NYSE:VAC Marriott Vacations Worldwide Q4 2023 Earnings Report $55.74 +2.68 (+5.05%) As of 04/24/2025 03:59 PM Eastern Earnings HistoryForecast Marriott Vacations Worldwide EPS ResultsActual EPS$1.88Consensus EPS $1.80Beat/MissBeat by +$0.08One Year Ago EPS$2.74Marriott Vacations Worldwide Revenue ResultsActual Revenue$1.19 billionExpected Revenue$1.15 billionBeat/MissBeat by +$48.62 millionYoY Revenue Growth+0.50%Marriott Vacations Worldwide Announcement DetailsQuarterQ4 2023Date2/21/2024TimeAfter Market ClosesConference Call DateThursday, February 22, 2024Conference Call Time8:30AM ETUpcoming EarningsMarriott Vacations Worldwide's Q1 2025 earnings is scheduled for Wednesday, May 7, 2025, with a conference call scheduled on Thursday, May 8, 2025 at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Marriott Vacations Worldwide Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 22, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Greetings, and welcome to the Marriott Vacations Worldwide 4th Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Operator00:00:23Neil Goldner, Vice President, Investor Relations for Marriott Vacations Worldwide. Thank you. You may begin. Speaker 100:00:31Thank you, and welcome to the Marriott Vacations Worldwide 4th quarter 2023 earnings call. I'm joined today by John Deller, President and Chief Executive Officer and Jason Marino, our Executive Vice President and Chief Financial Officer. I need to remind everyone that many of our comments today are not historical facts and are considered forward looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our comments. Forward looking statements in the press release that we issued last night as well as our comments on this call are effective only when made and will not be updated as actual events unfold. Speaker 100:01:16Throughout 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 as well as the Investor Relations page of our website. Before I turn the call over to John, as you saw in our earnings release last night, with 4 vacation ownership resorts in West Maui, the wildfires had a negative impact on our results in the 3rd and 4th quarters despite having no physical damage to our properties. We added a table to our earnings release last night to illustrate the impact of the wildfires on our business. In addition, during last year's Q3 with the launch of a Bound by Verifications, We aligned the contract terms for vacation ownership sales across our Marriott, Westin and Sheridan brands. Speaker 100:02:11We also aligned and combined our accounting methodologies for the reserve on vacation ownership notes receivable for these brands. These changes, which we refer to as the alignment, resulted in a nonrecurring benefit of $7,000,000 to last year's 4th quarter adjusted EBITDA. The schedules we provided last night illustrate what our results would have been for the prior year without this benefit. With that, it's now my pleasure to turn the call over to our CEO, John Geller. Speaker 200:02:43Thanks, Neil, and good morning, everyone, and thank you for joining our Q4 earnings call. As you saw in our press release last night, we ended the year on a positive note with contract sales increasing 4% year over year adjusting for the estimated impact of Maui. We're also very encouraged with how fast travelers have returned to Maui with occupancy during the month of December approaching the prior year. Housing in Maui continues to be a challenge for residents, including many of our associates. Fortunately, our operations team was close to fully staffed as we entered the New Year, though only approximately 75% of our sales organization was back to pre fire levels. Speaker 200:03:28Throughout last year, we worked with owners to educate them about the benefits of the Abound by Marriott Vacations program, while at the same time, our sales executives gained experience selling under Abound. Today, more legacy Sheraton and Weston owners are using the Abound program, enabling them to experience its many benefits. VPG, excluding the estimated impact of the Maui fires, was in line with the prior year, a meaningful improvement compared to where we were just a few quarters ago. And at this point, the impact of the abound transition is behind us. 2023 was also an exciting year for our Hyatt business. Speaker 200:04:10We brought our 22 Hyatt Resorts together under the Hyatt Vacation Club brand, unified our customer touch points and introduced the Beyond program, which provides owners more vacation options. We also expanded our highly successful preview booking engine and will continue to replace inefficient off premise marketing channels with more efficient branded channels. This will enable us to grow tours and increase VPG in our Hyatt vacation ownership business this year, allowing us to better leverage our marketing and sales spending. First time buyers represented roughly half of our tours last year and nearly a third of our contract sales. As we continue to focus on driving new owner growth. Speaker 200:04:56We also ended the year with more than 250,000 packages in our pipeline, which is an all important driver of future sales. We saw strong growth in our international business last year with contract sales growing more than 50% and we expect strong growth in Asia Pacific again this year as the market continues to recover. On the development front, we announced 2 new domestic Westin Vacation Club projects, Charleston and Savannah, each of which will bring a new sales center when they open in a few years. We'll also be opening our 1st Marriott Vacation Club Resort during the second half of this year, which comes with a new sales center as well. On the international front, I'm happy to announce that we recently signed an agreement for a 58 unit expansion at 1 of our existing Marriott Vacation Clubs in Bali, bringing our presence in that destination to nearly 200 units. Speaker 200:05:56And our team is actively working with other new on other new development opportunities to grow our resort portfolio. In our Exchange and Third Party Management segment, Interval ended the year with approximately 1,600,000 active members, in line with the prior year, while average revenue per member increased year over year for the Q3 in a row. On the inventory front, we've been working closely with our developer partners to stimulate supply earlier in the year, which we hope will drive higher inventory utilization and exchange transactions. Despite the growth in leisure travel over the past few years, 92% of Americans recently surveyed said they plan to travel as much or more this year as they did last year. And demand for international travel continues to be strong. Speaker 200:06:50While demand for domestic travel has normalized, it does appear that travel will benefit from a more lasting shift in spending with consumers prioritizing experiences. As a company whose sole focus is providing memorable vacations for our owners and guests, that puts us in a great position to grow. At the same time, GDP is growing, consumer confidence remains positive, wealth indicators such as the stock market and home values remain robust and inflation is normalizing, all of which is good for us. Looking forward, we've got a great business with the exclusive rights to use the Marriott, Sheraton, Weston and Hyatt brands in our vacation ownership business with products that resonate with customers and opportunities to continue to evolve our core offerings to meet the needs of today's consumer. We also made significant changes in our business last year that are the right strategic decisions to help position us for growth. Speaker 200:07:51We took actions to realign our organization to best deliver long term results, including hiring a new CIO to drive our IT transformation efforts, while revamping our organizational structure to create efficiencies. We also welcomed our 1st Global Head of Data Analytics to help us find new ways to unlock the power of data, while also providing more self-service options for our owners. Our Marriott Vacation Club brand will celebrate its 40th anniversary this year and continues the bold vision to change the way people vacation. I've also had the opportunity to meet many of our associates around the world in my 1st year as CEO and the energy and passion our teams bring to delivering consistently exceptional vacation experiences is apparent in each of them. As we enter 2024, we're also watching our summer bookings closely given the change in travel patterns we saw last year. Speaker 200:08:49Right now, our keys on the books for the summer months in North America and international are up a few points, which is encouraging, but it's still early days. With that, I'll turn the call over to Jason to discuss our results. Speaker 300:09:03Thanks, John. Today, I'm going to review our Q4 results, the strength of our balance sheet and liquidity and our 2024 outlook. Starting with our Vacation Ownership segment. Contract sales in the 4th quarter declined 2% year over year, but increased 4%, excluding Maui. VPG was down 2% year over year but was unchanged adjusting for the estimated Maui impact illustrating the substantial improvement we've made since the Q2. Speaker 300:09:33Adjusted development margin increased 160 basis points year over year to 33%, driven by lower product cost. As we've mentioned in the past, one of the benefits of the alignment is that we do not expect to have the kind of quarter to quarter reportability impacts that we used to have. So while we did report a $20,000,000 net reportability benefit in our development profit in last year's Q4, it was only a $1,000,000 adjustment this quarter. As expected, sales reserve as a percent of contract sales increased due to the higher financing propensity and slightly higher reserve on originations as a result of the default trends we've been experiencing over the last several quarters. Delinquency and defaults were each up around 60 basis points on a year over year basis, largely consistent with what we saw in the Q3, and we believe our reserve is currently at appropriate levels. Speaker 300:10:25Reviewing the rest of our Vacation Ownership segment. Rental profit was largely unchanged compared to the prior year with more keys rented being partially offset by increased unsold inventory expense. Financing profit was largely unchanged with higher interest income offset by higher interest expense. Management profit increased driven by higher management fees. Adjusting for the Maui impact and last year's alignment benefit, adjusted EBITDA in our Vacation Ownership segment would have increased 3% year over year. Speaker 300:10:57Moving to our Exchange and Third Party Management business, higher revenue per member was offset by fewer member exchanges and lower getaway volume. As a result, adjusted EBITDA was $31,000,000 in the quarter, while adjusted EBITDA margin was again strong at 52%. Corporate G and A cost increased $22,000,000 year over year due to higher wages due to inflation, cost of transitioning IT service providers and incremental IT project spending to drive our digital and data initiatives. Finally, total company adjusted EBITDA would have declined 10% year over year in the Q4 adjusting for Maui and the prior year alignment benefit, driven largely by those higher G and A costs. Moving to the balance sheet. Speaker 300:11:46We ended the quarter with more than $900,000,000 in liquidity. We repurchased $38,000,000 of common stock in the quarter $286,000,000 for the year or 6% of our shares outstanding. We also paid $106,000,000 in dividends last year, bringing our total cash return to shareholders to nearly $400,000,000 We ended the year with net debt to adjusted EBITDA of 3.7 times, above our long term target of 2.5 to 3 times. Given our current leverage, we think it is prudent to repay corporate debt while also returning cash to shareholders in the form of dividends and buybacks. We are targeting to get back to 3 times debt to adjusted EBITDA by the end of 2025. Speaker 300:12:31Moving on to our 2024 guidance. As you saw in our release last night, we expect our adjusted EBITDA to be between 760,000,000 dollars $800,000,000 this year. With the Availn transition behind us, growth in international contract sales and a strong package pipeline, we expect both VPG and tours to grow year over year. While Maui occupancy has recovered nicely, rebuilding our sales force is going to take more time and we only expect to recoup a small portion of Maui's lost sales this year, making 2024 rebuilding year for the Maui market. Because of the timing of the wildfires last year, we will have a more difficult comparison in the first half this year, though we will have an easier comparison in the second half. Speaker 300:13:19Even before Maui, we had a difficult VPG comp in the Q1 due to last year's strong start of the year. So I would expect sales to be flattish in Q1 this year, but to grow 6% to 9% for the year. We also expect tourist we expect development profit to increase driven by the higher contract sales. We expect development margin to be down a couple of 100 basis points in the Q1 due to the Maui impact and higher cost, including the higher sales reserve on new note originations, which I mentioned on our last call. As a result, we expect development margin to be down slightly for the year. Speaker 300:13:57Financing revenue is expected to increase this year, but financing profit is expected to be down due to the continued resetting of borrowing costs in the ABS market. And rental profit will be impacted by higher inventory expense, both of which we mentioned on our last call. In our exchange and third party management business, we expect interval members to remain relatively flat for average revenue per member to increase slightly. Finally, we expect G and A expense to increase year over year due primarily to the return of variable compensation Moving to cash flow. We expect our adjusted free cash flow conversion to be in the 55% range this year and adjusted free cash flow to be $400,000,000 to $450,000,000 This is after our plans to spend $65,000,000 to $85,000,000 in non inventory capital expenditures for IT investments and upgrades to existing sales centers, as well as roughly $65,000,000 related to our new Waikiki project, which we expect to open later this year. Speaker 300:15:01We also ended the year with roughly $1,000,000,000 of inventory on the balance sheet, enough to support around $4,000,000,000 of future sales. Looking back, we delivered nearly $1,800,000,000 in contract sales in 2023. And although things didn't go quite as well as expected, we did end the year on a positive note. Looking forward, we have a great business model with attractive margins and global growth opportunities. We also generate substantial free cash flow. Speaker 300:15:27As always, we appreciate your interest in Marriott Vacations Worldwide, and we'll be happy to answer your questions now. Operator? Operator00:15:37Thank you. Our first question comes from the line of Brandt Montour with Barclays. Please proceed with your question. Speaker 400:16:11Hey, everybody. Thanks for taking my question. Hey, Brent. So I guess hey, so starting out on a bound, good to hear that you guys think you're through that. Maybe you could just help us understand the sort of outlook for Abound in the nature of the rollout you have from here because I think we were under the impression that there was still sales centers that hadn't started selling abound based on the residual supply of shared and flex product. Speaker 400:16:48Just I guess the idea that there is sales centers that are used to selling the product that makes sense. Are there sales centers that haven't started selling it yet? And so I guess what's the game plan to get them used to it and what makes you confident that there's not going to be growing pains there? Speaker 200:17:08Sure. Yes. Great question, Brent. From the abound transition, really other than the Sheraton sales centers here in Orlando, everybody has transitioned to it. We still, as we've talked about, have inventory left in the Sheraton Flex product that we got continue to sell that out, right. Speaker 200:17:31So we can get to our OneTrust concept going forward. But keep in mind, all of our legacy products never go away, right? So to the extent we take back some Westin or Sheraton, we'll continue to recycle that, right? And we'll have that inventory available for people that might not be interested in the abound program for whatever reason because they bought the legacy Westin Flex and they want more of that, right? So I think we've got the right balance. Speaker 200:17:58And I will tell you for the Sheraton sales centers that have transitioned, they didn't really show a lot of impact, right. We saw that a little bit more in some of the Westin sales centers that transition. But like I said, the good news is, we've got the VPGs and as you can tell in the year over year numbers, right, compared, we were essentially flat, right, in terms of the VPG. So that gives you a sense from just the whole system. We're seeing good stability and positioning ourselves for some growth here on VPG going forward. Speaker 400:18:37That's helpful. Thank you for that, John. And then maybe for Jason or anybody, honing in on the rental business, it sounds like there's going to it sounds like you're implying that rental will be down on a profitability from a profitability standpoint this year. Just maybe give us a sense, I mean, when we look back at the rental business back to 2019, 2021 2022 was recovering toward that rental profitability number nicely. 23 looks like it took a big step back, even below 21 on a sort of percent recovery of profitability and then 24 sounds like it's going to be even lower. Speaker 400:19:20So I guess what's going on in that business from a longer term lens? Speaker 200:19:26Yes. At this point, we are expecting rental profits for 2024 as we talked about on the last quarter to be down a little bit versus what we saw in depend on demand here in North America from an occupancy perspective. So, what we saw from 2022 to 2023 was in our higher end markets like we talked about versus our expectations coming into 2023. We saw rental rates in places like Hawaii, even Florida Beach. As we said, travel pattern shifts, a lot of your higher end customer going abroad, Europe last year. Speaker 200:20:14So you saw some of that and with the lower ADRs, you definitely saw some lower occupancies in with some of the start reports, etcetera. So that was some of the shift. And then this year, right, as we talked about, we've got higher maintenance fees, which on the unsold inventory we pay. Part of how the market shapes up, we talk about 24, what's on the books, right? We're a couple of points higher, same time last year in total for North America as well as international. Speaker 200:20:53So that's a good sign at this point, but it will depend a little bit on some of these higher end markets and does the summer demand continue to come back and are we able to drive our rates etcetera. And then the other thing that we've shifted more, we talk about growing our contract sales and packages, right. We've got over 250,000 packages on the books. As we sell that, we use rental inventory to drive package growth. So we've been very successful with some of our different marketing channels to drive package sales. Speaker 200:21:29And so there's been a bit of a shift too over the last couple of years of using more of our rental keys to drive contract sales, which we think is the right long term trade off, if you will. It's always a balance, but to drive the long term growth of the company. Speaker 500:21:45Great. Thank you. Speaker 200:21:47Yes. Operator00:21:50Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank. Speaker 600:22:03So So I guess, can you guys talk a little bit about finance propensity and whether you're seeing any changes there in response where rates are or just the fact that maybe folks have a little less cash in the bank or in their pockets? Any change there that you're picking up on? Speaker 300:22:25Yes, Chris. We're not seeing a whole lot in terms of the propensities that we saw throughout the course of last year. They're a little bit higher than they were in 2022, but we've been running in that, call it, mid-50s, high-50s propensity here for a few quarters. So we don't really see too many changes coming due to the environment out there as of now. Speaker 200:22:52Okay. Thanks, Jason. And then as Speaker 600:22:55a follow-up, John, I know you just mentioned the maintenance fees are a little bit of a headwind on the unsold inventory. Do you have any visibility? I know that's sometimes an issue of like property insurance and taxes, especially in Florida. Speaker 500:23:09But do you Speaker 600:23:10have any visibility on that going forward? And then also, is there any concern, I guess, that ultimately those maintenance fees to the customer, not on your unsold inventory, but on the owned inventory, that becomes a tipping point for some folks? Speaker 200:23:28To start with your last question, I guess, it could. Let me give you a little perspective though in terms of right now with if you're a first time buyer, right, you come in and buy our product, average first time buyer buys about $30,000 worth of product. Their maintenance fee this year would be $13.50 right? So while the percentage increase is big, Chris, right? And we're working to get it back down in that kind of mid to low single digits more like we've seen. Speaker 200:24:03Even with the higher increases we've seen, if you look at it from like 19% to 24%, the compounded annual average increases is in that 4% or 5%, right, because you had little increase because of some of the COVID stuff. And so on an average basis, you have that. But you hit on some of the things, property taxes, higher insurance, but labor is your biggest cost and maybe a little different than some of our competitors. If you look at the markets we're in, we've got 12 resorts in Hawaii, right? We've got 8 in Hilton Head. Speaker 200:24:41And in those markets coming out of COVID, it was we saw the wage increases in a lot of our markets. We're in higher cost markets. We've seen that stabilize, right? So that's a good factor going forward. And notwithstanding inflation is not back to where the Fed wants it, that moderation, right. Speaker 200:25:02But we're already looking at maintenance fees for next year. We're looking for ways to offset increases we've seen and get that back to what we've seen on a more historic level in terms of inflationary increase in the maintenance fees. Speaker 600:25:20Okay, very helpful. Thanks guys. Speaker 300:25:23Yes. Thank you. Operator00:25:26Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question. Speaker 500:25:33Hi, good morning. Speaker 200:25:36Good morning. Speaker 500:25:38A couple of questions here. Can you quantify what do you think the lingering EBITDA hit in Hawaii is for this year? That's my first question. Speaker 200:25:52Sure. Yes, that like a lot of questions, not an easy question. I mean, we talked about occupancies in Maui have gotten back close, not you got to remember, we historically were on a 95% -ninety 6 percent year round occupancy in Maui. In January, we're back to 92%. So, the outlook is good. Speaker 200:26:17We're pretty close to where we want to be. I think you got to think about recovery in Maui, high level on contract sales, right? What are we doing at our sales centers and are we getting back there? Because when you start to talk about EBITDA, Patrick, obviously our business isn't static, right? You got higher unsold maintenance fees that are going to impact rentals in Hawaii that this year that we didn't have last year, right? Speaker 200:26:40So it is more about our occupancy is at back to where we wanted to be close, right? Rental occupancy is still running a little bit lower than it would have been at last year. So got to continue to drive transient rental occupancy in Maui. Rates will be what the market are, right? And that's what I mean. Speaker 200:26:59It's just you're not bridging apples to apples if you're trying to calculate what rates are this year versus last year and how does that because that's not anything potentially to do with the wildfires as much as just demand in the market. So we do expect contract sales. As Jason mentioned, we've got a tougher comp as we go through the year. We expect obviously the easier comp in the second half of the year. And that's where our overhead from a marketing and sales perspective, leadership and all that, we still retain those people because we are going to now is going to come back, right? Speaker 200:27:38We're going to be getting sales back to where they were pre fires as we go through the year. And then the other wildcard I'll put out there, which once again is why our contract sales will be we expect them right now to be slightly higher than actuals in 'twenty three, but we have a major refurb at our Maui Ocean Club that was unrelated to the wildfires that starts in the second half of the year, right. So that was always planned and that work will start which will impact Maui sales unrelated to the wildfire. So contract sales, I think if you go back to the top line, even with the refurb project, should be up year over year, call it $5 ish plus or minus $1,000,000 But we do expect as we kind of work our way through the second half of the year to be much closer to where we were last year. Speaker 500:28:34Okay. Thank you. And then just two more questions here. When you think about potential for stock buybacks, given your guidance for free cash flow. You also brought out some $65,000,000 to $80,000,000 of CapEx, paid a dividend. Speaker 500:28:52Ballpark $50,000,000 a quarter, barring any surprises or additional CapEx, is that a fair way to think about it? Speaker 200:29:02Yes. I mean, as Jason said in his comments, given our lower EBITDA, our leverage is a little bit higher. Our goal has always been to be in that 2.5 to 3 times. We're above the 3 times. We're going to continue, I'm not going to sit here today, I mean, and say, yes, we're going to return all that capital. Speaker 200:29:22As Jason said, we're going to evaluate, right, in terms of do we bring down debt a little bit as we go forward here as EBITDA recovers or not right. That's the plan. Our goal is to get back to that 3x through a combination of EBITDA growth and potentially paying down some debt. The good news is when you look at that free cash flow as well as what we'd expect to grow free cash flow next year, we can do both, right? I think we can pay down some debt and continue to return capital to shareholders, which we think is the right balance and that will be based on facts and circumstances as we go forward. Speaker 500:30:05Okay. Thank you. And just last question. Looks like G and A was up about a little over 30% for the quarter. You may have talked about in the prepared remarks why the was. Speaker 500:30:15If you could just remind me, number 1, what was driving that increase in G and A? And what's a right way to think about it, a quarterly run rate going forward for the year? Thank you. That's it. Speaker 300:30:27Yes. Thanks, Patrick. So, yes, in our prepared remarks, we did talk a little bit about what drove $20,000,000 increase year over year. We had some more one time transition costs moving our IT service providers. We did have some timing and some incremental project expense, and then we did see some wage increases year over year. Speaker 300:30:49So that was really the bulk of it. Some of that is not really a good run rate number going forward. So I would look more towards the guidance in terms of G and A. We're going to see a little bit higher G and A next year due to the return of the variable compensation. And that's the way I would think about it. Speaker 300:31:04I wouldn't look to Q4 as a run rate. Speaker 500:31:07Okay. Thank you for that information. I'll take it. Speaker 200:31:12Thanks, Patrick. Operator00:31:15Thank you. Our next question comes from the line of Ryan Lambert with JPMorgan. Please proceed with your question. Speaker 700:31:23Hi, thanks for taking my question. Just going back to the IT spend real quick, and you talked about how some of that was related to transitioning providers and some was more investment related. Can you talk about what kind of enhancements that spend is driving? And then after that, I have a follow-up. Thanks. Speaker 300:31:43Yes. So as we've been talking about modernizing our operating platforms, that's a lot of the continuation that you see in terms of the spending that we did in Q4. A fair amount of this is still a little bit foundational, but it's all in an effort to really enhance the self-service in our data analytic capabilities. So self-service for both the associates as well as the owners in terms of booking, searching and things like that. So that's really where the bulk of our spending was in Q4 from a project standpoint. Speaker 700:32:18Thanks. And last quarter, you kind of called out a bit of a difference between the higher end and lower end customer spending patterns. Has this gap kind of changed at all widened or contracted in any meaningful way? Speaker 200:32:35What was the I'm sorry, what did we call out last quarter that you're referencing? Speaker 700:32:42Just kind of the bifurcation between the higher end and lower end, specifically to the referring to the FICO bands, is that different at all? Speaker 200:32:53No, I don't think we're I'll defer to Jason a little bit. I that we haven't really seen any changes in our FICO average FICO scores and where the loans are coming from. As we've always talked about our marketing because we do direct marketing and we're looking for certain customer demographics, right, in terms of household income and people that can afford our price point that when people show up to our sales centers, because we don't do OPC off premise and things like that, They're usually very well qualified and that's why we've always had a 720, 730 FICO score. So I don't I'm not aware of any shifts and things like that. That's been pretty consistent over 10, 15 years. Speaker 300:33:42And when you look at our average transaction size across the board, they've increased slightly over the years, mostly due to the pricing increases that we've implemented fairly consistently. So average transaction size doesn't really change too much for us as we look forward. Thanks. Operator00:34:05Thank you. Our next question comes from the line of Shaun Kelley with Bank of America. Please proceed with your question. Speaker 800:34:12Hi, good morning everyone. Thanks for taking my questions. Just wanted to go back to some of the core underlying drivers for the contract sales, if we could. So, I apologize, I think I missed a part of this in the prepared remarks, but you did talk a little bit about, the breakdown between or anticipated breakdown between tour flow and VPG to get to the 6% to 9%. Could you just give us a little bit more color? Speaker 800:34:35And specifically, I think, obviously, if we assume some tougher comps in Q1 which I think you alluded to or certainly or maybe even the first half, it implies some pretty significant acceleration Should we see in the second half, should we see that more in tour flow, I think particularly around Maui in the second half or how should VPG balance in there too? Do we also see some mix benefit from Hawaii coming back online in the back half Speaker 200:35:03Yes. We didn't you didn't miss anything. We didn't guide anything around VPG and tour growth. So I will say high level, we expect to get growth in both, right? That's the plan. Speaker 200:35:19Generally, we probably should get some higher tour growth in VPG, if you think about it that way. And as you hit on and Jason mentioned, yes, you got a tougher comp in the beginning of the year, not only from the Maui impact, but if you recall, coming out of 2022 into 2023, I mean, Q1 last year, our contract sales were up 10% over 2022, right? So you do have some tougher overall comps in the beginning of the year. And as we talked about last year, you saw VPGs trend down a bit as you went through the balance of the year. But then as we got into the 3rd Q4, you really got that stabilization and we feel good that that's where we have the ability to hopefully push some pricing and drive VPGs. Speaker 200:36:12The other place we'll continue to, as we mentioned on the call, we didn't guide growth, but we had international contract sales grew 50 percent last year. Now it's only 10% of our business versus North America in terms of how to think about that, but Asia is still recovering in terms of coming out of COVID and so we expect stronger growth in some of our international. That's going to be driven by TourFlow and some VPG as well. And then even within the Hyatt business as we talked about, as we brought together the Hyatt and legacy wealth portfolios and we shift in terms of our marketing channels and driving some growth that way. So there's a lot of moving parts in there, but when you put it all together, we expect first half of the year to be a little bit less growth given the tougher comps. Speaker 200:37:042nd half as you mentioned as well, you had the Maui fires and obviously that impacted contract sales $50 plus 1,000,000 in the second half of the year. So that should be helpful from an easier comp and just a pure growth year over year. Speaker 800:37:21And my second question would just be, are there any constraints on the Toriflow side that are company specific? And the reason I ask is, we see the peers, they've been growing Toriflow low double digits, maybe even a little bit better than that over the last 3, 2, 3, 4 quarters. VAC is obviously, and again, a lot of noise from Maui, so appreciate that it's not entirely apples to apples, but it's been much more in the low single digit and even in the 4Q even if we add back Maui, you're only at 4% versus I think one of the peers, which was low double digit. So to accelerate that, are there any constraints, any issues with inventory or challenges to do so, anything in the or is it basically just turning on tour channels and how do you compromise that higher quality guest and purchaser that you're looking for and still able to drive that type of level of Speaker 200:38:19growth? Sure. Yes. So for us, when you think about our where our tours come from, like we've talked about, in house, our owners, 1st and foremost staying at our resorts. The good news is to get owners take tours, get them interested maybe in buying more, yes, that's stuff to talk to them about, right. Speaker 200:38:40So things like the abound program and coming in and getting tour capture rates there, announcing new resorts like Waikiki Waikiki that's opening later this year, Charleston in Savannah, more resorts in Asia Pacific, right. That's always going to be how do we continue to drive those tours. Rentals, right, when we can get tours from people that are renting our product, they can be very good tours because they're usually paying a lot to rent our product and then they see the value proposition coming off some of the what they're paying to rent, it makes a lot of sense. So we're always going to continue to look at what we call our capture rate and drive in house. I mentioned packages and we continue to increase tours by taking rentals that we otherwise rent on the open market and sell packages into that, right. Speaker 200:39:33We're growing our tour flow on the package side. And then it's the stuff that happens in our markets like linkage. We still have linkage opportunity in a lot of our markets. We do what we call roadshows and events, which can drive tour flow. We continue to focus on driving tours through virtual methods, you got a lot of channels. Speaker 200:40:05But at the same time, yes, while our tour growth isn't 15%, you haven't seen our VPG drop, it's been flattish, right? So and this is where I think, as we talk about the investments in technology, what we're doing with Salesforce, how we're investing in data and analytics for us, it's all about focusing and getting the right tours, right, to drive those VPGs. And that's where I think the opportunity continues to be How do we open up the funnel, get more folks, market to the right folks and then be able to sell to them. And that's always going to be the focus here as we go forward. Speaker 800:40:50Thank you very much. Operator00:40:55Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question. Speaker 900:41:06Hi, good morning, everyone. Thanks for taking my question. I wanted to just circle you've given us a ton of detail and I appreciate that in the outlook. What I wanted to just drill down a little deeper on is in the release and in the opening remarks that a bound the conversion is behind us. And I wanted to see if there are some specific data points or specifics around how what's behind that and how we know, so to speak? Speaker 200:41:43Sure. VPGs always the best data point, David, when you look at what VPGs were down in the 2nd quarter and why we were talking about to a bound even before the Q2. We said anytime you launch a new product, there's transition impact. Owners understanding the new product, the salespeople, notwithstanding a lot of training and retraining, selling a different product and owners like we talked about, they bought a different product. Now you're selling them something new and that's where you saw the impact in Vistana. Speaker 200:42:16I want to say all of the VPG down in the Q2 last year was the transition, but I think our VPGs were down 15% year over year. It was a tougher comp, but think we talked about at the time our Marriott non transition sites, they were down probably low single digits, right? And so fast forward, we saw Q3, we talked about it sequentially, those legacy sites, we saw the VPGs bounce back up in the 3rd quarter and we continue to see improvement as we got into the 4th quarter. And now when you look at overall VPGs for the system, 4th quarter adjusting for MAUI, they were essentially flat Q4 this year versus Q4 last year. And Q4 last year was probably a tougher comp, right? Speaker 200:43:02Our VPGs from a system were running better. So that is a combination of all our sales centers, but that's how I feel pretty confident and that we're there and we're moving forward in that softness that we really saw mostly in the second quarter is behind us. Speaker 900:43:20Perfect. The VPG is the focus. And with respect to the IT and analytics investments, can you just color that in a bit more as to sort of what you're getting and why now? And is that something that continues beyond 2024 as well? Or is this more of a one time focused investment? Speaker 200:43:45Sure. No, let's take a step back, just not data and analytics, but we're going to continue to enhance our IT capabilities. And what do I mean by that? We obviously have been a company in business for 40 years and we've talked about how you got a lot of legacy homegrown IT systems, a lot better technology. And then as you go forward, we've done a couple of acquisitions who Vistana had their own legacy systems and while we integrated that and drove synergies, a lot of that work going forward is how do you continue to get efficiencies and leverage our technology platforms and we're going to continue to focus on that. Speaker 200:44:30And with those enhancements, whether it's data and analytics, right, getting our IT costs down by continuing to modernize applications that we're using platforms, things like that. That's where we'll and it's an ongoing journey. I think it is for any company. Technology changes so fast and there's more and more opportunities to leverage technology. And ultimately with things like AI, right, and the ability I think over time to drive more efficiencies in the business and self-service of our owners, it's a huge opportunity I think for us as we go forward. Speaker 200:45:07And that with our new CIO is we're really focused on. Speaker 500:45:13Now are we Speaker 200:45:13going to see continued increase in investments? No, I think we're on a pretty good clip and we're going to continue to do things that are really going to either drive efficiencies at the bottom line or top line growth. That's the focus going forward. Speaker 900:45:30Got it. Thank you very much. Speaker 200:45:32Thank you, David. Operator00:45:35Thank you. Ladies and gentlemen, I'm showing no other questions at this time. Mr. Geller, I'll turn the floor back to you for final comments. Speaker 200:45:43Thank you everyone for joining our call today. After last year's challenges, it was great to end the year on a strong note. Contract sales grew 4% year over year, excluding the impact of the Maui wildfires. International contract sales grew 36% year over year with strong growth seen in both Europe and Asia Pacific and resort occupancy was nearly 90% even with the Maui impact illustrating our owners and customers demand to get on vacation. As we move into a new year, the transition to abound is behind us and we look forward toward growing contract sales this year driven by a mix of higher tours and improved VPG. Speaker 200:46:27We made significant changes in our Hyatt business that will enable us to more efficiently drive tours, grow contract sales and better leverage our marketing and sales spending. Economic indicators remain positive and our reservation on the books for the summer are up both domestically and internationally. We have realigned our organization to improve our long term results and we are looking forward to opening our first Waiakee Resort later this year. On behalf of all of our associates, owners, members and customers around the world, I want to thank you for your continued interest in the company and hope to see you on vacation soon. Thank you. Operator00:47:09Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallMarriott Vacations Worldwide Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Marriott Vacations Worldwide Earnings HeadlinesMarriott Vacations Worldwide (NYSE:VAC) Upgraded by Morgan Stanley to Equal Weight RatingApril 25 at 1:55 AM | americanbankingnews.comMarriott Vacations Worldwide (VAC): Among Billionaire George Soros’ Small-Cap Stocks with Huge Upside PotentialApril 24 at 8:12 AM | finance.yahoo.comElon Reveals Why There Soon Won’t Be Any Money For Social SecurityElon Musk's Near-Death Experience Sparks Dire Warning for Americans After cheating death twice—once in a terrifying supercar crash with billionaire Peter Thiel, then from a deadly strain of malaria—Elon Musk emerged with a stark warning for Americans about looming financial dangers. Discover the little-known Trump IRS loophole that thousands are now using to safeguard their retirement from inflation and market turmoil—before it's too late.April 25, 2025 | Colonial Metals (Ad)Morgan Stanley Upgrades Marriott Vacations Worldwide (VAC)April 23 at 11:34 AM | msn.comThe Goldman Sachs Group Has Lowered Expectations for Marriott Vacations Worldwide (NYSE:VAC) Stock PriceApril 16, 2025 | americanbankingnews.comBrokerages Set Marriott Vacations Worldwide Co. (NYSE:VAC) Target Price at $102.75April 16, 2025 | americanbankingnews.comSee More Marriott Vacations Worldwide Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Marriott Vacations Worldwide? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Marriott Vacations Worldwide and other key companies, straight to your email. Email Address About Marriott Vacations WorldwideMarriott Vacations Worldwide (NYSE:VAC), a vacation company, develops, markets, sells, and manages vacation ownership and related businesses, products, and services in the United States and internationally. It operates through two segments, Vacation Ownership and Exchange & Third-Party Management. The company manages vacation ownership and related products under the Marriott Vacation Club, Grand Residences by Marriott, Sheraton Vacation Club, Westin Vacation Club, Hyatt Vacation Club, and Marriott Vacation Club Pulse brands. It develops, markets, and sells vacation ownership and related products under The Ritz-Carlton Destination Club brand; and holds right to develop, market, and sell ownership residential products under The Ritz-Carlton Residences brand. In addition, the company offers exchange networks and membership programs, as well as provision of management services to other resorts and lodging properties through Interval International, and Aqua-Aston business brands. Further, it provides financing consumer purchases of vacation ownership products, and renting vacation ownership inventory. The company sells its upscale tier vacation ownership products primarily through a network of resort-based sales centers and off-site sales locations. The company was founded in 1984 and is headquartered in Orlando, Florida.View Marriott Vacations Worldwide ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step InWhy It May Be Time to Buy CrowdStrike Stock Heading Into EarningsCan IBM’s Q1 Earnings Spark a Breakout for the Stock? Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Booking (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 10 speakers on the call. Operator00:00:00Greetings, and welcome to the Marriott Vacations Worldwide 4th Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Operator00:00:23Neil Goldner, Vice President, Investor Relations for Marriott Vacations Worldwide. Thank you. You may begin. Speaker 100:00:31Thank you, and welcome to the Marriott Vacations Worldwide 4th quarter 2023 earnings call. I'm joined today by John Deller, President and Chief Executive Officer and Jason Marino, our Executive Vice President and Chief Financial Officer. I need to remind everyone that many of our comments today are not historical facts and are considered forward looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our comments. Forward looking statements in the press release that we issued last night as well as our comments on this call are effective only when made and will not be updated as actual events unfold. Speaker 100:01:16Throughout 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 as well as the Investor Relations page of our website. Before I turn the call over to John, as you saw in our earnings release last night, with 4 vacation ownership resorts in West Maui, the wildfires had a negative impact on our results in the 3rd and 4th quarters despite having no physical damage to our properties. We added a table to our earnings release last night to illustrate the impact of the wildfires on our business. In addition, during last year's Q3 with the launch of a Bound by Verifications, We aligned the contract terms for vacation ownership sales across our Marriott, Westin and Sheridan brands. Speaker 100:02:11We also aligned and combined our accounting methodologies for the reserve on vacation ownership notes receivable for these brands. These changes, which we refer to as the alignment, resulted in a nonrecurring benefit of $7,000,000 to last year's 4th quarter adjusted EBITDA. The schedules we provided last night illustrate what our results would have been for the prior year without this benefit. With that, it's now my pleasure to turn the call over to our CEO, John Geller. Speaker 200:02:43Thanks, Neil, and good morning, everyone, and thank you for joining our Q4 earnings call. As you saw in our press release last night, we ended the year on a positive note with contract sales increasing 4% year over year adjusting for the estimated impact of Maui. We're also very encouraged with how fast travelers have returned to Maui with occupancy during the month of December approaching the prior year. Housing in Maui continues to be a challenge for residents, including many of our associates. Fortunately, our operations team was close to fully staffed as we entered the New Year, though only approximately 75% of our sales organization was back to pre fire levels. Speaker 200:03:28Throughout last year, we worked with owners to educate them about the benefits of the Abound by Marriott Vacations program, while at the same time, our sales executives gained experience selling under Abound. Today, more legacy Sheraton and Weston owners are using the Abound program, enabling them to experience its many benefits. VPG, excluding the estimated impact of the Maui fires, was in line with the prior year, a meaningful improvement compared to where we were just a few quarters ago. And at this point, the impact of the abound transition is behind us. 2023 was also an exciting year for our Hyatt business. Speaker 200:04:10We brought our 22 Hyatt Resorts together under the Hyatt Vacation Club brand, unified our customer touch points and introduced the Beyond program, which provides owners more vacation options. We also expanded our highly successful preview booking engine and will continue to replace inefficient off premise marketing channels with more efficient branded channels. This will enable us to grow tours and increase VPG in our Hyatt vacation ownership business this year, allowing us to better leverage our marketing and sales spending. First time buyers represented roughly half of our tours last year and nearly a third of our contract sales. As we continue to focus on driving new owner growth. Speaker 200:04:56We also ended the year with more than 250,000 packages in our pipeline, which is an all important driver of future sales. We saw strong growth in our international business last year with contract sales growing more than 50% and we expect strong growth in Asia Pacific again this year as the market continues to recover. On the development front, we announced 2 new domestic Westin Vacation Club projects, Charleston and Savannah, each of which will bring a new sales center when they open in a few years. We'll also be opening our 1st Marriott Vacation Club Resort during the second half of this year, which comes with a new sales center as well. On the international front, I'm happy to announce that we recently signed an agreement for a 58 unit expansion at 1 of our existing Marriott Vacation Clubs in Bali, bringing our presence in that destination to nearly 200 units. Speaker 200:05:56And our team is actively working with other new on other new development opportunities to grow our resort portfolio. In our Exchange and Third Party Management segment, Interval ended the year with approximately 1,600,000 active members, in line with the prior year, while average revenue per member increased year over year for the Q3 in a row. On the inventory front, we've been working closely with our developer partners to stimulate supply earlier in the year, which we hope will drive higher inventory utilization and exchange transactions. Despite the growth in leisure travel over the past few years, 92% of Americans recently surveyed said they plan to travel as much or more this year as they did last year. And demand for international travel continues to be strong. Speaker 200:06:50While demand for domestic travel has normalized, it does appear that travel will benefit from a more lasting shift in spending with consumers prioritizing experiences. As a company whose sole focus is providing memorable vacations for our owners and guests, that puts us in a great position to grow. At the same time, GDP is growing, consumer confidence remains positive, wealth indicators such as the stock market and home values remain robust and inflation is normalizing, all of which is good for us. Looking forward, we've got a great business with the exclusive rights to use the Marriott, Sheraton, Weston and Hyatt brands in our vacation ownership business with products that resonate with customers and opportunities to continue to evolve our core offerings to meet the needs of today's consumer. We also made significant changes in our business last year that are the right strategic decisions to help position us for growth. Speaker 200:07:51We took actions to realign our organization to best deliver long term results, including hiring a new CIO to drive our IT transformation efforts, while revamping our organizational structure to create efficiencies. We also welcomed our 1st Global Head of Data Analytics to help us find new ways to unlock the power of data, while also providing more self-service options for our owners. Our Marriott Vacation Club brand will celebrate its 40th anniversary this year and continues the bold vision to change the way people vacation. I've also had the opportunity to meet many of our associates around the world in my 1st year as CEO and the energy and passion our teams bring to delivering consistently exceptional vacation experiences is apparent in each of them. As we enter 2024, we're also watching our summer bookings closely given the change in travel patterns we saw last year. Speaker 200:08:49Right now, our keys on the books for the summer months in North America and international are up a few points, which is encouraging, but it's still early days. With that, I'll turn the call over to Jason to discuss our results. Speaker 300:09:03Thanks, John. Today, I'm going to review our Q4 results, the strength of our balance sheet and liquidity and our 2024 outlook. Starting with our Vacation Ownership segment. Contract sales in the 4th quarter declined 2% year over year, but increased 4%, excluding Maui. VPG was down 2% year over year but was unchanged adjusting for the estimated Maui impact illustrating the substantial improvement we've made since the Q2. Speaker 300:09:33Adjusted development margin increased 160 basis points year over year to 33%, driven by lower product cost. As we've mentioned in the past, one of the benefits of the alignment is that we do not expect to have the kind of quarter to quarter reportability impacts that we used to have. So while we did report a $20,000,000 net reportability benefit in our development profit in last year's Q4, it was only a $1,000,000 adjustment this quarter. As expected, sales reserve as a percent of contract sales increased due to the higher financing propensity and slightly higher reserve on originations as a result of the default trends we've been experiencing over the last several quarters. Delinquency and defaults were each up around 60 basis points on a year over year basis, largely consistent with what we saw in the Q3, and we believe our reserve is currently at appropriate levels. Speaker 300:10:25Reviewing the rest of our Vacation Ownership segment. Rental profit was largely unchanged compared to the prior year with more keys rented being partially offset by increased unsold inventory expense. Financing profit was largely unchanged with higher interest income offset by higher interest expense. Management profit increased driven by higher management fees. Adjusting for the Maui impact and last year's alignment benefit, adjusted EBITDA in our Vacation Ownership segment would have increased 3% year over year. Speaker 300:10:57Moving to our Exchange and Third Party Management business, higher revenue per member was offset by fewer member exchanges and lower getaway volume. As a result, adjusted EBITDA was $31,000,000 in the quarter, while adjusted EBITDA margin was again strong at 52%. Corporate G and A cost increased $22,000,000 year over year due to higher wages due to inflation, cost of transitioning IT service providers and incremental IT project spending to drive our digital and data initiatives. Finally, total company adjusted EBITDA would have declined 10% year over year in the Q4 adjusting for Maui and the prior year alignment benefit, driven largely by those higher G and A costs. Moving to the balance sheet. Speaker 300:11:46We ended the quarter with more than $900,000,000 in liquidity. We repurchased $38,000,000 of common stock in the quarter $286,000,000 for the year or 6% of our shares outstanding. We also paid $106,000,000 in dividends last year, bringing our total cash return to shareholders to nearly $400,000,000 We ended the year with net debt to adjusted EBITDA of 3.7 times, above our long term target of 2.5 to 3 times. Given our current leverage, we think it is prudent to repay corporate debt while also returning cash to shareholders in the form of dividends and buybacks. We are targeting to get back to 3 times debt to adjusted EBITDA by the end of 2025. Speaker 300:12:31Moving on to our 2024 guidance. As you saw in our release last night, we expect our adjusted EBITDA to be between 760,000,000 dollars $800,000,000 this year. With the Availn transition behind us, growth in international contract sales and a strong package pipeline, we expect both VPG and tours to grow year over year. While Maui occupancy has recovered nicely, rebuilding our sales force is going to take more time and we only expect to recoup a small portion of Maui's lost sales this year, making 2024 rebuilding year for the Maui market. Because of the timing of the wildfires last year, we will have a more difficult comparison in the first half this year, though we will have an easier comparison in the second half. Speaker 300:13:19Even before Maui, we had a difficult VPG comp in the Q1 due to last year's strong start of the year. So I would expect sales to be flattish in Q1 this year, but to grow 6% to 9% for the year. We also expect tourist we expect development profit to increase driven by the higher contract sales. We expect development margin to be down a couple of 100 basis points in the Q1 due to the Maui impact and higher cost, including the higher sales reserve on new note originations, which I mentioned on our last call. As a result, we expect development margin to be down slightly for the year. Speaker 300:13:57Financing revenue is expected to increase this year, but financing profit is expected to be down due to the continued resetting of borrowing costs in the ABS market. And rental profit will be impacted by higher inventory expense, both of which we mentioned on our last call. In our exchange and third party management business, we expect interval members to remain relatively flat for average revenue per member to increase slightly. Finally, we expect G and A expense to increase year over year due primarily to the return of variable compensation Moving to cash flow. We expect our adjusted free cash flow conversion to be in the 55% range this year and adjusted free cash flow to be $400,000,000 to $450,000,000 This is after our plans to spend $65,000,000 to $85,000,000 in non inventory capital expenditures for IT investments and upgrades to existing sales centers, as well as roughly $65,000,000 related to our new Waikiki project, which we expect to open later this year. Speaker 300:15:01We also ended the year with roughly $1,000,000,000 of inventory on the balance sheet, enough to support around $4,000,000,000 of future sales. Looking back, we delivered nearly $1,800,000,000 in contract sales in 2023. And although things didn't go quite as well as expected, we did end the year on a positive note. Looking forward, we have a great business model with attractive margins and global growth opportunities. We also generate substantial free cash flow. Speaker 300:15:27As always, we appreciate your interest in Marriott Vacations Worldwide, and we'll be happy to answer your questions now. Operator? Operator00:15:37Thank you. Our first question comes from the line of Brandt Montour with Barclays. Please proceed with your question. Speaker 400:16:11Hey, everybody. Thanks for taking my question. Hey, Brent. So I guess hey, so starting out on a bound, good to hear that you guys think you're through that. Maybe you could just help us understand the sort of outlook for Abound in the nature of the rollout you have from here because I think we were under the impression that there was still sales centers that hadn't started selling abound based on the residual supply of shared and flex product. Speaker 400:16:48Just I guess the idea that there is sales centers that are used to selling the product that makes sense. Are there sales centers that haven't started selling it yet? And so I guess what's the game plan to get them used to it and what makes you confident that there's not going to be growing pains there? Speaker 200:17:08Sure. Yes. Great question, Brent. From the abound transition, really other than the Sheraton sales centers here in Orlando, everybody has transitioned to it. We still, as we've talked about, have inventory left in the Sheraton Flex product that we got continue to sell that out, right. Speaker 200:17:31So we can get to our OneTrust concept going forward. But keep in mind, all of our legacy products never go away, right? So to the extent we take back some Westin or Sheraton, we'll continue to recycle that, right? And we'll have that inventory available for people that might not be interested in the abound program for whatever reason because they bought the legacy Westin Flex and they want more of that, right? So I think we've got the right balance. Speaker 200:17:58And I will tell you for the Sheraton sales centers that have transitioned, they didn't really show a lot of impact, right. We saw that a little bit more in some of the Westin sales centers that transition. But like I said, the good news is, we've got the VPGs and as you can tell in the year over year numbers, right, compared, we were essentially flat, right, in terms of the VPG. So that gives you a sense from just the whole system. We're seeing good stability and positioning ourselves for some growth here on VPG going forward. Speaker 400:18:37That's helpful. Thank you for that, John. And then maybe for Jason or anybody, honing in on the rental business, it sounds like there's going to it sounds like you're implying that rental will be down on a profitability from a profitability standpoint this year. Just maybe give us a sense, I mean, when we look back at the rental business back to 2019, 2021 2022 was recovering toward that rental profitability number nicely. 23 looks like it took a big step back, even below 21 on a sort of percent recovery of profitability and then 24 sounds like it's going to be even lower. Speaker 400:19:20So I guess what's going on in that business from a longer term lens? Speaker 200:19:26Yes. At this point, we are expecting rental profits for 2024 as we talked about on the last quarter to be down a little bit versus what we saw in depend on demand here in North America from an occupancy perspective. So, what we saw from 2022 to 2023 was in our higher end markets like we talked about versus our expectations coming into 2023. We saw rental rates in places like Hawaii, even Florida Beach. As we said, travel pattern shifts, a lot of your higher end customer going abroad, Europe last year. Speaker 200:20:14So you saw some of that and with the lower ADRs, you definitely saw some lower occupancies in with some of the start reports, etcetera. So that was some of the shift. And then this year, right, as we talked about, we've got higher maintenance fees, which on the unsold inventory we pay. Part of how the market shapes up, we talk about 24, what's on the books, right? We're a couple of points higher, same time last year in total for North America as well as international. Speaker 200:20:53So that's a good sign at this point, but it will depend a little bit on some of these higher end markets and does the summer demand continue to come back and are we able to drive our rates etcetera. And then the other thing that we've shifted more, we talk about growing our contract sales and packages, right. We've got over 250,000 packages on the books. As we sell that, we use rental inventory to drive package growth. So we've been very successful with some of our different marketing channels to drive package sales. Speaker 200:21:29And so there's been a bit of a shift too over the last couple of years of using more of our rental keys to drive contract sales, which we think is the right long term trade off, if you will. It's always a balance, but to drive the long term growth of the company. Speaker 500:21:45Great. Thank you. Speaker 200:21:47Yes. Operator00:21:50Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank. Speaker 600:22:03So So I guess, can you guys talk a little bit about finance propensity and whether you're seeing any changes there in response where rates are or just the fact that maybe folks have a little less cash in the bank or in their pockets? Any change there that you're picking up on? Speaker 300:22:25Yes, Chris. We're not seeing a whole lot in terms of the propensities that we saw throughout the course of last year. They're a little bit higher than they were in 2022, but we've been running in that, call it, mid-50s, high-50s propensity here for a few quarters. So we don't really see too many changes coming due to the environment out there as of now. Speaker 200:22:52Okay. Thanks, Jason. And then as Speaker 600:22:55a follow-up, John, I know you just mentioned the maintenance fees are a little bit of a headwind on the unsold inventory. Do you have any visibility? I know that's sometimes an issue of like property insurance and taxes, especially in Florida. Speaker 500:23:09But do you Speaker 600:23:10have any visibility on that going forward? And then also, is there any concern, I guess, that ultimately those maintenance fees to the customer, not on your unsold inventory, but on the owned inventory, that becomes a tipping point for some folks? Speaker 200:23:28To start with your last question, I guess, it could. Let me give you a little perspective though in terms of right now with if you're a first time buyer, right, you come in and buy our product, average first time buyer buys about $30,000 worth of product. Their maintenance fee this year would be $13.50 right? So while the percentage increase is big, Chris, right? And we're working to get it back down in that kind of mid to low single digits more like we've seen. Speaker 200:24:03Even with the higher increases we've seen, if you look at it from like 19% to 24%, the compounded annual average increases is in that 4% or 5%, right, because you had little increase because of some of the COVID stuff. And so on an average basis, you have that. But you hit on some of the things, property taxes, higher insurance, but labor is your biggest cost and maybe a little different than some of our competitors. If you look at the markets we're in, we've got 12 resorts in Hawaii, right? We've got 8 in Hilton Head. Speaker 200:24:41And in those markets coming out of COVID, it was we saw the wage increases in a lot of our markets. We're in higher cost markets. We've seen that stabilize, right? So that's a good factor going forward. And notwithstanding inflation is not back to where the Fed wants it, that moderation, right. Speaker 200:25:02But we're already looking at maintenance fees for next year. We're looking for ways to offset increases we've seen and get that back to what we've seen on a more historic level in terms of inflationary increase in the maintenance fees. Speaker 600:25:20Okay, very helpful. Thanks guys. Speaker 300:25:23Yes. Thank you. Operator00:25:26Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question. Speaker 500:25:33Hi, good morning. Speaker 200:25:36Good morning. Speaker 500:25:38A couple of questions here. Can you quantify what do you think the lingering EBITDA hit in Hawaii is for this year? That's my first question. Speaker 200:25:52Sure. Yes, that like a lot of questions, not an easy question. I mean, we talked about occupancies in Maui have gotten back close, not you got to remember, we historically were on a 95% -ninety 6 percent year round occupancy in Maui. In January, we're back to 92%. So, the outlook is good. Speaker 200:26:17We're pretty close to where we want to be. I think you got to think about recovery in Maui, high level on contract sales, right? What are we doing at our sales centers and are we getting back there? Because when you start to talk about EBITDA, Patrick, obviously our business isn't static, right? You got higher unsold maintenance fees that are going to impact rentals in Hawaii that this year that we didn't have last year, right? Speaker 200:26:40So it is more about our occupancy is at back to where we wanted to be close, right? Rental occupancy is still running a little bit lower than it would have been at last year. So got to continue to drive transient rental occupancy in Maui. Rates will be what the market are, right? And that's what I mean. Speaker 200:26:59It's just you're not bridging apples to apples if you're trying to calculate what rates are this year versus last year and how does that because that's not anything potentially to do with the wildfires as much as just demand in the market. So we do expect contract sales. As Jason mentioned, we've got a tougher comp as we go through the year. We expect obviously the easier comp in the second half of the year. And that's where our overhead from a marketing and sales perspective, leadership and all that, we still retain those people because we are going to now is going to come back, right? Speaker 200:27:38We're going to be getting sales back to where they were pre fires as we go through the year. And then the other wildcard I'll put out there, which once again is why our contract sales will be we expect them right now to be slightly higher than actuals in 'twenty three, but we have a major refurb at our Maui Ocean Club that was unrelated to the wildfires that starts in the second half of the year, right. So that was always planned and that work will start which will impact Maui sales unrelated to the wildfire. So contract sales, I think if you go back to the top line, even with the refurb project, should be up year over year, call it $5 ish plus or minus $1,000,000 But we do expect as we kind of work our way through the second half of the year to be much closer to where we were last year. Speaker 500:28:34Okay. Thank you. And then just two more questions here. When you think about potential for stock buybacks, given your guidance for free cash flow. You also brought out some $65,000,000 to $80,000,000 of CapEx, paid a dividend. Speaker 500:28:52Ballpark $50,000,000 a quarter, barring any surprises or additional CapEx, is that a fair way to think about it? Speaker 200:29:02Yes. I mean, as Jason said in his comments, given our lower EBITDA, our leverage is a little bit higher. Our goal has always been to be in that 2.5 to 3 times. We're above the 3 times. We're going to continue, I'm not going to sit here today, I mean, and say, yes, we're going to return all that capital. Speaker 200:29:22As Jason said, we're going to evaluate, right, in terms of do we bring down debt a little bit as we go forward here as EBITDA recovers or not right. That's the plan. Our goal is to get back to that 3x through a combination of EBITDA growth and potentially paying down some debt. The good news is when you look at that free cash flow as well as what we'd expect to grow free cash flow next year, we can do both, right? I think we can pay down some debt and continue to return capital to shareholders, which we think is the right balance and that will be based on facts and circumstances as we go forward. Speaker 500:30:05Okay. Thank you. And just last question. Looks like G and A was up about a little over 30% for the quarter. You may have talked about in the prepared remarks why the was. Speaker 500:30:15If you could just remind me, number 1, what was driving that increase in G and A? And what's a right way to think about it, a quarterly run rate going forward for the year? Thank you. That's it. Speaker 300:30:27Yes. Thanks, Patrick. So, yes, in our prepared remarks, we did talk a little bit about what drove $20,000,000 increase year over year. We had some more one time transition costs moving our IT service providers. We did have some timing and some incremental project expense, and then we did see some wage increases year over year. Speaker 300:30:49So that was really the bulk of it. Some of that is not really a good run rate number going forward. So I would look more towards the guidance in terms of G and A. We're going to see a little bit higher G and A next year due to the return of the variable compensation. And that's the way I would think about it. Speaker 300:31:04I wouldn't look to Q4 as a run rate. Speaker 500:31:07Okay. Thank you for that information. I'll take it. Speaker 200:31:12Thanks, Patrick. Operator00:31:15Thank you. Our next question comes from the line of Ryan Lambert with JPMorgan. Please proceed with your question. Speaker 700:31:23Hi, thanks for taking my question. Just going back to the IT spend real quick, and you talked about how some of that was related to transitioning providers and some was more investment related. Can you talk about what kind of enhancements that spend is driving? And then after that, I have a follow-up. Thanks. Speaker 300:31:43Yes. So as we've been talking about modernizing our operating platforms, that's a lot of the continuation that you see in terms of the spending that we did in Q4. A fair amount of this is still a little bit foundational, but it's all in an effort to really enhance the self-service in our data analytic capabilities. So self-service for both the associates as well as the owners in terms of booking, searching and things like that. So that's really where the bulk of our spending was in Q4 from a project standpoint. Speaker 700:32:18Thanks. And last quarter, you kind of called out a bit of a difference between the higher end and lower end customer spending patterns. Has this gap kind of changed at all widened or contracted in any meaningful way? Speaker 200:32:35What was the I'm sorry, what did we call out last quarter that you're referencing? Speaker 700:32:42Just kind of the bifurcation between the higher end and lower end, specifically to the referring to the FICO bands, is that different at all? Speaker 200:32:53No, I don't think we're I'll defer to Jason a little bit. I that we haven't really seen any changes in our FICO average FICO scores and where the loans are coming from. As we've always talked about our marketing because we do direct marketing and we're looking for certain customer demographics, right, in terms of household income and people that can afford our price point that when people show up to our sales centers, because we don't do OPC off premise and things like that, They're usually very well qualified and that's why we've always had a 720, 730 FICO score. So I don't I'm not aware of any shifts and things like that. That's been pretty consistent over 10, 15 years. Speaker 300:33:42And when you look at our average transaction size across the board, they've increased slightly over the years, mostly due to the pricing increases that we've implemented fairly consistently. So average transaction size doesn't really change too much for us as we look forward. Thanks. Operator00:34:05Thank you. Our next question comes from the line of Shaun Kelley with Bank of America. Please proceed with your question. Speaker 800:34:12Hi, good morning everyone. Thanks for taking my questions. Just wanted to go back to some of the core underlying drivers for the contract sales, if we could. So, I apologize, I think I missed a part of this in the prepared remarks, but you did talk a little bit about, the breakdown between or anticipated breakdown between tour flow and VPG to get to the 6% to 9%. Could you just give us a little bit more color? Speaker 800:34:35And specifically, I think, obviously, if we assume some tougher comps in Q1 which I think you alluded to or certainly or maybe even the first half, it implies some pretty significant acceleration Should we see in the second half, should we see that more in tour flow, I think particularly around Maui in the second half or how should VPG balance in there too? Do we also see some mix benefit from Hawaii coming back online in the back half Speaker 200:35:03Yes. We didn't you didn't miss anything. We didn't guide anything around VPG and tour growth. So I will say high level, we expect to get growth in both, right? That's the plan. Speaker 200:35:19Generally, we probably should get some higher tour growth in VPG, if you think about it that way. And as you hit on and Jason mentioned, yes, you got a tougher comp in the beginning of the year, not only from the Maui impact, but if you recall, coming out of 2022 into 2023, I mean, Q1 last year, our contract sales were up 10% over 2022, right? So you do have some tougher overall comps in the beginning of the year. And as we talked about last year, you saw VPGs trend down a bit as you went through the balance of the year. But then as we got into the 3rd Q4, you really got that stabilization and we feel good that that's where we have the ability to hopefully push some pricing and drive VPGs. Speaker 200:36:12The other place we'll continue to, as we mentioned on the call, we didn't guide growth, but we had international contract sales grew 50 percent last year. Now it's only 10% of our business versus North America in terms of how to think about that, but Asia is still recovering in terms of coming out of COVID and so we expect stronger growth in some of our international. That's going to be driven by TourFlow and some VPG as well. And then even within the Hyatt business as we talked about, as we brought together the Hyatt and legacy wealth portfolios and we shift in terms of our marketing channels and driving some growth that way. So there's a lot of moving parts in there, but when you put it all together, we expect first half of the year to be a little bit less growth given the tougher comps. Speaker 200:37:042nd half as you mentioned as well, you had the Maui fires and obviously that impacted contract sales $50 plus 1,000,000 in the second half of the year. So that should be helpful from an easier comp and just a pure growth year over year. Speaker 800:37:21And my second question would just be, are there any constraints on the Toriflow side that are company specific? And the reason I ask is, we see the peers, they've been growing Toriflow low double digits, maybe even a little bit better than that over the last 3, 2, 3, 4 quarters. VAC is obviously, and again, a lot of noise from Maui, so appreciate that it's not entirely apples to apples, but it's been much more in the low single digit and even in the 4Q even if we add back Maui, you're only at 4% versus I think one of the peers, which was low double digit. So to accelerate that, are there any constraints, any issues with inventory or challenges to do so, anything in the or is it basically just turning on tour channels and how do you compromise that higher quality guest and purchaser that you're looking for and still able to drive that type of level of Speaker 200:38:19growth? Sure. Yes. So for us, when you think about our where our tours come from, like we've talked about, in house, our owners, 1st and foremost staying at our resorts. The good news is to get owners take tours, get them interested maybe in buying more, yes, that's stuff to talk to them about, right. Speaker 200:38:40So things like the abound program and coming in and getting tour capture rates there, announcing new resorts like Waikiki Waikiki that's opening later this year, Charleston in Savannah, more resorts in Asia Pacific, right. That's always going to be how do we continue to drive those tours. Rentals, right, when we can get tours from people that are renting our product, they can be very good tours because they're usually paying a lot to rent our product and then they see the value proposition coming off some of the what they're paying to rent, it makes a lot of sense. So we're always going to continue to look at what we call our capture rate and drive in house. I mentioned packages and we continue to increase tours by taking rentals that we otherwise rent on the open market and sell packages into that, right. Speaker 200:39:33We're growing our tour flow on the package side. And then it's the stuff that happens in our markets like linkage. We still have linkage opportunity in a lot of our markets. We do what we call roadshows and events, which can drive tour flow. We continue to focus on driving tours through virtual methods, you got a lot of channels. Speaker 200:40:05But at the same time, yes, while our tour growth isn't 15%, you haven't seen our VPG drop, it's been flattish, right? So and this is where I think, as we talk about the investments in technology, what we're doing with Salesforce, how we're investing in data and analytics for us, it's all about focusing and getting the right tours, right, to drive those VPGs. And that's where I think the opportunity continues to be How do we open up the funnel, get more folks, market to the right folks and then be able to sell to them. And that's always going to be the focus here as we go forward. Speaker 800:40:50Thank you very much. Operator00:40:55Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question. Speaker 900:41:06Hi, good morning, everyone. Thanks for taking my question. I wanted to just circle you've given us a ton of detail and I appreciate that in the outlook. What I wanted to just drill down a little deeper on is in the release and in the opening remarks that a bound the conversion is behind us. And I wanted to see if there are some specific data points or specifics around how what's behind that and how we know, so to speak? Speaker 200:41:43Sure. VPGs always the best data point, David, when you look at what VPGs were down in the 2nd quarter and why we were talking about to a bound even before the Q2. We said anytime you launch a new product, there's transition impact. Owners understanding the new product, the salespeople, notwithstanding a lot of training and retraining, selling a different product and owners like we talked about, they bought a different product. Now you're selling them something new and that's where you saw the impact in Vistana. Speaker 200:42:16I want to say all of the VPG down in the Q2 last year was the transition, but I think our VPGs were down 15% year over year. It was a tougher comp, but think we talked about at the time our Marriott non transition sites, they were down probably low single digits, right? And so fast forward, we saw Q3, we talked about it sequentially, those legacy sites, we saw the VPGs bounce back up in the 3rd quarter and we continue to see improvement as we got into the 4th quarter. And now when you look at overall VPGs for the system, 4th quarter adjusting for MAUI, they were essentially flat Q4 this year versus Q4 last year. And Q4 last year was probably a tougher comp, right? Speaker 200:43:02Our VPGs from a system were running better. So that is a combination of all our sales centers, but that's how I feel pretty confident and that we're there and we're moving forward in that softness that we really saw mostly in the second quarter is behind us. Speaker 900:43:20Perfect. The VPG is the focus. And with respect to the IT and analytics investments, can you just color that in a bit more as to sort of what you're getting and why now? And is that something that continues beyond 2024 as well? Or is this more of a one time focused investment? Speaker 200:43:45Sure. No, let's take a step back, just not data and analytics, but we're going to continue to enhance our IT capabilities. And what do I mean by that? We obviously have been a company in business for 40 years and we've talked about how you got a lot of legacy homegrown IT systems, a lot better technology. And then as you go forward, we've done a couple of acquisitions who Vistana had their own legacy systems and while we integrated that and drove synergies, a lot of that work going forward is how do you continue to get efficiencies and leverage our technology platforms and we're going to continue to focus on that. Speaker 200:44:30And with those enhancements, whether it's data and analytics, right, getting our IT costs down by continuing to modernize applications that we're using platforms, things like that. That's where we'll and it's an ongoing journey. I think it is for any company. Technology changes so fast and there's more and more opportunities to leverage technology. And ultimately with things like AI, right, and the ability I think over time to drive more efficiencies in the business and self-service of our owners, it's a huge opportunity I think for us as we go forward. Speaker 200:45:07And that with our new CIO is we're really focused on. Speaker 500:45:13Now are we Speaker 200:45:13going to see continued increase in investments? No, I think we're on a pretty good clip and we're going to continue to do things that are really going to either drive efficiencies at the bottom line or top line growth. That's the focus going forward. Speaker 900:45:30Got it. Thank you very much. Speaker 200:45:32Thank you, David. Operator00:45:35Thank you. Ladies and gentlemen, I'm showing no other questions at this time. Mr. Geller, I'll turn the floor back to you for final comments. Speaker 200:45:43Thank you everyone for joining our call today. After last year's challenges, it was great to end the year on a strong note. Contract sales grew 4% year over year, excluding the impact of the Maui wildfires. International contract sales grew 36% year over year with strong growth seen in both Europe and Asia Pacific and resort occupancy was nearly 90% even with the Maui impact illustrating our owners and customers demand to get on vacation. As we move into a new year, the transition to abound is behind us and we look forward toward growing contract sales this year driven by a mix of higher tours and improved VPG. Speaker 200:46:27We made significant changes in our Hyatt business that will enable us to more efficiently drive tours, grow contract sales and better leverage our marketing and sales spending. Economic indicators remain positive and our reservation on the books for the summer are up both domestically and internationally. We have realigned our organization to improve our long term results and we are looking forward to opening our first Waiakee Resort later this year. On behalf of all of our associates, owners, members and customers around the world, I want to thank you for your continued interest in the company and hope to see you on vacation soon. Thank you. Operator00:47:09Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.Read morePowered by