Q4 2024 Marriott Vacations Worldwide Corp Earnings Call
Greetings and welcome to Marriott vacations worldwide fourth quarter 2024 earnings call.
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Speaker Change: It is now my pleasure to introduce Neal Goldner, Vice President Investor Relations Neil you may begin.
Speaker Change: Thank you and welcome to the Marriott vacations worldwide fourth quarter earnings call Conference call.
Speaker Change: I'm joined today by John <unk>, our President and Chief Executive Officer, and Jason Marino, Our executive Vice President Chief Financial Officer.
Speaker Change: I need to remind everyone that many of our comments today are not historical facts and are considered forward looking statements under the federal Securities laws.
Speaker Change: These statements are subject to numerous risks and uncertainties, which could cause future results to differ materially from those expressed in or implied by our comments.
Speaker Change: Forward looking statements in the press release as well as how much on this call are effective only one made and will not be updated as actual events unfold.
Speaker Change: Throughout the call we will make references to non-GAAP financial information you can find a reconciliation of non-GAAP financial measures in the schedules attached to our press release and on our website with that it's now my pleasure to turn the call over to John Geller.
John Geller: Thanks Neil.
John Geller: We want to thank you for joining our fourth quarter earnings call.
John Geller: We had a solid fourth quarter, reflecting our team's hard work and the resilience of our leisure focused business model demonstrating that our proactive steps to strengthen performance are working.
John Geller: One notable area of strength in the economy continues to be leisure travel and the steps we've taken to expand our sales reach and adjust our promotions are enabling us to capitalize on this.
John Geller: I've always believed that people prioritize for vacations and following the pandemic. This has been even more pronounced.
John Geller: This trend continued in the most recent quarter, where we ran systemwide resort occupancy of 90%, including 95% occupancy in Hawaii, and we remain committed to meeting the needs of our customers as they prioritize spending on vacation to enjoy time with their families and friends.
John Geller: We believe our resorts with our extensive amenities and spacious accommodations are the best place to do it and our customers agree with us.
John Geller: Before we get too deep into the fourth quarter results I'd like to reflect on what we accomplished last year as well as give you my view for 2025.
John Geller: Our owners and our other customers continue to put a high value on our brands and the experiences we offer.
John Geller: But they also are facing economic pressures. So last year, we launched a number of initiatives focused on driving revenue expanding our sales reach and.
John Geller: And adjusting our promotional strategy.
John Geller: We also expanded our use of virtual tours and non traditional sales channels like Roadshows and owner cruises. The result was a 7% increase in contract sales in the fourth quarter with first time buyer sales growing even faster.
John Geller: It was also great to see Hawaii sales grow double digits year over year in the quarter.
John Geller: On the development side during 2024, we opened our new Waikiki resort and announced plans to build a new Marriott vacation club in Thailand additional units in Bali, and the FERC Hyatt vacation club in Orlando.
John Geller: We also reopened a second Bali sales center in June, which will help us drive outsized tour growth in Asia Pacific in the first half of this year.
John Geller: We rebranded our pulse locations as our city collection last year.
John Geller: Designed for those who want to use our ownership to explore urban locations. This collection includes our resorts in places like New York, Boston, San Diego, Bangkok and know Waikiki.
John Geller: And I'm excited to announce that we plan to develop a new 168 unit Marriott vacation club in downtown Nashville, including a new onsite sales center noticed music City Nashville will make a great addition to our city collection for owners looking to enrich their vacation experiences we play.
John Geller: To acquire this new purpose built project from a developer when it opens in late 2027.
John Geller: In our exchange <unk> third party management business integral welcomed 12, new all inclusive resorts to our global exchange network last year, bringing our total all inclusive network to over 150 resorts offering more ways for members to enjoy their membership.
John Geller: Across the business, we're making great strides in harnessing the power of data and analytics to boost efficiency and growth, we continue to digitize consumer capabilities, allowing owners to transact as they prefer and we see further opportunities to enhance customer interactions and drive efficiencies through technology.
John Geller: Looking forward research shows American still have a strong desire to travel with 80% of adults planning to take a vacation this year, while international travelers to the U S are expected to increase this year and travelers from Asia Pacific are leading the way when it comes to international travel. We believe we are in a great.
John Geller: Positioned to capitalize on these growth growth trends.
John Geller: As we discussed last quarter, we believe we have substantial opportunities to boost our growth and enhance operational efficiencies through our business modernization work.
John Geller: As you know we've made a number of strategic acquisitions over the years to bolster our market position, while disposing of a number of smaller noncore businesses to focus on key growth areas. Our primary motivation for pursuing this initiative now is to speed decision, making across the organization ensure we have.
John Geller: The right cost structure for the future and optimize our it platforms, while providing funds to invest in high potential leisure focused businesses to accelerate revenue growth.
John Geller: This initiative encompasses all areas of our organization and we expect some of the largest buckets of savings will come from increased automation inventory optimization procurement and corporate overhead.
John Geller: This initiative also includes substantial opportunities to accelerated revenue growth for example, in our vacation ownership business by continuing to refine our tour mix and upgrading our sales center technology. We believe we can drive improvements in V. P G and by leveraging our new state of the art revenue and inventory management platform.
John Geller: We expect to be able to drive increased occupancy and higher ADR. All in we expect this initiative to generate an additional 150 to 200 million in annualized adjusted EBITDA by the end of 2026 with half coming from cost savings and efficiencies and the other half from accelerating revenue growth.
John Geller: Jason will provide more details on the timing of the savings and the investments needed to achieve them in a minute.
John Geller: We realize the past 18 months haven't been easy, but through it all we've never stopped obsessing about delivering the experience our owners and others expect of US which is why our guest satisfaction scores are higher today than they were last year and in 2022.
John Geller: Our overall strategy remains the same though our tactics certainly have evolved over time, we will continue to deliver operational excellence and meet and exceed our customers' expectations. This is the most important thing we can do as an organization.
John Geller: Our core offerings will continue to evolve and expand through the development of new properties and travel experiences. We will further harnessed the power of advanced analytics to improve efficiency enhance the customer experience and increase profitability and we will look for additional ways to drive growth through the launch of our new leisure focused businesses.
John Geller: We are planning on hosting an Investor day in New York later, this year and I hope to see many of you there with that I'll turn it over to Jason to discuss our results in more detail.
John Geller: Sure.
Jason: Today, I'm going to review, our fourth quarter results, our balance sheet and liquidity position, our cost savings and efficiencies initiative and our outlook for the year.
Jason: Starting with our vacation ownership segment, we ended the year on a very strong note growing contract sales by 7% year over year and outperforming our expectations on adjusted EBITDA.
Jason: First time buyer contract sales increased 9% year over year, our best performance in nearly two years.
Jason: And owner sales increased 6%.
Jason: Defaults and delinquencies were largely unchanged on a year over year basis in the fourth quarter and our sales reserve was nearly 12% in line with our expectations as.
Jason: As we have talked about in the past we have always had high underwriting standards, even through the pandemic, we've not lowered them.
Jason: We have also taken steps to improve the underwriting standards of our acquired brands. This commitment is reflected in the rising average FICO scores of our originated notes, which have increased each year since 2020.
Jason: In addition to keeping maintenance fee increases for our points based products that low single digits. This year. We've also implemented enhanced collection processes and increased staffing to address our default and delinquency issues, which we believe are having a positive impact.
Jason: As a result, our delinquencies have stabilized over the past few quarters.
Jason: Continuing down the P&L product cost was relatively flat year over year on a percentage basis, while marketing and sales costs increased as a result development margin was a strong 26%.
Jason: Moving to the rest of RVO business rental occupancy increased 300 basis points and profit increased 20% compared to last year driven by additional costs allocated in marketing and sales expense to drive tours.
Jason: Alright management profit increased 6% and financing profit was 6% lower due to higher borrowing costs.
Jason: As a result, adjusted EBITDA in our vacation ownership segment was $221 million and margin was 27%.
Jason: Moving to our exchange <unk> third party management segment, adjusted EBITDA declined $9 million year over year with roughly half of the decline related to lower profit at Aqua Aston and the balance due to lower transactions at interval.
Finally, corporate G&A expense declined 23% year over year, driven largely by lower project.
Jason: Spending as we turned our focus to our modernization efforts.
Jason: As a result total company adjusted EBITDA decreased 1% to $185 million.
Jason: We ended the year with leverage at roughly four times, which is higher than our long term goal of three times, but more than manageable.
We also had more than $900 million in liquidity and no corporate debt maturities maturities until early 2026.
Jason: And with the majority of our interest expect Spence fixed our interest rate exposure for the current year is limited.
Jason: We also returned $163 million to shareholders in the form of dividends and share repurchases last year.
Jason: We have more than three years of inventory on the balance sheet based on our 2025 contract sales guidance and we continue to look to optimize our inventory spending.
Jason: We also plan to spend $90 million to $95 million on reacquired inventory this year, which is at well below replacement cost and keeps our overall product costs down.
Jason: Looking forward, we expect contract sales to grow in the 2% to 6% range. This year with tours and V. P. G. Each growing in the low single digits, and we expect to deliver $750 million to $780 million of adjusted EBITDA, including 15 million to $25 million from our modernization initiatives.
Jason: We added more than 20000, new first time buyers last year and have added nearly 90000 since 2020.
Jason: Based on history over 40% of these new buyers will purchase additional points within 10 years, providing us with substantial built in future sales. We also ended the year with a pipeline of roughly 260000 packages with more packages already activated for travel this year compared to the same time last year, providing a good start towards achieving this.
Jason: <unk> contract sales at all.
Jason: After a good January we saw some softness at the beginning of February which has since stabilized because of that contract sales in Q1 could be flattish, depending how the rest of the quarter progresses.
Jason: Moving to the rest of our video segment, we expect development profit to increase year over year and for financing profit to be largely unchanged.
Jason: And our V. A rental business, we expect profit to decline around $15 million due to a higher mix of keys, and lower ADR markets higher inventory balances and the exploration of Covid related programs that drove rental revenue in 2024.
Jason: As a result, we expect adjusted EBITDA in our <unk> segment to increase around 5%.
Jason: In our exchange <unk> third party management segment revenue in animal is expected to be relatively fat flat well Aqua Aston is expected to improve due to increased visitation and Maui in the second half of the year.
Jason: As a result, we expect adjusted EBITDA to be relatively flat for the year.
Jason: Finally, G&A is expected to increase year over year, driven by higher incentive compensation and increased technology spending G&A is also expected to benefit this year from our modernization work.
Jason: Moving to our strategic business modernization initiative.
Jason: As John mentioned, we believe we have substantial opportunities to boost our growth and enhance operational efficiencies through our business modernization work.
Jason: We expect to drive $75 million to $100 million of annual run rate cost savings and efficiencies over the next two years from this initiative as well as an additional $75 million to $100 million of adjusted EBITDA from accelerating growth opportunities.
Jason: The savings will primarily result from modernizing our processes and systems, optimizing procurement and reducing overhead cost while the retrofit revenue benefits are expected to come from a number of areas, including higher Ppg's increased tours improved occupancy and ADR.
Jason: For modeling purposes. This year's adjusted EBITDA guidance includes $15 million to $25 million in benefits with the majority coming in the second half of the year we.
Jason: We expect next year is incremental benefit to be an additional $70 million to $80 million with the full P&L benefit achieved in 2027.
Jason: We do anticipate incurring one time costs related to this initiative, which we excluded for adjusted EBITDA purposes.
Jason: Moving to cash flow, we expect our adjusted free cash flow will be $290 million to $350 million. This year. This excludes around $100 million of one time cash cost this year related to our modernization initiatives and an incremental $100 million next year.
Jason: Our conversion rate this year will be lower than our past experience and future expectations due to our inventory purchases and shifting of tax payments from 2024 to the current year.
Our long term plan is to continue to return cash to shareholders, while also focusing on reducing leverage back to three times.
Jason: We also have a few noncore assets that we expect to dispose of over the next couple of years that we think could be worth $150 million to $200 million, which will largely offset the cost of the modernization effort.
Jason: Proceeds from the sale of these noncore assets are not reflected in our adjusted free cash flow guidance.
Jason: So to summarize we had a solid fourth quarter growing contract sales, 7% and reducing overhead costs looking forward. Our business is in great shape consumers continue to allocate more of their dollars to experiences, including travel and are telling us they love our spacious fellas. We've added nearly 90000, new owners over the past five years and entered this year.
Jason: 260000 packages in our pipeline, providing us with a long runway to grow tours.
Jason: We're investing in the business to drive revenue and efficiencies across the business and expect to generate $150 million to $200 million over the next two years on a run rate basis, we have happy owners, who continue to buy more points each year and we are humbled that they choose to share their memories with us year in and year out.
Jason: Finally, we'll be hosting an investor day later this year and hope to see many of you there with that we'll be happy to answer your questions.
Jason: Operator.
Speaker Change: You will now be conducting a question and answer session.
Speaker Change: I'd like to ask a question. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
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Nancy: Nancy Please limit yourself to one question and one follow up you may re queue for any additional questions.
Speaker Change: One moment please for the first question.
Speaker Change: The first question today is from the line of Morocco with Deutsche Bank. Please proceed with your questions.
Garden Curtis: Hey, Good morning Garden Curtis just taking the question.
Speaker Change: Morning.
Speaker Change: So you mentioned in the prepared comments the new owner mix was up nicely in 'twenty. Four does that is that a trend you expect to continue in 'twenty five and then kind of along with that are you seeing any changes in.
Speaker Change: The propensity to finance among your are your first time buyers.
Speaker Change: Yeah. Thanks, Chris.
Speaker Change: Yeah, I mean, as we've talked about with all the packaged tours.
Speaker Change: Driving first time buyer growth, yes. The goal is to continue to to get out outsized performance in more first time buyers. That's what you saw the benefit in terms of some of the contract sales growth in the fourth quarter.
Speaker Change: The offset is as we've always talked about is the the.
Speaker Change: The acquisition cost for marketing and sales costs related to those first time buyers is higher than it is.
Speaker Change: For existing owners, so, but yeah for the long term health as we've always talked about we want to continue to grow first time buyers were investing in those stores.
Speaker Change: Yes, I'm excited to see some of that.
Speaker Change: Change in mix in the fourth quarter and expect some more of that here as we go into next year in terms of financing propensity for first time buyers, we haven't really seen a big change in propensity.
Speaker Change: Yeah.
Speaker Change: Okay. Thanks, Sean.
Speaker Change: Follow up would be.
Speaker Change: Okay. So the follow up would be you mentioned.
Speaker Change: I think $90 million to $95 million of inventory repurchase this year does that correlate with the kind of that increase reserve you took last year in other words are those units kind of being realized into.
Speaker Change: I guess repurchase if that makes sense.
Speaker Change: Yeah, No I mean, when you when you think about what we're talking about there it is more.
Speaker Change: Owners that have owned a long time that aren't using they're getting on vacation as much and we're taking a step back there's.
Speaker Change: Maintenance fee defaults, just a smaller piece that we take to get back from the homeowners Association and all that so.
Speaker Change: That's a fairly stabilized as we look at it just kind of churn if you will and the existing owner base.
Sean: Okay got you fair enough. Thanks, Sean.
Speaker Change: Uh huh.
Speaker Change: Our next questions are from the line of Ben Chaiken with Mizuho. Please proceed with your question.
Ben Chaiken: Hey, How's it going.
Speaker Change: Thanks for taking my bad.
Ben Chaiken: Hey, How's it going I'd love to just maybe.
Speaker Change: Think about the bridge from 2000 and for EBITDA to the 25 guide maybe at the midpoint without getting too in the weeds.
Speaker Change: I know you mentioned there was some pressure on rentals I believe if I picked that up of around $15 million.
Speaker Change: I guess, maybe just like clarifying that headwind and then also on top of that was there a compensation headwind in 'twenty five versus 24 point management compensation perspective, if so I don't know if I caught that that headwind in the prepared remarks, and then could you also help us.
Speaker Change: Presumably that was the <unk> year over year provision headwind, just because things ramped in kind of two Q3 Q of last year. So I'd imagine that created a tough comp, but just maybe providing a little more context to those numbers.
Speaker Change: Sure I'll start here, Jason can talk a little bit about the provision stuff.
Jason: Yeah on the rental side look 24 was a great rental year for US we had a couple of things going on that benefited 24 versus where we started the year. We knew we had.
Jason: Yeah, plus points, which are yeah, we'd given out higher plus points to incent people to buy coming out of Covid. So think 'twenty, one 'twenty two time frame.
Jason: And because of Covid, we gave people longer times to use those two or three years or so.
Jason: There was a kind of a convergence of explorations. If you will of some of those COVID-19 points, which we would normally there's plus points would be our inventory, we could otherwise rent right but.
Jason: There were slightly higher exploration and we pick that up and then we were also able to drive as we talked about higher occupancies and rent those so we got you know.
Jason: Call it about a $10 million benefit give or take.
Jason: As the year wrapped up in rentals.
Jason: That really benefited 24, we just don't we don't have that in 25 I think as you look at 25, a little basis, we've always talked about on the rental side different than a hotel company right. The mix of inventory that we were gonna have to read it depends on how people exchange it owner usage and where they are staying.
Jason: And we do expect it to skewed towards some lower ADR markets I think the you know the desert in Orlando This year, which is a bit of a headwind.
Jason: That said with all the yes, the modernization work and things we're focused on we're open to do a lot better again in rentals like we did last year. So the team's focused on it but just as we sit here today as rentals kind of sets up that's kind of the the year over year.
Speaker Change: Yeah and on the G&A side, you had two things are benefiting us.
Speaker Change: Sure, we did have lower bonus payouts and so at the midpoint of the guidance, yes, there's probably roughly $15 million to $20 million of higher variable compensation call. It bonus expense year over year and then the other thing in the quarter as Jason mentioned this in his remarks, we are really focused on the business.
Speaker Change: <unk> the sequencing all of the work that was in flight and we wanted to get going and as a result from our project spend perspective, yeah, we slowed some stuff down till we get the plan finalized and get things kicked off here as we were coming into this year.
Speaker Change: That probably benefited us call it roughly $8 million to $10 million last year helped with a little bit of outperformance, but yeah. We've got a lot of work to do right. It was a bit of a timing thing. So those are I think year over year of the two the two biggest you know kind of.
Speaker Change: I'll call them headwinds, just because they're going to be higher cost less rentals. If you will and then I think your other question was just more on the loan loss yeah, Ben on the on the loan loss I guess the way I'd think about it is as we go through the year there'll be a slight headwind.
Speaker Change: Year over year in Q1, and as you know assuming we're kind of at that 12% number for Q1, and then obviously you have the tailwind as we.
Speaker Change: Past Q2 with sales reserve increase last year, and then the second half of the year should be relatively flat year over year. So that's the way I think about it on a net net it'll be a tailwind for.
Speaker Change: For 2025, but it will be a slight headwind here in Q1 as we lap Q1.
Speaker Change: Okay got it that's very helpful. Maybe just a quick clarification. So on the rental side, just maybe like maybe distill it down or Sip oversimplify it.
Speaker Change: 10 million hard comp from benefit in 'twenty four and then the way your customers are choosing to travel in 'twenty five skus to a lower ADR rentals being available.
Speaker Change: Correct.
Speaker Change: And then and then it sounds like so you've got $15 million to $20 million higher variable comp, which makes sense and then I guess you were saying you slowed some project investments in 'twenty four.
Speaker Change: And then does are picking back up and 25% that creates another $8 million just maybe still everything.
Speaker Change: Yeah, I think I said eight to 10 in that range Thats right. Okay. Thank you I appreciate it.
Speaker Change: Uh huh.
David Katz: Our next questions are from the line of David Katz with Jefferies. Please proceed with your question.
David Katz: Hi, good morning, Thanks for taking my question.
David Katz: I'd love to get a little more.
Speaker Change: Good morning, I'd Love, just a little more background or context.
Speaker Change: Around the sort of cost and revenue initiatives and sort of how they I guess, how they came about right.
Speaker Change: Alright.
Speaker Change: I imagine there is some ramp post COVID-19, where we're just trying to get the business running again and maybe now taking attendance on some things that you may not need.
Speaker Change: How did how did all of this sort of start come about.
Speaker Change:
Speaker Change: Would be helpful.
Speaker Change: Sure Yeah, I mean, as you're aware, we've obviously done a few acquisitions here.
Speaker Change: And so a lot of these initiatives were already identified things, we're working on the real <unk>.
Speaker Change: A step back the real driver was.
Speaker Change: What's holding us back on some of our growth initiatives and what do we need to do to accelerate those so.
Speaker Change: These were all things not all things because we also.
Speaker Change: Engage the organization more broadly on other ideas and things that we could really do to either drive efficiencies or drive growth.
Speaker Change: It really put a program around that that's what we call our modernization effort and then it was really about sequencing, but the costs. We're talking about is really just an acceleration of a lot of things. We wanted to do especially on the technology side, Jason talked about some of the onetime investments.
Speaker Change: These were expected to happen over time, but we werent getting the growth opportunities by waiting and so.
Speaker Change: We took a hard look at it we said how do we accelerate all of this.
Speaker Change: Which will both take costs out because you'll get off of duplicate applications consolidate but also use applications at all helped drive better marketing and sales efficiencies right better technology for.
Speaker Change: Digitizing how are consumers interact with us technology that we've rolled out in the call center on virtual voice to service our customers.
Speaker Change: And enabling more things in that area. So.
Speaker Change: It was really putting a hard focus and what I'm excited about is just all the energy is created with our leaders that have been involved in this and the opportunities to really accelerate growth in.
Speaker Change: And having a clear plan as to how we're going to kind of move forward.
Speaker Change: Understood Thanks very much.
Speaker Change: Uh huh.
Thank you.
Speaker Change: I'd like to ask a question today, you May press star one from your telephone keypad.
Speaker Change: Next questions are from the line of Patrick <unk> with <unk> Securities. Please proceed with your question.
Speaker Change: Hi.
Speaker Change: Good morning, everyone. Good morning.
Speaker Change: Looking forward to the Investor day in the fall.
Speaker Change: Our granular question, specifically on the G&A and we've got a couple of pushes and pulls here and perhaps for modeling purposes.
Speaker Change: Starting with I guess a gap.
Speaker Change:
Speaker Change: Figure for the full year 2020, $243 million, specifically on our growth rate.
Speaker Change: Or perhaps a slight decline.
Speaker Change: After the 242, how should we think about that sort of percentage wise. Thank you.
Speaker Change: Okay.
Speaker Change: Hopefully that makes sense.
Speaker Change: Yeah.
John Geller: The $2 43, yes, so I think as we've talked about I mean, we're going to have a return as John already mentioned of call. It 15 to 20 million of incentive.
John Geller: Incentive comp and then some of that higher project spending. So I think if you just take those two in and figure out the growth rate there.
Speaker Change: Are we missing maybe we're not understanding your question Patrick well you have some.
John Geller: Cost savings, but they've been at the high or the higher.
Speaker Change: Santa pop I'm, just trying to see like what's that net.
Speaker Change: The pushes and pulls that Mark just start with path forward in the model.
Speaker Change: Remember cost savings and things that we're pursuing those arent all in G&A right.
Speaker Change: Those get spread through some of the different business lines.
Speaker Change: Now there is a piece of the G&A.
Speaker Change: I don't know I'm looking at Jason I don't know, how much we kind of spread into the G&A for cost savings from the spo, Yeah, it's about $10 million right now.
Speaker Change: Thank you.
Speaker Change: At this time I would like to hand, the floor back to Mr. Taylor for closing remarks.
Speaker Change: Great.
Mr. Taylor: Thank you everyone for joining our call today, we had another solid quarter growing contract sales, 7% year over year with first time buyer sales growing 9%. We also ended the quarter with 260000 preview package.
Speaker Change: Packages, which puts us in a good spot as we enter the year.
Speaker Change: Consumers around the world are choosing to spend their discretionary dollars on travel and we have strategies in place to capitalize on that including adding new resorts in the U S and in Asia Pacific along with new sales centers.
Speaker Change: We also expect to generate 150 to 200 million in run rate adjusted EBITDA benefits by the end of 2026 through our business modernization initiatives.
Speaker Change: I believe our company.
Speaker Change: Is positioned well and the excitement from our modernization initiative to accelerate growth has energized our organization I hope many of you come to our Investor Day later this year to hear about how we plan to grow in the future as well as speak with our senior leaders finally on behalf of our associates, our owners members and customers.
Speaker Change: Around the World I want to thank you for your continued interest in our company and hope to see you on vacation soon thank you.
Speaker Change: Thank you. This does conclude today's teleconference. We thank you for your participation you may now disconnect your lines at this time.