Marriott Vacations Worldwide Corporation (NYSE:VAC) Q1 2024 Earnings Call Transcript May 7, 2024
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Operator: Greetings, and welcome to the Marriott Vacations Worldwide First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Neal Goldner, Vice President, Investor Relations for Marriott Vacations Worldwide. Thank you. You may begin.
Neal Goldner: Thank you, Melissa. And welcome to the Marriott Vacations Worldwide first quarter earnings conference call. I’m joined today by John Geller, 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 that we issued last night, as well as comments on this call, are effective only when made and will not be updated as actual events unfold.
Throughout the call, we will make references to non-GAAP financial information. You can find a reconciliation of non-GAAP financial measures referred to in our remarks in the schedules attached to our press release and on our website. With that, it’s now my pleasure to turn the call over to John Geller.
John Geller: Thanks, Neal. Good morning, everyone, and thank you for joining our first quarter earnings call. It was great to see so many guests enjoying time with their family and friends at our resorts, making lasting memories during the first quarter. That’s why they come back year in and year out. And with a systemwide occupancy running 90% in Q1, we grew contract sales by 3% excluding Maui, despite having a difficult VPG comparison, with first-time buyer tours growing 9%. We also started taking reservations for our new Marriott Vacation Club Resort in Waikiki at the end of the quarter, which remains on track to open later this year and reservations have been strong for this new property. Owners have consistently told us they wanted us to add a location in Waikiki, and this new resort is already bringing excitement to the system.
Concurrent with the resort opening, we plan to open a new sales gallery that we believe could be a meaningful contributor as it ramps up over a few years. And with Japanese arrivals to Hawaii up almost 75% year-over-year in the first quarter, the timing of this new resort couldn’t be better. We’ve made good progress adding new marketing and sales executives in Maui, and still expect contract sales to be up around $5 million this year. International contract sales grew more than 25% year-over-year, driven by double-digit growth in Asia-Pacific as the market continues to recover. I’m also happy to announce that we recently signed an agreement to develop a new 60-unit Marriott Vacation Club Resort in Thailand. The resort will be co-located with an existing JW Marriott hotel in Khao Lak, and will include a new on-site sales gallery when it opens in a few years.
This will be our seventh resort in the Asia-Pacific region, and the team is busy working on other potential development opportunities around the world. Our Hyatt business also continues to progress nicely. By leveraging proven branded channels, we’ve been able to grow our Hyatt package pipeline while simultaneously replacing lower quality tours with higher quality, more cost effective tours. Our Hyatt Vacation Club owners continue to utilize and enjoy the new owner benefits that we rolled out last year through the BEYOND program, and we continue to work toward launching a consolidated Hyatt product. In our Exchange and Third-Party Management business, Interval International performed in line with our expectations for the quarter, with active members unchanged year-over-year and membership and getaway revenue increasing.
As previously discussed, last year we hired a new Chief Information Officer to drive our IT transformation efforts, and he spent a considerable amount of time analyzing where our opportunities lie. While this is a multiyear journey, our IT efforts this year will continue to be centered around consolidating legacy systems, modernizing our software and increasing automation, while continuing to enhance our data and analytics capabilities to improve the efficiency of our marketing campaigns. Looking forward, we ended the quarter with 270,000 packages, and our team is working hard to get these customers on vacation. At the same time, the consumer shift to experience services continues to benefit our business, with 84% of people recently surveyed planning to spend more or the same amount of money on travel this year compared to last year.
International inbound travel to the U.S. continues to recover and is expected to approach pre-pandemic levels this year. Meanwhile, although the economy remains on solid footing, consumers are concerned about elevated price levels which could impact their spending. Finally, as we approach the important summer vacation months, keys on the books in both North America and internationally are up a few points year-over-year. With that, I’ll turn the call over to Jason to discuss our results.
Jason Marino: Thanks, John. Today I’m going to review our first quarter results, our balance sheet and liquidity position, and our outlook for the rest of the year, starting with our Vacation Ownership segment. Coming into the year, we knew our most difficult sales comparison was going to be in Q1, so we feel very good about our first quarter results. Contract sales declined 1% due to Maui and the difficult VPG comp, while tours increased 4% year-over-year. And as John mentioned, contract sales grew 3% year-over-year excluding Maui. As expected, development margin declined year-over-year due to lower VPGs, higher marketing and sales costs and a higher sales reserve, as well as unfavorable reportability. The delinquencies and defaults continue to run higher than history would suggest, which is a continuation of last year’s trends.
We continue to work hard to get delinquencies down, and we believe our reserve is currently at appropriate levels, though we do need to see loan performance improve. Rental profit increased $12 million year-over-year, driven by increased rental revenue and lower expenses as more preview nights were used for marketing purposes. Financing profit declined 4%, driven by higher interest expense partially offset by higher financing revenue, while resort management profit increased 8%. As a result, adjusted EBITDA in our Vacation Ownership segment declined 7% year-over-year, driven primarily by lower development profit, while margins remained strong at 29% in the quarter. Moving to our Exchange and Third-Party Management business. Adjusted EBITDA declined $5 million compared to the prior year, with lower average revenue per member and exchange volume being partially offset by higher getaways at Interval, while profit at Aqua-Aston declined year-over-year due to softness in Hawaii.
As a result, total company adjusted EBITDA declined 8%. Moving to the balance sheet. We returned $78 million to shareholders during the first quarter, repurchasing $24 million of common stock and paying $54 million in dividends. And with the shares we’ve repurchased over the last 12 months, diluted shares outstanding declined 5% year-over-year. Given the seasonality of our cash flows, we ended the quarter with net debt-to-adjusted EBITDA of 3.9x and $855 million in liquidity. At the beginning of April, we refinanced our term loan, which was our only near term maturity, extending it out to 2031. As a result, our next maturity isn’t until Q1 2026. We also have nearly $1 billion of inventory on the balance sheet, including inventory and PP&E, enough to support more than two years of future sales.
We also completed our first securitization of the year, raising $430 million at a blended interest rate of 5.5%, which is approximately 100 basis points below our last ABS deal. Moving to guidance. Our full-year adjusted EBITDA guidance remains unchanged at $760 million to $800 million. We still expect contract sales to grow 6% to 9% this year, with our stronger sales growth coming in the second half of the year as we lap the Maui wildfires, and for development margin to be down a few points, including in the second quarter. Financing profit will continue to be a headwind to growth this year due to higher securitized debt costs. And while we do expect rates to be a headwind again next year, financing profit should increase. Our rental business had a good first quarter, and we’re working hard to drive incremental demand and manage our cost.
And management profits should show fairly consistent year-over-year growth over the balance of the year. In our Exchange and Third-Party Management business, we expect Interval members to be down slightly and for average revenue per member to increase. Finally, we still expect G&A expense to be slightly — up slightly year-over-year. Moving to cash flow. We expect our adjusted free cash flow to be in the $400 million to $450 million range this year. 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 targeting to get our leverage back to 3x by the end of 2025. With that, we’ll be happy to answer your questions. Operator?
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