Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rental profit in the Vacation Ownership segment increased by more than 60% compared to last year, with margins improving to over 20%.
- First-time buyer tours grew by 9%, reflecting the company's strategy to attract new owners.
- Resort occupancies were up more than a point year-over-year, driven by a four-point improvement in rental occupancies.
- Interval International ended the quarter with more than 1.5 million active members, maintaining inventory utilization in the low 90% range.
- The company expects to generate higher first-time buyer tours in the second half of the year, with nearly 270,000 packages confirmed for vacations.
Negative Points
- Contract sales declined 1% for the quarter due to lower VPGs (Volume Per Guest).
- Loan delinquencies did not improve as expected, necessitating an increase in the sales reserve by $70 million.
- Development margin declined year-over-year due to lower VPGs and higher marketing and sales costs.
- Adjusted EBITDA in the Vacation Ownership segment declined 26% year-over-year.
- Maui's recovery is slower than expected, leading to a projected $10 million decline in contract sales for the full year.
Q & A Highlights
Q: When you updated the guide in June, it implied 7%-plus growth ex Maui in 2Q and then ex Maui accelerate to plus 10% in the back half of the year. Can we walk through the biggest factors that help you bridge from the 10%-plus previously implied in the back half to the 3%-plus?
A: Most of it is just going to be our assumptions around VPG. We saw some softening in VPG on first-time buyers. We are adjusting promotions to try and drive that VPG up in the second half of the year. Until we see the improvement, we guided more conservatively on VPGs versus our original expectations.
Q: If we broke down the inbound new buyer target customers, is there any segmenting we could do where we could point to specific categories or groups or geographies or any further insight on where there's more weakness?
A: Locations like Orlando and Myrtle Beach, which have a different customer base compared to Hawaii or California, are seeing a disproportionate impact on first-time buyers. Maui is also recovering slower, affecting the type of visitors and their buying behavior.
Q: How can your financial control process rationalize two huge loan loss reserve charges in just a few short months?
A: When we took the charge last year, we saw higher delinquencies but didn't have as much visibility. The expectation was that delinquencies would trend down, which started to happen but then flattened out. We have now adjusted our reserves to reflect the current higher delinquencies and not seeing the improvement we expected.
Q: What aspects of the loan loss are really driving the charge, specifically what vintage and whose vintages are we talking about?
A: It's a little bit across the board in terms of brands and FICO. Our above 700s are performing the best, but there's more stress in the below 700s and even more in the below 600s. This performance is consistent with broader finance sector trends.
Q: Can you compare the demand for travel being strong but VPGs for new buyers and close rates being soft?
A: Timeshare is a bigger commitment, and first-time buyers haven't had the benefit of owning the product. Owners continue to buy, and their closing rates have been steady. We are working on incentives to help with first-time buyer close rates.
Q: Has there been a shift in your lending strategy that has changed the quality of your consumer over time versus your prior run rate?
A: No significant changes in targeting or underwriting. The mix has changed with acquisitions like ILG and Welk, which have lower credit quality customers. The broader macro environment is also stressing some consumers more than others.
Q: Are you getting any feedback from folks about why they're walking away from loans?
A: Most people don't give a reason, but the number one answer is that it's expensive. The overall cost of living has increased significantly over the last two years, putting more pressure on consumers.
Q: Have you changed anything in your new sales underwriting criteria in the last couple of years?
A: No significant changes. We always look at down payment requirements and make tweaks, but nothing pervasive. The underwriting requirements remain largely the same.
Q: How is the Welk deal performing versus your expectations at the time of acquisition?
A: Welk customers had a higher default rate, which we expected. The transition has taken longer, but we see long-term value. Sales performance is improving, but we are not yet where we want to be in terms of VPGs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
