Travel + Leisure(TNL) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section details the unaudited interim financial statements, management's analysis, market risks, and internal controls Item 1. Condensed Consolidated Financial Statements (Unaudited) This section provides the unaudited interim financial statements for the three and nine-month periods, reviewed by independent auditors Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP reviewed the Company's interim financial statements and found no material modifications needed for U.S. GAAP conformity - The auditors are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with U.S. GAAP[12] Condensed Consolidated Statements of Income The company reported net revenues of $986 million for Q3 2023, with net income attributable to shareholders at $110 million Q3 & Nine Months 2023 vs 2022 Income Statement Highlights (in millions, except EPS) | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $986 | $937 | $2,814 | $2,668 | | Operating Income | $207 | $189 | $529 | $491 | | Net Income to Shareholders | $110 | $116 | $267 | $266 | | Diluted EPS | $1.49 | $1.38 | $3.53 | $3.12 | Condensed Consolidated Balance Sheets As of September 30, 2023, total assets slightly decreased to $6.655 billion, while total stockholders' deficit increased to $997 million Balance Sheet Summary (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $6,655 | $6,757 | | Cash and cash equivalents | $238 | $550 | | Vacation ownership contract receivables, net | $2,460 | $2,370 | | Total Liabilities | $7,652 | $7,661 | | Debt | $3,729 | $3,669 | | Non-recourse vacation ownership debt | $1,893 | $1,973 | | Total (Deficit) | ($997) | ($904) | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities was $198 million for the nine months ended September 30, 2023, with significant cash used in financing activities Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $198 | $267 | | Net cash used in investing activities | ($46) | ($34) | | Net cash used in financing activities | ($444) | ($414) | | Net change in cash, cash equivalents and restricted cash | ($296) | ($192) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the accounting policies and financial figures presented in the consolidated statements Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, condition, and liquidity, highlighting strong leisure demand amidst macroeconomic uncertainties and strategic capital deployment - The company continues to see strong demand for leisure travel, but faces uncertainty from inflationary pressures, rising interest rates, and recession risk[166] - A strategic shift to increase new owner sales is moderating Volume Per Guest (VPG) levels, though they remain above pre-pandemic levels[166] - The company believes it has sufficient liquidity to meet ongoing cash needs, including the repayment of $300 million in notes due April 2024[216] Q3 2023 vs Q3 2022 Consolidated Results (in millions) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $986 | $937 | $49 | | Operating Income | $207 | $189 | $18 | | Net Income | $110 | $116 | ($6) | Results of Operations For Q3 2023, consolidated net revenues rose 5.2% to $986 million, driven by the Vacation Ownership segment, despite a 5.2% decrease in net income Q3 2023 Operating Statistics vs Q3 2022 | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Vacation Ownership | | | | | Gross VOI sales (in millions) | $598 | $555 | 7.8% | | Tours (in 000s) | 187 | 158 | 18.0% | | Volume per guest (VPG) | $3,108 | $3,393 | (8.4%) | | Travel and Membership | | | | | Total transactions (in 000s) | 410 | 439 | (6.5%) | - Vacation Ownership revenue increased by $58 million in Q3 2023, driven by a 39% increase in gross VOI sales from more tours, despite a lower VPG. Adjusted EBITDA for the segment rose by $15 million[184][185] - Travel and Membership revenue decreased by $9 million in Q3 2023 due to lower transaction volumes. Adjusted EBITDA for the segment fell by $3 million[189][190] Financial Condition As of September 30, 2023, total assets decreased by $102 million, primarily due to cash used for debt repayment and shareholder returns, while total liabilities saw a net decrease of $9 million - Total assets decreased primarily due to a $312 million drop in Cash and cash equivalents, which was used for debt repayment ($400 million), share repurchases ($269 million), and dividends ($104 million)[214] - Total liabilities saw a net decrease of $9 million, with an $80 million reduction in non-recourse debt and a $58 million decrease in accrued expenses, partially offset by a $60 million increase in corporate debt[214] Liquidity and Capital Resources The company maintains strong liquidity with $238 million in cash and $547 million available under its revolving credit facility, with significant capital deployment towards share repurchases and dividends - As of September 30, 2023, the company had $547 million of available capacity under its $1.0 billion revolving credit facility[218] - During the first nine months of 2023, the company repurchased 6.7 million shares for $267 million and paid $104 million in dividends[247][248] Material Future Contractual Obligations (in millions) | Category | Total Commitment | | :--- | :--- | | Debt | $3,743 | | Non-recourse debt | $1,911 | | Interest on debt | $1,212 | | Purchase commitments | $763 | | Operating leases | $109 | | Total | $7,738 | Quantitative and Qualitative Disclosures About Market Risks The company is exposed to interest rate and foreign currency risks, though a 10% change is not expected to materially affect financials, while a 100-basis point interest rate change would impact annual interest expense by $15 million - A hypothetical 10% change in interest rates or foreign currency exchange rates is not expected to have a material effect on the company's financials[253] - A 100-basis point change in underlying interest rates would impact annual consumer financing interest expense by $5 million and annual corporate debt interest expense by $10 million[254] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period[256] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control[256] PART II - OTHER INFORMATION This section provides disclosures on legal proceedings, risk factors, equity sales, and other miscellaneous information Legal Proceedings The company is involved in various claims and lawsuits arising in the ordinary course of business, none of which are expected to have a material adverse effect - The company is involved in various claims and lawsuits, none of which are expected to have a material adverse effect on its financial results or condition[258] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - As of September 30, 2023, there have been no material changes to the risk factors set forth in the company's 2022 Annual Report on Form 10-K[259] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased approximately 1.6 million shares for about $65 million, with $210 million remaining available for future repurchases Share Repurchases for Quarter Ended September 30, 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | 773,316 | $41.40 | | August 2023 | 819,577 | $40.26 | | September 2023 | — | $— | | Total | 1,592,893 | $40.82 | - As of September 30, 2023, the company had approximately $210 million remaining under its share repurchase authorization[260] Defaults Upon Senior Securities None - There were no defaults upon senior securities[263] Mine Safety Disclosures Not applicable - This item is not applicable to the company[264] Other Information None - No other information was reported under this item[265] Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to agreements, certifications by the CEO and CFO, and XBRL data files - Exhibits filed include the Twelfth Amendment to an indenture and servicing agreement, officer certifications (Rule 13a-14(a) and Section 1350), and Inline XBRL documents[266] Signatures This section contains the required signatures for the filing