NYSE:VAC Marriott Vacations Worldwide Q2 2024 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$1.10Consensus EPS $1.99Beat/MissMissed by -$0.89One Year Ago EPS$2.19Marriott Vacations Worldwide Revenue ResultsActual Revenue$1.14 billionExpected Revenue$1.21 billionBeat/MissMissed by -$71.11 millionYoY Revenue Growth-3.20%Marriott Vacations Worldwide Announcement DetailsQuarterQ2 2024Date7/31/2024TimeAfter Market ClosesConference Call DateThursday, August 1, 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)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Marriott Vacations Worldwide Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 1, 2024 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Greetings, and welcome to the Marriott Vacations Worldwide Quarter 2024 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Neil Goldner, Vice President, Investor Relations. Operator00:00:26Thank you, Neil. You may begin. Thank you, Paul, and welcome to Speaker 100:00:30the Marriott Vacations Worldwide Second Quarter Earnings Conference Call. I am joined today by John Deller, our 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, 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. Speaker 100:01:06Throughout the call, we will make references to non GAAP financial information. You can find a reconciliation of non GAAP financial measures in the schedules attached to our press release and on our website. With that, it's now my pleasure to turn the call over to John Geller. Speaker 200:01:20Thanks, Neil. Good morning, everyone, and thank you for joining our Q2 earnings call. We had a mixed second quarter with rentals exceeding our expectations and lower VPGs negatively impacting our contract sales. In addition, we have not seen the necessary improvement in our loan delinquency, so we increased our sales reserve to reflect higher expected defaults, which Jason will provide more color on later in the call. So let's start with contract sales. Speaker 200:01:51As we look back at the cadence of the quarter, April VPG was soft, but May was in line with the prior year, which gave us confidence for the rest of the quarter. However, June VPG declined on a year over year basis and contract sales declined 1% for the quarter as we were successful growing tours offset by a decline in VPG. VPGs for owners were flat in the second quarter compared to last year, reflecting the value owners put on their vacations. We were able to grow first time buyer tours by 9%, reflecting our strategy to grow new owners, but did see a 12% decline in first time buyer VPGs. We were able to grow contract sales 3% in the quarter excluding Maui. Speaker 200:02:38This illustrates the quality and location of our upper upscale vacation product, the high premium people put on their vacations, our tour growth and the fact that our owners continue to see long term value of investing in their future vacations. Given the higher cost environment consumers have been dealing with over the last few years and the uncertain broader macro picture, we have adjusted certain sales promotions recently to combat the softening in VPGs. Meanwhile, our resort occupancies in the quarter were up more than a point year over year, driven by a 4 point improvement in rental occupancies consumers continue to prioritize spending on experiences. Our rental results also had a very strong quarter, driving higher revenue from more keys rented and lower costs, primarily from higher preview packages to drive contract sales. As a result, rental profit in our VO segment increased more than 60% compared to last year with margin improving to more than 20%. Speaker 200:03:42In our exchange and third party management business, Interval International ended the quarter with more than 1,500,000 active members, while inventory utilization was in the low 90% range consistent with last year. As we look forward, we adjusted full year contract sales guidance to reflect our expectations for lower VPGs for the second half of the year. While July VPGs improved from the softness we saw in June, the midpoint of our guidance for the second half of the year reflects VPGs to be down around 7% compared to down 6% in the first half. In tours to grow around 12% as we lap Maui implying a 5% contract sales growth in the second half. Maui continues to recover, though we now expect contract sales to be down roughly $10,000,000 for the full year as the recovery is turning out to be slower than our original expectations. Speaker 200:04:47This should still provide us a 2 point tailwind in contract sales growth in the second half of the year as our sales centers were closed from mid August until the end of September last year. We also expect to generate higher first time buyer tours, which carry a lower VPG. We ended the quarter with nearly 270,000 packages with roughly 30% of those customers having already confirmed to take their vacation in the second half of the year. While we're disappointed with the additional sales reserve we took, we continue to manage the business through the broader macro uncertainty. On one side, consumers appear cautious after 2 years of inflation, while on the other side, they are still spending on travel and experiences. Speaker 200:05:33We're seeing that play out in our resorts where we ran over 90% occupancy in the 2nd quarter. If we exclude the impacts of the additional sales reserve, the improvement in our rental performance and our other cost management initiatives would have offset most of the impact from the lower contract sales guidance compared to our original full year adjusted EBITDA guidance. We have also been working through our 2025 maintenance fee budgets and expect the average maintenance fee will increase less than 5% for our points products after 2 years of significantly higher increases. We believe this will help restore confidence for both recent first time buyers as well as long term owners. With that, I'll turn it over to Jason to discuss our results in more detail. Speaker 300:06:24Thanks, John. Today, I'm going to review our 2nd quarter results, our balance sheet and liquidity position and our outlook for the rest of the year. Starting with our vacation ownership segment. Contract sales declined 1% in the quarter on a year over year basis with a 5% increase in tourists being offset by lower RPG and sales grew 3% year over year excluding Maui. As I mentioned during our last call, we needed the improvements in delinquencies that we saw in March April to continue, which did not happen. Speaker 300:06:56While delinquencies were flat to the Q1, were 120 basis points above 2023 levels, driving the need to increase the reserve on the balance sheet by $70,000,000 Under timeshare accounting rules, we booked a $13,000,000 offset in cost of vacation ownership products, so the net impact to adjusted EBITDA was $57,000,000 We also expect our sales reserve to be 11% to 12% of contract sales for the balance of the year, several 100 basis points above our historical norms, where I expect we will remain until we see loan performance improve. As John mentioned, we believe lower inflation and a more normalized maintenance fee increase for 2025 will improve our portfolio performance in the future. Development margin declined year over year excluding the increased reserve due primarily to lower VPGs and higher marketing and sales costs, partially offset by lower product cost. Excluding the increase in our sales reserve, our development margin would have been 27% in the quarter. Rental profit in our Vacation Ownership segment increased $11,000,000 year over year, driven by higher rental revenue and $8,000,000 of incremental cost allocated to marketing and sales expense. Speaker 300:08:09Finally, as expected, financing profit declined 10% year over year driven by higher interest expense, partially offset by increased financing revenue, while resort management profit increased 9%. As a result, adjusted EBITDA in our vacation ownership segment declined 26% year over year. Moving to our exchange and third party management segment. Adjusted EBITDA declined $7,000,000 compared to the prior year, driven by lower exchanges in getaways at Interval and decreased profit at Aqua Aston due to softness in Maui. As a result, total company adjusted EBITDA declined 29% year over year and would have been roughly in line with our expectations and consensus EBITDA for the quarter excluding the increase in our sales reserve. Speaker 300:08:54Moving to the balance sheet. We ended the quarter with net jet to adjusted EBITDA of 4.4 times $820,000,000 in liquidity. We also have nearly $1,000,000,000 of inventory on our balance sheet, including inventory reported in property and equipment, enough to support more than 2 years of future sales. Moving to guidance. With the first half behind us, we are lowering our full year adjusted EBITDA guidance range to between 6.85 $1,000,000 $715,000,000 We now expect contract sales to grow 1% to 3% for the year, reflecting 2nd quarter results and our updated second half forecast of 3% to 7% growth. Speaker 300:09:35We expect second half tours to grow 12% year over year at the midpoint with VPG declining 7%. Three points of the tour growth is expected to come from lapping Maui this month Asia Pacific, which will benefit from the reopening of our 2nd Bali sales center, is expected to drive another 4 points of the growth. Our package pipeline is expected to drive another 2 to 3 points of tour growth the second half of the year, while the opening of Waikiki will drive another point. Excluding Maui, we expect year over year contract sales growth in the second half of the year to be approximately 3% at the midpoint of our revised guidance range, consistent with our first half performance. We now expect development margin to be around 22% for the year, including a 3 point impact from the additional reserve. Speaker 300:10:23Our VO rental business had a very strong first half and transient keys on the books for the second half are up 4% compared to last year. As a result, we now think rental profit could increase by more than $30,000,000 for the year. We also think resort management profit growth in the second half of the year will be consistent with the first half. In our exchange and third party management business, we expect interval members to be down a few points for the year and average revenue per member to be largely unchanged. As a result, we expect adjusted EBITDA to decline in the $11,000,000 to $13,000,000 range in the second of the year, with roughly half of that coming from Aqua Aston due to Maui. Speaker 300:11:02Finally, G and A is expected to be down $8,000,000 to $10,000,000 year over year in the second half, driven by our cost savings initiatives. Moving to cash flow. We now estimate that our adjusted free cash flow will be in the $300,000,000 to 3 $40,000,000 range this year, reflecting our updated adjusted EBITDA guidance. Included in this guidance is $10,000,000 of lower inventory spending. Our plan is to deploy our free cash to repay some of our corporate debt as well as return cash to shareholders through dividends and buybacks, while our goal remains to get our leverage back to 3 times by the end of 2025. Speaker 300:11:38With that, we'll be happy to answer your questions. Operator00:11:45Paul? Thank you. We'll now be conducting a question and answer Our first question is from Ben Shieken with Mizuho. Please proceed with your question. Speaker 400:12:25Hey, how's it going? Good morning. Thanks for taking my questions. Speaker 500:12:28You gave Speaker 400:12:29us a lot of information on the call, which is super helpful. Maybe stepping back and just simplifying, when you updated the guide in June, it implied plus 7% growth ex Maui in 2Q and then ex Maui accelerate to plus 10% in the back half of the year. I think from the guide today based on our math and I think you confirmed it Jason, it implies in the back half plus 3x MAUI. So can we just like simply just walk through a few of the buckets? What are the biggest factors that help you bridge from the plus 10% that was previously implied in the back half again ex Maui to the plus 3%, which I think is correct? Speaker 400:13:06Thanks. Speaker 200:13:08Yes, Ben. Most of it is just going to be our assumptions around VPG. We as we talked about on the call, we did see some softening in VPG on first time buyers. I also mentioned we are adjusting promotions and both for owners, but also more importantly for some of the first time buyers to try and drive that VPG up in the second half of the year. But till we see the improvement, we guided it a little bit more conservatively, I'd say on what we think VPGs are going to do versus our original expectations. Speaker 200:13:47So, lot of work getting done, the team's focused on it. But no different than a lot of consumer businesses that you're hearing. There's some cautious folks out there on the spend side. The good news for us is people are prioritizing getting on vacation we're seeing that in our resort occupancy is at 90 plus percent. People are renting. Speaker 200:14:10We're seeing that in our rental business and getting on vacation. So that bodes well to maybe offset some of that uncertainty, but we need to get our VPGs going back the right way. Speaker 400:14:26Got you. And I guess that inflection you saw was just in the last couple of weeks of June. And then has it I guess has it gotten continue to get worse? Like Speaker 200:14:34what is the case? Yes. We had a great May. The EPGs were in line with last year on a total basis. And as we talked about, VPG for owners were flat year over year, which was great. Speaker 200:14:49Owners love the product, prioritize that spend in terms of getting on vacation, where we saw the softness from May to June was more in that first time buyer. And at the same time, our strategy is we talked about is to grow first time buyers, right? So tours were up 9% to first time buyers, but you saw that softening in VPG, which once again given the broader macro, I'm not sure is a big surprise. The good news, right, we just obviously closed July yesterday. We don't have all the details, but at a high level, we saw those VPGs improve sequentially, still down a bit year over year, but not what we saw in June. Speaker 200:15:34So we already made a few adjustments in the middle of July and some of our owner programs and upgrades sales and things like that. So that helped in July. And as I mentioned, we're rolling out other promotions here more broadly for both owners and first time buyers. So we expect to get some traction with that here going forward as well. Speaker 400:16:00Got it. I appreciate it. Speaker 600:16:01That's all for me. Thank you. All right. Thanks, Ben. Operator00:16:06Thank you. Our next question is from David Katz with Jefferies. Speaker 600:16:12Hi, good morning, everyone. Thanks for all the information. If we could maybe go one more layer, if we broke down the inbound new buyer target customers, is there any segmenting we could do where we could point to specific categories or groups or geographies or any further insight on sort of where there's more weakness rather than less? Speaker 200:16:46Sure. Yes. I mean, I think at a high level, David, to your question, locations like Orlando, right, Myrtle Beach, where probably a little different customer than say is going to Hawaii for example or some of our California locations. You're probably seeing a disproportionate impact on from first time buyers coming from consumers at that location more broadly from last year. But yes, it is a little bit the consumer, right, the mix of the consumer who's showing up. Speaker 200:17:26We talked about Maui being softer and recovering slower. You are seeing that in terms of the visitors, occupancies for us are back, still softer than where they were pre wildfires. But the visitors because of the discounting and it's a little bit different, right? And that's a little bit different customer in terms of buying vacation ownership. So we've seen that a little bit in terms of that recovery there in Maui. Speaker 200:17:56But yes, I think a little bit is just the location at times and the consumers that are going to those locations. Speaker 600:18:05Perfect. Very helpful. And if I could just follow-up and ask about sort of the trajectory through the quarter and whether and you may have touched on this, but whether June was worse than May and May was worse than April, etcetera, whether there's some acceleration or not? Speaker 200:18:25Sure. Yes. April started out a little bit softer than our expectations. And then we saw May doing very well, kind of flat VPGs as we talked about and we drove owner and first time buyer tours. And so when we put that outlook for the Q2 in the beginning of June, the trajectory looked good. Speaker 200:18:49And then all of a sudden we saw some of that softness more on the first time buyer side, but a little bit even on the owner side in June with VPGs being down a little bit. Like I said, now moving into July, we've seen those VPGs recover right from where we were in June, still down year over year. So we've got some opportunity there, but that's what we're building into the forecast that they are going to be a little bit softer than the first half. But as I mentioned, we're rolling out some programs and things to really try and drive that VPG higher here as we go through the second half of the year. Speaker 600:19:34And so July is slightly better, right? Speaker 200:19:38Yes. July was on an absolute basis. VPGs in July were kind of what we saw overall for the Q2 maybe a little bit better. Now from it, there's always some Speaker 700:19:48seasonality and things. So you would expect Speaker 200:19:48a little bit of an overall good to see some of the programs that we did roll out in mid July. But like I said, some of these programs were just getting rolled out here now. So not necessarily reflected in what we're seeing in July. Speaker 600:20:11Okay. Sorry for the third question. Appreciate it. Thank you. Thanks, David. Operator00:20:19Thank you. Our next question is from Patrick Scholes with Truist Securities. Please proceed with your question. Speaker 800:20:26All right. Good morning, everyone. Good morning. Really want to talk about the charge that you took, really get into the bottom line here is how can your financial control process rationalize 2 huge loan loss reserve charges and really just a few short months here and really in relation to the COVID, it was only a $42,000,000 charge, but much higher now. How do you rationalize that? Speaker 800:20:58Thank you. Speaker 200:21:01Yes. When we took the charge last year, as we talked about, we were seeing higher delinquencies, which obviously leads to higher defaults. But we didn't have as much visibility, so we had to make assumptions. And some of the thought around it was those higher delinquencies were coming from sales to people in 2022 and even 2023 that bought when costs were lower for their own pocketbook, right, in terms of higher inflation. You did see over those couple of years interest rates going up if you had credit card debt things like that. Speaker 200:21:41So that stress on the consumer. And the expectation was that given historically how our notes perform that those delinquencies would trend down. And we did start to see that like we saw in the Q1, those delinquencies came down, we're trending down in April. But as Jason mentioned in his comments, then they kind of flattened out. We are that those delinquencies from April May June, they didn't go up. Speaker 200:22:09But as we talked about on the call, we needed to continue to see that improvement. So based on the higher delinquencies and not seeing the improvement that we expected when we took the original charge, we relooked at it. And so going forward, we've got to taken out a little bit of the risk of those delinquencies having to continue to come down significantly, right? We do expect that hopefully they will get a little bit better here. Part of that is now inflation has stabilized on a higher level. Speaker 200:22:49We'll see with interest rate cuts and how that impacts consumer debt when those start. But also more importantly, as I mentioned, our maintenance fees, at this point, will only go up more historical amounts lower inflationary less than 5% on our product, which also helps for owners and the cost of their vacations going forward. So that gives us some confidence here that this is enough to really cover what we're seeing and we're going to continue to work like we have been on getting those delinquencies down in collections and hopefully do better than we're expecting. Speaker 800:23:33Okay. Speaker 600:23:36Give you a Speaker 800:23:36little more color on what aspect of the loan loss is really driving the charge, specifically what vintage and even more so whose vintages are we talking about? Is it Vistana? Is it wealth? Is it legacy Marriott Vacations? Thank you. Speaker 300:23:58Yes, Patrick. This is Jason. So, as we've talked about over the last couple of quarters, it's really a little bit across the board in terms of brands as well as FICO. So it does depend the materiality and the amount does depend on which brand to your point, as well as the different FICO bands. So our above 700s are continuing to perform the best, but they have a little degradation. Speaker 300:24:28And then as you go down the FICO bands, you definitely see more stress in this in below 700s and even a little bit in the below 600, you're starting to see even more stress. So as you think about how that looks, that's what we're focused on. And that's really kind of how it segregates. I don't think what you're seeing in our portfolio is frankly different than what you're seeing in the broader finance sector. The lower the FICO scores, the worse they perform. Speaker 300:24:59And that's why you are a lot of commentary revolves around whether it's the lower end consumers or not. So I think our performance is relatively consistent on a relative basis with what you're seeing more broadly out in the economy. Speaker 800:25:16Okay. Thank you. I'll hop back in the queue. Speaker 200:25:21Thanks. Operator00:25:24Thank you. Our next question is from Brent Montour with Barclays. Please proceed with your question. Speaker 900:25:31Good morning, everybody. Good morning. Thanks for taking my question. So a question on first on the demand side. I'm just trying to square the comments, John, of demand for travel being strong, but VPGs for new buyers and close rates being soft. Speaker 900:25:48I mean, the obvious reason, I guess, which I guess we haven't said it, but it's just sort of the rejection or shifting away from large ticket purchases on the consumer. Can you just maybe let's level set a little bit and try and I just want to figure out if this is more cyclical or post COVID normalization. Where are new buyer close I know you can't tell me the exact number, but new buyer close rates now versus where the average is throughout the cycle versus where it is generally when it troughs in the cycle, that would probably be helpful just roughly directionally? Speaker 200:26:29Yes. I'm not sure I have the kind of historical close rates to kind of walk you through. We can clearly pull some of that analysis. But they're clearly lower than what we saw coming out of COVID, obviously, in 2022. High level, I'd expect that they're probably more in line with what we've seen historically on close rates. Speaker 200:26:57It could be a little bit lower. But yes, what you're seeing is a little bit of the softness with the first time buyer is that broader macro. People are traveling, but timeshare is a bigger commitment, right, if you're going to buy into it. And they haven't had the benefit of owning the product. That's where the good news is you are seeing notwithstanding a bit of the pressure on the consumer owners continuing to buy in those closing rates are while lower than 22 as we've seen some of that normalization have been pretty steady here. Speaker 200:27:35So, we'll continue to work through it. That's where some of the incentives and trying to help with that first time buyer close and things like that from a value proposition, those are all the things that we continue to work on. Speaker 900:27:54Okay. Okay. Thanks for that. And then on the consumer loan piece, I guess we're a little bit confused because of second charge in 3 quarters. And we see one of your peers who's thought to have a slightly worse consumer hasn't had any charges yet. Speaker 900:28:17And I know that they reserve a lot higher than you guys do on a run rate basis. But I guess yours is getting sequentially worse relative to them. And so I want to make sure that I understand, has there been a shift in your lending strategy that has changed the quality of your consumer over time versus your prior sort of run rate? And then a specific stat, if we could just, Jason, give us the percentage of the book that's below 700? Speaker 200:28:50Sure. Now in terms of targeting our consumer, our FICO scores, how we target, nothing has changed. I mean, if you look it more historically, obviously, with the acquisitions that we did first with ILG and Vistana, With the Sheraton customer, probably on average lower quality from a credit than we have seen historically on the legacy Marriott side. And then the same thing with the Welk acquisition, the legacy Welk customer below in terms of the credit quality that so that mix has changed with some of the acquisitions. But as you talk about the last couple of years and specifically how we target, how we underwrite, really no shift in anything there. Speaker 200:29:48It is more, like I said, some of the macro, I think, on the consumer, as Jason mentioned, whether it's credit card delinquencies, I think are the highest they've been in 12, 13 years, I think I saw on something. So depending on the consumer, I think there's more stress on some consumers versus others. Speaker 300:30:10Yes. And I think it's also important to remember this is relative to our expectations. So to your point, our reserves have historically been lower and still remain among the lowest in the industry. And then to your last question, 28% of our loan book is below 700 right now, and that's been pretty consistent over the last couple of years. So no real changes in that stratification. Speaker 900:30:39Okay. Thanks everyone. Operator00:30:44Thank you. Our next question is from Chris Woronka with Deutsche Bank. Please proceed with your question. Speaker 1000:30:51Hey, good morning guys. Thanks for taking Speaker 700:30:53the question. Speaker 1000:30:53Hey, Chris. Thanks for taking the question. Hey, John. So I did have one follow-up question on the loan loss, but we can take a break from that for a minute. And the first question, if we look at Maui and you guys are not alone in citing that as being slower to recover. Speaker 1000:31:12I think some of your peers in the hospitality industry have kind of suggested that the use a little bit of a boost. Is that a fair assessment? Are you guys working with them to try to it's not a position they've historically had to be in, I get it. But is there anything that would encourage you that they're getting more ramping up their efforts to get folks back? Speaker 200:31:43Yes. No, that I would say is kind of a true observation. We continue to work with the local governments. We'd love to see that, but it's a bit of a balance, right, with the Maui residents and people returning to the islands. So, we're going to continue to work that. Speaker 200:32:04We're going to be there a long time. We know that's going to be a great destination like it was over time. So we'll continue to work with the local island governments and do and work with them in the right way. Speaker 1000:32:23Okay. Fair enough. Thanks, John. And then the follow-up on the back to the loan losses. Just how much I guess how much what are you how much data are you collecting from folks? Speaker 1000:32:35I know you get FICO and you get all the things on the something else something else? And is there anything that makes you want to change the application process a little bit to collect a little more information on these folks? And maybe also, are these folks just walking away? Are they totally defaulting? Or are they going through a 3rd party? Speaker 1000:33:00Or any color on that would be great. Thanks. Speaker 300:33:03Yes. So first, we have not seen really any evidence that any of the defaults are being caused by the 3rd party. We haven't had that really in our entire history and we don't have it today. So I think that's on the positive side that, that activity hasn't picked up for us like it has maybe for some others. In terms of why folks default, most people don't really tell you at the end of the day. Speaker 300:33:33We do ask, we do solicit feedback, we capture that feedback. But generally, the number one answer is it's expensive, right? And with given inflation and everything else, this is my words, not necessarily a customer's words, it makes sense. The overall cost of living out there has increased pretty significantly most don most don't really give you a reason and then that would be the number one reason that people do give you if they do give you a reason at all. Speaker 1000:34:12Okay. Fair enough. Thanks, guys, and best of luck in the second half. Thank you. Operator00:34:20Thank you. Our next question is from Shaun Kelley with Bank of America. Please proceed with your question. Speaker 500:34:26Hi, good morning everyone. Thanks for taking my question. Just wanted to hit on subject of margins a little bit. I think we rewind, I heard a bit about mix shift as it relates to a bigger focus on first time and new owners. Obviously, that's what's partially dragging down the VPGs. Speaker 500:34:45And then secondarily, John, I think a number of times you mentioned incentives as sort of a way to, I guess, drive tour flow and probably push the contract sales piece a bit. So I'm wondering about Speaker 900:34:59the implications are a little bit Speaker 500:35:00as it relates to margins. Could you just walk us through sort of the impact of that mix and how you factor that in, be it to your outlook Speaker 700:35:08for development margin or your outlook Speaker 900:35:08for just broader Speaker 500:35:16negative impact there? Thanks. Speaker 200:35:20You're absolutely right on the first time buyer mix as we talked about in the second quarter. Our strategy to grow 1st time buyers package tours, which are focused primarily on 1st time buyers. So as that mix or mix of tours goes up, yes, the math would be, you get slower VP or lower VPGs on an overall basis. And yes, we factored that into how we thought about our guidance for the second half of the year. So that's in there. Speaker 200:35:55And then the other piece, right, if the incentives work, right, there could be a little bit more cost, right, related to that, that would negatively impact. But the VPGs up, you get the flow through, you can offset that or maybe do a little bit better depending on how the VPGs improve. So that's where and we've talked about this. We're always making tweaks to the promotions and things based on what we're seeing. So sometimes it's based on particular things that we see and what's going on like we're seeing now with first time buyers. Speaker 200:36:37So we'll adjust those accordingly and if we can execute on the VPG side that hopefully offsets the margin impact of the those higher incentives. Speaker 500:36:50And did I catch it correctly that you said 26% development margin in the quarter if you adjusted for the sales reserve? Was that the right number? And is that are we looking at a similar magnitude for the back half just sort of putting in putting all the Xs and Os together? Is it better than that or worse than that? Just kind of trying to understand the underlying assumption in the guidance. Speaker 500:37:09Thanks. Speaker 300:37:11Yes. It was 27% for the 2nd quarter. If you add back that charge we did in our prepared remarks, say, 20 2% for the year, including 3 points from the charge. So that would be, call it, 25% for the kind of Speaker 200:37:26the full Speaker 700:37:30year. Okay. Speaker 500:37:30Dollars 25 for the full year. Speaker 900:37:34And just last one for Speaker 500:37:35me would be, Jason, can you Speaker 900:37:37compare that to where we were? Speaker 300:37:39We percent on that as a percentage of contract sales going forward, which is a Speaker 200:37:44little bit higher. And then, Speaker 300:37:46we should see some benefit in product cost. Our product cost is coming in lower this year than we had originally expected. So we do have a pickup on that side in the guidance as well. Speaker 500:37:56Thank you very much. Thanks. Operator00:38:01Thank you. Our next question is from Patrick Scholes with Truett Securities. Please proceed with your question. Speaker 800:38:08Great. Thank you. I have a number of follow-up questions here. Have you changed anything in the last couple of years as far as your new sales writing excuse me, new sales underwriting criteria? And if so, what specifically did you change? Speaker 800:38:28And related to that, how is your sales underwriting criteria in your legacy Marriott Vacations product different from that of WellCare? And I'm trying to really you'll see in my further questions trying to sort of drill down more on WellCare. Thank you. Speaker 200:38:52Just so I'm clear, when you say sales, are you talking credit underwriting, Patrick? Speaker 800:38:58Yes, yes. Credit underwriting for the sales. Yes. Speaker 200:39:04Nothing significant in terms of holistic changes. We're always looking at down payment requirements and things like that. We could have had some tweaks to bring those up in certain locations, but nothing holistically. I don't want to say nothing's changed, but I wouldn't say there were any pervasive changes in terms of how we look at our underwriting and the requirements to get the financing. Speaker 800:39:40Okay. Let's talk a little bit about Welk. How is that deal performing versus your expectations at the time of acquisition? And what trends are you seeing within specifically the Well customer as far as default rates versus your legacy customers? Thank you. Speaker 200:40:09Yes, I mean, from a default rate, we knew this coming in, well, customers had a higher default rate. So that's kind of in our mix if you will of the overall higher defaults on the portfolio. I think from an overall transaction, we still see the long term value. I think some of the transition is probably taken a little bit longer. We're seeing a lot of good traction this year on our sales performance there, but still a lot of opportunity. Speaker 200:40:42We're not where we want to be yet in terms of overall VPGs and things that we're seeing at our Hyatt portfolio product. So a lot of good work there by the team and a lot of good improvement and we're on a good trajectory there. But like I said, we're overall, we're probably not where we wanted to be when we first underwrote it, but that means there's also good opportunity going forward. Operator00:41:15Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments. Speaker 200:41:23Great. Thank you everyone for joining our call today. As you heard on our call, 2nd quarter results were mixed with double digit rental profit growth being offset by lower contract sales. In addition, while Maui is recovering, it's not recovering at the pace we expected. Our new Waikiki Resort is slated to open in early October. Speaker 200:41:42This will be our first new U. S. Resort opening since the pandemic, adding more exciting vacation destinations for our owners and other guests. We also have a number of new resorts planned to open over the next few years including our new Western Resorts in Savannah and Charleston as well as a new Marriott Resort in Thailand and additional units in Bali. And while we're not satisfied with our results, we have fundamentally we have a fundamentally strong business that generates free cash flow, a high percentage of owner sales which reflect the quality of our product offering and a team of dedicated associates who go to work every day to provide memorable experiences for our owners and guests. Speaker 200:42:23On behalf of all of our associates, owners, members and customers around the world, I want to thank you for your continued interest in our company and I hope to see you on vacation soon. Operator00:42:36This concludes today's conference. 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 Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) 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.comTrump’s betrayal exposed Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.April 25, 2025 | Porter & Company (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? 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There are 11 speakers on the call. Operator00:00:00Greetings, and welcome to the Marriott Vacations Worldwide Quarter 2024 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Neil Goldner, Vice President, Investor Relations. Operator00:00:26Thank you, Neil. You may begin. Thank you, Paul, and welcome to Speaker 100:00:30the Marriott Vacations Worldwide Second Quarter Earnings Conference Call. I am joined today by John Deller, our 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, 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. Speaker 100:01:06Throughout the call, we will make references to non GAAP financial information. You can find a reconciliation of non GAAP financial measures in the schedules attached to our press release and on our website. With that, it's now my pleasure to turn the call over to John Geller. Speaker 200:01:20Thanks, Neil. Good morning, everyone, and thank you for joining our Q2 earnings call. We had a mixed second quarter with rentals exceeding our expectations and lower VPGs negatively impacting our contract sales. In addition, we have not seen the necessary improvement in our loan delinquency, so we increased our sales reserve to reflect higher expected defaults, which Jason will provide more color on later in the call. So let's start with contract sales. Speaker 200:01:51As we look back at the cadence of the quarter, April VPG was soft, but May was in line with the prior year, which gave us confidence for the rest of the quarter. However, June VPG declined on a year over year basis and contract sales declined 1% for the quarter as we were successful growing tours offset by a decline in VPG. VPGs for owners were flat in the second quarter compared to last year, reflecting the value owners put on their vacations. We were able to grow first time buyer tours by 9%, reflecting our strategy to grow new owners, but did see a 12% decline in first time buyer VPGs. We were able to grow contract sales 3% in the quarter excluding Maui. Speaker 200:02:38This illustrates the quality and location of our upper upscale vacation product, the high premium people put on their vacations, our tour growth and the fact that our owners continue to see long term value of investing in their future vacations. Given the higher cost environment consumers have been dealing with over the last few years and the uncertain broader macro picture, we have adjusted certain sales promotions recently to combat the softening in VPGs. Meanwhile, our resort occupancies in the quarter were up more than a point year over year, driven by a 4 point improvement in rental occupancies consumers continue to prioritize spending on experiences. Our rental results also had a very strong quarter, driving higher revenue from more keys rented and lower costs, primarily from higher preview packages to drive contract sales. As a result, rental profit in our VO segment increased more than 60% compared to last year with margin improving to more than 20%. Speaker 200:03:42In our exchange and third party management business, Interval International ended the quarter with more than 1,500,000 active members, while inventory utilization was in the low 90% range consistent with last year. As we look forward, we adjusted full year contract sales guidance to reflect our expectations for lower VPGs for the second half of the year. While July VPGs improved from the softness we saw in June, the midpoint of our guidance for the second half of the year reflects VPGs to be down around 7% compared to down 6% in the first half. In tours to grow around 12% as we lap Maui implying a 5% contract sales growth in the second half. Maui continues to recover, though we now expect contract sales to be down roughly $10,000,000 for the full year as the recovery is turning out to be slower than our original expectations. Speaker 200:04:47This should still provide us a 2 point tailwind in contract sales growth in the second half of the year as our sales centers were closed from mid August until the end of September last year. We also expect to generate higher first time buyer tours, which carry a lower VPG. We ended the quarter with nearly 270,000 packages with roughly 30% of those customers having already confirmed to take their vacation in the second half of the year. While we're disappointed with the additional sales reserve we took, we continue to manage the business through the broader macro uncertainty. On one side, consumers appear cautious after 2 years of inflation, while on the other side, they are still spending on travel and experiences. Speaker 200:05:33We're seeing that play out in our resorts where we ran over 90% occupancy in the 2nd quarter. If we exclude the impacts of the additional sales reserve, the improvement in our rental performance and our other cost management initiatives would have offset most of the impact from the lower contract sales guidance compared to our original full year adjusted EBITDA guidance. We have also been working through our 2025 maintenance fee budgets and expect the average maintenance fee will increase less than 5% for our points products after 2 years of significantly higher increases. We believe this will help restore confidence for both recent first time buyers as well as long term owners. With that, I'll turn it over to Jason to discuss our results in more detail. Speaker 300:06:24Thanks, John. Today, I'm going to review our 2nd quarter results, our balance sheet and liquidity position and our outlook for the rest of the year. Starting with our vacation ownership segment. Contract sales declined 1% in the quarter on a year over year basis with a 5% increase in tourists being offset by lower RPG and sales grew 3% year over year excluding Maui. As I mentioned during our last call, we needed the improvements in delinquencies that we saw in March April to continue, which did not happen. Speaker 300:06:56While delinquencies were flat to the Q1, were 120 basis points above 2023 levels, driving the need to increase the reserve on the balance sheet by $70,000,000 Under timeshare accounting rules, we booked a $13,000,000 offset in cost of vacation ownership products, so the net impact to adjusted EBITDA was $57,000,000 We also expect our sales reserve to be 11% to 12% of contract sales for the balance of the year, several 100 basis points above our historical norms, where I expect we will remain until we see loan performance improve. As John mentioned, we believe lower inflation and a more normalized maintenance fee increase for 2025 will improve our portfolio performance in the future. Development margin declined year over year excluding the increased reserve due primarily to lower VPGs and higher marketing and sales costs, partially offset by lower product cost. Excluding the increase in our sales reserve, our development margin would have been 27% in the quarter. Rental profit in our Vacation Ownership segment increased $11,000,000 year over year, driven by higher rental revenue and $8,000,000 of incremental cost allocated to marketing and sales expense. Speaker 300:08:09Finally, as expected, financing profit declined 10% year over year driven by higher interest expense, partially offset by increased financing revenue, while resort management profit increased 9%. As a result, adjusted EBITDA in our vacation ownership segment declined 26% year over year. Moving to our exchange and third party management segment. Adjusted EBITDA declined $7,000,000 compared to the prior year, driven by lower exchanges in getaways at Interval and decreased profit at Aqua Aston due to softness in Maui. As a result, total company adjusted EBITDA declined 29% year over year and would have been roughly in line with our expectations and consensus EBITDA for the quarter excluding the increase in our sales reserve. Speaker 300:08:54Moving to the balance sheet. We ended the quarter with net jet to adjusted EBITDA of 4.4 times $820,000,000 in liquidity. We also have nearly $1,000,000,000 of inventory on our balance sheet, including inventory reported in property and equipment, enough to support more than 2 years of future sales. Moving to guidance. With the first half behind us, we are lowering our full year adjusted EBITDA guidance range to between 6.85 $1,000,000 $715,000,000 We now expect contract sales to grow 1% to 3% for the year, reflecting 2nd quarter results and our updated second half forecast of 3% to 7% growth. Speaker 300:09:35We expect second half tours to grow 12% year over year at the midpoint with VPG declining 7%. Three points of the tour growth is expected to come from lapping Maui this month Asia Pacific, which will benefit from the reopening of our 2nd Bali sales center, is expected to drive another 4 points of the growth. Our package pipeline is expected to drive another 2 to 3 points of tour growth the second half of the year, while the opening of Waikiki will drive another point. Excluding Maui, we expect year over year contract sales growth in the second half of the year to be approximately 3% at the midpoint of our revised guidance range, consistent with our first half performance. We now expect development margin to be around 22% for the year, including a 3 point impact from the additional reserve. Speaker 300:10:23Our VO rental business had a very strong first half and transient keys on the books for the second half are up 4% compared to last year. As a result, we now think rental profit could increase by more than $30,000,000 for the year. We also think resort management profit growth in the second half of the year will be consistent with the first half. In our exchange and third party management business, we expect interval members to be down a few points for the year and average revenue per member to be largely unchanged. As a result, we expect adjusted EBITDA to decline in the $11,000,000 to $13,000,000 range in the second of the year, with roughly half of that coming from Aqua Aston due to Maui. Speaker 300:11:02Finally, G and A is expected to be down $8,000,000 to $10,000,000 year over year in the second half, driven by our cost savings initiatives. Moving to cash flow. We now estimate that our adjusted free cash flow will be in the $300,000,000 to 3 $40,000,000 range this year, reflecting our updated adjusted EBITDA guidance. Included in this guidance is $10,000,000 of lower inventory spending. Our plan is to deploy our free cash to repay some of our corporate debt as well as return cash to shareholders through dividends and buybacks, while our goal remains to get our leverage back to 3 times by the end of 2025. Speaker 300:11:38With that, we'll be happy to answer your questions. Operator00:11:45Paul? Thank you. We'll now be conducting a question and answer Our first question is from Ben Shieken with Mizuho. Please proceed with your question. Speaker 400:12:25Hey, how's it going? Good morning. Thanks for taking my questions. Speaker 500:12:28You gave Speaker 400:12:29us a lot of information on the call, which is super helpful. Maybe stepping back and just simplifying, when you updated the guide in June, it implied plus 7% growth ex Maui in 2Q and then ex Maui accelerate to plus 10% in the back half of the year. I think from the guide today based on our math and I think you confirmed it Jason, it implies in the back half plus 3x MAUI. So can we just like simply just walk through a few of the buckets? What are the biggest factors that help you bridge from the plus 10% that was previously implied in the back half again ex Maui to the plus 3%, which I think is correct? Speaker 400:13:06Thanks. Speaker 200:13:08Yes, Ben. Most of it is just going to be our assumptions around VPG. We as we talked about on the call, we did see some softening in VPG on first time buyers. I also mentioned we are adjusting promotions and both for owners, but also more importantly for some of the first time buyers to try and drive that VPG up in the second half of the year. But till we see the improvement, we guided it a little bit more conservatively, I'd say on what we think VPGs are going to do versus our original expectations. Speaker 200:13:47So, lot of work getting done, the team's focused on it. But no different than a lot of consumer businesses that you're hearing. There's some cautious folks out there on the spend side. The good news for us is people are prioritizing getting on vacation we're seeing that in our resort occupancy is at 90 plus percent. People are renting. Speaker 200:14:10We're seeing that in our rental business and getting on vacation. So that bodes well to maybe offset some of that uncertainty, but we need to get our VPGs going back the right way. Speaker 400:14:26Got you. And I guess that inflection you saw was just in the last couple of weeks of June. And then has it I guess has it gotten continue to get worse? Like Speaker 200:14:34what is the case? Yes. We had a great May. The EPGs were in line with last year on a total basis. And as we talked about, VPG for owners were flat year over year, which was great. Speaker 200:14:49Owners love the product, prioritize that spend in terms of getting on vacation, where we saw the softness from May to June was more in that first time buyer. And at the same time, our strategy is we talked about is to grow first time buyers, right? So tours were up 9% to first time buyers, but you saw that softening in VPG, which once again given the broader macro, I'm not sure is a big surprise. The good news, right, we just obviously closed July yesterday. We don't have all the details, but at a high level, we saw those VPGs improve sequentially, still down a bit year over year, but not what we saw in June. Speaker 200:15:34So we already made a few adjustments in the middle of July and some of our owner programs and upgrades sales and things like that. So that helped in July. And as I mentioned, we're rolling out other promotions here more broadly for both owners and first time buyers. So we expect to get some traction with that here going forward as well. Speaker 400:16:00Got it. I appreciate it. Speaker 600:16:01That's all for me. Thank you. All right. Thanks, Ben. Operator00:16:06Thank you. Our next question is from David Katz with Jefferies. Speaker 600:16:12Hi, good morning, everyone. Thanks for all the information. If we could maybe go one more layer, if we broke down the inbound new buyer target customers, is there any segmenting we could do where we could point to specific categories or groups or geographies or any further insight on sort of where there's more weakness rather than less? Speaker 200:16:46Sure. Yes. I mean, I think at a high level, David, to your question, locations like Orlando, right, Myrtle Beach, where probably a little different customer than say is going to Hawaii for example or some of our California locations. You're probably seeing a disproportionate impact on from first time buyers coming from consumers at that location more broadly from last year. But yes, it is a little bit the consumer, right, the mix of the consumer who's showing up. Speaker 200:17:26We talked about Maui being softer and recovering slower. You are seeing that in terms of the visitors, occupancies for us are back, still softer than where they were pre wildfires. But the visitors because of the discounting and it's a little bit different, right? And that's a little bit different customer in terms of buying vacation ownership. So we've seen that a little bit in terms of that recovery there in Maui. Speaker 200:17:56But yes, I think a little bit is just the location at times and the consumers that are going to those locations. Speaker 600:18:05Perfect. Very helpful. And if I could just follow-up and ask about sort of the trajectory through the quarter and whether and you may have touched on this, but whether June was worse than May and May was worse than April, etcetera, whether there's some acceleration or not? Speaker 200:18:25Sure. Yes. April started out a little bit softer than our expectations. And then we saw May doing very well, kind of flat VPGs as we talked about and we drove owner and first time buyer tours. And so when we put that outlook for the Q2 in the beginning of June, the trajectory looked good. Speaker 200:18:49And then all of a sudden we saw some of that softness more on the first time buyer side, but a little bit even on the owner side in June with VPGs being down a little bit. Like I said, now moving into July, we've seen those VPGs recover right from where we were in June, still down year over year. So we've got some opportunity there, but that's what we're building into the forecast that they are going to be a little bit softer than the first half. But as I mentioned, we're rolling out some programs and things to really try and drive that VPG higher here as we go through the second half of the year. Speaker 600:19:34And so July is slightly better, right? Speaker 200:19:38Yes. July was on an absolute basis. VPGs in July were kind of what we saw overall for the Q2 maybe a little bit better. Now from it, there's always some Speaker 700:19:48seasonality and things. So you would expect Speaker 200:19:48a little bit of an overall good to see some of the programs that we did roll out in mid July. But like I said, some of these programs were just getting rolled out here now. So not necessarily reflected in what we're seeing in July. Speaker 600:20:11Okay. Sorry for the third question. Appreciate it. Thank you. Thanks, David. Operator00:20:19Thank you. Our next question is from Patrick Scholes with Truist Securities. Please proceed with your question. Speaker 800:20:26All right. Good morning, everyone. Good morning. Really want to talk about the charge that you took, really get into the bottom line here is how can your financial control process rationalize 2 huge loan loss reserve charges and really just a few short months here and really in relation to the COVID, it was only a $42,000,000 charge, but much higher now. How do you rationalize that? Speaker 800:20:58Thank you. Speaker 200:21:01Yes. When we took the charge last year, as we talked about, we were seeing higher delinquencies, which obviously leads to higher defaults. But we didn't have as much visibility, so we had to make assumptions. And some of the thought around it was those higher delinquencies were coming from sales to people in 2022 and even 2023 that bought when costs were lower for their own pocketbook, right, in terms of higher inflation. You did see over those couple of years interest rates going up if you had credit card debt things like that. Speaker 200:21:41So that stress on the consumer. And the expectation was that given historically how our notes perform that those delinquencies would trend down. And we did start to see that like we saw in the Q1, those delinquencies came down, we're trending down in April. But as Jason mentioned in his comments, then they kind of flattened out. We are that those delinquencies from April May June, they didn't go up. Speaker 200:22:09But as we talked about on the call, we needed to continue to see that improvement. So based on the higher delinquencies and not seeing the improvement that we expected when we took the original charge, we relooked at it. And so going forward, we've got to taken out a little bit of the risk of those delinquencies having to continue to come down significantly, right? We do expect that hopefully they will get a little bit better here. Part of that is now inflation has stabilized on a higher level. Speaker 200:22:49We'll see with interest rate cuts and how that impacts consumer debt when those start. But also more importantly, as I mentioned, our maintenance fees, at this point, will only go up more historical amounts lower inflationary less than 5% on our product, which also helps for owners and the cost of their vacations going forward. So that gives us some confidence here that this is enough to really cover what we're seeing and we're going to continue to work like we have been on getting those delinquencies down in collections and hopefully do better than we're expecting. Speaker 800:23:33Okay. Speaker 600:23:36Give you a Speaker 800:23:36little more color on what aspect of the loan loss is really driving the charge, specifically what vintage and even more so whose vintages are we talking about? Is it Vistana? Is it wealth? Is it legacy Marriott Vacations? Thank you. Speaker 300:23:58Yes, Patrick. This is Jason. So, as we've talked about over the last couple of quarters, it's really a little bit across the board in terms of brands as well as FICO. So it does depend the materiality and the amount does depend on which brand to your point, as well as the different FICO bands. So our above 700s are continuing to perform the best, but they have a little degradation. Speaker 300:24:28And then as you go down the FICO bands, you definitely see more stress in this in below 700s and even a little bit in the below 600, you're starting to see even more stress. So as you think about how that looks, that's what we're focused on. And that's really kind of how it segregates. I don't think what you're seeing in our portfolio is frankly different than what you're seeing in the broader finance sector. The lower the FICO scores, the worse they perform. Speaker 300:24:59And that's why you are a lot of commentary revolves around whether it's the lower end consumers or not. So I think our performance is relatively consistent on a relative basis with what you're seeing more broadly out in the economy. Speaker 800:25:16Okay. Thank you. I'll hop back in the queue. Speaker 200:25:21Thanks. Operator00:25:24Thank you. Our next question is from Brent Montour with Barclays. Please proceed with your question. Speaker 900:25:31Good morning, everybody. Good morning. Thanks for taking my question. So a question on first on the demand side. I'm just trying to square the comments, John, of demand for travel being strong, but VPGs for new buyers and close rates being soft. Speaker 900:25:48I mean, the obvious reason, I guess, which I guess we haven't said it, but it's just sort of the rejection or shifting away from large ticket purchases on the consumer. Can you just maybe let's level set a little bit and try and I just want to figure out if this is more cyclical or post COVID normalization. Where are new buyer close I know you can't tell me the exact number, but new buyer close rates now versus where the average is throughout the cycle versus where it is generally when it troughs in the cycle, that would probably be helpful just roughly directionally? Speaker 200:26:29Yes. I'm not sure I have the kind of historical close rates to kind of walk you through. We can clearly pull some of that analysis. But they're clearly lower than what we saw coming out of COVID, obviously, in 2022. High level, I'd expect that they're probably more in line with what we've seen historically on close rates. Speaker 200:26:57It could be a little bit lower. But yes, what you're seeing is a little bit of the softness with the first time buyer is that broader macro. People are traveling, but timeshare is a bigger commitment, right, if you're going to buy into it. And they haven't had the benefit of owning the product. That's where the good news is you are seeing notwithstanding a bit of the pressure on the consumer owners continuing to buy in those closing rates are while lower than 22 as we've seen some of that normalization have been pretty steady here. Speaker 200:27:35So, we'll continue to work through it. That's where some of the incentives and trying to help with that first time buyer close and things like that from a value proposition, those are all the things that we continue to work on. Speaker 900:27:54Okay. Okay. Thanks for that. And then on the consumer loan piece, I guess we're a little bit confused because of second charge in 3 quarters. And we see one of your peers who's thought to have a slightly worse consumer hasn't had any charges yet. Speaker 900:28:17And I know that they reserve a lot higher than you guys do on a run rate basis. But I guess yours is getting sequentially worse relative to them. And so I want to make sure that I understand, has there been a shift in your lending strategy that has changed the quality of your consumer over time versus your prior sort of run rate? And then a specific stat, if we could just, Jason, give us the percentage of the book that's below 700? Speaker 200:28:50Sure. Now in terms of targeting our consumer, our FICO scores, how we target, nothing has changed. I mean, if you look it more historically, obviously, with the acquisitions that we did first with ILG and Vistana, With the Sheraton customer, probably on average lower quality from a credit than we have seen historically on the legacy Marriott side. And then the same thing with the Welk acquisition, the legacy Welk customer below in terms of the credit quality that so that mix has changed with some of the acquisitions. But as you talk about the last couple of years and specifically how we target, how we underwrite, really no shift in anything there. Speaker 200:29:48It is more, like I said, some of the macro, I think, on the consumer, as Jason mentioned, whether it's credit card delinquencies, I think are the highest they've been in 12, 13 years, I think I saw on something. So depending on the consumer, I think there's more stress on some consumers versus others. Speaker 300:30:10Yes. And I think it's also important to remember this is relative to our expectations. So to your point, our reserves have historically been lower and still remain among the lowest in the industry. And then to your last question, 28% of our loan book is below 700 right now, and that's been pretty consistent over the last couple of years. So no real changes in that stratification. Speaker 900:30:39Okay. Thanks everyone. Operator00:30:44Thank you. Our next question is from Chris Woronka with Deutsche Bank. Please proceed with your question. Speaker 1000:30:51Hey, good morning guys. Thanks for taking Speaker 700:30:53the question. Speaker 1000:30:53Hey, Chris. Thanks for taking the question. Hey, John. So I did have one follow-up question on the loan loss, but we can take a break from that for a minute. And the first question, if we look at Maui and you guys are not alone in citing that as being slower to recover. Speaker 1000:31:12I think some of your peers in the hospitality industry have kind of suggested that the use a little bit of a boost. Is that a fair assessment? Are you guys working with them to try to it's not a position they've historically had to be in, I get it. But is there anything that would encourage you that they're getting more ramping up their efforts to get folks back? Speaker 200:31:43Yes. No, that I would say is kind of a true observation. We continue to work with the local governments. We'd love to see that, but it's a bit of a balance, right, with the Maui residents and people returning to the islands. So, we're going to continue to work that. Speaker 200:32:04We're going to be there a long time. We know that's going to be a great destination like it was over time. So we'll continue to work with the local island governments and do and work with them in the right way. Speaker 1000:32:23Okay. Fair enough. Thanks, John. And then the follow-up on the back to the loan losses. Just how much I guess how much what are you how much data are you collecting from folks? Speaker 1000:32:35I know you get FICO and you get all the things on the something else something else? And is there anything that makes you want to change the application process a little bit to collect a little more information on these folks? And maybe also, are these folks just walking away? Are they totally defaulting? Or are they going through a 3rd party? Speaker 1000:33:00Or any color on that would be great. Thanks. Speaker 300:33:03Yes. So first, we have not seen really any evidence that any of the defaults are being caused by the 3rd party. We haven't had that really in our entire history and we don't have it today. So I think that's on the positive side that, that activity hasn't picked up for us like it has maybe for some others. In terms of why folks default, most people don't really tell you at the end of the day. Speaker 300:33:33We do ask, we do solicit feedback, we capture that feedback. But generally, the number one answer is it's expensive, right? And with given inflation and everything else, this is my words, not necessarily a customer's words, it makes sense. The overall cost of living out there has increased pretty significantly most don most don't really give you a reason and then that would be the number one reason that people do give you if they do give you a reason at all. Speaker 1000:34:12Okay. Fair enough. Thanks, guys, and best of luck in the second half. Thank you. Operator00:34:20Thank you. Our next question is from Shaun Kelley with Bank of America. Please proceed with your question. Speaker 500:34:26Hi, good morning everyone. Thanks for taking my question. Just wanted to hit on subject of margins a little bit. I think we rewind, I heard a bit about mix shift as it relates to a bigger focus on first time and new owners. Obviously, that's what's partially dragging down the VPGs. Speaker 500:34:45And then secondarily, John, I think a number of times you mentioned incentives as sort of a way to, I guess, drive tour flow and probably push the contract sales piece a bit. So I'm wondering about Speaker 900:34:59the implications are a little bit Speaker 500:35:00as it relates to margins. Could you just walk us through sort of the impact of that mix and how you factor that in, be it to your outlook Speaker 700:35:08for development margin or your outlook Speaker 900:35:08for just broader Speaker 500:35:16negative impact there? Thanks. Speaker 200:35:20You're absolutely right on the first time buyer mix as we talked about in the second quarter. Our strategy to grow 1st time buyers package tours, which are focused primarily on 1st time buyers. So as that mix or mix of tours goes up, yes, the math would be, you get slower VP or lower VPGs on an overall basis. And yes, we factored that into how we thought about our guidance for the second half of the year. So that's in there. Speaker 200:35:55And then the other piece, right, if the incentives work, right, there could be a little bit more cost, right, related to that, that would negatively impact. But the VPGs up, you get the flow through, you can offset that or maybe do a little bit better depending on how the VPGs improve. So that's where and we've talked about this. We're always making tweaks to the promotions and things based on what we're seeing. So sometimes it's based on particular things that we see and what's going on like we're seeing now with first time buyers. Speaker 200:36:37So we'll adjust those accordingly and if we can execute on the VPG side that hopefully offsets the margin impact of the those higher incentives. Speaker 500:36:50And did I catch it correctly that you said 26% development margin in the quarter if you adjusted for the sales reserve? Was that the right number? And is that are we looking at a similar magnitude for the back half just sort of putting in putting all the Xs and Os together? Is it better than that or worse than that? Just kind of trying to understand the underlying assumption in the guidance. Speaker 500:37:09Thanks. Speaker 300:37:11Yes. It was 27% for the 2nd quarter. If you add back that charge we did in our prepared remarks, say, 20 2% for the year, including 3 points from the charge. So that would be, call it, 25% for the kind of Speaker 200:37:26the full Speaker 700:37:30year. Okay. Speaker 500:37:30Dollars 25 for the full year. Speaker 900:37:34And just last one for Speaker 500:37:35me would be, Jason, can you Speaker 900:37:37compare that to where we were? Speaker 300:37:39We percent on that as a percentage of contract sales going forward, which is a Speaker 200:37:44little bit higher. And then, Speaker 300:37:46we should see some benefit in product cost. Our product cost is coming in lower this year than we had originally expected. So we do have a pickup on that side in the guidance as well. Speaker 500:37:56Thank you very much. Thanks. Operator00:38:01Thank you. Our next question is from Patrick Scholes with Truett Securities. Please proceed with your question. Speaker 800:38:08Great. Thank you. I have a number of follow-up questions here. Have you changed anything in the last couple of years as far as your new sales writing excuse me, new sales underwriting criteria? And if so, what specifically did you change? Speaker 800:38:28And related to that, how is your sales underwriting criteria in your legacy Marriott Vacations product different from that of WellCare? And I'm trying to really you'll see in my further questions trying to sort of drill down more on WellCare. Thank you. Speaker 200:38:52Just so I'm clear, when you say sales, are you talking credit underwriting, Patrick? Speaker 800:38:58Yes, yes. Credit underwriting for the sales. Yes. Speaker 200:39:04Nothing significant in terms of holistic changes. We're always looking at down payment requirements and things like that. We could have had some tweaks to bring those up in certain locations, but nothing holistically. I don't want to say nothing's changed, but I wouldn't say there were any pervasive changes in terms of how we look at our underwriting and the requirements to get the financing. Speaker 800:39:40Okay. Let's talk a little bit about Welk. How is that deal performing versus your expectations at the time of acquisition? And what trends are you seeing within specifically the Well customer as far as default rates versus your legacy customers? Thank you. Speaker 200:40:09Yes, I mean, from a default rate, we knew this coming in, well, customers had a higher default rate. So that's kind of in our mix if you will of the overall higher defaults on the portfolio. I think from an overall transaction, we still see the long term value. I think some of the transition is probably taken a little bit longer. We're seeing a lot of good traction this year on our sales performance there, but still a lot of opportunity. Speaker 200:40:42We're not where we want to be yet in terms of overall VPGs and things that we're seeing at our Hyatt portfolio product. So a lot of good work there by the team and a lot of good improvement and we're on a good trajectory there. But like I said, we're overall, we're probably not where we wanted to be when we first underwrote it, but that means there's also good opportunity going forward. Operator00:41:15Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments. Speaker 200:41:23Great. Thank you everyone for joining our call today. As you heard on our call, 2nd quarter results were mixed with double digit rental profit growth being offset by lower contract sales. In addition, while Maui is recovering, it's not recovering at the pace we expected. Our new Waikiki Resort is slated to open in early October. Speaker 200:41:42This will be our first new U. S. Resort opening since the pandemic, adding more exciting vacation destinations for our owners and other guests. We also have a number of new resorts planned to open over the next few years including our new Western Resorts in Savannah and Charleston as well as a new Marriott Resort in Thailand and additional units in Bali. And while we're not satisfied with our results, we have fundamentally we have a fundamentally strong business that generates free cash flow, a high percentage of owner sales which reflect the quality of our product offering and a team of dedicated associates who go to work every day to provide memorable experiences for our owners and guests. Speaker 200:42:23On behalf of all of our associates, owners, members and customers around the world, I want to thank you for your continued interest in our company and I hope to see you on vacation soon. Operator00:42:36This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.Read morePowered by