Travel + Leisure Co. (TNL) Q3 2021 Earnings Report, Transcript and Summary

Good morning, and welcome to the Third Quarter 2021 Earnings Conference Call for Travel + Leisure Co., formerly Wyndham Destinations. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions]. As a reminder, ladies and gentlemen, this conference is being recorded. If you do not agree with these terms, please disconnect at this time. Thank you. And I would now like to turn the call over to Chris Agnew. Please go ahead.

Thank you, Ashley. Good morning. Before we begin, we'd like to remind you that our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and the forward-looking statements made today are effective only as of today. We undertake no obligation to publicly update or revise these statements. The factors that could cause actual results to differ are discussed in our SEC filings, and you can find a reconciliation of the non-GAAP financial measures discussed in today's call in the earnings press release available on our website at investor.travelandleisureco.com. This morning, Michael Brown, our President and Chief Executive Officer, will provide an overview of our third quarter results; and Mike Hug, our Chief Financial Officer, will provide greater detail on the quarter, our balance sheet, and liquidity position. Following these remarks, we'll then be available to respond to your questions. With that, I'm pleased to turn the call over to Michael Brown.

Thank you, Chris. Good morning, and welcome, everyone, to our third quarter earnings call. This morning, we are pleased to announce another solid quarter, as our cornerstone brands continue to demonstrate their strength. We reported adjusted EBITDA of $228 million in the third quarter, and adjusted EPS of $1.19. This has been an eventful last 90 days. On September the 10th, we held a Travel + Leisure Investor Day, where we laid out our strategic and economic direction to deliver accelerated growth over the next four years. That same week, we launched our first B2C travel subscription club called the Travel + Leisure Club, delivering a unique membership travel experience based on the inspiration from the Travel + Leisure Magazine. In the midst of these strategic events, we continued to execute within our two cornerstone brands of Wyndham Destinations, and RCI. We are very pleased with the operational performance of our vacation ownership business in the third quarter. VPG was $3,233, including very strong performance from sales to new owners, which contributed to the highest overall quarterly VPG in our history. Our portfolio continues to perform well, and the cost reductions we made in 2020 are now being fully realized. Those factors contributed to the strong adjusted EBITDA margin of 27%. At Wyndham Destinations, North American gross vacation ownership sales were within the range of our expectations, despite multiple headwinds in the quarter. When we provided our guidance at the end of the second quarter, we did not anticipate the severity of the Delta variant surge, nor did we anticipate the impact hurricane Ida would have on our operations in Texas and Louisiana, along with the wildfires that impacted several of our California resorts. Despite these headwinds, we were still within our VOI sales guidance range for North America. Only international vacation ownership sales, which are less than 5% of total sales, were outside of their range, due to the significant ongoing travel restrictions in the South Pacific. The travel and membership segment exceeded our expectations, with strong revenue per transaction for both the exchange and non-exchange businesses. Exchange revenue per transaction increased 13% year-over-year, and non-exchange increased 36%. Travel and membership adjusted EBITDA was $68 million in the quarter. For the company as a whole, the adjusted EBITDA margin of 27%, was 300 basis points above the third quarter of 2019. We were able to achieve this margin despite a $30 million net interest income headwind due to a reduction in our consumer finance portfolio. To put in perspective the strength of our third quarter margin, if we equalize the 2021 portfolio size to 2019, and exclude the $13 million EBITDA impact from the COVID reserve release, adjusted EBITDA margin would have been approximately 28.6%, 448 basis points higher than the third quarter of 2019. In the final or two weeks of the third quarter, we saw clear indications that the impacts of the Delta variant were abating. Specifically related to net vacation ownership bookings, in August and most of September, near-term booking trends were consistently behind our 2019 pace. In the last two weeks of September, and through October, the booking trend moved back above 2019. Looking into the remainder of the year, net bookings are 5% ahead of 2019. RCI saw similar positive trends at the end of September. Closed-end exchange booking trends finished the month of September ahead of 2019, after starting the month below. This trend has continued into October. We are also seeing some positive booking trends emerge in RCI’s international regions, as COVID travel restrictions are starting to ease. We are encouraged about the recovery of international travel, but recognize overall performance will trail the US. Beyond our business, I'd like to address a few macro topics that are becoming increasingly important for companies, and share some thoughts on how these topics do or do not impact our business. On the topic of inflation, we should be a net beneficiary. One of the core value propositions of timeshare is locking in future vacation costs at today's prices. It is easier for us to demonstrate the value of ownership when travel costs are rising. Rising inflation will likely mean higher interest rates. Approximately 85% of our debt is fixed, and rising rates will have a muted impact on our net interest expense. For every 50 basis points of increase in rates, our corporate interest expense would increase 1.5 million on an annualized basis. And on the consumer finance side, for every 50 basis points of increase in rates, our ABS interest expense would increase $3 million. On supply chains, we have not seen any material impact to our operations related to supply chain disruption. We have more than sufficient inventory for our sales needs for years to come. And the two new projects being delivered next year, Atlanta, and Moab, are scheduled for on-time and on-budget deliveries. Turning to the labor market, like all service-related industries, recruiting has become more challenging lately. Despite the labor market, we do not see this as a factor that will alter our road to recovery. We have taken a number of actions to compete effectively for talent, but in general, we staff up for busy travel seasons every year, and are accustomed to managing high volume recruiting for these periods, which helps us to be effective in the current environment. Our resort operations teams continue to deliver great vacations, and our marketing and sales teams are working harder than ever to acquire new owners, or increase the ownership of existing customers. As you can hear from my commentary, I'm proud of our team's efforts in the third quarter to overcome the unexpected headwinds, yet deliver such strong results. And there is a clear strengthening of sentiment forming among travelers as we see the Delta variant cases decline. As a result of our strong third quarter and confidence in our business, we are increasing our full year adjusted EBITDA guidance to $740 million to $750 million, more than a full pull-through of our third quarter beat after we adjusted for continued travel restrictions in the South Pacific impacting the fourth quarter. With our cornerstone brands delivering on all sides of the business, I want to transition to our business extensions for an update from our most recent Investor Day. Panorama Travel Solutions has great momentum, as the team has closed 12 transactions year-to-date. In the third quarter, we signed MasterCard in Southeast Europe, and the NFL Alumni Association. We are also excited about expansion in Latin America, where our leading affiliate, Grupo Posadas, has signed three new partners, including Hertz Mexico. As we begin to activate these new affiliates, we will start to see transaction flow in the first quarter next year. Travel + Leisure Club is also making good progress since its launch in September. In the week since launch, we've gained traction as new members have enrolled in the subscription club, as we've started our marketing efforts within the Travel + Leisure affinity channels. Our business development team continues to expand acquisition channels through digital marketing activation, and affiliate partnerships. On the content side, by the end of the year, we expect to have around 40 curated itineraries available for purchase. These itineraries are proving to be one of the most viewed features on our website and a top driver of organic search traffic. We continue to deliver on the strategy we laid out last month, and believe our path to accelerated growth through 2025 remains clear. For more details on our performance, I would now like to hand the call over to Mike Hug for our financial results.

Thanks, Michael. Good morning to everyone, and thank you for joining us today. I will discuss our third quarter results, and provide you with more color on our balance sheet, liquidity position, and cash flow. My comments will be primarily focused on our adjusted results. We reported total company third quarter adjusted EBITDA of $228 million, and adjusted diluted earnings per share of $1.19, compared to $139 million of adjusted EBITDA, and $0.83 of adjusted diluted EPS one year ago. Before I jump into the details on our great third quarter results, I want to highlight two significant transactions that closed subsequent to the end of the quarter. First, we renewed our $1 billion revolving credit facility, to, among other things, extend the maturity date to October 2026. We reset the financial covenant ratios, and eliminate the restrictions established by the first amendment regarding the use of cash for share repurchases and permitted acquisitions. Second, we closed on our second ABS transaction of the year, a $350 million transaction with great terms, including an advance rate of 98%, and interest rate of 1.8%, demonstrating the continued strong demand for our high quality paper. Both these transactions show the strength and resiliency of our business, and we were very pleased to close them in October. Let me now share some operational highlights from the third quarter about our two business segments. Vacation ownership reported segment revenue of $660 million, gross VOI sales of $440 million, and adjusted EBITDA of $177 million. VPG of $3,233 was 39% higher than the pre-pandemic third quarter of 2019, benefiting from owner mix and improved tour quality. As we have highlighted throughout the year, very deliberate marketing decisions to drive tour quality, resulted in tourists in the quarter being 52% lower than 2019, but the entire quality tours drive the increased in VPGs and margins. Our focus on tour quality has not only resulted in strong VPGs and margins, but we expect it will continue to yield a stronger portfolio over the long term as well. As Michael mentioned, our vacation ownership business faced several challenges in the quarter. Asia Pacific gross VOI sales were impacted by around $9 million in the quarter, and hurricane Ida, the California wildfires, and increased restrictions in Hawaii, all combined for an estimated $6 million headwind to domestic gross VOI sales. On top of this, we overcame a more general headwind that the Delta variant had on closed-end bookings as case counts spiked. Despite these challenges, we are pleased with the level of vacation ownership sales, and in particular, with our mix of new owner sales, which represent approximately 30% of transactions in the quarter. In addition, we were encouraged to see 70% of our new owner sales were to Gen X and millennials. In the third quarter, we released $21 million of the COVID specific reserve we recorded in March 2020, due to continued strong portfolio performance, resulting in a $13 million benefit to adjusted EBITDA. At the end of the quarter, our total reserve as a percentage of gross vacation ownership contract receivables was 19.8%, compared to 19.3% at the end of 2019. Revenue in our travel and membership segment, was $185 million in the third quarter, compared to $145 million in the prior year. Travel and membership third quarter adjusted E EBITDA was $68 million, an increase of 10% compared to last year's $62 million. Travel and membership transactions in the third quarter were 470,000, 32% higher than the same period last year, with growth in key geographies. The largest improvements were in North American exchanges, and our non-exchange business lines, which were both fueled by strong domestic bookings. We are also seeing great traction with Panorama Travel Solutions’ travel products now available to our RCI members. These products have definitely enhanced our exchange systems value proposition, which gives us confidence in our growth prospects in the broader consumer travel segment. To that point, non-exchange transactions in the segment accounted for 46% of total transactions in the quarter. Turning to our balance sheet, our corporate net debt at the end of September was $3 billion, and our leverage ratio was 4.2 times. We remain focused on reducing our leverage, and with continued adjusted EBITDA growth, we expect to see the leverage ratio decline to around four times by the end of the year, comfortably below our leverage covenant ratio. The new leverage ratio in our credit agreement is 4.75 times through the second quarter of 2022, and 4.25 times thereafter. Just a reminder, that 4.25 times was our leverage covenant ratio prior to the first amendment. As it relates to return of capital to shareholders, we paid our third quarter dividend of $0.30 per share on September 30th. We will recommend increasing the fourth quarter dividend to $0.35 per share, pending approval by our board of directors in November. And with respect to our share repurchase program, at the end of the quarter, we had $354 million of previously authorized availability, and we expect to resume the program in the fourth quarter, subject to market conditions and capital allocation priorities. Finally, on free cash flow, we continue to expect 2021 adjusted free cash flow to be just over $200 million. Note that this includes an assumption of a $20 million tax refund late in the quarter. We expect to be back within our historic free cash flow conversion range next year. And over time, we expect to see this range moving higher to 58% to 63% of adjusted EBITDA, as we laid out at our Investor Day. In summary, we are very pleased with our performance this quarter, as well as the two capital market transactions we closed in October, and we look forward to catching up with many of you over the next couple of months. With that, Ashley, can you please open up the call to take questions?

[Operator Instructions]. We'll take our first question on the line from Joe Greff with JPMorgan. Please go ahead.

Good morning, guys. Michael, I was hoping you can share with us your thoughts at the current time in terms of how you're thinking about recovering the number of tours next year relative to 2019, particularly in light of what you're doing with tour quality and some of the tour quality initiatives. I mean, can you get back to something like 80% of 2019 tours next year? Is that a reasonable assumption, or specifically, how are you thinking about next year at this point?

Good morning, Joe. Let me answer tours, but me answer it as well in the context of a few other metrics that we're looking at for the business. One of the questions we get all the time is just returning to our 2019 EBITDA levels. And as we look into next year, we believe that in the first half of 2022, we should be able to return to our 2019 run rate for EBITDA if you equalize for the portfolio size. So, I think every other answer falls within that context of overall EBITDA growth. And when you start to think about the individual metrics beneath that, VPG and tours are key to that. And if I start with tours, we've been very pragmatic in how we return to the growth of tours. Owners are obviously returning quicker than new owners because of the margins associated with each. I would expect overall tours next year to grow at this stage 20% to 30%. That's our choice. We absolutely believe we could grow tours faster, but we're balancing that against exactly what you mentioned as far as the quality and the result that we're seeing on VPGs, which as we've seen, we've had our highest VPG in our history this past quarter, over $3,000. We think we will be able to continue to show strength in our VPG. So, for us, as we move into next year, we’re constantly looking at the balance between that VPG growth and tour growth. And at this stage, that's where we stand. If we see an opportunity to adjust that even higher, we'll do so, but again, our overall objective is to get our run rate back to 2019 levels, equalizing for portfolio size, and do it with a more holistic approach, which is great margins on the VOI side, a very strong portfolio, and ultimately, a more solid foundation as we grow back the overall business.

Great. And then for Mike Hug. With the reserve release that you took here in the 3Q, how much of that March 2020 COVID-19 specific incremental loan loss provision is left? Is it - it's got to be pretty close to zero.

No, we still have about $70 million left at the end of the quarter. To be honest, charge-offs in the third quarter against that reserve were pretty minimal. As we've talked about every quarter, right, we're super happy with the portfolio performance. And then we always have a great proof point when we close an ABS transaction with incredible terms, because obviously that's securitized by the paper. So, about $70 million left. we'll sit down, as we always do, and look at each quarter, but we just want to make sure that with the consumer, all the assistance they've been receiving over the last 18 months, some of that's starting to fall off, obviously the restrictions on foreclosures and evictions are starting to fall off, so just want to make sure that we're smart about keeping the reserve in place as we see the help of consumer over the next three to six months.

Great. Thank you very much.

And we'll take our next question from Chris Woronka with Deutsche Bank. Please go ahead.

Hey, good morning guys.

Morning Chris

Morning. Michael, as we look at the travel and membership segment, you've covered a lot of ground there in terms of what you're doing and where you want to take it. But as we think about how to kind of ramp that up over time, is this going to be more of a step function or more of a smooth - I mean, I think we're trying to figure out how much growth is going to come next year versus in years three and four of your longer term plan in that segment. Thanks.

Yes, absolutely. Let me break the two businesses down and then share a few ideas on how to think about the growth is, specifically on PTS or Panorama Travel Solutions, we began that nearly a year ago. And as we went through the quarters, it was sort of ones and twos as far as relationships we were contracting. And what we're seeing in the last quarter is an acceleration of the number of companies that our team has been able to contract with. we've worked through a number of different deals and more companies are seeing other companies signing up for it. So, what we're excited about is the acceleration we're now beginning to see, and new part partners in that space. And as we look into 2022, you're going to start to see those transactions flow through in the first quarter. And I think you will see a continued, smooth transition. I don't think it'll be choppy. I think it'll be relatively smooth as we sign up companies. Transactions will follow that. You can imagine it takes a few months to get websites up and running and get all the necessary technology that supports these partnerships in place, but that's how I would look at that business. Travel + Leisure Club, as opposed to signing up let's say the National Association Of Realtors, which has tens to millions of members Travel + Leisure Club is a one-on-one B2C business, and you're going to see member growth tied to investment in our marketing and our efforts around that. And we're really be going to begin that in Q4 this year. So, again, I would view it as relatively smooth, but again, it's B2C as opposed to signing up larger organizations that have either thousands or millions of members. As you look to next year on growth, when you look at our overall enterprise growth, I would expect the travel and membership segment to be 300 to 400 basis points higher than what our ultimate enterprise growth rates are going to be. And keeping in mind that's not just the PTS and Travel + Leisure Club. It also includes the remainder of our existing business related to travel and membership. So, that's how I would look at next year, travel and membership, 300 to 400 basis points above the enterprise growth rates for 2022.

Okay. That’s very helpful. And then follow up is on kind of on financing for the core VOI. Mike - Michael, you covered the kind of sensitivity on the cost side. But how do you guys think about that in terms of ability to raise interest rates or consumer propensity to finance right now? Is it different because they have more cash in their pockets, or would you be willing to be more aggressive on the rate you're charging if interest rates do continue to rise?

Yes. Good morning, Mike - Chris. This and Mike. We’ll definitely take a look at rates. We always do every quarter sit down with the sales team and take a look at rates, and we might move them up a little bit. We really don't see a lot of sensitivity by our consumer as it relates to rates. Now, keep in mind too, our average interest rate is around 15%. So, we're already at a pretty high rate. I think, when we think about the portfolio, we might actually kind of move towards trying to reduce down-payments to get that portfolio growth at a greater rate. So, when you think about the nice net interest income, even if we kept interest rates flat, but we did things to lower the level of down-payments, now that has a provision impact, which we have to manage, but if you think about lowering the level of down-payments, that gets that portfolio growing quicker. And obviously the great spread, that 15% when you borrow it 2% or under, is very attractive to us. So, we'll definitely look at interest rates, but I think more importantly, other things we can do from a down-payment perspective to grow that portfolio quicker and try to get that net interest income back up.

Okay. Very helpful. Thanks guys.

And we'll take our next question from Ian Zaffino with Oppenheimer. Please go ahead. Your line is open.

Hi. Great. Thank you. On the tour side, I'm just trying to understand, as you look at the third quarter, maybe the fourth quarter, or maybe the third quarter, which were the most impacted which ones have recovered the most? And when you kind of think about tours being, I think, you said up 20% to 30%, what markets is that coming from? Because obviously different markets have - react differently with the restrictions, et cetera. So, opening, closing. So, any color you could give there would be great. Thanks

Absolutely, Ian. Let’s just break the tour flow into the two different segments. The one that has come closest back to 2019 is our owner tour flow. The reason is very simple. As we talk about bookings going forward, I've shared we're back above the 2019 pace. The two deltas to 2019 is first of all, as we've mentioned across the board, we've changed our marketing qualifications. So, there's a natural Delta between 20 - our current tour flow and where we are and ‘19. And then secondly is we've seen a short term trend, which we'll see how it plays out in the future, but with owners, and let's just say a lot of banked points, they're bringing more guests than historically. So, those two factors are actually resulting in slightly lower or a little bit of headwind on the owner arrivals. But we feel confident that as we move forward, the owner gap between ‘22 and ‘19 will definitely narrow. The biggest gap is not a market driven gap, but it's a marketing channel gap, is the new owner tours. pre-COVID, we were driving an incredible amount of new owner tours that required scale in order to have margin and to have them profitable. As we've come out of COVID, we've eliminated a lot of the lower FICO-based marketing. And as result of that, the delta between where we are today and 2019, is primarily sitting in that new owner channel. And what you can expect from us as we grow back next year is, we've been reopening new owner marketing channels slowly over the last few months, and we'll continue to do that through the winter months, but the new owner channel is - strength is really in that Memorial to Labor Day. And therefore, you would expect to see, if there's any step in increase, it would happen around March of next year as we ramp up for the summertime. And that's where you'd really start to see a closing of the gap between future tour growth in 2019.

Okay, perfect. Thank you very much.

[Operator instructions]. And we'll take our next question from Patrick Scholes with Truist Securities. Please go ahead.

Hi. Good morning, everyone.

Morning, Patrick.

First question. I'm wondering if you can help clarify perhaps a misconception out there in the marketplace, and that relates to what had happened to TripAdvisor’s Trip Plus program with the hotel chains and rate parity. I think there might be some concern there that with your business model, not so for the exchange in rental - I'm sorry, to the Travel + Leisure Club program, that the issues that TripAdvisor Plus was having, could happen to you. I was wondering if you could just clarify how and why that might be different for you.

Absolutely, and thanks for giving me a chance to clarify that. First of all, we do not see that as an issue for us. It's not one of the high risk factors that we see. There's always risk out there, but we don't see that as fundamental to anything that we're doing, either on the B2B side or on the B2C side, because when we purchased the ARN platform, that platform has been operating in that space for nearly 20 years. It provides us broad access to over 600,000 hotels around the globe. And it all sits behind a paywall which provides only access to those who have paid for that access, first and foremost. Secondly is, keep in mind that from the very beginning, we've been clear that we believe the value in the Travel + Leisure Club is around the curated content, the unique nature of the content, and the fact that people are going to be able to travel through the eyes of the writers in the magazine. And in that respect, the magazine has over 150 of both travel agents and the top hotels around the world who want to be aligned with that name, with that brand, and with the content in the Travel + Leisure Magazine. And as a result of that, it's an opportunity for them to offer distribution in a format that's supportive of what's written in the Travel + Leisure Magazine. So, I understand the market concern as it relates to another paradigm, but we view our approach and history with our ARN platform to not create that even remote concern as it relates to our business.

Okay. Thank you. And then just a follow question for Mike. You noted that the credit facility allowing it go into ratios of 4.75, and then dropping to 4.25. Do those numbers impact at all what your long term target leverage ratios are?

No. I think we've been consistent that our long-term a target is 2.25 to 3 times. That's what we'll continue to target. Once again, getting there primarily through growing EBITDA, but we've also talked about the fact that in terms of additional return of capital to shareholders, it's not that we have to get to 3 times before we do that, as we demonstrate with the dividend increase, but really having a clear line of sight. So, as we continue to grow our EBITDA, our leverage rates should go down, and also our pre-cash flow should go up. And we would expect to have a summer capital allocation policy that we had pre-COVID, where we'll grow the dividend as we grow the business, look at M&A, and look at share repurchases. But can't be more excited to really be in a position today where we're actually able to do that as opposed to being unrestricted since really the middle of 2021 - I'm sorry, 2020.

Okay. Great. Thank you.

And we'll take our next question from Stephen Grambling with Goldman Sachs. Please go ahead. Your line is open.

Hey, thanks. And you addressed this a little bit, but last quarter you had noted some of the concrete factors that will likely weigh on EBITDA in 2022 versus 2019, things like the portfolio size, exchange membership, et cetera. I'm just wondering if, one, you could just kind of recap some of those and if anything has changed in terms of your views there. And then secondarily, how does the loan loss provision kind of factor into that, which I would think typically moves with the size of the portfolio as well? Thanks.

Yes, sure. Thanks for the question. As far as the puts and takes for next year compared to 2019, portfolio headwind of $100 million to $120 million just based on the net interest income differential, the portfolio expected to be down about $1 billion compared to the end of 2019, and then about a $50 million headwind as it relates to the reduced RCI member count. Now, the offsets to that are the $60 million in permanent savings that we're recognizing today, and we will continue to recognize next year. And then to your point, the provision which had been running north of 20%, we expect it to be below 19%. Now, on the provision, the provision is in part driven by portfolio size, but more importantly, it's driven by the level of VOI sales and the percent of sales financed. And so, as we grow VOI sales, the dollar amount of the provision should increase. And then once again, depending on what we do with tour quality and with down-payments, it can move from the 18 inch run now up to something lower or higher based on what we do with tour quality. But it's really going to be driven, the provision, when we look at 2022 and forward, less by portfolio size and more by the level of new originations during the current year.

That's super helpful. Thanks so much.

And we’ll go next to David Katz with Jefferies. Please go ahead. Your line is open.

Hi, good morning, everyone. Thanks for taking my question. You’ve covered a lot ground, and I'm wondering whether within the VOI business, where you've made so many operating improvements, et cetera, and your capital position is comparatively strong, whether there might be tuck-ins or rollups or whatever description we'd want to use, that may be incrementally beneficial to the VOI business that may sort of trade up - help trade up quality over time as well.

Well, David, that's a great follow-on question to many of the questions we've had so far. And I lean into the M&A question with this, is that the questions from the other folks so far have really been about the strength of our VOI business is really proving itself out. And as we come out of COVID, we're balancing tour quality and tour growth and what happens in the provision. And what we're seeing is a lot of strength coming out, and that's going to be, in the next three to six months, a lot of the effort as we head into 2022, is make sure we adjust and get that balance exactly right as the core and foundational aspect of the business, but there does remain opportunity in the overall M&A arena. We've always, since the day we spun, been looking at the M&A landscape as continued consolidation occurs in our space. We remain active in our looking, scanning across the landscape of timeshare potential for tuck-ins. As you know, we've done a number of acquisitions and dispositions, none that are directly around the VOI space per se, but we continue to be active in that space because the natural evolution of the industry has been moving toward brands. I think next year, branded timeshare sales will be somewhere around 80% to 90% of the industry. And therefore, consolidation does make sense and no different than we always have said is, we will remain active in scanning the landscape of VOI.

I appreciate that. And given that you haven't done a ton, but there is certainly kind of a roll-up perspective on the industry, I suppose what I'm really getting at is, Mike, the fact that you haven't done many, what would cause that to change, right? The opportunities exist. You have the capital resources. What would cause you to act rather than passing as you have?

Well, I always come back to what our fundamental look at is on all M&A. the M&A that we've done has been, we think strategic and economically the right aspects of where we're going. So, you look at the two we've done so far, and the one we've disposed of as we said at Investor Day, those are going to end up being cash neutral. So, we've been able to change our strategic direction holistically on a cash neutral basis. And that's not only a strategic decision, but also an economic one, and that perspective hasn't changed. And when I say we're active scanning, it's, we've been actively scanning. we'll continue to actively scan, but it has to make strategic sense and financial sense. And the question ultimately becomes, does that change? The world has changed dramatically after COVID. So, if things do change, then we'll be more active in this space. And if deals come our way that are not economically sensible, then we'll pass. We've got a great organic story, and if we can be additive to it, but in a strategic and economic sense, then and only then will we do deals.

Thank you so much. Very helpful and congrats on the quarter.

David. Thanks. Appreciate it.

And we'll take our next question from Ben Chaiken with Credit Suisse. Please go ahead.

Hey, how's it going?

Hey, good morning, Ben.

Good morning. Hey. So, RevPAR in the leisure space is accelerating. Do you think that allows you - to say the least. Do you think that allows you to lean into price a little bit, or at least make the purchase decision for higher priced products more appetizing for consumers? Like, do you see that as a benefit to you next year or now?

Possibly, Ben, but I come back to what I said in our prepared remarks, which is, this is the point in the cycle where we really show maximum value in ownership. And we do best when travel costs are rising. And with the world speaking of inflation today, we see the opportunity to translate that potentially in our execution. And we've always said that our VPG lift over $3,000, up 40% - 39%, as Mike shared, is part operational, performance and part mix adjustment. So, as we move our mix slightly higher next year on the new owner mix, this opportunity of inflation, and if we held prices relatively similar to CPI, we have the potential to see benefits on things like close rates or transaction size. So, there's a few different ways we can go about it. Best for the consumer is probably to hold pricing in a relatively stable manner, and look for benefits coming out of close rates or transaction size.

And keep in mind, Ben, our model is a little bit different when you think about us compared to a hotel. In the case of the hotel, they don't necessarily know whether that consumer is going to come back next year or not. In our case, if we sell them a product, we know they're going to come back next year and some years after that. So, we have that upgrade opportunity, not to mention if we’re financing transaction, we get the recurring interest, we get the RCI membership, we get the management fee. So, I think when we look at it, the more important thing is, hey, let's continue to run those great close rates that we see. And we talked about the level of newer sales. Let's get more people in the system, and that's really that pipeline for future growth. So, for us, yes, we definitely take a look at pricing, but it's not won and done. It's more, let's get them in the system. They value the product, they buy more, and we continue to benefit over the long term.

That makes sense. So, it seems like one way or the other, it's either going to be on the pricing side or the volume side. Your point is on the volume side, you get the LTV at the customer, which totally makes sense. I was coming at it from the perspective of just like clearly the value proposition is accelerated towards timeshare materially. So, and all that color is helpful. Thanks. Appreciate it.

Thank you. And that concludes our question-and-answer period. I would now like to turn the call over to back to Michael Brown for closing remarks.

Well, first of all, to everyone on the call, especially those who have asked questions, I know it's a busy earning season, so I know everyone's scrambling, and appreciate you taking the time to be on the call. More broadly, we'd like to thank everyone. We definitely had an exciting third quarter and the fourth quarter is off to a strong start as we continue to execute on our strategic plan. As always, I have our team to thank for their service to our owners, members, and guests, as we work to close out a strong 2021. Thank you to everyone for joining us today, and have a great day.

Thank you. And that concludes Travel + Leisure’s Third Quarter 2021 Earnings Conference Call. You may now disconnect your line at this time, and have a wonderful day