Travel & Leisure Co. (TNL) Q2 2022 Earnings Call Transcript

Good morning, and welcome to the Second Quarter 2022 Earnings Conference Call for Travel + Leisure Co. After the speakers' remarks, there will be a question-and-answer period. As a reminder, 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 Agnew. Please go ahead.

Thanks, Emma. 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.travelandleisureco.com. 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, our balance sheet, and liquidity position. Following these remarks, we will look forward to responding to your questions. And 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 receive 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 2Q results, second half leisure travel demand and 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 average length of stay, room nights for the second half are 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 are 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 5 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 are no significant changes in trends. As such, we believe the continued strength and 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. Our diverse 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 record volume per guest. At $3,489, we saw strong sequential and year-over-year growth in both new owner and owner VPGs. Second quarter VPG was 44% higher than 2019 and 11% higher than 2021. This VPG performance occurred while we also grew our new owner transaction mix by 200 basis points to 32%. Early signs in July show that VPGs strength in 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 VPG 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 that 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 VPGs run approximately 20% higher than non-affinity new owner VPGs 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 percentage of sales financed. We have been successful on that front. In the second quarter, the percent of sales financed 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 to 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 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 is 2% higher than the first six months of last year. As we highlighted on the first quarter call, exchange had a difficult comp in the second quarter due to a COVID-related shift in demand into the second quarter and the prior year. Turning to our Travel Clubs. Our Travel Club affiliation pipeline continues to steam ahead. We added nine new clubs in Q2 and are expected 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 months 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 have more work to do to get all clubs in that range, but the early proof points show a promising future. The 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 to 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. Between 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 Hug. Mike?

Thanks, Michael, and good morning to everyone. As well as discussing our second quarter results, I will 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 see our 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 $193 million in EBITDA and $0.88 in 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 of 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 148,000 tours and a VPG of $3,489 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 results of changes we implemented to increase the percent of sales financed and drive portfolio growth. The even better news is that we are achieving the growth of the portfolio into higher FICO bands with the largest percentage increase in financed sales coming from individuals with FICOs greater than 800. In regards to portfolio delinquency, we saw a slight increase in delinquency at the lower end. Keep in mind, though, we increased our minimum FICO to 640 in July 2020 and FICOs 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, a $275 million transaction with an advance rate of 91% and a weighted average interest rate of 5.7%. We had expected the increase in rates, and we were very encouraged by the strength of demand as this offering was nearly 4.5 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 $0.40 per share on June 30 and we acquired 1.7 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 have $700 million remaining under our approved share repurchase program. At our upcoming Board meeting, we will recommend our Board of Directors continue our dividend at $0.40 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 purchases was 3.7 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, a 20% to 25% increase over the prior year, with VPG expected to be between $3,300 and $3,400. 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 sales 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 million and $880 million. Gross VOI sales are expected to be between $1.9 billion and $2 billion with VPG ranging from $3,300 to $3,400. In summary, our strong second quarter results reflect the strength of our leisure travel business model as evidenced by the recurring and resilient revenue streams, EBITDA margins in the mid-20s and strong free cash flow generation, which allows us to drive shareholder value. With that, Emma, can you please open up the call to take questions?

We will now take our first question from Joe Greff with JPMorgan.

Michael, you mentioned the drive-to versus fly-to comments data points in your prepared comments. And within those comments, you talked about regionally what's sort of outperforming and what's underperforming. And you mentioned your Western U.S. geography as a region that's lagging, international lagging. And then I sort of I think I understand what's going on there. Can you talk to 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 a 2Q commentary. Can you talk about geographically in VO, what you're anticipating to see here in 3Q as well?

Yes, definitely. There are several points to discuss. To begin with the broader context, I wanted to share various data points to illustrate that there haven't been significant shifts in leisure travel behaviors. This is in response to the current marketplace commentary about weaknesses and changes. The key takeaway is that leisure travel remains robust. Regarding the data for individual regions, these are the anticipated occupancy rates for the second half of the year. The Sunbelt states are performing exceptionally well with strong demand. As for international travel, it's no surprise that it’s lagging due to ongoing travel restrictions and complexities with air travel. Those are the main highlights. The West Coast is seeing minimal performance, including California, Las Vegas, Washington, and Oregon, with only a 2 to 3 percentage point occupancy difference, which could improve with upcoming bookings. Currently, Central Florida, the Southwest U.S., and our Texas operations are experiencing excellent demand for the latter half of the year. Was there also a question about VO sales?

Yes. I guess my question on VO is given higher airfares, are you seeing consumers trade from a fly-to market to a drive-to market? And to what extent are you encouraging or anticipating that behavior maybe modifying your marketing?

Yes. There are a few factors to consider. Firstly, during the peak of COVID, our drive-to locations reached over 90%. The increase from 73% to 79% can be partly attributed to summer travel and some air travel issues. We aren't actively trying to boost demand for our drive-to resorts. The reality is that with a wide range of resorts available across North America, 95% of the U.S. can reach a resort in a relatively short time, typically within a four-hour drive. As a result, consumers are naturally gravitating towards this option, though the shift is modest. I believe it reflects our collective experience of longer airport lines and the convenience of simply getting in the car, loading groceries, and arriving at a resort to start a vacation within four hours of leaving home.

Great. And then my final question is on the Travel and Membership segment. I know you mentioned your first half results there, you grew year-over-year in the second quarter, there's a comparability issue and then some expenses as well. How do you grow that business from here? What's 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? Then my last one related to this segment is you highlighted staffing and marketing costs 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 really highlighting incremental expenses to build a business, but those expenses don't go away? They are not one-time in nature. And that's all for me.

Yes. Well, thanks, Joe. I think that's an important component. And 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. And not in future years, I'd expect the second half of this year for us to get high-single-digits growth out of the Travel and Membership segment. I think when you look at our overall full-year EBITDA growth; you're going to be looking at mid-single-digits. And keep in mind, Joe, and I think everyone on the call remember, we only talked about 0% to 2% growth in the Travel and 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 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 0% to 2%, but we're going to be growing at a mid-single-digits rate this year and hope for continued acceleration in the years beyond. So strategically, this thing is heading in exactly the direction we wanted to. I couldn't be more proud of our team in the way that they filled our pipeline of affiliates. And 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 other piece of that business, the RCI exchange business. Not only are we driving more new owners, but if you look across the industry, really, everybody is having great success as far as increasing that new owner mix. So as the entire industry brings on new owners, that's incremental members for RCI, which is a great thing to see because obviously, over the last couple of years, there had not been owner growth across the industry because of the lack of new owner sales.

Our next question comes from David Katz with Jefferies.

Hi, good morning, everyone. Thanks. Good morning. Thanks for including me. First question is, yes, I think I 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 what the economic context is. But anything you can share to that end with respect to T&L would be, I mean; I think it's super helpful.

Yes, absolutely. I mentioned a few data points earlier, but let me provide more detail. First, I want to emphasize that we have 90% of the room nights booked for the second half of 2019 already secured. While one might question that if the booking pace slows down, it could be problematic, I can assure you that our booking pace has consistently matched 2019 levels right up until last night. There are no indications of a decline heading into the latter half of this year. This confidence extends to our expectations for Vacation Ownership Interest, or VOI, since our key metric is owner arrivals and 68% of our sales come from this area. Being at 2019 arrival levels with projected arrivals, plus an 8% increase due to longer stays, reinforces our optimism for the second half of this year. Additionally, COVID introduced volatility in cancellation rates, but now we are seeing historically low and stable cancellation rates, reflecting that consumers are not exhibiting any uncertainty regarding their vacations at our resorts for the latter half of this year.

Okay. Perfect. Can we discuss the new fee-based businesses and share insights on the type of volatility we might anticipate in various scenarios as we approach the end of this year and the beginning of next year?

Absolutely. So I would say there are four key variables that we look at to drive volatility 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 much demand will we get for the travel platform. The level of affiliates that we have contracted with, nine in the second quarter, and as we mentioned, we expect more in the third quarter, means the demand for the travel platform is there. The feedback we're getting on the actual product of does it create value? Is it intuitive? Is it 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 piece is what will the average transaction size be? It's exactly what we expected to be, if not slightly above. The last variable and the one that's most critical for us to drive is the individual transaction. 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'll be watching most closely is our ability to ramp transactions within these individual affiliates.

Our next question comes from Patrick Scholes with Truist Securities.

Good morning, Michael, first question for you here. On the VPG range going up, how do you think about how much of that is driven by inflation on just product costs and just general economic inflation versus real demand and pricing power driving that higher and also perhaps the mix in there of better closing rates?

I believe it's a combination of several factors. The main contributor is the increase in close rates by 300 basis points, which clearly indicates our improved credit quality and positively impacts our business's efficiency and margins. This sets the stage for our ability to grow the portfolio, which, as we noted, saw significant growth in the second quarter. Last September, during Investor Day, we set expectations for a $2,800 VPG, marking a substantial rise from our previous position. In Q2, we've experienced pent-up demand that exceeded our forecasts and is continuing into July. We are nearing the end of July without observing any weakness in consumer demand. I anticipate that the only moderation we might experience with VPG performance will stem from the mix as we bring in new owners, slightly impacting VPG. However, the main factor remains the close rates. We've implemented two price increases this year, which contributes minimally to the overall pricing. Additionally, the inflationary effects are noticeable to consumers, who perceive significant value, consequently reflecting in the close rates. That's my perspective on the rise in VPG.

Okay. Thank you for that thorough answer. And now, Mike, a question for you on the most recent securitization. I saw that the advance rates percentage dropped. Can you discuss what's 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.

Thank you for the question. The reason for the decrease in the advance rate on the ABS transaction is solely due to higher interest rates. This means less excess cash is available to protect the noteholders, despite our notes performing as expected and without any defaults. As we pay more in interest, we have less excess cash available, which leads us to lower the advance rate, although it remains strong at 91%. I want to emphasize that this is just a temporary issue regarding the additional cash price. For instance, when we collect a dollar in principal, we now pay $91 to the noteholders instead of $95, but we expect that cash will return to us. The execution of this transaction was excellent, with oversubscription happening multiple times, including transactions in the market this summer that were significantly oversubscribed. Completing this deal also gives us the flexibility to decide on whether to proceed with a third issuance this year, as we have the capacity in our ABS conduit to skip a transaction if we feel the rates are unfavorable or if market volatility is a concern. Overall, it was excellent execution and it provides us great flexibility. Regarding the strength of our portfolio, I can confidently say it has never been stronger in my 23 years with the company. To illustrate this, back in December 2008, our domestic portfolio was $3.5 billion, with $1.1 billion or 31% having FICO scores below 640. Currently, our portfolio stands at $2.7 billion, with sub 640 FICOs at below $300 million, representing only about 11%. This represents a significant decline in the number of lower FICO borrowers. Additionally, delinquency rates have decreased from 6.1% in late 2008 to 3.7% now. The weighted average age of the loans has increased from 20 months in December 2008 to 28 months currently, indicating that borrowers have an average of 56% equity in their ownership compared to 39% back in 2008. This equity is contributing to a sense of value in our product, encouraging borrowers to keep making payments. The portfolio's strength reaffirms our strategic choice to maintain a minimum FICO of 640, despite questions about marketing to lower FICOs. Although we anticipate those lower segments may begin to underperform due to past government support, we are pleased with the portfolio's current status. I want to reiterate that the increase in provisions in the third quarter is not related to performance or quality issues but is due to timing and an increase in originations of high-quality paper with FICO scores above 800. We remain committed to our provision guidance for the second half of the year at 18%, as discussed in our last call. We are very pleased with where the portfolio stands and are confident in its ability to perform well even during downturns.

And any changes in the interest rate over the last quarter or two that you have been charging new customers or new owners?

No. We pretty much kept the interest rate consistent once again. We feel that a lot of our customers when they make the buying decision, they're looking at that monthly payment. And so we want to make sure that we keep those close rates high, keep those new owners coming in and start to get those recurring revenue streams, 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 our 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.

We’ll go next to Chris Woronka of Deutsche Bank.

Hey guys, good morning. I think you touched on the prepared remarks, you expected a little bit of moderation in VPG in Q3 due to mix. Can you give us a little more detail on that? And in terms of your longer-term goal is to get more new owners into the system. But if we see some kind of economic softness, how do you think that trends back? And what are some of the levers that you're going to pull to keep VPG up?

First of all, let's revisit Q2. In Q2, we managed to maintain our VPG even while increasing the number of new owners, which is typically a challenge but turned out to be neutral or even beneficial for us this quarter. Q3 is usually our strongest quarter for new owners. We're simply stating that we're actively bringing in new owners. This summer, we committed to really enhancing our new owner initiatives, and we saw positive results by the end of Q2, which we continue to experience. We anticipate ongoing success in July and August in driving new owner business. The moderation you’re observing in VPG is mainly due to a mix issue. Last year, we mentioned a figure of $2,800 during our Investor Day. Our long-term projections for 2025 remain in the $2,800-plus range. If we can keep figures above $3,000, that’s positive news for us while also maintaining our credit quality. In an economic downturn, the market is beginning to understand that the timeshare industry isn't merely a high-ticket luxury item as previously thought. People will still allocate funds for vacations. If there is an economic downturn, we may see a slight decrease in close rates, which would slightly lower VPG, but I don't see that as a volatile figure. It remains within a manageable range, even during high inflation or pullbacks in the economy. People will continue to take vacations, and as we noted before, 70 million people visit Orlando each year. Even with a potential decrease to 60 million, there's still a large enough market for us to attract those who recognize the value of timeshares.

Yes, that's very helpful, Michael. Just maybe a quick follow-up on that is, how do you expect the financing behavior change among your 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 versus financing when they kind of go back for a second or third purchase?

Yes, Chris, this is Mike Hug. What we've seen historically is that when they come back, they usually do a down payment that's a little bit higher than what they did on their original purchase. But I think what we expect to see is maybe that down payment in the future won't be as high because of the changes we've made to especially on the higher FICOs to not encourage that higher down payment. So historically, the upgrade results in a little bit higher down payment, but with the efforts we're putting in place, we'd really have those high FICOs finance with us and get that good quality, high-margin net interest income.

We'll go next to Ben Chaiken with Credit Suisse.

Hey, how are you doing?

Good morning.

Good morning. Just to clarify the last question, if I understood you correctly, you mentioned that new owners can sometimes negatively impact VPG, but it appears that in the second quarter, that was not the case. It seems like it actually provided a neutral effect or possibly even a slight advantage.

Let me quickly address that. You're correct that the three main channels we focus on—owners, affinity sales represented by Blue Thread, and non-affinity sales in the open market—were all equal to positive in Q2. The VPGs were consistent, and overall, the results were neutral while we improved our new owner mix. If we adjusted for that based on the previous quarter, we would have seen approximately a 10% increase.

No, no, 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 3Q where VPG is coming in a little bit, and it sounds like it's because of the new owners. But it's like was the new owner mix being a neutral to a slight benefit just a one-time thing in 2Q, which we shouldn't expect in 3Q? Do you kind of follow what I'm saying?

Yes, absolutely. More new owners will not be beneficial for us in Q3. What I meant to convey is that when we increase the new owner mix, it generally results in a decrease in VPG. The growth of new owners and VPG in Q2 highlights the strength of leisure travel. However, we expect in Q3 that VPGs will stay steady, and as we shift the mix, it will naturally pull VPG down slightly. I didn't mean to suggest that driving new orders is a new advantage we should anticipate moving forward.

I understand your point and appreciate your perspective. My final follow-up question is whether the increase in new owners in Q3 is based on historical data suggesting that they will reduce the VPG, or if this is something you are already observing in the current quarter.

No. As of yesterday in July, we're observing that our VPGs from those three channels are remaining consistent with Q2. However, due to a slight increase in the mix of new owners, this has a modest impact resulting in a slight decrease in the aggregate VPG.

Yes. I think the way we look at the VPGs is basically they're all up over 2019 levels, but the new owner VPG is still lower. So as that mix goes up, it's naturally going to bring it down. But they're up across all channels. And once again, it's just a mix issue where as more new owners come in, even though the VPG is higher than it was in 2019, it's still brings the overall VPG down.

Okay. I apologize if I missed this. Do you have a target going forward, whether that's for the latter half of 2022 or for 2023? Based on your future expectations, what do you see as the new owner mix?

Yes. It's between 35% and 40%. And last year, we were in the 20s. We wanted to get a three handle this year. We're 32% in Q2. We'll 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 pretty much where the industry stands, 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 it just shows the resiliency of that affinity channel that we have with the Wyndham Hotel Group.

We'll go next to Ian Zaffino with Oppenheimer.

Hi, great. Thank you very much. Thanks for the broad discussion on the VO business as far as what it does in a downturn. But can you also maybe touch upon some of the non-VO businesses? A lot of them have some substantial growth kind of potential. So how should we be thinking about those businesses, their kind of ability to kind of grow at the rates that you think? And then any other piece of the non-VO 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 some broad strokes across the whole Travel and Membership business. And I know you said VO and the RCI business is VO. But as Mike mentioned earlier, it's a positive. And we'll see how the industry plays out in the remainder of the news that comes out. But the re-growth across the industry of new owner business is 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 really return to its historical levels going forward. As we've shared in the last year, we've talked a lot about the theoretical of these new businesses that we're launching. And as we've gotten into the first half of this year, the theoretical has moved 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 latter half of this year, we can actually show how those proof points turn into economic value. So in the end, our overall strategic objective was to be able to raise our enterprise growth rate from mid-single-digits to high-single-digits. And there's nothing that I'm seeing at the midpoint of 2022 that would take us off that trajectory and believe that that's very much the direction we're going to go in, and the fact that we can achieve that, especially in the non-VO business. With all that said, I will just step back a second and say 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 is they incrementally add to our growth rate, which again it's not going to be significant for the next three years, but it's meaningful as it relates to our overall growth rate. So that's how we're looking at both and I can't say that I changed my perspective on our outlook since our Investor Day a year ago.

We'll go next to Bennett Mantua with Barclays.

Thank you, everyone, for taking my question. I have just one. You mentioned that the VOI guidance remains largely the same while the VPG has been increased. This suggests that tour growth might be slightly lower than you anticipated last quarter. I apologize if you already covered this, but could you discuss which areas across the three channels may have led to this adjustment? Additionally, could you focus on the open market and provide insights into how your different partnerships and channels within the OPC are currently performing, highlighting which ones are doing well and which ones are facing challenges?

Thank you, Brent. We didn't cover that in our prepared remarks, so I appreciate the opportunity to discuss it now. This ties back to David Katz's points as we consider the second half of this year. We haven't altered our VOI guidance, but I can say that we are more confident about our numbers, which have improved within our existing range. While the overall range remains the same, our increased confidence and higher expectations within that range indicate that our tour flow has mostly stayed constant for the latter half of the year. However, there is one aspect of our tour flow that we have scaled back. We have a partnership that we anticipate will underperform in two markets, though that's a specific issue not related to consumer demand. The larger takeaway is that we've gained confidence in what we can deliver this year while staying within our previous range. You’re correct in your calculations and reasoning. We should've clarified in our prepared remarks that we have greater confidence in VOI sales and the increased projections. Regarding tour flow, owner tours are where we expect them to be, and our partnership with Wyndham Hotels has returned to its 2019 levels. The only significant relationship that is somewhat lagging is in non-affinity open marketing, but we believe it will bounce back; that’s the only adjustment to our tours for the second half of the year.

Our next question comes from Patrick Scholes of Truist Securities.

Hi, I have another question. Your competitor in the vacation exchange business last month had called out higher owner occupancies impacting available inventory for owner usage and implying that there's just not enough inventory available in that line of business. Is that something that your folks are seeing as well? And is that impacting your revenue and EBITDA at all in 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 callout. We think we have a really good, wide inventory for the latter half of this year. We think that will continue to help us perform on the Travel and Membership business, which again as I laid out, we expect high-single-digits growth in the second half of this year. So it's not something significant enough that we would call out as an issue. Thank you, Emma. Our 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 every day. Thank you to everyone and have a great day.

Thank you. That concludes Travel + Leisure's second quarter 2022 earnings conference call. You may now disconnect your lines at this time. Have a wonderful day.