Q2 2022 Travel + Leisure Co Earnings Call
So I'll say, it's on holiday appreciate your patience and ask that you. Please continue to standby.
[music].
Audio assistance during todays conference call. Please press Star zero.
[music].
Good morning, and welcome to the second quarter 2022 earnings conference call for traveling to meet your toe.
The Speakers' remarks, there will be a question and answer period, if you'd like to ask a question. During this time simply press. The Star then the number one on your telephone keypad, if you'd like to withdraw your question. Please place to turnkey.
The Speakers' remarks, there will be a question and answer period, if you'd like to ask a question. During this time simply press. The Star then the number one on your telephone keypad, if you'd like to withdraw your question. Please place to turnkey.
Ladies and gentlemen, this conference call is being recorded if you do not agree with these terms. Please disconnect at this time. Thank you I would now like to turn the call over to Chris that New Please go ahead.
Thanks, Tom and good.
Good morning, before we begin we'd like to remind you that our discussions today will include forward looking statements actual results could differ materially from those indicated in the forward looking statements and the forward looking statements made today are effective only as of today, we undertake no obligation to publicly update or revise these statements.
The factors that could cause actual results to differ are discussed in our SEC filings and you can find a reconciliation of the non-GAAP financial measures discussed in today's call in the earnings press release available on our website at Investor travel on leisure co duck call.
This morning, Michael Brown, our President and Chief Executive Officer will provide an overview of our second quarter results and Mike Hug, Our Chief Financial Officer will then provide greater detail on the quarter.
Balance sheet and liquidity position.
Following these remarks, we will look forward to responding to your questions.
With that I'm pleased to turn the call over to Michael Brown.
Thank you Chris Good morning, and welcome to our second quarter earnings call. This morning. We are pleased to report strong results highlighted by adjusted EBITDA of $230 million and adjusted EPS of $1 27.
Our top and bottom line results reflect the strength of our business model and continued strength in leisure travel demand. Despite macroeconomic headlines the record volume per guest we delivered in the second quarter underscores the value our owners see in their timeshare ownership and the increasing value they risk.
<unk> during an inflationary environment.
Our adjusted EBITDA margin was 24, 9% an improvement of 70 basis points over the second quarter of last year, and 40 basis points over the same quarter of 2019.
We recognize that beyond our <unk> results second half leisure travel demand in travel sentiment is top of mind for everyone. We see continued robust vacation ownership demand through the end of the year.
Our booking pace is at 2019 levels and due to an increase in the average length of stay room nights for the second half or 8% above 2019.
I would also note we already have nearly 90% of 2019 second half room nights on the books for this year.
I will share a number of data points that reflect the latest consumer travel behavior.
The regions with the most demand for the rest of the year or the south southwest and Hawaii, while the West Coast and international are modestly lagging.
There has been an increase in drive to arrivals from 73% in March to 79% in June .
RCI booking windows have decreased by five days from 118 days earlier in the year to 113 days in the second quarter.
Lastly, our portfolio remains strong and is growing again.
These are a few of the data points, we monitor to understand the latest consumer sentiment.
As you can see there is no significant changes in trends as such we believe the continued strength in performance is founded in our consumers' appreciation of their realized value.
As a reminder, 80% of our owners have no loan outstanding and are traveling for the price of their maintenance fee.
First portfolio of resorts gives our owners maximum flexibility with 95% of the U S population within 300 miles driving distance to one of our resorts.
Transitioning to second quarter results. We were pleased with the continued performance of the business and that strength is reflected in our forward guidance.
For the second consecutive quarter, we achieved a record volume per guest.
$3489, we saw strong sequential and year over year growth in both new owner and owner Btg's second quarter, <unk> was 44% higher than 2019, and 11% higher than 2021.
PPG performance occurred while we also grew our new owner transaction mix by 200 basis points.
32%.
Early signs in July showed that <unk> strength and each customer acquisition channel is continuing.
Given that July and August are historically higher new owner sales months, we expect a modest pullback in Q3, <unk> due to mix of new owner sales.
In the second quarter over 65% of new owner sales were to Gen Xers, and millennials, which underscores the value of vacation ownership is resonating with younger generations and gives us confidence in our future upgrade pipeline.
A key segment of our new owner growth is affinity sales, most notably the blue thread blue thread <unk> should run approximately 20% higher than non affinity new owner of <unk> and now represent 16% of our new owner sales, which is nearly double the percentage of 2019.
In addition to driving new owner sales, we are focused on increasing the percent percentage of sales financed.
We have been successful on that front in the second quarter the percent of sales finance increased to approximately 65% from 55% in the prior year. We expect this to grow our high margin net interest income stream more quickly and offset higher borrowing costs I will point out we are doing this.
While raising our average FICO score on new originations 734 in the second quarter.
The value proposition of vacation ownership continues to resonate and is the reason why close rates continue to track about 300 basis points above 2019 levels.
We see inflation as a net positive for our business model as rising hotel and vacation home rental rates create an even more compelling value proposition for our customers.
Turning now to the travel and membership segment revenue declined 3% in the second quarter and finished up 5% for the first half of the year in the second quarter subscription revenue increased 5% and transaction you transaction revenue declined 6% overall, we are pleased with the performance.
Of our exchange business through six months member engagement continues to improve and revenue per member its 2% higher than the first six months of last year.
As we highlighted on our first quarter call exchange had a difficult comp in the second quarter due to our COVID-19 related shift in demand into the second quarter in the prior year.
Turning to our travel clubs are travel club affiliation pipeline continues to steam ahead, we added nine new clubs in Q2 and are expecting even more this quarter.
Many of the clubs, we announced late in 2021 and in Q1 of this year have come online for membership and transactions in Q2, and several more will come online in Q3, we expect transactions to ramp towards the end of the current quarter through the end of the year.
One of the benefits that resonates with clients is our ability to customize the travel platform to their affiliate needs. The customization takes between four and six months and our goal is to get that to our original plan of under three months.
Our transaction size is meeting our expectation at an average of $400 and some of the earliest clubs are already within the 1% to 3% activation range. We are targeting we.
We have more work to do to get all clubs in that range, but the early proof points show a promising future.
Platform is robust and the value proposition is strong now our single biggest focus is to drive transactions to those new clubs that have just come online or will do so in the upcoming months, we intend to do so by engaging more heavily to market each of the clubs their members.
Turning to our outlook, we expect third quarter, adjusted EBITDA of $230 million to $240 million and we are raising full year adjusted EBITDA guidance to between $860 million to $880 million.
We're committed to disciplined capital deployment and while we are constantly looking for opportunities to invest cash flow to grow our business as Mike will describe we have also been returning a healthy portion of our excess capital to shareholders.
<unk> buybacks and dividends, we expect to return $350 million to $400 million to shareholders. This year or approximately 10% of our market cap at the midpoint.
We are cognizant of uncertainty ahead for the macro economy, but we believe that the combination of the strategic improvements we have implemented and the resiliency of our cornerstone businesses position us well to meet the challenges that may emerge and we are confident in our outlook for the remainder of the year.
For more detail on our performance I would now like to hand, the call over to Mike.
Alright.
Thanks, Michael and good morning to everyone.
As well as discussing our second quarter results I'll provide more color on our balance sheet liquidity position and cash flow.
All of my comments reflect EBITDA, EPS and cash flow on a non-GAAP adjusted basis.
Please share tables to the earnings release on our website for reconciliations.
We reported total company second quarter, EBITDA of $230 million and diluted earnings per share of $1 27.
Compared to $119 million in EBITDA, and 88% and EPS one year ago.
Looking at the performance in our two business segments in the second quarter.
Vacation ownership reported segment revenue of $735 million and EBITDA of $187 million.
Increases up 22% and 36% respectively over the second quarter of 2021.
Excluding the $16 million prior year benefit from the Covid reserve release, EBITDA would have increased 55% year over year.
In the second quarter, we delivered 148000 tours and of APG at $3489, representing increases of 26% and 11% respectively over the prior year.
The second quarter provision for loan loss was in line with expectations at 16%.
With respect to our portfolio, we are starting to see the result of changes we implemented to increase the percent, but sales financed and drive portfolio growth.
The better news is that we are achieving the growth of the portfolio and to higher FICO bands with the largest percentage increase in finance sales coming from individuals with <unk> greater than 800.
In regards to portfolio delinquency, we saw slight increase in delinquency at the lower end.
Keep in mind, though we increased our minimum back down to 640 in July 2020, and <unk> above 700 represent two thirds of our portfolio.
Revenue in our travel membership segment was $188 million in the quarter compared to $194 million in the prior year and above the $164 million in the same quarter of 2019.
After removing $66 million for the sale of the North American rental business.
EBITDA for travel membership was $64 million compared to $71 million in the prior year.
In addition to strong operating results our balance sheet is strong and we are returning capital to shareholders.
In July we closed on our second ABS transaction of the year at 275 million to our transaction with an advance rate of 91% and a weighted average interest rate of five 7%.
We had expected the increase in rates and we were very encouraged by the strength of demand as this offering was nearly four five times oversubscribed, which reinforces the strength of our business model, even during a time of market volatility.
In regards to capital allocation, we paid a dividend of <unk> 40 per share on June 30, and we acquired one 7 million shares of common stock in the second quarter for $83 million.
In the first half of this year, we have repurchased $128 million of common stock.
We had $700 million remains under our approved share repurchase program.
At our upcoming Board meeting, we will recommend our board of directors continue our dividend at <unk> 40 per share in the third quarter.
The healthy return of capital to shareholders is driven by our strong free cash flow generation and for 2022, we continue to expect free cash flow conversion from EBITDA to be back to our historic range of 55% to 60%.
Our net corporate leverage ratio for covenant purposes was three seven times at the end of the quarter and we expect to continue to delever through EBITDA growth.
Having summarized our strong second quarter, let me provide some more detail about our expectations for the third quarter and full year.
In the third quarter, we expect gross VOI sales to be in the range of $530 million to $550 million.
20% to 25% increase over the prior year with BTG expected to be between 3000 $303400.
The provision for loan loss is expected to be approximately 18, 5% in the third quarter and below 18% for the second half of the year, which is consistent with our prior guidance.
It is important to note that this expected increase in the provision in the third quarter is not a quality issue, but rather driven by strategic decisions made by us.
To return to a growing portfolio through a higher percentage of self financed and continuing efforts to increase our new owner sales mix.
One last point on the third quarter, we expect the tax rate will be at the high end of the 27% to 28% range, we anticipate for the full year.
As Michael mentioned for the full year, we're expecting adjusted EBITDA of between 860 $880 million.
Gross VOI sales are expected to be between $1 $9 2 billion.
With BTG ranging from 3300 to $3400.
In summary, our strong second quarter results reflect the strength of our leisure travel business model as evidenced of our recurrent and resilient revenue streams EBIT margins in the mid <unk> and strong free cash flow generation, which allows us to drive shareholder value.
With that and Mark can you. Please open up the call to take questions.
At this time, if you would like to ask a question. Please press the star and the number one on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key.
We do ask you limit yourself to one question and one follow up to all everyone an opportunity to ask a question and we will take our first question from Joe Greff with Jpmorgan.
Good morning, everybody.
Good morning, Joe.
Michael you mentioned the <unk>.
The drive to versus fly to comments data points in your prepared comments.
Within those comments you talked about regionally whats sort of outperforming in what's underperforming.
And you mentioned your western.
U S geography, as a region Thats lagging international Black.
I think I understand what's going on there can you talk what's going on in the west and whether that's just sort of a year over year comparison issue.
And then I think that was.
Relegated to <unk> commentary can you talk about geographically.
What you are anticipating to see here in <unk> as well.
Yes, absolutely actually.
There is a few points there let me start with the broader one and why I tried to share a lot of data points. It was actually to show that there are.
Are not significant changes in the leisure travel behaviors because the commentary in the marketplace. Today is whats weakening whats changing in the point of all of that is virtually nothing is changing as far as continued strength in leisure travel as it relates to the data point.
<unk>.
Four.
The individual regions those are actually expected occupancies as we move forward for the second half of this year that Sunbelt states continue to do extremely well.
And a lot of demand.
Internationally I don't think of any surprise.
More than anything if there is if there is any clear laggard, it's international travel due to lingering travel restrictions and Eric complication. That's those are sort of the two headlines the west coast is very very marginal.
It's a combination of California, Las Vegas, Washington, and Oregon, but we're talking two to three percentage points of occupancy, which could easily pickup with the remaining bookings for the remainder of this year, but that's where we are at the moment, it's incredible how strong our sort of central Florida.
Southwest of the U S. Our Texas operations, how well theyre doing as far as demand in the second half of this year.
Okay.
And then <unk>.
Sales question as well.
Yeah, I guess my question on <unk>.
Given higher airfares.
Are you seeing consumers trade from a fly to market to a drive to market.
To what extent are you.
Encouraging we're anticipating that.
That behavior, maybe modifying your marketing.
Yeah. So so.
A few elements of that.
First of all at the high watermark during Covid, our drive <unk> got to over 90%. So this move from 73 to 79.
A little bit has to do with simply summer travel.
And a little bit to do with Eric complications.
Not really having to drive demand to our drive to resorts. The reality is that.
With such a broad spectrum of resorts across North America, 95% of the U S can get to a resort in relatively short amount of time sort of that four hour drive time.
Consumers are naturally shifting to that but it's not dramatic it's on the margin and I think it's.
A result of what we're all experiencing which is longer lines in airports and in sort of an ease of travel which is getting in the car putting your groceries and then getting to your resort and being on vacation within four hours of leaving your front door.
Great and then my final question is on the.
The travel and membership segment.
I know you mentioned in your first half results. There you grew year over year in the second quarter. There was a comparability issue and then some expenses as well.
How do you grow that business from here whats implied in your full year guidance.
Do you anticipate that segment to see.
Second half growth in terms of revenues and expenses and if the answer to that is yes, what's driving it and then my last one related to this segment is you highlighted staffing and marketing cost to launch.
The travel club membership business do you look at that as those expenses as one time and go away next year or is that.
Highlighting incremental expenses to build the business.
But those expenses don't go away they are not onetime in nature and that's all for me. Thanks, Joe I think that's an important component and let's let's just pull it to the top level and then we can drill down is.
I absolutely believe in.
Continued growth in the travel and membership segment in and not.
In future years, I would expect the second half of this year for us to get high single digit growth out of the travel of membership segment.
I think when you look at our overall full year EBITDA growth youre going to be looking at mid single digits and keep in mind Joe.
I think everyone on the call remember.
We only talked about zero to 2% growth in the travel the membership segment for the last decade and now we're talking about this year being at a mid single digits growth rate and the drivers of those growth really come from the strategic shift we began in 2019, the acceleration of our ability to attract.
<unk> affiliates and now with them coming online middle of the year and us ramping transactions.
We can now be confident that not only will we grow at this historical zero to 2%, but we're going to be growing at a mid single digit rate this year.
And hope for continued acceleration in the years beyond.
Strategically this thing is heading in exactly the direction, we wanted to couldnt be more proud of our team and the way that they filled our pipeline of affiliates and now now we get to the point that where we think is our core competency, which is executing against the plan and that means just driving transactions of people that are.
Already signed up and we will continue to sign up in Q3, So I'm really excited about this business.
And really excited about the progress we've made for the first six months of this year and one thing I would add on the VIP side business, the RCI exchange business.
Only are we driving more new owners, but if you look across the industry really everybody is having great success as far as increasing net new owner mix. So as the entire industry brings on new owners that incremental members for RCI, which is a great thing to see because obviously over the last couple of years, there had not been on a growth across the industry because of the lack of new owner sales. So now I am pleased with our results but also.
We're watching very closely what the other companies do as far as driving those new owners in additional RCI members.
Thank you.
Sure. Thank you.
Our next question comes from David Katz with Jefferies.
Hi, good morning, everyone. Thanks, good morning.
Thanks for including me.
First question is.
Yes.
Thank you.
Probably speak for a broad group.
Any perspectives or data points or anything you can share with respect to later this year.
And early next year, obviously, we're trying to get our arms around.
The economic context.
But anything you can share to that and with respect to <unk> would be.
Super helpful, Yeah, absolutely and.
I sprinkled in a few data points, but let me go a little deeper on some of those first of all I just want to reiterate a point, we mentioned and then I'll share a few more as 90% of what we are.
90% of.
Room nights in 2019, we sorry of the room nights that we had on the books in 2019 for the second half of that year, we already have 90% of those room nights on our books.
So you say well that's fine, but if booking pace Decelerates you got an issue.
Our booking pace has been consistently at 2019 levels up until last night, when we went home for the evening.
It is not showing any signs of weakening into the second half of this year.
And I would translate that as well tour.
Two our expectations on.
Because.
Our most forward looking metric is around owner arrivals was 68% of our sales happening there. The fact that we are at 2019 a rival levels.
Projected.
Arrivals and then 8% higher due to length of stay on room nights means that we are gaining a lot of confidence in the second half of this year and we have a lot of confidence.
Maybe the last comparison I'll give is <unk>.
Covid really brought to us volatility through the cancellation rates.
And we are seeing historical level of cancellation rates as far as.
Not volatile very consistent.
Consistently low cancellation rates, which says the consumer is not showing any signs of uncertainty as it relates to their vacation and our resorts for the latter half of this year.
Okay, perfect and if we could just.
Talk about the new fee based businesses.
Give us some color about how you how you might ask what kind of volatility you might expect in those in a range of scenarios as we move forward to later this year and early next.
Absolutely so.
I would say there are four key variables that we look at to drive volatility or in and I would say a decreasing level of concern around what they're going to deliver but.
When we launched these businesses over a year ago. The question was really how how how much demand will we get for the travel platform. The level of affiliates that we have contracted with 9% in the second quarter and as we mentioned we expect more in the third quarter means that demand for.
Travel platform is there.
Feedback, we're getting on the actual product or does it create value is it intuitive and easy to use the answer is clearly yes. It is and some of the customization, we're doing is allowing that to happen.
The second question is.
Can we get the propensity of.
Memberships to 1% to 3%.
We're very early in the game, but we're already getting a number of these clubs into the range that we expected. So we're feeling good about that one the third pieces what will the average transaction size be it is exactly what we expect it to be if not slightly above the last variable and the one that's most critical for us to drive is the individual.
So as we progress in the full second half of this year.
To me I.
Wouldn't even call it volatility I would say the variable that we will be watching most closely is our ability to ramp transactions within these individual affiliates.
Got it. Thank you very much I appreciate it yes, thanks David.
Our next question comes from Patrick <unk> with <unk> Securities.
Hi, Good morning, Michael and Mike.
Good morning.
Michael first question for you here.
On the BP G range going up.
How do you think about how much of that is driven by inflation.
Inflation.
Im just product costs.
General economic inflation.
Versus real demand and pricing power driving that higher and also.
Perhaps the mix in there of better closing rates.
Well I think it's a combination of all of it I think the biggest driver of that is the close rates moving up by 300 basis points.
To me is a clear reflection of our ability to raise credit quality and benefit the overall efficiency and margins of our business.
Which leave us leaves us the remainder our ability to grow the portfolio.
Which.
As we mentioned we've been very successful in the second quarter to getting our portfolio growing again at a at a really good clip. So when we when we went to Investor day back in September of last year, we laid out expectations of sort of that 2800 bpd.
Which was a significant increase from where we were at the time.
I think there has been a portion in Q2, that's been pent up demand and has driven even further than we expected this year.
And it continues into July it continues.
We're almost through July and we're seeing no weakness in the consumer from that aspect and.
I think the only the only modest moderation that we'll see on <unk> as it relates to performance is actually due to mix and we're continuing to drive new owners and that will bring <unk> back just a little bit, but primarily I would say, it's close rates. We've increased prices twice. This year. So there is a law.
Little bit of pricing in that not significant and as I mentioned I think the inflationary benefit.
The consumer sees it they see a lot of value in that translates back to close rates. So that's how I'd look at the PPG rise.
Okay. Thank you for that thorough answer.
Sure.
And now my question for you on the most recent securitization.
I saw that the advance rate.
Percentage drops.
Can you discuss what.
What is driving that and then a follow up question related.
Of your existing loan portfolios.
Any change in the propensity of the existing.
Customers within those portfolios to pay their notes in a timely fashion, especially on the class C and D related notes. Thank you.
Yes.
For the question on the ABS transaction that the only reason that the advance rate went down was because the interest rates higher and what that means is because theres a higher interest rate there is less excess cash to provide protection to the noteholders, even though our notes have always paid.
Is designed in a structured way.
Default or any triggers or anything like that so it wasn't a performance issue with the portfolio. It was just the fact that as we're paying more in interest less excess cash to provide protection. So you make up for that excess cash by dropping that advance rate, but still a strong advanced with 91%. The other thing I would point out is that just a temporary issue as far as the additional cash right. So now when we collect.
The dollar principle, rather than paying $95 to the note holders, we paid $91 an amount of holders so that cash will come back to us we'd love to be at 95.
Execution was Greg we mentioned it was oversubscribed multiple times, which there were definitely some some ABS transactions in the market throughout the summer that can say they were four five times oversubscribed. So it was great execution, we all expected the higher interest rates and the other thing it does force by getting that one done.
Give us the flexibility to make a decision on whether or not we wanted a third one this year.
Got the capacity in our ABS conduit to just skip one if we think the rates are too high or we don't like the volatility in the market. So it really it was great execution, but also gives us great flexibility.
As it relates to the portfolio and I know this is something everybody is very curious about as far as the strength of our portfolio and I would say it cant be any stronger than it is right now as far as where it is that compared to <unk> 23 years with the company and I'll give you a few stats to just prove the strength of the current portfolio.
When we look back at December of 2008, our domestic portfolio was $3 5 billion.
And $1 1 billion or 31% with sub $6 45 dose.
If we look at the portfolio today $2 7 billion at the end of June domestically.
Subsequent 45, those are below $300 million represent only about 11%. So huge decline there as far as the sub 645 goes when we look at delinquency delinquency at the end of 2008 was six 1% at the end of June is three 7%.
The mature the weighted average age of alone was only 20 months back in December of 2008. Currently it's 28 months, which means that currently they have 56% equity in their ownership that compares to 39% back in 2008 and that equity as part of the reason that we feel they see value in the product, but also when you are.
Halfway through as far as your equity on it you might as well keep paying so the portfolio is as strong as it's ever been very pleased with where we're at.
Just I think proves our strategic decision to stay at that minimum 640, <unk>. There were a lot of questions. We got at times about how should you go ahead and start marketing to the sub 60, <unk> and I think we all agreed that at some point those those might start to move down as far as performance because of the fact that a lot of those individuals who are receiving government support and things like that so.
I'm very happy with the portfolio I would point out again as I stated in my prepared remarks, the movement up in the <unk>.
Provision in the third quarter is not a performance issue or a quality issue. We had expected that the lower FICO bands will start to.
Normalized as far as how they perform.
That increase in third quarter is strictly due to some timing during the year as far as the.
Calculation and more importantly, the increase in originations.
Good quality paper.
Despite those which is where we're seeing the biggest lift in percent of sales financed in the lab.
Point I would make it even though.
We did guide to 18, 5% for the third quarter for the second half of the year, we are keeping our provision guidance consistent with what we talked about last call. It 18% once again, because there is some timing in there so very happy with where the portfolio is at and confident in terms of its ability to perform.
During the downturn.
And any changes in the interest rate over the last quarter or two that you have been.
Charging.
New customers are new.
Thank you very much kept the interest rate consistent once again, we feel that.
A lot of our customers when they make the buying decision theyre looking at that monthly payment and so we wanted to make sure that we keep those close rates I keep those new owners coming in and start to get those recurring revenue streams of the interest income the management fee. The RCI membership fee and then also have that upgrade pipeline continue to be very valuable to us. So interest rates that we've charged the consumer we've pretty much held them.
At the same level.
Okay. Thank you. Thank you for the very thorough answer.
Sure.
We'll go next to Chris <unk> with Deutsche Bank.
Hey, guys good morning.
I think you've touched on the prepared remarks that you expected a little bit of moderation BTG in Q3 due to.
Mix can you give us a little more detail on that in terms of.
Your longer term goal is to get to get more new owners into the system, but if we see some kind of economic softness.
How do you think that that trends back in.
Some of the levers youre going to pull to.
So to keep BTG.
Well the.
First of all let's just come back to Q2 as in Q2, we actually have maintained our PPG. Despite growing our new owners, which I think as we always talk about that is usually a headwind headwind and in this case. It wasn't it was neutral to actually a positive for us in Q2.
Dan.
Sure.
Q3 is typically our highest new owner quarter.
So all we're simply saying is we're driving new owners, we made a commitment this new this summer to really invest in our new owner efforts and.
They paid off at the end of Q2, and we continue to see them.
We would expect to see them in July and August to continue to drive new owner business.
Up.
So that is the that's the moderation youre seeing in <unk>, which is simply a mix issue.
As a reminder, we said 2800 last year during our Investor day. So.
Our 2025 model our long term projections are in that sort of 2800, plus range and to the extent that we can maintain them over 3000.
That's all good news for us because we're doing it while maintaining our credit quality.
In a downturn.
I think thats, what the market continues to learn about the timeshare industry is that it's not.
This sort of big ticket discretionary item that most people have always perceived as people.
The reality is people are going to spend their vacation dollars and as a result of it if there's a downturn with people seeing the value that theyre seeing I think there could be slight moderation in the close rates, which would pull back <unk>, a little bit, but I don't think thats a volatile number I think it is.
Simply ebbs and flows within a manageable range.
In times like high inflationary or in bull markets versus when the economy pulls back people are still going to go on vacation and.
I think we've used this stat in the past.
70 million people come to Orlando every year, if it's 60 million Theres still <unk>.
More than enough people that we can market to that are ultimately going to take a timeshare tour and see the value in it.
Yes.
Very helpful. Michael just maybe a quick follow up on that.
How do you expect.
Hansen behavior change among your existing.
Existing owners and I don't know if you can provide us a little bit of context, historically, what they do in terms of cash.
Cash versus financing when they.
They kind of go back for a second or third purchase.
Yes, Chris this is Mike.
What we've seen historically is that when they come back they usually do a downpayment, that's a little bit higher than than what they did on their original purchase but I think what we expect to see as maybe that down payment and the future won't be as high because of the changes we've made to.
Especially on the harp out those to not encourage that higher down payments. So historically the upgrade results in a little bit higher down payment, but with the efforts we're putting in place we'd rather have those high FICO is financed with us in good that good quality high margin net interest income.
Okay very helpful. Thanks, guys.
Thanks Brent.
We'll go next to Ben Jackson with Credit Suisse.
Hey, How's it going.
Good morning.
Good morning, Hey, just a quick clarification kind of on the last question. So if I understood you correctly, you're basically saying that in and I totally understand the premise that new owners.
Sometimes it can be a drag on <unk>.
<unk> I think that's what you're suggesting but it sounds like in <unk> that was not the case. It sounds like it was I think your word girls and neutral to maybe even a slight benefit.
And then.
So just answer that real quickly the answer to that question is you are correct. The three main channels, we look at owners affinity sales being blue thread and non affinity sales being open market.
All.
We're all.
We're all equal to positive in Q2 despite.
<unk>.
Yes, so the <unk>, we're all the same and.
And that's in an aggregate.
It was neutral basically with us growing new owner mix. So if you mix adjusted it.
To the previous quarter, we would've actually been up roughly 10%.
No no. It's totally that's super helpful color I'm, just trying to take that statement or that kind of like thought process, and then say bridge that to <unk>.
<unk> is coming in a little bit and it sounds like it's because of the new owners, but it's like.
What was the new owner mix being a neutral to a slight benefit a just a one time thing and <unk>, which we shouldnt expect in <unk> do you kind of follow what I'm, saying, yes, yes, absolutely.
More new owners will not be a benefit to us in Q3.
My point, and maybe I didn't say it very well was we typically talk about it as we raise new owner mix it pulls back PPG.
It just it reinforces the strength of leisure travel in Q2 that we grew new owners and we grew PPG. It just shows the strength of performance, we're simply saying that we're going to we're estimating in Q3 that it goes back to what it typically does which is <unk> remain constant, but as you shift to mix it.
Just naturally drags PPG back a little bit so.
I didn't mean to imply that driving new orders was somehow a new benefit that we should expect going forward no not yet I didn't think you were implying out more so just trying to like cross referenced the two state than we thought and just the last follow up would be is it a <unk> in total is that a is that a theoretical based on historical.
New owners will bring down the PPG or is that kind of what youre seeing are also in the quarter, what we're seeing.
As of yesterday in July is that our <unk> by those three channels are staying consistent with Q2, but because the mix has shifted slightly up on new owners.
Has a slight impact to new to the aggregate PPG modestly down.
Thank you very much.
The way we look at the PPG is basically they are all up over 2019 levels, but the new owner of <unk> is still lower so as that mix goes up it's naturally going to bring it down.
Theyre up across all channels.
Once again, it's just a mix issue where.
As more new orders come in and even though the BTG is higher than it was in 2019, it's still Lindsey <unk>.
Okay got it and then I'm sorry, if I missed it did you guys have a.
Target kind of going forward I don't know if it's for maybe like back half 'twenty two 'twenty three but based on a go forward. What you want your current expectations for our new owner mix.
Yes.
It's between 35% and 40% and last year, we were in the <unk>, we wanted to get a three handle this year.
We're 32% in Q2, we will we will do well in Q3 so.
We want to slowly get back to that 35% to 40% range I think if you look across the industry. That's that's pretty much where the industry stands in it and it reinforces a sustainable long term model for not only new business, but upgrades and.
We see that as a pretty clear path. The blue thread channel is already back to 2019 volumes at least we're projecting that for this year. So that return on new owner has been a great source for us and that just shows the resiliency of that affinity channel that we have with the Wyndham Hotel group.
Thank you very much.
Okay.
We'll go next to Ian.
<unk> with Oppenheimer.
Alright, great. Thank you very much.
Thanks for the broad discussion on the <unk> business as far as.
What it does in a downturn, but can you also maybe touch upon some of the non <unk> businesses.
Yes.
A lot of them have some some substantial growth kind of potential.
Potential so how should we be thinking about those businesses that are kind of ability to kind of grow it.
Rates that you think.
And then any other pieces in non deal business that you think are important to note would be helpful. Thanks.
Yes.
There's a lot to touch on there so let me just hit.
To hit some broad strokes strokes across the whole travel membership business and I know you said.
The RCI business is Vito, but.
As Mike mentioned earlier.
It's a positive and we'll see how the industry plays out.
And the remainder of the the the news that comes out but the re growth across the industry of new owner business.
As a natural tailwind.
Going forward in the exchange business, which it's been the opposite for the last two years. So we think just the overall growth of the industry, which continues to do well continues to broad base prove that it's a great way to vacation will.
Well really.
Return to its historical levels going forward.
As we've shared in the last year we've.
We've talked a lot about the theoretical.
These new businesses that we're launching and as we've gotten into the first half of this year the theoretical as move to some true proof points.
And those are starting to play out that we can now start sharing with this group as we've done on this call on the variables. We're looking at and then on.
As we look forward not only are we seeing proof points of those businesses not only have viability, but have demand, but going forward as we get into the.
The latter half of this year, we can actually show how those proof points turn into economic value. So in the yen.
Our overall strategic objective was to be able to raise our <unk>.
Enterprise growth rate for mid single digits to high single digits and there is nothing that I'm seeing at the midpoint of 2022 that would take us off that trajectory and belief that thats very much the direction, we're going to go in and the fact that we can achieve that.
Especially in the non <unk> business.
With all that said I will just step back and second in Se.
We've always said the cornerstone businesses of Wyndham destinations and RCI will be our success in the near term because it is such a significant part of the business. The nice part about these new businesses.
Incrementally add to our growth rate, which.
Again, it's not going to be significant for the next three years, but it is meaningful as it relates to our overall growth rate. So.
That's how that's how we're looking at both and can't say that I've changed my perspective on our outlook since our Investor day, a year ago.
Alright, great. Thank you very much thanks Ann.
We'll go next to Brandon <unk> with Barclays.
Hey, everybody. Thanks for taking my question just one for me.
So you gave.
You gave VOI guidance.
Pretty much unchanged with <unk> raised and so that obviously implies tour growth being a little bit lighter than maybe you thought a quarter ago and I apologize. If you addressed this I missed it but maybe you could just talk about where across the three channels.
That might have.
Might be ratcheting down expectations and then if you can if maybe you could hone in on open market and just give us a sense across your different partnerships in your different channels within the OTC, which channels are performing better and which channels are maybe underperforming right now.
Thanks, Brad.
We actually didn't address that in our prepared comments and I appreciate the chance to actually talk about it here and in this somewhat gets back to David Katz. His question as well as as we look to the second half of this year.
We did not change our VOI guidance, but I can say that within our range, we have those increasing confidence in our number within that range has moved up.
So we may not have moved the overall range, but again greater confidence and a higher number within that range.
Says that that aspect of it means that we haven't changed the tour flow for most of the second half of the year. There is there is one component of our tour flow that we did pull back we have a partner relationship that we think will underperform.
And it's in two markets, but.
That's.
That's a less.
It's a singular non consumer based issue.
And the bigger component of that.
The math you did is actually that we've moved up within our existing range with more confidence of what we're going to deliver this year. So.
Your math and your logic is absolutely right.
We should have clarified it in our prepared remarks that our confidence around VOI sales and the increased amount, but as it relates to tour flow owner be owner tours are we expect them to be our affinity partnership with Wyndham hotels as I, just I think I've mentioned, a question or two ago is back to where it.
It was in 2019, and there's really only one unique relationship we have within the non affinity open marketing.
That's that's a bit off that we think will recover but that would be the only toward change we have for the second half of the year.
Great. Thanks for the comments thanks, Mike.
Brent.
Our next question comes from Patrick <unk> Securities.
Alright, I have another question.
Your competitor in the <unk>.
<unk> exchange business last month had call it called out.
Higher owner occupants.
Impacting in available inventory per owner usage.
And.
Implying that there's just not enough.
Inventory available.
In that segment.
And that line of business is that something that you folks are seeing as well and is that impacting your <unk>.
Revenue and EBITDA at all.
And that component of your business. Thank you.
Yes, I guess, there are always elements that affect it but from our standpoint.
We don't see that significant enough to call out.
We are really good.
Supply of inventory for the latter half of this year, we think that will continue to.
Help us perform on the traveler membership business, which again as I laid out we expect high.
High single digits growth in the second half of this year so.
It's not it's not something significant enough that we would we would call out.
Okay. So nothing happened for RCI okay.
Thank you very much.
Thanks, Patrick.
That concludes our question and answer period I would now like to turn the call back over to Michael Brown for closing remarks.
Thank you Emma.
Second quarter results and full year outlook underscore the persistent strength of leisure travel people's commitment to vacations and the consistent performance of our timeshare model. This is all thanks to our owners our members our guests.
And of course, our associates, who make it happen everyday thank you to everyone and have a great day.
Thank you that conclude Charlie <unk> second quarter 2022 earnings Conference call. You May now disconnect. Your line at this time and have a wonderful day.
Yes.
Yes.
Okay.
Okay.
Yes.
[music].
Okay.
Okay.
Yes.
[music].
Okay.
Yeah.
[music].
Okay.
Okay.
[music].
Yes.
Yes.
[music].
Hum.
Yes.
Okay.
[music].
Yeah.
Yes.
Sure.
[music].
Yes.
Yeah.
Yes.
Yes.
Hum.
[music].
Sure.
[music].
Okay.
Yes.
Okay.
Okay.
Okay.
Hum.
[music].
Okay.
Okay.
Yes.
Okay.
Yes.
[music].
Okay.
[music].
Yes.
[music].
Yes.
Yes.
Okay.
Yeah.
[music].
Yes.
Yeah.
Yeah.
[music].
Yes.
Tom.
Okay.
Okay.
Yes.
Yes.
Yes.
Yeah.
Yeah.
Okay.