Q3 2024 Travel + Leisure Co Earnings Call
Okay.
Speaker Change: Greetings and welcome to the travel and leisure third quarter 2024 earnings call.
At this time, all participants will be in listen only mode.
And the answer session will follow the formal presentation.
Speaker Change: If anybody today should require operator assistance during the conference. Please press star zero from your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: It's now my pleasure to introduce Jill Greer was Investor Relations screw you may now begin.
Jill Greer: Thanks, Rob and good morning to everyone and thanks for joining our third quarter call with US. This morning are Michael Brown, our President and Chief Executive Officer, and Mike Hug, Our Chief Financial Officer, Michael will provide an overview of our financial results and our longer term growth strategy and Mike will then provide greater detail on the quarter, our balance sheet and the outlook for the rest of the year.
Jill Greer: Following our prepared remarks, well open the call up for questions. We ask the analysts to keep to one question and a brief follow up.
Jill Greer: 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.
Jill Greer: Right.
Jill Greer: We undertake no obligation to publicly update or revise those statements. The factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release.
Jill Greer: You can find a reconciliation of non-GAAP financial measures discussed on today's call in the earnings press release available on our Investor Relations website.
Jill Greer: Finally, all comparisons today are to the same period of the prior year unless specifically stated.
Jill Greer: With that ill turn the call.
Okay Michael.
Michael Brown: Good morning, and thank you for joining us today for our Q3 earnings report.
Michael Brown: Before I share our results for the quarter I'd like to recognize our associates for all their efforts through Hurricanes, Helane and Milton and the wildfires in California.
Michael Brown: 50 is our top priority and I want to personally extend my thanks to our associates for their professionalism and dedication in taking care of our owners and each other during these devastating events.
Michael Brown: Our third quarter results show that we are executing against our key priorities for the year and that demand for our products remains solid.
Michael Brown: We produced strong volume per guest.
Michael Brown: A healthy 24, 4% adjusted EBITDA margin and over $150 million of adjusted free cash flow.
Our adjusted EBITDA of $242 million was above the midpoint of our guidance range we.
Michael Brown: We see good momentum in our vacation ownership business and we're especially pleased with our V. P. G performance, which remains consistently above 3000, even during our peak new owner mix quarters.
Michael Brown: D. B G was at the high end of our expectations with especially strong performance from existing holders further evidence that customers continue to value their ownership.
Michael Brown: We are nearly 30% above 2019 V P G levels, reflecting the premium owners place on the consistency there.
Michael Brown: Now you and flexibility of our product.
Michael Brown: It is also a reflection of the increased FICO standards that we established in 2020.
Michael Brown: Our average FICO on originations has increased from 725 to 742 over the past four years and the portion of our portfolio that is under 640 FICO has decreased in the same timeframe.
Michael Brown: One of our priorities has been to grow our new owner mix to the mid thirties.
Michael Brown: New order sales drive long term benefits and provide a consistent source of future revenue potential.
Michael Brown: In the short term, however, a higher new owner mix puts pressure on V. P. G H.
Michael Brown: Having achieved a new owner mix above 35% in each quarter. This year, we expect the mix pressure to be minimal going forward as we maintain our new owner mix in the mid to high Thirty's.
Michael Brown: New owners drive future gross VOI sales through upgrades of their initial purchase and typically spend an additional $2 six times their purchase amount.
Michael Brown: This is in addition to revenues from financing property management and exchange fees.
Michael Brown: With an embedded revenue potential of over 19 billion over the next decade.
Michael Brown: Work to drive a higher new owner base gives us continued confidence in our long term model.
Michael Brown: No momentum with V. P G as a sign that our team is executing well on our growth initiatives and that our product appeals to our target market.
Michael Brown: Over the past several years, we have seen a number of trends and our owner base that bode well for future growth.
Michael Brown: First the average age of our owners is now in their mid fifties as an increasing amount of sales or the Gen X millennials and younger generations.
Michael Brown: This age has been steadily decreasing as our average new owner age is close to 50 years old.
Michael Brown: Second our disciplined approach to tour generation has improved the underlying credit quality in our loan portfolio. We believe our combination of average origination FICO and sub 600 portfolio loans as the best in the industry.
Michael Brown: Finally travel continues to be an integral part of the experience economy.
Michael Brown: While our top destinations are in Florida, We're also seeing growth in parts and other family friendly locations like Washington D C. The Pacific Northwest and the Smoky Mountains.
Michael Brown: Looking ahead, our vacation ownership business has a solid foundation for long term growth.
Michael Brown: Our multi brand strategy is unique in the industry and this is the path to driving consistent growth going forward in the vacation ownership business.
Michael Brown: With our broad geographic footprint and a variety of ownership options, we expect to expand our share by meeting the vacation travel needs of a wide range of consumers.
Michael Brown: We've been very pleased with the progress on the core vacation club integration, which has allowed us to achieve our initial targets ahead of schedule, we have for sale sites reopen and fully staffed with more sites expected by the end of the year.
Michael Brown: A core has delivered more than 3 million in adjusted EBITDA year to date, and we expect a core growth will accelerate next year.
Michael Brown: Turning to travel and membership as you know this is this part of our business is in the midst of a transformation as the vacation ownership industry is consolidated in the points based product has become more standard we've seen pressure on exchange volumes.
Michael Brown: During the quarter, we took another step forward in our transformation with necessary steps to resize our footprint.
Michael Brown: Across the industry developers are now fewer in number but larger in size going forward. We believe we can serve them with higher quality and better efficiency through a more targeted approach.
Michael Brown: Our focus on higher margin transactions is playing out and we were pleased with the quarter's EBITDA, which was just above the high end of our guidance range.
Michael Brown: To summarize the business is performing well and our teams continue to raise the bar on execution, we have already begun setting our plans for 2025, we expect the momentum in our vacation ownership business to continue having achieved our targeted new owner mix the ramping up of a core sales.
Michael Brown: And easing of interest rate headwinds. We also expect further progress on our traveler membership transformation to allow that segment to stabilize.
Michael Brown: Longer term, we expect sports illustrated interest rates and our new owner pipeline to provide catalysts for our growth in 2026 and beyond.
Michael Brown: And now I'll turn the call over to Mike to walk through the quarter in more detail Mike.
Mike Hug: Thanks, Michael.
Mike Hug: Overall, we had solid third quarter driven by strong V. P. G performance.
Mike Hug: That V. P. G combined with our disciplined cost management offset most of the $14 million headwind from higher interest rates and variable compensation.
Mike Hug: As a result, our adjusted EBITDA declined slightly year over year to $242 million.
Mike Hug: Importantly, our 24, 4% adjusted EBITDA margin shows the resiliency of our business to overcome headwinds and consistently produce margins in the mid twenties.
Mike Hug: We had adjusted net income of $110 million or $1 57 per share.
Mike Hug: Our adjusted EPS growth reflects the benefit of our consistent capital allocation strategy, which sees us regularly in the market repurchasing shares.
Mike Hug: With regard to the segment results for the vacation ownership business revenues increased 2% with gross VOI sales of $606 million.
Mike Hug: We maintained good true growth with tours up over 4% and new archers up 9%.
Mike Hug: While higher year over year, the growth was modestly off our expectations.
Mike Hug: The shortfall primarily came in near our tourism Las Vegas, consistent with broader gaming industry weakness noted in that market over the summer we.
Mike Hug: We expect true growth to accelerate sequentially in the fourth quarter.
Mike Hug: In the quarter, our blue thread partnership with Wyndham hotels produced 8% of our new owner tours, which came with the V. P G more than 20% higher than other neuro channels.
Mike Hug: Our package pipeline, along with our partnerships with Allegiant and live nation are still in the early stages, but should provide more channels to drive future growth.
Mike Hug: The financial strength of our consumer remains solid and trends in our loan portfolio are stable importantly, as we progressed through the quarter, we didn't see anything in those trends that would cause us to change our guidance.
Mike Hug: The sequential increase in the provisions between the second and third quarters was in line with normal seasonality and consistent with our expectation that the provision will be around 20% for the full year.
Speaker Change: On the travel membership side, our adjusted EBITDA for the quarter was flat on a 3% decline in revenue.
Speaker Change: As Michael laid out earlier, we believe the steps we're taking in this segment to improve our revenue per transaction at the same time streamline our cost structure are putting a strong foundation in place to continue to generate high margins and cash flows.
Speaker Change: For the fourth quarter, we are forecasting adjusted EBITDA overall to be $240 million to $260 million.
Speaker Change: This guidance is in line with full year guidance that we gave on our last call and higher than our expectations at the start of the year.
Speaker Change: For the travel membership segment, we expect adjusted EBITDA to be $45 million to $50 million for the fourth quarter.
Speaker Change: Turning to the balance sheet and cash flow last week, we closed our third ABS transaction of the year, securing $325 million at a rate of five 2% and 98% advance rate.
Speaker Change: The interest rate advance rate are both improvements over our July securitization or the best levels, we've seen in over two years.
Speaker Change: The fact that we have been able to consistently access the ABS markets through a variety of economic conditions is a reflection of the market's confidence in the resiliency of our business.
Speaker Change: With the improved rates that we're achieving with our ABS transactions, we expect the interest rate headwinds to flatten in the coming quarters and to turn and turn to a tailwind as we exit 2025.
Speaker Change: And benefits to both EBITDA and free cash flow.
Speaker Change: We ended the quarter with just under three four times leverage and we expect to be at that level at the end of the year.
Speaker Change: We generated $150 million of adjusted free cash flow in the quarter and continued to expect our adjusted EBITDA to free cash flow conversion for the full year to be in the neighborhood of 50%.
Speaker Change: Longer term, we see a path to moving that conversion percentage higher or lower cash interest and reduction in inventory levels held on our balance sheet.
Speaker Change: We have a proven track record of being very shareholder focused with our capital allocation.
Speaker Change: During the quarter, we returned $105 million tertiary holders through dividends and share buybacks.
Speaker Change: With $70 million of repurchases in the quarter, we bought back $2 two 5% of the outstanding shares in the company consistent with our average annual rate of about 10%.
Speaker Change: I'll close by thanking the entire travel leisure team for the work so far this year and delivering great results for our shareholders and our owners.
Speaker Change: With that Rob could you. Please open up the call for questions.
Rob: Sure. Thank you.
Rob: At this time, we'll be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if he like to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment. Please so we poll for questions. Thank you.
Speaker Change: Thank you and our first question is from the line of Ian Zaffino with Oppenheimer. Please proceed with your questions.
Speaker Change: Great.
Speaker Change: Thank you very much good quarter. Thanks.
Speaker Change: Thanks Ian.
Speaker Change: Maybe touch upon what you're seeing on that.
Speaker Change: The lower end consumer or anything Youre seeing there I know you kind of had been focused on.
Speaker Change: Taking up like the scores.
Speaker Change: I guess, we haven't really seen a recession or anything like that is there.
Speaker Change: What are you now thinking that FICA scores as far as like is there a chance to maybe lower them again.
Speaker Change: You know grow grow volumes or sitting here still.
With higher FICO scores and.
Speaker Change: Maybe any other comments there thanks.
Speaker Change: Yeah sure. Thanks for the question Yeah.
Speaker Change: So as far as the lowering consumer naturally as we talked about last quarter, where we're seeing most of the depression the portfolio.
Speaker Change: I don't expect that on the new owner side, we will adjust our FICO in the near term, we're very happy with the credit quality we're generating.
Speaker Change:
Speaker Change: When we look at how the portfolio performed it performed how we expected in the quarter.
Speaker Change: Delinquencies that usually get worse from Q2 to Q3 did move.
Speaker Change: In that direction and favorably, but not as favorable as they usually do so that's why we feel the portfolio is kind of stabilized if you will as far as you know how it is moving where we're happy with that trend.
So very happy with quality were generated on the owner side, that's really where we had the opportunity keep in mind. In fact, there was a pretty blunt instrument right. I mean, there's a lot of things that determine how people pay. So for example, we had a owner who has a 630 FICO.
Speaker Change: <unk> has been paying for eight years and reduce their loan balance from 15000 down in $2000 never missed a payment on their loans or the dos using the product than you might think about because you have other data.
Speaker Change: Go ahead, and marketing that owner, but we're comfortable with that arent because they are on auto pay and things like that so that's why we're trying to do is use more data other than just FICO, where we had that data primarily on the owner side to drive incremental tour flow, but you know pretty happy with how the portfolio performed obviously the ABS transaction was another great execution with the best terms, we've gotten in over two years. So overall the business.
Speaker Change: As solid B P. G. As another indicator of the consumer you know we're at the high end of our range for the quarter. So consumer seems pretty steady watching the low end like we always are and because of that.
Speaker Change: Especially on the <unk> side, I don't see us moving below that 640.
Speaker Change: Okay. Thanks, and then maybe to die.
Speaker Change: Focus on some M&A is there.
Speaker Change: What do you kind of seeing out there. What's your appetite are you down a little bit more active recently, but anything else out there or anything else that you're seeing that you'd be interested in and then.
Speaker Change: And I guess, there is no real hurricane kind of call out for you guys. So it seems like it's business as usual with milkman Hulu.
Speaker Change: Thanks.
Speaker Change: So I think our commentary on M&A as is consistent with what our commentary has always been which is.
Speaker Change: We're always focused on our capital return.
Speaker Change: Our dividend is the base of that capital return we evaluate.
Speaker Change: The M&A landscape, we've consistently done that over the past three years.
Speaker Change: Obviously, the industry has consolidated and we found unique opportunities through our core or the acquisition of the travel and leisure so not necessarily maybe what everyone would always think these are the limited number of M&A opportunities out there. So we will continue to evaluate that in the absence of that we'll do what we've done in the last few quarters, which is.
Speaker Change: Returned about 70 million of our capital in the form of share buybacks.
Speaker Change: With another $30 million in dividends in the quarter as well so total right.
Speaker Change: And that $100 million range as far as capital allocation return to shareholders and then Ian you had a second part to that question can you just repeat that please.
Speaker Change: Okay.
Speaker Change: You hear a whole library hurricanes. So yes, so so as I as I mentioned in our remarks that both the Hurricanes came up the west coast of Florida, where.
Speaker Change: Our Clearwater resort even today.
Speaker Change: Although it's finally reopened.
Speaker Change: Has still that Tampa Clearwater has has sustained a tremendous amount of damage to land.
Speaker Change: <unk> moved up and modestly affected our Atlanta property, but.
Speaker Change: Our two properties in North Carolina.
Speaker Change: Cook weeks ones reopened and one is not so we didn't call it out, but it's definitely Helen really affected from south to north up into North Carolina, whereas Milton affected.
Speaker Change: West to east coming across Central Florida, It briefly shutting our sales galleries and our resorts and then even affecting our Daytona property.
Speaker Change: And then you know.
Speaker Change: It's not that it affected the operations in California, but are the wildfires will hit six miles of one of our resorts. There. So it was a tough September and October we hope it's over but no results. We mentioned did not call out the hurricanes or wildfires as far as adjustments to the to the numbers, but they do.
Speaker Change: Did affect our bottom line results.
Speaker Change: And I would point out that the reason the resorts.
Speaker Change: We're close we're not because of significant damage to the rewards primarily due to the infrastructure when you think of North Carolina.
Speaker Change: Some of the rural areas, where we've got a couple of Volvo resorts those resorts bearing good shape. It's just that the infrastructure. There is a little challenged and then the same thing over on the West coast with St. Pete in Tampa. So our resorts came through it in fairly good shape from a from a damage standpoint sort of closures are primarily in most cases, just due to <unk>.
Speaker Change: What's going on with the infrastructure in those markets.
Speaker Change: Okay. Thank you.
Speaker Change: Just one more I wanted to just stay on this for a second and then I'll, let somebody else hop on I'm sorry.
Speaker Change: And then was there any impact on my tour volumes or anything like that because a lot of airports, where we're close there and I guess, if there was a financial impact can you kind of call out maybe what it was.
Speaker Change: Yes.
There were there were definitely tour impacts because we closed resorts and with owners not arriving at affected arrivals in.
Speaker Change: And tour impact.
Speaker Change: And I would say volume approximately about $5 million of volume that it costs us so some EBITDA some volume but again.
We felt.
Speaker Change: Given the limited nature of the financial impact, we didn't want to call that out.
Speaker Change: I need to call it out right I mean, we still hit the mid point, a little bit of about the mid point of the quarter holding the full year or so.
Speaker Change: Great quarter by the by the business and would also point out. The fact that we've always talked about is the diversity of our locations gives us protection when something like this happen drive being able to not have a single market or just really just one market. It's over 10% allows us when we do have a slight disruption in one of our markets, Florida. If you will were able to.
Speaker Change: You know basically make it out through other operations in the business. So I think it's just once again, a proof point as to the resiliency of the business into the value we get from having a diverse sales locations.
Speaker Change: And Ian Milton came in October and how it was in September.
Yeah.
Speaker Change: Okay, great. Thank you so much.
Thanks Ian.
Speaker Change: Okay.
Speaker Change: Thank you. The next question is from the line of Joe Greff with J P. Morgan. Please proceed with your questions.
Joe Greff: Hi, good morning, everybody two relatively quick ones in vacation ownership.
Joe Greff: Anywhere in the I guess the.
Joe Greff: 700, FICO score band spectrum.
Joe Greff: Are you doing anything in terms of implementing any higher down payments.
Then my second question is.
Joe Greff: You mentioned earlier that in the.
Joe Greff: <unk>, new owner tours for tours in Las Vegas are weaker.
Joe Greff: Can you talk about what youre seeing or what you anticipate here in the fourth.
Sure Yeah. Thanks, Joe This is Mike Brown.
Joe Greff: Yeah, we saw I think like everyone saw in Q3 gaming.
Joe Greff: Was a little weaker in Las Vegas, and we saw that come through in our new owner tour flow.
Speaker Change: As Mike had mentioned in his remarks, he mentioned that will be we expect a re acceleration of tour growth in Q4, So I think as we finish the year out and look backwards. It feels like throughout this year all of the questions. Every one of our quarterly calls has been where's the weakness.
Speaker Change: The consumer.
Speaker Change: I think when we look back at.
At the end of this year, we're gonna turned back around and say <unk> was above our expectation our tour growth was right around 10%, which is what we said at the beginning of the year, our newer new owner tour growth was above 15%, which is what we said at the beginning of the year.
Speaker Change: And we've raised our guidance and our portfolio was increased by 100 basis point on our last call. So, although the poking and prodding around the strength of the consumer has been consistent this year when you look at our full year.
Speaker Change: We're pretty confident that youre going to be able to say the consumer performed at or above our expectation for 2024, and we've put ourselves in a really good position to open in 2025, I think as it relates to the portfolio and down payments in Q4, Mike you wanted to just touch on that yes, it's a great question Joe.
And you're spot on we will be looking potentially for higher down payment levels at the sales table to provide us protection kind of on the portfolio risk if you will but overall.
Speaker Change: Overall, you know I don't know that were going to say hey, it's got to be just below 705, because we will probably look for a higher down payments across the board but.
Speaker Change: The portfolio as I mentioned is kind of right in line, where we expected deepa.
Speaker Change: Default levels are a little elevated but didn't get any worse in the quarter. So.
Speaker Change: Pretty happy with the way the portfolio performed I touched on the ABS transaction. So overall.
Speaker Change: We're happy with the way the consumer whether it's V P G or whether it was portfolio performed through the quarter and third quarter, and we will look for a little bit higher debt payments potentially in Q4 from some customers.
Speaker Change: Great. Thank you. Thanks.
Speaker Change: Thanks, Joe.
Speaker Change: Our next questions are from the line of Christopher <unk> with Deutsche Bank. Please proceed with your question.
Speaker Change: Hey, good morning, guys.
Speaker Change: So I was hoping we could first maybe drill down on the on the close rates a little bit right and I know that those those would naturally be lower.
Speaker Change: Intentionally kind of focused on more of a higher.
Speaker Change: New owner mix, but I am curious when someone when a new would be first timer.
Speaker Change: It takes a tour doesn't doesn't buy is there any feedback you are collecting your research you're doing what are the top few reasons that are giving us a cost or or something else.
Speaker Change: Yeah on your view changed much in the past few years.
Speaker Change: Well, let's let's just touch on that.
Speaker Change: As the year has progressed and we haven't seen much modulation and our close rates.
Speaker Change: Between owners and new owners, they go up and down every quarter, a little bit, but there's nothing that's really stood out to us as it relates to close rates.
Speaker Change: And especially given how our PPG has held up it's really a reflection of consistent close rates throughout this year, what I would say as far as consumer feedback is.
Speaker Change: We are close rates were higher.
Two years ago, as we came out of Covid and as hotel rates really rose.
Speaker Change: The value that we've always presented that is inherent in an element of timeshare.
Speaker Change: As a parent as it's ever been as we've moved further away from Covid and close.
Speaker Change: Close rates have come back to where.
Speaker Change: They've sort of consistently stayed but noticeably above pre COVID-19, it's really an affordability and value equation that we see in the consumer and what they're evaluating today again with higher close rates that we had pre COVID-19 is that more space really good value and.
Speaker Change: Hi flexibility in their ownership.
Speaker Change: And the way that we like to really measure that is retention and seven out of eight of our owners have fully paid off their timeshare loan and we have a 98% retention rate on those consumers. So.
Speaker Change: Bit expanded explanation, but it really comes there needs to be value.
Speaker Change: <unk> ability and affordability at the sales table and that's what's led to our increased close rates since pre COVID-19, along with the stronger consumer FICO wise.
Joe Greff: Okay I appreciate all the perspective Michael.
Speaker Change: Michael and then as a follow up.
Joe Greff: This is really more of a multiyear question it doesn't relate to Q.
Q3, Q4, 'twenty four 'twenty five.
Speaker Change: As we think about inventory all the time and really just wanted to ask is the mix and kind of your your inventory.
Speaker Change: Tax your repurchase do you expect that to kind of remain stable or move up over time, and maybe just remind us of where.
Speaker Change: Where you see yourselves on the inventory spend again kind of on an average I would say three to five year basis looking forward. Thanks.
Speaker Change: Yes, Chris.
Mike Hug: Chris This is Mike hug as it relates to inventory, we do expect to recapture to be pretty consistent our total inventory spend on annual basis around $100 million 50 to 60 million of that is you know buybacks from owners HOA is off the resale market.
Mike Hug: $40 million is roughly for our international business. When we look at our domestic business, which is 90% of the business.
Mike Hug:
Mike Hug: We've got enough inventory for the next four years for that business and we've talked about that just as far as how the inventory built up through COVID-19 and things like that so in a good spot as it relates to the inventory on the balance sheet for the current business. What you will see is as we continue to further develop ESI you will see that inventory spend go up a little bit over the next couple of years.
Mike Hug: But obviously that comes with incremental revenues as we start to ramp up the ESI marketing channels and things like that but for the core business. We have today $100 million of inventory spend about half is recapture the other half is for the international business, which normally carries about six to nine months of inventory.
Mike Hug: Okay.
Speaker Change: Helpful. Thanks, guys.
Speaker Change: Sure. Thank you.
Speaker Change: Our next questions are from the line of David Katz with Jefferies. Please proceed with your questions.
David Katz: Hi, good morning, everybody. Thanks for taking my question.
David Katz: I wanted to I know there was some discussion about the most recent hurricane but I wanted to just get your thoughts.
David Katz: Bigger broader way because it does seem as though were having no major weather events.
David Katz: On a regular basis right. So the sort of recurring nonrecurring events seem to be okay.
David Katz: How do you think about that how do you think about working that into your marketing approach.
David Katz: No.
David Katz: How do you deal with that on a customer level.
David Katz: No.
David Katz: Profound evidence, but do you see any.
David Katz: Lines of evidence anywhere in the model for sort of weather impacting People's decision.
David Katz: Goodbye and travel et cetera.
Speaker Change: Well, it's a great question.
It's.
Speaker Change: It comes back to something we've spoken about over quarters and years, which is <unk>.
Speaker Change: Diversity of our geography makes a big big difference.
Speaker Change: The path of Hurricane Choosy catch it is no matter, where it comes borrowers it works.
Speaker Change: And and that's not just in the U S, but in the Asia Pacific region, but having diversity and a lack of overreliance on a particular market really mutes.
Speaker Change: The impact of what an individual disaster can create we've seen over past years that when the path isn't right. It does it's meaningful to our quarter end.
Speaker Change: Located was it wasn't material to this quarter, but it did have an impact but again I think it comes back to our diversity of resort locations around the world that people have other options and obviously, we look to re accommodate them.
Speaker Change: Whenever there is a rival challenges, we still want them to be able to get to another location enjoyed their vacation I think the I think a real benefit that we offer as well as that.
Speaker Change: Coming back to the value equation is.
Speaker Change: The cost of vacation ownership ongoing is very important to all owners and.
Speaker Change: Especially with our Florida resorts insurance is a very important component of that and maintaining affordable maintenance fees on an annual basis.
Our finance team and our risk management team has done a world class job and having great insurance rates that we can pass along to our HOA to keep their vacations affordable is still still keep go into great locations in Florida and the Caribbean.
Speaker Change: Are impacted by Hurricanes, so, it's a combination of diversity and having.
Having buying power with insurance companies to keep a running cost down.
Speaker Change: Perfect and I guess my follow up I, just wanted to talk about something.
Speaker Change: Never do which is the sales force.
Speaker Change: What are you sort of seeing doing.
Speaker Change: <unk>.
Speaker Change: Applying within your sales force is getting the execution right.
Speaker Change: <unk> been having right. There there are other areas in the industry, where execution has been kind of a point of discussion.
Speaker Change: Is there sort of any.
Speaker Change: The leadership changes or.
Speaker Change: Any Madison changes and then we can talk about there about sort of highlights our strong execution and that's just normal.
Speaker Change: Yeah, so well.
Speaker Change: Well, let's let's.
Speaker Change: <unk>.
Speaker Change: Proactively dispel a question that is inherent in that is.
Speaker Change: The tools that the team have as far as price discounts or things of that nature to drive performance.
Speaker Change: We havent, we havent deployed any of that as our team has so.
Speaker Change: With with prices, even through Covid, we didn't discount pricing.
Speaker Change: So it really comes down to the talent and quality of our sales force starting with their leadership.
Speaker Change: That the leadership team is incredibly solid consistent.
Speaker Change: The dynamic in the sense that they don't they don't get dealt month in month out with a set set of variables. They are changing every month, depending on the company's needs depending on the consumer needs yet they continue to perform because again the leadership is dynamic.
Very quick to react to what's going on in the marketplace and the sales team. Obviously follows the leadership in that direction. What I would say is that part of the move to the quality of the consumer that we've moved up market and I think it shouldn't be lost on people that are five goes have gone from $7 25.
Speaker Change: Five to 742 that that means a tighter sales force that sees more tours and with volume per guest or approximately 30% pre COVID-19.
Speaker Change: Sales force as well can be more efficient in their earning by having towards that are generating a higher D. P. G. So it starts with great leadership. It starts with the right culture of being reactive to the environment, but it ends with I think a strategy that rewards our best salespeople.
Speaker Change: Rewards.
Speaker Change: Our sales organization that gets people on vacation and satisfy that.
Speaker Change: At higher levels, and I would say the sales satisfaction scores have increased tremendously over the last five years, which is a credit not only to their ability to sell but to.
Speaker Change: Also create a positive sales environment when someone takes a tour, whether they buy or don't buy.
Speaker Change: Understood. Thanks, very much nice quarter.
Speaker Change: Thanks for asking the question that you're right, we don't talk about it enough, but without a great marketing and sales force this business does Iran.
Speaker Change: Yep Okay.
Speaker Change: Our next question is from the line of Ben Chaiken with Mizuho Securities. Please proceed with your questions.
Ben Chaiken: Hey, good morning, Thanks for taking my questions.
There was a conversation around inventory earlier on the call and I believe you were suggesting working that down to more appropriate levels, which.
Ben Chaiken: Which makes sense and frankly as is common in the entire industry I believe.
Ben Chaiken: This this may not be specific to <unk>, but do we need to start thinking about slight increases.
Ben Chaiken: And cost of VOI as.
Ben Chaiken: The mix of newly developed inventory becomes a larger portion of the mix.
Ben Chaiken: Versus where we stand today.
Ben Chaiken: Like would you agree with that and then are there any offsets you would consider again worked off kind of talking like long term big picture.
Speaker Change: It's a great question Ben.
Speaker Change: So for the core business that we have today as I mentioned right four years of inventory on the balance sheet. So I would say a pretty long time before we have pressure on cost.
Speaker Change: Cost of sales related to the core business, we have today being you know the club Wyndham product.
Speaker Change: <unk>.
Speaker Change: Most of the inventory that we have de was procured or priced pre COVID-19. So even though we did have some just in time transactions that got delivered in.
Speaker Change: 'twenty, one and 'twenty, two and 23 those prices were all pre COVID-19 prices. So that's the other reason that you know in the near term wouldn't see a significant pressure on cost of sales.
Speaker Change: Sigh starts to develop and come on over the next several years, we could see some cost of sales pressure there on that product.
Speaker Change: Keep in mind Thats you know.
Speaker Change: When you look at when you're doing 2 billion plus in VOI sales as that ramps up its not a huge impact on the cost of sales and when you think about you know.
Speaker Change: When you get 234 years down the road the tailwind we have we would expect over the longer term that provision to come back down to below 19%, we're already seeing clear signs that the interest rate.
Speaker Change: Environment is going to become a tailwind in 2026, so like we always do and then Mike you pointed out we look at the overall business and try to manage all aspects of the business, whether it's our sales and marketing costs, whether it's our interest rates, whether it's our G&A.
To try to make sure that we keep those margins into 'twenty, three 'twenty, 4%, which is what we've demonstrated our ability to do in.
Speaker Change: But longer term when we do get to higher inventory costs several years down the road.
Speaker Change: Do feel we'll have some some tailwind to offset that and keep those margins in the 20% to 23% range.
Speaker Change: Got it very helpful.
Speaker Change: And then kind of switching gears a little bit can we talk about the progress we're making on our core.
Speaker Change: Would be curious, where we stand and how youre thinking about the trajectory and opportunity.
This business I believe the path is to leverage the brand internationally.
Speaker Change: I'm just curious any color here yet.
Speaker Change: Yes, you're absolutely correct. It is a.
Speaker Change: It's reopened in the Asia Pacific region.
Speaker Change: I was just visiting our resorts in Australia, two weeks ago fantastic locations.
Speaker Change: Great experiences.
Speaker Change: And our opportunity is absolutely to grow that internationally in both the south Pacific and in Asia, and we plan to do that we're extremely pleased with the integration of our core.
Speaker Change: The first step is always create the synergies in the organization that was accomplished in basically the first four months and then the more important element is the revenue synergies and those have already started to occur is when you win.
Speaker Change: Reopened for sales galleries with plans to open more.
Speaker Change: We've put a very modest target out there for the first nine months of this year and we achieved it in the first six months.
Speaker Change: It's small dollars, but it's indicative of how quickly the team has integrated and how well we've been able to.
Speaker Change: Really boring.
Speaker Change: Putting that brand on in and now look to whats more important which is growth not only in sales, but in resorts for 2025, So very pleased with the progress in the first six months there.
Speaker Change: And just to sneak one more in there is that when you think about the longer term growth is that kind of a newly developed inventory for that brand and then.
Speaker Change: Is there any way to open the core customers up to the broader P&L or those kind of like separate.
Speaker Change: So to answer the second first is they are separate operations nature of running multi brands as you need to maintain separate operations for our core.
Speaker Change: What other brands have.
Speaker Change: As it relates to future development, Mike mentioned that our international operation really runs a pretty tight just in time operation they have somewhere between six to nine months of inventory so future development it will be more than likely a combination of conversions and newbuild.
Speaker Change: But that team does a great job in the region and finding some incredible properties.
And keeping that just in time model working really well.
Speaker Change: Thank you I appreciate it.
Speaker Change: Our next question is from the line of Brent <unk> with Barclays. Please proceed with your questions.
Speaker Change: Hi, good morning, everybody.
Speaker Change: Thanks for taking my question.
Speaker Change: I know, we talked about the third quarter I want to circle back on just one aspect of the of the third quarter.
Speaker Change: The gross VOI sales came in below the guidance you guys gave.
Speaker Change: And I think that the.
Speaker Change: The numbers you just said you said four hurricane volume impact.
Speaker Change: Wouldn't have bridged the total GAAP so.
Speaker Change: Is there it was Las Vegas, the rest of it I mean, it seems like Las Vegas for you guys is that.
Speaker Change: That big of a market. So I'm just trying to bridge the gap for that one Matt.
Speaker Change: Metric if you could just help us with that well Las Vegas is one of our biggest markets beyond Florida, Florida is our biggest and Las Vegas is second.
Speaker Change: And then the.
Speaker Change: The leading cause of our gap was Las Vegas.
Speaker Change: And it's.
Speaker Change: Pretty well noted that their summer was weak and given that it was new owner tours to us lines up pretty closely there were a few other shortfalls, yes hurricane was in there, but wasn't dead and bridge. The gap there were just some other small misses in our individual regions nothing that is repeatable or.
Speaker Change: Of concern that's why as Mike pointed out we expect a reacceleration of toward growth in Q4 not.
Speaker Change: Not a trend that will continue I think when you really just pulled back though and look at our Q3.
Speaker Change: Yes, tore growth was modestly below our expectation.
Speaker Change: But as you sort of come back and look at the full year again, we were very strong in the first two quarters of this year and maintained at 10% right around 10% toward growth for the year and we put PPG guidance out and as I mentioned on an earlier answer when you when you look back on this full year.
Speaker Change: We will achieve our full year tour number in our V. P. G is gonna be above what we said at the beginning of the year. So.
Or definitely within our range so were we.
Speaker Change: We think that 2024 numbers aren't going to despite all the volatility and concern around recessions and consumer weakness in all of that.
Speaker Change: We in hindsight strongly believe we're gonna be able to turn around and say we delivered at the expectations. We laid out at the beginning of the year if not higher.
Speaker Change: But yes, Q Q3, we're just a bit off and primarily led by a market that more macro wise suffered and then had a few other small.
Speaker Change: It impacts and regions, though none of which are material enough to call out.
Speaker Change: Got it that's Super helpful. And then just a follow up broader question for you Mike.
Speaker Change: I know, we're not talking about we cant give 25 guide at this point, but just talking about or thinking about the consumer and what youre seeing.
Speaker Change: 24 was the year of sort of normalization, we saw it across a number of different travel and leisure markets.
Speaker Change: When you think about next year.
Speaker Change: Obviously, we are waiting on the election and things can evolve from here, but where where do you think the consumer is going to how the consumer is going to feel about travel and 25.
Speaker Change: Well I.
Speaker Change: Yeah, Youre right. Its a little early to say, what I would I would flip that question around to how do I feel about our business going into 'twenty five because my perspective on this year is that.
Speaker Change: And the last two years is that we've had a super hot market in 'twenty, two and we've had a very choppy market in the middle of the year as far as uncertainty and in both of those scenarios, we've consistently been able to deliver.
Speaker Change: Vacations for people and owner Occupancies remain high so when we go into 2025 I do think the consumer demand for our product remains will remain strong we underlying.
Speaker Change: Our underlying business model relies on bigger accommodation.
Speaker Change: Branded product with amenities and high flexibility and none of that changes for next year and.
Speaker Change: In a downturn people might drive to our destinations more if the.
Speaker Change: Economy avoids a recession, which seems more and more of the commentary I don't have commentary on macroeconomic events, but if thats. The case and we're very well positioned I think the two fundamental focus areas. We have for next year is number one our core business of video and travel and membership.
Speaker Change: Everything in those areas.
Speaker Change: I think we have our hands very steadily on the wheel.
Speaker Change: We're not over committed on inventory you just heard that answer and our interest rate headwinds have finally subsided.
Speaker Change: It looks like it will be neutral to positive next year on interest.
Speaker Change: Interest rate.
Speaker Change: Ah movements and then we have laid the seeds, but are not overly reliant on two new businesses. The core vacation club and sports illustrated which will start to pay dividends in 2026. So I think we're set up for a good 2025, no matter what the macro gives us.
Speaker Change: By having a solid core business and beginning to experiment with two new businesses.
Speaker Change: And the other thing I'll point out when you think about our two biggest markets be in Las Vegas in Central Florida, Universal announced that they're going to open their epic resorts in may of 2025. So.
Speaker Change: That just reinforces the strength of the central Florida market.
Speaker Change: For next summer as people come to you know experienced that great New resort and then we've talked about the softness in Las Vegas, but we all know that Las Vegas can move up and down but it's a very seldom stays down for a long time. So you know Vegas comes back a little bit our two biggest markets are in good shape. So you know when we think about where people travel to.
Speaker Change: And where our markets are at those are to that.
Speaker Change: At present, the biggest piece of our business and especially with epic resorts opening.
Speaker Change: A lot of confidence Orlando.
Speaker Change: Okay. Thanks, everybody.
Speaker Change: Thank you.
Speaker Change: Our final question is from the line of Patrick Scholes with Trust Securities. Please proceed with your questions.
Patrick Scholes: Hey, guys good morning, Michael.
Speaker Change: Great.
Patrick Scholes: Good morning can you give us update on sports illustrated.
Speaker Change: I'm curious.
Speaker Change: Where you stand.
Speaker Change: Sort of what your longer term expectations and vision for that correct me if I'm wrong.
Speaker Change: The policy.
Speaker Change: Matt eventually.
Speaker Change: $200 million to $500 million.
Our <unk> business.
Speaker Change: And.
Speaker Change: If so what would be the timeframe on that and the demo I couldn't even correct.
Speaker Change: Those numbers.
Yes. So thanks for the question Patrick while we've talked about when we talk about the new brands that.
Speaker Change: So we're gonna be action against is over time those to your point, becoming a $3 to $400 million business over the longer term. If you will kind of look at you know what we were able to do with the Wyndham brand as a blue thread kind of grew that $25 million a year.
Speaker Change: To get that up to you know currently over $100 million. So I think that you know when that business starts we would expect to start in there and of course, it's going to depend on what time of the year, we start sales, but I think that would be the cadence as you know $25 million to $30 million a year.
Speaker Change: Maybe a little more about growing that over time to a $300 million a year business. So that's kind of how we think the math works, whether it's that brand or any other additional branch we might bring on overtime.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you.
Speaker Change: Sure. Thank you.
Patrick Scholes: Thanks, Patrick.
Speaker Change: Thank you we've reached the end of our question and answer session and I will hand, the floor back to Mike Braun for closing remarks.
Mike Braun: Thank you.
Mike Braun: Our performance year to date shows that the business is performing well and that our team continues to set the bar for execution.
Mike Braun: We're getting ready to roll out a number of technology enhancements in the coming months to improve our owner experience and make it easier for them to enjoy a great vacation.
Mike Braun: Producing solid financial results and cash flows and are delivering on our commitments to share to our shareholders. So thanks again to everyone for joining us today and we look forward to speaking to you throughout the quarter at conferences and on our fourth quarter call in February have a good day everyone.
Speaker Change: This will conclude today's conference you may disconnect. Your lines at this time, we thank you for your participation.