Earnings Call Transcript - TNL Q1 2026

Operator, Operator

Greetings. Welcome to Travel & Leisure First Quarter 2021 Earnings Call — Conference Call and Webcast. The question-and-answer session will follow the formal presentation. Please note this conference is being recorded. At this time, it is my pleasure to turn the conference over to Andrew Burns, Vice President, Investor Relations. Thank you, Andrew. You may now begin.

Andrew Burns, Vice President, Investor Relations

Thank you, Rob. Good morning, everyone. Before we begin, I'd like to remind you that our discussion 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 our press release accompanying this earnings call. You can find a reconciliation of the non-GAAP financial measures discussed in today's call in the earnings press release available on our Investor Relations website. Please note that all references to EBITDA, net income, diluted earnings per share and free cash flow made during the call are on an adjusted basis as disclosed in our earnings release. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our results and our longer-term growth strategy. And then Erik Hoag, our Chief Financial Officer, will provide greater detail on our results, capital allocation strategy and outlook for 2026. Following our prepared remarks, we will open the call up for questions. Finally, all comparisons today are to the same period of the prior year, unless specifically stated. With that, I'll turn the call over to Mike.

Michael Brown, President and Chief Executive Officer

Good morning, and thank you for joining us. Travel & Leisure delivered another great quarter. Thanks to the hard work of our team, we are carrying forward the positive momentum achieved in 2025. Our first quarter EBITDA exceeded guidance, driven by strong execution in our Vacation Ownership business and resilient owner demand. In the quarter, we achieved gross VOI sales growth of 7% and EBITDA margin expansion of 180 basis points and EPS growth of 31%. Our strategy starts with delivering outstanding vacation experiences for our owners and members. We convert that owner satisfaction into recurring demand, predictable cash flow and consistent capital returns. Our first quarter results are a clear validation of that strategy and a proof point of the durability of our model even as the macro environment remains uncertain. In the quarter, we generated revenue of $961 million, EBITDA of $225 million and EPS of $1.45, with compounding growth across the P&L. We are seeing continued strength in our Vacation Ownership business with 7% gross VOI sales growth and above-plan VPG. Tour growth of 5% was above our 2025 tour growth rate of 3%. I'd like to emphasize that we achieved these impressive results while executing on our resort optimization initiative, which naturally pressures those metrics. During the quarter, we returned $128 million to shareholders through dividends and share repurchases. Our dividend increased 7% to $0.60 per share, and we repurchased 1.2 million shares in the quarter. At the same time, we are investing in the business to drive long-term profitable growth. We continue to make meaningful progress advancing our multi-brand strategy and digital roadmap, and this balanced approach — delivering near-term results and returning meaningful cash to investors while investing for the future — is central to how we create long-term shareholder value. Since our last call, macroeconomic uncertainty and geopolitical risks have been prominent in the news. I'd like to start with recent trends we are seeing with our consumer and across the business. Overall, our owner base remains healthy. They are prioritizing travel, and we are not seeing any meaningful shifts in their behavior. First quarter gross bookings were up year-over-year. The booking window remains steady at approximately 100 days and average length of stay is unchanged year-over-year at just over four days. The distance traveled to our resorts in Q1 was actually up slightly versus last year, indicating consumers' willingness to travel to our resorts. The data suggests that in uncertain economic times, our value proposition becomes even more relevant. For the 80% of owners that have paid off their loan, they're vacationing for the cost of annual maintenance fees. This value proposition is clear to our owners and is best reflected in our 97% retention rate for owners that are current on their loan or have paid it off. As we enter our peak sales season, we are mindful of the macro backdrop and its potential to influence consumer behavior. That said, the trends we are seeing remain healthy, our value proposition continues to resonate, and the model is performing as designed, positioning us to outperform across cycles. During the quarter, we continued to make meaningful progress advancing our multi-brand strategy and saw clear proof points of its success. Margaritaville is rapidly approaching $150 million in annual VOI sales, reflecting the success of our revitalization efforts and new partnerships. In the Accor Vacation Club brand, we expect to nearly double our VOI sales in 2026. We also began selling Eddie Bauer Venture Club at select sales centers. In March, we welcomed guests to our first Eddie Bauer Resort in Moab, Utah. We are seeing strong interest and early momentum has exceeded our expectations. Sports Illustrated Resorts sales are now underway at our new Nashville sales center. We also announced our new Sports Illustrated resort location in Baton Rouge, home to Louisiana State University and Southern University. As the brand's fourth resort, Baton Rouge is a highly complementary sports-centric university market that fits well within the club's growing portfolio. Overall, combined VOI sales from these brands are expected to approach 10% of our sales mix this year, and we expect that to increase further in the years ahead. Scaling our multi-brand strategy remains a critical pillar of our long-term growth plan, enabling us to reach new customer segments and meaningfully expand our addressable market. The progress we are seeing across the portfolio gives us confidence that this strategy is gaining traction and developing as we envisioned. On the partnership front, we recently renewed and expanded a five-year agreement with United Parks & Resorts, owner of SeaWorld and Busch Gardens, building on the highly successful strategic partnership that began in 2013. In addition to our current on-site kiosk and promotional activations, the new agreement expands our presence across additional parks. This meaningfully increases our ability to introduce new families to our Vacation Club offerings and provide current owners with exclusive events and experiences. Overall, the expanded partnership strengthens our top-of-funnel demand prospects and supports new owner growth. Turning to the resort optimization initiative we announced last quarter: this effort involves removing a small number of aging, lower-demand resorts to strengthen our overall resort system for owners while also improving the financial health of Travel + Leisure and our club HOAs. I'm pleased to report that we are realizing all the expense savings outlined last quarter, and we've been able to sustain our historical sales growth rates despite the resort closures. In summary, we've started 2026 from a position of strength with clear visibility into the key drivers of our performance and momentum in our core Vacation Ownership business. We are reiterating our full year outlook, and I remain confident in our ability to drive growth, generate meaningful cash flow and continue creating long-term shareholder value. Now I'll turn the call over to Erik to further elaborate on our results, capital allocation framework and outlook. Erik?

Erik Hoag, Chief Financial Officer

Thanks, Mike, and good morning, everyone. I'll frame my comments in three parts: how the business performed, how we ran it and how we're allocating capital. Starting with performance. First quarter results were ahead of our expectations, continuing the trajectory we discussed on our February call despite a more volatile macro backdrop. What stands out is not just the strength of our results, but how the business performs across different environments. The compounding in the first quarter is clear. Revenue grew 3%, EBITDA grew 11%, net income grew 22% and earnings per share grew 31% with tour flow feeding the top line and operating leverage and capital allocation driving outsized growth in earnings per share. Looking at our Vacation Ownership business, this segment continues to operate at a high level with results in the quarter showing steady demand and strong execution. Gross VOI sales were $549 million, up 7% year-over-year, driven by tour flow growth of 5% and continued strength in volume per guest, which increased 3% to $3,321. Tour flow remained strong in the quarter, consistent with the momentum we saw exiting 2025. While our new owner mix was slightly below prior year levels, we remain confident that it will increase as the year progresses. Top-of-funnel demand remains strong, and we view mix in the quarter as more a function of conversion dynamics rather than a change in underlying demand. Segment EBITDA was $191 million, up 20% year-over-year, with margin expansion driven by operating leverage, improved inventory efficiency and the benefits of our resort optimization initiative. From a broader perspective, demand remains stable. While we're always mindful of the macro environment, it's important to remember that most of our VOI sales come from existing owners who have effectively prepaid for their vacations. As a result, their travel behavior is less sensitive to economic changes, and our performance is driven by the strength of those long-term relationships through repeat usage, retention and ongoing upgrade activity over time. Credit performance remains within our expectations with provision rates slightly down year-over-year in the first quarter. We are seeing some movement in early-stage delinquencies, particularly in more recent vintages, which we would expect to influence provision over time. With that said, we still expect our full year provision rate to be modestly below prior year levels. The underlying credit profile of new originations remains healthy with weighted average FICO scores remaining above 740 and average down payments trending above 20%. Turning to travel and membership. In the quarter, transactions were flat year-over-year, reflecting a continued mix shift within the business with declines in exchange activity, offset by growth in travel clubs. Exchange membership was approximately 3.3 million subscribers, down about 2% year-over-year. As expected, the mix shift continues to pressure revenue per transaction and segment revenue was $165 million, down 8% year-over-year. Segment EBITDA was $59 million, down 13%. This reflects the continued mix shift within the business, with declines in the higher-margin exchange business and growth in lower-margin travel clubs. Travel and membership remains a capital-light, high-margin business that generates significant free cash flow. Our focus is on managing the business for cash and flexibility as we reposition the platform to improve returns over time. Shifting to the balance sheet. We exited the quarter with leverage in line with our expectations, just below 3.2x. As a reminder, leverage typically trends higher earlier in the year and declines as we generate free cash flow over the course of the year. Liquidity remains strong with over $1 billion of available capacity, including cash on hand and our revolver, supported by consistent free cash flow generation and the continued access to the securitization markets. In March, we executed our first ABS transaction of the year, raising $325 million at a 98% advance rate and 5.1% coupon. This transaction reflects our ability to access capital at rates well below the average interest rate on our portfolio, creating significant net interest income even in a more volatile macro environment. Overall, the balance sheet provides the liquidity and flexibility to allocate capital across growth opportunities and return meaningful cash to shareholders. Before I review our outlook, I want to take a moment to discuss capital allocation. Our framework remains unchanged. We focus on deploying capital where it generates the highest risk-adjusted return on a per share basis while maintaining a resilient balance sheet and returning excess capital to shareholders through a consistent dividend and share repurchases. When returns are compelling, we also pursue opportunistic M&A that is well aligned with our strategy and accretive to growth. When you step back, the business continues to generate returns well above our cost of capital, while returning a meaningful portion of that value to shareholders. Moving to the outlook. We are reaffirming our full year 2026 guidance, which reflects continued strength in the Vacation Ownership business, cost management in travel and membership and the impact of our resort optimization initiative. While still early in the year, performance in the first quarter was ahead of our plan and our full year outlook continues to appropriately reflect both the current environment and the trends we're seeing in the business. For the full year, we continue to expect gross VOI sales to be in the range of $2.5 billion to $2.6 billion, EBITDA in the range of $1.03 billion to $1.055 billion, and volume per guest to be in the range of $3,175 to $3,275. We continue to expect to convert roughly half of our full year EBITDA into free cash flow. During the quarter, we took inventory drawdowns in our Chicago and Nashville Sports Illustrated resorts where sales are now underway. That investment did impact first quarter free cash flow, but does not change our full year free cash flow conversion expectation. We continue to expect our full year adjusted tax rate to be approximately 29% and year-over-year EPS growth to be in the teens, supported by EBITDA growth, lower interest expense and share repurchases. For the second quarter, we expect gross VOI sales to be in the range of $660 million to $690 million, EBITDA in the range of $260 million to $270 million, and volume per guest to be in the range of $3,200 to $3,250. This reflects a continuation of first quarter trends while recognizing that growth can vary across quarters based on mix and timing. Our outlook reflects a business that's performing as expected with downside appropriately managed given the current environment and upside driven by execution. To close, the business continues to perform as designed. We're seeing steady demand, strong execution across the platform and continued conversion of earnings into cash over time. As we move through 2026, we remain focused on executing against our plan, allocating capital to the highest return opportunities and compounding value on a per share basis. Rob, we can now open the line for questions.

Operator, Operator

Thank you. And the first question comes from the line of Chris Woronka with Deutsche Bank.

Chris Woronka, Analyst, Deutsche Bank

Congratulations on a nice start to the year. Michael, you guys have started off with a nice collection here of the Sports Illustrated, Eddie Bauer and Margaritaville resorts. So three distinct brands in addition to the core brands that you started with. The question is to what extent do you think you can possibly grow those brands further? And are you seeing any attractive opportunities on the hotel conversion front that kind of enable those?

Michael Brown, President and Chief Executive Officer

We're very pleased with how each of the brands is performing. The additional one that I'd add to that is a core Vacation Club, which is the newest one post-COVID and since our name change, and as we mentioned, we'll double the sales this year. When you look across all of those brands, our anticipation is we want to grow each of them to support the growth of our core brand, the Wyndham brand. As we start to look at how each of them can grow, I think the total revenue potential varies by brand. However, as we've stated on a number of calls, we want to get each of these up to about $200 million plus. And if you start to think about those four brands and stack that level of growth, you can have a lot of visibility into that 6% to 8% total VOI run rate for the foreseeable future. Fundamental to our strategy is to do things pragmatically: launch a brand, start executing, then execute another one. If you look at the cadence of what we've done in adding brands, adding a core and growing that brand, then adding the second one in the revitalization of Margaritaville, as you heard, was highly successful. Eddie Bauer we started lightly last year, and it's really picking up momentum in Q1, and then we started Sports Illustrated. So we believe the success of adding new brands is the execution of the ones we already have, starting with Wyndham and continuing with our latest start-up sales, which is Sports Illustrated. Those are key to our strategy, and we think we're going to grow. I think that validates and provides more clarity and precision around our long-term growth rate on VOI.

Chris Woronka, Analyst, Deutsche Bank

Okay. Very helpful. Just as a follow-up, I know you guys mentioned a little bit of uptick in early delinquency activity. I guess, Erik, if there's any more detail you want to add, the question that comes out of it is do you think that ultimately opens up an opportunity to essentially reacquire some of that inventory at favorable pricing? Or are you not quite down that path yet?

Michael Brown, President and Chief Executive Officer

Thanks for the question, Chris. Maybe a couple of comments on the loan loss provision. First, regarding how we actually performed: our fourth quarter provision was roughly 19%, down year-over-year. Full year 2025 provision was 20.7%. The first quarter start to the year was down to 19%. So we've had two quarters of year-over-year decline. Second, regarding the early-stage delinquency: it's predominantly in newer cohorts of loans, loans originated over the last several quarters. I do think that these will ultimately manifest into the provision. Third, there are several components to the loan loss provision calculus that are worth noting. First, delinquencies. Second, down payment rates, which are up, which is a favorable guide for the provision for us. FICO scores remained stable and healthy at above 740, which is another positive guide for the provision. And the percentage of sales financed is also down, which is another favorable guide for the provision. Those elements give us confidence in projecting that the full year provision should be down year-over-year. And Chris, to your question, yes: when defaults happen, that does give us the ability to take that inventory back and resell it at today's prices with a very low cost of sales.

Operator, Operator

Our next question comes from the line of Patrick Scholes with Truist Securities.

Patrick Scholes, Analyst, Truist Securities

Mike and Erik, Mike, I wonder if you could just put to bed any concerns — and it sounds like you have already, but just to finalize it — any changes or concerns for the remaining three quarters versus your guidance earlier in the year? Certainly, the algebra says if you beat on 1Q versus your guide but maintain implied the rest of the year down slightly. Is it simply that Iran has happened since you reported in mid-February that keeps you cautious and there's nothing else in your business that has caused your outlook to change? Is that a fair assumption?

Michael Brown, President and Chief Executive Officer

You've nailed it, Patrick. Let me first speak to our business. We reported in mid-February; it's two months later and nothing's changed in our confidence in the business for the remainder of this year, prospectively. You've seen the results in Q1, which I would characterize as an extremely strong quarter — we had a great Q1 last year. I view this quarter as better. We beat the high end of our range. If you remember last year, we had uncertainty that led us to be cautious about the rest of the year. This year, there's a war going on, which creates macro and geopolitical uncertainty, and we don't want to be tone-deaf to that reality. But if you just step back and look at our consumer: great first quarter, and three weeks into Q2, continued momentum exactly as we saw in Q1; if you look prospectively, we look at our summer bookings — they're up year-over-year, a great sign given that Q2 and Q3 are our high season. We get a daily report card in the form of VPG, which continues to perform extremely well. Erik just spoke that we're monitoring early-stage delinquencies, but that's more retrospective. I think between the macro uncertainty and our business performance, we think our business is performing extremely well. The last piece is that Q1 is about 21% of our full year number at the consensus point. If that number was 29% versus 21%, we might be having a different conversation. But early in the year, business is performing well; macro events are external, and given that it's very early in the year, we want to be thoughtful about that. So that's a way to agree with you.

Patrick Scholes, Analyst, Truist Securities

I just wanted to put that to rest. Erik, my question for you: you talked about the earlier-stage delinquencies, specifically in newer cohorts. Does that mean the newer first-time buyers? Specifically, what is it about those? Is it maybe a relatively weaker financial demographic, a younger customer than your legacy cohorts? Could you explain a little bit more about that?

Erik Hoag, Chief Financial Officer

Yes. When I say newer cohorts, these are the more recent cohorts, I think the last three quarters. When you double-click into the characteristics within the cohorts, there's not a single attribute I would call out. It's not tied to FICO. It's not tied to product type. It's not tied to income band. We're seeing a little bit of wobble associated with the loans that have originated in the last several quarters.

Operator, Operator

Our next question is from the line of Stephen Grambling with Morgan Stanley.

Stephen Grambling, Analyst, Morgan Stanley

I think I heard in the comments that you said that the new owner mix was a little bit lower than expected and you attribute that to conversion dynamics. So I'm wondering if you could expand on what is happening in terms of the conversion dynamics that might be impacting it and how you expect that to evolve over the course of the year?

Michael Brown, President and Chief Executive Officer

Stephen, this is Mike. That's the result of a positive story, which is growth in our new owner tour growth. There was a lot of commentary last year around our ability to grow new owner tours in Q1. Although our total tour growth was 5%, our new owner tour growth was 7%, which is extremely strong. That's always step one in driving new owner mix into your total business. When we talk about conversion dynamics, basically our close rate was lower in Q1. That's natural. Anytime you scale the business and grow new owner tour flow, you're likely to suffer a little bit of underperformance on close rates. We've got that, but we've got step one accomplished, which is great new owner tour growth in Q1. We think that will continue to be strong as we head into the high season with both our new partnerships and just the way we've developed some of the smaller ones on a regional basis. We believe as we tend to do quarter after quarter we will improve execution when we get focused on something that we think is a little behind. That's what happened in Q1. But again, the big storyline for us in Q1 was the new owner tour growth year-over-year, which was 7%.

Stephen Grambling, Analyst, Morgan Stanley

That's helpful. And then an unrelated question on free cash flow: can you elaborate on any puts and takes to think about impacting the cash flow conversion over the course of this year? And remind us how to think through free cash flow conversion differences between the segments, even as we think about the vacation ownership versus travel and membership segment.

Erik Hoag, Chief Financial Officer

Sure. Free cash flow for the full year: we're reiterating roughly 50% conversion of adjusted EBITDA to free cash flow. I will say the pace of free cash flow in 2026 will be backloaded. We've got inventory investments that we're making; we made some in the first quarter associated with Nashville and Chicago. We have inventory investments in the second quarter as well. So you'll see the concentration of our free cash flow more backloaded. From a conversion perspective, with the benefit of our ABS transactions and being able to generate cash off of those, the free cash flow conversion across segments is very similar.

Operator, Operator

Our next question comes from the line of David Katz with Jefferies.

David Katz, Analyst, Jefferies

Thanks so much. I think a lot of the commentary around the VOI business is very clear. What I'd love to get a little more color on is what you're including as we go through the quarters for the remainder of the year in your guidance for travel and exchange. It is flat at the high end of the bracket and down some number at the bottom end — that kind of help is what I'm looking for. And then with respect to the resort optimization, I'd love to get a clearer sense of what exactly you're baking in for the quarters and the remainder of the year and whether from that, or sort of flat challenge, et cetera. I hope that's a clear question.

Erik Hoag, Chief Financial Officer

It is. Let me give you a couple of components driving the year. We had mid-single-digit tour flow growth in the first quarter. Our second quarter and our full year expect similar trends, mid-single-digit tour flow growth. We expect gross VOI sales to also be mid-single digits in both the second quarter and the full year. Think about the Travel and Membership business as an extension from where we finished 2025. Some stats: Travel and Membership was down 9% in 2025, down 10% in the fourth quarter and down 13% in the first quarter. So an extrapolation of the travel and membership performance in 2026 is a fair base case. The resort optimization initiative has been a bit of a tailwind for us to start the year; when the 10-Q is filed later this morning, you'll see that developer obligation and our carry cost savings are manifesting right into the P&L. And despite closing several sales centers with the resort optimization initiative, our gross VOI sales have continued to remain very strong. So as I think about the rest of the year, it's a continuation of the mid-single-digit guide for the second quarter, extrapolation of travel and membership trends, and the manifestation of the resort optimization savings, all compounding through the P&L to teens EPS growth as we continue to repurchase shares.

David Katz, Analyst, Jefferies

Okay. Very helpful. Congrats on the quarter.

Operator, Operator

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

Benjamin Chaiken, Analyst, Mizuho Securities

Maybe we could talk about Worldmark and Eddie Bauer. I think you said Eddie Bauer was exceeding your expectations. My understanding is that you're effectively combining these two portfolios. I would imagine that creates a powerful upgrade opportunity. One, am I on the right track regarding this upgrade opportunity? Two, if so, have those upgrades started and contributed to some of the strength in Q1? And three, is the bigger opportunity upgrading the roughly 180,000 market customers, or is it selling the new combined portfolio to new customers entirely?

Michael Brown, President and Chief Executive Officer

Great question. What we're trying to do is put a booster to Worldmark. The Worldmark owner base has clear travel demand. They've said they love the outdoor experience and the chance for families to be together at resorts in non-urban centers. The plan for Worldmark is to highly align the Eddie Bauer Venture Club with it so that it effectively operates as a singular club. The success in Q1 is right along the lines of what you laid out: it's a new product offering with a slightly different experience that owners are enjoying. Even though it exceeded our expectations, I don't think we've unleashed the full power of that brand yet. It takes time to get fully registered in all jurisdictions; we're registered in a few but not all. We've opened only nine sales locations and we've only announced one resort. You can expect more this year and more attractive destinations. As the Worldmark base sees those new destinations, the upgrade opportunity and the ability to own Worldmark by incremental opportunity or credits into the Eddie Bauer system will only be strengthened. Ultimately, we want to preserve and grow the Worldmark brand through this brand extension, Eddie Bauer Venture Club. It's off to a great start and is mostly on the back of upgrades, but it's our full intention to start feathering new owner acquisition into the Eddie Bauer mix; I think it will attract new opportunities and give us new partnerships that might not otherwise be available with some of our other brands.

Benjamin Chaiken, Analyst, Mizuho Securities

Understood. That's helpful. Then switching gears: there's a recurring question regarding the exchange business. Maybe you can walk us through your feelings on both sides as it pertains to keeping or disposing of the asset and then what your current stance is?

Michael Brown, President and Chief Executive Officer

As we've always shared, we'll make decisions that we think are best for shareholders and optimize returns. We're clear on the landscape of the travel and membership business: exchange is in natural industry secular decline for reasons we've spoken about. Despite that, we've been able to maintain our overall mid-single-digit enterprise growth on an EBITDA basis. We believe that is in our grasp despite what's happening in the exchange side. We continue to focus on organic growth and adding new business lines. We think the outlook we laid out for travel and membership is realistic, but we're looking to outperform that. Outperforming is not easy, but we're constantly looking both inside and outside the timeshare space for new lines of business. We're actively working on those and will keep at it until we can change the curve to be additive to our story. If there is a strategic opportunity that makes sense, we'll evaluate it and would not hesitate to act. But at this point, we're super focused on trying to bend the curve from the current decline trajectory because we know the strength of our VO business provides an additive nature to our EBITDA growth.

Operator, Operator

The next question is from the line of Ian Zaffino with Oppenheimer.

Ian Zaffino, Analyst, Oppenheimer

As far as VPGs, how do we think about that? I know you gave guidance for the full year, but how do we think about that throughout the year? I'm thinking about whether mix impacts VPG, since higher new owner mix would put pressure on VPG. Now it seems like the mix is changing a little bit. Any color on where you think things are going and why?

Michael Brown, President and Chief Executive Officer

You're thinking about it the right way: VPG will take natural pressure on an enterprise basis when you get a higher new owner mix. We're heading into Q2 and Q3, which naturally have a higher new owner mix, which we expect to happen. So you would expect some natural pressure on VPG, but that's a mix issue, not a performance or execution issue. So as you look at the cadence, you would expect those pressures in Q2 and Q3; our Q1 results and Erik's range for the year accurately reflect both the cadence and how we think we'll ultimately perform on VPG.

Ian Zaffino, Analyst, Oppenheimer

Okay. As a follow-up, thinking about potential softness, how do you expect that to actually manifest? For example, could fuel prices or sentiment cause a reduction in bookings or spending? How would you see it play out and what's baked into your expectations?

Michael Brown, President and Chief Executive Officer

We'll give you our best thinking about early signs. We'd expect a little conservatism in consumer travel behavior if things weaken. First, booking windows would shrink — they have not so far this year. Second, consumers might transition away from air travel to drive-to destinations — that has not materialized so far this year. Third, VPGs could modify — they haven't; they've continued to perform extremely well. We're monitoring early-stage delinquencies. There's nothing in the travel trends that's noticeably moved; in fact, some signs are positive. All we can report as of April 22 is that early warning signs have not shown up in our travel trends, but we'll continue to monitor them closely.

Operator, Operator

Our next question is from the line of Elizabeth Dove with Goldman Sachs.

Elizabeth Dove, Analyst, Goldman Sachs

Thinking about that new owner mix that you mentioned as a key focus for this year: typically in macro slowdowns it's tougher to get a new owner to make a big purchase. Can you walk through the levers you have to drive new owner growth this year as you push that for the remainder of the year?

Michael Brown, President and Chief Executive Officer

It starts with seeing the guest — step one is top-of-funnel. The 7% new owner tour growth in Q1 is significant. We've laid groundwork with partnerships and execution to grow top-of-funnel metrics. Our focus now is the next stage down the funnel: conversion. As consumer confidence fluctuates, many metrics will fluctuate. We'll monitor and react quickly, whether via cost management or changes to marketing or sales. We believe our model can outperform across cycles because there's strong inherent value. We have the key metrics in place: owner arrivals in the summer and new owner tours. Our teams are focused on execution further down the funnel and we have levers to deliver the results we've outlined.

Elizabeth Dove, Analyst, Goldman Sachs

Got it. And on the resort optimization initiative: last quarter you mentioned an EBITDA swing factor of $15 million to $25 million. Any sense of how you're tracking relative to that range as we progress through the year?

Michael Brown, President and Chief Executive Officer

To clarify, the resort optimization initiative savings are being realized, and when you see the 10-Q you'll see the developer obligation and carry cost savings hitting the P&L. We're realizing the cost savings outlined last quarter, if not slightly ahead. The resorts we're removing have an average tenure of about 40 years and lower demand. Our focus now is helping owners determine their options and working one-on-one with the population who need to make a decision. It's early in the process with three quarters to go, but we're encouraged that execution through the first 90 days is at or slightly above plan.

Operator, Operator

Next question is from the line of Trey Bowers with Wells Fargo.

Trey Bowers, Analyst, Wells Fargo

I have a couple of modeling questions on the free cash flow side. As we think about inventory for the year, is there a chance that if another city where you wanted to add inventory popped up, that could shift things or cause some of this conversion to be pushed into 2027? Second, regarding nonrecourse debt, is that expected to be neutral this year or a draw or a positive?

Erik Hoag, Chief Financial Officer

Free cash flow in 2026 will be back-end loaded. With the Chicago and Nashville inventory investments in Q1 and additional investments in Q2, you'll see free cash flow concentrated in the back half of the year. We have conviction around converting roughly half of adjusted EBITDA into free cash flow on a full-year basis, but you will see timing variability. From the portfolio perspective, nonrecourse debt is generally neutral.

Trey Bowers, Analyst, Wells Fargo

One more: regarding the brands, are there other Sports Illustrated or Eddie Bauer opportunities you're discussing? Could you walk through why Eddie Bauer and Sports Illustrated are bringing in new owners — is it the brand itself or what you've done with the brand that resonates?

Michael Brown, President and Chief Executive Officer

I believe Sports Illustrated is an iconic brand that resonates with a sports experience, much like Margaritaville resonates with a lifestyle. Retail brands that express a lifestyle — Sports Illustrated and Eddie Bauer — are reflective of how hospitality is changing toward lifestyle-based offerings. We've taken the opportunity to find new markets through those lifestyle brands and to combine them with our core hospitality brands like Wyndham and others to grow the top line. They are great brands and strongly identifiable with lifestyle, and that is resonating with consumers.

Trey Bowers, Analyst, Wells Fargo

And will the license fees around that be similar to your deals with Wyndham or is it a different structure?

Michael Brown, President and Chief Executive Officer

It's roughly the same.

Operator, Operator

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

Brandt Montour, Analyst, Barclays

I'm having trouble with the delinquency topic. I wanted to go back to that because it's not super clear what's driving it. If there's no obvious characteristic to call out, should we blame macro? You've seen many delinquency cycles. How does this one feel in terms of how it will play out? Is it better than the one you saw at this time last year? And when you say the provision should still improve, what are you assuming about where delinquencies stabilize and when?

Michael Brown, President and Chief Executive Officer

Brandt, first, it's early-stage delinquencies; it's early in the cycle. We've seen it and wanted to communicate it. The reason I highlighted positive indicators is that as of mid-April we still have conviction that the loan loss provision will be down year-over-year based on the confluence of factors in that calculation. The early-stage delinquencies are concentrated in more recent vintages, but beyond that there isn't a single characteristic to call out. We're monitoring it and working it; we have aspirations to bring it down.

Brandt Montour, Analyst, Barclays

Okay. Second question on AI: you guys have showcased progress in guest experience and technology. How are you using or planning to use new AI tools on the distribution side — enhancing top-of-funnel, working with larger models that are disrupting how consumers find travel options? Are you doing this directly, working with tech companies, or through brand partners?

Erik Hoag, Chief Financial Officer

Let me start on AI and then share some digital updates. On AI, we view two opportunities: first, customer experience starting in search and booking and expanding outward — we want to engage owners when they're looking at resorts, planning trips and creating as little friction as possible so reservations are confirmed quickly. Second, on distribution, the bigger initial opportunity is on non-full-product vacations, like rental short-term products with lower transaction prices, where AI can be applied earlier rather than trying to transact a $25,000 average purchase through AI immediately. That's where we'll start and move up the chain over time. On the digital side, a lot of exciting things are happening: we launched the Club Wyndham app which was received well, the Worldmark app launched last year and already handles 20% of bookings, and we launched the Margaritaville app in Q1. Reducing friction is both AI and foundational product work, and our IT team has moved quickly to get usable customer experience technology into the market with clear adoption signals from booking activity.

Operator, Operator

This now concludes our question-and-answer session. I'd like to turn the floor back over to Michael Brown for closing comments.

Michael Brown, President and Chief Executive Officer

Thanks, Rob. Thanks for joining us today, everyone. To wrap up, we've had a great start to 2026, and our strategic priorities are clear. We remain focused on disciplined execution to deliver strong results in 2026, while continuing to scale our multi-brand strategy to drive long-term profitable growth. Erik and I look forward to continuing the conversation with many of you at upcoming conferences and again on our second quarter call. Thank you for your time and continued interest in Travel + Leisure.

Operator, Operator

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.