Travel + Leisure Co. (NYSE:TNL) Q2 2025 Earnings Conference Call Transcript July 23, 2025
Travel + Leisure Co. falls short of earnings expectations. The reported EPS is $ EPS, while expectations were $1.66.
Operator:Hello, and welcome to the Travel + Leisure Second Quarter 2025 Earnings Conference Call Webcast. [Operator Instructions] Just a reminder, this call is being recorded. It’s now my honor to introduce your host, Erik Hoag, Chief Financial Officer. Please proceed, sir.
Erik Hoag:Thank you, Kevin. Good morning to all. Before we start, we want to remind you that our conversation today will involve forward-looking statements. The actual outcomes may differ significantly from what is stated in these forward-looking statements, and the statements made today are only valid as of this date. We do not have any obligation to publicly update or revise these statements. The factors that could lead to differences between actual results and the forward-looking statements are outlined in our SEC filings and in the press release that comes with this earnings call. You can find a reconciliation of the non-GAAP financial measures discussed during today’s call in the earnings press release available on the Investor Relations website. This morning, Michael Brown, our President and Chief Executive Officer, will present an overview of the second quarter results and our long-term growth strategy.
Then I will go into more detail about the quarter, our balance sheet, and our outlook for the remainder of the year. After our prepared statements, we will open the line for questions. Lastly, all comparisons today are to the same period in the previous year, unless otherwise noted. With that, I’d like to hand over the call to Michael Brown.
Michael Brown:Good morning, and thank you for being here. Travel + Leisure had another strong quarter with growth in revenue and adjusted EBITDA. Our solid adjusted EBITDA and free cash flow enabled us to return $107 million in capital to shareholders during the quarter. This outcome highlights the strength of our brands, the durability of leisure travel, and the commitment of our owner base, along with the effective implementation of our strategy. Despite the changing economic conditions, our teams continue to concentrate on fostering growth, controlling expenses, and providing outstanding experiences for our owners, members, and guests. In this quarter, we achieved over $1 billion in revenue, $250 million in adjusted EBITDA, and $1.65 in adjusted earnings per share, all showing year-over-year improvements.
Our outcomes were fueled by ongoing strength in the Vacation Ownership segment, which more than compensated for weaker results in travel and membership. We experienced positive year-over-year growth in VOI sales, with improvements in both the number of tours and the average spending per guest. Specifically, the average spending per guest reached $3,251, exceeding the upper limit of our guidance range, while the adjusted EBITDA margin stayed steady at 25%, similar to the previous year. These achievements reinforce the fundamental strength of our business, supported by a loyal customer base centered on leisure travel, an attractive value offering, and reliable returns for investors. Demand remained robust within our primary timeshare operations. We observed positive consumer interaction, with tour growth increasing sequentially from the first quarter and showing a 3% improvement compared to 2024.
The strength of our platform is closely tied to the quality of our customers. There has been a lot of discussion about the economy, but from our perspective, our consumers are in good shape and focusing on travel. Expenditure on leisure travel is projected to increase by mid-single digits annually for the next five years. Our business model is based on ongoing behavior rather than temporary trends, which makes us less affected by broader economic conditions because we have a clearly visible stream of recurring revenue. Over 75% of our revenue comes from reliable sources such as owner upgrades, financing, and management fees, resulting in a nearly $20 billion pipeline of potential future revenue over a decade. We observe our strategy unfolding through our booking numbers, sales tours, and owner engagement metrics.
Our owners are currently away, reinforcing our long-held belief that vacations are not optional but necessary. We have observed no major changes in buyer behavior regarding booking speed, revenue per guest, or portfolio performance. The booking pace remains similar to the previous year. With an average booking window of 109 days, we have a clear view of the rest of the year. Revenue per guest performance continues to be robust, and our portfolio remains steady. Our owners understand what they are investing in. They have already made their plans, and 80% have fully settled their ownership costs. Currently, we support over 800,000 owner families, with an average tenure of 17 years. Here are some key traits of our owner base. The average household income for our owners is roughly $118,000.
The typical FICO score for our $3 billion portfolio exceeds 720. From 2020 onward, the percentage of loans with FICO scores below 640 has decreased by 4 points within the entire portfolio. The average FICO score for new loans is 746, representing an increase of over 20 points since we revised our credit quality standards. On average, our owners take between 4 and 5 vacations each year, with more than half of their vacation time being used through their ownership. We are experiencing steady interest from younger generations, as over 65% of new buyers come from Gen-X, millennial, and Gen-Z households. Our product meets exactly what these new owners seek—flexibility, convenience, and tailored experiences. During the quarter, we kept investing in technology, marketing, and product innovation to improve the customer experience and expand our influence.
Our Club Wyndham application, which provides a smooth and effortless experience, has been downloaded 162,000 times and contributes to 19% of our reservations. Furthermore, we are getting ready to introduce our WorldMark app in the fourth quarter. We are continuing to invest in artificial intelligence across our website and mobile platforms, which helps provide tailored recommendations and an easy booking process. During this quarter, we revealed a special marketing collaboration with Hornblower aimed at delivering exceptional experiences for our owners as well as generating new owner tours. The Hornblower Group is a leading provider of experiential tourism with operations in 22 locations throughout the United States, Canada, and the U.K. Moving forward, we are concentrating on expanding our core vacation ownership business, using data and technology to improve the customer experience on all platforms.
We are implementing focused revenue and cost measures to address challenges in our Traveler Membership segment, ensuring we remain strong to achieve long-term growth and steady returns. Now, let’s discuss the execution of our multi-brand approach. This strategy goes beyond just size; it centers on targeting specific customer groups and expanding geographically. Our Club Wyndham and WorldMark brands will continue to serve as the foundation of our timeshare business, alongside our Blue Thread collaboration with Wyndham Hotels. In June, we broadened our Margaritaville presence by opening a new sales office on Broadway in Nashville and launching a new marketing platform on the Margaritaville cruise ship. We introduced and expanded the Accor Vacation Club by establishing a new club based in Asia, with the first resort being the Novotel Nusa Dua in Indonesia.
Last week, we revealed our latest Sports Illustrated Resorts location in Nashville, Tennessee. Situated on Music Row in the center of Midtown, just one mile from downtown, the upcoming resort will include 185 units and is anticipated to open in the spring of 2027. These new brands will enable us to grow into important markets, connect with new customers, and provide experiences that align with their lifestyles. Our solid free cash flow allows us to invest in the right locations, brands, digital initiatives, and targeted inventory. We are confident these investments will keep driving value. In addition to these efforts, we continue to regularly return capital to our shareholders through our dividend and share repurchase program. Since then, we have returned $2.7 billion to shareholders.
Before I pass it on, I want to take a moment to welcome Erik Hoag, our newly appointed Chief Financial Officer. Erik has a solid background in strategy, operational finance, and capital allocation. He has quickly made an impact since joining the company. In his first two months, he has attended five conferences and met with 49 investors across 27 meetings. I’m confident that his leadership will enable us to maintain disciplined execution and create long-term value for our shareholders. With that, I’ll pass the floor to Erik so he can provide a detailed overview of our financial performance and capital allocation. Erik?
Erik Hoag:Thank you, Michael, and good morning. Let me begin by expressing how thrilled I am to be joining Travel + Leisure. This is a company that has a strong leadership team, a well-known brand portfolio, and a solid business model that consistently generates reliable cash flow and long-term value. In my initial months here, I’ve been particularly impressed by the financial responsibility and operational focus throughout the organization. This was evident in our second quarter results, which showed strong revenue and adjusted EBITDA growth, along with healthy adjusted free cash flow. I’ll go over the main factors that contributed to the quarter and discuss how we are using capital to enhance shareholder value. Revenue for the quarter reached $1.02 billion, an increase of 3% compared to the previous year, fueled by strong VOI volume and VPGs that surpassed our expectations.
Adjusted EBITDA amounted to $250 million, representing a 2% increase compared to the previous year and aligning with the middle of our guidance range. This equates to a 4% rise in adjusted EBITDA for the first half of the year. Adjusted earnings per share increased by 9% in the quarter, fueled by robust performance in vacation ownership and the positive impact of continuous share repurchases. Shifting focus to the Vacation Ownership segment, which serves as our primary growth driver. The segment achieved rising revenue, improved tour traffic, historically high VPGs, and double-digit growth in average transaction size. Revenue climbed 6% to $853 million for the quarter, supported by a 3% growth in tours and a VPG of $3,251, an increase of 7% from the previous year. The rise in average transaction size is attributed to strong consumer demand, effective upselling tactics, and sustained sales force efficiency across our resorts.
Adjusted EBITDA increased by 6%, with margin performance staying stable, highlighting the robustness and reliability of the platform. We are also advancing our inventory pipeline in a disciplined manner, with several major resort projects in progress to drive future growth, while keeping our capital-light structure. Our loan loss provision and delinquencies met expectations, and we continue on course to achieve an annual provision of 21%. Credit quality remained strong during the quarter, with new originations having FICO scores above 740, demonstrating our consistent and careful underwriting practices. Delinquency trends in the second quarter showed improvement following a rise observed last quarter. With no indications of significant decline, we are confident in the portfolio’s strength.
Our historical provision has typically been in the high teens to low 20s as a percentage of VOI sales, and we anticipate this could trend below 20% over time, improving capital efficiency and supporting consistent free cash flow. In the Travel and Membership segment, revenue for the quarter was $166 million, a 6% decrease compared to the previous year, while adjusted EBITDA dropped 11% to $55 million. The exchange business continues to encounter challenges due to industry consolidation. Furthermore, recent merger and acquisition activity has affected transaction volumes from certain affiliates, an issue that was not included in our initial guidance. Although not the only factor behind the underperformance, the effect was significant, and we are focused on optimizing cash flow and operational flexibility with a long-term view toward shareholder value.
Focusing on cash generation and capital utilization. We produced $123 million in adjusted free cash flow and $353 million in operating cash flow during the first half of the year, driven by effective sales performance, efficient capital use, and the continued impact of our consumer finance segment. These elements, combined with our high level of recurring revenue and a capital-light development approach, ensure steady and reliable cash flow even amid challenging economic and political conditions. In the quarter, we returned $107 million of our adjusted free cash flow to shareholders, with $37 million distributed as dividends and $70 million used for share buybacks, eliminating over 2% of our outstanding shares. Our capital allocation strategy remains the same: invest in high-return growth, maintain a strong balance sheet, return surplus cash to shareholders, and keep financial flexibility.
We remain committed to actively assessing reinvestment returns, focusing on projects that demonstrate high IRRs, efficient capital use, and well-defined routes to generating shareholder value. Our financial position remains robust. At the end of the quarter, we had more than $800 million in liquidity, consisting of $212 million in cash and cash equivalents and $596 million available under our revolving credit facility. We concluded the quarter with a leverage ratio of 3.4x, and considering typical seasonal fluctuations, we anticipate a slight rise in the third quarter, followed by a reduction to below 3.4x by year-end. During the quarter, we updated our $1 billion revolving credit facility with more favorable conditions. Additionally, yesterday, we finalized our second asset-backed securities transaction of the year, securing $300 million at a 98% advance rate and a 5.1% interest rate—the lowest since 2022.
We remain actively involved in managing maturities and anticipate refinancing the $350 million note that will mature in the fourth quarter. Moving forward, we still expect full-year adjusted EBITDA to align with our previous guidance, driven by the robust performance of our vacation ownership segment. We anticipate that travel and membership will continue to face challenges until the end of the year. Nevertheless, we are dedicated to focusing on our core operations, introducing new brands, generating strong free cash flow, and investing capital in ways that boost shareholder value. For the third quarter, we anticipate travel and leisure adjusted EBITDA to fall between $250 million and $260 million. Vacation Ownership gross VOI sales are projected to be between $650 million and $680 million, with VPGs ranging from $3,200 to $3,250.
For the entire year, we still anticipate adjusted EBITDA to fall between $955 million and $985 million, gross VOI sales ranging from $2.4 billion to $2.5 billion, and VPGs in the range of 3,200 to 3,250, which is an increase from our previous range of $3,050 to $3,150. Please consult our earnings materials for complete details and underlying assumptions by segment. Thank you for your time and ongoing interest in Travel + Leisure. I look forward to speaking with many of you in the coming weeks. Kevin, we can now take your questions.
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