Travel + Leisure Co.

Hello, and welcome to the Travel and Leisure Q3 2023 Earnings Call and Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed in the question queue at any time by pressing star one on your telephone keypad. And we ask that you please limit yourselves to one question and one follow-up, then return to the queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Christopher Agnew, Investor Relations. Please go ahead, sir.

Thanks, Kevin, and good morning. 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 accompanying the earnings call. And you can find a reconciliation of the non-GAAP financial measures discussed in today's call in the earnings press release available on our website at travelandleisureco.com forward slash investors. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our third quarter results. And Mike Hugg, our Chief Financial Officer, will then provide greater detail on the quarter, our balance sheet, and outlook for the rest of the year. Following our prepared remarks, we will open up the call for questions. With that, I'm pleased to turn the call over to Michael Brown.

Thanks, Chris, and thank you for joining us on our third quarter earnings call. This morning, we reported adjusted EBITDA of $248 million, a 6% increase over the prior year, and adjusted diluted earnings per share of $1.54, a 20% improvement over Q3 2022. Third quarter adjusted EBITDA margin was 25% flat compared to the prior quarter and prior year. Our team delivered solid results against key performance indicators, particularly the vacation ownership business. Sales volume per guest and gross VOI sales were at the top end of expectations. As well, new owner and total tour flow increased 36% and 18% respectively year over year. In keeping with our commitment to grow our new owner base, the transaction mix increased nearly 200 basis points to 35% of sales. The provision for loan loss came in ahead of expectations at just over 18.5%, reaffirming the improvements in owner credit quality. Regarding capital allocation, we returned $98 million to shareholders in the third quarter through a combination of dividends and share repurchases, which puts us on track to reduce our outstanding shares by 10% for the full year. From the start of 2022 until the end of the most recent quarter, we have reduced our share count by 16%. Since then, we have reduced our share count by 27 million shares, or 27% of shares outstanding. Let me update you on the key performance indicators we monitor to gauge the health of our consumer. Forward resort bookings, sales volume per guest, and the performance of our consumer finance portfolio. Regarding forward bookings, Q4 owner nights on the books are 7% ahead of fourth quarter 2019, reflecting a continued strong booking pace. Total owner arrivals are ahead, and length of stay is 5% above the fourth quarter of 2019. Of note in our post-stay surveys, nearly one quarter of respondents work remote while staying at our resorts. reinforcing the work-from-anywhere trend that we believe is one of the factors behind longer length of stay. Turning to VPG, our third quarter VPG was $3,108, above the top end of our guidance range. On an absolute basis, VPGs are healthy and reflect the strong value proposition of our product, and for the full year, our outlook is improving to $3,100 to $3,150. VPG did decline $42 from the second quarter, but 90% was due to the higher new owner mix. VPG remains well above our long-term guidance range of $2,700 to $3,000. In 2023, we made a strategic decision to ramp up new owner marketing channels to continue growth of new owner tours. Year-to-date, we have had success with new owner tours, which have increased 35% over the same period in the prior year. Over 70% of this growth have come from open market channels or package sales. This investment positions us to achieve our long-term plan for new owner transactions to be 35% to 40% of all sales. We expect this TOR pipeline to yield incremental growth over the next 12 months and grow our pipeline of future upgrade sales. Blue Thread, which is our new owner marketing channel aligned with Wyndham Hotels, continues to exceed expectations with BPGs nearly 50% higher than other new owner channels. We expect Blue Thread sales to finish the year at an all-time high, over $100 million. Our third key performance indicator is our consumer finance portfolio, which performed well in the quarter. Delinquencies remain below 2019 levels, and our outlook for the full-year loan loss provision is unchanged at 18% to 19%. At the end of the third quarter, only 10% of our portfolio had FICO below 640, and year-to-date, the average FICO score for originations is 738. All in all, our vacation ownership segment continues to perform well. The continued strength in our vacation ownership business was challenged by headwinds of the travel and membership segment. This segment continues to lag expectations due to lower exchange propensity and slower-than-anticipated ramp-up of travel clubs. Accordingly, we are making structural and operational changes to reduce its cost structure while maintaining focus on driving transactions in both exchange and travel clubs. These changes will occur prior to year end, allowing us to enter 2024 more streamlined. Coming into this year, our expectation was that our exchange business would maintain the 2022 transaction propensity levels and that travel clubs would ramp up through the year. Instead, we experienced a decline in exchange propensity throughout the year. To put it in perspective, our exchange propensity is nearly 20% off pre-COVID levels. Mike will provide more details in a moment, but the lower expectation of travel and membership in combination with free Q coming in toward the lower end of our guidance is the reason for our reduction in full-year adjusted EBITDA guidance to a range of $900 million to $915 million. As we look ahead to next year, it is worth reflecting that Travel and Membership over the last four quarters had revenues of $716 million and adjusted EBIT of $253 million with a healthy 35% adjusted EBIT of margin. The business has low capital requirements, strong returns and cash flow. We expect that Q4 will mark the trough in revenue momentum for Travel and Membership due to a combination of stabilizing transaction propensity trends and pricing at RCI and growth in our travel clubs. On the strategic front, we acquired the rights to the vacation ownership business of Sports Hospitality Ventures, the hotel and resorts licensee of the Sports Illustrated brand. Our plans include a network of sports-themed resorts located in popular college towns and in leisure destinations. we will be launching and managing a vacation ownership club under the Sports Illustrated Resorts brand. Among the strategic goals we shared at our investor day was the intention to add incremental vacation ownership revenue streams under the travel and leisure brand. We are proud to launch this expansion with Sports Illustrated, the most celebrated name in sports with nearly 70 years of legendary content. Tuscaloosa, Alabama, Home of the University of Alabama has been selected as the first college destination in the Sports Illustrated Resorts portfolio and is projected to open in late 2025. Our goal is to develop Sports Illustrated vacation ownership inventory in a capital-efficient manner. We have several additional locations in the pipeline and more in consideration after significant inbound inquiries following the Tuscaloosa announcements. We're excited by the initial representation of our strategy to add new brands to our portfolio, and we look forward to sharing more with you over the coming quarters. As a reminder, it's important to remember that the prepaid nature of timeshare ownership is a key differentiator for our business model within the leisure travel industry. 80% of our owners have fully paid for their timeshare, and therefore the choice to vacation is less dependent on economic conditions. As we have seen historically, our healthy mix of recurring and predictable revenues is one of the reasons we expect our business will continue to be resilient if we enter a more challenging economic environment. This resilience and demand among timeshare owners has been proven time and time again, most recently coming out of COVID. With that, and for more detail on our performance, I would now like to hand the call over to Mike Hugg.