Marriott Vacations Worldwide Corporation (VAC) Q3 2016 Earnings Report, Transcript and Summary

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, offset partially by a 1.7% decrease in VPG to $3,371. In our growth segments of North America and Asia Pacific, contract sales grew 8.3% quarter-over-quarter. While our contract sales growth was short of what we laid out on our last call, it is important to remember that we are in the early stages of a longer term growth strategy and the fundamentals that drove our growth this quarter continue to provide the foundation for growth in the coming years. Last quarter, we discussed two major initiatives that are driving our growth strategy. The first being tours from new marketing programs, namely our call transfer and universal encore programs and secondly, new sales distributions at our six new locations opening this year. In addition, we had expectations that the headwinds we faced in our Latin America channels would begin to subside. So let me walk you through our progress on each one. Beginning in our Latin American channels, contract sales were down slightly. While it was our best year-over-year performance in over a year, it was just short of our expectations. While we saw a growth in sales from our in-region broker network, sales in Orlando continue to be impacted by travel from Brazil and other Latin American regions. Going forward, we believe that positive year-over-year trends will continue and we will get back to more normalized sales growth. Looking our new marketing programs, the activated tours from these programs arrived as expected in the -- quarter contributing over $8 million or five points of our contract sales growth, however while the tour growth in the quarter was strong and drove solid incremental volume with total contract sales volumes from these programs was somewhat below our expectations due primarily to lower VPGs. It is important to note however, that VPGs of these new programs was over $4000 in the quarter well above our average in North America. As always, we are focussed on optimizing VPG as our tour makeshifts while we drive contract sales and EBITDA growth. Now let me spend a few moments walking through each of our new sales centers as together these new locations contributed almost $6 million of contract sales or almost four points of our growth in line with our expectations for the quarter. We opened our permanent sales center in Washington DC in the beginning of the third quarter and are excited about what we have seen from our sales team in the early stages of its growth. At about the same time, we opened our on-site sales center in New York and couldn’t be happier with what we have seen in the short time it has been operating. We anticipate opening the larger, additional New York sales center nearby early next year and have high expectations of the sales it will produce well into the future. In Mid-July, we opened our sales center in San Diego located in our property adjacent to the Gaslamp district. Like DC and New York, early indications are very positive as our San Diego team is off to a great start at this terrific location. In the early part of September, we announced the opening of our sales location at the Waikoloa Marriott. This fantastic destination is just beginning to ramp up and while it’s not benefiting our third quarter it is expected to be another solid driver of future contract sales growth as the hotel completes its renovation in January and our 112 units opened for occupancy early in the second quarter of next year. In South Beach, we are continuing the renovation of the common areas in units on Ocean Drive and expect to open the nearby sales center at the end of this year. And finally, in Surfers Paradise, Australia, contract sales growth continues to build. As we move into high season for travel in this region, we are confident this location will drive continued improvement in the fourth quarter and into 2017. I am very pleased with how these new sales locations have started, primarily due to the strong VPG from our new sites in North America, which at over $3,100 is close to our North America third quarter average in just their first quarter of sales. This performance gives me great confidence that our future growth strategy has a solid foundation from the five sites currently opened, South Beach opening at the end of this year and Bali in 2017. In addition, we are continuously searching for the next great location to grow our system of resorts [ph]. Now let me take a moment to discuss what Marriott International’s completed merger with Starwood Hotels and Resorts mean to us. Marriott International continue to maintain this Marriott Rewards Program separate from the Starwood Preferred Guest Program. While it will be able to integrate certain aspects of the programs, Marriott International will maintain separate member list for vacation ownership marketing and we continue to have our exclusive rights to market to Marriott Rewards Members. The exception being those customers who going forward, either or [ph] already were or in the future become Starwood Preferred Guest members and then later join Marriott Rewards. We’ve also continued to have our exclusive rights with respect to the reservation systems, websites and call centers that support Marriott branded properties as Marriott will continue to operate those separately from those used for Starwood properties. Another key benefit to us is our increased access to Silver, Gold and Platinum Marriott Reward Elite status upgrades, which will allow us to enhance the owner recognition level of benefits that we provide to our owners. We look forward to continuing a long and prosperous relationship with Marriott International, now the world’s largest and best hotel company. Turning to our contract sales guidance, we expect to generate roughly 4% growth for the full year, the lower end of our initial guidance of 4% to 8%. Obviously, Hurricane Matthew has affected our sales operations in several locations from mandatory evacuations, shutdowns and cancellations this past week. It is too early to know exactly what impact Matthew has had primarily at our Hilton Head in Myrtle Beach locations. However, we are focused on getting back up to speed as quickly and safely as possible and on minimizing Matthew's impacts to our contract sales and rental performance in the fourth quarter. Now let me focus our contract sales outlook for the remainder of the year. In the third quarter, Asia Pacific and North America grew by over 8% driven by new marketing channels and a strong start from our new sales locations. And we are continuing to see acceleration in year-over-year contract sales in the fourth quarter as quarter to date contract sales were up double digits over last year. Based on this, we could expect the contract sales growth percentage in the fourth quarter to be in the mid teens. The two significant drivers of this growth continued to be our new marketing programs and new sales distributions. To that end, we expect our new marketing programs to contribute six to seven points of growth in the fourth quarter, building on nearly five points of growth in the third quarter. And our new sales centers, which you'll recall contributed nearly four points of growth in the third quarter, are continuing to ramp up with expectations in another six to seven points of our fourth quarter growth. In addition, we expect our Latin America and in-house channels to provide several points of additional growth to achieve our fourth quarter goals. All of this points to a solid trend through the end of the year as we are well on our way to the long term contract sales growth we've been discussing throughout the year. With that, I'll turn the call over to John to provide more detailed look at our third quarter results and outlook for the fourth quarter. John?

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 propensity levels and half was due to higher default activity associated with our Latin American customers. $2.3 million from higher marketing and sales costs related to the ramp up of new sales distributions and $1.3 million from higher plus points issued. It is important to understand however, that the majority of these higher costs are expected to provide benefit to us in the future. The higher sales reserve activity was driven in part by an 18% increase in financing propensity on higher contract sales, which we expect will drive stronger financing profits in the future. The ramp up costs associated with the new sales distributions not only drove sales growth for us in this quarter but will continue to drive incremental sales for us in the future. And the plus points will eventually become rental revenues when these points are utilized. In our financing business, revenues net of related expenses was $18.9 million or up $1.3 million or almost 8% from the third quarter of last year. The program we launched last summer to help drive financing propensity has continued to be successful with our North America propensity up nearly 10 percentage points to over 62% in the third quarter. With these higher financing propensity levels as well as targeted increases in contract sales in the fourth quarter, we expect significant year-over-year growth from this business for the full year 2016. And our purchaser's remain very creditworthy as the average FICO scores grew 7 points to 740 for the third quarter of this year. During the third quarter, we also successfully completed a $259 million notes receivable securitization at an interest rate of 2.28% at a 96.5% advance rate. This transaction generated $250 million of gross proceeds of which $50 million was released from restricted cash in the fourth quarter as the remaining notes were sold in accordance with the terms of the securitization. Turning to our rental business. Total company rental revenues were $73.8 million, $2.3 million below the prior year. This reflected $2.7 million of lower revenue at our San Diego property during its conversion to vacation ownership inventory and from the portion of our hotel in Australia that we disposed off earlier this year. In addition, we experienced lower plus point revenue and a 2% decrease in average transient rate. These decreases were partially offset by an increase in preview keys and a 3% increase in transient keys rented. Rental revenues net of expenses were $12.8 million, down $700,000 from the prior year. In our resort management and other services business, company results improved $3.7 million or nearly 14% to $30.1 million in the quarter. Results reflected higher fees for managing our portfolio of resorts, improved exchange company activity, and higher customer services margin. In our Asia Pacific segment, contract sales improved $4.3 million or 62% quarter-over-quarter, driven by both improved performance at our existing sales locations, as well as the continued ramp up in sales from our new location in Australia. Total adjusted segment results were up $700,000 from the prior year, driven mainly by improved results in our development and rental business. Turning to our return of capital to shareholders. Year-to-date through the end of the third quarter, we have repurchased 2.8 million shares, roughly 10% of our shares outstanding for $163.4 million and paid quarterly dividends totaling $26.1 million. We did not repurchase any shares during the third quarter given the accelerated share repurchase agreement we entered into at the end of the second quarter, which effectively accelerated third quarter repurchase activity. Moving to our balance sheet. At the end of the quarter, cash and cash equivalents totaled $175 million. Our total debt outstanding at the end of the quarter totaled $815 million, consisting of approximately $807 million of non-recourse debt associated with our securitized notes. In addition, $40 million of mandatorily redeemable preferred stock remains outstanding, which we plan to redeem later this month. Now let me turn to our adjusted EBITDA for the fourth quarter and outlook for the remainder of the year. As you just heard, we have lowered our contract sales guidance to adjust for our third quarter growth. In conjunction with that, we are lowering the high end of our adjusted EBITDA guidance to $266 million for a new full year adjusted EBITDA guidance range of $261 million to $266 million. Our adjusted EBITDA in the fourth quarter is expected to be at least $95 million, a $22 million increase from the fourth quarter of 2015. So let me take a moment to provide some color around how we expect to accomplish this. First, our development business is projected to increase between $10 million and $14 million year-over-year with the projected contract sales growth in the fourth quarter and the turnaround of unfavorable revenue reportability from the third quarter. Resort management and other services is projected to provide $4 million to $6 million of adjusted EBITDA growth. Our financing business should provide $2 million to $4 million of adjusted EBITDA growth on the increasing contract sales and strong propensity levels; we expect our rental business to outperform the prior year and lastly, our fourth quarter adjusted EBITDA should benefit from lower G&A costs relative to 2015. While we do not change the low end of our adjusted EBITDA guidance -- excuse me, while we did not change the lower end of our adjusted EBITDA guidance range, we have increased the low end of our adjusted net income range by $3 million to $129 million mainly reflecting a lower effective tax rate for the year. Our adjusted EPS guidance range has been updated accordingly to $4.55 to $4.65 per share, representing 24% growth over 2015 at the midpoint of the range. This highlights the strength of our capital efficient business model, which allows us to grow and programmatically return capital to drive EPS growth. Turning to free cash flow. We continue to focus on maximizing our free cash flow and our raising our guidance from $135 million to $155 million to a range of $145 million to $160 million. As we always do we will continue to evaluate all of our capital needs with the intent of deferring spending wherever appropriate. In summary, we are proud of the 8.3% sales growth we achieved in North America and Asia Pacific. As we begin the fourth quarter, we are excited about the positive trends that position us to deliver our best quarter as a public company. I look forward to ending the year strong and discussing our performance and our outlook for 2017 on our next call. As always, we appreciate your interest in Marriott Vacations Worldwide. And with that, we'll open up the call for Q&A. Rob?

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.