Marriott Vacations Worldwide : Q1 2025 Earnings Call

Published: 2025-05-09 13:59:04 ET VAC

Published on 05/09/2025 at 13:59

Presenters

Q&A Participants

Greetings, and welcome to the Marriott Vacations Worldwide First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad. As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Mr. Neal Goldner, Vice President, Investor Relations. Thank you, you may begin.

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

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. Throughout 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.

In response to investor feedback, we changed the presentation of revenue and profit on pages A-7 and A-8 on the press release this quarter to facilitate easier year-over-year comparisons.

Importantly, we have not removed any information that we previously provided. In addition, on page A-7, we also added a bridge from profit to adjusted EBITDA.

With that, it's now my pleasure to turn the call over to John Geller.

Thanks, Neal. Good morning everyone and thank you for joining our first quarter earnings call. We had a strong beginning to the year growing first-time buyer sales and adjusted EBITDA, illustrating the power of our leisure-focused business model. We are also making good progress on our modernization initiative to accelerate revenue growth, reduce costs and enhance operational efficiencies. We remain on track to deliver $150 to $200 million in run rate benefits by the end of 2026.

We have some of the best brands in the vacation ownership industry and continue to see people prioritizing their vacations, running more than a 90% resort occupancy in the first quarter with forward bookings remaining strong. It's also important to remember that our owners prepay for a lifetime of vacations and typically pay their annual maintenance fees by the beginning of the year, so we know they will be vacationing with us.

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

Timeshare also remains the sole product that we sell face-to-face every day with around 80% of our sales happening on site, which helps our business relative to others when customers have concerns about the broader macro environment, and we have several tools to employ when sales soften. For example, we adjusted our strategies, helping drive 6% higher first-time buyer sales. But with owners having fewer plus points coming into the year, we saw fewer owner arrivals this quarter than last year, which resulted in fewer owner tours. Some of our modernization initiatives are focused on driving more owner tours as well as higher VPGs. Most importantly, we are seeing owner arrivals improving as we progress through the year. So, we feel confident about our updated contract sales guidance.

We also continue to take actions to drive our package pipeline. For example, we recently launched a new program on Marriott.com that combines a villa rental booking with a tour and we have expanded our call transfer program with Marriott which we expect to help drive higher tour package sales. We will also be implementing a new process to leverage data which we expect will drive profit by increasing qualified tours and driving higher VPGs.

We are making good progress on our comprehensive digital strategy, focusing on increasing product utilization, expanding e-commerce and travel options, and introducing new digital capabilities as we strive to make digital the channel of choice while lowering costs.

For example, our resort operations team is expanding the use of an AI-powered phone agent that provides guests quicker responses, freeing up associate capacity. We are also optimizing room cleaning and scheduling processes to standardize housekeeping operations across sites.

Nearly 70% of Marriott Vacations points reservations for stays at our resorts are being booked online, a substantial jump from just a few years ago. We continue to expand our use of virtual voice agents to lower our costs at our call centers. And this summer, we plan to launch the ability for our Marriott branded owners to seamlessly book directly into nearly any of Marriott's 9,000-plus hotels around the world using their vacation ownership points. All of these initiatives are helping drive higher owner and guest satisfaction while lowering our costs.

Our forward-looking KPIs also give us comfort in our updated projections. Occupancy remained strong and total keys on the books for the summer remains solid. Tours continue to grow and in-house tour capture rates are higher than a year ago.

Package sales have remained healthy, and we ended the quarter with nearly 265,000 packages, 35% of which have already been activated to take a tour this year, slightly higher than the same time last year. And loan and maintenance fee delinquencies are better than last year.

In terms of VPG, we made adjustments in March for first-time buyers and we saw those VPGs grow 10% in April over last year, and we are making promotional adjustments to enhance the owner value proposition to drive owner VPGs.

While this is the most volatile economic environment I've seen in a while, our consumer remains strong and our forward-looking KPIs remain healthy. We are also focused on our initiatives to improve our tour flow and VPGs. But given the lower contract sales we experienced to start the year we thought it was prudent to update our full year sales guidance.

Looking out longer term, our business remains on solid footing, with strong margins, positive free cash flow, a product that resonates with today's consumer, long-term growth opportunities and the bulk of the benefits from our monetization program still ahead of us. We generate around 40% of our adjusted EBITDA contribution from very high margin, recurring revenue streams, which makes our results more consistent. Meanwhile, in the short-term, we are focusing on what we can control, including providing our owners and guests great vacation experiences, reducing our costs, executing on our monetization program and continuing to invest for the long-term.

With that, I'll turn it over to Jason to discuss our results in more detail.

Thanks, John. Today, I'm going to review our first quarter results, our balance sheet and liquidity position, our cost savings and efficiencies initiatives and our outlook for the year.

Total company revenue increased year-over-year, enabling us to deliver 3% higher adjusted EBITDA. In our development business, tours increased 1.5% and VPG was 4% lower, with half of the decline due to a higher mix of first-time buyer sales, while owner sales declined year-over-year driven by lower arrivals and slightly lower VPG. As a result, total company contract sales declined 2% compared to the prior year.

First-time buyer sales increased 6% year-over-year, which is good for the long-term health of the system, though it negatively impacted our reported VPG this quarter.

Our sales reserve was 12% of contract sales in the quarter, in line with our expectations and prior guidance. As you might expect, we have been very focused on delinquencies given the decline in consumer confidence, but so far we've not seen any softness in our loan book. In fact, delinquencies at the end of the quarter improved 60 basis points on a year-over-year basis and were lower again in April.

Development profit increased 4% compared to the prior year with development margin increasing 70 basis points.

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

Management exchange profit increased 4% to $98 million with increased revenue in our Vacation Ownership segment partially offset by lower exchange revenue at Interval.

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

And finally, corporate G&A decreased 3% compared to last year.

As a result, total company adjusted EBITDA increased 3% to $192 million and margins remained strong at 23%.

Moving to the balance sheet, we ended the quarter with $865 million in liquidity and no corporate debt maturities until early 2026. Our leverage was 4.1 times at the end of the quarter which we expect to reduce longer term through organic growth and benefits from our modernization initiative once the upfront investment spending normalizes. First lien net leverage for covenant purposes was only 1.1 times at the end of the quarter, well below our 3.5 times requirement.

We amended our revolving credit facility in March, upsizing it to $800 million and reducing the interest rate by 25 basis points. And with our zero percent convertible debt maturing in January

next year, we added a $450 million delayed draw term loan facility, enabling us to take advantage of the zero percent interest rate for longer while providing us optionality as we look to refinance it later this year.

We returned $91 million in cash to shareholders in the first quarter. With our shares being materially undervalued, we increased our share buybacks, buying back 1.4% of our outstanding shares in the quarter. We also paid two dividends for $55 million in total.

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

Looking forward, we are updating our full year contract sales guidance, with tours still expected to grow in the low single digits, consistent with what we've seen this year, but for VPG to decline. And while we feel confident with the midpoint of our updated contract sales range, VPG would have to improve to hit the high end, which our initiatives are designed to do.

We continue to expect total company rental profit to decline around $15 million this year and now expect corporate G&A to be flat to down slightly.

We are making great progress on our modernization and we are able to accelerate some of our initiatives, increasing this year's savings to $35 million from $15 million to $25 million previously. We've also adjusted our inventory mix and now expect this year's product cost increase to be more modest than we originally planned. We're also actively reducing costs elsewhere. In total, we now expect these changes to generate an incremental $40 million to $50 million in savings this year. As a result, we reaffirmed our adjusted EBITDA guidance for the year.

We still expect to drive $75 million to $100 million of annual run rate cost savings and efficiencies over the next two years from our modernization initiative. The savings will primarily come from updating IT systems, increasing automation, lowering procurement costs, and reducing overhead costs as we continue to optimize our organizational structure. We also expect to generate $75 million to $100 million of adjusted EBITDA benefits from revenue initiatives that either improve VPGs, increased tours, increase occupancy or drive higher ADRs, some of which John already discussed.

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

We also have $150 million to $200 million of non-core assets we plan to dispose of over the next few years including the Sheraton Kauai Resort and a retail parcel in Waikiki.

So to summarize, we had a strong first quarter despite the challenging operating environment, driving higher year-over-year adjusted EBITDA. Our team also did a great job providing

Disclaimer

Marriott Vacations Worldwide Corporation published this content on May 09, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 09, 2025 at 17:58 UTC.