Travel & Leisure Co. (TNL) Q3 2024 Earnings Call Transcript

Greetings and welcome to the Travel + Leisure Third Quarter 2024 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jill Greer from Investor Relations. Ms. Greer, you may now begin.

Thanks, Rob. 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. Following our prepared remarks, we'll open the call up for questions. We ask the analysts to keep to one question and a brief follow-up. 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 those statements. The factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release. 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. Finally, all comparisons today are to the same period of the prior year, unless specifically stated. With that, I'm pleased to turn the call over to Michael.

Good morning and thank you for joining us today for our Q3 earnings report. Before I share our results for the quarter, I'd like to recognize our associates for all their efforts through Hurricanes Helene and Milton and the wildfires in California. Safety 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. Our third quarter results show that we are executing against our key priorities for the year and that demand for our products remain solid. We produced strong volume per guest, 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 see good momentum in our Vacation Ownership business and we're especially pleased with our VPG performance which remains consistently above $3,000, even during our peak new owner mix quarters. VPG was at the high end of our expectations with especially strong performance from existing owners further evidence that customers continue to value their ownership. We are nearly 30% above 2019 VPG levels, reflecting the premium owners place on the consistency, value and flexibility of our product. It is also a reflection of the increased FICO standards that we established in 2020. Our average FICO on originations has increased from 725 to 742 over the past 4 years. And the portion of our portfolio that is under 640 FICO has decreased in the same time frame. One of our priorities has been to grow our new owner mix to the mid-30s. New owner sales drive long-term benefit and provide a consistent source of future revenue potential. In the short term, however, a higher new owner mix puts pressure on VPGs. 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 30s. New owners drive future gross VOI sales through upgrades of their initial purchase and typically spend an additional 2.6x their purchase amount. This is in addition to revenues from financing, property management and exchange fees. With an embedded revenue potential of over $19 billion over the next decade, our work to drive a higher new owner base gives us continued confidence in our long-term model. The momentum with VPG is a sign that our team is executing well on our growth initiatives and that our product appeals to our target market. Over the past several years, we have seen a number of trends in our owner base that bode well for future growth. First, the average age of our owners is now in their mid-50s as an increasing amount of sales are to Gen X, millennials and younger generations. This age has been steadily decreasing as our average new owner age is close to 50 years old. 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 is the best in the industry. Finally, travel continues to be an integral part of the experience economy. 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. Looking ahead, our Vacation Ownership business has a solid foundation for long-term growth. Our multi-brand strategy is unique in the industry and is the path to driving consistent growth going forward in the Vacation Ownership business. With a 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. We have been very pleased with the progress on the Accor Vacation Club integration which has allowed us to achieve our initial targets ahead of schedule. We have 4 sales sites reopen and fully staffed with more sites expected by the end of the year. Accor has delivered more than $3 million in adjusted EBITDA year-to-date and we expect Accor growth will accelerate next year. Turning to Travel & Membership. As you know, this part of our business is in the midst of a transformation as the vacation ownership industry is consolidated and the points-based product has become more standard, we've seen pressure on exchange volumes. During the quarter, we took another step forward in our transformation with necessary steps to resize our footprint. 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. 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. 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 our core sales and easing of interest rate headwinds. We also expect further progress on our traveler membership transformation to allow that segment to stabilize. Longer term, we expect Sports Illustrated interest rates in our new owner pipeline to provide catalysts for our growth in 2026 and beyond. And now I'll turn the call over to Mike to walk through the quarter in more detail.

Thanks, Michael. Overall, we had a solid third quarter, driven by strong VPG performance. That VPG, combined with our disciplined cost management, offset most of the $14 million headwind from higher interest rates and variable compensation. As a result, our adjusted EBITDA declined slightly year-over-year to $242 million. Importantly, our 24.4% adjusted EBITDA margin shows the resiliency of our business to overcome headwinds and consistently produce margins in the mid-20s. We had adjusted net income of $110 million or $1.57 per share. Our adjusted EPS growth reflects the benefits of our consistent capital allocation strategy which sees us regularly in the market repurchasing shares. With regard to the segment results, for the Vacation Ownership business, revenues increased 2%, with gross VOI sales of $606 million. We maintained good tour growth with tours up over 4% and new owner tours up 9%. While higher year-over-year, the growth was modestly off our expectations. The shortfall primarily came in new owner tours in Las Vegas, consistent with broader gaming industry weakness noted in that market over the summer. We expect tour growth to accelerate sequentially in the fourth quarter. In the quarter, our Blue Thread partnership with Wyndham Hotels produced 8% of our new owner tours which came with a VPG more than 20% higher than other new owner channels. 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 tour growth. The financial strength of our consumer remains solid and trends in our loan portfolio are stable. Importantly, as we progress through the quarter, we didn't see anything in those trends that would cause us to change our guidance. The sequential increase in the provision 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. On the travel membership side, our adjusted EBITDA for the quarter was flat on a 3% decline in revenue. As Michael laid out earlier, we believe the steps we're taking in this segment to improve our revenue per transaction and at the same time, streamline our cost structure are putting a strong foundation in place to continue to generate high margins and cash flows. For the fourth quarter, we are forecasting adjusted EBITDA overall to be $240 million to $260 million. This guidance is in line with the full year guidance that we gave on our last call and higher than our expectations at the start of the year. For the Travel & Membership segment, we expect adjusted EBITDA to be $45 million to $50 million for the fourth quarter. 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 5.2% and a 98% advance rate. The interest rate and advance rate are both improvements over our July securitization and are the best levels we've seen in over 2 years. 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 and the resiliency of our business. With the improved rates that we are achieving with our ABS transactions, we expect the interest rate headwinds to flatten in the coming quarters and turn to a tailwind as we exit 2025, providing benefits to both EBITDA and free cash flow. We ended the quarter with just under 3.4x leverage and we expect to be at that level at the end of the year. We generated $154 million of adjusted free cash flow in the quarter and continue to expect our adjusted EBITDA to free cash flow conversion for the full year to be in the neighborhood of 50%. Longer term, we see a path to moving that conversion percentage higher through lower cash interest and reduction in inventory levels held on our balance sheet. We have a proven track record of being very shareholder focused with our capital allocation. During the quarter, we returned $105 million to our shareholders through dividends and share buybacks. With $70 million of repurchases in the quarter, we bought back 2.25% of the outstanding shares in the company, consistent with our average annual rate of about 10%. 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. With that, Rob, could you please open up the call for questions?

And our first question is from Ian Zaffino with Oppenheimer.

Can you discuss what you're observing with lower-end consumers? I understand that you've been focused on increasing FICO scores, and we haven't really experienced a recession yet. What are your thoughts on FICO scores now? Is there a possibility to lower them again to boost volumes, or are you still maintaining higher FICO scores? Any additional insights would be appreciated.

Yes, thanks for the question, Ian. Regarding the lower consumer segment, that's where we've noticed most of the pressure in our portfolio, as we mentioned last quarter. I don't anticipate making adjustments to our FICO scores on the new owner side in the near term, as we are pleased with the credit quality we are generating. The portfolio performed as we expected this quarter, and while delinquencies that typically worsen from Q2 to Q3 did trend in that direction, the movement wasn't as severe as usual. This indicates that the portfolio has stabilized, which we are happy about. On the owner side, we see a significant opportunity. It's important to remember that FICO scores are just one measure; many factors influence payment behavior. For instance, consider an owner with a 630 FICO score who has consistently paid for 8 years and has reduced their loan balance from $15,000 to $2,000 without missing any payments. We would feel comfortable with this owner due to their auto payment history and other data. Our goal is to leverage more data beyond just FICO scores to enhance our owner side and drive additional growth. Overall, the portfolio's performance has been strong, and the recent ABS transaction delivered excellent terms, the best we've seen in over two years. The business remains solid, and our VPG is at the high end of our range for the quarter, indicating steady consumer behavior. We are continuing to monitor the lower end, and for now, especially on the new owner side, I don't see a need to lower our threshold below 640.

Okay. Can we shift our focus to M&A? What are you observing in the market? What is your interest in potential acquisitions? You have been more active lately. Is there anything else out there that has caught your attention? Also, it seems like there are no significant hurricane-related impacts from your perspective, indicating that it's business as usual.

Our perspective on mergers and acquisitions remains consistent with our previous statements, focusing primarily on our capital return strategy. The dividend represents the foundation of that return. We continually assess the M&A landscape, which we have done for several years. The industry has seen consolidation, and we have identified unique opportunities such as the acquisition of Travel + Leisure from Accor. There aren't as many M&A opportunities as some might expect, but we will keep evaluating them. In the meantime, we will maintain our approach from the last two quarters, returning approximately $70 million of capital through share buybacks.

With another $30 million in dividends in the quarter as well. So total right, we're in 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?

A whole lot of the hurricane. So...

Yes. So as I mentioned in our remarks, that both the hurricanes came up the West Coast of Florida, where our Clearwater resort even today, although it's finally reopened has still the Tampa and Clearwater has sustained a tremendous amount of damage. Helene moved up and modestly affected our Atlanta property but our 2 properties in North Carolina took weeks. One is reopened and one has not. So we didn't call it out but it's definitely, Helene really affected from south to north, up into North Carolina whereas Milton affected west to east coming across Central Florida and briefly shutting our sales galleries and our resorts and then even affecting our Daytona property. And not that it affected the operations in California but the wildfires were within 6 miles of one of our resorts there. So was a tough September and October. We hope it's over. But no, the results we mentioned did not call out the hurricanes over wildfires so far as adjustments to the numbers but they did affect the bottom line results.

And I would point out that the reason the resorts were closed were not because of significant damage to the resorts, primarily due to the infrastructure, right? When you think of North Carolina, some of the rural areas where we've got a couple of older resorts. Those resorts are in 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 and Tampa. So our resorts came through it in fairly good shape from a damage standpoint. So the closures are primarily in most cases just due to what's going on with the infrastructure in those markets.

Okay, just one more question. I wanted to ask if there was any impact on tour volumes or similar metrics, considering many airports were closed. If there was a financial impact, could you specify what it was?

Yes. there were definitely tour impacts because we closed resorts and with owners not arriving, it affected arrivals and tour impact. And I would say volume approximately about $5 million of volume that it cost us. So some EBITDA, some volume. But again, we felt given the limited nature of the financial impact, we didn't want to call that out or need to call it out.

We still achieved the midpoint, slightly exceeding it for the quarter while maintaining our full year projections. It was a strong quarter for the business. I would also highlight that the diversity of our locations provides us protection during situations like this. Having no single market representing more than 10% allows us to offset disruptions in certain areas, such as Florida. This demonstrates the resilience of our business and the benefits we gain from having a variety of sales locations.

And Ian, Milton came in October and Helene was in September.

The next question is from the line of Joe Greff with JPMorgan.

Two relatively quick ones on Vacation Ownership. Anywhere in the, I guess, the sub-700 FICO score band spectrum, are you doing anything in terms of implementing any higher down payments and then my second question is you mentioned earlier that in the 3Q new owner tours or tours in Las Vegas were weaker. Can you talk about what you're seeing or what you anticipate here in the 4Q?

Sure. Thanks, Joe. This is Mike Brown. Yes, we noticed that, like everyone, gaming was a bit weaker in Las Vegas during Q3, and that reflected in our new owner tour flow. As Mike Hug mentioned, we expect a reacceleration of tour growth in Q4. Looking back at the year, it seems like every quarterly call raised questions about consumer weakness. However, by the end of the year, we believe we will find that our VPG exceeded expectations. Our tour growth was around 10%, as we had projected at the start of the year, and our new owner tour growth surpassed 15%, also in line with our expectations. We’ve raised our guidance, and our portfolio saw an increase of 100 basis points in our last call. Despite ongoing inquiries about consumer strength this year, we are confident that, by the end of the year, we will see that consumer performance met or exceeded our expectations for 2024, positioning us well for the start of 2025. Regarding the portfolio and down payments in Q4, Mike, would you like to elaborate 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, I don't know that we're going to say, hey, it's got to be just below 700 FICOs. We'll probably look for higher down payments across the board. But the portfolio, as I mentioned, is kind of right in line where we expected. Default levels are a little elevated but didn't get any worse in the quarter. So pretty happy with the way the portfolio performed. I touched on the ABS transaction. So overall, happy with the way the consumer, whether it's VPG or whether it was portfolio performed through the quarter and third quarter and we will look for a little bit higher down payments potentially in Q4 from some customers.

Our next questions are from the line of Chris Woronka with Deutsche Bank.

So I was hoping we could firstly drill down on the close rates a little bit, right? And I know that those would naturally kind of be lower as you intentionally kind of focused on more of a higher new owner mix. But I'm curious, if someone when a new would be first timer comes in takes the tour doesn't buy. Is there any feedback you're collecting or research you're doing what are the top few reasons they're giving? Is it cost or something else? And has that, in your view, changed much in the past few years?

As the year has gone on, we haven't observed significant changes in our close rates between existing owners and new owners. They tend to fluctuate slightly each quarter, but nothing has really stood out regarding these rates. With our VPG remaining stable, this indicates that our close rates have been consistent throughout the year. It's important to note that our close rates were higher about two years ago post-COVID when hotel rates increased, showcasing the value of owning a timeshare. Now that we are moving further from COVID, close rates have stabilized but remain noticeably above pre-COVID levels. Consumers today are weighing affordability and value, and they appreciate having more space, good value, and high flexibility in their ownership. We measure success through retention, with 7 out of 8 owners having fully paid off their timeshare loans, and we maintain a 98% retention rate among those consumers. Overall, at the point of sale, there must be value, flexibility, and affordability, which has contributed to our improved close rates since before COVID, along with stronger consumer credit metrics.

Okay. Yes. I appreciate all the perspectives, Michael. And then as a follow-up and this is really more of a multiyear question. It doesn't relate to Q3, Q4, '24, '25, as we think about inventory over time and really, I just want to ask, is the mix of kind of your inventory recapture or repurchase. Do you expect that to kind of remain stable or move up over time? And maybe just remind us of where you see yourselves on the inventory spend, again, kind of on an average, say, 3- to 5-year basis looking forward?

Yes, this is Mike Hug. Regarding inventory, we anticipate the recapture to remain fairly consistent. Our annual inventory expenditure is approximately $100 million, with $50 million to $60 million allocated to buybacks from owners and HOAs in the resale market, while the remaining $40 million is primarily for our international operations. In terms of our domestic business, which constitutes 90% of our total operations, we have sufficient inventory to support this segment for the next four years. We've previously discussed how inventory levels increased during COVID. Overall, we are in a favorable position concerning our current inventory on the balance sheet. As we continue to develop SI, we might see a slight increase in inventory spending over the next couple of years; however, this will be accompanied by additional revenue as we enhance our SI marketing channels. For our core business, we are looking at $100 million in inventory spending, with about half coming from recaptures and the other half supporting our international operations, which typically maintains around six to nine months of inventory.

Our next questions are from the line of David Katz with Jefferies.

I wanted to hear your thoughts on the recent hurricane in a broader context since it seems we're experiencing significant weather events regularly. This pattern of recurring events raises questions. How are you incorporating this into your marketing strategy? Additionally, how do you approach this at the customer level? While there's no concrete evidence, do you notice any signs in your model indicating that weather influences people's purchasing and travel decisions?

It's an excellent question, and it brings us back to our discussions over the years about how our geographical diversity significantly impacts our performance. The trajectory of hurricanes can affect our resorts no matter their location, both in the U.S. and in the Asia Pacific region. Having a varied portfolio and not being overly reliant on any single market helps diminish the effects of individual disasters. We've observed that when conditions aren't favorable, it can have a noticeable effect on a quarter. While it wasn't a major issue for this quarter, there was still some impact. Ultimately, our diverse resort locations around the globe provide guests with alternative options. We also strive to re-accommodate guests during arrival challenges, ensuring they have opportunities to enjoy their vacations elsewhere. Another advantage we offer relates to the ongoing costs of vacation ownership, which are crucial for all owners. This is particularly true for our Florida resorts, where insurance plays a vital role in keeping annual maintenance fees affordable. Our finance and risk management teams have excelled in securing competitive insurance rates, allowing us to pass those savings on to our homeowners' associations. This helps maintain affordability for vacations while still providing access to wonderful locations in Florida and the Caribbean that may be affected by hurricanes. So, it's a combination of diversity and our buying power with insurance companies that helps us manage running costs effectively.

Perfect. And as my follow-up, I just wanted to talk about something we almost never do which is the sales force. What are you sort of seeing, doing and applying within your sales force is getting the execution that you've been having, right? There are other areas in the industry where execution has been kind of a point of discussion? Is there sort of any leadership changes or any management changes or anything we can talk about there that sort of highlights the strong execution?

Yes, let's address an inherent question regarding the tools available to our team for driving performance through price discounts or similar methods. We have not utilized those strategies. Our team maintained pricing even during COVID and did not resort to discounts. This reflects the talent and quality of our sales force, particularly their leadership. The leadership team is exceptional—consistent and dynamic—adapting every month to the varied needs of the company and consumers while continuing to perform effectively. The sales team follows this leadership well. It's also important to note that we've shifted towards a higher-quality consumer base, evident in our FICO scores rising from 725 to 742. This indicates a more focused sales force, leading to more tours, and an increase in volume per guest of approximately 30% compared to pre-COVID levels. This efficiency allows our sales force to earn more with tours that yield a higher average volume per guest. Strong leadership and a culture that is responsive to the environment are fundamental to our strategy, which rewards top salespeople and ensures a high level of customer satisfaction for those on vacation. Over the last five years, sales satisfaction scores have surged, highlighting not only our sales capabilities but also the positive environment created during tours, regardless of whether a purchase is made. Thank you for the question. You're correct that we don't discuss this enough, but our business relies heavily on a great marketing and sales force.

Our next question is from the line of Ben Chaiken with Mizuho Securities.

There was a conversation around inventory earlier on the call. And I believe you were suggesting working that down to more appropriate levels which makes sense and frankly, is common in the entire industry, I believe. This may not be specific to TNL but do we need to start thinking about slight increases in cost of VOI as the mix of newly developed inventory becomes a larger portion of the mix versus where we stand today? Like would you agree with that? And then are there any offsets you would consider? Again, we're kind of talking like long-term big picture.

It's a great question, Ben. For our current core business, we have about four years of inventory on the balance sheet, which means we are not likely to experience significant pressure on the cost of sales from the Club Wyndham product anytime soon. Most of our existing inventory was purchased or priced before COVID. Even though we had some just-in-time deliveries in '21, '22, and '23, those prices were still based on pre-COVID figures. Therefore, we don't expect to see major cost of sales pressure in the near term. In the coming years, as we ramp up to over $2 billion in VOI sales, there could be some cost pressure related to new inventory, but it shouldn't have a significant impact on overall costs. Looking ahead 2 to 4 years, we anticipate that our cost provision will drop below 19%, especially as we expect the interest rate environment to become favorable by 2026. As always, we are focused on managing our entire business, including sales and marketing costs, interest rates, and general and administrative expenses, to maintain our margins in the 23% to 24% range. I believe that even when we face higher inventory costs in the future, we will have factors to counterbalance those increases and keep our margins around 22% to 23%.

Got it. Very helpful. And then kind of switching gears a little bit. Can we talk about the progress you're making on Accor? Would be curious where we stand and how you're thinking about the trajectory and opportunity of this business. I believe the path is to leverage the brand internationally. But just curious, any color here.

Yes. You're absolutely correct. It's reopened in the Asia Pacific region. I was just visiting our resorts in Australia 2 weeks ago, fantastic locations, great experiences. 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 Accor. The first step is always create the synergies in the organization that was accomplished in basically the first 4 months and then the more important element is the revenue synergies. And those have already started to occur as we've reopened 4 sales galleries with plans to open more. We put a very modest target out there for the first 9 months of this year and we achieved it in the first 6 months. It's small dollars but it's indicative of how quickly the team is integrated and how well we've been able to really bring that brand on and now look to what's more important which is growth not only in sales but in resorts for 2025. So very pleased with the progress in the first 6 months there.

Is that when you consider long-term growth, is that a newly developed inventory for that brand? Is there a way to connect the Accor customers to the broader TNL, or are they separate?

So to answer the second first is, there are separate operations. It's the nature of running multi-brands is you need to maintain separate operations for Accor and what other brands you have. 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 6 to 9 months of inventory. So future development will be more than likely a combination of conversions and new build. But that team does a great job in the region of finding some incredible properties and keeping that just-in-time model working really well.

Our next question is from the line of Brandt Montour with Barclays.

I want to revisit one aspect of the third quarter. The gross VOI sales were below the guidance provided. The hurricane volume impact mentioned did not fully account for the overall shortfall. Was it due to Las Vegas or something else? It appears that Las Vegas isn't a significant market for you. Can you help clarify this specific metric?

Las Vegas is one of our largest markets, second only to Florida. The primary reason for our gap was related to Las Vegas, which experienced a weak summer. This aligns closely with the new owner tours we conducted. There were a few other shortfalls, including a hurricane, but that alone didn't account for the gap. We also faced some minor misses in various regions, but none of these issues are likely to recur or raise any concerns. As Mike mentioned, we anticipate a reacceleration of tour growth in the fourth quarter, which we do not expect to be a continuing trend. While tour growth in Q3 was slightly below our expectations, when we look at the entire year, we performed strongly in the first two quarters, maintaining around 10% tour growth. We remain confident in our full-year tour numbers and our VPG will exceed our earlier guidance, remaining within our targeted range. Looking ahead to 2024, despite potential economic volatility and consumer concerns, we believe we will meet or exceed our initial expectations for the year. In summary, Q3 was slightly below expectations mainly due to broader market challenges, along with a few minor region-specific impacts, none of which are significant enough to highlight individually.

Got it. That's very helpful. I have a follow-up question for you, Mike. While I understand we can't provide guidance for 2025 at this time, I'm interested in your thoughts on consumer behavior. This past year, 2024, seemed to reflect a normalization across various travel and leisure markets. Looking ahead, especially with the upcoming election and potential changes, how do you think consumers will feel about travel in 2025?

It's a bit early to say definitively, but I like to focus on our business outlook for 2025. Over the past two years, we've experienced a very active market in 2022 followed by a more uncertain market this year. Despite these fluctuations, we've reliably provided vacations for our customers and our owner occupancies have remained high. As we approach 2025, I believe consumer demand for our offerings will continue to be robust. Our business model is built on providing larger accommodations, a branded product with amenities, and high flexibility, all of which will remain unchanged next year. In the event of a downturn, we may see more travelers driving to our destinations if the economy manages to avoid a recession, which seems increasingly likely based on current commentary. I won't comment on macroeconomic conditions, but if that holds true, we're well-positioned. For next year, we have two key focus areas: our core business of Vacation Ownership and Traveler & Membership, where we feel very secure. We're not overextended on inventory, and our challenges with interest rates are easing, so we anticipate a neutral to positive impact from interest rate changes next year. Additionally, we've planted the seeds for two new business initiatives, the core Vacation Club and Sports Illustrated, which we expect to start benefiting us in 2026. Overall, I think we're well-prepared for a successful 2025, regardless of economic conditions, thanks to our strong core business and the experimentation with new ventures.

Additionally, it's important to note that our two largest markets, Las Vegas and Central Florida, are seeing significant developments. Universal has announced the opening of their Epic resorts in May 2025, further enhancing the attractiveness of the Central Florida market for next summer as visitors come to enjoy this exciting new resort. While we've mentioned some softness in Las Vegas, it's well-known that the market tends to fluctuate and doesn't typically remain down for extended periods. If Las Vegas rebounds slightly, both of our largest markets will be in a strong position. Thus, when considering travel destinations and the status of our markets, these two are critical for our business, particularly with the upcoming launch of Epic resorts, instilling greater confidence in Orlando.

Our final question is from the line of Patrick Scholes with Truist Securities.

Michael, can you provide us an update on Sports Illustrated? I'm interested in your current position as well as your long-term expectations and vision for it. If I'm not mistaken, you've mentioned before that you see it evolving into a $300 million to $500 million business. If that is the case, what would be the timeline for that? I may not have all the numbers correct.

Thank you for the question, Patrick. As we've mentioned regarding the new brands, we anticipate that they could develop into a $300 million to $400 million business in the long run. For context, when we looked at the Wyndham brand and the Blue Thread, we managed to grow it from $25 million a year to over $100 million currently. We expect that once this business starts, it will begin within that range. The exact start will depend on the timing of our sales initiatives. Our projection is a growth of $25 million to $30 million annually, possibly even slightly more, continuing to aim for a $300 million a year business over time. This approach applies not only to this brand but also to any other brands we may introduce in the future.

We've reached the end of our question-and-answer session. I'll hand the floor back to Mike Brown for closing remarks.

Thank you. Our performance year-to-date shows that the business is doing well and our team continues to excel in execution. We are preparing to introduce several technology enhancements in the upcoming months to enhance our owner experience and make it easier for them to enjoy a wonderful vacation. We are generating strong financial results and cash flows and are fulfilling our commitments to our shareholders. Thank you again to everyone for joining us today, and we look forward to connecting with you throughout the quarter at conferences and during our fourth quarter call in February. Have a great day, everyone.

This will conclude today's conference. We disconnect your lines at this time. We thank you for your participation.