Greetings, and welcome to Marriott Vacations Worldwide Fourth Quarter 2018 Earnings Conference Call [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Mr. John Geller, Chief Financial Officer and Administrative Officer. Thank you. You may begin.

Thank you. And welcome to the Marriott Vacations Worldwide Fourth Quarter 2018 Earnings Call. I'm joined today by Steve Weisz, President and Chief Executive Officer. 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, February 28, 2019, 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 Web site at ir.mvwc.com. I will now turn the call over to Steve Weisz, President and CEO of Marriott Vacations Worldwide.

Thanks, John. Good morning, everyone. And thank you for joining our fourth quarter earnings call. Today, I’ll walk you through the financial highlights for 2018. I’ll also provide an update on the progress of our integration efforts of ILG business, as well as the savings we are projecting for 2019 related to our various synergy initiatives. I’ll then turn to the 2019 guidance before I hand the call over to John to provide further details on our 2018 financial results and 2019 outlook. We’ll then begin taking your questions. I'm extremely happy with how we were able to close out the year, especially given the significant ongoing work surrounding the integration of the businesses since the acquisition on September 1st. For the full year, consolidated contract sales were $1.07 billion, including $902 million of sales from legacy MVW. On a combined basis, assuming the ILG acquisition occurred at the beginning of 2017, contract sales would have totaled $1.4 billion, reflecting an 8% increase year-over-year. Adjusted EBITDA for the full year totaled $419 million, $14 million higher above the high-end of our previous guidance as we benefitted from strong revenue reportability and better performance across the business, reflecting the strength of our diversified business model. On a more comparable combined basis, adjusted EBITDA would have totaled $667 million, an increase of $20 million or 3%, driven by $26 million or 9% increase from legacy MVW. Legacy ILG's adjusted EBITDA in the prior year benefitted from roughly $20 million of favorable product cost true-up activity. Adjusting for this impact, total company adjusted EBITDA in 2018 would have increased $41 million or nearly 7%. Looking at just the fourth quarter, combined contract sales grew $25 million or 8%, including $17 million or 8% for legacy MVW. In our Legacy MVW business, while the…

Thank you, Steve. I too am very pleased with our strong performance in the fourth quarter, as well as the progress we continued to make on the integration of the businesses. As reminder with the ILG acquisition, we realigned our structure to manage the business through two operating segments, Vacation Ownership and exchange and third party management. To better highlight how these businesses performed in 2018 since we did not own the ILG businesses for the majority of the year, we have included additional supplemental financial results in our earnings release, which we refer to as legacy MVW. These results exclude ILG's 2018 performance subsequent to the acquisition. In addition to provide a more meaningful year-over-year comparison of financial results, we have also provided combined financial information as if the acquisition of ILG had occurred at the beginning of 2017. On a combined basis, adjusted EBITDA was $180 million in the fourth quarter of 2019, an $11 million or 7% increase. And contract sales totaled $358 million, a $25 million or 8% increase from the prior year. Looking first at legacy MVW, adjusted EBITDA increased $16 million or 20% to $99 million, reflecting improvements in all lines of business. In our development business, contract sales grew $17 million or 8% to $224 million in the quarter. Development margin in the fourth quarter was $67 million, or up $13 million or 24% to the prior year. Adjusted development margin percentage was 22.4% compared to 20.6% in the prior year. The improvement in the margin percentage reflected the benefit of a favorable mix of inventory being sold and to a lesser extent, more efficient marketing and sales spends as we continue to leverage fixed costs. In our financing, business financing revenue net of expenses and consumer financing interest expense totaled $24 million,…

Thank you. At this time, we'll be conducting a question-and-answer session [Operator Instructions]. Our first question comes from Brian Dobsun with Nomura. Please proceed with your question.

So I have two questions this morning, the first on free cash flow. Would it be possible for you to run through some of the puts and takes for cash flow available to be returned to shareholders this year, as well as any integration expenses that you might expect?

So obviously our free cash flow, the guys we provide Brian 400 to 475, we don't include how onetime items. So I guess a couple puts and takes there. One, because of the BI settlements late year and the sale of BRI late in the year, we came into the year with probably or roughly $100 million give or take of excess cash. And then you obviously have the 400 to 475, and so take a midpoint there that you would add into that. And then backing off, you got the one-time integration costs and a little bit of litigation settlement. So call that probably in the $80 to $90 million range as deduct. The other potential upsides really are, one, we expect to get the remaining VRIE proceeds here in the first quarter and that could be roughly $35 million that wouldn't be in our guidance. And then while I'm not going to give you a number, we do see potential significant upside still from settling the legacy business interruption claim for the ILG business. We're still working through that with the insurer. So you take the puts and takes and then assuming our same dividend rate of roughly $80 million a year, I think the number maybe that you're looking for is probably in the 350 to 450 of additional cash that we could potentially return back to shareholders.

And then as a follow up question, could you talk a little bit about what the tech marketing will look like. Will that take the form of in app advertising, or will there be something a little bit more subtle to that?

There's going to be a couple things to look for. So let me let me start first with the digital version of the call transfer program. Imagine this that you're on Marriott.com, you're either making a reservation or you're modifying a reservation, we will push an offer to you electronically that you can either choose to engage with or not. So that's that one. We have we have already begun and we will continue to work with a number of the social media companies where we put some offers out there on an advertising basis and then that potentially then generates a lead sheet, which we then follow up on and try to book a package. So those are two different versions. There is some other stuff we’re experimenting with. but I think that gives you the general sense of what we're doing.

Our next question is from Cameron McKnight with Credit Suisse. Please proceed with your question.

Question for you, Steve, you mentioned you mentioned volatility in the stock market and the economy. I noticed that VPG was also little bit year-over-year in the quarter. Can you talk about close rates through the quarter? And did you see any impact on close rates as we progress through the volatile days of December?

I can tell you for the quarter, our close rate was actually up 10 basis points. However, the mix of the close rate was a little bit different. So our first time buyer closing rate was down about 50 basis points, our owner closing rate was up about 50 to 60 basis points. So that's where you get the net of 10th or 10 basis points. If you think about it, my view of the world is that the starting and mid or late November, there obviously were some negative vibes out in the marketplace, the market got a little skittish in terms of the equity markets, the R word started coming out of people's mouths on a more frequent basis. And so I think no mystery here. Our typical customer probably has a little more exposure to the equity markets and maybe some other of our brethren in the industry. And our folks are very attuned of what's going on. So not unlike when Brexit was announced or when the China trade sanctions were put in place. Our sales executives have a tendency to get questions from our customers during that period of time. And where you might think it would manifest itself as most would be a first time buyer who hasn't really had that much track experience with us in terms of Great Vacations, et cetera. So that's where we saw it dip down a little.

And then a question for John in terms of the bridge to free cash flow. Do you expect that inventory spending will be a source or use of cash as far as the cash flow statement is concerned relative to the cost of sales?

For the guidance we've given, obviously, a fairly broad range, I would say, the midpoint of the guidance. There's maybe a little bit of benefit in those numbers but it's not a material amount, Cameron. Clearly, as we've done in the past, we'll focus on spending the right amount to drive the top-line but not spending more than we have to. And so that's always our goal. So, there's always opportunity every year usually to outperform, meaning spend less and manage our cash flow and that's what we've been able to do over the last couple years. And clearly with the ILG acquisition in certain pockets there, we do have some excess inventory. But we're focused on growth and adding new sales centers and resorts in the right locations. And similar to what we've done with legacy NVW over the years, we expect to add resorts both in the Western Sheridan and Hyatt and do that on a more capital efficient basis, so that that gives you where we're on the guidance so just a little additional color there.

Our next question is from Jared Shojaian with Wolfe Research. Please proceed with your question.

So just sticking with the fourth quarter here, you beat the implied fourth quarter EBITDA expectation by around $20 million. Can you just talk about what came in better for you relative to what you were thinking? I know the repeatability was better but I think sprinkled throughout the P&L. What really drove that? And I guess did you take more of a conservative approach given that the ILG combination is still early days. And have you assumed that same mindset as you think about your 2019 guidance? Thank you.

You're right. I think the real outperformance versus the guidance we gave in the third quarter with some of the reportability on the legacy MVW side. So as you're aware, we now report revenues based on closing. So closings outperformed in the quarter versus our expectations. We did better getting contracts closed and getting the cash and prior to the end of the year. So that was probably maybe $7 million to $8 million versus our expectations. And as I went through, it was really the legacy MVW business that seem to outperform a little bit on our on our expectations. I think the Vistana and the legacy exchange in rental or third party management business is pretty much performed in line. The legacy MVW as I went through rentals were a little bit better, the management business did a little bit better. And then the other place we outperformed a little bit was probably a couple million dollars in synergy capture in the fourth quarter versus our expectations. In terms of the outlook, we're trying to put out what we think is the most likely to occur. This year probably -- obviously, a lot more moving parts with the integration of the vacation ownership business on the Marriott and the Vistana side. So we feel good about the guidance we put out and we’ll update you obviously with performance as we move through the year.

And then as we think about VRI Europe, are there any other segments that we could see additional opportunity or monetization? I know, obviously, there was a lot of speculation when you first closed the deal about the Interval exchange network. So we'd just love to hear any updated thoughts on what else we could really pursue from a monetization standpoint?

Well, I think it's an excellent question. I mean, clearly, we've not only tried to learn more about each of these businesses, whether it'd be interval or whether it'd be Aqua-Aston or VRI or TPI, on all those businesses they're are very attractive to us, they have very attractive cash flow profiles. And I think it really helps fill out our portfolio very nicely. As in all cases, we’ll obviously try to understand what's the highest and best use of our capital and everything else. If we see something out there that might be a better use of capital than what we could get from owning one of those businesses, we consider. But I can be honest with you and tell you that it's not on our radar screen either now or in the immediate future.

[Operator instructions] Our next question comes from Patrick Scholes with SunTrust Robinson. Please proceed with your question.

A couple questions here, you had noted to begin the online marketing with Marriott I believe is in the third quarter. How should we think about the lag time between you starting that and actually seeing sales coming from that? How long does that -- you think that'll take to really ramp up?

Obviously, it's new for us on the digital side. But I would expect it to perform reasonably similar to the call transfer program that we put in place several years ago, which means that you'll get the ability to book a package. But by the time that package actually comes through the house in terms of people taking a tour, et cetera, it could be as much six to almost 18 months later when they actually do it. Obviously, we'll update you more as we get more experience there. So as we think about this coming online the end of the third quarter, I would not expect any meaningful benefit in terms of that package production resulting in contract sales until at least 2020.

My next question relates to your interval exchange revenue per members, and I apologize if I didn't see this in the release. It certainly looked like the membership levels were flat. How did the revenue per member performed? Certainly, as you're aware, I think RCI had some challenges within the fourth quarter. Did you see similar?

For the quarter it was down about 4%...

About 2% on the for the full year…

In the quarter it was down 4%.

What was driving it down 4%, was there resistance or any price increases?

No, as you may be aware, there were several different large accounts that moved away from interval, one of which was wealth resource, which moves away in the end of 2017. Obviously, because of that there are different forms of revenue that come from an account like that. You get not only the corporate membership revenue, but also the transaction revenue that comes with it. Wyndham also had purchased the Shell Resorts a number of years ago that contract with Interval was up, and it transitioned over to RCI in the fourth quarter, that was largely. There's nothing that we see that's a structural impediment to the revenue growth. And I think as you may recall in our remarks, we said that we expect that revenue growth per member will actually be a little bit higher than typical inflation. The only other thing I would point out, and this is something that I would expect that you'll hear elsewhere. There is softness in Mexico. And as a result, the number of people that want to go there because of some of the crime problems, et cetera that are down there that is affecting the exchange business, but it's also affecting the Vacation Ownership Business to a lesser degree.

And then two more questions here. Certainly, you laid out potential uses for free cash flow balance sheet this year after having made this large acquisition last year. How realistic you think it is that you could be making another sizeable acquisition from that free cash flow this year? And this will be certainly something to help us think about modeling share repurchases and like going forward?

I think it's a very legitimate question. I mean if a great thing came along, we'd have to study it pretty hard and understand. I mean, I'll be the first to admit to you that the integration work that we're doing and have been about for the last six months is not insignificant in terms of trying to tie the two businesses together from MVW and ILG standpoint that have to be woven into our thinking about taking on another big acquisition. But it was a great opportunity, and meaningfully accretive to our shareholders, we certainly have to give serious consideration.

And just one last quick question. Any thoughts on timing or holding an Investor Day this year, timing of that Investor Day?

Our goals so to do one here, call it, by the end of the third quarter. So more to come on that but it's definitely the goal to get something on everyone's calendar here shortly.

Ladies and gentlemen, we reached the end of the question answer session. At this time, I'd like to turn the call back to Steve Weisz for closing comments.

Thanks, Rob. I'm very excited about how the business wrapped up 2018, but I'm even more excited about the opportunities that lie ahead of us in 2019 and beyond. I'm confident that the transformational changes that we've identified and plan to execute should result in robust performance for our shareholders for many years to come. Thank you, for your time and finally to everyone on the call and your families, enjoy your next vacation.

This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation and interest in Marriott Vacations Worldwide.