Travel + Leisure Co. (NYSE:TNL) Q2 2022 Earnings Conference Call July 28, 2022 8:30 AM ET
Company Participants
Chris Agnew – SVP, FP&A & IR
Michael Brown – President & CEO
Mike Hug – CFO
Conference Call Participants
Joe Greff – JPMorgan
David Katz – Jefferies
Patrick Scholes – Truist Securities
Chris Woronka – Deutsche Bank
Ben Chaiken – Credit Suisse
Ian Zaffino – Oppenheimer
Operator
Good morning, and welcome to the Second Quarter 2022 Earnings Conference Call for Travel + Leisure Co. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions]. As a reminder, ladies and gentlemen, this conference call is being recorded. If you do not agree with these terms, please disconnect at this time. Thank you.
I would now like to turn the call over to Chris Agnew. Please go ahead.
Chris Agnew
Thanks, Emma. Good morning.
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 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 second quarter results; and Mike Hug, our Chief Financial Officer, will then provide greater detail on the quarter, our balance sheet, and liquidity position. Following these remarks, we will look forward to responding to your questions.
And with that, I’m pleased to turn the call over to Michael Brown.
Michael Brown
Thank you, Chris. Good morning, and welcome to our second quarter earnings call.
This morning, we are pleased to report strong results, highlighted by adjusted EBITDA of $230 million and adjusted EPS of $1.27. Our top and bottom line results reflect the strength of our business model and continued strength in leisure travel demand despite macroeconomic headlines.
The record volume per guest we delivered in the second quarter underscores the value our owners see in their timeshare ownership and the increasing value they receive during an inflationary environment.
Our adjusted EBITDA margin was 24.9%, an improvement of 70 basis points over the second quarter of last year and 40 basis points over the same quarter of 2019.
We recognize that beyond our 2Q results, second half leisure travel demand and travel sentiment is top of mind for everyone. We see continued robust vacation ownership demand through the end of the year. Our booking pace is at 2019 levels, and due to an increase in average length of stay, room nights for the second half are 8% above 2019. I would also note, we already have nearly 90% of 2019 second half room nights on the books for this year.
I will share a number of data points that reflect the latest consumer travel behavior. The regions with the most demand for the rest of the year are the South, Southwest and Hawaii, while the West Coast and international are modestly lagging. There has been an increase in drive-to arrivals from 73% in March to 79% in June. RCI booking windows have decreased by 5 days from 118 days earlier in the year to 113 days in the second quarter. Lastly, our portfolio remains strong and is growing again. These are a few of the data points we monitor to understand the latest consumer sentiment.
As you can see, there is no significant changes in trends. As such, we believe the continued strength and performance is founded in our consumers’ appreciation of their realized value. As a reminder, 80% of our owners have no loan outstanding and are traveling for the price of their maintenance fee. Our diverse portfolio of resorts gives our owners maximum flexibility with 95% of the U.S. population within 300 miles driving distance to one of our resorts.
Transitioning to second quarter results, we were pleased with the continued performance of the business, and that strength is reflected in our forward guidance. For the second consecutive quarter, we achieved record volume per guest. At $3,489, we saw strong sequential and year-over-year growth in both new owner and owner VPGs. Second quarter VPG was 44% higher than 2019 and 11% higher than 2021. This VPG performance occurred while we also grew our new owner transaction mix by 200 basis points to 32%. Early signs in July show that VPGs strength in each customer acquisition channel is continuing. Given that July and August are historically higher new owner sales months, we expect a modest pullback in Q3 VPG due to mix of new owner sales.
In the second quarter, over 65% of new owner sales were to Gen-Xers and millennials, which underscores that the value of vacation ownership is resonating with younger generation and gives us confidence in our future upgrade pipeline.
A key segment of our new owner growth is affinity sales, most notably the Blue Thread. Blue Thread VPGs run approximately 20% higher than non-affinity new owner VPGs and now represent 16% of our new owner sales, which is nearly double the percentage of 2019.
In addition to driving new owner sales, we are focused on increasing the percentage of sales financed. We have been successful on that front. In the second quarter, the percent of sales financed increased to approximately 65% from 55% in the prior year. We expect this to grow our high-margin net interest income stream more quickly and offset higher borrowing costs.
I will point out we are doing this while raising our average FICO score on new originations to 734 in the second quarter.
The value proposition of vacation ownership continues to resonate and is the reason why close rates continue to track about 300 basis points above 2019 levels. We see inflation as a net positive for our business model as rising hotel and vacation home rental rates create an even more compelling value proposition for our customers.
Turning now to the Travel and Membership segment. Revenue declined 3% in the second quarter and finished up 5% for the first half of the year. In the second quarter, subscription revenue increased 5% and transaction revenue declined 6%. Overall, we are pleased with the performance of our exchange business. Through six months, member engagement continues to improve and revenue per member is 2% higher than the first six months of last year. As we highlighted on the first quarter call, exchange had a difficult comp in the second quarter due to a COVID-related shift in demand into the second quarter and the prior year.
Turning to our Travel Clubs. Our Travel Club affiliation pipeline continues to steam ahead. We added nine new clubs in Q2 and are expected even more this quarter. Many of the clubs we announced late in 2021 and in Q1 of this year have come online for membership and transactions in Q2 and several more will come online in Q3. We expect transactions to ramp towards the end of the current quarter through the end of the year. One of the benefits that resonates with clients is our ability to customize the travel platform to their affiliate needs. The customization takes between four months and six months and our goal is to get that to our original plan of under three months.
Our transaction size is meeting our expectation at an average of $400 and some of the earliest clubs are already within the 1% to 3% activation range we are targeting. We have more work to do to get all clubs in that range, but the early proof points show a promising future. The platform is robust and the value proposition is strong. Now our single biggest focus is to drive transactions to those new clubs that have just come online or will do so in the upcoming months. We intend to do so by engaging more heavily to market each of the clubs to their members.
Turning to our outlook. We expect third quarter adjusted EBITDA of $230 million to $240 million, and we are raising full-year adjusted EBITDA guidance to between $860 million to $880 million. We’re committed to disciplined capital deployment. And while we are constantly looking for opportunities to invest cash flow to grow our business, as Mike will describe, we have also been returning a healthy portion of our excess capital to shareholders.
Between buybacks and dividends, we expect to return $350 million to $400 million to shareholders this year or approximately 10% of our market cap at the midpoint. We are cognizant of uncertainty ahead for the macro economy, but we believe that the combination of the strategic improvements we have implemented and the resiliency of our cornerstone businesses position us well to meet the challenges that may emerge and we are confident in our outlook for the remainder of the year.
For more detail on our performance, I would now like to hand the call over to Mike Hug. Mike?
Mike Hug
Thanks, Michael, and good morning to everyone.
As well as discussing our second quarter results, I will provide more color on our balance sheet, liquidity position and cash flow. All of my comments reflect EBITDA, EPS and cash flow on a non-GAAP adjusted basis. Please see our tables to the earnings release on our website for reconciliations.
We reported total company second quarter EBITDA of $230 million and diluted earnings per share of $1.27, compared to $193 million in EBITDA and $0.88 in EPS one year ago.
Looking at the performance in our two business segments in the second quarter, Vacation Ownership reported segment revenue of $735 million and EBITDA of $187 million, increases of 22% and 36% respectively over the second quarter of 2021. Excluding the $16 million prior year benefit from the COVID reserve release, EBITDA would have increased 55% year-over-year. In the second quarter, we delivered 148,000 tours and a VPG of $3,489 representing increases of 26% and 11% respectively over the prior year. The second quarter provision for loan loss was in line with expectations at 16%.
With respect to our portfolio, we are starting to see the results of changes we implemented to increase the percent of sales financed and drive portfolio growth. The even better news is that we are achieving the growth of the portfolio into higher FICO bands with the largest percentage increase in financed sales coming from individuals with FICOs greater than 800.
In regards to portfolio delinquency, we saw a slight increase in delinquency at the lower end. Keep in mind, though, we increased our minimum FICO to 640 in July 2020 and FICOs above 700 represent two-thirds of our portfolio.
Revenue in our Travel Membership segment was $188 million in the quarter, compared to $194 million in the prior year and above the $164 million in the same quarter of 2019, after removing $66 million for the sale of the North American rental business. EBITDA for Travel Membership was $64 million, compared to $71 million in the prior year.
In addition to strong operating results, our balance sheet is strong, and we are returning capital to shareholders.
In July, we closed on our second ABS transaction of the year, a $275 million transaction with an advance rate of 91% and a weighted average interest rate of 5.7%. We had expected the increase in rates, and we were very encouraged by the strength of demand as this offering was nearly 4.5 times oversubscribed, which reinforces the strength of our business model even during a time of market volatility.
In regards to capital allocation, we paid a dividend of $0.40 per share on June 30 and we acquired 1.7 million shares of common stock in the second quarter for $83 million. In the first half of this year, we have repurchased $128 million of common stock. We have $700 million remaining under our approved share repurchase program.
At our upcoming Board meeting, we will recommend our Board of Directors continue our dividend at $0.40 per share in the third quarter. The healthy return of capital to shareholders is driven by our strong free cash flow generation. And for 2022, we continue to expect free cash flow conversion from EBITDA to be back to our historic range of 55% to 60%.
Our net corporate leverage ratio for covenant purchases was 3.7 times at the end of the quarter, and we expect to continue to delever through EBITDA growth.
Having summarized our strong second quarter let me provide some more detail about our expectations for the third quarter and full-year. In the third quarter, we expect gross VOI sales to be in the range of $530 million to $550 million, a 20% to 25% increase over the prior year, with VPG expected to be between $3,300 and $3,400.
The provision for loan loss is expected to be approximately 18.5% in the third quarter and below 18% for the second half of the year, which is consistent with our prior guidance. It is important to note that this expected increase in the provision in the third quarter is not a quality issue, but rather driven by strategic decisions made by us to return to a growing portfolio through a higher percentage of sales financed and continuing efforts to increase our new owner sales mix.
One last point on the third quarter. We expect the tax rate will be at the high end of the 27% to 28% range we anticipate for the full-year.
As Michael mentioned, for the full-year, we’re expecting adjusted EBITDA of between $860 million and $880 million. Gross VOI sales are expected to be between $1.9 billion and $2 billion with VPG ranging from $3,300 to $3,400.
In summary, our strong second quarter results reflect the strength of our leisure travel business model as evidenced by the recurring and resilient revenue streams, EBITDA margins in the mid-20s and strong free cash flow generation, which allows us to drive shareholder value.
With that, Emma, can you please open up the call to take questions?
Question-and-Answer Session
Operator
[Operator Instructions].
And we will take our first question from Joe Greff with JPMorgan.
Joe Greff
Michael, you mentioned the drive-to versus fly-to comments data points in your prepared comments. And within those comments, you talked about regionally what’s sort of outperforming and what’s underperforming. And you mentioned your Western U.S. geography as a region that’s lagging, international lagging. And then I sort of I think I understand what’s going on there. Can you talk to what’s going on in the West and whether that’s just sort of a year-over-year comparison issue? And then I think that was relegated to a 2Q commentary. Can you talk about geographically in VO, what you’re anticipating to see here in 3Q as well?
Michael Brown
Yes, absolutely. Actually, there’s a few points there. Let me start with the broader one and why I tried to share a lot of data points. It was actually to show that there are not significant changes in the leisure travel behaviors because the commentary in the marketplace today is what’s weakening, what’s changing. And the point of all that is virtually nothing is changing as far as continued strength in leisure travel.
As it relates to the data points for the individual regions, those are actually expected occupancies as we move forward for the second half of this year. The Sunbelt states continue to do extremely well and a lot of demand. International, I don’t think of any surprise. And I — more than anything, if there’s any clear laggard, it’s international travel due to lingering travel restrictions and air complications. That’s — those are sort of the two headlines.
The West Coast is very, very marginal. It’s a combination of California, Las Vegas, Washington and Oregon. But we’re talking 2, 3 percentage points of occupancy, which could easily pick up with remaining bookings for the remainder of this year. But that’s where we are at the moment. It’s incredible how strong our sort of Central Florida, Southwest of the U.S., our Texas operations, how well they’re doing as far as demand in the second half of this year. And was there a VO sales question as well?
Joe Greff
Yes. I guess my question on VO is given higher airfares, are you seeing consumers trade from a fly-to market to a drive-to market? And to what extent are you encouraging or anticipating that behavior maybe modifying your marketing?
Michael Brown
Yes. So — so a few elements to that. First of all, at the high water mark during COVID, our drive-tos got to over 90%. So this move from 73% to 79%. I think a little bit has to do with simply summer travel and a little bit to do with air complications. We’re not really having to drive demand to our drive-to resorts. The reality is that with such a broad spectrum of resorts across North America, 95% of the U.S. can get to a resort in a relatively short amount of time, sort of that four-hour drive time. So consumers are naturally shifting to that, but it’s not dramatic. It’s on the margin. And I think it’s a result of what we’re all experiencing, which is longer lines in airports and sort of an ease of travel, which is getting in the car, putting your groceries in and getting to your resort and being on vacation within four hours of leaving your front door.
Joe Greff
Great. And then my final question is on the Travel and Membership segment. I know you mentioned your first half results there, you grew year-over-year in the second quarter, there’s a comparability issue and then some expenses as well. How do you grow that business from here? What’s implied in your full-year guidance? Do you anticipate that segment to see second half growth in terms of revenues and expenses? And if the answer to that is yes, what’s driving it? Then my last one related to this segment is you highlighted staffing and marketing costs to launch the Travel Club membership business. Do you look at that as those expenses as one-time and go away next year? Or is that really highlighting incremental expenses to build a business, but those expenses don’t go away? They are not one-time in nature. And that’s all for me.
Michael Brown
Yes. Well, thanks, Joe. I think that’s an important component. And let’s just pull it to the top level and then we can drill down is, I absolutely believe in continued growth in the Travel and Membership segment. And not in future years, I’d expect the second half of this year for us to get high-single-digits growth out of the Travel and Membership segment.
I think when you look at our overall full-year EBITDA growth; you’re going to be looking at mid-single-digits. And keep in mind, Joe, and I think everyone on the call remember, we only talked about 0% to 2% growth in the Travel and Membership segment for the last decade. And now we’re talking about this year being at a mid-single-digits growth rate and the drivers of those growth really come from the strategic shift we began in 2019, the acceleration of our ability to attract affiliates and now with them coming online middle of the year and us ramping transactions, we can now be confident that not only will we grow at this historical 0% to 2%, but we’re going to be growing at a mid-single-digits rate this year and hope for continued acceleration in the years beyond.
So strategically, this thing is heading in exactly the direction we wanted to. I couldn’t be more proud of our team in the way that they filled our pipeline of affiliates. And now we get to the point that where we think is our core competency, which is executing against the plan, and that means just driving transactions of people that are already signed up and we will continue to sign up in Q3. So I’m really excited about this business and really excited about the progress we’ve made for the first six months of this year.
Mike Hug
And one thing I would add on the other piece of that business, the RCI exchange business. Not only are we driving more new owners, but if you look across the industry, really, everybody is having great success as far as increasing that new owner mix. So as the entire industry brings on new owners, that’s incremental members for RCI, which is a great thing to see because obviously, over the last couple of years, there had not been owner growth across the industry because of the lack of new owner sales. So not only pleased with our results, but also watching very closely what the other companies do as far as driving those new owners and additional RCI members.
Operator
Our next question comes from David Katz with Jefferies.
Michael Brown
Hi, David.
David Katz
Hi, good morning, everyone. Thanks. Good morning. Thanks for including me. First question is, yes, I think I probably speak for a broad group, any perspectives or data points or anything you can share with respect to later this year and early next year? Obviously, we’re trying to get our arms around what the economic context is. But anything you can share to that end with respect to T&L would be I mean; I think it’s super helpful.
Michael Brown
Yes, absolutely. And I sprinkled in a few data points, but let me go a few — a little deeper on some of those. First of all, and I just want to reiterate a point we mentioned and then I’ll share a few more is 90% of what we — 90% of room nights in 2019, we — sorry, of the room nights that we had on the books in 2019 for the second half of that year, we already have 90% of those room nights on our books. So you say, well, that’s fine. But if booking pace decelerates, you got an issue. Our booking pace has been consistently at 2019 levels up until last night when we went home for the evening. I mean it is not showing any signs of weakening into the second half of this year. And I would translate that as well to our expectations on VOI because our most forward-looking metric is around owner arrivals with 68% of our sales happening there.
The fact that we are at 2019 arrival levels, projected arrivals and then 8% higher due to length of stay on room nights means that we are gaining a lot of confidence in the second half of this year and we have a lot of confidence.
And maybe the last comparison I’ll give is COVID really brought to us volatility through the cancellation rates. And we are seeing historical level of cancellation rates as far as not volatile, very consistent, consistently low cancellation rates, which says the consumer is not showing any signs of uncertainty as it relates to their vacation in our resorts for the latter half of this year.
David Katz
Okay. Perfect. And if we could just talk about the new fee-based businesses and give us some color about how you might — what kind of volatility you might expect in those in a range of scenarios as we move forward to later this year and early next?
Michael Brown
Absolutely. So I would say there are four key variables that we look at to drive volatility and I would say a decreasing level of concern around what they’re going to deliver. But when we launched these businesses over a year ago, the question was really how much demand will we get for the travel platform. The level of affiliates that we have contracted with, nine in the second quarter, and as we mentioned, we expect more in the third quarter, means the demand for the travel platform is there. The feedback we’re getting on the actual product of does it create value? Is it intuitive? Is it easy to use? The answer is clearly, yes, it is, and some of the customization we’re doing is allowing that to happen.
The second question is, can we get the propensity of memberships to 1% to 3%. We’re very early in the game, but we’re already getting a number of these clubs into the range that we expected. So we’re feeling good about that one.
The third piece is what will the average transaction size be? It’s exactly what we expected to be, if not slightly above.
The last variable and the one that’s most critical for us to drive is the individual transaction. So as we progress in the full second half of this year, to me, I wouldn’t even call it volatility. I would say the variable that we’ll be watching most closely is our ability to ramp transactions within these individual affiliates.
Operator
Our next question comes from Patrick Scholes with Truist Securities.
Patrick Scholes
Good morning. Michael, first question for you here. On the VPG range going up, how do you think about how much of that is driven by inflation on just product costs and just general economic inflation versus real demand and pricing power driving that higher and also perhaps the mix in there of better closing rates?
Michael Brown
Well, I think it’s a combination of all of it. I think the biggest driver of that is the close rates moving up by 300 basis points, which to me is a clear reflection of our ability to raise credit quality and benefit the overall efficiency and margins of our business, which leaves us the remainder our ability to grow the portfolio, which as we mentioned, we’ve been very successful in the second quarter to getting our portfolio growing again at a really good clip.
So when we went to Investor Day back in September of last year, we laid out expectations of sort of that $2,800 VPG, which was a significant increase from where we were at the time. I think there has been a portion in Q2 that’s been pent-up demand, and it’s driven even further than we expected this year, and it continues into July. It continues — we’re almost through July, and we’re seeing no weakness in the consumer from that aspect.
And I think the only moderation that we’ll see on VPG as it relates to performance is actually due to mix, and we’re continuing to drive new owners, and that will bring VPG back just a little bit. But primarily, I’d say it’s close rates. We’ve increased prices twice this year. So there’s a little bit of pricing in that, not significant. And as I mentioned, I think the inflationary benefit, the consumer sees it, they see a lot of value and that translates back to close rates. So that’s how I’d look at the VPG rise.
Patrick Scholes
Okay. Thank you for that thorough answer. And now, Mike, a question for you on the most recent securitization. I saw that the advance rates percentage dropped. Can you discuss what’s — what is driving that? And then a follow-up question related. Of your existing loan portfolios, any change in the propensity of the existing customers within those portfolios to pay their notes in a timely fashion, especially on the Class C and D related notes. Thank you.
Mike Hug
Yes. Thanks for the question. On the ABS transaction, the only reason that the advance rate went down was because the interest rates higher. And what that means is because there’s a higher interest rate, there’s less excess cash to provide protection to the noteholders, even though our notes have always paid as designed in that structure. We’ve never had any defaults or any triggers or anything like that. So it wasn’t our performance issue with the portfolio. It was just the fact that as we’re paying more in interest, less excess cash to provide protection. So you make up for that excess cash by dropping that advance rate, but still a strong advance rate 91%.
The other thing I would point out is that’s just a temporary issue as far as the additional cash price. So now when we collect a dollar principal rather than paying $95 to the noteholders, we pay $91 to the noteholders. So that cash will come back to us. We would love to be at $95, but that execution was great. We mentioned it was oversubscribed multiple times, which there were definitely some ABS transactions in the market throughout the summer that can say they were 4.5 times oversubscribed. So it was great execution. We all expected the higher interest rates.
And the other thing it does for us by getting that one done it gives us the flexibility to make a decision on whether or not we want to do to the third one this year. We’ve got the capacity in our ABS conduit to just skip one if we think the rates are too high or we don’t like the volatility in the market. So it really — it was great execution but also gives us great flexibility.
As it relates to the portfolio, and I know this is something everybody is very curious about as far as the strength of our portfolio, and I would say, it can’t be any stronger than it is right now as far as where it’s at compared to my 23 years with the company. And I’ll give you a few stats to just prove the strength of the current portfolio.
When we look back at December of 2008, our domestic portfolio was $3.5 billion and $1.1 billion or 31% with sub 640 FICOs. If we look at the portfolio today, $2.7 billion at the end of June domestically, the sub 640 FICOs are below $300 million. They represent only about 11%. So a huge decline there as far as the sub 640 FICOs.
When we look at delinquency, delinquency at the end of 2008 was 6.1%, at the end of June, it’s 3.7%. The weighted average age of the loan was only 20 months back in December of 2008. Currently, it’s 28 months, which means that, currently, they have 56% equity in their ownership. That compares to 39% back in 2008. And that equity is part of the reason that we feel they see value in the product, but also when you’re halfway through as far as your equity on it, you might as well keep paying.
So the portfolio is as strong as it’s ever been. Very pleased with where we’re at. And just I think proves our strategic decision to stay at that minimum 640 FICO. There were a lot of questions we got at times about, hey, shouldn’t you go ahead and start marketing to the sub 640s. And I think we all agree that at some point, those might start to move down as far as performance because of the fact that a lot of individuals were receiving government support and things like that. So very happy with the portfolio.
I would point out, again, as I stated in my prepared remarks, the movement up in the provision in the third quarter is not a performance issue or a quality issue. We had expected that the lower FICO bands would start to normalize as far as how they perform. That increase in the third quarter is strictly due to some timing during the year as far as the calculation, and more importantly, the increase in originations of good quality paper the 800 plus FICOs, which is where we’re seeing the biggest lift in percent of sales financed.
And the last point I would make is, even though we did guide to 18.5% for the third quarter, for the second half of the year, we are keeping our provision guidance consistent with while we talked in our last call at 18% commitment with because there is some timing in there. So very happy with where the portfolio is at and confident in terms of its ability to perform during a downturn.
Patrick Scholes
And any changes in the interest rate over the last quarter or two that you have been charging new customers or new owners?
Mike Hug
No. We pretty much kept the interest rate consistent once again. We feel that a lot of our customers when they make the buying decision, they’re looking at that monthly payment. And so we want to make sure that we keep those close rates high, keep those new owners coming in and start to get those recurring revenue streams, the interest income, the management fee, the RCI membership fee and then also have that upgrade pipeline continue to be very valuable to us. So our interest rates that we’ve charged the consumer, we’ve pretty much held them at the same level.
Patrick Scholes
Okay. Thank you. Thank you for the very thorough answer.
Mike Hug
Sure.
Operator
We’ll go next to Chris Woronka of Deutsche Bank.
Chris Woronka
Hey guys, good morning. I think you touched on the prepared remarks, you expected a little bit of moderation in VPG in Q3 due to mix. Can you give us a little more detail on that? And in terms of your longer-term goal is to get more new owners into the system. But if we see some kind of economic softness, what we — how do you think that trends back? And what are some of the levers that you’re going to pull to keep VPG up?
Michael Brown
Well, the — first of all, let’s just come back to Q2. In Q2, we actually have maintained our VPG despite growing our new owners, which I think as we always talk about that is usually a headwind. And in this case, it wasn’t. It was neutral to actually a positive for us in Q2. And Q3 is typically our highest new owner quarter. So all we’re simply saying is we’re driving new owners. We made a commitment this new — this summer to really invest in our new owner efforts, and they paid off at the end of Q2, and we continue to see them. And we expect to see them in July and August to continue to drive new owner business up. So that is — that’s the moderation you’re seeing in VPG which is simply a mix issue.
As a reminder, we said $2,800 last year during our Investor Day. So our 2025 model, our long-term projections are in that sort of $2,800-plus range. And to the extent that we can maintain them over $3,000, that’s all good news for us because we’re doing it while maintaining our credit quality.
In a downturn, I think that’s what the market continues to learn about the timeshare industry is that it’s not this sort of big ticket discretionary item that most people have always perceived it as. People — it is — the reality is people are going to spend their vacation dollars. And as a result of it, if there’s a downturn with people seeing the value that they’re seeing, I think there could be slight moderation in the close rates, which would pullback VPG a little bit, but I don’t think that’s a volatile number.
I think it’s simply as inflows within a manageable range in times like high inflationary or in whole markets versus when an economy pulls back. People are still going to go on vacation. And I think we’ve used this data in the past, 70 million people come to Orlando every year. If it’s 60 million, there’s still more than enough people that we can market to that are ultimately going to take a timeshare towards see the value in it.
Chris Woronka
Yes, that’s very helpful, Michael. Just maybe a quick follow-up on that is, how do you expect the financing behavior change among your existing owners? And I don’t know if you can provide us a little bit of context historically what they do in terms of cash versus financing when they kind of go back for a second or third purchase?
Mike Hug
Yes, Chris, this is Mike Hug. What we’ve seen historically is that when they come back, they usually do a down payment that’s a little bit higher than what they did on their original purchase. But I think what we expect to see is maybe that down payment in the future won’t be as high because of the changes we’ve made to especially on the higher FICOs to not encourage that higher down payment. So historically, the upgrade results in a little bit higher down payment, but with the efforts we’re putting in place, we’d really have those high FICOs finance with us and get that good quality, high-margin net interest income.
Operator
We’ll go next to Ben Chaiken with Credit Suisse.
Ben Chaiken
Hey, how you are doing?
Michael Brown
Good morning.
Ben Chaiken
Good morning. Hey, just a quick clarification kind of in the last question. So if I understood you correctly, I think you were basically saying that — and I totally understand the premise that new owners can sometimes be a drag on VPG or I think that’s what you’re suggesting, but it sounds like in 2Q that was not the case. It sounds like it was, I think your word drove a neutral to maybe even a slight benefit. And then —
Michael Brown
So let me just answer that real quickly, the answer to that question is you’re correct. The three main channels we look at owners, affinity sales being Blue Thread and non-affinity sales being open market, were all equal to positive in Q2 despite — yes. So the VPGs were all the same. And that’s — in an aggregate, it was neutral basically with us growing new owner mix. So if you mix adjusted it to the previous quarter, we would have actually been up roughly 10%.
Ben Chaiken
No, no, totally. That’s super helpful color. I’m just trying to take that statement or that kind of like thought process and then say, bridge that to 3Q where VPG is coming in a little bit, and it sounds like it’s because of the new owners. But it’s like was the new owner mix being a neutral to a slight benefit just a one-time thing in 2Q, which we shouldn’t expect in 3Q? Do you kind of follow what I’m saying?
Michael Brown
Yes, yes, absolutely. No. More new owners will not be a benefit to us in Q3. We — my point, maybe I didn’t say it very well, was we typically talk about it as we raise new owner mix, it pulls back VPG. It just — it reinforces the strength of leisure travel in Q2 that we grew new owners and we grew VPG. It just shows the strength of performance.
We’re simply saying that — we’re going to — we’re estimating in Q3 that it goes back to what it typically does, which is VPGs remain constant. But as you shift mix, it actually just naturally drags VPG back a little bit. So I didn’t mean to imply that driving new orders was a, somehow a new benefit that we should expect going forward.
Ben Chaiken
No, no, no. Yes, I didn’t think you were implying that I was more so just trying to like cross reference the two statements, so that’s a good thought. And just the last follow-up would be, is it a — in 3Q, I told — is that a theoretical based on historical that new owners will bring down the VPG? Or is that kind of what you’re seeing so far also in the quarter?
Michael Brown
No. What we’re seeing as of yesterday in July is that our VPGs by those three channels are staying consistent with Q2. But because the mix has shifted slightly up on new owners, it has a slight impact to new — to the aggregate VPG modestly down.
Ben Chaiken
Thank you very much.
Mike Hug
Yes. I think the way we look at the VPGs is basically they’re all up over 2019 levels, but the new owner VPG is still lower. So as that mix goes up, it’s naturally going to bring it down. But they’re up across all channels. And once again, it’s just a mix issue where as more new owners come in, even though the VPG is higher than it was in 2019, it’s still brings the overall VPG down.
Ben Chaiken
Okay. Got it. And then I’m sorry if I missed it. Do you guys have a target kind of going forward, I don’t know if it’s for maybe like back half 2022 or for 2023, but based on a go-forward, what you want — what your current expectations for a new owner mix?
Michael Brown
Yes. It’s between 35% and 40%. And last year, we were in the 20s. We wanted to get a three handle this year. We’re 32% in Q2. We’ll do well in Q3. So we want to slowly get back to that 35% to 40% range. I think if you look across the industry, that’s pretty much where the industry stands, and it reinforces a sustainable long-term model for not only new business but upgrades. And we see that as a pretty clear path. The Blue Thread channel is already back to 2019 volumes, at least we’re projecting that for this year. So that return on new owner has been a great source for us, and it just shows the resiliency of that affinity channel that we have with the Wyndham Hotel Group.
Operator
We’ll go next to Ian Zaffino with Oppenheimer.
Ian Zaffino
Hi, great. Thank you very much. Thanks for the broad discussion on the VO business as far as what it does in a downturn. But can you also maybe touch upon some of the non-VO businesses? A lot of them have some substantial growth kind of potential. So how should we be thinking about those businesses, their kind of ability to kind of grow at the rates that you think? And then any other piece of the non-VO business that you think are important to note would be helpful. Thanks.
Michael Brown
Yes. There’s a lot to touch on there. So let me just hit some broad strokes across the whole Travel and Membership business. And I know you said VO and the RCI business is VO. But as Mike mentioned earlier, it’s a positive. And we’ll see how the industry plays out in the remainder of the news that comes out. But the re-growth across the industry of new owner business is a natural tailwind going forward in the exchange business, which it’s been the opposite for the last two years. So we think just the overall growth of the industry, which continues to do well, continues to broad-base prove that it’s a great way to vacation will really return to its historical levels going forward.
As we’ve shared in the last year, we’ve talked a lot about the theoretical of these new businesses that we’re launching. And as we’ve gotten into the first half of this year, the theoretical has moved to some true proof points. And those are starting to play out that we can now start sharing with this group as we’ve done on this call on the variables we’re looking at.
And then, on as we look forward, not only are we seeing proof points of those businesses not only have viability, but have demand. But going forward, as we get into the latter half of this year, we can actually show how those proof points turn into economic value. So in the end, our overall strategic objective was to be able to raise our enterprise growth rate from mid-single-digits to high-single-digits. And there’s nothing that I’m seeing at the midpoint of 2022 that would take us off that trajectory and believe that that’s very much the direction we’re going to go in and the fact that we can achieve that, especially in the non-VO business.
With all that said, I will just step back a second and say we’ve always said the cornerstone businesses of Wyndham Destinations and RCI will be our success in the near-term because it is such a significant part of the business. The nice part about these new businesses is they incrementally add to our growth rate, which again it’s not going to be significant for the next three years, but it’s meaningful as it relates to our overall growth rate. So that’s how we’re looking at both and I can’t say that I changed my perspective on our outlook since our Investor Day a year ago.
Operator
We’ll go next to Bennett Mantua [ph] with Barclays.
Unidentified Analyst
Hey everybody thanks for taking my question. Just one for me. So you gave VOI guidance pretty much unchanged with VPG raised. And so then obviously implies tour growth being a little bit lighter than maybe you thought a quarter ago, and I apologize if you addressed it and I missed it. But maybe you could just talk about where across the three channels that might have — you might be ratcheting down expectations. And then — and if maybe you could hone in on open market. And just give us a sense across your different partnerships and your different channels within the OPC, which channels are performing better and which channels are maybe underperforming right now?
Michael Brown
Thanks Brent [ph]. We actually didn’t address that in our prepared comments, and I appreciate the chance to actually talk about it here. And this somewhat gets back to David Katz’s as well as, as we look to the second half of this year. We did not change our VOI guidance, but I can say that within our range, we have both increasing confidence in our number within that ranges moved up.
So we may not have moved the overall range, but again greater confidence and a higher number within that range says that, that aspect of it means that we haven’t changed the tour flow for most of the second half of the year. There is one component of our tour flow that we did pull back. We have a partner relationship that we think will underperform. And it’s in two markets but that’s a less — it’s a singular non-consumer-based issue. And the bigger component of that — the math you did is actually that we’ve moved up within our existing range with more confidence of what we’re going to deliver this year. So your math and your logic is absolutely right.
We probably should have clarified it in our prepared remarks that our confidence around VOI sales and the increased amount. But as it relates to tour flow, owner the — owner tours are where we expect them to be, our affinity partnership with Wyndham Hotels. As I just — I think I mentioned a question or two ago is — is back to where it was in 2019. And there’s really only one unique relationship we have within the non-affinity open marketing, that’s a bit off that we think will recover, but that would be the only tour change we have for the second half of the year.
Operator
Our next question comes from Patrick Scholes of Truist Securities.
Patrick Scholes
Hi, I have another question. Your competitor in the vacation exchange business last month had called out higher owner occupancies impacting available inventory for owner usage and implying that there’s just not enough inventory available in that line of business. Is that something that your folks are seeing as well? And is that impacting your revenue and EBITDA at all in the — in that component of your business? Thank you.
Michael Brown
Yes. I guess there are always elements that affect it. But from our standpoint, we don’t see that significant enough to callout. We think we have a really good, wide inventory for the latter half of this year. We think that will continue to help us perform on the Travel and Membership business, which again as I laid out, we expect high-single-digits growth in the second half of this year. So it’s not something significant enough that we would call out as an issue.
Patrick Scholes
Okay. Okay. So not significant for RCI. Okay. Thank you very much.
Michael Brown
Thanks, Patrick.
Operator
That concludes our question-and-answer period. I would now like to turn the call back over to Michael Brown for closing remarks.
Michael Brown
Thank you, Emma. Our second quarter results and full-year outlook underscore the persistent strength of leisure travel, people’s commitment to vacations and the consistent performance of our timeshare model. This is all thanks to our owners, our members, our guests and of course our associates who make it happen every day. Thank you to everyone and have a great day.
Operator
Thank you. That concludes Travel + Leisure’s second quarter 2022 earnings conference call. You may now disconnect your lines this time. Have a wonderful day.
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