Travel & Leisure Co. [TNL] Filings

10-Q 1 wyn-20220331.htm 10-Q wyn-20220331

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-32876

TRAVEL + LEISURE CO.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		20-0052541
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

6277 Sea Harbor Drive		32821
Orlando,	Florida	(Zip Code)
(Address of Principal Executive Offices)

(407) 626-5200

(Registrant’s Telephone Number, Including Area Code)

None

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value per share	TNL	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

85,415,979 shares of common stock outstanding as of March 31, 2022.

Table of Contents


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Report of Independent Registered Public Accounting Firm	3
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Cash Flows	7
	Condensed Consolidated Statements of Deficit	8
	Notes to Condensed Consolidated Financial Statements	9
	Note 1 - Background and Basis of Presentation	9
	Note 2 - New Accounting Pronouncements	9
	Note 3 - Revenue Recognition	10
	Note 4 - Earnings Per Share	13
	Note 5 - Acquisitions	14

	Note 6 - Vacation Ownership Contract Receivables	14
	Note 7 - Inventory	17
	Note 8 - Property and Equipment	18
	Note 9 - Debt	18
	Note 10 - Variable Interest Entities	20
	Note 11 - Fair Value	21
	Note 12 - Derivative Instruments and Hedging Activities	22
	Note 13 - Income Taxes	23
	Note 14 - Leases	23
	Note 15 - Commitments and Contingencies	25
	Note 16 - Accumulated Other Comprehensive (Loss)/Income	26
	Note 17 - Stock-Based Compensation	27
	Note 18 - Segment Information	28
	Note 19 - COVID-19 Related Items	30

	Note 20 - Restructuring	30
	Note 21 - Transactions with Former Parent and Former Subsidiaries	31
	Note 22 - Related Party Transactions	33
	Note 23 - Subsequent Event	33
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	Forward-Looking Statements	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	45
Item 4.	Controls and Procedures	45
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	47
Item 6.	Exhibits	47
	Signatures	48

Table of Contents

GLOSSARY OF TERMS

The following terms and acronyms appear in the text of this report and have the definitions indicated below:


Adjusted EBITDA			A non-GAAP measure, defined by the Company as Net income from continuing operations before Depreciation and amortization, Interest expense (excluding Consumer financing interest), early extinguishment of debt, Interest income (excluding Consumer financing revenues) and income taxes. Adjusted EBITDA also excludes stock-based compensation costs, separation and restructuring costs, legacy items, transaction costs for acquisitions and divestitures, impairments, gains and losses on sale/disposition of business, and items that meet the conditions of unusual and/or infrequent. Legacy items include the resolution of and adjustments to certain contingent assets and liabilities related to acquisitions of continuing businesses and dispositions, including the separation of Wyndham Hotels & Resorts, Inc. and Cendant, and the sale of the vacation rentals businesses.
AOCL			Accumulated Other Comprehensive Loss


AUD			Australian Dollar
Awaze			Awaze Limited, formerly Compass IV Limited, an affiliate of Platinum Equity, LLC


B2B			Business-to-business
Company			Travel + Leisure Co. and its subsidiaries
COVID-19			Novel coronavirus global pandemic
EPS			Earnings Per Share
FASB			Financial Accounting Standards Board
First Amendment			The first amendment to the Company’s credit agreement governing its revolving credit facility and term loan B entered on July 15, 2020
GAAP			Generally Accepted Accounting Principles in the United States
LIBOR			London Interbank Offered Rate
Meredith			Meredith Corporation

NQ			Non-Qualified stock options
NZD			New Zealand Dollar
PSU			Performance-vested restricted Stock Units
Relief Period			Relief period of the First Amendment, spanning from July 15, 2020 through April 1, 2022, or upon earlier termination by the Company
RSU			Restricted Stock Unit
S&P			Standard & Poor’s Rating Services
SEC			Securities and Exchange Commission
Second Amendment			The renewal of the Company’s credit agreement governing its revolving credit facility and term loan B entered on October 22, 2021
SPE			Special Purpose Entity
Spin-off			Spin-off of Wyndham Hotels & Resorts, Inc.
SSAR			Stock-Settled Appreciation Rights
Travel + Leisure Co.			Travel + Leisure Co. and its subsidiaries
Vacasa			Vacasa LLC
VIE			Variable Interest Entity
VOCR			Vacation Ownership Contract Receivable
VOI			Vacation Ownership Interest
VPG			Volume Per Guest
Wyndham Hotels			Wyndham Hotels & Resorts, Inc.

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Travel + Leisure Co.

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of Travel + Leisure Co. and subsidiaries (the "Company") as of March 31, 2022, the related condensed consolidated statements of income, comprehensive income, cash flows, and deficit for the three-month periods ended March 31, 2022 and 2021, and the related notes (collectively referred to as the "interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated statements of income/(loss), comprehensive income/(loss), cash flows and deficit for the year then ended (not presented herein); and in our report dated February 23, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

The interim financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Deloitte & Touche LLP

Tampa, FL

April 28, 2022

Table of Contents

TRAVEL + LEISURE CO.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)


	Three Months Ended
	March 31,
	2022		2021
Net revenues
Service and membership fees	$	402	$	348
Vacation ownership interest sales	297		172
Consumer financing	98		98
Other	12		10
Net revenues	809		628
Expenses
Operating	381		290
Cost of vacation ownership interests	40		21
Consumer financing interest	17		24
General and administrative	120		106
Marketing	94		69
Depreciation and amortization	30		31
Restructuring	7		(1)
COVID-19 related costs	2		1
Asset impairments	1		—

Total expenses	692		541
Operating income	117		87
Interest expense	47		53
Interest (income)	(1)		(1)
Other (income), net	(3)		—
Income before income taxes	74		35
Provision for income taxes	23		6





Net income attributable to Travel + Leisure Co. shareholders	$	51	$	29

Earnings per share



Basic	$	0.59	$	0.33



Diluted	$	0.59	$	0.33

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TRAVEL + LEISURE CO.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	Three Months Ended
	March 31,
	2022		2021
Net income attributable to Travel + Leisure Co. shareholders	$	51	$	29

Foreign currency translation adjustments, net of tax	3		(13)


Other comprehensive income/(loss), net of tax	3		(13)
Comprehensive income	$	54	$	16

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TRAVEL + LEISURE CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)


	March 31, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	381	$	369
Restricted cash (VIE - $114 as of 2022 and $84 as of 2021)	166		128
Trade receivables, net	146		131
Vacation ownership contract receivables, net (VIE - $2,053 as of 2022 and $2,061 as of 2021)	2,261		2,309
Inventory	1,129		1,216
Prepaid expenses	228		227
Property and equipment, net	743		689
Goodwill	961		961
Other intangibles, net	216		219
Other assets	369		339

Total assets	$	6,600	$	6,588
Liabilities and (deficit)
Accounts payable	$	67	$	62
Accrued expenses and other liabilities	927		939
Deferred income	391		382
Non-recourse vacation ownership debt (VIE)	1,949		1,934
Debt	3,379		3,379
Deferred income taxes	698		686

Total liabilities	7,411		7,382
Commitments and contingencies (Note 15)
Stockholders' (deficit):
Preferred stock, $0.01 par value, authorized 6,000,000 shares, none issued and outstanding	—		—
Common stock, $0.01 par value, 600,000,000 shares authorized, 222,510,004 issued as of 2022 and 222,250,970 as of 2021	2		2
Treasury stock, at cost – 137,122,411 shares as of 2022 and 136,320,631 shares as of 2021	(6,579)		(6,534)
Additional paid-in capital	4,200		4,192
Retained earnings	1,603		1,587
Accumulated other comprehensive loss	(45)		(48)
Total stockholders’ (deficit)	(819)		(801)
Noncontrolling interest	8		7
Total (deficit)	(811)		(794)
Total liabilities and (deficit)	$	6,600	$	6,588

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TRAVEL + LEISURE CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Three Months Ended
	March 31,
	2022		2021
Operating activities
Net income	$	51	$	29


Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	48		38
Depreciation and amortization	30		31
Deferred income taxes	13		(12)
Stock-based compensation	12		7
Non-cash interest	5		7
Non-cash lease expense	4		3
Asset impairments	1		—
Other, net	—		3
Net change in assets and liabilities, excluding the impact of acquisitions and dispositions:
Trade receivables	(13)		3
Vacation ownership contract receivables	3		90
Inventory	26		(53)
Prepaid expenses	(1)		—
Other assets	(33)		—
Accounts payable, accrued expenses, and other liabilities	(10)		(54)
Deferred income	5		(14)


Net cash provided by operating activities	141		78
Investing activities
Property and equipment additions	(10)		(12)
Purchase of investments	(7)		—

Acquisitions	—		(35)

Other, net	1		—


Net cash used in investing activities	(16)		(47)
Financing activities
Proceeds from non-recourse vacation ownership debt	476		597
Principal payments on non-recourse vacation ownership debt	(463)		(644)

Principal payments on debt	(1)		(548)

Repayment of notes	(1)		(251)

Repurchase of common stock	(45)		—

Dividends to shareholders	(35)		(26)
Debt issuance/modification costs	(5)		(7)
Net share settlement of incentive equity awards	(5)		(7)


Proceeds from issuance of common stock	—		2



Net cash used in financing activities	(79)		(884)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash	4		(3)
Net change in cash, cash equivalents and restricted cash	50		(856)
Cash, cash equivalents and restricted cash, beginning of period	497		1,317
Cash, cash equivalents and restricted cash, end of period	547		461
Less: Restricted cash	166		139

Cash and cash equivalents	$	381	$	322

See Notes to Condensed Consolidated Financial Statements.

TRAVEL + LEISURE CO.

CONDENSED CONSOLIDATED STATEMENTS OF DEFICIT

(In millions)

(Unaudited)


	Common Shares Outstanding	Common Stock		Treasury Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Non-controlling Interest		Total Deficit
Balance as of December 31, 2021	85.9	$	2	$	(6,534)	$	4,192	$	1,587	$	(48)	$	7	$	(794)
Net income	—	—		—		—		51		—		—		51
Other comprehensive income	—	—		—		—		—		3		—		3

Issuance of shares for RSU vesting	0.3	—		—		—		—		—		—		—
Net share settlement of stock-based compensation	—	—		—		(5)		—		—		—		(5)
Change in stock-based compensation	—	—		—		12		—		—		—		12
Repurchase of common stock	(0.8)	—		(45)		—		—		—		—		(45)
Dividends ($0.40 per share)	—	—		—		—		(35)		—		—		(35)
Non-controlling interest ownership change	—	—		—		—		—		—		1		1
Other	—	—		—		1		—		—		—		1
Balance as of March 31, 2022	85.4	$	2	$	(6,579)	$	4,200	$	1,603	$	(45)	$	8	$	(811)


	Common Shares Outstanding	Common Stock		Treasury Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Non-controlling Interest		Total Deficit
Balance as of December 31, 2020	85.9	$	2	$	(6,508)	$	4,157	$	1,390	$	(16)	$	7	$	(968)
Net income	—	—		—		—		29		—		—		29
Other comprehensive loss	—	—		—		—		—		(13)		—		(13)
Stock option exercises	0.1	—		—		3		—		—		—		3
Issuance of shares for RSU vesting	0.2	—		—		—		—		—		—		—
Net share settlement of stock-based compensation	—	—		—		(7)		—		—		—		(7)
Change in stock-based compensation	—	—		—		7		—		—		—		7


Dividends ($0.30 per share)	—	—		—		—		(27)		—		—		(27)
Balance as of March 31, 2021	86.2	$	2	$	(6,508)	$	4,160	$	1,392	$	(29)	$	7	$	(976)

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TRAVEL + LEISURE CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise noted, all amounts are in millions, except share and per share amounts)

(Unaudited)

1. Background and Basis of Presentation

Background

Travel + Leisure Co. and its subsidiaries (collectively, “Travel + Leisure Co.,” or the “Company”) is a global provider of hospitality services and travel products. The Company has two reportable segments: Vacation Ownership and Travel and Membership.

The Vacation Ownership segment develops, markets, and sells vacation ownership interests (“VOIs”) to individual consumers, provides consumer financing in connection with the sale of VOIs, and provides property management services at resorts. This segment is wholly comprised of the Wyndham Destinations business line. The following brands operate under the Wyndham Destinations business line: Club Wyndham, WorldMark by Wyndham, Shell Vacations Club, Margaritaville Vacation Club by Wyndham, and Presidential Reserve by Wyndham.

The Travel and Membership segment operates a variety of travel businesses, including three vacation exchange brands, a home exchange network, travel technology platforms, travel memberships, and direct-to-consumer rentals. This segment is comprised of the Panorama and Travel + Leisure Group business lines. The following brands operate under the Panorama business line: RCI, Panorama Travel Solutions, Alliance Reservations Network (“ARN”), 7Across, The Registry Collection, and Love Home Swap. The Travel + Leisure Group operates Travel + Leisure GO, Travel + Leisure Travel Clubs, and the Extra Holidays brands.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q include the accounts and transactions of Travel + Leisure Co., as well as the entities in which Travel + Leisure Co. directly or indirectly has a controlling financial interest. The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”). All intercompany balances and transactions have been eliminated in the Condensed Consolidated Financial Statements.

The Company presents an unclassified balance sheet which conforms to that of the Company’s peers and industry practice.

In presenting the Condensed Consolidated Financial Statements, management makes estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates and assumptions. In management’s opinion, the Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s 2021 Consolidated Financial Statements included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2022.

2. New Accounting Pronouncements

Recently Issued Accounting Pronouncements

Contract Assets and Contract Liabilities from Contracts with Customers Acquired in a Business Combination. In October 2021, the Financial Accounting Standards Board (“FASB”) issued guidance which requires companies to apply Accounting Standards Codification (“ASC”) 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. This creates an exception to the general recognition and measurement principle in ASC 805. This generally will result in companies recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date. Early adoption is permitted. As this guidance would only be applicable to future business combinations, the Company is currently unable to determine the impact of adopting this guidance.

Table of Contents

Government Assistance. In November 2021, the FASB issued guidance which requires business entities to provide certain disclosures when they have received government assistance and used a grant or contribution accounting model by analogy to other accounting guidance. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021. The adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements or related disclosures.

3. Revenue Recognition

Vacation Ownership

The Company develops, markets, and sells VOIs to individual consumers, provides consumer financing in connection with the sale of VOIs, and provides property management services at resorts. The Company’s sales of VOIs are either cash sales or developer-financed sales. Developer-financed sales are typically collateralized by the underlying VOI. Revenue is recognized on VOI sales upon transfer of control, which is defined as the point in time when a binding sales contract has been executed, the financing contract has been executed for the remaining transaction price, the statutory rescission period has expired, and the transaction price has been deemed to be collectible.

For developer-financed sales, the Company reduces the VOI sales transaction price by an estimate of uncollectible consideration at the time of the sale. The Company’s estimates of uncollectible amounts are based largely on the results of the Company’s static pool analysis which relies on historical payment data by customer class.

In connection with entering into a VOI sale, the Company may provide its customers with certain non-cash incentives, such as credits for future stays at its resorts. For those VOI sales, the Company bifurcates the sale and allocates the sales price between the VOI sale and the non-cash incentive. Non-cash incentives generally have expiration periods of 18 months or less and are recognized at a point in time upon transfer of control.

The Company provides day-to-day property management services including oversight of housekeeping services, maintenance, and certain accounting and administrative services for property owners’ associations and clubs. These services may also include reservation and resort renovation activities. Such agreements are generally for terms of one year or less and are renewed automatically on an annual basis. The Company’s management agreements contain cancellation clauses, which allow for either party to cancel the agreement, by either a majority board vote or a majority vote of non-developer interests. The Company receives fees for such property management services which are collected monthly in advance and are based upon total costs to operate such resorts (or as services are provided in the case of resort renovation activities). Fees for property management services typically approximate 10% of budgeted operating expenses. The Company is entitled to consideration for reimbursement of costs incurred on behalf of the property owners’ association in providing management services (“reimbursable revenue”). These reimbursable costs principally relate to the payroll costs for management of the associations, club and resort properties where the Company is the employer and are reflected as a component of Operating expenses on the Condensed Consolidated Statements of Income. The Company reduces its management fees for amounts it has paid to the property owners’ association that reflect maintenance fees for VOIs for which it retains ownership, as the Company has concluded that such payments are consideration payable to a customer.

Property management fee revenues are recognized when the services are performed and are recorded as a component of Service and membership fees on the Condensed Consolidated Statements of Income. Property management revenues, which are comprised of management fee revenue and reimbursable revenue were (in millions):


	Three Months Ended
	March 31,
	2022		2021
Management fee revenues	$	95	$	88
Reimbursable revenues	85		69
Property management revenues	$	180	$	157

One of the associations that the Company manages paid its Travel and Membership segment $8 million and $7 million for exchange services during the three months ended March 31, 2022 and 2021.

Travel and Membership

Travel and Membership derives a majority of its revenues from membership dues and fees for facilitating members’ trading of their intervals. Revenues from membership dues represent the fees paid by members or affiliated clubs on their behalf.

Table of Contents

The Company recognizes revenues from membership dues paid by the member on a straight-line basis over the membership period as the performance obligations are fulfilled through delivery of publications, if applicable, and by providing access to travel-related products and services. Estimated net contract consideration payable by affiliated clubs for memberships is recognized as revenue over the term of the contract with the affiliated club in proportion to the estimated average monthly member count. Such estimates are adjusted periodically for changes in the actual and forecasted member activity. For additional fees, members have the right to exchange their intervals for intervals at other properties affiliated with the Company’s vacation exchange networks and, for certain members, for other leisure-related services and products. The Company also derives revenue from facilitating bookings of travel accommodations for Travel Club members. Revenue is recognized when these transactions have been confirmed, net of expected cancellations, except in certain transactions where the Company has a performance obligation that is not satisfied until the time of stay.

As a provider of vacation exchange services, the Company enters into affiliation agreements with developers of vacation ownership properties to allow owners of VOIs to trade their intervals for intervals at other properties affiliated with the Company’s vacation exchange network and, for some members, for other leisure-related services and products.

The Company’s vacation exchange business also derives revenues from programs with affiliated resorts, club servicing, and loyalty programs; and additional exchange-related products that provide members with the ability to protect trading power or points, extend the life of deposits, and combine two or more deposits for the opportunity to exchange into intervals with higher trading power. Other vacation exchange related product fees are deferred and recognized as revenue upon the occurrence of a future exchange, event, or other related transaction.

The Company earns revenue from its RCI Elite Rewards co–branded credit card program, which is primarily generated by cardholder spending and the enrollment of new cardholders. The advance payments received under the program are recognized as a contract liability until the Company’s performance obligations have been satisfied. The primary performance obligation for the program relates to brand performance services. Total contract consideration is estimated and recognized on a straight-line basis over the contract term.

Other Items

The Company records property management services revenues for its Vacation Ownership segment and RCI Elite Rewards revenues for its Travel and Membership segments gross as a principal.

Contract Liabilities

Contract liabilities generally represent payments or consideration received in advance for goods or services that the Company has not yet transferred to the customer. Contract liabilities as of March 31, 2022 and December 31, 2021, were as follows (in millions):


	March 31, 2022		December 31, 2021
Deferred subscription revenue	$	175	$	166
Deferred VOI trial package revenue	84		85
Deferred exchange-related revenue (a)	62		61
Deferred VOI incentive revenue	56		55
Deferred co-branded credit card programs revenue	11		12
Deferred other revenue	4		3
Total	$	392	$	382

(a)Includes contractual liabilities to accommodate members for cancellations initiated by the Company due to unexpected events. These amounts are included within Accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets.

In the Company’s Vacation Ownership business, deferred VOI trial package revenue represents consideration received in advance for a trial VOI, which allows customers to utilize a vacation package typically within one year of purchase. Deferred VOI incentive revenue represents payments received in advance for additional travel-related services and products at the time of a VOI sale. Revenue is recognized when a customer utilizes the additional services and products, which is typically within one year of the VOI sale.

Within the Company’s Travel and Membership business, deferred subscription revenue represents billings and payments received in advance from members and affiliated clubs for memberships in the Company’s travel programs which are recognized in future periods. Deferred revenue primarily represents payments received in advance from members for the

Table of Contents

right to access the Company’s vacation travel network to book vacation exchanges and rent travel accommodations which are recognized on a straight-line basis over the contract period, generally within one year. Deferred revenue also includes other leisure-related service and product revenues which is recognized as customers utilize the associated benefits.

Changes in contract liabilities follow (in millions):


	Three Months Ended
	March 31,
	2022		2021
Beginning balance	$	382	$	448
Additions	85		74
Revenue recognized	(75)		(86)

Ending balance	$	392	$	436

Capitalized Contract Costs

The Vacation Ownership segment incurs certain direct and incremental selling costs in connection with VOI trial package and incentive revenues. Such costs are capitalized and subsequently amortized over the utilization period, which is typically within one year of the sale. As of March 31, 2022 and December 31, 2021, these capitalized costs were $27 million and $28 million and are included within Other assets on the Condensed Consolidated Balance Sheets.

The Travel and Membership segment incurs certain direct and incremental selling costs to obtain contracts with customers in connection with subscription revenues and exchange–related revenues. Such costs, which are primarily comprised of commissions paid to internal and external parties and credit card processing fees, are deferred at the inception of the contract and recognized when the benefit is transferred to the customer. As of March 31, 2022 and December 31, 2021, these capitalized costs were $18 million and $19 million; and are included within Other assets on the Condensed Consolidated Balance Sheets.

Practical Expedients

The Company has not adjusted the consideration for the effects of a significant financing component if it expected, at contract inception, that the period between when the Company will satisfy the performance obligation and when the customer will pay for that good or service will be one year or less.

Performance Obligations

A performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. The consideration received from a customer is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied.

The following table summarizes the Company’s remaining performance obligations for the 12-month periods set forth below (in millions):


	4/1/2022 - 3/31/2023		4/1/2023 - 3/31/2024		4/1/2024 - 3/31/2025		Thereafter		Total
Subscription revenue	$	101	$	39	$	18	$	17	$	175
VOI trial package revenue	81		1		2		—		84
Exchange-related revenue	58		3		1		—		62
VOI incentive revenue	56		—		—		—		56
Co-branded credit card programs revenue	3		3		3		2		11
Other revenue	4		—		—		—		4
Total	$	303	$	46	$	24	$	19	$	392

Table of Contents

Disaggregation of Net Revenues

The table below presents a disaggregation of the Company’s net revenues from contracts with customers by major services and products for each of the Company’s segments (in millions):

Three Months Ended