Travel & Leisure Co. (TNL) Q1 2024 Earnings Call Transcript

Greetings, and welcome to the Travel + Leisure First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jill Greer, Vice President of Investor Relations.

Thank you. You may begin.

Thanks, Maria. Good morning to everyone, and thank you for dialing in to our first-quarter call. Joining us this morning are Michael Brown, our President and Chief Executive Officer; and Mike Hug, our Chief Financial Officer. Michael will provide an overview of our financial results and our longer-term growth strategy, and Mike will then provide greater detail on the quarter, our balance sheet, and outlook for the rest of the year. Following our prepared remarks, we'll open the call up for questions. 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. The factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release. You can find a reconciliation of the non-GAAP financial measures discussed in today's call in the earnings press release available on our Investor Relations website. Finally, all comments today are comparisons to the same period of the prior year, unless specifically stated. With that, I'm pleased to turn the call over to Michael Brown.

Good morning, everyone. Welcome to our first-quarter call, and welcome, Jill, to the Travel + Leisure team. During our last call, we highlighted two themes, robust demand for Vacation Ownership and our team's focus on execution. Our Q1 results show these trends continuing with 4% revenue growth, $191 million in adjusted EBITDA, and adjusted earnings per share of $0.97. I want to extend my personal thanks to the entire T+L team for their excellent performance, which has gotten our year off to a great start. Tours increased 15% year-over-year, with new owner tours up 28%. The sizable tour increase is important because it reflects strong interest in our product as well as the benefit of investments we've made in our marketing operations, including the addition of new locations. Q1 VPG ended at $3,035 and above the high end of our guidance range, which strengthened as the quarter progressed. We are also pleased with the VPG thus far in April. The combination of higher new owner tour growth and strong VPGs helps answer the central question I'm asked by the media and investors most often: How is the consumer? From our view, demand for leisure travel remains robust. As we look ahead, we have a 7% increase in owner room nights for the remainder of the year compared to the same period last year. Both booking windows and arrivals by car have normalized, more signs that the consumer is confident to book future travel, and the trends we are seeing in our business are consistent with broader industry sentiment. A recent Future Partners report shows that financial optimism among travelers has improved, and excitement to travel remains elevated. With the strong industry macro backdrop, good momentum at Travel + Leisure specifically, and the visibility that we have for this year's summer travel season, we have increased confidence in our near-term outlook. As we think about longer-term growth in the Vacation Ownership business, we're focused on expanding our product portfolio and growing the business both organically and through strategic acquisitions and partnerships. On the product side, the Accor Vacation Club transaction closed in early March, adding a premium product in the international market to our portfolio. With this acquisition, we now have more than 270 resorts worldwide, giving us more opportunities to put the world on vacation every day. Our team is already focused on ramping up sales as well as the transition of the overall business. I'd specifically like to thank the leadership team at Accor for working with us on making this a very smooth transition and their thoughtfulness on how to grow going forward. We are also making progress toward the start of sales next year for our initial Sports Illustrated brand-new resort. This will be the first of a network of sports-themed resort and lifestyle complexes, which we expect will include both university locations and leading leisure destinations. With multiple brands in a broad geographic footprint, our network of resorts provides a natural hedge to individual market fluctuations. In fact, as a result of our highly diversified resort system, we only have one market that produces more than 10% of VOI sales volume. In terms of growth, we are continuing to innovate and invest in acquiring new owners. Our Blue Thread partnership with Wyndham delivered great results, with sales up nearly 10% year-over-year. As a reminder, the Blue Thread channel typically generates 10% to 20% of our new owner tours, with a VPG more than 20% higher than other new owner tours. Our new owner transactions were 37% of the total, up 4 points sequentially and 6 points year-over-year, putting us well within our long-term targeted new owner mix. This is an important pipeline of future revenue as historically, we have seen that a new owner will spend an average of 2.6 times their initial purchase in future years after vacationing with us. This consumer behavior is consistent with ARTIS' February segment survey, which found that nearly half of all time shareholders plan to upgrade their current ownership in the next two years. So overall, we're in a very good position to grow the Vacation Ownership business. On the Travel and Membership side, the results came in within our guidance range, which shows our focus on aligning costs with revenue generation is paying dividends as we drive the business for its high margins and free cash flow generation. To summarize, consumer demand for leisure and travel remains robust, and we are delivering against plans to efficiently grow our business. We have a great team in place with a record of solid execution, and we are on track to meet our 2024 commitments to grow revenue and EBITDA and deliver strong returns to our shareholders. With that, I would now like to hand the call over to Mike Hug.

Thanks, Michael, and thanks to everyone for dialing in this morning. For the March quarter, we reported adjusted EBITDA of $191 million and adjusted diluted earnings per share of $0.97, increases of 4% and 9%, respectively. This result is even more impressive given the interest expense headwinds we noted coming into this year. Breaking this down into more detail for our two business units, Vacation Ownership reported segment revenue of $725 million, an increase of 6%, while adjusted EBITDA increased 3% to $135 million. As Michael described, the trends we are seeing in tours, new owner mix, and VPG give us good momentum in this business. Revenue in our Travel and Membership segment was $193 million, down 4% on a 6% decline in transactions. Revenue in this segment continues to be challenged, so we are focused on driving cost efficiencies to improve returns. These cost initiatives helped us deliver solid adjusted EBITDA growth of 6% for this segment. While exchange transaction growth will remain pressured due to the previously discussed shift in the mix of exchange members, we're expecting travel club transactions to grow for the remainder of the year as we have lapped last year's loss of a large customer. Now let me provide some more detail about our expectations for the second quarter and full year. For the second quarter, overall, we expect adjusted EBITDA in the range of $235 million to $245 million, which includes the year-over-year impact of higher interest rates and variable compensation expense. In Vacation Ownership, we expect second-quarter gross VOI sales of $580 million to $610 million, and VPGs of $2,900 to $3,000. For Travel and Membership, we are guiding to adjusted EBITDA in the second quarter of $60 million to $65 million. For the full year, we are reiterating our guidance range of $910 million to $930 million for adjusted EBITDA. The business is performing well, and we're pleased with what we see on the books for the summer. As we move through the year and get more visibility into post-summer demand, we'll have the opportunity to revisit our guidance and update it if needed. Moving to cash flow and our balance sheet. We generated $47 million of operating cash flow and $22 million of adjusted free cash flow for the quarter. As we previously said, we expect our adjusted EBITDA to free cash flow conversion to be roughly 50% this year. On the balance sheet, we continue to have solid access to the capital markets and closed on our first ABS transaction of the year. The 5.7% interest rate is the lowest rate we've achieved since July 2022. We were also very pleased to see the advance rate move up to over 95%. Earlier this month, we paid off our $300 million debt maturity using the proceeds from the incremental term loan B that we issued last year. We have no remaining debt maturities for the next 12 months. Our leverage ratio increased in the first quarter to 3.5 times. Consistent with the prior year, we expect this trend to continue for the next two quarters and then reverse in the fourth quarter. This sets us up to end the year below 3.5 times leveraged. With the balance sheet in good shape, our capital allocation is focused on growing the business and returning capital to shareholders. On the growth side, we used $46 million in the quarter for the Accor acquisition. We are excited for the longer-term growth prospects that Accor provides. In March, we increased our dividend to $0.50 per share for a total of $38 million in the first quarter. We're regulating the market by buying back our own stock. In the first quarter, we repurchased 624,000 shares at an average price of $40.7 for a total of $25 million. Between dividends and buybacks, we returned a total of $63 million and have returned an average of about 10% of our market cap annually since our spin, demonstrating a strong shareholder focus. I should also mention that we intend to request approval for an additional $500 million in share repurchase authorization at our upcoming Board meeting. In closing, I'll join Michael in thanking the entire Travel + Leisure team for delivering great results this quarter. These results demonstrate the strength of our business and provide us with great momentum heading into the busy summer season.

Our first question comes from Joe Greff with JPMorgan.

Michael, Mike, it seems like volume per guest is tracking better even as you improve your new owner mix. And it's basically there or knocking on your targeted new owner mix percentage threshold. Can you talk about maybe what's driving that maybe more favorable relationship between VPG and new owner mix? I mean you mentioned a little bit about Blue Thread, but that's not necessarily new or incremental. Is there something else that's maybe driving that more favorable relationship and how you see that going forward?

Well, let me first share as it relates to tour flow because the 28% new owner tour growth year-on-year is really a number that sets us up well, not only for Q1 but going forward. Over the last two years, we've said we were going to grow our new owner tours at a steady pace, making sure that everything we added was profitable, and we felt was a good incremental new owner tour. We opened over 30 new marketing locations in 2023. We got the partial year benefit of that. And now this year, we're going to get the full-year positive impact of those new owner locations. Additionally, in the third quarter of last year, we started to discuss that we were investing heavier into the marketing package pipeline, and those are beginning to come through. So that sort of puts the gross or absolute number on tours going forward. I would say across the board, what you're seeing is just really good execution. Both Mike and I mentioned it in our prepared remarks that the team is just executing really well. I think our move to increase credit quality coming out of the pandemic, the steady growth of new owner tours has allowed us to manage that growth efficiently, effectively, not getting ahead of ourselves and really stretching the organization. As a result of it, I put a lot of it down just to great execution by the team and setting ourselves up for what should be a really good continuation of new owner tours. I think you mentioned it, and I know this answer is a bit long, but the 37% of new owner transactions is an incredibly impressive number in Q1. Q1 is typically our high owner sales quarter, and the fact that we've already got within that range and well within our 35% to 40% range was a highlight of Q1.

Great. And then maybe you can talk about in the consumer financing segment of Vacation Ownership. Have your expectations changed more recently for that segment of the business, given maybe a different perception of where the Fed may take interest rates in terms of delayed interest rate cuts? How are you thinking about that relative to a few months ago? Or did you incorporate some level of conservatism to take into account a different set of interest rate expectations versus maybe what the overall market might be pricing it?

Sure. Thanks, Joe. This is Mike Hug. So two things as it relates to the consumer finance business. I'll start off with the ABS transactions and interest rates, and then I'll jump over into the portfolio. But on the interest rate side, obviously, great execution by the team with the March transaction. To your point, since that time, things have changed as far as views on interest rates; if we did that transaction today, the interest rate would probably be about 50 basis points higher than it was when we executed the transaction back in March. So they have moved up some, but still below the rates that we really had starting in the second half of 2022 and through 2023. So it will not be a big EBITDA impact this year because all we have left to do is the second and third transactions, which will only be impacting for the partial year. So don't expect much EBITDA impact this year. I think what we're looking at most closely is we do expect over the next 18 to 24 months that interest headwind to become a tailwind, and that's really where the interest rates might impact us as that tailwind might not kick in as early as we thought. But obviously, that's going to be determined over what happens for the next several months with interest rates. On the corporate debt side, 30% of our corporate debt is variable. We probably have about $3 million in exposure on corporate interest and therefore, cash flow because of the move-up in rates compared to what we paid at the beginning of the year, but nothing significant there. So overall, we're watching it closely, but don't expect a lot of risk in this year's EBITDA. As it relates to the other piece of the consumer finance business, the portfolio. You all saw the provision for the quarter coming in at 17.4%. We're very happy with that. But I would note that as we head into Q2 and Q3, two things that impact delinquencies are the portfolio continues to grow, which means it's less seasoned, which leads to higher delinquencies; and then that new owner mix coming in at 37%, which we're very excited about, also leads to a higher level of delinquencies. So even though we remain confident in our provision for the full year being below 19%, we'll see it move up in Q2 and Q3 to the higher end of that range and maybe even a little bit over. Overall, very happy with the portfolio. Mike talked about the credit standards we put in place as we exited COVID in the first quarter; our average FICO was 742 for new originations, which is the highest average pace that we've ever had in the quarter. So that business remains strong. Delinquencies will move up, but it's because of the good growth in the portfolio and the high percentage of sales that we've been focusing on to get that net interest income to grow again.

Our next question comes from David Katz with Jefferies.

I wanted to ask about just broadly speaking the criteria for repurchases. Just noting that we had a little higher number of purchases for this quarter and whether the degree to which acquisitions or other investments may have played a part in this quarter, but just how we might think about repurchases rolling through for the rest of the year, please?

Thanks for the question. You're exactly right. As far as the level of repurchases in the first quarter being impacted by the $46 million we spent on Accor. We've been pretty clear with our capital allocation strategy: grow the dividends, we grow the business, which we did in the first quarter when we took the dividend up to $0.50. Then we look at M&A; if we find the right strategic opportunity, which we believe we found with Accor, then we'll invest in that, which was about $46 million. And then we spent $25 million in share repurchases. So you're roughly in that low $70 million range as far as capital allocation for the first quarter. If you look at last year, on average, our share repurchases were about $77 million. So we utilized $72 million in the first quarter of this year, which kind of puts us on track with what we averaged for each quarter last year. And your point is valid in terms of absent Accor, the level of share repurchases probably would have been higher. And then I obviously mentioned as well that in our share repurchase level, our authorization is down to $146 million at the end of Q1, and we will be at the upcoming Board meeting requesting an additional $500 million in authorization there. So we should have plenty of capacity to do an elevated level of share repurchase compared to what we did in the first quarter.

Perfect. To follow up, how do you view the potential M&A landscape and opportunities, whether they are tuck-ins or otherwise? Are you noticing more or less activity compared to what you experienced one or two quarters ago?

I don't think the landscape has really changed. The industry, as we all are well aware, has consolidated dramatically over the last decade. I think broadly to the favor of the entire industry when you look at more than 80% of the industry sales now approximately are from branded hospitality companies. The industries got a very strong balance sheet. Consumer flexibility is there. Reputation is paramount. Consumer protection is paramount. So I think it's all in favor of the industry. But as it relates to M&A, there continue to be a variety of companies that are out there. And as we have done since we spun in 2018, we'll continue to evaluate them as opportunities arise. But ultimately, we're very committed to our organic strategy. We've had a nice addition to a partnership and acquisition of Sports Illustrated, which we're happy with, and then a pure M&A with Accor International. So we think our opportunities are organic partnerships and acquisitions, and that diversified ability to grow is what really gives us what we think is a very strong foundation to solidify our VO growth going forward.

Our next question comes from Chris Woronka with Deutsche Bank.

Congratulations on another successful quarter. My first question is about the new owner results for the quarter, particularly the tour flow and the higher mix, which were quite impressive. Michael, you mentioned that more channels contributed to this. Was there a specific type of channel or a geographic region that contributed more than others? I'm trying to understand how sustainable this level of new owner growth is.

The growth we are experiencing is sustainable. We have concentrated on three core areas over the past few years, focusing on owner growth. The team has successfully added more arrivals and room nights for owners, which enhances the availability for owner tours, even though it represents the smallest component. Our partnership with Wyndham Hotels remains strong and has developed from nothing to over $100 million last year, continuing to expand into the first quarter. Our marketing team has been systematically opening new locations region by region, which reduces our reliance on any single market or channel within a region. This strategy, combined with the gradual addition of locations, creates a cumulative effect over 36 months that is now becoming apparent. Additionally, we have not traditionally prioritized package sales at Travel + Leisure, which generate a pipeline for future tours. However, we have now placed greater emphasis on this, adding it as a fourth area of focus, and it is showing promising results. The team is performing exceptionally well, and this focus will require investment, which we mentioned late last year as we began to invest in our package pipeline. Although this tends to slightly increase costs, we are starting to see positive outcomes early in the year from this investment. Furthermore, the incremental relationships we are forming, such as with Sports Illustrated and Accor, are contributing additional databases, leading to more leads and ultimately more tours. I believe this is not just a temporary situation; it reflects excellent execution and the commitment we have made over the past 36 months to grow our new owner tours.

Great. Very helpful. The follow-up is about the Sports Illustrated partnership that you've mentioned. I know you expect to start sales next year. But I have a two-part question. First, will you be able to announce other deals for different markets before sales begin in Alabama? Second, will all this be included in the VOI segment, or will some components also be part of the Travel and Membership segment?

The short answer on the first question is absolutely, we anticipate announcing more locations before next year. The pipeline is as robust as it's ever been as it relates to opportunities for Sports Illustrated, both in university towns and in other locations. So we do look forward to sharing more locations as we move throughout this year. As it relates to which segment Sports Illustrated will be in, it will be in the Vacation Ownership side of the business as we start to produce results. What I would just add, although you didn't specifically ask, is as you start to look at the economics of Sports Illustrated, our overall plan looks alike like it did with Club Wyndham as far as really aligning inventory build and spend to top-line revenue production. Obviously, as you do your first resort, you do have some front-end investment that's a little more intensive than usual. But once we get Sports Illustrated, the club up and running and announcing a second, third, and fourth resort, our full intention is to match inventory spend with the success of sales, and the profile of the P&L should look very similar to what we see on the Club Wyndham side.

Our next question comes from Patrick Scholes with Truist Securities.

Great, Michael. In your remarks, you painted a pretty optimistic picture of your leisure customer. When I look at the RevPAR trends for your parent company, Wyndham, specifically domestically in Q1, we saw some negative year-over-year RevPAR. How might one reconcile your optimism versus possibly negative RevPAR for domestic Wyndham in the first quarter?

I wouldn't correlate our results with any specific brand within the hotel industry. Additionally, I want to emphasize a point made by Mike Hug: our FICO score in Q1 was 742, the highest it has ever been for the company. This reflects the careful decisions we made years ago to enhance our customer profile. Ultimately, the foundation of vacation ownership is that seven out of eight of our owners have fully paid for their ownership, which ensures they will travel because they appreciate the larger accommodations. They value their ownership, and when you look at leisure travel in Orlando, it's evident at the airport how robust travel is right now. We prefer to analyze leisure travel more generally rather than comparing ourselves to hotels, airlines, or cruise lines. For example, in Las Vegas, one of our key markets, travel remains very strong. Our success stems from our overall business model, the execution by our team, and the strength of leisure travel.

Sorry, just one point, Patrick. I would note that even though Vegas is over 10%, it comes in at 12%. So the diversity we have in our portfolio that we talked about many times definitely pays off. And while we noted we want to be an over 10%, I think it's important to understand that over 10% means really only 12%. So we don't have anything that's 15% or higher, or even 12% or higher.

Okay. Certainly encouraging. Michael, a follow-up question here. You do have some Maui exposure. Can you talk about how Maui is recovering, how far off you are still from, I would say, pre-fire levels?

For our operations in Hawaii, we have no significant exposure to Maui. Our sales from Maui are very minimal; the majority of our exposure comes from Oahu and the Big Island. Therefore, the economic impact on our profit and loss statement from Maui is negligible.

Our next question comes from Ben Chaiken with Mizuho.

Sorry if I missed it, regarding Accor, can you talk about the opportunity for upgrades from those 30,000 owners? Is there an opportunity to sell the broader system to this existing pool? And then I guess under the assumption that they do upgrade, do the owner's legacy ownership stay with Accor? Or would that get upgraded? Have you guys find that out yet?

Ben, you missed an answer. It's a good question. Accor Vacation Clubs operate independently, and we own Accor Vacation Club. If they upgrade, they will remain Accor Vacation Club members, just with more ownership. This presents an opportunity for us. We are excited about this transaction, especially regarding the quality of the resorts and the existing owner base of over 20,000 members, who have not been nurtured and marketed to in years since COVID. That area faced significant restrictions, and collaborating with the Accor team revealed a lot of potential in the business. We believed we were best suited to activate that potential, and they seemed to agree. After closing the deal, we began reopening and ramping up this side of the business in March. There are numerous opportunities ahead for growth, whether through upgrades or attracting new owners. We also plan to expand geographically and replicate the successful efforts we've made with Wyndham to create more loyal customers who engage with the Vacation Club product.

Understood, that's helpful. I have one quick question. This has been discussed at the start of the fourth quarter call, but there are several challenges this year. There's the variable compensation headwind and some interest expenses. Have you measured the impact of the new owner mix on margins? Clearly, these issues aren't just one-off, but what is the expected effect of the new owner mix on EBITDA or margins in 2024?

Sure. So in the sense of how much of our guidance of $910 million to $930 million, what the headwind is incorporated into that guidance? Is that the question?

I think so. Yes, you have the $17 million in variable compensation and $30 million in interest expenses. Is there a way to quantify or estimate the impact of the new owner mix?

Well, basically, the way we're looking at is kind of when we spun off and started to focus on new owners, we're working to cover that through other areas of the business. So when we look at our overall margins for the year, and you can see in the first quarter, basically, our margins are flat year-over-year despite the percent of new owner sales moving up to 37%. So when we think about margins for the year, we expect to be able to cover the impact of moving up to mid to high 30s on new owners; the part that obviously we've been most challenged with is covering the incremental interest and compensation expense that you mentioned. So when you think about margins overall, I would just factor in the two items that you mentioned as it relates to kind of the full year and we'll work in other areas like we did in the first quarter to cover the impact of the growth in new owners.

Understood. Yes. My point was more so going into '25, like that phase. You don't have that. It sounds like this is the new owner mix that you want to be at and so.

So heading into '25, if the year progresses like it started, we would be going into '25 not having the commentary more than likely that we want to move up 200 basis points on new owner mix. That would be a decision we would make early in the year of where we are, and do we want to put more into the new order to grow that mix or not. But coming out of Q1 at 37%, it starts '24 in a great place so that we don't need to face that headwind in '25 if it continues in the remainder of this year.

Our next question comes from Ian Zaffino with Oppenheimer.

I know you mentioned the FICO score briefly. Could you discuss how the cohort is performing on the FICO side? Are the cohorts meeting expectations? Are you noticing any early indications of outperformance or underperformance? I have a follow-up question.

Yes. It was a little fuzzy, but I think your question was kind of how the portfolio is performing kind of by FICO band. And as you would expect, what we're saying is the most pressure on the lower end of the FICO bands. And as you move up, less pressure. Overall, I think the portfolio for the most part is in line with what we expected. The improvement in credit quality that we focused on as we exited COVID is definitely paying off. So the provision for the full year to 19%. We're seeing a little bit of pressure, but you look at the provision coming in for the quarter at 17.4%. So nothing that I would say is unusual by FICO band, just the normal more pressure at the lower end, and overall comfortable with where the portfolio sits as it relates to performance.

You're not really noticing anything significant on the lower end. Can you discuss some of the stronger sales centers you've encountered and what conclusions we might draw from that? Are these more tied to destination areas like Vegas and Orlando, or are there other locations? Any additional insights you can provide would be appreciated.

I think the question was a bit unclear, but it related to regions and specific demographics. Two key points that reaffirm the booking window, delinquencies, and VPGs stand out to me. I always pay attention to booking windows. Our typical booking window is 120 days, which has been consistent during peak leisure travel periods. During the pandemic, we saw 90% to 95% of our bookings at drive-to locations. That percentage has now returned to the low 70s, indicating that consumer behavior is back to normal for us. Thus, there's nothing unusual; leisure travel is performing as it typically does in favorable times. In the first quarter, our top booking destinations were Orlando, Myrtle Beach, and Tennessee, all excellent drive-to locations. Daytona Beach also saw significant bookings in Q1. Everything appears standard. With our diverse resort system, we don’t have any additional risks. I should mention, as announced last night, we are excited about our new partnership with Allegiant Air, which services about 125 destinations in the U.S. This partnership complements our offerings with their transportation services. We're thrilled to announce this collaboration, which helps us grow our package options and positively supports the air travel sector.

Our next question comes from Brandt Montour with Barclays.

So Mike, regarding your comment about Allegiant, my first question is about Allegiant. Can you provide an overview of that channel and compare it to some of the other third-party channels you have? Additionally, when can we expect to integrate that into our tour flow?

Allegiant is an excellent airline with 15 million loyalty members and 125 destinations across the U.S., overlapping significantly with our locations. We have had great success partnering with Wyndham Hotels and leveraging their database to connect with our audience. The initial strategy is to engage in cross-promotional marketing that combines air travel and accommodation. While I can't provide specific figures on this call since we just finalized the agreement last week, you can anticipate more bundled offerings from Allegiant, Wyndham, or Margaritaville that integrate both brands and their overlapping destinations. Over time, this will be reflected in our package pipeline and marketing investments back to Allegiant.

That's helpful. I have a question about the new owner. The metrics you provided regarding new owners are really encouraging, as new owners represent some of the toughest sales. I’d like to ask about the new owner close rates on a quarter-over-quarter basis. We are all paying attention to consumer behavior for any signs of weakness. How has the like-for-like new owner close rate changed over the last one, two, or three quarters, as we enter this year? This information would be helpful for us.

I've mentioned the three segments: owner, Blue Thread, and new owner in the open market. The close rates for owners and Blue Thread have been quite steady over the past few quarters. However, the close rates in the open market have decreased slightly. I believe this is more related to scale than to consumer behavior. If you increase your new owner tours by 28%, you're likely to see a slight drop in the close rate, as that is a significant growth within a quarter compared to the previous year. Currently, I attribute the slight decline more to scale rather than consumer issues. This is a trend that all companies are observing with their lower-end FICOs and considering the future direction over the next six months. We are in a similar position. We have a solid portfolio, as Mike mentioned. However, the close rates in the open market have indeed dipped slightly, and I connect that to scale.

Congrats on the quarter.

Thanks, Brandt.

Our next question comes from Patrick Scholes with Truist Securities.

Michael, another question. Can you give us a little bit more color or an update on progress in signing up companies for the B2B business? Have you seen any attrition from the initial sign-ups? And also any additional color on the B2C portion of the business.

Yes. Absolutely. It's a very good question. In the fourth quarter, we made a few decisions. Number one was to align the cost more precisely with the revenue generation and the forward expectations. And the number two is we wanted to go deeper with the existing relationships we have as opposed to signing up more. Why? It created a lot more internal work to continue to sign up more members with lower utilization. So our plan is to grow the existing ones to a point and more targeted new B2B relationships. So we have added a few, but where we're getting our transaction growth on travel clubs, excluding the bigger group that dropped out in Q1 of last year, is by going deeper and getting greater conversion on the members that are already part of our ecosystem. Sort of like everything else, it's like recruiting; nurture what you have inside the house, make those the most effective before just going in recruiting more, in this case, B2B customers. And that's what we're doing this year. And when you look at our Travel Club growth and transactions in 2024, which we're projecting high single digits on transaction club growth this year, that is through the deeper conversion of clubs that we already have in-house. It's not relying on us going and finding new clubs to be part of our system.

And Patrick, the reason we're confident in that high single-digit growth is if you exclude the one customer we lost from the first quarter year-over-year comp, our transaction growth was actually 10%. So the investments we've made, as Mike said, to focus on the existing customers to drive more transactions are paying off. And once again, 10% year-over-year growth exclusive for that large customer was lost.

There are no further questions at this time. I would now like to turn the floor back over to Michael Brown for closing comments.

Thank you, Maria. In closing, I would just like to reiterate that we're off to a great start to the year with 15% tour growth, strong VPGs, and a 37% new owner mix. This performance not only drove a great result this quarter but it also lays the foundation for continued growth in the future. I again want to thank the entire T+L team for all their hard work in getting us here, and we look forward to speaking to you all again on our next call in July. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.