Hello, everybody. Hope you guys had a good lunch. We're here with Erik Hug from Travel + Leisure, the Chief Financial Officer. Erik, maybe we'll start with a very brief overview of the business, and you can kind of take that right into an overview of how the timeshare consumer feels as near-term as you're allowed to say.
Sure. Brandt, thanks for having us today. So Travel + Leisure is the largest vacation ownership and exchange company. We are headquartered in Orlando, Florida, and we operate under two operating segments. The first is vacation ownership, which is roughly three-quarters of our company. And this is a points-based vacation ownership product, really backed by our 280 resort inventory. The business is marked by highly predictable revenue, strong cash flows. Our second operating segment is travel and membership. This is roughly a quarter of the company. This is a product and a platform that allows customers to exchange their timeshare across multiple different providers. This business is marked by a member base of roughly 3 million individual exchange members, multi-year contracts, high recurring revenue. The business itself, from a financial perspective, we generate roughly $4 billion of revenue, a little less than a billion dollars of EBITDA.
We convert roughly 50% of our EBITDA into free cash flow, and through the first nine months of the year, revenue grew roughly 4%. EBITDA grew roughly 6%, EPS up 14%, and free cash flow per share up roughly 20-plus%. Really good start to the year through the first three quarters. The consumer for Travel + Leisure continues to be very durable. Zooming out on our third quarter results, we raised our guidance, our outlook associated with gross vacation ownership interest sales. We raised our outlook associated with volume per guest. This is a key metric of ours, a key demand metric of ours, VPG. We raised the outlook there, and we raised the outlook for Adjusted EBITDA, and we modestly increased the outlook associated with free cash flow.
Since that time, since October 22nd, when we had our third quarter call in the seven weeks that have elapsed since then, the story is roughly the same. Our consumer is roughly the same. When we look at some of the key KPIs associated with the business, whether it's booking window or arrivals or our provision, we're seeing very consistent trends through the first two months of the fourth quarter.
That's a great overview. Thanks for that. I want to double-click on the consumer a little bit more, and the reason why is because across pretty much every other travel vertical, we've seen either outright softness or maybe some softness, and I think that this year has been choppy for the consumer, it seems to have hit different businesses in different ways, so maybe talk about how the travel and leisure consumer seems to be bucking that trend, and then talk about any variation you're seeing between geographies or fly-to, drive-to, and that sort of thing.
Sure. So our consumer has been strong. When you zoom out and look at some of the characteristics of our owner base, our new owners are in their early 50s. We've got average income, average household income, roughly $120,000. Roughly 70% of our buyers are Gen X, Gen Z, or millennials. We continue to lean in on improving credit quality. We changed our minimum FICO score in 2022, and we have consistently seen sequential improvement in weighted average FICO score at origination and weighted average FICO score on the portfolio. So the consumer that's buying from us has been very predictable and very consistent. And we continue to see roughly two-thirds of our transactions come from existing owners. So I think the volume of transactions that are coming from existing owners really speaks to the value proposition and the product that we have to offer. From a geography perspective, we're not seeing any ebbs and flows of note within any of our geographies.
You touched on repeat sales as a portion of your overall sales. One of the interesting things about this business is the levers that you have between, let's say, repeat and new. And for the audience, I think traditionally, you maybe disagree, new owner sales are a little harder to engender, right, because these are folks that don't know the product, don't like the product, they're sort of new to it. And so in times of macro, let's say, macro softness, new owners would seem to be a tougher, even a tougher business versus repeat business. So talk about what's in your control and which of those levers have you pulled throughout this year to sort of react to the macro.
So as I mentioned, roughly two-thirds of our transactions come from existing owners. Our target long-term mix between new owners and existing owners is 35%. During the third quarter, it was 31%. The second quarter, it was 30%. Full year 2024, it was 35%. So what we've seen in 2025 isn't so much softness on new owners. We've had a good year with new owners. We've just had a really good year with existing owners. So the existing owners, when they arrive at a property, we have an opportunity to tour them. When we do to drive incremental sales, an existing owner might upgrade for a couple of different reasons. They want to spend more nights at our resorts. They want larger properties at our resorts. They want to move from a one-bedroom to a two-bedroom or a two-bedroom to a three-bedroom, or they want better amenities.
So there's many different flavors associated with what's driving sort of the upgrade, the volume of upgrades. And then on the new owner side, I think one of the things that really differentiates us is that we're very front-footed. We do direct marketing. We don't wait for the phone. We make the call. And that's been, I think that that is a key differentiator when you zoom out and you look at some of the macro choppiness that we're seeing, and you know that Travel + Leisure is in a unique position to be able to drive some of our own demand.
Okay. Maybe we can roll that up into 2026. What are some of the puts and takes that we should take into account when thinking about how T&L can sort of grow? Is the big, beautiful bill a tailwind? Is that something that's even on the radar? Or how are you looking at 2026 right now?
Yeah. So maybe a couple of things on 2026. And I don't want to get too ahead of the guide or too ahead of the budget that's still in process. But broadly speaking, we have got an owner base today that continues to want to upgrade. We've got a history of being able to take a new owner and upgrade them two and a half times over the first 10 years of ownership. So $1 of a new customer sales today over the next 10 years becomes $2.50. So we've got a very predictable conversion of upgrades, so the continued momentum that we're seeing now. We've got to focus on new owners as we head into 2026.
In addition to the focus on new owners, we've got new brands that we're feathering in with Sports Illustrated and Eddie Bauer, continued momentum with Margaritaville and the Accor Vacation Club that we acquired in 2024. So feel good about what we're doing from an owner and a non-owner perspective. Our consumer finance portfolio, we've got relatively static rates that we originate with our customers. As we move into a declining rate environment, there should be some modest pickup associated with spreads in the consumer finance business. And then along the same lines with interest rates, roughly a third of our corporate debt is variable-based. So as we move deeper into a declining rate environment, we should also have a tailwind associated with interest expense. And then the one question that we get a lot of discussion about is our loan loss provision. So as we move into 2026, and as we talked about on our third quarter call, we're expecting our loan loss provision to be lower in 2026 than it was in 2025.
Everybody wants to know how much lower. In the right direction, it's something material, which you've said publicly.
Which we did say publicly. So maybe a little bit of dialogue on the loan loss provision as we've moved through 2025. So we started the year, we guided to a loan loss provision of 20%. As we moved towards Liberation Day, we saw some softness in delinquencies. We modified the full-year provision from 20% to 21%. And that 21% moved through the second quarter, reaffirmed on the second quarter call, it moved through the third quarter, reaffirmed on the third quarter call. Two months later, we feel good about it being 21%. So I would expect the fourth quarter to be lower than the third quarter and 2026 to be lower than 2025. On the third quarter call, Brand, I loosely talked about the number settling in potentially at or below 20% in 2026 and over the longer term into the upper teens.
Upper teens. Okay, great. Now that we're well into the consumer finance section of the call, so we'll just keep going with that. When you look at the delinquencies, delinquencies were trending upward throughout the, well, 30- to 60-day. That's the only stat I have in front of me. But you did call out an inflection positively. So I guess what you're saying is that the inflection that you saw as of the third quarter call has put you on a run rate that would suggest the reserve next year should be lower than this year. Is that kind of what you're saying, or do you need that delinquency to keep getting better to make what you just said?
We feel good. Number one, we've been pretty consistent about 21% through the year, and it does take a couple of quarters for us to change the full-year provision number upwards or downwards. As we head towards 2026, we've done several things in 2025, including the continued improvement in the FICO scores at the point of origination, some investments that we've made associated with the owner experience, and then broad-based improvements in our collection capabilities, whether it's with data or technology as we head into 2026 that give us comfort that will be down year over year.
Okay. One of the things that stand out to folks that look at this industry is, yeah, is that reserve rate, which hasn't really changed, right? I mean, if you look back, it's even, I mean, I don't want to misstate these, but the reserve rate is around the highest it's been post-COVID, and it's higher than it was immediately pre-COVID. And yet the customer credit continues to move better. It's the best customer, it's the best FICOs you've had in the history of Wyndham. And so people look at those two things together and say, "This doesn't seem sustainable," right? Are there any other things going on? Maybe it's propensity to lend, maybe it's just conservative. Why are those two metrics not more correlated, inversely correlated, let's say?
If I could just zoom out and maybe talk again about some of the things that we've done. We made some investments in the business. We're deliberately pursuing higher quality tours, the higher quality tours with higher quality customers, better credit quality on the front door, which leads us to have more and more comfort as we exit the year that we're heading towards 2026 with a provision rate that's going to be lower. And you know, Brand, there's one other component that I might pull into the discussion associated with the provision, and it's our cost of sales. So as Travel + Leisure has got an elevated loan loss provision, that provides us the opportunity to recycle inventory when it comes back to Travel + Leisure and put it on the balance sheet with a very low cost of sales.
We're able to take that inventory and reprice it to today's prices and remarket it back out. So one of the things that I've done over the first couple of quarters here at T&L is start to look a little bit through the lens of you've got the gross provision, and then you've got the provision net of the cost of sales. And I think when you look at the two things together, T&L versus maybe some of the other operators, operate in a much more narrow band.
That's interesting. Okay. We will be running that math right after we get off stage. I appreciate that. You talked about feathering in new brands. I want to talk about how big the feather is. You have four new brands, right? Sports Illustrated, Eddie Bauer, I'm saying Margaritaville's, Momentum still going, and then Accor, of course. And I think we have an idea of size-wise what these should be standalone over time. I think you said $250 million-$500 million annual gross contract sales. How should we think about next year in terms of what it could mean and maybe specifically between which brands are going to contribute what?
So let me talk about the two brands that we have today that we're marketing, that we're selling, that we're growing. So Accor Vacation Club International bought it in 2024, performing very well, outstripping the business case associated with the deal, feel very good about the continued growth of Accor. Our Margaritaville Vacation Club also performing very well, more mature business for us, but continuing to grow nicely. And then the two new ones in 2020, 2025, it's the Eddie Bauer Adventure Club and Sports Illustrated. So Eddie Bauer, we've got one dot on the map. It's in Moab, Utah. And then Sports Illustrated, we've got three. We've got Chicago, Nashville, and Tuscaloosa. So as you try to frame, speaking specifically around Eddie Bauer and Sports Illustrated, as you try to frame 2026, it really is a year for us to get them off the ground.
I wouldn't think about inclusion and modeling at this point. This is a year where we're trying to get some scale in the brands. You'll see more dots on the map and really try to grow the individual clubs.
So, dots on the map are projects work in progress. They're not open dots on the map, right? Okay, just making sure.
That's right.
Sports Illustrated has captured a lot of people's attention. And I think a lot of, I don't know if a lot of people have looked at doing these over the years, but I know that some folks have, and they were afraid of the seasonality. And I think you guys probably looked at that pretty closely when you first started looking at these deals. And so college towns revolve around, let's say, football, maybe it revolves around basketball, maybe it revolves around the graduates and the undergraduates' schedules and things like that. What are the differences in sort of operating guidelines when you think about getting that product off the ground? Because I think you'll be the first one ever to do a sports college town timeshare. What do you think? How will it be different? And why are you not at least cognizant of some of the seasonality factors?
Yeah. Let me first address the question associated with college towns and football season, right? So we're going to have a location in Tuscaloosa, Alabama. And it's not just six weekends a year, right? I mean, one of the benefits of having a real points-based system is having that sports enthusiast be able to go to Chicago to catch a Blackhawks game, to be able to go to Nashville and catch the Titans. And as we expand that network, we're going to have more and more locations for them to visit. And the same thing with Eddie Bauer Adventure Club, Moab, Utah, think trails, think mountain biking.
As we continue to expand into experiences, you're going to see more and more locations for Eddie Bauer, more and more locations for Sports Illustrated. And it's well more than the six football weekends per year. It's coming to Tuscaloosa for a basketball game or graduation or to just see your child. But the points-based system allows the owner to transact and visit and stay within the network, growing network.
Do you think that Sports Illustrated will have a greater or lesser network effect than a standard timeshare resort, given the fact that maybe some folks just want to go to their alma mater versus go to a game in every SEC school, let's say down the road, versus in the resorts where people do want to try every resort? Is that something that you think might be a factor as well?
I think it could. I think the fact that we're going to ultimately build a network, we could stay with the example of SEC football. So you purchase at Tuscaloosa, Alabama, but we put a location in a different location, whether it's College Station or Gainesville. That gives you the opportunity to visit there for that game. But more broadly, it gives you the ability to travel within the network and visit other locations with that same affinity to Sports Illustrated.
Okay. Let's move to some of the other parts of the business. You're not just a timeshare company. You have travel clubs. Let's do travel clubs first. They were a focus immediately coming out of the pandemic. The travel clubs, I'm sort of lumping in both the B2C and the B2B. But that was a sort of exciting new business. It didn't take off right away. I personally witnessed sort of a focus, call it maybe like a downshift in focus there and maybe a turn of focus back toward timeshare and what we would call maybe the core business. But then out of nowhere, clubs had a great third quarter.
Clubs did have a great third quarter.
Out of nowhere. What exactly is happening there? Did the focus ever retreat a little bit, or was it just something you guys didn't talk about, but under the surface were keeping going? Then please sort of differentiate between B2C versus B2B, because those are different businesses.
I would say that the travel clubs predominantly B2B. So let me just start with that. The investor day that happened a couple of years ago, there was a refocus associated with what that business could ultimately become. So we have refocused it to B2B. It did have a great third quarter. Transactions were strong in the third quarter, revenue growth strong in the third quarter, positioned well for a strong fourth quarter. The travel club's business itself represents between 4% or 5% of total company revenue. So it's important because it's growing. We continue to focus on driving transactions to improve overall contribution margins and its contribution to EBITDA.
It's part of the travel and membership segment where we are continuing to focus on resource allocation to make sure that we're driving every dollar of EBITDA and generating every dollar of cash that we can out of that business.
Okay. That's helpful. I do want to touch on Exchange. That business is sort of a structurally declining business, or it has been for a long period of time. You've been at the company for six months. Have you uncovered in your short time a network effect or a synergy or a reason why that business won't continue to sort of shrink over the long term? No pressure. Are you the savior of Exchange, or what have you learned so far?
The business does have a structural challenge. So I mean, a couple of things. The business has got a structural challenge. The business also has three million members, and those three million members have got multi-year contracts with us. The real challenge for us, Brand, is how do we reinvent that business in a way where we can bend the curve on that business? As I look at 2026, it looks a lot like 2025. There is a lot of focus, energy, and effort underway within the Travel and Membership business for that real unlock associated with leveraging those three million members that we've currently got.
Okay. Okay. Let's maybe talk a little bit about M&A. I think the industry has consolidated over the last decade. There's three major timeshare companies. You guys are the only major, and well, the largest, but you're the only major without a big hotel affinity brand. Is that something that you think is an interest for you as an organization over the long term? Do you think that the interest in that has gone down with the recent performance you guys have found without having that? I mean, you do have an affinity program with Wyndham. I don't want to say you don't, but it's a minority of your traffic versus your branded peers that have a majority of their traffic. So it is a very big difference in business models. How much do you think you need a brand long term?
I look at how we very deliberately rebranded ourselves to Travel + Leisure so we could operate Margaritaville and Accor and Eddie Bauer and Club Wyndham, the WorldMark Club, all independently. And so I think the fact that we don't have. We've got the brand affiliation with Wyndham, as you said. Our Blue Thread relationship is very strong. But I do think the fact that we operate under Travel + Leisure is a bit of a differentiator for us, and it does provide us with a little bit more flexibility.
Do you think you're getting network effects in the system? Do you think that customers who are a Margaritaville member or a Club Wyndham member, are they cognizant of the Travel + Leisure umbrella? Is that creating any sort of buzz or consumer proposition?
I think the proposition will ultimately manifest itself in a Club Wyndham owner who sees us continue to build the Sports Illustrated network or the Eddie Bauer network. And that provides them, affords them the ability to exchange into one of those clubs. So I do think that there is a level of affinity associated with the Travel + Leisure brand bar.
So even though they're part of one club, they can trade into the other club?
Two things. Number one, we want to build each of these brands independently. So as we sell into the brands, there's availability for the buyers. But there is the ability for us to exchange in, think RCI, into some of the new brands that could consume inventory.
Okay. Is there a pool of potential acquisition targets, not necessarily for you, but just in the broader timeshare space? Is there how many sort of smaller subscale branded or non-branded timeshare players are there left that haven't been acquired?
I think that there's eight providers. In aggregate, I think there's eight providers. When you think about M&A in the space, the universe has gotten much more narrow. So I mean, it's a smaller universe of potential targets. Over the next several years, you could certainly see some of the smaller, more regional players trade bigger operators very hard. But for us at Travel + Leisure, we're focused on driving shareholder return. And when we stack M&A up against buybacks or internal investments, the best project wins. And we're going to continue to be very focused associated with capital allocation, ensuring that we've got the appropriate reinvestment returns or project returns when thinking about either M&A or other alternatives.
Okay. You've got four big new or existing brands that you're focused on for next year. Are you hunting for more standalone brands, or is this maybe longer term, or do you think you have enough interesting things going on for now?
We've got a lot of interesting things going on right now. I would say that we're always interested in looking through the lens of, are there things that could potentially be accretive to the top line, accretive to the bottom line? I think right now we feel good about where we are from a brand perspective.
Okay. All right, so moving out of the balance sheet, can you remind us the current inventory position, leverage, and sort of long-term targets for both inventory and the balance sheet?
Yeah, so current inventory positions, roughly four to five years. The majority of our new inventory is coming through our new brands, and then that is augmented by the recapture, the recycling of inventory that will come through defaults, and then from a leverage perspective, our stated leverage is two and a quarter to three. That was concurrent with the spin. We're operating at roughly 3.3. Leverage went up on the backside of COVID, and we've naturally been deleveraging since that time, should exit the year at roughly 3.2 times leverage. I think we feel good about where we're at, and we would expect to see continued progress downward as EBITDA continues to grow.
Okay. Four to five years of inventory on the balance sheet. I kind of remember a lower number being sort of optimal, but there was excess inventory coming out of COVID, and then maybe the new brands are requiring more inventory. What is the optimal level of inventory?
The optimal level of inventory between two and three years.
Two and three years, right? Okay, but you're at five, so is that just an opportunity, or are you running that higher because of the brands?
What I would say about inventory is we've got one initiative in 2026 that should help prune inventory. So as we've gone through 2025, we've looked at the entire resort infrastructure, the entire inventory of our resorts, and really looked to see if there were non-performing, lower customer satisfaction, lower owner satisfaction, lower occupancy, and potentially had significant infrastructure-related deferred maintenance. And in the back half of 2025, we've decided to take out roughly a dozen of them. And what that does for us is a couple of things. One, let me walk you through all of the pieces here, Brandt. One, there is lower property management fees associated with this dozen resorts. Two, less rental income associated with the resorts. Three, a couple of them had a sales center, so an impact from VOI sales. But four, lower carry costs.
So it gives us the opportunity, as we prune down the balance sheet, it's lower carry costs associated with this small population of resorts, which helps get us back towards a more normalized inventory level.
Okay. One other thing that you pruned was the channels, the channel mix coming out of COVID. Maybe you can remind me the number of tours that you, in terms of percentage of tours of the channels, the lower quality channels that you took out, something like 40%, right? Or it was a large number. Maybe you never gave that number. Don't respond. This one maybe wasn't published. But you sort of zigged the rest of the industry's act, right? They sort of went all in on growing sales, and you guys pulled back on the lower quality channels. Can you do a postmortem on, clearly that was the right thing for you guys to do. Can you do a postmortem on what that's done for the organization and the business as a whole sitting here today, now having fully recovered EBITDA four years later, but end up with a higher quality?
You're right. So we moved our minimum FICO score from 600 to 640, and it did a couple of things. Number one, it's a drag on sales, right? So it was a drag on tours, drag on sales. But the flip side of that is lower sales and marketing expenses, lower provision, higher quality tours, higher quality customers, and more EBITDA, and a better quality of earnings.
Okay. Is there any questions in the audience for Erik? Anybody want to buy a timeshare? No? Okay. Maybe later. Last question is on capital allocation, and again, pre your time, but T&L has a long history of being very good stewards of capital and good capital returns, investor-friendly management team in terms of capital returns. What is the philosophy on dividends versus buybacks? How has that changed, if at all, over the sort of longer-term evolution of the company?
Let's talk about. I might even start further upstream with CapEx. So CapEx is a percent of revenue in 2025, roughly 3%-4%. I think 3%-4% is a good starting point for 2026. The company generates almost $1 billion of EBITDA. We convert roughly 50% of it to free cash flow. And of that 50% that we convert to free cash flow, roughly 80% of it's going back to our shareholders. So we continue to invest for growth. That's the first thing that I would say in the business. Number two, we're committed to our dividend. We've grown our dividend double digits over the last several years. And as I stare into 2026, I think you'll continue to see the dividend move with earnings. And then beyond that, in the absence of other investments, we continue to very programmatically buyback shares.
Through the first three quarters of the year, we've repurchased roughly $210 million worth of shares. Our dividend yield sits between 3% and 4%. Our buyback yield is roughly 6% to 7%. So sort of total shareholder yield right now is double digits. And our free cash flow yield at today's market cap, roughly 11% to 12%. And we're doing that all in an environment where we've got a recurring revenue business that's asset-light with a return on invested capital in the 30s% and a weighted average cost of capital at approximately 10%. So a 20-point spread between Roik and WAC. We feel really good about our capital allocation and the discipline that we've had over the last several years at T&L.
Last chance in the room?
This is maybe a bit tangential. I'm hoping you might indulge me. Since you're in Orlando, maybe you've seen what's going on with the theme park operators. I wonder how much you overlap with them and what you think is maybe going on with that consumer right now, if there's anything you'd be willing to volunteer.
So we do some direct marketing within a couple of the theme parks. I would say that arrivals to Orlando seems relatively static. And the performance that we get out of the theme parks is generally strong. A very qualified customer.
But all of your customers in that market are domestic?
They are.
A lot of the theme parks have international, that's weaker.
That comment was specific to Orlando, yes.
Yeah. Yeah. Yeah.
Thank you for the question.
Anybody else?
Do you perceive any bad perceptions from Airbnb business or the kind of business?
I think the one thing that I'd say, if you were to compare and contrast Travel + Leisure timeshare versus Airbnb, there's a couple of very predictable things that we get. You get consistent quality of resorts. You get consistent amenities and a consistent experience. I think that might be how I contrast T&L versus what you might experience at Airbnb.
Okay. We're at time. Erik, thanks for the time. I appreciate it.
Good to see you. Thanks for having me.