Travel + Leisure Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 24, 2024

There are 10 speakers on the call.

Operator

Hello, and welcome to the Travel and Leisure Second Quarter 20 24 Earnings Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Jill Greer, Vice President, Investor Relations. Please go ahead, Jill.

Speaker 1

Thanks, Kevin. Good morning to everyone and thanks for dialing in. 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 and the factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release. You can find a reconciliation of non GAAP financial measures discussed in today's call in the earnings release available on our Investor Relations website. Finally, all comparisons today are to the same period of the prior year unless specifically stated.

Speaker 1

With that, I'm pleased to turn the call over to Michael Brown.

Speaker 2

Good morning and thank you to everyone for joining us today. This morning we released our 2nd quarter results, which showed top line growth, healthy margins and strong free cash flow. Revenues grew 4% to $985,000,000 with adjusted EBITDA of $244,000,000 at the high end of our guidance range. We have a resilient and value driven business model, are executing well against our key priorities for the year and demand for our product remains solid, all of which factored into increase our full year EBITDA guidance. We see good momentum in our vacation ownership business.

Speaker 2

Tours were up 13% with new owner tours up 22%. Our Blue Thread partnership with Wyndham Hotels is an important source of lead generation. In the quarter, Blue Thread produced about 10% of our new owner tours, which came with a volume per guest or VPG more than 20% higher than other new owner channels. In addition, our investments in new marketing locations and channels are yielding good results. With over 100,000 active packages, this pipeline is up over 140% this year, providing an incremental and fast growing source of new owner tours.

Speaker 2

New owner sales are an important source of future revenue. As we've seen over time that new owners buy an incremental 2.6 times their initial purchase. This is because owners love our product. On our most recent customer surveys, 9 out of 10 guests staying at our resorts reported a great experience with high marks for flexibility, value and consistent experience, a credit to our field operations teams. Through our points based product and the breadth of our resort network, we offer tremendous flexibility for our owners to customize each and every vacation they take with us.

Speaker 2

From a weekend getaway from music in Austin to 4 days in Moab to visit the Arches National Park to a week on the beach in beautiful Fiji, our product offers tremendous value by allowing owners to buy future vacations with today's dollars. In addition, our resorts come with spacious living areas, fully equipped kitchens and a range of amenities, giving owners a means to optimize their vacation spend on what matters most to them. We are also seeing length of stay increase in this work from anywhere environment as owners are seeing the added utility of our resorts with more space to work and play. The premium that owners place on consistency, value and flexibility is evident in our VPG of $3,051 which is especially strong considering our 37% new owner mix. The VPG was above the high end of our expectations and we expect strong VPG performance to continue.

Speaker 2

As a result, we have increased our VPG guidance for the year by $50 at the midpoint. From our perspective, all indications are pointing to a strong second half with owner nights up 6% for the remainder of the year and we continue to expect double digit tour growth for the full year. The momentum with tour growth and VPG are signs that our product appeals in a value focused market and our team is executing well on our growth initiatives. Similar to a number of other companies, we are seeing some pressures with our loan portfolio. Mike will give more details on our projection of elevated delinquencies for the remainder of the year.

Speaker 2

The fact that we are increasing our full year guidance shows the durability and resiliency of our business model. That business model provides a solid foundation for long term growth. Our multi brand strategy is unique in the industry and is the path to driving consistent growth going forward in our vacation ownership business. The Accor and Sports Illustrated brands will augment the VOI sales platforms of Club Wyndham, WorldMark, Margaritaville and Shell. With a broad geographic footprint and a variety of ownership options, we intend to expand our share by meeting the vacation travel needs at a broader range of consumers.

Speaker 2

We are making good progress with the Accor Vacation Club integration. Accor has delivered more than $1,000,000 in adjusted EBITDA year to date and we are well on track to hit our full year goal. The Accor growth has been accretive to an international business that is already performing well. While it is still a relatively small part of our results, the growth in performance in international has been strong. Through the Q2, adjusted EBITDA is up 33% with tour flow up over 50% and VPG up in the low single digits.

Speaker 2

With regard to Sports Illustrated Resorts, we are continuing to move toward the launch of our first project in Tuscaloosa. We are currently working to finalize the design and to obtain the necessary zoning and entitlements to break ground early next year, which will allow us to launch sales. And while our primary focus is on Tuscaloosa, we're also actively working to identify additional options for future locations. We're in the early stages, but excited for Sports Illustrated Resorts means for our growth in 2026 and beyond. Turning to our Travel and Membership business, this segment produces solid margins and cash flows.

Speaker 2

Our focus in this area has been on driving higher margin transactions, primarily with our existing Vacation Club customers. Our progress here is evidenced in the 4% increase in revenue per transaction that we saw in the quarter, which combined with cost discipline produces higher returns. To wrap up, I want to extend my thanks to the entire Travel and Leisure team for their focus on providing a great experience for our owners. Their dedication and determination sets us apart and positions us well for long term success. And now I'll turn the call over to Mike to walk through the quarter in more detail.

Speaker 2

Mike?

Speaker 3

Thanks, Michael. Overall, we had a solid second quarter with all results at midpoint of guidance or higher. Revenues were up 4% with adjusted EBITDA up 3% to $244,000,000 Our 24.8 percent adjusted EBITDA margin shows our ability to maintain margins in the mid-20s while growing revenue. We had adjusted net income of $108,000,000 or $1.52 per share. Our adjusted EPS growth of 14% was driven by both net earnings growth and benefits of our share repurchases.

Speaker 3

And as a reminder, we had $8,000,000 of year over year headwinds this quarter from higher interest rates and variable compensation. With regard to segment results, for the vacation ownership business, revenues increased 5% with gross VOI sales of $607,000,000 at the high end of the guidance range and a significant driver of the 10% increase in this segment's adjusted EBITDA. As Michael mentioned, we're especially pleased with the tour growth, new owner mix and VPG that we're seeing which we believe sets us up well for continued growth. We did see an increase in our loan loss provision in the 2nd quarter primarily due to delinquency levels associated with original FICO's below 700 which are down to 24% of our portfolio as of June 30. On the travel membership side, we maintain flat adjusted EBITDA on slight decline in revenue as higher revenue per transaction in both exchange and clubs is offsetting the decline in transactions and driving higher margins.

Speaker 3

For the Q3, we are forecasting adjusted EBITDA overall to be $235,000,000 to $245,000,000 $55,000,000 to $60,000,000 for the travel and membership segment. This includes the higher provision in addition to $16,000,000 in headwinds year over year for variable compensation and interest impact. We expect the variable compensation and interest impact will peak in the 3rd quarter and diminish in the 4th quarter. For the full year, we're increasing our adjusted EBITDA guidance range to $915,000,000 to $935,000,000 reflecting both the momentum we're building in the business and the incremental provision rate. Turning to the balance sheet and cash flow.

Speaker 3

Earlier this week, we closed our 2nd ABS transaction of the year, securing $375,000,000 at a rate of 5.6% and a 96% advance rate. The interest rate and advance rate are both improvements over our March securitization. We ended the quarter with 3.5 times leverage. With our normal seasonality, we expect our leverage rate to slightly increase in the 3rd quarter and declined below 3.5 times at year end. We generated $90,000,000 of adjusted free cash flow in the quarter and continue to expect our adjusted EBITDA to free cash flow conversion for the full year to be in the neighborhood of 50%.

Speaker 3

Under our shareholder focused approach to capital allocation, we returned $105,000,000 to our shareholders through dividends and share buybacks during the quarter. As I mentioned on our last call, our Board of Directors approved an additional $500,000,000 in share repurchase authorization at their main meeting. After our $70,000,000 in repurchases in the 2nd quarter, we have $578,000,000 remaining under our authorization. I'll close by echoing Michael's comments and thanking the entire Travel and Leisure team for a great first half of the year. There is no better team in the industry at delivering great results for shareholders and owners.

Speaker 3

With that, Kevin, can you please open up the call for questions?

Operator

Certainly. We'll now be conducting a question and answer session. Our first question today is coming from Chris Woronka from Deutsche Bank. Your line is now live.

Speaker 4

Hey, good morning guys and appreciate the details. So I guess maybe we can start with that discussion of the provision, right? And appreciate what you mentioned about the lower kind of the older vintage lower FICO scores. So the question on that is, is that something that as we look forward and take into account your guidance, is that something that moves a little higher than the original? I think you were talking 19% last quarter and are there offsets elsewhere in the business or you expect that to kind of normalize in the range we saw in Q2?

Speaker 3

Good morning, Chris, and thanks for the question. This is Mike Hogg. As it relates to the provision, for the full year, we do expect it to be about 100 bps higher than our original expectation. As you noted, there are other things in the business that are offsetting that, which allowed us to take up our guidance. Basically, the upper performance we had in the first half of the year compared to our guidance in the first half is what we've pushed through.

Speaker 3

So yes, when you look at VPG, when you look at the other things, the higher margin transactions on the travel membership side of the business, in the quarter we still generated 25% margin despite that higher provision. So the provision is moving up a little bit, but the other parts of the business continue to perform very well. And as it relates to that sub-seven hundred original FICO, it's down 2 35 bps from where it was a year ago. So as we move the standards for marketing up to that 6.40 FICO, we continue to see that average FICO for new originations coming in at 7.40. So very pleased with that change we made.

Speaker 3

Are feeling some pressure on the lower FICO bands, but I think we've been able to manage it well when you look at the overall business.

Speaker 4

Okay. Thanks, Mike. And then a follow-up maybe for Michael. Michael, it's been about probably cycling 3 years now since you really kind of got the post COVID business plan taking shape. And I wanted to kind of ask about your marketing channels.

Speaker 4

And you made a lot of changes there. And the question is kind of are you satisfied with where with with what the, I guess, channel mix looks like right now? And how are some of the more recently added or deleted partners? How are they contributing to your outlook for the rest of the year and beyond? Thanks.

Speaker 2

Well, I think the tour story, especially for the first half of this year is clearly one of the highlights of the underlying business performance, the strong underlying business performance. And I credit a lot of that to our channel mix and our marketing teams. More specifically, I've spoken over the years about a diversified 3 pronged marketing approach owners, our partnership with Wyndham Hotels via the blue thread and our non affinity marketing approach in the field, which I felt was the strongest and the most unique in the space. As we've grown in a post COVID environment, our regional teams have continued to add a number of marketing relationships, not a silver bullet, but a lot of little wins, a lot of successful partnerships that have really grown on those 3 marketing channels in each of our markets. We've added a 4th channel to our marketing channels, which is the package pipeline.

Speaker 2

We spoke about that in 2023 and started to invest and commit to that being a 4th leg to our marketing channels. And as we mentioned here, those packages are up 140% and like the blue thread was in 2018, 2019 where we committed to it and we saw a lot of potential, I would position that package work that we're doing, which is seeding the pipeline of future tours to be in a similar state than we were in Blue Thread back in 2018, 2019 as a great growth opportunity for our

Operator

Thank you. Next question today is coming from Patrick Scholes from Truist Securities. Your line is now live.

Speaker 5

Great. Good morning, everyone.

Speaker 6

Good morning, Patrick.

Speaker 5

Good morning. Michael, you've been one of the more, should we say, positive or bullish of the 3 patient ownership companies, I'd like to hear your latest thoughts on sort of the state of the consumer or at least your consumer. And now we sort of throw in the mix a little bit, sort of a little bit of weakness on, I guess, we'd say the middle or lower end there and just like to hear your latest thoughts on the lay of the landscape. Thank you.

Speaker 2

My last public comments were mid quarter where we remain positive on the consumer and the direction of our business related to the leisure travel environment. I would say fundamentally, I have no change to those statements mid quarter that we see a second half of the year in a consumer that remains demanding great leisure vacations. And I point to the elements that I consistently point to, which is look at our forward bookings, which we are seeing year on year increases to our owner room nights, which translates to positivity on owner arrivals, which is great for our marketing program. That's our perspective look at consumer demand. We look at our day to day.

Speaker 2

We see a lot of consumers every single day and we hear what they have to say through volume per guest. And the fact that we drove 37% new owner mix in Q2 and the first half of this year, which is 400 basis points above what it was in 2023, It's a dramatic shift and for our VPG to be less than $100 or right at $100 less than it was last year shows that the sales performance, the consumer desire for ownership remains very strong are the 2 biggest points, forward bookings and VPG. And the delinquencies we spoke about, yes, it's worse than it was 3 months ago or 6 months ago. But you look across the macro environment, I think that's a commentary you're not uniquely hearing in our business, but you're hearing across the entire macro environment. To me, that's a positive.

Speaker 2

It puts us in a more positive state maybe than even my mid quarter comments that we could deliver the high end of our guidance, raise our full year resort guidance and absorb, as Mike said, about 100 basis points higher provision speaks even more to the underlying strength of our business. So that would be my updated commentary on the consumer and where we see it for the remainder of the year.

Speaker 5

Okay. Thank you. And then, Mike, a question for you related to the most recent securitization and the comments about some weakness on some of the lower end customers. One thing I thought was interesting on the securitization, we saw the decoupon rate. Maybe you can help me just get a little more color why the coupon rate on the D went down, which implies sort of your lower end consumer, that went down, whereas your A coupon actually went up a little bit.

Speaker 5

How do I understand that in light of talking about the loan loss provision? And am I thinking about that the right way? Thank you.

Speaker 3

Well, I think overall, when you look at the execution on that transaction, as I mentioned in my comments, right, better performance than what we got in March, which we were very happy with, but our advance rate moving up to 96%, the interest rate moving down to 5.6% from 5.7%, so great execution. As far as the individual rates based on each of the tranches, a lot of it's going to be driven by the demand for that tranche. So when we go to market, we'll go out with target rates and put the rate out there. And then if one tranche is oversubscribed by a higher level than another tranche, we have the ability to tighten pricing. So I think it's just you look at the rate that the purchaser of the notes is going to get on each one, you look at demand out there and then when you're out there marking the transaction, it gives you the flexibility to be able to tighten rates in certain tranches based on the level of oversubscription.

Speaker 5

Okay, thank you. I'll get back in the queue for some more questions. Thank you.

Speaker 2

Sure, thank you. Thank

Operator

you. Our next question today is coming from David Katz from Jefferies. Your line is now live.

Speaker 6

Hi, good morning. I want to dispense with the provision discussion and just make sure I'm clear. I think the prior guidance was somewhere around 2019 and now we should be thinking more about 2020. And that's a question is, is that correct? And I think in your commentary, Mike, you talked about those sub-seven 100s being about 20 4% of the portfolio, does that lead us to conclude that the arc of its impact is something that sort of ramps down as we get into next year?

Speaker 6

Is that a fair way to think about it?

Speaker 3

Well, a couple of things. First of all, you're right, as far as that 100 bps kind of resulting in the provision settling in at around 20%. It will be a little bit higher in the Q3, a little bit lower in the Q4, which is not an unusual trend when you go through the year based on new owner mix and things like that. As it relates to 2025, obviously, I would say what impacts the portfolio more than anything is really the economy, right, and how the consumers feel and the income they have in their pockets. So when we think about next year and what the provision looks like, I think it's really going to depend on what happens over the next several months as it relates to consumer and the economy.

Speaker 3

But our continued focus on those new originations coming at 7.40 opinion shouldn't do anything but continue to make the portfolio better as the lower FICO's roll off and get replaced by a new origination once again, after in 7.40. So we'll see what happens. But I think overall what we're talking about as far as the higher level of delinquencies is about 1%. So about $30,000,000 on a $3,000,000,000 portfolio. So while it gets measured in terms of the provision as a percent of revenues, when you think about it like that, it's not a massive deterioration in the portfolio or anything like that.

Speaker 3

It's a slight 1% increase. And obviously, we'll do what we can to manage it. And I think as I mentioned in my earlier response, I think we are managing it well when you look at our ability to take up the guidance while still absorbing that 100 and 50 increase in the provision.

Speaker 6

Absolutely true. I just wanted to follow-up quickly and just talk about some of the more growthy elements, right? And Akkor is and the size of that opportunity is something we probably could benefit from a little depth of commentary on. How do you sort of see or envision Atkore turning into a growth engine over time?

Speaker 2

Well, keep in mind that you first have to look at the nature of the hospitality companies and whether geographically based. And our opportunity as we see in the near term is in that Asia Pacific region, which represents less than 10% of our total EBITDA. The way we're looking at our growth is to first transition the business over the next 12 months, restart a business that had been dormant and then look to expand it in the Asia Pacific region and capitalize on those their international presence and opportunity more than anything. So I think it follows ultimately the arc of how the rest of the branded has gone, but you do have to recognize that geographically their business is primarily international whereas the brands that are in this space today are primarily North America. North America is really the best timeshare market, the most regulated and where the branded companies have been able to really establish their presence in growth.

Speaker 2

So I guess said more simply, Accor, we look at international opportunity, which is a smaller opportunity than what you're going to get in North America with the branded hospitality companies.

Speaker 6

Got it. Okay. Thank you.

Speaker 3

Sure. Thank you, David.

Operator

Thank you. Next question today is coming from Brandt Montour from Barclays. Your line is now live.

Speaker 7

Hey, good morning everybody. Thanks for taking my question.

Speaker 5

So on the loan loss business,

Speaker 7

I was hoping that you could maybe just level set longer term, right, versus 2019 provision at 2020, call it, is back to the 2019 levels. But now versus then you have a higher quality mix presumably from the decidedly the shift you made toward that higher those higher quality loans you're making over the last 5 years. So that's different. That should argue for lower provision. Also I think 2019 you had maybe some residual third party stuff going on from that era.

Speaker 7

I'm not sure about that. Maybe you could clarify. But just why are we yes, I what are you're at that same place, but how do you account for the fact? Is it just that lower band? Is that much worse?

Speaker 7

Or what's the other bridge?

Speaker 3

Yes. So the lower band is definitely one that that's seen the most pressure. Keep in mind too, we I think it was in April of 2022, we basically started asking for lower down payments at table because we wanted the portfolio to start growing quicker. And so if you finance more naturally, you're going to have a higher provision that's probably 100 to 150 bps as well. So I think when you look at the provision as percent of revenues, there's a lot of different things that can impact it besides just the performance of the portfolio.

Speaker 3

And I think that's probably one of the big dynamics is lower down payments today, because we do want to get that portfolio growing at a quicker rate. The other thing I would point out and you guys have heard me talk about before is, unlike a lot of other asset classes, we've got a great asset supporting this loan, right? It's basically the resorts that we manage every day. We get the HOA maintenance fees, which include reserves and our goal is for every 5 to 6 years for every unit to be refurbished. So even though I would love to have no defaults and no provision, in those cases where someone their ability to pay ceases and then they do default, we go in and we take an asset back that's in great shape because we're there managing it every day and we're going to sell it for more today than we did 3 years ago because of the price increases we've put in place.

Speaker 3

So it is elevated slightly compared to our expectations, but also I think we've demonstrated over time that we can still have margins in the 20 plus percent and run a very healthy business with provisions at 20%. So for me, as I mentioned, it's $30,000,000 on a $3,000,000,000 portfolio. We manage the overall business. And if I go back and get a great asset back, it works out pretty well just in terms of the cash flow. And to be honest, less inventory inventory purchases in the future because I'm just taking a great asset back and reselling it.

Speaker 7

That's a helpful explanation. And the second question I have on the same topic is just I'm struggling a little bit with the timeline because I think you guys sounded a little you sounded pretty consistent into the quarter on the provision. And so it sounds like it really sort of eroded there toward the end of the quarter. And I'm just curious if there was something that happened on the macro front or related to that, why you think it why it sort of deteriorated toward the end and if you could talk about sort of the exit rate that might be helpful for us.

Speaker 3

Yes. I think what we're seeing is historically we start the year at a rate and that delinquency rate moves down in Q1 and then again usually in Q2. And in both cases, we did see the delinquency go down in Q1 compared to year end and again in Q2, just not as much as we have historically seen, obviously, which results in the higher provision that we need. So I think when you look sequentially throughout the quarter, the rate didn't move down as much as we expected. And I think you just once again as I mentioned earlier it gets back to the lower income consumers is feeling I think a little more pressure than those that are at the higher end.

Speaker 3

And that's in essence what we're seeing when we see the higher level delinquencies primarily being in the sub-seven hundred FICO. So, it was a slight deterioration throughout the quarter. And obviously, the way the provision works is once you see that deterioration, you have to provide for the expected level of future defaults and that's in essence what our calculation does.

Speaker 7

Perfect. Thanks so much.

Speaker 3

Sure. Thank you.

Operator

Thank you. Next question is coming from Danny Asad from Bank of America. Your line is now live.

Speaker 8

Thank you and good morning guys. Mike, I'll take the flip side of that. So when you add your newer the incremental higher quality owners, let's call them the ones that are the 7.40 originations that are coming in, what kind of loan loss provisions are we marking up for those owners?

Speaker 3

Yes. It's a great question. Unfortunately, I don't have an easy answer. And the reason for that is it gets back to the down payment. If you have somebody that walks in and they make a $25,000 transaction and they put $10,000 down, your provision on that's going to be a lot lower than someone that only puts $5,000 down.

Speaker 3

So I think when you look at the provision we were running and that we were projecting kind of in that below 19% range, I think that's what we expected for our new originations to come in on average. Once again, each particular loan is different as far as whether it's an upgrade or whether it's a new purchase, whether they put 5% down or 10% down. So I think on average we were expecting to be kind of under 19%. It's moved up a little bit. And so once longer term I would expect that assuming we keep down payments at where they're at today, that provision would move back down at some point in the future to below 19.

Speaker 8

Got it. And then, you gave really good color on kind of like the moving pieces of the guide, but if you could just help us a little bit more with that. So we understand that you flow through the beat in Q2 and since now we're assuming higher loan loss for business for Q3 and Q4, Can you maybe help us bucket like in Q3 and Q4, what's running better to offset that? Is it in terms of like is it tours, pricing, travel membership or where is that coming from?

Speaker 2

Danny, good morning. It's Michael. Really, it's on our core timeshare business. We moved up our VPG guidance by $50 And at the beginning of the year, we said our tour flow growth would be around 10% and we're a lot more confident that it's at least going to be 10%, if not more. So when you look at fundamentally where we think the increased provision gets offset, oddly enough, it's straight back to the consumer because the consumer loves the product and is using it and is combined with a really good team out there is delivering results on the tours and the VPG and the combination of those 2 not only help us overcome the increased provision, but just as a reminder to everyone is we're also overcoming this year approximately $30,000,000 headwind on interest income as well as the variable comp.

Speaker 2

So I think the performance that we're laying out with the increased guidance highlights our core business, continues to show as we've said over the last 5 years, is a resilient business that will perform well when the economy is booming and in an inflationary environment where there's value driven purchases. So core business is overcoming the issues that are coming up in a slightly higher provision. All right. Thank you very much. Thank you.

Operator

Thank you. Next question is coming from Ian Zaffino from Oppenheimer. Your line is now live.

Speaker 9

Hi, great. Thank you. Would you guys be able to give us the new owner tour mix or the tour mix versus new owners versus existing or maybe just the existing owner tour growth rate? I know you gave us the new owner torque growth rate. Thanks.

Speaker 2

So, Ian, just let me give you some stats and you can tell me if this is answering the question. Our new owner tour mix is roughly 50% of our total tour mix and our new owner sales mix is 37%. The reason the differential was obviously VPG that with the lower VPGs on new owners, you're going to get a lower mix than you do tours. And so overall, our new owner tour mix is about 50 percent of our total tours, both for the first half and for the full year.

Speaker 9

Okay. Thank you. And then on T and M EBITDA, I guess we were kind of thinking maybe, I was thinking of the year flat, but I guess we're looking at down year over year into Q3. Are there cost downs? Is there anything else you can do on that side to maybe keeping EBITDA flat or there's nothing really left to do on that side?

Speaker 9

Thanks.

Speaker 2

Well, let's start that. Whether it's the VO business or the travel membership business, we're always looking to improve our results. When you look at the Q2, we were at the midpoint of our guidance range and we were just off of it in Q1. So with our efforts, especially on the travel clubs, we're looking to grow our transactions the second half of this year and we feel quite confident in our ability to do that. On the exchange business, although propensity still continues to be a headwind, we're encouraged by the increase in the RPT.

Speaker 2

So like the VO business, there's multiple variables on the top line as well as on the bottom line through cost and we'll look at all of them to get back to a flat, if not modest growth for 2024. Keeping in mind that flat to 2% in 2024 is the difference between $5,000,000 of EBITDA growth. So every percentage points $2,500,000 and our effort this year is to get back to that flat if not get some modest growth this year.

Speaker 9

Okay. Thank you very much.

Speaker 2

Thank you.

Operator

Thank you. Next question today is coming from Patrick Scholes from Truist Securities. Your line is now

Speaker 5

live. Okay. Thank you. A number of follow-up questions here. Mike, we saw a competitor last year take a charge related to loan loss provision.

Speaker 5

Given the uptick that you've seen in the last couple of months here, in your opinion, do you think these trends create an elevated risk that you might have to take a special charge? I'd like Pete to talk about that. Thank you.

Speaker 3

Thanks for the question, Patrick. And there's nodding belief on our part that we're going to have a special charge come through as it relates to the elevated level of delinquencies. Normally, when we have a special charge come through, it's due to a specific event, for example, COVID in March of 2020. So basically the way we're seeing the portfolio on the provision is what's reflected in our guidance and would expect a large one time charge absent some highly unusual event.

Speaker 5

Okay. Okay. Good to hear. Next question, this year and I think also last year, roughly a $30,000,000 headwind due to the tightening of the spreads on the securitizations. Given where your last two securitizations priced and the details within, would you say next year sort of these trend interest rates trends continue, you might actually see a small tailwind or would it be sort of tracking neutral at this point as opposed to a headwind the last 2 years?

Speaker 3

Yes. I think what we would expect next year is maybe in the first half of the year just a very, very slight headwind flattening out kind of as we get towards the end of the year and then becoming a tailwind in 2026 based on current interest rate projections. So I would say for the full year next year not a significant impact, maybe a few $1,000,000 headwind and then once again assuming rates continue to move like the curves and forecast for the NK becoming a tailwind in 2026.

Speaker 5

Okay. Let's just talk quickly about VPGs and your guidance. You did better on VPG, you took the guidance up. Is that is talk a little bit give me a little more color on that. Is that better close rates or is it just a higher sales price combination of the above and what customer were you seeing better success with?

Speaker 5

Was it the new buyer or the existing buyer? Thank you.

Speaker 2

Well, just again to put some data points out there for the first half of the year, 37% new owner mix. And we've been able to maintain, which is 400 basis points higher than it was last year for the first half. So with that, you would expect a much stronger decline in the VPG and the fact that it's still at 30, 50 is a great data point for the strength of our consumer. Primarily, that's holding up on close rates. We've seen continued strength in our owner VPGs.

Speaker 2

We've seen continued strength in our Blue Thread VPGs and we've been able to hold the line on non affinity VPGs, which is very important because when you talk about plus 20% growth on new owner tours, you expect degradation in your VPG. So holding the line on new owner non affinity PPGs while getting strength out of your owner and blue thread is a very positive sign. Almost all of that's close rate. You get some on price, but really it comes down to our ability to perform our team's ability to continue to perform on close rates.

Speaker 5

Okay, Great. And then just my last two questions for you, Michael. You talked about, I think, last quarter being able to announce some additional sports illustrated locations by, I think, in the second half of this year. Is that still on track that you expect to announce some additional locations? And then lastly, if you could give us some color on what you're seeing as far as demand trends in Hawaii?

Speaker 5

And that's it for me. Thank you.

Speaker 2

Yes is the answer to the first question. And the second one is, we haven't seen from our standpoint any anomalies in Hawaii demand, keeping in mind, the most of our presence is on the Big Island, a little bit on Oahu and Kauai. We have a very small resort in Maui, which is closer to Kihei. So I don't think we're the best barometer of Hawaii traffic, but I would say we're seeing nothing unusual from what we have. For the total market.

Speaker 2

We are up year on year on only room nights, but again, we're sort of on all the islands and Maui, which is what I'm presuming is your underlying question, we're not a good barometer of that market.

Speaker 5

Okay. Well, thank you for taking all my questions. I'm all set.

Speaker 2

Thanks, Patrick. We appreciate it.

Operator

Thank you. We've reached the

Speaker 5

end of our question and answer session. I I'd like to

Operator

turn the floor back over for any further or closing comments.

Speaker 2

Thank you and thanks again to everyone for dialing in today. Our performance year to date shows our ability to deliver top line growth, healthy margins and strong free cash generations. The increase to our full year guidance demonstrates that we have a resilient and value driven business model, are executing well against our key priorities for the year and consumer demand for our product remains strong. Most importantly, we have the best team in the industry which is focused on delivering top tier results for our owners and our shareholders. We definitely look forward to speaking to you again on our October call.

Speaker 2

And before we hang up, I'd also like to briefly just recognize one of our team members who celebrated 25 years with the company in the last quarter and thank our Chief Financial Officer, Mike Hub for all his great work and service over the last 25 years. With that, thank you everyone and see you on the next call.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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Earnings Conference Call
Travel + Leisure Q2 2024
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