Mark Wang: Yes. So Patrick, this is Mark. So as it relates to tour flow, so 2023 is going to be really the year for tour flow growth. And we’ve had some really good tour flow growth last year. We continue to see strong demand from a leisure travel standpoint. Our owners and rental guests on the books are above what we saw in 2019. But the real growth is going to come from our new buyer — from a new buyer perspective. Total packages and activated packages are record high, and just to give you kind of a sense of how that’s been trending. If you look at our new buyer tour flow compared to 2019 in Q1, we’re at 60%; Q2, 68%; Q3, 74%; Q4, 78% and our expectations is that that trend is going to continue building, because our activations have really picked up, and our package pipeline is well over 0.5 million packages that we have in the pipeline.
Importantly, the note is our new buyer — our new buyer sales are actually back up to 94% of where they were in 2019, because the better closing percentages and better VPGs, we’re seeing out there. So all in all, our expectation is strong tour flow growth this coming year. I should note, though, that if you remember, coming out of pandemic, our owners came back first with elevated tour flow transactions and close rates. The pent-up demand for travel from our most committed owners really led this high VPG, especially in Q1 of 2022, which I think Dan noted in his prepared remarks, was a record VPG for us. So, important to note that we’re coming up against a tough VPG comp in Q1. So as we’ve indicated for several quarters, we think the mix shift as we shift into more new buyers will moderate our VPG from these 22-highs, more on a glide path to what we’ve been saying for a number of quarters now to about 10% to 15% above what we saw in 2019.
Dan Mathewes: And Patrick, just to add to that, just to give you another nicely adverb. As Mark was talking about the package sales, we’re well over $0.5 million year-over-year, that’s increased 18%, but the investment we’ve made to activating those packages, I think is really underscored by the fact that the percent activated has grown 80% year-over-year. So I think that just speaks to that. But it also talks to that moderation in VPG, right, as new buyers come on, as Mark just went over. Obviously, VPG’s will moderate and that will ultimately have an impact on the margins €“ the EBITDA margins that we see for the overall business. Now this is the same story we’ve been talking about for a number of quarters. So, no surprise.
That moderation should ultimately fall out to be ahead of where the pro forma was in 2019. Obviously, we’ve capitalized on a lot of cost synergies. Will that normal €“ moderate normalize in 2023? It’ll probably carry into 2024, but that’s 100 to 200 basis points, something of that nature where it ultimately falls out. But to avoid any confusion, that’s €“ a percentage moderation from an absolute dollar earning, you can mind new buyers, we sell new buyers at a profit. So we’re not talking about lack of earnings growth, it’s just a margin percentage moderation.
Patrick Scholes: Okay. I got some follow-up questions regarding all that. Certainly, it sounds like new buyers in the packages and pipeline, a very high percentage. Is the target €“ is the target actually €“ is the target still 40% for new buyers actually buying by the end of 2023? It sounds like you might be ahead of that.
Mark Wang: Yeah. Look, I think that’s our targeted goal. You have to remember, new buyer sales are growing and tour flows are growing, accelerating faster than we’re seeing owner tour flow grow. But you have to remember the VPG and close rate is considerably less than owners. So our goal is to get back up to 40%. I’m not sure, if we’ll get to that level by the end of the year, but that’s our ultimate goal. Look, at the end of the day, NOG is core to our strategy. We know that, the lifetime value to customer is so important. And we know since 2016 that every new buyer that we generate, we generate an additional 1.7 additional transactions. So not only is it embedding recurring revenue from management and club fees, and any mortgages that we may initiate, but is also embedding future high-margin sales.
So, very core to our strategy, early on when the pandemic began, we really focus on our owners, because that made the most sense from a standpoint of generating as much cash and margin as possible. But we are now back on course, and this year will be the year of tour flow growth, in particular around new buyers.
Patrick Scholes: Okay. Thank you. I have more questions. But I will go to the end of the queue, and let some other people ask question. Thank you.
Operator: Our next question is from David Katz with Jefferies. Please proceed.
David Katz: Hi. Good morning, everyone. Thanks for taking my questions, given I have a couple going on this morning, I hope, I’m not asking something twice. But my most important issue is just figuring out how you think about the contingencies and sensitivities and leverages, as we get through this year and potentially get into a recession that still has yet to sort of be defined as to what that would look like. Help us walk through a range of scenarios, if you can?
Mark Wang: Well, look, David, I think obviously, we’re aware and mindful of potential impacts of macro environment. And clearly, there’s a lot of cross currents on the consumers out there. But what we’re seeing right now is consumers continue to prioritize travel. And we’re seeing more owners and rental guests on our books than we saw in ’19. And so that’s a great indicator. We just answered a question earlier around new buyer tour flow. New buyer tour flow is really outpacing all of our other channels. And we continue to activate those tours at a very healthy pace. So, all in all, the activity, all of this activity is increasing traffic in our sales centers, and it’s going to drive transactions. And so, I do think we have some distinct advantages in our model, our direct sales approach, which allows us to engage with our owners and prospects in pretty much any environment.
You saw how fast our industry, in particular, HGVs come back from pandemic. We’ve got this high-quality pool of customers from Hilton through the Hilton Honors member base who have a high affinity to travel. And so, again, packages remained strong. We drove increases in tour flow. I just gave out some numbers. If you go back and you listen to the transcript, I give you out some detailed numbers on the sequential growth of our new buyer tour flow. Our inventory position is really good. And while — look, we’re certainly not immune from macro pressures, we do believe we’ll hold up well even if we face some incremental headwinds on VPG and margin.
David Katz: Understood. And can I just ask for a quick comment with respect to the balance sheet. And how you think about not that leverage is a challenge for you in any way, but how do you think about, kind of managing your leverage levels, as you sort of progress through this year as well?
Dan Mathewes: Hey David, it’s Dan. Thanks. Look, great question. We are right now 2.4 times levered. I think, when we work our way through COVID, we’ve proven that we tend to be a little bit conservative on the balance sheet in preparation for macroeconomic events. That being said, I think COVID also proved out that ourselves, as well as the vast majority of time share can operate at significantly higher leverage, if necessary. I think ultimately, what you would see us do barring some kind of material, call it, great financial crisis type recession. You see us continue down the path that we’re on right now. And that’s actively returning capital to shareholders, continuing to do that and maintaining a leverage ratio sometime — some place in the range of two to three times. We’ve been able to pull back on inventory spend where necessary. And if something material were to happen, we’d probably look at pulling that lever again as well.
David Katz: Understood. Thanks, very much.
Operator: We have a follow-up question from Patrick Scholes with Truist Securities. Please proceed.
Patrick Scholes: Okay. Great. Thank you. I definitely have some more questions here. At the end of the prepared remarks, through a little curveball there, with talking about material weakness, I’m wondering if you could give us any more color whatsoever that might mean or what it might refer to at all? Thank you.
