David Katz: Perfect. Thank you very much.
Mike Hug: Sure. Thank you.
Operator: Thank you. Next question is coming from Dany Asad from Bank of America. Your line is now live.
Dany Asad: Good morning, everybody, and thank you for taking my question. So maybe one more shot on VPG. You maintained your VPG outlook for the full year, but can you maybe touch on the expectation of the underlying mix of new versus existing owners and how much of that is factoring into your VPG outlook for the balance of the year?
Michael Brown: Great. This is Michael. I will take that. The second quarter and third quarter are really our largest new owner tour months, and therefore, have a natural drag on VPG, which is, even though we outperformed our expectation in Q1, the relative size of Q1 is the smallest of the entire year. So it was a great performance in Q1, outperforming what we expected. And then the second quarter and the third quarter because our new owner mix will continue to move up from the current 31% that’s going to have a natural mix adjustment that brings VPG down as we head through the peaking summer months and which are more heavily weighted, which will naturally drag the full year back into the range that we have laid out. What I would say is that’s the macro number.
But as you get into the underlying marketing channels, again, we are seeing a lot of consistency from 2022 between the owner, our strong relationship with Wyndham Hotels through the Blue Thread and then our non-affinity tours, those close rates and VPGs are holding up on a by channel basis. It’s really the mix that creates the impact as you move through the year.
Dany Asad: Great. Thank you very much. And then, my follow-up, if you could just give us a little bit more on — a little bit more color on consumer financing. So when a new prospective owners of the table, maybe can you just tell us about their intention and their propensity to finance the kind of down payments they are making and whether you are seeing more or less prepayments in your existing base just with this current interest rate environment today?
Michael Brown: So as far as new owners at the sales table, they do have a likelihood of putting less down. Keep in mind, a lot of that is driven by what our sales people ask for at the sales table. So the propensity to finance is a strategic move on our part to drive it up, not necessarily indication that our consumers don’t have the ability to still put 25% down. So we put that in place, as I mentioned, back in April and seeing good results from that. In terms of prepayments, they are up a little bit, as you would expect, because our portfolio continues to improve in quality. So the higher the FICO, the higher the likelihood to prepay, but I think that’s, once again, driven by the mix in the portfolio and not any other indicator.
Overall, our consumer remains strong. If you look at delinquencies at the end of March, historically, they always improved from December to March, but what we saw this year was that the improvement from December to March was the best improvement we have seen in over five years. So very happy with the consumer and aren’t seeing anything unusual from a financing or prepayment propensity indicate weakness or strength. I think it’s pretty consistent with what we have always seen based on the FICO mix that’s now in the portfolio.
Dany Asad: Got it. That’s very helpful. Thank you very much. That’s it for me.
Michael Brown: Thank you.
Operator: Thank you. Next question is coming from Ricardo Chinchilla from Deutsche Bank. Your line is now live.
Ricardo Chinchilla: Hey, guys. Thanks for taking the question. I was wondering if you could please provide us some color on your refinancing strategy, given the 2024 and the 2025 maturities and the current state of the capital markets?
Mike Hug: Yeah. Thanks for the question, Ricardo. Good to hear from you. So we have got $300 million due next April, obviously, we will see what happens with the markets between now and then. Right now, we have nothing outstanding of significance on the corporate revolver, so $1 billion in capacity there. So like, historically, we have taken care of that later in the year or early in 2024. The bigger tranches we have come up in 2025, and obviously, we will have to see what happens in the markets between now and then. But we have never had a problem as far as being able to refinance that debt and push it out another six years or seven years or eight years. So, obviously, we did 1 last November to take care of the March maturity this year.
So very confident in our ability to take care of the $300 million that comes due next April. And once again, as we watch what happens to the market over the next nine months, we will make the decision as to how we take care of that and worst-case scenario, the $1 billion revolver is always available to us. And I mentioned this before, but pre-COVID, we always carried $250 million to $300 million revolver. We would expect and we are very comfortable doing that, we would expect that revolver balance to be pretty low by the end of this year. So very comfortable with our capital stack and our ability to make sure we are able to refinance that at the appropriate time.
Ricardo Chinchilla: Got it. That was very helpful. For my follow-up, have you guys considered changing the current fixed versus variable rate structure of the capital structure or are you guys thinking that you want to keep a significant portion fixed versus variable?
Mike Hug: It’s something that we evaluate every time we look at a transaction. I mean, obviously, the last transaction we did has a variable component to it. So if you think about the capital stack we have, the majority of that was inherited from Wyndham Worldwide and was generated there in a very low interest rate environment. So it made sense to go with the fixed rate. Once again, we will watch what happens with the capital markets over the next eight months or nine months and we will see what we do with that $300 million. $300 million over $3 billion, I wouldn’t say is really material when you think about whether it’s fixed or variable, but that’s the discussions we will have with our banking partners at the time or when the time comes to refinance that.
Ricardo Chinchilla: Appreciate it. Thank you so much.
Mike Hug: Sure. Thank you.
Operator: Thank you. Our next question today is coming from Brandt Montour from Barclays. Your line is now live.
Brandt Montour: Hey, everybody. Thanks for taking my questions. Most of them have been answered, but wondering if you could give us a peek into the tour flow expectations for the year and I think we can sort of discern from your comments that they are going to be new owner heavy. But just maybe an idea of the channel mix that they are coming through. This is sort of you topping up the or sort of reaching full recovery of your existing channels. So just give us a peek into what those channels are if you expect them to be higher yielding or lower yielding than the overall company average? Thanks.
Michael Brown: Great, Brandt. It’s a great question, because the second half of this year really does reflect our continued commitment to laying the foundation for our future growth, which is investing back into our business and our businesses about our owner base. So we want to do it as quickly as possible, get back to growing that base and the tour flow expectations for the second half of the year really reflect a new owner commitment. That’s going to be in the mid- to upper-teen tour growth from 2022, almost all of it coming from the new owner channels. Those two channels are broken down into two primary types. Our relationship with the hotel group through Blue Thread, which comes with a higher VPG and non-affinity channels, which come with a lower.
All new owner channels come in lower than the average and the owner mix obviously. So that’s where when we talk about VPG impact going forward for the remainder of 2023, that’s the mix impact that causes it, which is very welcomed planned and what we want to do to lay the foundation for our future. And all of that is baked into the guidance that we have laid out today, which just to pull it up to a higher level for a moment. We are talking high-single digits EBITDA growth this year off of traditionally mid-single digits. We are talking about returning capital in the first quarter of allowing us to pull 3% of our shares outstanding out of the market, all of that while our expectation is to maintain a free cash flow yield in the high teens.
So we think investing back into those new owners, growing them to just below 35% for the year is the right investment that allows us to continue to maintain our global strategy of EBITDA growth and capital return, but lay the foundation for 2024, 2025 and 2026 through our new owner base.
