Travel + Leisure(TNL)2023-07-26 17:16Financial Data and Key Metrics - Q2 adjusted EBITDA was $236 million, a 3% increase YoY, and adjusted EPS was $1.33, a 5% improvement YoY [1] - Adjusted EBITDA margin was 25%, flat YoY, impacted by higher interest expense and investment in new owner growth [122] - Net corporate leverage ratio was 3.7x at the end of Q2, expected to decline below 3.5x by year-end [113] - Q2 VPG was $3,150, at the top end of guidance and 30% above 2019 levels [143] - Q2 share repurchases totaled $100 million, with $275 million remaining under the approved program [127] Business Segment Performance - Vacation Ownership segment revenue was $768 million, up 4% YoY, with adjusted EBITDA of $187 million, flat YoY [18] - Travel and Membership segment revenue was $179 million, down from $188 million YoY, with adjusted EBITDA of $62 million, down from $64 million YoY [19] - Blue Thread tours increased 20% YoY, outperforming overall tour growth of 15% [29] - Travel Club transactions declined 9% YoY, consistent with prior expectations [16] Market and Consumer Trends - Owner nights booked for H2 2023 are ahead of 2019 levels, with room nights up 4% due to longer stays [41] - Booking windows remain stable at 120 days, with search patterns starting 160 days in advance, indicating strong travel demand [53] - Delinquencies in the consumer finance portfolio normalized in Q2 but remain within expectations [124] - Exchange member count is recovering but not enough to offset lower transaction propensity [19] Strategic Direction and Industry Competition - The company reaffirmed full-year adjusted EBITDA guidance of $925 million to $945 million and gross VOI sales of $2.1 billion to $2.2 billion [30] - Strategic focus on new owner growth, with new owner transactions increasing to 34% of total transactions, up 200 bps YoY [28] - Opportunities for diversification in the VO business, with potential for new brands and market expansion [51] - The company is well-positioned with four years of inventory on the balance sheet, minimizing exposure to rising construction costs [152] Management Commentary on Operating Environment and Outlook - Management expressed confidence in the resilience of the timeshare model, with 80% of owners having fully paid for their timeshares [110] - The company expects Q3 adjusted EBITDA to be in the range of $245 million to $260 million, with Travel and Membership contributing $60 million to $65 million [3] - Full-year loan loss provision guidance remains at 18% to 19%, with Q3 provision expected to exceed 19% [33] - Management highlighted the strong performance of the Mexican exchange market and consistent demand across geographies [151] Other Key Information - The company completed a $300 million ABS transaction in July with a weighted average coupon of 6.72% and an advance rate of 92% [112] - Adjusted free cash flow was $11 million in H1 2023, down from $121 million YoY due to higher loan originations and interest payments [128] - The effective tax rate for the full year is expected to be between 27% and 28% [95] Q&A Session Summary Question: Close rate trends for new and existing owners [116] - Close rates normalized in Q2, with rates still above historical norms for owner, Blue Thread, and non-affinity new owner tours [45] - Close rates in July are consistent with June levels and expected to remain stable for the rest of the year [34] Question: Margin expectations for VO in Q3 and Q4 [116] - Margins are expected to improve in Q4, with Q3 pressure due to high new owner tour volume [36] - Full-year VO margins are expected to be comparable to 2022 levels [65] Question: Geographic spread of demand [63] - Demand is consistent across key markets, with no significant regional variations [150] - The Mexican exchange market has shown strong resurgence, benefiting from mid-haul travel demand [151] Question: Inventory strategy amid rising rates [58] - The company has minimal inventory spend due to four years of inventory on the balance sheet, reducing exposure to rising costs [152] Question: Capital allocation and buyback pace [89] - Share repurchases will be evaluated monthly, with continued buybacks expected through year-end [90] Question: Consumer behavior and transaction size [66] - VPG declines are primarily due to close rate normalization, with no significant changes in transaction size or consumer propensity [67] Question: Securitization terms and credit spreads [73] - Credit spreads have tightened, with potential for further improvement if interest rate uncertainty decreases [77][85]