Q3 2019 Earnings Call
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Now I'll turn the conference over to your host Neil Cole nerve Vice President Investor Relations. Please go ahead.
Thank you saturate welcome to the Marriott vacations worldwide third quarter 2019 earnings conference call.
I'm joined today by Steve Wise, President and Chief Executive Officer, Junkyard, Executive Vice President and Chief financial and administrative officer.
I do need to remind everyone that many of our comments today are not historical facts and are considered forward looking statements under federal Securities laws. These statements are subject to numerous risks and uncertainties as described in RCC filings, which could cause future results to differ materially from those expressed or implied by our comments.
Forward looking statements enterprise voice that we issued last night along with her comments on this call our effective all only today November five 2019 and will not be updated as actual events unfold.
Throughout the call, we will make reference to non-GAAP financial information.
You can find a reconciliation of non-GAAP financial measures referred to in my remarks, and this catch also attached to our press voice as well as their Investor Relations page and finance why formation page on our website at <unk> M Pwc dotcom.
It's now my pleasure turnover turn call over to Steve Wise, President and CEO Marriott vacations worldwide.
Thanks, Neil Good morning, everyone and thank you for joining our third quarter earnings call.
Coming on the heels of our first Investor day since the I LG acquisition I'm very pleased with our third quarter performance highlighted by double digit sales growth at the acquired vacation ownership business and further synergy attainment, both helping to drive an 18% increase in adjusted EBITDA and illustrating the resilience of our business model.
[noise] excuse me.
Starting with our vacation ownership business I'm very happy with the results of our B O segment. This quarter growing sales, 6.5% on a combined basis, excluding the hurricane affect the highest growth among all publicly traded timeshare companies.
And we achieved this despite having a difficult comparison from last year, when sales grew 18% and while being in the midst of a major integration.
Looking at the components of growth legacy M.B.W. contract sales increased 1% in the quarter, despite the difficult comparison or 3% after adjusting for the hurricane.
Even with the Hurricane North American tourists were largely unchanged with first time buyers, representing 45% of total tours and VPG, increasing slightly to $3789.
Sales at our legacy I LG brands accelerated again from earlier in the year growing more than 11% in the quarter driven by 9% VPG growth as the hard work to leverage best practices across the acquired business and shift to more efficient marketing channels has begun to bear fruit.
Our tour package pipeline remains very strong growing 11% in the quarter.
Activated tours with a schedule to rival day during 2020 increased 19% compared to the same time last year and are up nearly 50% for our vistana brands, reflecting momenta momentum we're building for next year.
As we discussed last quarter since the beginning of the year, we've made substantial organizational and programmatic changes in our marketing and sales operations as we integrate the vacation ownership business is.
Our teams worked together to incorporate proven best practices from M.B.W. legacy properties into the legacy ISL G business accelerating sales at those brands, though temporarily affecting the sales growth at our legacy LBW business. We absolutely believe that this is the correct approach where the combined business longer term.
As illustrated by the combined contract sales growth we achieved this quarter.
Well, we're particularly pleased with the double digit contract sales improvement at legacy Iology. This quarter, we still see substantial topline synergy opportunities over the next few years allow me to site two examples.
There's a substantial gap between the first time buyer VPG legacy M.B.W. and that of the acquired brands that we believe can be narrowed over time.
Fashion, the rollout of called transferred to the acquired brands remains a substantial opportunity. These are but two of the reasons why I feel so confident about for long term growth prospects for our vacation ownership business.
Well why continued to be most excited about is our opportunity to transform our business by utilizing cutting edge digital tools.
By using our customer centric and data driven approach, we are enhancing our self service platforms to provide a more seamless customer experience, while simultaneously increasing operational efficiencies.
For example, in the third quarter total online points transaction for our legacy Marriott points products increased by an impressive impressive 22%.
Going forward, we will continue to drive digital growth by strengthening our infrastructure growing online package sales utilizing self service booking tools and real time offers and enhancing the overall customer experience I continue to believe that digital holds the key to transforming our business I look forward to sharing our progress with you.
Future.
Moving to our exchange and third party management segment interval International added new properties in North America, Europe , and Asia towards Global Exchange network during the quarter as a result membership increased 1% from the second quarter. This year, while average revenue per member increased 2% year over year.
Moving to synergies the integration of biology is progressing well, we're making excellent progress towards lowering cost and eliminating redundancies.
We continue to expect run rate savings to be around $60 million by year end with $45 million to $50 million of this benefit benefiting our 2019 results.
As we announced during our Investor day, we now expect to deliver annual run rate savings in excess of $125 million by the end of 2021 and continued to work hard to find additional opportunities.
We also view this transaction is providing a once in a lifetime opportunity to fundamentally transform how we do business across the total company.
From repositioned, our product offering to modernizing systems to employing new technologies in exciting ways.
Our entire team is working hard to bring these efforts to fruition.
As you know earlier in the year, we implemented a strategic review over our vacation ownership assets with a goal of disposing excess supply in certain locations.
With the review now substantially complete we expect the disposition of these assets to generate cash proceeds between 160 and $220 million over the next few years.
We will begin with those assets that will have the highest yield and have already begun the disposition process. We will keep you apprised of our progress and as a reminder, any cash where you receive will be in addition to our adjusted EBITDA and free cash flow guidance.
Before turning the call over to John Let me touch upon our full year outlook.
We updated our full year contract sales guidance in last nights release to reflect the previously communicated impact of Hurricane Doria.
This new guidance implies 10% growth at the midpoint for the quarter.
While achieving this certainly won't be easy it's important to remember that our new location in San Francisco only a lot sales towards the end of the second quarter of this year and is ramping ramping up.
In addition, we reopened the Westin Saint John sales Center earlier this year after being closed for all of 2018, so it's not in the prior year comparison either.
Further the fourth quarter last year was hampered by hurricane activity, that's walls recession fears following Thanksgiving, so while 10% growth in the four corp. fourth quarter may be somewhat aggressive barring any unforeseen external events, we do feel that this is attainable.
We also updated our full year adjusted EBITDA guidance to 745 million to $775 million to reflect the previously announced hurricane impact [noise].
In terms of capital allocation, we were very active repurchasing shares during the quarter buying back more than one point threemillion of our own shares at a cost of $127 million.
That plus the shares we bought in October brings our year to date repurchase activity to 4.1 million shares or 9% of our shares outstanding at a cost of $388 million.
Looking forward I feel great about our business and our positioning with more than a year behind us since the acquisition. Our teams are melding nicely and we have what I believe to be the best collection of brands in the vacation ownership business.
We've uncovered more cost synergies than we originally anticipated sales at the acquired vacation ownership business have begun to hit their stride and we have a long term opportunity to fundamentally change how we do business with that let me hand, the call over to John .
Thank you, Steve and good morning, everyone.
I too I'm very pleased with our third quarter results and how we're progressing this year.
As we've done in previous quarters. We have included 2018 financial information that combines legacies aisle g.'s results prior to the acquisition with legacy M.B.W.'s reported results to be comparable to our current your presentation.
My comments today about growth in year over year changes referred to our combined results.
Before I get into our results I wanted to touch upon hurricane Dorian in terms of its impact to the third quarter as well as for the full year as you saw on our earnings release, we estimate the impact on contract sales to be $7 million and the impact on adjusted EBITDA to be $4 million for the full year.
Well all be contract sales impact was Q3, the impact to adjusted EBITDA was only $1 million in the third quarter due to the timing of revenue recognition. The remaining 3 million dollar impact columns in the fourth quarter. When those contract sales would have been recognized as revenue.
Third quarter total company adjusted EBITDA increased 18% and cool and grew 21% excluding the impact of the our Europe .
This performance was driven primarily from strong growth in our vacation ownership segment as well as the flow through of synergies as a reminder, we do not adjust our results for the impact of revenue recognition, which had a 2 million dollar negative impact on our results this quarter.
Looking first at our vacation ownership segment, adjusted EBITDA increased 11% year over year to $195 million in the third quarter with growth coming from all lines of business.
And our development business consolidated contract sales increased nearly 5% to $390 million in the third quarter and excluding the impact of Hurricane Dorian contract sales would have grown 6.5% year over year.
Adjusted development margin, which adjust for revenue Reportability and other charges increased over 8% to $88 million at adjusted development margin percentage was strong at 24.8% nearly one point higher than the prior year quarter as a result of more efficient marketing and sales spent.
In our financing business revenues increased 14% to $71 million and financing revenue net of expenses and consumer financing interest expense increased $10 million for 27%.
This growth reflects increased revenue primarily from higher contract sales and strong financing propensity, partially offset by slightly higher operating costs consumer financing interest expense remained relatively flat year over year as a higher outstanding debt balance was offset by lower interest rates.
Our notes receivable portfolio continues to perform very well the average FICO score buyers, who financed with us in the quarter was 730.
Our rental business revenues increased 3% to $135 million and rental revenues net of expenses increased 12% to $28 million. These results were driven by higher plus point revenues and increases in transient rate and keys rented partially offset by higher inventory costs.
Our resort management and other services business revenues increased 1%, while revenues net of expenses increased 6% to $59 million.
This growth reflects higher fees for managing our portfolio resorts as well as higher ancillary and exchange company activity, partially offset by a prior year benefit related to the timing of the conversion of the asset light arrangements in San Francisco and Marco Island.
Turning to the exchange that third party management segment, adjusted EBITDA was down $5 million year over year. After adjusting the prior year to exclude the sale of the our euro.
The year over year decline was primarily due to the nonrenewal of certain contracts last year, which we've discussed previously as Steve mentioned total exchange members increased 1% sequentially from the second quarter and average revenue per member was up 2% year over year our exchanges.
Business added new affiliations across the exchange network during the quarter as well as additional non member product offerings. As we continue to work to identify new incremental revenue streams for this segment.
From a contribution to adjusted EBITDA perspective, Gionee costs declined $19 million year over year, driven primarily by synergy savings and lower compensation related expenses, partially offset by normal inflationary cost increases.
We generated $13 million of synergies in the third quarter, bringing our year to date savings for roughly $33 million.
With savings achieved to date as well as what we have projected for the remainder of the year, we're maintaining our target up in the year savings for 2019 at $45 million to $50 million.
Moving to the balance sheet at the end of the quarter cash and cash equivalents totaled $183 million and we had roughly $372 million and available capacity under our 600 million dollar revolving credit facility.
Our total corporate debt outstanding at the end of the quarter totaled $2.3 billion.
This excludes 1.7 billion associated with our non recourse securitized notes receivable from a leverage perspective, and including $125 million of total synergy savings are combined debt to adjusted EBITDA ratio at the ended the quarter was 2.6 times slightly higher than our long term target of two to.
I want to half times.
Regarding our corporate debt subsequent to the ended the third quarter, we issued $350 million of senior notes due in 2028 at for three quarters percent and redeemed our five and five aid senior notes due in 2023 and repaid a portion of our outstanding borrowings under our corporate revolver.
Also subsequent to the end of third quarter, we successfully completed a $315 million note securitization at a blended interest rate up 2.29% with a 98% advance rate. We're very pleased not only with the high demand for our paper, but also with the terms of this transaction, which are even more favorable.
Then the securitization we completed just a few months ago.
As I mentioned during our Investor Day, we're also working off securitizing assets that do not fit well into our existing securitization program, primarily certain notes from our Asia Pacific region.
We hope to completed transaction later, this year and estimate that it could generate approximately $70 million of additional cash proceeds.
As a reminder, proceeds from the securitization would be in addition to our free cash flow guidance for the year.
Regarding our return of capital in the third quarter, we repurchased 1.3 million shares for $127 million at an average price of $97 in six cents per share subsequent to the ended the quarter re repurchased an additional 431000 shares for $46 million, bringing our total capital.
Turns year to date to $468 million as it relates to our outstanding business interruption insurance claims we received another $38 million $38 million subsequent to the ended the third quarter. These proceeds related to our west in Saint John property and represent the largest claim previously.
Outstanding.
We continue to work with our insurance providers on a few remaining claims and expect to resolve those claims over the next few months for less than $5 million as we mentioned previously our guidance for adjusted EBITDA and adjusted free cash flow does not reflect the receipt of any insurance proceeds for our business interruption losses.
Now, let's turn to our outlook for the year.
We've updated our consolidated contract sales guidance to 5% to 8% primarily due primarily to reflect the impact of hurricane Dorian, implying approximate approximately 10% growth in the fourth quarter at the midpoint.
Embedded in this is our expectation for the legacy VW brands to end the year strong as we lap last year's difficult December the Vistana brands to continue their strong growth and for our new sales center in San Francisco and our reopened sales center out west in Saint John to continue to ramp up.
We now expect our full year development margin to be roughly 22%, reflecting the benefit of lower product costs, we expect reportability to be a substantial positive in the fourth quarter similar to prior years add we expect to recoup most of the $28 million of negative Reportability, we've experienced year to date.
We've also updated our full year, adjusted EBITDA guidance to $745 million to $775 million to reflect the impact of the hurricane.
This implies 14% full year growth at the midpoint of the range.
Lastly, we are targeting adjusted free cash flow between 440 and $490 million for 2019 and continue to look for opportunities to enhance our free cash flow, while making sure we spend appropriately to grow the business. After that we expect to continue to return excess cash to shareholders.
Orders.
In summary, our third quarter results were strong with contract sales growth of 6.5% excluding hurricane Dorian.
We have increased sales growth sequentially for the third straight quarter, while integrating and transforming our business and delivering significant synergy savings.
We are excited about the changes we we have our we have already been implemented and the results. They are beginning to generate particularly around technology and processes I look forward to updating you on our progress going forward and as always appreciate your interest in Marriott vacations worldwide and with that we will open up the call.
For Q and AG Saatchi.
Thank you at this time, we won't be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation John will indicate your line is another question Q you May press Star too if you would like to remove your question from the Q.
For those using speaker equipment and may be necessary to pick up your handset for pressing the star Kids one moment, please while they pull for questions.
Just first question is from David Katz of Jefferies. Please go ahead.
Hi, David Hi, good morning, everyone.
Hi, Steve I wanted to go back to your initial commentary in reference to digital.
And I did hear you. When you said, we look forward to talk more about that one ready.
But that just provokes the question anyway.
Yeah, Hey, how could we and some qualitative way get a sense for just how big an opportunity that is.
Okay, and obviously, it's a it seems to us to be a revenue opportunity.
Presumably at high margin, but how else could you characterize that you know scale of one to five how excited argue about it and timing wise when could we know more.
Okay.
On the one to five I'd say I'm at a four.
Maybe 44 and a half I, we think it's a meaningful opportunity for the company.
And.
I think you've characterized it correctly there are certainly revenue implications of that as there as well as cost implications the cost implications on the ability to source sales leads packages tours at a lower cost than what we currently incur today under the non digital environment.
Where we are on it just so that I can make sure that everybody has some clarity on that is.
Weve begun earlier actually late last year early this year, we began some social media tests.
One area I could point as an example, we did some Facebook tests.
To get out there with what you would classically call Facebook advertising.
To see if we can generate interest in going to just a couple of our resource that we put in a test mode.
People wanted to take.
Many back vacations too.
Thanks to these locations, which and then in turn have them, taking a timeshare tour and potentially creating sales.
Can tell you one of the most exciting parts about that was we were able to get.
Literally hundreds of different executions of what the.
The advertising looked like what they offer was the audience and everything else and we were able to do that in real time.
We put on add up we'd look at it for a day or two and depending on the response rate we the keep it up or we would pull it down and modify it and put something else out.
It is that kind of thing that you can do in the digital world that you can't do in the analog world.
And so.
And at the end of the day when you get a lead from something like Facebook the cost per tour.
He is very low relative to what you get otherwise so.
We did we started to a test with Marriott in the ended the second quarter.
And we are what our plan there is too.
Just use it on the NBC side and again, we've only done it with a couple of resorts.
In an effort to try to.
See what works what doesn't work.
Fine tune it once we get it.
To a point, where we think it will produce the results were looking forward then we will roll into the NBC business. First then subsequent to that we will then roll it out more broadly across the Westin and Sheraton businesses. So I'm I'm very enthusiastic about it.
Don't think it's lost on anybody that.
The World is clearly moving in a digital fashion.
We think between that and some of the self service options that we've been we've been working on we've had deloitte working with us for the better part of a year to try to help us understand.
You know, how we can position many of our self service offerings to be more.
Consumer centric.
And we think we're making great progress there as well so I.
Put me in the camp of being a big believer with that said, we have more work to do and as we have more results were anxious to share I'm with you.
Hi, Thank you for that and if we were to think about in the Con mission the context of.
Impact to earnings, which is where the rubber meets the road.
It is this something that we can be talking about as 2020.
Numbers start to come across.
Or is it longer term than that.
I think what you will what you should expect to see hair I hear us talk about is.
We'll start to see package production.
Increase as we move into 2020 as I think you know packages, sometimes take anywhere from 12 to 18 months to actually materialize into a tour ergo sales. So I think the leading indicator will be increasing package production out of the digital channels. The trailing will be obviously and I would expect most of the.
Economic impact in terms of revenues would probably fall and of 20% 21.
Thank you very much.
Thank you.
The next question is from Jared Cheyenne of Wolfe Research. Please go ahead.
Hi, Good morning, everyone. Good morning, Thanks for taking my question.
So can you can you just talk a little bit about some of the trends you're seeing right now from the consumer or maybe how those trends have evolved as the year has progressed in some of that I think broad macro data has has been a little bit softer and then related to that I, maybe splitting hairs here, but the contract sales reduction.
About 50 basis points more than the implied hurricane impact.
So he can you talk about that is that rounding is that more of Threeq you maybe not as as you know as strong as you're hoping or I know the fourth quarter numbers is a big number was that maybe expectation. There may be can help me just understand that a little bit better.
Yeah, I'll take the first part I'll, let John talked about the of the the the 50 basis points thing. If you think about it on a hurricane adjusted basis. If you take the hurricane at six in a on adjusted basis and 6.5%.
Our sales have actually grown sequentially over the quarters, we were up 5% in the first quarter, 6% in the second source shorter six and a half in the third quarter.
So I cannot.
Point to anything in particular.
That would cause us to say that we are seeing any particular softness in the from the consumer point of view I did as I did mentioned in my remarks, obviously.
We have probably spent a disproportionate amount of our time in the sales and marketing area focusing on trying to get our VIP house in order, which has taken are a little bit off the ball on the Marriott vacation club product I.
I think again, that's that's the right decision long term.
What I'd like to the fact that we could have done both simultaneously shore, but there was a reality is that we have a finite number of resources and experts and we chose to deploy them in that fashion. So I can't point to anything that today says that there's any particular softness in the consumer.
John will talk about the the change in yet in terms of the guidance, yes, just as we looked at the fourth quarter and how things were setting up.
As we talked about to get to the midpoint, we need roughly 10% growth given our trajectory. This year. We've we've kind of felt like that was the right level guidance, it's probably had some level rounding to your point, it's small numbers and the relative scheme of things but.
That's just how we saw the fourth quarter setting up here.
Okay. Thank you and then if I heard you correctly in the prepared remarks, I think you said activated tours with schedule arrivals and 2020 are up 19%.
Is that the is that the best leading indicator for future tour growth that you've observed kind of historically and can you help us just understand.
How much of your tours you have on the books, I guess going into a year or how much of that you already.
Your sightlines.
Yes.
So clearly package tours.
Our a somewhat of a leading indicator obviously if that number was going south not north that we'd be a concern to us.
Hi, However, keep in mind that there are other sources of tours.
That we generate during the course of your in house tourist being one linkage tours being another to be honest, we don't have a lot of visibility into either a linkage tours or in house tours, because they occur while people are generally in market.
So for us.
We look at packaged tours as probably one of the most visible elements that we can point you to say how is the future looking.
So you know and and again then once you have once you have totaled tour growth then how much are activated in the year and how much are not our for future years and so those are the two indicators for us and we feel.
Again pretty confident about that I'm, particularly pleased with the growth of of.
Tours.
For 2020 arrival dates in in our VIP business, which are up substantially now some of this law small numbers, but.
At the same token being up 50% that's a that's pretty supportive we think.
Great. Thank you very much.
Thank you.
The next question is from Brandt Montour as JP Morgan. Please go ahead.
Great. Thanks, Thanks, Hey areas. So quick actually the longer term question, just starting up and you were talking about.
Sort of the tour channel in the in the package pipeline I guess the question as I think you guys talked about call transfer.
Actually eventually I think Steve you think this is going to be something that shrinks and part of the reason why you guys are going to aggressively into digital is to kind of fill that void over time.
We also use their phones anymore to very gradual voice calls I guess the question is should we be concerned that that channel ish is shrinking faster than than maybe you guys can get digital up and running.
No I, let me give you a little background here, it's important just to put it in context.
We started down the call transfer path and with Marriott in 2017.
And it was a very vibrant channel I think as I may have mentioned during our Investor day.
We had.
We have kind of the perfect storm Marriott in 2018 merge the two reservation platforms, the starwood bit reservation platform and the Marriott reservation platform into one.
And it put new technology in place and to be honest that disruption muted the amount of volume we were getting out of call transfer.
That is starting to come back very nicely.
With that said I think you're.
Your your your correctly looking at how things will probably play out over time, I think you could expect that.
Voice call transfer.
I will in fact overtime diminish, but we believe digital will easily replaced if not surpassed what we get on call for voice call transfer.
And what's what's the inflection point, where the two lines cross I can't exactly estimate, but I think if we all think about our own individual behaviors.
I do a lot more on my computer that doing my phone I suspect most everybody else does as well so.
We want to be very well positioned as and to take advantage of that.
Got it that's that's really helpful. Thank you and then and then into three in the third quarter and your results.
Obviously lot of momentum on the algae side. It looks like you guys, even close the gap between algae, PPG and NPW VPG Bye bye quarter other way.
The question is is that more a function of the fact that you guys had tough comp and then VW and.
You said you to Peter I thought a little bit to focus on that the ISL G side, but is that is that sort of in a new line should we think about that is where where these two should be outlets. The starting point going forward, whether these two should be sort of tracking or is there some sort of one more transient things going on that that maybe maybe doesn't maybe give a little.
That's what we keep moving forward.
Sure well you might think about 2019 on the VIP side as not to diminish the worked involved but somewhat low hanging fruit I mean, we've gotten out of a number of the LPC channels, which.
We're very high cost very low yield kind of channels.
We've started to dial up.
Some obviously package growth that package growth that we have in the vs E business hasn't really manifested itself in a large number of tours in 2019, but certainly sets the stage for 2020 going forward.
But I think I wanted to spell a notion if if someone believes that.
The VPG and the VIP business in the beat VPG in the Marriott vacation club business will at one point in time be the same I don't think thats going to be the case and here's the reason why.
I think on the west inside.
You, probably could see that to be as good or even better than in the NBC side just based on.
The portfolio products in the western business and I think on the Sheraton side I think you will see it to be lower than the NBC business again based on the customer segmentation, where the properties located the kind of customer that we talked too but again the goal over time is to try to bring these two things together I'll give you a little factoid, which you may.
There may not know.
The owner VPG in the C is actually a little bit higher than it is in the NBC business.
Thats largely because of the disproportionate amount of owners in Hawaii in Weston and share.
But the real real gap is in first time buyers I mean, the gap and first time buyers are still.
Little bit shy of 30% and Thats, where we think the real opportunities.
Great. That's that's great. Thanks, guys.
Thank you thanks.
Your next question is from Tyler battery of Janney Capital markets. Please go ahead.
Hi, Tyler.
Hi, good morning.
Just wanted to follow up on the on the previous question a little bit more on when we look at the legacy and VW business under contract sales that you kind of mentioned several times you know taking your eye off the ball. There can you just provide a little bit more color more granularity about what you mean, what exactly is going on.
And that's out of the business.
Well sure.
So.
You know.
Yes.
On a day to day basis.
There are.
Adjustments made in our sales centers.
Two.
Sales approaches.
First a benefit offerings.
Training in terms of the proper closing techniques.
Et cetera, et cetera et cetera.
When you have some of our more senior sales and marketing leaders, which heretofore has been.
Solely focused on the MVC business now stepping in and trying to.
Embrace understand learn and interact with the C properties by definition you are diffusing the amount of time that they have on the OVC business.
And in many markets, where we have similar properties.
A market like Palm desert like Maui.
Like Orlando, where we're asking our end market experts to spend time on the VIP business. It takes time away from their individual.
Sites of the heretofore have all been able to focus on so I think that's what it is.
Now I mean, if we if we had complete redundancy and an overwhelming number of people experts that we could have deployed and not lost track or focus. We certainly would have done that that's not have restructured and we're trying to get the best possible efficiencies out of our organization you've seen some of that in terms of what's happening with.
Sales and marketing numbers, that's a costs have come down so again.
We're not I'm not I'm I'm relatively unapologetic about it because I think we've put the right focus in the right place.
I think the overall results at 6.5% before the hurricane.
We are certainly better than anybody else put up on the scoreboard and I think this will turn itself back around as we start to be able to kind of take the training wheels offer the the see business and and refocus again on the NBC business.
Okay, perfect, but that's helpful and just as a follow up I wanted to ask a little bit more about the development margin, which looked pretty strong you I think you talked about more efficient marketing and sales spend so can you talk a little bit more about where you're finding some of those efficiencies and then maybe you could remind us John your full year target for development margin to that'd be helpful. Thank you.
Yeah, Hey, Tyler so for the full year, we said call it roughly 22% remember.
For full year basis the.
Reportability impact right as we've always talked about is somewhat muted so whether its adjusted development margin our reported development margin on a fully full year basis, those kind of converged plus or minus.
And should be around 22% I think on the on the marketing and sales side.
Yes, a lot of the improvement is synergies that we've talked about $13 million or the in the quarter.
Some of that does flow through the marketing and sales side as we've collapse the organizations taken out redundancies et cetera.
So it's just so you said, it's really a focus on delivering the topline growth, but at the same time looking for ways to leverage our marketing and sales cost.
As we've always talked about you do as your growth as or contract sales grow you do get the leverage a certain amount of call. It fixed costs I mean, all cost within any part of the business are variable, but when we talk about fixed within marketing and sales cost that don't actually really go up in any given year with the topline growth about half's variable of our marketing and sales costs. They do.
Move.
Commissions things like that with the topline and we got about half of our marketing and sales costs that are not going to fluctuate as you grow the topline. So we continue to get leverage on those fixed costs and Tyler I just would add one more example, I think I spoke to earlier, which is.
When you when you get rid of OPGC tours, which are very high cost and have a very low.
VPG associated with them that in of itself helps you lower your sales and marketing cost as well.
Great. That's all for me thank you.
Thank you thanks.
As a reminder, it is star one to ask a question.
The next question is from Brian Johnson of Nomura. Please go ahead.
Hey, good morning, So I've got two quick questions for you the first on the exchange business and.
In the second on on free cash flow. So I know it's early in your in your initiatives to capture more wallet share from your closed user group, but can you talk little bit about the traction that you're getting those programs.
Well.
Yeah I'm sure.
So.
The whole the whole idea on the third party and exchange businesses to diversify it kind of beyond their traditional vacation ownership exchange business now some of that he is in fact, increasing average revenue per member.
So in this era of expanded travel options.
It's really important we think for interval to.
Continuously try to evolve their their membership offerings.
Respond to changes in consumer behavior.
By using different technology, new tools new offers.
To find a way to incent people too.
Spend more of their travel dollars through this channel versus maybe some other alternatives that they have.
So we think thats encouraging.
I can't point too.
I mean, the 2% increase in revenue per member.
Part of that quite frankly is just some price increase that we've had some of it is because we've had a little bit of change in some of the demographics of the ownership base or the membership base, but.
We think that clearly this is the way we need to move.
I would point to one other thing as we think about kind of non timeshare centric customers.
We we talked about the planet fitness thing that we did which we think is certainly encouraging I I would expect to see more of our announcements coming forward with some additional.
Customers and clients in that space going forward. So again, it's as you as you think about the exchange businesses, whether you're talking about interval, whether you're talking about RCR.
You would look at the kind of traditional growth.
Of exchange membership to be flattish over the last several years.
And that and some of this just a share game moving accounts from one to the other.
But so.
In an effort to try to find the.
A way to grow the business and have a continue to be a vibrant contributor to EBITDA you got to find other alternatives in a way to kind of source revenues and obviously at a high margin business such as the exchange business.
If you can get the topline load it up it helps the bottom line very nicely.
Great. Thanks, and then just just quickly on free cash flow you've outlined.
Three year cumulative range of $1.5 billion to $2.3 billion for available cash how much of that do you think realistically can be returned to shareholders I think you've done something like 80% of.
Free cash flow historically should we expect that rate of.
Returned to shareholders over the next three years as well.
Yes, I mean.
Obviously history is probably.
Good way to think about how we think about the return of capital, but Brian as we've always talked about first and foremost look for opportunities to grow the business.
That being said.
The only acquisition we've done obviously as the ISL G acquisition, we've talked about having looked at numerous one over the years and and in some cases, even putting offers and but not willing to pay what others I guess saw as higher value. So we're going to continue to do that whether that's on the B O.
Side or if there are things to enhance the exchange and third party management business, but short of that.
You know we what we've always said is we'll continue to look to return excess cash back to shareholders.
Great. Thank you both very much.
Thanks, Brian .
The next question, Chris Woronka Deutsche Bank. Please go ahead.
Hey, good morning, guys.
Hi, good morning.
Morning wanted to ask a little bit about.
Staffing at the sales centers and.
A question is really.
Given how strong the employment reports have been if you guys had a if you had a lot of turnover and especially with some of the integration initiatives and b.
Are you finding it difficult to tractor or retain.
Some of your some of your skilled salespeople.
We have had some turnover have been more more focused in the vmc side than the NBC side.
With that said, however on a turnover perspective.
It's decelerating versus accelerating.
How with but even with that if you have a person that retires or.
Decides they want to go do something else entirely.
Finding good timeshare salespeople I mean, they don't they don't just kind of grow on trees, you've got to find people that.
Have a certain way of presenting vacation options to people can take rejection well keep in mind in the business with rock, which runs a mid teens closing rate that means if you talked a 100 people 15 people are going to say, yes, and 85 people are going to say no.
And you have to make sure that you've got a very robust.
Very contemporary training program in place so.
Swine finding good salespeople is never been easy I don't think that we can say with any.
Certainty that it's any more difficult today than it used to be.
I'll throw one other log on the fire when you think about trying to sources timeshare salespeople were in destination resort locations.
As a result.
Some of these are not high growth population centers.
So again the number of people in candidates that you can attract is somewhat limited in that regard but.
Ill.
We're I'm I'm very proud of our sales team I think they consistently do an outstanding job.
But you know we're always looking for more.
Sure. That's that's great color appreciate that just second question would be.
Have you add or is it probably a thousand or more ways you guys cut the data but is there any are there any discernible trends in terms of some of your.
You're right you're owner rivals in terms of where they're coming from or.
And maybe industries that there are affiliated with just kind of getting at is the underlying our so the underlying profiles changing for better or worse any anything thats noticeable recently.
Well, let me break it down into into brands MVC side no. There's no discernible change. The average household income has drifted up just a smidgen, but.
Nothing that you would consider to be other than just kind of the way the economy's move.
In the we're still obviously.
Learning more and more about both the west in the Sheraton customers as I alluded to earlier and I answer to question I mean, there they are different customers.
They do they do have a different profile you might imagine that the the sheraton vacation ownership customers the demographics, a little bit lower than the the western one is.
But.
C.
In terms of owner behavior, I guess, the only thing I would point to.
As over time.
Were here to four people would consistently vacation.
Every year at one of our resorts.
When we put our points program in place in 2010.
And we gave them other vacation options.
Cruises tours.
Using using their vacation time to stay in private homes et cetera, we've seen more people do that because they like the diversity of the experience in our average occupancy is across the system is still north of 90%.
And so I can't point to anything other than maybe that were and I think that all probably should make sense to people because.
You talked to folks today, and they want different kinds of experiences than they used to one and we think we've got the right product well position to be able to provide that to them.
Okay very good thanks, guys.
Thank you thanks for us.
We have reached the end of the question and answer your question and I'll now turn the call back over to Steve Wise, President and CEO for closing remarks.
Thanks, very much for your time today, we had a strong quarter with EBITDA growing 18% once again showcasing the resilience of our business model.
Revenue grew across all of the of the vacation ownership lines of business and membership at the exchange business has stabilized.
The integration of ISL G is going well, enabling us to once again increase our synergy target.
Our acquired brands delivered very strong contract sales growth in the quarter and with the tour package pipeline. We already have for 2020, we laid the foundation for that to continue and we're in generating a substantial amount of free cash which were investing to grow the business, while returning excess cash to shareholders.
Thank you for your interest in Marriott vacations worldwide, and finally to everyone on the calling your families enjoy your next vacation.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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