in 2023, an increase from 736 in 2022. We are very satisfied with the credit quality and do not anticipate any changes in the near future. The performance of our consumers has been impressive, particularly concerning delinquency levels. While there is some pressure on lower FICO scores compared to higher ones, it remains within our expectations. This gives us confidence in our ABS transactions, which we conduct regularly, making it an appealing opportunity for investors when we go to market three times a year. We are very pleased with the credit quality and the provision levels. If we do end up at the higher end of the range in 2024, it would be due to intentional decisions to generate more financing from those good quality FICOs. We aim to grow our interest income to counterbalance the headwind from interest expenses. Therefore, if we do reach the high end of that range in 2024, please pay attention to our comments regarding the level of originations and the long-term earnings growth that follows.

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?

So we have significant Hawaii exposure in Oahu, Maui, and the Big Island and Kauai. 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 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. And again, we only have the one resort on the Island of Maui.

Right. Okay. Shifting gears to the South Pacific or Australia, it seems like Accor has properties in that region. Are there any plans for expansion or growth in the future to add destinations beyond where it currently operates?

So, the key to expansion is good execution. So our first priority will 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 the relationship, build a good one with Accor, 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 locations, countries, and regions of the world.

Okay. I'm all set. Thank you.

Thanks, Patrick.

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.

Thank you, Sherry. 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 Accor agreement, we have great traction in executing our multi-brand strategy. 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.

Thank you. This will conclude today's conference. You may now disconnect, and thank you for your participation.