TNL - NYSE

Greetings and welcome to the Travel + Leisure Third Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Jill Greer from Investor Relations. Ms. Greer, you may now begin.

Thanks, Rob. Good morning to everyone and thanks for joining our third quarter call. With us this morning are Michael Brown, our President and Chief Executive Officer; and Mike Hug, our Chief Financial Officer. Michael will provide an overview of our financial results and our longer-term growth strategy and Mike will then provide greater detail on the quarter, our balance sheet and the outlook for the rest of the year. Following our prepared remarks, we'll open the call up for questions. We ask the analysts to keep to one question and a brief follow-up. 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 those statements. The factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release. You can find a reconciliation of non-GAAP financial measures discussed on today's call in the earnings press release available on our Investor Relations website. Finally, all comparisons today are to the same period of the prior year, unless specifically stated. With that, I'm pleased to turn the call over to Michael.

Good morning and thank you for joining us today for our Q3 earnings report. Before I share our results for the quarter, I'd like to recognize our associates for all their efforts through Hurricanes Helene and Milton and the wildfires in California. Safety is our top priority and I want to personally extend my thanks to our associates for their professionalism and dedication in taking care of our owners and each other during these devastating events. Our third quarter results show that we are executing against our key priorities for the year and that demand for our products remain solid. We produced strong volume per guest, a healthy 24.4% adjusted EBITDA margin and over $150 million of adjusted free cash flow. Our adjusted EBITDA of $242 million was above the midpoint of our guidance range. We see good momentum in our Vacation Ownership business and we're especially pleased with our VPG performance which remains consistently above $3,000, even during our peak new owner mix quarters. VPG was at the high end of our expectations with especially strong performance from existing owners further evidence that customers continue to value their ownership. We are nearly 30% above 2019 VPG levels, reflecting the premium owners place on the consistency, value and flexibility of our product. It is also a reflection of the increased FICO standards that we established in 2020. Our average FICO on originations has increased from 725 to 742 over the past 4 years. And the portion of our portfolio that is under 640 FICO has decreased in the same time frame. One of our priorities has been to grow our new owner mix to the mid-30s. New owner sales drive long-term benefit and provide a consistent source of future revenue potential. In the short term, however, a higher new owner mix puts pressure on VPGs. Having achieved a new owner mix above 35% in each quarter this year, we expect the mix pressure to be minimal going forward as we maintain our new owner mix in the mid-to-high 30s. New owners drive future gross VOI sales through upgrades of their initial purchase and typically spend an additional 2.6x their purchase amount. This is in addition to revenues from financing, property management and exchange fees. With an embedded revenue potential of over $19 billion over the next decade, our work to drive a higher new owner base gives us continued confidence in our long-term model. The momentum with VPG is a sign that our team is executing well on our growth initiatives and that our product appeals to our target market. Over the past several years, we have seen a number of trends in our owner base that bode well for future growth. First, the average age of our owners is now in their mid-50s as an increasing amount of sales are to Gen X, millennials and younger generations. This age has been steadily decreasing as our average new owner age is close to 50 years old. Second, our disciplined approach to tour generation has improved the underlying credit quality in our loan portfolio. We believe our combination of average origination FICO and sub-600 portfolio loans is the best in the industry. Finally, travel continues to be an integral part of the experience economy. While our top destinations are in Florida, we're also seeing growth in parts and other family-friendly locations like Washington, D.C., the Pacific Northwest and the Smoky Mountains. Looking ahead, our Vacation Ownership business has a solid foundation for long-term growth. Our multi-brand strategy is unique in the industry and is the path to driving consistent growth going forward in the Vacation Ownership business. With a broad geographic footprint and a variety of ownership options, we expect to expand our share by meeting the vacation travel needs of a wide range of consumers. We have been very pleased with the progress on the Accor Vacation Club integration which has allowed us to achieve our initial targets ahead of schedule. We have 4 sales sites reopen and fully staffed with more sites expected by the end of the year. Accor has delivered more than $3 million in adjusted EBITDA year-to-date and we expect Accor growth will accelerate next year. Turning to Travel & Membership. As you know, this is -- this part of our business is in the midst of a transformation as the vacation ownership industry is consolidated and the points-based product has become more standard, we've seen pressure on exchange volumes. During the quarter, we took another step forward in our transformation with necessary steps to resize our footprint. Across the industry, developers are now fewer in number but larger in size. Going forward, we believe we can serve them with higher quality and better efficiency through a more targeted approach. Our focus on higher-margin transactions is playing out and we were pleased with the quarter's EBITDA which was just above the high end of our guidance range. To summarize, the business is performing well and our teams continue to raise the bar on execution. We have already begun setting our plans for 2025. We expect the momentum in our Vacation Ownership business to continue having achieved our targeted new owner mix, the ramping up of our core sales and easing of interest rate headwinds. We also expect further progress on our traveler membership transformation to allow that segment to stabilize. Longer term, we expect Sports Illustrated interest rates in our new owner pipeline to provide catalysts for our growth in 2026 and beyond. And now I'll turn the call over to Mike to walk through the quarter in more detail. Mike?

Thanks, Michael. Overall, we had a solid third quarter, driven by strong VPG performance. That VPG, combined with our disciplined cost management, offset most of the $14 million headwind from higher interest rates and variable compensation. As a result, our adjusted EBITDA declined slightly year-over-year to $242 million. Importantly, our 24.4% adjusted EBITDA margin shows the resiliency of our business to overcome headwinds and consistently produce margins in the mid-20s. We had adjusted net income of $110 million or $1.57 per share. Our adjusted EPS growth reflects the benefits of our consistent capital allocation strategy which sees us regularly in the market repurchasing shares. With regard to the segment results, for the Vacation Ownership business, revenues increased 2%, with gross VOI sales of $606 million. We maintained good tour growth with tours up over 4% and new owner tours up 9%. While higher year-over-year, the growth was modestly off our expectations. The shortfall primarily came in new owner tours in Las Vegas, consistent with broader gaming industry weakness noted in that market over the summer. We expect tour growth to accelerate sequentially in the fourth quarter. In the quarter, our Blue Thread partnership with Wyndham Hotels produced 8% of our new owner tours which came with a VPG more than 20% higher than other new owner channels. Our package pipeline, along with our partnerships with Allegiant and Live Nation are still in the early stages but should provide more channels to drive future tour growth. The financial strength of our consumer remains solid and trends in our loan portfolio are stable. Importantly, as we progress through the quarter, we didn't see anything in those trends that would cause us to change our guidance. The sequential increase in the provision between the second and third quarters was in line with normal seasonality and consistent with our expectation that the provision will be around 20% for the full year. On the travel membership side, our adjusted EBITDA for the quarter was flat on a 3% decline in revenue. As Michael laid out earlier, we believe the steps we're taking in this segment to improve our revenue per transaction and at the same time, streamline our cost structure are putting a strong foundation in place to continue to generate high margins and cash flows. For the fourth quarter, we are forecasting adjusted EBITDA overall to be $240 million to $260 million. This guidance is in line with the full year guidance that we gave on our last call and higher than our expectations at the start of the year. For the Travel & Membership segment, we expect adjusted EBITDA to be $45 million to $50 million for the fourth quarter. Turning to the balance sheet and cash flow. Last week, we closed our third ABS transaction of the year, securing $325 million at a rate of 5.2% and a 98% advance rate. The interest rate and advance rate are both improvements over our July securitization and are the best levels we've seen in over 2 years. The fact that we have been able to consistently access the ABS markets through a variety of economic conditions is a reflection of the market's confidence and the resiliency of our business. With the improved rates that we are achieving with our ABS transactions, we expect the interest rate headwinds to flatten in the coming quarters and turn to a tailwind as we exit 2025, providing benefits to both EBITDA and free cash flow. We ended the quarter with just under 3.4x leverage and we expect to be at that level at the end of the year. We generated $154 million of adjusted free cash flow in the quarter and continue to expect our adjusted EBITDA to free cash flow conversion for the full year to be in the neighborhood of 50%. Longer term, we see a path to moving that conversion percentage higher through lower cash interest and reduction in inventory levels held on our balance sheet. We have a proven track record of being very shareholder focused with our capital allocation. During the quarter, we returned $105 million to our shareholders through dividends and share buybacks. With $70 million of repurchases in the quarter, we bought back 2.25% of the outstanding shares in the company, consistent with our average annual rate of about 10%. I'll close by thanking the entire Travel + Leisure team for the work so far this year and delivering great results for our shareholders and our owners. With that, Rob, could you please open up the call for questions?

[Operator Instructions] And our first question is from the line of Ian

Can you guys maybe touch upon what you're seeing on the lower end consumer or anything you're seeing there? I know you kind of have been focused on taking up FICO scores I guess we haven't really seen the recession or anything like that. Is there -- what are you now thinking of FICO scores as far as like is there a chance to maybe lower them again to grow volumes? Or are you kind of sitting here still with higher FICO scores? And maybe any other comments there?

Yes, sure. Thanks for the question, Ian. So as far as the lowering consumer, that's really -- as we talked about last quarter, where we're seeing most of the pressure in the portfolio. I don't expect that on the new owner side, we'll adjust our FICO in the near term. We're very happy with the credit quality we're generating. We're -- when we look at how the portfolio performed, it performed how we expected in the quarter, delinquencies that usually get worse from Q2 to Q3 did move in that direction unfavorably but not as unfavorable as they usually do. So that's why we feel the portfolio has kind of stabilized, if you will, as far as how it's moving. We're happy with that trend. So very happy with the quality we're generating. On the owner side, that's really where we had the opportunity. Keep in mind, FICO is a [indiscernible] instrument, right? I mean there's a lot of things that determine how people pay. So for example, if we had an owner who has a 630 FICO has been paying for 8 years and reduced their loan balance from $15,000 down to $2,000, never missed a payment on their loans or the dues using the product, then you might think about because you have other data, go ahead and marking that owner but we're comfortable with that owner because they're on auto pay and things like that. So that's what we're trying to do is use more data other than just FICO where we had that data primarily on the owner side to drive incremental tour flow. But pretty happy with how the portfolio performed. Obviously, the ABS transaction was another great execution with the best terms we've gotten in over 2 years. So overall, the business is solid. VPG is another indicator of the consumer, we're at the high end of our range for the quarter. So consumer seems pretty steady, watching the low end like we always are. And because of that, especially on the new owners side, I don't see us moving below that 640.

Okay. And then if we maybe could maybe focus on some M&A. Is there -- what are you kind of seeing out there? What's your appetite? You've been a little bit more active recently. But anything else out there or anything else that you're seeing that you'd be interested in? And then finally I guess there's no real hurricane kind of call out by you guys. So it seems like it's business as usual with [indiscernible]?

So I think our commentary on M&A is consistent with what our commentary has always been which is -- we're always focused on our capital return. Our dividend is the base of that capital return. We evaluate the M&A landscape. We've consistently done that over the past few years. Obviously, the industry is consolidated and we found unique opportunities through Accor, the acquisition of Travel + Leisure. So not necessarily maybe what everyone would always think -- these are the limited number of M&A opportunities out there. So we'll continue to evaluate and in the absence of that, we'll do what we've done in the last 2 quarters which is return about $70 million of capital in the form of share buybacks.

With another $30 million in dividends in the quarter as well. So total right, we're in that $100 million range as far as capital allocation return to shareholders.

And then, Ian, you had a second part to that question. Can you just repeat that, please?

A whole lot of the hurricane. So...

Yes. So as I mentioned in our remarks, that both the hurricanes came up the West Coast of Florida, where our Clearwater resort even today, although it's finally reopened has still the Tampa and Clearwater has sustained a tremendous amount of damage. Helene moved up and modestly affected our Atlanta property but our 2 properties in North Carolina took weeks. One is reopened and one has not. So we didn't call it out but it's definitely, Helene really affected from south to north, up into North Carolina whereas Milton affected west to east coming across Central Florida and briefly shutting our sales galleries and our resorts and then even affecting our Daytona property. And not that it affected the operations in California but the wildfires were within 6 miles of one of our resorts there. So was a tough September and October. We hope it's over. But no, the results we mentioned did not call out the hurricanes over wildfires so far as adjustments to the numbers but they did affect the bottom line results.

And I would point out that the reason the resorts were closed were not because of significant damage the resorts, primarily due to the infrastructure, right? When you think of North Carolina, some of the rural areas where we've got a couple of older resorts. Those resorts are in good shape. It's just that the infrastructure there is a little challenged. And then the same thing over on the West Coast with St. Pete and Tampa. So our resorts came through it, in fairly good shape from a damage standpoint. So the closures are primarily in most cases, just due to what's going on with the infrastructure in those markets.

Okay. Just one more. I wanted to just say on the [indiscernible] second and then I'll let someone else hop on, sorry. And then was there any impact on like tour volumes or anything like that? Because a lot of airports were closed there. And I guess if there was a financial impact, can you kind of call out maybe what it was?

Yes. there were definitely tour impacts because we closed resorts and with owners not arriving, it affected arrivals and tour impact. And I would say volume approximately about $5 million of volume that it cost us. So some EBITDA, some volume. But again, we felt given the limited nature of the financial impact, we didn't want to call that out or need to call it out.

Right. I mean we still hit the midpoint -- a little bit above the midpoint of the quarter holding the full year. So great quarter by the business. And I would also point out the other fact that we've always talked about is the diversity of our locations, gives us protection when something like this happened, right, being able to not have a single market or just really just one market that's over 10% allows us when we do have a slight disruption in one of our markets, Florida, if you will. We're able to basically make it up through other operations in the business. So I think it's just once again a proof point as to the resiliency of the business and the value we get from having diverse sales locations.

And Ian, Milton came in October and Helene was in September.

The next question is from the line of Joe Greff with JPMorgan.

Two relatively quick ones on Vacation Ownership. Anywhere in the, I guess, the sub-700 FICO score band spectrum, are you doing anything in terms of implementing any higher down payments and then my second question is you mentioned earlier that in the 3Q new owner tours or tours in Las Vegas were weaker. Can you talk about what you're seeing or what you anticipate here in the 4Q?

Sure. Thanks, Joe. This is Mike Brown. Yes, we saw -- I think like everyone saw in Q3, gaming was a little weaker in Las Vegas and we saw that come through in our new owner tour flow. As Mike Hug mentioned in his remarks, he mentioned that will be -- we expect a reacceleration of tour growth in Q4. So I think as we finish the year out and look backwards. It feels like throughout this year, all the questions, every one of the quarterly calls has been where is the weakness in the consumer. I think when we look back at the end of this year, we're going to turn back around and say, our VPG was above our expectations. Our tour growth was right around 10% which is what we said at the beginning of the year. Our new owner tour growth was above 15% which is what we said at the beginning of the year and we've raised our guidance. And our portfolio was increased by 100 basis points on our last call. So although the poking and prodding around the strength of the consumer has been consistent this year, when you look at our full year we're pretty confident that you're going to be able to say the consumer performed at or above our expectation for 2024 and we put ourselves in a really good position to open 2025. I think as it relates to the portfolio and down payments in Q4, Mike, do you want to just touch on that?

Yes. It's a great question, Joe. And you're spot on, we will be looking potentially for higher down payment levels at the sales table to provide us protection, kind of on the portfolio risk, if you will. But overall, I don't know that we're going to say, hey, it's got to be just below 700 FICOs. We'll probably look for higher down payments across the board. But the portfolio, as I mentioned, is kind of right in line where we expected. Default levels are a little elevated but didn't get any worse in the quarter. So pretty happy with the way the portfolio performed. I touched on the ABS transaction. So overall, happy with the way the consumer, whether it's VPG or whether it was portfolio performed through the quarter and third quarter and we will look for a little bit higher down payments potentially in Q4 from some customers.

Our next questions are from the line of Chris Woronka with Deutsche Bank.

So I was hoping we could firstly drill down on the close rates a little bit, right? And I know that those would naturally kind of be lower as you intentionally kind of focused on more of a higher new owner mix. But I'm curious, if someone when a new would be first timer comes in takes the tour doesn't buy. Is there any feedback you're collecting or research you're doing what are the top few reasons they're giving? Is it cost or something else? And has that, in your view, changed much in the past few years?

Well, let's just touch on that. As the year has progressed, we haven't seen much modulation in our close rates between owners and new owners. They go up and down every quarter a little bit but there's nothing that's really stood out to us as it relates to close rates. And especially given how our VPG has held up, it's really a reflection of consistent close rates throughout this year. What I would say as far as consumer feedback is -- we -- our close rates were higher about 2 years ago as we came out of COVID. And as hotel rates really rose, the value that we've always presented that is inherent in owning a timeshare was as apparent as it's ever been. As we've moved further away from COVID and close rates have come back to where they've sort of consistently stayed but noticeably above pre-COVID. It's really an affordability and value equation that we see in the consumer and what they're evaluating today, again, with higher close rates than we had pre-COVID is that more space, really good value and high flexibility in their ownership. And the way that we like to really measure that is retention and 7 out of 8 of our owners have fully paid off their timeshare loan. And we have a 98% retention rate on those consumers. So it's a bit expanded explanation but it really comes -- there needs to be value, flexibility and affordability at the sales table. And that's what's led to our increased close rate since pre-COVID along with a stronger consumer FICO wise.

Okay. Yes. I appreciate all the perspectives, Michael. And then as a follow-up and this is really more of a multiyear question. It doesn't relate to Q3, Q4, '24, '25, as we think about inventory over time and really, I just want to ask, is the mix of kind of your inventory recapture or repurchase. Do you expect that to kind of remain stable or move up over time? And maybe just remind us of where you see yourselves on the inventory spend, again, kind of on an average, say, 3- to 5-year basis looking forward?

Yes. Chris, this is Mike Hug. As it relates to the inventory, we do expect the recapture to be pretty consistent. Our total inventory spend on an annual basis is around $100 million, $50 million to $60 million of that is buybacks from owners, HOAs of the resale market. The other $40 million is roughly for our international business. When we look at our domestic business which is 90% of the business, that's -- we've got enough inventory for the next 4 years for that business. We've talked about that just as far as how the inventory built up through COVID and things like that. So in a good spot as it relates to the inventory on the balance sheet for the current business. What you will see is as we continue to further develop SI, you will see that inventory spend go up a little bit over the next couple of years potentially. But obviously, that comes with incremental revenues as we start to ramp up the SI marketing channels and things like that. But for the core business we have today $100 million of inventory spend about half is recapture, the other half is for the international business which normally carries about 6 to 9 months of inventory.

Our next questions are from the line of David Katz with Jefferies.

I wanted -- I know there was some discussion about the most recent hurricane but I wanted to just get your thoughts in a bigger, broader way because it does seem as though we're having major weather events on a regular basis, right? So the sort of recurring, nonrecurring events seem to be a thing. How do you think about that? How do you think about working that into your marketing approach? And how do you deal with that on a customer level, there's no profound evidence but do you see any signs of evidence anywhere in the model for sort of weather impacting people's decision to buy and travel, et cetera?

Well, it's a great question and it comes back to something we've spoken about over quarters and years which is diversity of our geography makes a big, big difference. The path of hurricane usually catches no matter where it comes our resorts. And that's not just in the U.S. but in the Asia Pacific region. But having diversity and a lack of overreliance on a particular market really mutes the impact of what an individual disaster can create. We've seen over past years that when the path isn't right, it does -- it's meaningful to a quarter. And look, it was -- it wasn't material to this quarter but it did have an impact. But again, I think it comes back to our diversity of resort locations around the world that people have other options. And obviously, we look to reaccommodate them whenever there is arrival challenges, we still want them to be able to get to another location to enjoy their vacation. I think the -- I think a real benefit that we offer as well is that coming back to the value equation is the cost of vacation ownership ongoing is very important to all owners. And especially with our Florida resorts, insurance is a very important component of that in maintaining affordable maintenance fees on an annual basis and our finance team and our risk management team has done a world-class job in having great insurance rates that we can pass along to our HOAs to keep their vacations affordable and still keep going to great locations in Florida and the Caribbean that are impacted by hurricanes. So it's a combination of diversity and having buying power with insurance companies to keep running costs down.

Perfect. And as my follow-up, I just wanted to talk about something we almost never do which is the sales force. What are you sort of seeing, doing and applying within your sales force is getting the execution that you've been having, right? There are other areas in the industry where execution has been kind of a point of discussion? Is there sort of any leadership changes or any management changes or anything we can talk about there that sort of highlights the strong execution?

Yes. So well, let's proactively dispel a question that is inherent in that is the tools that the team have as far as price discounts or things of that nature to drive performance, we haven't deployed any of those. Our team has sold with prices even through COVID, we didn't discount pricing. So it really comes down to the talent and quality of our sales force, starting with their leadership. That the leadership team is incredibly solid, consistent, dynamic in the sense that they don't get dealt month in and month out with a set of variables, they're changing every month depending on the company's needs, depending on the consumer needs, yet they continue to perform because, again, the leadership is dynamic and very quick to react to what's going on in the marketplace. And the sales team obviously follows the leadership in that direction. What I would say is that part of the move to the quality of the consumer that we've moved up market and I think it shouldn't be lost on people that our FICOs have gone from 725 to 742 that means a tighter sales force that sees more tours and with volume per guest over approximately 30% pre-COVID, the sales force as well can be more efficient in their earning by having tours that are generating a higher VPG. So it starts with great leadership. It starts with the right culture of being reactive to the environment but it ends with I think a strategy that rewards our best salespeople, rewards a sales organization that gets people on vacation and satisfy at higher levels. And I would say the sales satisfaction scores have increased tremendously over the last 5 years which is a credit, not only to their ability to sell but to also create a positive sales environment when someone takes a tour, whether they buy or don't buy. Thanks, Dave. Thanks for asking the question. That's -- you're right, we don't talk about it enough. But without a great marketing and sales force, this business doesn't run.

Our next question is from the line of Ben Chaiken with Mizuho Securities.

There was a conversation around inventory earlier on the call. And I believe you were suggesting working that down to more appropriate levels which makes sense and frankly, is common in the entire industry, I believe. This may not be specific to TNL but do we need to start thinking about slight increases in cost of VOI as the mix of newly developed inventory becomes a larger portion of the mix versus where we stand today? Like would you agree with that? And then are there any offsets you would consider? Again, we're kind of talking like long-term big picture.

It's a great question, Ben. So for the core business that we have today, as I mentioned, right, 4 years of inventory on the balance sheet. So I would say a pretty long time before we have pressure on cost of sales related to the core business we have today being the Club Wyndham product. Most of the inventory that we have today was procured or priced pre-COVID. So even though we did have some just-in-time transactions that got delivered in '21 and '22 and '23, those prices were all pre-COVID prices. So that's the other reason that in the near term, wouldn't see significant pressure on cost of sales. When that size starts to develop and come on over the next several years, we could see some cost of sales pressure there on that product. But keep in mind, that's when you're doing $2 billion plus in VOI sales as that ramps up, it's not a huge impact on the cost of sales. And when you think about -- when you get 2, 3, 4 years down the road, the tailwinds we have, we would expect over the longer term, that provision to come back down to below 19%. We're already seeing clear signs that the interest rate environment is going to become a tailwind in 2026. So like we always do. And like you pointed out, we look at the overall business and try to manage all aspects of the business, whether it's our sales and marketing cost, whether it's our interest rates, whether it's our G&A to try to make sure that we keep those margins in the 23% to 24% which is what we've demonstrated our ability to do and like I said, longer term, when we do get to higher inventory costs several years down the road, I do feel we'll have some tailwinds to offset that and keep those margins in the 22%, 23% range.

Got it. Very helpful. And then kind of switching gears a little bit. Can we talk about the progress you're making on Accor? Would be curious where we stand and how you're thinking about the trajectory and opportunity of this business. I believe the path is to leverage the brand internationally. But just curious, any color here.

Yes. You're absolutely correct. It's reopened in the Asia Pacific region. I was just visiting our resorts in Australia 2 weeks ago, fantastic locations, great experiences. And our opportunity is absolutely to grow that internationally in both the South Pacific and in Asia and we plan to do that. We're extremely pleased with the integration of Accor. The first step is always create the synergies in the organization that was accomplished in basically the first 4 months and then the more important element is the revenue synergies. And those have already started to occur as we've reopened 4 sales galleries with plans to open more. We put a very modest target out there for the first 9 months of this year and we achieved it in the first 6 months. It's small dollars but it's indicative of how quickly the team is integrated and how well we've been able to really bring that brand on and now look to what's more important which is growth not only in sales but in resorts for 2025. So very pleased with the progress in the first 6 months there.

And just to sneak one more in there. Is that -- when you think about longer-term growth, is that kind of a newly developed inventory for that brand? And then is there any way to open the Accor customers up to the broader TNL? Or are those kind of like separate?

So to answer the second first is, there are separate operations. It's the nature of running multi-brands is you need to maintain separate operations for Accor and what other brands you have. As it relates to future development, Mike mentioned that our international operation really runs a pretty tight just-in-time operation. They have somewhere between 6 to 9 months of inventory. So future development will be more than likely a combination of conversions and new build. But that team does a great job in the region of finding some incredible properties and keeping that just-in-time model working really well.

Our next question is from the line of Brandt Montour with Barclays.

So I know we talked about the third quarter. I want to circle back on just one aspect of the third quarter. The gross VOI sales came in below the guidance you guys gave. And I think that the numbers you just said, you said for hurricane volume impact wouldn't have bridged the total GAP. So is there -- it was Las Vegas, the rest of it? I mean, it seems like Las Vegas for you guys isn't that big of a market. So I'm just trying to bridge the gap for that 1 metric, if you could just help us with that?

Well, Las Vegas is one of our biggest markets beyond -- Florida is our biggest and Las Vegas is second. And the leading cause of our gap was Las Vegas. And it's pretty well noted that their summer was weak and given that it was new owner tours to us lines up pretty closely. There were a few other shortfalls. Yes, hurricane was in there but it wasn't -- didn't bridge the gap. There were just some other small misses in our individual regions. Nothing that is repeatable or of concern. That's why, as Mike pointed out, we expect a reacceleration of tour growth in Q4. Not a trend that will continue. I think when you really just pull back though and look at our Q3, yes, tour growth was modestly below our expectation. But as you sort of come back and look at the full year again, we were very strong in the first 2 quarters of this year and maintained a 10%, right around 10% tour growth for the year and we put VPG guidance out. And as I mentioned on an earlier answer, when you look back on this full year, we will achieve our full year tour number and our VPG is going to be above what we said at the beginning of the year so or definitely within our range. So we're -- we think the 2024 numbers are going to despite all the volatility and concern around recessions and consumer weakness and all that, we, in hindsight, strongly believe we're going to be able to turn around and say we delivered at the expectations we laid out at the beginning of the year, if not higher. But yes, Q3, we're just a bit off and primarily led by a market that more macro-wise suffered and then had a few other small impacts in regions that none of which are material enough to call out.

Got it. That's super helpful. And then just a follow-up, broader question for you, Mike. I know we're not talking about -- we can't give '25 guidance at this point. But just talking about or thinking about the consumer and what you're seeing, the '24 was the year of sort of normalization we saw it across a number of different travel and leisure markets. When you think about next year, obviously, we're waiting on the election and things can evolve from here. But where do you think the consumer is going to -- how the consumer is going to feel about Travel in '25?

Well, yes, you're right. It's a little early to say. I would flip that question around to how do I feel about our business going into '25, because my perspective on this year is that in the last 2 years is that we've had a super hot market in '22 and we've had a very choppy market in the middle of the year as far as uncertainty. And in both of those scenarios, we've consistently been able to deliver vacations for people and owner occupancies remain high. So when we go into 2025, I do think the consumer demand for our product will remain strong. We underlying -- our underlying business model relies on bigger accommodation, a branded product with amenities and high flexibility. And none of that changes for next year. And in a downturn, people might drive to our destinations more if the economy avoids a recession which seems more and more the commentary, I don't have commentary on macroeconomic events. But if that's the case, then we're very well positioned. I think the 2 fundamental focus areas we have for next year is number one, our core business of VO and Traveler & Membership. Everything in those areas, I think we have our hands very steadily on the wheel. We're not overcommitted on inventory. You just heard that answer and our interest rate headwinds have finally subsided and it looks like we'll be neutral to positive next year on interest rate movements. And then we have laid the seeds but are not overly reliant on 2 new businesses, the core Vacation Club and Sports Illustrated which will start to pay dividends in 2026. So I think we're set up for a good 2025, no matter what the macro gives us by having a solid core business and beginning to experiment with 2 new businesses.

And the other thing I'll point out, when you think about our 2 biggest markets being Las Vegas and Central Florida, Universal announced that they're going to open their Epic resorts in May of 2025. So that just reinforces the strength of the Central Florida market for next summer as people come to experience that great new resort. And then we talked about the softness in Las Vegas but -- we all know that Las Vegas can move up and down but it very seldom stays down for a long time. So if Vegas comes back a little bit, our 2 biggest markets are in good shape. So when we think about where people travel to and where our markets are at, those are 2 that represent the biggest piece of our business and especially with Epic resorts opening. They get a lot of confidence for Orlando.

Our final question is from the line of Patrick Scholes with Truist Securities.

Michael, can you give us an update on -- can you give us update on Sports Illustrated? Curious where you stand. Sort of your longer-term expectations and vision for that. Correct me if I'm wrong, I think in the past, you've talked seeing that eventually the $300 million to $500 million business and if so, what would be the time frame on that? And again, I could be incorrect on some of those numbers.

Yes. So thanks for the question, Patrick. While we've talked about when we talk about the new brands that -- we're going to be [indiscernible] against this over time, those, to your point, become a $300 million to $400 million business over the longer term. If we kind of look at what we were able to do with the Wyndham brand and the Blue Thread, kind of grew that $25 million a year to get that up to currently over $100 million. So I think that when that business starts, we would expect to start in that. And of course, it's going to depend on what time of the year we start sales. But I think that would be the cadence is $25 million to $30 million a year, maybe a little more but growing that over time to a $300 million a year business. So that's kind of how we think the math works, whether it's that brand or any other additional brands we might bring on over time.

We've reached the end of our question-and-answer session. I'll hand the floor back to Mike Brown for closing remarks.

Thank you. Our performance year-to-date shows that the business is performing well and that our team continues to set the bar for execution. We're getting ready to roll out a number of technology enhancements in the coming months to improve our owner experience and make it easier for them to enjoy a great vacation. We're producing solid financial results and cash flows and are delivering on our commitments to share -- to our shareholders. So thanks again to everyone for joining us today. and we look forward to speaking to you throughout the quarter at conferences and on our fourth quarter call in February. Have a good day, everyone.