Marriott Vacations Worldwide Corporation (VAC) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Marriott Vacations Worldwide Third Quarter 2013 Conference Call. [Operator Instructions] I would now like to turn the conference over to our host, Mr. Jeff Hansen, Vice President of Investor Relations. Please go ahead.

Thank you, Danielle, and welcome to the Marriott Vacations Worldwide Third Quarter 2013 Earnings Conference Call. I'm joined today by Steve Weisz, President and CEO; and John Geller, Executive Vice President and CFO. I do need to remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the press release that we issued this morning, along with our comments on this call, are effective only today, October 10, 2013, 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, as well as the Investor Relations page on our website at ir.mvwc.com. I will now turn it over to Steve Weisz, President and CEO of Marriott Vacations Worldwide.

Thanks, Jeff. Good morning, everyone, and thank you for joining our third quarter earnings call. This morning, I'll discuss our results to the third quarter of 2013, which include continued growth in adjusted EBITDA and solid development margin in performance. Given our strong year-to-date results, as well as our outlook for the fourth quarter, we've increased our full year 2013 adjusted development margin, pre-cash flow and EBITDA guidance. I'm also pleased to announce the beginning of our capital return strategy, which I will discuss more in a moment. I'll then turn the call over to John, who will provide additional detail on our financial results, after which we'll open the call for your questions. Today's announcement of our share repurchase program shows our confidence in the business model and the company's ability to generate robust cash flows. Our balance sheet is strong and is naturally deleveraging as our EBITDA grows and our nonrecourse securitized debt is paid down through collections from the notes receivable. Further, the company has virtually no recourse debt other than the $40 million of our subsidiaries' mandatorily redeemable preferred stock, which is now callable -- not callable until October 2016. In addition, we anticipate generating over $150 million in cash proceeds over the next several years as we execute our debt against our strategy of disposing of excess [ph] land and inventory. From an investment perspective, we see strong organic growth opportunities in both our North America and Asia Pacific segments, where we are targeting to add great new destinations that will provide additional sales distributions to grow our top line. Our capital-efficient Points model allows us to fund these new investments from our operating cash flows. Further, we plan to explore arrangements with partners for some of these new investments, which we would -- which would provide asset-light opportunities to further improve cash flows. Our free cash flow and strong balance sheet also allows us the flexibility to opportunistically pursue acquisitions of timeshare-related businesses, if we determine an acquisition is the strategic fit and provides appropriate returns to our shareholders. We expect this overall capital allocation strategy will result in excess capital, which we would intend to return to shareholders. Given our confidence and our long-term growth outlook and cash flow generation potential, our board has authorized us to repurchase up to 3.5 million of our outstanding shares. We are committed to our top line growth and margin expansion strategies in addition to a disciplined and balanced capital allocation strategy. Turning to our third quarter results, we are pleased with our strong performance with adjusted EBITDA of $17 million over the third quarter of last year to $50 million. This was primarily achieved through stronger development margin, higher resort management and other services margin and improved bottom line rental results. Total company contract sales were down less than 2% to $168 million in the quarter, reflecting improved performance in North America. This improvement was more than offset by the impact of the closure of underperforming off-site sales distributions in our Asia Pacific segment late last year, as well as declining sales in Europe as we continue our strategy to sell out our remaining inventory in that segment. In our key, North America segment, contract sales were up $10 million or 6% over the third quarter of 2012, driven by better performance in our traditional vacation ownership business and higher sales from the disposition of excess residential units. We generated $7 million of residential sales in the corner, mainly at our resort near Panama City, Florida. While these sales flow through our North America development revenue, they are part of our broader strategy to dispose of excess land and inventory. With only 7 more units left to be sold at this resort, we expect to sell through the remaining inventory by early next year. In addition to these residences, we recently completed the necessary steps to begin selling 10 residences at our Ritz-Carlton property in San Francisco. We expect to dispose of these units over the next 6 to 9 months beginning in the fourth quarter, which when combined with the sales of the remaining Panama City units, should generate up to $20 million of net cash proceeds. Excluding these residential sales, North America contract sales were up 2% in the quarter on a 6.6% increase in the VPG to $3,252. The improved VPG was driven by a mix of increased pricing and nearly 1 point improvement in closing efficiency. This was partially offset by tour flow, which was down 4% in the quarter, but represented an improvement from last quarter when tour flow was down 6%. As I've mentioned before, we are focusing on growing our tour flow cost effectively as we pivot to more first-time buyer tours and our longer-term goal of a 50-50 mix of new buyers to existing buyers. You should keep in mind, however, that many tours we booked today will not incur -- occur until the next time a potential buyer stays at one of our resorts, which may not happen for another 10 months on average. As we look ahead to the fourth quarter, we expect tour flow, excluding the 53rd week, to be down roughly 4% year-over-year. As a result, we have lowered full year contract sales growth guidance for North America to 4% to 8%. Excluding the impact of residential sales, we expect contract sales growth for North America timeshare to be between 3% to 5% for the full year. As we move into next year, we expect tour flow to continue to improve sequentially with our 2014 full year goal of year-over-year tour growth. In terms of development margin, we achieved strong performance during the third quarter with a total company adjusted development margin of 20.3%, down slightly from the third quarter last year, which benefited from favorable product cost true-up activity. Our third quarter product cost rate was higher than the 33% we have been targeting, mainly as a result of the higher cost residential sales that remained in the quarter. Excluding those sales, our 34.7% product cost rate would have been closer to 32%. Looking at the full year, including the impact of further residential sales, we still expect our full year product cost rate to approximate 33%. Our rental business contributed an additional $9 million to the bottom line in the third quarter. This was a result of 2 points of higher occupancy on 11% more transient keys rented and 10% higher transient rate. We continue to expect full year rental results to be materially higher than last year, but we remind you that the fourth quarter is typically the softest due to seasonality. Our resort management and other services business continues to steadily improve, up $4 million over the third quarter of 2012 to $17 million. As has been true throughout 2013, this improvement was driven by increases in club dues and management fees, as well as improvements in our ancillary operations. Shifting to G&A, cost increased $3 million over the third quarter of 2012. Our third quarter results benefited from $1 million of incremental savings related to our organizational and separation-related efforts. However, our G&A cost also reflected normal inflationary growth, higher legal costs and incremental standalone public company costs. For the full year, we anticipate our G&A cost will increase year-over-year driven mainly by inflation, the impact of the 53rd week of cost due to our fiscal recording calendar and higher legal and public company costs. However, we expect these increased costs to be partially offset by roughly $5 million of savings related to our organizational and separation-related efforts. In closing, we had a very solid third quarter and expect our performance to continue through the remainder of the year. For that reason, we are increasing our adjusted EBITDA guidance by $10 million to $165 million to $175 million and raising our adjusted development margin guidance by 1 point to 18% to 19%. We are also increasing our net income and cash flow guidance, which we will speak to momentarily. With that, I'll turn the call over to John, who will provide a more detailed look at our results and cash flow projections. John?

Thank you, Steve, and good morning to everyone on the call this morning. Strong EBITDA growth and improved business results highlighted another great quarter this year. Our North America segment, key to our growth throughout this year, saw a $23 million increase in revenue from the sale of vacation ownership products. This was driven by higher contract sales and favorable revenue reportability year-over-year. Contract sales improved by $10 million over the same quarter last year to $152 million. As Steve mentioned previously, approximately $7 million of this increase was due to the sale of residential products, primarily at our property in the Florida panhandle. The sale of this inventory was part of our excess land and inventory disposition plan, so we were pleased to be able to capitalize on improving real estate markets. Excluding the impact of these residential sales, contract sales in North America improved $3 million from the third quarter of last year. The favorable revenue reportability in the third quarter of this year had a $1 million positive effect on North America reported development margin, increasing the margin by 50 basis points to 22.7%. Reportability had the opposite effect on the third quarter of 2012, negatively impacting reported development margin by $7 million and reducing the margin percentage by 3.6 percentage points. Excluding the impact of reportability in both years, development margin in the quarter was 22.2%, 60 basis points lower than the third quarter of last year. Similar to our first 3 quarters of these year, we do not expect revenue reportability to have a meaningful impact on our reported fourth quarter development margin. However, remember that favorable revenue reportability in the fourth quarter of last year had a $13 million positive effect on reported North America development margin. The 60 basis point decline in North America adjusted development margin reflects the impact of higher product costs, offset partially by improved marketing and sales costs. The impact of higher product cost true-ups in the prior year and improved development margin last year by more than 8 percentage points. Our product cost rate this year continues to benefit from our inventory repurchase program. However, as Steve mentioned, our product cost rate in the quarter, was negatively impacted by higher cost residential sales, which raised our North America product cost rate by 3 percentage points. Marketing and sales costs, which improved 3.2 percentage points over last year benefited from higher VPG, as well as the impact of the residential inventory sold in the quarter, which carries lower marketing and sales costs. Excluding the impact of the residential sales, marketing and sales margin improved by 1.7 percentage Points. Rental results for the company improved by $9 million in the third quarter compared to the prior period as we continue to better understand and estimate owner usage behavior. As we mentioned on the last call, the fourth quarter is generally a softer rental period, so our expectations for full year rental results are in the $14 million to $17 million range, a substantial improvement over the full year of 2012. This range does not include any additional charges related to our pre-spin Marriott Rewards liability, which depending on actual redemption cost, could have a negative impact in the fourth quarter. In our resort management and other services business, revenue, net of expenses, improved $4 million to $17 million in the fourth quarter. These results reflect higher annual club dues earned in connection with our Points product, higher management fees and improved ancillary results from the disposition of a golf course and related asset at one of our Ritz-Carlton brand-new resorts late in 2012. In our Asia Pacific segment, results were down $1 million from the third quarter of last year. While contract sales were down by $8 million as a result of the closure of underperforming off-site sales centers late in 2012, these declines were offset by corresponding reductions in marketing and sales and product costs. Turning to Europe, adjusted segment results were $6 million, flat to last year as we continue our strategy of selling out the remaining inventory in that region. Our financing business continues to improve. Revenue, net of financing expenses and consumer financing interest expense, was flat to the third quarter of last year as the fall activity trends downward and interest rates in the ABS markets remained at historical lows. As we announced in August, we completed a $263 million securitization with a 95% advance rate and a blended interest rate of 2.21%, almost 0.5 point better than the securitization we completed last summer, which had been the strongest deal to date. As of the end of the third quarter, our securitization portfolio had an average interest rate of 3.5%. Turning to our balance sheet and liquidity position, since the end of 2012, real estate inventory balances declined $28 million to $853 million, which is comprised of $390 million of finished goods, $193 million of work-in-process and $270 million of land and infrastructure. The company's debt outstanding increased $73 million from the end of 2012 to $751 million, including $747 million in nonrecourse debt associated with the securitized notes. In addition, $40 million of mandatorily redeemable preferred stock of the subsidiary was outstanding at the end of the third quarter of 2013. Cash and cash equivalents totaled $288 million, and we also had $17 million of notes receivable eligible for securitization and $196 million in available capacity under our revolving credit facility. Our full year adjusted free cash flow outlook continues to improve, primarily from roughly $10 million of higher projected net income, $10 million from the deferral of development CapEx and other capital spending and $30 million of favorable working capital changes as we continue to fine tune the timing of our working capital activity as a stand-alone public company. As a result of these changes, we are raising our outlook for adjusted free cash flow for the year, excluding the impact of organization and separation-related charges and litigation settlements by $50 million to $170 million to $185 million. This guidance is approximately $40 million higher than what our free cash flow would be on a -- would it be on a normalized basis because of the impact of certain items. These items, which will continue to impact our free cash flow over the next few years, include the pay-down of the Marriott Rewards pre-spin liability, the timing of inventory spend and organizational and separation-related cost. Our 2013 free cash flow, on a more normalized basis, could be between $135 million and $140 million. In addition to our adjusted free cash flow guidance, as a result of improved business results, we are also raising the range of our adjusted net income guidance to $81 million to $87 million and our fully diluted earnings per share guidance to $2.21 to $2.37 for the full year. Additionally, we are raising the range of our full year adjusted EBITDA guidance to $165 million to $175 million and our adjusted development margin guidance to 18% to 19%. With all that, let me close by saying we had another very strong quarter of EBITDA and development margin performance and remain optimistic about the longer-term growth potential of our business. As always, we appreciate your interest in Marriott Vacations Worldwide. And with that, we will now open the call up for Q&A. Danielle?

[Operator Instructions] Our first question is from Robert Higginbotham from SunTrust.

My first question is really around your sales and marketing dynamic, meaning your kind of VPG tour flow equation and your VPG number continues to be impressive in high single-digits. You still have the challenges through -- of [ph] your tour flow down. What I'm wondering is twofold. What are you doing differently now versus what you had been doing up to last quarter to drive tour flow? And then as you look forward to 2014 and targeting positive tour flow growth, how should we think about the VPG opportunity? In other words, would -- do you expect to be able to continue to improve VPG with -- and tour flow given the new paradigm, if you will?

Well, thanks, Robert. This is Steve. Let me try and take it on a couple of different fronts. As we've mentioned in previous calls, one of the things the dynamic that has been in place is, that tours and -- that we have generated from our existing owner base have seen a decline over the past almost 6 to 9 months kind of thing. Basically, because the bulk of the people, the bulk of the owners that we had when we converted to a points-based program in June of 2010, we've spoken to. They've taken a tour, we've helped explain to them what the new points-based program is all about. And so by definition, they don't need to come talk to us again. And so that has started to decline. At the same token -- same time, we started to kind of churn towards selectively turning on channels to generate new customers. You may recall that in the '08, '09 timeframe, we, as well as many of the others in our space, very deliberately got out of a number of channels that were targeted at more first-time buyers, largely because they were relatively inefficient to talking to your existing ownership base. So as we continue to dial those up, we've done that very selectively, and we'll continue to do so, taking the learnings that we had when we went through the turn-off of those programs and applying them proactively going forward. The second thing that will happen is that as we add new flags on the map, we will do so, which will generate new distribution centers for us and markets that are obviously good vacation destinations. So we believe we'll get additional tour generation out of that. Relative to your question about what's going to happen with VPG on a percentage basis, I mean, obviously, comps get to be a little bit more challenging. We've had a great run in terms of driving this up, but I think most of it suggests the VPG range that we're in now in the $3,200, $3,300 range is pretty attractive. We'll continue to try to drive that, we'll drive that hopefully through 2 different methods. One of which is continuing to focus on increasing closing efficiency. The second is that there should hopefully be some natural benefit that we would get if the economy continues to improve. Obviously, there's a fairly, as we've talked before, there's a fairly tight correlation between closing efficiency and consumer confidence. If that consumer, not confidence, number can somehow find a way to get some traction and move north, that would benefit us from -- as well. Hopefully, that's answered your question.

It does, but to maybe follow up on the last piece of that in terms of close rate improvement. From this point going forward, could you give us a little more color on what the drivers of that improvement could be going forward? To the extent that that's going to be your bigger margin driver?

Well, clearly, some of that is -- as we have -- continue to have more and more experience selling the product, understanding what the really salient points of how customers view this new product that we have -- that is relatively new to us, in the points-based product, what are the main drivers to that, we will continue to try to accentuate that. What we've done, we have a sales tour. I would say, there are some headwinds with that because as you move from existing owners to first-time buyers, first-time buyers have a generally lower closing rate than existing owners have. So you have to balance those 2 things out. We still think there's room to grow in closing rates. I think I've reported before that we've -- historically kind of pre-downturn, we enjoy closing rates in the mid-teens. I see no reason why that's not infinitely achievable and hopefully higher. So we'll continue to do whatever we can to try drive closing rates that has an enormous impact on the leverage you get with your fixed sales and marketing costs and every close that you have, it's over and above what you've experienced before helps in your financially reported sales and marketing and metric. But that's how we're going to keep working.

Great. Let me close out by asking a larger industry question. There's been some indications of new development picking up over the recent months. What are you seeing out there in the industry and what would -- what do you think it means to you? I mean, is it a healthy thing? Or maybe just a reflection of a directionally improving economy? Is the demand there to absorb it? Or do you expect to see pricing pressure as those properties come online?

Well, we certainly see some of the same things that you see. I would say, it's very positive for the industry. You got to put it in perspective, many developers were -- when things turn south rather quickly, were left with a lot of built inventory that they needed to sell through before they thought about adding new inventory to their system. We find ourselves at exactly the same place. We are stopping short of making any announcements. We are active looking at new places to put a flag in the ground in markets that we are not currently represented. And I believe others are enjoying the same. So I think there's a general confidence with the -- that the industry, it's come off the bottom. It's starting on its way back up. Having said that, I think it's not going to be a quick rise back to the pre '08 levels, but hopefully, gradual improvement moving ahead.

Great. Actually, I sort of lied, let me ask you one more. Your sales was below trend at least over the past few quarters and below a longer-term average, the third quarter had been about 4.8%. Any color you can give there? Any onetime items we should consider and how should we think about that going forward?

No, I think we've spoken to it. Obviously, the reduced tour flow being 4% down, has a fairly significant impact on your overall sales. Having said that, North America was generally pretty good.

Yes, we are about 2% this quarter. Last quarter in North America, that timeshare sales were down slightly, if you remember [indiscernible] out the lower tours and the VPG. So actually the trend sequentially is a little bit better in terms of North America sales because tour flow wasn't down as much.

I was asking about your sales reserve? Your...

Oh, sorry, sorry. We missed the reserve question. Yes. No, on the bad debt allowance side, we continued -- trends have continued to get better. I would say, I mean, while -- you never want to say we could get better than where we're at today, Robert. I think we are, from a historical standpoint, we're back down to where we've been probably at some of our lowest points in time, if you will. So obviously, we'll do everything we can to see if we can drive it lower, but I don't think there's a huge amount of opportunity for us to improve from where we're at today.

Our next question is from Steven Kent with Goldman Sachs.

Just a couple of questions, actually, following on Robert's questions. First off, just a little bit more on the -- on international and the opportunity there and how we should think about it for '14 and beyond? And then, just more broadly, on cost containment. How much opportunity is truly left there over the next few quarters?

Okay. Let me kind of break international down into a couple of different buckets. We've already told you that Europe is not a place that we plan to do anything other than sell through our remaining inventory. So I wouldn't think about Europe as a great growth engine for us. Completely counter that would be Asia Pacific. We believe that there are very, very positive dynamics in Asia Pacific. Now the real question comes down to is how do we try to make sure that we take the best advantage of those. And I guess, I would say to you that what we did was we kind of moved from a lot of off-site distribution stuff. Now we are moving towards trying to get new resort locations that would have on-site distribution with it. That takes a while to get those deals done. And particularly, doing business outside the United States, gets a few more wrinkles and complications to it. But I think, we're moving forward rather nicely in the space. So I think -- we actually think Asia Pacific's got a great growth potential for us. Then I would kind of go towards Latin America. We have said before and we have no presence in Mexico, as an example, and there are certainly some opportunities in Mexico that will present themselves. As you get further down into the Caribbean, I think there is other places where we can look to grow. So I think, internationally, aside from Europe, things look relatively rosy. It's just going to take us a while to get there. And then...

Yes, on the cost containment, Steve -- I see where you're talking just the cost savings, the $15 million to $20 million. We've achieved to date since the Spin-Off about $8 million or so. Now some of that runs through G&A, but some of that, I think, as we've talked about in the past, actually hits off in the different parts of the business. So you see that through some of the margin improvement and development margin, et cetera. We should get another call of $2 million to $3 million over the balance of this year with the remaining piece really hitting next year. In terms of our separation efforts related to the Spin-Off from MI [ph], we're pretty far along. The last big piece here is just some of the IT items, and we're working through that here as we go through the fourth quarter. And also, the other piece on the IT side is just how we source -- resource is going forward and doing things more cost effectively. So that's where we'll get some of the other upside going forward though. Yes, I will say, once we get through this, obviously, we're always going to look for ways to drive improvements and efficiencies in the business. And hopefully, you've seen that in terms of what we've done over the last couple of years.

And just one final question. Maybe if you could just talk to how the board thought about share buyback versus dividends, do you...

We began dialogue with the board early this year, kind of looking forward as to what we saw unfolding from a cash flow perspective and what was the needs of the cash balances we had on the balance sheet, et cetera. And we talked through various alternatives, the 2 most obvious being, should we go to an annual dividend, should we go to a share buyback. Our analysis and the conversation with the board finally got further dialogue about it in September, with our board meeting and then we had a subsequent board meeting just recently, where we concluded that, at least for now, the right answer is to go to a share buyback. It doesn't preclude us going to an annual dividend at some point in time, but we thought that the highest and best use of the cash and the greatest return to the shareholders for now was in the share buyback space.

Our next question is from Chris Agnew with MKM Partners.

Maybe start off with your free cash flow. I think you mentioned there were a couple of things, deferred CapEx and working capital, which benefited. How much of that is pulled forward from next year? And therefore, maybe an extension to that, how do we think about free cash flow for heading into next year versus your normalized paces with $135 million if some of it's been pulled forward?

Yes, in terms of pull forward, it's really, as we've talked about in the past, more on the timing of our CapEx spend-related inventory. And as we think about that, we still have excess inventory that over the next couple of years, our target is to get to kind of 2x cost of goods sold. So timing in terms of just the impact for 2014 or '15, I think that you have to look at towards that longer-term goal, rather than necessarily just the impact of what it might be on next year. So if we took it off, like I said, for CapEx, say, $10 million, that means we're getting to that 2x inventory over the next couple of years a little bit quicker. It doesn't change the end game, it's just we're getting there faster by deferring some of that inventory. And then as you think about normalized cash flow, I think the only real change we made there was on the working capital with our Spin-Off from Marriott and still working through kind of what our working capital balances are. Once you kind of peel back some of the Spin-Off related items. There was a little bit of upside we saw this year. We did, on a more normalized basis, say that we expect our working capital to essentially be breakeven where before we thought, it might be a use of cash by quality to $10 million. So on a more normalized basis, I think that's where you'll see, hopefully, a little bit more recurring cash flow in terms of our working capital needs.

Okay. So if I think of your normalized cash flow next year, this working capital benefit to what you're guiding to doesn't necessarily come out of next year's cash?

No. The working capital does it, like I said, the impact of the 3 items still as you think about next year, Chris, are the pay-down of the Marriott Rewards liability, which will still happen over the next couple of years, the timing of inventory spend. And so, like I said, that -- it's hard to pinpoint that to 1 year because we're trying to get to that targeted 2 years. And then, the last piece is -- yes, a little bit on the tax side, but that should normalize out. So...

This is Steve. Let me just add one other thing to you. The -- us -- the CapEx piece of this, we have a fairly detailed review of our CapEx expenses that goes on every single quarter. And when we see an opportunity to defer CapEx even from 1 quarter to another, we certainly are very much inclined to do so. So you may get a little roll [ph] from quarter 4 to quarter 1 or everything else, but it's not going to be dramatic. But obviously, every dollar of cash to us is important. And if we can delay spending it, we're certainly going to do that.

Absolutely. And -- so given your stronger pre-cash flow and the cash building up in your balance sheet, I mean, should you not have some recourse debt? I mean, what are your thoughts on that because both your peers and then now there's different things going on there to every course debt. I mean, what are the impediments to thinking about that in the near term?

Sure. Yes, we look at our overall kind of corporate credit rating, we're BB minus and that's where we think is, where we want to be. I think some of our competitors' credit rating, their overall credit rating is lower. Now that being said, I think as Steve mentioned in his comments, we are creating going forward as our EBITDA continues to grow and our securitized debt gets paid down additional capacity potentially. So it'll be soft, and we'll continue to evaluate in terms of our target leverage. But today, we feel pretty good where we're at. But as the business continues to grow, there's definitely an opportunity in that we'd have some dry powder there.

Got you. And then final question, if I may. How should we think about the pace of share repurchases? And maybe ask it another way, what -- are there any -- what's the amount of cash that you want to have on your balance sheet at any one time? And are there any working capital needs or seasonality of cash flow that would cause you to think about the pace of the potential share buybacks?

I'll start and let John finish. I -- there's an old saying that -- every long journey begins with the first step. Well, this our first step. And it's 3.5 million shares. It's roughly 10% of our outstanding shares. So we thought that was a good place to start. I think as we continue to -- I mean we believe we have a strong cash flow model, we don't believe that this would be a 1 and done kind of exercise. Having said that, we're not going to be able to commit anything beyond that what we've already announced. But I would have an expectation, is that, as I said in my remarks, that to what degree we have met the needs of the business in terms of being able to fuel our growth and we still have excess cash on hand, there's no sense of carrying it around on our balance sheet, so we would certainly look to return that to shareholders. John, I would let you add anything.

Yes. I think you hit on most of that. I think, just in terms of working capital, we do have kind of peaks and valleys in terms of our quarterly cash flows. We look at kind of working capital from pure cash flow perspective in that, on average, $50 million to $75 million. But I would say, obviously we've got a $200 million revolver that we haven't pulled down on. We have capacity. So it's not -- from a cash flow, it's not as much of an issue. And given the amount of the buyback, Chris, I mean, we've got close to $300 million of cash on the balance sheet today and obviously expect to continue to generate significant cash flow going forward. So I don't think there's any impediments in terms of the timing or how we buy the stock back.

Our next question is from Carlo Santarelli with Deutsche Bank.

I was just hoping that -- I know you touched on it a little bit earlier, but the $35 million change in the other working capital line. I know you mentioned some of the pull-forward aspects, et cetera. But would you be able to provide a little color on what that is? Or should how should we think about that. That number, what's in that basket?

Sure. I mean, it's just the way we are targeting what our AP -- excuse me, accounts payable/receivable balances on a normalized basis are at year end. The one unusual item, with the separation from Marriott this quarter, one of the last items we have to do is get off our accounts payable system. And so given the timing of that at year end, we didn't know the timing of -- as we went through the year, we weren't sure of the timing of when that split was going to occur, and if it could impact our accounts payable balance at year end. Now that we're further along, there'll be loosely [ph] -- a minimal impact year-over-year. So that's where most of that upside comes from. But even with the Spin-Off, there was -- just given the timing of the Spin-Off over the last -- from the first year as well as last year, there were just some items that impacted the timing of cash flows at year end. I think we're kind of the past all those at this point. This is probably the last piece with the separation of the accounts payable system. So we -- we're more comfortable in terms of kind of what that year end, net working capital balance looks like.

Our next question is from Steve Altebrando with Sidoti & Company. Stephen Altebrando - Sidoti & Company, LLC: Can you expand a little bit on the rental revenue? Just a couple of items specifically, you had mentioned mix playing part of the strength. And if you could go over a little bit what the ebbs and flows of that mix is? And then second is, and maybe you can educate me, is the strength fueled by members or through the Marriott side?

Let me answer the second part of your question. First, any available rental inventory we have, we put out through all of the Marriott distribution systems, including Marriott's reservation system, all the GDS systems and everything else. So that's where it comes from. I mean, yes, some of our owners do rent our product. Just for an additional vacation break or a couple of days or something like that. But the bulk of it is from non-owner rental. Let me...

In terms of -- let me address on the mix side. The nature or type of inventory we have year-over-year is always changing, right, because we get inventory from newly developed inventory that hasn't been sold yet. We can rent that. And then based on also, how people exchange their weeks for Marriott Rewards, things like that. So there's always a certain amount of mix in terms of -- it's not apples-to-apples year-over-year. This year, I think we had some cold, lean inventory that came online that we didn't have last year, which is obviously why you can get a little better rates on some of that unsold [indiscernible] inventory. So there's going to be a little bit of the mix. I think what drove rental revenue better for the most part though was we have seen some of our owners taking advantage of our Explorer program, which allows them to use and go on nontraditional lodging type stays. And with that, we get that inventory to rent. So we actually saw our rental inventory available to rent go up 10%. And then we turned around, and we offset the cost of providing that vacation and made a little bit of money on top of it. So that's where you're seeing, the growth and obviously, rates were better a little bit because of the mix. Stephen Altebrando - Sidoti & Company, LLC: Okay, that's helpful. And then if you could talk a little bit about, as the customer base kind of shifts towards going out towards new owners versus existing, maybe 1 to 2 years out, how you see that impacting development margins?

Well, if we do it right, which we certainly have every intention of doing, we will make this a gradual shift, not one that is dramatic in nature and get -- and move from what historically, has been the last several years, but more 60-40 existing buyers, the first-time buyers back down to that 50-50 mix. Typically, the way this works is that you run a higher sales and marketing cost on a first-time buyer than you do on an existing owner. Obviously, because you don't have to incur a marketing expense to any great degree to get people on tour, et cetera. The flip side of that is, a first-time buyer traditionally has a higher average contract price because existing owners are kind of topping off the tank. They're buying some additional Points, but may not be buying the equivalent of a full week's interest in Points. So when you kind of mix those 2 things together, hopefully, you will not see a dramatic increase in sales and marketing costs. And arguably, if we can drive more first-time buyer sales and keep our sales and marketing costs on a fixed basis relatively flat, you start to see some more leverage because you get higher sales on the top line, and you get better leverage on the fixed costs.

And there are no further questions at this time. Please continue with any closing statements.

Okay. Well, as you've heard, we're very pleased with our year-to-date performance, and we look forward to a strong finish in 2013. We thank you once again for your participation in our call today and your continued interest in Marriott Vacations Worldwide. And finally, to everyone on the call and to your families, enjoy your next vacation. Thank you very much.

Ladies and gentlemen, this concludes the conference for today. Thank you for your participation. And you may now disconnect.