Travel + Leisure Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 24, 2024

There are 11 speakers on the call.

Operator

Greetings, and welcome to the Travel and Leisure First Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jill Greer, Vice President of Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Thanks, Maria. Good morning to everyone and thank you for dialing in to our Q1 call. Joining 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 outlook for the rest of the year. Following our prepared remarks, we'll open the call up for questions.

Speaker 1

Before we begin, we'd like to remind you that our discussions today will include forward looking statements. Actual results could differ materially from those indicated in the forward looking statements, and the forward looking statements made today are effective only as of today. We undertake no obligation to publicly update or revise these statements. The factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release. 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.

Speaker 1

Finally, all comments today are comparisons to the same period of the prior year unless specifically stated. With that, I'm pleased to turn the call over to Michael Brown.

Speaker 2

Good morning, everyone. Welcome to our Q1 call and welcome Jill to the Travel and Leisure team. During our last call, we highlighted 2 themes, robust demand for vacation ownership and our team's focus on execution. Our Q1 results show these trends continuing with 4% revenue growth, dollars 191,000,000 in adjusted EBITDA and adjusted earnings per share of $0.97 I want to extend my personal thanks to the entire T and L team for their excellent performance, which has gotten our year off to a great start. Tours increased 15% year over year with new owner tours up 28%.

Speaker 2

The sizable tour increase is important because it reflects strong interest in our product as well as the benefit of investments we've made in our marketing operations including the addition of new locations. Q1 VPG ended at $3,035 above the high end of our guidance range which strengthened as the quarter progressed. We are also pleased with the VPG thus far in April. The combination of higher new owner tour growth and strong VPGs helps answer the central question I'm asked by media and investors most often, how is the consumer? From our view, demand for leisure travel remains robust.

Speaker 2

As we look ahead, we have a 7% increase in owner room nights for the remainder of the year compared to the same period last year. Both booking windows and arrivals by car have normalized, more signs that the consumer is confident to book future travel and the trends we are seeing in our business are consistent with broader industry sentiment. A recent Future Partners report showed that financial optimism among travelers has improved and excitement to travel remains elevated. With a strong industry macro backdrop, good momentum at Travel Leisure specifically and the visibility that we have for this year's summer travel season, we have increased confidence in our near term outlook. As we think about longer term growth in the vacation ownership business, we're focused on expanding our product portfolio and growing the business both organically and through strategic acquisitions and partnerships.

Speaker 2

On the product side, the Acor Vacation Club transaction closed in early March adding a premium product in the international market to our portfolio. With this acquisition, we now have more than 2 70 resorts worldwide, giving us more opportunities to put the world on vacation every day. Our team is already focused on its ramping of sales as well as the transition of the overall business. I'd specifically like to thank the leadership team at Accor for working with us on making this a very smooth transition and their thoughtfulness on how to grow going forward. We are also making progress toward the start of sales next year for initial Sports initial Sports Illustrated brand new resort.

Speaker 2

This will be the first of a network of sports theme resort and lifestyle complexes, which we expect will include both university locations and leading leisure destinations. With multiple brands and a broad geographic footprint, our network of resorts provides a natural hedge to individual market fluctuations. In fact, as a result of our highly diversified resort system, we only have one market that produces more than 10% of VOI sales volume. In terms of growth, we are continuing to innovate and invest in acquiring new owners. Our Blue Thread partnership with Wyndham delivered great results with sales up nearly 10% year over year.

Speaker 2

As a reminder, the Blue Thread channel typically generates 10% to 20% of our new owner tours with a VPG more than 20% higher than other new owner tours. Our new owner transactions were 37% of the total, up 4 points sequentially and 6 points year over year, putting us well within our long term targeted new owner mix. This is an important pipeline of future revenue as historically we have seen that a new owner will spend an average of 2.6 times their initial purchase in future years after vacationing with us. This consumer behavior is consistent with Artis February sentiment survey, which found that nearly half of all timeshare owners plan to upgrade their current ownership in the next 2 years. So overall, we're in a really good position to grow the vacation ownership business.

Speaker 2

On the travel and membership side, the results came in within our guidance range, which shows our focus on aligning cost with revenue generation is paying dividends as we drive the business for its high margins and free cash flow generation. To summarize, consumer demand for leisure travel remains robust and we are delivering against plans to efficiently grow our business. We have a great team in place with a record of solid execution and we are on track to meet our 2024 commitments to grow revenue and EBITDA and deliver strong returns to our shareholders. With that, I would now like to hand the call over to Mike Hug.

Speaker 3

Thanks, Michael, and also thanks to everyone for dialing in this morning. For the March quarter, we reported adjusted EBITDA of $191,000,000 and adjusted diluted earnings per share of $0.97 increases of 4% and 9% respectively. This result is even more impressive given the interest expense headwinds we noted coming into this year. Breaking this down into more detail for our 2 business units, vacation ownership reported segment revenue of $725,000,000 an increase of 6%, while adjusted EBITDA increased 3% to $135,000,000 As Michael described, the trends we are seeing in tours, new owner mix and VPG gives us good momentum in this business. Revenue in our travel and membership segment was $193,000,000 down 4% on a 6% decline in transactions.

Speaker 3

Revenue in this segment continues to be challenged, so we are focused on driving cost efficiencies to improve returns. These cost initiatives helped us deliver solid adjusted EBITDA growth of 6% for this segment. While exchange transaction growth will remain pressured due to the previously discussed shift in mix of exchange members, we're expecting travel club transactions to grow for the remainder of the year as we have lapped last year's loss of a large customer. Now let me provide some more detail about our expectations for the Q2 and full year. For the Q2, overall, we expect adjusted EBITDA in the range $245,000,000 which includes the year over year impact of higher interest rates and variable compensation expense.

Speaker 3

In vacation ownership, we expect 2nd quarter gross VOI sales of $580,000,000 to $610,000,000 and VPGs of $2,900 to $3,000 For travel membership, we're guiding to adjusted EBITDA in the Q2 of $60,000,000 to $65,000,000 For the full year, we are reiterating our guidance range of $910,000,000 to $930,000,000 for adjusted EBITDA. The business is performing well and we're pleased with what we see on the books for the summer. As we move through the year and get more visibility into post summer demand, we'll have the opportunity to revisit our guidance and update if needed. Moving to cash flow and our balance sheet, we generated $47,000,000 of operating cash flow $22,000,000 of adjusted free cash flow for the quarter. As we previously said, we expect our adjusted EBITDA to free cash flow conversion to be roughly 50% this year.

Speaker 3

On the balance sheet, we continue to have solid access to the capital markets and closed on our first ABS transaction of the year. The 5.7% interest rate is the lowest rate we've achieved since July 2022. We were also very pleased to see the advance rate move up to over 95%. And earlier this month, we paid off our $300,000,000 debt maturity using the proceeds from the incremental term loan B that we issued last year. We have no remaining debt maturities for the next 12 months.

Speaker 3

Our leverage ratio increased in the Q1 to 3.5 times. Consistent with prior year, we expect this trend to continue for the next two quarters and then reverse in the 4th quarter. This sets us up to end the year below 3.5 times levered. With the balance sheet in good shape, our capital allocation is focused on growing the business and returning capital to shareholders. On the growth side, we used $46,000,000 in the quarter for the Atkore acquisition.

Speaker 3

We are excited for the longer term growth prospects that Atkore provides. In March, we increased our dividend to $0.50 per share for a total of $38,000,000 in the Q1. We're regularly in the market buying back our own stock and in the Q1 we repurchased 624,000 shares at an average price of 40 point $0.07 for a total of $25,000,000 Between dividends and buybacks, we returned a total of $63,000,000 and have returned an average of about 10% of our market cap annually since our spin, demonstrating a strong shareholder focus. I should also mention that we intend to request approval for an additional $500,000,000 in share repurchase authorization at our upcoming board meeting. In closing, I'll join Michael in thanking the entire Travel and Leisure team for delivering great results this quarter.

Speaker 3

These results demonstrate the strength of our business and provide us with great momentum heading into the busy summer season. With that, Maria, can you please open up the call to take questions?

Operator

Our first question comes from Joe Greff with JPMorgan. Please proceed with your question.

Speaker 4

Good morning, everybody.

Speaker 3

Good morning, Jeff.

Speaker 4

Michael, Mike, it seems like volume per guest is tracking better even as you improve your new owner mix. And it's basically there or knocking on your targeted new owner mix percentage threshold. Can you talk about maybe what's driving that maybe more favorable relationship between DTG new owner mix? I mean, you mentioned a little bit about Blue Thread, but that's not necessarily new or incremental. Is there something else that's maybe driving that more favorable relationship and how you see that going forward?

Speaker 2

Well, let me first share as it relates to tour flow because the 28% new owner tour growth year on year is really a number that sets us up well, not only for Q1, but going forward. Over the last 2 years, we've said we were going to grow our new owner tours at a steady pace, making sure that everything we added was profitable and we felt was a good incremental new order tour. We opened over 30 new marketing locations in 2023. We got the partial year benefit of that. And now this year, we're going to get the full year positive impact of those new owner locations.

Speaker 2

Additionally, in the Q3 of last year, we started to discuss that we were investing heavier into the marketing package pipeline and those are beginning to come through. So that sort of puts the gross or absolute number on tours going forward. I would say across the board, what you're seeing is just really good execution. Both Mike and I mentioned it in our prepared remarks that the team is just executing really well. I think our move to increase credit quality coming out of the pandemic, the steady growth of new owner tours has allowed us to manage that growth efficiently, effectively, not getting ahead of ourselves and really stretching the organization.

Speaker 2

And as a result of it, I put a lot of it down just to great execution by the team and setting ourselves up for what should be a really good continuation of new owner tours. I think you mentioned it and I know this answer is a bit long, but the 37 percent of new owner transactions is an incredibly impressive number in Q1. Q1 is typically our high owner sale quarter and the fact that we've already got within that range and well within our 35% to 40% range was a highlight of Q1.

Speaker 4

Great. And then maybe you can talk about in the consumer financing segment of vacation ownership, have your expectations changed more recently for that segment of the business given maybe a different perception of where the Fed may take interest rates in terms of delayed interest rate cuts? How are you thinking about that relative to a few months ago? Or did you incorporate some level of conservatism to take into account a different set of interest rate expectations versus maybe what the overall market might be pricing in? And that's all

Speaker 3

for me. Thank you. Sure. Thanks, Joe. This is Mike Hug.

Speaker 3

So two things as it relates to consumer finance business. I'll start off with the ABS transactions and interest rates and then I'll jump over into the portfolio. But on the interest rate side, obviously, great execution by the team with the March transaction. To your point since that time, things have changed as far as views on interest rates. If we did that transaction today, the interest rate would probably be about 50 bps higher than it was, when we executed the transaction back in March.

Speaker 3

So they have moved up some, but still below the rates that we really had starting in the second half of twenty twenty two and through 2023. So, will not be a big EBITDA impact this year because all we have left to do is the second, third transaction will only be impact EBITDA for the partial year. So don't expect much EBITDA impact this year. I think what we're looking at most closely is we do expect over the next 18 to 24 months that interest headwind to become a tailwind and that's really where the interest rates might impact us is that tailwind might not kick in as early as we thought, but obviously that's going to be determined over what happens in the next several months with interest rates. On the corporate debt side, 30% of our corporate debt is variable.

Speaker 3

We probably have about $3,000,000 in exposure on corporate interest and therefore cash flow because of the move up in rates compared to what we expect at the beginning of the year, but nothing significant there. So overall, we're watching it closely, but don't expect a lot of risk in this year's EBITDA. As it relates to the other piece of the consumer finance business, the portfolio, you all saw the provision for the quarter come in at 17.4%. We're very happy with that. But I would note that as we head into Q2 and Q3, two things that impact delinquencies are the portfolio continues to grow, which means it's less seasoned, which leads to higher delinquencies.

Speaker 3

And then that new owner mix coming in at 37%, which we're very excited about, also leads to higher level of delinquencies. So even though we remain confident in our provision for the full year being below 19%, you will see it move up in Q2 and Q3 to the higher end of that range and maybe even a little bit over. But overall, very happy with the portfolio. Mike talked about the credit standards we put in place as we exited COVID. And in the Q1, our average FICO was 7.42 for new originations, which is the highest average FICO we've ever had in a quarter.

Speaker 3

So that remains strong. Delinquencies will move up, but it's because of the good growth in the portfolio and the high percentage of sales that we've been focusing on to get that net interest income to grow again.

Speaker 4

Great. Thank you very much.

Speaker 2

Sure.

Operator

Our next question comes from David Katz with Jefferies. Please proceed with your question.

Speaker 5

Hi, good morning. Thanks for taking my question.

Speaker 6

I wanted to ask about just broadly speaking the criteria for repurchases. Just noting that we had a little higher number of repurchases in for this quarter and whether the degree to which acquisitions or other investments may have played a part in this quarter, but just how we might think about repurchases rolling through for the rest of the year, please?

Speaker 3

Yes. Good morning, David. Thanks for the question. You're exactly right as far as the level of repurchases in the Q1 being impacted by the $46,000,000 we spent on a quarter. We've been pretty clear with our capital allocation strategy, grow the dividends, we grow the business, which we did in the Q1 and we took the dividend up to $0.50 We then look at M and A.

Speaker 3

If we find the right strategic opportunity, which we believe we found with the core, then we'll invest in that, which was about $46,000,000 And then we spent $25,000,000 in share repurchases. So you're roughly in that low 70s range as far as capital allocation for the Q1. If you look at last year on average our share repurchases were about $77,000,000 So we utilized $72,000,000 in the Q1 of this year, kind of puts us on track with what we averaged for each quarter last year. And your point is valid in terms of absent a core, the level of share repurchase probably would have been higher. And then I obviously mentioned as well that our share repurchase level or authorization is down to $146,000,000 at the end of Q1 and we will be at the upcoming board meeting requesting additional $500,000,000 in authorization there.

Speaker 3

So, should have plenty of capacity to do an elevated level of share repurchase compared to what we did in the Q1.

Speaker 6

Perfect. And just to sort of follow that up, right, to that end, are there how do you see the landscape of potential M and A out there and opportunities, tuck in or otherwise, are you seeing more or less than what you might have seen 1 or 2 quarters ago?

Speaker 2

I don't think the landscape has really changed. The industry, as we all are well aware, has consolidated dramatically over the last decade. I think broadly to the favor of the entire industry, when you look at more than 80% of the industry sales now approximately are from branded hospitality companies. The industry's got a very strong balance sheet. Consumer flexibility is there.

Speaker 2

Reputation is paramount, consumer protection is paramount. So I think it's all in favor of the industry. But as it relates to M and A, there are there continue to be a variety of companies that are out there. And as we have done since we spun in 2018, we'll continue to evaluate them as opportunities arise. But ultimately, we're very committed to our organic strategy.

Speaker 2

We've had a nice addition to a partnership and acquisition of Sports Illustrated, which we're happy with and then a pure M and A with Accor International. So we think our opportunities are organic partnerships and acquisitions and that diversified ability to grow is what really gives us what we think is a very strong foundation to solidify our VO growth going forward.

Speaker 6

Perfect. Thanks very much.

Operator

Our next question comes from Chris Woronka with Deutsche Bank. Please proceed with your question.

Speaker 7

Hey, good morning guys and congratulations on another really nice quarter. I guess first question would be kind of on the new owner results for the quarter, both the TourFlow and the higher mix, which were pretty impressive, right? I guess, Michael, was there any you talked about more channels contributing to that. Is there any one type or specific channel that contributed more than others or some geographic region? Just trying to get a sense as to kind of how sustainable that level of new owner growth is?

Speaker 2

Well, first of all, let me say simply the growth is sustainable. We have really 3 core areas that we focused on the last few years being owner growth and the team has done a great job adding incremental arrivals and room nights to the owner mix, which means more availability for owner tours. That's probably the smallest component, but still an important one. The partnership with Wyndham Hotels has continued to be fruitful. Both parties work very well together and that continues to grow from what was 0 to over $100,000,000 last year and it's as you heard growing in Q1.

Speaker 2

The steady drumbeat of our marketing team on methodically region by region opening new locations means that we're not overly reliant on a singular market or a singular channel within a region. It's just a law of having that scale and getting 1 or 2 locations by region that add up over the course of 36 months that's really creating that and it's all kicking in. And then I mentioned the more new aspect is we at Travel Leisure have never been overly focused on package sales, which is pipeline generation for future tours. We've added that focus, which I would say is a 4th leg to the stool, and that is gaining great traction. The team does an incredible job there and it's been a very positive impact.

Speaker 2

You have to invest in that and we talked about it late last year that we were investing in our package pipeline, which tends to drive costs slightly up and we're very early in the year starting to bear fruit on that investment. And then what's not in the numbers, but where I would say it will be sustainable as we go forward. As you add incremental relationships, whether it's Sports Illustrated or Accor, they bring with them as well incremental databases and those provide incremental leads and ultimately tours. So, I don't think it's an anomaly. I think it's great execution and the result of a commitment over the last 36 months of growing our new owner tours.

Speaker 7

Great. Thanks, Michael. Very helpful. The follow-up is kind of transitioning over to the Sports Illustrated, which you've talked about. I know you said you expect to begin sales next year.

Speaker 7

But is it it's a 2 part question. One, is it possible to announce other deals before the for other markets before Alabama begins sales? And then the second part of that is, just mechanically, is all this going to go into the VOI segment? Or are there going to be components that go into the travel and membership segment as well? Thanks.

Speaker 2

The short answer on the first question is absolutely, we anticipate announcing as it's ever been as it relates to opportunities for Sports Illustrated, both in university towns and in other locations. So we do look forward to sharing more locations as we move throughout this year. As it relates to which segment Sports Illustrated will be in, it will be in the vacation ownership side of the business as we start to produce results. What I would just add, although you didn't specifically ask is, as you start to look at the economics of Sports Illustrated, our overall plan looks a lot like it did with Club Wyndham as far as really aligning inventory build and spend to top line revenue production. Obviously, as you do your first resort, you do have some front end investment that's a little more intensive than usual.

Speaker 2

But once we get Sports Illustrated, the club up and running and announcing a second, 3rd and 4th result, our full intention is to match inventory spend with the success of sales and the profile of the P and L should look very similar to what we see on the Club Wyndham side.

Speaker 7

Okay. Very good. Thanks, Michael.

Speaker 2

I appreciate it, Chris.

Operator

Our next question comes from Patrick Scholes with Truist Securities. Please proceed with your question.

Speaker 8

Hi. Good morning, Michael and Mike.

Speaker 3

Morning, Patrick. Good morning, Patrick.

Speaker 8

Good. Michael, in your remarks you painted a pretty optimistic picture of your leisure customer. When I look at the RevPAR trends for your parent company Wyndham, specifically domestically in 1Q, we saw some negative year over year RevPAR. How might one reconcile your optimism versus possibly negative RevPAR for domestic Wyndham in the Q1? Thank you.

Speaker 2

Well, I don't think I don't first of all, I wouldn't overly correlate our results to any brand within the hotel space, first of all. And I think secondly, I would reiterate a comment that Mike Hug made, which was our FICO in Q1 was 742, which is the highest it's ever been for the company, which shows the results of a precise decision we made several years ago to start elevating our customer characteristics. In the end, I think you have to come back to the underlying premise of vacation ownership, which is 7 out of 8 of our owners have fully paid for their ownership, which means our owners are definitely going to travel because they love the bigger accommodation. They see the value in their ownership and more broadly on leisure travel being based in Orlando, you see it every single day at the airport. Travel is tremendous at the moment.

Speaker 2

And so I think we look more broadly at leisure travel as opposed to comping to either a hotel group, an airline, a cruise line. We just look across to the parks and what we see. You go to Vegas, one of our big markets, the one that's over 10%, Vegas travel is very strong. And I would say our success is a combination of the overall business model, our team's execution and third, that leisure travel is strong.

Speaker 8

Okay. And

Speaker 3

I would note that, Dave sorry, just one thing, Patrick. I would note that even though Vegas is over 10%, it comes in at 12%. So the diversity we have in our portfolio that we've talked about many times definitely pays off. And while we noted only one being over 10%, I think it's important to understand that over 10 means really only 12%. So don't have anything that's 15% or higher or even 12% or higher.

Speaker 3

Okay.

Speaker 8

Certainly encouraging. Michael, a follow-up question here. You do have some Maui exposure. Can you talk about how Maui is recovering? How far off you are still from, I would say, pre fire levels?

Speaker 8

Thank you.

Speaker 2

So, we are, for the state of Hawaii, have no incremental or additional exposure to Maui. We really have very, very minimal sales on Maui. More of our exposure is on Oahu and the Big Island. So for us, the economic impact to our P and L is non existent for Maui.

Speaker 6

Okay.

Speaker 3

All right.

Speaker 8

I do have some more questions, but I'll get back in queue. Thank you.

Speaker 3

Thank you, Patrick.

Operator

Our next question comes from Patrick Scholes. Sorry, excuse me. Our next question comes from Ben Chaikin with Mizuho. Please proceed with your question.

Speaker 9

Hey, how's it going? Thanks for taking my question. Sorry if I missed it. Regarding Accor, can you talk about the opportunity for upgrades from those 30,000 owners? Is there an opportunity to sell the broader system to this existing pool?

Speaker 9

And then I guess under the assumption that they do upgrade, did the owners legacy ownership stay with Accor or would that get upgraded? Have you guys find that out yet?

Speaker 2

Good morning, Ben. You didn't miss an answer. It's a good question. Our core vacation clubs operated independently. So should they we own a core vacation Club.

Speaker 2

So if they upgrade, they're going to stay an Accor Vacation Club member. They'll simply own more. And it is an opportunity for us. What we're excited about that transaction beyond the quality of the resorts and the existing owner base that's already members of the Accor Vacation Club, which is over 20,000, They really haven't been nurtured and marketed to and part of in a core Vacation Club sales operation for several years coming out of COVID. That part of the region was especially restricted and that was one of the great opportunities of working with the Acord team was there's a lot of potential in the business.

Speaker 2

We felt we were the best ones and I think they did as well to activate that. And when we closed on the deal, March was the 1st month that we began reopening, re ramping and growing that side of the business. So whether it's upgrades or new owner potential, there's a lot of opportunity going forward to grow that brand and expand it geographically as well as replicate all the great work that's been done with Wyndham and creating more loyal customers and ones that are using the vacation club product.

Speaker 9

Understood. That's helpful. And then one quick one. This has been pretty well covered on beginning of the 4Q call, but you have a couple of things working against you this year. You've got the variable comp headwind.

Speaker 9

You've got some interest expense. Have you quantified the new owner mix margin? And obviously, these things don't it's just kind of like one and done, but the new owner mix headwind either from an EBITDA or margin standpoint in 2024?

Speaker 2

So, in the sense of how much of the of our guidance of $910,000,000 to $930,000,000 what the headwind is incorporated into that guidance?

Speaker 9

Is that the Yes. Like you've got the $17,000,000 variable comp, you've got $30,000,000 on the interest expense side. Yes, is there how to maybe quantify or bracket the new owner mix?

Speaker 3

Well, basically the way we're looking at it is kind of when we spun off and started this focus on new owners, we're working to cover that through other areas of the business. So when we look at our overall margins for the year and you can see in the Q1 basically our margins are flat year over year despite the percent of newer sales moving up 37%. So when we think about margins for the year, we expect to be able to cover the impact of moving up to mid to high 30s on new owners. The part that obviously we've been most challenged with is covering the incremental interest in compensation expense that you mentioned. So when you think about margins overall, I would just factor in the 2 items Understood.

Speaker 3

Yes

Speaker 9

Understood. Yes, my point was more so going into 25 like that phase. You don't have that it sounds like this is the new owner mix that you want to be at. Yes.

Speaker 2

Okay. So heading into 2025, if the year progresses like it started, we would be going into 2025 not having the commentary more than likely that we want to move up 200 basis points on new owner mix. That would be a decision we would make earlier in the year of where are we, do we want to put more into the new owner to grow that mix or not. But coming out of Q1 at 37%, it starts 24% in a great place so that we don't need to face that headwind in 25% if it continues the remainder of this year.

Speaker 9

Understood. Thank you.

Speaker 2

Thanks, Ben.

Operator

Our next question comes from Ian Zaffino with Oppenheimer. Please proceed with your question.

Speaker 5

Great. Thank you very much. I know you guys touched on the FICO score a little bit. Can you maybe talk about maybe how each cohort is doing on the FICO side? If you're kind of every cohort is maybe performing as expected, are you seeing any areas of outperformance or underperformance?

Speaker 5

And I have a follow-up. Thanks.

Speaker 3

Yes. Good morning. And it was a little fuzzy, but I think your question was kind of how the portfolio is performing kind of by FICO band. And as you would expect, what we're seeing is the most pressure on the lower end of the FICO bands. And as you move up, less pressure.

Speaker 3

Overall, I think the portfolio for the most part is in line with what we expected. The improvement in credit quality that we focused on as we exited COVID is definitely paying off. So the provision for the full year under 19%. We're seeing a little bit of pressure, but you look at the provision coming in for the quarter at 17.4%. So nothing that I would say is unusual by FICO ban, just a normal more pressure at the lower ends and overall comfortable with where the portfolio sits as it relates to performance.

Speaker 5

Okay. So you're not necessarily seeing anything notable maybe on the low like that. And then can you also maybe touch upon some of the strongest sales centers you saw and maybe what we could kind of define from that, whether it's more destination areas or more traditional drive throughs, say, some more Vegas and Orlando, or is it other areas? And any other color you could give us there would be helpful. Thanks.

Speaker 2

So, I think the question is just a little muffled, was around the regions and if there's any specific cohort. To me, 2 of the data points that reaffirm the booking window, delinquencies,

Speaker 4

VPGs.

Speaker 2

I always like to look at booking windows and our booking window of 120 days is very typical of what we've seen in good leisure travel times. As well, if you remember during the pandemic, we got up to 90% to 95% drive to locations. That number is back to 70 low 70s, which means the consumer is behaving like they always sort of had with us. I would say, therefore, there's nothing sticking out other than there's a lot of reconfirmation that leisure travel is behaving like it does in good times for us. Top destinations in the Q1 for our bookings were really Orlando, Myrtle Beach, Tennessee, great drive to destinations.

Speaker 2

Daytona Beach was a big booking for us in Q1 as well. So nothing standing out as unusual. And with a very diversified resort system, we don't have any of our exposure. I will say and we announced it last night, we're for that 28% that's flying to the destination, we're definitely excited about our new partnership with the Legionnaire that has about 125 destinations in the U. S.

Speaker 2

It's a great partnership that is complementary from our accommodation to their mode of transportation. So we're excited to announce that partnership last night. And another example of working with other great brands to help grow our package pipeline, but also to be a positive partner to put business back into their business, in this case, air travel.

Speaker 5

Okay. Thank you very much.

Speaker 2

Thanks,

Speaker 3

Ian.

Operator

Our next question comes from Brandt Montour with Barclays. Please proceed with your question.

Speaker 10

Thanks everybody. Hi. So Mike on that Allegiant comment, my first question was on Allegiant. That channel, can you just maybe size it up for us and compare and contrast it with sort of some of the other third party channels you have and when we can sort of and then timing when we can sort of expect that to layer into tour flow?

Speaker 2

Well, Allegiant is a great airline. They have 15,000,000 loyalty members and one 100 and 25 destinations in the U. S. Getting to a lot of our there's a lot of overlap with where we're located. So that partnership, we've been highly successful working with Wyndham Hotels and their database tying in people with affinity.

Speaker 2

So the initial plan is to do cross promotional marketing air and stay. I can't size it up today on this call because we've just finalized the agreement last week, but you would expect more and more Allegiant, Wyndham or Margaritaville package sales that combined the 2 brands in destinations where we have the overlap. And that's where we'll get. So you'll over time see it play out in our package pipeline and in our marketing spend back to Allegion.

Speaker 10

Okay. That's helpful. And then a question on the new owner all the new owner metrics you guys gave was really encouraging and new owners are the toughest sales out there. So that's great. I guess, maybe putting it asking it from a different direction to put a finer point on it.

Speaker 10

When you look at your new owner close rates on a sort of a quarter over quarter basis, And obviously, we're all looking to the consumer and looking for cracks to start showing. How is that sort of like for like new owner close rate evolved over the past 1, 2 or 3 quarters and yes, and into this year? That would be, I think, maybe helpful for us.

Speaker 2

Yes. I mentioned the 3 segments owner, Blue Thread and new owner sort of open market. When you look at close rates on owners and Blue Thread, those have been pretty consistent over the last few quarters. Close rates on open market have come down slightly. I would put that as much to do with scale as I would the consumer.

Speaker 2

You grow your new owner tours 28% and you're going to more than likely lose a little bit of close rate. Just 28% is a lot to add in a quarter year on year. So, right now, when I look at that slight decline, I put it more towards scale than I do consumer. But obviously, it's a trend. I think every company is looking at their lower end FICO's and wondering where that's going to go for the next 6 months.

Speaker 2

We're no different. We've got good portfolio. Mike may comments about it. But close rate specifically, slightly down on the open market and I'd put that to scale.

Speaker 10

Okay, great. Congrats on the quarter. Thanks.

Speaker 2

Thanks, Brent.

Operator

Our next question comes from Pat Scholes with Truett Securities. Please proceed with your question.

Speaker 8

Thank you. Michael, another question. Can you give us a little bit more color or an update on progress in signing up companies for the B2B business? Have you seen any attrition from the initial sign ups? And also any additional color on the B2C portion of the business?

Speaker 8

Thank you.

Speaker 2

Absolutely, very good question. In the Q4, we made a few decisions. Number 1 was to align the cost more precisely with the revenue generation and the forward expectations. And number 2 is we wanted to go deeper with the existing relationships we had as opposed to signing up more. Why?

Speaker 2

It created a lot more internal work to continue to sign up more members with lower utilization. So our plan is to grow the existing ones to a point and more targeted at new B2B relationships. So, we have added a few, but where we're getting our transaction growth on travel clubs ex the bigger group that dropped out in Q1 of last year is by going deeper and getting greater conversion on the members that are already part of our ecosystem. Sort of like everything else, it's like recruiting is nurture what you have inside the house, make those the most effective before just going in recruiting more, in this case, B2B customers. And that's what we're doing this year.

Speaker 2

And when you look at our Travel Club growth in transactions in 2024, which we're projecting high single digits on transaction club growth this year, on us going and finding new clubs to be part of our system.

Speaker 3

And Patrick, the reason we're confident in that high single digit growth is if you exclude the one customer we lost from the Q1 year over year comp, our transaction growth is actually 10%. So the investments we've made, as Mike said, to focus on the existing customers to drive more transactions are paying off. And once again, 10% year over year growth exclusive of that large customer we lost.

Speaker 8

Okay, gentlemen. Thank you for the updates.

Speaker 3

Sure. Thank you. Thanks, Patrick.

Operator

There are no further questions at this time. I would now like to turn the floor back over to Michael Brown for closing comments.

Speaker 2

Thank you, Maria. In closing, I would just like to reiterate that we're off to a great start to the year with 15% tour growth, strong PPGs and a 37% new owner mix. This performance not only drove a great result this quarter, but it also lays the foundation for continued growth in the future. I again want to thank the entire T and L team for all their hard work in getting us here and we look forward speaking to you all again on our next call in July. Thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Travel + Leisure Q1 2024
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