Q4 2023 Earnings Summary
- Expansion through strategic partnerships with Accor and Sports Illustrated: TNL's acquisition of Accor Vacation Club adds 24 resorts and 30,000 members in the Asia-Pacific region, providing immediate scale and opportunities for future expansion into new locations and regions of the world. Additionally, the investment of $41 million in Sports Illustrated allows TNL to build new resorts and tap into a celebrated brand, supporting long-term growth.
- Strong forward bookings and increasing demand: TNL reports that resort bookings are ahead 5% on room nights for the full year compared to 2023, particularly in key destinations like Las Vegas and Orlando, indicating strong consumer demand and leveraging leisure travel momentum. The continuation of longer lengths of stay validates the work-from-anywhere environment, contributing to increased occupancy and revenue.
- Consistent capital allocation strategy with focus on shareholder returns: Despite strategic investments, TNL maintains its commitment to returning capital to shareholders, having returned 15% of capital through dividends and share repurchases last year. The company plans to continue increasing dividends and share repurchases, using free cash flow effectively while investing in opportunities that support high single-digit long-term growth.
- The company expects an additional $30 million in interest expenses for 2024, significantly impacting profitability and posing a headwind to adjusted EBITDA growth.
- The Travel and Membership segment is projected to achieve only low single-digit adjusted EBITDA growth in 2024, reflecting challenges in the business and limited growth prospects.
- Adjusted free cash flow conversion is expected to be around 50% in 2024, lower than previous years, due to elevated interest rates increasing interest expense and impacting cash flow generation.
-
EBITDA Guidance and Segment Growth
Q: Is low EBITDA growth due to low VO growth and flat Travel Membership?
A: The low single-digit EBITDA growth guidance is primarily due to a $30 million interest expense headwind and variable compensation adjustments. Excluding these, year-over-year growth would be 4–6%. The VO segment is expected to grow in low single digits, and Travel and Membership will have mid-single-digit revenue growth with low single-digit EBITDA growth.
-
Variable Compensation and Segment Impact
Q: How does the $17 million variable compensation benefit impact segments?
A: The $17 million variable compensation benefit mainly affects the Travel and Membership segment. The corporate level is also impacted due to consolidated NAV considerations. The VO segment had the smallest impact as it performed well for the year.
-
Capital Allocation and Buyback Activity
Q: What caused the slowdown in share buybacks in Q4?
A: The decrease in share repurchases was due to capital allocation towards strategic investments, including the $41 million acquisition of Sports Illustrated. Additionally, the $50 million acquisition of Accor in Q1 will utilize free cash flow, affecting buyback activity.
-
Capital Allocation Philosophy Amid Acquisitions
Q: Any changes in capital return strategies due to new initiatives?
A: There is no change in the capital allocation strategy. Dividends remain foundational, and the company balances strategic M&A opportunities with share repurchases. Investments in Sports Illustrated and Accor are aligned with long-term growth objectives.
-
Tour Growth Expectations and VPG
Q: What are the expectations for tour growth and VPG?
A: The company anticipates over 10% tour growth in 2024, driven by increased owner room nights and regional marketing efforts. VPG is projected at the high end of the long-term guidance range. New owner transactions will exceed 35%, setting up for stabilized long-term growth.
-
VOI Margins and New Owner Mix
Q: How will VOI margins and new owner mix impact 2024?
A: VOI margins are expected to be slightly down due to a $30 million interest expense headwind and about $10 million pressure from higher new owner mix. The margin drop is primarily at the VOI level, and moving to a 35–36% new owner mix is a strategic investment.
-
Accor Acquisition Details and Synergies
Q: What is Accor's EBITDA, and are there synergies or fees?
A: The Accor Vacation Club has a run-rate EBITDA of approximately $6–8 million. For 2024, it's expected to contribute $2–3 million in EBITDA due to timing. The acquisition offers synergies through brand access and databases, with a licensing fee arrangement incentivizing Accor.
-
Loan Loss Provisions and Credit Quality
Q: What are expectations for loan loss provisions and credit standards?
A: Loan loss provisions are expected to remain in the 18–19% range. Credit standards are unchanged, with new originations averaging a 739 FICO score in 2023, up from 736 in 2022. Portfolio performance is strong, with customers' payment behavior stable.
-
Capacity Limitations on Tour Growth
Q: Are capacity limits anticipated with increasing tours?
A: Physical capacity is sufficient, and human resources are a focus to support growth. Partnerships like Wyndham Hotels and additions like Sports Illustrated and Accor provide new databases to fuel marketing efforts.
-
Travel and Membership Business Outlook
Q: What's the outlook for Travel and Membership recovery?
A: Revenue growth is expected in the mid-single digits, with EBITDA growth in the low single digits. Exchange member count is expected to grow, but exchange transactions may decline slightly. Travel Club transactions are expected to increase.
-
Resort Bookings Ahead of 2023
Q: How far ahead are resort bookings, and which regions lead?
A: Resort bookings are ahead by 5% in room nights for the full year. Key destinations like Las Vegas and Orlando are performing well. Longer stays continue, indicating ongoing work-from-anywhere trends.
-
Hawaii Visitation Trends
Q: How are Hawaii visitation trends, particularly O‘ahu vs. Maui?
A: There has been no material change in performance in Hawaii between 2022 and 2023, and 2024 bookings look similar. The company has significant exposure in Hawaii but only one resort on Maui.
-
Accor Expansion Plans
Q: Are there plans to expand Accor properties to new regions?
A: The focus is on executing the current plan with Accor. However, there is intent to establish a strong relationship and expand to more locations and regions in the future.