Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenues grew 4% to $985 million, with adjusted EBITDA of $244 million at the high end of guidance.
- Tours were up 13%, with new owner tours up 22%, indicating strong demand.
- Blue Thread partnership with Wyndham Hotels produced about 10% of new owner tours with a VPG more than 20% higher than other channels.
- Investments in new marketing locations and channels are yielding good results, with over 100,000 active packages up over 140% this year.
- Customer satisfaction is high, with nine out of 10 guests reporting a great experience, highlighting the value and flexibility of the product.
Negative Points
- Elevated delinquencies in the loan portfolio are expected to persist for the remainder of the year.
- Increased loan loss provision due to delinquency levels associated with original FICOs below 700.
- Higher interest rates and variable compensation resulted in $8 million of year-over-year headwinds.
- Travel and Membership segment saw a slight decline in revenue, offsetting higher revenue per transaction.
- Provision for loan losses is expected to be about 100 basis points higher than originally anticipated.
Q & A Highlights
Q: Can you provide more details on the provision for loan losses and its impact on your guidance?
A: Michael Hug, Chief Financial Officer: For the full year, we expect the provision to be about 100 basis points higher than our original expectation. Despite this, other parts of the business, such as VPG and higher-margin transactions, are performing well, allowing us to increase our guidance. The sub-700 FICO segment is down 235 basis points from a year ago, and new originations are averaging a 740 FICO score.
Q: Are you satisfied with your current marketing channel mix, and how are recent changes contributing to your outlook?
A: Michael Brown, President and Chief Executive Officer: Our diversified three-prong marketing approach, including owners, Wyndham Hotels partnership, and non-affinity marketing, is performing well. We've added a fourth channel, the package pipeline, which is up 140% and shows great growth potential.
Q: What are your latest thoughts on the state of the consumer, especially given some weakness in the lower end?
A: Michael Brown, President and Chief Executive Officer: We remain positive on the consumer and the leisure travel environment. Forward bookings and VPG are strong, and the 37% new owner mix in Q2 indicates strong consumer demand. While delinquencies have increased, this is a trend seen across the macro environment.
Q: Can you explain the recent securitization and its impact on your loan loss provision?
A: Michael Hug, Chief Financial Officer: The recent securitization had a better performance with a 96% advance rate and a 5.6% interest rate. The individual rates for each tranche depend on demand, allowing us to tighten pricing where necessary.
Q: How do you see the Accor partnership turning into a growth engine over time?
A: Michael Brown, President and Chief Executive Officer: The Accor partnership primarily targets the Asia-Pacific region, which represents less than 10% of our total EBITDA. We aim to restart and expand the business in this region, capitalizing on Accor's international presence.
Q: What kind of loan loss provisions are you marking up for higher quality owners with 740 FICO scores?
A: Michael Hug, Chief Financial Officer: The provision depends on the down payment. On average, we expected new originations to be below 19%, but it has moved up slightly. Long-term, we expect the provision to move back down below 19%.
Q: Can you provide more details on the moving pieces of your guidance, especially in Q3 and Q4?
A: Michael Brown, President and Chief Executive Officer: The increased provision is offset by strong performance in our core business, particularly in VPG and tour flow growth. We are confident in achieving at least 10% tour flow growth and have increased our VPG guidance by $50.
Q: What is the new owner tour mix and how is it impacting your overall performance?
A: Michael Brown, President and Chief Executive Officer: New owner tours make up roughly 50% of our total tours, with a 37% sales mix. Despite a lower VPG for new owners, the overall performance remains strong due to high close rates and strong VPGs in other segments.
Q: Given the recent uptick in loan loss provisions, is there an elevated risk of a special charge?
A: Michael Hug, Chief Financial Officer: We do not expect a special charge related to the elevated level of delinquencies. Special charges usually result from specific events, and our current provision levels are reflected in our guidance.
Q: Can you provide more color on VPGs and what is driving the better-than-expected performance?
A: Michael Brown, President and Chief Executive Officer: The strong VPG performance is primarily due to high close rates. We've seen continued strength in owner VPGs and Blue Thread VPGs, and have maintained non-affinity VPGs despite significant growth in new owner tours.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
