Greetings and welcome to Marriott Vacations Worldwide First Quarter 2019 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Mr. Neal Goldner, Vice President, Investor Relations. Thank you. You may begin.

Thank you, Rob and welcome to the Marriott Vacations Worldwide first quarter 2019 earnings conference call. I am joined today by Steve Weisz, President and Chief Executive Officer and John Geller, Executive Vice President and Chief Financial and Administrative Officer.

Thanks, Neal. Good morning, everyone and thank you for joining our first quarter earnings call. I am extremely pleased with how we have started the new year with our financial results with our expectations. Adjusted EBITDA for the first quarter totaled $166 million. On a more comparable combined basis and excluding the impact of the sale of DRI Europe, adjusted EBITDA grew 6% driven primarily by growth from vacation ownership segment as well as synergies related to the acquisition. Consolidated contract sales grew 5% on a combined basis, including nearly 10% for legacy MVW offset partially by the Vistana and Hyatt businesses. As we mentioned last quarter, we expect to deliver strong sales growth in our legacy MVW business throughout the year and we started the year off well. We also continue to expect s growth will be offset by the Vistana and Hyatt timeshare businesses during the first half of the year as we implement strategies employed in the Marriott Vacation Ownership business across our expanded portfolio. We expect growth in the Vistana and Hyatt businesses to accelerate as we move through the year. We saw some of this growth starting to occur towards the latter part of the first quarter and it has continued into the current quarter. Looking at just the legacy MVW North America Vacation Ownership business, tour flow grew over 6% in the quarter, including a 9% increase in first-time buyer tours and a 5% increase in owner tours. The higher first time buyer tour flow was driven by contributions from our linkage and Encore package programs as well continued growth in our newer sales distributions. I am also pleased to report that our tour package pipeline remains strong growing 5% in the first quarter as compared to the same time last year and activated tours, but the schedule of arrival date during the remainder our 2019 grew nearly 12% over the same time last year. VPG for the legacy MVW North America Vacation Ownership business remains strong at $3,777, up more than 1% year-over-year despite the increase in first time buyer tours which typically have a lower VPG than owner tours.

Thank you, Steve and good morning everyone. I am very pleased with how we have begun the year generating strong first quarter results all in line with our expectations. As we did last quarter to better highlight how the business performed, we have included additional supplemental financial results in our earnings release, including 2018 financial information that combines legacy ILG’s first quarter 2018 results with legacy MVW’s 2018 results to be comparable to our current year presentation. Total company adjusted EBITDA totaled $166 million in the first quarter of 2019. On a combined basis, this represents a 4% increase from the prior year. While these results were in line with our expectations, it’s important to highlight two items that are unfavorably impacted our year-over-year growth in adjusted EBITDA. First, as you know we do not adjust for the impact of revenue reportability when calculating adjusted EBITDA. However as a result of strong contract sales volume in the later half of the first quarter, which will be closed when reported as revenue in the second quarter, adjusted EBITDA in the first quarter was unfavorably impacted by roughly $21 million of revenue reportability $13 million higher than last year. Remember, this is simply a timing matter as the sales have occurred, but revenue will be recognized when the contracts close. Second, year-over-year growth was negatively impacted by $4 million of profit in the prior year quarter related to the disposition of the VRI Europe. Adjusting for both of those items, adjusted EBITDA on a combined basis would have grown 13% year-over-year. Now, let’s turn first to our Vacation Ownership segment. Segment adjusted EBITDA totaled $171 million in the first quarter. On a combined basis, this represents an increase of 5% year-over-year. Adjusting for the $13 million of unfavorable revenue reportability, segment adjusted EBITDA on a combined basis would have increased $21 million or 12%. In our development business, consolidated contract sales on a combined basis increased 5% to $354 million in the first quarter including a 10% increase related to legacy MVW. Our total development margin was $44 million in the first quarter up 2% to the prior year on a combined basis. However, adjusting for revenue reportability and other charges adjusted development margin was $67 million, an increase of 30% over last year on a combined basis. Adjusted development margin percentage on a combined basis was 20.5% reflecting a 370 basis point improvement due primarily to lower inventory costs.

Thank you. At this time, we’ll be conducting a question-and-answer session. . Our first question comes from Jared Shojaian with Wolfe Research. Please proceed with your question.

Good morning, Jared.

Hey – good morning. Thanks for taking my question. So, I know it’s early in the year to be updating guidance and you’re still working through the integration. So, it’s probably even more reason why people really shouldn’t have expected a change. But as you talk about your expectations today, I think you said the quarter was in line with what you were expecting. You also had the reportability shift into the second quarter and it sounds like the end of the quarter got better than what you were expecting. So, I guess my question is, are you feeling more optimistic and confident about the full-year guidance today versus what you’re thinking a couple of months ago?

I guess – this is Steve, I guess, we feel equally optimistic as to what we did the first part of the year. As you might imagine, we were thoughtful about how we thought the year would play out, that’s when we gave you the guidance that we gave you. There has been nothing that we’ve seen in the first quarter that causes us to feel any less optimistic. And if anything that it just reaffirms the strategies that we are embarking on and employing are certainly delivering the results we’re looking for.

Great, thank you. And then I think your ILG – Legacy ILG contract sales were down about 2%, and you talked about the intentional programs, which drove that. I think I may have missed this, I think you said something about a third of the impact was driven by some of those intentional programs, but I’m a little confused by that. So, I guess, maybe another way of asking it is excluding some of those intentional decisions, can you give us a sense as to what the Legacy ILG business would have looked like on contract sales and VPG?

Yes, just to clarify, I said about a third of the 6-point drop in VPG or call it 2 points was attributable to that one change we made in the sub-600 FICO scores for the Sheraton brand that they were using. The other things are, as we have – we’ve gone through the quarter harmonizing, pricing, sales incentives and qualifications and – when you have a sales force – that’s attributable to sales force as such as you – you should expect to have some short-term impact on performance. And that’s what we experienced in the first quarter. But as we continue by working to increase VPGs by transitioning their programs and policies to align with our legacy MVW approach in terms of aligning pricing and fixing benefit grids and expanding lower cost marketing channels and eliminating high cost runs and expanding call transfer. We absolutely believe that this will turn the corner. In fact we have seen some evidence of that. I will give you some sense in the Vistana businesses. So for instance in February, contract sales in Vistana were down about 8.5% and then it turned around and grew 2.7% in March and we have seen some continued improvement in April. So we think we are turning the corner, but unfortunately there is no magic light switch which you can just flip the switch and everything changes. You have to take the time to go through training. And our experience has been as you make a subset of changes such as we have done that it just takes a while for everybody to try to adjust to a new normal. And we are very encouraged by what we see.

Great, that’s helpful. Thank you. I will jump back in the queue.

Thank you.

Our next question comes from Brian Dobson with Nomura. Please proceed with your question.

Hi Brian.

Hey, good morning. So I guess continuing on that line of questioning, when it comes to the sales cadence for the legacy ILG unit, does your back half guidance I guess do you contemplate an acceleration in contract sales in the back half of the year, is that a portion of your contract sales guidance or do you take them more muted from your point?

No, we believe that impact in the second half of the year will be materially better than the first half of the year.

Alright, great. And then in terms of new product offerings, I guess what consumer are you going after in relationship to your existing consumer, is it a slightly more middle of the road consumer or what?

Well, we have done a fair amount of work already on understanding each of the brands, the value propositions. We are looking at the demographics for more resorts customers, etcetera. And I will say to you that the Marriott Western and Hyatt brands are not terribly the similar there are some nuances between the brands. And the only thing that’s slightly lower is Sheridan, but that’s not a material thing, it’s certainly not a mid-market offering. So I would say there is maybe some minor tweaks but nothing of any substance that I would be focused on here Brian.

Okay. And then with Sheridan, have you spoken with Marriott about their efforts to revamp that brand and do you think that I guess in the medium-term that brand will look stronger, are you contemplating perhaps re-branding your time share offering for Sheridan?

Well, we certainly have no intentions of re-branding our vacation ownership properties that carry the Sheridan flag today. Regarding – yes, of course we have talked to Marriott, we know a fair amount about what they are doing in terms of repositioning that brand. I would argue that it’s a brand that has languished over time and has lost some of its cluster. And I think Marriott started doing its best to try to restore that. We are encouraged by that and we think we will do nothing but enhance the value of the brand name that’s on Vacation Ownership resorts.

Great. Thank you very much.

Thank you.

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

Hi David.

Hi, good morning everyone. How are you?

Great, how are you?

Very good, so I just wanted to ask we are always trying to process some of the fluidity around the business quarter-in, quarter-out and obviously we are trying to process the rate at which you can and you have integrated the businesses, what would have to happen – what would be the blocks that would have to build in order to get to the higher end of the guidance range or above it versus what the blocks would look like to wind up at the lower end of the range and I am not even going to mention the low?

You are talking about current year EBITDA guidance?

Yes.

Purely as it relates to synergies?

No, I mean…

More generally. Yes. I mean I think first and foremost, there is a lot of stuff Steve hit on here in terms of the acceleration of growth in the Legacy Vistana timeshare businesses. So, as he talked about, we started to kind of turn the corner there here over the last couple of months. And so, as we continue to get traction on the changes we’ve made, that’s going to go a long way towards getting us towards the higher end of the range when you think about our overall vacation ownership business model. Clearly, on the synergy side, if we can outperform in terms of the $35 million to $40 million in the year and we’re trending at a good rate, a lot of the additional synergies that will come into place or later in the year, because I think as I’ve talked about in the past are tied more to some of the major HR system and financial reporting system changes that are underway, but really won’t get done till towards the end of the year. So, we continue to work hard and try and outperform even our own expectations to get those synergies in place.

Got it. Thank you very much.

Alright.

Our next question is from Patrick Scholes with SunTrust Robinson Humphrey. Please proceed with your question.

Hi, Patrick.

Hi, good morning.

Good morning.

Good morning.

Couple of questions here. First on the Legacy-ILG Vistana, would you say at this point, it has been performing at above or below your initial underwriting standards for that acquisition?

I would say overall at, I mean, in – in all fairness, the last half of 2018, I think it underperformed a bit. We – I think we talked about that at the –at our call in February. But all things considered, when you think about the complexity and the size of this acquisition, it’s not all that material. So, I think it’s performing above what we thought it was. We have – I’m happy to report that we have found some additional opportunities that we had not previously seen as you might imagine in a business of this size, you can’t see everything when you’re going through due diligence. So, we think there are some other stuff there that we can take advantage of and we kind of bake that into our thinking going forward in terms of our guidance and how we think about life going forward.

Okay, thank you. Then my next question, considering you briefly mentioned a pilot – digital pilot program. I wonder what would that look like, let’s say, I’m hypothetically booking a Marriott reservation, would I get – online, when I get a pop-up ad, maybe a little bit more color on what the consumers can expect to see?

Without getting into the particulars, I’m going to be honest, one of the things we are going to pilot is a couple of different executions of how exactly that might look, but that’s the concept is that as you are in the midst of booking or lodging reservation on marriott.com, then you are going to be presented an opportunity to take advantage of a value promotion, a package et cetera that we would offer and should you chose to do that then obviously we’ll take you down the path of booking that and which ultimately will result in the door . So – but that’s the concept. It’s really – think about this way, it’s no more than electronic version of what a – what the call transfer does today, which is the same thing, where an agent says, hey, would you like this and you either opt in or opt out.

Okay, good. Looking forward to seeing that. And then last question here and I apologize if I’m splitting hairs a little bit. When you raised your EPS guidance up a little bit and I sort of back into the share repurchases, looks like that raise was implies a couple of more sense than just share repurchases. Any changes to your assumptions in depreciation or interest, am I thinking about this correctly?

No. It’s really just the share repurchases that we had done till the end of the quarter. So, could be – it’s a couple of –

Rounding.

Rounding, yes, in terms with your numbers.

Okay, okay, thank you, that’s it. Thank you.

Thank you, Patrick, yes.

Thank you.

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

Hi, again.

Hi, thanks for taking my follow-up. So, last quarter you were talking about potential available capacity to repurchase $380 million to $480 million of stock in 2019. But you also aren’t sure what the ILG business interruption insurance proceeds would be. So, two-part question, I’m wondering if you have an update on the insurance proceeds and also if you still feel good about the 380 to 480 or maybe some things book more positively perhaps than you expected?

No. In terms of the BI we are still working through that. I think we expect to resolve that here in the second quarter. We are getting towards the end. But we still expect a meaningful amount to come in under the legacy ILG BI claim. In terms of the overall free cash flow, we are – we didn’t change our guidance there. We have reiterated obviously whatever that business interruption is for the ILG, it should be a net positive and we will continue to return capital to shareholders, notwithstanding if there is some other item that we would look at to invest in. But nothing has changed on our overall strategy about how we think about capital return.

Okay. Thank you. And then as I look at the inventory, historically every year since the Marriott spin off, the inventory line item on your cash flow statement has been a positive number which I believe actually means your inventory spending is lower than your cost of goods sold, my question here is, how long do you think that continues, is this a multi-year run way of opportunity to repurchase from legacy owners. And then can you just remind me what percent of your owner base today are still points owners, I am sorry, still weeks owners versus point owners?

Yes. Let me take the second half of that question, I will let John go back on the first part. The – of our legacy MVC owners, this is going to be a swag, but I think it’s directionally close. Around 40% of our legacy MVC owners are still weeks owners, 60% of the legacy MVC are points owners. Keep in mind since 2010, we have been selling nothing but points. So over time you would expect that percentage to shift to the exit program as you had mentioned people that have owned the product for 10 years, 15 years, 20 years whatever it is and for whatever reason because of our life event has decided that anymore and we buy it back. So and when that happens then we take that inventory. We put it into our Florida based land trust and then we turn around to sell those points. So just doing that cadence the percentage will continue to drop over time. When that – what that number finally becomes, it’s hard to imagine. We will point out also that in the Vistana businesses they had a very, very modest buyback program and we have began to implied up as you might imagine. We see that as an opportunity as well. Now, I will let John take on the first part of the question which was about whether how long of the inventory replacement versus the inventory product cost thing on the balance sheet works.

Yes. So you have to take the different brands and products at this point kind of separately because you have different trust now that we are managing. So on the larger Marriott vacation ownership trust, we have had a little bit of excess inventory in there. So there is always the ability there to get a little bit of benefit. Within the Vistana different trust that we have, certain trust like our tourist product down in Mexico has multiple years. But other trusts like the Western flex product is going to need inventory here in the near-term. The Sheridan trust has a little bit more. So what I will say is this. We think there is still some time here over the next 1 year or 2 years to continue to get more efficient on our balance sheet. And that’s where we – but we always strive to do. And as always I have said, the only caveat in any given year is the opportunities that we are looking at, right. So we have been very I think successful managing on a capital efficient basis and not over spending on inventory. We expect to approach every new deal like that to kind of replace what we are selling off the shelf. We are spending less to burn it down. But for the right deal we can’t get it done it capital efficiently. We will do it on balance sheet. We have them on the past and still but able to get kind of that capital efficient done for the full year. So probably a couple of more years here of getting a little bit of benefit and we will continue to update as we get further down the road.

And let me just add one other thing here, we plan to do an Investor Day here in the fall. And I think we will have an opportunity then to give you some more visibility into kind of the business on a multiyear basis going forward which maybe helpful in that regard as well.

Great. Thank you very much. One last one for me, give us a sense as to how much reportability will benefit the second quarter and then how we should think about the cadence really for third quarter and fourth quarter on the reportability line?

Sure. So in the cadence actually for this year it should be similar to what we saw last year right in terms of when you think of it quarter-to-quarter, typically your first quarter has the most unfavorable revenue reportability, because when you think about December, it’s a little bit more of a shoulder season between Thanksgiving and Christmas. So, sales on an absolute basis is not your strongest month. Those are the contract sales that get closed and get reported in the first quarter. Exiting the first quarter, March is a very strong month. You are getting the benefit of spring break starting, sometimes the Easter holidays and all that. So, you typically have stronger growth and those going into the second quarter, but when you think of the second quarter, June is another strong month and typically stronger than March. So, you will continue to have probably to a much lesser extent negative reportability in the second quarter. September starts to get a little bit slower, so you will start to see a turnaround in the third quarter with some favorable reportability and then the fourth quarter is when you are going to get the big influx, because now you got a comparable year-over-year review. So, yes it’s kind of the same revenue reportability, nothing has changed on that from last year, it’s just at times depending on when the growth happens in the quarter and what happens at the end of the previous quarter, it can be a little bit, I guess harder to model and obviously one of the reasons we have always tried to stay away from giving quarterly guidance, because of some of the timing issues. We look at it for the full year. And as you saw last year, we got great revenue reportability in the fourth quarter in our year end results.

Great, that’s very helpful. Thank you very much.

Thank you.

Thank you.

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

Thanks, Rob. I am very excited with how we have started the year with strong contract sales growth and adjusted EBITDA performance, but I am even more excited about the opportunities that lie ahead for us in 2019 and beyond. I am confident that the transformational changes we have identified and planned to execute will result in robust performance for our shareholders from many years to come. Thank you for your time today and look forward to updating you on our progress on these many fronts in the coming quarters. 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.