Good morning, and welcome to the fourth quarter and full year 2021 earnings conference call for Travel + Leisure Co, formerly Wyndham Destinations. After the speaker's remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key on your telephone keypad. As a reminder, ladies and gentlemen, this conference call is being recorded. If you do not agree with these terms, please disconnect at this time. Thank you, and I would now like to turn the call over to Chris Agnew. Please go ahead.
Thank you, Ashley, 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 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 investor.travelandleisureco.com. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our fourth quarter and full year results, and Mike Hug, our Chief Financial Officer, will then provide greater detail on the quarter, our balance sheet, and liquidity position.
Following these remarks, we look forward to responding to your questions. With that, I'm pleased to turn the call over to Michael.
Thank you, Chris. Good morning and welcome to our fourth quarter earnings call. This morning, we are pleased to announce another strong quarter to close out 2021. We reported adjusted EBITDA of $228 million and adjusted EPS of $1.19. For the full year, adjusted EBITDA was $778 million, and adjusted EPS was $3.65. Adjusted free cash flow finished the year at $223 million, which was ahead of our expectations, and we resumed share repurchases in the fourth quarter. Including dividends, we returned $134 million to shareholders in 2021. At Wyndham Destinations, gross vacation ownership sales were at the high end of expectations, with tours above our guidance range and continued strong VPGs.
In the fourth quarter, VPG was 36% higher than the fourth quarter of 2019, and for the year, we finished with a 32% increase from 2019. This strength in VPG is a testament to our best-in-class sales and marketing teams and reflects our focus on higher quality tours. Our receivable portfolio continues to perform, and in the fourth quarter, we released an additional COVID-19 reserve, yielding a net positive adjusted EBITDA impact of $28 million. I would like to highlight a few key metrics from 2021. 28% of total transactions were to new owners, with 65% of these sales to Gen X and millennials. BlueThread, which is our term for lead generation through our relationship with Wyndham Hotels & Resorts, also performed well.
BlueThread sales represented 16% of new owner transactions in the fourth quarter and 14% for the full year, both over 200 basis points higher than the prior year. Turning to the traveler membership segment, fourth quarter and full year transactions increased 30% and 61% respectively over the prior year. This segment recovered steadily in 2021, with year-over-year transaction growth each quarter. Exchange transactions make up the largest component, with domestic U.S. demand proving very resilient throughout 2021, helping to offset international cross-border travel, which continues to be challenged by pandemic related travel restrictions. Non-exchange revenue per transactions increased 44% and 38% in the fourth quarter and full year respectively. Transaction growth has been led by Panorama Travel Solutions. We launched Panorama Travel Solutions in the fall of 2020 with a focus on development of the business model and signing partners.
To date, we have closed 18 contracts with a combined total addressable market of 9 million households in North America. Our pipeline of branded and white label clubs continues to grow. In the fourth quarter, we began moving into the activation phase. As an example, the National Association of Realtors Travel Club went live at its national convention in San Diego in November, and in under four months, nearly 0.5% of its 1.5 million member base have been activated. As we approach the busy spring and summer travel periods, we have a number of marketing programs with NAR designed to activate additional users. More recently, our team was at the Super Bowl to promote the newly launched platform for the NFL Alumni Travel Club.
Although insignificant to our financial results, we are seeing tangible progress which reinforces our expectation that this business will be a driver of growth in the coming years. Our overall adjusted EBITDA margin was 26% in the fourth quarter and 25% for the full year. We were able to achieve these margins despite a reduction of net interest income, which is due to the reduction of our consumer finance portfolio. To put in perspective the strength of our fourth quarter and full year margin, if we equalize the 2021 portfolio size to 2019 and exclude the EBITDA benefit from the COVID reserve release, adjusted EBITDA margin would have been 100 basis points higher than the comparative periods in 2019.
In 2021, we laid the foundation for the next four years with our stated strategic goals to expand our addressable market, accelerate earnings growth, and increase free cash flow. We acquired the Travel + Leisure brand in January and launched the new subscription-based Travel + Leisure club. At our Investor Day in September, we laid out a plan to increase our compound annual adjusted EBITDA growth rate to 11%-14% through 2025, reflecting continued growth of our cornerstone businesses of Wyndham Destinations and RCI, and growing new business extensions into B2B travel clubs and to direct-to-consumer travel clubs. Related to recent travel trends, in late December, we started seeing some near-term hesitation in booking behavior given rising Omicron COVID case counts. Net arrivals and forward bookings were impacted in January.
However, as with previous COVID spikes, each successive wave has had a lesser impact on our business, and the rebounds have come faster and stronger. In January, net bookings at our Vacation Ownership resorts were 8% below 2019, but in the first 3 weeks of February, net bookings for 2022 were 5% higher than 2019. Exchange is seeing a similar inflection with North American revenue trends swinging positive in February. Internationally, the news continues to improve. Australia has reopened its borders to international travel and our exchange business in the U.K. has seen a rebound in demand. We expect international to be slower to rebound with cross-border travel taking longer to get back to 2019 levels. Although the pandemic has presented tremendous challenges, it ultimately has proven the resiliency of our business.
Our ownership and member-based model with its recurring fee streams and strong cash generation weathered the dislocation in travel over the last two years. These same strengths will be our tailwind as travel and the economy recover. With the economic recovery, we recognize rising inflationary pressures, but we do not view it as a meaningful risk. In fact, one of the core value propositions of timeshare is locking in the value of future vacation costs at today's prices. We can more readily demonstrate the value of ownership when travel costs are rising, which should help close rates. Our business model also allows us to focus on the lifetime value of new owners through future additional purchases, consumer finance and management fees, as well as exchange membership and transaction fees.
As a reminder, 80% of our owners have no loan outstanding and are enjoying their vacation accommodation for the ongoing relatively low cost of their maintenance fees. Turning to our outlook, we expect first quarter adjusted EBITDA of $160 million-$170 million. We're excited to begin 2022 with optimism about the strength of leisure travel. We're focused on delivering the strategy we laid out in September and believe the path to accelerated growth remains clear, broadening the strength of our cornerstone brands and creating a depth of products and services to serve the leisure traveler. For more detail on our performance, I would now like to hand the call over to Mike Hug.
Thanks, Michael, and good morning to everyone. As well as discussing our fourth quarter results, I will provide more color on our balance sheet, liquidity position and cash flow. My comments will be primarily focused on our adjusted results. We reported total company fourth quarter adjusted EBITDA of $228 million and adjusted diluted earnings per share of $1.19 compared to $148 million of adjusted EBITDA and $0.32 of adjusted diluted EPS one year ago. Let me share some operational highlights from our two business segments that led to these great results.
Vacation Ownership reported segment revenue of $695 million, gross VOI sales of $432 million and adjusted EBITDA of $182 million, increases of 37%, 54%, and 58% respectively over the fourth quarter of 2020. We delivered 129,000 tours and a VPG of $3,222 in the fourth quarter, 52% and 10% increases over the prior year. In the fourth quarter, due to continued strong portfolio performance, we released $44 million of the COVID-specific reserve we record in March 2020, resulting in a $28 million net benefit to adjusted EBITDA.
At the end of the quarter, our total reserve as a percentage of gross Vacation Ownership contract receivables was 18.1% compared to 19.3% at the end of 2019. After considering write-offs and the reserve for remaining likely defaults associated with loans that were granted payment deferrals, we have no remaining COVID-19 related receivables reserve as of December 31st, 2021. Revenue in our Travel and Membership segment was $175 million in the fourth quarter compared to $141 million in the prior year. Adjusted EBITDA was $64 million, an increase of 28% compared to last year's $50 million.
Non-exchange transactions, largely driven by PTS, continued to grow faster than exchange transactions and the mix of non-exchange transactions has increased 200 basis points year-over-year to around 40% of total transactions in 2021. Turning to the balance sheet, our corporate net debt at the end of December was $3 billion, and the leverage ratio was 3.99 times. We completed three important transactions in the fourth quarter. We renewed our $1 billion revolving credit facility, extending the maturity date to October 2026, and removing restrictions on return of capital to shareholders that were in place during the relief period.
We closed a $350 million ABS transaction, and we repaid $650 million of senior secured notes due in March 2022, with proceeds from issuing new 4.5% senior secured notes due in 2029. We remain focused on reducing our leverage ratio, and with continued adjusted EBITDA growth, we expect to see this ratio continue to decline throughout 2022. As it relates to return of capital to shareholders, we paid our fourth quarter dividend of $0.35 per share on December 30th, and we will recommend a dividend of $0.40 per share for approval by our board of directors at their March meeting. We also resumed share repurchases in the fourth quarter, buying back $26 million of shares at an average price of $52.94.
As of the end of 2021, we had $328 million remaining under our authorized share repurchase program. Adjusted free cash flow for the year was $223 million with free cash flow conversion from adjusted EBITDA at 29%. We expect to be back around our historic free cash flow conversion range of 55%-60% in 2022, and over time, we expect to see this range move higher to 58%-63% of adjusted EBITDA as we laid out at our Investor Day last fall. Let me just provide some more detail about our expectations for the first quarter. We expect Gross VOI sales to be in the range of $345 million-$355 million, a 46%-50% increase over the prior year.
At Travel and Membership, we are forecasting revenue to increase in the high single digits over the prior year. In the first quarter, we expect the provision for loan loss to be around 17%. This will likely mark the low for the provision in 2022 as we look to increase new owner sales and the percent of sales financed. Both these initiatives are designed to accelerate the growth of our portfolio, but they do impact the provision. For the full year, we expect our effective tax rate to be 27% and the net interest expense on corporate debt to be around $185 million-$195 million. In closing, 2021 was a great year for Travel + Leisure. Our focus on cost controls and quality drove strong margins in EBITDA.
We started the transition back to historical levels of EBITDA to free cash flow conversion, and we ended the year with increased returns of capital to shareholders. We are excited about the foundation we have laid for future growth and the opportunities we have ahead of us. We look forward to catching up with many of you, hopefully in person, over the next couple of months. With that, Ashley, can you please open up the call to take questions?
Certainly. At this time, if you would like to ask a question, please press star one on your touchtone phone. We do ask that you please limit yourself to one question and one follow-up, and we will take our first question from Joe Greff with JP Morgan. Please go ahead.
Good morning, guys. Question for you that dovetails with your comment, Mike, on new owner sales and the loan loss provision going up as a result of that. Are you guys rethinking the universe of credit quality target customers and maybe going back and lowering to go back to that lower FICO band that you know, given that pivot from a couple of years ago?
Yeah. Joe, thanks for the question. You know, we definitely want to drive new owner sales. However, you know, we couldn't be happier with the VPGs we're running. That's a result of, as you mentioned, moving that minimum FICO up to 640. We'll look at that number. Do we ever drop back down to 600 in the near future? I wouldn't expect that we will, but, you know, we'll look at different factors, not just FICO, but other factors. We can look at payment history for owners and things like that to try to drive newer sales and incremental upgrades to get that portfolio growing again. As I mentioned, it does come with a provision increase, but that net interest income obviously is great margin and really great recurring revenue stream. We're always looking at credit quality.
We'll probably hang around that 640 number from an average FICO. As I mentioned, I doubt we go down to 600 in the near future.
Got it. Just with the capital return and buybacks, can you talk about how you're thinking about buybacks here in 2022? Obviously with the net leverage sub 4x and obviously the EBITDA increase in 1Q, you're de-leveraging or reducing that leverage ratio. Paying down debt or hoarding cash doesn't really, you know, give you any great efficiencies. Can you just talk about your buyback activity maybe quarter to date and plans for 2022?
Yeah. Well, first of all, we're very excited to be able to, you know, remove the restrictions we had during the relief period, and that's evident in the share repurchase we did in the fourth quarter. To your point, when you look at our intent as it relates to lowering our leverage rate, we've said very clearly, as we exited the COVID relief period, that we're going to do that through growing EBITDA, not using cash to pay down debt. When it comes to capital allocation, we've demonstrated right there we'll continue to grow the dividend, and we'll go back to that pre-COVID capital allocation methodology of looking at M&A and absent M&A, you know, excess cash will be used for share repurchases.
Buyback quarter to date?
Yeah. No, at this time, we're not going to give, you know, guidance as it relates to, you know, our cadence of 2022 share repurchases. I think what I would point out though is, you know, after the spin-off of the hotel group back in June of 2018, we had a steady and increasing level of share repurchases, absent any M&A activity. We're very excited about the optionality we have as far as capital allocation, and we'll put excess cash to work to drive shareholder value.
Thank you.
Sure. Thank you.
We'll take our next question from Ben Chaiken with Credit Suisse. Please go ahead.
Hey, how's it going? This may be tough given, you know, due to COVID and if you were to exclude Omicron as consumers come back, are you seeing a relative value tailwind between timeshare and hotels? I guess what I'm referring to is rising leisure hotel ADRs making the price value, and importantly, the break-even for timeshare theoretically much more compelling. Don't know if that's showing up in the business or if that's more just theoretical dynamic. Thanks.
Well, it's definitely theoretical, but it is showing up in our business as well, Ben. You know, one of the great components of our business, especially at this point in the cycle, is you can demonstrate very clearly the relative value of ownership of Vacation Ownership compared to a hotel stay or, you know, a house rental, as the case may be. Where we see it show up and there's a dynamic that we have to consider, which is, do you try to drive that incremental 1% price or do you wanna try to drive closing percentages at the table? We've seen a steady increase through both tour quality and I think where we are in the cycle on our close rates.
Our close rates are up, you know, 200-300 basis points from where they were pre-COVID. We think that's a result of not only the change in tour quality, but the value people are seeing in ownership and paying for future vacation stays, future vacation dollars at today's prices. You know, we pointed out in the prepared remarks that 80% of our owners are fully paid off with their loans. You know, if you're traveling in this inflationary environment to a destination and all you've paid for is your annual maintenance fee, it's even more clear the value you're getting out of your ownership.
That's helpful. Then just one point of clarification. So are you saying you're showing us the kind of like two different variables, the close rate and/or price. But are you also taking price? Are you doing both? Are you taking price and also close rate going higher or which one are you kind of like? Or is that a situation by situation basis?
No, we're leaning more toward close rate because the lifetime value of a new owner is not only future purchases but the portfolio which we're trying to grow back in management fees. We're not taking outsized price increases, just normal price increases and looking for the benefit coming out of close rate. I'd also like to add, 'cause that indirectly leads to a margin question, is our balance sheet. We have the inventory already there. It's paid for. We don't have rising construction costs pressures there that could affect margins. We feel like we're in a really good margin situation, and the product that we offer is clearly demonstrable value that we can offer to the consumer.
Thanks. Then just one more. Is there any way. If I missed this, I apologize. Is there any way to, given the slowdown from Omicron in December and January, give us a view of kind of like where you are in, maybe the end of January or February or any data point to kind of like bridge us between pre-Omicron and where we are today?
Absolutely. First of all, just to reiterate, our Q1 guidance takes into account the effects of Omicron. Just let me give you one we normally don't. In February, North American revenue is above 2019 levels, whereas in January, it was below 10%. In arrivals in January to our resorts, we were roughly 6% below, and we're trending flat if not above for February. When you look at forward bookings, as we said in our prepared remarks, that our forward bookings are actually above 2019 levels. It's been a very quick return to pretty much normal operations in February.
Thank you very much.
Yeah.
Appreciate it.
Ben, one more thing, because we talked a lot about how consumer behavior was changing during COVID, that over 90% of arrivals to our resorts were drive-to, whereas they historically have been in the low 70s. That number is back to 73% drive-to, which shows the consumer is returning to their normal travel behavior from a leisure standpoint.
That's really helpful. Thank you.
Thanks, Ben.
Again, as a reminder, that is star and one for your questions. We'll take our next question from Chris Woronka with Deutsche Bank. Please go ahead.
Hey, good morning, guys.
Morning, Chris.
Michael, morning. You know, prior to COVID, I know you guys had always talked about the kind of this target of getting 50% new owners on the VOI side, and I don't think you ever quite really got there. You were moving in the right direction. Now that you've had 2 years to kind of tinker with the business and the strategy, I mean, does that 50% still make sense? Do you think you can get there or, you know, could there be more benefits to? Can you get the same level of free cash flow or EBITDA, whatever you might like to look at if you're in the 40% range?
Yeah, it's a very important dynamic as we've always talked about the lifetime value of new owners is critical to our long-term growth rate. We had presented pre-COVID a 45% target. I would say that was an aggressive target because coming out of the Great Financial Crisis, we had some catch-up to do, and I think we did a great job. We got it up really right at 40% pre-COVID, which laid a great foundation for us going into COVID. We're back at 28%-30%, some quarters 30% during COVID. We expect to trend right back over time back toward the 40% range.
I think it's very important to note my perspective on this is that, if you can sustain transactions somewhere around, you know, the upper 30s and the low 40s of total transactions, you're in a very good place that's sustainable. We will get back into that range. I think just as a point of reference, you know, the three public companies that are out there, one's got a higher percentage, one's got a lower percentage, and I would say all three of us are in a very sustainable, good range of how to grow the business for the long term. I feel good about where we are. We will increase the number into the 30s and then into the upper 30s.
I don't think any of that is a concern for us in the near future as long as we stay on that trajectory to grow it back to the upper thirties.
Yeah. To Michael's point, like we have to rush to get there. If you remember at our Investor Day, we pointed out that our current owner base has $20 billion in revenues available to us over the next 10 years. Kind of going back to their question about FICOs, we'll maintain our quality, be smart about, you know, growing that VOI number, keep those margins high and, you know, get to the right number over time, but we don't have to do that right away.
Okay. Very helpful. Just as a follow-up, as we think about the subscription business, obviously the goal is to grow it. But there's probably a lot of stuff, you know, we don't see. What are you guys internally looking at in terms of measuring, you know, the efficiency of growing that business? Because we don't get to see things like customer acquisition costs or things like that. I mean, what are the key metrics that you all look at to really grow that business on a bottom line, not just a top-line standpoint?
Absolutely. You know, one of the elements that we laid out is we want to grow our addressable market. The subscription business allows us both on a B2B and a B2C basis to grow our ecosystem of who we're developing capital-light transactions from, recurring revenues, capital light. On the B2B side, the Panorama Travel Solutions, we really laid out a few key way stations to know that we're being successful. The first was, can we, you know, provide a value proposition to white label clubs? In the first year, we've seen 18 sign-ups, and our development pipeline is very full, and I would even argue it's accelerating nicely. The next step is an activation phase, which is turning an addressable market into true memberships. It's why we wanted to highlight the National Association of Realtors.
We laid out at Investor Day that we expected activation to be 3%-4%, and in 4 months, we're already at 0.5%, and we haven't even really hit a peak summer season. So we're seeing very good proof points on the activation phase. Then the last is gonna be transaction size. We know that if we get the transaction size we expect in the $300-$400 range, the margins will come with it. It's a funnel of, you know, acquire brands, then activate the brands, or activate the members within that brand and then monitor transaction size.
Given that the Travel + Leisure club, our D2C, our direct-to-consumer, is about 6-9 months behind the launch of Panorama Travel Solutions, we'll be looking at very similar metrics as we start to see activation into the B2C side of our business, being the Travel + Leisure club.
Okay. Super helpful. Appreciate all the color. Thanks, guys.
Thank you.
Thanks, Chris.
We'll take our next question from Patrick Scholes with Truist Securities. Please go ahead. Your line is open.
Hi. Good morning, everyone.
Morning, Patrick.
Morning. From a high level, how do you envision the trajectory of VPG going, you know, this year and next, you know, given that you're trying to get more new buyers in there, but on the other side of that you have, you know, some inflationary forces just naturally rising prices. How do you think about it, and how should we think about that? Thank you.
Great. Yeah, it's a great story we get to share about sort of our pre-COVID and post-COVID level. We've seen just in general rises in our VPGs from, you know, 2,300-2,400 up over 3,000. We would attribute about half of that, maybe slightly more to the mix of owners versus new owners. We would attribute the remainder to, you know, 45%-50% to pure production quality and the performance of our teams, along with the change of the quality of our marketing efforts. The only adjustment that I would make to where we're going at the moment is as we increase, as Chris was asking, to 32% new owners to 34%, there'll be a very modest headwind to the VPGs.
I will say that as the leisure travel environment continues to be strong, and we see the early indications about how our teams are performing, they continue to surprise, and they shouldn't because they always perform, and they always do a great job in the field. Our VPGs are holding up very well, and I would add anecdotally that includes Q1. In the midst of Omicron, the performance on VPG continues to be at that expectation and not above it. Maybe a slight pullback as the year progresses and the mix changes, but not significant.
Okay. Thank you for the color.
Thanks, Patrick.
We'll take our final question from David Katz with Jefferies. Please go ahead. Your line is open.
Hi. Good morning, everyone. Thanks for taking my question. I wanted to just check in with respect to the securitization market. Obviously, you know, it's been so good, right? The recent transactions have been, you know, super strong. But that was back in October. You know, what are you seeing today in terms of, you know, what it would be if you went to market today? You know, what are you contemplating as we move through the rest of the year so far?
Yeah. Thanks, Dave, for the question. We expect as we move through the rest of the year to kind of get on our normal cadence of three transactions a year. Obviously, as you know, we're in a rising interest rate environment, so we would expect rates to go up. You know, the under 2% that we were able to get throughout 2021 probably won't be available to us this year. Keep in mind, it is still very attractive rates. We are expecting an increase. We do expect to be in the market three times a year. We're looking for those advance rates to stay, you know, in the high 90s. Overall, very optimistic about the market.
Keep in mind all our term transactions that we've already issued are fixed rate, so any exposure we have is really on any new issuance that we have, you know, this year and going forward. Shouldn't be a significant impact to 2022 earnings when you think about the cadence of those and when they occur in the year.
Okay. Thank you very much.
Sure.
Thank you. That concludes our question and answer period. I would now like to turn the call back over to Michael Brown for closing remarks.
Thank you, Ashley. As we head into 2022, we are focused on a very clear and simple ABC strategy. We wanna accelerate our growth of our global business, we wanna broaden strength of our cornerstone brands, and we wanna create depth of our products and services. I'd like to recognize our global team of associates for contributing to our success and for serving our owners, members, and guests. Thank you to the shareholders and stakeholders of our company who have put their trust in our ability to put the world on vacation. We're building on a great foundation, and I hope you're as excited as I am about the future of Travel + Leisure. Thanks, everyone, and have a great day.
Thank you. That concludes Travel + Leisure's fourth quarter and full year 2021 earnings conference call. You may now disconnect your line at this time, and have a wonderful day.