WEBVTT - Travel + Leisure CEO Talks Earnings, Timeshare Business

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Travel and leisure forecasting a rebound in it's timeshare business.

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<v Speaker 2>Not really a rebound. It's actually continues to see strong

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<v Speaker 2>games year after year. It's done well in this sector.

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<v Speaker 2>The company does see travel and membership revenue falling in

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<v Speaker 2>the second half of the year. Shares are near twenty

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<v Speaker 2>twenty two levels, so they've really that's where you've seen

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<v Speaker 2>a rebound. Joining us now is Mike Brown, the president

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<v Speaker 2>and CEO of the company, And Mike, you know, I'm

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<v Speaker 2>looking at the numbers that just get better and better

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<v Speaker 2>and better every year in terms of estimates, but travel

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<v Speaker 2>has been a worry, especially for lower end consumers this year.

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<v Speaker 2>How does it look to you?

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<v Speaker 3>Well, for us, we've seen I think the two words

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<v Speaker 3>I describe or resilience and consistency. We saw throughout the

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<v Speaker 3>second quarter. Why there was some wobble early in the

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<v Speaker 3>quarter from hotel groups, ours continued to stay strong and

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<v Speaker 3>our consumers, who typically book about four months prior to

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<v Speaker 3>the summer travel, they own their vacation already, they've planned

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<v Speaker 3>for it, so they're going to use it. And we

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<v Speaker 3>didn't see any wobble for us at any point in

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<v Speaker 3>the second quarter, and then as we look already into

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<v Speaker 3>the third quarter, travel remains consistent and steady for the

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<v Speaker 3>next ninety days.

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<v Speaker 1>Interesting. So you have a very unique business model, if

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<v Speaker 1>you want to call it that. So, you know, unlike

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<v Speaker 1>talking to some of the peers that we would consider

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<v Speaker 1>in the travel industry, like you said, you have a

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<v Speaker 1>much more set sort of membership base. So I mean,

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<v Speaker 1>do you describe yourselves as selling time shares? Is that

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<v Speaker 1>or do you phrase it differently?

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<v Speaker 3>No, it's time share, Some people call it vacation ownership,

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<v Speaker 3>shared ownership. Either way, the fundamentals are very straightforward. Is

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<v Speaker 3>you prepay your vacations and in times in rising prices

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<v Speaker 3>like we've seen the last three years, the value you

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<v Speaker 3>get in your ownership is just super noticeable. For families

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<v Speaker 3>who are looking to preserve the value of their vacation dollars,

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<v Speaker 3>they're definitely going to go. And what we've seen this

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<v Speaker 3>year is as prices have risen for hotel rates or

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<v Speaker 3>vacation rentals, they've seen incredible value in their ownership. And

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<v Speaker 3>for our owner base, which is over eight hundred thousand,

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<v Speaker 3>eighty percent of them have fully paid for their ownership.

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<v Speaker 3>So there's no reason for them not to travel. Usually

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<v Speaker 3>the only decision they make are are they going to

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<v Speaker 3>fly or are they going to drive? And even in

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<v Speaker 3>those trends, we haven't seen a change. So value flexibility

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<v Speaker 3>and they fully paid for it. So why not get

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<v Speaker 3>on vacation this summer.

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<v Speaker 2>That's interesting. So when these airlines, the big airlines come

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<v Speaker 2>out with earnings lately, what they're saying is it's their

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<v Speaker 2>higher income consumer, it's you know, premium economy, it's the

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<v Speaker 2>business class tickets that are doing well. What's your target

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<v Speaker 2>market at travel and leisure? Who are you selling these

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<v Speaker 2>properties to?

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<v Speaker 3>So as we came out of COVID, we changed our approach.

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<v Speaker 3>We saw that our business was most efficient at a

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<v Speaker 3>six hundred and forty FICO and above, and that's so

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<v Speaker 3>our minimum standard. But our average FICO for new purchasers

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<v Speaker 3>is seven hundred and forty six, average household income almost

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<v Speaker 3>one hundred and twenty thousand dollars, and as far as

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<v Speaker 3>Gen X millennials and Gen Z that represents nearly seventy

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<v Speaker 3>percent of our new purchasers. So it's really appealing to well,

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<v Speaker 3>let me flip it around. We're less exposed to that

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<v Speaker 3>lower and consumer that you were just speaking to, and

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<v Speaker 3>we're showing that the hiring consumer that seven forty six

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<v Speaker 3>FICO traveler is continuing to go on vacant and we're

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<v Speaker 3>benefiting from it. Our forward look is showing our bookings

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<v Speaker 3>to be super consistent for the next three months, as

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<v Speaker 3>well as our portfolio loans of people who do use

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<v Speaker 3>finance to purchase their timeshare. There's really been no deterioration

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<v Speaker 3>in the portfolio that we have, Mike.

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<v Speaker 1>In the commercial break, Matt and I were taking a

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<v Speaker 1>look at the MODL screen on the Bloomberg terminal, taking

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<v Speaker 1>a look at the different segment revenues for travel and leisure,

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<v Speaker 1>and you can see the vacation ownership, like Matt talked about,

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<v Speaker 1>it's been steadily growing over the past several quarters. But

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<v Speaker 1>then I take a look at corporate has been declining.

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<v Speaker 1>It looks like for several periods in a row here,

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<v Speaker 1>and I wonder how you're approaching that part of the business.

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<v Speaker 1>Are you deemphasizing this or is there a plan to

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<v Speaker 1>turn corporate around.

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<v Speaker 3>Well, we basically have two primary segments and the core

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<v Speaker 3>of our business. Seventy percent of our EBITA comes from

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<v Speaker 3>our vacation ownership segment we've launched. Over the past three years,

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<v Speaker 3>we've rebranded the company from Windom Destinations to Travel Leisure

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<v Speaker 3>because we want to pursue a multi brand strategy. With

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<v Speaker 3>that strategy, we've been able to acquire a core vacation club,

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<v Speaker 3>a world class hospitality brand. We've been able to accelerate Margaritaville,

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<v Speaker 3>and we'll be launching later this year Sports Illustrated Resorts,

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<v Speaker 3>so we will be we will be emphasizing that segment

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<v Speaker 3>of the business. The corporate which is which depending on terminology,

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<v Speaker 3>is really a portion of our business, the smaller one

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<v Speaker 3>that has structural headwinds that we think will become less

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<v Speaker 3>a portion of our business going forward. But despite those headwinds,

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<v Speaker 3>we've been able to meet our second quarter targets of

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<v Speaker 3>two hundred and fifty million of view and reafform reaffirm

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<v Speaker 3>our full year guidance. So we think we'll see more

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<v Speaker 3>emphasis on the vospace and less emphasize us on the

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<v Speaker 3>rest of the business going forward. But we think that

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<v Speaker 3>strategy will lead to mid single digit growth and incredible

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<v Speaker 3>return of cash to our shareholders, which is about fifty

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<v Speaker 3>percent free cash flow to Ebita.

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<v Speaker 2>Much has been made of a ten percent drop eleven

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<v Speaker 2>percent drop in the US dollar from its hives. Mike,

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<v Speaker 2>does this affect you? How do you look at this?

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<v Speaker 2>Are are you know, Europeans with more money able to

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<v Speaker 2>come over and spend more? Are Are are you having uh?

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<v Speaker 2>You know, are are you having to pay a little

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<v Speaker 2>bit more when you buy foreign destinations? What's what's what's

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<v Speaker 2>the mean to you?

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<v Speaker 3>Yeah? You know, all the macro news, whether it's currency inflation, tariffs,

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<v Speaker 3>none of that has really impacted US. And it's for

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<v Speaker 3>some simple reasons. Percent of our US consumer ninety percent

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<v Speaker 3>of our consumers are US domisi child, which means all

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<v Speaker 3>of our risk is inside the US, which has great regulation,

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<v Speaker 3>it has great affinity toward brands like ours. So the

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<v Speaker 3>international travel, the weakness of the dollar, it might affect

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<v Speaker 3>us positively for European travel to the US, but it's

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<v Speaker 3>really on the margin. It won't affect our full year results.

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<v Speaker 3>It simply may modestly change our mix because of our acquisitions.

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<v Speaker 3>For instance, a core vacation club is primarily in Asia.

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<v Speaker 3>All of that cash recycles within the region and it

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<v Speaker 3>doesn't create an incremental risk to US. And again, ten

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<v Speaker 3>percent of our business is international, So what we're really

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<v Speaker 3>watching for is how the US economy and how the

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<v Speaker 3>US consumer is holding up. And as we saw in

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<v Speaker 3>Q three, as we're already seeing, sorry, as we saw

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<v Speaker 3>in Q two, and as we're already seeing in Q three,

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<v Speaker 3>that consumer and the US economy from our perspective, is

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<v Speaker 3>holding up extremely well.

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<v Speaker 1>All Right, that's a good place to leave it. Mike,

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<v Speaker 1>always great to speak with you. That is Mike Brown.

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<v Speaker 1>He is the CEO of Travel and Leisure