Conference Transcript - TNL 2026-06-02

Speaker 3

all right i think we're going to kick off day two here with travel knees i'm joined by michael brown president ceo eric hoag the cfo um and i know um you know to start off i always kind of like to start with the the very high level um questions here and i guess maybe just level set as we look out over the next you know kind of three years um what do you think are the the major strategic priorities and how you think about positioning the business for success across the different segments.

Michael Brown, CEO

It's good to be back. I appreciate the opportunity to share our story. As we look forward, I think it looks a lot about how we've come the last two years in the sense that we've been able to consistently grow our top line in that mid-dup or single digits and follow that through through incrementally compounding bottom line results in both EBITDA and EPS. We don't see our algorithm, which I think Eric can really speak to in more detail, changing the next three to five years. But from our perspective, this business has always been driven by your ability to generate and convert new and existing needs to ownership in the space. And we have a number of initiatives is very focused on making sure that that strategic outlook remains intact. We're very committed to our core business at both Club Wyndham and World Market, generating new owners and existing owners. But with the beginning of a transition where we're bringing new brands on, always going to do new brands, but the reality is those brands lead back to an opportunity to increase the top of the funnel for us. So as we look at the next three to five years, the great economic performance we've had the last two years, we see continuing and no fundamental changes to the way to think about our business. And then an increased focus on driving the new lead opportunities as well as keeping our owners satisfied who really generate the predominance of our sales on an annual basis.

Speaker 3

You talked about the algorithm, if you will, remaining intact. I'm going to loop in Eric here right out of the gate. With your first quarter, you were above that algorithm in terms of EBITDA growth, double-digit growth, 1Q. You're reiterating kind of the mid-single digits for the year. Maybe talk to us about what you saw in the first quarter relative to that algorithm that drove it higher and maybe the putting takes to think about for the rest of the year.

Speaker 1

Yeah, we had a great start to the year in the first quarter. So, a couple of data points specifically, revenue grew 3% in the first quarter. Our gross VOI sales were up 7% in the first quarter. EBITDA grew 11% in the first quarter. Net income, 21% growth in the first quarter. Driving all the way down to earnings per share being up 31% in the first quarter. A couple other interesting data points on the first quarter. We increased our dividend by 7%, and we increased our buyback rate by roughly 25% in the first quarter. So, buying back roughly 25% more shares in the first quarter on the back of a new board authorization of roughly $750 million. So, when you come full circle associated with what's the algo, how are we performing against the algo, I think the first quarter is a good illustration of what that algo is. Healthy tour flow growth, driving gross VOS sales in the 6% to 8% range, which leads to mid-single-digit EBITDA, which gives us an opportunity to convert roughly half that EBITDA into free cash flow. An attractive dividend, as I mentioned, which grew 7% here in the first quarter allows us to absent a better investment continue to buy back our shares.

Speaker 3

So I guess going back to the bigger picture then for those maybe less, again, familiar maybe with timeshare or learning about it, what would you say sets travel neager apart from your peers or even as you think about, not just timeshare periods, but maybe the broader lodging industry, travel

Michael Brown, CEO

Yeah, look, there's some differences amongst the individual companies, but I think the best place to always start is the general misunderstanding is about the space in its entirety. And, you know, we're sitting here at the start of June 2026. I think Michigan Consumer Sentiment hit its mid-century low last week. people concerned about inflation macroeconomic issues yet eric talks about in q1 um despite our last two years of incredible performance q1 was better than the last two years and we're now two thirds away through q2 and our strength that we talked about in the strong performance of q1 has probably accelerated in Q2. So I think the real consideration for us in Q2 and the industry at large is that people want to correlate very heavily with what's going on in the noise in the macro world. And the reality is 65-70% of our sales are to people who already own with us. They see the value of their ownership. They see the quality of the vacations. and they understand the quality that a brand brings to your vacation experience. And with all of that, there's this divergence that seems almost counterintuitive about how well this space does when a time that your consumer sentiment is at an all-time low, 50-year low. And I'll just sort of come back to reinforcing the message of we've had a great two years, I think I said something along the lines. I don't think we could have scripted a better Q1, and I would say more than the momentum continues, if anything, it's accelerated in Q2. So we're seeing a lot of strength in our consumer. We're seeing people decide to be in this space because they see the value in it, they see the quality of the product, and they see the brands. I think that's true for the entire industry. We're doing some things a little different, which gets to our strategic outlook on what I mentioned in your first question, which is we want to continue to broaden the funnel. And I think where hospitality is moving is people don't want to aggregate demand into big brands necessarily. They want to match their vacation experience to their personal lifestyle, which is why we're pursuing what we're pursuing. And we're early innings on that, but early signs say that people want to attach what they love about Club Wyndham into other brands in their vacation time.

Speaker 3

Remind us who your existing owner base is, like what are the demographics there? And then also as you're expanding into some of these new brands and you're expanding the funnel, is that changing the demographics that you're finding coming in?

Michael Brown, CEO

Or is it kind of the same, you're just getting more of them? Right. So, try to get rid of some misperceptions out there. Club Wyndham is our base, and we have about 800,000 owners in our entire owner universe. Our average income is now approaching $120,000. It used to be under $100,000. Average FICO is now over $740,000. It used to be in the 720s. And the demographic of our new owner is coming down. And what we're positioning ourselves is for long-term growth. And as we start to expand brands, we want to maintain the quality of our consumer, which tends to be, you know, in the K-shape economy, I'd say our consumer looks much more like the upper part of the K than the lower part, for sure. And the profile would suggest that as well. But we're now, it's not about necessarily just the demographic. It's about the vacation style. because not everyone wants to vacation the same way. We have consumers that want to vacation in an urban destination, a big resort in a place like Orlando, and you've got equal amount of people that want to vacation in a place like we just announced our first location in Moab, Utah, that want to wake up and then go out and do some hiking all day. That's very different than sitting in Fast Pass at Disney. Two different consumers, they're both great, but there's different demands. And the same as Sports Illustrated is different than a different type of travel behavior.

Speaker 3

I think there's been this concern that the younger consumer, maybe it's not resonating as much. Are you finding that your new owners and tour flow is resonating with the consumer? And how do these brands that you're launching maybe tap into that?

Michael Brown, CEO

Well, a lot's about the education. And when you were to go down to Times Square and ask people, you'd say, what's the timeshare they'd say well of course you go to fort myers you go in march you have the same unit the same week and that that's what the timeshare is that timeshare disappeared in the early 2000s um but if you were to say would you like uh would you like to vacation in the two-bedroom pay 2015 prices in 2026 and would you would you like to do that with a branded company the answer is yes they would probably think you're talking about an airbnb or vrbo but you're talking about what our product is with the brand overlay and with amenities. So a lot of what we do in the process of the sales process is explaining how the industry has evolved, and it's evolved in an incredible way, and I think the macro tourism environment of wanting more space, wanting more flexibility has come to where we are as opposed to us trying to unnaturally go to where the macro trends are. So we've been there for a long time. We just have some re-education of the next generations and some product modifications.

Speaker 3

Aside from broadening out the funnel, are there other benefits to think about or even are there investments that you need to think through with expanding into more brands over time?

Michael Brown, CEO

There are. I think one of the big questions you always hear is how do you allocate capital, which I would like for Eric to talk about that after I respond to that. And the question is, you know, do you invest in your business or do you buy back shares? We're doing both at the moment. And one of the big questions we got throughout 2025, you're doing Eddie Bowery, doing Sports Illustrated, you're reinvesting back into Margaritaville, et cetera. Your margins are at risk here. You won. We really started to see the investments of 25 and 26 start to hit. Our margins went up. We were over 25% in Q1, and when you look at our margin profile going forward, you should see a very disciplined capital allocation of reinvesting in our business to grow our long-term top line and create the algorithm that Eric mentioned, but also at the same time, not at the sacrifice of our margins. Our outlook on margins has not changed. We're doing a bunch of stuff in 2026 regarding resort optimization. But to think we're able to launch new businesses, new brands, to solidify our long-term algorithm while continuing to buy back shares at a very quick rate in Q1 and invest in these new businesses while growing margins really, I think, shows the discipline we have in allocating our capital and making sure that we're trying to check every box along the way and maybe you can talk about our share buybacks and how

Speaker 1

capital allocation yeah broadly speaking as mike said you know first and foremost we want to invest in the business and whether it's brands or technology we want to continue to invest in the business second we want to maintain a healthy balance sheet we ended 2025 with leverage at three times uh into the first quarter at 3.2 times expect to finish the year either at three times or slightly below three times so maintain a healthy balance sheet we want to we want to pay an attractive dividend you know as i mentioned we increased the dividend seven percent in the first quarter current dividend yields about three and a half percent and then beyond that absent other investments we're going to continue to buy back shares even we are uber focused associated with per share economics whether it's free cash flow per share earnings per share we're very focused associated with continuing to compound through the pnl and i think that whether it's the first quarter whether it's 2025 i think you're starting to see that really manifest into the pnl

Speaker 3

There's often on the margin side maybe a question that we get from investors around free cash flow margins, in particular lumpiness associated with inventory. Are you on more of a steady state at this point in terms of how you think about the amount of inventory deployed each year, or is there still some lumpiness to think?

Speaker 1

Yeah, so a couple things on inventory. If you go back to COVID, our inventory drifted up towards five or six years of inventory on the balance sheet. since that time we've been working it down in February we announced something called a resort optimization initiative with which further reduces our inventory as we sit here today inventory balance between three and four years we want to continue to push that further down towards two from a free cash flow perspective we expect over the cycle to continue to generate roughly 50% of our convert roughly 50% of our EBITDA into free cash we have moved to an asset light model so the lumpiness associated with free cash flow generation and our net inventory spend is somewhat marginalized but you will see us from time to time move slightly above 50 and slightly below 50 in 2025 our free cash flow conversion was 52 percent and as as we sit here today we're still

Speaker 3

expecting roughly 50 percent I mean going back to a comment Michael you made about meeting the consumer kind of where they are in these different channels. Where does Blue Thread and Wyndham, the connection there, fit into that? And is there still opportunity to better leverage that relationship?

Michael Brown, CEO

Yeah, that relationship has been very impactful. I've joined and grew. So we are getting to the point in that channel that, you know, given the nature of how hotel reservations are made, seems to be more flat and doesn't have a lot of tremendous upside. But I guess when you lay it out against the whole gambit of our diversified marketing, I think that's one of our strengths as a business is we have an incredibly diversified geographic footprint, and we have an incredibly diversified marketing footprint. So, you know, I think our largest market is Orlando, and it's barely 10% of our total revenue. And when you look at Blue Thread, I think Blue Thread represents roughly 3% of our total revenue. 3% roughly there. So we are not overly dependent on one channel, but we like to put a lot of channels into the system. And I think when you start to look at how our team deploys its resources, it's around regions, small marketing deals in every single region that we're in so that we're not overly dependent either geographically or marketing wise. That's reflected, I think, in the stability of our top line at our bottom.

Speaker 3

When you made a comment earlier about potentially seeing accelerating trends in some ways, demand trends, despite the survey data or sentiment data, is that specific to what you're seeing from books, packages, or how do you think about the visibility that you're trying to track?

Michael Brown, CEO

No, I was being a lot more finite. We're now, at the end of Q1, we were 20% of the through the top line of our year, even though it's an entire quarter. Our first quarter is 20%. At the time, I think we were, it was within a 48-hour window of a ground invasion. We were the first hospitality group out. There was a lot of uncertainty when we went for the third week of April. We're now into the summer season. May is always a very good month. Now we're into June. We've completed June. We actually know how our top line is on the first two out of the three months of the quarter. So we know where top line VOI is through two-thirds of the second quarter. And that's what I'm being very finite that we saw a very strong Q1, and if anything, it's accelerated in Q2. There are some more forward-looking that are less visible, but still you have clarity on, which is forward bookings, forward packages, all of that. That remains intact. Bookings, forward bookings throughout the summer and into the fall remain at or slightly above 2025. but I was actually referencing on the demand side what we already know in Q2 about top line and what drives our business as being extremely positive.

Speaker 3

It seemed like there was a lot of, I would say, uncertainty or questioning, at least from investors at one point, over the sustainability of VPG trends. What are some of the drivers of the strength in VPG that's happened, and how do you think about the sustainability from here as we think about both So, conversion, pricing, helping the consumer all together.

Michael Brown, CEO

Well, let me start with, there's been nothing unnatural in driving our BPGs up. You know, we get a lot of questions about discounting or special promotion. This is all natural. And we've now left COVID. We've never come even close back to 3,000. If anything, our BPGs continue to grow. We've done nothing unnatural in pricing. Our pricing has been right in that sort of 3% to 5% range by brand. Our maintenance fees are consistently right around CPI. Our VPG growth is a combination of a reflection of a great team that we have, great culture of success, believing in the product that we have. In addition, we really believe we made the right moves coming out of COVID to elevate the quality of our consumer from a demographic standpoint, and we've stuck very firmly to that. And I think lastly is, and Eric mentioned it, is we not only invest in projects, but we invest in our business operationally. And a lot of our investment is heading into technology, and you're starting to see some of that technology play through in the consumer interfaces. So, VPG is one, but that's going to continue to be supported by a better and better consumer experience in getting to places they want to get to, ease of use, frictionless. transactions with

Speaker 3

And the idea being there that you increase engagement reduce any kind of churn from the existing base, is that

Michael Brown, CEO

happening? Well what we know about our consumers, when they get on vacation they love it and they buy more and with 800,000 owners, you want to reach as many of them as possible to make sure they're using 100% of their the utilization is as absolute high as it can possibly be and we still have room to get that utilization up. So the more people we get on their vacations, whether they go to where our sales gallery is or not, it doesn't matter. Maximum usage means maximum opportunity for our BPG to grow. So a lot of our technology investments to create frictionless booking, ease of booking, top demand destinations is about ultimately customer satisfaction continuing to move up from an already high level so that ultimately it's reinforcing their decisions and they continue to buy more.

Speaker 3

In terms of how that then works from a new owner versus existing owner, are we at the right balance there? And could we see a point in time where owner growth actually starts to move positive, especially as you add some of these brands in?

Michael Brown, CEO

Absolutely. And I don't think you have to squint to see when that is. We have very clear objectives to get the curve sort of plateauing and moving up. And just as a reminder, because I think it is sort of, you know, one of the commentaries I've heard is, you know, well, the owner base is the clinic. Two things are very real that are unique in our business and our business alone. Travel and leisure, which was when it's been in business for about 50 years, which means people that bought 50 years ago, they should be exiting because, you know, at some point you've just –

Speaker 3

Well, you can probably do the math of what's the average.

Michael Brown, CEO

Right, well, yeah, yeah. So we have a natural churning of our ownership. And at the same time, which is great, we have, I think, 11 or 12 different ways people, when it's time for them to leave, we facilitate that on their behalf. And number two is we've also, coming out of COVID, elevated the standards. So if we wanted to plateau or grow back, we could have been plowing in lower FICO's owners, and then we'd be dealing with a different challenge on the back end. So we made a commitment to maintain our margins, to grow the quality of our consumer, and to strengthen the foundation of our business. that came with the price that price we sort of paid with you know our tour flow went down and and our ability to regenerate the owners and move the curve back up suffer for a period of time but

Speaker 3

you'll see our owner base start to move back up great um eric you did mention the resort optimization i think that there we definitely get questions around that part of the business because it is touted as this high visibility fee stream so how do we balance resort optimization and maybe removing some of those with thinking about that segment long term and also what maybe the benefits

Speaker 1

are from from going through this process yeah so the resort optimization program for those unaware was an initiative where we took out roughly 17 resorts out of the portfolio and there's really three components associated with with the program itself number one is we closed a small handful of sales sites which which would have which we would expect to have an impact of revenue yet we haven't seen the second component is lower maintenance fees associated with properties that were closing and then the third component is carry cost associated with inventory in February we guided to roughly 15 to 25 million dollars of incremental EBITDA contributing from this initiative the program is going exceptionally well and currently steering towards the high end of that

Speaker 3

great um another thing that popped up after the the quarter was just some questions around delinquencies um in specific owner types can you just clarify what you're seeing in the uh receivables portfolio and what what leading indicators do you track to assess what the right level of

Speaker 1

provisioning is yeah so we've got a we've got a pretty sophisticated model for loan loss for a loan loss provision we use loss curves over a significant period of time and what really you know the comments in the first quarter let me give you a little bit of context here Stephen from all 31 to 331 we saw roughly a 20 basis point increase in our early stage delinquency and the intent really was transparency not to really highlight a concern since that time here in the second quarter we've seen roughly a 40 to 50 basis point decrease we've moved back into our historical pattern so it's much more normalized I would also add that in the fourth quarter 25 we saw our loan loss provision decline year-over-year first quarter a decline in the loan loss provision year-over-year and then guided to a loan loss provision for the full year that we expect to be down year-over-year and we've got a lot of conviction associated with that in general with improving the owner base

Speaker 3

higher incomes, better FICO scores, you look at the provision versus history, it's still elevated. How do you think about the right level of provision and comparing that versus history?

Michael Brown, CEO

We've lived in this range for more than a decade. So when I think about our provision and characteristics around our portfolio, I view it as a second-tier KPI that we monitor. Obviously, others view it more. When I look at our first tier, I look at BPGs, stores, owner satisfaction. So we're very cleanly in the range that, A, we want to be, and we balance that against two other things is growing your top line, you know, 6% to 8% on VOI on a $2.5 billion base is not easy. you're constantly growing your marketing channels and exposing yourself to good channels and bad channels and constantly culling that so we're very comfortable where we are and we've lived in this space for quite a bit of time um and in our performance when it moves it moves micro moves not big moves because we have that 10-year portfolio we're not doing anything different quarter to quarter, so I think we've done all the right things to create the right consumer foundation while managing a number that just will constantly fluctuate up 100 basis points,

Speaker 3

150 up or down, and that's our business model. And you had mentioned there were at one point concerns around margins being impacted by expanding into new brands. You also said that there's maybe opportunities to improve margins, potentially through technology, what are some of the puts and takes, I think, about margins within the vacation ownership segment, and where are there opportunities to increase marketing efficiencies or leverage technology specifically?

Michael Brown, CEO

I think, first of all, when you step back, we mentioned on the Q1 call that our new branded sales were approaching 10%. This is our big first step into a number that's not zero, you know, or not 3%, you know, something like that. So a lot of our capital investment to growing our pipeline is happening as we speak, and as we're doing that, we're growing our margins in Q1. So I think as you look into 27, you're not going to have the incremental add of the new brand spin, but you also, and we've said it several times, is this was sort of a catch-up year on our resort optimization. You're not going to see 17 more come out next year. You might see one, two, three max next year. So those are the puts and takes on the inventory side. And I think ultimately beyond that, there's not going to be tremendous changes in what you're going to see in the puts and takes on more.

Speaker 1

I think you hit it. New brand investments toward optimization initiative. The business has got operating leverage in it as well. If you look at our over a multi-year period, you see a gradual continued trend upward and to the right association.

Michael Brown, CEO

I do think what technology allows us to do is process the top of the funnel a lot more. The lead base that we have either in our house or comes into our partnerships is at a rate that we need this technology to more rapidly move people down the funnel to eventually a face-to-face contact. We don't think tomorrow you're all of a sudden going to be running through an AI funnel that's going to result in sales by a non-human. We view it as getting through more of the top half of the funnel through technology, moving more traditional face-to-face at that point.

Speaker 3

Some people are talking about distribution shifting towards start with intent, you know, the intent to go on vacation, the intent to travel, and agentic AI playing into that. How do you think about agentic AI's impact to your business, or are there, generally speaking, other opportunities to think through with AI implementation within your business?

Michael Brown, CEO

Well, I think AI can go in a lot of different directions. First and foremost is the biggest element that we're focused on at the moment is reducing the friction and getting people on vacation. If you start with search and book and work out from there in your customer journey, you're in a good place. Because, as I said maybe 30 minutes ago, if we get people on vacation, people enjoy it, see the value of their ownership, and they want more. So start with search and book, remove the friction. The flip side of that is whether it's intent or the fact that people that have already shown their intent that are within our ecosystem, getting them to the right place. And, you know, Eric and I's vacation travels may be different. And if we can express that and then get ourselves to the right type of resort, the right brand, you know, someone in the room is a Margaritaville fan and others of sports. If we can get them to that place faster, the likelihood of their engagement with us is going to go up. So we think first and foremost, it's customer interface. Second, it's 1B, 1A. 1A is getting our funnel better aligned to get through most of the conversation without touching on the travel and membership side,

Speaker 3

which is not the biggest driver of the business, but still a high free cash flow business. What's the trajectory on that business? Does the strengthening demand translate to any kind of stabilization on that side as well?

Michael Brown, CEO

So our travel membership is roughly our company, EBITDA, in a structurally difficult side of the business because as the industry is consolidated, the natural demand has slowed down. where double digits declined year-on-year in Q1. At the risk of over-saying it is we had double-digit decline in this space and still had a knockout quarter in Q1. So we recognize there's structural headwinds in that space. Our objective there is to bend that curve to reduce the decline on an annual basis. We have initiatives in place. You're going to see them as we move throughout the year to continue to work that problem. When the structural headwinds began, it was roughly 30% of our business. It's now roughly 18 to 20, yet we've maintained extremely strong growth over the last two years. So we think it's an extremely manageable issue. We think there's opportunities to bend the curve. and our full-year outlook as it was in Q2 and talk about what that will be in Q1, how that adjusts in Q2. But the bottom line is we think we have that fully within our grasp and all of our outlooks reflect sort of that challenge in the space.

Speaker 3

And a portion of that is just member count in the exchange segment, I would imagine.

Michael Brown, CEO

It's not so much member count because when you look at number of transactions and when you look at member count, they're not really moving. It's actually the revenue per transaction. And the reason the revenue per transaction is down is because logically so, people are staying within their own. Because we're the facilitator of our affiliates' vacations. And if your affiliates stay within their own brand, which is logical as they get bigger, their ecosystems get bigger, their resort systems, it's less need to go from your brand to another, which means your revenue per transaction goes down. So it is not a transaction issue per se. It's not a member account issue per se. It is literally a revenue per transaction.

Speaker 3

Is there a leveling off point then where you see that kind of stabilize at a specific level?

Michael Brown, CEO

We think there is a floor, but I don't want to – I've been wrong on this before. What I would say to that is if it does continue to decline at this rate, we think there is an outlet elsewhere on non-exchange type of revenue that is an opportunity for us. that if that doesn't stabilize, we have a stabilizing mechanism that will continue to grow on the side of travel and membership.

Speaker 3

And perhaps remind us of some of the initiatives that you're thinking about to bend the curve.

Michael Brown, CEO

Yeah, so going back to your sort of AI and where technology can help is revenue per transaction is typically on the actual transaction. But people don't go on vacation only for their accommodation. They have it from the moment they leave their home to the moment they get back, and then planning for their next one. And we see opportunities to expand the revenue streams outside of simply the exchange transaction. We have – we've had nibbles of fishing analogy. You know, we're getting some bites on some of those initiatives and think that those are only going to grow the second half of this year.

Speaker 3

Great. Well, we are right at the time. So please join me in thanking Travel and Leisure for all their insights. We're going to have Marriott Vacations up next. Thank you.