Travel + Leisure (NYSE:TNL) FY 2025 Conference December 03, 2025 01:30 PM ET Company ParticipantsErik Hoag - CFOConference Call ParticipantsBrandt Montour - Director, Equity Research AnalystNone - AnalystBrandt MontourHello, everybody. Hope you guys had a good lunch. We're here with Erik Hug from Travel + Leisure, the Chief Financial Officer. Erik, maybe we'll start with a very brief overview of the business, and you can kind of take that right into an overview of how the timeshare consumer feels as near-te ...

Financial Data and Key Metrics Changes - For FY 2025, Travel + Leisure generated approximately $4 billion in revenue, with EBITDA just under $1 billion, reflecting a revenue growth of about 4% and EBITDA growth of roughly 6% year-to-date [2][3] - Earnings per share (EPS) increased by 14%, and free cash flow per share rose by over 20% [3] - The company raised its guidance for gross vacation ownership interest sales, volume per guest, adjusted EBITDA, and modestly increased the outlook for free cash flow [3] Business Line Data and Key Metrics Changes - The vacation ownership segment constitutes about three-quarters of the company, characterized by predictable revenue and strong cash flows [2] - The travel and membership segment, making up roughly a quarter of the company, has a member base of about 3 million, with high recurring revenue from multi-year contracts [2] - Approximately two-thirds of transactions come from existing owners, indicating strong repeat business [6][10] Market Data and Key Metrics Changes - The consumer base for Travel + Leisure is stable, with new owners averaging in their early 50s and a household income of around $120,000 [6] - There are no significant fluctuations noted across different geographical markets [7] Company Strategy and Development Direction - The company plans to focus on upgrading existing owners and attracting new owners, with a long-term target mix of 35% new owners and 65% existing owners [10] - New brands such as Sports Illustrated and Eddie Bauer are being introduced, alongside continued growth in existing brands like Margaritaville and Accor Vacation Club [13][25] - The company is also looking to improve its consumer finance portfolio and expects a modest pickup in spreads as interest rates decline [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the durability of the consumer base and the ability to drive demand through direct marketing strategies [11][12] - The loan loss provision is expected to decrease in 2026 compared to 2025, with a target of settling at or below 20% [14][17] - The company is focused on capital allocation, balancing investments in growth with shareholder returns through dividends and share buybacks [55] Other Important Information - The company is currently operating at a leverage ratio of approximately 3.3, with a target of reducing it to around 2.25 to 3 over time [47] - The optimal inventory level is between two to three years, but the current inventory stands at four to five years due to new brand requirements and inventory recycling initiatives [48][49] Q&A Session Summary Question: How is the consumer sentiment in the travel and leisure sector? - Management noted that the consumer remains strong, with consistent trends in key performance indicators such as booking windows and arrivals [4][6] Question: What is the outlook for new brands like Sports Illustrated and Eddie Bauer? - The focus for 2026 will be on scaling these brands, with expectations for growth but not immediate inclusion in financial modeling [25][30] Question: How does the company view the competitive landscape and potential M&A opportunities? - The company is aware of the narrowed universe of potential acquisition targets in the timeshare space and is focused on driving shareholder returns through internal investments and capital allocation [44][45] Question: What is the company's approach to capital allocation? - The company maintains a disciplined approach to capital allocation, with a commitment to dividends and share buybacks while investing for growth [55]

Financial Data and Key Metrics Changes - The company generated over $1 billion in revenue, $250 million in adjusted EBITDA, and $1.65 in adjusted earnings per share, all showing year-over-year increases [6][19] - Adjusted EBITDA grew 2% year-over-year, translating to a 4% adjusted EBITDA growth for the first half of the year [19] - The average FICO score of new originations is 746, reflecting a more than 20-point increase since the company updated its credit quality standards [10] Business Line Data and Key Metrics Changes - The Vacation Ownership segment saw revenue grow 6% to $853 million, driven by a 3% increase in tours and a VPG of $3,251, which is up 7% from last year [20] - The Travel and Membership segment's revenue was $166 million for the quarter, down 6% year-over-year, with adjusted EBITDA declining 11% to $55 million [22] Market Data and Key Metrics Changes - Demand remains strong across the core timeshare business, with tour growth improving sequentially from the first quarter and 3% compared to 2024 [7] - The company serves more than 800,000 owner families with an average tenure of 17 years, indicating a stable customer base [9] Company Strategy and Development Direction - The company is focused on growing its core vacation ownership business while leveraging data and technology to enhance customer experience [13] - New brand expansions include a new sales location in Nashville and the launch of the Accor Vacation Club in Asia, indicating a strategy of geographic expansion [14][76] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of leisure travel and the health of consumers, with spending on leisure travel expected to grow mid-single digits per year over the next five years [7] - The company anticipates continued strength in the vacation ownership business, which is expected to cover any weakness in the travel and membership segment [26] Other Important Information - The company returned $107 million of adjusted free cash flow to shareholders during the quarter, with $37 million through dividends and $70 million in share repurchases [23] - The liquidity position remains strong, ending the quarter with over $800 million, including $212 million in cash and cash equivalents [25] Q&A Session Summary Question: Visibility in the Travel and Membership segment - Management acknowledged challenges in the travel membership segment due to industry consolidation and unanticipated impacts from M&A activity, but emphasized proactive measures to address these issues [31][32] Question: Average transaction size and financing - Management noted that the increase in average transaction size is due to measured price increases and greater owner engagement, with no significant change in the propensity to finance [35][38] Question: Delinquency trends and provisions - Delinquencies moderated through the second quarter and into July, with a full-year provision of 21% expected, and management is confident in the portfolio's strength [46][47] Question: Consumer health and income stratification - Management indicated that higher household incomes correlate with better performance and lower delinquencies, while new owner performance remains strong despite economic uncertainties [56][58] Question: International opportunities with Accor - Management expressed optimism about the international market potential but emphasized that the U.S. market remains the primary focus, with expectations for similar profitability margins internationally [74][78] Question: New projects and brand launches - Management highlighted the strategic importance of new brands like Margaritaville and Sports Illustrated, which are expected to contribute significantly to sales growth [90][91]

Group 1 - The most popular travel option during the Dragon Boat Festival this year is the "48-hour refresh" micro-vacation, reflecting a shift in consumer preferences towards short, efficient getaways [2] - The tourism market saw a 23.8% year-on-year increase in cultural and tourism revenue, indicating a growing consumer desire to escape the pressures of work while avoiding exhausting travel experiences [3] - A viral incident involving a price hike of dumplings in a popular ancient town highlights consumer resistance to inflated prices, paralleling changes in the SLG gaming sector where players seek transparent and fair experiences [6] Group 2 - Families are increasingly favoring a "time-sharing vacation" model, balancing group activities with personal exploration, which mirrors the collaborative gameplay in "Three Kingdoms: Strategy of the World" [8] - The gaming industry is providing solutions for the holiday economy by eliminating the stress of ticket purchasing and hotel pricing, allowing players to control their own experiences [10] - The "Dragon Boat Racing" feature in the game exemplifies a low-effort, high-strategy approach, reflecting the essence of the holiday economy by offering stimulation while preserving relaxation [11]