Travel + Leisure Co. (TNL) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary indicates strong financial performance, with high adjusted EBITDA and VPG. The company raised dividends and share repurchases, signaling confidence. Q&A insights reveal strategic measures to address challenges, strong customer engagement, and improved credit quality. Despite some unclear responses, the overall sentiment is positive, with expectations of growth through strategic partnerships and new projects. The market cap suggests a moderate reaction, resulting in a positive stock price movement prediction of 2% to 8%.

Key Financial Performance

Revenue $1.02 billion, up 3% year-over-year, driven by strong VOI volume and VPGs that exceeded expectations.

Adjusted EBITDA $250 million, up 2% year-over-year, driven by strong performance in vacation ownership and share repurchases.

Adjusted Earnings Per Share $1.65, up 9% year-over-year, driven by strong performance in vacation ownership and share repurchases.

Vacation Ownership Revenue $853 million, up 6% year-over-year, driven by a 3% increase in tours and a 7% increase in VPG to $3,251.

Travel and Membership Revenue $166 million, down 6% year-over-year, due to industry consolidation headwinds and M&A activity disrupting transaction volumes.

Adjusted Free Cash Flow $123 million for the quarter, supported by strong sales efficiency and capital-efficient sales execution.

Operating Cash Flow $353 million for the first 6 months of the year, supported by strong sales efficiency and the consumer finance portfolio.

Capital Returned to Shareholders $107 million, including $37 million through dividends and $70 million in share repurchases, retiring more than 2% of shares outstanding.

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Operating Highlights

Club Wyndham app: Achieved 162,000 downloads and accounts for 19% of bookings.

WorldMark app: Scheduled for launch in Q4 to enhance customer engagement.

AI investments: Progressing on web and app channels to drive personalized experiences and seamless booking.

Margaritaville expansion: Opened a new sales location in Nashville and a marketing channel on the Margaritaville cruise ship.

Accor Vacation Club: Launched a new Asia-based club with the first resort in Novotel Nusa Dua, Indonesia.

Sports Illustrated Resorts: Announced a new location in Nashville, Tennessee, expected to open in spring 2027.

Vacation Ownership business: Generated $853 million in revenue, a 6% increase year-over-year, with a 3% rise in tours and 7% growth in VPG.

Travel and Membership segment: Revenue declined 6% year-over-year, with adjusted EBITDA down 11% due to industry consolidation and M&A disruptions.

Adjusted free cash flow: Generated $123 million in Q2 and $353 million in the first half of the year.

Multi-brand strategy: Focused on customer segment and geographic expansion through brands like Club Wyndham, WorldMark, and partnerships with Wyndham Hotels.

Capital allocation: Returned $107 million to shareholders in Q2 through dividends and share repurchases.

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Risk or Challenges

Travel and Membership segment performance: Revenue declined by 6% year-over-year, and adjusted EBITDA dropped by 11%. The exchange business is facing industry consolidation headwinds, and recent M&A activity disrupted transaction volumes from certain affiliates, impacting financial performance.

Loan loss provision and delinquencies: While delinquency trends moderated after an uptick in the previous quarter, the loan loss provision remains at 21%, which is historically high. This could impact capital efficiency and free cash flow.

Macroeconomic and political environment: The company operates in a complex macroeconomic and political environment, which could pose challenges to consistent and dependable cash generation.

Exchange business challenges: The exchange business is under pressure due to industry consolidation and M&A activity, which has disrupted transaction volumes and negatively impacted revenue.

Leverage and refinancing risks: The company expects leverage to slightly increase in the third quarter due to normal seasonality and plans to refinance a $350 million note coming due in the fourth quarter, which could pose financial risks if market conditions worsen.

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Guidance & Outlook

Spending on leisure travel: Expected to grow mid-single digits per year over the next 5 years.

Revenue predictability: More than 75% of revenue tied to predictable sources like owner upgrades, financing, and management fees, leading to a nearly $20 billion pipeline of future potential revenue over 10 years.

Booking pace and visibility: Booking pace is consistent with the prior year, with a 109-day average booking window providing clear visibility into the remainder of the year.

Vacation Ownership segment: Gross VOI sales expected to be in the range of $2.4 billion to $2.5 billion for the full year, with VPGs in the range of $3,200 to $3,250, an increase from the prior range of $3,050 to $3,150.

Adjusted EBITDA: Full year adjusted EBITDA expected to be in the range of $955 million to $985 million.

Travel and Membership segment: Expected to remain challenged through year-end.

Third quarter guidance: Adjusted EBITDA expected to be in the range of $250 million to $260 million. Vacation Ownership gross VOI sales expected to be in the range of $650 million to $680 million, with VPGs in the range of $3,200 to $3,250.

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Shareholder Return Plan

Dividend Payments: During the quarter, $37 million was returned to shareholders through dividends.

Dividend Strategy: The company continues to prioritize returning excess cash to shareholders through dividends as part of its capital allocation strategy.

Share Repurchase Program: $70 million was spent on share repurchases during the quarter, retiring more than 2% of shares outstanding.

Capital Allocation Strategy: The company maintains a strategy of reinvesting in growth, maintaining a resilient balance sheet, and returning excess cash to shareholders through share repurchases and dividends.

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Key Q&A

Q:Do you feel like visibility of the Travel and Membership segment is declining, and how confident are you in turning this around?

A:Michael Brown explained that the Travel and Membership segment faced challenges due to consolidation and changes in how bigger clubs operate. Over 50% of the decline in the first half of the year was attributed to these factors. The company is taking measures to address these challenges, including growing the Travel Club business, deploying inventory innovatively, and managing costs. They remain proactive and are considering strategic investments to return to growth.

Q:What is driving the double-digit increase in the average size of transactions, and how does financing play into this?

A:Michael Brown stated that the increase is due to measured price increases and greater owner engagement. Customers are buying more vacations, with 50% of their vacation time dedicated to Wyndham. Financing propensity has remained consistent, and the increase reflects customer satisfaction and loyalty.

Q:Why did you raise the VPG guidance but not the gross VOI sales number?

A:Michael Brown explained that the strong VPG performance in the first half of the year led to the guidance raise. They are confident that gross VOI sales will be at the mid to top end of the range. Tour growth showed sequential acceleration, and they expect this trend to continue in the second half of the year.

Q:How have delinquencies been tracking, and what steps are being taken to reduce the provision below 20%?

A:Erik Hoag noted that delinquencies moderated in the second quarter and into July. The provision remains at 21%, supported by disciplined underwriting with FICO scores above 740 and increased adoption of their app. They also have an efficient inventory recovery process, which helps manage delinquencies effectively.

Q:What are the behaviors and differences in performance across various household income levels within your customer network?

A:Michael Brown highlighted that higher household incomes correlate with better performance and lower delinquencies, while lower incomes show higher delinquencies. Higher-income customers are also more likely to prepay loans. The company has raised FICO standards to improve credit quality and sees strong performance across all income strata, with no signs of economic weakness in the new owner segment.

Q:What are your expectations for the buyer mix and closing rates with the raised VPG guidance?

A:Erik Hoag stated that they expect an acceleration in the new owner mix in the second half of the year, with a long-term target of 35%. Closing rates and VPGs have shown strong performance, and they anticipate continued improvement.

Q:What is the international opportunity for the Accor brand, and how does it impact the overall business?

A:Michael Brown explained that Accor is a strong international brand with significant TAM. However, timeshare is primarily a U.S.-based industry. International sales are expected to maintain similar profitability margins and remain a small percentage of total revenue. The focus is on incremental growth through new customers and geographic expansion.

Q:What are the variables influencing the back half of the year, and how does Sports Illustrated fit into this?

A:Michael Brown noted that tour flow is expected to accelerate in the second half, supported by strong VPG guidance. Sports Illustrated sales are expected to start in late 2025, with meaningful contributions beginning in 2026. The focus remains on executing partnerships and growing existing brands like Margaritaville and Accor.

Q:What is the importance of new projects like Margaritaville in Orlando and Sports Illustrated in Nashville?

A:Michael Brown emphasized that these projects align with consumer lifestyles and provide access to new customer databases. Margaritaville and Sports Illustrated are expected to contribute $200-$400 million in sales each, supporting long-term growth. The projects also reflect the company's strategy to meet evolving consumer preferences.

Q:How do you plan to achieve a sequential improvement in the new owner mix while maintaining VPGs?

A:Michael Brown stated that the focus is on growing tour flow and executing partnerships rather than forcing a specific new owner mix percentage. Early indications in July show strong performance, and the goal is to balance tour flow growth with maintaining VPGs.

Q:What is the update on the Sports Illustrated brand, including the Alabama and Nashville projects?

A:Michael Brown shared that the Nashville project is a conversion property opening in spring 2026, with sales starting in late 2025. The Alabama project is a purpose-built property expected to open in early 2027. Another Sports Illustrated resort announcement is expected later this year, likely a conversion property.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the specific timing and magnitude of the Sports Illustrated brand's impact on financials, as well as the exact steps to achieve a sequential improvement in the new owner mix while maintaining VPGs. Responses were broad and lacked detailed clarity on these points.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call presents a mixed sentiment. There is strong transaction growth and positive developments in the VOI business, but revenue per transaction decreased, and the Travel and Membership segment remains challenged. The company's financials benefit from improved cost of funds and potential tailwinds, but management's cautious guidance and lack of specific long-term strategies for new brands temper overall optimism. Given the company's market cap, the stock price is likely to remain stable, with a neutral sentiment prevailing over the next two weeks.

Travel + Leisure Co. (TNL) Q2 2025 Earnings Call Transcript

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