Q2 2025 Marriott Vacations Worldwide Corp Earnings Call
Greetings and welcome to the Marriott Vacation worldwide. Second quarter 2025 earnings call. At this time. All participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you require operator assistance, during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host Neil goldner vice, president investor relations. Thank you Neil. You may begin.
Thanks Alicia and welcome to the magnifications. Worldwide, second quarter earnings call. I am joined today by John, Della our president and chief executive officer and Jason Marino, our Executive Vice President, and Chief Financial Officer.
I need to remind everyone. In many of our comments today. I'm not historical facts and are considered forward-looking statements under Federal Securities laws.
A statement is subject to numerous risks and uncertainties which could cause future results to differ materially from those expressed in or implied by our comments.
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.
Throughout the call, we will make references to non-gaap 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 Belair.
Neil. Good morning everyone and thank you for joining our second quarter earnings call.
We delivered 203 million in adjusted ebit in the quarter and reiterated our full year. Guidance reflecting the continued demand for leisure travel. The resilience of our business model and the hard work of our Associates around the world.
The first half of the Year, we're certainly interested in yet, despite all the external noise, Leisure customers continue to prioritize vacation and our team focused on what it could control providing great experiences for our owners members and guests while executing on our modernization program.
Exiting the first half of the Year our business is well, positioned. We're the only Vacation Ownership company, focused solely on the upper upscale part of the market. Our owners have a medium, an annual income of 150,000, and more than 80% of them do not have a loan on their time share. So we are confident, they will be vacationing with us.
In our exchange business, includes most of the top tier names in the time, share industry.
Quickly reviewing the quarter. We delivered nearly 90% Resort occupancy with strength, seen in Maui Coastal, Florida, and the Caribbean while Vegas was relatively weak.
We made further progress on our modernization initiative and remain on track to deliver 150 to 200 million dollars in run rate benefits by the end of 2026.
with half coming from revenue initiatives in the other half coming from cost savings and efficiencies,
As we've talked about the second quarter. Started off soft, but Trends improved as we progressed through the quarter, as a result, contract sales were down less than 1% for the quarter and Improvement compared to q1.
First-time buyer sales were up year-over-year. Our fourth consecutive quarter of higher year-over-year, first-time, buyer sales and a particularly excited about this trend as new owners tend to buy additional points over time.
First time buyers represented a third of total contract sales in the quarter up, 200 basis points from a year ago, reflecting the success of our new owner strategies.
Owner sales were down year-over-year, due to lower vpns.
While owner tours were flat.
As you know, late last year we announced a modernization program that we believe can deliver an incremental 150 to 200 million dollars in adjusted Eva to benefits.
On a run rate basis by the end of next year.
Right size our cost structure, optimize our it platforms and provide the foundation to drive growth in our Leisure focused business.
We expect half of the benefit to come from cost savings and efficiencies while the other half will come from revenue initiatives.
And while most of the expected benefit is still ahead of us, we are making great progress.
For example, during the second quarter, we launched an expanded number of revenue initiatives, including expanding our enhanced call transfer program across scenarios system, resulting in our best package sales quarter since the pandemic. This should help drive future sales.
We also increase our use of non-traditional channels through a combination of Road shows virtual tours and other events accounting for over 13% of our total contract sales in the quarter.
We expanded our new owner experiences Campaign which contributed to higher first-time buyer. Vpg we also implemented a campaign to drive additional near-term owner. Stays driving incremental, tours,
And soon we plan to start using FICO score, score, score data for marketing purposes, which should help which should result in higher vpg and improved credit metrics.
With our data and analytics and marketing and sales teams working together, we built and deployed an AI based propensity model focusing on renters, most likely to become owners which we believe will help Drive higher sales.
We are also using internally developed Advanced analytic, predictive models, to better support our sales execs, and we are also rolling out new sales training.
And we introduced a refundable getaway pricing option at Interval International, which we will believe, which we believe will drive higher rentals and profitability over time.
In total, we expect these and other revenue-enhancing initiatives will help us deliver $75 to $100 million in incremental EBITDA by the end of next year, on our run-rate basis.
We also expect to deliver another 75 to 100 million dollars from cost savings and efficiencies.
We expect significant savings to come from retiring Legacy technology debt, which will lead to efficiencies and how we run the business eliminating manual processes and taking costs out that are currently required to maintain these Legacy systems. We also expect to deliver substantial benefits from increasing automation lowering, procurement costs. Reducing overhead costs including corporate GNA and optimizing our organizational structure.
And while not part of our expected, 150 to 200 million dollars, IBA benefit early indications. Suggest maintenance fees are Point. Space products, may be flattish. Next year partially due to our modernization initiatives, which enhances the overall value proposition for our owners as well as our first-time buyers.
But just as important as the momentum we've built in our early successes, we're changing how things get done, increasing the speed of decision-making and driving accountability. I'm pleased with the way our Associates have embraced the new ways of working.
Looking forward, occupancy is expected to remain high.
Tour capture rates are increasing and owner keys on the books for the second half of the year look strong.
A majority of owner, Villa reservations are now being done online and we expect that to grow further loan loan delinquencies. Continue to Trend down gets satisfaction scores, remain strong, and we ended the quarter with nearly 270,000 packages in our Pipeline with almost 30%. Scheduled to take a tour in the second half of the Year. Providing us Good Tour visibility
Contract sales increased slightly in July compared to June on higher tours and stable. Vpg and the team is focused on ramping up a number of new sales, initiatives scheduled to launch in August as well as increasing investment in sales training.
Looking out longer term despite the noisy environment, Leisure consumers, continue to prioritize, travel and timeshare remains a great value. For many of them.
As the only upper upscale player in the industry with the best collection of Brands, we believe our company is uniquely positioned for long-term growth. Offering a product that resonates with today's consumer that is looking for space and experiences combined with Brands they Trust
Despite some up and ups and downs, our long-term financial model hasn't changed.
Lever, our fixed costs to improve margins and use our free cash flow to reduce leverage and buy back shares.
Over time, that should result in high single digit to load, d, double digit EPS growth and with the bulk of our modernization benefits. Still ahead of us, we should be able to do better than that for the next few years.
With that, I'll turn the call over to Jason to discuss our results in more detail.
Thank you, Sean. Today I'm going to review our second quarter results, our balance sheet and liquidity position and our outlook for the year.
Contract sales were down less than a point with 2% higher. Tours offset by lower vpg.
first time, buyer sales, increased 6% driven by higher tours and higher, vpg while owner sales declined 4% on Lower vpg
As you know first time buyers typically carry a lower vpg than owners. So the growth in first-time buyer sales negatively impacted vpg in the quarter.
Our sales Reserve was 13% of contract sales in the quarter.
With delinquencies declining, 50 basis, points sequentially and 110 basis, points year-over-year to the lowest levels in 2 years.
For the full year, we expect our sales Reserve to be in the 12 and a half percent range.
Development profit, more than doubled compared to the prior year. Reflecting last year's 57 million. Net sales, Reserve adjustment. Excluding that development profit declined, 11% year-over-year due to lower vpg and higher marketing, and sales cost.
Partially offset by lower product costs, as a percent of Revenue.
Total company rental profit, declined, 7 million, or 16% to 35 million driven by increase, on maintenance fees and marketing expense part.
Upset by higher adrs.
Management and exchange profit. Increased 3% to 98 million with increased revenue and our Vacation Ownership segment, partially offset by lower exchange Revenue at interval.
Financing profit increased 7% to 53 million.
Corporate GNA was flat excluding the 7 million dollars of lower variable compensation related to the sales Reserve adjustment last year.
And adjusted even without increased 29% to 203 million with margins, improving 360 basis points as we laughed last year's sales, Reserve adjustment.
Moving to the balance sheet, we ended the quarter with leverage of 3.9 times and 800 million dollars in liquidity.
A 0% convert matures in January, next year. And we've already backed up the majority of it with a delayed draw Term Loan, facility. Providing us optionality. As we look to refinance it later this year.
We were precluded from buying shares during most of the quarter, but you should expect us to be opportunistic buyers of our own shares in the future as benefits from the modernization are realized.
Looking forward. We are maintaining our full year, contract sales and adjusted even our guidance.
We expect product costs this year to be flat as a percent of contract sales, reflecting our first half results.
We now expect rental profits to decline around 20 to 25 million due to the higher cost of rental inventory. And we also expect corporate GA to be flat to down slightly this year.
Our modernization program is progressing well, and we still expect to deliver 150 to 200 million dollars in run rate benefit by the end of next year.
For modeling purposes. We still expect to generate 35 million in p&l benefit this year with an additional 60 million to 80 million coming next year.
And the full run rate in 2027.
Moving the cash flow.
We still expect our adjusted free cash flow to be 270 million to 330 million this year. Excluding roughly 100 million dollars of 1-time cash costs related to our modernization initiatives. We acquired 52. Completed time, share units in KAC Thailand for 30 for 43 million during the quarter.
We still have a number of non-core assets that we plan to dispose of over the next few years, which we estimate could be worth $150 million to $200 million. Our team has been working hard to monetize them.
The hundred million dollars of spending already designated to the modernization program. Through the end of next year, we plan to use proceeds from any assets dispositions to repurchase shares of reduced Leverage.
We ended the quarter with 1 billion dollars of inventory. On the balance sheet looking ahead, we have 310 million dollars of inventory commitments, due over the next few years, including payments for Wy ki our second phase of kylo additional units in Bali in a new Nashville Resort, which is scheduled to open in 2027.
Beyond that. We plan to restrict our inventory spending to low-cost reacquired inventory, as well as capital efficient Arrangements where we don't pay for the inventory and still we start sales and where we can add a new sales Gallery which helps Drive future sales.
Our goal is to get close to the 1 and a half to 2 years of inventory, on the balance sheet.
So to summarize we ended the quarter strong and while the environment is still somewhat fluid, we remain focused on what we can control including ensuring our owners members and guests have great vacation experiences while ex also executing on our modernization program.
With that, we'll be happy to answer your questions Alicia.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad, a confirmation total indicate your line is in the question queue. You may press star 2. If you would 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.
1 moment, please, while we pull for questions.
Thank you. Our first question comes from the line of bed. Check in with meizuo, please proceed.
Hey, good morning. Thank you for taking my questions. Hey, hey, good morning. Um, just what, what to dig in on contract sales for a moment. Um, from what we can tell, just based on some of the commentary you gave last quarter or an inch, a quarter, seems like June contract sales were positive, maybe in the low single digit range. Um, was there I guess? Is that? Is that correct? And then was there a is that a sequential acceleration versus
May and that or or was it um, more comprehensive and then just to confirm
did you say July was better than June? Did I catch that right? Thanks.
Yeah, the July contract sales were up slightly from June uh going back to your other question. Uh yeah, June was up.
3% year-over-year. Um, and sequentially? Um, yeah, it clearly improved because as we had talked about we were, we were down 4% in April. We said that on our last call, um, and we were down 3%, in May, which we didn't say how much. But we had said, we had gotten a little bit better. So there was, you know, some acceleration. Um, June was, uh, a bit of an easier cop year-over-year. I I would say that if you remember last year, that's where you know, we saw some of the first time buyer had ones, uh but net net. Um, good acceleration as we came through the quarter and down a little bit less than 1%.
Got it understood. And then I believe in the prepared remarks, um, you mentioned a 12 and a half percent, loan loss, provision at the expectation for the year. Can you just remind us? How does that compare to your previous expectation? And then maybe parallel to that, I believe you mentioned that maintenance fees should be flattish in 26 um in in part because of some of the modernization. Um initiatives do you do you think that
Will show up in I guess like theoretically should that show up in an improvement in loss provision, thanks.
Yeah, been. So the 12 and a half is about a half a point higher than our, our previous guidance, which was about 12 for the full year. Um, you know, the modernization and and the lower maintenance fees. You know, we certainly if you go back a couple years, think some of the delinquencies that we had, were attributable to the higher than normal inflationary increases or the higher inflation. So we do think that will help, um, going forward. But, you know, the loan books in good shape is, is we talked about with delinquencies down, you know, to really the lowest levels in 2 years, both on a sequential and a year-over-year basis being down, you know, pretty materially 100 B, 110 basis points you over a year on the delinquency. So we feel good about where the loan book is, yeah. You know, the, the keeping the maintenance fees, not, you know, flattish. Um, you know, just big picture that obviously helps with the value proposition, right? Maintenance, fees that component of the long-term cost of prepaying, or, or buying time share. So, um, you know, we everything we can
do to continue to enhance the value proposition. We think it, you know, helps from a sales perspective, hopes from an owner satisfaction perspective should have, you know, some impact, hopefully, positive on our loan loss. Um, so it it is and will continue to be a focus.
Thank you. Our next question comes from the line of Patrick Souls this tumor Securities. Please proceed.
Hi. Um, good morning, um certainly um vladish maintenance fees, welcome news after I think I was up uh mid teens a couple years ago, but definitely attest to the value proposition there.
I've seen some uh headlines here uh, about an expanded owner benefit that being ability to use Club Points to directly book stays uh at thousands of hotels. Um, around the globe is that for, is that an earnings needle, mover for you folks? Um, you know, will that actually show up in IBA dog growth?
How do we think about that? Yeah, no. It's, it's really, it's really more optionality for our owners, Patrick. But, before, uh, we had a couple hundred Marriott hotels that we offered people to, to use their ownership points to book into. Um, it was a bit of a manual process, you had to call um, and this really automates that but more importantly opens up, most of the Marriott system or Resorts where. Like I said, it was limited. Um, nobody you know, I've said this before, you know, exchange options, give people, you know, additional ways to vacation. They're they're never going to be the me the best value option for an owner. That's always going to be staying within our, you know, 120. You know issue Resorts around the world because right, we've got to take those those weeks, pay for the vacation and then we've got to rent it to to offset the cost of the owner's vacation. So, there's
There's value leakage from an owner perspective but um, it does give the owner just more options. Uh, if they if they want to stay outside the the Vacation Ownership system.
Okay. So sort of add that into the the value proposition of the product. Um, yeah.
Follow-up question and then I'll hop back in the queue. I I think I heard you mentioned. You were precluded from buying shares in the most recent quarter. Can you provide any color on why that was thank you.
Yeah, no. Um, like any any time there can be blackout periods, uh, for different things. So we've never publicly, we've had them in the past. We've never publicly commented on when we're in the market, when we're not in the market, we just thought, because early on in the quarter, obviously the, uh, the stock price was, uh, very low on, on a relative basis and and we were we were blacked out at that point. So um, going forward, you know, we'll we'll continue to be opportunistic, blacking out uh or excuse me, buying back shares uh as as we as we look at the right opportunities.
Thank you. Our next question comes from the line of brand Montour was Barkley's, please? Proceed. Thank you very much. Um, good morning, thanks for taking my question, so I wanted to Circle back on the contract sales, um, commentary earlier in the guidance, uh or sorry, the June July commentary and I think that that was pretty um clear. What what you were saying? John about June through July, um, but it is it did feel like, you know, it did feel like Trends got better. Um, the contract guidance, uh, contract sales, uh, growth guidance, you guys gave was unchanged. Just curious. If, if that, if you feel any better about about that guidance range, um, with or was that just the sort of acceleration, uh, month-to-month that you would already sort of baked in
Yeah, I mean we we we felt you know at the midpoint of call down 1 and a half that's where you know halfway through the year we're we're still down and obviously we were down in in the second quarter so we're hoping we we do better as we move through the year but there is still you know some broader macro uncertainty. Obviously yet the the jobs report stuff last week, things like that. That probably um, you know
Keep us a little bit on the, you know, we got to continue to move through the year and and deliver on the contract sales.
Okay, thanks for that. And then maybe for Jason and maybe I missed this earlier. I think you did say that loan loss provision guidance went up, 50 basis points from 12 to 12 and a half percent. I'm just trying to sort of square that against um against the commentary in the quarter where you said delinquencies were at a 2-year low and that they got better. Uh so why did I guess why did the loan loss revision? Go up for the year unless I unless I missed something there.
Yeah. So uh
What, we're what?
Half million and a quarter. So um, not big dollars at 2 and a half million, but that is about 60 basis points on a contract sales basis. So just for overall context, as we expand our, our loan book is our, we expand our Asian business. Uh, that loan book right now is about 150 million on Gross notes of about 3 billion dollars. So still a relatively small portion of the overall book. So that's what we saw in the second quarter and that informed, some of the guidance going forward to the 12 and a half. So we we continue to focus. You know, as Jason mentioned delinquencies are down. They're at a at a 2 year low, which is all positive, um, but they're still not kind of back to where we'd like them to be. So hopefully the trends continue and and uh if we can continue to get the delinquencies back down to more, you know, 22 level. Before we started seeing some of the issues that will give us more confidence to take a look at the overall Reserve going forward.
Thank you.
Our next question comes from the line of Steven grabing with Morgan Stanley. Please proceed
Hey thanks, just want to clarify. Um, you made this comment about
Being more efficient around inventory and and taking down the the amount. Um, you know, years on hand, you know, what are the implications to cost of voi? Not just this year, but as we look, maybe, uh, further out, should we be assuming that that cost of voi actually, as a percentage of
You know, contract sales will come down or what are some of the puts and takes to think through.
Yeah. So as we uh I think you're referring maybe to the cash flow guidance game down about 10 million on the inventory spending, I think you highlighted that and you know, and then um, you know, we've been consistent in saying that we want to get our inventory levels down to that 1 and a half to 2 years on hand. Um, so I think all of that is, is consistent with our, you know, kind of how we've talked about inventory, and how we think about it, uh, going forward. You know, also as we've talked about it, we do see our cost of inventory, ticking up slightly over the next few years. As, uh, you know, the mix of inventory changes incorporating. Some of the new inventory that we're purchasing like Wicca and and some of the projects in Asia. So um, that's what we see over the long term again. It's not going to rise very quickly, but we do see over the next 3 to 5 years, probably a slight increase in our product costs going forward. And that's pretty consistent with how we talked about it in the past.
Got it. Okay. I thought that was maybe something new on the efficiency. There 1, 1, other unrelated question. Um you know Harley-Davidson just signed a partnership with KKR and Pimco to to basically sell a portion of its financing receivables for 1.75 times book and also um rather than securitize actually sell to them at a premium. I guess I'm curious how do you think about the value? You know book of your financing receivables relative to book value and maybe the rise of
You know, private credit markets and maybe potential, other opportunities to maybe be more efficient on the uh securitization front. Thanks.
Yeah, uh, I'll start in Jason can can add anything here as well. Um, you know, we're always looking, you know, whether it's our financing business or anything. How do we, how do we maximize the long-term value for our shareholders? So we've looked at a lot of stuff with the financing business over the year and we'll continue to look at it. Um, what I can tell you high level? I think our Securities are a lot more efficient than, maybe, what you Harley-Davidson was doing. I mean, we get a 98% Advance rate, um, and I think the, the real question is, how you think about that is, you know, bringing in a third party, they've got a cost to Capital. What's that going to cost you versus um, you know, maximizing our profits on our balance sheet and we'll continue to evaluate all
All those opportunities and it makes sense from a shareholder value creation. We would definitely take a look at it.
Thank you.
Our next question.
Comes from the line of David Katz with Jeffrey's please proceed.
Conservative in there, or a bit more conservative than you were? You know, the last time we talked about it, could we just elaborate a bit more? Thank you.
Yeah, you know David you say conservative I you know I think there is a bit of unknown like I I was saying earlier while the Lincoln sees continued to Trend better uh and you know we're we're seeing them as low as they've been in 2 years they're still higher right than they were back in 22. We want to see continued to Improvement and then I think
If we get that continued Improvement, then we'll, we'll look at, uh, you know, our Reserve going forward. So I don't know if you want to say that conservative. It's not really being conservative per se, as much as reacting, to what we're seeing and, and getting our delinquencies back down to where we see them, seen them historically,
Uh, okay. Thank you very much.
Okay.
Thank you.
Our next question comes from the line event check in with Mizzou please proceed.
Hey, thanks for letting me sneak back in here. Um, you had some positive commentary on on Maui in the prepared remarks. I guess, what are you seeing from a sales perspective? You know, we haven't talked about this in a while because I don't think there's been much to share. But is there any maybe quantitative way to frame where we are versus maybe pre?
Fire or where we are in the recovery process, just somewhere to some way to gauge. Thanks?
Sure, sure. Well I'll start overall with Hawaii. So I had a strong quarter year-over-year, um with contract sales rep vpg tour. So uh, was is 1 of our bright brighter spots in the quarter so that that's good. I'd say on Maui, a couple things I think on the on the transient side um, occupancies were up year-over-year, which was good and rate was up, uh, 89%. So that was all positive on the rental Side sales in Maui were kind of flat verse last year. And, you know, some of the the lingering stuff we've talked about, which is our owners, uh, coming in back into Maui or, or getting better, but still kind of below where they were, uh, as well as some of the packages. Uh, and then also, uh, we've got that repiping project at the uh, Maui Ocean Club, which is taking units out, that'll that'll get wrapped up, you know, call it first half of next year. So a bit of noise out there
And, you know, I'm happy to say there was, uh, you know, a wildfire that occurred yesterday in Maui, that was put out fairly quickly, but that risk is still out there. Happy everybody's safe out there. But, uh, did impact those. We had to close sales for the day. Um, and there were some power outages and stuff. So something more, we, we, we, uh, continue to pray for the best out there, but, um, uh, overall Hawaii was
Was uh, pretty strong in the quarter on a relative basis.
All right, I think that does it for the the questions. So, thank you everyone, for joining our call today.
We delivered another solid quarter with strong occupancies and increased first-time. Buyer sales, our modernization initiatives are taking root and we have a lot of new plans scheduled for the second half of the year. So we are well positioned to deliver on our guidance. This year, we're also making good progress on our modernization program and remain on track to deliver 150 to 200 million dollars. In incremental run rate, adjusted adjusted IBA by the end of next year on behalf of all of our Associates owners members and guests 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.
Thank you, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.