Q3 2022 Marriott Vacations Worldwide Corp Earnings Call
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Mr. Neal Goldner, Vice President Investor Relations for Marriott vacations worldwide. Thank you you may begin.
Thank you Melissa and welcome to the Marriott vacations worldwide third quarter 2022 earnings Conference call I'm joined today by Steve Weiss, Chief Executive Officer, Our President John Geller, and Toni Terry Our executive Vice President and Chief Financial Officer.
I need to remind everyone that many of our comments today are not historical facts and are considered forward looking statements under federal Securities laws.
Payments are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our comments.
Forward looking statements in 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 one made and will not be updated as actual events unfold.
Throughout the call, we will make references to non-GAAP financial information.
You can find a reconciliation of non-GAAP financial measures referred to in our remarks in the schedules attached to our press release as well as the Investor Relations page of our website at IR Dot N V WC Dot com.
As you saw in our earnings release.
Released last night during the call Paul.
During the quarter, we aligned the contract terms for our vacation ownership sales across our Marriott Westin and Sheraton brands, resulting in the acceleration of $46 million if revenue.
We also aligned and combined our accounting methodologies for the reserve on vacation ownership notes receivable for these brands, resulting in a $19 million decrease in the reserve for the acquired notes offset by an increase in the reserve for originated nodes.
The schedules to our earnings release provided reconciliation to show what our reported results would have been without these benefits.
During our call today, all of our discussion and commentary will refer to our results after adjusting for the alignment, including a $44 million benefit to adjusted EBITDA.
With that it's now my pleasure to turn the call over to our CEO , Steve Wise. Thanks, Neil Good morning, everyone and thank you for joining our third quarter earnings call.
Before getting started it's been a month since hurricane and battered, Florida. Many of our associates in the area were impacted by power outages and damage to their homes and personal property. Despite this they've been working tirelessly to get our affected resorts back, helping as quickly and as safely as possible our thoughts and prayers are with those.
Still suffering in the aftermath of the storm.
It's been a remarkable year for Marriott vacations, as we continued to see high demand for leisure travel in fact here are a few examples.
Air travel over Labor day weekend exceeded 2019 for the first time since the pandemic began.
All Americans are concerned about the economy. Many of you travel as essential with more than half of all American survey seeing leisure travel has an important budget priority and roughly three quarters, saying they believe that travel was a worthwhile investment even if the economy the economy were to contract.
And in a recent proprietary survey, 70% of our owners told us that they are planning a trip in the next three months.
We're delighted to see people going on vacations, some to visit friends and family they haven't seen in quite a while and some just to make up for lost time, regardless of the reason we are honored to be part of that experience for our owners members and guests.
Another exciting news our company has been ranked number four on Newsweek's top 100, most loved workplaces list and first in the hospitality sector.
This coveted award is given to companies where associates are the happiest and most satisfied at work.
I'd like to extend my appreciation to all of our associates without whom none of this would be possible.
They are the ones, who manage through a very difficult two years during during the global pandemic and most recently the impacts of Hurricane Ian.
I've been in the hospitality industry for 50 years and I can test that our associates are the best in the business. So.
So moving onto our results.
The third quarter once again illustrated the resiliency of our business model, despite higher inflation the volatility in the stock market and rising interest rates, we generated $483 million in contract sales in the third quarter up 27% from the prior year with first time buyers representing a third.
<unk> of our contract sales in the quarter.
Adjusted EBITDA grew by 17% year over year, driven by strong growth in both of our business segments.
We ran approximately 90% occupancy during the third quarter with our Beach Mountain golf and urban markets in high demand, while Asia Pacific saw continued signs of recovery with occupancies, increasing to 62% from 36% a year earlier.
Tours grew 24% on a year over year basis and were within 5% of our pre pandemic tour flow.
V. P. G remained elevated increasing 1% year over year to $4350, 26% higher than the third quarter of 2019, illustrating the continued demand for leisure travel and the relevancy of our core product offering, especially in today's inflationary.
Environment.
As we announced previously during the second quarter, we launched vacation next our multiyear journey to leverage our brands and digital strategy to unlock our growth potential.
We started by unifying our Marriott branded vacation ownership products under a new umbrella name of bound by Marriott vacations.
Through this exclusive new program Marriott Westin and Sheraton owners will have direct access to a portfolio of more than 90, Marriott branded resorts and thousands of unique vacation experiences around the world using a common points of currency.
We launched a bound by Marriott vacations at the majority of our Marriott Sheraton and Westin sales centers during the third quarter and we've seen a meaningful increase in interest by our owners.
Looking forward, we will further leverage our investment in technology to continue transforming our marketing sales and services for our owners.
We've also been investing in technology to improve the effectiveness of our direct marketing efforts with great success today, nearly all direct marketing programs are using our digital booking engine and we've experienced a significant lift in our response rates with the new technology.
This has substantially improved our campaigns, while reducing our marketing costs were.
We are expanding the use of this technology to include other online campaigns, which we expect to launch by the end of the year.
And the continued growth of our portfolio, we plan to open our second resort in Bali next week. This 88 unit Villa property is located a co located excuse me with a five star Renaissance Bali knew so do a resort and offers our guests shared amenities, including six food and beverage venues and for outdoor swim.
Kohls delivering on our promise to offer great vacations with authentic cultural experiences.
You know our Hyatt vacation ownership business, we continued to make great progress integrating the legacy wealth and Hyatt businesses. We've already affiliated the former Welk resorts with interval and interval international move them onto the Hyatt dotcom platform from a rental perspective and rebranded the legacy well points program.
To Hyatt vacation club.
Looking forward our integration efforts will include a consistent service culture.
Onsite and digital experience plus a harmonized marketing and sales program.
We're also working on developing new vacation offerings for our owners, which will provide enhanced value to their existing ownership plus provide incentive for additional purchases.
In our exchange and third party management business membership of interval International grew 21% year over year, primarily driven by the new affiliations, we signed last year.
Excluding V R I Americas, which we sold in April adjusted EBITDA increased 18% driven by higher transaction revenue from exchanges and getaways increased management fees at Aqua Aston as well as benefits from our cost saving initiatives.
In summary, we had a strong third quarter with substantial profit growth and margin expansion and expect to deliver adjusted EBITDA and adjusted free cash flow this year.
We are seeing great interest in the launch of a bound by Marriott vacations product and we continue to return a substantial amount of free cash flow to shareholders, which Tony will discuss later.
Finally, despite the macroeconomic backdrop I remain very optimistic about the long term trajectory of our business with that I'll turn the call over to John .
Thanks, Steve and good morning, everyone.
Today I'm going to review our strong third quarter results after that I'll turn the call over to Tony to discuss the strength of our balance sheet and liquidity position as well as our outlook for the balance of the year.
Starting with our vacation ownership segment in today's environment the value proposition of our vacation ownership product has only grown more compelling with lodging average rates well above pre pandemic levels. We continued to capitalize on strong demand for leisure travel during the third quarter driving a 27% increase in euro.
For the year contract sales with tours growing 24% and V P G improving 1%.
We also maintained a robust tour package pipeline ending the third quarter with nearly 204000 packages with 36% of those customers having already booked there are future vacation.
With strong growth in contract sales adjusted development profit increased to $132 million at <unk>.
36% year over year improvement.
Adjusted development profit margin was 32% in the quarter, improving nearly 250 basis points compared to the prior year driven by lower inventory cost.
Profit in our rental business was $24 million in the third quarter unchanged compared to the prior year as a 17% increase in revenue per available key was offset by greater owner and preview package occupancy, which reduced transient rooms available to rent.
The stickier parts of our vacation ownership business also performed well in the quarter.
<unk> from our resort management business was $72 million, an increase of 2% compared to the prior year, while financing profit increased 6% to $50 million as a result, adjusted EBITDA in our vacation ownership segment increased 19% to $255 million in the third quarter and we delivered it.
Adjusted EBITDA margin of approximately 33%.
In our exchange <unk> third party management segment interval active members increased 21% year over year, excluding VR I Americas segment revenue increased 11% on a year over year basis as the new accounts, we on boarded earlier earlier this year continue to ramp up.
And our Aqua Aston business occupancy increase compared to last year, and Revpar was up more than 30% driven by the recovery in Hawaii.
In total excluding VR I Americas adjusted EBITDA in our exchange and third party management segment increased 18% compared to the prior year and adjusted EBITDA margin increased 350 basis points to 58%.
Finally, corporate G&A expense increased $8 million in the third quarter year over year, primarily as a result of higher compensation and transformational initiatives spending, including procurement and artificial intelligent capabilities.
For the quarter total company adjusted EBITDA increased 17% compared to the prior year to $240 million and was 27% higher compared to the third quarter of 2019.
Adjusted EBITDA margin was 28% in the quarter up 90 basis points compared to 2021, demonstrating the strength of our leisure focused business model demand for leisure travel and the benefits of our transformation initiatives with that I'll turn the call over to Tony.
Thanks, John .
And I'm also very happy with our strong third quarter results. We ended the quarter with approximately $1 billion in liquidity, including $294 million of cash $142 million of gross notes receivable eligible for securitization and $519 million of available capacity.
Under our revolver.
Given the volatility in the corporate debt markets. This year, we used our revolver to repay the $230 million of convertible notes that matured in September 2022.
We had $2 $7 billion of corporate debt outstanding at the end of the quarter with a net debt to adjusted EBITDA ratio at two eight times, which was within our targeted two and a half to three times leverage range.
In addition, despite the rising interest rate environment, we are well positioned as the rates on roughly 83% of our corporate debt are fixed with an average three 9% interest rate and we have no corporate debt maturities until 2025.
We also had $1 $8 billion of nonrecourse debt related to our securitized notes receivable and as we've discussed as we previously mentioned, we expect to complete a second securitization this year in the fourth quarter.
Finally, despite the various market headwinds the global economy is experiencing our notes receivable portfolio continues to perform well with delinquencies and defaults in line with levels experienced in 2019.
We've also returned a significant amount of cash to shareholders through share repurchases and dividends this year.
During the third quarter, we repurchased $216 million of common stock at an average price of $129 per share and declared a <unk> 62 per share dividend, which we paid in October .
Year to date through the end of September we've returned more than $600 million to shareholders, including the repurchase of $528 million or $3 9 million shares of our common stock.
As Neal mentioned in connection with the unification of our Marriott products and the launch of a bound by Marriott vacations, we aligned the contract terms for the sale of vacation ownership interest across our Marriott brands during the third quarter.
Historically sales of our Marriott branded vacation ownership interests were recorded as revenue after closing, which generally takes 30 to 45 days, while revenue for the sales of our Westin and Sheraton brands have historically been recognized after the rescission period ends which is typically 10 days.
Following the launch of a bound by Marriott vacations contract sales for our Marriott brand are now recorded as revenue following the exploration of rescission consistent with our Westin and Sheraton brands. This change resulted in the acceleration of $46 million of vacation ownership revenue in the third quarter.
And the benefit to adjusted EBITDA of $39 million.
In addition, we combined and aligned our reserve methodology on vacation ownership notes receivable for the Marriott Westin and Sheraton brands, resulting in $19 million of reserve shifting between acquired and originated notes receivable.
This adjustment didn't impact our total reserve levels. It did result in a $19 million increase in financing profit and a $14 million decreased two development profit.
Moving onto our 2022 guidance.
As we enter the fourth quarter, we expect to battle the headwinds of the broader macroeconomic environment. Despite this we continue to expect fourth quarter tours to approach pre pandemic levels.
As we expand our channel mix and add more first time buyers I would expect <unk> to normalize but remain well above 2019 levels. Our contract sales guidance also reflects a fourth quarter $10 million to $12 million negative impact from hurricane Ian.
As a result, we expect contract sales to grow by roughly 13% at the midpoint of our guidance in the fourth quarter over the same period last year.
In our rental business, we expect average revenue per key to increase slightly in the fourth quarter, but for transient keys rented to be down due to increased owner usage and preview packages.
As a result, we expect our fourth quarter rental profit to be between $8 million to $12 million.
For the fourth quarter, we also expect adjusted EBITDA to grow roughly 8% at the midpoint, including a $6 million benefit related to the alignment partially offset by a $5 million decrease due to the impact of hurricane and.
As we have discussed previously the increased owner usage related to the remaining COVID-19 points that expire at the end of this year will have a pronounced negative impact on our rental profit in the fourth quarter.
That negative impact reduces our forecasted adjusted EBITDA growth by roughly 10 percentage points in the fourth quarter.
Turning to cash flow, we ended the quarter with $520 million of excess inventory.
And with the capital efficient structure for our new Waikiki resort now in place. We currently have no material commitments for new inventory in 2023. So we do plan to continue repurchasing low cost reacquired inventory.
We expect our adjusted EBITDA to free cash flow conversion rate to be in the 75% to 80% range. This year and for our adjusted free cash flow to be between 670 and $730 million as always we will look to use our free cash flow for organic growth or strategic.
Acquisitions in the absence of compelling acquisitions, our best use of excess free cash flow remains returning it to shareholders.
In summary, we had a strong third quarter, driven primarily by our development business looking forward. Despite the economic backdrop and the volatility in the markets fourth quarter tours are expected to approach 2019 levels for the first time since the pandemic began and our 2022 full year adjusted EBITDA is.
<unk> to be the highest we've ever achieved.
As always we appreciate your interest in Marriott vacations worldwide with that we'll be happy to answer your questions Melissa.
Thank you if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from Mccann for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Ben Chaiken with Credit Suisse. Please proceed with your question.
Good morning, Hey, How's it going hey, great how are you.
I'm doing well.
So you mentioned 204000 packages I believe 36% booked to this point I think next year, you'll have more capacity for mini vacations and rentals, which is a material positive quick tour flow in 'twenty, three if I'm not mistaken.
On the other side of that.
Is there any way, we should think about an impact to development margins. If any just looking for color on kind of both of those I guess a is that a fair thought process in terms of the tailwind on tour flow and then B how should we think about development margin was 23.
We'll tag team this.
As it relates to them on the books.
Currently as we think about to address your specific question 2023, I can give you. An example in the first quarter from our owner and our preview package room nights, we have 14% more room nights on the books today than we did at the same point in time in 19 looking forward at 20.
So there is still very robust demand from owners.
And obviously the increased use of of room nights through tours.
We'll wait and see obviously as the year continues to play out about how that owner occupancy continues to build I will tell you that even in looking at the fourth quarter of this year I mean that number is 19% higher than it was again in 2019 Q4, so but at least from availability standpoint.
I Wouldnt I deduce from your question you believe we're going to have a lot more capacity for rental if that's in fact, my takeaway, maybe I misunderstood that I'm not sure that that necessarily will manifest itself. Yeah, I'll, just add a little bit there to what Steve said, just a little bit more on the packages and just tour growth.
As you think about it going forward.
You know, we're going to get a lot of our tour growth continue just from in house, we've talked about getting back to pre COVID-19.
Penetration rates on the tour flow and were getting back there, but we see more opportunity going into next year.
And then other in market, we've talked about how we turn a linkage often a lot of markets. During COVID-19, we're turning that back up so the good news is overall capacity from the call.
Call it the Covid points expiring here at the end of the year, but owner usage should remain high and obviously with the launch of a bound that's another reason for owners to come in and want to hear about the new program and take tour. So I think the setup as well across the board both for growing first time buyers as well as continuing to to drive owner tours.
In other in house as well as in market towards next year I think from a development margin because of our repurchases Ben we continue to do better on.
The product cost and as we've said in the past we expect those product cost to remain low for the next couple of years, we'll do our best to continue to manage that longer term, but we're in a great spot here right now just given no material commitments right now excess inventory on the books.
Yeah, the the other opportunity as we've talked about Steve mentioned it in his script as technology on the marketing and sales side and driving more efficiency in marketing and sales costs.
Notwithstanding btg's potentially normalizing a bit and all that you know the name of the game is to get that down to the margin. So we feel we feel good about the development margins, where we're at and keeping them well above 2019 here as we go forward.
Yes.
That's super helpful. Yeah on the first point I was just kind of.
What I was suggesting is that those rollover points expire this year.
You were kind of talking about that playing a role in the <unk>. This year and thus that would open up my thought process was that would open up some capacity.
<unk> 23 for either many of the ax or rentals, but all of that color is super helpful. Thank you.
Thank you.
Thank you. Our next question comes from the line of Patrick Scholes with trade Securities. Please proceed with your question.
Hi, Patrick good morning, everyone.
A couple of questions here.
Gnl's RCI division had called out.
Some EBITDA hit due to the hurricane did.
Did your II division experience anything material from that as well.
Not anything material on currently interval has 54 resorts in our portfolio that are still closed because of the hurricane.
We're not taking any further bulk deposits from those from those resorts.
So, but it's in the total scope of things it is not all that sizable and something to be terribly concerned about okay. Thank you.
And then.
And then a bigger picture question I want to go back and sort of revisit.
Some of the initial projections that were.
Laid out at the time of the <unk> acquisition, what's been I guess about over a year now since that.
Originally you had expected to.
See cost synergies of about 11 to 13 million.
And expect wealth to.
Double.
It's 2019, adjusted EBITDA, which at the time was $29 million over the next three years to four years, how would you say you're tracking towards your original stated projections on the Walker acquisition. Thank you.
Yeah I mean.
Yes.
A general broad brush answer is we are very pleased with how how the Walker acquisition has been a has been performing and the progress we're making there.
The you know we know we don't we no longer call it out or track it separately, we've integrated into the into the whole Hyatt program from a report ability standpoint, I can say to you that for instance, a as you look at the you know kind of forward looking 23 contract sales.
We expect to be right on or slightly ahead of what we thought we underwrote the acquisition at so we're very pleased about about where it stands.
I can't speak to your specific.
12% to $13 million number I don't have that off the top of my head that are maybe maybe maybe John or Tony do but you know we're.
We're very pleased at where it's going and I can tell you I was just at one of the wealth properties last week and Palm Springs and the.
Not only are are they associate is excited about the transition, but the owners are as well. So we're very pleased with the progress we're making.
Great.
Thank you.
And then lastly, Steve I know.
You retired at the end of the year is this really just be your last earnings call with us It will it will be and you've taken a little steam out of my closing remarks Patrick.
Yes, well [laughter] well.
Well, Steve. Thank you for everything you've done you're absolutely a true legend in this industry and you'll be missed and.
I certainly hope you yeah.
Look forward to your next adventure so thank you.
Thank you Patrick I would I'm very excited about.
Where where the business stands in the future that's in front of it and I look forward to watching from the sidelines and staying out of continues to progress, but thank you Mario for your comments. Thank you Steve.
Hi, Mike.
Yeah.
Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Good morning, David.
Good morning, everyone.
Thanks for taking my questions.
I'd like to go back to just one of the comments that you made about greater efficiencies from technology and <unk>.
Marketing and sales.
And it's a topic, we discussed years ago around.
So the digital forwarding and digital engagement through Marriott onboard.
That part of what you're referencing there or are those independent initiatives that you've driven.
Separate and apart.
Clearly, it's emblematic of what we've done in Marriott bond going currently 90% of the activity.
The packages that we book through Marriott Bogalay, our our book using our our our new technologies.
And the advantage comes from now you may remember how it used to be used to work we used to get a lead.
People would then.
We have contact with us through our contacts at our call Center, We book a package and then eventually that package had an 18 month duration and then we'd call and wed activate the package of go forward now.
With with this digital approach customers themselves can go online they can book the package they can.
They can identify it where they want to go without any human handoff. So to speak we're very excited and has increased our penetration rates are and obviously lowered our costs. So that's an example, we continue to look for other channels to be able to activate that and plus were also dewey.
Some re targeting remarketing.
We we were not as good at before which also means that people that have been to our site.
And then looking around we have the ability to to reach out to them all of those things are very positive.
As you might imagine David in the digital World.
Things continue to progress at a very rapid pace and we've done our best to try to catch up but then the challenge will obviously be to continue to try to be forward thinking about how we want to move forward.
Understood and if I can ask.
You know I'll call. It a harder question and it's going to sound like a negative one but I've been asked a number of times lately.
We look at the sort of topline drivers tour flow and PPG.
With with tour flow approaching 2019 levels and PPG is still well elevated.
How could you help us think about V. P. G should we get into <unk>.
Moderate demand reception when the back half of next year is there any.
Any way you can help us kind of measure that and think about that.
Adam at a macro level.
It is difficult to draw any direct correlations between V. P G and what happens you know from.
From the economic backdrop around it with this exception.
Clearly as people.
I am sure is a not insignificant discretionary purchase.
To what degree people are approaching a conversation with us.
In terms of possibly acquiring an interest in a timeshare program. If they have a more negative perception that can impact closing rates closing rates in and of itself is obviously a component of what what contributes to V. P. J.
But I can what you heard in our remarks in which you should take away from this is while clearly some of the eye.
I would call it outsized growth that we've seen in <unk> V. P. J over the last several years.
Isn't going to continue to repeat that percentage growth. We are very optimistic about maintaining V. P. J at levels well above what they were pre pandemic.
Largely because of.
What we've done in some of the channels, what we're doing on the on the whole digital front and we're very bullish on that I I I'm not trying to in any way suggest that we arent concerned about the economic backdrop clearly that's in our thinking, but we feel pretty confident about holding onto the V. P. G that we've seen.
And I think one thing to add to what Steve said.
It's not even just the economic backdrop I think the the world is changing the way people vacation now has changed and I think even some of the airlines have talked about that.
Every weekend could be a long weekend from somebody because you can pick up and travel and work from anywhere now.
So some of those macroeconomic backdrop.
Instances right now are a little bit concerning but then the way people are traveling for leisure is encouraging.
And as long as our product is a good value proposition then we think that'll help us going forward as well.
One other thing just to add on that remember differentiates us a little bit is our target customer right. We're the only timeshare company focused on the upper upscale luxury side the price points relative.
Relative to average household income our owners have a self reported net worth of a million and a half is a very strong and resilient consumer not saying that in a deeper recession things like that that you wouldn't see some impact to Steve's point on closing efficiency, but we.
We do have a very.
Strong customer demographic that we target.
And so we feel good about that too.
Understood and then Steve.
I would not take it personally that the stock is going to go up on the day of your last earnings call I would really look at the stock looked at the stock chart post spin.
Tom you've been there and I think you should feel pretty good about that thanks for everything.
Thank you David I appreciate it very much.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Brent <unk> with Barclays. Please proceed with your question.
Hey, good morning, everybody Hey, everybody.
Good morning, and I also want to.
Add my congratulations to Steve here.
Yeah.
And so from my Youre welcome to my first question.
Just sticking with the V P G topic.
I wanted to maybe get some extra thoughts on how we should think about the sequential moves here. If you look at it.
<unk> and tour growth, where tours in the <unk> versus the first half.
Tours, obviously stepped up meaningfully in <unk> stepped down a little bit from the <unk> and so you can look at that and say, okay, well clearly.
There's been a big step function changes of tour growth that might have been lower yielding tours and then theres, obviously, a new owner effort. There that would also be <unk> dilutive. So I guess the question is when we think about first half into the <unk> that <unk> stepped in how much of that was mix shift.
Related tours and how much of that was maybe a slight softening in propensity to purchase or close rates.
I gave you numbers about how about the quarter if I could.
So first time buyer tours were up three three percentage points.
Over what they were in Q3 of 2021, so literally 50% of our tours were to first time buyers and 50% of our tours were to our owners. So.
Owner owner percent tours went down by 3%.
First time buyers went up Arithmetically as a result of that because first time buyers carry a lower.
V. P. G. Then owners do that's where you get.
A little bit of depression, and what happens to the PG growth.
I can also tell you that contract sales as a percent of total were exactly the same as they were in 2000 and.
'twenty one it's because the Q3, so I think it's largely arithmetic.
To be honest with you and.
I'll step back and think about you know.
Why are first time buyers are important I mean, it continues to refresh the system. We've looked at it from every which way you can and we think that if we can get to a 40% range of first time buyers versus versus owners.
That's very healthy for the system because.
You get a new set of owners of by the way those new set of owners not only.
We have a higher propensity to finance they also have.
The ability to reload additional monies.
Moneys are you know after they've been in their first five years of ownership as an example.
And you know you'll also get a new source of referrals out of first time buyers that you don't necessarily get after you've had a relationship with an owner for a period of time so.
We think that move is very deliberate and and we're very excited about it arithmetically, yes, more first time buyers will have a depressing effect on what the overall PPG is but we think overall, it's in the best interest of the business.
Just just a little bit of history here right we did.
Going into Covid, we turned off all those lower yielding <unk> changes or channels I should say so.
Those aren't coming back we've been able to grow our tour flow back brand as you've talked about to kind of pre pandemic levels and if you're a glass half full guy we're still 26% above 2019 V. P g's.
And to your point.
I think you said it but if you think about it you're opening up more toward channels, yeah, you'd love to get all your tours from the highest yielding channels, but to drive your tour flow back right you start opening up some of the lower yielding channels.
And with that that's going to impact your Vp's G sequentially, but still as we talked about way above 2019 to Steve's point, we got to focus on first time buyers. So all else being equal that'll have some impact as you go forward, but remember the Bottomline is development profit, we've been able to keep that very strong above <unk>.
30%.
It's a combination of the product costs, but also at the end of the day, we're going to continue notwithstanding if even if <unk> moderate a bit.
<unk> to look to drive marketing and sales efficiency and as we've always talked about you've got about half your marketing and sales costs that are more fixed in nature. So you can grow that top line.
You can get some offsetting benefits there in that in that margin. So that's what we're aiming to do.
Great Great answers, thanks for that I do strive to be a glass half full guy.
And so my second question is just on the delinquency well delinquencies and <unk>.
And the loan loss provision on our math loan loss provision ticked up slightly from three <unk> to four <unk> to the fourth quarter elsewhere as well as in the timeshare industry we've seen.
Delinquencies sort of normalizing negatively, but but not necessarily worst in 19, but toward 19 and I think you guys might have cited something similar so I guess the question is is this the third quarter that we saw in terms of the loan loss provision is that the.
The rate, we should be thinking about.
And what are you guys. How you guys feel in terms of the the movement in delinquencies is it sustainable does it feel sustainable or is it going to kind of go.
Keep moving in the wrong direction.
Well hopefully more sustainable.
So there is a little bit of noise of course in the third quarter because of the changes that we made to the reserve methodology.
So looking at that.
Probably not overly indicative of what we see going forward.
The year to date basis, our reserve is probably little closer to what we saw last year, but when we look at the trends of what we're seeing for defaults and delinquencies. They are tracking in line with what we saw back in 2019. So besides some of the accounting changes that we've made in the reserve.
We're really not seeing a whole bunch of negativity in that right now no reserve.
Defaults and delinquencies do tick up in Q4 naturally year over year, So we'll be watching that closely in the fourth quarter.
The rates that we're seeing right now I wouldn't expect them to get a whole bunch.
Based on the trends that we were seeing through the end of Q3.
Excellent thanks for all the thoughts.
Thank you.
Thank you. Our next question is a follow up from the line have been taken with credit Suisse. Please proceed with your question.
Okay. Thanks, Kurt Thank you I appreciate it thanks for taking my follow up so hopefully this is not a silly question, but I think you said, 50%.
Of your sales were to first time buyers and 50% were to existing owners this quarter.
And your.
Goal is to be at 40% first time.
Well okay.
No.
50% 50, 50% of our tours were to first time buyers and 50% to our owners on a sales basis. It was 33% first time buyers and 67% owners.
So not so contrast that 33 each of the 40 is kind of our goal. We're still we're still working our way forward keep in mind that you know from where we were last year for instance, I think this is a this is materially is getting better each each time as our final year to date basis as we go ahead, but we got.
More work to do.
Thank you for the clarification I appreciate it sure sure.
Thank you. Our next question is a follow up from the line of Brent <unk> with Barclays. Please proceed with your question.
We just can't let you we just can't let you go Steve.
We don't want it to and we don't want this error it and no.
I do.
We Didnt talk about FX was there was there was there a currency headwind either in Australia or.
We're in for the yen into Hawaii or anything else in the system and the and the <unk>.
Yes, the only place we saw some decent.
Decent headwinds from currency was really in Japan over in our Asia Pacific the yen isn't doing that well right now.
Travel to Hawaii, Hasnt really return significantly so it's not really impacting our MVC domestic sales but within.
Within Asia, we are seeing a little bit of headwind because of that and we're looking at potentially pricing in Japanese yen to youll start seeing if we can get ahead of it a little bit.
That's helpful. Thanks again guys.
Thank you.
Sure.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Weiss for final comments.
Thank you Melissa and thank you everyone for joining our call today.
We said that people want to go on vacation no matter, what the environment in this quarter proved to be no different.
Our vacation ownership segment occupancy it was approximately 90% in the third quarter contract sales grew by 27% compared to the prior year PPG remained well above 2019 levels. One third of our sales were to first time buyers, which is good for the long term health of the system and we've seen a lot of interest in our bounds.
Marriott vacations, and our exchange and third party management business interval revenue increase compared to the prior year driven by a 21% increase in active members and margins improved by 500 basis points compared to last year.
We returned more than $600 million to shareholders through the end of September through a combination of share repurchases and dividends and I feel very good about the long term trajectory of the business.
To take it and then not to be repetitive, but before the end of the call after more than 50 years with Marriott, including 26 years, leading this company I will be retiring at the end of the year.
This is my last earnings call, John Geller will become our next president and CEO effective January one.
Given John's almost 15 years of leadership experience with Marriott vacations, as president and formally CFO and with a seasoned leadership team supporting him I know, our investors associates and customers will be in great hands, and I look forward to watching the business grow.
I would like to express my sincere, thanks, and appreciation for the support and confidence our investors have shown an N VW and as always thank you for your interest in our company and finally to everyone on the call and your families stay safe and enjoy all of your future vacations. Thank you.
Yes.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.