Q1 2025 Marriott Vacations Worldwide Corp Earnings Call

Speaker Change: Greetings and welcome to the Marriott Vacations Worldwide first quarter, 2025 Earnings Call.

Speaker Change: At this time, all participants are in 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.

Speaker Change: As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Neal Goldner, Vice President and Vester Relations. Thank you, you may begin.

Neal Goldner: Thank you, Melissa, and welcome to the Marriott Vacations Worldwide first quarter earnings conference call. I am joined today by John Geller, our President and Chief Executive Officer and Jason Marino, our Executive Vice President and Chief Financial Officer.

Neal Goldner: I need to remind everyone that many of our commons today are not historical facts and are considered forward-looking statements under federal securities laws, the statements of subject to numerous risks and uncertainties which could cause future results of different materialities from those expressed in or implied by our commons.

Neal Goldner: Forward-looking statements in the press release, as well as comments on this call, are effective only when made and will not be updated as actual events unfold.

Neal Goldner: Throughout the call, we will make references to non-GAAP financial information. You could find a reconciliation of non-GAAP financial measures in a schedule attached to our press list and on our website.

Neal Goldner: In response to investor feedback, we change the presentation of revenue and profit on pages A7 and A8, A8 at the press release of quarter to facilitate easier year of year for comparisons.

Neal Goldner: Importantly, we have not removed any information that we previously provided. In addition, on page A7 we also added a bridge from profit to adjusted EBITDA. With that, it's now my pleasure to turn the call over to John Geller.

Thanks Neal.

John Geller: Good morning, everyone, and thank you for joining our first quarter earnings call.

Neal Goldner: We had a strong beginning to the year, growing first time buyer sales and adjusted EBITDA.

Neal Goldner: illustrating the power of our leisure focus business model. We are also making good progress on our modernization initiative to accelerate revenue growth, reduce costs, and enhance operational efficiencies.

Neal Goldner: We remain on track to deliver 150 to $200 million in run rate benefits by the end of 2026.

Neal Goldner: We have some of the best brands in the vacation ownership industry and continue to see people prioritizing their vacations, running more than a 90% resort occupancy in the first quarter, with forward bookings remaining strong.

Neal Goldner: It's also important to remember that our owners prepay for a lifetime of vacations and typically pay their annual maintenance fees by the beginning of the year. So we know they will be vacationing with us.

Neal Goldner: In addition, we offer a very attractive value proposition and create our own demand. About a quarter of our annual tours come from customers we target with subsidized packages and we are leveraging data and analytics to improve the quality of our tours.

Neal Goldner: Time to also remains a sold product that we sell face to face every day, with around 80% of our sales happening on site.

Neal Goldner: which helps when the business, which helps our business relative to others when customers have concerns about the broader macro environment. And we have several tools to employ when sales soften.

Neal Goldner: For example, we adjusted our strategies, helping drive 6% higher first time buyer sales.

Neal Goldner: But with owners having fewer plus points coming into the year, we saw fewer owner arrivals this quarter than last year which resulted in fewer owner tours.

Neal Goldner: Some of our modernization initiatives are focused on driving more owner tours as well as higher VPGs. Most importantly, we are seeing owner arrivals improving as we progress through the year, so we feel confident about our updated contract sales guidance.

Neal Goldner: We also continue to take actions to drive our package pipeline.

Neal Goldner: For example, we recently launched a new program on Marriott.com that combines a villa rental booking with a tour and we have expanded our call transfer program with Marriott which we expect to help drive higher tour package sales.

Neal Goldner: We will also be implementing a new process to leverage data which we expect will drive profit by increasing qualified tours and driving higher VTGs.

Neal Goldner: We're making good progress on our comprehensive digital strategy, focusing on increasing product utilization.

Neal Goldner: Expanding e-commerce and travel options and introducing new digital capabilities as we strive to make digital the channel of choice while lowering costs.

Neal Goldner: For example, a resort operations team is expanding the use of an AI-powered phone agent that provides guest's quick responses, freeing up the associate capacity.

Neal Goldner: We are also optimizing room cleaning and scheduling processes to standardize housekeeping operations across sites.

Neal Goldner: Nearly 70% of Marriott Vacations points reservations for stays out of resorts are being booked online, a substantial jump from just a few years ago.

Neal Goldner: We continue to expand our use of virtual voice agents to lower our costs at our call centers.

Neal Goldner: In this summer, we plan to launch the ability for our Marriott branded owners to seamlessly book directly into nearly any of Marriott's 9,000 plus hotels around the world using their vacation ownership points.

Neal Goldner: All of these initiatives are helping drive higher owner and guest satisfaction while lowering our costs.

Neal Goldner: Our forward-looking KPIs also give us comfort in our updated projections. I can consider your main strong and total keys on the books for the summer remain solid.

Neal Goldner: Tours continue to grow and in-house tour capture rates are higher than a year ago.

Neal Goldner: Package sales have remained healthy and we ended the quarter with nearly 265,000 packages, 35% of which have already been activated to take a tour this year, slightly higher than the same time last year.

Neal Goldner: and Lone & Maintenance V-Delinquencies are better than last year.

Neal Goldner: In terms of VTG, we made adjustments in March for first time buyers, and we saw those VTGs grow 10% Napro over last year, and we're making promotional adjustments to enhance the owner value proposition to drive owner VTGs.

Neal Goldner: While this is the most volatile economic environment I've seen in a while, our consumer remains strong and our forward-looking KTIs remain healthy. We are also focused on our initiatives to improve our tour flow and DTGs.

Neal Goldner: But given the lower contract sales, we experienced the start of the year. We thought it was prudent to update our four year sales guidance.

Neal Goldner: Looking out longer term, our business remains on solid footing with strong margins, positive free cash flow, a product that resonates with today's consumer, long-term growth of the deep opportunities, and the bulk of the benefits from our modernization programs still ahead of us.

Neal Goldner: We generate around 40% of our adjusted EBITDA contribution from very high margin recurring revenue streams which makes our results more consistent.

Neal Goldner: Meanwhile, in the short term, we're focusing on what we can control, including providing our owners and guests great vacation experiences, reducing our costs, executing on our modernization program, and continuing to invest for the long term.

Neal Goldner: With that, I'll turn it over to Jason to discuss or result some more detail. Thanks, John . Today, I'm going to review our first quarter results, our balance sheet and liquidity position, our cost savings and efficiencies initiatives, and our outlook for the year.

Neal Goldner: Total company revenue increased year-over-year, enabling us to deliver a 3% higher adjusted

Neal Goldner: In our development business, tours increased 1.5% and VPG was 4% lower, with half the decline due to a higher mix of first time buyer sales, while owner sales declined year over year, driven by lower rivals and slightly lower VPG.

Neal Goldner: As a result, total company contract sales declined 2% compared to the prior year.

Neal Goldner: First time buyer sales increased 6% year over year, which is good for the long term health of the system, though a negatively impacted or reported VPG this quarter.

Neal Goldner: Our sales reserve was 12% of contract sales in the quarter in line with our expectations and prior guidance.

Neal Goldner: As you might expect, we have been very focused on the link with these given the decline in consumer confidence but so far we've not seen any softness in our long book. In fact, the link with these at the end of the quarter improves 60 basis points on a year over your basis and we're lower again in April . [inaudible]

Neal Goldner: As expected, total company rental profit declined 10% year over year to $46 million with higher rental occupancy and increased transient revenue offset by higher unsold maintenance fees and other variable costs.

Neal Goldner: Management Exchange Profit increased 4% to $98 million, with increased revenue on our vacation ownership segment, partially offset by lower exchange revenue at Interpol.

Neal Goldner: Financing profit increased 6% driven by higher interest income, partially offset by slightly higher consumer financing interest expense.

Neal Goldner: And finally, corporate GNA decreased 3% compared to last year. As a result, total company adjusted EBITDA increased 3% to $192 million and margins were made strong at 23%.

Neal Goldner: Moving to the balance sheet, we ended the quarter with $865 million in liquidity and no corporate debt maturities until early 2026.

Neal Goldner: Our leverage was 4.1 times at the end of the quarter which we expect to reduce longer term to organic growth and benefits from our modernization initiative once the upfront investment spending normalizes.

Neal Goldner: Firstly, net leverage for covenant purposes was only 1.1 times at the end of the quarter, well below our three and a half times requirement.

Neal Goldner: We amended our revolving credit facility in March, upsizing it to $800 million and reducing the interest rate by 25 basis points.

Neal Goldner: And with our 0% convertible debt maturing in January next year, we added a $450 million delayed draw at Termful Own Facility, enabling us to take advantage of the 0% interest rate for longer while providing us optionality as we look to refinance it later this year.

Neal Goldner: We return $21 million in cash to shareholders in the first quarter. With our shares being materially undervalued, we increased our share by tax buying back 1.4% of our outstanding shares in the quarter. We also paid two dividends for $55 million in total.

Neal Goldner: And this week we closed on our first securitization of the year, issuing $450 million in ABS debt at a blended rate of 5.16% and a 98% advance rate.

Neal Goldner: Looking forward, we are updating our full year contract sales guidance with tours still expected to grow in the low single digits consistent with what we've seen this year, but for VPG to decline.

Neal Goldner: and while we feel confident with the mid-point of our updated contract sales range, VPGU would have to improve to hit the high end, which our initiatives are designed to do.

Neal Goldner: We continue to expect total company rental profit to decline around $15 million this year, and now expect corporate GNA to be flat to down slightly.

Neal Goldner: We are making great progress on our modernization and we are able to accelerate some of our initiatives increasing this year's savings to $35 million from $15 to $25 million previously.

Neal Goldner: We've also adjusted our inventory mix and now expect issues product cost increased to be more modest than we originally planned. We're also actively reducing cost elsewhere. In total, we now expect these changes to generate an incremental $40 to $50 million in savings this year.

Neal Goldner: As a result, we reaffirmed our Adjusted EBITDA guidance for the year.

Neal Goldner: We still expect to drive $75 to $100 million of annual runway cost savings and efficiencies over the next two years from our modernization initiative.

Neal Goldner: The savings will primarily come from updating IT systems, increasing automation, lowering procurement costs, and reducing overhead costs as we continue to optimize our organizational structure.

Speaker Change: We also expect to generate $75 to $100 million of adjusted EBITDA benefits from revenue initiatives that either improve VPGs, increase tours, increase occupancy or drive higher ADRs, some of which John already discussed.

Speaker Change: Moving to cash flow, we expect our adjusted free cash flow to be in the $270 to $330 million this year, excluding roughly $100 million of one-time cash costs related to our modernization initiatives.

Speaker Change: We also have 150 to $200 million of non-core assets we plan to dispose of over the next few years, including the Sharon and Kauai Resort and a retail parcel on YKK.

Speaker Change: So to summarize, we had a strong first quarter, despite the challenging operating environment driving higher year-over-year adjusted EVDA. Our team also did a great job providing memorable vacations for our owners, members, and other guests.

Speaker Change: Despite the external noise, our consumer remains strong, we're driving to our growth, occupancy remains high, and rental rates are holding up.

Speaker Change: We are also implementing a number of the revenue initiatives designed to improve VPG.

Speaker Change: It's times like this when I think the vacation ownership industry really shines, with a substantial portion of our profit and cash flow coming from high margin recurring revenue sources as well as most sales coming from existing owners, preview packages and on site guests.

Speaker Change: And our product continues to be a great value enabling people the ability to lock in a lifetime of family vacations at today's prices.

Speaker Change: We plan to participate in the Morgan Stanley , Steve Foll and Jeffery's conferences in June and we hope to see some of you there. And as always, our IR team is only a phone call or an email away. With that, we'll be happy to answer your questions.

Thank you, excuse me, thank you.

Speaker Change: If you'd like to ask a question, please press star 1 on your telephone gate path.

Speaker Change: A confirmation tone will indicate you're lying in the question queue. You may press start too if you'd like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: To allow for as many questions as possible, we ask that you each keep to one question. And one final thought, thank you. Our first question comes in the line of Ben Chaiken with Mizuho Security, please proceed with your question.

One round. Thanks for taking.

Ben Chaykin: Hey, good morning. Thanks for taking my question. I guess can you talk about contract sales in March or April ? To the extent you have that handy? I guess from the once you result based on how you started the quarter looks like contract sales were down around 4% in March. Is that directionally correct? And then what are your assumptions for the remainder of the year? Yes.

Ben Chaykin: Yeah, that's correct about 4% March and we saw it similar in April as we talked about with some of the first time buyer initiatives we put into place.

Ben Chaykin: The good news in April was we saw VPGs and contract sales up for first-time buyers in April with owners. The VPGs were down a little bit but very manageable and it was more tour flows I talked about we had.

Ben Chaykin: You know, slightly less owner arrivals in April , but we see that ramping up as we go through the year so that we'll get that tour flow going from a first-time buyer. And others are buying and we are going to adjust some of the promotions here on the owner side to offset some of the...

The lower VPG is that we had seen more recently.

Ben Chaykin: Got it. And then, and then obviously you have held EBITDA guide for the full year, and then some of the prepared remarks. You talked about some of the the cost saves that you had. I think you said 15 to 25 million of cost saves in the year that we're kind of part of the original plan, I guess.

Ben Chaykin: Then also maybe a lower assumption for cost of product. Maybe we could hit on that. We're just going at

Ben Chaykin: And then I believe it was a third-anked piece thrown in there, which was another 35 million.

Ben Chaykin: of efficiencies. If I caught that right, could we maybe dive into that 35? Is that also cost-related? Is that revenue-related?

Speaker Change: So I'll kick it to Jason here. The 15 to 25 in-the-year savings from the modernization was what we said last time. We think that will now be closer to 35 million of in-the-year savings and then to your question, which you kind of answered. Product cost is that we expect to be better than we originally anticipated. I have Jason talk a little bit about that.

Jason: Yeah, Ben, the product cost is really driven by some of the actions we took to adjust the mix of the inventory that we're selling as well as some of the additional lower cost repurchases that we're doing in the year are flowing through. So that's really how we're able to drive the product cost a little bit lower than our initial expectations this year.

Jason: Got him and maybe just a lot of things like that and everyone is good. And there wasn't another 30 your question there isn't another 35 million dollars that you called out by the way. 35 plus the additional product cost up that get you the you know closer to the 40 to 50 million.

Jason: Yep. Totally. Totally. I said appreciate it. And then on the contract sale side, just revisiting that. Is there anything outside the consumer getting better that you guys are doing internally that would accelerate revenue? And if so, maybe what are some of the items that would help in the year?

Jason: Sure, sure. Yeah, no, we're focused on continuing to drive tour flow, right, with different initiatives and incentives there. And then at the sales table, continuing to enhance the offer, drive the value proposition from a consumer standpoint. And as we do that, that should help with VPGs as well. So the teams are super focused, you know, regardless of the broader economic turmoil.

Jason: Oil, and things that we're seeing. We've got these different offerings and initiatives we're focused on to continue to drive DPG improvement.

Thanks.

Speaker Change: Thank you. Our next question comes from the line of Patrick Scholes with true securities. Please proceed with your question.

Great. Good morning, everyone. Thank you.

Thank you very much.

Speaker Change: Good morning. On the prepared remarks, you had noted adjusting inventory mix. Can you explain a little bit what exactly that means and how you plan to go about that? Thank you

Speaker Change: Yeah, thanks Patrick, Jason so as we just sort of talked about, it's a combination of lower

Jason: Cost Repurchases that are coming in this year, as well as some of the inventory that we have, we can modulate to sell different products, whether it's in Asia or the US.

Jason: you know, our points products versus some of the newer inventory and things like that. So it's really changing the mix of what we're selling. Everyone's got the same usage right through the abound program. So to the customer, it's.

You know, not really transparent, but we're allowed to...

Speaker Change: You know, we modulate that to drive the cost down a little bit since we had cheaper inventory available to sell. In fact, this is something we always do. We're always looking to get the best product cost, right? And so we're focused on that. We've been focused on that for the last 10 years, right, in terms of driving better product cost.

Speaker Change: I understand. Just a couple follow-up questions here. How do you feel about availability of new inventory at this point? I know if we go back a year or two, I believe it was the Weston brand that had been...

Speaker Change: A bit light on inventory. How are you feeling about availability of products across all your brand's new products?

Speaker Change: Today, thank you. Yeah, no, we're we're we're in a good good position on inventory. You know, as we talked about a few years ago, we did

Kit, a lot of our sales centers.

to the Marriott Vacation Points product, regardless of brand.

Speaker Change: But we still have inventory in the other trusts and we continue to do upgrades and buybacks and things like that of some of the legacy Western and Sheraton and resell the MVCD. So there's inventory in all the products so we're able to.

You know, get the owner what they want to buy.

Okay, so you're still comfortable on that.

Speaker Change: Shifting to buybacks, but in another variety that being shared with purchase, buybacks look like you bought that about 1% in the quarter, which is a fairly step up. I know you had been.

Speaker Change: The priority had been to get the balance sheet back closer to target. How do you think about that for the rest of the year here? Will you continue to see? The priority had been to get the balance sheet back closer to target.

Speaker Change: Modest, I would call modest amounts of share repurchases, you know, going forward, we don't really have how should we think about that? What's your expectation? And in comparing contrasting, you know, we're getting that.

Getting back to pocket leverage as well. Thank you.

Speaker Change: Yeah, I think Patrick, that's right. I mean, obviously, as we saw the the share price is decline here in March and then obviously continue in April . We as we said in the prepared of March, we think it's materially undervalued for what we're doing with the business and the long-term prospects of growth as well as cash flow generation. So

Speaker Change: Obviously we're more comfortable operating in this leverage, we've talked about that for a few quarters now up at the four times area long term and the goal is still to get that leverage closer to three times but you know the opportunity here is [inaudible]

Speaker Change: is the shares in our opinion are cheap and so we're going to have to balance all of those capital priorities as we move forward.

Speaker Change: Thank you. Our next question comes from line of David Katz with Jeffries. Please proceed with your question.

David Katz: Good morning, thanks for taking my questions, appreciate it.

David Katz: So a lot, a lot from the remarks I wanted to touch on, you mentioned that you're getting a little better, you know, tour flow activation, just curious sort of what you're maybe doing to drive that, or, you know, is there something different about the packages, and I would ask the same question, I think Jason mentioned.

David Katz: You know, some less expensive acquisitions, I think was the comment and I'm just curious, you know, if you're doing something to drive that or it's just sort of happening more organically.

David Katz: Yeah, no, it's a lot of the data and analytics work. We continue to leverage targeting the right people that are going to be the best tours. I have the highest propensity to buy and then even evaluating our packages after they're sold to prioritize and how we rank the different packages and likelihood to buy so that's been an ongoing focus. We can continue to get better at that and we're rolling out some additional data and . . . . . .

David Katz: Analytics to continue to improve. Like we've always said, it's making that right offer to the right person at the right time, and that's where having the right data and being able to do that to improve the package pipeline and who we're making those offers to. Thank you.

David Katz: and then on G. So on the, yeah, David on the inventory side, it's really where we've taken a fresh look at some of our repurchase programs that we have from owners and we're changing some of the [inaudible]

David Katz: and some of the costs of that as we operate it to the owner. So still giving owners an off-ramp, but we're modulating the prices on how we buy some of that inventory back to drive that cost lower.

Speaker Change: Understood. And if I can just ask about the comment about non-core asset sales, I know you've done some of that in the past that, you know, this seems to be incremental or new. Would you mind just sort of talking about that process and sort of what's being sold and how we got there?

Speaker Change: Sure, we've got a number of assets. The two of the larger ones, which Jason mentioned, is in the

Speaker Change: You know, contractually and working through getting that position to sell and so we're going to get that on the market. But that was one that we'd always identified as an excess of.

Speaker Change: You know, kind of asset, if you will, from that I.O.G acquisition. And then the other bigger one is in YTK, the resort that we opened last year. First couple floors of retail. And so we've got the option. There's no reason to own the retail and that's another big disposition that we're focused on right now. And then there's a handful of other things that we've gotten in the acquisitions out of smaller that we are positioning and can get those out to the market as well. And so we've got the option. We've got the option. And so we've got the option.

Okay, thanks very much. Appreciate it. Yeah, thank you.

Speaker Change: Thank you. Our next question comes from the line of Stephen Grahamling with Morgan Stanley . Please proceed with your question.

Stephen Grambling: Hey, thank you. I may have missed as even the remarks are somewhere in the release, but I mean, I guess given all the focus on new owners, any details on kind of where owner growth has been trending and is running kind of targets in terms of where you think owner growth should be.

Stephen Grambling: Just to understand you, when you say where owner growth should be in terms of

Stephen Grambling: I just want to make sure I make the Neal Versus. How much do you need to add to to basically we all have that any kind of attrition, natural attrition.

. . . . .

Stephen Grambling: Yeah, we're continuing, as we said, to drive that mess. We've done it the last couple quarters. I expect us to continue to do it. Get it above that 35.

Stephen Grambling: 40% would be awesome. The more first-time buyers, as you've always talked about for the long-term health of the system, is very important. So, we don't have a set number. We're going to continue to...

Stephen Grambling: to do the best to drive the mix towards first-time buyers but also drive our development margin.

Stephen Grambling: DPGs for first-time buyers or less than what they are an owner, so it's a higher customer acquisition cost if you think about it that way, but it's the right thing to do and we're going to continue to focus in on that.

Stephen Grambling: Accelerate DPGs based on some of the issues that you're talking to. That's the balance.

That's right.

Stephen Grambling: But as we talked about, even in our prepared remarks, we're not assuming huge VBG growth on a year of a year basis from here, right? So we did assume VBG was down for the rest of the year, at the midpoint, at the higher end, it's probably closer to flat to up a little bit, right?

It should be, it should be up, let that.

Okay, great. That's helpful. Thank you.

Speaker Change: Thank you. Our final question this morning comes from the line of Shaun Kelley with Bank of America. Please proceed with your question.

Sean Kelly: Hi, good morning, everyone. Thanks for taking my question. Just two for me. So first off, just to kind of finish off on Steven's point, just a level set for contract sales for the year. The change in the contract sales roughly 100 million at the midpoint. Is that just, you know, higher first time buyer mix, lower VPG? Is that the assumption that kind of we should now be using? Right.

Sean Kelly: I mean, that's a component of it, right? It's really more, also, as we talked about, just kind of how we started the year for the first three or four months and being down a little bit.

Sean Kelly: You know, Nat, to get to the midpoint or to the higher room, we're going to drive higher VPGs.

Sean Kelly: Increase more owner sales than we did in the first quarter. That's in the mix as well, but the overall mix of first-time buyers to owners, I expect that to continue to remain higher. As we got a strong package pipeline, we're seeing good VPGs from owners, which is typically where you would see softness. So we're continuing to drive that first-time buyer.

Speaker Change: Great. And then just going back to the inventory point, I just want to be crystal clear on this. So what you're doing is are you just paying owners who when you're recycling inventory and buying back you're just paying them less and then that is effectively lowering your weighted average product cost and I'm just trying to understand relative to the size of your inventory. How quickly does that flow through it seems like that would be going to be?

Speaker Change: Very fast for you to be able to make a change in a relatively short period of time that would affect all of your weighted average product costs. I just don't quite understand the mechanic.

Speaker Change: Yeah, that's a component of it. It's also, as we talked about, shifting the mix of what we're selling as well. And so it's kind of twofold.

Okay. Thank you.

Yeah.

Speaker Change: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Geller for any final comments.

John Geller: Thank you, everyone, for joining our call today. We had a solid start to the year with adjusted EBITDA, exceeding our expectations in first time by our contract sales growing 6%. We're also making good progress on our modernization initiative, which we expect to generate 150 to 200 million of adjusted EBITDA benefit by the end of 2026 on a run rate basis.

John Geller: Our business modernization is running ahead of plan and we have accelerated initiatives to drive more of the savings into the current year. We are also focused on cash flow and optimizing inventory as well as corporate cafe expending.

John Geller: And while the current economic environment could stay around for a while, our business and customers remain strong, and 40% of our justity with the contribution comes from sticky recurring revenue sources, high margins, positive free cash flow, and strong owner satisfaction scores.

John Geller: On behalf of all of our associates, owners, members, and customers around the world, I thank you for your continued interest in the company and I hope to see you on vacation soon. Thank you [inaudible]

John Geller: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.