Travel + Leisure Co. (TNL) Earnings Call Transcript & Summary

Okay. Good afternoon, ladies and gentlemen. Thanks for joining us today for the 3:30 session here at the 2023 Strategic Decisions Conference. Anyone who doesn't know me, I'm Richard Clarke. I'm the global hotels and leisure analyst, not Travel + Leisure analyst, at Bernstein. I'm really delighted today to be joined by Travel + Leisure's CEO, Michael Brown. Tiny bit of housekeeping. If you want to ask any questions, if you haven't been to one of these sessions yet, over the last couple of days, there is a Pigeonhole link available on -- through the link you'll find on the materials. You can also see there's always some questions on there, which is great, so you can vote up any particular questions you want to ask.

So maybe I'll just sort of kick off with a little bit of an open-ended question. It's 2.5 years ago, roughly, I guess, you changed the name of the business. You became Travel + Leisure, ceased to be Wyndham Destinations. Maybe talk to us a bit about that transition? What is Travel + Leisure today? What is that sort of main change and merging with the media business achieved? How much more diverse the business are you today?

Yes. 2.5 years ago, it's hard to believe it's been that long now. We had a very clear intention. We love our core business, which just to frame it up, our core business is the timeshare business and our timeshare exchange business, which will do over $900 million. We've guided to $935 million of EBITDA this year. But when we purchased Travel + Leisure, that successful relationship we had with Wyndham Hotels and in our exchange business, we knew could be more. We could diversify that business. The challenge when you hold a singular brand and try to go replicate the model is that you have to deal with other brands figuring out how 2 brands work together. So the idea of purchasing Travel + Leisure was very simple. We created an umbrella brand, Travel + Leisure. We continue to grow our core, Wyndham timeshare brand, which we have continued to do very successfully. We continue to grow our exchange business and then we create 2 opportunity doors to diversify. One is to replicate the Wyndham timeshare model with new and different brands, purely incremental growth, purely in a business we already do, but simply with a company that have never exercised that side of the business. That's a diversification from mono-brand to multi-brand. And then secondly is we're already in an exchange business with 3.5 million members, which connects timeshare owners to 1 another. So why not take those skill sets to start in the non-timeshare space creating subscription or travel models, which we've already begun. So the overall plan was simply to allow us opportunities to diversify, and we're well down the path of that diversification.

Okay. Excellent. And you're the biggest timeshare business in the world. How important is scale within this industry? And you keep saying you want to add more brands and adding more. But how -- and obviously, it's important to grow revenue anyway, but how important is it to grow that scale? Is there a good sort of flywheel attached to it?

Well, I think scale and brand are 2 absolutely critical factors in this industry. And if we step back in 2008, this industry only had about 1/3 of the industry that were branded. Us, Marriott, Hilton and Disney is 33% of industry sales. Today, that number is 80%. So the industry has consolidated and evolved massively, and hospitality gives you capital reputation and maybe most importantly, flexibility. Most people think of timeshare, they think, will I go to the same location, the same week in the same unit? And when the brands came in, it created massive flexibility that you can obviously go to any destination you want, but you can flex your time up and down, and you can use it to go back into the hotel that you're affiliated with, in our case, Wyndham. Scale matters because it's about lowering your marketing cost and creating margin. Our business is an over 20% margin business, and we get that because we have scale, and we really are able to leverage our operating costs. And we've been over 20% margin for a decade.

And that's the industry-leading margin because of the industry-leading scale?

Well, that's the case. And what you're seeing is the bigger the company, the bigger the margin. And now that you look at the 3 largest companies, us, Marriott and Hilton, we're all driving significant margins, and ours has consistently been in the mid-20s.

And so is there going to be more consolidation to come in the industry?

I think that's the natural evolution of the industry because it continues to favor big brands and it continues to favor that scale. If we were to go back 15 years, there would probably be 30 or 40 smaller companies. Today, that number is probably single digits. So there might be some consolidation, but it's not going to be at the pace that it was over the last 15 years.

So you talked in your initial remarks about the industry is not what it was. It isn't just one product and one single -- there's much more flexibility and all that. Now how many consumers are using that flexibility? Is that the way people interact with this product? How many people are exchanging? How many people are going different products?

Sure. No, it's an important question because the perception of the flexibility is one we're really trying to get out to the marketplace because it's unparalleled as far as travel flexibility. In our consumer, about 60% will come back to a Wyndham Resort or, in our case, Wyndham or Margaritaville Resort on an annual basis. Probably 25% will go exchange it to another timeshare resort, and then another 10% or 15% will use it to rent or go to the Wyndham Hotels or they'll use it in an exchange to a cruise. So 6 out of 10 will come back to the home resorts. And when you think that we have 250 around the world, that's more than sufficient options. But people, during COVID, wanted to exchange for an RV and get on the road and control their own environment. And that's what a lot of people did.

So maybe just explain to me the Exchange business. Because sometimes, it feels a bit like you earn points on Marriott Bonvoy program and you can spend them on Hilton Honors. I mean is it not that? Is it -- or is it -- just is it it's kind of compromisation, if you like, of the whole industry is just the way it works, people want to...

Well, just think of it as a wheel with the exchange company as the hub and every brand at -- or every affiliate as the spoke. So Wyndham, Hilton, Berkeley, Holiday are all affiliates of our exchange company. So if I, as a Wyndham owner, want to go stay at a Holiday Inn Resort, I need an exchange currency to do that. And 30% of our EBITDA comes from that exchange company, and they facilitate that exchange by creating a currency and a fluidity and liquidity to that marketplace. We've been in that business for nearly 50 years. And it's a virtually no capital business that generates a lot of free cash flow and serves a great element to the industry, which is connecting people to create that flexibility we talked about earlier.

So then talk about maybe just interacting that with having a widening portfolio of brands. So you're providing sort of choice within your own business, choice within the Exchange business. What's your preferred way to sort of offer that? Would you rather keep the money within the orbits of the Travel + Leisure brands?

Well, let me just go back to this sort of multi-brand strategy. It's unquestionable that the value and flexibility that people are seeing in the timeshare space has really increased during this inflationary environment. But there are a lot of brands out there that have no product in our space. So us simply offering that to their database to drive incremental loyalty, every hotel CEO that I -- that you would speak to at this conference would say the timeshare division drives loyalty back to us. So as we're talking about more brands, we're simply talking about driving affinity base and development profit. But ultimately, if their satisfaction stays high, whether it's within our own orbit or outside, which is, again, what we talked about, about 60% staying in, they end up -- they will end up coming back and buying more. And just to give you lifetime value, for us at Wyndham, for every dollar someone buys for a timeshare today, we know, and it's predictable over the last decades, they will spend another $2.60 in the future. So getting the incremental buyer in, whether they use inside your system or out, you know that, that will generate a lot of profit over the next decade. So like in any business, it's about customer satisfaction.

So maybe let's just shift to some of the last couple of years, maybe this will be the last year of STC where we have to talk about COVID, but we're still seeing transition. Maybe remind us how your business transitioned through COVID. Did you benefit from people wanting to stay more local and domestic? And how is that transitioning as you're coming out of COVID and potentially into a weaker macro environment? And are you seeing that as well?

So let me start where we are today, and then I'll go back to COVID. Today, we're seeing the consumer behave like they did in 2019. This time last year, you had this really big surge that came into Q2, and then it normalized back to 2019 levels in the second half of the year and continuing into this year. So when we look at the consumer right now, we're saying it's back to the way it behaved. Absent the surge and absent the COVID, it's just -- it's behaving back to the strong 2019 level. For us, we made a very strategic change during COVID. We had a minimum FICO score, 600 FICOs. We made the decision, we wanted to not try to move upscale, but simply reduce, eliminate the number of 640-and-below FICOs. Why? Because we were chasing quantity, lower margins, and it was damaging our portfolio, making our portfolio perform lower. So we made the strategic decision. Let's raise that to 640. Let's try to drive our volume per guest, which is the hotel equivalent in our space to RevPAR. Let's drive for every volume -- for every guest we see, instead of getting $2,400, let's get $3,400. That's what we've seen. So we elevated our minimum marketing standard. And what that's driven is nearly $1,000 increase in our volume per guest. We're seeing our portfolio performing as good as it's performed in 7 or 8 years. And instead of chasing quantity, we're dropping that quality to the bottom line and setting us up for even stronger future. What I would also say about the COVID period, and I think this is a very important component of the strength of our cash flow, is we continue to pay our dividend. We were one of the few, I would say, you can count them on one hand, the number of consumer discretionary companies that paid a dividend during COVID. We were one of them. We reduced our dividend from $0.50 to $0.30, and we paid it throughout. And we paid it because of the strength that we have as it relates to our ability to generate cash flow. To end the question, how do we feel as we head into a macro potentially downturn, we'll see. If we continue to pay our dividend at a time that we physically close our resorts for about 60 days, we stop selling our product. Defaults went up. A normal downturn in the economy doesn't concern us as it relates to our ability to generate the levels of cash flow that we anticipated. We think we can very much manage the consumer component because COVID taught us one very clear thing is people will not give up their leisure travel. They may change how they travel, but they will still continue to travel.

So maybe we can sort of talk about that demand picture. Are you seeing any particular spots of weakness out there? I mean, we had then Hilton here yesterday, and they said the overall picture is good, but there are some markets like Miami where things are softening down. Are you seeing some sort of pockets that are coming off a very high level? And what's the overall demand?

So I'll speak to the 2 sides. On our Vacation Ownership business, which represents about 70% of our company EBITDA, we laid out our second quarter objectives. As we sit here today heading into the biggest month of the quarter, what we predicted on volume per guest, it's a little bit ahead of where we expected. What we thought we would generate in Tour flow, marginally behind. In total, our sales volumes are toward the high end of what we expected. So in the most important Vacation Ownership metric, we're doing really well, and we're not seeing signs of weakness. We look at forward bookings. We looked at June through the end of December earlier this morning, and it looks flat on an arrivals basis to '19, which was a great year. Because length of stay is up, room nights are actually up. And then the last piece is we're not seeing really weakness in our portfolio. It remains consistently strong. Keep in mind, we're 100% leisure. So the VOI business is holding up really well. The Travel and Membership side as well is holding up well, but I sort of come back to your question earlier, is because we're coming out of COVID, we are seeing a propensity of guests to stay in their internal clubs more than to ours. So we are continuing to see pressure in this one area in 2023, which is propensity to use the exchange system has come down and remains a headwind to us. But I don't think that's a reflection of overall consumer demand. I think it's a reflection of one aspect of our business that faces a headwind because people are staying within their own club. So we're super happy that the core of our business is showing no falloff on the VOI side in any of the 3 metrics being VPG portfolio and for bookings. And we'll continue to deal with sort of the headwinds we see around propensity to exchange in the Exchange business.

And you think that's a temporary issue, the propensity to exchange?

I do. The way I look at it is when COVID hit, the entire industry stopped selling new owners. So even though our members of RCI is growing today, it still sits below the '19 level. And even last -- yes, '19 level because a trough, and now it's growing again. So as the members go up, you're -- naturally, your transactions are going to go up. And then eventually, we think propensity will come back. It just means that when we look at our individual quarters, you need everything to go well to hit the top end. And this is the one area that makes the top end of our guidance a little more challenging to achieve. But again, it's a relatively small piece of our business, and the core of it being VOI is really performing well.

And maybe just talk a bit about sort of domestic versus international. We've heard with some very strong stats about airlift out of the U.S., 9% higher than 2019 in April.

Yes.

Are you seeing some of your customers looking for more international destinations. Although you have some of your own, are they available on the exchange? Do you see sort of shift towards an international?

So let me maybe go more global and then come to our company. Mexico is having a tremendous year. Arrivals into Mexico are way up, and I think they're having a phenomenal year, especially in our space. We don't have a ton of exposure to Mexico. So it's great on the exchange side, but we don't have developments in Mexico. Primarily internationally, we are in the Asia-Pacific region, which is remaining a laggard. Just restrictions and length of the long haul is still recovering. So we do see incremental growth internationally, but it still lags for us behind the domestic growth and the strength of our Vacation Ownership business.

Okay. That makes sense. And you talked about sort of pushing the FICO scores up. As you know, you made that decision during COVID.

Yes, fairly intentionally.

Is that protection now? Maybe talk a little bit about your sort of owners' health today. Is that kind of holding up well in this kind of tougher maybe rate environment?

Absolutely. And maybe try to get rid of a few misperceptions out there. So we have 815,000 owners. 700,000 of them have fully paid off their timeshare. So as you sit here in May and you're thinking about a November trip, if you're going to stay in a hotel, you probably are pausing both for price of hotels or where will I be economically. If you're a timeshare -- 1 of the 700,000 timeshare owners, 80% of our owner base who fully paid off, why wouldn't you go on vacation? It's not costing you $0.01 more other than the gas it will take to get there or the airfare. You already own it. So that's why we know on a resiliency basis, we don't stress about arrivals. Will they fluctuate? Yes. Will booking windows shrink? Yes. But will our owners still go on vacation? Absolutely because it's not really causing them incrementally that extra dollar. As it relates to our portfolio, where the rising interest rates are affecting us, our portfolio performance is maintaining a really strong performance. It squeezes our margin on our ABS transactions. We've lost about 300 to 400 basis points on our ABS issuances because to the consumer, we've only raised those about 50 basis points, whereas we all know what's going on in the lending market. Our -- the term we lend off is sort of 3 to 4 years. So we've been squeezed on that margin, and that's where it affects our bottom line and has given us an obstacle to overcome, but we've included that in our forward guidance this year.

Okay. Makes sense. And that sort of push up towards higher FICO scores, is that pushing you more into competition with Hilton and Marriott vacations? Or are you still sort of more in the sort of medium income consumer bracket?

Well, let me first say, we're not changing our approach. We've always been in the 640-and-above space. There's nothing that's changed that we're doing in that space. All we've said is the inefficiency between 640 and 600 is worth us taking another approach. So we're simply -- that move was creating efficiency by only targeting the 640 and above, which we've always been. So there's no change of that strategy. What I think is interesting is if you look at our FICO score, our FICO score is equivalent to Marriott and Hilton's new purchasers. It's the same, right? We may even be a point or 2 higher, but it's basically the same. Household income, Marriott tends to be in the 130 to 140. I haven't seen their latest data. Us and HGV are closer now. I'm not sure the exact number, but with the recent purchase, I would say that we're going to look very, very similar. So I think when you look at quality of consumer, when you look at marketing approach, we have very similar outlooks as we go forward.

And you mentioned the rate environment, just having some of that spread change. What about your own sort of footprint growth? I mean, what are your plans to add more sites over time? And is that -- that obviously needs third-party capital and an investment to come into it. So how is that sort of new footprint growth looking in this current environment?

So let me frame up the capital component because for the next 5 years, this is the situation we're in. Going into COVID, we had about 3 -- 2.5 to 3 years of inventory to sell going forward. With COVID hitting, sales going down, defaults going up and our capital commitments already in place, we built about 4 years of inventory to sell on a forward basis. We've completed all those commitments. So going forward, where we normally would have spent $250 million of capital, that number is closer to $100 million now, which does 2 things. Number one, it increases our ability to generate free cash flow, because we don't need to go out and buy new inventory or build it. And number two is our carry cost will naturally go down as our balance sheet goes down of inventory we're carrying. More specifically to your question, with 250 resorts, an incremental dot on the map does not move the needle for our business. So we don't have to go chase new development or new products because our balance sheet is sufficiently full, and it's not going to change the consumer demand. With that said, there are some markets that bring with it some special attraction from a marketing standpoint because if I was on this stage 10 years ago, I would say the key to this business is leads in inventory. The amount of suppliers of inventory to the timeshare space that are within 5 miles of this building, they've all come to appreciate the development margins and are constantly bringing great deals. So I don't worry about inventory or another dot on the map. Our concern is deploying our capital in the most efficient way possible. And we will do some new resorts. They will be great locations, but they will likely bring marketing lead basis with them when we do it. And that's also the case with the strategy of attracting more brands. It's about new affinity groups that have a propensity to buy a particular brand.

And I guess maybe thinking about that footprint. I mean, I think last time we talked, you were sort of talking about maybe adding more urban locations, Nashville, I think you referenced.

Yes.

Is that still the trend you're seeing? Where do you need more product? Is it Mexico?

So since the last time we spoke, we added the first urban development in downtown Atlanta overlooking Centennial Park. It's a dual-branded Club Wyndham and Margaritaville Resort, and the reviews have been through the roof and the occupancy is through the roof. Are there some more destinations that we like? Absolutely. We love Southeast Beach. If you look at where demand continues to stay red hot, it's the Sunbelt. And you add to that some sand, and the demand is through the roof. So we're constantly looking there. Mexico is a great opportunity. There's always complications with regulations tax and all that. But Mexico is a very proven market, and we would love to be there eventually. I spent 10 years in Europe. Regulations really don't support the development of a timeshare product. So less clear on the radar in Europe, but U.S., Mexico, Caribbean, places we'd love to continue to grow.

Why do you think the regulators are against timeshare in Europe? Is that just an historical issue?

Well, I think there's a few elements. Number one, just to contrast, the U.S. is highly regulated, and as I mentioned earlier, 80% operated by brands. In Europe, between the EU and the U.K., every regulation is different, which means consumer protection is suspect. And very clearly, there is a bad history of questionable operators that have put the regulators rightfully so in a place that they're not very supportive of consistent regulation across the entire EU. So it's a great product. There's some good companies that are operating over there at the moment. But the best thing for our business is strong consumer protection. And until that's in place, and it's consistent and enforceable, it's not a market that you really want to put a lot of capital into.

That makes sense. Interesting question here, I suppose, feeds into this. What do you see as the main drivers of your growth into the future? What kind of level of growth are you looking to achieve? Is it going to be new markets? Is it going to be the overall growth of the timeshare business within the U.S. leisure environment? Or is it going to be you gaining share off that leisure market?

So it's pretty much twofold. Our relationship with Wyndham Hotels is a key to our growth and has been and will continue to be. We had consistently been a mid-single-digit growth company, and our outlay is sort of high single digits at this point. We take a cue, that growth is continued growth with our partners at Wyndham Hotel, growing that core timeshare brand, that sort of 6% to 8%. We think the incremental growth through brands will add to that. And then the travel membership has historically been a flat business. And we think that over the next few years that that's going to provide some incremental growth. So it's back to that diversification. It's make sure you don't take your eyes off the core growth and then start adding small layers of growth on the outside to raise your growth profile from mid-single digits to high single digits.

So is all of your brand portfolio at the moment licensed from a third party? Do you have some of your own sort of fully proprietary brands?

No, no. We -- the vast, vast majority of our license brand is Wyndham, and we also license with Margaritaville. And just think of that and replicate it. That's -- it's nothing complicated. I think strategically, people have overcomplicated what I'm trying to say, maybe I just haven't explained it well. But the relationship with Wyndham Hotels is so successful. It's a royalty fee. You get the name. You get the rental platform, loyalty program and data. And a lot of companies, you can have that same relationship without diluting one iota to your existing royalty relationship with, which is between the hotel.

But you can't -- you would look to license more brands? You mentioned other hotel companies. Can any brand work as a contract?

Other ones that we can help them grow their business under their brand. What we're great at is we have a great sales and marketing organization. We have a great hospitality team. We have a great service team, and we have access to consumer finance. That is not -- we leverage those 4 talents into a singular -- well, actually 2 brands now, Margaritaville and Wyndham. There's no reason it can't be 4. And they're not competitive. They're actually complementary. So that's all.

Okay. I think that makes sense. So just making sure I get through all of the audience questions. Can you talk about the timeshare business being resilient in the face of recessions historically? How has it played through? And if we do face another one, what's different this time maybe to what we've seen in previous recessions?

Yes. So Wyndham made more money in '09 and '08, after the great financial crisis. And the reason was is revenue went way down, but they did the same thing then and increased their marketing criteria at the same point, so it became a lot more efficient. What I would say across the board is I believe very strongly that the 3 public companies will be highly resilient in a downturn. Speaking for ourselves, what I expect to happen is, I think if we didn't all learn that during COVID, people will continue to travel, we didn't learn what we should have learned from it. People will continue to travel. Will closing rates on tours go down slightly? Yes, which means VPG will go down slightly, yes. But the idea that there will be a binary, I travel or I don't, goes -- is not -- I think, is a false premise. Because back to my earlier point, if you own with us, you own with us, so why wouldn't you travel. And for people that -- I'll take Orlando as a market. Orlando has about 70 million visitors on an annual basis. In a recession, maybe that number is 62 million. And those are the people who've chosen to go on vacation during a recession and are in market, who are the people we market to. So they've self-selected them as being qualified that I will vacation in a downturn. If unemployment goes from 3% to 5%, there's still 95% employment, and those people are going on vacation in Myrtle Beach, Nashville, Panama City, Atlanta, Park City, Anaheim to Disney and so on and so forth. So I'm really confident in this industry's ability to weather a downturn and to marginally be impacted on some key metrics like VPG and potentially portfolio, but all manageable and not near the expectation that I think we're sitting at in June of this year with uncertainty ahead of us in the macro environment that the risk that people are putting on top of it. It will be good because this will be the first time all 3 of us go through, whether it's this year, next year or the following, a downturn as 3 public branded companies.

Very interesting. So a question here about -- you talked a bit earlier about saying you're seeing the consumers acting like they did in 2019, obviously, in the way they sort of travel. What about sort of distribution? I guess a lot of other travel companies have talked about a greater propensity to book online, mobile, et cetera. Things -- shares like that have grown. Have you seen some of those trends as well? How is your distribution sort of adjusting to maybe a more digital, mobile world?

Yes, I -- we look at distribution in 2 different ways. We -- probably 7 or 8 years ago when I joined, I joined in 2017, so 6 years ago, I thought we were at a technology deficit. And we've put a lot of our internal investment into the owner capabilities to transact with us digitally or online. Why? Because coming back to what is -- what drives our bottom line, the more owners go to our resorts, the more they buy. Because they're satisfied, the more profitability in the high-margin business we get. So our distribution has actually indirectly improved because our owners can transact in a more -- it doesn't need to be face-to-face or via phone, it can be online, and we continue to invest in that area. As it relates to new members, first-time buyers of ours, it is still more direct marketing. Our industry has always been direct marketing. So I think that the technology investment to digital investment has been on the 2/3 of our sales, which is the owner side of the equation.

And maybe just we can ask the question probably everyone's been asked today about Generative AI. Do you see a role for that within the travel and leisure organization?

Absolutely. I think if you don't have AI on your radar, you're probably going to miss the boat. For us, the way that we can use it to automate so many things should be a real benefit from us. I mean, not to be overly cliche about it, but the easiest, simplest and in the form that a consumer wants to get on vacation, the easier we make that process, the more people use our product, the better we will do economically. I know it sounds very simplistic, but AI will allow us to do that from a servicing and a booking standpoint. And we know that if we can facilitate greater bookings, more frequent usage, longer stays, that is a clear drop to our bottom line. So I would view us in AI is more foundational as opposed to like a revolutionary marketing approach. But there's plenty of room, and it's definitely on our radar. And I think companies that don't are -- I think it's a fact they're going to be missing a big boat as it floats by.

Maybe we can just talk about demographics. We had Las Vegas Sands here yesterday, and they said, in the U.S., they sold it, but their Vegas business, they were seeing sort of an aging demographic. I mean how are your sort of demographics kind of holding up? Are you getting the millennials, the generation z? Are they coming into your product?

Yes, it's -- well, if I wasn't here for the Sands' commentary, but ours -- I would say ours is going the opposite way. Our average new owner is getting younger. It used to be in the sort of 52, 53. Now it's in the 40s. When I joined the company, millennials were about 7% or 8% of total sales, new sales. Now it's over 20, 24, 25. We're having our first Gen Z sales. So Gen X, Gen Z, millennials are mid-60s as a percentage of our total sales. The reality is our product is best at that demographic, though. Why? Because people want brands they can trust. My kids are now going to college, but people with younger kids, they don't want a surprise when they show up on vacation. They want to know what to expect. They want amenities like a feature pool or a gym or a place that after a day at Disney in Florida, you get back. And instead of having to dress and go out again and spend $150 on dinner, you can just cook dinner in your apartment, and the kids can swim in the pool. It's just -- it's a mindset in a way of vacationing that's better, usually once the family is really forming and the grandparents maybe can join. And it's what we see consistently. I would say there was a point a decade ago that our age demographic was moving up. And we've really worked hard. And you've heard over the last 5 years, our push for new owners, it's really driven that demographic down back into the average age of about 47, 48. Oddly enough, just a pitch for the industry here is the average age of a new owner in the industry is 39. Ours is 47, 48.

Good. So maybe we can move away a little bit from timeshare and talk about your membership programs. Maybe just describe just what one gets as a subscriber away from the vacation rental business. And then maybe like how is that competing with other travel membership programs that are out there?

Yes. So let me frame our Travel Club, because this sort of gets back to putting the umbrella Travel + Leisure and doing some things outside of timeshare. First of all, our Travel Club business is 3% of our company EBITDA. So really small. It is purely incremental to where we were in 2017. And the fundamental product is this. We bought Travel + Leisure. We basically created a license back to Meredith at the time, Dotdash now. So they run the magazine. We're not in the media business, okay? However, their trusted content allows us to create, and I was in here for TripAdvisor, sort of a membership club that gives you curated content at a very good value. So that's all we're trying to do in that space, is to create a membership model that has some level of subscription and some level of transactions. Sounds a lot like our Exchange business just outside of timeshare. So we know that space, and we're new to the membership base. It is a small piece of our business. It is growing, but it's not growing like we originally expected, but we think it's a good model because it creates incremental growth and you get basically trusted content at a very good value.

And how is that membership growing? Is it trending well out of the pandemic?

The transactions are growing, the membership is growing. From what we originally said in 2021 at our Investor Day, it's not at the levels we expected. But again, I think that's why the context of, it's 3% of our company EBITDA, it's good to know. But when you look at the strategic direction of the company, the 2 things that will move our needle: DOI, 70%; RCI Exchange, 27%; and these travel clubs, 3%. So I try to weigh the commentary around that. But we like that business because -- and I heard the gentleman from TripAdvisor say, it's like a petri dish that we learn a lot, we grow it. And by the way, it creates profit that we would not have had, had we not entered this space. Have we learned a lot? Yes. Do we invest capital into it? No incremental capital beyond what we budgeted. So it is a place that we expect to continue to grow, to do well. And I'm glad we got into it and look forward to what it's going to grow for us in the future.

And you also have a B2B business that's sort of supplying hotel content to third parties.

Yes. Yes.

That's become quite newsworthy. Recently, Hopper doing the deal with Uber, to the surprise of everyone. But is that what you're competing with in that space, those kind of supplying the Ubers and the Mastercard deal with Expedia? And then maybe sort of how do you position yourself against those other companies?

Yes. Well, I think if I said we were competing with them, I would be way overstating our objectives in that space. In 2019, we bought a hotel platform that really provided great benefits to sort of benefits providers. With that, we saw the ability to enhance our RCI number-based travel options of 3.5 million members. And we said, while we're at it, we're also going to create white-label clubs. That's very different than saying, our strategic direction for the next 10 years is going to be dependent on our ability to create these new travel clubs that are going to overweigh our business. We thought they would -- it would grow more than it did, but it's not our aspiration to compete in that level. It's to create consistent incremental EBITDA growth to support the business that we're in and to really help create a growth 100 basis points, 200 basis points, 300 basis points to the RCI business, which for the last decade, we've talked about being really a flat to 2% growth business. We're looking to grow -- 100 basis points of growth gets you from mid-single digits on your way to 6%, 7% and then rely on DOI that gets you up to 8% to 10%.

So there's maybe just a couple of topics to finish on. One, balance sheets. You continue to return cash. You said you carried on paying a dividend. How do you think about buying back stock at this point? You've got some debt maturities coming up in 2024, 2025. So maybe just sort of talk us through how we should think about capital allocation within the business.

Sure. So baseline, we view dividends as a consistent grower with the -- our business. We raised our dividend this year from $0.40 to $0.45. We've consistently done that over the years. And we think that, that is just a baseline of capital return for us. Now when you look at the rate that we've been buying back shares, we bought back over 10% of our float last year, first quarter, 3.3%. The run rate, if you just do the math, is about $100 million a quarter. So if you do the math, the idea of capital allocation of a dividend yield, over 4% and buying back over 10% of your stock. In a business that's going to generate midpoint $935 million of EBITDA, there is -- we really like our capital allocation strategy today. We view the consistency of our ability to generate 55% to 60% of free cash flow from EBITDA to be highly predictable, which means we feel comfortable letting our leverage float naturally back to the 3x, which we're committed to our target of 3x. I think we're at 3.5 at the moment. But the consistency of our cash flow, where our equity is, the amount of buybacks that can reduce our float, I think the buy side really likes that. We love it, and the performance of our business gives us confidence that we will come back to our 3x leverage. And we've got a clear sight in line, but we don't have to do anything unique in order to get there.

Okay, fantastic. And then maybe one last question. I mean, some of the trends you talked about here, I guess I kind of like to see some of the big hotel companies maybe following some of those trends. We've had Hilton launching another extended stay brand, and they were talking up some of the leisure components of that. We've had Hyatt buy UVC as part of the [ aforementioned ], put a wrap around membership club around there. It's not exactly the same, but there's some similarities. As you sort of see the big hotel groups to kind of get maybe a bit more into a leisure product, is that competition for you? Or do you see that as a different customer?

No. Look, I think Wyndham Hotels fully recognizes that as well, which is why we have a great relationship with them and why our businesses work very well together and why I come back to my first strategic comment, which is I think those who don't have a membership club or a vacation club might come talk to us. Because the most important element is that the macro trend around leisure travel is the type of accommodation you're staying at the comfort that you're staying into it. People ask me about Airbnb all the time or VRBO. They're great products that reflect the macro trend of more space. And we do that for a demographic that also wants consistency, branding and amenities. So when you're in the draft of a macro trend, that's where you want to be. And our job within that draft is to figure out all the different ways we can leverage our core competencies to help brands be successful. And I think our relationship with Wyndham Hotels is a shining example of a relationship where both sides of the equation wins.

With that, thank you very much for your time, sir.

Thank you.

Thanks for joining.