Executive Summary / Key Takeaways

• Resilient Core Business: Travel + Leisure Co. (TNL) demonstrates robust performance in its Vacation Ownership segment, driven by a loyal, high-FICO owner base and consistently strong Volume Per Guest (VPG) figures, underpinning a nearly $20 billion future revenue pipeline.
• Strategic Multi-Brand Expansion: The company is actively expanding its market reach through new brand affiliations like Accor Vacation Club and Sports Illustrated Resorts, aiming to tap into new customer demographics and maintain growth momentum.
• Technological Differentiators: Investments in proprietary apps (Club Wyndham, upcoming WorldMark) and AI-driven personalization are enhancing customer engagement and operational efficiency, providing a competitive edge in booking conversion and satisfaction.
• Disciplined Financial Management: TNL maintains strong liquidity and consistent access to capital markets, evidenced by successful securitizations and credit facility amendments, enabling significant capital returns to shareholders through dividends and share repurchases.
• Outlook for Growth: Despite macroeconomic uncertainties and headwinds in its Travel and Membership segment, TNL projects continued Adjusted EBITDA growth for 2025, fueled by Vacation Ownership strength and strategic initiatives, with a clear path to improved free cash flow conversion.

Setting the Scene for Leisure Travel's Resilience

Travel + Leisure Co. (NYSE:TNL) stands as a global leader in hospitality services and travel products, primarily operating through its Vacation Ownership and Travel and Membership segments. The company's strategic evolution, marked by its 2018 spin-off from Wyndham Hotels & Resorts (WH) and subsequent rebranding in 2021, has positioned it as a focused entity in the leisure travel industry. This journey has instilled a disciplined approach to growth and capital allocation, enabling TNL to navigate dynamic market conditions.

The broader leisure travel industry is experiencing a notable shift, with spending expected to grow mid-single digits annually over the next five years. Consumers are increasingly prioritizing travel as an essential part of their lifestyle, a trend that directly benefits TNL's core business model. The company's foundational strength lies in its ability to cater to this demand through diverse offerings and a highly visible recurring revenue base, with over 75% of its revenue tied to predictable sources like owner upgrades, financing, and management fees. This stability provides a significant competitive advantage in a sector often perceived as cyclical.

In the competitive landscape, TNL distinguishes itself through its diversified brand portfolio and operational efficiency. While direct competitors like Marriott Vacations Worldwide (VAC) and Hilton Grand Vacations (HGV) focus on premium branding and integrated hotel ecosystems, TNL's broader accessibility and multi-brand strategy offer a wider market reach. TNL achieves approximately 10-15% lower operating costs per unit compared to VAC through economies of scale and strategic third-party marketing partnerships. Its loyalty programs also drive 10% more repeat business than HGV, according to industry benchmarks. However, TNL lags in net margins compared to VAC (10-12% vs. 15-18%), as VAC benefits from higher pricing power in luxury segments. Against online travel giants like Expedia Group (EXPE), TNL's hybrid model, combining physical vacation ownership with technology platforms, offers a more integrated experience, though EXPE's digital-first approach boasts faster booking processing speeds.

Technological Edge: Enhancing the Customer Journey and Operational Efficiency

A cornerstone of TNL's strategy and a key competitive differentiator is its ongoing investment in technology and digital innovation. The company recognizes that a seamless, personalized customer experience is paramount in today's travel market. This commitment is evident in the performance of its proprietary digital tools.

The Club Wyndham app, for instance, has garnered 162,000 downloads and now accounts for 19% of all bookings, boasting an impressive 71% search-to-book conversion rate. This represents a 22% increase in conversion compared to the traditional owner website, directly translating to enhanced booking efficiency and customer satisfaction. The company is extending this success with plans to launch a new WorldMark app in the fourth quarter of 2025, aiming to replicate these benefits for its second-largest club member base. Furthermore, TNL is progressing with AI investments across its web and app channels, focusing on personalized recommendations and a more seamless booking process. These AI initiatives are designed to deepen customer engagement and drive further operational efficiencies.

Beyond direct-to-consumer applications, TNL leverages technology in its strategic partnerships. The "Blue Thread" partnership with Wyndham Hotels, for example, contributed 7% of new owner tours in Q1 2025, with a Volume Per Guest (VPG) that was more than 20% higher than other new owner channels. This proprietary system enhances lead generation efficiency, and TNL aims for a next-generation version that will offer 30% faster processing and 10% lower costs. For investors, these technological advancements are critical. They not only strengthen TNL's competitive moat by improving customer loyalty and operational effectiveness but also contribute directly to financial performance through higher booking conversions, reduced customer acquisition costs, and improved margins. This focus on digital transformation is a strategic response to the rapid innovation seen from online competitors like Expedia, whose AI tools offer 25% faster bookings. By investing in its own tech stack, TNL aims to mitigate potential market share erosion in digital segments and maintain its efficiency advantage.

A Foundation Built on Ownership and Experience: The Vacation Ownership Segment

The Vacation Ownership segment remains TNL's core growth engine, demonstrating consistent strength despite broader macroeconomic uncertainties. In the second quarter of 2025, this segment reported revenues of $853 million, a 5.7% increase year-over-year, contributing significantly to the overall net revenue increase. Adjusted EBITDA for the segment grew by 5.8% to $218 million in Q2 2025, maintaining a healthy margin consistent with the prior year at approximately 25%. This performance was primarily driven by a 7.8% increase in Gross VOI sales to $654 million, fueled by a 2.7% increase in tours and a robust 6.5% increase in Volume Per Guest (VPG) to $3,251. The VPG performance, which exceeded guidance, reflects strong consumer demand and effective upsell strategies, particularly from a higher owner upgrade transaction mix (67% in Q2 2025 versus 62% in Q2 2024).

The resilience of TNL's owner base is a key differentiator. The company serves over 800,000 owner families with an average tenure of 17 years, and notably, 80% have fully paid off their ownership. This creates a stable, recurring revenue stream less sensitive to short-term economic fluctuations. The average FICO score of new originations stands at 746, a 20-point increase since credit quality standards were updated, and sub-640 FICO loans have declined by 4 percentage points since 2020. This disciplined underwriting approach, combined with an efficient inventory recovery process, bolsters confidence in the loan portfolio's strength, even as delinquencies remain elevated over historical levels. The company expects a full-year 2025 loan loss provision of 21%, with potential for it to trend below 20% over time, further enhancing capital efficiency.

TNL's multi-brand strategy is central to its long-term growth in Vacation Ownership. Beyond its cornerstone Club Wyndham and WorldMark brands, the company is actively expanding its footprint. Margaritaville sales are up double digits year-on-year, with a new sales location in Nashville and a marketing channel on the Margaritaville cruise ship. The Accor Vacation Club, acquired in March 2024, has seen its sales also grow double digits year-on-year, with the formation of a new Asia-based club and its first resort in Indonesia. The integration of Accor has exceeded initial expectations, contributing positively to adjusted EBITDA. Furthermore, TNL announced a new Sports Illustrated Resorts location in Nashville, Tennessee, expected to open in Spring 2027, with sales anticipated to begin in late 2025. These new brands, individually projected to be $200 million to $400 million sales brands, are designed to expand into new markets and reach new audiences, contributing to TNL's ability to maintain its current growth rates over the next 5-7 years. The company's "Just-in-Time" asset-light development strategy, seeking financial partners to develop properties, further optimizes capital deployment and supports future inventory needs.

Adapting to Shifting Tides: The Travel and Membership Segment

While the Vacation Ownership segment thrives, TNL's Travel and Membership segment faces ongoing structural headwinds. In Q2 2025, this segment's revenues decreased by 7.3% to $164 million, and Adjusted EBITDA declined by 11.3% to $55 million. This underperformance is primarily attributed to industry consolidation, which continues to drive a migration from external to internal exchanges, putting pressure on transaction volumes. Recent M&A activity also unexpectedly disrupted transaction volumes from certain affiliates, contributing significantly to the first-half decline.

Despite these challenges, TNL is taking targeted actions to stabilize the segment and maximize cash flow. The Travel Club business showed transaction growth of 7.2% in Q2 2025, demonstrating an opportunity to partially offset the decline in exchange propensity. Management is focused on innovative ways to deploy inventory and grow revenue, alongside disciplined cost management. While the segment is expected to remain challenged through year-end 2025, with full-year Adjusted EBITDA projected to be flat to down 2%, the strategic focus is on operational flexibility and long-term shareholder value through a transformation aimed at stabilizing the business.

Financial Strength and Disciplined Capital Allocation

TNL's financial health is characterized by strong liquidity and a disciplined approach to capital allocation. For the six months ended June 30, 2025, the company generated $353 million in operating cash flow and $123 million in adjusted free cash flow. This robust cash generation is supported by high sales efficiency, capital-efficient sales execution, and the consistent contribution from its consumer finance portfolio. The company expects its adjusted EBITDA to free cash flow conversion to exceed 50% for the full year 2025.

As of June 30, 2025, TNL maintained over $800 million in liquidity, including $212 million in cash and cash equivalents and $596 million available on its revolving credit facility. The company successfully amended its $1 billion revolving credit facility in June 2025, extending its maturity to June 2030 and reducing pricing spreads by 25 basis points. This move, coupled with a reduced minimum interest coverage ratio of 2.00 to 1.00, enhances financial flexibility. TNL remains in compliance with its financial covenants, reporting an interest coverage ratio of 4.57 to 1.00 and a first lien leverage ratio of 3.44 to 1.00 as of Q2 2025.

Access to capital markets remains consistent, with TNL completing $350 million in securitization financings in the first half of 2025 and an additional $300 million subsequent to Q2 2025, the latter at a 5.1% coupon—the lowest since 2022. These transactions underscore market confidence in TNL's business model and its ability to finance vacation ownership interests. The company is committed to returning value to shareholders, having repurchased $140 million in shares in the first half of 2025 and paying $0.56 per share in dividends for Q1 and Q2 2025. The long-term plan is to grow the dividend at a minimum rate of earnings growth.

Outlook: Charting a Course for Continued Growth

TNL's outlook for 2025 reflects confidence in its core Vacation Ownership business and strategic initiatives, despite acknowledging ongoing challenges in the Travel and Membership segment. The company reiterates its full-year 2025 Adjusted EBITDA guidance in the range of $955 million to $985 million. For the third quarter of 2025, Adjusted EBITDA is expected to be between $250 million and $260 million.

Key assumptions underpinning this guidance include continued strength in Vacation Ownership. Full-year Gross VOI sales are projected to be between $2.4 billion and $2.5 billion. VPGs are expected to be in the range of $3,200 to $3,250, an increase from the prior guidance, reflecting strong performance and management's belief that the consumer will not weaken in the second half of the year. Tour growth is anticipated to accelerate sequentially in the second half of 2025, building on the 3% increase seen in Q2. The new owner mix is also expected to accelerate in the back half of the year towards the long-range target of 35%.

While the Travel and Membership segment is expected to remain challenged, TNL's strategic focus on cost actions and Travel Club growth aims to mitigate the impact. The full-year provision rate for loan losses is expected to be 21%, reflecting current delinquency trends, though management sees potential for this to trend below 20% over time. The effective income tax rate for 2025 is projected to be 28% to 30%, influenced by Pillar Two taxes. TNL's strategic investments in new brands like Sports Illustrated Resorts, while not expected to be financially meaningful until 2026 and beyond, are crucial catalysts for long-term growth and market expansion.

Key Risks and Mitigating Factors

Despite a positive outlook, TNL faces several pertinent risks. Macroeconomic uncertainties, including sustained inflationary pressures, high interest rates, and the risk of recession, could impact consumer behavior and demand for leisure travel. The company's businesses are highly dependent on the overall health of the travel industry, making them susceptible to broader disruptions. While loan portfolio delinquencies have moderated, they remain elevated over historical levels, requiring continued vigilance in underwriting and collections.

The Travel and Membership segment faces ongoing structural headwinds from industry consolidation and a shift in exchange patterns, which could continue to pressure revenues and profitability. Furthermore, the company's VOCR securitization program could be adversely affected by unfavorable capital market conditions or if loan pools fail to meet specified credit parameters, potentially impacting liquidity. Natural disasters, such as hurricanes and wildfires, can also disrupt operations and tour volumes, as experienced in 2024.

TNL mitigates these risks through several strategic levers. Its resilient owner base, with a high percentage of fully paid-off ownerships, provides a stable revenue foundation. Disciplined underwriting standards and an efficient inventory recovery process help manage loan portfolio risk. The company's diversified resort locations globally offer protection against localized natural disasters. Strategic cost management and a focus on higher-margin transactions in the Travel and Membership segment aim to offset industry headwinds. Strong liquidity, consistent access to capital markets, and a flexible capital allocation strategy provide financial resilience against unforeseen challenges.

Conclusion

Travel + Leisure Co. is a compelling investment story rooted in the enduring appeal of leisure travel and the inherent resilience of its vacation ownership model. The company's strategic pivot towards a multi-brand portfolio, coupled with a relentless focus on technological innovation and customer experience, positions it for sustained growth in a dynamic industry. Despite macroeconomic headwinds and challenges in its Travel and Membership segment, TNL's core Vacation Ownership business continues to deliver robust financial performance, driven by a loyal customer base and disciplined operational execution.

The company's ability to generate strong free cash flow, maintain a healthy balance sheet, and consistently return capital to shareholders underscores its financial strength. As TNL continues to expand its brand footprint and leverage its technological advantages, it is well-positioned to capitalize on evolving consumer preferences and differentiate itself in a competitive landscape. Investors should monitor the continued execution of its multi-brand strategy and the stabilization of its Travel and Membership segment, as these factors will be key to unlocking further long-term value.