Greetings, and welcome to Marriott Vacations Worldwide Third Quarter 2016 Earnings Conference 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. It is now my pleasure to introduce your host for today’s call, Jeff Hansen, Vice-President Investor Relations. Thank you. You may begin.

Thank you, Rob, and welcome everyone to the Marriott Vacations Worldwide third quarter 2016 earnings conference call. I am 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 13, 2016, 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 Relation page on our website at ir.mvwc.com. I will now turn the call 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 will discuss our third quarter performance as well as our contract sales growth for the remainder of this year. I will then turn the call over to John to provide a more detailed look at our third quarter results as well as our outlook for the fourth quarter before we open the call to your questions. But first let me take a moment to address Hurricane Matthew, which has taken a heavy toll on the southeastern coast of the United States. My heart goes out to the victims of this powerful storm, and we are hopeful that its impact will subside as soon as possible for those affected from Miami to the hardest hit Carolinas. As it pertains to our operations, ensuring the safety of our owners, guests and associates has been our top priority. Fortunately, our results on the -- our resorts on the East coast of Florida were reopened over the weekend sustaining minimal damage and have begun their efforts to get back to normal operations. Further to the north into the Carolinas we have still not been able to reopen our properties in Hilton Head and Myrtle Beach. I am very pleased to say that there are no injuries to report but we have been closed there since the storm and are still ascertaining the extent of any damage. Presumably, there is nothing that can’t be fixed and we can be back to full operations in short order. Now turning to our business results, third quarter company contract sales were $169.8 million up $10 million or 6.3% over the third quarter of last year. This was driven primarily by our North America segment with a 9.1% increase in tourists,…

Thank you Steve and good morning everyone. Adjusted EBITDA totaled $50.6 million; $4.1 million lower than the third quarter of 2015. While these results are not adjusted for the timing of revenue reportability, it is important to highlight that our adjusted EBITDA was unfavorably impacted by $12.4 million of revenue reportability in the third quarter of 2016; a majority of which we expect will be recognized in the fourth quarter. Adjusting both years for the timing of revenue reportability, adjusted EBITDA would have been nearly $63 million in the third quarter of 2016, a $1.3 million or 2% increase from the third quarter of 2015. For the quarter company contract sales were up 6.3% or $10.1 million. In our key North America and Asia Pacific segments, contract sales were up 8.3% or $12.5 million. However, this growth was offset by $2.4 million of lower sales in our Europe segment as we continue to sell through our remaining developer inventory. Company adjusted development margin was 19.7% and North America adjusted development margin was 22%. Resort management and other services margin improved $3.7 million or nearly 14% as compared to last year and financing margin outperformed the prior year by $1.3 million or 8%. In our North America segment, adjusted development margin decreased $1.4 million to $29.2 million in the third quarter and adjusted development margin percentage was 22%, down 1.1 points from the prior year quarter. While adjusted development margin was down year-over-year, it did reflect the improvement of $4.2 million from lower product costs primarily from continued success of our inventory repurchase program and $1.9 million from higher contract sales volumes in the quarter. However, that improvement was more than offset by $3.9 million from higher sales reserve activity of which roughly half of that increase related to higher financing…

Thank you. [Operator Instructions] Our first question comes from Patrick Scholes with SunTrust Robinson Humphrey. Please proceed with your question

Good morning, Patrick.

A couple of questions here. You talked assuming in your guidance here, you are taking it down to the low end for these sales growths and you had briefly mentioned possibly Hilton Head and Myrtle Beach impacting that. But can you get a little more specific on what locations do you think are taking that range down? Certainly, we've heard maybe not you folks, but New York in general has been not quite as strong as one might have earlier anticipated.

Well, sure. Thank you for the question. Two things. Number one, the lower end of the guidance of around 4% really reflects what we think the fourth quarter will produce, which I think we said in our prepared remarks should be the mid-teens of contract sales growth. And just doing the arithmetic for what -- where we were as of the end of the third quarter, that's how you get to the lower end of the 4%. The only two sites that are currently impacted by the storm of Matthew are our sales center on Hilton Head and on Myrtle Beach. Our current understanding is that there is a chance that Myrtle Beach will open by this weekend, but more than likely, not because of physical or structural damage but because there are other infrastructure problems on the island. It may be towards the middle to the end of next week before Hilton Head is up and operational again. Regarding to your specific question about New York, we've not seen any downside in our sales activity there. In fact to the contrary, we're very pleased with what we've seen thus far, and we look forward to getting our larger sales center open up in the first quarter.

Okay. Let me just follow up on that, and I apologize if I'm being so redundant here. You know when you first have that 8%, now you're 4%, can you cite any specific locations of that you make it four instead of eight right now?

Well, again our initial guidance at the beginning of the year was 4% to 8%. We didn't say eight, we said guidance of eight.

Okay.

If you took the midpoint of that at 6%, now at 4%, we're down a couple of points. In previous calls we've talked about the surprise to us that took place in the first quarter where there was a meaningful decline in our owner reload activity, largely because we have such a strong first quarter in the 2015 from owner reloads. And, so really the only difference in our opinion is this roughly two points drop from the midpoint and that's the result of the third quarter.

Okay. Next question. With Hilton Head in Myrtle Beach being closed, do you have any type of business disruption insurance that might cover any type of shortfall there? And if so, what is the deductible on that?

Sure. Patrick, its John. Yes we do obviously have business interruption insurance. The deductible for the storm and you have to look at it in terms of all the projects together is $10 million. And so we're working on what the impact is going to be. But that covers everything from COAs and the on-site locations in our properties as well as marketing and sales disruptions. And so we're still kind of penciling what that's going to be and we'll know more and we'll update here in the fourth quarter.

Okay. But in a nutshell, make sure I understand, you're on the hook basically for the first $10 million, correct?

That's correct.

Okay, moving on. I have two more questions. Latin American defaults, what percentage of your loans outstanding are Latin -- today are Latin American customers?

Let me see

Ballpark.

Ballpark. The number here, probably about 12%, 15%. So under 15%, but I think it's slightly higher than 10%.

Okay. And the ones that are defaulting, what was sort of the average age of the loan outstanding? Would you have seen an increase in the default?

Yes. Let me give you a little color here are just on. Yes, it's clearly as we've talked about in prior calls, you had the foreign currency declines against the U.S. dollar, which occurred, call it, early third quarter of last year. For the most part, I think we see that the higher default activity really over the last year or so, not surprisingly is related to the loans that were originated not too far before that. And so had the least amount of payments if you will, against those loans is not across the board that way but generally. The good news is, based on where we're at that end of the third quarter, is the overall Latin delinquencies are back in line with call it, June of last year. So we think we've seen the bulk of those defaults move through the pipeline if you will, as we've gotten back. Yes, we could see some impact a little bit in the fourth quarter; we expect it to be significantly less than the $3 million or so impact we saw here in the third quarter. The other point I'll highlight is, if you pull the Latin out with the much higher financing propensity, our defaults on the rest of the North America are 85 plus percent of the loans are actually basically flat. So we've seen defaults actually on a percentage basis, less on the other 85% of loans our portfolio is performing outstanding. And I hate to say, it couldn't get better, but we haven't seen it much better in terms of performance. So I think that Latin is probably behind us here as we move through the fourth quarter, but we could see a little bit of impact.

Okay, thank you. Last question here. Somewhat recently obviously, Wyndham and Diamond have been vocal about uptick in third-party induced defaults. Have you seen any similar activity for your brands?

No, no, we haven't.

Okay, fair enough. Thank you very much.

Thanks Patrick.

Our next question comes from Benjamin Chaiken with Credit Suisse. Please proceed with your question.

Good morning, Ben

When looking at 4Q, it sounds like there's two variables for the lower guidance. You have lower VPG coming from the call transfer and Encore and then the impact of the hurricane. How would you rank those two? And then any color on what is driving the lower VPG?

Well, a couple of things. Keep in mind as I said in my remarks, the combination of the call transfer and universal encore still run a VPG of over $4,000, which is well above our system average. The fact of the matter is one of the reasons why third quarter VPG number came in a little less than we thought it was going to be was we actually expected that $4,000 number to be even a little higher. With that said, it's largely a function of how we think about the tour mix shifting over the course of any given period of time. So let me give you a little perspective, so tours from new tour channels were up about 3,300 tours in total. And 2,000 of those were first time buyers. So it takes a little while for the sales team to go through the adjustment period of who they are seeing in terms of taking tours. We think for the most part that education and that shift of the way the sales force performs has already taken place in the third quarter. So again, I go back to what I said to Patrick and his question, the 4% number is largely arithmetic. You take where we are through three quarters and you add to it mid-teens contract sales growth in the fourth quarter, that's where you get to the roughly 4% growth. The reason why we are a little bit if I may say roughly is we don't know the impact directly from what's happening in the closure of our sales centers and the closure of our resorts on Hilton Head and Myrtle Beach. But -- so that's probably the most uncertain thing to us right now. I believe the way in which the new marketing programs and the new sales centers are performing is far more certain to us.

Yes. Let me just a little bit more color because -- this is the second question on kind of what's changed. Quite frankly, our outlook for the fourth quarter hasn't changed from where we were from the third quarter of last year. So we haven't necessarily taken down. I think what Steve articulated here is really the ramp-up that, coming into the third quarter, we were seeing it. It just ramped a little bit slower. We discussed why a little bit of lower VPGs on the call transfer and encore programs. Latin, probably cost us, we thought that might give us about a point of growth and it was basically flat down slightly. So those were the couple of percentage points that really kind of hurt us from the ramp. But as Steve also mentioned in his prepared remarks, what we've actually seen here since we started the fourth quarter is we're on track from what we expect to do and that hasn't, like I said, changed from where we were last quarter. We got double-digit growth year-over-year, as the first month in here. But a little bit of a wildcard is really that final impact on the hurricane. So we are doing our best to try and mitigate some of that, but we'll know more. But we feel great about where we're at in the ramping. And quite frankly, going into next year, we've got the foundation in place with these programs; the pipeline of tours on those key marketing programs continues to build. So that bodes well going into next year. And the new sales centers that we're talking about opening up that we didn't get the benefit here in the third quarter as we knew from the opening of Waikoloa, but we'll start to get that. Miami at the end of the year, the larger sales center in New York going into next year. So the good news is, those were all doing great and we expect that to build here as we move into next year.

Got it, it's helpful. Just to clarify two things, so with the custom base shifting a little bit with Encore and call transfer to your comment, are you implying that the close rate with those customers were just slightly lower than what you're expecting? And then the second part of that clarification is are you saying that your expectations for 4Q are the same today as they were when you finished, when you're going into 3Q, is that what you're saying?

Yes. At a high level, yes. And the closed rate, again it’s -- I'll remind everybody on the call, that 1.7% drop in VPG is roughly $50. It's not a huge issue. But clearly, they didn't perform quite as well as we thought they were. However, they still averaged over $4,000 of VPG.

Got it. But it sounds like that’s correcting itself?

So far as John mentioned, I mean we've already got one accounting period of results in the fourth quarter in the bank. And we have seen those contract sales numbers in VPGs to be very reflective of what we're projecting to be in the fourth quarter.

Okay. Awesome, thank you.

Thank you.

Our next question comes from David Katz with Telsey Group. Please proceed with your question.

Hi, David.

Hi, good morning everyone. I think it would be helpful if you could just explain a little more about the reportability. And specifically, as I look at that Page A-7 in the release where you have one of your reconciliations in the footnote about the lack of required down payment of contract sales. I'd love to -- I think it would be helpful if we just got a little bit more color on what exactly what was in there? And how this occurred and how it slides into the back half, please?

Sure. Yes. Hey David, it's John. So for us, revenue reportability quarter-to-quarter, it's one of the reasons we don't provide quarterly guidance quite frankly, because the GAAP accounting requires that you collect a 10% down payment and it's not just 10% of the purchase price, it includes things like recovering the value of first-day benefit, closing costs on your loan and things like that. So we're always adjusting incentive programs, things like that throughout the year. Our focus and what we've done every year is from a full year perspective, we adjust the programs in the down payment requirements so that on a full year basis, the reportability really isn't much impact. But given whatever programs we're running, higher financing propensity like we saw in the third quarter, that's where you see you can have some outsized impact. So what are we doing, like we did and this was an issue, if you will, in terms of reportability in the third quarter last year. We had similar things; we had introduced some new financing incentives back then. We had higher financing propensity. We tweaked the amount of the down payment to get a little bit more and we've already put that in place here for fourth quarter sales. So what ends up happening is we get a couple of the payments on the sales in the third quarter on the loans. We hit the reportability, that hits we get the benefit of that here in the fourth quarter. And then the new sales that we are doing were slightly higher down payments to reflect the incentives and the financing propensity levels. Those should, for the most part, hit reportability in the fourth quarter. They won't get pushed out into the next year. And that's how you kind of think about it. But reportability impacts us quarter-to-quarter, but it can impact us slightly more or less and then we adjust for that to balance it out.

Hey David, this is Steve. I’d add one more thing to that and just a reminder, that the way in which timeshare accounting works, you record the sales cost except for a small amount of the commission expense at the time of that the contract sales is written. And so you have there is a disconnect built into the way in which the GAAP works. You have the cost, sales and marketing cost mismatched from the revenues. So we have a disproportionate amount of sales and marketing cost in the third quarter not matched up to reportable revenues, which will show up in the fourth quarter.

Understood. So just putting that in the context of what appears to be pretty high confidence that the fourth quarter is going to stack up well irrespective of storm impact. And some of Steve's comment about this fourth quarter setting up the way you anticipated almost a year ago, I assumed baked into all of that expectation was some of this reportability fluidity, for lack of a better word, was contemplated in there. In other words, there's no fundamental change in what you were looking for in the fourth quarter going back as far as you've discussed it. Is that a fair statement?

Yes. I think in general, that's correct with one minor modification. Our financing propensity is actually running even higher than we thought it was going to. That's good news over the long term because obviously you get financing revenues for a long time to come out of all of this. It does affect your reportability. So yes, I would say to you, we probably have more reportability in the fourth quarter than we originally thought we are going to have. But all the other underlying fundamentals that we've talked about in terms of building this contract sales volume and everything else has remained relatively unchanged.

Very good. Thanks very much.

Thank you.

At this time I'd like to turn the call back Steve Weisz for closing comments.

Thanks very much, Rob. The third quarter was our best quarter of contract sales growth in over a year, as contract sales growth in our key North America and Asia Pacific segments were up 8% on strong tour flow from new distributions and new marketing channels. Even more positive, as we enter the fourth quarter, the current trend is on track for solid mid-teens growth through the end of the year, laying the foundation for contract sales growth going into 2017. I look forward to updating you on our fourth quarter performance and our outlook for 2017 on our February call. And finally, to everyone in the call and your families, enjoy your next vacation. Thank you.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.