Q2 2021 Marriott Vacations Worldwide Corp Earnings Call
[music].
Reading.
And welcome to Marriott vacations worldwide second quarter 2021 earnings conference call.
At this time all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference call is being recorded.
It is now my pleasure to turn the conference over to your host Mr. Neal Goldner. Thank you you may begin.
Thank you, Rob and welcome to the Marriott Vacations worldwide 2021 second quarter earnings call Conference call.
I am joined today by Steve <unk>, Chief Executive Officer.
Officer, and John Geller, President and Chief Financial Officer.
And need to remind everyone that and many of our comments today are not historical facts and are considered forward looking statements under federal Securities laws.
<unk> are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to.
Could differ materially from those expressed in or implied by our comments.
Forward looking statements and the press release that we issued last night and the presentation. We added to our website. This morning as well as our comments on this call are effective only onemain and will not be updated as actual events unfold.
Throughout the call we will make references.
Non-GAAP financial information you can find a reconciliation of non-GAAP financial measures referred to in our remarks and the schedules attached to our press release as well as the Investor Relations page of our website at IR Dot <unk> WC Dot com.
With that it's now my pleasure to turn the call over to CEO.
And Steve Wise.
Neal good morning, everyone and thank you for joining our second quarter earnings call.
As a reminder, this and for first quarter with wealth and our results and we couldnt be more excited about the opportunity and provides us as we look to significantly expand our hyatt vacation ownership business.
Today.
And ever people wants a vacation to see new places reunite with France family and friends or just to relax and the products. We offer most with extra square footage and a resort setting are resonating with them.
He only need to look at our occupancies during the quarter to see the high demand for our resorts and.
And this is translating not only into higher occupancies, but also lead to new owners with first time buyer sales growing faster than existing owners this quarter.
And with.
Disease and contract sales and many of our North America locations ending the quarter at or above 2019 levels, we've been able to.
And more of our focus back to the transformational initiatives that will help drive long term and <unk>.
Growth and improve margins and many of which are digitally enabled.
Before I get too deep into those efforts, let me quickly review our second quarter.
Starting with our vacation ownership businesses business.
Occupancies continue to improve and a number of key markets during the quarter.
As we've discussed in the past, our 2 largest markets, Hawaii, and Orlando, which combined represent more than 40% of our north American keys were slower to recover and in the first quarter.
But both of these markets.
Showed substantial improvement this quarter with Hawaii, running over 90% occupancy and and Orlando running more than 85% with both locations either in line or exceeding June 2019 levels.
Our Florida Beach, and U S Virgin Island resort averaged 95% for the quarter.
And <unk> above 2019, and our mountain and desert resorts were nearly 90% during the quarter well above 2019 levels.
And our urban locations saw substantial improvement as the quarter progressed with San Diego, Boston exceeding 85% occupancy for.
The month of June.
And with the strong improvement and Occupancies, we grew contract sales by 60% on a sequential basis, and we were only 6% below pre pandemic levels.
First time buyers represented more than 30% of second quarter contract sales up more than 500 basis points from the first.
Quarter, which is very encouraging and.
As we've illustrated in the past first time buyers have historically doubled their revenue contribution within the first 5 years of their initial purchase so it's nice to see the mix continuing to trend back towards pre pandemic levels.
Now more than ever the product, we sell is resonating with customers.
This was clearly evident and our V. P. G. This quarter, which was more than $1000 or 30% higher than 2019 with the improvement coming from both first time buyers and owners.
Results and our exchange and third party management business were in line with our expectations this quarter.
<unk> members at interval International declined on a sequential basis, primarily due to the non renewal of a corporate account we talked about in February and.
Interval exchange transactions were down sequentially due to normal seasonality, but were only down 1% compared to the second quarter of 2019 and average.
The per member was up 7% from 2 years ago.
We're often asked by investors how long we think this resurgence will last and while it's hard to answer with clarity.
Timeshare is still and underrepresented part of the broader leisure market and is resonating with travelers now more than ever.
In addition people have more money and there are pockets and they are just beginning to travel again.
At the same time, our core customer arguably was less impacted by the pandemic.
I also believe that our core product offering which combines the benefits of staying at a fully and monetize branded resorts.
And a highly.
Revenue, Iowa location with added square footage is resonating with people who may not have stayed at a time share in the past.
So while it's hard to know with certainty how much pent up demand. There is I do think the current environment has legs and we are well positioned to take advantage of the opportunities that lie ahead of us.
With the recovery in full swing, we have been able to turn our focus back towards many of the grocery and growth initiatives, we paused last year.
If you remember our Investor day back in October 2019, we spent considerable time talking about the substantial opportunity we have to apply cutting edge digital tools to drive growth at.
<unk> margins, we have recently restarted much of that work and I am excited about the opportunity we have in front of us to continue to transform our business.
I'll give you a few quick examples.
Our customers have been moving into a digital world and they expect us to move with them.
2 years ago, less and half of our points reservations were made.
Paid online.
However, as we accelerated our digital customer initiatives last year. It helped drive a substantial increase and online points transactions today, 60% of points reservations are being made online and I expect that to continue to grow and in the future.
We will soon be enhancing the capabilities for customer.
Improved and that not only by their vacation preview packages and online but to book them as well.
While we believe some customers will always want to speak with a live agent. This tool offers substantial growth opportunity for our business. When we begin to roll. It out later this year.
We're leveraging leading edge tools.
Customer companies, such as Salesforce, and Adobe to automate our digital marketing campaigns to hone our efforts and targeting the right customer at the right time with the right offer.
We recently relaunched our social media efforts on Facebook and Instagram.
And our objective here is to leverage these low cost targeted channels.
<unk> from build and optimize our preview package pipeline focusing on generating high quality tours to drive future contract sales.
We continue to expand the use of technology to lower our back office costs and improve our associates experience by leveraging artificial intelligence to augment and automate many.
<unk> of our high volume internal transactional processes.
And we're making good progress on the technology needed to link, our Marriott and Westin and Sheraton products into a single point space offering in early 2022.
Going forward, we will continue to increase our use of these digital tools and strengthen our.
<unk> grow online package sales enable self service bookings.
Real time offerings enhance the overall customer experience and drive back office efficiencies.
But innovation and MPW isn't limited to our vacation ownership business and our exchange and third party management.
Management segment, nearly 60% of intervals exchange and getaway transactions have been done online this year and we expect that to continue to grow.
We are implementing adobe to enhance our cross channel customer experiences.
And improve our ability to more effectively market to members based on a more integrated view of their activities.
Interest and as we mentioned last quarter interval recently introduce short stay getaways, which allows members to book their vacation for less than 7 days. This program offers members greater flexibility when running through interval, while allowing us to be more efficient and our rental programs.
While still early days short term Greta.
<unk> represented more than 5% of the total second quarter rentals, and we've and we're finding a lot of members using short term getaways as a way to extend their stay beyond a week, which is a new incremental usage case.
So, let's talk about where the second half might look like and when we think.
I don't get it back to pre pandemic levels again.
We continue to be very encouraged with the improvement of our business occupancies are at or above 2019 levels and the second quarter at a number of locations, while roughly 45% of our north American sales centers exceeded their 2019 levels and June.
We can get reservations and our urban locations are building nicely for the second half of the year the recovery and our international locations continues to lag the United States.
We sold 60% more tour packages and in the second quarter than we did and the first quarter and ended June with more than 200000 tours and our package pipeline.
Line, which is a positive leading indicator for future contract sales.
We currently have 16% more owner and preview reservations on the books for the second half of this year than we did at the same time in 2019 and bookings already for next year are very strong.
And our role is.
And going to work to enhance the technology suite and significantly expand its addressable market beyond timeshare as we move through the balance of this year and we look forward to sharing more specifics with you.
And we are working diligently to integrate well into our Hyatt vacation ownership business.
And there is more work to be done, but we have made.
Great strides and setting the groundwork to reflag the resorts integrate the businesses and establish a revitalized brand throughout our entire Hyatt business.
Comes more evident each day.
Fit between Hyatt and wealth cultures are complementary and every aspect.
The second quarter strength.
<unk> has continued into July with <unk> remaining well above 2019, and our research continues to point to a very strong leisure trends in North America for example.
Over 47 million Americans traveled over the July 4th weekend with Orlando topping the list of destinations.
42% of households, and say they are better off financially than they were a year ago and 45% feel now is a good time to spend money on leisure travel.
Google search queries for resorts and hotels are higher than they've been and 5 years.
3 out of 4 of our owners say.
There are ready to travel and the next 90 days, while over 90% of interval members surveyed said they plan to travel and the second half of the year.
Consumer confidence had a record high and the second quarter of 2021, which is very positive for our business.
And a growing percentage of people returning to work or splitting.
And their time between the office and home, which could have long term positive implications for our business. All of this points to continued strong growth and gives us optimism about the balance of the year with that I'll turn the call over to John.
Thanks, excuse me, thanks, Steve and good morning, everyone.
Today.
I'm going to review our second quarter results. The continued strong recovery across our businesses the strength of our balance sheet and liquidity position and our third quarter expectations. As Steve mentioned. This is the first time, we have wealth and our results and their performance exceeded our expectations this quarter.
Given the relative size of wealth, we won't be providing pro forma results, but we will talk about certain items were well significantly impacted the quarter.
Moving to our second quarter results I am very happy with our performance with most of our business approaching 2019 profit levels.
Looking first at our vacation ownership business, we're seeing more people vacationing at our resorts as Steve noted, our 2 largest markets Orlando and Hawaii finished the quarter at or above 2019 occupancy levels.
Illustrating the resilience of our leisure focused business model.
And with.
With the majority of our contract sales coming from people staying at our properties, we drove increased tours and contract sales and the quarter.
We grew contract sales by 60% compared to the first quarter to $362 million, including $31 million from wealth.
We're seeing more new faces at the sales table, which is good for the long term health of our business while owner tours also continued to grow nicely.
<unk> was well above pre pandemic levels and the second quarter illustrating how well our product is resonating with customers, though with the mix of first time buyers beginning to.
Wise as well as the addition of <unk> It was down slightly on a sequential basis as we expected.
Development profit was $65 million and the quarter and margin was 22% despite $13 million of negative reported ability, which.
Which we don't adjust when reporting.
Normal halts exclude.
Excluding revenue reported ability adjusted development profit more than doubled on a sequential basis to $81 million and more importantly margin was 26% approximately 240 basis points above 2019. This was despite lower contract sales.
<unk> and highlights the benefits of more efficient marketing and sales spending lower inventory cost and synergy savings.
Our rental business also improved nicely in the quarter revenues increased 43% sequentially with growth coming from both higher transient keys rented and revenue per available key.
Sales as a result, we reported $15 million of rental profit and the quarter.
The stickier revenue businesses within our vacation ownership segment also performed well and the quarter.
Resort management profit increased $18 million sequentially, driven primarily by the substantial improvement and our ancillary business.
<unk>, which was nearly back to 2019 levels and the inclusion of wealth this quarter and financing profit increased 20% compared to the first quarter, primarily due to the inclusion of well.
But more importantly profit was in line with Q2.2019.
Excluding well our notes receivable balance would've declined during the quarter, however that trend stabilized during the quarter with notes receivable increasing during the month of June as originations exceeded repayments for the first time since the pandemic started.
Delinquency rates also continue.
And to decline sequentially during the quarter with delinquencies for the Marriott vacation club at 1 of the lowest levels, we've seen in the past decade, and Sheraton and Westin are at the lowest levels. We've seen since we acquired them back in 2018.
As I mentioned, we're not providing details detailed results for the wealth.
And just given its relative size. However, I did want to highlight that the vacation ownership results I just discussed included $12 million from well better than we anticipated.
As a result total adjusted EBITDA and our vacation ownership segment increased sequentially to 180.
<unk> billion dollars.
90% of the EBITDA that we delivered and the second quarter of 2019.
The second quarter benefited from the strong improvement and contract sales rentals and ancillary activity and the impact of our business transformation and synergy savings.
Turning to.
And our exchange and third party management segment as expected adjusted EBITDA declined $4 million compared to the first quarter.
While active members declined on a sequential basis interval and also saw positive trends from its developer partners, which helps drive new members and fact interval added 20%.
2 more new members than it did in Q1, and we continue to work hard to add more resort affiliations to the system.
After adjusting for share based compensation expense and certain pandemic related expenses corporate G&A expense increased $7 million $17 million sequentially primarily.
<unk> more related to reinstating, our variable compensation plans as well as the inclusion of wealth.
In total adjusted EBITDA more than doubled in the quarter on a sequential basis to $164 million with margin approaching our second quarter 2019, even with lower revenue.
<unk> demonstrating the strength of our business model, the recovery and leisure travel and the benefits of our synergy initiatives.
We ended the quarter with incremental run rate synergy savings of approximately $150 million, taking us closer to our goal of at least $200 million, which we expect to.
<unk> achieved by early next year.
Moving to our balance sheet and June we issued $500 million of 4.5% senior notes due 2029 to refinance our 6.5% senior notes due in 2026, extending our maturity profile and saving us $10 million.
A year.
Pro forma for those transactions, we ended the quarter with $780 million of cash and total liquidity of nearly $1.5 billion, including.
Including gross notes receivable eligible for securitization of $97 million.
After adjusting for the July debt.
Prepayment, we had $4.8 billion of debt outstanding at the end of the quarter comprised of $3 billion of corporate debt and $1.8 billion of nonrecourse debt related to our securitized notes receivable.
With the continued strong recovery and earnings the higher free cash flow conversion, we're anticipating.
From our excess inventory as well as the cash on our balance sheet, we've been preparing to return to a balanced capital allocation approach. We are currently evaluating exiting the covenant waiver under our revolving credit facilities facility early as well as a combination of repaying some of the $1 billion.
<unk> net we issued since the pandemic began and returning cash to shareholders.
Looking ahead, while we're not giving guidance I do want to help you think through the rest of what the rest of the year could look like.
Our vacation ownership business continues to recover nicely and we expect that to continue this quarter.
And with Occupancies, and Orlando and most of our U S Beach and mountain resorts ending the quarter at or above 2019 levels. We expect tours will continue to grow and the second half while <unk> will continue to normalize but remain well above pre pandemic levels as.
As a result, we expect contract sales to grow.
ROE to between 380, and $410 million and the third quarter up around 9% at the midpoint and roughly in line to slightly above third quarter 2019 contract sales.
Finally, there are some near term headwinds to consider as you think about the rest.
Here and the path back to 2019 adjusted EBITDA.
And as our slower recovery and our Europe, and Asia Pacific regions, where we expect contract sales and rental revenue to remain below 2019.
And our North America business in order to get more of our owners back on vacation we.
We decided early in the pandemic to allocate more of our rental keys to owners as demand recovered as a result with the strong owner demand we're seeing for the rest of the year, we expect rental profit to remain below 2019.
And and our exchange and third party management business, we expect greater owner.
Owner usage to reduce available inventory for exchange, which will impact our revenue and profit and the short term.
As a result, while we do expect adjusted EBITDA to grow sequentially and the third quarter. These factors could keep us from getting all the way back to the $190 million of adjusted EBITDA, we generated.
And Q3.2019.
The good news is we expect these headwinds to continue to abate as we move into 2022.
Finally, while we're not providing free cash flow guidance today with more than $650 million of excess inventory I would expect our adjusted EBITDA.
GAAP to adjusted free cash flow conversion to be well above our normal 55% range for a number of years with that we'll be happy to answer your questions Rob.
Thank you John at this time, we'll be conducting a question and answer session.
I'd like to ask a question. Please press star 1 on your telephone keypad.
<unk> and confirmation tone will indicate your line is and the question queue. You May press star 2 if you'd like to remove your question from the queue.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, 1 moment, please while we poll for questions.
Our first question comes from David Katz.
Katz with Jefferies. Please proceed with your question.
Good morning, David.
David.
EBITDA you're muted.
If you please on mute.
Yes.
And most of the answered all those questions.
And then Kim David Alright.
And if you're muted please UN mute your telephone.
And to go to the next question.
Our next question comes from Patrick Scholes with.
With Truth Securities. Please proceed with your question.
Alright, good morning, everyone.
I am here. Thank you.
Question.
Questions here sort of a sort of a little bit long term modeling related questions.
You know how should we think about next.
There is net interest income.
Versus 2019 levels.
And I guess.
At a high level thinking about what the.
Net loan portfolio balances versus 2019, and certainly you've had lower sales this year and less.
<unk> yeah.
And our loan balance, but you've had the <unk> acquisition.
From a sort of a high level modeling perspective, how to think about.
Next year's net interest income versus again 19.
Sure Patrick good morning.
Yes, as we did in the quarter.
Financing profit and the second quarter, obviously with the additional well.
And was basically flat to the second COVID-19, and the good news as I mentioned, given our recovery and contract sales and the second quarter all the way almost all the way back to pre pandemic levels and the guidance. We just gave.
We do expect contract sales to be running at or above 19.
And in June as I mentioned, our legacy MPW no balance.
Kind of hit the the equilibrium and originations because were rather and contract sales exceeded normal loan repayments right. So the.
Balance should grow going forward on the legacy and BW.
Even if we hadn't done the wealth acquisition my back of the envelope, obviously a lot of different assumptions go into this on continued contract sales growth and kind of where we're at today.
But I would expect that legacy MPW on its own would have been back to close to 2000.
And 19 levels from a financing profit and 22 and <unk> is going to be growth on top of that we acquired about $240 million of gross notes receivable and the wealth acquisition. So hopefully that gives you.
Some detail around what you're looking for.
Okay. That's.
People just want to make sure we're all modeling that correctly and then a related.
And somewhat related for 'twenty, 2 and you know how.
How should we think about the ongoing earnings hit.
And the from from you lost a corporate client and the RCI membership how should we think about.
That's very helpful and then also.
From member loss over the past year, and a half I guess again as compared to sort of what it was in 2019.
Yes, Patrick this is Dave I think you are referring to the diamond.
The transition from interval too to RCI correct.
Yes, that's correct that and.
And lost members over the past year, and a half and what is sort of the run rate. So we can match it up to expectations for 2019 again. Thank you.
Let me speak to the Diamond things, specifically and then I'm sure John can chime in a little bit.
On the EBIT line side of things. So Diamond was 165000 members roughly 10%.
The.
The interval membership at the time that they lost.
We were able to retain 29000 members.
From that.
And 65000 in interval, who continue to want to keep their membership with US I should also point out the 165000 and only 15% of those were actually active exchanges now.
165000 members you do get the annual corporate membership fee, which has.
It's not it's not the lion's share of what you get from membership, but it certainly is as important money.
But the real money made and the exchange business is on a transaction basis when people go to exchange.
So.
We believe that at the end of the day by retaining the 29000 members.
Which we're obviously active users because they wanted to stay with interval.
And it's really going to be relatively de minimis in terms of the financial impact from Diamond now with that said there were others that.
Because of you have normal attrition and the exchange business.
And that happens every year.
And we typically speaking what happens is as new as new developer sales happen you have new memberships that are gained and.
Under ideal circumstances, the new members outweigh the normal attrition and obviously in 2020, there were very few new member additions being made across the affiliate and network.
And you still have the continued nutrition. So there will be some some leakage at the EBIT side. So I think John may be able to.
China, and a little bit with some additional numbers, yes, I mean that you've walked through obviously a lot of moving parts and assumptions are about the average revenue per member of the members that left and all of those things but.
<unk> and step back up to 30000 feet and you look at the EBITDA that segment delivered in 2019 and kind of what we expect to deliver this year.
I would say that the loss of members after you.
From an EBITDA perspective is probably roughly 25.
$5 million of EBITDA give or take.
Is kind of the back of the envelope as we look at it but like I said, there is theres a lot of assumptions that potentially could go into that number so I try to keep it a bit high level.
Okay very good I really appreciate the color just last quickly.
And here when you had made the Wellcare announcement.
Earlier this year, you had at a high level targeted $29 million of EBITDA.
Sorry, doubling the $29 million EBITDA over 3 years to 4 years would you say at this point you are.
Ahead of that in line or.
And which I don't think you are but would you think you're ahead of that original expectation or in line with it.
At this moment.
Yes.
In terms of how we underwrote it at least for the first year here, obviously, we didn't expect the recovery and Thats really what Youre seeing right now we are outperforming our expectations, but it is just how strong the recovery is and wealth is all North America. So they don't have some of the international.
Exposure that we have our North America businesses.
Essentially recovered if you will in terms of contract sales back to pre pandemic levels too. So they are outperforming there in terms of the integration and a lot of the synergies the upside to that.
That's all still to come and our goal is to get.
Yes.
The resorts and the points club App Welk rebranded the Hyatt.
Early next year and so a lot of work on that front, that's going to unlock a lot of the development margin improvement, we've talked about and our ability to leverage the more cost effective branded channels, we get through the Hyatt.
System so.
That's a lot of the opportunities and then the overall there are some some other synergy and integration savings will get over time, but.
The upside if you will.
Is really yet to come the outperformance is just that the overall businesses recovering quicker.
And and performing quite frankly kind of better than they were seeing back and 19 at this point Patrick certainly nothing that we have seen would cause us to be any less optimistic about what we.
And called out and we did that.
The acquisition 4.
4 months ago.
Okay. Good to hear and thank you very much and I'm also.
Thank you and thanks.
Our next question comes from benchmark and with Credit Suisse. Please proceed with your question.
Hi, Manny has it gone.
You mentioned some digital initiatives on the sales.
Sales process I think this is different than digital call transfer.
Can we just dig into this for a second how exactly it would look as this like serving a Facebook or Instagram AD and then allowing the consumer to book our purchase on Mini-vac towards this actual timeshare sales process, meaning someone could.
$25000 timeshare.
And on their phone.
And it's the former not the latter and you have a very well very well characterized.
Yeah.
And the Great news about.
Both Facebook and Instagram and there are some other platforms out there that we're experimenting with is that you do have the ability to selectively target who you.
You want to put and offering in front of us.
And as well as what offer you want that to be.
And as a result, it is to generate preview packages.
Which in turn as they come through the house and.
Do their tour et cetera, hopefully generate.
<unk>.
Good sale, it's a cost effective way to sell preview packages. It gives you a broader distribution.
And some of the traditional methods and timeshare operators have used in the past and we're very encouraged by what we see volume.
It.
Seems like kind of like the exciting and maybe obvious channel as it was there a.
So that maybe you couldn't.
Preventing you historically from using it or just evolution of the business or can you can we talk about that.
No. It was more of an evolution of the business I mean, I think if you may remember back in October of 19 Analyst day, we talked about some early experimentation we have done and it must.
Be honest.
And both of those platforms in particular, they have advanced their technologies and their ability to target customers.
A lot better than they used to be as well obviously in 2020.
We stood down from a lot of that because to be honest with you.
People work.
Hurdle and thinking about booking a preview package to buy timeshare and when they were in the midst of the pandemic and all of the concerns about jobs and everything else. So, but we've started and we started to dial it back up late last fall and are well engaged and it now and we're very pleased with what we're seeing so far.
Got you and I.
I appreciate it 1 more if I may.
As I mentioned, the single single platform kind of bringing all the brands under 1 umbrella and it seems like you had.
Another very interesting kind of tailwind as well and it's too early to talk about some of the top line benefits it seems like.
I don't want to necessarily steer the conversation and it seems like this could benefit closer 8 price and.
And just the consumer value proposition.
Overall, so just hoping to get your perspective there.
Yes.
I've touched on several.
That are non only logical but but somewhat obvious.
And this is again this is 3.3 of the 4 brands. It would not include Hyatt by virtue of.
Of our license agreement and everything else, but the Sheraton and Westin and Marriott brands.
And do a single platform and.
And we believe that it does increase the customer value proposition.
Aleve that it should help improve close rates.
And ergo.
I'd like to think that and.
Cash impact on things like V. P G.
But.
You know again.
We're talking about rollout early next year.
We're very pleased with the progress we're making on the all the all the bits and pieces behind the scenes and we have to put in place and in order to get this thing together.
But.
And between what we would think logically as well as some customer research. We've done we think this will resonate very well with not only our existing owners, but new owners as well.
Okay Cool I appreciate it thank you.
Thank you.
As a reminder, if you'd like to ask a question. Please press star 1.
John on your telephone keypad, 1 moment, please while we poll for questions.
Our next question comes from Brent mature with J P. Morgan. Please proceed with your question.
Okay.
Hey.
Good morning, everyone and good morning, Thanks for taking my questions obviously.
Obviously.
Results and contract sales and and TPG, especially given the new owner mix shifts.
A positive mix shift that you called out what would you say where would you say to Q V. P. G would have shaken out and ballpark.
If you would have normalized completely to historical mix.
Strong rules, knowing what you know about consumer demand and their propensity to buy and close right now.
That's a great question.
And without.
Youre looking for if we were back at more of a 60.40 or 55.
Level 5 mix of owners to first time buyer sales.
How would that blend out in terms of how much lower BTG would go all being equal.
And I'm trying to isolate the lyft and <unk> from the elevated close rates and today's consumer environment.
But yes, that's always hard to to try and.
Figure out how much of the close rate as the environment right or not so I don't know its an interesting question and Brian I'm not sure.
A good answer off the top of our heads.
Sarah.
Fair enough don't worry I have another I have another 1.
When you think about 'twenty, 2 and building back to <unk>.
Full slate of tour flow as you see as you see it as your new normal, let's say right So international and in Asia as all the way back to where you want it but.
But hypothetically you would have called some of the lower yielding channels can you give us a sense order of magnitude how much of that.
Channel, calling wood wood.
Lower tours and on an absolute basis and next year versus 19.
And then and you said contract.
Sure enough you're running ahead and 19, so clearly whatever it is it's going to be offset by higher PPG, but is that the way we should think about it and then maybe you could help us quantify that delta.
Yes.
Without getting into the numeric.
And just kind of B and 20000 feet on concepts.
We have shut down with the excess.
Sales and of Hawaii, virtually everything and OTC.
Which is as I think you know relatively high costs low yield channel and we don't and.
<unk> turning that stuff back on.
For the foreseeable future.
I think we've learned a valuable lesson if.
If there is something to be said about having gone through things like we went through in 2020 that we we realize that we can in fact.
And we're living in an environment with fewer low yield and tours.
And put our focus more on the higher yield channels that we really benefit from.
The second 1 is the linkage.
As not not a foreign concept to anyone on the call. Obviously the hotel environment continues to struggle with its rebound.
And depending on who you listen to and there are some saying it's 'twenty 3 'twenty 4 before hotels.
<unk> kind of get back to some sense of normalcy.
And so.
We have been very judicious about la.
Looking at turning back on linkage channels, which.
In 2019, and if my memory serves me correct I think produced about $100 million worth of sales force.
And.
And we won't we won't turn on a new linkage.
Channel and a given market unless we can convince ourselves that.
There is enough good traffic and volume and the hotels to be able to warn and being open on a cost effective basis.
The flip side is on the encore side of the business.
It is really 1 of the most the most vibrant channels for us in terms of producing.
High yielding tours et cetera.
And that that encore.
Channel has continued to actually grow and in fact in and.
And the second quarter, we actually booked more oncor tours.
And then we actually had come through the house, so we're adding that and encore has a very high <unk> to it.
So.
If you put all those together again and I haven't given you any numbers because quite frankly.
And we've just kind of gone through the process of planning for the second half of this year, we haven't really begun the process of.
Going through the budgeting and channel optimization and everything else for 2022, but I think that should give you some sense of where we're going to continue to put our focus.
And go from there.
And I think brand your question, while we could give you how many tours and a vacuum we might not get back from OTC.
And the less linkage to Steve's point, we're doing all of this stuff.
More than offset hopefully the losses, right and Thats, where we will get more visibility selling packages is a big 1.
And so you got to look at both sides right. Our goal always was to get rid of OTC, obviously, we were doing.
And sat over time.
And then Covid hit and decision, what we turn that stuff ups, but we always said is we got rid of OTC, we were ramping up other channel. So the digital marketing channels, the encore packages and all that so yes.
Update Jeff as we get later in the year, what the outlook looks like.
For getting back to 2019 tours, which I think is your question, but we've got a lot of moving parts right now and we expect to.
And hopefully get closer to back to the 2019 tours, but.
Once again, <unk> being 30% above 2019 at least right now and it will continue to normalize to your first question. We're.
Doing that and what that could look like.
Those are the obviously the 2 moving parts that we're continuing to work through as we think about 2022.
Great. Thanks for all the color.
Thank you.
Our next question is from David Katz with Jefferies. Please proceed with your question.
We're not giving.
Hi, good morning, everyone.
Yes.
Okay.
I wanted to.
And maybe put us on John.
You do securitization deals right.
And our ever improving terms right.
And I think it's hard to argue that.
Alright Super compelling terms.
And and yet at the same time sort of the equity response, I think it's fair to say inconsistent I'd love for you to just talk about what those that investor base.
Asks about what are there.
They are likes and dislikes and concerns what are those discussions like compared to the discussions that.
And that we have.
On the equity side, because they're right. There has always been and and there is now and sort of a growing divide seemingly.
And how those are price.
Sure.
Yes.
Obviously right now we have seen a lot better terms and the deal. We just did at 1.5%, 98% advance rate on the notes was.
By far the best deal we ever had obviously some of thats. The the interest rate environment, we find ourselves and right.
But when you look at the investors, we meet with and.
We've been doing Securitizations now 20 plus years right.
We've got and what.
It has helped improve the economics over time as we have more and more investor interest right. We've got we've got folks that have been and our program for the entire.
And Tyler and.
Continue to be and the program as you're well aware of David I'm, not aware of anyone ever losing a dollar on a timeshare securitization deal and Thats. A fact right you've had a lot of ups and downs and you've seen how the notes have performed through some pretty turbulent times, whether it was the financial crisis and now more recently.
Now Covid and I'm, not just talking about our notes, but notes and general from an industry. So when you have that performance over time right. It draws more and more interest.
Notwithstanding how good our terms are on a risk adjusted basis investors can get a little bit better yield right. So when we talk to them.
They know our program most of them they know how well the business performs.
And they know while we don't have to buy out the defaulted notes, just given our inventory model and our need for inventory.
Fuel future sales and it just.
It's a very efficient program and.
So.
And that gives.
You're a little bit of the color I think high level in terms of what we hear and see.
And apologies if I missed.
Earlier or what have you indicated about when there could be a next securitization.
The deal forthcoming how far out that might be.
Yes, we have.
Have it but.
From a historical basis.
ILG and call it pre COVID-19 right, we would do call it to a year right. We did 1 earlier this year.
Given the contract sales guidance, we gave you right where we are.
Originating notes now back to kind of where we were pre pandemic. So I think we're back on the cadence.
For 2 a year so the goal would be to do another 1 here and ill call.
And the fourth quarter.
Excellent I appreciate it thank you very much.
Alright, thank you.
We have reached the end of the question and answer session. At this time I would like to turn the call.
C Weiss for closing comments.
Thanks, Rob and.
Thank you everyone for joining our call today.
Whether it's to relax or just be with family and friends people make time for vacation.
And coming off last year, it's never been more true or more important.
But for some people.
The way the vacation has changed and we're finding that the products, we offer are resonating with customers more than ever before.
Evidence and our Occupancies, our sequential growth and RV PGS.
A quick review of our second quarter gives you a sense of that we.
We grew contract sales by 60% sequentially and.
And where within 6% of the second quarter 2019 contract sales, while <unk> was more than $1000 above 2 years ago.
We're also seeing strong strong growth from both existing owners and first time buyers, which is good for the long term health of the system.
Interval exchange transactions were within 1% or 2.
And in 19 levels, while average revenue per member was up 7% over the same time period.
Adjusted EBITDA more than doubled compared to the first quarter with margin nearly back to 2019 levels and the third quarter has started off strong.
With this strong recovery, we've turned our focus.
2000, and the digitally enabled transformational opportunities, we still have in front of us to drive long term growth and improved margin.
We're also laying the groundwork to return returned to a more balanced capital allocation strategy, including evaluation evaluating options to repay some of the debt we issued during the pandemic exited.
<unk> exit our covenant waiver early and begin returning cash to shareholders.
It's a great time to be and the vacation business and we think it's a great time to be a shareholder of Marriott vacations worldwide.
As always thank you for your interest take care of yourselves and finally to everyone on the call and your families.
Please stay safe and enjoy your next vacations.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
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